Document



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2017
or
o
 
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
(State or other jurisdiction of
incorporation or organization)
 
23-2416878
(I.R.S. Employer
Identification No.)
 
 
 
250 Gibraltar Road, Horsham, Pennsylvania
(Address of principal executive offices)
 
19044
(Zip Code)
(215) 938-8000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer þ
 
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
 
Smaller reporting company o
 
 
 
Emerging growth company o
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 o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At June 1, 2017, there were approximately 163,575,000 shares of Common Stock, $0.01 par value, outstanding.





TOLL BROTHERS, INC.
TABLE OF CONTENTS
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“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 a 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: 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; unrecognized 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-K, 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 more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.
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.



1



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
April 30,
2017
 
October 31,
2016
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
691,266

 
$
633,715

Restricted cash and investments
797

 
31,291

Inventory
7,602,695

 
7,353,967

Property, construction, and office equipment, net
173,449

 
169,576

Receivables, prepaid expenses, and other assets
536,514

 
582,758

Mortgage loans held for sale
89,485

 
248,601

Customer deposits held in escrow
74,493

 
53,057

Investments in unconsolidated entities
540,215

 
496,411

Deferred tax assets, net of valuation allowances
158,050

 
167,413

 
$
9,866,964

 
$
9,736,789

LIABILITIES AND EQUITY
 
 
 
Liabilities
 
 
 
Loans payable
$
637,931

 
$
871,079

Senior notes
2,993,882

 
2,694,372

Mortgage company loan facility
61,129

 
210,000

Customer deposits
387,940

 
309,099

Accounts payable
305,500

 
281,955

Accrued expenses
937,396

 
1,072,300

Income taxes payable
89,191

 
62,782

Total liabilities
5,412,969

 
5,501,587

Equity
 
 
 
Stockholders’ equity
 
 
 
Preferred stock, none issued

 

Common stock, 177,937 shares issued at April 30, 2017 and October 31, 2016
1,779

 
1,779

Additional paid-in capital
716,124

 
728,464

Retained earnings
4,159,300

 
3,977,297

Treasury stock, at cost — 14,743 and 16,154 shares at April 30, 2017 and October 31, 2016, respectively
(426,116
)
 
(474,912
)
Accumulated other comprehensive loss
(2,999
)
 
(3,336
)
Total stockholders’ equity
4,448,088

 
4,229,292

Noncontrolling interest
5,907

 
5,910

Total equity
4,453,995

 
4,235,202

 
$
9,866,964

 
$
9,736,789

See accompanying notes.

2



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
2,284,242

 
$
2,044,123

 
$
1,363,512

 
$
1,115,557

 
 
 
 
 
 
 
 
Cost of revenues
1,810,443

 
1,582,882

 
1,077,441

 
870,571

Selling, general and administrative
284,971

 
250,136

 
147,876

 
128,340

 
2,095,414

 
1,833,018

 
1,225,317

 
998,911

Income from operations
188,828

 
211,105

 
138,195

 
116,646

Other:
 
 
 
 
 
 
 
Income from unconsolidated entities
92,349

 
17,756

 
45,904

 
9,118

Other income – net
27,813

 
28,353

 
15,110

 
14,633

Income before income taxes
308,990

 
257,214

 
199,209

 
140,397

Income tax provision
113,936

 
94,980

 
74,571

 
51,343

Net income
$
195,054

 
$
162,234

 
$
124,638

 
$
89,054

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in pension liability
337

 
(132
)
 
168

 
155

Change in unrealized income on derivative held by equity investee

 
31

 

 
4

Other comprehensive income (loss)
337

 
(101
)
 
168

 
159

Total comprehensive income
$
195,391

 
$
162,133

 
$
124,806

 
$
89,213

 
 
 
 
 
 
 
 
Per share:
 
 
 
 
 
 
 
Basic earnings
$
1.20

 
$
0.95

 
$
0.76

 
$
0.53

Diluted earnings
$
1.15

 
$
0.91

 
$
0.73

 
$
0.51

Cash dividend declared
$
0.08

 

 
$
0.08

 

 
 
 
 
 
 
 
 
Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
163,040

 
171,578

 
163,492

 
168,952

Diluted
170,910

 
179,403

 
171,403

 
176,414

See accompanying notes.


3



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Six months ended April 30,
 
2017
 
2016
Cash flow provided by (used in) operating activities:
 
 
 
Net income
$
195,054

 
$
162,234

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

Depreciation and amortization
12,123

 
11,029

Stock-based compensation
15,585

 
15,081

Excess tax benefits from stock-based compensation
(708
)
 
(665
)
Income from unconsolidated entities
(92,349
)
 
(17,756
)
Distributions of earnings from unconsolidated entities
108,864

 
10,230

Income from foreclosed real estate and distressed loans
(4,018
)
 
(1,415
)
Deferred tax provision
3,816

 
722

Change in deferred tax valuation allowances
262

 
302

Inventory impairments and write-offs
8,917

 
7,634

Other
2,501

 
79

Changes in operating assets and liabilities
 
 
 
Increase in inventory
(190,125
)
 
(289,735
)
Origination of mortgage loans
(513,836
)
 
(490,279
)
Sale of mortgage loans
671,899

 
488,890

Decrease (increase) in restricted cash and investments
30,494

 
(12,102
)
Decrease in receivables, prepaid expenses, and other assets
56,034

 
11,421

Increase in customer deposits
57,405

 
32,416

(Decrease) increase in accounts payable and accrued expenses
(128,634
)
 
32,845

Increase in income taxes payable
27,117

 
23,189

Net cash provided by (used in) operating activities
260,401

 
(15,880
)
Cash flow (used in) provided by investing activities:
 
 
 
Purchase of property and equipment — net
(11,709
)
 
(7,324
)
Sale and redemption of marketable securities


 
10,000

Investments in unconsolidated entities
(113,515
)
 
(21,383
)
Return of investments in unconsolidated entities
98,087

 
28,478

Investment in foreclosed real estate and distressed loans
(513
)
 
(866
)
Return of investments in foreclosed real estate and distressed loans
4,376

 
33,435

Acquisition of a business
(85,183
)
 


Net cash (used in) provided by investing activities
(108,457
)
 
42,340

Cash flow used in financing activities:
 
 
 
Proceeds from issuance of senior notes
300,000

 


Debt issuance costs for senior notes
(2,830
)
 
(43
)
Proceeds from loans payable
769,454

 
821,984

Principal payments of loans payable
(1,173,880
)
 
(1,119,911
)
Proceeds from stock-based benefit plans
40,628

 
5,003

Excess tax benefits from stock-based compensation
708

 
665

Purchase of treasury stock
(15,422
)
 
(230,263
)
Dividends paid
(13,051
)
 


Receipts related to noncontrolling interest, net


 
290

Net cash used in financing activities
(94,393
)
 
(522,275
)
Net increase (decrease) in cash and cash equivalents
57,551

 
(495,815
)
Cash and cash equivalents, beginning of period
633,715

 
918,993

Cash and cash equivalents, end of period
$
691,266

 
$
423,178

See accompanying notes.

4



TOLL BROTHERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
The accompanying condensed 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The October 31, 2016 balance sheet amounts and disclosures included herein have been derived from our October 31, 2016 audited financial statements. Since the accompanying condensed consolidated financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements, we suggest that they be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016 (“2016 Form 10-K”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position as of April 30, 2017; the results of our operations for the six-month and three-month periods ended April 30, 2017 and 2016; and our cash flows for the six-month periods ended April 30, 2017 and 2016. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Acquisition
In November 2016, we acquired substantially all of the assets and operations of Coleman Real Estate Holdings, LLC (“Coleman”) for $85.2 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. Our selling community count increased by 15 communities at the acquisition date. The acquisition of Coleman’s assets and operations was not material to our results of operations or financial condition.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customers’ Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). ASU 2015-05 provides guidance for a customer to determine whether a cloud computing arrangement contains a software license or should be accounted for as a service contract. We adopted ASU 2015-05 on November 1, 2016, and we elected to adopt the standard prospectively. The adoption did not have a material effect on our consolidated financial statements or disclosures.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”), which eliminates the deferral granted to investment companies from applying the variable interest entities (“VIEs”) guidance and makes targeted amendments to the current consolidation guidance. The new guidance applies to all entities involved with limited partnerships or similar entities and requires re-evaluation of these entities under the revised guidance which may change previous consolidation conclusions. We adopted ASU 2015-02 on November 1, 2016, and the adoption did not have a material effect on our consolidated financial statements or disclosures.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). ASU 2017-07 requires an employer to report the service cost component of pension and other postretirement benefit costs in the same line item as other compensation costs arising from services rendered by the pertinent employees while the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU 2017-07 is effective for our fiscal year beginning November 1, 2018. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2017-07 may have on our consolidated financial statements and disclosures.
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

5



610-20 that was issued in connection with ASU 2014-09, as defined below, 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 is effective for our fiscal year beginning November 1, 2018 and we are required to adopt ASU 2017-05 concurrent with the adoption of ASU 2014-09. We are currently evaluating the impact that the adoption of ASU 2017-05 may have on our consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 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. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU 2014-09 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 current 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 delays the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended by ASU 2015-14, is effective for our fiscal year beginning November 1, 2018, and, at that time, we expect to adopt the new standard under the modified retrospective approach. We do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our home building revenues. We are continuing to evaluate the impact the adoption of ASU 2014-09 may have on other aspects of our business and on our consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), which provides a more robust framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for our fiscal year beginning November 1, 2018. We are currently evaluating the impact that the adoption of ASU 2017-01 may have on our consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes and forfeitures, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is effective for our fiscal year beginning November 1, 2017. We are currently evaluating the impact that the adoption of ASU 2016-09 may have 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. ASU 2016-02 is effective for our fiscal year beginning November 1, 2019, and, at that time, we will adopt the new standard using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02 may have on our consolidated financial statements and disclosures.
2. Inventory
Inventory at April 30, 2017 and October 31, 2016 consisted of the following (amounts in thousands):
 
April 30,
2017
 
October 31,
2016
Land controlled for future communities
$
76,604

 
$
71,729

Land owned for future communities
1,457,975

 
1,884,146

Operating communities
6,068,116

 
5,398,092

 
$
7,602,695

 
$
7,353,967

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 period 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.

6



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.
Information regarding the classification, number, and carrying value of these temporarily closed communities, as of the dates indicated, is provided in the table below:
 
April 30,
2017
 
October 31,
2016
Land owned for future communities:
 
 
 
Number of communities
15

 
18

Carrying value (in thousands)
$
124,691

 
$
123,936

Operating communities:
 
 
 
Number of communities
5

 
3

Carrying value (in thousands)
$
24,713

 
$
8,523


The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable, for the periods indicated, are shown in the table below (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Land controlled for future communities
$
782

 
$
634

 
$
121

 
$
253

Land owned for future communities
1,200

 
300

 
1,200

 

Operating communities
6,935

 
6,700

 
2,935

 
6,100

 
$
8,917

 
$
7,634

 
$
4,256

 
$
6,353

See Note 11, “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 values of those communities, net of impairment charges.
At April 30, 2017, 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 risk 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 April 30, 2017, we determined that 87 land purchase contracts, with an aggregate purchase price of $1.02 billion, on which we had made aggregate deposits totaling $51.7 million, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2016, we determined that 78 land purchase contracts, with an aggregate purchase price of $987.3 million, on which we had made aggregate deposits totaling $44.1 million, were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts.
Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands): 
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Interest capitalized, beginning of period
$
369,419

 
$
373,128

 
$
376,880

 
$
379,930

Interest incurred
85,310

 
80,412

 
43,536

 
40,305

Interest expensed to cost of revenues
(68,486
)
 
(67,745
)
 
(40,558
)
 
(35,722
)
Interest expensed in other income
(1,995
)
 
(309
)
 
(1,953
)
 
(34
)
Interest capitalized on investments in unconsolidated entities
(4,214
)
 
(2,243
)
 
(1,820
)
 
(1,236
)
Previously capitalized interest transferred to investments in unconsolidated entities
(4,030
)
 


 

 

Previously capitalized interest on investments in unconsolidated entities transferred to inventory
209

 
239

 
128

 
239

Interest capitalized, end of period
$
376,213

 
$
383,482

 
$
376,213

 
$
383,482


7



3. Investments in Unconsolidated Entities
We have investments in various unconsolidated joint venture entities. These 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 to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).
The table below provides information as of April 30, 2017, 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
7
 
4
 
13
 
4
 
28
Investment in unconsolidated entities
$
292,463

 
$
100,772

 
$
128,181

 
$
18,799

 
$
540,215

Number of unconsolidated entities with funding commitments by the Company
5
 
1
 
3
 
1

 
10
Company’s remaining funding commitment to unconsolidated entities
$
35,843

 
$
8,300

 
$
2,467

 
$
9,621

 
$
56,231

Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at April 30, 2017, 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
 
1
 
11
 
15
Aggregate loan commitments
$
275,000

 
$
236,500

 
$
1,015,866

 
$
1,527,366

Amounts borrowed under loan commitments
$
250,111

 
$
82,677

 
$
756,606

 
$
1,089,394

More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below.
Land Development Joint Ventures
During the six months ended April 30, 2017, our Land Development Joint Ventures sold approximately 509 lots and recognized revenues of $100.8 million. We acquired 162 of these lots for $46.2 million. Our share of the joint venture income from the lots we acquired of $7.0 million was deferred by reducing our basis in those lots acquired. The Company recognized impairment charges in connection with one Land Development Joint Venture of $2.0 million for the six months ended April 30, 2017. During the six months ended April 30, 2016, our Land Development Joint Ventures sold approximately 539 lots and recognized revenues of $98.7 million. We acquired 112 of these lots for $35.3 million. Our share of the income from the lots we acquired of $5.2 million was deferred by reducing our basis in those lots acquired. There were no impairment charges recognized for the six months ending April 30, 2016.
During the three months ended April 30, 2017, our Land Development Joint Ventures sold approximately 206 lots and recognized revenues of $44.6 million. We acquired 60 of these lots for $21.2 million. Our share of the joint venture income of $3.3 million from the lots we acquired was deferred by reducing our basis in those acquired lots. The Company recognized impairment charges in connection with one Land Development Joint Venture of $2.0 million for the three months ended April 30, 2017. During the three months ended April 30, 2016, our Land Development Joint Ventures sold approximately 456 lots and recognized revenues of $86.1 million. We acquired 103 of these lots for $34.5 million. Our share of the income of $5.0 million from the lots we acquired was deferred by reducing our basis in those acquired lots. There were no impairment charges recognized for the three months ended April 30, 2016.
In the fourth quarter of fiscal 2015, we entered into a joint venture with an unrelated party to purchase and develop a parcel of land located in Irvine, California. The joint venture expects to develop approximately 840 home sites on this land in multiple phases. We have a 50% interest in this joint venture. The joint venture intends to develop the property and sell approximately 50% of the value of the home sites to each of the members of the joint venture. At April 30, 2017, we had an investment of $178.5 million in this joint venture and were committed to make additional contributions to this joint venture of up to $5.0 million. To finance a portion of the land purchase, the joint venture entered into a $320.0 million purchase money mortgage

