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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

☑ |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended October 31, 2019

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 001-09186
TOLL BROTHERS, INC.
(Exact name of Registrant as specified in its charter)

Delaware |  |  | 23-2416878
(State or other jurisdiction of |  |  | (I.R.S. Employer
incorporation or organization) |  |  | Identification No.)
250 Gibraltar Road | Horsham | Pennsylvania | 19044
(Address of principal executive offices) |  |  | (Zip Code)

Registrant’s telephone number, including area code
(215) 938-8000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock (par value $.01) | TOL | New York Stock Exchange
Guarantee of Toll Brothers Finance Corp. 5.625% Senior Notes due 2024 | TOL/24 | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer | ☑ |  | Accelerated filer | ☐
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐
|  |  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 30, 2019, the aggregate market value of our Common Stock held by non-affiliates (all persons other than executive officers and directors of Registrant) of the Registrant was approximately $5,115,920,000.
As of December 19, 2019, there were approximately 138,696,000 shares of our Common Stock outstanding.
Documents Incorporated by Reference: Portions of the proxy statement of Toll Brothers, Inc. with respect to the 2020 Annual Meeting of Stockholders, scheduled to be held on March 10, 2020, are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

|  | Page
PART I |
| ITEM 1. BUSINESS | 1
| ITEM 1A. RISK FACTORS | 11
| ITEM 1B. UNRESOLVED STAFF COMMENTS | 18
| ITEM 2. PROPERTIES | 19
| ITEM 3. LEGAL PROCEEDINGS | 19
| ITEM 4. MINE SAFETY DISCLOSURES | 19
PART II |
| ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 20
| ITEM 6. SELECTED FINANCIAL DATA | 22
| ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 23
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 46
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 46
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 46
| ITEM 9A. CONTROLS AND PROCEDURES | 46
| ITEM 9B. OTHER INFORMATION | 47
PART III |
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 48
| ITEM 11. EXECUTIVE COMPENSATION | 49
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 49
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE | 49
| ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES | 49
PART IV |
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 49
SIGNATURES | 57
The following exhibits have been filed electronically with this Form 10-K: |
| EXHIBIT 4.41 |
| EXHIBIT 4.42 |
| EXHIBIT 4.43 |
| EXHIBIT 10.28 |
| EXHIBIT 10.29 |
| EXHIBIT 10.30 |
| EXHIBIT 10.31 |
| EXHIBIT 21 |
| EXHIBIT 23 |
| EXHIBIT 31.1 |
| EXHIBIT 31.2 |
| EXHIBIT 32.1 |
| EXHIBIT 32.2 |
| EXHIBIT101 |
| EXHIBIT 101.INS |
| EXHIBIT 104 |

PART I
ITEM 1. BUSINESS
Toll Brothers, Inc., a corporation incorporated in Delaware in May 1986, began doing business through predecessor entities in 1967. When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.
General
We design, build, market, sell, and arrange financing for an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land we develop and improve, as we continue to pursue our strategy of broadening our product lines, price points and geographic footprint. We cater to luxury first-time, move-up, empty-nester, active-adult, affordable luxury and second-home buyers in the United States (“Traditional Home Building Product”), as well as urban and suburban renters. We also design, build, market, and sell urban low-, mid-, and high-rise condominiums through Toll Brothers City Living® (“City Living”). At October 31, 2019, we were operating in 23 states, as well as in the District of Columbia.
In the five years ended October 31, 2019, we delivered 35,146 homes from 724 communities, including 8,107 homes from 426 communities in fiscal 2019. At October 31, 2019, we had 715 communities containing approximately 59,200 home sites that we owned or controlled through options.
Backlog consists of homes under contract but not yet delivered to our home buyers. We had a backlog of $5.26 billion (6,266 homes) at October 31, 2019; we expect to deliver approximately 93% of these homes in fiscal 2020.
We operate our own architectural, engineering, mortgage, title, land development, golf course development, and landscaping subsidiaries. We also operate our own security company, TBI Smart Home Solutions, which provides homeowners with home automation and technology options. In addition, we operate our own lumber distribution, house component assembly, and manufacturing operations.
We are developing several land parcels for master planned communities in which we intend to build homes on a portion of the lots and sell the remaining lots to other builders. Two of these master planned communities are being developed 100% by us, and the remaining communities are being developed through joint ventures with other builders or financial partners.
In addition to our residential for-sale business, we also develop and operate for-rent apartments primarily through joint ventures. These projects are located in multiple metropolitan areas throughout the country and are being operated or developed, (or we expect will be developed) with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living.® At October 31, 2019, we or joint ventures in which we have an interest controlled 56 land parcels as for-rent apartment projects containing approximately 18,300 units.
Primarily through several joint ventures, our wholly-owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), provides builders and developers with land banking and venture capital, owns certain foreclosed real estate, and is a participant in an entity that owns and controls a portfolio of loans and real estate.
See “Investments in Unconsolidated Entities” below for more information relating to our joint ventures.
Acquisitions
As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for approximately $92.8 million and $69.6 million, respectively, in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, based on our preliminary purchase price allocations, were primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements. In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million. The average price of those undelivered homes was approximately $471,100 as of the applicable acquisition date. As a result of these acquisitions, our selling community count increased by 22 communities.
Our Communities and Homes
Our traditional home building communities are generally located in affluent suburban areas near major highways providing access to major cities and are generally located on land we have either acquired and developed or acquired fully approved and, in some cases, improved. Our City Living communities currently operate in Hoboken and Jersey City, New Jersey; New York
1

City, New York; Philadelphia, Pennsylvania; the suburbs of Washington, D.C.; Los Angeles, California; and Seattle, Washington.
At October 31, 2019, we were operating in the following major suburban and urban residential markets:

• | Boston, Massachusetts, metropolitan area

• | Fairfield, Hartford, and New Haven Counties, Connecticut

• | Westchester and Dutchess Counties, New York

• | Boroughs of Manhattan and Brooklyn in New York City

• | Central and northern New Jersey

• | Philadelphia, Pennsylvania, metropolitan area

• | Lehigh Valley area of Pennsylvania

• | Virginia and Maryland suburbs of Washington, D.C.

• | Raleigh and Charlotte, North Carolina, metropolitan areas

• | Charleston, Greenville, and Myrtle Beach, South Carolina

• | Atlanta, Georgia, metropolitan area

• | Southeast and southwest coasts and the Jacksonville, Orlando, and Tampa areas of Florida

• | Detroit, Michigan, metropolitan area

• | Chicago, Illinois, metropolitan area

• | Dallas, Houston, and Austin, Texas, metropolitan areas

• | Denver, Colorado, metropolitan area and Fort Collins, Colorado

• | Phoenix, Arizona, metropolitan area

• | Las Vegas and Reno, Nevada, metropolitan areas

• | Boise, Idaho, metropolitan area

• | Salt Lake City, Utah, metropolitan area

• | San Diego and Palm Springs, California, areas

• | Los Angeles, California, metropolitan area

• | San Francisco Bay, Sacramento, and San Jose areas of northern California,

• | Seattle, Washington, metropolitan area, and

• | Portland, Oregon, metropolitan area.

We develop individual stand-alone communities as well as multi-product, master planned communities. Our master planned communities, many of which include golf courses and other country club-type amenities, enable us to offer multiple home types and sizes to a broad range of move-up, empty-nester, active-adult, and second-home buyers. We seek to realize efficiencies from shared common costs, such as land development and infrastructure, over the several communities within the master planned community.
Each of our detached home communities offers several home plans with the opportunity for home buyers to select various exterior styles. We design each community to fit existing land characteristics. We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design options for each model, preserving existing trees and foliage whenever feasible, and curving street layouts to allow relatively few homes to be seen from any vantage point. Our communities have attractive entrances with distinctive signage and landscaping. We believe that our added attention to detail gives each community a diversified neighborhood appearance that enhances home values.
2

Our traditional attached home communities generally offer one- to four-story homes, provide for limited exterior options, and often include commonly owned recreational facilities, such as clubhouses, playing fields, swimming pools, and tennis courts.
We are continuously developing new designs to replace or augment existing ones to ensure that our homes reflect current consumer tastes. We use our own architectural staff and also engage unaffiliated architectural firms to develop new designs.
In our Traditional Home Building Product communities, a wide selection of options is available to home buyers for additional charges. The number and complexity of options in our Traditional Home Building Product typically increase with the size and base selling price of our homes. Major options include additional garages, extra fireplaces, guest suites, finished lofts, and other additional rooms. We also offer numerous interior fit-out options such as flooring, wall tile, plumbing fixtures, lighting and home-automation and security technologies.
We market our high-quality homes to upscale luxury home buyers, generally comprised of those persons who have previously owned a principal residence and who are seeking to buy a larger or more desirable home — the so-called “move-up” market. We believe our reputation as a builder of homes for this market enhances our competitive position with respect to the sale of our smaller, more moderately priced homes.
We continue to pursue growth initiatives by expanding our geographic footprint and by broadening our product lines and price points to appeal to buyers across the demographic spectrum. In addition to our traditional “move-up” home buyer, we are focusing on the “empty-nester” market, the millennial generation, and the affordable luxury buyer.
We market to the “empty-nester” market, which we believe has strong growth potential. We have developed a number of home designs with features such as one-story living and first-floor master bedroom suites, as well as communities with recreational amenities, such as golf courses, marinas, pool complexes, country clubs, and recreation centers that we believe appeal to this category of home buyers. We have integrated certain of these designs and features in some of our other home types and communities. As of October 31, 2019, we were selling from 39 active-adult communities, in which at least one home occupant must be at least 55 years of age. We expect to open additional active-adult communities during the next few years.
As the millennial generation enters its prime family formation years, we continue to focus on this group with our core suburban homes, affordable luxury offerings, urban condominiums and luxury rental apartment products.
We have developed and are developing, on our own or through joint ventures with third parties, a number of high-density, high-, mid- and low-rise urban luxury communities to serve a growing market of affluent move-up families, empty-nesters, and young professionals seeking to live in or close to major cities. These communities are currently marketed under our City Living brand. These communities, which we are currently developing or planning to develop on our own or through joint ventures, are located in Los Angeles, California; Bethesda, Maryland; Hoboken and Jersey City, New Jersey; the boroughs of Manhattan and Brooklyn, New York; Philadelphia, Pennsylvania; and Seattle, Washington.
A majority of our City Living communities are high-rise projects and take an extended period of time to construct. We generally start selling homes in these communities after construction has commenced and, by the time construction has been completed, we typically have a significant number of homes in backlog. Once construction has been completed, the homes in backlog in these communities are generally delivered quickly.
We believe that the demographics supporting the luxury first-time, move-up, empty-nester, active-adult, affordable luxury and second-home upscale markets will provide us with an opportunity for growth in the future. We continue to believe that many of our communities are in desirable locations that are difficult to replace and that many of these communities have substantial embedded value that may be realized in the future.
At October 31, 2019, we were selling homes from 333 communities, compared to 315 communities at October 31, 2018, and 305 communities at October 31, 2017.
3

The following table summarizes certain information with respect to our operating communities at October 31, 2019:

|  | Total number of operating communities |  | Number of selling communities |  | Homes approved |  | Homes closed |  | Homes under contract but not closed |  | Home sites available
Traditional Home Building: |  |  |  |  |  |  |  |  |  |  |  |
North |  | 59 |  |  | 50 |  |  | 9,227 |  |  | 5,747 |  |  | 1,076 |  |  | 2,404 |
Mid-Atlantic |  | 71 |  |  | 56 |  |  | 10,183 |  |  | 6,233 |  |  | 1,159 |  |  | 2,791 |
South |  | 106 |  |  | 93 |  |  | 10,848 |  |  | 5,206 |  |  | 1,339 |  |  | 4,303 |
West |  | 102 |  |  | 94 |  |  | 11,408 |  |  | 3,949 |  |  | 1,738 |  |  | 5,721 |
California |  | 40 |  |  | 36 |  |  | 5,040 |  |  | 2,170 |  |  | 842 |  |  | 2,028 |
Traditional Home Building |  | 378 |  |  | 329 |  |  | 46,706 |  |  | 23,305 |  |  | 6,154 |  |  | 17,247 |
City Living |  | 5 |  |  | 4 |  |  | 948 |  |  | 589 |  |  | 112 |  |  | 247 |
Total |  | 383 |  |  | 333 |  |  | 47,654 |  |  | 23,894 |  |  | 6,266 |  |  | 17,494 |

At October 31, 2019, significant site improvements had not yet commenced on approximately 7,000 of the 17,494 available home sites. Of the 17,494 available home sites, approximately 1,700 were not yet owned by us but were controlled through options.
Of our 383 operating communities at October 31, 2019, a total of 333 communities were offering homes for sale; 48 communities were sold out but not all homes had been completed and delivered; and two communities had been temporarily shut down and are expected to reopen in fiscal 2020. Of the 333 communities in which homes were being offered for sale at October 31, 2019, a total of 270 were detached home communities and 63 were attached home communities.
At October 31, 2019, we had 1,120 homes (exclusive of model homes) under construction or completed but not under contract in our traditional communities, of which 745 were in detached home communities and 375 were in attached home communities. At October 31, 2019, we had 364 homes (exclusive of model homes) under construction or completed but not under contract in four City Living communities that were wholly owned.
As a result of our wide product and geographic diversity, we have a wide range of base sales prices. The general range of base sales prices for our different lines of homes at October 31, 2019 was as follows:

Traditional Home Building Product |  |  |
Detached homes |  |  |
Move-up | $ | 230,000 |  | to | $ | 792,000 |
Executive | 335,000 |  | to | 1,543,000 |
Estate | 320,000 |  | to | 3,010,000 |
Active-adult | 317,000 |  | to | 723,000 |
Attached homes |  |  |
Flats | $ | 262,000 |  | to | $ | 1,683,000 |
Townhomes/Carriage homes | 292,000 |  | to | 1,480,000 |
Active-adult | 274,000 |  | to | 840,000 |
City Living Product | $ | 413,000 |  | to | $ | 7,175,000 |

In fiscal 2019, of the 8,107 homes delivered, 21% had a delivered price of less than $500,000; 35% had a delivered price of between $500,000 and $750,000; 20% had a delivered price of between $750,000 and $1,000,000; 18% had a delivered price of between $1,000,000 and $2,000,000; and 6% had a delivered price of over $2,000,000. Of the homes delivered in fiscal 2019, approximately 22% of our home buyers paid the full purchase price in cash; the remaining home buyers borrowed approximately 68% of the value of the home.
4

The table below provides the average value of options purchased by our home buyers, including lot premiums, and the value of the options as a percent of the base selling price of the homes purchased in fiscal 2019, 2018, and 2017:

|  | 2019 |  | 2018 |  | 2017
|  | Option value (in thousands) |  | Percent of base selling price |  | Option value (in thousands) |  | Percent of base selling price |  | Option value (in thousands) |  | Percent of base selling price
Overall |  | $ | 178 |  |  | 24.4 | % |  | $ | 165 |  |  | 22.8 | % |  | $ | 152 |  |  | 22.0 | %
Traditional Home Building Product |  |  |  |  |  |  |  |  |  |  |  |
Detached |  | $ | 203 |  |  | 26.6 | % |  | $ | 189 |  |  | 24.8 | % |  | $ | 178 |  |  | 24.9 | %
Attached |  | $ | 99 |  |  | 18.8 | % |  | $ | 94 |  |  | 19.6 | % |  | $ | 77 |  |  | 16.7 | %
City Living Product |  | $ | 31 |  |  | 2.5 | % |  | $ | 25 |  |  | 1.3 | % |  | $ | 32 |  |  | 2.2 | %

In general, our attached homes and City Living products do not offer significant structural options to our home buyer and thus they have a smaller option value as a percentage of base selling price.
For more information regarding revenues, net contracts signed, income (loss) before income taxes, and assets by segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segments” in Item 7 of this Form 10-K.
Land Policy
Before entering into an agreement to purchase a land parcel, we complete extensive comparative studies and analyses that assist us in evaluating the acquisition. In addition to purchasing land parcels outright, we often attempt to enter into option agreements to purchase land for future communities. We have also entered into several joint ventures with other builders or developers to develop land for the use of the joint venture participants or for sale to third parties.
Our business is subject to many risks, including risks associated with obtaining the necessary approvals on a property and completing the land improvements on it. In order to reduce the financial risk associated with land acquisitions and holdings and to more efficiently manage our capital, where practicable, we enter into option agreements (also referred to herein as “land purchase contracts,” “purchase agreements,” or “options”) to purchase land, on a non-recourse basis, thereby limiting our financial exposure to amounts expended in obtaining any necessary governmental approvals, the costs incurred in the planning and design of the community, and, in some cases, some or all of the cost of the option (the deposit). Option agreements enable us to obtain necessary governmental approvals before we acquire title to the land, and allow us to acquire lots over a specified period of time at pre-determined prices. The use of these agreements may increase our overall cost basis in the land that we eventually acquire, but reduces our risk by allowing us to obtain the necessary development approvals before acquiring the land or allowing us to delay the acquisition to a later date. Historically, as approvals were obtained, the value of the purchase agreements and land generally increased; however, in any given time period, this may not happen. We have the ability to extend some of these purchase agreements for varying periods of time, in some cases by making an additional payment and, in other cases, without making any additional payment. Our purchase agreements are typically subject to numerous conditions, including, but not limited to, the ability to obtain necessary governmental approvals for the proposed community. Our deposit under an agreement may be returned to us if all approvals are not obtained, although predevelopment costs usually will not be recoverable. We generally have the right to cancel any of our agreements to purchase land by forfeiture of some or all of the deposits we have made pursuant to the agreement.
During fiscal 2019 and 2018, we acquired control of approximately 13,900 and 13,400 home sites, respectively, net of options terminated and lots sold. At October 31, 2019, we controlled approximately 59,200 home sites, as compared to approximately 53,400 home sites at October 31, 2018, and approximately 48,300 home sites at October 31, 2017.
We are developing several parcels of land for master planned communities in which we intend to build homes on a portion of the lots and sell the remaining lots to other builders. Two of these master planned communities are being developed 100% by us, and the remaining communities are being developed through joint ventures with other builders or financial partners. At October 31, 2019, our Land Development Joint Ventures owned approximately 10,100 home sites. At October 31, 2019, we had agreed to acquire 130 home sites and expect to purchase approximately 2,500 additional home sites from several of our Land Development Joint Ventures over a number of years.
Our ability to continue development activities over the long term will be dependent upon, among other things, a suitable economic environment and our continued ability to locate and enter into options or agreements to purchase land, obtain
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governmental approvals for suitable parcels of land, and consummate the acquisition and complete the development of such land.
The following is a summary of home sites for future communities that we either owned or controlled through options or purchase agreements at October 31, 2019, as distinguished from our operating communities:

|  | Number of communities |  | Number of home sites
Traditional Home Building: |  |  |  |
North |  | 41 |  |  | 3,769 |
Mid-Atlantic |  | 51 |  |  | 3,992 |
South |  | 89 |  |  | 8,976 |
West |  | 102 |  |  | 12,628 |
California |  | 41 |  |  | 5,154 |
Traditional Home Building |  | 324 |  |  | 34,519 |
City Living |  | 8 |  |  | 951 |
Total |  | 332 |  |  | 35,470 |

Of the 35,470 planned home sites at October 31, 2019, we owned 14,466 and controlled 21,004 through options and purchase agreements.
At October 31, 2019, the aggregate purchase price of land parcels subject to option and purchase agreements in operating communities and future communities was approximately $2.36 billion (including $10.8 million of land to be acquired from joint ventures in which we have invested). Of the $2.36 billion of land purchase commitments, we paid or deposited $168.8 million, and, if we acquire all of these land parcels, we will be required to pay an additional $2.19 billion. The purchases of these land parcels are expected to occur over the next several years. We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase price 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. These option contracts have either been written off or written down to the estimated amount that we expect to recover when the contracts are terminated.
We have a substantial amount of land currently under control for which approvals have been obtained or are being sought. We devote significant resources to locating suitable land for future development and obtaining the required approvals on land under our control. There can be no assurance that the necessary development approvals will be secured for the land currently under our control or for land that we may acquire control of in the future or that, upon obtaining such development approvals, we will elect to complete the purchases of land under option or complete the development of land that we own. We generally have been successful in obtaining governmental approvals in the past. We believe that we have an adequate supply of land in our existing communities and proposed communities (assuming that all properties are developed) to maintain our operations at current levels for several years.
Community Development
We typically expend considerable effort in developing a concept for each community, which includes determining the size, style, and price range of the homes; the layout of the streets and individual home sites; and the overall community design. After the necessary governmental subdivision and other approvals have been obtained, which may take several years, we improve the land by clearing and grading it; installing roads, underground utility lines, recreational amenities, and distinctive entrance features; and staking out individual home sites.
We act as a general contractor for most of our projects. Subcontractors perform all home construction and land development work, generally under fixed-price contracts. We generally have multiple sources for the materials we purchase, and we have not experienced significant delays due to unavailability of necessary materials. See “Manufacturing/Distribution Facilities” in Item 2 of this Form 10-K.
Our construction managers coordinate subcontracting activities and supervise all aspects of construction work and quality control. One of the ways in which we seek to achieve home buyer satisfaction is by providing our construction managers with incentive compensation arrangements based upon each home buyer’s satisfaction, as expressed by the buyers’ responses on pre- and post-closing questionnaires.
The most significant variable affecting the timing of our revenue stream, other than housing demand, is the opening of the community for sale, which generally occurs shortly after receipt of final land regulatory approvals. Receipt of approvals
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permits us to begin the process of obtaining executed sales contracts from home buyers. Although our sales and construction activities vary somewhat by season, which can affect the timing of closings, any such seasonal effect is relatively insignificant compared to the effect of the timing of receipt of final regulatory approvals, the opening of the community, and the subsequent timing of closings.
Marketing and Sales
We believe that our marketing strategy for our Traditional Home Building Product lines of homes, has enhanced our reputation as a builder and developer of high quality upscale homes. We believe this reputation results in greater demand for all of our lines of homes. We generally include attractive decorative features even in our less expensive homes, based on our belief that these enhancements improve our marketing and sales effort.
In determining the prices for our homes, we utilize, in addition to management’s extensive experience, an internally developed value analysis program that compares our homes with homes offered by other builders in each local marketing area. In our application of this program, we assign a positive or negative dollar value to differences between our product features and those of our competitors, such as house and community amenities, location, and reputation.
We typically have a sales office in each community that is staffed by our own sales personnel. Sales personnel are generally compensated with both salary and commission. A significant portion of our sales is also derived from the introduction of customers to our communities by local real estate agents.
We expend great effort and cost in designing and decorating our model homes, which play an important role in our marketing. Interior decorating varies among the models and is carefully selected to reflect the lifestyles of prospective buyers.
Visitors to our website, www.TollBrothers.com, can obtain detailed information regarding our communities and homes across the country, take panoramic or video tours of our homes, and design their own home based upon our available floor plans and options. We also advertise in newspapers, in other local and regional publications, and on billboards and online media sites.
We have a two-step sales process. The first step takes place when a potential home buyer visits one of our communities and decides to purchase one of our homes, at which point the home buyer signs a non-binding deposit agreement and provides a small, refundable deposit. This deposit will reserve, for a short period of time, the home site or unit that the home buyer has selected. This deposit also locks in the base price of the home. Because these deposit agreements are non-binding, they are not recorded as signed contracts, nor are they recorded in backlog. Deposit rates are tracked on a weekly basis to help us monitor the strength or weakness in demand in each of our communities. If demand for homes in a particular community is strong, we determine whether the base selling prices in that community should be increased. If demand for the homes in a particular community is weak, we determine whether or not sales incentives and/or discounts on home prices should be adjusted.
The second step in the sales process occurs when we sign a binding agreement of sale with the home buyer and the home buyer gives us a cash down payment that is generally non-refundable. Cash down payments currently average approximately 7% of the total purchase price of a home. Between the time that the home buyer signs the non-binding deposit agreement and the binding agreement of sale, he or she is required to complete a financial questionnaire that gives us the ability to evaluate whether the home buyer has the financial resources necessary to purchase the home. If we determine that the home buyer is not financially qualified, we will not enter into an agreement of sale with the home buyer. During fiscal 2019, 2018, and 2017, our customers signed net contracts for $6.71 billion (8,075 homes), $7.60 billion (8,519 homes), and $6.83 billion (8,175 homes), respectively. When we report net contracts signed, the number and value of contracts signed are reported net of all cancellations occurring during the reporting period, whether signed in that reporting period or in a prior period. Only outstanding agreements of sale that have been signed by both the home buyer and us as of the end of the period for which we are reporting are included in backlog.
Customer Mortgage Financing
We maintain relationships with a widely-diversified group of mortgage financial institutions, many of which are among the largest in the industry. We believe that regional and community banks continue to recognize the long-term value in creating relationships with affluent customers such as our home buyers, and these banks continue to provide these customers with financing. We believe that our home buyers generally are, and should continue to be, better able to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles, as compared to the average home buyer.
Our mortgage subsidiary provides mortgage financing for a portion of our home closings. Our mortgage subsidiary determines whether the home buyer qualifies for the mortgage that he or she is seeking based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions.
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Information about the number and amount of loans funded by our mortgage subsidiary is contained in the table below.

Fiscal year |  | Total Toll Brothers, Inc. settlements (a) |  | TBI Mortgage Company financed settlements* (b) |  | Gross capture rate (b/a) |  | Amount financed (in millions)
2019 |  | 8,107 |  |  | 3,259 |  |  | 40.2% |  | $ | 1,572.1 |
2018 |  | 8,265 |  |  | 2,918 |  |  | 35.3% |  | $ | 1,411.6 |
2017 |  | 7,151 |  |  | 2,407 |  |  | 33.7% |  | $ | 1,168.4 |
2016 |  | 6,098 |  |  | 2,523 |  |  | 41.4% |  | $ | 1,240.9 |
2015 |  | 5,525 |  |  | 2,103 |  |  | 38.1% |  | $ | 1,001.2 |

* | Amounts under “TBI Mortgage Company financed settlements” exclude brokered and referred loans, which amounted to approximately 4.0%, 5.0%, 3.6%, 4.2%, and 6.2%, of our home closings in fiscal 2019, 2018, 2017, 2016, and 2015, respectively.

