TOLL BROTHERS INC (Form: 10-Q, Received: 06/06/2014 12:20:27)

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, 2014



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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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

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 2, 2014 , there were approximately 177,773,000 shares of Common Stock, $0.01 par value, outstanding.

(This page intentially left blank)

TOLL BROTHERS, INC.

TABLE OF CONTENTS



	Page No.

Statement on Forward-Looking Information	1

PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)	2

Condensed Consolidated Statements of Operations (Unaudited)	3

Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3

Condensed Consolidated Statements of Cash Flows (Unaudited)	4

Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3. Quantitative and Qualitative Disclosures About Market Risk	58

Item 4. Controls and Procedures	59

PART II. Other Information

Item 1. Legal Proceedings	59

Item 1A. Risk Factors	59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 6. Exhibits	61

SIGNATURES	62

STATEMENT ON FORWARD-LOOKING INFORMATION

Certain information included in this report or in other materials we have filed or will file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by the fact that they do not relate to matters of strictly historical or factual nature and generally discuss or relate to estimates or other expectations regarding future events. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. 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; legal proceedings and claims; the anticipated benefits to be realized from the consummation of the Shapell acquisition; and post-closing asset sales.

From time to time, forward-looking statements also are included in other periodic reports on Forms 10-Q and 8-K, in press releases, in presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Many factors mentioned in this report or in other reports or public statements made by us, such as 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 Securities and Exchange Commission 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 2013,” “fiscal 2012,” “fiscal 2011,” and “fiscal 2010” refer to our fiscal years ending October 31, 2013, October 31, 2012, October 31, 2011, and October 31, 2010, respectively. References herein to “fiscal 2014” refer to our fiscal year ending October 31, 2014.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)



	April 30, 2014			October 31, 2013
	(unaudited)
ASSETS
Cash and cash equivalents	$	351,821		$	772,972
Marketable securities	13,000			52,508
Restricted cash	22,542			32,036
Inventory	6,548,024			4,650,412
Property, construction and office equipment, net	131,222			131,320
Receivables, prepaid expenses and other assets	249,934			229,295
Mortgage loans held for sale	68,642			113,517
Customer deposits held in escrow	54,417			46,888
Investments in and advances to unconsolidated entities	441,842			403,133
Investments in distressed loans	18,799			36,374
Investments in foreclosed real estate	76,652			72,972
Deferred tax assets, net of valuation allowances	268,171			286,032
	$	8,245,066		$	6,827,459
LIABILITIES AND EQUITY
Liabilities
Loans payable	$	747,088		$	107,222
Senior notes	2,654,438			2,321,442
Mortgage company warehouse loan	56,842			75,000
Customer deposits	254,621			212,669
Accounts payable	204,728			167,787
Accrued expenses	539,673			522,987
Income taxes payable	84,619			81,188
Total liabilities	4,542,009			3,488,295
Equity
Stockholders’ equity
Preferred stock, none issued	—			—
Common stock, 177,761 and 169,353 shares issued at April 30, 2014 and October 31, 2013, respectively	1,778			1,694
Additional paid-in capital	694,335			441,677
Retained earnings	3,002,805			2,892,003
Treasury stock, at cost — 2 shares and 0 shares at April 30, 2014 and October 31, 2013, respectively	(79		)	—
Accumulated other comprehensive loss	(2,030		)	(2,387		)
Total stockholders’ equity	3,696,809			3,332,987
Noncontrolling interest	6,248			6,177
Total equity	3,703,057			3,339,164
	$	8,245,066		$	6,827,459

See accompanying notes

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Revenues	$	1,504,055	$	940,605	$	860,374	$	516,004

Cost of revenues	1,202,030		765,950		687,998		420,013
Selling, general and administrative	202,190		157,597		104,320		79,550
	1,404,220		923,547		792,318		499,563
Income from operations	99,835		17,058		68,056		16,441
Other:
Income from unconsolidated entities	37,242		8,076		14,327		4,993
Other income - net	27,642		24,160		11,101		19,534
Income before income taxes	164,719		49,294		93,484		40,968
Income tax provision	53,917		20,188		28,262		16,294
Net income	$	110,802	$	29,106	$	65,222	$	24,674
Income per share:
Basic	$	0.63	$	0.17	$	0.37	$	0.15
Diluted	$	0.60	$	0.17	$	0.35	$	0.14
Weighted-average number of shares:
Basic	177,278		169,222		178,082		169,380
Diluted	185,665		177,949		186,442		178,136