8



with the seller. In December 2016, the joint venture entered into a $200.0 million loan agreement and each member made a capital contribution of $80.0 million. A portion of the proceeds from the loan in addition to the capital contributions made by the members were used to repay the purchase money mortgage. At April 30, 2017, this joint venture had $189.2 million of outstanding borrowings under the loan.
Home Building Joint Ventures
Our Home Building Joint Ventures are delivering homes in New York City and Jupiter, Florida. During the six months ended April 30, 2017, our Home Building Joint Ventures delivered 143 homes with a sales value of $370.6 million. During the six months ended April 30, 2016, our Home Building Joint Ventures delivered 40 homes with a sales value of $37.5 million.
During the three months ended April 30, 2017 and 2016, our Home Building Joint Ventures delivered 56 homes with a sales value of $153.2 million and 21 homes with a sales value of $21.5 million, respectively.
In December 2016, we entered into a joint venture with an unrelated party to complete the development of a high-rise luxury condominium project in New York City. Before the formation of this joint venture, we acquired the property and incurred approximately $176.0 million of land and land development costs. The joint venture, in which we have a 20% interest, purchased the property from us at our cost, a portion of which was financed by a $236.5 million construction loan obtained by the joint venture. From the sale and financing, we received proceeds of $148.0 million, of which $106.1 million was held in escrow by our captive title company at October 31, 2016 and was included in “Receivables, prepaid expenses, and other assets” on our Condensed Consolidated Balance Sheet at October 31, 2016. At April 30, 2017, we had an investment of $30.0 million in this joint venture and the joint venture had $82.7 million of outstanding borrowings under the construction loan.
Rental Property Joint Ventures
As of April 30, 2017, our Rental Property Joint Ventures owned 12 for-rent apartment projects, which are located in the metro Boston to metro Washington, D.C. corridor. At April 30, 2017, our joint ventures had approximately 2,950 units that were occupied or ready for occupancy, 600 units in the lease-up stage, and 1,400 units under active development. In addition, we either own, have under contract, or under a letter of intent approximately 5,590 units. We intend to develop these units with joint venture partners in the future.
In the second quarter of fiscal 2017, we sold a 25% interest in one of our Rental Property Joint Ventures to an unrelated third party. In connection with the sale, we, along with our partner, recapitalized the joint venture and refinanced the existing $112.2 million construction loan with a $133.0 million, 10-year fixed rate loan. As a result of these transactions, we received cash of $42.9 million and recognized a gain of $20.5 million in the six and three months ended April 30, 2017 which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. At April 30, 2017, we had a 25% interest and an $8.4 million investment in this joint venture.
In the first quarter of fiscal 2017, we sold a 25% interest in another one of our Rental Property Joint Ventures to an unrelated third party. In connection with the sale, we, along with our partner, recapitalized the joint venture and refinanced the existing $54.1 million construction loan with a $56.0 million, 10-year fixed rate loan. As a result of these transactions, we received cash of $12.0 million and recognized a gain of $6.2 million in the three months ended January 31, 2017 and the six months ended April 30, 2017, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. At April 30, 2017, we had a 25% interest and a $3.3 million investment in this joint venture.
In the second quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a 525-unit luxury for-rent residential apartment building near Union Station in Washington, D.C. Prior to the formation of this joint venture, we acquired the land, through a 100%-owned entity, and incurred $35.1 million of land and land development costs. Our partner acquired a 50% interest in this entity for $20.2 million and we subsequently received cash of $18.7 million to align the capital accounts of each of the partners of the joint venture. In the third quarter of fiscal 2016, as a result of the sale of 50% of our interest to our partner, we recognized a gain of $3.0 million. Due to our continued involvement in the joint venture through our ownership interest, we deferred an additional $3.0 million of the gain on the sale. At April 30, 2017, we had an investment of $29.3 million in this joint venture and expect to make additional investments of approximately $0.3 million for the development of this project. In November 2016, the joint venture entered into a $130.6 million construction loan agreement. At April 30, 2017, there were $6.8 million of outstanding borrowings under the construction loan agreement.
In the fourth quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a 390-unit luxury for-rent residential apartment building in a Boston, Massachusetts suburb, on land that we were under contract to purchase. We have a 25% interest in this joint venture. On October 20, 2016, the joint venture entered into a $91.0 million construction loan agreement with a bank to finance the development of this project. At April 30, 2017, there were no outstanding borrowings

9



under the construction loan agreement. At April 30, 2017, we had an investment of $10.3 million in this joint venture and expect to make additional investments of approximately $1.2 million for the development of this project.
We have an investment in a joint venture in which we have a 50% interest to develop a luxury hotel in conjunction with a high-rise luxury condominium project in New York City being developed by a related Home Building Joint Venture. At April 30, 2017, we had invested $37.4 million in this joint venture. In December 2016, this joint venture entered into an $80.0 million, three-year term loan agreement. The proceeds from the term loan, along with proceeds from the closing of condominium units at the Home Building Joint Venture, were used to repay an existing construction loan. At April 30, 2017, this joint venture had $80.0 million of outstanding borrowings under the term loan.
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 April 30, 2017, 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 amount of $0.8 million in both the six-month periods ended April 30, 2017 and 2016. We recognized fees of $0.4 million in both the three-month periods ended April 30, 2017 and 2016. In the first quarter of fiscal 2016, we received a $2.0 million distribution from the Trust, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income. No distributions were received from the Trust in the first half of fiscal 2017.
Gibraltar Joint Ventures
In the second quarter of fiscal 2016, we, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), entered into two ventures with an institutional investor to provide builders and developers with land banking and venture capital. We have 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 April 30, 2017, we had an investment of $10.3 million in these ventures.
In addition, in the second quarter of fiscal 2016, we entered into a separate venture with the same institutional investor to purchase, from Gibraltar, certain foreclosed real estate owned (“REO”) and distressed loans for $24.1 million. We have a 24% interest in this venture. In the three months ended April 30, 2016, we recognized a gain of $1.3 million from the sale of these assets to the venture. At April 30, 2017, we have a $4.9 million investment in this venture and are committed to invest an additional $9.6 million, if necessary.
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 a 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 April 30, 2017, 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 April 30, 2017, certain unconsolidated entities have loan commitments aggregating $1.32 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $194.0 million to be our maximum exposure related to repayment and carry cost guarantees. At April 30, 2017, the unconsolidated entities had borrowed an aggregate of $887.6 million, of which we estimate $157.8 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 1 month to 43 months. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
In addition, we have guaranteed approximately $2.2 million of ground lease payments and insurance deductibles for three joint ventures.

10



As of April 30, 2017, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $4.4 million. We have not made payments under any of the guarantees, nor have we been called upon to do so.
Variable Interest Entities
At April 30, 2017 and October 31, 2016, we determined that five and three, respectively, of our joint ventures were VIEs under the guidance of ASC 810, “Consolidation.” However, we have 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 the 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.
At April 30, 2017 and October 31, 2016, our investments in the unconsolidated joint ventures deemed to be VIEs, which is included in “Investments in unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled $18.8 million and $16.4 million, respectively. At April 30, 2017, the maximum exposure of loss to our investments in the unconsolidated joint ventures that are VIEs was limited to our investments in the unconsolidated VIEs, except with regard to $9.6 million of additional commitments to the VIEs. At October 31, 2016, the maximum exposure of loss to our investments in the unconsolidated joint ventures that are VIEs was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $1.4 million of additional commitments to the VIEs. Of our potential exposure for these loan guarantees at October 31, 2016, $14.3 million is related to repayment and carry cost guarantees.
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 are included below (in thousands):
Condensed Balance Sheets:
 
April 30,
2017
 
October 31,
2016
Cash and cash equivalents
$
108,560

 
$
130,794

Inventory
1,146,487

 
1,074,888

Loans receivable, net
27,900

 

Non-performing loan portfolio
1,698

 
4,298

Rental properties
911,344

 
621,615

Rental properties under development
186,558

 
302,632

Real estate owned (“REO”)
60,137

 
87,226

Other assets
168,913

 
175,805

Total assets
$
2,611,597

 
$
2,397,258

Debt
$
1,093,498

 
$
1,164,883

Other liabilities
125,239

 
152,881

Members’ equity
1,362,679

 
980,354

Noncontrolling interest
30,181

 
99,140

Total liabilities and equity
$
2,611,597

 
$
2,397,258

Company’s net investment in unconsolidated entities (1)
$
540,215

 
$
496,411

 
(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 the acquisition price of an investment in a Land Development Joint Venture in fiscal 2012 that was in excess of our pro rata share of the underlying equity; 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; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.

11



Condensed Statements of Operations and Comprehensive Income:
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
500,727

 
$
166,018

 
$
205,024

 
$
123,531

Cost of revenues
290,894

 
102,492

 
125,188

 
66,979

Other expenses
39,722

 
18,375

 
18,588

 
9,065

Total expenses
330,616

 
120,867

 
143,776

 
76,044

Gain on disposition of loans and REO
31,639

 
34,689

 
22,753

 
8,706

Income from operations
201,750

 
79,840

 
84,001

 
56,193

Other income
9,497

 
2,351

 
6,912

 
1,346

Income before income taxes
211,247

 
82,191

 
90,913

 
57,539

Income tax provision
6,314

 

 
2,487

 

Net income including earnings from noncontrolling interests
204,933

 
82,191

 
88,426

 
57,539

Less: income attributable to noncontrolling interest
(13,089
)
 
(15,023
)
 
(11,009
)
 
(3,413
)
Net income attributable to controlling interest
191,844

 
67,168

 
77,417

 
54,126

Other comprehensive income

 
100

 

 
13

Total comprehensive income
$
191,844

 
$
67,268

 
$
77,417

 
$
54,139

Company’s equity in earnings of unconsolidated entities (2)
$
92,349

 
$
17,756

 
$
45,904

 
$
9,118

(2)
Differences between our equity in earnings of unconsolidated entities and the underlying net income 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.
4. Receivables, Prepaid Expenses, and Other Assets
Receivables, prepaid expenses, and other assets at April 30, 2017 and October 31, 2016, consisted of the following (amounts in thousands):
 
April 30, 2017
 
October 31, 2016
Expected recoveries from insurance carriers and others
$
162,475

 
$
165,696

Improvement cost receivable
95,129

 
85,627

Escrow cash held by our captive title company
40,919

 
138,633

Property held for rental development
134,874

 
81,693

Investment in foreclosed real estate owned
4,258

 
11,552

Prepaid expenses
18,143

 
25,659

Other
80,716

 
73,898

 
$
536,514

 
$
582,758



12



5. Loans Payable, Senior Notes, and Mortgage Company Loan Facility
Loans Payable
At April 30, 2017 and October 31, 2016, loans payable consisted of the following (amounts in thousands):
 
April 30,
2017
 
October 31,
2016
Senior unsecured term loan
$
500,000

 
$
500,000

Credit facility borrowings

 
250,000

Loans payable – other
139,483

 
122,809

Deferred issuance costs
(1,552
)
 
(1,730
)
 
$
637,931

 
$
871,079

Senior Unsecured Term Loan
On February 3, 2014, we entered into a $485.0 million, five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. We borrowed the full amount of the Term Loan Facility on February 3, 2014. In October 2014, we increased the Term Loan Facility by $15.0 million and borrowed the full amount of the increase. The Term Loan Facility, as amended, matures on August 2, 2021. At April 30, 2017, the interest rate on borrowings was 2.39% 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 our New Credit Facility, as described below.
Credit Facility
On August 1, 2013, we entered into a $1.035 billion, unsecured, five-year revolving credit facility (the “Credit Facility”). The commitments under the Credit Facility were scheduled to expire on August 1, 2018. On May 19, 2016, we entered into a new $1.215 billion (subsequently increased to $1.295 billion), unsecured, five-year revolving credit facility (the “New Credit Facility”) with a syndicate of banks (the “Aggregate Credit Commitment”) and terminated the Credit Facility. The commitments under the New Credit Facility are scheduled to expire on May 19, 2021. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the New Credit Facility.
Under the terms of the New Credit Facility, at April 30, 2017, 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 $2.71 billion. Under the terms of the New Credit Facility, at April 30, 2017, our leverage ratio was approximately 0.70 to 1.00, and our tangible net worth was approximately $4.41 billion. Based upon the limitations related to our repurchase of common stock in the New Credit Facility, our ability to repurchase our common stock was limited to approximately $2.40 billion as of April 30, 2017.
At April 30, 2017, we had no outstanding borrowings under the New Credit Facility and had outstanding letters of credit of approximately $120.0 million under the New Credit Facility. At April 30, 2017, the interest rate on borrowings under the New Credit Facility would have been 2.50% per annum.
Loans Payable – Other
Our “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. At April 30, 2017, the weighted-average interest rate on “Loans payable – other” was 3.75% per annum.
Senior Notes
At April 30, 2017, we, through Toll Brothers Finance Corp., had nine issues of Senior Notes outstanding with an aggregate principal amount of $3.01 billion. In March 2017, the Company issued $300 million principal amount of 4.875% Senior Notes due 2027. The Company received $297.2 million of net proceeds from the issuance of these Senior Notes.
Mortgage Company Loan Facility
In October 2016, TBI Mortgage® Company (“TBI Mortgage”), our wholly owned mortgage subsidiary, entered into a Mortgage Warehousing Agreement (“Warehousing Agreement”) with a syndicate of banks. The purpose of the Warehousing Agreement is to finance the origination of mortgage loans by TBI Mortgage, and the Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” The Warehousing Agreement provides for loan purchases up to $150.0

13



million, subject to certain sublimits. In addition, the Warehousing Agreement 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 $210.0 million for a short period of time. The Warehousing Agreement expires on October 27, 2017, and borrowings thereunder bear interest at LIBOR plus 2.00% per annum. At April 30, 2017, the interest rate on the Warehousing Agreement was 3.00% per annum. At April 30, 2017 and October 31, 2016, there was $61.1 million and $210.0 million, respectively, outstanding under the Warehousing Agreement, respectively, which are included in liabilities in our Condensed Consolidated Balance Sheets.
6. Accrued Expenses
Accrued expenses at April 30, 2017 and October 31, 2016 consisted of the following (amounts in thousands):
 
April 30,
2017
 
October 31,
2016
Land, land development, and construction
$
139,603

 
$
153,264

Compensation and employee benefits
136,924

 
138,282

Escrow liability
40,198

 
137,396

Self-insurance
129,190

 
126,431

Warranty
355,934

 
370,992

Deferred income
40,722

 
43,488

Interest
36,472

 
34,903

Commitments to unconsolidated entities
8,278

 
5,637

Other
50,075

 
61,907

 
$
937,396

 
$
1,072,300

As previously disclosed in Note 6, “Accrued Expenses” in our 2016 Form 10-K, we reviewed communities in Pennsylvania and Delaware (which are in our Mid-Atlantic region) and determined that we needed to make repairs primarily to older homes in certain of these communities relating to stucco and other water intrusion claims. Each quarter, we review and update our assumptions to the estimates used in determining our estimated liability for these claims. This review and update includes an analysis to determine an estimated number of claims likely to be received and the estimated costs to resolve these claims. This analysis involves many factors including: the number of communities involved; the closing dates of the homes in each community; the number of claims received to date; 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 in each community; the expected recovery from our insurance carriers and others; and the amount of warranty and self-insurance reserves already recorded. Due to the degree of judgment required and the potential for variability in the underlying assumptions, it is reasonably possible that our actual costs could differ from those estimated, such differences could be material, and, therefore, we are unable to estimate the range of any such differences.
Based upon our reviews for the six month and three month periods ended April 30, 2017, we determined that no adjustments to our previous estimates were needed. Based upon our review for the three months ended April 30, 2016, we determined that our estimated costs had increased and we recognized an additional charge of $2.5 million in the six month and three month periods ended April 30, 2016. As of April 30, 2017, we recognized cumulative charges of approximately $171.8 million for water intrusion claims; the estimated aggregate cost of these claims is $324.4 million, of which we expect to recover approximately $152.6 million from outside insurance carriers and suppliers.
At April 30, 2017 and October 31, 2016, our estimated remaining liability to be expended for the aforementioned known and unknown stucco and other water intrusion claims was $282.8 million and $298.0 million, respectively, of which we expect to recover a total of approximately $130.4 million and $141.7 million, respectively, from outside insurance carriers and others.