Prior to the actual closing of the home and funding of the mortgage, the home buyer may lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that are willing to honor the terms and conditions, including the interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary. At October 31, 2019, our mortgage subsidiary was committed to fund $1.93 billion of mortgage loans. Of these commitments, $565.6 million, as well as $208.6 million of mortgage loans receivable, have “locked-in” interest rates as of October 31, 2019. Our mortgage subsidiary funds its commitments through a combination of its own capital, capital provided from us, its loan facility, and the sale of mortgage loans to various investors. Our mortgage subsidiary has commitments from investors to acquire all $774.2 million of these locked-in loans and receivables. Our home buyers have not locked in the interest rate on the remaining $1.36 billion of mortgage loan commitments as of October 31, 2019.
Backlog
We had a backlog of $5.26 billion (6,266 homes) at October 31, 2019; $5.52 billion (6,105 homes) at October 31, 2018; and $5.06 billion (5,851 homes) at October 31, 2017. Of the 6,266 homes in backlog at October 31, 2019, approximately 93% are expected to be delivered by October 31, 2020.
Competition
The home building business is highly competitive and fragmented. We compete with numerous home builders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than we do. Sales of existing homes also provide competition. We compete primarily on the basis of price, location, design, quality, service, and reputation. We believe our financial stability, relative to many others in our industry, is a favorable competitive factor.
Investments in Unconsolidated Entities
We have investments in various unconsolidated entities. These entities include Land Development Joint Ventures, Home Building Joint Ventures, Rental Property Joint Ventures, and Gibraltar Joint Ventures. At October 31, 2019, we had investments of $366.3 million in these unconsolidated entities and were committed to invest or advance up to an additional $38.8 million to these entities if they require additional funding.
In fiscal 2019, 2018, and 2017, we recognized income from the unconsolidated entities in which we had an investment of $24.9 million, $85.2 million, and $116.1 million, respectively. In addition, we earned construction and management fee income from these unconsolidated entities of $21.8 million in fiscal 2019, $19.2 million in fiscal 2018, and $19.1 million in fiscal 2017.
Land Development Joint Ventures
At October 31, 2019, we have investments in eight Land Development Joint Ventures to develop land. Some of these Land Development Joint Ventures develop land for the sole use of the venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. At October 31, 2019, we had approximately $110.3 million invested in our Land Development Joint Ventures and funding commitments of $28.6 million to two of the Land Development Joint Ventures which will be funded if additional investments in the ventures are required. At October 31, 2019, three of these joint ventures had aggregate loan commitments of $100.9 million and outstanding borrowings against these commitments of $88.3 million. At October 31, 2019, our Land Development Joint Ventures owned approximately 10,100 home sites.
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At October 31, 2019, we had agreed to acquire 130 home sites from one of our Land Development Joint Ventures for an aggregate purchase price of approximately $10.8 million. In addition, we expect to purchase approximately 2,500 additional home sites over a number of years from several of these joint ventures. The purchase prices of these home sites will be determined at a future date.
Home Building Joint Ventures
At October 31, 2019, we had an aggregate of $60.5 million of investments in four Home Building Joint Ventures to develop approximately 100 luxury for-sale homes. At October 31, 2019, we had $1.4 million of funding commitments to one of these joint ventures. In fiscal 2019, the value of net contracts signed by our Home Building Joint Ventures was $131.0 million (40 homes), and they delivered $374.6 million (186 homes) of revenue. At October 31, 2019, our Home Building Joint Ventures had a backlog of undelivered homes of $76.3 million (26 homes).
Rental Property Joint Ventures
As part of our strategy to diversify product lines, over the past several years, we acquired control of a number of land parcels as for-rent apartment projects, including several student housing sites. At October 31, 2019, we had an aggregate of $174.3 million of investments in 20 Rental Property Joint Ventures. At October 31, 2019, we or joint ventures in which we have an interest controlled 56 land parcels as for-rent apartment projects containing approximately 18,300 units. At October 31, 2019, joint ventures in which we had an interest had aggregate loan commitments of $1.39 billion and outstanding borrowings against these commitments of $1.02 billion.These projects are located in multiple metropolitan areas throughout the country and are being operated or developed (or we expect will be developed) with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living.
In fiscal 2019, one of our Rental Property Joint Ventures, located in Phoenixville, Pennsylvania, sold its assets to an unrelated party for $77.8 million. From our investment in this joint venture, we received cash of $7.4 million and recognized a gain from this sale of $3.8 million in fiscal 2019. In fiscal 2018, three of our Rental Property Joint Ventures sold their assets to unrelated parties for $477.5 million. These joint ventures had owned, developed, and operated multifamily rental properties located in suburban Washington, D.C. and Westborough, Massachusetts, and a student housing community in College Park, Maryland. From our investment in these joint ventures, we received cash of $79.1 million and recognized gains from these sales of $67.2 million in fiscal 2018. The gains recognized from these sales are included in “Income from unconsolidated entities” in our Consolidated Statement of Operations and Comprehensive Income included in Item 15(a)1 of this Form 10-K.
At October 31, 2019, we had approximately 2,000 units in for-rent apartment projects that were occupied or ready for occupancy, 1,700 units in the lease-up stage, 8,400 units in the design phase or under development, and 6,200 units in the planning stage. Of the 18,300 units at October 31, 2019, 7,700 were owned by joint ventures in which we have an interest; approximately 4,400 were owned by us; and 6,200 were under contract to be purchased by us.
Gibraltar Joint Ventures
Over the past three years, we, through Gibraltar, entered into several ventures with an institutional investor to provide builders and developers with land banking and venture capital. We have approximately a 25% interest in these ventures. These ventures will finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We may invest up to $100.0 million in these ventures. As of October 31, 2019, we had an investment of $20.5 million in these ventures.
Regulation and Environmental Matters
We are subject to various local, state, and federal statutes, ordinances, rules, and regulations concerning zoning, building design, construction, and similar matters, including local regulations that impose restrictive zoning and density requirements. In a number of our markets, there has been an increase in state and local legislation authorizing the acquisition of land as dedicated open space, mainly by governmental, quasi-public, and nonprofit entities. In addition, we are subject to various licensing, registration, and filing requirements in connection with the construction, advertisement, and sale of homes in our communities. The impact of these laws and requirements has been to increase our overall costs, and they may have delayed, and in the future may delay, the opening of communities, or may have caused, and in the future may cause, us to conclude that development of particular communities would not be economically feasible, even if any or all necessary governmental approvals were obtained. See “Land Policy” in this Item 1. We also may be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums in one or more of the areas in which we operate. Generally, such moratoriums often relate to insufficient water or sewage facilities or inadequate road capacity.
In order to secure certain approvals in some areas, we may be required to provide affordable housing at below market rental or sales prices. The impact of these requirements on us depends on how the various state and local governments in the areas in
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which we engage, or intend to engage, in development implement their programs for affordable housing. To date, these restrictions have not had a material impact on us.
We also are subject to a variety of local, state, and federal statutes, ordinances, rules, and regulations concerning protection of public health and the environment (“environmental laws”). The particular environmental laws that apply to any given community vary according to the location and environmental condition of the site and the present and former uses of the site. Complying with these environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and/or may prohibit or severely restrict development in certain environmentally sensitive regions or areas.
Before consummating an acquisition, we generally engage independent environmental consultants to evaluate land for the potential of hazardous or toxic materials, wastes, or substances, and we believe that because of this, we have not been significantly affected to date by the presence of such materials on our land.
Our mortgage subsidiary is subject to various state and federal statutes, rules, and regulations, including those that relate to licensing, lending operations, and other areas of mortgage origination and financing. The impact of those statutes, rules, and regulations can be to increase our home buyers’ cost of financing, increase our cost of doing business, and restrict our home buyers’ access to some types of loans.
Insurance/Warranty
All of our homes are sold under our limited warranty as to workmanship and mechanical equipment. Many homes also come with a limited multi-year warranty as to structural integrity.
We maintain insurance, subject to deductibles and self-insured amounts, to protect us against various risks associated with our activities, including, among others, general liability, “all-risk” property, construction defects, workers’ compensation, automobile, and employee fidelity. We accrue for our expected costs associated with the deductibles and self-insured amounts.
Employees
At October 31, 2019, we employed approximately 5,100 persons full-time. At October 31, 2019, we were subject to one collective bargaining agreement that covered less than 2% of our employees. We believe our employee relations are good.
Available Information
We file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). These filings are available over the internet at the SEC’s website at http://www.sec.gov.
Our principal Internet address is www.TollBrothers.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available through our website under “Investor Relations” (our “Investor Relations website”), free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We provide information about our business and financial performance, including our corporate profile, on our Investor Relations website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on our Investor Relations website. Further corporate governance information, including our code of ethics and business conduct, corporate governance guidelines, and board committee charters, is also available on our Investor Relations website. The content of our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
FORWARD-LOOKING STATEMENTS
Certain information included in this report or in other materials we have filed or will file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. One can identify these statements by the fact that they do not relate to matters of strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information related to: market conditions; demand for our homes; anticipated operating results; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues; selling, general and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized
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tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; the ability to acquire land and pursue real estate opportunities; the ability to gain approvals and open new communities; the ability to sell homes and properties; the ability to deliver homes from backlog; the ability to secure materials and subcontractors; the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities; and legal proceedings, investigations, and claims.
From time to time, forward-looking statements also are included in other reports on Forms 10-Q and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Many factors mentioned in this report or in other reports or public statements made by us, such as market conditions, government regulation and the competitive environment, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.
Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
For a discussion of factors that we believe could cause our actual results to differ materially from expected and historical results, see “Item 1A – Risk Factors” below. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Information about our executive officers is incorporated by reference from Part III, Item 10 of this Form 10-K.
ITEM 1A. RISK FACTORS
We are subject to demand fluctuations in the housing industry. Any reduction in demand would adversely affect our business, results of operations, and financial condition.
Demand for our homes is subject to fluctuations, often due to factors outside of our control, such as employment levels, consumer confidence and spending, housing demand, availability of financing for homebuyers, interest rates, availability and prices of new homes compared to existing inventory, and demographic trends. In a housing market downturn, our sales and results of operations will be adversely affected; we may have significant inventory impairments and other write-offs; our gross margins may decline significantly from historical levels; and we may incur substantial losses from operations. At any particular time, we cannot predict whether housing market conditions will improve, deteriorate or continue as they exist at that time.
Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our homes live could reduce the demand for homes and, as a result, could adversely affect our business, results of operations, and financial condition.
Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our homes live have had and may in the future have a negative impact on our business. Adverse changes in employment levels, job growth, consumer confidence, interest rates, perceptions regarding the strength of the housing market, and population growth, or an oversupply of homes for sale may reduce demand or depress prices for our homes and cause home buyers to cancel their agreements to purchase our homes. This, in turn, could adversely affect our results of operations and financial condition.
Our ability to execute on our business strategies is uncertain, and we may be unable to achieve our goals.
Our strategy includes growing our business by expanding our luxury brand to new price points, product lines and geographies. We cannot assure you that (i) our strategies, and any related initiatives or actions, will be successful or that they will generate growth, earnings or returns at any particular level or within any particular time frame; (ii) in the future we will achieve positive operational or financial results or results in any particular metric or measure equal to or better than those attained in the past; or (iii) we will perform in any period as well as other homebuilders. We also cannot provide any assurance that we will be able to maintain our strategies, and any related initiatives or actions, in the future and, due to unexpectedly favorable or unfavorable market conditions or other factors, we may determine that we need to adjust, refine or abandon all or portions of our strategies, and any related initiatives or actions, though we cannot guarantee that any such adjustments will be successful. The failure of any one or more of our present strategies, or any related initiatives or actions, or the failure of any adjustments that we may pursue or implement, would likely have an adverse effect on our ability to increase the value and profitability of our business;
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on our ability to operate our business in the ordinary course; on our overall liquidity; and on our consolidated financial statements, and the effect, in each case, could be material.
A significant portion of our revenues and income from operations is generated from California in our Traditional Home Building segment.
A significant portion of our revenues and income from operations are concentrated in California. Factors beyond our control could have a material adverse effect on our revenues and/or income from operations generated in California. These factors include, but are not limited to: changes in the regulatory and fiscal environment; prolonged economic downturns; high levels of foreclosures; lack of affordability; a decline in foreign buyer demand; severe weather including drought and the risk of local governments imposing building moratoriums; natural disasters such as earthquakes and wild fires; environmental incidents; and declining population and/or growth rates and the related reduction in housing demand in these regions. If home sale activity or selling prices decline in California, our costs may not decline at all or at the same rate and, as a result, our consolidated financial results may be adversely affected.
In the construction of a high-rise building, whether a for-sale or a for-rent property, we incur significant costs before we can begin construction, sell and deliver the units to our customers, or commence the collection of rent and recover our costs. We may be subject to delays in construction that could lead to higher costs that could adversely affect our operating results. Changing market conditions during the construction period could negatively impact selling prices and rents, which could adversely affect our operating results.
Before a high-rise building generates any revenues, we make significant expenditures to acquire land; to obtain permits, development approvals, and entitlements; and to construct the building. It generally takes several years for us to acquire the land and construct, market, and deliver units or lease units in a high-rise building. Completion times vary on a building-by-building basis depending on the complexity of the project, its stage of development when acquired, and the regulatory and community issues involved. As a result of these potential delays in the completion of a building, we face the risk that demand for housing may decline during the period and we may be forced to sell or lease units at a loss or for prices that generate lower profit margins than we initially anticipated. Furthermore, if construction is delayed, we may face increased costs as a result of inflation or other causes and/or asset carrying costs (including interest on funds used to acquire land and construct the building). These costs can be significant and can adversely affect our operating results. In addition, if values of the building or units decline, we may also be required to recognize material write-downs of the book value of the building in accordance with U.S. generally accepted accounting principles.
Increases in cancellations of existing agreements of sale could have an adverse effect on our business.
Our backlog reflects agreements of sale with our home buyers for homes that have not yet been delivered. We have received a deposit from our home buyer for each home reflected in our backlog, and generally we have the right to retain the deposit if the home buyer does not complete the purchase. In some cases, however, a home buyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local law, the home buyer’s inability to obtain mortgage financing, his or her inability to sell his or her current home, or our inability to complete and deliver the home within the specified time. At October 31, 2019, we had 6,266 homes with a sales value of $5.26 billion in backlog. If economic conditions decline, if mortgage financing becomes less available, or if our homes become less attractive due to conditions at or in the vicinity of our communities, we could experience an increase in home buyers canceling their agreements of sale with us, which could have an adverse effect on our business and results of operations.
The home building industry is highly competitive, and, if other home builders are more successful or offer better value to our customers, our business could decline.
We operate in a very competitive environment in which we face competition from a number of other home builders in each market in which we operate. We compete with large national and regional home building companies and with smaller local home builders for land, financing, raw materials, and skilled management and labor resources. We also compete with the resale home market, also referred to as the “previously owned or existing” home market. An oversupply of homes available for sale or the heavy discounting of home prices by some of our competitors could adversely affect demand for our homes and the results of our operations. An increase in competitive conditions can have any of the following impacts on us: delivery of fewer homes; sale of fewer homes or higher cancellations by our home buyers; an increase in selling incentives and/or reduction of prices; and realization of lower gross margins due to lower selling prices or an inability to increase selling prices to offset increased costs of the homes delivered. If we are unable to compete effectively in our markets, our business could decline disproportionately to that of our competitors.
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If we are not able to obtain suitable financing, or if the interest rates on our debt are increased, or if our credit ratings are lowered, our business and results of operations may decline.
Our business and results of operations depend substantially on our ability to obtain financing, whether from bank borrowings or from financing in the public debt markets. Each of our $1.9 billion revolving credit facility and our $800.0 million term loan matures in November 2024, and $2.67 billion of our senior notes become due and payable at various times from February 2022 through November 2029. We cannot be certain that we will be able to continue to replace existing financing or find additional sources of financing in the future on favorable terms or at all.
If we are not able to obtain suitable financing at reasonable terms or replace existing debt and credit facilities when they become due or expire, our costs for borrowings will likely increase and our revenues may decrease or we could be precluded from continuing our operations at current levels.
Increases in interest rates can make it more difficult and/or expensive for us to obtain the funds we need to operate our business. The amount of interest we incur on our revolving bank credit facility and term loan fluctuates based on changes in short-term interest rates and the amount of borrowings we incur. Increases in interest rates generally and/or any downgrade in the ratings that national rating agencies assign to our outstanding debt securities could increase the interest rates we must pay on any subsequent issuances of debt securities, and any such ratings downgrade could also make it more difficult for us to sell such debt securities.
If home buyers are not able to obtain suitable financing, our results of operations may decline.
Our results of operations also depend on the ability of our potential home buyers to obtain mortgages for the purchase of our homes. Any uncertainty in the mortgage markets and its impact on the overall mortgage market, including the tightening of credit standards, future increases in the effective cost of home mortgage financing (including as a result of changes to federal tax law), and increased government regulation, could adversely affect the ability of our customers to obtain financing for a home purchase, thus preventing our potential home buyers from purchasing our homes. In addition, where our potential home buyers must sell their existing homes in order to buy a home from us, increases in mortgage costs and/or lack of availability of mortgages could prevent the buyers of our potential home buyers’ existing homes from obtaining the mortgages they need to complete their purchases, which would result in our potential home buyers’ inability to buy a home from us. Similar risks apply to those buyers whose contracts are in our backlog of homes to be delivered. If our home buyers, potential buyers, or buyers of our home buyers’ current homes cannot obtain suitable financing, our sales and results of operations could be adversely affected.
If our ability to resell mortgages to investors is impaired, our home buyers may be required to find alternative financing.
Generally, when our mortgage subsidiary closes a mortgage for a home buyer at a previously locked-in rate, it already has an agreement in place with an investor to acquire the mortgage following the closing. Should the resale market for our mortgages decline or the underwriting standards of our investors become more stringent, our ability to sell future mortgages could be adversely affected and either we would have to commit our own funds to long-term investments in mortgage loans, which could, among other things, delay the time when we recognize revenues from home sales on our statements of operations, or our home buyers would be required to find an alternative source of financing. If our home buyers cannot obtain another source of financing in order to purchase our homes, our sales and results of operations could be adversely affected.
If land is not available at reasonable prices, our sales and results of operations could decrease.
In the long term, our operations depend on our ability to obtain land at reasonable prices for the development of our residential communities. At October 31, 2019, we had approximately 59,200 home sites that we owned or controlled through options. In the future, changes in the general availability of land, competition for available land, availability of financing to acquire land, zoning regulations that limit housing density, and other market conditions may hurt our ability to obtain land for new residential communities at prices that will allow us to make a reasonable profit. If the supply of land appropriate for development of our residential communities becomes more limited because of these factors or for any other reason, the cost of land could increase and/or the number of homes that we are able to sell and build could be reduced.
If the market value of our land and homes declines, our results of operations will likely decrease.
The market value of our land and housing inventories depends on market conditions. We acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. If housing demand decreases below what we anticipated when we acquired our inventory, we may not be able to make profits similar to what we have made in the past, may experience less than anticipated profits, and/or may not be able to recover our costs when we sell and build homes.
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Due to the significant decline in our business during the 2006–2011 downturn in the housing industry, we recognized significant write-downs of our inventory.
Failure by our employees or representatives to comply with laws and regulations may harm us.
We are required to comply with laws and regulations that govern all aspects of our business including land acquisition, development, home construction, labor and employment, mortgage origination, title and escrow operations, sales and warranty. It is possible that our employees or entities engaged by us, such as subcontractors, could intentionally or unintentionally violate some of these laws and regulations. Although we endeavor to take immediate action if we become aware of such violations, we may incur fines or penalties as a result of these actions and our reputation with governmental agencies and our customers could be damaged.
Negative publicity could negatively impact sales, which could cause our revenues or results of operations to decline.
Our business strategy relies heavily on our brand, which is critical to our success. Unfavorable media or investor and analyst reports related to our industry, company, brand, marketing, personnel, operations, business performance, or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy. Furthermore, the speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media outlets, websites and other digital platforms. Our success in maintaining and enhancing our brand depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.
In addition, we can be affected by poor relations with the residents of communities we develop because efforts made by us to resolve issues or disputes that may arise in connection with the operation or development of their communities, or in connection with the transition of a homeowners association, could be deemed unsatisfactory by the affected residents and subsequent actions by these residents could adversely affect sales or our reputation. In addition, we could decide or be required to make material expenditures related to the settlement of such issues or disputes, which could adversely affect our results of operations.
We rely on subcontractors to construct our homes and on building supply companies to supply components for the construction of our homes. The failure of our subcontractors to properly construct our homes or defects in the components we obtain from building supply companies could have an adverse effect on us.
We engage subcontractors to perform the actual construction of our homes and purchase components used in the construction of our homes from building supply companies. Despite our quality control efforts, we may discover that our subcontractors were engaging in improper construction practices or that the components purchased from building supply companies are not performing as specified. The occurrence of such events could require us to repair the homes in accordance with our standards and as required by law. The cost of satisfying our legal obligations in these instances may be significant, and we may be unable to recover the cost of repair from subcontractors, suppliers and insurers. For example, we have incurred or expect to incur significant costs to repair homes built in Pennsylvania and Delaware. See Note 7 – “Accrued Expenses” in Item 15(a)1 of this Form 10-K for additional information regarding warranty charges.
We participate in certain joint ventures where we may be adversely impacted by the failure of the joint venture or its participants to fulfill their obligations.
We have investments in and commitments to certain joint ventures with unrelated parties. These joint ventures may borrow money to help finance their activities. In certain circumstances, the joint venture participants, including ourselves, are required to provide guarantees of certain obligations relating to the joint ventures. In most of these joint ventures, we do not have a controlling interest and, as a result, are not able to require these joint ventures or their participants to honor their obligations or renegotiate them on acceptable terms. If the joint ventures or their participants do not honor their obligations, we may be required to expend additional resources or suffer losses, which could be significant.
Government regulations and legal challenges may delay the start or completion of our communities, increase our expenses, or limit our home building activities, which could have a negative impact on our operations.
We must obtain the approval of numerous governmental authorities in connection with our development activities, and these governmental authorities often have broad discretion in exercising their approval authority. We incur substantial costs related to compliance with legal and regulatory requirements. Any increase in legal and regulatory requirements may cause us to incur substantial additional costs or, in some cases, cause us to determine that the property is not feasible for development.
Various local, state, and federal statutes, ordinances, rules, and regulations concerning building, zoning, sales, accessibility, anti-discrimination, and similar matters apply to and/or affect the housing industry. Governmental regulation affects construction activities as well as sales activities, mortgage lending activities, and other dealings with home buyers, including
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anti-discrimination laws such as the Fair Housing Act and data privacy laws such as the California Consumer Privacy Act. The industry also has experienced an increase in state and local legislation and regulations that limit the availability or use of land. Municipalities may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps. In some areas, municipalities may enact growth control initiatives, which will restrict the number of building permits available in a given year. In addition, we may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs, or limiting our ability to operate in those municipalities. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.
Our mortgage subsidiary is subject to various state and federal statutes, rules, and regulations, including those that relate to licensing, lending operations, and other areas of mortgage origination and financing. The impact of those statutes, rules, and regulations can increase our home buyers’ cost of financing, increase our cost of doing business, and restrict our home buyers’ access to some types of loans.
Increases in taxes or government fees could increase our costs, and adverse changes in tax laws or their interpretation could reduce demand for our homes and negatively affect our operating results.
Increases in real estate taxes and other local government fees, such as fees imposed on developers to fund schools, open space, and road improvements, and/or provide low- and moderate-income housing, could increase our costs and have an adverse effect on our operations. In addition, increases in local real estate taxes could adversely affect our potential home buyers, who may consider those costs in determining whether to make a new home purchase and decide, as a result, not to purchase one of our homes.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which, among other things, (i) limits the federal deduction for mortgage interest so that it only applies to the first $750,000 of a new mortgage (as compared to $1 million under previous tax law) and (ii) introduced a $10,000 cap on the federal deduction for state and local taxes. These changes could reduce the perceived affordability of homeownership, and therefore the demand for homes, and/or have a moderating impact on home sales prices, in areas with relatively high housing prices and/or high state and local income taxes and real estate taxes, including in certain of our markets in California, New Jersey and New York. Any further changes in the income tax laws that would reduce or eliminate tax deductions or incentives to homeowners could make housing less affordable or otherwise reduce the demand for housing, which in turn could reduce our sales and hurt our results of operations. Further, while we believe that our recorded tax balances are adequate, it is not possible to predict the effects of possible changes
in the tax laws or changes in their interpretation and whether they could have a material adverse impact on our operating
results. We have filed our tax returns in prior years based upon certain filing positions we believe are appropriate. If the
Internal Revenue Service or state taxing authorities disagree with these filing positions, we may owe additional taxes.
We are subject to extensive environmental regulations, which may cause us to incur additional operating expenses, subject us to longer construction cycle times, or result in material fines or harm to our reputation.
We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we own or develop. The environmental regulations applicable to each community in which we operate vary greatly depending on the location of the community site, the site's environmental conditions and the present and former use of the site. Environmental regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.
From time to time, the United States Environmental Protection Agency and other federal or state agencies review homebuilders' compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs or harm our reputation. Further, we expect that increasingly stringent requirements will be imposed on homebuilders in the future. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber. Our communities in California are especially susceptible to restrictive government regulations and environmental laws, particularly surrounding water usage due to continuing drought conditions within that region.
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Adverse weather conditions, natural disasters, and other conditions could disrupt the development of our communities, which could harm our sales and results of operations.
Adverse weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, floods, droughts, and wildfires, can have serious effects on our ability to develop our residential communities. We also may be affected by unforeseen engineering, environmental, or geological conditions or problems, including conditions or problems which arise on lands of third parties in the vicinity of our communities, but nevertheless negatively impact our communities. Any of these adverse events or circumstances could cause delays in or prevent the completion of, or increase the cost of, developing one or more of our residential communities and, as a result, could harm our sales and results of operations.
If we experience shortages or increased costs of labor and supplies or other circumstances beyond our control, there could be delays or increased costs in developing our communities, which could adversely affect our operating results.
Our ability to develop residential communities may be adversely affected by circumstances beyond our control, including work stoppages, labor disputes, and shortages of qualified trades people, such as carpenters, roofers, masons, electricians, and plumbers; changes in laws relating to union organizing activity; lack of availability of adequate utility infrastructure and services; our need to rely on local subcontractors who may not be adequately capitalized or insured; and shortages, delays in availability, or fluctuations in prices of building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing one or more of our residential communities. We may not be able to recover these increased costs by raising our home prices because the price for each home is typically set months prior to its delivery pursuant to the agreement of sale with the home buyer. If that happens, our operating results could be harmed.
We are subject to one collective bargaining agreement that covers less than 2% of our employees. We have not experienced any work stoppages due to strikes by unionized workers, but we cannot make assurances that there will not be any work stoppages due to strikes or other job actions in the future. We engage independent contractors that employ non-unionized workers to construct our homes. At any given point in time, the employees of those subcontractors, who are not yet represented by a union, may be unionized.
Product liability claims and litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our business.
As a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high, and the amount of coverage offered by insurance companies is currently limited. There can be no assurance that this coverage will not be further restricted and become more costly. If the limits or coverages of our current and former insurance programs prove inadequate, or we are not able to obtain adequate, or reasonably priced, insurance against these types of claims in the future, or the amounts currently provided for future warranty or insurance claims are inadequate, we may experience losses that could negatively impact our financial results.
We record expenses and liabilities based on the estimated costs required to cover our self-insured liability under our insurance policies and 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. 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, severities, 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.
Over the past several years, we have had a significant number of water intrusion claims related to homes we built in Pennsylvania and Delaware. See Note 7 – “Accrued Expenses” in Item 15(a)1 of this Form 10-K for additional information regarding these warranty charges.
Our cash flows and results of operations could be adversely affected if legal claims are brought against us and are not resolved in our favor.
Claims have been brought against us in various legal proceedings that have not had, and are not expected to have, a material adverse effect on our business or financial condition. Should such claims be resolved in an unfavorable manner or should additional claims be filed in the future, it is possible that our cash flows and results of operations could be adversely affected.
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We could be adversely impacted by the loss of key management personnel or if we fail to attract qualified personnel.
Our future success depends, to a significant degree, on the efforts of our senior management and our ability to attract qualified personnel. Our operations could be adversely affected if key members of our senior management leave our employ or we cannot attract qualified personnel to manage our business.
Our multi-unit buildings are subject to swings in delivery volume due to their extended construction time, levels of pre-sales, and quick delivery of units once buildings are complete.
Our quarterly operating results will fluctuate depending on the timing of completion of construction of our multi-unit buildings, levels of pre-sales and the relatively short delivery time of the pre-sold units once the building is completed. Depending on the number of multi-unit buildings that are completed in a quarter, our quarterly operating results may be uneven and may be marked by lower revenues and earnings in some quarters than in others.
Our quarterly operating results may fluctuate due to the seasonal nature of our business.
Our quarterly operating results fluctuate with the seasons; normally, a significant portion of our agreements of sale are entered into with customers in the winter and spring months. Construction of one of our traditional homes typically proceeds after signing the agreement of sale with our customer and can require seven months or more to complete. Weather-related problems may occur from time to time, delaying starts or closings or increasing costs and reducing profitability. In addition, delays in opening new communities or new sections of existing communities could have an adverse impact on home sales and revenues. Expenses are not incurred and recognized evenly throughout the year. Because of these factors, our quarterly operating results may be uneven and may be marked by lower revenues and earnings in some quarters than in others.
Increased domestic or international instability could have an adverse effect on our operations.
Increased domestic or international instability could adversely impact the economy and significantly reduce the number of new contracts signed, increase the number of cancellations of existing contracts, and/or increase our operating expenses, which could adversely affect our business.
Information technology failures and data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational and marketing activities as well as maintain our business records, including information provided by our customers. Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards. Our ability to conduct our business may be impaired if these resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption, failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. A significant and extended disruption in the functioning of these resources could impair our operations, damage our reputation and cause us to lose customers, sales and revenue.
In addition, breaches of our data security systems, including by cyber-attacks, could result in the unintended public disclosure or the misappropriation of our proprietary information or personal and confidential information, about our employees, consumers who view our homes, home buyers, mortgage loan applicants and business partners, requiring us to incur significant expense to address and resolve these kinds of issues. The release of confidential information may lead to identity theft and related fraud, litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our reputation, business, financial condition and results of operations. Depending on its nature, a particular breach or series of breaches of our systems may result in the unauthorized use, appropriation or loss of confidential or proprietary information on a one-time or continuing basis, which may not be detected for a period of time. In addition, the costs of maintaining adequate protection against such threats, as they develop in the future (or as legal requirements related to data security increase) could be material. As previously disclosed, in the third quarter of 2019, after learning that certain loan applicants who had submitted applications to our mortgage subsidiary during the year had experienced identity theft, we investigated these incidents, found that unauthorized access to applicant data had occurred on a service provider’s system, and took a number of steps to block such access and enhance the security of our customers’ information. In addition, we notified all potentially impacted mortgage loan applicants of this security incident, offered credit monitoring services, and notified applicable regulatory agencies. Despite these efforts, we cannot assure you that similar cyber incidents will not occur in the future.
We are implementing a new enterprise resource planning system, and challenges with the implementation of the system may impact our business and operations.
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We are in the process of implementing a complex, multi-year implementation of a new enterprise resource planning system (“ERP”). The ERP implementation requires the integration of the new ERP with multiple new and existing information systems and business processes, and is designed to accurately maintain our books and records and provide information to our management team important to the operation of the business. Our ERP implementation will continue to require ongoing investment. If the system as it currently stands or after necessary investments does not result in our ability to maintain accurate books and records, our financial condition, results of operations and cash flows could be negatively impacted. Additionally, conversion from our old system to the ERP may cause inefficiencies until the ERP is stabilized and mature. The implementation of our ERP mandated new procedures and many new key controls over financial reporting. These procedures and controls are not yet mature in their operation and not fully tested by our internal auditors. If we are unable to adequately implement and maintain procedures and controls relating to our ERP, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Headquarters
Our corporate office, which we lease from an unrelated party, contains approximately 200,000 square feet and is located in Horsham, Pennsylvania.
Manufacturing/Distribution Facilities
We own a manufacturing facility of approximately 225,000 square feet located in Morrisville, Pennsylvania; manufacturing facilities totaling approximately 150,000 square feet located in Emporia, Virginia; and a manufacturing facility of approximately 134,000 square feet located in Knox, Indiana. We lease, from an unrelated party, a facility of approximately 56,000 square feet located in Fairless Hills, Pennsylvania. In addition, we own a 34,000-square foot manufacturing, warehouse, and office facility in Culpepper, Virginia. At these facilities, we manufacture open wall panels, roof and floor trusses, and certain interior and exterior millwork to supply a portion of our construction needs. These facilities supply components used in our North, Mid-Atlantic, and portions of our South geographic segments. These operations also permit us to purchase wholesale lumber, sheathing, windows, doors, certain other interior and exterior millwork, and other building materials to supply to our communities. We believe that increased efficiencies, cost savings, and productivity result from the operation of these plants and from the wholesale purchase of materials.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
In March 2018, the Pennsylvania Attorney General informed the Company that it was conducting a review of our construction of stucco homes in Pennsylvania after January 1, 2005 and requested that we voluntarily produce documents and information. The Company has produced documents and information in response to this request and, in addition, has produced requested information and documents in response to a subpoena issued in the second quarter of fiscal 2019. Management cannot at this time predict the eventual scope or outcome of this matter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our common stock are listed on the New York Stock Exchange (“NYSE”) under the symbol “TOL”. At December 19, 2019, there were approximately 536 record holders of our common stock.
Issuer Purchases of Equity Securities
During the three months ended October 31, 2019, we repurchased the following shares of our common stock:

Period |  | Total number of shares purchased (a) |  | Average price paid per share |  | Total number of shares purchased as part of a publicly announced plan or program (b) |  | Maximum number of shares that may yet be purchased under the plan or program (b)
|  | (in thousands) |  |  |  | (in thousands) |  | (in thousands)
August 1, 2019 to August 31, 2019 |  | 1,735 |  |  | $ | 35.61 |  |  | 1,735 |  |  | 14,070 |
September 1, 2019 to September 30, 2019 |  | 114 |  |  | $ | 36.25 |  |  | 114 |  |  | 13,956 |
October 1, 2019 to October 31, 2019 |  | 3 |  |  | $ | 39.82 |  |  | 3 |  |  | 13,953 |
Total |  | 1,852 |  |  |  |  |  | 1,852 |  |  |

(a) | Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a performance based restricted stock unit recipient or a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the recipient. During the three months ended October 31, 2019, we withheld 330 of the shares subject to performance based restricted stock units and restricted stock units to cover approximately $13,000 of income tax withholdings and we issued the remaining 909 shares to the recipients. The shares withheld are not included in the total number of shares purchased in the table above.

Our stock incentive plans also permit participants to exercise non-qualified stock options using a “net exercise” method. In a net exercise, we generally withhold from the total number of shares that otherwise would be issued to the participant upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable income tax withholdings, and remit the remaining shares to the participant. During the three-month period ended October 31, 2019, no participant employed the net exercise method to exercise options.

(b) | On December 11, 2019, our Board of Directors authorized the repurchase of 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. This new authorization terminated, effective December 11 2019, the existing authorization that had been in effect since December 12, 2018 and pursuant to which we had authority to acquire approximately 14 million shares as of October 31, 2019. The Board of Directors did not fix any expiration date for the current share repurchase program.

Subsequent to October 31, 2019, we repurchased approximately 3.6 million shares of our common stock at an average price of $39.58 per share, substantially all of which were purchased under the repurchase program authorized by our Board of Directors on December 11, 2019.
Our revolving credit agreement and term loan agreement each require us to maintain a minimum tangible net worth (as defined in the respective agreements), which limit the amount of share repurchases we may make. Based upon these provisions, our ability to repurchase our common stock was limited to approximately $3.53 billion as of October 31, 2019
Dividends
During fiscal 2019, we paid aggregate cash dividends of $0.44 per share to our shareholders. The payment of dividends is within the discretion of our Board of Directors and any decision to pay dividends in the future will depend upon an evaluation
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of a number of factors, including our results of operations, our capital requirements, our operating and financial condition, and any contractual limitations then in effect. Our revolving credit agreement and term loan agreement each require us to maintain a minimum tangible net worth (as defined in the respective agreement), which restricts the amount of dividends we may pay. At October 31, 2019, under the most restrictive provisions of our revolving credit agreement and term loan agreement, we could have paid up to approximately $2.32 billion of cash dividends.
Stockholder Return Performance Graph
The following graph and chart compares the five-year cumulative total return (assuming that an investment of $100 was made on October 31, 2014, and that dividends were reinvested) from October 31, 2014 to October 31, 2019, for (a) our common stock, (b) the S&P Homebuilding Index and (c) the S&P 500®:
Comparison of 5 Year Cumulative Total Return Among Toll Brothers, Inc., the S&P 500®, and
the S&P Homebuilding Index

October 31: |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019
Toll Brothers, Inc. |  | 100.00 |  |  | 112.58 |  |  | 85.88 |  |  | 144.98 |  |  | 107.12 |  |  | 128.07 |
S&P 500® |  | 100.00 |  |  | 105.20 |  |  | 109.94 |  |  | 135.93 |  |  | 145.91 |  |  | 166.81 |
S&P Homebuilding |  | 100.00 |  |  | 115.76 |  |  | 109.22 |  |  | 163.54 |  |  | 131.42 |  |  | 192.42 |

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ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial and housing data at and for each of the five fiscal years in the period ended October 31, 2019. They should be read in conjunction with the Consolidated Financial Statements and Notes thereto listed in Item 15(a)1 of this Form 10-K beginning at page F-1 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Form 10-K.
Summary Consolidated Statements of Operations and Balance Sheets (amounts in thousands, except per share data):

Year ended October 31: |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Home Sales Revenues |  | $ | 7,080,379 |  |  | $ | 7,143,258 |  |  | $ | 5,815,058 |  |  | $ | 5,169,508 |  |  | $ | 4,171,248 |
Income before income taxes |  | $ | 787,170 |  |  | $ | 933,916 |  |  | $ | 814,311 |  |  | $ | 589,027 |  |  | $ | 535,562 |
Net income |  | $ | 590,007 |  |  | $ | 748,151 |  |  | $ | 535,495 |  |  | $ | 382,095 |  |  | $ | 363,167 |
Earnings per share: |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 4.07 |  |  | $ | 4.92 |  |  | $ | 3.30 |  |  | $ | 2.27 |  |  | $ | 2.06 |
Diluted |  | $ | 4.03 |  |  | $ | 4.85 |  |  | $ | 3.17 |  |  | $ | 2.18 |  |  | $ | 1.97 |
Weighted average number of shares outstanding: |  |  |  |  |  |  |  |  |  |
Basic |  | 145,008 |  |  | 151,984 |  |  | 162,222 |  |  | 168,261 |  |  | 176,425 |
Diluted |  | 146,501 |  |  | 154,201 |  |  | 169,487 |  |  | 175,973 |  |  | 184,703 |
Cash dividends declared per share |  | $ | 0.44 |  |  | $ | 0.41 |  |  | $ | 0.24 |  |  | $ | — |  |  | $ | — |

At October 31: |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Cash, cash equivalents, and marketable securities |  | $ | 1,286,014 |  |  | $ | 1,182,195 |  |  | $ | 712,829 |  |  | $ | 633,715 |  |  | $ | 928,994 |
Inventory |  | $ | 7,873,048 |  |  | $ | 7,598,219 |  |  | $ | 7,281,453 |  |  | $ | 7,353,967 |  |  | $ | 6,997,516 |
Total assets |  | $ | 10,828,138 |  |  | $ | 10,244,590 |  |  | $ | 9,445,225 |  |  | $ | 9,736,789 |  |  | $ | 9,206,515 |
Debt: |  |  |  |  |  |  |  |  |  |
Loans payable |  | $ | 1,111,449 |  |  | $ | 686,801 |  |  | $ | 637,416 |  |  | $ | 871,079 |  |  | $ | 1,000,439 |
Senior debt |  | 2,659,898 |  |  | 2,861,375 |  |  | 2,462,463 |  |  | 2,694,372 |  |  | 2,689,801 |
Mortgage company loan facility |  | 150,000 |  |  | 150,000 |  |  | 120,145 |  |  | 210,000 |  |  | 100,000 |
Total debt |  | $ | 3,921,347 |  |  | $ | 3,698,176 |  |  | $ | 3,220,024 |  |  | $ | 3,775,451 |  |  | $ | 3,790,240 |
Equity |  | $ | 5,118,693 |  |  | $ | 4,768,912 |  |  | $ | 4,537,090 |  |  | $ | 4,235,202 |  |  | $ | 4,228,079 |

Housing Data

Year ended October 31: |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Closings: |  |  |  |  |  |  |  |  |  |
Number of homes |  | 8,107 |  |  | 8,265 |  |  | 7,151 |  |  | 6,098 |  |  | 5,525 |
Value (in thousands) |  | $ | 7,080,379 |  |  | $ | 7,143,258 |  |  | $ | 5,815,058 |  |  | $ | 5,169,508 |  |  | $ | 4,171,248 |
Net contracts signed: |  |  |  |  |  |  |  |  |  |
Number of homes |  | 8,075 |  |  | 8,519 |  |  | 8,175 |  |  | 6,719 |  |  | 5,910 |
Value (in thousands) |  | $ | 6,710,937 |  |  | $ | 7,604,265 |  |  | $ | 6,828,277 |  |  | $ | 5,649,570 |  |  | $ | 4,955,579 |

At October 31: |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015
Backlog: |  |  |  |  |  |  |  |  |  |
Number of homes |  | 6,266 |  |  | 6,105 |  |  | 5,851 |  |  | 4,685 |  |  | 4,064 |
Value (in thousands) |  | $ | 5,257,091 |  |  | $ | 5,522,523 |  |  | $ | 5,061,517 |  |  | $ | 3,984,065 |  |  | $ | 3,504,004 |
Number of selling communities |  | 333 |  |  | 315 |  |  | 305 |  |  | 310 |  |  | 288 |
Home sites: |  |  |  |  |  |  |  |  |  |
Owned |  | 36,567 |  |  | 32,503 |  |  | 31,341 |  |  | 34,137 |  |  | 35,872 |
Controlled |  | 22,663 |  |  | 20,919 |  |  | 16,970 |  |  | 14,700 |  |  | 8,381 |
Total |  | 59,230 |  |  | 53,422 |  |  | 48,311 |  |  | 48,837 |  |  | 44,253 |

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto in Item 15(a)1 of this Form 10-K, beginning at page F-1. It also should be read in conjunction with the disclosure under “Forward-Looking Statements” in Part I of this Form 10-K.
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.
Unless otherwise stated in this report, net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period, less the number or value of contracts canceled during the relevant period, which includes contracts that were signed during the relevant period and in prior periods. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”). Backlog conversion represents the percentage of homes delivered in the period from backlog at the beginning of the period (“backlog conversion”).
This discussion and analysis does not address certain items in respect of fiscal 2017 in reliance on amendments to disclosure requirements adopted by the SEC in 2019. A discussion and analysis of fiscal 2017 may be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, filed with the SEC on December 20, 2018.
OVERVIEW
Our Business
We design, build, market, sell, and arrange financing for an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land we develop and improve, as we continue to pursue our strategy of broadening our product lines, price points and geographic footprint. We cater to luxury first-time, move-up, empty-nester, active-adult, affordable luxury and second-home buyers in the United States (“Traditional Home Building Product”), as well as urban and suburban renters. We also design, build, market, and sell urban low-, mid-, and high-rise condominiums through Toll Brothers City Living® (“City Living”). At October 31, 2019, we were operating in 23 states, as well as in the District of Columbia.
In the five years ended October 31, 2019, we delivered 35,146 homes from 724 communities, including 8,107 homes from 426 communities in fiscal 2019. At October 31, 2019, we had 715 communities containing approximately 59,200 home sites that we owned or controlled through options.
We are developing several land parcels for master planned communities in which we intend to build homes on a portion of the lots and sell the remaining lots to other builders. Two of these master planned communities are being developed 100% by us, and the remaining communities are being developed through joint ventures with other builders or financial partners.
In addition to our residential for-sale business, we also develop and operate for-rent apartments through joint ventures. See the section entitled “Toll Brothers Apartment Living/Toll Brothers Campus Living” below.
We operate our own architectural, engineering, mortgage, title, land development, golf course development, and landscaping subsidiaries. We also operate our own security company, TBI Smart Home Solutions, which provides homeowners with home automation and a full range of technology options. In addition, we operate our own lumber distribution, house component assembly, and manufacturing operations.
We have investments in various unconsolidated entities. We have investments in joint ventures (i) to develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) to develop for-sale homes (“Home Building Joint Ventures”); (iii) to develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”); and (iv) to invest in distressed loans and real estate and provide financing and land banking for residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).
Financial Highlights
In fiscal 2019, we recognized $7.08 billion of home sales revenues and net income of $590.0 million, as compared to $7.14 billion of revenues and net income of $748.2 million in fiscal 2018.
In fiscal 2019 and 2018, the value of net contracts signed was $6.71 billion (8,075 homes) and $7.60 billion (8,519 homes), respectively. The value of our backlog at October 31, 2019 was $5.26 billion (6,266 homes), as compared to our backlog at October 31, 2018 of $5.52 billion (6,105 homes).
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At October 31, 2019, we had $1.29 billion of cash and cash equivalents and approximately $1.73 billion available for borrowing under our $1.905 billion revolving credit facility (the “Revolving Credit Facility”) that matures in November 2024. At October 31, 2019, we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately $177.9 million.
In fiscal 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. During fiscal 2019 and 2018, we paid aggregate cash dividends of $0.44 and $0.41 per share, respectively, to our shareholders. In December 2019, we declared a quarterly cash dividend of $0.11 which will be paid on January 24, 2020 to shareholders of record on the close of business on January 10, 2020.
At October 31, 2019, our total equity and our debt to total capitalization ratio were $5.12 billion and 0.44 to 1.00, respectively.
Acquisitions
As part of our strategy to expand our geographic footprint and product offerings, in fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for approximately $92.8 million and $69.6 million, respectively, in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, based on our preliminary purchase price allocations, was primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements. In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million. The average price of undelivered homes at the dates of acquisitions was approximately $471,100. As a result of these acquisitions, our selling community count increased by 22 communities.
Our Business Environment and Current Outlook
Over the past several years, sales prices for both new and resale homes have generally increased, which has reduced housing affordability in many markets, including in California, where we have a significant presence. In addition, late in fiscal 2018 and in the first half of fiscal 2019, interest rates on mortgage loans increased. These conditions resulted in a moderation in demand for our homes late in fiscal 2018 into fiscal 2019, as well as margin compression on contracts signed during this period. Late in the spring of 2019, market conditions improved as interest rates on mortgage loans decreased and as home builders increased sales incentives to improve sales pace. Buyer demand for our homes steadily improved throughout the year, and, in the three months ended October 31, 2019, the number of contracts we signed had increased 18% in units and 12% in dollars compared to the three months ended October 31, 2018. For full year fiscal 2019, we signed 8,075 contracts for the sale of Traditional Home Building Product and City Living units with an aggregate value of $6.71 billion, compared to 8,519 contracts with an aggregate value of $7.60 billion in fiscal 2018.
As we enter fiscal 2020, we continue to see solid economic fundamentals underlying the housing market, as consumer confidence has been healthy, household formations have been strong, and there continues to be a limited supply of homes across most of our markets. As the nation's leading builder of luxury homes, we remain committed to meeting the demands of our discerning customers, who continue to pursue distinctive, high-quality homes in desirable locations. At the same time, we are strategically focused on broadening our portfolio through targeted expansion in high-potential markets and product-line diversification that includes increasing our presence in more affordable luxury communities. With a supportive economy as a backdrop, we expect this strategy to improve revenue growth and capital efficiency as we increase community count and seek to deliver more units with more rapid cycle times.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which changed many longstanding foreign and domestic corporate and individual tax rules, as well as rules pertaining to the deductibility of employee compensation and benefits. These changes include: (i) reducing the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017; (ii) eliminating the corporate alternative minimum tax; (iii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (iv) repeal of the domestic production activities deduction for tax years beginning after December 31, 2017; and (v) establishing new limits on the federal tax deductions individual taxpayers may take as a result of mortgage loan interest payments, and state and local tax payments, including real estate taxes.
As required under accounting rules, we remeasured our net deferred tax liability for the tax law change, which resulted in an income tax benefit of $35.5 million in fiscal 2018. See Note 8, “Income Taxes” in Notes to Condensed Consolidated Financial Statements in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the Tax Act.
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Competitive Landscape
The home building business is highly competitive and fragmented. We compete with numerous home builders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than we do. Sales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through a foreclosure, also provide competition. We compete primarily based on price, location, design, quality, service, and reputation. We believe our financial stability, relative to many others in our industry, provides us with a competitive advantage.
Land Acquisition and Development
Our business is subject to many risks because of the extended length of time that it takes to obtain the necessary approvals on a property, complete the land improvements on it, and deliver a home after a home buyer signs an agreement of sale. In certain cases, we attempt to reduce some of these risks and improve our capital efficiency by utilizing one or more of the following methods: controlling land for future development through options, which enable us to obtain necessary governmental approvals before acquiring title to the land; generally commencing construction of a detached home only after executing an agreement of sale and receiving a substantial down payment from the buyer; and using subcontractors to perform home construction and land development work on a fixed-price basis.
During fiscal 2019 and 2018, we acquired control of approximately 13,900 and 13,400 home sites, respectively, net of options terminated and home sites sold. At October 31, 2019, we controlled approximately 59,200 home sites, as compared to approximately 53,400 home sites at October 31, 2018, and approximately 48,300 home sites at October 31, 2017. In addition, at October 31, 2019, we expect to purchase approximately 2,500 additional home sites from several land development joint ventures in which we have an interest, at prices not yet determined.
Of the approximately 59,200 total home sites that we owned or controlled through options at October 31, 2019, we owned approximately 36,600 and controlled approximately 22,600 through options. Of the 59,200 home sites, approximately 16,800 were substantially improved.
In addition, at October 31, 2019, our Land Development Joint Ventures owned approximately 10,100 home sites (including 130 home sites included in the 22,600 controlled through options), and our Home Building Joint Ventures owned approximately 100 home sites.
At October 31, 2019, we were selling from 333 communities, compared to 315 communities at October 31, 2018, and 305 communities at October 31, 2017.
Customer Mortgage Financing
We maintain relationships with a widely-diversified group of mortgage financial institutions, many of which are among the largest in the industry. We believe that regional and community banks continue to recognize the long-term value in creating relationships with high-quality, affluent customers such as our home buyers, and these banks continue to provide these customers with financing.
We believe that our home buyers generally are, and should continue to be, well-positioned to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles, as compared to the average home buyer.
Toll Brothers Apartment Living/Toll Brothers Campus Living
In addition to our residential for-sale business, we also develop and operate for-rent apartments through joint ventures. At October 31, 2019, we or joint ventures in which we have an interest controlled 56 land parcels as for-rent apartment projects containing approximately 18,300 units. These projects, which are located in multiple metropolitan areas throughout the country, are being operated, are being developed or will be developed with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living.
In fiscal 2019, one of our Rental Property Joint Ventures, located in located in Phoenixville, Pennsylvania, sold its assets to an unrelated party for $77.8 million. From our investment in this joint venture, we received cash of $7.4 million and recognized a gain from this sale of $3.8 million in fiscal 2019. In fiscal 2018, three of our Rental Property Joint Ventures sold their assets to unrelated parties for $477.5 million. These joint ventures had owned, developed, and operated multifamily rental properties located in suburban Washington, D.C. and Westborough, Massachusetts, and a student housing community in College Park, Maryland. From our investment in these joint ventures, we received cash of $79.1 million and recognized gains from these sales of $67.2 million in fiscal 2018. The gains recognized from these sales are included in “Income from unconsolidated entities” in our Consolidated Statement of Operations and Comprehensive Income included in Item 15(a)1 of this Form 10-K.
At October 31, 2019, we had approximately 2,000 units in for-rent apartment projects that were occupied or ready for
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occupancy, 1,700 units in the lease-up stage, 8,400 units in the design phase or under development, and 6,200 units in the planning stage. Of the 18,300 units at October 31, 2019, 7,700 were owned by joint ventures in which we have an interest; approximately 4,400 were owned by us; and 6,200 were under contract to be purchased by us.
CONTRACTS AND BACKLOG
The aggregate value of net sales contracts signed decreased 11.7% in fiscal 2019, as compared to fiscal 2018. The value of net sales contracts signed was $6.71 billion (8,075 homes) in fiscal 2019 and $7.60 billion (8,519 homes) in fiscal 2018. The decrease in the aggregate value of net contracts signed in fiscal 2019, as compared to fiscal 2018, was due to decreases in the number of net contracts signed and average value of each contract signed of 5% and 7%, respectively. The decrease in the number of net contracts signed in fiscal 2019, as compared to fiscal 2018, was primarily due to decreased demand and a lack of inventory in certain locations in fiscal 2019, as compared to fiscal 2018, offset, in part, by an increase in the average number of selling communities and contracts signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 from the Sharp and Sabal acquisitions. The decrease in average price of net contracts signed in fiscal 2019, as compared to fiscal 2018, was principally due to a shift in the number of contracts signed to less expensive areas and/or products resulting in part from our strategy to broaden of our geographic footprint, product types and price points in fiscal 2019.
The value of our backlog at October 31, 2019, 2018, and 2017 was $5.26 billion (6,266 homes), $5.52 billion (6,105 homes), and $5.06 billion (5,851 homes), respectively. Approximately 93% of the homes in backlog at October 31, 2019 are expected to be delivered by October 31, 2020. The 4.8% decrease in the value of homes in backlog at October 31, 2019, as compared to October 31, 2018, was due to home deliveries with an aggregate value of $7.08 billion in fiscal 2019, offset, in part, by our signing net contracts with a value of $6.71 billion in fiscal 2019.
For more information regarding revenues, net contracts signed, and backlog by geographic segment, see “Segments” in this MD&A.
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CRITICAL ACCOUNTING POLICIES
We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Inventory
Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition to direct land acquisition, land development, and home construction costs, costs also include interest, real estate taxes, and direct overhead related to development and construction, which are capitalized to inventory during periods beginning with the commencement of development and ending with the completion of construction. For those communities that have been temporarily closed, no additional capitalized interest is allocated to the community’s inventory until it reopens, and other carrying costs are expensed as incurred. Once a parcel of land has been approved for development and we open the community, it can typically take four or more years to fully develop, sell, and deliver all the homes in that community. Longer or shorter time periods are possible depending on the number of home sites in a community and the sales and delivery pace of the homes in a community. Our master planned communities, consisting of several smaller communities, may take up to 10 years or more to complete. Because our inventory is considered a long-lived asset under GAAP, we are required to regularly review the carrying value of each of our communities and write down the value of those communities when we believe the values are not recoverable.
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 cost of home sales revenues in the period in which the impairment is determined. In estimating the future undiscounted cash flow of a community, we use various estimates such as (i) the expected sales pace in a community, based upon general economic conditions that will have a short-term or long-term impact on the market in which the community is located and on competition within the market, including the number of home sites available and pricing and incentives being offered in other communities owned by us or by other builders; (ii) the expected sales prices and sales incentives to be offered in a community; (iii) costs expended to date and expected to be incurred in the future, including, but not limited to, land and land development costs, 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 in a particular community; and (v) alternative uses for the property, such as the possibility of a sale of the entire community to another builder or the sale of individual home sites.
Future Communities: We evaluate all land held for future communities or future sections of operating communities, whether owned or optioned, to determine whether or not we expect to proceed with the development of the land as originally contemplated. This evaluation encompasses the same types of estimates used for operating communities described above, as well as an evaluation of the regulatory environment in which the land is located and the estimated probability of obtaining the necessary approvals, the estimated time and cost it will take to obtain those approvals, and the possible concessions that may be required to be given in order to obtain them. Concessions may include cash payments to fund improvements to public places such as parks and streets, dedication of a portion of the property for use by the public or as open space, or a reduction in the density or size of the homes to be built. Based upon this review, we decide (i) as to land under contract to be purchased, whether the contract will likely be terminated or renegotiated, and (ii) as to land we own, whether the land will likely be developed as contemplated or in an alternative manner, or should be sold. 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 cost of home sales 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.
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We provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable in each of the three fiscal years ended October 31, 2019, 2018, and 2017, as shown in the table below (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Land controlled for future communities | $ | 11,285 |  |  | $ | 2,820 |  |  | $ | 1,949 |
Land owned for future communities | — |  |  | 2,185 |  |  | 3,050 |
Operating communities | 31,075 |  |  | 30,151 |  |  | 9,795 |
| $ | 42,360 |  |  | $ | 35,156 |  |  | $ | 14,794 |