See accompanying notes

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Net income	$	110,802		$	29,106		$	65,222		$	24,674

Other comprehensive income (loss), net of tax:
Change in pension liability	156			(18		)	103			155
Change in fair value of available-for-sale securities	(22		)	(37		)	9			(133		)
Change in unrealized income (loss) on derivative held by equity investee	223			13			(18		)	(80		)
Other comprehensive income (loss)	357			(42		)	94			(58		)
Total comprehensive income	$	111,159		$	29,064		$	65,316		$	24,616

See accompanying notes

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Six months ended April 30,
	2014			2013
Cash flow used in operating activities:
Net income	$	110,802		$	29,106
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	11,095			12,768
Stock-based compensation	12,294			10,027
Excess tax benefits from stock-based compensation	(1,841		)	—
Income from unconsolidated entities	(37,242		)	(8,076		)
Distributions of earnings from unconsolidated entities	39,471			8,855
Income from distressed loans and foreclosed real estate	(7,934		)	(4,893		)
Deferred tax provision	18,864			18,348
Deferred tax valuation allowances	(1,226		)	(1,277		)
Inventory impairments and write-offs	3,906			1,738
Change in fair value of mortgage loans receivable and derivative instruments	429			292
Gain on marketable securities	(6		)	(137		)
Changes in operating assets and liabilities
Increase in inventory	(319,826		)	(617,360		)
Origination of mortgage loans	(308,466		)	(301,952		)
Sale of mortgage loans	352,349			322,160
Decrease in restricted cash	9,494			13,475
Increase in receivables, prepaid expenses and other assets	(4,587		)	(15,172		)
Increase in customer deposits	28,994			47,119
Increase in accounts payable and accrued expenses	21,973			36,405
Increase in income taxes payable	5,272			3,166
Net cash used in operating activities	(66,185		)	(445,408		)
Cash flow (used in) provided by investing activities:
Purchase of property and equipment — net	(5,767		)	(20,264		)
Purchase of marketable securities				(36,162		)
Sale and redemption of marketable securities	39,243			239,484
Investments in and advances to unconsolidated entities	(80,654		)	(31,994		)
Return of investments in unconsolidated entities	39,014			34,686
Investments in distressed loans and foreclosed real estate	(757		)	(26,155		)
Return of investments in distressed loans and foreclosed real estate	22,424			6,114
Acquisition of a business, net of cash acquired	(1,489,116		)
Net cash (used in) provided by investing activities	(1,475,613		)	165,709
Cash flow provided by financing activities:
Proceeds from issuance of senior notes	600,000			298,050
Debt issuance costs for senior notes	(4,700		)
Proceeds from loans payable	1,597,562			501,884
Debt issuance costs for loans payable	(3,005		)
Principal payments of loans payable	(1,046,677		)	(545,175		)
Redemption of senior notes	(267,960		)	(59,068		)
Net proceeds from issuance of common stock	220,357
Proceeds from stock-based benefit plans	23,333			8,430
Excess tax benefits from stock-based compensation	1,841			—
Receipts related to noncontrolling interest	81			33
Purchase of treasury stock	(185		)	(178		)
Net cash provided by financing activities	1,120,647			203,976
Net decrease in cash and cash equivalents	(421,151		)	(75,723		)
Cash and cash equivalents, beginning of period	772,972			778,824
Cash and cash equivalents, end of period	$	351,821		$	703,101

See accompanying notes

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”), a Delaware corporation, and those majority-owned subsidiaries it controls. 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 the Company has effective control of the entity, in which case the entity would be consolidated.