14



The table below provides, for the periods indicated, a reconciliation of the changes in our warranty accrual (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Balance, beginning of period
$
370,992

 
$
93,083

 
$
364,058

 
$
90,661

Additions – homes closed during the period
12,701

 
10,967

 
7,597

 
6,471

Addition – Coleman liabilities acquired
1,111

 


 


 


Increase in accruals for homes closed in prior years
3,188

 
6,192

 
1,494

 
3,739

Reclassification from other accruals
1,082

 

 
350

 

Charges incurred
(33,140
)
 
(19,048
)
 
(17,565
)
 
(9,677
)
Balance, end of period
$
355,934

 
$
91,194

 
$
355,934

 
$
91,194

7. Income Taxes
We recorded income tax provisions of $113.9 million and $95.0 million for the six months ended April 30, 2017 and 2016, respectively. The effective tax rate was 36.9% for the six months ended April 30, 2017 and 2016. For the three months ended April 30, 2017 and 2016, we recorded an income tax provision of $74.6 million and $51.3 million, respectively. The effective tax rate for the three months ended April 30, 2017 was 37.4%, compared to 36.6% for the three months ended April 30, 2016. The income tax provisions for all periods included the provision for state income taxes and interest accrued on anticipated tax assessments, offset by tax benefits related to the utilization of domestic production activities deductions and other permanent differences.
We currently operate in 20 states and are subject to various state tax jurisdictions. 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. We estimate our rate for the full fiscal year 2017 for state income taxes will be 7.5%. Our state income tax rate for the full fiscal year 2016 was 7.0%.
For state tax purposes, due to past and projected losses in certain jurisdictions where we do not have carryback potential and/or cannot sufficiently forecast future taxable income, we recognized net cumulative valuation allowances against our state deferred tax assets of $32.4 million and $32.2 million as of April 30, 2017 and October 31, 2016, respectively.
At April 30, 2017, we had $26.2 million of gross unrecognized tax benefits, including interest and penalties. If these unrecognized tax benefits were to 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 our unrecognized tax benefits will change, but we are not able to provide a range of such change. The possible changes would 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.
8. Stock-Based Benefit Plans
We grant stock options and various types of restricted stock units to our employees and our nonemployee directors. Additionally, we have an employee stock purchase plan that allows employees to purchase our stock at a discount.
Information regarding the amount of total stock-based compensation expense and tax benefit recognized by us, for the periods indicated, is as follows (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Total stock-based compensation expense recognized
$
15,585

 
$
15,081

 
$
6,256

 
$
5,858

Income tax benefit recognized
$
6,094

 
$
5,809

 
$
2,441

 
$
2,254

At April 30, 2017 and October 31, 2016, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $37.2 million and $27.0 million, respectively.

15



9. Stock Repurchase Program and Cash Dividend
On May 23, 2016, our Board of Directors terminated a prior share repurchase program and authorized, under a new repurchase program, the repurchase of 20 million shares of our common stock in open market transactions or otherwise for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. The Board of Directors did not fix any expiration date for this repurchase program.
The table below provides, for the periods indicated, information about our share repurchase programs:
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Number of shares purchased (in thousands)
563

 
7,707

 
5

 
2,938

Average price per share
$
27.41

 
$
29.88

 
$
35.57

 
$
27.27

Remaining authorization at April 30 (in thousands)
15,276

 
10,827

 
15,276

 
10,827

On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. The first quarterly dividend of $0.08 per share was paid on April 28, 2017 to shareholders of record on the close of business on
April 14, 2017.
10. Income per Share Information
The table below provides, for the periods indicated, information pertaining to the calculation of income per share, common stock equivalents, weighted-average number of antidilutive options, and shares issued (amounts in thousands):
 
 
Six months ended April 30,
 
Three months ended April 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net income as reported
 
$
195,054

 
$
162,234

 
$
124,638

 
$
89,054

Plus interest and costs attributable to 0.5% Exchangeable Senior Notes, net of income tax benefit
 
769

 
777

 
385

 
388

Numerator for diluted earnings per share
 
$
195,823

 
$
163,011

 
$
125,023

 
$
89,442

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Basic weighted-average shares
 
163,040

 
171,578

 
163,492

 
168,952

Common stock equivalents (a)
 
2,011

 
1,967

 
2,051

 
1,604

Shares attributable to 0.5% Exchangeable Senior Notes
 
5,859

 
5,858

 
5,860

 
5,858

Diluted weighted-average shares
 
170,910

 
179,403

 
171,403

 
176,414

 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
 
Weighted-average number of antidilutive options and restricted stock units (b)
 
3,535

 
3,659

 
1,865

 
4,364

Shares issued under stock incentive and employee stock purchase plans
 
1,974

 
483

 
694

 
10

(a)
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 performance-based restricted stock units and nonperformance-based restricted stock units.
(b)
Weighted-average number of antidilutive options and restricted stock units are based upon the average closing price of our common stock on the NYSE for the period.

16



11. Fair Value Disclosures
Financial Instruments
The table below provides, as of the dates indicated, a summary of assets (liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):
 
 
 
 
Fair value
Financial Instrument
 
Fair value
hierarchy
 
April 30,
2017
 
October 31, 2016
Mortgage Loans Held for Sale
 
Level 2
 
$
89,485

 
$
248,601

Forward Loan Commitments — Residential Mortgage Loans Held for Sale
 
Level 2
 
$
(59
)
 
$
1,390

Interest Rate Lock Commitments (“IRLCs”)
 
Level 2
 
$
(646
)
 
$
(921
)
Forward Loan Commitments — IRLCs
 
Level 2
 
$
646

 
$
921

At April 30, 2017 and October 31, 2016, the carrying value of cash and cash equivalents and restricted cash and investments 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 table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):
 
Aggregate unpaid
principal balance
 
Fair value
 
Excess/(Deficit)
At April 30, 2017
$
88,731

 
$
89,485

 
$
754

At October 31, 2016
$
246,794

 
$
248,601

 
$
1,807

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. See Note 1, “Significant Accounting Policies – Inventory,” in our 2016 Form 10-K for information regarding our methodology for determining fair value. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities:
Three months ended:
Selling price
per unit
($ in thousands)
 
Sales pace
per year
(in units)
 
Discount rate
Fiscal 2017:
 
 
 
 
 
January 31
692 - 880
 
4 - 12
 
16.3%
April 30
827 - 856
 
6 - 11
 
16.3%
 
 
 
 
 
 
Fiscal 2016:
 
 
 
 
 
January 31
 
 
April 30
369 - 394
 
18 - 23
 
16.3%
July 31
 
 
October 31
 
 

17



The table below provides, for the periods indicated, the fair value of operating communities whose carrying value was adjusted and the amount of impairment charges recognized ($ 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 2017:
 
 
 
 
 
 
 
January 31
57
 
2
 
$
8,372

 
$
4,000

April 30
46
 
6
 
$
25,092

 
2,935

 
 
 
 
 
 
 
$
6,935

Fiscal 2016:
 
 
 
 
 
 
 
January 31
43
 
2
 
$
1,713

 
$
600

April 30
41
 
2
 
$
10,103

 
6,100

July 31
51
 
2
 
$
11,714

 
1,250

October 31
59
 
2
 
$
1,126

 
415

 
 
 
 
 
 
 
$
8,365

Debt
The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):
 
 
 
April 30, 2017
 
October 31, 2016
 
Fair value
hierarchy
 
Book value
 
Estimated
fair value
 
Book value
 
Estimated
fair value
Loans payable (a)
Level 2
 
$
639,483

 
$
637,819

 
$
872,809

 
$
870,384

Senior notes (b)
Level 1
 
3,007,376

 
3,148,869

 
2,707,376

 
2,843,177

Mortgage company loan facility (c)
Level 2
 
61,129

 
61,129

 
210,000

 
210,000

 
 
 
$
3,707,988

 
$
3,847,817

 
$
3,790,185

 
$
3,923,561

(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.
12. Other Income – Net
The table below provides the significant components of other income – net (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Interest income
$
1,930

 
$
936

 
$
989

 
$
532

Income from ancillary businesses
6,846

 
7,421

 
4,549

 
3,692

Gibraltar
2,870

 
6,249

 
2,932

 
5,421

Management fee income from unconsolidated entities
7,971

 
4,515

 
3,682

 
2,408

Retained customer deposits
3,054

 
3,669

 
1,308

 
1,556

Income from land sales
5,086

 
4,491

 
1,527

 
493

Other
56

 
1,072

 
123

 
531

Total other income – net
$
27,813

 
$
28,353

 
$
15,110

 
$
14,633

In the six months ended April 30, 2016, our security monitoring business recognized a gain of $1.6 million from a bulk sale of security monitoring accounts in fiscal 2015, which is included in income from ancillary businesses in the table above.

18



Income from ancillary businesses includes our mortgage, title, landscaping, security monitoring, and golf course and country club operations. The table below provides, for the periods indicated, revenues and expenses for our ancillary businesses (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
60,584

 
$
54,132

 
$
32,056

 
$
29,263

Expenses
$
53,738

 
$
46,711

 
$
27,507

 
$
25,571

The table below provides, for the periods indicated, revenues and expenses recognized from land sales (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
146,837

 
$
13,592

 
$
2,123

 
$
2,901

Expenses
(146,205
)
 
(9,101
)
 
(1,932
)
 
(2,408
)
Deferred gain recognized
4,454

 

 
1,336

 

Income from land sales
$
5,086

 
$
4,491

 
$
1,527

 
$
493

Land sale revenues for the six months ended April 30, 2017 includes $143.3 million related to an in substance real estate sale transaction which resulted in a new Home Building Joint Venture in which we have a 20% interest. No gain or loss was realized on the sale. See Note 3, “Investments in Unconsolidated Entities,” for more information on this transaction.
13. 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 for probable losses. We believe 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 April 2017, the SEC informed the Company that it was conducting an investigation and requested that we voluntarily produce documents and information relating to our estimated repair costs for stucco and other water intrusion claims in fiscal 2016. As previously described in our 2016 Form 10-K, in the fourth quarter of fiscal 2016, our estimated liability for these water intrusion claims increased significantly. The Company will produce documents and information in response to this request. Management cannot at this time predict the eventual scope or outcome of this matter.
Investments in Unconsolidated Entities
At April 30, 2017, 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 3, “Investments in Unconsolidated Entities,” for more information regarding our commitments to these entities.
Land Purchase Commitments
Generally, our purchase 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 a purchase agreement. Information regarding our land purchase commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
 
April 30, 2017
 
October 31, 2016
Aggregate purchase commitments:
 
 
 
Unrelated parties
$
1,476,063

 
$
1,544,185

Unconsolidated entities that the Company has investments in
33,036

 
79,204

Total
$
1,509,099

 
$
1,623,389

Deposits against aggregate purchase commitments
$
77,734

 
$
65,299

Additional cash required to acquire land
1,431,365

 
1,558,090

Total
$
1,509,099

 
$
1,623,389

Amount of additional cash required to acquire land included in accrued expenses
$
16,145

 
$
18,266


19



In addition, we expect to purchase approximately 3,600 additional home sites over a number of years from several joint ventures in which we have interests; the purchase prices of these home sites will be determined at a future date.
At April 30, 2017, we also had purchase commitments to acquire land for apartment developments of approximately $104.0 million, of which we had outstanding deposits in the amount of $4.7 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.
Surety Bonds and Letters of Credit
At April 30, 2017, we had outstanding surety bonds amounting to $685.5 million, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that $347.9 million of work remains on these improvements. We have an additional $138.6 million of surety bonds outstanding that guarantee other obligations. We do not believe that it is probable that any outstanding bonds will be drawn upon.
At April 30, 2017, we had outstanding letters of credit of $120.0 million under our New 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 April 30, 2017, we had agreements of sale outstanding to deliver 6,018 homes with an aggregate sales value of $5.00 billion.
Mortgage Commitments
Information regarding our mortgage commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
 
April 30,
2017
 
October 31, 2016
Aggregate mortgage loan commitments:
 
 
 
IRLCs
$
360,056

 
$
255,647

Non-IRLCs
1,316,381

 
1,094,861

Total
$
1,676,437

 
$
1,350,508

Investor commitments to purchase:
 
 
 
IRLCs
$
360,056

 
$
255,647

Mortgage loans receivable
82,495

 
231,398

Total
$
442,551

 
$
487,045

14. Information on Segments
We operate in two segments: Traditional Home Building and Urban Infill. We build and sell detached and attached homes in luxury residential communities located in affluent suburban markets that cater to move-up, empty-nester, active-adult, age-qualified, 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, Minnesota, New Jersey, and New York
Mid-Atlantic:    Delaware, Maryland, Pennsylvania, and Virginia
South:    Florida, North Carolina, and Texas
West:    Arizona, Colorado, Idaho, Nevada, and Washington
California:    California

20



Revenue and income (loss) before income taxes for each of our segments, for the periods indicated, were as follows (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Traditional Home Building:
 
 
 
 
 
 
 
North
$
334,983

 
$
286,492

 
$
189,345

 
$
165,674

Mid-Atlantic
410,542

 
356,395

 
226,491

 
186,587

South
337,307

 
339,246

 
195,111

 
192,448

West
513,835

 
325,625

 
302,702

 
188,367

California
593,079

 
545,341

 
373,303

 
328,439

Traditional Home Building
2,189,746

 
1,853,099

 
1,286,952

 
1,061,515

City Living
94,496

 
191,024

 
76,560

 
54,042

Total
$
2,284,242

 
$
2,044,123

 
$
1,363,512

 
$
1,115,557

 
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Traditional Home Building:
 
 
 
 
 
 
 
North
$
20,606

 
$
16,306

 
$
10,513

 
$
8,273

Mid-Atlantic
33,543

 
37,870

 
21,911

 
20,887

South
33,930

 
52,379

 
20,819

 
31,134

West
67,822

 
43,851

 
42,325

 
24,163

California
126,529

 
118,483

 
83,336

 
74,948

Traditional Home Building
282,430

 
268,889

 
178,904

 
159,405

City Living
85,032

 
59,916

 
41,930

 
16,235

Corporate and other
(58,472
)
 
(71,591
)
 
(21,625
)
 
(35,243
)
Total
$
308,990

 
$
257,214

 
$
199,209

 
$
140,397

“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 a number of our unconsolidated entities.
Total assets for each of our segments, as of the dates indicated, are shown in the table below (amounts in thousands):
 
April 30,
2017
 
October 31,
2016
Traditional Home Building:
 
 
 
North
$
1,110,080

 
$
1,020,250

Mid-Atlantic
1,196,635

 
1,166,023

South
1,296,650

 
1,203,554

West
1,253,967

 
1,130,625

California
2,635,819

 
2,479,885

Traditional Home Building
7,493,151

 
7,000,337

City Living
793,714

 
946,738

Corporate and other
1,580,099

 
1,789,714

Total
$
9,866,964

 
$
9,736,789

“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash and investments, deferred tax assets, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments, manufacturing facilities, and our mortgage and title subsidiaries.