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

|  |  |  | Impaired operating communities
Three months ended: |  | Number of communities tested |  | Number of communities |  | Fair value of communities, net of impairment charges |  | Impairment charges recognized
Fiscal 2019: |  |  |  |  |  |  |  |
January 31 |  | 49 |  | 5 |  | $ | 37,282 |  |  | $ | 5,785 |
April 30 |  | 64 |  | 6 |  | $ | 36,159 |  |  | 17,495 |
July 31 |  | 69 |  | 3 |  | $ | 5,436 |  |  | 1,100 |
October 31 |  | 71 |  | 7 |  | $ | 18,910 |  |  | 6,695 |
|  |  |  |  |  |  |  | $ | 31,075 |
Fiscal 2018: |  |  |  |  |  |  |  |
January 31 |  | 64 |  | 5 |  | $ | 13,318 |  |  | $ | 3,736 |
April 30 |  | 65 |  | 4 |  | $ | 21,811 |  |  | 13,325 |
July 31 |  | 55 |  | 5 |  | $ | 43,063 |  |  | 9,065 |
October 31 |  | 43 |  | 6 |  | $ | 24,692 |  |  | 4,025 |
|  |  |  |  |  |  |  | $ | 30,151 |
Fiscal 2017: |  |  |  |  |  |  |  |
January 31 |  | 57 |  | 2 |  | $ | 8,372 |  |  | $ | 4,000 |
April 30 |  | 46 |  | 6 |  | $ | 25,092 |  |  | 2,935 |
July 31 |  | 53 |  | 4 |  | $ | 5,965 |  |  | 1,360 |
October 31 |  | 51 |  | 1 |  | $ | 6,982 |  |  | 1,500 |
|  |  |  |  |  |  |  | $ | 9,795 |

Income Taxes — Valuation Allowance
We assess the need for valuation allowances for deferred tax assets in each period based on whether it is more-likely-than-not that some portion of the deferred tax asset would not be realized. If, based on the available evidence, it is more-likely-than-not that such asset will not be realized, a valuation allowance is established against a deferred tax asset. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. This assessment considers, among other matters, the nature, consistency, and magnitude of current and cumulative income and losses; forecasts of future profitability; the duration of statutory carryback or carryforward periods; our experience with operating loss and tax credit carryforwards being used before expiration; tax planning alternatives; and outlooks for the U.S. housing industry and broader economy. Changes in existing tax laws or rates could also affect our actual tax results. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, actual results could differ from the estimates used in our assessment that could have a material impact on our consolidated results of operations or financial position.
Our deferred tax assets consist principally of the timing of deductibility of accrued expenses, inventory impairments, inventory valuation differences, state tax net operating loss carryforwards, and stock-based compensation expense. In accordance with
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GAAP, we assess whether a valuation allowance should be established based on our determination of whether it was more likely than not that some portion or all of the deferred tax assets would not be realized. At October 31, 2019 and 2018, we determined that it was more-likely-than-not that our deferred tax assets would be realized. Accordingly, at October 31, 2019 and 2018, we did not have valuation allowances recorded against our federal or state deferred tax assets. During fiscal 2017, we reversed the remaining $32.2 million of state deferred tax valuation allowances.
We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards for five years to 20 years.
Revenue and Cost Recognition
Home sales revenues and cost recognition: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed.
For our standard attached and detached homes, land, land development, and related costs, both incurred and estimated to be incurred in the future, are amortized to the cost of homes closed based upon the total number of homes to be constructed in each community. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community. Home construction and related costs are charged to the cost of homes closed under the specific identification method. For our master planned communities, the estimated land, common area development, and related costs, 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.
Forfeited Customer Deposits: Forfeited customer deposits are recognized in “Home sales revenues” in our Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit.
Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives will vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds.
On November 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC 606”), which supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific guidance. See Note 1, “Significant Accounting Policies” in Notes to Consolidated Financial Statements in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the adoption of ASC 606.
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 years are recorded in the period in which a change in our estimate occurs. Over the past several years, we have had a significant number of warranty claims related primarily to homes built in Pennsylvania and Delaware. See Note 7 – “Accrued Expenses” in Item 15(a)1 of this Form 10-K 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
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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-insurance through our captive insurance subsidiary.
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 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 is made, and the ultimate resolution of the claim. Though state regulations vary, construction defect claims are 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, severities 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.
OFF-BALANCE SHEET ARRANGEMENTS
We also operate through a number of joint ventures. We earn construction and management fee income from many of these joint ventures. Our investments in these entities are generally accounted for using the equity method of accounting. We are a party to several joint ventures with unrelated parties to develop and sell land that is owned by the joint ventures. We recognize our proportionate share of the earnings from the sale of home sites to other builders, including our joint venture partners. We do not recognize earnings from the home sites we purchase from these ventures at the time of our purchase; instead, our cost basis in the home sites is reduced by our share of the earnings realized by the joint venture from those home sites.
At October 31, 2019, we had investments in these entities of $366.3 million, and were committed to invest or advance up to an additional $38.8 million to these entities if they require additional funding. At October 31, 2019, we had agreed to terms for the acquisition of 130 home sites from one Land Development Joint Ventures for an estimated aggregate purchase price of $10.8 million. In addition, we expect to purchase approximately 2,500 additional home sites over a number of years from several of these joint ventures; the purchase price of these home sites will be determined at a future date.
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain 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, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have 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, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that as of October 31, 2019, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay all or a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the entity. At October 31, 2019, we had guaranteed the debt of certain unconsolidated entities with loan commitments aggregating $1.53 billion, of which, if the
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full amount of the debt obligations were borrowed, we estimate $299.1 million to be our maximum exposure related to repayment and carry cost guarantees. At October 31, 2019, the unconsolidated entities had borrowed an aggregate of $1.14 billion, of which we estimate $239.6 million to be our maximum exposure related to repayment and carry cost guarantees. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
For more information regarding these joint ventures, see Note 4, “Investments in Unconsolidated Entities” in the Notes to Consolidated Financial Statements in Item 15(a)1 of this Form 10-K.
The trends, uncertainties or other factors that impact our business and the industry in general also impact the unconsolidated entities in which we have investments. We review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review to determine if the loss is other than temporary, in which case we write down the investment to its fair value. The evaluation of our investment in unconsolidated entities entails a detailed cash flow analysis using many estimates including but not limited to, expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, market conditions and anticipated cash receipts, in order to determine projected future distributions. Each of the unconsolidated entities evaluates its inventory in a similar manner. In addition, for our unconsolidated entities that own, develop, and manage for-rent residential apartments, we review rental trends, expected future expenses, and expected future cash flows to determine estimated fair values of the properties. See “Critical Accounting Policies - Inventory” contained in this MD&A for more detailed disclosure on our evaluation of inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in income from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities. Based upon our evaluation of the fair value of our investments in unconsolidated entities, we recognized charges in connection with one Land Development Joint Venture of $1.0 million in fiscal 2019; two Land Development Joint Ventures of $6.0 million in fiscal 2018; and $2.0 million in fiscal 2017 at one Land Development Joint Venture.
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RESULTS OF OPERATIONS
The following table compares certain items in our Consolidated Statements of Operations and Comprehensive Income and other supplemental information for fiscal 2019 and 2018 ($ amounts in millions, unless otherwise stated). For more information regarding results of operations by operating segment, see “Segments” in this MD&A.

| Years ended October 31,
| 2019 |  | 2018 |  | % Change
Revenues:(1) |  |  |  |  |
Home sales | $ | 7,080.4 |  |  | $ | 7,143.3 |  |  | (1 | )%
Land sales | 143.6 |  |  | — |  |  |
| 7,224.0 |  |  | 7,143.3 |  |  | 1 | %
Cost of revenues:(1) |  |  |  |  |
Home sales | 5,678.9 |  |  | 5,673.0 |  |  | — | %
Land sales | 129.7 |  |  | — |  |  |
| 5,808.6 |  |  | 5,673.0 |  |  | 2 | %
Selling, general and administrative | 734.5 |  |  | 684.0 |  |  | 7 | %
Income from operations | 680.8 |  |  | 786.2 |  |  | (13 | )%
Other: |  |  |  |  |
Income from unconsolidated entities | 24.9 |  |  | 85.2 |  |  | (71 | )%
Other income - net | 81.5 |  |  | 62.5 |  |  | 30 | %
Income before income taxes | 787.2 |  |  | 933.9 |  |  | (16 | )%
Income tax provision | 197.2 |  |  | 185.8 |  |  | 6 | %
Net income | $ | 590.0 |  |  | $ | 748.2 |  |  | (21 | )%
Supplemental information: |  |  |  |  |
Home sales cost of revenues as a percentage of home sales revenues | 80.2 | % |  | 79.4 | % |  |
Land sales cost of revenues as a percentage of land sales revenues (1) | 90.3 | % |  |  |  |
SG&A as a percentage of home sales revenues | 10.4 | % |  | 9.6 | % |  |
Effective tax rate | 25.1 | % |  | 19.9 | % |  |
Deliveries – units | 8,107 |  |  | 8,265 |  |  | (2 | )%
Deliveries – average selling price (2) | $ | 873.4 |  |  | $ | 864.3 |  |  | 1 | %
Net contracts signed – value | $ | 6,710.9 |  |  | $ | 7,604.3 |  |  | (12 | )%
Net contracts signed – units | 8,075 |  |  | 8,519 |  |  | (5 | )%
Net contracts signed – average selling price (2) | $ | 831.1 |  |  | $ | 892.6 |  |  | (7 | )%
| At October 31,
| 2019 |  | 2018 |  | % Change
Backlog – value | $ | 5,257.1 |  |  | $ | 5,522.5 |  |  | (5 | )%
Backlog – units | 6,266 |  |  | 6,105 |  |  | 3 | %
Backlog – average selling price (2) | $ | 839.0 |  |  | $ | 904.6 |  |  | (7 | )%

(1) | On November 1, 2018, we adopted ASC 606. Upon adoption, land sale activity is presented as part of income from operations where previously it was included in "Other income - net." In fiscal 2018, we recognized land sales revenues and land sales cost of revenues of $134.3 million and $128.0 million, respectively. Further, retained customer deposits, which totaled $13.2 million in fiscal 2019, are included in “Home sales revenue” where previously they were included in “Other income – net.” In fiscal 2018, retained customer deposits were $8.9 million. Prior periods are not restated.

(2) | $ amounts in thousands.

Note: Amounts may not add due to rounding.
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FISCAL 2019 COMPARED TO FISCAL 2018
HOME SALES REVENUES AND HOME SALES COST OF REVENUES
The decrease in home sales revenues in fiscal 2019, as compared to fiscal 2018, was attributable to a 2% decrease in the number of homes delivered, offset, in part, by a 1% increase in the average price of the homes delivered. The decrease in the number of homes delivered was primarily due to a moderation in demand, particularly in California, which we experienced beginning in the fourth quarter of fiscal 2018 through the third quarter of fiscal 2019. This decrease was partially offset by contracts we signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 from the Sharp and Sabal acquisitions and an increase in the number of selling communities, primarily in our South and West regions, in fiscal 2019, as compared to fiscal 2018. The increase in the average delivered home price was mainly due to price increases in homes delivered in California and the West region and a shift in the number of homes delivered to more expensive areas and/or products in California, New Jersey, Virginia, and the West region in fiscal 2019, as compared to fiscal 2018. These increases were partially offset by a shift in the number of homes delivered to less expensive areas in City Living in fiscal 2019, as compared to fiscal 2018 and a decrease in the number of homes delivered in California where home prices were higher, in fiscal 2019, as compared to fiscal 2018.
Home sales cost of revenues, as a percentage of homes sales revenues, in fiscal 2019 was 80.2%, as compared to 79.4% in fiscal 2018. The increase in fiscal 2019 was primarily due to higher land, land development, material and labor costs; a shift in the mix of our home sales revenues to lower margin products/areas; the recovery of approximately $9.7 million from litigation settlements in fiscal 2018; a $7.0 million benefit in fiscal 2018 from the reversal of an accrual related to an indemnification obligation related to the Shapell acquisition that expired; and higher inventory impairment charges in fiscal 2019, as compared to fiscal 2018. These increases were offset, in part, by a state reimbursement of previously expensed environmental clean-up costs received in fiscal 2019; a benefit in fiscal 2019 from the reversal of accruals for certain Home Owners Associations (“HOA”) turnovers that were no longer required; price increases in homes delivered in California and the West region; and lower interest expense in fiscal 2019 compared to fiscal 2018.
Interest cost in fiscal 2019 was $185.0 million or 2.6% of home sales revenues, as compared to $190.7 million or 2.7% of home sales revenues in fiscal 2018. We recognized inventory impairments and write-offs of $42.4 million or 0.6% of home sales revenues and $35.2 million or 0.5% of home sales revenues in fiscal 2019 and fiscal 2018, respectively.
LAND SALES REVENUES AND LAND SALES COST OF REVENUES
Our revenues from land sales generally consist of the following: (1) land sales to joint ventures in which we retain an interest; (2) lot sales to third-party builders within our master planned communities; and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria. In fiscal 2019, we recognized a gain of $9.3 million from the sale of land to two newly formed Rental Property Joint Ventures in which we have interests of 25%.
Prior to the adoption of ASC 606, land sales activity was reported within “Other income – net” in our Condensed Consolidated Statements of Operations and Comprehensive Income. In fiscal 2018, we recognized land sales revenues and land sales cost of revenues of $134.3 million and $128.0 million, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”)
SG&A spending increased by $50.5 million in fiscal 2019 compared to fiscal 2018. As a percentage of home sales revenues, SG&A was 10.4% and 9.6% in fiscal 2019 and 2018, respectively. The dollar increase in SG&A was due primarily to increased compensation costs due to a higher number of employees and normal compensation increases, increased sales and marketing costs, and costs related to the implementation of new enterprise information technology systems. The higher sales and marketing costs were the result of the increased number of selling communities, increased spending on advertising, and higher design studio operating costs. The increased number of employees was due primarily to the increase in the number of current and future selling communities.
INCOME FROM UNCONSOLIDATED ENTITIES
We recognize our proportionate share of the earnings and losses from the various unconsolidated entities in which we have an investment. Many of our unconsolidated entities are land development projects, high-rise/mid-rise condominium construction projects, or for-rent apartments projects, which do not generate revenues and earnings for a number of years during the development of the property. Once development is complete for land development projects and high-rise/mid-rise condominium construction projects, these unconsolidated entities will generally, over a relatively short period of time, generate revenues and earnings until all of the assets of the entity are sold. Further, once for-rent apartments projects are complete and stabilized, we may monetize a portion of these projects through a recapitalization or a sale of all or a portion of our ownership
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interest in the joint venture, resulting in an income producing event. Because of the long development periods associated with these entities, the earnings recognized from these entities may vary significantly from quarter to quarter and year to year.
The decrease in income from unconsolidated entities from $85.2 million in fiscal 2018 to $24.9 million in fiscal 2019, was due mainly to $67.2 million of gains recognized in fiscal 2018 from asset sales by three of our Rental Property Joint Ventures located in College Park, Maryland, Herndon, Virginia, and Westborough, Massachusetts, and an increase in losses in several Rental Property Join Ventures related to the commencement of operations and lease up activities in fiscal 2019, as compared to fiscal 2018. These decreases were offset, in part, by a $3.8 million gain recognized in fiscal 2019 from an asset sale by one of our Rental Property Joint Ventures located in Phoenixville, Pennsylvania; higher earnings from two of our Home Building Joint Ventures; and a $3.0 million decrease in impairment charges recognized in fiscal 2019 as compared to fiscal 2018.
OTHER INCOME - NET
The table below provides the components of “Other Income – net” for the years ended October 31, 2019 and 2018 (amounts in thousands):

| 2019 |  | 2018
Income from ancillary businesses | $ | 53,568 |  |  | $ | 25,692 |
Management fee income from home building unconsolidated entities, net | 9,948 |  |  | 11,740 |
Income from land sales | — |  |  | 6,331 |
Retained customer deposits | — |  |  | 8,937 |
Other | 17,986 |  |  | 9,760 |
Total other income – net | $ | 81,502 |  |  | $ | 62,460 |

As a result of our adoption of ASC 606 on November 1, 2018, land sale activity is presented as part of income from operations where previously it was included in “Other income – net.” In addition, retained customer deposits are included in “Home sales revenue” where previously they were included in “Other income – net.” Prior periods are not restated. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” in Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding the adoption of ASC 606.
The increase in income from ancillary businesses in fiscal 2019, as compared to fiscal 2018, was mainly due to gains recognized of $35.1 million from the sale of seven golf clubs in fiscal 2019 and lower losses incurred in our apartment living operations in fiscal 2019, as compared to fiscal 2018, partially offset by a $10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business in fiscal 2018.
Management fee income from home building unconsolidated entities presented above primarily represents fees earned by our City Living and Traditional Home Building operations. In addition, in fiscal 2019 and 2018, our apartment living operations earned fees from unconsolidated entities of $11.9 million and $7.5 million, respectively. Fees earned by our apartment living operations are included in income from ancillary businesses.
The increase in “other” in fiscal 2019 was principally due to higher interest income earned in fiscal 2019 compared to fiscal 2018, offset, in part, by $2.6 million received in fiscal 2018 from the resolution of a matter involving defective floor joists.
INCOME BEFORE INCOME TAXES
In fiscal 2019, we reported income before income taxes of $787.2 million or 10.9% of revenues, as compared to $933.9 million, or 13.1% of revenues in fiscal 2018.
INCOME TAX PROVISION
We recognized a $197.2 million income tax provision in fiscal 2019. Based upon the federal statutory rate of 21.0% for fiscal 2019, our federal tax provision would have been $165.3 million. The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes of $37.9 million and an increase in unrecognized tax benefits of $2.2 million, offset, in part, by the reversal of $5.3 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations and a benefit of $2.1 million from excess tax benefits related to stock-based compensation.
We recognized a $185.8 million income tax provision in fiscal 2018. Based upon the blended federal statutory rate of 23.3% for fiscal 2018, our federal tax provision would have been $217.9 million. The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to tax law changes of $38.7 million; a benefit of $18.2 million related to the utilization of domestic production activities deductions; the reversal of $4.7 million of previously accrued
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tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations and settlements with certain taxing jurisdictions; a benefit of $4.2 million from excess tax benefits related to stock-based compensation; and $15.2 million of permanent and other differences, which primarily relates to the recognition of Section 45L energy credits and tax planning transactions that benefited the Company’s state net operating loss carryforwards, offset, in part, by the provision for state income taxes of $47.1 million. See Note 8, “Income Taxes” in Item 15(a)1 of this Form 10-K for additional information regarding the impact of the Tax Act.
CAPITAL RESOURCES AND LIQUIDITY
Funding for our business has been, and continues to be, provided principally by cash flow from operating activities before inventory additions, unsecured bank borrowings, and the public debt markets.
Fiscal 2019
At October 31, 2019, we had $1.29 billion of cash and cash equivalents and approximately $1.73 billion available for borrowing under our Revolving Credit Facility.
Cash provided by operating activities during fiscal 2019 was $437.7 million. It was generated primarily from $590.0 million of net income plus $26.2 million of stock-based compensation, $72.1 million of depreciation and amortization, $42.4 million of inventory impairments and write-offs, and a net deferred tax benefit of $102.8 million; offset, in part, by a $40.2 million increase in inventory; an increase of $185.3 million in receivables, prepaid assets, and other assets; an increase of $45.6 million in mortgage loans held for sale; and a decrease of $64.5 million in accounts payable and accrued expenses.
Cash used in investing activities during fiscal 2019 was $75.9 million, primarily related to $162.4 million used to acquired Sharp and Sabal; $87.0 million for the purchase of property and equipment; and $56.6 million used to fund investments in unconsolidated entities. This activity was offset, in part, by $151.1 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans and proceeds of $79.6 million of cash received from sales of golf club properties and an office buildings in several separate transactions with unrelated third parties.
We used $258.5 million of cash from financing activities in fiscal 2019, primarily for the repayment of $600.0 million of senior notes; the repurchase of $233.5 million of our common stock; and payment of $63.6 million of dividends on our common stock, offset, in part, by the net proceeds of $396.4 million from the issuance of $400.0 million aggregate principal amount of 3.80% Senior Notes due 2029; borrowings of $227.4 million of other loans payable, net of new repayments; and the proceeds of $17.4 million from our stock-based benefit plans.
Fiscal 2018
At October 31, 2018, we had $1.18 billion of cash and cash equivalents on hand and approximately $1.13 billion available for borrowing under our Revolving Credit Facility.
Cash provided by operating activities during fiscal 2018 was $588.2 million. It was generated primarily from $748.2 million of net income plus $28.3 million of stock-based compensation, $25.3 million of depreciation and amortization, $35.2 million of inventory impairments and write-offs; and an increase of $57.9 million in accounts payable and accrued expenses; offset, in part, by a $143.6 million increase in inventory; an increase of $99.6 million in receivables, prepaid assets, and other assets; an increase of $38.9 million in mortgage loans held for sale; and a net deferred tax benefit of $21.9 million.
Cash provided by investing activities during fiscal 2018 was $81.3 million. The cash generated by investing activities was primarily related to $138.0 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans, offset, in part, by $28.2 million for the purchase of property and equipment and $27.5 million used to fund investments in unconsolidated entities.
We used $214.3 million of cash from financing activities in fiscal 2018, primarily for repurchase of $503.2 million of our common stock; the repayment of $89.2 million of other loans payable, net of new borrowings; and payment of $61.7 million of dividends on our common stock, offset, in part, by the net proceeds of $396.5 million from the issuance of $400.0 million aggregate principal amount of 4.35% Senior Notes due 2028, the borrowings of $29.9 million on our mortgage company loan facility, net of new borrowings; and the proceeds of $13.4 million from our stock-based benefit plans.
Other
In general, our cash flow from operating activities assumes that, as each home is delivered, we will purchase a home site to replace it. Because we own a supply of several years of home sites, we do not need to buy home sites immediately to replace those that we deliver. In addition, we generally do not begin construction of our detached homes until we have a signed contract with the home buyer. Should our business decline, we believe that our inventory levels would decrease as we complete and
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deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver the speculative homes that are currently in inventory, resulting in additional cash flow from operations. In addition, we might delay, decrease, or curtail our acquisition of additional land, which would further reduce our inventory levels and cash needs. At October 31, 2019, we owned or controlled through options approximately 59,200 home sites, as compared to approximately 53,400 at October 31, 2018; and approximately 48,300 at October 31, 2017. Of the approximately 59,200 home sites owned or controlled through options at October 31, 2019, we owned approximately 36,600. Of our owned home sites at October 31, 2019, significant improvements were completed on approximately 16,800 of them.
At October 31, 2019, the aggregate purchase price of land parcels under option and purchase agreements was approximately $2.36 billion (including $10.8 million of land to be acquired from joint ventures in which we have invested). Of the $2.36 billion of land purchase commitments, we had paid or deposited $168.8 million and, if we acquire all of these land parcels, we will be required to pay an additional $2.19 billion. The purchases of these land parcels are scheduled over the next several years. In addition, we expect to purchase approximately 2,500 additional home sites over a number of years from several of these joint ventures. We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
During the past several years, we have made a number of investments in unconsolidated entities related to the acquisition and development of land for future home sites, the construction of luxury for-sale condominiums, and for-rent apartments. Our investment activities related to investments in and distributions of investments from unconsolidated entities are contained in the Consolidated Statements of Cash Flows under “Net cash (used in) provided by investing activities,” At October 31, 2019, we had investments in these entities of $366.3 million, and were committed to invest or advance up to an additional $38.8 million to these entities if they require additional funding. At October 31, 2019, we had purchase commitments to acquire land for apartment developments of approximately $280.2 million, of which we had outstanding deposits in the amount of $13.7 million. We intend to develop these apartment projects in joint ventures with unrelated parties in the future.
On October 31, 2019, we amended and restated our existing $1.295 billion Revolving Credit Agreement, dated as of May 19, 2016, to, among other things: (i) increase the aggregate revolving credit commitments under the Revolving Credit Facility from $1.295 billion to $1.905 billion; (ii) extend the Revolving Credit Facility termination date from May 19, 2021 to November 1, 2024; (iii) modify the pricing for outstanding commitments, borrowings and letters of credit under the facility, as set forth in the pricing schedule that is attached to the Revolving Credit Facility; (iv) modify the accordion feature to permit the aggregate revolving credit commitments under the Revolving Credit Facility to be increased to up to $2.5 billion, subject to certain conditions and availability of bank commitments; and (iv) modify certain provisions relating to financial maintenance and negative covenants. Under the terms of the amended and restated Revolving Credit Facility, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00 and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.70 billion. Under the terms of the Revolving Credit Facility, at October 31, 2019, our leverage ratio was approximately 0.50 to 1.00 and our tangible net worth was approximately $5.02 billion. Based upon the minimum tangible net worth requirement, our ability to repurchase our common stock was limited to approximately $3.53 billion as of October 31, 2019. At October 31, 2019, we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately $177.9 million.
On October 31, 2018, we had a $800.0 million, five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. On October 31, 2019, we entered into an amendment to the Term Loan Facility to, among other things, extend the maturity date from November 1, 2023 to November 1, 2024, with no principal payments being required before the maturity date.
We believe that we will have adequate resources and sufficient access to the capital markets and external financing sources to continue to fund our current operations and meet our contractual obligations. Due to the uncertainties in the economy and for home builders in general, we cannot be certain that we will be able to replace existing financing or find sources of additional financing in the future.
INFLATION
The long-term impact of inflation on us is manifested in increased costs for land, land development, construction, and overhead. We generally enter into contracts to acquire land a significant period of time before development and sales efforts begin. Accordingly, to the extent land acquisition costs are fixed, subsequent increases or decreases in the sales prices of homes will affect our profits. Because the sales price of each of our homes is fixed at the time a buyer enters into a contract to purchase a home and because we generally contract to sell our homes before we begin construction, any inflation of costs in excess of those anticipated may result in lower gross margins. We generally attempt to minimize that effect by entering into
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fixed-price contracts with our subcontractors and material suppliers for specified periods of time, which generally do not exceed one year.
In general, housing demand is adversely affected by increases in interest rates and housing costs. Interest rates, the length of time that land remains in inventory, and the proportion of inventory that is financed affect our interest costs. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, affecting prospective buyers’ ability to adequately finance home purchases, our home sales revenues, gross margins, and net income could be adversely affected. Increases in sales prices, whether the result of inflation or demand, may affect the ability of prospective buyers to afford new homes.
CONTRACTUAL OBLIGATIONS
The following table summarizes our estimated contractual payment obligations at October 31, 2019 (amounts in millions):

| 2020 |  | 2021 – 2022 |  | 2023 – 2024 |  | Thereafter |  | Total
Senior notes (a) | $ | 127.8 |  |  | $ | 658.1 |  |  | $ | 818.2 |  |  | $ | 1,770.2 |  |  | $ | 3,374.3 |
Loans payable (a) | 121.3 |  |  | 144.2 |  |  | 99.7 |  |  | 940.7 |  |  | 1,305.9 |
Mortgage company loan facility (a)(b) | 152.8 |  |  |  |  |  |  |  |  | 152.8 |
Operating lease obligations | 15.4 |  |  | 22.7 |  |  | 14.5 |  |  | 218.2 |  |  | 270.8 |
Purchase obligations (c) | 1,541.9 |  |  | 1,010.2 |  |  | 263.5 |  |  | 92.5 |  |  | 2,908.1 |
Retirement plans (d) | 13.4 |  |  | 13.4 |  |  | 14.7 |  |  | 62.6 |  |  | 104.1 |
| $ | 1,972.6 |  |  | $ | 1,848.6 |  |  | $ | 1,210.6 |  |  | $ | 3,084.2 |  |  | $ | 8,116.0 |

(a) | Amounts include estimated annual interest payments until maturity of the debt. Of the amounts indicated, $2.66 billion of the senior notes, $1.11 billion of loans payable, $150.0 million of the mortgage company loan facility, and $31.3 million of accrued interest were recorded on our October 31, 2019 Consolidated Balance Sheet.

(b) | In December 2019, we amended the mortgage company warehousing agreement to, among other things, extend the maturity date to December 4, 2020.

(c) | Amounts represent our expected acquisition of land under purchase agreements and the estimated remaining amount of the contractual obligation for land development agreements secured by letters of credit and surety bonds. Of the total amount indicated, $14.6 million was recorded on our October 31, 2019 Consolidated Balance Sheet.

(d) | Amounts represent our obligations under our deferred compensation plan, supplemental executive retirement plans and our 401(k) salary deferral savings plans. Of the total amount indicated, $82.7 million was recorded on our October 31, 2019 Consolidated Balance Sheet.

37

SEGMENTS
We operate in two segments: Traditional Home Building and City Living, our urban development division. Within Traditional Home Building, we operate in five geographic segments around the United States: (1) the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, New Jersey, and New York; (2) the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania, and Virginia; (3) the South, consisting of Florida, Georgia, North Carolina, South Carolina, and Texas; (4) the West, consisting of Arizona, Colorado, Idaho, Nevada, Oregon, Utah, and Washington, and (5) California.
The following tables summarize information related to revenues, net contracts signed, and income (loss) before income taxes by segment for fiscal years 2019, 2018, and 2017. Information related to backlog and assets by segment at October 31, 2019 and 2018, has also been provided.
Units Delivered and Revenues:

| Fiscal 2019 Compared to Fiscal 2018
| Revenues ($ in millions) |  | Units Delivered |  | Average Delivered Price ($ in thousands)
| 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change
Traditional Home Building: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North | $ | 923.3 |  |  | $ | 975.7 |  |  | (5 | )% |  | 1,325 |  |  | 1,453 |  |  | (9 | )% |  | $ | 696.8 |  |  | $ | 671.5 |  |  | 4 | %
Mid-Atlantic | 1,112.8 |  |  | 1,141.1 |  |  | (2 | )% |  | 1,708 |  |  | 1,800 |  |  | (5 | )% |  | 651.5 |  |  | 633.9 |  |  | 3 | %
South | 1,244.6 |  |  | 1,045.4 |  |  | 19 | % |  | 1,725 |  |  | 1,391 |  |  | 24 | % |  | 721.5 |  |  | 751.5 |  |  | (4 | )%
West | 1,418.0 |  |  | 1,451.4 |  |  | (2 | )% |  | 1,965 |  |  | 2,130 |  |  | (8 | )% |  | 721.6 |  |  | 681.4 |  |  | 6 | %
California | 2,129.5 |  |  | 2,208.7 |  |  | (4 | )% |  | 1,180 |  |  | 1,322 |  |  | (11 | )% |  | 1,804.7 |  |  | 1,670.7 |  |  | 8 | %
Traditional Home Building | 6,828.2 |  |  | 6,822.3 |  |  | — | % |  | 7,903 |  |  | 8,096 |  |  | (2 | )% |  | 864.0 |  |  | 842.7 |  |  | 3 | %
City Living | 253.2 |  |  | 321.0 |  |  | (21 | )% |  | 204 |  |  | 169 |  |  | 21 | % |  | 1,241.2 |  |  | 1,899.4 |  |  | (35 | )%
Other | (1.0 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total homes sales revenue | 7,080.4 |  |  | $ | 7,143.3 |  |  | (1 | )% |  | 8,107 |  |  | 8,265 |  |  | (2 | )% |  | $ | 873.4 |  |  | $ | 864.3 |  |  | 1 | %
Land sales revenue | 143.6 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total revenue | $ | 7,224.0 |  |  | $ | 7,143.3 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

Net Contracts Signed:

| Fiscal 2019 Compared to Fiscal 2018
| Net Contract Value ($ in millions) |  | Net Contracted Units |  | Average Contracted Price ($ in thousands)
| 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change
Traditional Home Building: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North | $ | 910.1 |  |  | $ | 928.1 |  |  | (2 | )% |  | 1,303 |  |  | 1,334 |  |  | (2 | )% |  | $ | 698.5 |  |  | $ | 695.7 |  |  | — | %
Mid-Atlantic | 1,137.8 |  |  | 1,158.3 |  |  | (2 | )% |  | 1,725 |  |  | 1,799 |  |  | (4 | )% |  | 659.6 |  |  | 643.9 |  |  | 2 | %
South | 1,177.3 |  |  | 1,132.7 |  |  | 4 | % |  | 1,705 |  |  | 1,502 |  |  | 14 | % |  | 690.5 |  |  | 754.1 |  |  | (8 | )%
West | 1,705.7 |  |  | 1,510.5 |  |  | 13 | % |  | 2,303 |  |  | 2,133 |  |  | 8 | % |  | 740.6 |  |  | 708.2 |  |  | 5 | %
California | 1,555.3 |  |  | 2,596.9 |  |  | (40 | )% |  | 889 |  |  | 1,568 |  |  | (43 | )% |  | 1,749.5 |  |  | 1,656.2 |  |  | 6 | %
Traditional Home Building | 6,486.2 |  |  | 7,326.5 |  |  | (11 | )% |  | 7,925 |  |  | 8,336 |  |  | (5 | )% |  | 818.4 |  |  | 878.9 |  |  | (7 | )%
City Living | 224.7 |  |  | 277.8 |  |  | (19 | )% |  | 150 |  |  | 183 |  |  | (18 | )% |  | 1,498.3 |  |  | 1,518.0 |  |  | (1 | )%
Total | $ | 6,710.9 |  |  | $ | 7,604.3 |  |  | (12 | )% |  | 8,075 |  |  | 8,519 |  |  | (5 | )% |  | $ | 831.1 |  |  | $ | 892.6 |  |  | (7 | )%

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Backlog at October 31:

| October 31, 2019 Compared to October 31, 2018
| Backlog Value ($ in millions) |  | Backlog Units |  | Average Backlog Price ($ in thousands)
| 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change
Traditional Home Building: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North | $ | 757.1 |  |  | $ | 768.5 |  |  | (1 | )% |  | 1,076 |  |  | 1,098 |  |  | (2 | )% |  | $ | 703.6 |  |  | $ | 699.9 |  |  | 1 | %
Mid-Atlantic | 785.1 |  |  | 758.8 |  |  | 3 | % |  | 1,159 |  |  | 1,142 |  |  | 1 | % |  | 677.4 |  |  | 664.4 |  |  | 2 | %
South | 930.0 |  |  | 903.2 |  |  | 3 | % |  | 1,339 |  |  | 1,166 |  |  | 15 | % |  | 694.6 |  |  | 774.6 |  |  | (10 | )%
West | 1,321.2 |  |  | 1,031.1 |  |  | 28 | % |  | 1,738 |  |  | 1,400 |  |  | 24 | % |  | 760.2 |  |  | 736.5 |  |  | 3 | %
California | 1,314.1 |  |  | 1,883.3 |  |  | (30 | )% |  | 842 |  |  | 1,133 |  |  | (26 | )% |  | 1,560.7 |  |  | 1,662.2 |  |  | (6 | )%
Traditional Home Building | 5,107.5 |  |  | 5,344.9 |  |  | (4 | )% |  | 6,154 |  |  | 5,939 |  |  | 4 | % |  | 829.9 |  |  | 900.0 |  |  | (8 | )%
City Living | 149.6 |  |  | 177.6 |  |  | (16 | )% |  | 112 |  |  | 166 |  |  | (33 | )% |  | 1,335.6 |  |  | 1,069.7 |  |  | 25 | %
Total | $ | 5,257.1 |  |  | $ | 5,522.5 |  |  | (5 | )% |  | 6,266 |  |  | 6,105 |  |  | 3 | % |  | $ | 839.0 |  |  | $ | 904.6 |  |  | (7 | )%

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

| 2019 |  | 2018 |  | % Change
Traditional Home Building: |  |  |  |  |
North | $ | 55.9 |  |  | $ | 56.5 |  |  | (1 | )%
Mid-Atlantic | 64.8 |  |  | 90.6 |  |  | (28 | )%
South | 117.5 |  |  | 110.3 |  |  | 7 | %
West | 170.4 |  |  | 213.3 |  |  | (20 | )%
California | 452.4 |  |  | 494.3 |  |  | (8 | )%
Traditional Home Building | 861.0 |  |  | 965.0 |  |  | (11 | )%
City Living | 70.1 |  |  | 78.1 |  |  | (10 | )%
Corporate and other | (143.9 | ) |  | (109.2 | ) |  | (32 | )%
Total | $ | 787.2 |  |  | $ | 933.9 |  |  | (16 | )%

“Corporate and other” is comprised principally of general corporate expenses such as our executive officers; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including Gibraltar; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.
Total Assets ($ amounts in millions):

| At October 31,
| 2019 |  | 2018
Traditional Home Building: |  |  |
North | $ | 917.5 |  |  | $ | 970.9 |
Mid-Atlantic | 1,177.4 |  |  | 1,130.4 |
South | 1,412.5 |  |  | 1,237.7 |
West | 2,057.4 |  |  | 1,580.2 |
California | 2,339.7 |  |  | 2,734.0 |
Traditional Home Building | 7,904.5 |  |  | 7,653.2 |
City Living | 529.5 |  |  | 516.2 |
Corporate and other | 2,394.1 |  |  | 2,075.2 |
Total | $ | 10,828.1 |  |  | $ | 10,244.6 |

39

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

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sales Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 923.3 |  |  | $ | 975.7 |  |  | (5 | )%
Units delivered | 1,325 |  |  | 1,453 |  |  | (9 | )%
Average delivered price ($ in thousands) | $ | 696.8 |  |  | $ | 671.5 |  |  | 4 | %
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 910.1 |  |  | $ | 928.1 |  |  | (2 | )%
Net contracted units | 1,303 |  |  | 1,334 |  |  | (2 | )%
Average contracted price ($ in thousands) | $ | 698.5 |  |  | $ | 695.7 |  |  | — | %
Home sales cost of revenues as a percentage of home sales revenues | 85.4 | % |  | 86.7 | % |  |  |
Income before income taxes ($ in millions) | $ | 55.9 |  |  | $ | 56.5 |  |  | (1 | )%
Number of selling communities at October 31, | 50 |  |  | 57 |  |  | (12 | )%

The decrease in the number of homes delivered in fiscal 2019 was mainly due to a decrease in the number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017. The increase in the average price of homes delivered in fiscal 2019 was due primarily to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018, particularly in Michigan and New Jersey.
The decrease in the number of net contracts signed in fiscal 2019, as compared to fiscal 2018, was principally due to a decrease in demand in fiscal 2019, as compared to fiscal 2018.
The decrease in income before income taxes in fiscal 2019 was principally attributable to lower home sales cost of revenues, as a percentage of home sale revenues, offset, in part, by lower earnings from decreased home sales revenues and higher SG&A costs in fiscal 2019, as compared to fiscal 2018. The decrease in home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019 was primarily due to a shift in product mix/areas to higher-margin areas and lower inventory impairment charges in fiscal 2019, as compared to fiscal 2018.
Inventory impairment charges were $17.5 million in fiscal 2019, as compared to $19.7 million in fiscal 2018. During fiscal 2019, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Illinois needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in the community. As a result of the reduction in expected sales prices, we determined that this community was impaired. Accordingly, the carrying value was written down in the fiscal 2019 period to its estimated fair value, which resulted in a charge to income before income taxes of $6.6 million. In addition, with respect to two communities located in Illinois, we decided to sell their remaining lots in bulk sales rather than sell and construct homes. As a result, the carrying values of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $4.9 million in fiscal 2019.
During fiscal 2018, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Connecticut needed to be reduced, primarily due to a lack of improvement and/or a decrease in customer demand as a result of weaker than expected market conditions. As a result of the reduction in expected sales prices, we determined that this community was impaired. Accordingly, its carrying value was written down to its estimated fair value, which resulted in a charge to income before income taxes of $12.0 million in fiscal 2018. In addition, with respect to two communities located in Illinois and Minnesota, we decided to sell their remaining lots in bulk sales rather than sell and construct homes. As a result, the carrying values of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $4.4 million in fiscal 2018.
40

Mid-Atlantic

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sales Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 1,112.8 |  |  | $ | 1,141.1 |  |  | (2 | )%
Units delivered | 1,708 |  |  | 1,800 |  |  | (5 | )%
Average delivered price ($ in thousands) | $ | 651.5 |  |  | $ | 633.9 |  |  | 3 | %
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 1,137.8 |  |  | $ | 1,158.3 |  |  | (2 | )%
Net contracted units | 1,725 |  |  | 1,799 |  |  | (4 | )%
Average contracted price ($ in thousands) | $ | 659.6 |  |  | $ | 643.9 |  |  | 2 | %
Home sales cost of revenues as a percentage of home sales revenues | 86.3 | % |  | 84.4 | % |  |  |
Income (loss) before income taxes ($ in millions) | $ | 64.8 |  |  | $ | 90.6 |  |  | (28 | )%
Number of selling communities at October 31, | 56 |  |  | 62 |  |  | (10 | )%

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018. The increase in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in the average number of selling communities in fiscal 2019, as compared to fiscal 2018. The increase in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The decrease in income before income taxes in fiscal 2019 was mainly due to increases in home sales costs of revenues, as a percentage of home sale revenues; lower earnings on decreased home sales revenues; and increases in SG&A costs in fiscal 2019, as compared to fiscal 2018. This decrease was partially offset by a $4.0 million impairment charge recognized in fiscal 2018 related to one Land Development Joint Venture located in Maryland. The increase in home sales costs of revenues, as a percentage of home sale revenues, in fiscal 2019 was primarily due to higher material and labor costs in fiscal 2019, as compared to fiscal 2018.
Inventory impairment charges were $8.5 million and $9.8 million in fiscal 2019 and 2018, respectively. During our review of operating communities for impairment in fiscal 2019, we determined that the pricing assumptions used in prior impairment reviews for two operating communities located in Pennsylvania needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in the community. As a result of the reduction in expected sales prices, we determined that these communities were impaired. Accordingly, the carrying value of these communities were written down to their estimated fair values, which resulted in a charge to income before income taxes of $8.0 million in fiscal 2019.
In fiscal 2018, we decided to sell a portion of the lots in a bulk sale in one community located in Maryland, primarily due to increases in site costs and a lack of improvement in customer demand as a result of weaker than expected market conditions. The carrying value of this community was written down to its estimated fair value resulting in a charge to income before income taxes in fiscal 2018 of $6.7 million.
41

South

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sale Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 1,244.6 |  |  | $ | 1,045.4 |  |  | 19 | %
Units delivered | 1,725 |  |  | 1,391 |  |  | 24 | %
Average delivered price ($ in thousands) | $ | 721.5 |  |  | $ | 751.5 |  |  | (4 | )%
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 1,177.3 |  |  | $ | 1,132.7 |  |  | 4 | %
Net contracted units | 1,705 |  |  | 1,502 |  |  | 14 | %
Average contracted price ($ in thousands) | $ | 690.5 |  |  | $ | 754.1 |  |  | (8 | )%
Home sales cost of revenues as a percentage of home sales revenues | 84.2 | % |  | 83.3 | % |  |  |
Income before income taxes ($ in millions) | $ | 117.5 |  |  | $ | 110.3 |  |  | 7 | %
Number of selling communities at October 31, | 93 |  |  | 69 |  |  | 35 | %

The increase in the number of homes delivered in fiscal 2019 was mainly due to the delivery of 137 homes in metropolitan Atlanta, Georgia and several markets in South Carolina from the Sharp and Sabal acquisitions; an increase in the number of homes in backlog at October 31, 2018, as compared to the number of homes in backlog at October 31, 2017; and higher backlog conversion in fiscal 2019, as compared to fiscal 2018. The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The increase in the number of net contracts signed in fiscal 2019 was mainly due to contracts we signed in the metropolitan Atlanta, Georgia market and several markets in South Carolina in fiscal 2019 and an increase in the number of selling communities, primarily in Florida, in fiscal 2019, as compared to fiscal 2018, offset, in part, by decreased demand. The decrease in the average value of each contract signed in fiscal 2019 was mainly due to shifts in the number of contracts signed to less expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The increase in income before income taxes in fiscal 2019 was principally due to higher earnings from increased home sales revenues, offset, in part, by higher cost of home sales revenues, as a percentage of home sales revenues. The increase in home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019 was primarily due to higher material and labor costs and a shift in product mix/areas to lower-margin areas in fiscal 2019, as compared to fiscal 2018.
Inventory impairment charges were $9.5 million and $3.8 million in fiscal 2019 and 2018, respectively. During fiscal 2019, we decided to sell the remaining lots in a bulk sale in one community located in Texas rather than sell and construct homes, primarily due to a lack of improvement and/or a decrease in customer demand. As a result, the carrying value of this community was written down to its estimated fair value, which resulted in a charge to income before income taxes of $1.5 million in fiscal 2019. In addition, we terminated three purchase agreements to acquire land parcels in Texas and forfeited the deposit balances outstanding. We wrote off the deposits resulting in a charges to income before income taxes of $4.2 million in fiscal 2019.
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West

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sales Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 1,418.0 |  |  | $ | 1,451.4 |  |  | (2 | )%
Units delivered | 1,965 |  |  | 2,130 |  |  | (8 | )%
Average delivered price ($ in thousands) | $ | 721.6 |  |  | $ | 681.4 |  |  | 6 | %
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 1,705.7 |  |  | $ | 1,510.5 |  |  | 13 | %
Net contracted units | 2,303 |  |  | 2,133 |  |  | 8 | %
Average contracted price ($ in thousands) | $ | 740.6 |  |  | $ | 708.2 |  |  | 5 | %
Home sales cost of revenues as a percentage of home sales revenues | 79.3 | % |  | 78.2 | % |  |  |
Income before income taxes ($ in millions) | $ | 170.4 |  |  | $ | 213.3 |  |  | (20 | )%
Number of selling communities at October 31, | 94 |  |  | 83 |  |  | 13 | %

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018. The increase in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and price increases in fiscal 2019, as compared to fiscal 2018.
The increase in the number of net contracts signed in fiscal 2019 was principally due to an increase in the average number of selling communities in fiscal 2019, as compared to fiscal 2018, and an increase in demand, primarily in the fourth quarter of fiscal 2019. The increase in the average value of each contract signed in fiscal 2019 was mainly due to a shift in the number of contracts signed to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The decrease in income before income taxes in fiscal 2019 was due mainly to higher SG&A costs; higher home sales cost of revenues, as a percentage of home sales revenues; and lower earnings from decreased revenues, in fiscal 2019, as compared to fiscal 2018. The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas in fiscal 2019, as compared to fiscal 2018.
California

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sales Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 2,129.5 |  |  | $ | 2,208.7 |  |  | (4 | )%
Units delivered | 1,180 |  |  | 1,322 |  |  | (11 | )%
Average delivered price ($ in thousands) | $ | 1,804.7 |  |  | $ | 1,670.7 |  |  | 8 | %
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 1,555.3 |  |  | $ | 2,596.9 |  |  | (40 | )%
Net contracted units | 889 |  |  | 1,568 |  |  | (43 | )%
Average contracted price ($ in thousands) | $ | 1,749.5 |  |  | $ | 1,656.2 |  |  | 6 | %
Home sales cost of revenues as a percentage of home sales revenues | 74.0 | % |  | 72.9 | % |  |  |
Income before income taxes ($ in millions) | 452.4 |  |  | 494.3 |  |  | (8 | )%
Number of selling communities at October 31, | 36 |  |  | 38 |  |  | (5 | )%

The decrease in the number of homes delivered in fiscal 2019 was mainly due to lower backlog conversion in fiscal 2019, as compared to fiscal 2018, offset, in part, by the increased number of homes in backlog at October 31, 2018, as compared to the
43

number of homes in backlog at October 31, 2017. The increase in the average price of homes delivered in 2019 was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and increased selling prices of homes delivered in fiscal 2019, as compared to fiscal 2018.
The decrease in the number of net contracts signed in fiscal 2019 was principally due to a decrease in demand and reduced availability of lots in fiscal 2019, as compared to fiscal 2018. The increase in the average value of each contract signed in fiscal 2019 was mainly due to a shift in the number of contracts signed to more expensive areas and/or products in fiscal 2019, as compared to fiscal 2018.
The decrease in income before income taxes in fiscal 2019 was primarily due to lower earnings from the decreased home sales revenues and higher home sales cost of revenues, as a percentage of home sales revenues, in fiscal 2019, as compared to fiscal 2018, partially offset by lower SG&A costs in fiscal 2019. The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas in fiscal 2019, as compared to fiscal 2018, and a $7.0 million benefit in fiscal 2018 from the reversal of an accrual related to the Shapell acquisition that has expired.
City Living

| Year ended October 31,
| 2019 |  | 2018 |  | % Change
Units Delivered and Home Sales Revenues: |  |  |  |  |
Home sales revenues ($ in millions) | $ | 253.2 |  |  | $ | 321.0 |  |  | (21 | )%
Units delivered | 204 |  |  | 169 |  |  | 21 | %
Average delivered price ($ in thousands) | $ | 1,241.2 |  |  | $ | 1,899.4 |  |  | (35 | )%
Net Contracts Signed: |  |  |  |  |  |
Net contract value ($ in millions) | $ | 224.7 |  |  | $ | 277.8 |  |  | (19 | )%
Net contracted units | 150 |  |  | 183 |  |  | (18 | )%
Average contracted price ($ in thousands) | $ | 1,498.3 |  |  | $ | 1,518.0 |  |  | (1 | )%
Home sales cost of revenues as a percentage of home sales revenues | 70.6 | % |  | 75.1 | % |  |  |
Income before income taxes ($ in millions) | $ | 70.1 |  |  | $ | 78.1 |  |  | (10 | )%
Number of selling communities at October 31, | 4 |  |  | 6 |  |  | (33 | )%

The increase in the number of homes delivered in fiscal 2019 was mainly attributable to homes delivered at a building located in Jersey City, New Jersey, which commenced deliveries in the fourth quarter of fiscal 2018. The decrease in the average price of homes delivered in fiscal 2019 was primarily due to a shift in the number of homes delivered to less expensive buildings in fiscal 2019, as compared to fiscal 2018, offset, in part, by the delivery of two homes in fiscal 2019 in a building located in New York City, New York, where the average price was $13.6 million. In fiscal 2019 and 2018, 7% and 37%, respectively, of the units delivered were located in New York City, where average home prices were higher.
The decrease in the number of net contracts signed in fiscal 2019 was primarily due to a decrease in demand. The decrease in the average sales price of net contracts signed in fiscal 2019, as compared to fiscal 2018, was principally due to a shift to less expensive units in fiscal 2019, as compared to fiscal 2018, offset, in part, by the sale of two home in fiscal 2019 period in a building located in New York City, New York, where the average price was $13.6 million.
The decrease in income before income taxes in fiscal 2019 was mainly due to lower earnings from decreased home sales revenues and a decrease in earnings from our investments in unconsolidated entities, in fiscal 2019, as compared to fiscal 2018. This decrease was partially offset by lower home sales cost of revenues, as a percentage of home sale revenues, in fiscal 2019. The lower home sales cost of revenues, as a percentage of home sale revenues, in fiscal 2019 was due primarily to a shift in the number of homes delivered to buildings with higher margins; a state reimbursement of previously expensed environmental clean-up costs received in fiscal 2019; a benefit in fiscal 2019 from the reversal of accruals for certain HOA turnovers that were no longer required; and lower interest costs in fiscal 2019, as compared to fiscal 2018. These decreases were offset, in part, by impairment charges of $4.8 million in fiscal 2019. As a result of decreased demand, we wrote down the carrying value of units in two buildings, located in Maryland and New York, New York, to their estimated fair value, which resulted in impairment charges of $4.8 million in fiscal 2019.
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In fiscal 2019, earnings from our investments in unconsolidated entities decreased $2.8 million as compared to fiscal 2018. This decrease was primarily due a shift in the number of homes delivered to buildings with lower margins and a shift in the number of homes delivered in joint ventures where our ownership percentage was lower in fiscal 2019, as compared to fiscal 2018. The tables below provide information related to deliveries, home sales revenues and net contracts signed by our City Living Home Building Joint Ventures, for the periods indicated, and the related backlog for the dates indicated ($ amounts in millions):

| Year ended October 31,
| 2019 Units |  | 2018 Units |  | 2019 $ |  | 2018 $
Deliveries and home sales revenues | 147 |  |  | 14 |  |  | $ | 330.8 |  |  | $ | 65.7 |
Net contracts signed | 39 |  |  | 102 |  |  | $ | 128.1 |  |  | $ | 245.6 |

| At October 31,
| 2019 Units |  | 2018 Units |  | 2019 $ |  | 2018 $
Backlog | 26 |  |  | 134 |  |  | $ | 76.3 |  |  | $ | 279.0 |

Corporate and other
In fiscal 2019 and 2018, loss before income taxes was $143.9 million and $109.2 million, respectively. The increase in the loss before income taxes in fiscal 2019 was principally attributable to $67.2 million of gains recognized in fiscal 2018 from asset sales by our Rental Property Joint Ventures located in College Park, Maryland, Herndon, Virginia, and Westborough, Massachusetts; a $10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business in fiscal 2018; an increase in losses in several Rental Property Joint Ventures due to the commencement of operations and lease up activities in fiscal 2019; and higher SG&A costs in fiscal 2019 compared to fiscal 2018. These increases were partially offset by gains recognized of $35.1 million from the sale of seven golf clubs in fiscal 2019; a $9.3 million gain recognized from the sales of land to newly formed Rental Property Joint Ventures in fiscal 2019; a $3.8 million gain recognized in fiscal 2019 from an asset sale by a Rental Property Joint Venture in Phoenixville, Pennsylvania; and higher interest income in fiscal 2019.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
The following table shows our debt obligations by scheduled maturity, weighted-average interest rates, and estimated fair value as of October 31, 2019 ($ amounts in thousands):

|  | Fixed-rate debt |  | Variable-rate debt (a)
Fiscal year of maturity |  | Amount |  | Weighted- average interest rate (%) |  | Amount |  | Weighted- average interest rate (%)
2020 |  | $ | 84,096 |  |  | 4.33% |  | $ | 150,000 |  |  | 3.68%
2021 |  | 52,713 |  |  | 3.89% |  | 150 |  |  | 1.26%
2022 |  | 437,668 |  |  | 5.85% |  | 150 |  |  | 1.26%
2023 |  | 421,461 |  |  | 4.42% |  | 150 |  |  | 1.26%
2024 |  | 290,595 |  |  | 5.41% |  | 150 |  |  | 1.26%
Thereafter |  | 1,684,410 |  |  | 4.52% |  | 812,910 |  |  | 3.06%
Bond discounts, premiums, and deferred issuance costs, net |  | (9,978 | ) |  |  |  | (3,128 | ) |  |
Total |  | $ | 2,960,965 |  |  | 4.77% |  | $ | 960,382 |  |  | 3.16%
Fair value at October 31, 2019 |  | $ | 3,121,573 |  |  |  |  | $ | 963,510 |  |  |

(a) | Based upon the amount of variable-rate debt outstanding at October 31, 2019, and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $9.6 million per year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, listed in Item 15(a)(1) beginning on page F-1 of this report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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.
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Management’s Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Independent Registered Public Accounting Firm
Management’s Annual Report on Internal Control Over Financial Reporting and the attestation report of our independent registered public accounting firm on internal control over financial reporting on pages F-1 and F-2, respectively, are incorporated herein by reference.
The Company is in the process of evaluating the existing controls and procedures of each of Sharp Residential, LLC and Sabal Homes LLC and integrating their controls into the Company’s internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded each of Sharp Residential, LLC and Sabal Homes LLC from the Company’s assessment of the effectiveness of internal control over financial reporting as of October 31, 2019. These companies represented less than 2% of the Company’s total assets as of October 31, 2019 and less than 1% of the Company’s revenues for the fiscal year ended October 31, 2019. The Company's acquisition of each of these companies is discussed in Note 2 to its Consolidated Financial Statements for fiscal 2019.
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, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. For a discussion of risks related to the implementation of our new ERP system, see “Risk Factors - We are implementing a new enterprise resource planning system, and challenges with the system may impact our business and operations.”
ITEM 9B. OTHER INFORMATION
Not applicable.
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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. |  | 59 |  |  | Chairman of the Board, President and Chief Executive Officer
James W. Boyd |  | 63 |  |  | Executive Vice President and Co-Chief Operating Officer
Robert Parahus |  | 56 |  |  | Executive Vice President and Co-Chief Operating Officer
Martin P. Connor |  | 55 |  |  | Senior Vice President and Chief Financial Officer

Douglas C. Yearley, Jr. joined us in 1990 as assistant to the Chief Executive Officer with responsibility for land acquisitions. He has been an officer since 1994, holding the position of Senior Vice President from January 2002 until November 2005, the position of Regional President from November 2005 until November 2009, and the position of Executive Vice President from November 2009 until June 2010, when he was promoted to Chief Executive Officer. On November 1, 2018, he was appointed to the position of Chairman of the Board and Chief Executive Officer and was appointed President effective November 1, 2019. Mr. Yearley was elected a Director in June 2010.
James W. Boyd initially joined us in 1983 and remained until 1985, when he launched his own independent development company, before rejoining the Company in 1993 to serve in various positions, including Regional President from 2005 through October 31, 2019. He was appointed to the position of Executive Vice President and Co-Chief Operating Officer effective November 1, 2019, with responsibility for the Company’s western region. Prior to his appointment to Executive Vice President and Co-Chief Operating Officer, Mr. Boyd oversaw the Company’s homebuilding operations in California, Nevada and Idaho.
Robert Parahus joined us in 1986 and served in various positions with us, including Regional President from 2006 through October 31, 2019. He was appointed to the position of Executive Vice President and Co-Chief Operating Officer effective November 1, 2019, with responsibility for the Company’s eastern region. Prior to his appointment to Executive Vice President and Co-Chief Operating Officer, Mr. Parahus oversaw the Company’s homebuilding operations in New Jersey, New York, Connecticut, Massachusetts and Florida, and had oversight responsibility for Toll Integrated Systems, the Company’s building component manufacturing operations.
Martin P. Connor joined us as Vice President and Assistant Chief Financial Officer in December 2008 and was appointed a Senior Vice President in December 2009. Mr. Connor was appointed to his current position of Senior Vice President and Chief Financial Officer in September 2010. From June 2008 to December 2008, Mr. Connor was President of Marcon Advisors LLC, a finance and accounting consulting firm that he founded. From October 2006 to June 2008, Mr. Connor was Chief Financial Officer and Director of Operations for O’Neill Properties, a diversified commercial real estate developer in the Mid-Atlantic area. Prior to October 2006, he spent over 20 years at Ernst & Young LLP as an Audit and Advisory Business Services Partner, responsible for the real estate practice for Ernst & Young LLP in the Philadelphia marketplace. During the period from 1998 to 2005, he served on the Toll Brothers, Inc. engagement.
The other information required by this item will be included in the “Election of Directors” and “Corporate Governance” sections of our Proxy Statement for the 2020 Annual Meeting of Stockholders (the “2020 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.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the “Executive Compensation” section of our 2020 Proxy Statement and is incorporated herein by reference.
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 2020 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 2020 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 2020 Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Financial Statement Schedules

| Page
1. Financial Statements |
Management’s Annual Report on Internal Control Over Financial Reporting | F-1
Reports of Independent Registered Public Accounting Firm | F-2
Consolidated Balance Sheets | F-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.

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Exhibit Number |  | Description
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 |  | Bylaws of the Registrant, as Amended and Restated June 11, 2008, are hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2008.
3.6 |  | Amendment to the By-laws of the Registrant, dated as of September 24, 2009, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2009.
3.7 |  | Amendment to the By-laws of the Registrant, dated as of June 15, 2011, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 16, 2011.
3.8 |  | Amendment to the By-laws of the Registrant, dated as of January 20, 2016, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 20, 2016.
3.9 |  | Amendment to the By-laws of the Registrant, dated as of September 20, 2016, is hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 20, 2016.
4.1 |  | Specimen Stock Certificate is hereby incorporated by reference to Exhibit 4.1 of the Registratant’s Form 10-K for the year ended October 31, 2017.
4.2 |  | Indenture, dated as of February 7, 2012, among Toll Brothers Finance Corp., the Registrant and the other guarantors named therein and The Bank of New York Mellon, as trustee, is hereby incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012.
4.3 |  | Authorizing Resolutions, dated as of January 31, 2012, relating to the $300,000,000 principal amount of 5.875% Senior Notes due 2022 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012.
4.4 |  | Form of Global Note for Toll Brothers Finance Corp.’s 5.875% Senior Notes due 2022 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2012.
4.5 |  | Authorizing Resolutions, dated as of April 3, 2013, relating to the $300,000,000 principal amount of 4.375% Senior Notes due 2023 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2013.
4.6 |  | Authorizing Resolutions, dated as of May 8, 2013, relating to the $100,000,000 principal amount of 4.375% Senior Notes due 2023 of Toll Brothers Finance Corp. guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2013.
4.7 |  | Form of Global Note for Toll Brothers Finance Corp.’s 4.375% Senior Notes due 2023 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 10, 2013.
4.8 |  | Authorizing Resolutions, dated as of November 21, 2013, relating to the $250,000,000 principal amount of 5.625% Senior Notes due 2024 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2013.

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Exhibit Number |  | Description
4.9 |  | Form of Global Note for Toll Brothers Finance Corp.’s 5.625% Senior Notes due 2024 is hereby incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2013.
4.10 |  | Authorizing Resolutions, dated as of October 30, 2015, relating to the $350,000,000 principal amount of 4.875% Senior Notes due 2025 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015.
4.11 |  | Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2025 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2015.
4.12 |  | Authorizing Resolutions, dated as of March 10, 2017, relating to the $300,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017.
4.13 |  | Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2017.
4.14 |  | Authorizing Resolutions, dated as of June 12, 2017, relating to the $150,000,000 principal amount of 4.875% Senior Notes due 2027 of Toll Brothers Finance Corp. guaranteed on a senior basis by the Registrant and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017.
4.15 |  | Form of Global Note for Toll Brothers Finance Corp.’s 4.875% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2017
4.16 |  | Authorizing Resolution, dated as of January 22, 2018, relating to the $400,000,000 aggregate principal amount of 4.350% Senior Notes due 2028 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018.
4.17 |  | Form of Global Note for the Issuer’s 4.350% Senior Notes due 2028 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2018.
4.18 |  | Authorizing Resolution, dated as of September 12, 2019, relating to the $400,000,000 aggregate principal amount of 3.800% Senior Notes due 2029 of Toll Brothers Finance Corp., guaranteed on a senior basis by Toll Brothers, Inc. and certain of its subsidiaries, is hereby incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019.
4.19 |  | Form of Global Note for the Issuer’s 3.800% Senior Notes due 2029 is hereby incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2019.
4.20 |  | First Supplemental Indenture dated as of April 27, 2012, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2012.
4.21 |  | Second Supplemental Indenture dated as of April 30, 2013, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2013.
4.22 |  | Third Supplemental Indenture dated as of April 30, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended April 30, 2014.

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Exhibit Number |  | Description
4.23 |  | Fourth Supplemental Indenture dated as of July 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q for the quarter ended July 31, 2014.
4.24 |  | Fifth Supplemental Indenture dated as of October 31, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2014.
4.25 |  | Sixth Supplemental Indenture dated as of January 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended January 31, 2015.
4.26 |  | Seventh Supplemental Indenture dated as of April 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2015.
4.27 |  | Eighth Supplemental Indenture dated as of October 30, 2015, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.34 of the Registrant’s Form 10-K for the year ended October 31, 2015.
4.28 |  | Ninth Supplemental Indenture dated as of January 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2016.
4.29 |  | Tenth Supplemental Indenture dated as of April 29, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2016.
4.30 |  | Eleventh Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.41 of the Registrant’s Form 10-K for the year ended October 31, 2016.
4.31 |  | Twelfth Supplemental Indenture dated as of October 31, 2016, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.42 of the Registrant’s Form 10-K for the year ended October 31, 2016.
4.32 |  | Thirteenth Supplemental Indenture dated as of January 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended January 31, 2017.
4.33 |  | Fourteenth Supplemental Indenture dated as of April 28, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended April 30, 2017.
4.34 |  | Fifteenth Supplemental Indenture dated as of July 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q for the quarter ended July 31, 2017.
4.35 |  | Sixteenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.55 of the Registrant’s Form 10-K for the year ended October 31, 2017.

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Exhibit Number |  | Description
4.36 |  | Seventeenth Supplemental Indenture dated as of October 31, 2017, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.56 of the Registrant’s Form 10-K for the year ended October 31, 2017.
4.37 |  | Eighteenth Supplemental Indenture dated as of April 13, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.3 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018.
4.38 |  | Nineteenth Supplemental Indenture dated as of April 30, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.4 of the Registrant’s Form 10-Q for the quarter ended April 30, 2018.
4.39 |  | Twentieth Supplemental Indenture dated as of October 31, 2018, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.62 of the Registrant’s Form 10-K for the year ended October 31, 2018.
4.40 |  | Twenty-First Supplemental Indenture dated as of January 31, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee, is hereby incorporated by reference to Exhibit 4.2 on the Registrant’s Form 10-Q fro the quarter ended January 31, 2019.
4.41 |  | Twenty-Second Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.**
4.42 |  | Twenty-third Supplemental Indenture dated as of October 30, 2019, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.**
4.43 |  | Description of Certain of Registrant’s Securities**
10.1 |  | Amended and Restated Credit Agreement, dated as of October 31,2019, among the First Huntingdon Finance Corp., Toll Brothers, Inc., and the lenders party thereto and Citibank, N.A., as Administrative Agent, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2019.
10.2 |  | 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.

53

Exhibit Number |  | Description
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* |  | Toll Brothers, Inc. Employee Stock Purchase Plan (2017) is hereby incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2017 Annual Meeting of Stockholders filed with the SEC on January 31, 2017.
10.8* |  | 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.
10.9* |  | 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.
10.10* |  | 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.
10.11* |  | 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.
10.12* |  | 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.
10.13* |  | Form of Stock Award Grant pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2007) is hereby incorporated by reference to Exhibit 10.4 of the Registrant’s Form 10-Q for the quarter ended July 31, 2007.
10.14* |  | 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.
10.15* |  | 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.
10.16* |  | Form of Restricted Stock Unit Agreement (Performance Based) pursuant to the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) is incorporated by reference to Exhibit 10.17 of the Registrant’s Form 10-K for the period ended October 31, 2014.
10.17* |  | 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.
10.18* |  | Form of Restricted Stock Unit Agreement (Performance Based), is hereby incorporated by reference to Exhibit 10.19 of the Registrant’s Form 10-K for the year ended October 31, 2016.
10.19* |  | Form of Restricted Stock Unit Agreement (Total Shareholder Return Performance Based), is hereby incorporated by reference to Exhibit 10.20 of the Registrant’s Form 10-K for the year ended October 31, 2016.
10.20* |  | 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.
10.21* |  | 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.

54

Exhibit Number |  | Description
10.22* |  | 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.
10.23* |  | Form of Restricted Stock Unit Award Agreement pursuant to the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) is incorporated by reference to Exhibit 10.21 of the Registrant’s Form 10-K for the period ended October 31, 2014.
10.24* |  | 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.
10.25* |  | 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.
10.26* |  | Form of Restricted Stock Unit Agreement (Non-Executive Directors), is hereby incorporated by reference to Exhibit 10.27 of the Registrant’s Form 10-K for the year ended October 31, 2016.
10.27* |  | 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.
10.28* |  | Form of Non-Qualified Stock Option Grant pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan.**
10.29* |  | Form of Restricted Stock Unit Agreement pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan.**
10.30* |  | Form of Restricted Stock Unit Agreement (Performance Based) pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan.**
10.31* |  | Form of Restricted Stock Unit Agreement (Total Shareholder Return Performance Based), pursuant to the Toll Brothers, Inc. 2019 Omnibus Incentive Plan.**
10.32* |  | Toll Brothers, Inc. Senior Officer Bonus Plan is hereby incorporated by reference to Annex A to the Registrant’s definitive proxy statement on Schedule 14A for its 2015 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 30, 2015.
10.33* |  | 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.
10.34* |  | 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.
10.35* |  | 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.
10.36* |  | 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.
10.37* |  | 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.
10.38* |  | 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.
10.39* |  | 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.

55

Exhibit Number |  | Description
10.40* |  | Form of Indemnification Agreement between the Registrant and the members of its Board of Directors, is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 2009.
10.41* |  | Advisory and Non-Competition Agreement between the Registrant and Robert I. Toll, dated as of October 17, 2018, is hereby incorporated by reference to Exhibit 10.34 to the Registrant’s Form 10-K for the year ended October 31, 2018.
10.42* |  | Advisory and Non-Competition Agreement Extension between the Registrant and Robert I. Toll, dated as of October 29, 2019, is hereby incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2019.
21** |  | Subsidiaries of the Registrant.
23** |  | Consent of Ernst & Young LLP, Independent Registered Public Accountant.
31.1** |  | Certification of Douglas C. Yearley, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2** |  | Certification of Martin P. Connor pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** |  | Certification of Douglas C. Yearley, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** |  | Certification of Martin P. Connor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  | The following financial statements from Toll Brothers, Inc. Annual Report on Form 10-K for the year ended October 31, 2019, filed on [December XX, 2019], formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document)

* | This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
** | Filed electronically herewith.

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.
56

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, in the Township of Horsham, Commonwealth of Pennsylvania, on December 26, 2019.

| 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 26, 2019
Douglas C. Yearley, Jr. |  | Officer (Principal Executive Officer) |  |
/s/ Martin P. Connor |  | Senior Vice President and Chief Financial Officer |  | December 26, 2019
Martin P. Connor |  | (Principal Financial Officer) |  |
/s/ Michael J. Grubb |  | Senior Vice President and Chief Accounting |  | December 26, 2019
Michael J. Grubb |  | Officer (Principal Accounting Officer) |  |
/s/ Edward G. Boehne |  | Director |  | December 26, 2019
Edward G. Boehne |  |  |  |
/s/ Richard J. Braemer |  | Director |  | December 26, 2019
Richard J. Braemer |  |  |  |
/s/ Christine N. Garvey |  | Director |  | December 26, 2019
Christine N. Garvey |  |  |  |
/s/ Karen H. Grimes |  | Director |  | December 26, 2019
Karen H. Grimes |  |  |  |
/s/ Carl B. Marbach |  | Director |  | December 26, 2019
Carl B. Marbach |  |  |  |
/s/ John A. McLean |  | Director |  | December 26, 2019
John A. McLean |  |  |  |
/s/ Stephen A. Novick |  | Director |  | December 26, 2019
Stephen A. Novick |  |  |  |

57

Signature |  | Title |  | Date
/s/ Wendell E. Pritchett |  | Director |  | December 26, 2019
Wendell E. Pritchett |  |  |  |
/s/ Paul E. Shapiro |  | Director |  | December 26, 2019
Paul E. Shapiro |  |  |  |
/s/ Robert I. Toll |  | Director |  | December 26, 2019
Robert I. Toll |  |  |  |

58

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, 2019.
During fiscal 2019, we completed the acquisitions of each of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”). In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded each of Sharp and Sabal from the Company’s assessment of the effectiveness of internal control over financial reporting as of October 31, 2019. These companies represented less than 2% of the Company’s total assets as of October 31, 2019 and less than 1% of the Company’s revenues for the fiscal year ended October 31, 2019.
Our independent registered public accounting firm, Ernst & Young LLP, has issued its report, which is included herein, on the effectiveness of our internal control over financial reporting.
F-1

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Toll Brothers, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Toll Brothers, Inc.’s internal control over financial reporting as of October 31, 2019, 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, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sharp Residential, LLC or Sabal Homes, LLC, which are included in the 2019 consolidated financial statements of the Company and constitute less than 2% of total assets as of October 31, 2019 and less than 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Sharp Residential, LLC or Sabal Homes, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated financial statements of the Company and our report dated December 26, 2019 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 26, 2019
F-2

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Toll Brothers, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Toll Brothers, Inc. (the Company) as of October 31, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2019, 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, 2019, 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 26, 2019 expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition, inventory and cost of revenues in 2019 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and related Subtopic ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers.
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.

|  | Water Intrusion Reserves
Description of the Matter |  | As described in Note 7 of the consolidated financial statements, the Company accrues for the estimated repair costs to be incurred for known and unknown water intrusion claims from owners of certain homes built in Pennsylvania and Delaware. At October 31, 2019, the Company had an accrued liability for water intrusion claims of $124.6 million, representing its best estimate of the expected costs related to known and future water intrusion claims. The Company calculated the estimated liability for water intrusion claims using assumptions that are subject to significant uncertainty, including the number of homes that require repairs, outcomes of litigation or arbitrations, the extent of repairs required, the repair procedures employed, and the expected costs of those repairs or costs incurred to otherwise settle the homeowner’s claim. Due to the degree of judgment required in making these assumptions and the inherent uncertainty of certain outcomes, it is reasonably possible that the actual costs will differ from the amount accrued. If it is reasonably

F-3

|  | possible that such additional costs may be incurred and the effect on the financial statements is material, the Company discloses an estimate of the amount or range of additional costs or a statement that such an estimate cannot be made within the notes to the financial statements. Auditing the Company’s accounting for water intrusion claims, and the related disclosures, was especially challenging as evaluating the likelihood and amount of cost was highly subjective and required significant judgment. In particular, management’s estimates were sensitive to assumptions about the number of claims and the costs to settle the claims, which are projected to be resolved over an extended period of time, and the amount accrued by the Company was sensitive to relatively small changes in those assumptions.

How We Addressed the Matter in Our Audit |  | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the accrual calculation, including controls over the significant assumptions and the data inputs utilized in the calculations, as well as the financial statement disclosures. For example, we tested controls over management’s review of the accrual calculation, including its review of the significant assumptions and the data inputs utilized in the calculations. We also tested controls over management’s review of the disclosure in the notes to the consolidated financial statements for compliance with generally accepted accounting principles. To test the estimated liability and related financial statement disclosures for water intrusion claims, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to historical water intrusion claims data, historical data about additional homes delivered by the Company that could potentially be subject to water intrusion claims, and historical costs incurred to either repair homes or otherwise settle water intrusion claims from homeowners. We also reviewed contractual agreements and evaluated management’s conclusions about the Company’s legal and contractual obligations with respect to water intrusion claims. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the accrual for water intrusion claims that would result from changes in the assumptions. We recalculated the Company’s liability for water intrusion claims using management’s data and evaluated the disclosure of the liability in the Company’s consolidated financial statements.

|  | Insurance Receivable
Description of the Matter |  | As described in Note 7 of the consolidated financial statements, the Company recorded a receivable for expected recoveries from insurance carriers. At October 31, 2019, the Company recorded an estimated insurance receivable of $97.9 million, inclusive of amounts that are subject to dispute with the Company’s insurance carriers. Auditing management’s accounting for the existence of insurance receivable was especially challenging due to the complexity and variability of the underlying claims. Evaluating the likelihood and amount of recoveries from insurance carriers was highly subjective and required significant judgment. In particular, as stated in Note 7. of the consolidated financial statements, management’s estimates were sensitive to assumptions about the amount of losses that the Company will incur on warranty related repairs by policy year and management’s conclusions about the legal merits that support the pending and future insurance claims.

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 review of the expected recoveries from insurance carriers and the recorded receivable, including controls over the significant assumptions and the data inputs used to calculate the expected recoverable amount, as well as the financial statement disclosures. For example, we tested controls over management’s review of the insurance policies and related coverage, the legal merits of the claims made and the expected amounts to be covered under those insurance policies. To test the expected recoveries from insurance carriers, we performed audit procedures that included, among others, reading and understanding the Company’s insurance policies, testing the claims submitted under the Company’s insurance policies to verify the completeness, occurrence and measurement of the loss, and, when applicable, vouching cash receipts from the insurance carrier for previously submitted claims. We also tested the Company’s calculation of the losses the Company expects to incur on warranty related repairs by policy year. We reviewed communications between the Company and its insurance carriers and evaluated management’s conclusions about the legal merits of the insurance claims with respect to the recorded receivable by performing procedures that included, among others, reviewing correspondence from external counsel regarding the legal merits of the Company’s insurance claims.

|  | Inventory Impairment
Description of the Matter |  | As described in Note 1 of the consolidated financial statements, the Company states its inventory at cost unless an impairment exists, in which case the inventory is written down to fair value. For the year ended October 31, 2019, the Company recorded inventory impairment charges of $31.1 million. The Company regularly evaluates whether there are any impairment indicators for inventory present at the community level. If impairment indicators are present, the Company reviews the carrying value of each community’s inventory by comparing the estimated future undiscounted cash flow to the carrying value. For inventory for which the carrying value exceeds the future undiscounted cash flows, the Company writes down the carrying value of the inventory to its estimated fair value primarily based on a discounted cash flow model. Auditing management’s accounting for inventory impairment, its tests for recoverability and, when applicable, its measurement of impairment losses, was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in these evaluations. In particular, management’s assumptions and estimates included future sales prices, the pace of future sales, and the applicable discount rates, which were sensitive to expectations about future demand, operations and economic factors. Additionally, the fair value of certain communities was highly sensitive to relatively small changes in one or more of those assumptions.