21



15. Supplemental Disclosure to Condensed Consolidated Statements of Cash Flows
The following are supplemental disclosures to the Condensed Consolidated Statements of Cash Flows, for the periods indicated (amounts in thousands): 
 
 
Six months ended April 30,
 
 
2017
 
2016
Cash flow information:
 
 
 
 
Interest paid, net of amount capitalized
 
$
7,659

 
$
267

Income tax payments
 
$
83,666

 
$
72,767

Income tax refunds
 
$
925

 
$
2,001

Noncash activity:
 
 
 
 
Cost of inventory acquired through seller financing or municipal bonds, net
 
$
26,232

 
$
10,647

Financed portion of land sale
 
$
625

 


Reduction in inventory for our share of earnings in land purchased from unconsolidated entities and allocation of basis difference
 
$
7,094

 
$
4,913

Rental property acquired by capital land lease
 
$
7,167

 


Defined benefit plan amendment
 


 
$
757

Deferred tax decrease related to stock-based compensation activity included in additional paid-in capital
 
$
5,068

 
$
9,797

Transfer of inventory to investment in unconsolidated entities
 
$
36,256

 


Transfer of investment in distressed loans and foreclosed real estate to investment in unconsolidated entities
 


 
$
5,917

Miscellaneous increases to investments in unconsolidated entities
 
$
1,951

 
$
102

Acquisition of a Business:
 
 
 
 
Fair value of assets purchased
 
$
90,560

 


Liabilities assumed
 
$
5,377

 


Cash paid
 
$
85,183

 



22



16. Supplemental Guarantor Information
At April 30, 2017, our 100%-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following outstanding Senior Notes (amounts in thousands):
 
 
Original amount issued and amount outstanding
8.91% Senior Notes due 2017
 
$
400,000

4.0% Senior Notes due 2018
 
$
350,000

6.75% Senior Notes due 2019
 
$
250,000

5.875% Senior Notes due 2022
 
$
419,876

4.375% Senior Notes due 2023
 
$
400,000

5.625% Senior Notes due 2024
 
$
250,000

4.875% Senior Notes due 2025
 
$
350,000

4.875% Senior Notes due 2027
 
$
300,000

0.5% Exchangeable Senior Notes due 2032
 
$
287,500

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 these Senior Notes. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds 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 our obligations under the New Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) 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; (iv) such release would not have a material adverse effect on our and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the New Credit Facility. If there are no guarantors under the New Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
During the preparation of the Form 10-Q for the three months ended January 31, 2017, we identified an immaterial revision that was necessary to certain columns in the consolidating statements for the year ended October 31, 2016. The revision impacted the Guarantor and Nonguarantor Subsidiaries columns in the Consolidating Statement of Operations and Comprehensive Income for the year ended October 31, 2016 and the Nonguarantor Subsidiaries and Eliminations columns in the Condensed Consolidating Balance Sheet as of October 31, 2016, by offsetting amounts. Corresponding changes to the Consolidating Statement of Cash Flows for the year ended October 31, 2016 were also made. The revision had no impact on any consolidated totals of such consolidating statements.
Accordingly, the Consolidating Statements of Operations and Comprehensive Income and of Cash Flows for the year ended October 31, 2016 and the Condensed Consolidating Balance Sheet as of October 31, 2016 have been revised to reflect the immaterial adjustment described above and are included hereunder.
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.
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).

23



Condensed Consolidating Balance Sheet at April 30, 2017:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
602,081

 
89,185

 

 
691,266

Restricted cash and investments

 

 


 
797

 

 
797

Inventory

 

 
7,323,997

 
278,698

 

 
7,602,695

Property, construction and office equipment, net

 

 
158,001

 
15,448

 

 
173,449

Receivables, prepaid expenses and other assets

 


 
362,081

 
228,506

 
(54,073
)
 
536,514

Mortgage loans held for sale

 

 

 
89,485

 

 
89,485

Customer deposits held in escrow

 

 
72,088

 
2,405

 

 
74,493

Investments in unconsolidated entities

 

 
82,450

 
457,765

 

 
540,215

Investments in and advances to consolidated entities
4,379,229

 
3,045,059

 
91,740

 
168,054

 
(7,684,082
)
 

Deferred tax assets, net of valuation allowances
158,050

 


 


 


 


 
158,050

 
4,537,279

 
3,045,059

 
8,692,438

 
1,330,343

 
(7,738,155
)
 
9,866,964

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Loans payable

 

 
630,764

 
7,167

 

 
637,931

Senior notes

 
2,987,990

 

 

 
5,892

 
2,993,882

Mortgage company loan facility

 

 

 
61,129

 

 
61,129

Customer deposits

 

 
368,389

 
19,551

 

 
387,940

Accounts payable

 

 
303,078

 
2,422

 

 
305,500

Accrued expenses

 
35,231

 
592,050

 
375,644

 
(65,529
)
 
937,396

Advances from consolidated entities

 


 
2,276,748

 
693,772

 
(2,970,520
)
 

Income taxes payable
89,191

 

 

 


 

 
89,191

Total liabilities
89,191

 
3,023,221

 
4,171,029

 
1,159,685

 
(3,030,157
)
 
5,412,969

Equity
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,779

 

 
48

 
3,006

 
(3,054
)
 
1,779

Additional paid-in capital
716,124

 
49,400

 


 
93,734

 
(143,134
)
 
716,124

Retained earnings (deficit)
4,159,300

 
(27,562
)
 
4,521,361

 
68,011

 
(4,561,810
)
 
4,159,300

Treasury stock, at cost
(426,116
)
 

 

 

 

 
(426,116
)
Accumulated other comprehensive loss
(2,999
)
 

 


 

 


 
(2,999
)
Total stockholders’ equity
4,448,088

 
21,838

 
4,521,409

 
164,751

 
(4,707,998
)
 
4,448,088

Noncontrolling interest

 

 

 
5,907

 

 
5,907

Total equity
4,448,088

 
21,838

 
4,521,409

 
170,658

 
(4,707,998
)
 
4,453,995

 
4,537,279

 
3,045,059

 
8,692,438

 
1,330,343

 
(7,738,155
)
 
9,866,964


24



Condensed Consolidating Balance Sheet at October 31, 2016:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
583,440

 
50,275

 

 
633,715

Restricted cash and investments
11,708

 

 


 
19,583

 

 
31,291

Inventory

 

 
6,896,205

 
457,806

 
(44
)
 
7,353,967

Property, construction and office equipment, net

 

 
153,663

 
15,913

 

 
169,576

Receivables, prepaid expenses and other assets
77

 


 
319,319

 
299,978

 
(36,616
)
 
582,758

Mortgage loans held for sale

 

 

 
248,601

 

 
248,601

Customer deposits held in escrow

 

 
50,079

 
2,978

 

 
53,057

Investments in unconsolidated entities

 

 
101,999

 
394,412

 

 
496,411

Investments in and advances to consolidated entities
4,112,876

 
2,741,160

 
20,519

 
90,671

 
(6,965,226
)
 

Deferred tax assets, net of valuation allowances
167,413

 


 


 


 


 
167,413

 
4,292,074

 
2,741,160

 
8,125,224

 
1,580,217

 
(7,001,886
)
 
9,736,789

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Loans payable

 

 
871,079

 


 

 
871,079

Senior notes

 
2,683,823

 

 

 
10,549

 
2,694,372

Mortgage company loan facility

 

 

 
210,000

 

 
210,000

Customer deposits

 

 
292,794

 
16,305

 

 
309,099

Accounts payable

 

 
280,107

 
1,848

 

 
281,955

Accrued expenses

 
32,559

 
610,958

 
469,527

 
(40,744
)
 
1,072,300

Advances from consolidated entities

 


 
1,737,682

 
799,082

 
(2,536,764
)
 

Income taxes payable
62,782

 

 

 


 

 
62,782

Total liabilities
62,782

 
2,716,382

 
3,792,620

 
1,496,762

 
(2,566,959
)
 
5,501,587

Equity
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,779

 

 
48

 
3,006

 
(3,054
)
 
1,779

Additional paid-in capital
728,464

 
49,400

 


 
6,734

 
(56,134
)
 
728,464

Retained earnings (deficit)
3,977,297

 
(24,622
)
 
4,332,556

 
67,805

 
(4,375,739
)
 
3,977,297

Treasury stock, at cost
(474,912
)
 

 

 

 

 
(474,912
)
Accumulated other comprehensive loss
(3,336
)
 

 


 

 


 
(3,336
)
Total stockholders’ equity
4,229,292

 
24,778

 
4,332,604

 
77,545

 
(4,434,927
)
 
4,229,292

Noncontrolling interest

 

 

 
5,910

 

 
5,910

Total equity
4,229,292

 
24,778

 
4,332,604

 
83,455

 
(4,434,927
)
 
4,235,202

 
4,292,074

 
2,741,160

 
8,125,224

 
1,580,217

 
(7,001,886
)
 
9,736,789






25



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the six months ended April 30, 2017:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
2,239,917

 
129,698

 
(85,373
)
 
2,284,242

Cost of revenues

 

 
1,767,348

 
79,634

 
(36,539
)
 
1,810,443

Selling, general and administrative
24

 
1,965

 
298,648

 
34,872

 
(50,538
)
 
284,971

 
24

 
1,965

 
2,065,996

 
114,506

 
(87,077
)
 
2,095,414

Income (loss) from operations
(24
)
 
(1,965
)
 
173,921

 
15,192

 
1,704

 
188,828

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
8,478

 
83,871

 

 
92,349

Other income  net
4,682

 


 
12,266

 
8,809

 
2,056

 
27,813

Intercompany interest income

 
75,053

 


 
2,146

 
(77,199
)
 

Interest expense

 
(77,745
)
 


 
(954
)
 
78,699

 

Income from subsidiaries
304,332

 

 
104,408

 

 
(408,740
)
 

Income (loss) before income taxes
308,990

 
(4,657
)
 
299,073

 
109,064

 
(403,480
)
 
308,990

Income tax provision (benefit)
113,936

 
(1,717
)
 
110,268

 
40,211

 
(148,762
)
 
113,936

Net income (loss)
195,054

 
(2,940
)
 
188,805

 
68,853

 
(254,718
)
 
195,054

Other comprehensive income
337

 


 


 


 


 
337

Total comprehensive income (loss)
195,391

 
(2,940
)
 
188,805

 
68,853

 
(254,718
)
 
195,391


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the six months ended April 30, 2016:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
1,874,962

 
225,750

 
(56,589
)
 
2,044,123

Cost of revenues

 

 
1,478,061

 
110,867

 
(6,046
)
 
1,582,882

Selling, general and administrative
22

 
1,920

 
260,530

 
35,201

 
(47,537
)
 
250,136

 
22

 
1,920

 
1,738,591

 
146,068

 
(53,583
)
 
1,833,018

Income (loss) from operations
(22
)
 
(1,920
)
 
136,371

 
79,682

 
(3,006
)
 
211,105

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
10,333

 
7,423

 

 
17,756

Other income  net
4,711

 


 
13,395

 
10,539

 
(292
)
 
28,353

Intercompany interest income

 
72,977

 


 


 
(72,977
)
 

Interest expense

 
(75,714
)
 


 
(563
)
 
76,277

 

Income from subsidiaries
252,525

 

 
92,425

 

 
(344,950
)
 

Income (loss) before income taxes
257,214

 
(4,657
)
 
252,524

 
97,081

 
(344,948
)
 
257,214

Income tax provision (benefit)
94,980

 
(1,794
)
 
97,272

 
37,396

 
(132,874
)
 
94,980

Net income (loss)
162,234

 
(2,863
)
 
155,252

 
59,685

 
(212,074
)
 
162,234

Other comprehensive (loss) income
(132
)
 


 
31

 


 


 
(101
)
Total comprehensive income (loss)
162,102

 
(2,863
)
 
155,283

 
59,685

 
(212,074
)
 
162,133




26



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended April 30, 2017:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
1,324,094

 
84,002

 
(44,584
)
 
1,363,512

Cost of revenues

 

 
1,043,091

 
50,163

 
(15,813
)
 
1,077,441

Selling, general and administrative
24

 
997

 
154,767

 
17,924

 
(25,836
)
 
147,876

 
24

 
997

 
1,197,858

 
68,087

 
(41,649
)
 
1,225,317

Income (loss) from operations
(24
)
 
(997
)
 
126,236

 
15,915

 
(2,935
)
 
138,195

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
3,334

 
42,570

 

 
45,904

Other income  net
2,289

 


 
5,015

 
4,309

 
3,497

 
15,110

Intercompany interest income

 
38,557

 


 
2,146

 
(40,703
)
 

Interest expense

 
(39,850
)
 


 
(291
)
 
40,141

 

Income from subsidiaries
196,944

 

 
62,360

 

 
(259,304
)
 

Income (loss) before income taxes
199,209

 
(2,290
)

196,945

 
64,649

 
(259,304
)
 
199,209

Income tax provision (benefit)
74,571

 
(868
)
 
73,647

 
24,285

 
(97,064
)
 
74,571

Net income (loss)
124,638

 
(1,422
)

123,298


40,364


(162,240
)

124,638

Other comprehensive income
168

 


 


 


 


 
168

Total comprehensive income (loss)
124,806

 
(1,422
)

123,298


40,364


(162,240
)

124,806


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended April 30, 2016:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
1,090,366

 
55,527

 
(30,336
)
 
1,115,557

Cost of revenues

 

 
853,260

 
20,780

 
(3,469
)
 
870,571

Selling, general and administrative
10

 
951

 
134,625

 
17,228

 
(24,474
)
 
128,340

 
10

 
951


987,885


38,008


(27,943
)
 
998,911

Income (loss) from operations
(10
)
 
(951
)

102,481


17,519


(2,393
)
 
116,646

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
7,336

 
1,782

 

 
9,118

Other income  net
2,320

 


 
5,226

 
6,346

 
741

 
14,633

Intercompany interest income

 
36,480

 


 


 
(36,480
)
 

Interest expense

 
(37,819
)
 


 
(315
)
 
38,134

 

Income from subsidiaries
138,087

 

 
23,043

 

 
(161,130
)
 

Income (loss) before income taxes
140,397

 
(2,290
)

138,086


25,332


(161,128
)
 
140,397

Income tax provision (benefit)
51,343

 
(882
)
 
53,168

 
9,744

 
(62,030
)
 
51,343

Net income (loss)
89,054

 
(1,408
)

84,918


15,588


(99,098
)
 
89,054

Other comprehensive income
155

 


 
4

 


 


 
159

Total comprehensive income (loss)
89,209

 
(1,408
)

84,922


15,588


(99,098
)
 
89,213


27



Consolidating Statement of Operations and Comprehensive Income (Loss) for the fiscal year ended October 31, 2016
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues

 

 
4,984,356

 
361,685

 
(176,533
)
 
5,169,508

Cost of revenues

 

 
3,919,729

 
288,044

 
(63,708
)
 
4,144,065

Selling, general and administrative
75

 
3,809

 
558,822

 
74,328

 
(101,652
)
 
535,382

 
75

 
3,809

 
4,478,551

 
362,372

 
(165,360
)
 
4,679,447

Income (loss) from operations
(75
)
 
(3,809
)
 
505,805

 
(687
)
 
(11,173
)
 
490,061

Other:
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities

 

 
16,913

 
23,835

 

 
40,748

Other income - net
9,501

 


 
27,873

 
17,456

 
3,388

 
58,218

Intercompany interest income


 
145,828

 

 

 
(145,828
)
 

Interest expense


 
(151,410
)
 

 
(2,203
)
 
153,613

 

Income from consolidated subsidiaries
579,601

 

 
29,010

 

 
(608,611
)
 

Income (loss) before income taxes
589,027

 
(9,391
)
 
579,601

 
38,401

 
(608,611
)
 
589,027

Income tax provision (benefit)
206,932

 
(3,299
)
 
203,614

 
13,490

 
(213,805
)
 
206,932

Net income (loss)
382,095

 
(6,092
)
 
375,987

 
24,911

 
(394,806
)
 
382,095

Other comprehensive (loss) income
(858
)
 

 
31

 


 


 
(827
)
Total comprehensive income (loss)
381,237

 
(6,092
)
 
376,018

 
24,911

 
(394,806
)
 
381,268



28



Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2017:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
64,132

 
6,729

 
(189,934
)
 
390,949

 
(11,475
)
 
260,401

Cash flow (used in) provided by investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment - net

 

 
(12,043
)
 
334

 

 
(11,709
)
Investment in unconsolidated entities

 

 
(1,969
)
 
(111,546
)
 

 
(113,515
)
Return of investments in unconsolidated entities

 

 
29,566

 
68,521

 

 
98,087

Investment in foreclosed real estate and distressed loans

 

 


 
(513
)
 

 
(513
)
Return of investments in foreclosed real estate and distressed loans

 

 

 
4,376

 

 
4,376

Acquisition of a business

 

 
(85,183
)
 


 

 
(85,183
)
Investment paid - intercompany

 

 
(45,000
)
 

 
45,000

 

Intercompany advances
(76,995
)
 
(303,899
)
 

 


 
380,894

 

Net cash (used in) provided by investing activities
(76,995
)
 