How We Addressed the Matter in Our Audit |  | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s inventory impairment review process. For example, we tested controls over management’s review of the significant assumptions and data inputs utilized in the calculation of future undiscounted and discounted cash flows. To test the Company’s estimated future cash flows used to test for the recoverability of a community and, if applicable, the measurement of an impairment loss, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses, evaluating the methodologies applied by management, and recalculating the total undiscounted and discounted cash flows 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.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1983.
Philadelphia, Pennsylvania
December 26, 2019
F-5

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

| October 31,
| 2019 |  | 2018
ASSETS |  |  |
Cash and cash equivalents | $ | 1,286,014 |  |  | $ | 1,182,195 |
Inventory | 7,873,048 |  |  | 7,598,219 |
Property, construction, and office equipment, net | 273,412 |  |  | 193,281 |
Receivables, prepaid expenses, and other assets (1) | 715,441 |  |  | 550,778 |
Mortgage loans held for sale, at fair value | 218,777 |  |  | 170,731 |
Customer deposits held in escrow | 74,403 |  |  | 117,573 |
Investments in unconsolidated entities | 366,252 |  |  | 431,813 |
Income taxes receivable | 20,791 |  |  | — |
| $ | 10,828,138 |  |  | $ | 10,244,590 |
LIABILITIES AND EQUITY |  |  |
Liabilities |  |  |
Loans payable | $ | 1,111,449 |  |  | $ | 686,801 |
Senior notes | 2,659,898 |  |  | 2,861,375 |
Mortgage company loan facility | 150,000 |  |  | 150,000 |
Customer deposits | 385,596 |  |  | 410,864 |
Accounts payable | 348,599 |  |  | 362,098 |
Accrued expenses | 950,932 |  |  | 973,581 |
Income taxes payable | 102,971 |  |  | 30,959 |
Total liabilities | 5,709,445 |  |  | 5,475,678 |
Equity |  |  |
Stockholders’ equity |  |  |
Preferred stock, none issued | — |  |  | — |
Common stock, 152,937 and 177,937 shares issued at October 31, 2019 and 2018, respectively | 1,529 |  |  | 1,779 |
Additional paid-in capital | 726,879 |  |  | 727,053 |
Retained earnings | 4,774,422 |  |  | 5,161,551 |
Treasury stock, at cost — 11,999 and 31,774 shares at October 31, 2019 and 2018, respectively | (425,183 | ) |  | (1,130,878 | )
Accumulated other comprehensive (loss) income | (5,831 | ) |  | 694 |
Total stockholders’ equity | 5,071,816 |  |  | 4,760,199 |
Noncontrolling interest | 46,877 |  |  | 8,713 |
Total equity | 5,118,693 |  |  | 4,768,912 |
| $ | 10,828,138 |  |  | $ | 10,244,590 |

(1) | As of October 31, 2019 and 2018, receivables, prepaid expenses, and other assets include $145.8 million and $19.7 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,
| 2019 |  | 2018 |  | 2017
Revenues: |  |  |  |  |
Home sales | $ | 7,080,379 |  |  | $ | 7,143,258 |  |  | $ | 5,815,058 |
Land sales | 143,587 |  |  | — |  |  | — |
| 7,223,966 |  |  | 7,143,258 |  |  | 5,815,058 |
Cost of revenues: |  |  |  |  |
Home sales | 5,678,914 |  |  | 5,673,007 |  |  | 4,562,303 |
Land sales | 129,704 |  |  | — |  |  | — |
| 5,808,618 |  |  | 5,673,007 |  |  | 4,562,303 |
Selling, general and administrative | 734,548 |  |  | 684,035 |  |  | 605,572 |
Income from operations | 680,800 |  |  | 786,216 |  |  | 647,183 |
Other: |  |  |  |  |
Income from unconsolidated entities | 24,868 |  |  | 85,240 |  |  | 116,066 |
Other income – net | 81,502 |  |  | 62,460 |  |  | 51,062 |
Income before income taxes | 787,170 |  |  | 933,916 |  |  | 814,311 |
Income tax provision | 197,163 |  |  | 185,765 |  |  | 278,816 |
Net income | $ | 590,007 |  |  | $ | 748,151 |  |  | $ | 535,495 |
Other comprehensive (loss) income, net of tax | (6,525 | ) |  | 2,926 |  |  | 1,426 |
Total comprehensive income | $ | 583,482 |  |  | $ | 751,077 |  |  | $ | 536,921 |
Per share: |  |  |  |  |
Basic earnings | $ | 4.07 |  |  | $ | 4.92 |  |  | $ | 3.30 |
Diluted earnings | $ | 4.03 |  |  | $ | 4.85 |  |  | $ | 3.17 |
Weighted-average number of shares: |  |  |  |  |
Basic | 145,008 |  |  | 151,984 |  |  | 162,222 |
Diluted | 146,501 |  |  | 154,201 |  |  | 169,487 |

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 |  | Accum- ulated Other Compre- hensive Loss |  | Stock-holders’ Equity |  | Non-controlling Interest |  | Total Equity
| Shares |  | $ |  | $ |  | $ |  | $ |  | $ |  | $ |  | $ |  | $
Balance, November 1, 2016 | 177,937 |  |  | 1,779 |  |  | 728,464 |  |  | 3,977,297 |  |  | (474,912 | ) |  | (3,336 | ) |  | 4,229,292 |  |  | 5,910 |  |  | 4,235,202 |
Net income |  |  |  |  |  |  | 535,495 |  |  |  |  |  |  | 535,495 |  |  |  |  | 535,495 |
Purchase of treasury stock |  |  |  |  |  |  |  |  |  | (290,881 | ) |  |  |  | (290,881 | ) |  |  |  | (290,881 | )
Exercise of stock options and stock based compensation issuances |  |  |  |  |  |  | (36,896 | ) |  |  |  | 101,799 |  |  |  |  | 64,903 |  |  |  |  | 64,903 |
Employee stock purchase plan issuances |  |  |  |  |  | 81 |  |  |  |  | 1,140 |  |  |  |  | 1,221 |  |  |  |  | 1,221 |
Stock-based compensation |  |  |  |  | 28,466 |  |  |  |  |  |  |  |  | 28,466 |  |  |  |  | 28,466 |
Dividends declared |  |  |  |  |  |  |  |  | (38,728 | ) |  |  |  |  |  | (38,728 | ) |  |  |  | (38,728 | )
Other comprehensive income |  |  |  |  |  |  |  |  |  |  | 1,426 |  |  | 1,426 |  |  |  |  | 1,426 |
Loss attributable to non-controlling interest |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | (14 | ) |  | (14 | )
Balance, October 31, 2017 | 177,937 |  |  | 1,779 |  |  | 720,115 |  |  | 4,474,064 |  |  | (662,854 | ) |  | (1,910 | ) |  | 4,531,194 |  |  | 5,896 |  |  | 4,537,090 |
Cumulative effect adjustment upon adoption of ASU 2016-09 and ASU 2018-02 |  |  |  |  | 372 |  |  | 1,413 |  |  |  |  | (322 | ) |  | 1,463 |  |  |  |  | 1,463 |
Net income |  |  |  |  |  |  | 748,151 |  |  |  |  |  |  | 748,151 |  |  |  |  | 748,151 |
Purchase of treasury stock |  |  |  |  |  |  |  |  |  | (503,159 | ) |  |  |  | (503,159 | ) |  |  |  | (503,159 | )
Exercise of stock options and stock based compensation issuances |  |  |  |  |  |  | (21,789 | ) |  |  |  | 33,969 |  |  |  |  | 12,180 |  |  |  |  | 12,180 |
Employee stock purchase plan issuances |  |  |  |  |  | 43 |  |  |  |  | 1,166 |  |  |  |  | 1,209 |  |  |  |  | 1,209 |
Stock-based compensation |  |  |  |  | 28,312 |  |  |  |  |  |  |  |  | 28,312 |  |  |  |  | 28,312 |
Dividends declared |  |  |  |  |  |  |  |  | (62,077 | ) |  |  |  |  |  | (62,077 | ) |  |  |  | (62,077 | )
Other comprehensive income |  |  |  |  |  |  |  |  |  |  | 2,926 |  |  | 2,926 |  |  |  |  | 2,926 |
Loss attributable to non-controlling interest |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | (15 | ) |  | (15 | )
Capital contribution |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 2,832 |  |  | 2,832 |
Balance, October 31, 2018 | 177,937 |  |  | 1,779 |  |  | 727,053 |  |  | 5,161,551 |  |  | (1,130,878 | ) |  | 694 |  |  | 4,760,199 |  |  | 8,713 |  |  | 4,768,912 |
Cumulative effect adjustment upon adoption of ASC 606, net of tax |  |  |  |  |  |  | (17,987 | ) |  |  |  |  |  |  | (17,987 | ) |  |  |  | (17,987 | )
Net income |  |  |  |  |  |  | 590,007 |  |  |  |  |  |  | 590,007 |  |  |  |  | 590,007 |
Purchase of treasury stock |  |  |  |  |  |  |  |  |  | (233,523 | ) |  |  |  | (233,523 | ) |  |  |  | (233,523 | )
Exercise of stock options and stock based compensation issuances |  |  |  |  |  |  | (26,368 | ) |  |  |  | 42,392 |  |  |  |  | 16,024 |  |  |  |  | 16,024 |
Employee stock purchase plan issuances |  |  |  |  |  | 14 |  |  |  |  | 1,309 |  |  |  |  | 1,323 |  |  |  |  | 1,323 |
Stock-based compensation |  |  |  |  | 26,180 |  |  |  |  |  |  |  |  | 26,180 |  |  |  |  | 26,180 |
Cancellation of treasury stock | (25,000 | ) |  | (250 | ) |  |  |  | (895,267 | ) |  | 895,517 |  |  |  |  |  | — |  |  |  |  | — |
Dividends declared |  |  |  |  |  |  | (63,882 | ) |  |  |  |  |  |  | (63,882 | ) |  |  |  | (63,882 | )
Other comprehensive loss |  |  |  |  |  |  |  |  |  |  | (6,525 | ) |  | (6,525 | ) |  |  |  | (6,525 | )
Loss attributable to non-controlling interest |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | (19 | ) |  | (19 | )
Capital contributions |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 38,183 |  |  | 38,183 |
Balance, October 31, 2019 | 152,937 |  |  | 1,529 |  |  | 726,879 |  |  | 4,774,422 |  |  | (425,183 | ) |  | (5,831 | ) |  | 5,071,816 |  |  | 46,877 |  |  | 5,118,693 |

See accompanying notes.
F-8

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

|  | Year ended October 31,
|  | 2019 |  | 2018 |  | 2017
Cash flow provided by operating activities: |  |  |  |  |  |
Net income |  | $ | 590,007 |  |  | $ | 748,151 |  |  | $ | 535,495 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation and amortization |  | 72,149 |  |  | 25,259 |  |  | 25,361 |
Stock-based compensation |  | 26,180 |  |  | 28,312 |  |  | 28,466 |
Income from unconsolidated entities |  | (24,868 | ) |  | (85,240 | ) |  | (116,066 | )
Distributions of earnings from unconsolidated entities |  | 31,799 |  |  | 86,099 |  |  | 134,291 |
Income from foreclosed real estate and distressed loans |  | (947 | ) |  | (1,551 | ) |  | (4,937 | )
Deferred tax provision (benefit) |  | 102,764 |  |  | (21,930 | ) |  | 217,864 |
Change in deferred tax valuation allowances |  |  |  |  |  |  |  | (32,154 | )
Inventory impairments and write-offs |  | 42,360 |  |  | 35,156 |  |  | 14,794 |
Gain on sales of golf club properties and an office building |  | (36,277 | ) |  |  |  |  |  |
Other |  | (1,042 | ) |  | 3,111 |  |  | 1,395 |
Changes in operating assets and liabilities |  |  |  |  |  |
(Increase) decrease in inventory |  | (40,236 | ) |  | (143,598 | ) |  | 129,666 |
Origination of mortgage loans |  | (1,611,496 | ) |  | (1,449,494 | ) |  | (1,217,274 | )
Sale of mortgage loans |  | 1,565,944 |  |  | 1,410,627 |  |  | 1,332,207 |
Increase in receivables, prepaid expenses, and other assets |  | (185,261 | ) |  | (99,604 | ) |  | (60,944 | )
Increase in income taxes receivable |  | (20,791 | ) |  |  |  |  |  |
Increase (decrease) in customer deposits – net |  | 14,041 |  |  | (718 | ) |  | 37,967 |
(Decrease) increase in accounts payable and accrued expenses |  | (64,518 | ) |  | 57,927 |  |  | (140,463 | )
Decrease in income taxes payable |  | (22,147 | ) |  | (4,296 | ) |  | (23,970 | )
Net cash provided by operating activities |  | 437,661 |  |  | 588,211 |  |  | 861,698 |
Cash flow (used in) provided by investing activities: |  |  |  |  |  |
Purchase of property, construction, and office equipment – net |  | (86,971 | ) |  | (28,232 | ) |  | (28,872 | )
Sale and redemption of marketable securities and restricted investments — net |  |  |  |  |  |  |  | 18,049 |
Investments in unconsolidated entities |  | (56,560 | ) |  | (27,491 | ) |  | (122,334 | )
Return of investments in unconsolidated entities |  | 147,927 |  |  | 133,190 |  |  | 195,505 |
Investment in foreclosed real estate and distressed loans |  | (731 | ) |  | (966 | ) |  | (710 | )
Return of investments in foreclosed real estate and distressed loans |  | 3,147 |  |  | 4,765 |  |  | 13,765 |
Proceeds from sales of golf club properties and an office building |  | 79,647 |  |  |  |  |  |  |
Acquisitions of businesses |  | (162,373 | ) |  |  |  |  | (83,088 | )
Net cash (used in) provided by investing activities |  | (75,914 | ) |  | 81,266 |  |  | (7,685 | )
Cash flow used in financing activities: |  |  |  |  |  |
Proceeds from issuance of senior notes |  | 400,000 |  |  | 400,000 |  |  | 455,483 |
Proceeds from loans payable |  | 2,699,028 |  |  | 2,630,835 |  |  | 1,621,043 |
Debt issuance costs |  | (6,180 | ) |  | (3,531 | ) |  | (4,449 | )
Principal payments of loans payable |  | (2,471,616 | ) |  | (2,690,164 | ) |  | (1,999,357 | )
Redemption of senior notes |  | (600,000 | ) |  |  |  |  | (687,500 | )
Proceeds from stock-based benefit plans, net |  | 17,369 |  |  | 13,392 |  |  | 66,000 |
Purchase of treasury stock |  | (233,523 | ) |  | (503,159 | ) |  | (290,881 | )
Dividends paid |  | (63,641 | ) |  | (61,704 | ) |  | (38,587 | )
Receipts related to noncontrolling interest, net |  | 49 |  |  | 30 |  |  |  |
Net cash used in financing activities |  | (258,514 | ) |  | (214,301 | ) |  | (878,248 | )
Net increase (decrease) in cash, cash equivalents, and restricted cash |  | 103,233 |  |  | 455,176 |  |  | (24,235 | )
Cash, cash equivalents, and restricted cash, beginning of period |  | 1,216,410 |  |  | 761,234 |  |  | 785,469 |
Cash, cash equivalents, and restricted cash, end of period |  | $ | 1,319,643 |  |  | $ | 1,216,410 |  |  | $ | 761,234 |

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 conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
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 its operating accounts.
Inventory
Inventory is stated at cost unless an impairment exists, in which case it is written down to fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment” (“ASC 360”). In addition to direct land acquisition costs, land development costs, and home construction costs, costs also include interest, real estate taxes, and direct overhead related to development and construction, which are capitalized to inventory during the period beginning with the commencement of development and ending with the completion of construction. For those communities that have been temporarily closed, no additional capitalized interest is allocated to a community’s inventory until it reopens. While the community remains closed, carrying costs such as real estate taxes are expensed as incurred.
We capitalize certain interest costs to qualified inventory during the development and construction period of our communities in accordance with ASC 835-20, “Capitalization of Interest” (“ASC 835-20”). Capitalized interest is charged to home sales cost of sales revenues when the related inventory is delivered. Interest incurred on home building indebtedness in excess of qualified inventory, as defined in ASC 835-20, is charged to the Consolidated Statements of Operations and Comprehensive Income in the period incurred.
Once a parcel of land has been approved for development and we open one of our typical communities, it may take 4 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 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
F-10

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 investments in unconsolidated entities which we evaluate in accordance with ASC 810. We analyze our land purchase contracts and the unconsolidated entities in which we have an investment to determine whether the land sellers and unconsolidated entities are VIEs and, if so, whether we are the primary beneficiary. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other member(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other member(s), and contracts to purchase assets from VIEs. The determination whether an entity is a VIE and, if so, whether we are the primary beneficiary may require significant judgment.
Property, Construction, and Office Equipment
Property, construction, and office equipment are recorded at cost and are stated net of accumulated depreciation of $252.5 million and $145.0 million at October 31, 2019 and 2018, respectively. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. In fiscal 2019, 2018, and 2017, we recognized $67.6 million, $21.0 million, and $18.7 million of depreciation expense, respectively.
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 fair value of our forward loan
F-11

commitments as a gain or loss. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan. In addition, the recognition of net origination costs and fees associated with residential mortgage loans originated are expensed as incurred. These gains and losses, interest income, and origination costs and fees are recognized in “Other income - net” in the Consolidated Statements of Operations and Comprehensive Income.
Investments in Unconsolidated Entities
In accordance with ASC 323, “Investments—Equity Method and Joint Ventures,” we review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review the investment to determine if the loss is other than temporary, in which case we write down the investment to its 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 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 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.

Treasury Stock
Treasury stock is recorded at cost. Issuance of treasury stock is accounted for on a first-in, first-out basis. Differences between the cost of treasury stock and the re-issuance proceeds are charged to additional paid-in capital. When treasury stock is canceled, any excess purchase price over par value is charged directly to retained earnings.
Revenue and Cost Recognition
As discussed under “Recent Accounting Pronouncements” below, on November 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). As a result of this adoption, we updated our revenue recognition policies effective November 1, 2018, as follows:
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Home sales revenues: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In certain states where we build, we are not able to complete certain outdoor features prior to the closing of the home. Effective November 1, 2018, to the extent these separate performance obligations are not complete upon the home closing, we defer a portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of October 31, 2019, 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 $385.6 million and $410.9 million at October 31, 2019 and October 31, 2018, respectively. Of the outstanding customer deposits held as of October 31, 2018, we recognized $367.8 million in home sales revenues during the fiscal year ended October 31, 2019.
For our standard attached and detached homes, land, land development, and related costs, both incurred and estimated to be incurred in the future, are amortized to the cost of homes closed based upon the total number of homes to be constructed in each community. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated land, land development, and related costs subsequent to the commencement of delivery of homes are allocated to the remaining undelivered homes in the community. Home construction and related costs are charged to the cost of homes closed under the specific identification method. The estimated land, common area development, and related costs of master planned communities, including the cost of golf courses, net of their estimated residual value, are allocated to individual communities within a master planned community on a relative sales value basis. Any changes resulting from a change in the estimated number of homes to be constructed or in the estimated costs are allocated to the remaining home sites in each of the communities of the master planned community.
For high-rise/mid-rise projects, land, land development, construction, and related costs, both incurred and estimated to be incurred in the future, are generally amortized to the cost of units closed based upon an estimated relative sales value of the units closed to the total estimated sales value. Any changes resulting from a change in the estimated total costs or revenues of the project are allocated to the remaining units to be delivered.
Land sales revenues: Our revenues from land sales generally consist of: (1) lot sales to third-party builders within our master planned communities; (2) land sales to joint ventures in which we retain an interest; and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. Effective November 1, 2018, in land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture.
Forfeited Customer Deposits: Effective November 1, 2018, forfeited customer deposits are recognized in “Home sales revenues” in our Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit.
Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives will vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds.
Advertising Costs
We expense advertising costs as incurred. Advertising costs were $38.5 million, $28.5 million, and $26.1 million for the years ended October 31, 2019, 2018, and 2017, 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
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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, severities, and settlement patterns, which can occur over an extended period of time. In addition, changes in the frequency and severity of reported claims and the estimates to settle claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Due to the degree of judgment required, and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated, and the difference could be material to our consolidated financial statements.
Stock-Based Compensation
We account for our stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). We use a lattice model for the valuation of our stock option grants. The option pricing models used are designed to estimate the value of options that, unlike employee stock options and restricted stock units, can be traded at any time and are transferable. In addition to restrictions on trading, employee stock options and restricted stock units may include other restrictions such as vesting periods. Further, such models require the input of highly subjective assumptions, including the expected volatility of the stock price. Stock-based compensation expense is generally included in “Selling, general and administrative” expense in our Consolidated Statements of Operations and Comprehensive Income.
Legal Expenses
Transactional legal expenses for land acquisition and entitlement, and financing are capitalized and expensed over their appropriate life. We expense legal fees related to litigation, warranty and insurance claims when incurred.
Income Taxes
We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recorded based on temporary differences between the amounts reported for financial reporting purposes and the amounts reported for income tax purposes. In accordance with the provisions of ASC 740, we assess the realizability of our deferred tax assets. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. See “Income Taxes – Valuation Allowance” below.
Federal and state income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the applicable period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized for financial reporting purposes in different periods than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for income taxes when, despite the belief that our tax positions are fully supportable, we believe that our positions may be challenged and disallowed by various tax authorities. The consolidated tax provisions and related accruals include the impact of such reasonably estimable disallowances as deemed appropriate. To the extent that the probable tax outcome of these matters changes, such changes in estimates will impact the income tax provision in the period in which such determination is made.
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ASC 740 clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position when it is “more-likely-than-not” (defined as a substantiated likelihood of more than 50%), based on the technical merits of the position, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Our inability to determine that a tax position meets the more-likely-than-not recognition threshold does not mean that the Internal Revenue Service (“IRS”) or any other taxing authority will disagree with the position that we have taken.
If a tax position does not meet the more-likely-than-not recognition threshold, despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the Consolidated Statements of Operations and Comprehensive Income and we are required to accrue potential interest and penalties until the uncertainty is resolved. Potential interest and penalties are recognized as a component of the provision for income taxes. Differences between amounts taken in a tax return and amounts recognized in the financial statements are considered unrecognized tax benefits. We believe that we have a reasonable basis for each of our filing positions and intend to defend those positions if challenged by the IRS or other taxing jurisdiction. If the IRS or other taxing authorities do not disagree with our position, and after the statute of limitations expires, we will recognize the unrecognized tax benefit in the period that the uncertainty of the tax position is eliminated.
Income Taxes — Valuation Allowance
We assess the need for valuation allowances for deferred tax assets in each period based on whether it is more-likely-than-not that some portion of the deferred tax asset would not be realized. If, based on the available evidence, it is more-likely-than-not that such asset will not be realized, a valuation allowance is established against a deferred tax asset. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. This assessment considers, among other matters, the nature, consistency, and magnitude of current and cumulative income and losses; forecasts of future profitability; the duration of statutory carryback or carryforward periods; our experience with operating loss and tax credit carryforwards being used before expiration; tax planning alternatives: and outlooks for the U.S. housing industry and broader economy. Changes in existing tax laws or rates could also affect our actual tax results. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, actual results could differ from the estimates used in our assessment that could have a material impact on our consolidated results of operations or financial position.
Segment Reporting
We operate in two segments: traditional home building and urban infill. We build and sell homes for detached and attached homes in luxury residential communities located in affluent suburban markets and cater to move-up, empty-nester, active-adult, and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through Toll Brothers City Living® (“City Living”).
We have determined that our Traditional Home Building operations operate in five geographic segments: North, Mid-Atlantic, South, West, and California.
The states comprising each geographic segment are as follows:
North: Connecticut, Illinois, Massachusetts, Michigan, New Jersey, and New York
Mid-Atlantic: Delaware, Maryland, Pennsylvania, and Virginia
South: Florida, Georgia, North Carolina, South Carolina and Texas
West: Arizona, Colorado, Idaho, Nevada, Oregon, Utah and Washington
California: California
In fiscal 2018, we acquired land and commenced development activities in the Salt Lake City, Utah and Portland, Oregon markets. We opened communities in these markets in fiscal 2019. In addition, as a result of two acquisitions, we commenced operations in Georgia and South Carolina in fiscal 2019. In fiscal 2018, we discontinued the sale of homes in Minnesota. Our operations in Minnesota were immaterial to the North geographic segment.
Related Party Transactions
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See Note 4, “Investments in Unconsolidated Entities - Rental Property Joint Ventures” for information regarding Toll Brothers Realty Trust.
Recent Accounting Pronouncements
In May 2014, the FASB created ASC 606 with the issuance ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. ASC 606 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASC 606 also supersedes some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the previous guidance. These judgments and estimates include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delayed the effective date of ASC 606 by one year. ASC 606, as amended by ASU 2015-14, became effective for our fiscal year beginning November 1, 2018, and we adopted the new standard under the modified retrospective transition method applied to contracts that were not completed as of November 1, 2018. We elected to apply the practical expedient which allows us to immediately expense incremental costs of obtaining a contract that would otherwise have been recognized in one year or less. We recognized the cumulative effect, net of tax, of applying ASC 606 as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the previous accounting standards. The adoption of ASC 606 did not have a material impact on our Consolidated Balance Sheet or Consolidated Statement of Operations or Comprehensive Income, and there have been no significant changes to our internal controls, processes, or systems as a result of implementing this new standard. However, the adoption of ASC 606 resulted in the following changes:

• | Prior to adoption of ASC 606, we capitalized certain costs related to our marketing efforts, including sales offices and model home upgrades and furnishings within “Inventory” on our Consolidated Balance Sheets and amortized such costs through “Selling, general, and administrative” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we reclassified $104.8 million to “Property, construction, and office equipment, net” on our Consolidated Balance Sheets, primarily related to sales offices and model home improvement costs. The amortization of such costs will remain unchanged and will continue to be included in “Selling, general, and administrative” on our Consolidated Statements of Operations and Comprehensive Income. Additionally, we recorded a net cumulative effect adjustment to retained earnings of approximately $13.2 million for certain other marketing costs that no longer qualify for capitalization under the new guidance, and such costs will be expensed as incurred in the future.

• | Prior to adoption of ASC 606, we recorded our land sale revenues, net of their related expenses, within “Other income – net” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we are presenting this activity in income from operations and breaking out the components of land sales revenues and land sales cost of revenues on our Consolidated Statements of Operations and Comprehensive Income. In addition, due to the existence of certain repurchase options in existing agreements to sell lots to third party builders in our master planned communities, both for wholly owned projects as well as projects in which we are a joint venture partner, we recorded a net cumulative effect adjustment to retained earnings of approximately $4.6 million to account for previously settled lots for which the related repurchase option had not yet expired. Because the amount of the deferred earning is not material to our consolidated financial statements, we have elected to recognize the revenue and related expenses for such lots in future periods when such repurchase options expire rather than account for them as leases under ASC 840, “Leases.”

• | Prior to adoption of ASC 606, retained customer deposits were classified in “Other income – net” on our Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, retained customer deposits, which totaled $13.2 million for our fiscal year ending October 31, 2019, are included in “Home sales revenue” on our Consolidated Statements of Operations and Comprehensive Income. Prior period balances for retained customer deposits have not been reclassified and are not material to our consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of the original guidance within Subtopic
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610-20 that was issued in connection with ASC 606, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 also added guidance for partial sales of nonfinancial assets. ASU 2017-05 became effective for our fiscal year beginning November 1, 2018 and we adopted ASU 2017-05 concurrent with our adoption of ASC 606. The adoption of ASU 2017-05 did not have a material effect on our consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which provides guidance on the classification of restricted cash in the statement of cash flows. ASU 2016-18 became effective for our fiscal year beginning November 1, 2018 and resulted in a change in the presentation to our Consolidated Statement of Cash Flows but did not have a material effect on our other consolidated financial statements or disclosures. As a result of the adoption of ASU No. 2016-18, net cash provided by operations on the Consolidated Statement of Cash Flows for the years ended October 31, 2018 and 2017, decreased by $14.2 million and $103.4 million, respectively.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified and makes eight targeted changes to how cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 became effective for our fiscal year beginning November 1, 2018 and did not have a material effect on our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. In July 2018, the FASB issued ASU No. 2018-11, “Leases: Targeted Improvements” (“ASU 2018-11”), which provides an entity with the option to apply the transition provisions of the new standard at its adoption date instead of at its earliest comparative period presented. ASU 2018-11 also provides an entity with a practical expedient that permits lessors to not separate nonlease components from the associated lease component if certain conditions are met. ASU 2016-02, as amended by ASU 2018-11, is effective for our fiscal year beginning November 1, 2019, at which time we will adopt the new standard using a modified retrospective approach. We expect to elect the package of transition practical expedients, which allows us to carry forward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In addition, we expect to elect the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. Upon adoption, we currently estimate the increase to our balance sheet will be approximately 1% of assets and approximately 2% of liabilities. While the recognition of such lease assets and liabilities will impact our Consolidated Balance Sheet and require additional disclosure, we do not expect that the new standard will have a material impact on our other consolidated financial statements. We also do not expect significant changes to our business processes, systems, or internal controls as a result of implementing the standard.
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 is effective for our fiscal year beginning November 1, 2020, with early adoption permitted as of November 1, 2019. We are currently evaluating the impact that the adoption of ASU 2016-13 may have on our consolidated financial statements and disclosures.
2. Acquisitions
In fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for approximately $162.4 million in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, based on our preliminary purchase price allocations, were primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements. In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million. The average price of undelivered homes at the dates of acquisitions was approximately $471,100. As a result of these acquisitions, our selling community count increased by 22 communities.
In November 2016, we acquired all of the assets and operations of Coleman Real Estate Holdings, LLC (“Coleman”) for approximately $83.1 million in cash. The assets acquired were primarily inventory, including approximately 1,750 home sites owned or controlled through land purchase agreements. As part of the acquisition, we assumed contracts to deliver 128 homes with an aggregate value of $38.8 million. The average price of the undelivered homes at the date of acquisition was approximately $303,000. As a result of this acquisition, our selling community count increased by 15 communities at the acquisition date.
The acquisitions discussed above were accounted for as a business combination and were not material to our results of operations or financial condition.
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3. Inventory
Inventory at October 31, 2019 and 2018 consisted of the following (amounts in thousands):

| 2019 |  | 2018
Land controlled for future communities | $ | 182,929 |  |  | $ | 139,985 |
Land owned for future communities | 868,202 |  |  | 916,616 |
Operating communities | 6,821,917 |  |  | 6,541,618 |
| $ | 7,873,048 |  |  | $ | 7,598,219 |

Operating communities include communities offering homes for sale, communities that have sold all available home sites but have not completed delivery of the homes, communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within 12 months of the end of the fiscal year being reported on, and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes.
Communities that were previously offering homes for sale but are temporarily closed due to business conditions, do not have any remaining backlog, and are not expected to reopen within 12 months of the end of the fiscal period being reported on have been classified as land owned for future communities. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”).
Information regarding the classification, number, and carrying value of these temporarily closed communities at October 31, 2019, 2018, and 2017, is provided in the table below ($ amounts in thousands):

| 2019 |  | 2018 |  | 2017
Land owned for future communities: |  |  |  |  |
Number of communities | 16 |  |  | 17 |  |  | 14 |
Carrying value (in thousands) | $ | 120,857 |  |  | $ | 124,426 |  |  | $ | 110,732 |
Operating communities: |  |  |  |  |
Number of communities | 1 |  |  | 1 |  |  | 6 |
Carrying value (in thousands) | $ | 2,871 |  |  | $ | 2,622 |  |  | $ | 26,749 |

We provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable in each of the three fiscal years ended October 31, 2019, 2018, and 2017, as shown in the table below (amounts in thousands):

Charge: | 2019 |  | 2018 |  | 2017
Land controlled for future communities | $ | 11,285 |  |  | $ | 2,820 |  |  | $ | 1,949 |
Land owned for future communities | — |  |  | 2,185 |  |  | 3,050 |
Operating communities | 31,075 |  |  | 30,151 |  |  | 9,795 |
| $ | 42,360 |  |  | $ | 35,156 |  |  | $ | 14,794 |

See Note 12, “Fair Value Disclosures,” for information regarding the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair value of those communities, net of impairment charges.
See Note 15, “Commitments and Contingencies,” for information regarding land purchase commitments.
At October 31, 2019, 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, 2019, we determined that 127 land purchase contracts, with an aggregate purchase price of $2.00 billion, on which we had made aggregate deposits totaling $149.2 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts. At October 31, 2018, we determined that 110 land purchase contracts, with an aggregate purchase price of $1.88 billion, on which we had made aggregate deposits totaling $120.5 million, were VIEs, but that we were not the primary beneficiary of any VIE related to such land purchase contracts.
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Interest incurred, capitalized, and expensed in each of the three fiscal years ended October 31, 2019, 2018, and 2017, was as follows (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Interest capitalized, beginning of year | $ | 319,364 |  |  | $ | 352,049 |  |  | $ | 369,419 |
Interest incurred | 178,035 |  |  | 165,977 |  |  | 175,944 |
Interest expensed to home sales cost of revenues | (185,045 | ) |  | (190,734 | ) |  | (172,832 | )
Interest expensed to land sales cost of revenues | (1,787 | ) |  |  |  |  |  |
Interest expensed in other income |  |  |  | (3,760 | ) |  | (4,823 | )
Interest reclassified to property, construction and office equipment |  |  |  |  |  |  | (485 | )
Interest capitalized on investments in unconsolidated entities | (4,571 | ) |  | (7,220 | ) |  | (8,824 | )
Previously capitalized interest transferred to investments in unconsolidated entities |  |  |  |  |  |  | (8,708 | )
Previously capitalized interest on investments in unconsolidated entities transferred to inventory | 5,327 |  |  | 3,052 |  |  | 2,358 |
Interest capitalized, end of year | $ | 311,323 |  |  | $ | 319,364 |  |  | $ | 352,049 |

During fiscal 2017, we reclassified 9.0 million of inventory related to two golf courses to property, construction, and office equipment and such amount was net of $3.5 million transferred to accrued liabilities related to deferred golf membership fees. The amounts were reclassified due to the completion of construction of the facilities and the substantial completion of the master planned communities of which the golf facilities are a part.
4. Investments in Unconsolidated Entities
We have investments in various unconsolidated entities. These entities, which are structured as joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). In fiscal 2019, 2018 and 2017, we recognized income from the unconsolidated entities in which we had an investment of $24.9 million, $85.2 million, and $116.1 million, respectively.
The table below provides information as of October 31, 2019, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):

| Land Development Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Number of unconsolidated entities | 8 |  | 4 |  | 20 |  | 9 |  | 41
Investment in unconsolidated entities | $ | 110,306 |  |  | $ | 60,512 |  |  | $ | 174,292 |  |  | $ | 21,142 |  |  | $ | 366,252 |
Number of unconsolidated entities with funding commitments by the Company | 2 |  | 1 |  | 2 |  | 1 |  |  | 6
Company’s remaining funding commitment to unconsolidated entities | $ | 28,586 |  |  | $ | 1,400 |  |  | $ | 539 |  |  | $ | 8,271 |  |  | $ | 38,796 |

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, 2019, 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 | 3 |  | 2 |  | 18 |  | 23
Aggregate loan commitments | $ | 100,859 |  |  | $ | 133,453 |  |  | $ | 1,393,838 |  |  | $ | 1,628,150 |
Amounts borrowed under commitments | $ | 88,252 |  |  | $ | 133,453 |  |  | $ | 1,017,788 |  |  | $ | 1,239,493 |

More specific and/or recent information regarding our investments in and future commitments to these entities is provided below.
F-19

Land Development Joint Ventures
In fiscal 2019, our Land Development Joint Ventures sold approximately 934 lots and recognized revenues of $261.7 million . We acquired 293 of these lots for $137.1 million. Our share of the joint venture income from the lots we acquired was insignificant. We recognized a charge in connection with one Land Development Joint Venture of $1.0 million in fiscal 2019.
In fiscal 2018, our Land Development Joint Ventures sold approximately 986 lots and recognized revenues of $351.4 million. We acquired 259 of these lots for $153.2 million. Our share of the income from the lots we acquired of $1.7 million was deferred by reducing our basis in those lots acquired. We recognized charges in connection with two Land Development Joint Ventures of $6.0 million in fiscal 2018.
In the fourth quarter of fiscal 2019, we entered into a joint venture with an unrelated party to purchase and develop a parcel of land located in Houston, Texas. The joint venture expects to develop approximately 263 home sites on this land in multiple phases. We have a 50% interest in this joint venture. The joint venture intends to sell approximately 50% of the value of the home sites to each of the members of the joint venture. At October 31, 2019, we had an investment of $5.9 million in this joint venture. The joint venture expects to secure third-party financing at a later date.
Home Building Joint Ventures
Our Home Building Joint Ventures are delivering homes in New York City and Jupiter, Florida. In fiscal 2019 and 2018, our Home Building Joint Ventures delivered 186 homes with a sales value of $374.6 million, and 100 homes with a sales value of $148.0 million, respectively.
Subsequent event
In November 2019, one of our Home Building Joint Ventures refinanced its existing $236.5 million construction loan with a $76.6 million post-construction loan that matures November 2021. We and an affiliate of our partner provided certain guarantees under the loan agreement. We estimate that our maximum exposure under these guarantees, if the full amount of the loan commitment was borrowed, would be $76.6 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.
Rental Property Joint Ventures
As of October 31, 2019, our Rental Property Joint Ventures owned 25 for-rent apartment projects and a hotel, which are located in multiple metropolitan areas throughout the country. At October 31, 2019, these joint ventures had approximately 2,000 units that were occupied or ready for occupancy, 1,700 units in the lease-up stage, and 4,100 units in the design phase or under development. In addition, we either own or have under contract, approximately 10,900 units, of which 800 units are under active development; we intend to develop these units in joint ventures with unrelated parties in the future.
In fiscal 2019, we entered into five separate joint ventures with unrelated parties to develop luxury for-rent residential apartment projects located in Harrison, New York, Frisco, Texas, Atlanta, Georgia, Orange, California, and Dallas, Texas. Prior to the formation of these joint ventures, we acquired the properties and incurred approximately $145.1 million of land and land development costs. Our partners acquired interests in these entities ranging from 63.5% to 75% for an aggregate amount of $110.0 million and we recognized a gain on land sales of $9.3 million in fiscal 2019. At October 31, 2019, we had an aggregate investment of $48.8 million in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $340.1 million. At October 31, 2019, the joint ventures had $39.3 million outstanding borrowings under these construction loan facilities.
In addition, in fiscal 2019, we entered into four separate joint ventures with unrelated parties to develop luxury for-rent residential apartment projects and student housing communities located in Boston, Massachusetts, San Diego, California, Tempe, Arizona and Miami, Florida. We contributed an aggregate of $79.6 million for our initial ownership interests in these joint ventures, which ranged from 50% to 98%. Due to our controlling financial interest, our power to direct the activities that most significantly impact each joint venture’s performance, and/or our obligation to absorb expected losses or receive benefits from these joint ventures, we consolidated these joint ventures at October 31, 2019. The carrying value of these joint ventures’ assets totaling $125.0 million are reflected in “Receivables, prepaid expenses, and other assets” in our Consolidated Balance Sheet as of October 31, 2019. Our partners’ interests aggregating $37.9 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Consolidated Balance Sheet as of October 31, 2019. These joint ventures intend to obtain additional equity investors and secure third-party financing at a later date. At such time, it is expected that these entities would no longer be consolidated.
In the second quarter of fiscal 2019, we entered into a joint venture with unrelated parties to develop, build, and operate single-family rental communities. As of October 31, 2019, we have committed to invest up to $60.0 million in this joint venture, of which $1.0 million has been invested.
F-20