(303,899
)
 
(114,629
)
 
(38,828
)
 
425,894

 
(108,457
)
Cash flow (used in) provided by financing activities:
 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of senior notes

 
300,000

 

 


 

 
300,000

Debt issuance costs for senior notes

 
(2,830
)
 

 


 

 
(2,830
)
Proceeds from loans payable

 

 
125,000

 
644,454

 

 
769,454

Principal payments of loans payable

 

 
(380,555
)
 
(793,325
)
 

 
(1,173,880
)
Proceeds from stock-based benefit plans
40,628

 

 

 

 

 
40,628

Excess tax benefits from stock-based compensation
708

 

 

 

 

 
708

Purchase of treasury stock
(15,422
)
 

 

 

 

 
(15,422
)
Dividends paid
(13,051
)
 

 

 

 

 
(13,051
)
Investment received intercompany


 

 

 
45,000

 
(45,000
)
 

Intercompany advances


 

 
578,759

 
(209,340
)
 
(369,419
)
 

Net cash (used in) provided by financing activities
12,863

 
297,170

 
323,204

 
(313,211
)
 
(414,419
)
 
(94,393
)
Net increase in cash and cash equivalents

 

 
18,641

 
38,910

 

 
57,551

Cash and cash equivalents, beginning of period

 

 
583,440

 
50,275

 

 
633,715

Cash and cash equivalents, end of period

 

 
602,081

 
89,185

 

 
691,266


29



Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2016:
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash (used in) provided by operating activities
45,565

 
11,996

 
(166,251
)
 
104,238

 
(11,428
)
 
(15,880
)
Cash flow provided by (used in) investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment — net

 

 
(6,626
)
 
(698
)
 

 
(7,324
)
Sale and redemption of marketable securities

 

 


 
10,000

 

 
10,000

Investments in unconsolidated entities

 

 
(1,763
)
 
(19,620
)
 

 
(21,383
)
Return of investments in unconsolidated entities

 

 
22,236

 
6,242

 

 
28,478

Investment in foreclosed real estate and distressed loans

 

 


 
(866
)
 

 
(866
)
Return of investments in foreclosed real estate and distressed loans

 

 


 
33,435

 

 
33,435

Dividend received  intercompany

 

 
5,000

 

 
(5,000
)
 

Intercompany advances
179,030

 
(11,953
)
 

 

 
(167,077
)
 

Net cash provided by (used in) investing activities
179,030

 
(11,953
)
 
18,847

 
28,493

 
(172,077
)
 
42,340

Cash flow (used in) provided by financing activities:
 
 
 
 
 
 
 
 
 
 
 
Debt issuance costs for senior notes

 
(43
)
 

 


 

 
(43
)
Proceeds from loans payable

 

 
100,000

 
721,984

 

 
821,984

Principal payments of loans payable

 

 
(397,927
)
 
(721,984
)
 

 
(1,119,911
)
Proceeds from stock-based benefit plans
5,003

 

 

 

 

 
5,003

Excess tax benefits from stock-based compensation
665

 

 

 

 

 
665

Purchase of treasury stock
(230,263
)
 

 

 

 

 
(230,263
)
Receipts related to noncontrolling interest


 

 

 
290

 

 
290

Dividend paid  intercompany

 

 

 
(5,000
)
 
5,000

 

Intercompany advances


 

 
(46,447
)
 
(132,058
)
 
178,505

 

Net cash (used in) provided by financing activities
(224,595
)
 
(43
)
 
(344,374
)
 
(136,768
)
 
183,505

 
(522,275
)
Net decrease in cash and cash equivalents

 

 
(491,778
)
 
(4,037
)
 

 
(495,815
)
Cash and cash equivalents, beginning of period

 

 
783,599

 
135,394

 

 
918,993

Cash and cash equivalents, end of period

 

 
291,821

 
131,357

 

 
423,178



30



Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2016
 
Toll
Brothers,
Inc.
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Nonguarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
60,465

 
14,768

 
105,709

 
(64,386
)
 
32,215

 
148,771

Cash flow provided by (used in) investing activities:
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment — net

 

 
(27,835
)
 
(591
)
 

 
(28,426
)
Sale and redemption of marketable securities

 

 

 
10,000

 

 
10,000

Investment in unconsolidated entities

 

 
(2,637
)
 
(67,018
)
 

 
(69,655
)
Return of investments in unconsolidated entities

 

 
32,857

 
14,949

 

 
47,806

Investment in distressed loans and foreclosed real estate

 

 

 
(1,133
)
 

 
(1,133
)
Return of investments in distressed loans and foreclosed real estate

 

 

 
49,619

 

 
49,619

Dividends received intercompany


 


 
5,000

 


 
(5,000
)
 

Investment paid intercompany


 


 
(5,000
)
 


 
5,000

 

Intercompany advances
323,207

 
(14,733
)
 


 


 
(308,474
)
 

Net cash provided by (used in) investing activities
323,207

 
(14,733
)
 
2,385

 
5,826

 
(308,474
)
 
8,211

Cash flow (used in) provided by financing activities:
 
 
 
 
 
 
 
 
 
 
 
Debt issuance costs for senior notes

 
(35
)
 

 

 

 
(35
)
Proceeds from loans payable

 

 
550,000

 
1,893,496

 

 
2,443,496

Debt issuance costs for loans payable

 

 
(4,868
)
 

 

 
(4,868
)
Principal payments of loans payable

 

 
(714,089
)
 
(1,783,496
)
 

 
(2,497,585
)
Proceeds from stock-based benefit plans
6,986

 

 

 

 

 
6,986

Excess tax benefits from stock-based compensation
2,114

 


 


 


 


 
2,114

Purchase of treasury stock
(392,772
)
 

 

 

 

 
(392,772
)
Receipts related to noncontrolling interest

 

 

 
404

 

 
404

Dividends paid intercompany

 

 

 
(5,000
)
 
5,000

 

Investment received intercompany

 

 

 
5,000

 
(5,000
)
 

Intercompany advances

 

 
(139,296
)
 
(136,963
)
 
276,259

 

Net cash (used in) provided by financing activities
(383,672
)
 
(35
)
 
(308,253
)
 
(26,559
)
 
276,259

 
(442,260
)
Net decrease in cash and cash equivalents

 

 
(200,159
)
 
(85,119
)
 

 
(285,278
)
Cash and cash equivalents, beginning of period

 

 
783,599

 
135,394

 

 
918,993

Cash and cash equivalents, end of period

 

 
583,440

 
50,275

 

 
633,715




31



ITEM 2. 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 accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements, notes thereto, and the related MD&A contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016 (“2016 Form 10-K”). It also should be read in conjunction with the disclosure under “Statement on Forward-Looking Information” in this report.
Unless otherwise stated, 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.
OVERVIEW
Financial and Operational Highlights
In the six-month period ended April 30, 2017, we recognized $2.28 billion of revenues and net income of $195.1 million, as compared to $2.04 billion of revenues and net income of $162.2 million in the six-month period ended April 30, 2016. In the three-month period ended April 30, 2017, we recognized $1.36 billion of revenues and net income of $124.6 million, as compared to $1.12 billion of revenues and net income of $89.1 million in the three-month period ended April 30, 2016.
In the six-month periods ended April 30, 2017 and 2016, the value of net contracts signed was $3.26 billion (4,033 homes) and $2.73 billion (3,243 homes), respectively. In the three-month periods ended April 30, 2017 and 2016, the value of net contracts signed was $2.02 billion (2,511 homes) and $1.65 billion (1,993 homes), respectively.
The value of our backlog at April 30, 2017 was $5.00 billion (6,018 homes), as compared to our backlog at April 30, 2016 of $4.19 billion (4,940 homes). Our backlog at October 31, 2016 was $3.98 billion (4,685 homes).
At April 30, 2017, we had $691.3 million of cash and cash equivalents on hand and approximately $1.18 billion available under our $1.295 billion revolving credit facility (the “New Credit Facility”) that matures in May 2021. At April 30, 2017, we had no outstanding borrowings under the New Credit Facility. We did have approximately $120.0 million of outstanding letters of credit under the New Credit Facility.
At April 30, 2017, we owned or controlled through options approximately 46,600 home sites, as compared to approximately 45,400 at April 30, 2016; 48,800 at October 31, 2016; and 44,300 at October 31, 2015. Of the approximately 46,600 total home sites that we owned or controlled through options at April 30, 2017, we owned approximately 32,600 and controlled approximately 14,000 through options. Of the 32,600 home sites owned or controlled through options, approximately 18,000 were substantially improved. In addition, at April 30, 2017, we expect to purchase approximately 3,600 additional home sites over a number of years from several joint ventures in which we have interests, at prices not yet determined.
At April 30, 2017, we were selling from 316 communities, compared to 299 at April 30, 2016; 310 at October 31, 2016; and 288 at October 31, 2015.
At April 30, 2017, our total stockholders’ equity and our debt to total capitalization ratio were $4.45 billion and 0.45 to 1.00, respectively.
In November 2016, we acquired substantially all of the assets and operations of Coleman Real Estate Holdings, LLC (“Coleman”) for $85.2 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. Our selling community count increased by 15 communities at the acquisition date.
Our Business Environment and Current Outlook
The current housing market continues to strengthen and grow. We believe solid and improving demand for homes, low interest rates, the limited supply of resale and new homes, and the financial strength of our affluent buyer base are driving our growth. Our buyers are further benefiting from a solid employment picture, strong consumer confidence, a robust stock market, and increasing equity in their existing homes.
We believe we are also benefiting from the appeal and national recognition of our brand and a lack of large scale competition in the affordable end of the luxury new home market. The breadth of products we offer enables us to appeal to a wide range of

32



demographic groups, including affluent move-up, empty-nester and millennial buyers, are also fueling demand for our homes. Furthermore, our home designs and our customization program differentiate us within our segment of the luxury market.
Our broad buyer base, combined with our strong balance sheet, and well located communities, is enabling us to outpace our peers in many metrics. 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 as the housing recovery strengthens.
The supply of new and existing homes continues to trail the growth in population and households.  We believe the new home market continues to have significant pent-up demand, though stronger in some markets than in others. We are producing strong results even with industry-wide home production levels still well below historic norms. We believe that, as the national economy continues to improve and as the millennial generation comes of age, pent-up demand for homes will continue to be released.  We expect that this increase in demand will drive production to address the existing deficit in housing supply compared to projected household growth.
RESULTS OF OPERATIONS – OVERVIEW
The following table sets forth, for the six months and three months ended April 30, 2017 and 2016, a comparison of certain items in the Condensed Consolidated Statements of Operations and Comprehensive Income and other supplemental information ($ amounts in millions, unless otherwise stated). For more information regarding results of operations by operating segment, see “Segments” in this MD&A.
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenues
$
2,284.2

 
$
2,044.1

 
12
 %
 
$
1,363.5

 
$
1,115.6

 
22
 %
Cost of revenues
1,810.4

 
1,582.9

 
14
 %
 
1,077.4

 
870.6

 
24
 %
Selling, general and administrative
285.0

 
250.1

 
14
 %
 
147.9

 
128.3

 
15
 %
 
2,095.4

 
1,833.0

 
14
 %
 
1,225.3

 
998.9

 
23
 %
Income from operations
188.8

 
211.1

 
(11
)%
 
138.2

 
116.6

 
19
 %
Other
 
 
 
 
 
 
 
 
 
 
 
Income from unconsolidated entities
92.3

 
17.8

 
420
 %
 
45.9

 
9.1

 
404
 %
Other income – net
27.8

 
28.4

 
(2
)%
 
15.1

 
14.6

 
3
 %
Income before income taxes
309.0

 
257.2

 
20
 %
 
199.2

 
140.4

 
42
 %
Income tax provision
113.9

 
95.0

 
20
 %
 
74.6

 
51.3

 
45
 %
Net income
$
195.1

 
$
162.2

 
20
 %
 
$
124.6

 
$
89.1

 
40
 %
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental information:
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
79.3
%
 
77.4
%
 

 
79.0
%
 
78.0
%
 
 
SG&A as a percentage of revenues
12.5
%
 
12.2
%
 

 
10.8
%
 
11.5
%
 
 
Effective tax rate
36.9
%
 
36.9
%
 
 
 
37.4
%
 
36.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deliveries – units
2,828

 
2,367

 
19
 %
 
1,638

 
1,304

 
26
 %
Deliveries – average selling price *
$
807.7

 
$
863.6

 
(6
)%
 
$
832.4

 
$
855.5

 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net contracts signed – value
$
3,262.3

 
$
2,732.3

 
19
 %
 
$
2,019.3

 
$
1,645.2

 
23
 %
Net contracts signed – units
4,033

 
3,243

 
24
 %
 
2,511

 
1,993

 
26
 %
Net contracts signed – average selling price *
$
808.9

 
$
842.5

 
(4
)%
 
$
804.2

 
$
825.5

 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
April 30, 2017
 
April 30, 2016
 
%
Change
 
October 31, 2016
 
October 31, 2015
 
%
Change
Backlog – value
$
5,000.9

 
$
4,192.1

 
19
 %
 
$
3,984.1

 
$
3,504.0

 
14
 %
Backlog – units
6,018

 
4,940

 
22
 %
 
4,685

 
4,064

 
15
 %
Backlog – average selling price *
$
831.0

 
$
848.6

 
(2
)%
 
$
850.4

 
$
862.2

 
(1
)%
* $ amounts in thousands.
Note: Due to rounding, amounts may not add.

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Revenues and Cost of Revenues
The increase in revenues for the six months ended April 30, 2017, as compared to the six months ended April 30, 2016, was attributable to a 19% increase in the number of homes delivered primarily due to a higher backlog at October 31, 2016, as compared to October 31, 2015, offset, in part, by a 6% decrease in the average price of the homes delivered. The decrease in the average delivered price was due to a decrease in the number of homes delivered in the metro New York City market, where average prices are significantly higher than the average prices of our traditional homebuilding product; an increase in deliveries of lower priced attached and age qualified products in the fiscal 2017 period, as compared to the fiscal 2016 period; and the impact of lower priced products delivered from communities acquired in our purchase of Coleman in November 2016. The increase in cost of revenues, as a percentage of revenues, in the six months ended April 30, 2017 was due primarily to fewer closings in our City Living buildings where margins were higher; the impact of purchase accounting for the homes sold from communities acquired in our purchase of Coleman; higher material and labor costs; a higher number of closings from lower margin communities; and an increase in inventory impairment and write-offs. This increase was partially offset by lower interest expense in the fiscal 2017 period, as compared to the fiscal 2016 period. In the fiscal 2017 and fiscal 2016 periods, interest expense as a percentage of revenues was 3.0% and 3.3%, respectively, and we recognized inventory impairments and write-offs of $8.9 million and $7.6 million, respectively.
The increase in revenues for the three months ended April 30, 2017, as compared to the three months ended April 30, 2016, was primarily attributable to a 26% increase in the number of homes delivered primarily due to a higher backlog at October 31, 2016, as compared to October 31, 2015, offset, in part, by a 3% decrease in the average price of the homes delivered. The decrease in the average price was due to an increase in deliveries of lower priced attached and age qualified products in the fiscal 2017 period, as compared to the fiscal 2016 period, and the impact of lower priced product delivered from communities acquired in our purchase of Coleman. These decreases were offset, in part, by an increase in the number of homes delivered in the metro New York City and California markets, where average prices were higher and an increase in the average delivered price of our City Living product due to a change in product mix. The increase in cost of revenues, as a percentage of revenues, in the three months ended April 30, 2017 was due primarily to a shift in closings to buildings with lower gross margins in our City Living product, the impact of purchase accounting for the homes sold from communities acquired in our purchase of Coleman, higher material and labor costs, and a higher number of closings from lower margin communities. These increases were partially offset by increased closings in California at higher margins, lower interest expense, and a decrease in inventory impairment and write-offs in the fiscal 2017 period, as compared to the fiscal 2016 period. In the fiscal 2017 and fiscal 2016 periods, interest expense as a percentage of revenues was 3.0% and 3.2%, respectively, and we recognized inventory impairments and write-offs of $4.3 million and $6.4 million, respectively.
Selling, General and Administrative Expenses (“SG&A”)
SG&A spending increased by $34.8 million in the six-month period ended April 30, 2017, as compared to the six-month period ended April 30, 2016. As a percentage of revenues, SG&A increased to 12.5% in the fiscal 2017 period, from 12.2% in the fiscal 2016 period. The increase in SG&A, as a percentage of revenues, in the fiscal 2017 period was due to SG&A spending increasing by 14% while revenues increased 12% from the fiscal 2016 period. The dollar increase in SG&A was due primarily to increased compensation costs due to a higher number of employees; increased sales and marketing costs; and increased spending on our upgrading of computer software. The higher sales and marketing costs were the result of the increased spending on advertising, model operating costs, and commissions, and an increase in the number of homes delivered. The increased number of employees was due primarily to the increase in the number of operating communities that we had in the fiscal 2017 period, as compared to the fiscal 2016 period.
SG&A spending increased by $19.5 million in the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016. As a percentage of revenues, SG&A decreased to 10.8% in the fiscal 2017 period, from 11.5% in the fiscal 2016 period. The decrease in SG&A, as a percentage of revenues, in the fiscal 2017 period was due to revenues increasing 22% and SG&A spending increasing by 15% from the fiscal 2016 period. The dollar increase in SG&A was due primarily to increased compensation costs due to a higher number of employees; increased sales and marketing costs; and increased spending on our upgrading of computer software. The higher sales and marketing costs were the result of the increased number of home closed and increased selling communities. The increased number of employees was due primarily to the increase in the number of operating communities that we had in the fiscal 2017 period, as compared to the fiscal 2016 period.
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. Some of our unconsolidated entities are land development projects or high-rise/mid-rise condominium construction projects, which do not generate revenues and earnings for a number of years during the development of the property. Once development is complete, these unconsolidated entities will generally, over a relatively short period of time, generate revenues

34



and earnings until all of the assets of the entity are sold. Because there is not a steady flow of revenues and earnings from these entities, the earnings recognized from these entities may vary significantly from quarter to quarter and year to year.
The increase in income from unconsolidated entities for the six-month period ended April 30, 2017, as compared to the six-month period ended April 30, 2016, was due mainly to higher income from two of our Home Building Joint Ventures located in New York City and $26.7 million of gains recognized in the fiscal 2017 period related to the sale of 50% of our ownership interests in two of our Rental Property Joint Ventures located in Jersey City, New Jersey and the suburbs of Philadelphia, Pennsylvania.
The increase in income from unconsolidated entities for the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016, was due mainly to higher income from two of our Home Building Joint Ventures located in New York City and a $20.5 million gain recognized related to the sale of 50% of our ownership interests in one of our Rental Property Joint Ventures located in Jersey City, New Jersey.
Other Income – Net
The table below provides, for the periods indicated, the components of “Other income – net” (amounts in thousands):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
2017
 
2016
Income from ancillary businesses
$
6,846

 
$
7,421

 
$
4,549

 
$
3,692

Gibraltar
2,870

 
6,249

 
2,932

 
5,421

Management fee income from unconsolidated entities
7,971

 
4,515

 
3,682

 
2,408

Income from land sales
5,086

 
4,491

 
1,527

 
493

Other
5,040

 
5,677

 
2,420

 
2,619

Total other income – net
$
27,813

 
$
28,353

 
$
15,110

 
$
14,633

In the six months ended April 30, 2016, our security monitoring business recognized a gain of $1.6 million related to a bulk sale of security monitoring accounts in fiscal 2015, which is included in income from ancillary businesses above. The increase in management fee income from unconsolidated entities in the fiscal 2017 periods, as compared to the fiscal 2016 periods, was mainly due to management fees earned on the closing of homes at two of our Home Building Joint Ventures located in New York City, which commenced closing homes in the fourth quarter of fiscal 2016. The decrease in Gibraltar earnings in the fiscal 2017 periods, as compared to the fiscal 2016 periods, was principally due to the continued liquidation of its distressed loans and foreclosed real estate owned assets. Gibraltar’s current business strategy is, through joint ventures, to finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies.
Income Before Income Taxes
For the six-month period ended April 30, 2017, we reported income before income taxes of $309.0 million, as compared to $257.2 million in the six-month period ended April 30, 2016. For the three-month period ended April 30, 2017, we reported income before income taxes of $199.2 million, as compared to $140.4 million in the three-month period ended April 30, 2016.
Income Tax Provision
We recognized $113.9 million and $74.6 million of income tax provision in the six-month and three-month periods ended April 30, 2017, respectively. Based upon the federal statutory rate of 35%, our federal tax provision would have been $108.1 million and $69.7 million in the six-month and three-month periods ended April 30, 2017, respectively. 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 and interest accrued on anticipated tax assessments, partially offset by tax benefits related to the utilization of domestic production activities deductions and other permanent differences.
In the six-month and three-month periods ended April 30, 2016, we recognized $95.0 million and $51.3 million of income tax provision, respectively. Based upon the federal statutory rate of 35%, our federal tax provision would have been $90.0 million and $49.1 million in the six-month and three-month periods ended April 30, 2016, respectively. The differences between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to the provision for state income taxes and interest accrued on anticipated tax assessments, offset by tax benefits related to the utilization of domestic production activities deductions and other permanent differences.

35



Contracts
The aggregate value of net contracts signed increased $530.0 million, or 19%, in the six-month period ended April 30, 2017, as compared to the prior year period. In the six-month periods ended April 30, 2017 and 2016, the value of net contracts signed was $3.26 billion (4,033 homes) and $2.73 billion (3,243 homes), respectively.
The aggregate value of net contracts signed increased $374.1 million, or 23%, in the three-month period ended April 30, 2017, as compared to the prior year period. In the three-month periods ended April 30, 2017 and 2016, the value of net contracts signed was $2.02 billion (2,511 homes) and $1.65 billion (1,993 homes), respectively.
The increases in the aggregate value of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were the result of increases of 24% and 26% in the number of net contracts signed, in the six-month and three-month periods, respectively, offset, in part, by decreases of 4% and 3% in the average value of each contract signed, in the six-month and three-month periods, respectively. The increases in the number of net contracts signed was the result of increased demand and to an increase in the number of selling communities in the fiscal 2017 periods, as compared to the fiscal 2016 periods. The declines in average price in the fiscal 2017 periods, as compared to the fiscal 2016 periods, was primarily due to the inclusion of the sale of 207 homes and 147 homes from Coleman in the six and three months ended April 30, 2017, respectively, at average selling prices of $329,000 and $324,600, respectively; a decrease in the number of contracts signed in our City Living division; and an increase in the number of contracts signed in our multi-family and age-qualified product, primarily in the North, Mid-Atlantic, and West regions, which generally are a lower priced product.
Backlog
The increase in the value of our backlog at April 30, 2017, as compared to the backlog at April 30, 2016, was primarily attributable to the 14% higher value of backlog at October 31, 2016, as compared to the backlog at October 31, 2015 and a 19% increase in the value of net contracts signed in the six-month period ended April 30, 2017, as compared to the value of net contracts signed in the six-month period ended April 30, 2016, offset, in part, by a 12% increase in the value of deliveries in the six-month period ended April 30, 2017.
The value of our backlog at April 30, 2017 increased 19% to $5.00 billion (6,018 homes), as compared to our backlog at April 30, 2016 of $4.19 billion (4,940 homes). Our backlog at October 31, 2016 and 2015 was $3.98 billion (4,685 homes) and $3.50 billion (4,064 homes), respectively.
For more information regarding results of operations by operating segment, see “Segments” in this MD&A.
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 capital markets. At April 30, 2017, we had $691.3 million of cash and cash equivalents. At October 31, 2016, we had $633.7 million of cash and cash equivalents. Cash provided by operating activities during the six-month period ended April 30, 2017 was $260.4 million. Cash provided by operating activities during the fiscal 2017 period was primarily related to net income before stock-based compensation, inventory impairments, and depreciation and amortization; a decrease in mortgage loans held for sale; a decrease in restricted cash and investments; a decrease in receivables, prepaid expenses, and other assets; and increases in customer deposits and income taxes payable; offset, in part, by an increase in inventory and a decrease in accounts payable and accrued expenses.
In the six-month period ended April 30, 2017, cash used in investing activities was $108.5 million, which was primarily related to $113.5 million used to fund our investments in unconsolidated entities, $85.2 million used to acquire Coleman, and $11.7 million for the purchase of property and equipment. This was offset, in part, by $102.5 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans.
We used $94.4 million of cash from financing activities in the six-month period ended April 30, 2017 primarily for the repayment of $404.4 million of loans payable, net of borrowings, the repurchase of $15.4 million of our common stock, and the payment of a dividend on our common stock of $0.08 per share, $13.1 million in the aggregate, offset, in part, by the proceeds from the issuance of $300 million of 4.875% Senior Notes due 2027 and the proceeds of $40.6 million from our stock-based benefit plans.
At April 30, 2016, we had $423.2 million of cash and cash equivalents. At October 31, 2015, we had $919.0 million of cash and cash equivalents and $10.0 million of marketable securities. Cash used in operating activities during the six-month period ended April 30, 2016 was $15.9 million. Cash used in operating activities during the fiscal 2016 period was primarily related to the purchase of inventory and increases in restricted cash and investments, offset, in part, by net income before stock-based compensation, inventory impairments, and depreciation and amortization; an increase in customer deposits; an increase in

36



accounts payable and accrued expenses; an increase in receivables, prepaid expenses, and other assets; and an increase in income taxes payable.
In the six-month period ended April 30, 2016, cash provided by investing activities was $42.3 million. The cash provided by investing activities was primarily related to $61.9 million of cash received as returns on our investments in unconsolidated entities, foreclosed real estate, and distressed loans and $10.0 million of proceeds from the sale of marketable securities. This was offset, in part, by $22.2 million used to fund our investments in unconsolidated entities, foreclosed real estate, and distressed loans, and $7.3 million for the purchase of property and equipment.
We used $522.3 million of cash from financing activities in the six-month period ended April 30, 2016 primarily for the repayment of $297.9 million of loans payable, net of new borrowings and the repurchase of $230.3 million of our common stock, offset, in part, by proceeds of $5.0 million from our stock-based benefit plans. Subsequent to April 30, 2016, we repurchased approximately 1.8 million additional shares of our common stock for approximately $47.3 million.
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, although in the past several years, due to the increase in the number of attached-home communities from which we were operating (all of the units of which are generally not sold before the commencement of construction), the number of speculative homes in our inventory increased significantly. Should our business remain at its current level or decline, we believe that our inventory levels would decrease as we complete and deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver 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, as we did during the period from April 2006 through January 2010, which would further reduce our inventory levels and cash needs. At April 30, 2017, we owned or controlled through options approximately 46,600 home sites, of which we owned approximately 32,600. Of our owned home sites at April 30, 2017, significant improvements were completed on approximately 18,000 of them.
At April 30, 2017, the aggregate purchase price of land parcels under option and purchase agreements was approximately $1.51 billion (including $33.0 million of land to be acquired from joint ventures in which we have invested). Of the $1.51 billion of land purchase commitments, we paid or deposited $77.7 million, and, if we acquire all of these land parcels, we will be required to pay an additional $1.43 billion. The purchases of these land parcels are scheduled to occur over the next several years. In addition, we expect to purchase approximately 3,600 additional home sites over a number of years from several joint ventures in which we have interests. 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.
On August 1, 2013, we entered into a $1.035 billion revolving credit facility (the “Credit Facility”) that was scheduled to terminate on August 1, 2018. On May 19, 2016, we entered into a new $1.215 billion (subsequently increased to $1.295 billion), unsecured, five-year revolving credit facility (the “New Credit Facility”) and terminated the Credit Facility. Under the terms of the New 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 $2.71 billion. Under the terms of the New Credit Facility, at April 30, 2017, our leverage ratio was approximately 0.70 to 1.00, and our tangible net worth was approximately $4.41 billion. Based upon the limitations related to our repurchase of common stock in the New Credit Facility, our ability to repurchase our common stock was limited to approximately $2.40 billion as of April 30, 2017. At April 30, 2017, we had no outstanding borrowings under our New Credit Facility and had outstanding letters of credit thereunder of approximately $120.0 million.
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. Our $400 million principal amount of 8.91% Senior Notes will mature in October 2017. In addition, we may be required to repay our $287.5 million principal amount of 0.5% Exchangeable Senior Notes (“Exchangeable Senior Notes”) in December 2017 as the holders of these notes have the right to require us to repurchase them on December 15, 2017. We have the right to redeem the Exchangeable Senior Notes on or after September 15, 2017, for cash equal to 100% of the principal amount, plus accrued but unpaid interest. 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.

37



OFF-BALANCE SHEET ARRANGEMENTS
We have investments in Land Development Joint Ventures; Home Building Joint Ventures; Rental Property Joint Ventures; and Gibraltar Joint Ventures.
Our investments in these entities are 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 sales of those home sites to us.
At April 30, 2017, we had investments in these entities of $540.2 million and were committed to invest or advance up to an additional $56.2 million to these entities if they require additional funding. At April 30, 2017, we had agreed to terms for the acquisition of 78 home sites from two Land Development Joint Ventures for an estimated aggregate purchase price of $33.0 million. In addition, we expect to purchase approximately 3,600 additional home sites over a number of years from several joint ventures in which we have interests; 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 April 30, 2017, 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 in such entity 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 venture. At April 30, 2017, we have guaranteed the debt of certain unconsolidated entities aggregating $1.32 billion, of which we estimate $194.0 million to be our maximum exposure related to repayment and carry cost guarantees. At January 31, 2017, the unconsolidated entities had borrowed an aggregate of $887.6 million, of which we estimate $157.8 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 1 month to 43 months. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
In addition, we have guaranteed approximately $2.2 million of ground lease payments and insurance deductibles for three joint ventures.
For more information regarding these joint ventures, see Note 3, “Investments in Unconsolidated Entities,” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
CRITICAL ACCOUNTING POLICIES
As disclosed in our 2016 Form 10-K, our most critical accounting policies relate to inventory, income taxes–valuation allowances, revenue and cost recognition, and warranty and self-insurance. Since October 31, 2016, there have been no material changes to those critical accounting policies.
SEGMENTS
We operate in two segments: Traditional Home Building and City Living. We conduct our Traditional Home Building operations in five geographic areas around the United States: (1) the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York; (2) the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania, and Virginia; (3) the South, consisting of Florida, North Carolina, and Texas; (4) the West, consisting of Arizona, Colorado, Idaho, Nevada, and Washington, and (5) California.