In fiscal 2019, one of our Rental Property Joint Ventures, in which we had a 25% interest, sold its assets to an unrelated party for $77.8 million. The joint venture had owned, developed, and operated a multifamily residential community in Phoenixville, Pennsylvania. In connection with the sale, the joint venture repaid its entire $47.0 million loan. We received cash of $7.4 million and recognized a gain of $3.8 million, which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income.
We have an investment in a joint venture in which we have a 50% interest that developed a luxury hotel in conjunction with a high-rise luxury condominium project in New York City developed by a related Home Building Joint Venture. The hotel commenced operations in February 2017. At October 31, 2019, we had an investment of $21.0 million in this joint venture. In the fourth quarter of fiscal 2019, the joint venture refinanced its existing $80.0 million, three-year term loan with a three-year, $120.0 million term loan, of which $110.0 million was advanced to the joint venture at closing. The proceeds from the refinancing were distributed to the members.
In fiscal 2018, we entered into four joint ventures with unrelated parties to develop luxury for-rent residential apartment projects located in suburban Atlanta, Georgia; Belmont, Massachusetts; and Washington, D.C. Prior to the formation of these joint ventures, we acquired the properties and incurred approximately $140.0 million of land and land development costs. Our partners acquired interests in these entities ranging from 50% to 75% for an aggregate amount of $80.3 million. At October 31, 2019, we had an investment of $65.6 million in these joint ventures. In fiscal 2018, several of these joint ventures entered into construction loan agreements for an aggregate amount of $166.1 million to finance the development of these projects. At October 31, 2019, the joint ventures had $156.1 million of outstanding borrowings under the construction loan facilities.
In addition, in fiscal 2018 we entered into a joint venture with an unrelated party to develop a luxury for-rent residential apartment project in a suburb of Boston, Massachusetts. We contributed cash of $15.9 million for our initial 85% ownership interest in this joint venture. Due to our controlling financial interest, our power to direct the activities that most significantly impact the joint venture’s performance, and our obligation to absorb expected losses or receive benefits from the joint venture, we consolidated this joint venture at October 31, 2019. The carrying value of the joint venture’s assets totaling $20.8 million are reflected in “Receivables, prepaid expenses, and other assets” in our Consolidated Balance Sheet at October 31, 2019. Our partner’s 15% interest of $3.1 million in the joint venture is reflected as a component of “Noncontrolling interest” in our Consolidated Balance Sheet as of October 31, 2019. The joint venture expects to admit an additional investor and secure third-party financing at a later date.
In fiscal 2018, three of our Rental Property Joint Ventures sold their assets to unrelated parties for $477.5 million. These joint ventures had owned, developed, and operated multifamily rental properties located in suburban Washington, D.C. and Westborough, Massachusetts, and a student housing community in College Park, Maryland. In connection with these sales, the joint ventures’ aggregate outstanding loan balance of $239.6 million was repaid. From our investment in these joint ventures, we received cash of $79.1 million and recognized gains from these sales of $67.2 million in fiscal 2018, which is included in “Income from unconsolidated entities” in our Consolidated Statement of Operations and Comprehensive Income.
In fiscal 2017, we sold one-half of our 50% interest in two of our Rental Property Joint Ventures to an unrelated party. In connection with these sales, we, along with our partners, recapitalized the joint ventures and refinanced the existing $166.3 million in construction loans with 10-year fixed rate loans totaling $189.0 million. As a result of these transactions, we received cash of $54.9 million and recognized gains of $26.7 million in fiscal 2017, which is included in “Income from unconsolidated entities” in our Consolidated Statements of Operations and Comprehensive Income. At October 31, 2019, we had a 25% interest in each of these joint ventures.
In 1998, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by current and former members of our senior management; and one-third by an unrelated party. As of October 31, 2019, our investment in the Trust was zero as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $1.0 million, $2.0 million, and $2.0 million in fiscal 2019, 2018 and 2017, respectively. In fiscal 2019 and 2018, we received distributions of $3.9 million and $27.7 million, respectively, from the Trust, of which the full amount was recognized as income and included in “Income from unconsolidated entities” in our fiscal 2019 and 2018 Consolidated Statements of Operations and Comprehensive Income. No distributions were received from the Trust in fiscal 2017.
Subsequent events
In November 2019, we entered into a joint venture with an unrelated party to develop a for-rent residential apartment project in Dallas, Texas. Prior to the formation of this joint venture, we acquired the property and incurred approximately $19.0 million of land and land development costs. Our partner acquired a 50% interest in this entity for approximately $9.2 million, of which $7.7 million was distributed to us. Our initial investment is $11.9 million. Concurrent with its formation, the joint venture
F-21

entered into a $42.0 million construction loan agreement to finance the development of this project. We and an affiliate of our partner provided certain guarantees under the construction loan agreement. We estimate that our maximum exposure under these guarantees, if the full amount of the loan commitment was borrowed, would be $42.0 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.
In December 2019, we sold all of our ownership interest in one of our Rental Property Joint Ventures to our partner for cash of $16.8 million, net of closing costs. The joint venture had owned, developed, and operated multifamily residential apartments in northern New Jersey. In connection with the sale, the joint venture’s existing $76.0 million loan was assumed by our partner. We expect to recognize a gain of approximately $10.0 million in the first quarter of fiscal 2019 from the sale.
In December 2019, we entered into a joint venture with an unrelated party to develop a for-rent student housing community in State College, Pennsylvania. Prior to the formation of this joint venture, we acquired the property and incurred approximately $32.0 million of land and land development costs. Our partner acquired a 70% interest in this entity for approximately $22.2 million, of which $17.9 million was distributed to us. Our initial investment is $12.9 million. Concurrent with its formation, the joint venture entered into a $79.5 million construction loan agreement to finance the development of this project. We and an affiliate of our partner provided certain guarantees under the construction loan agreement. We estimate that our maximum exposure under these guarantees, if the full amount of the loan commitment was borrowed, would be $79.5 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.
Gibraltar Joint Ventures
We, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), have entered into eight ventures with an institutional investor to provide builders and developers with land banking and venture capital, two of which were formed in fiscal 2019. These ventures will finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We are also a member in a separate venture with the same institutional investor, which purchased, from Gibraltar, certain foreclosed real estate owned and distressed loans in fiscal 2016. Our ownership interest in these ventures is approximately 25%. We may invest up to $100.0 million in these ventures. As of October 31, 2019, we had an investment of $20.5 million in these ventures.
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 and our partners have guaranteed debt of certain 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, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have 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, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of October 31, 2019, 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. At October 31, 2019, certain unconsolidated entities have loan commitments aggregating $1.53 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $299.1 million to be our maximum exposure related solely to repayment and carry cost guarantees. At October 31, 2019, the unconsolidated entities had borrowed an aggregate of $1.14 billion, of which we estimate $239.6 million to be our maximum exposure related solely to repayment and carry cost guarantees. The terms of these guarantees generally range from 2 months to 9.7 years. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
As of October 31, 2019, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $5.6 million. We have not made payments under any of the guarantees, nor have we been called upon to do so.
F-22

Variable Interest Entities
At October 31, 2019 and 2018, we determined that 18 and 11, respectively, of our joint ventures were VIEs under the guidance within ASC 810. For 13 and 10 of these VIEs as of October 31, 2019 and 2018, respectively, we concluded that we were not the primary beneficiary of these VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above.
As of October 31, 2019, we have consolidated five Rental Property Joint Ventures. We had one consolidated Rental Property Joint Venture as of October 31, 2018. The carrying value of these joint ventures’ assets totaled $145.8 million and $19.7 million as reflected in “Receivables, prepaid expenses, and other assets” in our Consolidated Balance Sheet as of October 31, 2019 and 2018, respectively. Our partners’ interests aggregating $41.0 million and $2.8 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Consolidated Balance Sheet as of October 31, 2019 and 2018, respectively. These joint ventures were determined to be VIEs due to their current inability to finance their activities without additional subordinated financial support as well as our partners’ inability to participate in the significant decisions of the joint venture and their lack of substantive kick-out rights. We further concluded that we are the primary beneficiary of these 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.
At October 31, 2019 and 2018, our investments in our unconsolidated entities deemed to be VIEs, which are included in “Investments in unconsolidated entities” in our Consolidated Balance Sheets, totaled $37.0 million and $33.8 million, respectively. At October 31, 2019, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $76.0 million of loan guarantees and $8.3 million of additional commitments to fund the VIEs. Of our potential exposure for these loan guarantees, $76.0 million is related to repayment and carry cost guarantees, of which $76.0 million was borrowed at October 31, 2019. At October 31, 2018, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $10.8 million of additional commitments to fund the VIEs. Of our potential exposure for these loan guarantees, $70.0 million is related to repayment and carry cost guarantees, of which $70.0 million was borrowed at October 31, 2018.
Joint Venture Condensed Financial Information
The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations and Comprehensive Income, for the periods indicated, for the unconsolidated entities in which we have an investment, aggregated by type of business, are included below (in thousands).
F-23

Condensed Balance Sheets:

| October 31, 2019
| Land Develop- ment Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Cash and cash equivalents | $ | 23,669 |  |  | $ | 38,115 |  |  | $ | 20,647 |  |  | $ | 3,388 |  |  | $ | 85,819 |
Inventory | 247,866 |  |  | 313,991 |  |  |  |  |  | 17,369 |  |  | 579,226 |
Loan receivables, net |  |  |  |  |  |  | 56,545 |  |  | 56,545 |
Rental properties |  |  |  |  | 1,021,848 |  |  |  |  | 1,021,848 |
Rental properties under development |  |  |  |  | 535,197 |  |  |  |  |  | 535,197 |
Real estate owned |  |  |  |  |  |  |  | 12,267 |  |  | 12,267 |
Other assets | 96,602 |  |  | 78,916 |  |  | 36,879 |  |  | 364 |  |  | 212,761 |
Total assets | $ | 368,137 |  |  | $ | 431,022 |  |  | $ | 1,614,571 |  |  | $ | 89,933 |  |  | $ | 2,503,663 |
Debt, net of deferred financing costs | $ | 88,050 |  |  | $ | 132,606 |  |  | $ | 1,006,201 |  |  |  |  |  | $ | 1,226,857 |
Other liabilities | 49,302 |  |  | 33,959 |  |  | 84,735 |  |  | 7,831 |  |  | 175,827 |
Members’ equity | 230,785 |  |  | 264,457 |  |  | 523,635 |  |  | 81,686 |  |  | 1,100,563 |
Noncontrolling interest |  |  |  |  |  |  | 416 |  |  | 416 |
Total liabilities and equity | $ | 368,137 |  |  | $ | 431,022 |  |  | $ | 1,614,571 |  |  | $ | 89,933 |  |  | $ | 2,503,663 |
Company’s net investment in unconsolidated entities (1) | $ | 110,306 |  |  | $ | 60,512 |  |  | $ | 174,292 |  |  | $ | 21,142 |  |  | $ | 366,252 |

| October 31, 2018
| Land Develop- ment Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Cash and cash equivalents | $ | 47,409 |  |  | $ | 22,834 |  |  | $ | 23,750 |  |  | $ | 8,469 |  |  | $ | 102,462 |
Inventory | 403,670 |  |  | 557,157 |  |  |  |  |  | 13,163 |  |  | 973,990 |
Loan receivables, net |  |  |  |  |  |  | 40,065 |  |  | 40,065 |
Rental properties |  |  |  |  | 808,785 |  |  |  |  | 808,785 |
Rental properties under development |  |  |  |  | 437,586 |  |  |  |  |  | 437,586 |
Real estate owned |  |  |  |  |  |  |  | 14,838 |  |  | 14,838 |
Other assets | 93,322 |  |  | 49,723 |  |  | 21,917 |  |  | 1,067 |  |  | 166,029 |
Total assets | $ | 544,401 |  |  | $ | 629,714 |  |  | $ | 1,292,038 |  |  | $ | 77,602 |  |  | $ | 2,543,755 |
Debt, net of deferred financing costs | $ | 125,557 |  |  | $ | 284,959 |  |  | $ | 735,482 |  |  | $ | — |  |  | $ | 1,145,998 |
Other liabilities | 29,096 |  |  | 72,897 |  |  | 51,992 |  |  | 4,585 |  |  | 158,570 |
Members’ equity | 389,748 |  |  | 271,858 |  |  | 504,564 |  |  | 69,804 |  |  | 1,235,974 |
Noncontrolling interest |  |  |  |  |  |  | 3,213 |  |  | 3,213 |
Total liabilities and equity | $ | 544,401 |  |  | $ | 629,714 |  |  | $ | 1,292,038 |  |  | $ | 77,602 |  |  | $ | 2,543,755 |
Company’s net investment in unconsolidated entities (1) | $ | 176,593 |  |  | $ | 65,936 |  |  | $ | 171,216 |  |  | $ | 18,068 |  |  | $ | 431,813 |

(1) | Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of impairments related to our investments in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; unrealized gains on our retained joint venture interests; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.

F-24

Condensed Statements of Operations and Comprehensive Income:

| For the year ended October 31, 2019
| Land Develop- ment Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Revenues | $ | 261,677 |  |  | $ | 374,587 |  |  | $ | 99,401 |  |  | $ | 21,377 |  |  | $ | 757,042 |
Cost of revenues | 247,070 |  |  | 333,008 |  |  | 68,502 |  |  | 13,234 |  |  | 661,814 |
Other expenses | 4,662 |  |  | 15,389 |  |  | 58,928 |  |  | 1,880 |  |  | 80,859 |
Total expenses | 251,732 |  |  | 348,397 |  |  | 127,430 |  |  | 15,114 |  |  | 742,673 |
Gain on disposition of loans and REO |  |  |  |  |  |  |  | 4,383 |  |  | 4,383 |
Income (loss) from operations | 9,945 |  |  | 26,190 |  |  | (28,029 | ) |  | 10,646 |  |  | 18,752 |
Other income | 3,079 |  |  | 6,144 |  |  | 16,651 |  |  | 12,793 |  |  | 38,667 |
Income (loss) before income taxes | 13,024 |  |  | 32,334 |  |  | (11,378 | ) |  | 23,439 |  |  | 57,419 |
Income tax provision | 193 |  |  | 457 |  |  |  |  |  |  |  | 650 |
Net income (loss) including earnings from noncontrolling interests | 12,831 |  |  | 31,877 |  |  | (11,378 | ) |  | 23,439 |  |  | 56,769 |
Less: income attributable to noncontrolling interest |  |  |  |  |  |  |  |  |  | (9,593 | ) |  | (9,593 | )
Net income (loss) attributable to controlling interest | $ | 12,831 |  |  | $ | 31,877 |  |  | $ | (11,378 | ) |  | $ | 13,846 |  |  | $ | 47,176 |
Company’s equity (deficit) in earnings of unconsolidated entities (2) | $ | 6,160 |  |  | $ | 17,004 |  |  | $ | (824 | ) |  | $ | 2,528 |  |  | $ | 24,868 |

| For the year ended October 31, 2018
| Land Develop- ment Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Revenues | $ | 351,397 |  |  | $ | 148,002 |  |  | $ | 121,276 |  |  | $ | 19,592 |  |  | $ | 640,267 |
Cost of revenues | 317,363 |  |  | 112,469 |  |  | 74,946 |  |  | 17,817 |  |  | 522,595 |
Other expenses | 9,125 |  |  | 8,630 |  |  | 61,502 |  |  | 3,201 |  |  | 82,458 |
Total expenses | 326,488 |  |  | 121,099 |  |  | 136,448 |  |  | 21,018 |  |  | 605,053 |
Gain on disposition of loans and REO |  |  |  |  |  |  |  | 53,192 |  |  | 53,192 |
Income (loss) from operations | 24,909 |  |  | 26,903 |  |  | (15,172 | ) |  | 51,766 |  |  | 88,406 |
Other income | 5,939 |  |  | 2,134 |  |  | 222,744 |  |  | 1,937 |  |  | 232,754 |
Income before income taxes | 30,848 |  |  | 29,037 |  |  | 207,572 |  |  | 53,703 |  |  | 321,160 |
Income tax provision | 86 |  |  | 767 |  |  |  |  |  |  |  |  | 853 |
Net income including earnings from noncontrolling interests | 30,762 |  |  | 28,270 |  |  | 207,572 |  |  | 53,703 |  |  | 320,307 |
Less: income attributable to noncontrolling interest |  |  |  |  |  |  |  |  |  | (28,297 | ) |  | (28,297 | )
Net income attributable to controlling interest | $ | 30,762 |  |  | $ | 28,270 |  |  | $ | 207,572 |  |  | $ | 25,406 |  |  | $ | 292,010 |
Company’s equity in earnings of unconsolidated entities (2) | $ | 3,392 |  |  | $ | 14,069 |  |  | $ | 62,204 |  |  | $ | 5,575 |  |  | $ | 85,240 |

F-25

| For the year ended October 31, 2017
| Land Develop- ment Joint Ventures |  | Home Building Joint Ventures |  | Rental Property Joint Ventures |  | Gibraltar Joint Ventures |  | Total
Revenues | $ | 288,440 |  |  | $ | 475,260 |  |  | $ | 115,519 |  |  | $ | 10,090 |  |  | $ | 889,309 |
Cost of revenues | 191,965 |  |  | 286,446 |  |  | 70,108 |  |  | 14,428 |  |  | 562,947 |
Other expenses | 6,508 |  |  | 13,102 |  |  | 59,503 |  |  | 3,942 |  |  | 83,055 |
Total expenses | 198,473 |  |  | 299,548 |  |  | 129,611 |  |  | 18,370 |  |  | 646,002 |
Gain on disposition of loans and REO |  |  |  |  |  |  |  | 48,079 |  |  | 48,079 |
Income (loss) from operations | 89,967 |  |  | 175,712 |  |  | (14,092 | ) |  | 39,799 |  |  | 291,386 |
Other income | 4,723 |  |  | 7,317 |  |  | 1,556 |  |  | 432 |  |  | 14,028 |
Income (loss) before income taxes | 94,690 |  |  | 183,029 |  |  | (12,536 | ) |  | 40,231 |  |  | 305,414 |
Income tax provision | 94 |  |  | 7,473 |  |  | 95 |  |  |  |  |  | 7,662 |
Net income (loss) including earnings from noncontrolling interests | 94,596 |  |  | 175,556 |  |  | (12,631 | ) |  | 40,231 |  |  | 297,752 |
Less: income attributable to noncontrolling interest |  |  |  |  |  |  |  |  |  | (20,439 | ) |  | (20,439 | )
Net income (loss) attributable to controlling interest | 94,596 |  |  | 175,556 |  |  | (12,631 | ) |  | 19,792 |  |  | 277,313 |
Company’s equity in earnings of unconsolidated entities (2) | $ | 13,007 |  |  | $ | 77,339 |  |  | $ | 21,458 |  |  | $ | 4,262 |  |  | $ | 116,066 |

(2) | Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of a basis difference of an acquired joint venture interest; distributions from entities in excess of the carrying amount of our net investment; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; 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, 2019 and 2018, consisted of the following (amounts in thousands):

| 2019 |  | 2018
Expected recoveries from insurance carriers and others | $ | 114,162 |  |  | $ | 126,291 |
Improvement cost receivable | 100,864 |  |  | 96,937 |
Escrow cash held by our captive title company | 32,863 |  |  | 33,471 |
Properties held for rental apartment and commercial development | 367,072 |  |  | 193,015 |
Prepaid expenses | 26,041 |  |  | 23,065 |
Other | 74,439 |  |  | 77,999 |
| $ | 715,441 |  |  | $ | 550,778 |

See Note 7, “Accrued Expenses,” for additional information regarding the expected recoveries from insurance carriers and others.
As of October 31, 2019 and 2018, properties held for rental apartment and commercial development include $145.8 million and $19.7 million, respectively, of assets related to consolidated VIEs. See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs.
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6. Loans Payable, Senior Notes, and Mortgage Company Loan Facility
Loans Payable
At October 31, 2019 and 2018, loans payable consisted of the following (amounts in thousands):

|  | 2019 |  | 2018
Senior unsecured term loan |  | $ | 800,000 |  |  | $ | 500,000 |
Loans payable – other |  | 314,577 |  |  | 188,115 |
Deferred issuance costs |  | (3,128 | ) |  | (1,314 | )
|  | $ | 1,111,449 |  |  | $ | 686,801 |

Senior Unsecured Term Loan
At October 31, 2019, we had a $800.0 million, five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. On November 1, 2018, we amended the Term Loan Facility to, among other things, (i) increase the size of the outstanding term loan from $500.0 million to $800.0 million; (ii) extend the maturity date from August 2021 to November 1, 2023 (which was subsequently extended to November 1, 2024), with no principal payments being required before the maturity date; (iii) provide 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 $1.0 billion; (iv) revise certain provisions to reduce the interest rate applicable on outstanding borrowings; and (v) modify certain provisions relating to existing financial maintenance and negative covenants. We subsequently amended the maturity date on October 31, 2019 to extend it to November 1, 2024. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Term Loan Facility.
Under the terms of the Term Loan Facility, at October 31, 2019, our maximum leverage ratio, as defined, may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth, as defined, of no less than approximately $2.70 billion. Under the terms of the Term Loan Facility, at October 31, 2019, our leverage ratio was approximately 0.50 to 1.00, and our tangible net worth was approximately $5.02 billion. Based upon the limitations related to our repurchase of common stock in the Term Loan Facility, our ability to repurchase our common stock was limited to approximately $3.53 billion as of October 31, 2019. In addition, our ability to pay cash dividends was limited to approximately $2.32 billion as of October 31, 2019.
Under the Term Loan Facility, as amended, we may select interest rates equal to (i) London Interbank Offered Rate (“LIBOR”) plus an applicable margin, (ii) the base rate (as defined in the agreement) plus an applicable margin, or (iii) the federal funds/Euro rate (as defined in the agreement) plus an applicable margin, in each case, based on our leverage ratio. At October 31, 2019, the interest rate on the Term Loan Facility was 3.11% per annum.
We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as the Revolving Credit Facility, as described below.
Revolving Credit Facility
We have a $1.905 billion senior unsecured, five-year revolving credit facility (the “Revolving Credit Facility”) with a syndicate of banks that is scheduled to expire on November 1, 2024. On October 31, 2019, we amended our Revolving Credit Facility to replace our existing $1.295 billion revolving credit facility, which was scheduled to mature in May 2021. Under the amended terms, up to 100% of the commitment is available for letters of credit. The Revolving Credit Facility, as amended, has an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the Revolving Credit Facility up to a maximum aggregate amount of $2.5 billion. Prior to the amendment, the maximum aggregate amount of the accordion feature was $2.0 billion. We may select interest rates for the Revolving Credit Facility equal to (i) LIBOR plus an applicable margin or (ii) the lenders’ base rate plus an applicable margin, which in each case is based on our credit rating and leverage ratio. At October 31, 2019, the interest rate on outstanding borrowings under the Revolving Credit Facility would have been 3.31% per annum. We are obligated to pay an undrawn commitment fee that is based on the average daily unused amount of the Aggregate Credit Commitment and our credit ratings and leverage ratio. Any proceeds from borrowings under the Revolving Credit Facility may be used for general corporate purposes. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Revolving Credit Facility.
Under the terms of the Revolving Credit Facility, at October 31, 2019, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.70 billion. Under the terms of the Revolving Credit Facility, at October 31, 2019, our leverage ratio was approximately 0.50 to 1.00 and our tangible net worth was approximately $5.02 billion. Based upon the limitations related to our repurchase of common stock in the Revolving Credit Facility, our ability to repurchase our
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common stock was limited to approximately $3.53 billion as of October 31, 2019. In addition, under the provisions of the Revolving Credit Facility, our ability to pay cash dividends was limited to approximately $2.32 billion as of October 31, 2019.
At October 31, 2019, we had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of approximately $177.9 million.
Loans Payable – Other
“Loans payable – other” primarily represent purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. Information regarding our loans payable at October 31, 2019 and 2018, is included in the table below ($ amounts in thousands):

| 2019 |  | 2018
Aggregate loans payable at October 31 | $ | 314,577 |  |  | $ | 188,115 |
Weighted-average interest rate | 4.49 | % |  | 4.68 | %
Interest rate range | 1.26% - 7.00% |  |  | 1.15% - 7.87% |
Loans secured by assets |  |  |
Carrying value of loans secured by assets | $ | 314,577 |  |  | $ | 152,281 |
Carrying value of assets securing loans | $ | 850,381 |  |  | $ | 467,164 |

The contractual maturities of “Loans payable – other” as of October 31, 2019, ranged from two months to 27 years.
Senior Notes
At October 31, 2019 and 2018, senior notes consisted of the following (amounts in thousands):

| 2019 |  | 2018
4.00% Senior Notes due December 31, 2018 | $ | — |  |  | $ | 350,000 |
6.75% Senior Notes due November 1, 2019 | — |  |  | 250,000 |
5.875% Senior Notes due February 15, 2022 | 419,876 |  |  | 419,876 |
4.375% Senior Notes due April 15, 2023 | 400,000 |  |  | 400,000 |
5.625% Senior Notes due January 15, 2024 | 250,000 |  |  | 250,000 |
4.875% Senior Notes due November 15, 2025 | 350,000 |  |  | 350,000 |
4.875% Senior Notes due March 15, 2027 | 450,000 |  |  | 450,000 |
4.35% Senior Notes due February 15, 2028 | 400,000 |  |  | 400,000 |
3.80% Senior Notes due November 1, 2029 | 400,000 |  |  | — |
Bond discounts, premiums, and deferred issuance costs, net | (9,978 | ) |  | (8,501 | )
| $ | 2,659,898 |  |  | $ | 2,861,375 |

The senior notes are the unsecured obligations of Toll Brothers Finance Corp., our 100%-owned subsidiary. The payment of principal and interest is fully and unconditionally guaranteed, jointly and severally, by us and substantially all of our 100%-owned home building subsidiaries (together with Toll Brothers Finance Corp., the “Senior Note Parties”). The senior notes rank equally in right of payment with all the Senior Note Parties’ existing and future unsecured senior indebtedness, including the Revolving Credit Facility and the Term Loan Facility. The senior notes are structurally subordinated to the prior claims of creditors, including trade creditors, of our subsidiaries that are not guarantors of the senior notes. Each series of senior notes is redeemable in whole or in part at any time at our option, at prices that vary based upon the then-current rates of interest and the remaining original term of the senior notes to be redeemed.
On October 31, 2019, we redeemed, prior to maturity, the $250.0 million of then-outstanding principal amount of 6.75% Senior Notes due November 1, 2019, at par, plus accrued interest.
In September 2019, we issued $400.0 million aggregate principal amount of 3.80% Senior Notes due 2029. The Company received $396.4 million of net proceeds from the issuance of these senior notes.
On November 30, 2018, we redeemed, prior to maturity, the $350.0 million of then-outstanding principal amount of 4.00% Senior Notes due December 31, 2018, at par, plus accrued interest.
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In January 2018, we issued $400.0 million aggregate principal amount of 4.350% Senior Notes due 2028. The Company received $396.4 million of net proceeds from the issuance of these senior notes.
On September 15, 2017, we redeemed all $287.5 million aggregate principal amount of the 0.5% Exchangeable Senior Notes for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest. The 0.5% Exchangeable Senior Notes were exchangeable into shares of our common stock at an exchange rate of 20.3749 shares per $1,000 principal amount of notes, corresponding to an initial exchange price of approximately $49.08 per share of common stock. If all of the 0.5% Exchangeable Senior Notes were exchanged, we would have issued approximately 5.9 million shares of our common stock. Shares issuable upon conversion of the 0.5% Exchangeable Senior Notes were included in the calculation of diluted earnings per share.
Mortgage Company Loan Facility
In October 2017, TBI Mortgage® Company (“TBI Mortgage”), our wholly owned mortgage subsidiary, entered into a mortgage warehousing agreement (“Warehousing Agreement”) with a bank to finance the origination of mortgage loans by TBI Mortgage. The Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” In December 2018, the Warehousing Agreement was amended to provide for loan purchases up to $75.0 million, subject to certain sublimits. In addition, the Warehousing Agreement, as amended, provides for an accordion feature under which TBI Mortgage 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. Prior to the December 2018 amendment, the Warehousing Agreement was operating pursuant to the December 2017 amendment which had substantially similar terms to the December 2018 amendment. The Warehousing Agreement, as amended, expires on December 6, 2019, and borrowings thereunder bear interest at LIBOR plus 1.90% per annum. At October 31, 2019, the interest rate on the Warehousing Agreement was 3.68% per annum. In addition, we are subject to an under usage fee based on outstanding balances, as defined in the Warehousing Agreement. Borrowings under this facility are included in the fiscal 2020 maturities.
At each of October 31, 2019 and 2018, there was $150.0 million outstanding under the Warehousing Agreement, which are included in liabilities in our Consolidated Balance Sheets. At October 31, 2019 and 2018, amounts outstanding under the agreement were collateralized by $208.6 million and $163.2 million, respectively, of mortgage loans held for sale, which are included in assets in our Consolidated Balance Sheets. As of October 31, 2019, there were no aggregate outstanding purchase price limitations reducing the amount available to TBI Mortgage. There are several restrictions on purchased loans under the agreement, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreements.
Subsequent event
In December 2019, TBI Mortgage amended the Warehousing Agreement to extend the expiration date to December 4, 2020 on substantially the same terms as the existing agreement.
General
As of October 31, 2019, the annual aggregate maturities of our loans and notes during each of the next five fiscal years are as follows (amounts in thousands):

|  |  | Amount
2020 |  |  | $ | 234,096 |
2021 |  |  | $ | 52,863 |
2022 |  |  | $ | 437,818 |
2023 |  |  | $ | 421,611 |
2024 |  |  | $ | 290,745 |

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7. Accrued Expenses
Accrued expenses at October 31, 2019 and 2018, consisted of the following (amounts in thousands):

| 2019 |  | 2018
Land, land development and construction | $ | 192,658 |  |  | $ | 213,641 |
Compensation and employee benefits | 183,592 |  |  | 159,374 |
Escrow liability | 31,587 |  |  | 32,543 |
Self-insurance | 193,405 |  |  | 168,012 |
Warranty | 201,886 |  |  | 258,831 |
Deferred income | 51,678 |  |  | 42,179 |
Interest | 31,307 |  |  | 40,325 |
Commitments to unconsolidated entities | 9,283 |  |  | 10,553 |
Other | 55,536 |  |  | 48,123 |
| $ | 950,932 |  |  | $ | 973,581 |

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 2019, 2018, and 2017 as follows (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Balance, beginning of year | $ | 258,831 |  |  | $ | 329,278 |  |  | $ | 370,992 |
Additions - homes closed during the year | 35,475 |  |  | 37,045 |  |  | 31,798 |
Addition - liabilities acquired | 855 |  |  |  |  |  | 1,495 |
Increase in accruals for homes closed in prior years | 6,023 |  |  | 6,162 |  |  | 6,226 |
Reclassification from other accruals |  |  |  |  |  |  | 1,082 |
Charges incurred | (99,298 | ) |  | (113,654 | ) |  | (82,315 | )
Balance, end of year | $ | 201,886 |  |  | $ | 258,831 |  |  | $ | 329,278 |

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 Mid-Atlantic region). During fiscal 2019, we continued to receive water intrusion claims from homeowners in this region, mostly related to older homes, and we continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs.
Our review process, conducted quarterly, includes an analysis of many factors applicable to these communities to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration.
As of October 31, 2019, our recorded aggregate estimated repair costs to be incurred for known and unknown water intrusion claims was $324.4 million, which was unchanged from October 31, 2018, and our recorded aggregate expected recoveries from insurance carriers and suppliers were approximately $152.6 million, which was also unchanged from October 31, 2018. Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $124.6 million at October 31, 2019 and $177.6 million at October 31, 2018. Our recorded remaining expected recoveries from insurance carriers and suppliers were approximately $97.9 million at October 31, 2019 and $109.3 million at October 31, 2018. As noted above, our review process includes a number of estimates that are based on assumptions with uncertain outcomes, including, but not limited to, the number of homes to be repaired, the extent of repairs needed, the repair procedures employed, the cost of those repairs, outcomes of litigation or arbitrations, and expected recoveries from insurance carriers and suppliers. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded and such
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differences could be material. In addition, due to such uncertainty, we are unable to estimate the range of any such differences. With respect to our insurance receivables, disputes between homebuilders and carriers over coverage positions relating to construction defect claims are common, and resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action. While our primary insurance carrier has funded substantially all of the water intrusion claims that we have submitted to it to date, other insurance carriers have disputed coverage for the same claims under policies that are substantially the same. As a result, we entered arbitration proceedings during the third quarter of fiscal 2019 with these carriers. Based on the legal merits that support our pending insurance claims, review by legal counsel, our history of collecting significant amounts funded by our primary carrier under policies that are substantially the same, and the high credit ratings of our insurance carriers, we believe collection of our remaining recorded insurance receivables is probable. However, due to the complexity of the underlying claims and the variability of the other factors described above, it is reasonably possible that our actual insurance recoveries could materially differ from those recorded. Resolution of these known and unknown claims is expected to take several years.
8. Income Taxes
The following table provides a reconciliation of our effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2019, 2018, and 2017 ($ amounts in thousands):

| 2019 |  | 2018 |  | 2017
| $ |  | %* |  | $ |  | %* |  | $ |  | %*
Federal tax provision at statutory rate | 165,306 |  |  | 21.0 |  |  | 217,914 |  |  | 23.3 |  |  | 285,009 |  |  | 35.0 |
State tax provision, net of federal benefit | 37,898 |  |  | 4.8 |  |  | 47,073 |  |  | 5.0 |  |  | 34,656 |  |  | 4.3 |
Domestic production activities deduction |  |  | — |  |  | (18,168 | ) |  | (1.9 | ) |  | (12,835 | ) |  | (1.6 | )
Other permanent differences | 188 |  |  | — |  |  | (3,726 | ) |  | (0.4 | ) |  | (1,468 | ) |  | (0.2 | )
Reversal of accrual for uncertain tax positions | (5,348 | ) |  | (0.7 | ) |  | (4,741 | ) |  | (0.5 | ) |  | (3,981 | ) |  | (0.5 | )
Accrued interest on anticipated tax assessments | 453 |  |  | 0.1 |  |  | 737 |  |  | 0.1 |  |  | 984 |  |  | 0.1 |
Increase in unrecognized tax benefits | 2,153 |  |  | 0.3 |  |  | 1,122 |  |  | 0.1 |  |  |  |  | — |
Valuation allowance — reversed |  |  | — |  |  |  |  | — |  |  | (32,154 | ) |  | (3.9 | )
Changes in tax law | (523 | ) |  | (0.1 | ) |  | (38,740 | ) |  | (4.1 | ) |  |  |  | — |
Excess stock compensation benefit | (2,143 | ) |  | (0.3 | ) |  | (4,236 | ) |  | (0.5 | ) |  |  |  | — |
Other | (821 | ) |  | (0.1 | ) |  | (11,470 | ) |  | (1.2 | ) |  | 8,605 |  |  | 1.1 |
Income tax provision* | 197,163 |  |  | 25.0 |  |  | 185,765 |  |  | 19.9 |  |  | 278,816 |  |  | 34.2 |

* | Due to rounding, amounts may not add.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which changed many longstanding foreign and domestic corporate and individual tax rules, as well as rules pertaining to the deductibility of employee compensation and benefits. The Tax Act, among other changes, reduced the corporate income tax rate from 35% to 21% and repealed the domestic production activities deduction effective for tax years beginning after December 31, 2017. For companies with a fiscal year that does not end on December 31, the change in law requires the application of a blended tax rate for the year of the change. Our blended tax rate for our fiscal year ending October 31, 2018 was 23.3%. Thereafter, the applicable statutory rate will be 21%. ASC 740, “Income Taxes” (“ASC 740”), requires all companies to reflect the effects of the new law in the period in which the law was enacted. Accordingly, we reduced the statutory tax rate applied to earnings from 35% in fiscal 2017 to 23.3% in fiscal 2018 and to 21% in fiscal 2019. In addition, we remeasured our net deferred tax liability for the tax law change, which resulted in an income tax benefit of $35.5 million in fiscal 2018.
We are subject to state tax in the jurisdictions in which we operate. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimated that our rate for state income taxes, before federal benefit, will be 6.1% in fiscal 2019. Our state income tax rate, before federal benefit, was 6.6% and 6.5% in fiscal 2018 and 2017, respectively.
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The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Federal | $ | 161,904 |  |  | $ | 157,836 |  |  | $ | 278,095 |
State | 35,259 |  |  | 27,929 |  |  | 721 |
| $ | 197,163 |  |  | $ | 185,765 |  |  | $ | 278,816 |
Current | $ | 94,399 |  |  | $ | 207,695 |  |  | $ | 93,106 |
Deferred | 102,764 |  |  | (21,930 | ) |  | 185,710 |
| $ | 197,163 |  |  | $ | 185,765 |  |  | $ | 278,816 |

The components of income taxes payable at October 31, 2019 and 2018 are set forth below (amounts in thousands):

| 2019 |  | 2018
Current | $ | 7,897 |  |  | $ | 28,804 |
Deferred | 95,074 |  |  | 2,155 |
| $ | 102,971 |  |  | $ | 30,959 |

The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Balance, beginning of year | $ | 12,222 |  |  | $ | 16,993 |  |  | $ | 30,272 |
Increase in benefit as a result of tax positions taken in prior years | 2,148 |  |  | 2,140 |  |  | 1,575 |
Increase in benefit as a result of tax positions taken in current year | 1,126 |  |  | 949 |  |  | 431 |
Decrease in benefit as a result of settlements | (2,670 | ) |  | (4,707 | ) |  | (9,174 | )
Decrease in benefit as a result of lapse of statute of limitations | (4,929 | ) |  | (3,153 | ) |  | (6,111 | )
Balance, end of year | $ | 7,897 |  |  | $ | 12,222 |  |  | $ | 16,993 |

The statute of limitations has expired on our federal tax returns for fiscal years through 2015.
Our unrecognized tax benefits are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties.
The amounts accrued for interest and penalties are included in the current portion of “Income taxes payable” on our Consolidated Balance Sheets. The following table provides information as to the amounts recognized in our tax provision, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the fiscal years ended October 31, 2019, 2018, and 2017, and the amounts accrued for potential interest and penalties at October 31, 2019 and 2018 (amounts in thousands):

Expense recognized in the Consolidated Statements of Operations and Comprehensive Income |
Fiscal year |
2019 | $ | 593 |
2018 | $ | 1,152 |
2017 | $ | 1,513 |

Accrued at: |
October 31, 2019 | $ | 1,169 |
October 31, 2018 | $ | 2,115 |

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The components of net deferred tax assets and liabilities at October 31, 2019 and 2018 are set forth below (amounts in thousands):

| 2019 |  | 2018
Deferred tax assets: |  |  |
Accrued expenses | $ | 54,162 |  |  | $ | 54,531 |
Impairment charges | 43,583 |  |  | 51,124 |
Inventory valuation differences | 55,313 |  |  | 42,765 |
Stock-based compensation expense | 23,928 |  |  | 27,949 |
Amounts related to unrecognized tax benefits | 311 |  |  | 1,197 |
State tax, net operating loss carryforwards | 67,718 |  |  | 73,288 |
Other | 18 |  |  | 125 |
Total assets | 245,033 |  |  | 250,979 |
Deferred tax liabilities: |  |  |
Capitalized interest | 44,196 |  |  | 43,982 |
Deferred income | 277,005 |  |  | 181,839 |
Expenses taken for tax purposes not for book | 3,571 |  |  | 5,477 |
Depreciation | 5,024 |  |  | 6,877 |
Deferred marketing | 10,311 |  |  | 14,959 |
Total liabilities | 340,107 |  |  | 253,134 |
Net deferred tax liabilities | (95,074 | ) |  | (2,155 | )

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, 2019 and 2018, we determined that it was more-likely-than-not that our deferred tax assets would be realized. Accordingly, at October 31, 2019 and 2018, we did not have valuation allowances recorded against our federal or state deferred tax assets. During fiscal 2017, due to improved operating results, we reversed $32.2 million of state deferred tax asset valuation allowances.
We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards for 5 years to 20 years.
9. Stockholders’ Equity
Our authorized capital stock consists of 400 million shares of common stock, $0.01 par value per share (“common stock”), and 15 million shares of preferred stock, $0.01 par value per share. At October 31, 2019, we had 140.9 million shares of common stock issued and outstanding, 6.7 million shares of common stock reserved for outstanding stock options and restricted stock units, 7.7 million shares of common stock reserved for future stock option and award issuances, and 407,000 shares of common stock reserved for issuance under our employee stock purchase plan. As of October 31, 2019, no shares of preferred stock have been issued.
Cash Dividends
On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. During the fiscal years ended October 31, 2019 and October 31, 2018, we declared and paid aggregate cash dividends of $0.44 and $0.41 per share, respectively, to our shareholders. Subsequent to October 31, 2019, we declared a quarterly cash dividend of $0.11 per share which will be paid on January 24, 2020 to shareholders of record on the close of business on January 10, 2020.
Stock Repurchase Program
In each year since fiscal 2017, our Board of Directors has renewed its authorization to repurchase up to 20 million shares of our common stock in open market transactions, privately negotiated transactions (including accelerated share repurchases), issuer tender offers or other financial arrangements or transactions for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. Most recently, on December 11, 2019, our Board of Directors authorized the repurchase of 20 million shares of our common stock and terminated, effective the same date, the existing
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authorization that had been in effect since December 12, 2018. The Board of Directors did not fix any expiration date for this repurchase program.
The following table provides information about the share repurchase programs for the fiscal years ended October 31, 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Number of shares purchased (in thousands) | 6,619 |  |  | 12,108 |  |  | 7,694 |
Average price per share | $ | 35.28 |  |  | $ | 41.56 |  |  | $ | 37.81 |
Remaining authorization at October 31 (in thousands) | 13,953 |  |  | 10,989 |  |  | 8,144 |

Subsequent to October 31, 2019, we repurchased approximately 3.6 million shares of our common stock at an average price of $39.58 per share, substantially all of which were purchased under the repurchase program authorized by our Board of Directors on December 11, 2019.
Transfer Restriction
On March 17, 2010, our Board of Directors adopted a Certificate of Amendment to the Second Restated Certificate of Incorporation of the Company (the “Certificate of Amendment”). The Certificate of Amendment includes an amendment approved by our stockholders at the 2010 Annual Meeting of Stockholders that restricts certain transfers of our common stock. The Certificate of Amendment’s transfer restrictions generally restrict any direct or indirect transfer of our common stock if the effect would be to increase the direct or indirect ownership of any Person (as defined in the Certificate of Amendment) from less than 4.95% to 4.95% or more of our common stock or increase the ownership percentage of a Person owning or deemed to own 4.95% or more of our common stock. Any direct or indirect transfer attempted in violation of this restriction would be void as of the date of the prohibited transfer as to the purported transferee.
10. Stock-Based Benefit Plans
We grant stock options, restricted stock, and various types of restricted stock units to our employees and our nonemployee directors under our stock incentive plans. On March 12, 2019, shareholders approved the Toll Brothers, Inc. 2019 Omnibus Incentive Plan (the “Omnibus Plan”), which, succeeded the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) and the Toll Brothers, Inc. Stock Incentive Plan for Non-Executive Directors (2016) with respect to prospective equity awards, and no additional equity awards may be granted under such prior plans. As a result, the Omnibus Plan is the sole plan that new equity awards may be granted to employees (including executive officers), directors and other eligible participants under the plan. The Omnibus Plan provides for the granting of incentive stock options (solely to employees) and nonqualified stock options with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. The Omnibus Plan also provide for the issuance of stock appreciation rights and restricted and unrestricted stock awards and stock units, which may be performance-based. At October 31, 2019, 2018, and 2017, we had 7.7 million; 5.1 million; and 5.8 million shares, respectively, available for grant under the Omnibus Plan.
Prior to the adoption of the Omnibus Plan, the Company had granted equity awards under four separate stock incentive plans for employees, officers, and directors with respect to which equity awards remained outstanding as of October 31, 2019. No additional equity awards may be granted under these plans. Stock options granted under these plans were made with a term of up to 10 years at a price not less than the market price of the stock at the date of grant. Stock options and restricted stock units granted under these plans generally vested over a four-year period for employees and a two-year period for nonemployee directors.
The following table provides information regarding the amount of total stock-based compensation expense recognized by us for fiscal 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Total stock-based compensation expense recognized | $ | 26,180 |  |  | $ | 28,312 |  |  | $ | 28,466 |
Income tax benefit recognized | $ | 6,749 |  |  | $ | 7,902 |  |  | $ | 11,125 |

At October 31, 2019, 2018, and 2017, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $18.7 million, $20.9 million, and $24.2 million, respectively.
Information about our more significant stock-based compensation programs is outlined below.
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Stock Options:
Stock options granted to employees generally vest over a four-year period, although certain grants may vest over a longer or shorter period. Stock options granted to nonemployee directors generally vest over a two-year period. Shares issued upon the exercise of a stock option are either from shares held in treasury or newly issued shares.
The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses ranges of assumptions noted in the following table. Expected volatilities were based on implied volatilities from traded options on our stock, historical volatility of our stock, and other factors. The expected lives of options granted were derived from the historical exercise patterns and anticipated future patterns and represent the period of time that options granted are expected to be outstanding. The ranges set forth below result from certain groups of employees exhibiting different behaviors. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
The following table summarizes the weighted-average assumptions and fair value used for stock option grants in each of the fiscal years ended October 31, 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Expected volatility | 28.61% - 31.34% |  | 27.66% - 31.83% |  | 29.93% - 41.05%
Weighted-average volatility | 30.46% |  | 30.33% |  | 34.72%
Risk-free interest rate | 2.65% - 2.76% |  | 2.17% - 2.35% |  | 1.96% - 2.52%
Expected life (years) | 4.63 - 8.50 |  | 5.00 - 8.50 |  | 4.60 - 9.24
Dividends | 1.36% |  | 0.67% |  | none
Weighted-average fair value per share of options granted | $10.22 |  | $16.09 |  | $12.16

The fair value of stock option grants is recognized evenly over the vesting period of the options or over the period between the grant date and the time the option becomes nonforfeitable by the employee, whichever is shorter. Information regarding the stock compensation expense related to stock options for fiscal 2019, 2018 and 2017 was as follows (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Stock compensation expense recognized - options | $ | 5,181 |  |  | $ | 7,497 |  |  | $ | 10,337 |

At October 31, 2019, total compensation cost related to nonvested stock option awards not yet recognized was approximately $4.7 million, and the weighted-average period over which we expect to recognize such compensation costs was approximately 1.2 years.
The following table summarizes stock option activity for our plans during each of the fiscal years ended October 31, 2019, 2018, and 2017 (amounts in thousands, except per share amounts):

| 2019 |  | 2018 |  | 2017
| Number of options |  | Weighted- average exercise price |  | Number of options |  | Weighted- average exercise price |  | Number of options |  | Weighted- average exercise price
Balance, beginning | 5,503 |  |  | $ | 28.84 |  |  | 6,120 |  |  | $ | 27.60 |  |  | 8,514 |  |  | $ | 26.36 |
Granted | 344 |  |  | 32.42 |  |  | 210 |  |  | 47.84 |  |  | 595 |  |  | 31.61 |
Exercised | (1,044 | ) |  | 21.87 |  |  | (797 | ) |  | 24.16 |  |  | (2,863 | ) |  | 24.54 |
Canceled | (23 | ) |  | 34.47 |  |  | (30 | ) |  | 33.08 |  |  | (126 | ) |  | 32.10 |
Balance, ending | 4,780 |  |  | $ | 30.59 |  |  | 5,503 |  |  | $ | 28.84 |  |  | 6,120 |  |  | $ | 27.60 |
Options exercisable, at October 31, | 3,799 |  |  | $ | 29.52 |  |  | 4,231 |  |  | $ | 27.03 |  |  | 4,266 |  |  | $ | 25.42 |

The weighted average remaining contractual life (in years) for options outstanding and exercisable at October 31, 2019, was 4.8 and 4.0, respectively.
The intrinsic value of options outstanding and exercisable is the difference between the fair market value of our common stock on the applicable date (“Measurement Value”) and the exercise price of those options that had an exercise price that was less than the Measurement Value. The intrinsic value of options exercised is the difference between the fair market value of our common stock on the date of exercise and the exercise price.
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The following table provides information pertaining to the intrinsic value of options outstanding and exercisable at October 31, 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Intrinsic value of options outstanding | $ | 45,551 |  |  | $ | 30,477 |  |  | $ | 112,886 |
Intrinsic value of options exercisable | $ | 39,350 |  |  | $ | 29,010 |  |  | $ | 87,978 |

Information pertaining to the intrinsic value of options exercised and the fair market value of options that became vested or modified in each of the fiscal years ended October 31, 2019, 2018, and 2017, is provided below (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Intrinsic value of options exercised | $ | 16,491 |  |  | $ | 18,165 |  |  | $ | 32,951 |
Fair market value of options vested | $ | 7,723 |  |  | $ | 10,007 |  |  | $ | 10,897 |

Our stock option plans permit optionees to exercise stock options using a “net exercise” method at the discretion of the Executive Compensation Committee of the Board of Directors (“Executive Compensation Committee”). In a net exercise, we withhold from the total number of shares that otherwise would be issued to an optionee upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable minimum income tax withholdings and remit the remaining shares to the optionee. In fiscal 2018, the net exercise method was not utilized to exercise options.
The following table provides information regarding the use of the net exercise method for fiscal 2019 and 2017:

| 2019 |  | 2017
Options exercised | 33,250 |  |  | 15,000 |
Shares withheld | 21,842 |  |  | 14,472 |
Shares issued | 11,408 |  |  | 528 |
Average fair market value per share withheld | $ | 33.03 |  |  | $ | 32.98 |
Aggregate fair market value of shares withheld (in thousands) | $ | 721 |  |  | $ | 477 |

Performance-Based Restricted Stock Units:
In fiscal 2019, 2018, and 2017, the Executive Compensation Committee approved awards of performance-based restricted stock units (“Performance-Based RSUs”) relating to shares of our common stock to certain members of our senior management. The number of shares earned for Performance-Based RSUs are based on the attainment of certain operational performance metrics approved by the Executive Compensation Committee in the year of grant. The number of shares underlying the Performance-Based RSUs that may be issued to the recipients ranges from, 0% to 150% for grants awarded in fiscal 2019 and 0% to 110% for grants awarded in fiscal 2018 and prior, of the base award depending on actual achievement as compared to the target performance goals. Shares earned based on actual performance generally vest pro-rata over a four-year period provided the recipients continue to be employed by us as specified in the award document.
The value of the Performance-Based RSUs was determined to be equal to the estimated number of shares of our common stock to be issued multiplied by the closing price of our common stock on the New York Stock Exchange (“NYSE”) on the date the Performance-Based RSU awards were approved by the Executive Compensation Committee (“Valuation Date”). We evaluate the performance goals quarterly and estimate the number of shares underlying the Performance-Based RSUs that are probable of being issued. The following table provides information regarding the issuance, valuation assumptions, and amortization of the Performance-Based RSUs issued in fiscal 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Number of shares underlying Performance-Based RSUs to be issued | 158,721 |  |  | 135,554 |  |  | 168,417 |
Aggregate number of Performance-Based RSUs outstanding at October 31 | 645,538 |  |  | 786,857 |  |  | 940,117 |
Closing price of our common stock on Valuation Date | $ | 34.86 |  |  | $ | 47.84 |  |  | $ | 31.61 |
Aggregate grant date fair value of Performance-Based RSUs issued (in thousands) | $ | 5,533 |  |  | $ | 6,485 |  |  | $ | 5,324 |
Performance-Based RSU expense recognized (in thousands) | $ | 5,514 |  |  | $ | 6,949 |  |  | $ | 7,031 |
Unamortized value of Performance-Based RSUs at October 31 (in thousands) | $ | 3,431 |  |  | $ | 3,824 |  |  | $ | 4,599 |

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Shares earned with respect to Performance-Based RSUs issued in December 2012, 2013, and 2014 were delivered in fiscal 2017, 2018, and 2019, respectively. The recipients of these Performance-Based RSUs elected to use a portion of the shares underlying the Performance-Based RSUs to pay the required income withholding taxes on the payout. In fiscal 2019, the gross value of the payout was $9.7 million (300,040 shares), the minimum income tax withholding was $4.0 million (123,409 shares) and the net value of the shares delivered was $5.7 million (176,631 shares). In fiscal 2018, the gross value of the payout was $13.7 million (288,814 shares), the minimum income tax withholding was $6.0 million (126,330 shares) and the net value of the shares delivered was $7.7 million (162,484 shares). In fiscal 2017, the gross value of the payout was $9.6 million (302,514 shares), the minimum income tax withholding was $4.2 million (133,098 shares) and the net value of the shares delivered was $5.4 million (169,416 shares).
Total Shareholder Return Restricted Stock Units:
In fiscal 2019, 2018, and 2017, the Executive Compensation Committee approved awards of relative total shareholder return performance-based restricted stock units (“TSR RSUs”) relating to 48,710, 39,411 and 46,361 target shares, respectively, of our common stock to certain members of our senior management. Shares underlying the TSR RSUs granted are earned by comparing our total shareholder return during specified performance periods to the total shareholder returns of companies in a performance peer group as defined in the award document. The specified performance periods are as follows:

|  | Performance Period |  | Target Number of TSR RSUs issued
Fiscal 2019 |  | November 1, 2018 to October 31, 2021 |  | 48,710 |
Fiscal 2018 |  | November 1, 2017 to October 31, 2020 |  | 39,411 |
Fiscal 2017 |  | November 1, 2016 to October 31, 2019 |  | 46,361 |

The TSR RSUs generally vest at the end of a 3-year period provided the recipients continue to be employed by us as specified in the award document. Based upon our ranking in the performance peer group, the recipient of the TSR RSUs may earn a total award ranging from 0% to 150% for awards granted in fiscal 2019 and 0% to 200% for awards granted in fiscal 2018 and prior, of the target number of TSR RSUs granted. In fiscal 2019, recipients of the fiscal 2017 TSR RSUs earned 0% of the target based on total shareholder return ranking in the performance peer group during the three-year period ending October 31, 2019. In fiscal 2018, recipients earned 76.81% of the 52,679 target TSR RSUs awarded in fiscal 2016 based upon our total shareholder return ranking in the performance peer group during the three-year period ended October 31, 2018. In fiscal 2017, recipients of earned 83.05% of the 57,230 target TSR RSUs awarded in fiscal 2016 based upon our total shareholder return ranking in the performance peer group during the two-year period ended October 31, 2017.
We estimated the fair value of the TSR RSUs at the grant date using a Monte Carlo simulation. The following table summarizes the assumptions used in the Monte Carlo simulation and the fair value per share of the TSR RSUs granted in fiscal 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Weighted-average volatility | 29.06% |  | 26.58% |  | 26.91%
Risk-free interest rate | 2.64% |  | 1.92% |  | 1.52%
Dividends | none |  | none |  | none
Weighted-average fair value per share of TSR RSUs | $36.46 |  | $52.62 |  | $39.21

The length of each performance period was used as the expected term in the simulation for each respective tranche.
The following table provides information on expense recognized and the unamortized value of our TSR RSUs for fiscal 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
TSR RSUs expense recognized | $ | 1,673 |  |  | $ | 2,502 |  |  | $ | 3,400 |
Unamortized value of TSR RSUs at October 31 | $ | 1,875 |  |  | $ | 1,773 |  |  | $ | 2,200 |

Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a TSR RSU recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides
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information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2019 and 2018:

| 2019 |  | 2018
Number of shares withheld | 16,643 |  |  | 13,974 |
Income tax withholdings due | $ | 537,902 |  |  | $ | 470,364 |
Remaining shares issued to the recipients | 23,817 |  |  | 33,553 |

Time-Based Restricted Stock Units:
In fiscal 2019, 2018, and 2017, we issued time-based restricted stock units (“RSUs”) to various officers, employees, and nonemployee directors. These RSUs generally vest in annual installments over a two- to four-year period. The value of the RSUs was determined to be equal to the number of shares of our common stock underlying the RSUs multiplied by the closing price of our common stock on the NYSE on the date the RSUs were awarded. The following table provides information regarding these RSUs for fiscal 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Time-Based RSUs issued: |  |  |  |  |
Number of RSUs issued | 449,380 |  |  | 296,790 |  |  | 377,564 |
Weighted average closing price per share of our common stock on date of issuance | $ | 33.04 |  |  | $ | 47.84 |  |  | $ | 31.61 |
Aggregate fair value of RSUs issued (in thousands) | $ | 14,848 |  |  | $ | 14,198 |  |  | $ | 11,935 |
Time-Based RSU expense recognized (in thousands): | $ | 13,627 |  |  | $ | 11,193 |  |  | $ | 7,572 |

| 2019 |  | 2018 |  | 2017
At October 31: |  |  |  |  |
Aggregate number of Time-Based RSUs outstanding | 1,137,936 |  |  | 850,853 |  |  | 673,224 |
Cumulative unamortized value of Time-Based RSUs (in thousands) | $ | 8,694 |  |  | $ | 8,818 |  |  | $ | 6,783 |

Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. The following table provides information regarding the number of shares withheld, the income tax withholding due, and the remaining shares issued to the recipients for fiscal 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Number of shares withheld | 29,681 |  |  | 23,289 |  |  | 20,400 |
Income tax withholdings due | $ | 1,042 |  |  | $ | 1,145 |  |  | $ | 664,300 |
Remaining shares issued to the recipients | 82,795 |  |  | 58,552 |  |  | 52,757 |

Employee Stock Purchase Plan
Our employee stock purchase plan enables substantially all employees to purchase our common stock at 95% of the market price of the stock on specified offering dates without restriction or at 85% of the market price of the stock on specified offering dates subject to restrictions. The plan, which terminates in December 2027, provides that 500,000 shares be reserved for purchase. At October 31, 2019, 407,000 shares were available for issuance.
The following table provides information regarding our employee stock purchase plan for fiscal 2019, 2018, and 2017:

| 2019 |  | 2018 |  | 2017
Shares issued | 41,744 |  |  | 35,471 |  |  | 33,314 |
Average price per share | $ | 31.80 |  |  | $ | 34.08 |  |  | $ | 32.25 |
Compensation expense recognized (in thousands) | $ | 184 |  |  | $ | 171 |  |  | $ | 147 |

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11. Earnings Per Share Information
Information pertaining to the calculation of earnings per share for each of the fiscal years ended October 31, 2019, 2018, and 2017, is as follows (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Numerator: |  |  |  |  |
Net income as reported | $ | 590,007 |  |  | $ | 748,151 |  |  | $ | 535,495 |
Plus: Interest and costs attributable to 0.5% Exchangeable Senior Notes, net of income tax benefit (a) |  |  |  |  |  |  | 1,434 |
Numerator for diluted earnings per share | $ | 590,007 |  |  | $ | 748,151 |  |  | $ | 536,929 |
Denominator: |  |  |  |  |
Basic weighted-average shares | 145,008 |  |  | 151,984 |  |  | 162,222 |
Common stock equivalents (b) | 1,493 |  |  | 2,217 |  |  | 2,147 |
Shares attributable to 0.5% Exchangeable Senior Notes (a) |  |  |  |  |  | 5,118 |
Diluted weighted-average shares | 146,501 |  |  | 154,201 |  |  | 169,487 |
Other information: |  |  |  |  |
Weighted-average number of antidilutive options and restricted stock units (c) | 1,156 |  |  | 813 |  |  | 1,966 |
Shares issued under stock incentive and employee stock purchase plans | 1,394 |  |  | 1,066 |  |  | 3,116 |

(a) | On September 15, 2017, we redeemed these notes.

(b) | 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.

(c) | 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.

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12. Fair Value Disclosures
Financial Instruments
A summary of assets and (liabilities) at October 31, 2019 and 2018, 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, 2019 |  | October 31, 2018
Residential Mortgage Loans Held for Sale |  | Level 2 |  | $ | 218,777 |  |  | $ | 170,731 |
Forward Loan Commitments – Residential Mortgage Loans Held for Sale |  | Level 2 |  | $ | 298 |  |  | $ | 1,750 |
Interest Rate Lock Commitments (“IRLCs”) |  | Level 2 |  | $ | 964 |  |  | $ | (4,366 | )
Forward Loan Commitments – IRLCs |  | Level 2 |  | $ | (964 | ) |  | $ | 4,366 |

At October 31, 2019 and 2018, the carrying value of cash and cash equivalents and customer deposits held in escrow approximated fair value.
Mortgage Loans Held for Sale
At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is also included in “Other income – net.”
The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands):

At October 31, |  | Aggregate unpaid principal balance |  | Fair value |  | Excess
2019 |  | $ | 216,280 |  |  | $ | 218,777 |  |  | $ | 2,497 |
2018 |  | $ | 170,728 |  |  | $ | 170,731 |  |  | $ | 3 |

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
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of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired communities:

Three months ended: | Selling price per unit ($ in thousands) |  | Sales pace per year (in units) |  | Discount rate
Fiscal 2019: |  |  |  |  |
January 31 | 836 - 13,495 |  | 2 - 12 |  | 12.5% - 15.8%
April 30 | 372 - 1,915 |  | 2 - 19 |  | 12.0% - 26.0%
July 31 | 530 - 1,113 |  | 2 - 9 |  | 7.8% - 13%
October 31 | 478 - 857 |  | 2 - 5 |  | 13.8% - 14.5%
Fiscal 2018: |  |  |  |  |
January 31 | 381 - 1,029 |  | 7 - 10 |  | 13.8% - 19.0%
April 30 | 485 - 522 |  | 10 - 16 |  | 16.9%
July 31(1) | – |  | – |  | –
October 31 | 470 - 1071 |  | 4 - 23 |  | 13.5% - 16.3%

(1) | The impairment charges recognized were related to our decisions to sell lots in a bulk sale in certain communities rather than sell and construct homes as previously intended. The sale price per lot used in the fair value determination for these bulk sales ranged from $10,000 to $155,000.

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

|  |  |  | Impaired operating communities
Three months ended: |  | Number of communities tested |  | Number of communities |  | Fair value of communities, net of impairment charges |  | Impairment charges recognized
Fiscal 2019: |  |  |  |  |  |  |  |
January 31 |  | 49 |  |  | 5 |  |  | $ | 37,282 |  |  | $ | 5,785 |
April 30 |  | 64 |  |  | 6 |  |  | $ | 36,159 |  |  | 17,495 |
July 31 |  | 69 |  |  | 3 |  |  | $ | 5,436 |  |  | 1,100 |
October 31 |  | 71 |  |  | 7 |  |  | $ | 18,910 |  |  | 6,695 |
|  |  |  |  |  |  |  | $ | 31,075 |
Fiscal 2018: |  |  |  |  |  |  |  |
January 31 |  | 64 |  |  | 5 |  |  | $ | 13,318 |  |  | $ | 3,736 |
April 30 |  | 65 |  |  | 4 |  |  | $ | 21,811 |  |  | 13,325 |
July 31 |  | 55 |  |  | 5 |  |  | $ | 43,063 |  |  | 9,065 |
October 31 |  | 43 |  |  | 6 |  |  | $ | 24,692 |  |  | 4,025 |
|  |  |  |  |  |  |  | $ | 30,151 |
Fiscal 2017: |  |  |  |  |  |  |  |
January 31 |  | 57 |  |  | 2 |  |  | $ | 8,372 |  |  | $ | 4,000 |
April 30 |  | 46 |  |  | 6 |  |  | $ | 25,092 |  |  | 2,935 |
July 31 |  | 53 |  |  | 4 |  |  | $ | 5,965 |  |  | 1,360 |
October 31 |  | 51 |  |  | 1 |  |  | $ | 6,982 |  |  | 1,500 |
|  |  |  |  |  |  |  | $ | 9,795 |

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Debt
The table below provides, as of the dates indicated, the book value and estimated fair value of our debt at October 31, 2019 and 2018 (amounts in thousands):

|  |  | 2019 |  | 2018
| Fair value hierarchy |  | Book value |  | Estimated fair value |  | Book value |  | Estimated fair value
Loans payable (a) | Level 2 |  | $ | 1,114,577 |  |  | $ | 1,112,040 |  |  | $ | 688,115 |  |  | $ | 687,974 |
Senior notes (b) | Level 1 |  | 2,669,876 |  |  | 2,823,043 |  |  | 2,869,876 |  |  | 2,779,270 |
Mortgage company loan facility (c) | Level 2 |  | 150,000 |  |  | 150,000 |  |  | 150,000 |  |  | 150,000 |
|  |  | $ | 3,934,453 |  |  | $ | 4,085,083 |  |  | $ | 3,707,991 |  |  | $ | 3,617,244 |

(a) | The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.

(b) | The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.

(c) | We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.

13. Employee Retirement and Deferred Compensation Plans
Salary Deferral Savings Plans
We maintain salary deferral savings plans covering substantially all employees. We recognized an expense, net of plan forfeitures, with respect to the plans of $14.1 million, $12.6 million, and $12.3 million for the fiscal years ended October 31, 2019, 2018, and 2017, respectively.
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 $31.1 million and $27.0 million at October 31, 2019 and 2018, respectively, for our obligations under the plan.
Defined Benefit Retirement Plans
We have two unfunded defined benefit retirement plans. Retirement benefits generally vest when the participant reaches normal retirement age. Such age was reduced from age 62 to age 58 in fiscal 2019. Unrecognized prior service costs are being amortized over the period from the date participants enter the plans until their interests are fully vested. We used a 2.61%, 4.06%, and 3.19% discount rate in our calculation of the present value of our projected benefit obligations at October 31, 2019, 2018, and 2017, 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, 2019, 2018 and 2017.
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Information related to our retirement plans for each of the fiscal years ended October 31, 2019, 2018, and 2017, is as follows (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Plan costs: |  |  |  |  |
Service cost | $ | 403 |  |  | $ | 568 |  |  | $ | 619 |
Interest cost | 1,416 |  |  | 1,198 |  |  | 1,142 |
Amortization of prior service cost | 506 |  |  | 936 |  |  | 969 |
Amortization of unrecognized losses | — |  |  | 17 |  |  | 137 |
| $ | 2,325 |  |  | $ | 2,719 |  |  | $ | 2,867 |
Projected benefit obligation: |  |  |  |  |
Beginning of year | $ | 35,515 |  |  | $ | 38,222 |  |  | $ | 38,980 |
Plan amendments adopted during year | 4,956 |  |  |  |  |  |
Service cost | 403 |  |  | 568 |  |  | 619 |
Interest cost | 1,416 |  |  | 1,198 |  |  | 1,142 |
Benefit payments | (1,358 | ) |  | (1,358 | ) |  | (1,318 | )
Change in unrecognized gain/loss | 4,138 |  |  | (3,115 | ) |  | (1,201 | )
Projected benefit obligation, end of year | $ | 45,070 |  |  | $ | 35,515 |  |  | $ | 38,222 |
Unamortized prior service cost: |  |  |  |  |
Beginning of year | $ | 870 |  |  | $ | 1,806 |  |  | $ | 2,775 |
Plan amendments adopted during year | 4,956 |  |  |  |  |  |
Amortization of prior service cost | (506 | ) |  | (936 | ) |  | (969 | )
Unamortized prior service cost, end of year | $ | 5,320 |  |  | $ | 870 |  |  | $ | 1,806 |
Accumulated unrecognized (loss) gain, October 31 | $ | (2,567 | ) |  | $ | 1,571 |  |  | $ | (1,560 | )
Accumulated benefit obligation, October 31 | $ | 45,070 |  |  | $ | 35,515 |  |  | $ | 38,222 |
Accrued benefit obligation, October 31 | $ | 45,070 |  |  | $ | 35,515 |  |  | $ | 38,222 |

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, 2029 in the aggregate (in thousands):

Year ending October 31, |  | Amount
2020 |  | $ | 1,687 |
2021 |  | $ | 2,526 |
2022 |  | $ | 2,785 |
2023 |  | $ | 3,046 |
2024 |  | $ | 3,077 |
November 1, 2024 – October 31, 2029 |  | $ | 16,878 |

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14. Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income was primarily related to employee retirement plans. The tables below provide, for the fiscal years ended October 31, 2019, 2018 and 2017, the components of accumulated other comprehensive (loss) income (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Balance, beginning of period | $ | 694 |  |  | $ | (1,910 | ) |  | $ | (3,336 | )
Other comprehensive (loss) income before reclassifications | (9,094 | ) |  | 3,115 |  |  | 1,201 |
Gross amounts reclassified from accumulated other comprehensive income | 304 |  |  | 953 |  |  | 1,105 |
Income tax benefit (expense) | 2,265 |  |  | (1,142 | ) |  | (880 | )
Other comprehensive (loss) income, net of tax | (6,525 | ) |  | 2,926 |  |  | 1,426 |
Adoption of ASU 2018-02 | — |  |  | (322 | ) |  |  |
Balance, end of period | $ | (5,831 | ) |  | $ | 694 |  |  | $ | (1,910 | )

During the first quarter of fiscal 2018, we elected to reclassify the stranded tax effects resulting from the Tax Act related to employee retirement plans from accumulated other comprehensive income to retained earnings. See Note 1, “Significant Accounting Polices,” for additional information regarding the adoption of ASU 2018-02.
Reclassifications for the amortization of the employee retirement plans are included in “Other income – net” in the Consolidated Statements of Operations and Comprehensive Income.
15. Commitments and Contingencies
Legal Proceedings
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
In March 2018, the Pennsylvania Attorney General informed the Company that it was conducting a review of our construction of stucco homes in Pennsylvania after January 1, 2005 and requested that we voluntarily produce documents and information. The Company has produced documents and information in response to this request and, in addition, has produced requested information and documents in response to a subpoena issued in the second quarter of fiscal 2019. Management cannot at this time predict the eventual scope or outcome of this matter.
Land Purchase Commitments
Generally, our agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate an agreement. If market conditions are weak, approvals needed to develop the land are uncertain, or other factors exist that make the purchase undesirable, we may choose not to acquire the land. Whether a purchase agreement is legally terminated or not, we review the amount recorded for the land parcel subject to the purchase agreement to determine whether the amount is recoverable. While we may not have formally terminated the purchase agreements for those land parcels that we do not expect to acquire, we write off any nonrefundable deposits and costs previously capitalized to such land parcels in the periods that we determine such costs are not recoverable.
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Information regarding our land purchase commitments at October 31, 2019 and 2018, is provided in the table below (amounts in thousands):

| 2019 |  | 2018
Aggregate purchase commitments: |  |  |
Unrelated parties | $ | 2,349,900 |  |  | $ | 2,404,660 |
Unconsolidated entities that the Company has investments in | 10,826 |  |  | 128,235 |
Total | $ | 2,360,726 |  |  | $ | 2,532,895 |
Deposits against aggregate purchase commitments | $ | 168,778 |  |  | $ | 168,421 |
Credits to be received from unconsolidated entities |  |  |  | 79,168 |
Additional cash required to acquire land | 2,191,948 |  |  | 2,285,306 |
Total | $ | 2,360,726 |  |  | $ | 2,532,895 |
Amount of additional cash required to acquire land included in accrued expenses | $ | 14,620 |  |  | $ | 40,103 |

In addition, we expect to purchase approximately 2,500 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, 2019, we also had purchase commitments to acquire land for apartment developments of approximately $280.2 million, of which we had outstanding deposits in the amount of $13.7 million.
We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
Investments in Unconsolidated Entities
At October 31, 2019, 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, 2019, we had outstanding surety bonds amounting to $777.2 million, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that $402.6 million of work remains on these improvements. We have an additional $179.7 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, 2019, we had outstanding letters of credit of $177.9 million under our Revolving Credit Facility. These letters of credit were issued to secure our various financial obligations, including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities in which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.
Backlog
At October 31, 2019, we had agreements of sale outstanding to deliver 6,266 homes with an aggregate sales value of $5.26 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.
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Information regarding our mortgage commitments at October 31, 2019 and 2018, is provided in the table below (amounts in thousands):

| 2019 |  | 2018
Aggregate mortgage loan commitments: |  |  |
IRLCs | $ | 565,634 |  |  | $ | 614,255 |
Non-IRLCs | 1,364,972 |  |  | 1,329,674 |
Total | $ | 1,930,606 |  |  | $ | 1,943,929 |
Investor commitments to purchase: |  |  |
IRLCs | $ | 565,634 |  |  | $ | 614,255 |
Mortgage loans receivable | 208,591 |  |  | 163,208 |
Total | $ | 774,225 |  |  | $ | 777,463 |

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 the rental properties, are 99-year leases. Rental expenses incurred by us under these operating leases were (amounts in thousands):

Year ending October 31, |  | Amount
2019 |  | $ | 20,180 |
2018 |  | $ | 15,783 |
2017 |  | $ | 14,505 |

At October 31, 2019, future minimum rent payments under our operating leases were (amounts in thousands):

Year ending October 31, |  | Amount
2020 |  | $ | 15,430 |
2021 |  | 12,576 |
2022 |  | 10,082 |
2023 |  | 7,800 |
2024 |  | 6,691 |
Thereafter |  | 218,221 |
|  | $ | 270,800 |

16. Other Income – Net
The table below provides the components of “Other income – net” for the years ended October 31, 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Interest income | $ | 19,017 |  |  | $ | 8,570 |  |  | $ | 5,988 |
Income from ancillary businesses | 53,568 |  |  | 25,692 |  |  | 18,934 |
Management fee income from home building unconsolidated entities, net | 9,948 |  |  | 11,740 |  |  | 12,902 |
Retained customer deposits | — |  |  | 8,937 |  |  | 5,801 |
Income from land sales | — |  |  | 6,331 |  |  | 8,621 |
Other | (1,031 | ) |  | 1,190 |  |  | (1,184 | )
Total other income – net | $ | 81,502 |  |  | $ | 62,460 |  |  | $ | 51,062 |

As a result of our adoption of ASC 606 as of November 1, 2018, revenues and cost of revenues from land sales are presented as separate components on our Consolidated Statement of Operations and Comprehensive Income. In addition, retained customer deposits are presented in home sales revenues on our Consolidated Statement of Operations and Comprehensive Income. Because we elected to apply the modified retrospective method of adoption, prior periods have not been restated to reflect these
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changes in presentation. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the impact of the adoption of ASC 606.
Management fee income from home building unconsolidated entities presented above primarily represents fees earned by our City Living and Traditional Home Building operations. In addition, in fiscal 2019, 2018 and 2017, our apartment living operations earned fees from unconsolidated entities of $11.9 million, $7.5 million, and $6.2 million, respectively. Fees earned by our apartment living operations are included in income from ancillary businesses above.
Income from ancillary businesses is generated by our mortgage, title, landscaping, security monitoring, Gibraltar, apartment living, and golf course and country club operations. The table below provides revenues and expenses for these ancillary businesses for the years ended October 31, 2019, 2018, and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Revenues | $ | 150,114 |  |  | $ | 158,051 |  |  | $ | 134,116 |
Expenses | $ | 132,823 |  |  | $ | 132,359 |  |  | $ | 115,182 |
Other income | $ | 36,277 |  |  |  |  |  |  |

In fiscal 2019, we sold seven of our golf club properties to third parties for $64.3 million and we recognized a gain of $35.1 million during the year ended October 31, 2019 as a result of these sales.
In fiscal 2018, we recognized a $10.7 million gain from a bulk sale of security monitoring accounts by our home control solutions business, which is included in income from ancillary businesses above. In addition, in fiscal 2018, we recognized a $3.5 million write-down of a commercial property operated by Toll Brothers Apartment Living, which is included in income from ancillary businesses above.
The table below provides revenues and expenses recognized from land sales for the years ended October 31, 2018, and 2017 (amounts in thousands):

| 2018 |  | 2017
Revenue | $ | 134,327 |  |  | $ | 284,928 |
Expense | 127,996 |  |  | 281,030 |
Deferred gains recognized |  |  | 4,723 |
| $ | 6,331 |  |  | $ | 8,621 |

Land sale revenues for the year ended October 31, 2018 included $80.3 million related to sale transactions with four Rental Property Joint Ventures in which we have interests ranging from 25% to 50%. On one of these transactions, we recognized a gain of $1.0 million in fiscal 2018. In addition, due to our continued involvement in the joint venture primarily through guarantees provided on the joint venture’s debt, we deferred $3.8 million of the gain realized on this sale. We will recognize the deferred gain into income as the guarantees provided expire.
Land sale revenues for the year ended October 31, 2017 included $257.8 million related to sale transactions with two Home Building Joint Ventures and a Rental Property Joint Venture in which we have interests ranging from 20% to 25%. No gain or loss was realized on the sales related to the Home Building Joint Ventures.
The deferred gains recognized in the fiscal 2017 period relate to the sale of a property in fiscal 2015 to a Home Building Joint Venture in which we had a 25% interest. Due to our continued involvement in this unconsolidated entity through our ownership interest and guarantees provided on the entity’s debt, we deferred the $9.3 million gain realized on the sale. We recognized the gain as units were sold to the ultimate home buyers, which is included in deferred gains recognized above. In the fourth quarter of fiscal 2017, we purchased the remaining inventory from this Home Building Joint Venture. The remaining unamortized deferred gain was used to reduce the basis of the inventory acquired.
See Note 4, “Investments in Unconsolidated Entities,” for more information on these transactions.
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17. Information on Segments
The table below summarizes revenue and income (loss) before income taxes for our segments for each of the fiscal years ended October 31, 2019, 2018, and 2017 (amounts in thousands):

| Revenue |  | Income (loss) before income taxes
| 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017
Traditional Home Building: |  |  |  |  |  |  |  |  |  |  |
North | $ | 923,299 |  |  | $ | 975,648 |  |  | $ | 775,540 |  |  | $ | 55,897 |  |  | $ | 56,530 |  |  | $ | 50,393 |
Mid-Atlantic | 1,112,817 |  |  | 1,141,130 |  |  | 1,030,269 |  |  | 64,739 |  |  | 90,573 |  |  | 105,740 |
South | 1,244,571 |  |  | 1,045,395 |  |  | 923,953 |  |  | 117,533 |  |  | 110,304 |  |  | 112,809 |
West | 1,418,041 |  |  | 1,451,353 |  |  | 1,151,697 |  |  | 170,389 |  |  | 213,269 |  |  | 153,188 |
California | 2,129,461 |  |  | 2,208,733 |  |  | 1,550,494 |  |  | 452,350 |  |  | 494,247 |  |  | 345,138 |
Traditional Home Building | 6,828,189 |  |  | 6,822,259 |  |  | 5,431,953 |  |  | 860,908 |  |  | 964,923 |  |  | 767,268 |
City Living | 253,189 |  |  | 320,999 |  |  | 383,105 |  |  | 70,133 |  |  | 78,149 |  |  | 193,852 |
Corporate and other | (999 | ) |  |  |  |  |  | (143,871 | ) |  | (109,156 | ) |  | (146,809 | )
Total home sales revenue | 7,080,379 |  |  | 7,143,258 |  |  | 5,815,058 |  |  | 787,170 |  |  | 933,916 |  |  | 814,311 |
Land sales revenue | 143,587 |  |  | — |  |  | — |  |  |  |  |  |  |
Total revenue | $ | 7,223,966 |  |  | $ | 7,143,258 |  |  | $ | 5,815,058 |  |  | $ | 787,170 |  |  | $ | 933,916 |  |  | $ | 814,311 |