38



The tables below summarize information related to units delivered and revenues, net contracts signed, and income (loss) before income taxes, by segment, for the periods indicated, and information related to backlog, by segment, as of the dates indicated.
Units Delivered and Revenues:
 
Six months ended April 30,
 
Revenues
($ in millions)
 
Units Delivered
 
Average Delivered Price
($ in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
335.0

 
$
286.5

 
17
 %
 
486

 
415

 
17
 %
 
$
689.3

 
$
690.4

 
 %
Mid-Atlantic
410.5

 
356.4

 
15
 %
 
664

 
579

 
15
 %
 
618.2

 
615.5

 
 %
South
337.3

 
339.3

 
(1
)%
 
464

 
437

 
6
 %
 
726.9

 
776.4

 
(6
)%
West
513.8

 
325.6

 
58
 %
 
776

 
490

 
58
 %
 
662.1

 
664.5

 
 %
California
593.1

 
545.3

 
9
 %
 
403

 
375

 
7
 %
 
1,471.7

 
1,454.1

 
1
 %
     Traditional Home Building
2,189.7

 
1,853.1

 
18
 %
 
2,793

 
2,296

 
22
 %
 
784.0

 
807.1

 
(3
)%
City Living
94.5

 
191.0

 
(51
)%
 
35

 
71

 
(51
)%
 
2,700.0

 
2,690.1

 
 %
Total
$
2,284.2

 
$
2,044.1

 
12
 %
 
2,828

 
2,367

 
19
 %
 
$
807.7

 
$
863.6

 
(6
)%

 
Three months ended April 30,
 
Revenues
($ in millions)
 
Units Delivered
 
Average Delivered Price
($ in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
189.3

 
$
165.7

 
14
%
 
277

 
235

 
18
%
 
$
683.6

 
$
705.0

 
(3
)%
Mid-Atlantic
226.5

 
186.6

 
21
%
 
367

 
300

 
22
%
 
617.1

 
622.0

 
(1
)%
South
195.1

 
192.5

 
1
%
 
274

 
239

 
15
%
 
712.1

 
805.2

 
(12
)%
West
302.7

 
188.4

 
61
%
 
441

 
288

 
53
%
 
686.4

 
654.1

 
5
 %
California
373.3

 
328.4

 
14
%
 
248

 
216

 
15
%
 
1,505.3

 
1,520.5

 
(1
)%
     Traditional Home Building
1,286.9

 
1,061.6

 
21
%
 
1,607

 
1,278

 
26
%
 
800.8

 
830.6

 
(4
)%
City Living
76.6

 
54.0

 
42
%
 
31

 
26

 
19
%
 
2,469.7

 
2,078.5

 
19
 %
Total
$
1,363.5

 
$
1,115.6

 
22
%
 
1,638

 
1,304

 
26
%
 
$
832.4

 
$
855.5

 
(3
)%
Net Contracts Signed:
 
Six months ended April 30,
 
Net Contract Value
($ in millions)
 
Net Contracted Units
 
Average Contracted Price
($ in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
435.9

 
$
403.0

 
8
 %
 
684

 
571

 
20
 %
 
$
637.3

 
$
705.8

 
(10
)%
Mid-Atlantic
583.5

 
495.7

 
18
 %
 
943

 
802

 
18
 %
 
618.8

 
618.1

 
 %
South
498.1

 
432.9

 
15
 %
 
672

 
577

 
16
 %
 
741.2

 
750.3

 
(1
)%
West
684.4

 
540.8

 
27
 %
 
1,055

 
747

 
41
 %
 
648.7

 
724.0

 
(10
)%
California
929.3

 
661.6

 
40
 %
 
614

 
437

 
41
 %
 
1,513.5

 
1,514.0

 
 %
Traditional Home Building
3,131.2

 
2,534.0

 
24
 %
 
3,968

 
3,134

 
27
 %
 
789.1

 
808.6

 
(2
)%
City Living
131.1

 
198.3

 
(34
)%
 
65

 
109

 
(40
)%
 
2,016.9

 
1,819.3

 
11
 %
Total
$
3,262.3

 
$
2,732.3

 
19
 %
 
4,033

 
3,243

 
24
 %
 
$
808.9

 
$
842.5

 
(4
)%

39



 
Three months ended April 30,
 
Net Contract Value
($ in millions)
 
Net Contracted Units
 
Average Contracted Price
($ in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
264.2

 
$
230.4

 
15
 %
 
408

 
327

 
25
 %
 
$
647.4

 
$
704.5

 
(8
)%
Mid-Atlantic
346.9

 
308.6

 
12
 %
 
563

 
502

 
12
 %
 
616.2

 
614.8

 
 %
South
294.1

 
266.0

 
11
 %
 
406

 
367

 
11
 %
 
724.5

 
724.7

 
 %
West
438.2

 
340.6

 
29
 %
 
703

 
466

 
51
 %
 
623.4

 
730.9

 
(15
)%
California
594.1

 
408.5

 
45
 %
 
388

 
275

 
41
 %
 
1,531.2

 
1,485.5

 
3
 %
Traditional Home Building
1,937.5

 
1,554.1

 
25
 %
 
2,468

 
1,937

 
27
 %
 
785.1

 
802.3

 
(2
)%
City Living
81.8

 
91.1

 
(10
)%
 
43

 
56

 
(23
)%
 
1,901.0

 
1,627.7

 
17
 %
Total
$
2,019.3

 
$
1,645.2

 
23
 %
 
2,511

 
1,993

 
26
 %
 
$
804.2

 
$
825.5

 
(3
)%
Backlog:
 
At April 30,
 
Backlog Value
($ in millions)
 
Backlog Units
 
Average Backlog Price
($ in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
793.7

 
$
735.7

 
8
%
 
1,175

 
1,046

 
12
%
 
$
675.5

 
$
703.4

 
(4
)%
Mid-Atlantic
782.9

 
658.2

 
19
%
 
1,265

 
1,034

 
22
%
 
618.9

 
636.6

 
(3
)%
South
897.2

 
762.8

 
18
%
 
1,168

 
964

 
21
%
 
768.2

 
791.3

 
(3
)%
West
975.9

 
788.7

 
24
%
 
1,427

 
1,073

 
33
%
 
683.9

 
735.1

 
(7
)%
California
1,203.9

 
1,014.0

 
19
%
 
744

 
671

 
11
%
 
1,618.1

 
1,511.1

 
7
 %
Traditional Home Building
4,653.6

 
3,959.4

 
18
%
 
5,779

 
4,788

 
21
%
 
805.3

 
827.0

 
(3
)%
City Living
347.3

 
232.7

 
49
%
 
239

 
152

 
57
%
 
1,453.0

 
1,530.7

 
(5
)%
Total
$
5,000.9

 
$
4,192.1

 
19
%
 
6,018

 
4,940

 
22
%
 
$
831.0

 
$
848.6

 
(2
)%
 
At October 31,
 
Backlog Value
($ in millions)
 
Backlog Units
 
Average Backlog Price
($ in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North
$
692.8

 
$
619.2

 
12
 %
 
977

 
890

 
10
 %
 
$
709.1

 
$
695.8

 
2
 %
Mid-Atlantic
610.0

 
518.9

 
18
 %
 
986

 
811

 
22
 %
 
618.7

 
639.9

 
(3
)%
South
736.4

 
669.2

 
10
 %
 
960

 
824

 
17
 %
 
767.1

 
812.1

 
(6
)%
West
766.5

 
573.5

 
34
 %
 
1,020

 
816

 
25
 %
 
751.5

 
702.8

 
7
 %
California
867.7

 
897.8

 
(3
)%
 
533

 
609

 
(12
)%
 
1,627.9

 
1,474.2

 
10
 %
Traditional Home Building
3,673.4

 
3,278.6

 
12
 %
 
4,476

 
3,950

 
13
 %
 
820.7

 
830.0

 
(1
)%
City Living
310.7

 
225.4

 
38
 %
 
209

 
114

 
83
 %
 
1,486.5

 
1,977.2

 
(25
)%
Total
$
3,984.1

 
$
3,504.0

 
14
 %
 
4,685

 
4,064

 
15
 %
 
$
850.4

 
$
862.2

 
(1
)%


40



Income (Loss) Before Income Taxes ($ amounts in millions):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Traditional Home Building:
 
 
 
 
 
 
 
 
 
 
 
North
$
20.6

 
$
16.3

 
26
 %
 
$
10.5

 
$
8.3

 
27
 %
Mid-Atlantic
33.5

 
37.9

 
(12
)%
 
21.9

 
20.9

 
5
 %
South
33.9

 
52.4

 
(35
)%
 
20.8

 
31.1

 
(33
)%
West
67.8

 
43.8

 
55
 %
 
42.3

 
24.2

 
75
 %
California
126.6

 
118.5

 
7
 %
 
83.4

 
74.9

 
11
 %
Traditional Home Building
282.4

 
268.9

 
5
 %
 
178.9

 
159.4

 
12
 %
City Living
85.0

 
59.9

 
42
 %
 
41.9

 
16.2

 
159
 %
Corporate and other
(58.4
)
 
(71.6
)
 
(18
)%
 
(21.6
)
 
(35.2
)
 
(39
)%
Total
$
309.0

 
$
257.2

 
20
 %
 
$
199.2

 
$
140.4

 
42
 %
“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 a number of our unconsolidated entities.
Traditional Home Building
North
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
335.0

 
$
286.5

 
17
 %
 
$
189.3

 
$
165.7

 
14
 %
Units delivered
486

 
415

 
17
 %
 
277

 
235

 
18
 %
Average delivered price ($ in thousands)
$
689.3

 
$
690.4

 
 %
 
$
683.6

 
$
705.0

 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
435.9

 
$
403.0

 
8
 %
 
$
264.2

 
$
230.4

 
15
 %
Net contracted units
684

 
571

 
20
 %
 
408

 
327

 
25
 %
Average contracted price ($ in thousands)
$
637.3

 
$
705.8

 
(10
)%
 
$
647.4

 
$
704.5

 
(8
)%
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
84.4
%
 
84.2
%
 
 
 
86.0
%
 
85.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
20.6

 
$
16.3

 
26
 %
 
$
10.5

 
$
8.3

 
27
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
54

 
63

 
(14
)%
 
 
 
 
 
 
The increases in the number of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to increases in the number of homes closed in Illinois, Massachusetts, Michigan, and New York, offset, in part, by a decrease in the number of homes settled in New Jersey. The increases in the number of homes closed in Illinois, Massachusetts, Michigan, and New York were primarily due to a higher percentage of home closings from beginning backlog (“backlog conversion”) in the fiscal 2017 periods, as compared to the fiscal 2016 periods and the increase in the number of homes in backlog as of October 31, 2016, as compared to the number of homes in backlog at October 31, 2015. The decrease in the number of homes closed in New Jersey was mainly due to lower backlog conversion. The decrease in the average price of homes delivered in the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016, was primarily due to a shift in the number of homes delivered to less expensive areas and/or products.
The increases in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were principally attributable to an increase in demand in Connecticut, Michigan and New York, partially offset by a decrease in the number of selling communities in New Jersey. The decreases in the average value of each contract signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to a shift in the number of contracts signed to less expensive areas and/or products, particularly in Michigan and Massachusetts, where we saw a significant increase in the number of contracts signed in multifamily and active-adult, age-qualified communities.

41



The increases in income before income taxes in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were principally attributable to higher earnings from increased revenues and SG&A spending not increasing as fast as revenues.
Mid-Atlantic
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
410.5

 
$
356.4

 
15
 %
 
$
226.5

 
$
186.6

 
21
 %
Units delivered
664

 
579

 
15
 %
 
367

 
300

 
22
 %
Average delivered price ($ in thousands)
$
618.2

 
$
615.5

 
 %
 
$
617.1

 
$
622.0

 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
583.5

 
$
495.7

 
18
 %
 
$
346.9

 
$
308.6

 
12
 %
Net contracted units
943

 
802

 
18
 %
 
563

 
502

 
12
 %
Average contracted price ($ in thousands)
$
618.8

 
$
618.1

 
 %
 
$
616.2

 
$
614.8

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
82.6
%
 
80.7
%
 
 
 
81.6
%
 
80.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
33.5

 
$
37.9

 
(12
)%
 
$
21.9

 
$
20.9

 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
66

 
68

 
(3
)%
 
 
 
 
 
 
The increases in the number of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to an increase in the number of homes closed in Pennsylvania, Maryland, and Virginia, which was attributable to an increase in the number of homes in backlog as of October 31, 2016, as compared to the number of homes in backlog at
October 31, 2015.
The increases in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were principally due to increases in demand, primarily in Virginia and Maryland, and an increase in the number of selling communities in Pennsylvania.
The 12% decrease in income before income taxes in the six months ended April 30, 2017, as compared to the six months ended April 30, 2016, was mainly due to higher inventory impairment charges and a $2.0 million impairment charge we recognized on one of our Land Development Joint Ventures. These decreases were, offset, in part, by higher earnings from increased revenues. In the six months ended April 30, 2017, inventory impairment charges were $5.0 million, as compared to $10,000 in the six months ended April 30, 2016. In the first quarter of fiscal 2017, during our review of operating communities for impairment, primarily due to a lack of improvement and/or a decrease in customer demand as a result of weaker than expected market conditions, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Maryland needed to be reduced. As a result of this reduction in expected sales prices, we determined that this community was impaired. Accordingly, the carrying value of this community was written down to its estimated fair value resulting in a charge to income before taxes of $3.9 million in the six months ended April 30, 2017. In the second quarter of fiscal 2017, during our evaluation of joint venture investments, we determined that the development costs assumptions used in prior impairment reviews for one Land Development Joint Venture located in Maryland needed to be increased. As a result of these cost increases, we determined that our investment in this joint venture was impaired and we concluded that the impairment was other than temporary. Accordingly, the carrying value of our investment in this joint venture was written down to its estimated fair value resulting in a charge to income before taxes of $2.0 million in the six months and three months ended April 30, 2017.
The 5% increase in income before income taxes in the three months ended April 30, 2017, as compared to the three months ended April 30, 2016, was primarily due to higher earnings from increased revenues, partially offset by $2.0 million impairment charge we recognized on one of our Land Development Joint Ventures as discussed above and higher costs of revenues, as a percentage of revenues. The increase in cost of revenues, as a percentage of revenues, was mainly due to a shift in the number of homes delivered to lower-margin products and/or locations.

42



South
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
337.3

 
$
339.3

 
(1
)%
 
$
195.1

 
$
192.5

 
1
 %
Units delivered
464

 
437

 
6
 %
 
274

 
239

 
15
 %
Average delivered price ($ in thousands)
$
726.9

 
$
776.4

 
(6
)%
 
$
712.1

 
$
805.2

 
(12
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
498.1

 
$
432.9

 
15
 %
 
$
294.1

 
$
266.0

 
11
 %
Net contracted units
672

 
577

 
16
 %
 
406

 
367

 
11
 %
Average contracted price ($ in thousands)
$
741.2

 
$
750.3

 
(1
)%
 
$
724.5

 
$
724.7

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
81.2
%
 
78.7
%
 
 
 
81.2
%
 
78.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
33.9

 
$
52.4

 
(35
)%
 
$
20.8

 
$
31.1

 
(33
)%
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
76

 
67

 
13
 %
 
 
 
 
 
 
The increases in the number of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to an increase in the number of homes closed in North Carolina which was attributable to an increase in the number of homes in backlog as of October 31, 2016, as compared to the number of homes in backlog at October 31, 2015. The decreases in the average price of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were primarily due to a shift in the number of homes delivered to less expensive areas and/or products.
The increase in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, was mainly due to increased demand in Texas and an increase in the number of selling communities.
The decreases in income before income taxes in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were principally due to higher cost of revenues, as a percentage of revenues, higher SG&A costs, lower income earned from our investments in unconsolidated entities, and decreased earnings from land sales in Texas. The increase in cost of revenues, as a percentage of revenues, was primarily due to a shift in the number of homes delivered to lower-margin products and/or locations. The higher SG&A costs were principally due to the increase in the number of selling communities. The decrease in income earned from our investments in unconsolidated entities primarily related to a decrease in the number of lots sold at one of our Land Development Joint Ventures in Texas and a $1.4 million charge for amenity construction repairs at one of our Home Building Joint Ventures located in South Carolina.
West
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
513.8

 
$
325.6

 
58
 %
 
$
302.7

 
$
188.4

 
61
 %
Units delivered
776

 
490

 
58
 %
 
441

 
288

 
53
 %
Average delivered price ($ in thousands)
$
662.1

 
$
664.5

 
 %
 
$
686.4

 
$
654.1

 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
684.4

 
$
540.8

 
27
 %
 
$
438.2

 
$
340.6

 
29
 %
Net contracted units
1,055

 
747

 
41
 %
 
703

 
466

 
51
 %
Average contracted price ($ in thousands)
$
648.7

 
$
724.0

 
(10
)%
 
$
623.4

 
$
730.9

 
(15
)%
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
78.7
%
 
78.6
%
 
 
 