“Corporate and other” is comprised principally of general corporate expenses such as the offices of our executive officers; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including Gibraltar; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.
Total assets for each of our segments at October 31, 2019 and 2018, are shown in the table below (amounts in thousands):

| 2019 |  | 2018
Traditional Home Building: |  |  |
North | $ | 917,506 |  |  | $ | 970,854 |
Mid-Atlantic | 1,177,387 |  |  | 1,130,417 |
South | 1,412,563 |  |  | 1,237,744 |
West | 2,057,389 |  |  | 1,580,199 |
California | 2,339,677 |  |  | 2,733,956 |
Traditional Home Building | 7,904,522 |  |  | 7,653,170 |
City Living | 529,507 |  |  | 516,238 |
Corporate and other | 2,394,109 |  |  | 2,075,182 |
| $ | 10,828,138 |  |  | $ | 10,244,590 |

“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, income tax receivable, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments and operations, manufacturing facilities, and our mortgage and title subsidiaries.
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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, 2019 |  |  |  |  |  |  |
Traditional Home Building: |  |  |  |  |  |  |
North | $ | 24,575 |  |  | $ | 64,129 |  |  | $ | 764,015 |  |  | $ | 852,719 |
Mid-Atlantic | 53,375 |  |  | 96,634 |  |  | 964,188 |  |  | 1,114,197 |
South | 15,622 |  |  | 134,697 |  |  | 1,056,384 |  |  | 1,206,703 |
West | 25,340 |  |  | 34,165 |  |  | 1,924,387 |  |  | 1,983,892 |
California | 64,017 |  |  | 353,186 |  |  | 1,842,935 |  |  | 2,260,138 |
Traditional Home Building | 182,929 |  |  | 682,811 |  |  | 6,551,909 |  |  | 7,417,649 |
City Living |  |  | 185,391 |  |  | 270,008 |  |  | 455,399 |
| $ | 182,929 |  |  | $ | 868,202 |  |  | $ | 6,821,917 |  |  | $ | 7,873,048 |
Balances at October 31, 2018 |  |  |  |  |  |  |
Traditional Home Building: |  |  |  |  |  |  |
North | $ | 17,414 |  |  | $ | 99,383 |  |  | $ | 803,692 |  |  | $ | 920,489 |
Mid-Atlantic | 48,553 |  |  | 123,218 |  |  | 906,990 |  |  | 1,078,761 |
South | 12,305 |  |  | 95,309 |  |  | 957,321 |  |  | 1,064,935 |
West | 22,905 |  |  | 109,671 |  |  | 1,419,989 |  |  | 1,552,565 |
California | 32,441 |  |  | 391,221 |  |  | 2,146,370 |  |  | 2,570,032 |
Traditional Home Building | 133,618 |  |  | 818,802 |  |  | 6,234,362 |  |  | 7,186,782 |
City Living | 6,367 |  |  | 97,814 |  |  | 307,256 |  |  | 411,437 |
| $ | 139,985 |  |  | $ | 916,616 |  |  | $ | 6,541,618 |  |  | $ | 7,598,219 |

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, 2019, 2018, and 2017, are shown in the table below (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Traditional Home Building: |  |  |  |  |
North | $ | 17,488 |  |  | $ | 19,698 |  |  | $ | 6,528 |
Mid-Atlantic | 8,514 |  |  | 9,818 |  |  | 6,905 |
South | 9,457 |  |  | 3,802 |  |  | 1,184 |
West | 1,074 |  |  | 907 |  |  | 106 |
California | 1,027 |  |  | 147 |  |  | 43 |
Traditional Home Building | 37,560 |  |  | 34,372 |  |  | 14,766 |
City Living | 4,800 |  |  | 15 |  |  | 28 |
Corporate and other |  |  | 769 |  |  |
| $ | 42,360 |  |  | $ | 35,156 |  |  | $ | 14,794 |

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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,
|  | 2019 |  | 2018 |  | 2019 |  | 2018 |  | 2017
Traditional Home Building: |  |  |  |  |  |  |  |  |  |
Mid-Atlantic |  | $ | 8,525 |  |  | $ | 7,823 |  |  |  |  |  | $ | (4,000 | ) |  | $ | (2,000 | )
South |  | 91,956 |  |  | 84,610 |  |  | 19,098 |  |  | $ | 12,263 |  |  | $ | 9,185 |
West |  |  |  |  |  |  |  |  |  |  | (63 | ) |  | 2,529 |
California |  | 9,825 |  |  | 84,160 |  |  | (37 | ) |  | 2,404 |  |  | 7,509 |
Traditional Home Building |  | 110,306 |  |  | 176,593 |  |  | 19,061 |  |  | 10,604 |  |  | 17,223 |
City Living |  | 60,512 |  |  | 65,936 |  |  | 4,103 |  |  | 6,857 |  |  | 73,123 |
Corporate and other |  | 195,434 |  |  | 189,284 |  |  | 1,704 |  |  | 67,779 |  |  | 25,720 |
|  | $ | 366,252 |  |  | $ | 431,813 |  |  | $ | 24,868 |  |  | $ | 85,240 |  |  | $ | 116,066 |

“Corporate and other” is comprised of our investments in the Rental Property Joint Ventures and the Gibraltar Joint Ventures.
18. Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the Consolidated Statements of Cash Flows for each of the fiscal years ended October 31, 2019, 2018 and 2017 (amounts in thousands):

| 2019 |  | 2018 |  | 2017
Cash flow information: |  |  |  |  |
Interest paid, net of amount capitalized | $ | 35,422 |  |  | $ | 20,812 |  |  | $ | 21,578 |
Income tax payments | $ | 141,681 |  |  | $ | 215,092 |  |  | $ | 119,852 |
Income tax refunds | $ | 4,344 |  |  | $ | 3,101 |  |  | $ | 2,776 |
Noncash activity: |  |  |  |  |
Cost of inventory acquired through seller financing, municipal bonds, or accrued liabilities, net | $ | 213,824 |  |  | $ | 185,633 |  |  | $ | 61,877 |
Financed portion of land sale |  |  |  |  |  | $ | 625 |
(Increase) decrease in inventory for capitalized interest, our share of earnings, and allocation of basis difference in land purchased from unconsolidated entities | $ | (5,300 | ) |  | $ | (1,320 | ) |  | $ | 11,760 |
Reclassification from inventory to property, construction, and office equipment, net due to the adoption of ASC 606 | $ | 104,807 |  |  |  |  |  |
Net decrease in inventory and retained earnings due to the adoption of ASC 606 | $ | 8,989 |  |  |  |  |  |
Net increase in accrued expenses and decrease in retained earnings due to the adoption of ASC 606 | $ | 6,541 |  |  |  |  |  |
Net decrease in investment in unconsolidated entities and retained earnings due to the adoption of ASC 606 | $ | 2,457 |  |  |  |  |  |
Cost of inventory acquired through foreclosure |  |  | 4,609 |  |  |
Reclassification of deferred income from inventory to accrued liabilities |  |  |  |  |  | $ | 3,520 |
Cancellation of treasury stock | $ | 895,517 |  |  |  |  |  |  |
Non-controlling interest | $ | 38,134 |  |  | $ | 2,801 |  |  |  |
Reclassification of inventory to property, construction, and office equipment |  |  |  |  |  |  | $ | 8,990 |
Decrease (increase) in unrecognized gain in defined benefit plans | $ | 4,138 |  |  | $ | (3,115 | ) |  | $ | (1,201 | )
Defined benefit plan amendment | $ | 4,956 |  |  |  |  |  |
Deferred tax decrease related to stock-based compensation activity included in additional paid-in capital |  |  |  |  | $ | 5,232 |
Income tax benefit (expense) recognized in total comprehensive income | $ | 2,265 |  |  | $ | (1,141 | ) |  | $ | (880 | )

F-50

| 2019 |  | 2018 |  | 2017
Transfer of other assets to inventory, net | $ | 7,100 |  |  | $ | 16,763 |  |  |  |
Transfer of inventory to investment in unconsolidated entities |  |  |  |  |  |  | $ | 72,757 |
Transfer of investment in unconsolidated entities to inventory |  |  |  |  |  | $ | 14,328 |
Transfer of other assets to investment in unconsolidated entities, net | $ | 44,139 |  |  | $ | 60,971 |  |  | 1,308 |
Reclassification of deferred income from accrued expenses to investment in unconsolidated entities |  |  | $ | 5,995 |  |  |
Increase in investments in unconsolidated entities for change in the fair value of debt guarantees | $ | 928 |  |  | $ | 623 |  |  | $ | 130 |
Miscellaneous (decreases) increases to investments in unconsolidated entities | $ | (1,876 | ) |  | $ | 1,776 |  |  | $ | 5,117 |
Business Acquisitions: |  |  |  |  |
Fair value of assets purchased | $ | 173,516 |  |  |  |  | $ | 88,465 |
Liabilities assumed | $ | 11,143 |  |  |  |  | $ | 5,377 |
Cash paid | $ | 162,373 |  |  |  |  |  | $ | 83,088 |
| At October 31,
| 2019 |  | 2018 |  | 2017
Cash, cash equivalents, and restricted cash |  |  |  |  |
Cash and cash equivalents | $ | 1,286,014 |  |  | $ | 1,182,195 |  |  | $ | 712,829 |
Restricted cash and cash held by our captive title company included in receivables, prepaid expenses, and other assets | $ | 33,629 |  |  | $ | 34,215 |  |  | $ | 48,405 |
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows | $ | 1,319,643 |  |  | $ | 1,216,410 |  |  | $ | 761,234 |

F-51

19. Supplemental Guarantor Information
Our 100%-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following Senior Notes (amounts in thousands):

|  | Original amount issued and amount outstanding at October 31, 2019
5.875% Senior Notes due February 15, 2022 |  | $ | 419,876 |
4.375% Senior Notes due April 15, 2023 |  | $ | 400,000 |
5.625% Senior Notes due January 15, 2024 |  | $ | 250,000 |
4.875% Senior Notes due November 15, 2025 |  | $ | 350,000 |
4.875% Senior Notes due March 15, 2027 |  | $ | 450,000 |
4.350% Senior Notes due February 15, 2028 |  | $ | 400,000 |
3.80% Senior Notes due November 1, 2029 |  | $ | 400,000 |

The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our 100%-owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Nonguarantor Subsidiaries”) do not guarantee the debt. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds from the above-described debt issuances. The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of the Revolving Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee, so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of our consolidated net worth as of the end of our most recent fiscal quarter, (3) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter, (4) such release would not have a material adverse effect on our and our subsidiaries home building business, and (5) the Guarantor Subsidiary is released from its guarantee under the Revolving Credit Facility. If there are no guarantors under the Revolving Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures would not be material to investors.
F-52

Supplemental consolidating financial information of Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor Subsidiaries, the Nonguarantor Subsidiaries, and the eliminations to arrive at Toll Brothers, Inc. on a consolidated basis is presented below ($ amounts in thousands).
Consolidating Balance Sheet at October 31, 2019

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
ASSETS |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | — |  |  | — |  |  | 1,082,067 |  |  | 203,947 |  |  | — |  |  | 1,286,014 |
Inventory |  |  |  |  | 7,791,759 |  |  | 81,289 |  |  |  |  | 7,873,048 |
Property, construction, and office equipment, net |  |  |  |  | 263,140 |  |  | 10,272 |  |  |  |  | 273,412 |
Receivables, prepaid expenses, and other assets |  |  |  |  |  | 224,681 |  |  | 610,541 |  |  | (119,781 | ) |  | 715,441 |
Mortgage loans held for sale |  |  |  |  |  |  | 218,777 |  |  |  |  | 218,777 |
Customer deposits held in escrow |  |  |  |  | 74,303 |  |  | 100 |  |  |  |  | 74,403 |
Investments in unconsolidated entities |  |  |  |  | 50,594 |  |  | 315,658 |  |  |  |  | 366,252 |
Investments in and advances to consolidated entities | 5,172,737 |  |  | 2,704,551 |  |  | 163,371 |  |  | 147,413 |  |  | (8,188,072 | ) |  | — |
Income taxes receivable | 20,791 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 20,791 |
| 5,193,528 |  |  | 2,704,551 |  |  | 9,649,915 |  |  | 1,587,997 |  |  | (8,307,853 | ) |  | 10,828,138 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Loans payable |  |  |  |  | 1,109,614 |  |  | 36,092 |  |  | (34,257 | ) |  | 1,111,449 |
Senior notes |  |  | 2,659,898 |  |  |  |  |  |  |  |  | 2,659,898 |
Mortgage company loan facility |  |  |  |  |  |  | 150,000 |  |  |  |  | 150,000 |
Customer deposits |  |  |  |  | 383,583 |  |  | 2,013 |  |  |  |  | 385,596 |
Accounts payable |  |  |  |  | 347,715 |  |  | 884 |  |  |  |  | 348,599 |
Accrued expenses | 754 |  |  | 26,812 |  |  | 569,476 |  |  | 443,180 |  |  | (89,290 | ) |  | 950,932 |
Advances from consolidated entities |  |  |  |  |  | 1,052,370 |  |  | 503,058 |  |  | (1,555,428 | ) |  | — |
Income taxes payable | 102,971 |  |  |  |  |  |  |  |  |  |  |  | 102,971 |
Total liabilities | 103,725 |  |  | 2,686,710 |  |  | 3,462,758 |  |  | 1,135,227 |  |  | (1,678,975 | ) |  | 5,709,445 |
Equity |  |  |  |  |  |  |  |  |  |  |
Stockholders’ equity |  |  |  |  |  |  |  |  |  |  |
Common stock | 1,529 |  |  |  |  | 48 |  |  | 3,006 |  |  | (3,054 | ) |  | 1,529 |
Additional paid-in capital | 726,879 |  |  | 49,400 |  |  |  |  |  | 177,034 |  |  | (226,434 | ) |  | 726,879 |
Retained earnings (deficit) | 4,792,409 |  |  | (31,559 | ) |  | 6,187,109 |  |  | 225,853 |  |  | (6,399,390 | ) |  | 4,774,422 |
Treasury stock, at cost | (425,183 | ) |  |  |  |  |  |  |  |  |  | (425,183 | )
Accumulated other comprehensive loss | (5,831 | ) |  |  |  |  |  |  |  |  |  |  |  | (5,831 | )
Total stockholders’ equity | 5,089,803 |  |  | 17,841 |  |  | 6,187,157 |  |  | 405,893 |  |  | (6,628,878 | ) |  | 5,071,816 |
Noncontrolling interest |  |  |  |  |  |  | 46,877 |  |  |  |  | 46,877 |
Total equity | 5,089,803 |  |  | 17,841 |  |  | 6,187,157 |  |  | 452,770 |  |  | (6,628,878 | ) |  | 5,118,693 |
| 5,193,528 |  |  | 2,704,551 |  |  | 9,649,915 |  |  | 1,587,997 |  |  | (8,307,853 | ) |  | 10,828,138 |

F-53

Consolidating Balance Sheet at October 31, 2018

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
ASSETS |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | — |  |  | — |  |  | 1,011,863 |  |  | 170,332 |  |  | — |  |  | 1,182,195 |
Inventory |  |  |  |  | 7,493,205 |  |  | 105,014 |  |  |  |  | 7,598,219 |
Property, construction, and office equipment, net |  |  |  |  | 169,265 |  |  | 24,016 |  |  |  |  | 193,281 |
Receivables, prepaid expenses, and other assets |  |  |  |  |  |  | 291,299 |  |  | 392,559 |  |  | (133,080 | ) |  | 550,778 |
Mortgage loans held for sale |  |  |  |  |  |  | 170,731 |  |  |  |  | 170,731 |
Customer deposits held in escrow |  |  |  |  | 116,332 |  |  | 1,241 |  |  |  |  | 117,573 |
Investments in unconsolidated entities |  |  |  |  | 44,329 |  |  | 387,484 |  |  |  |  | 431,813 |
Investments in and advances to consolidated entities | 4,791,629 |  |  | 2,916,557 |  |  | 91,740 |  |  | 126,872 |  |  | (7,926,798 | ) |  | — |
| 4,791,629 |  |  | 2,916,557 |  |  | 9,218,033 |  |  | 1,378,249 |  |  | (8,059,878 | ) |  | 10,244,590 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Loans payable |  |  |  |  | 686,801 |  |  |  |  |  |  |  | 686,801 |
Senior notes |  |  | 2,861,375 |  |  |  |  |  |  |  |  | 2,861,375 |
Mortgage company loan facility |  |  |  |  |  |  | 150,000 |  |  |  |  | 150,000 |
Customer deposits |  |  |  |  | 405,318 |  |  | 5,546 |  |  |  |  | 410,864 |
Accounts payable |  |  |  |  | 361,655 |  |  | 443 |  |  |  |  | 362,098 |
Accrued expenses | 471 |  |  | 37,341 |  |  | 600,907 |  |  | 462,128 |  |  | (127,266 | ) |  | 973,581 |
Advances from consolidated entities |  |  |  |  |  | 1,551,196 |  |  | 476,040 |  |  | (2,027,236 | ) |  | — |
Income taxes payable | 30,959 |  |  |  |  |  |  |  |  |  |  |  | 30,959 |
Total liabilities | 31,430 |  |  | 2,898,716 |  |  | 3,605,877 |  |  | 1,094,157 |  |  | (2,154,502 | ) |  | 5,475,678 |
Equity |  |  |  |  |  |  |  |  |  |  |
Stockholders’ equity |  |  |  |  |  |  |  |  |  |  |
Common stock | 1,779 |  |  |  |  | 48 |  |  | 3,006 |  |  | (3,054 | ) |  | 1,779 |
Additional paid-in capital | 727,053 |  |  | 49,400 |  |  |  |  |  | 93,734 |  |  | (143,134 | ) |  | 727,053 |
Retained earnings (deficit) | 5,161,551 |  |  | (31,559 | ) |  | 5,612,108 |  |  | 178,639 |  |  | (5,759,188 | ) |  | 5,161,551 |
Treasury stock, at cost | (1,130,878 | ) |  |  |  |  |  |  |  |  |  | (1,130,878 | )
Accumulated other comprehensive loss | 694 |  |  |  |  |  |  |  |  |  |  |  |  | 694 |
Total stockholders’ equity | 4,760,199 |  |  | 17,841 |  |  | 5,612,156 |  |  | 275,379 |  |  | (5,905,376 | ) |  | 4,760,199 |
Noncontrolling interest |  |  |  |  |  |  | 8,713 |  |  |  |  | 8,713 |
Total equity | 4,760,199 |  |  | 17,841 |  |  | 5,612,156 |  |  | 284,092 |  |  | (5,905,376 | ) |  | 4,768,912 |
| 4,791,629 |  |  | 2,916,557 |  |  | 9,218,033 |  |  | 1,378,249 |  |  | (8,059,878 | ) |  | 10,244,590 |

F-54

Consolidating Statement of Operations and Comprehensive Income (Loss) for the fiscal year ended October 31, 2019

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Revenues: |  |  |  |  |  |  |  |  |  |  |
Home sales |  |  |  |  | 6,980,549 |  |  | 99,830 |  |  |  |  |  | 7,080,379 |
Land sales and other |  |  |  |  | 112,972 |  |  | 260,843 |  |  | (230,228 | ) |  | 143,587 |
| — |  |  | — |  |  | 7,093,521 |  |  | 360,673 |  |  | (230,228 | ) |  | 7,223,966 |
Cost of revenues: |  |  |  |  |  |  |  |  |  |  |
Home sales |  |  |  |  |  |  | 5,595,685 |  |  | 79,400 |  |  | 3,829 |  |  | 5,678,914 |
Land sales and other |  |  |  |  |  |  | 59,338 |  |  | 180,162 |  |  | (109,796 | ) |  | 129,704 |
| — |  |  | — |  |  | 5,655,023 |  |  | 259,562 |  |  | (105,967 | ) |  | 5,808,618 |
Selling, general and administrative | 542 |  |  | 2,715 |  |  | 775,030 |  |  | 75,905 |  |  | (119,644 | ) |  | 734,548 |
Income (loss) from operations | (542 | ) |  | (2,715 | ) |  | 663,468 |  |  | 25,206 |  |  | (4,617 | ) |  | 680,800 |
Other: |  |  |  |  |  |  |  |  |  |  |
Income from unconsolidated entities |  |  |  |  | 12,930 |  |  | 11,938 |  |  |  |  | 24,868 |
Other income - net |  |  |  |  |  | 48,052 |  |  | 26,352 |  |  | 7,098 |  |  | 81,502 |
Intercompany interest income |  |  |  | 135,087 |  |  | 2,616 |  |  | 5,781 |  |  | (143,484 | ) |  | — |
Interest expense |  |  |  | (132,372 | ) |  | (5,781 | ) |  | (2,850 | ) |  | 141,003 |  |  | — |
Income from consolidated subsidiaries | 787,712 |  |  |  |  | 66,427 |  |  |  |  | (854,139 | ) |  | — |
Income (loss) before income taxes | 787,170 |  |  | — |  |  | 787,712 |  |  | 66,427 |  |  | (854,139 | ) |  | 787,170 |
Income tax provision (benefit) | 197,163 |  |  |  |  | 197,298 |  |  | 16,637 |  |  | (213,935 | ) |  | 197,163 |
Net income (loss) | 590,007 |  |  | — |  |  | 590,414 |  |  | 49,790 |  |  | (640,204 | ) |  | 590,007 |
Other comprehensive income | (6,525 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (6,525 | )
Total comprehensive income (loss) | 583,482 |  |  | — |  |  | 590,414 |  |  | 49,790 |  |  | (640,204 | ) |  | 583,482 |

Consolidating Statement of Operations and Comprehensive Income (Loss) for the fiscal year ended October 31, 2018

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Revenues |  |  |  |  | 6,899,891 |  |  | 453,073 |  |  | (209,706 | ) |  | 7,143,258 |
Cost of revenues |  |  |  |  | 5,427,753 |  |  | 303,962 |  |  | (58,708 | ) |  | 5,673,007 |
Selling, general and administrative | 77 |  |  | 3,162 |  |  | 709,265 |  |  | 83,003 |  |  | (111,472 | ) |  | 684,035 |
| 77 |  |  | 3,162 |  |  | 6,137,018 |  |  | 386,965 |  |  | (170,180 | ) |  | 6,357,042 |
Income (loss) from operations | (77 | ) |  | (3,162 | ) |  | 762,873 |  |  | 66,108 |  |  | (39,526 | ) |  | 786,216 |
Other: |  |  |  |  |  |  |  |  |  |  |
Income from unconsolidated entities |  |  |  |  | 44,646 |  |  | 40,594 |  |  |  |  | 85,240 |
Other income - net |  |  |  |  |  | 30,561 |  |  | (2,950 | ) |  | 34,849 |  |  | 62,460 |
Intercompany interest income |  |  | 142,084 |  |  | 1,649 |  |  | 4,422 |  |  | (148,155 | ) |  | — |
Interest expense |  |  | (138,922 | ) |  | (4,422 | ) |  | (2,111 | ) |  | 145,455 |  |  | — |
Income from consolidated subsidiaries | 933,993 |  |  |  |  | 106,063 |  |  |  |  | (1,040,056 | ) |  | — |
Income (loss) before income taxes | 933,916 |  |  | — |  |  | 941,370 |  |  | 106,063 |  |  | (1,047,433 | ) |  | 933,916 |
Income tax provision (benefit) | 185,765 |  |  |  |  |  | 187,248 |  |  | 21,097 |  |  | (208,345 | ) |  | 185,765 |
Net income (loss) | 748,151 |  |  | — |  |  | 754,122 |  |  | 84,966 |  |  | (839,088 | ) |  | 748,151 |
Other comprehensive income | 2,926 |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,926 |
Total comprehensive income (loss) | 751,077 |  |  | — |  |  | 754,122 |  |  | 84,966 |  |  | (839,088 | ) |  | 751,077 |

F-55

Consolidating Statement of Operations and Comprehensive Income (Loss) for the fiscal year ended October 31, 2017

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Revenues |  |  |  |  | 5,668,610 |  |  | 336,671 |  |  | (190,223 | ) |  | 5,815,058 |
Cost of revenues |  |  |  |  | 4,414,461 |  |  | 223,243 |  |  | (75,401 | ) |  | 4,562,303 |
Selling, general and administrative | 58 |  |  | 4,033 |  |  | 633,000 |  |  | 77,115 |  |  | (108,634 | ) |  | 605,572 |
| 58 |  |  | 4,033 |  |  | 5,047,461 |  |  | 300,358 |  |  | (184,035 | ) |  | 5,167,875 |
Income (loss) from operations | (58 | ) |  | (4,033 | ) |  | 621,149 |  |  | 36,313 |  |  | (6,188 | ) |  | 647,183 |
Other: |  |  |  |  |  |  |  |  |  |  |
Income from unconsolidated entities |  |  |  |  | 12,271 |  |  | 103,795 |  |  |  |  | 116,066 |
Other income - net | 10,574 |  |  |  |  |  | 26,653 |  |  | 10,674 |  |  | 3,161 |  |  | 51,062 |
Intercompany interest income |  |  | 156,366 |  |  | 48 |  |  | 4,365 |  |  | (160,779 | ) |  | — |
Interest expense |  |  | (162,882 | ) |  | (4,365 | ) |  | (1,819 | ) |  | 169,066 |  |  | — |
Income from consolidated subsidiaries | 803,795 |  |  |  |  | 142,779 |  |  |  |  | (946,574 | ) |  | — |
Income (loss) before income taxes | 814,311 |  |  | (10,549 | ) |  | 798,535 |  |  | 153,328 |  |  | (941,314 | ) |  | 814,311 |
Income tax provision (benefit) | 278,816 |  |  | (3,612 | ) |  | 273,418 |  |  | 52,500 |  |  | (322,306 | ) |  | 278,816 |
Net income (loss) | 535,495 |  |  | (6,937 | ) |  | 525,117 |  |  | 100,828 |  |  | (619,008 | ) |  | 535,495 |
Other comprehensive income | 1,426 |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,426 |
Total comprehensive income (loss) | 536,921 |  |  | (6,937 | ) |  | 525,117 |  |  | 100,828 |  |  | (619,008 | ) |  | 536,921 |

F-56

Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2019

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Net cash provided by (used in) operating activities | 76,828 |  |  | (8,413 | ) |  | 559,660 |  |  | (180,837 | ) |  | (9,577 | ) |  | 437,661 |
Cash flow provided by (used in) investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Purchase of property and equipment — net |  |  |  |  | (86,936 | ) |  | (35 | ) |  |  |  | (86,971 | )
Investment in unconsolidated entities |  |  |  |  | (11,202 | ) |  | (45,358 | ) |  |  |  | (56,560 | )
Return of investments in unconsolidated entities |  |  |  |  | 3,304 |  |  | 144,623 |  |  |  |  | 147,927 |
Investment in distressed loans and foreclosed real estate |  |  |  |  |  |  | (731 | ) |  |  |  | (731 | )
Return of investments in distressed loans and foreclosed real estate |  |  |  |  |  |  | 3,147 |  |  |  |  | 3,147 |
Proceeds from sales of golf club properties and an office building |  |  |  |  |  |  | 58,154 |  |  | 21,493 |  |  |  |  |  | 79,647 |
Acquisitions of businesses |  |  |  |  |  |  | (162,373 | ) |  |  |  |  |  |  |  | (162,373 | )
Investment paid intercompany |  |  |  |  |  |  | (71,631 | ) |  |  |  |  | 71,631 |  |  | — |
Intercompany advances | 202,967 |  |  | 212,005 |  |  |  |  |  |  |  |  | (414,972 | ) |  | — |
Net cash provided by (used in) investing activities | 202,967 |  |  | 212,005 |  |  | (270,684 | ) |  | 123,139 |  |  | (343,341 | ) |  | (75,914 | )
Cash flow (used in) provided by financing activities: |  |  |  |  |  |  |  |  |  |  |
Proceeds from issuance of senior notes |  |  | 400,000 |  |  |  |  |  |  |  |  | 400,000 |
Proceeds from loans payable |  |  |  |  | 300,000 |  |  | 2,399,028 |  |  |  |  | 2,699,028 |
Debt issuance costs |  |  | (3,592 | ) |  | (2,588 | ) |  |  |  |  |  | (6,180 | )
Principal payments of loans payable |  |  |  |  | (72,588 | ) |  | (2,399,028 | ) |  |  |  | (2,471,616 | )
Redemption of senior notes |  |  | (600,000 | ) |  |  |  |  |  |  |  | (600,000 | )
Proceeds from stock-based benefit plans | 17,369 |  |  |  |  |  |  |  |  |  |  | 17,369 |
Purchase of treasury stock | (233,523 | ) |  |  |  |  |  |  |  |  |  | (233,523 | )
Dividends paid | (63,641 | ) |  |  |  |  |  |  |  |  |  | (63,641 | )
Receipts related to noncontrolling interest |  |  |  |  |  |  | 49 |  |  |  |  | 49 |
Investment received intercompany |  |  |  |  |  |  | 71,628 |  |  | (71,628 | ) |  | — |
Intercompany advances |  |  |  |  | (443,577 | ) |  | 19,031 |  |  | 424,546 |  |  | — |
Net cash (used in) provided by financing activities | (279,795 | ) |  | (203,592 | ) |  | (218,753 | ) |  | 90,708 |  |  | 352,918 |  |  | (258,514 | )
Net increase in cash, cash equivalents, and restricted cash | — |  |  | — |  |  | 70,223 |  |  | 33,010 |  |  | — |  |  | 103,233 |
Cash, cash equivalents, and restricted cash, beginning of period | — |  |  | — |  |  | 1,011,867 |  |  | 204,543 |  |  | — |  |  | 1,216,410 |
Cash, cash equivalents, and restricted cash, end of period | — |  |  | — |  |  | 1,082,090 |  |  | 237,553 |  |  | — |  |  | 1,319,643 |

F-57

Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2018

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Net cash provided by (used in) operating activities | (4,270 | ) |  | 5,439 |  |  | 521,640 |  |  | 56,301 |  |  | 9,101 |  |  | 588,211 |
Cash flow provided by (used in) investing activities: |  |  |  |  |  |  |  |  |  |  |
Purchase of property and equipment — net |  |  |  |  | (28,064 | ) |  | (168 | ) |  |  |  | (28,232 | )
Investment in unconsolidated entities |  |  |  |  | (1,676 | ) |  | (25,815 | ) |  |  |  | (27,491 | )
Return of investments in unconsolidated entities |  |  |  |  | 29,242 |  |  | 103,948 |  |  |  |  | 133,190 |
Investment in distressed loans and foreclosed real estate |  |  |  |  |  |  | (966 | ) |  |  |  | (966 | )
Return of investments in distressed loans and foreclosed real estate |  |  |  |  |  |  | 4,765 |  |  |  |  | 4,765 |
Intercompany advances | 555,741 |  |  | (401,908 | ) |  |  |  |  |  | (153,833 | ) |  | — |
Net cash provided by (used in) investing activities | 555,741 |  |  | (401,908 | ) |  | (498 | ) |  | 81,764 |  |  | (153,833 | ) |  | 81,266 |
Cash flow (used in) provided by financing activities: |  |  |  |  |  |  |  |  |  |  |
Proceeds from issuance of senior notes |  |  | 400,000 |  |  |  |  |  |  |  |  | 400,000 |
Proceeds from loans payable |  |  |  |  | 590,000 |  |  | 2,040,835 |  |  |  |  | 2,630,835 |
Debt issuance costs |  |  | (3,531 | ) |  |  |  |  |  |  |  | (3,531 | )
Principal payments of loans payable |  |  |  |  | (679,184 | ) |  | (2,010,980 | ) |  |  |  | (2,690,164 | )
Proceeds from stock-based benefit plans | 13,392 |  |  |  |  |  |  |  |  |  |  | 13,392 |
Purchase of treasury stock | (503,159 | ) |  |  |  |  |  |  |  |  |  | (503,159 | )
Payments related to noncontrolling interest |  |  |  |  |  |  | 30 |  |  |  |  | 30 |
Dividends paid intercompany |  |  |  |  |  |  | (6,000 | ) |  | 6,000 |  |  | — |
Dividends paid | (61,704 | ) |  |  |  |  |  |  |  |  |  | (61,704 | )
Intercompany advances |  |  |  |  | 45,205 |  |  | (183,937 | ) |  | 138,732 |  |  | — |
Net cash (used in) provided by financing activities | (551,471 | ) |  | 396,469 |  |  | (43,979 | ) |  | (160,052 | ) |  | 144,732 |  |  | (214,301 | )
Net increase (decrease) in cash, cash equivalents, and restricted cash | — |  |  | — |  |  | 477,163 |  |  | (21,987 | ) |  | — |  |  | 455,176 |
Cash, cash equivalents, and restricted cash, beginning of period | — |  |  | — |  |  | 534,704 |  |  | 226,530 |  |  | — |  |  | 761,234 |
Cash, cash equivalents, and restricted cash, end of period | — |  |  | — |  |  | 1,011,867 |  |  | 204,543 |  |  | — |  |  | 1,216,410 |

F-58

Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2017

| Toll Brothers, Inc. |  | Subsidiary Issuer |  | Guarantor Subsidiaries |  | Nonguarantor Subsidiaries |  | Eliminations |  | Consolidated
Net cash provided by (used in) operating activities | 200,721 |  |  | 9,955 |  |  | 294,302 |  |  | 366,144 |  |  | (9,424 | ) |  | 861,698 |
Cash flow (used in) provided by investing activities: |  |  |  |  |  |  |  |  |  |  |
Purchase of property and equipment — net |  |  |  |  | (20,439 | ) |  | (8,433 | ) |  |  |  | (28,872 | )
Sale and redemption of marketable securities and restricted investments - net | 10,631 |  |  |  |  |  |  | 7,418 |  |  |  |  | 18,049 |
Investment in unconsolidated entities |  |  |  |  | (3,744 | ) |  | (118,590 | ) |  |  |  | (122,334 | )
Return of investments in unconsolidated entities |  |  |  |  | 58,610 |  |  | 136,895 |  |  |  |  | 195,505 |
Investment in distressed loans and foreclosed real estate |  |  |  |  |  |  | (710 | ) |  |  |  | (710 | )
Return of investments in distressed loans and foreclosed real estate |  |  |  |  |  |  | 13,765 |  |  |  |  | 13,765 |
Acquisition of a business |  |  |  |  |  |  | (83,088 | ) |  |  |  |  |  |  |  | (83,088 | )
Investment paid intercompany |  |  |  |  |  |  | (45,000 | ) |  |  |  |  | 45,000 |  |  | — |
Intercompany advances | 51,071 |  |  | 226,511 |  |  |  |  |  |  |  |  | (277,582 | ) |  | — |
Net cash (used in) provided by investing activities | 61,702 |  |  | 226,511 |  |  | (93,661 | ) |  | 30,345 |  |  | (232,582 | ) |  | (7,685 | )
Cash flow (used in) provided by financing activities: |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of senior notes |  |  | 455,483 |  |  |  |  |  |  |  |  | 455,483 |
Proceeds from loans payable |  |  |  |  | 250,068 |  |  | 1,370,975 |  |  |  |  | 1,621,043 |
Debt issuance costs |  |  | (4,449 | ) |  |  |  |  |  |  |  | (4,449 | )
Principal payments of loans payable |  |  |  |  | (538,527 | ) |  | (1,460,830 | ) |  |  |  | (1,999,357 | )
Redemption of senior notes |  |  | (687,500 | ) |  |  |  |  |  |  |  | (687,500 | )
Proceeds from stock-based benefit plans | 66,000 |  |  |  |  |  |  |  |  |  |  | 66,000 |
Purchase of treasury stock | (290,881 | ) |  |  |  |  |  |  |  |  |  | (290,881 | )
Dividends paid | (38,587 | ) |  |  |  |  |  |  |  |  |  | (38,587 | )
Investment received intercompany |  |  |  |  |  |  | 45,000 |  |  | (45,000 | ) |  | — |
Intercompany advances |  |  |  |  | 39,082 |  |  | (326,088 | ) |  | 287,006 |  |  | — |
Net cash (used in) provided by financing activities | (263,468 | ) |  | (236,466 | ) |  | (249,377 | ) |  | (370,943 | ) |  | 242,006 |  |  | (878,248 | )
Net increase (decrease) in cash, cash equivalents, and restricted cash | (1,045 | ) |  | — |  |  | (48,736 | ) |  | 25,546 |  |  | — |  |  | (24,235 | )
Cash, cash equivalents, and restricted cash, beginning of period | 1,045 |  |  | — |  |  | 583,440 |  |  | 200,984 |  |  | — |  |  | 785,469 |
Cash, cash equivalents, and restricted cash, end of period | — |  |  | — |  |  | 534,704 |  |  | 226,530 |  |  | — |  |  | 761,234 |

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F-59

20. Summary Consolidated Quarterly Financial Data (Unaudited)
The table below provides summary income statement data for each quarter of fiscal 2019 and 2018 (amounts in thousands, except per share data):

| Three Months Ended
| October 31 |  | July 31 |  | April 30 |  | January 31
Fiscal 2019: |  |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |
Home sales | $ | 2,292,044 |  |  | $ | 1,756,970 |  |  | $ | 1,712,057 |  |  | $ | 1,319,308 |
Land sales | $ | 86,956 |  |  | $ | 8,721 |  |  | $ | 4,037 |  |  | $ | 43,873 |
Gross profit: |  |  |  |  |  |  |
Home sales | $ | 431,477 |  |  | $ | 355,215 |  |  | $ | 337,710 |  |  | $ | 277,063 |
Land sales | $ | 658 |  |  | $ | 2,489 |  |  | $ | 1,116 |  |  | $ | 9,620 |
Income before income taxes | $ | 272,649 |  |  | $ | 186,916 |  |  | $ | 176,159 |  |  | $ | 151,446 |
Net income | $ | 202,315 |  |  | $ | 146,318 |  |  | $ | 129,324 |  |  | $ | 112,050 |
Earnings per share (a) |  |  |  |  |  |  |
Basic | $ | 1.43 |  |  | $ | 1.01 |  |  | $ | 0.88 |  |  | $ | 0.76 |
Diluted | $ | 1.41 |  |  | $ | 1.00 |  |  | $ | 0.87 |  |  | $ | 0.76 |
Weighted-average number of shares |  |  |  |  |  |  |
Basic | 141,909 |  |  | 144,750 |  |  | 146,622 |  |  | 146,751 |
Diluted | 143,567 |  |  | 146,275 |  |  | 148,129 |  |  | 148,032 |
Fiscal 2018: |  |  |  |  |  |  |
Revenue | $ | 2,455,238 |  |  | $ | 1,913,353 |  |  | $ | 1,599,199 |  |  | $ | 1,175,468 |
Gross profit | $ | 524,487 |  |  | $ | 403,734 |  |  | $ | 301,042 |  |  | $ | 240,988 |
Income before income taxes | $ | 396,473 |  |  | $ | 253,097 |  |  | $ | 152,748 |  |  | $ | 131,598 |
Net income | $ | 310,976 |  |  | $ | 193,258 |  |  | $ | 111,810 |  |  | $ | 132,107 |
Earnings per share (a) |  |  |  |  |  |  |
Basic | $ | 2.10 |  |  | $ | 1.28 |  |  | $ | 0.73 |  |  | $ | 0.85 |
Diluted | $ | 2.08 |  |  | $ | 1.26 |  |  | $ | 0.72 |  |  | $ | 0.83 |
Weighted-average number of shares |  |  |  |  |  |  |
Basic | 148,066 |  |  | 151,257 |  |  | 152,731 |  |  | 155,882 |
Diluted | 149,603 |  |  | 153,173 |  |  | 155,129 |  |  | 158,897 |

(a) | Due to rounding, the sum of the quarterly earnings per share amounts may not equal the reported earnings per share for the year.

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