78.3
%
 
79.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
67.8

 
$
43.8

 
55
 %
 
$
42.3

 
$
24.2

 
75
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
79

 
64

 
23
 %
 
 
 
 
 
 
The increases in the number of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to an increase in the number of homes in backlog at October 31, 2016, as compared to the number of homes in backlog at

43



October 31, 2015, and the delivery of 139 homes and 65 homes in the six-month and three-month periods ended April 30, 2017, respectively, from our Coleman acquisition. The increase in the average delivered price of homes delivered in the three-month period end April 30, 2017, as compared to the three-month period ended April 30, 2016, was primarily due to a shift in the number of homes delivered to more expensive areas and/or products. These increases were partially offset by deliveries of homes from communities acquired in our purchase of Coleman, where the average price of homes delivered in the three months ended April 30, 2017 was $312,000. Excluding the Coleman closings, the average price of homes delivered in the three month period ended April 30, 2017 increased 15%, as compared to the comparable fiscal 2016 period.
The increases in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were principally due to the 207 contracts and 147 contracts we signed during the six-month and three-month periods ended April 30, 2017, respectively, at Coleman communities and increases in demand and in the number of selling communities in Nevada. The Coleman net contracts signed also reduced our average contracted price for the fiscal 2017 periods, as compared to the fiscal 2016 period. Excluding Coleman contracts, the average value of each contract signed in the six-month period ended April 30, 2017 was consistent with the average value of contracts signed in the six-months ended April 30, 2016; and the average value of each contract signed in the three-month period ended April 30, 2017 declined by 4%, compared to the three-months ended April 30, 2016, primarily due to an increase in the number of contracts signed in multifamily and active-adult, age-qualified communities.
The increases in income before income taxes in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were due mainly to higher earnings from the increased revenues and SG&A spending not increasing as fast as revenues. Partially offsetting the six month increase was a $2.9 million recovery of previously incurred charges related to a Land Development Joint Venture which benefited the six month period ended April 30, 2016.
California
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
593.1

 
$
545.3

 
9
 %
 
$
373.3

 
$
328.4

 
14
 %
Units delivered
403

 
375

 
7
 %
 
248

 
216

 
15
 %
Average delivered price ($ in thousands)
$
1,471.7

 
$
1,454.1

 
1
 %
 
$
1,505.3

 
$
1,520.5

 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
929.3

 
$
661.6

 
40
 %
 
$
594.1

 
$
408.5

 
45
 %
Net contracted units
614

 
437

 
41
 %
 
388

 
275

 
41
 %
Average contracted price ($ in thousands)
$
1,513.5

 
$
1,514.0

 
 %
 
$
1,531.2

 
$
1,485.5

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
73.6
%
 
74.0
%
 
 
 
73.2
%
 
74.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
126.6

 
$
118.5

 
7
 %
 
$
83.4

 
$
74.9

 
11
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
36

 
31

 
16
 %
 
 
 
 
 
 
The increases in the number of homes delivered in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to higher backlog conversion, primarily in the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016.
The 41% increases in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were due mainly to an increase in demand and an increase in the number of selling communities in our southern California market.
The increases in income before income taxes in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were due mainly to higher earnings from increased revenues and lower cost of revenues, as a percent of revenues, offset, in part, by higher SG&A costs, as a percentage of revenues. The increase in the three months ended April 30, 2017, as compared to the three months ended April 30, 2016, was also partially offset by a decrease in earnings from unconsolidated entities. The lower cost of revenues, as a percentage of revenues, in the fiscal 2017 periods, as compared to the fiscal 2016 periods, was primarily due to a shift in the number of homes delivered to higher-margin products and/or locations and price increases. The increase in SG&A costs, as a percent of revenues, was principally due to the increase in the number of selling communities. The decrease in earnings for unconsolidated entities, in the three months ended April 30, 2017, as compared to the three months ended

44



April 30, 2016, was attributable to a decrease in the number of lots sold by Land Development Joint Venture due to the timing of lot availably.
City Living
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Units Delivered and Revenues:
 
 
 
 
 
 
 
 
 
 
 
Revenues ($ in millions)
$
94.5

 
$
191.0

 
(51
)%
 
$
76.6

 
$
54.0

 
42
 %
Units delivered
35

 
71

 
(51
)%
 
31

 
26

 
19
 %
Average delivered price ($ in thousands)
$
2,700.0

 
$
2,690.1

 
 %
 
$
2,469.7

 
$
2,078.5

 
19
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net Contracts Signed:
 
 
 
 
 
 
 
 
 
 
 
Net contract value ($ in millions)
$
131.1

 
$
198.3

 
(34
)%
 
$
81.8

 
$
91.1

 
(10
)%
Net contracted units
65

 
109

 
(40
)%
 
43

 
56

 
(23
)%
Average contracted price ($ in thousands)
$
2,016.9

 
$
1,819.3

 
11
 %
 
$
1,901.0

 
$
1,627.7

 
17
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues as a percentage of revenues
75.7
%
 
65.8
%
 
 
 
78.1
%
 
65.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes ($ in millions)
$
85.0

 
$
59.9

 
42
 %
 
$
41.9

 
$
16.2

 
159
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of selling communities at April 30,
5

 
6

 
(17
)%
 
 
 
 
 
 
The decrease in the number of homes delivered in the six-month period ended April 30, 2017, as compared to the six-month period ended April 30, 2016, was principally due to a decrease in closings at 400 Park Avenue South where there were fewer available units and at 410 at Society Hill which sold out in fiscal 2016. These decreases were partially offset by the commencement of closing at 55 West 17th Street, located in New York City, and at Hampden Row, located in Bethesda, Maryland, in the six-month period ended April 30, 2017. The increase in the number of homes delivered in the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016, was mainly due to the previously mentioned closings at 55 West 17th Street and Hampden Row.
The 19% increase in the average price of homes delivered in the three-month period ended April 30, 2017, as compared to the three-month period ended April 30, 2016, was primarily due to the closings of more expensive homes at 1110 Park Avenue and 400 Park Avenue South in the fiscal 2017 period, as compared to fiscal 2016, partially offset by closings at Hampden Row where the average home price is lower.
The decreases in the number of net contracts signed in the fiscal 2017 periods, as compared to the fiscal 2016 periods, were mainly due to decline in availability of homes available for sale in Philadelphia and reduced demand in the Bethesda, Maryland market in the fiscal 2017 periods. The six-month period ended April 30, 2016 also benefited from strong sales in the first quarter of fiscal 2016 at one of our buildings located in Hoboken, New Jersey, which opened in the fourth quarter of fiscal 2015, which initially benefited from pent up demand. The increases in the average sales price of net contracts signed were principally due to a shift to more expensive areas and/or products.
The 42% increase in income before income taxes in the six months ended April 30, 2017, as compared to the six months ended April 30, 2016, was mainly due to a $60.0 million increase in earnings from our investments in unconsolidated entities and $4.5 million recognized of a previously deferred gain, offset, in part, by lower earnings from decreased revenues and higher cost of revenues, as a percent of revenues. The 159% increase in income before income taxes in the three months ended April 30, 2017, as compared to the three months ended April 30, 2016, was primarily attributable to a $25.3 million increase in earnings from our investments in unconsolidated entities, higher earnings from increased revenues, and $1.3 million recognized of a previously deferred gain, partially offset by higher cost of revenues, as a percent of revenues. The increases in cost of revenues, as a percent of revenues in the fiscal 2017 periods, as compared to the 2016 periods, were principally due to a shift in the number of homes delivered to lower-margin products and/or locations. The deferred gains relate to the sale of a property in fiscal 2015 to a Home Building Joint Venture in which we have a 25% interest. Due to our continued involvement in the joint venture through our ownership interest and guarantees provided on the joint venture’s debt, we deferred the $9.3 million gain realized on the sale. We are recognizing the gain as units are sold by the joint venture to the ultimate home buyers.

45



In the six months and three months ended April 30, 2017, due to the commencement of deliveries from two City Living Home Building Joint Ventures, we recognized $59.6 million and $25.1 million in earnings from our investments in unconsolidated entities, respectively. In the six months and three months ended April 30, 2016, we recognized losses from our investments in these unconsolidated entities of $0.4 million and $0.2 million, respectively. The tables below provide information related to deliveries and revenues and net contracts signed by three City Living Home Building Joint Ventures, for the periods indicated, and the related backlog for the dates indicated ($ amounts in millions):
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
Units
 
2016
Units
 
2017
$
 
2016
$
 
2017
Units
 
2016
Units
 
2017
$
 
2016
$
Deliveries
106

 

 
$
337.4

 
$

 
33

 

 
$
132.8

 
$

Net contracts signed
23

 
15

 
$
37.1

 
$
60.1

 
9

 
7

 
$
7.1

 
$
30.8

 
At April 30,
 
At October 31,
 
2017
Units
 
2016
Units
 
2017
$
 
2016
$
 
2016
Units
 
2015
Units
 
2016
$
 
2015
$
Backlog
31

 
136

 
$
108.2

 
$
467.9

 
114

 
121

 
$
408.5

 
$
407.8

Corporate and Other
 
Six months ended April 30,
 
Three months ended April 30,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Loss before income taxes ($ in millions)
$
(58.4
)
 
$
(71.6
)
 
(18
)%
 
$
(21.6
)
 
$
(35.2
)
 
(39
)%
The 18% decrease in the loss before income taxes in six months ended April 30, 2017, as compared to the six months ended April 30, 2016, was principally attributable to gains of $26.7 million related to the sales of 50% of our ownership interests in two of our Rental Property Joint Ventures located in Jersey City, New Jersey and the suburbs of Philadelphia, Pennsylvania, offset, in part, by higher SG&A costs, lower earnings from our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC, and a gain of $1.6 million recognized in the fiscal 2016 period, from a bulk sale of security monitoring accounts by our home security monitoring business in fiscal 2015. The increase in SG&A costs was due primarily to increased compensation costs due to our increased number of employees.
The 39% decrease in the loss before income taxes in the three months ended April 30, 2017, as compared to the three months ended April 30, 2016, was principally attributable to a gain of $20.5 million related to the sale of 50% of our ownership interests in one of our Rental Property Joint Ventures located in Jersey City, New Jersey, offset, in part, by higher SG&A costs, and lower earnings from Gibraltar. The increase in SG&A costs was due primarily to increased compensation costs due to our increased number of employees.
Available Information
Our principal Internet address is www.tollbrothers.com, and our Investor Relations website is located at www.tollbrothers.com/investor_relations. 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 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, code of 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 Quarterly Report on Form 10-Q 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.

46



ITEM 3. 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 impact the fair value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt before maturity, and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
The table below sets forth, at April 30, 2017, our debt obligations by scheduled maturity, weighted-average interest rates, and estimated fair value (amounts in thousands):
 
 
 
Fixed-rate debt
 
Variable-rate debt (a)
Fiscal year of maturity
 
 
Amount
 
Weighted-
average
interest rate
 
Amount
 
Weighted-
average
interest rate
2017
 
 
$
433,114

 
8.51%
 
$
61,129

 
3.00%
2018
 
 
317,250

 
0.76%
 
150

 
0.88%
2019
 
 
374,505

 
3.94%
 
150

 
0.88%
2020
 
 
254,300

 
6.72%
 
150

 
0.88%
2021
 
 
1,663

 
5.95%
 
500,150

 
2.39%
Thereafter (b)
 
 
1,752,217

 
5.12%
 
13,210

 
0.79%
Discount and deferred issuance costs
 
 
(13,494
)
 

 
(1,552
)
 

Total
 
 
$
3,119,555

 
5.14%
 
$
573,387

 
2.42%
Fair value at April 30, 2017
 
 
$
3,272,879

 
 
 
$
574,939

 
 
(a)
Based upon the amount of variable-rate debt outstanding at April 30, 2017, and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $5.7 million per year.
(b)
The fixed-rate debt amount for fiscal 2018 includes $287.5 million principal amount of 0.5% Exchangeable Senior Notes (the “0.5% Exchangeable Senior Notes”). The 0.5% Exchangeable Senior Notes are exchangeable into shares of our common stock at an exchange rate, as adjusted, of 20.4206 shares per $1,000 principal amount of notes, corresponding to an initial exchange price, as adjusted, of approximately $48.97 per share of common stock. Holders of the 0.5% Exchangeable Senior Notes will have the right to require Toll Brothers Finance Corp. to repurchase their notes for cash equal to 100% of their principal amount, plus accrued but unpaid interest, on each of December 15, 2017, September 15, 2022, and September 15, 2027. We will have the right to redeem the 0.5% Exchangeable Senior Notes on or after September 15, 2017, for cash equal to 100% of their principal amount, plus accrued but unpaid interest.

47



ITEM 4. 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, (the “Exchange Act”), as of the end of the period covered by this report (the “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 Securities and Exchange Commission’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.
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 April 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

48



PART II. OTHER INFORMATION
ITEM 1. 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 for probable losses 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 April 2017, the SEC informed the Company that it was conducting an investigation and requested that we voluntarily produce documents and information relating to our estimated repair costs for stucco and other water intrusion claims in fiscal 2016. As previously described in our 2016 Form 10-K, in the fourth quarter of fiscal 2016, our estimated liability for these water intrusion claims increased significantly. The Company will produce documents and information in response to this request. Management cannot at this time predict the eventual scope or outcome of this matter.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A., “Risk Factors,” in our 2016 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
During the three-month period ended April 30, 2017, 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 publicly announced plans or programs (b)
 
Maximum
number of shares
that may yet be
purchased under the plans or programs (b)
 
 
(in thousands)
 
 
 
(in thousands)
 
(in thousands)
February 1, 2017 to February 28, 2017
 

 
 
 

 
15,281

March 1, 2017 to March 31, 2017
 
4

 
$
35.52

 
4

 
15,277

April 1, 2017 to April 30, 2017
 
1

 
$
36.56

 
1

 
15,276

Total
 
5

 
$
35.57

 
5

 
 
(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 April 30, 2017, we withheld 152 of the shares subject to performance based restricted stock units and restricted stock units to cover approximately $5,500 of income tax withholdings and we issued the remaining 328 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 April 30, 2017, the net exercise method was not employed to exercise options.
(b)
On May 23, 2016, our Board of Directors authorized the repurchase of 20 million shares of our common stock in open market transactions or otherwise for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. The Board of Directors did not fix any expiration date for this repurchase program.
Except as set forth above, we have not repurchased any of our equity securities during the three-month period ended April 30, 2017.
On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. The first quarterly dividend of $0.08 per share was paid on April 28, 2017 to shareholders of record on the close of business on April 14, 2017.

49



ITEM 6. EXHIBITS
4.1*
Sixteenth Supplemental Indenture dated as of April 28, 2017, to Indenture dated as of April 20, 2009 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.
 
 
4.2*
Fourteenth Supplemental Indenture dated as of April 30, 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.
 
 
4.3*
Thirteenth Supplemental Indenture dated as of April 30, 2017, to the Indenture dated as of September 11, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.
 
 
10.1
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.
 
 
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.INS*
XBRL Instance Document
 
 
101.SCH*
XBRL Schema Document
 
 
101.CAL*
XBRL Calculation Linkbase Document
 
 
101.LAB*
XBRL Labels Linkbase Document
 
 
101.PRE*
XBRL Presentation Linkbase Document
 
 
101.DEF*
XBRL Definition Linkbase Document
*
Filed electronically herewith.

50



SIGNATURES
Pursuant to the requirements 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.
 
 
TOLL BROTHERS, INC.
 
 
(Registrant)
 
 
 
 
 
Date:
June 5, 2017
By:
 
/s/ Martin P. Connor

 
 
 
 
Martin P. Connor
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
 
 
 
 
 
Date:
June 5, 2017
By:
 
/s/ Joseph R. Sicree
 
 
 
 
Joseph R. Sicree
Senior Vice President and Chief Accounting
Officer (Principal Accounting Officer)


51