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, 2013 balance sheet amounts and disclosures included herein have been derived from the Company’s October 31, 2013 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, the Company suggests that they be read in conjunction with the consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended October 31, 2013 . 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 the Company’s financial position as of April 30, 2014 , the results of its operations for the six -month and three -month periods ended April 30, 2014 and 2013 , and its cash flows for the six -month periods ended April 30, 2014 and 2013 . The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU also supersedes some cost guidance included in 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 today’s guidance. These may 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. ASU 2014-09 is effective for the Company beginning November 1, 2017 and, at that time the Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s condensed consolidated financial statements and disclosures.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), which changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Pursuant to ASU 2014-08, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should be presented as a discontinued operation. If the disposal does qualify as a discontinued operation under ASU 2014-08, the entity will be required to provide expanded disclosures. ASU 2014-08 is effective for the Company beginning November 1, 2015. The adoption of ASU 2014-08 is not expected to have a material effect on the Company’s condensed consolidated financial statements or disclosures.

In January 2014, the FASB issued ASU No. 2014-04, “Receivables - Troubled Debt Restructurings by Creditors” (“ASU 2014-04”), which clarifies when an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan has occurred. By doing so, this guidance helps determine when the creditor should derecognize the loan receivable and recognize the real estate property. ASU 2014-04 is effective prospectively for the Company beginning November 1, 2015. The adoption of ASU 2014-04 is not expected to have a material effect on the Company’s condensed consolidated financial statements or disclosures.

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is intended to end inconsistent practices regarding the presentation of unrecognized tax benefits when a net operating loss, a similar tax loss, or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from the disallowance of a tax position. ASU 2013-11 is effective for the Company beginning November 1, 2014. The adoption of ASU 2013-11 is not expected to have a material effect on the Company’s condensed consolidated financial statements or disclosures.

2. Acquisition

On February 4, 2014 , the Company completed its acquisition of Shapell Industries, Inc. (“Shapell”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated November 6, 2013, with Shapell Investment Properties, Inc. (“SIPI”). Pursuant to the Purchase Agreement, the Company acquired, for cash, all of the equity interests in Shapell from SIPI for an aggregate purchase price of $1.60 billion (the “Acquisition”). The Company acquired the single-family residential real property development business of Shapell, including a portfolio of approximately 4,950 home sites in California, some of which the Company will sell to other builders. This acquisition provides the Company with a premier California land portfolio including 11 active selling communities, as of the acquisition date, in affluent, high-growth markets: the San Francisco Bay area, metro Los Angeles, Orange County and the Carlsbad market. As part of the acquisition, the Company assumed contracts to deliver 126 homes with an aggregate value of approximately $105.3 million .

The Company did not acquire apartment and commercial rental properties owned and operated by Shapell (the “Shapell Commercial Properties”) or Shapell’s mortgage lending activities relating to its home building operations. Accordingly, the Purchase Agreement provides that SIPI will indemnify the Company for any loss arising out of or resulting from, among other things, (i) any liability (other than environmental losses, subject to certain exceptions) related to the Shapell Commercial Properties, and (ii) any liability (other than environmental losses, subject to certain exceptions) to the extent related to Shapell Mortgage, Inc.

The Company financed the Acquisition with a combination of $370.0 million of borrowings under its $1.035 billion unsecured revolving credit facility, $485.0 million from a term loan facility, as well as with $815.7 million in net proceeds from debt and equity financings completed in November 2013. See Note 6, “Loans Payable, Senior Notes and Mortgage Company Loan Facility” and Note 12, “Stock Issuance and Stock Repurchase Program” for further details. As a result of the Acquisition, Shapell became a wholly-owned subsidiary of the Company. Accordingly, the Shapell results are included in the Company’s condensed consolidated financial statements from the date of the Acquisition. For the period from February 5, 2014 to April 30, 2014, revenues and operating income from the Shapell operations, excluding $5.1 million of acquisition-related costs, were $102.0 million and $6.1 million , respectively.

The Acquisition was accounted for in accordance with ASC 805, “Business Combinations” (“ASC 805”), and, therefore, the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values. The following table summarizes the preliminary amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (amounts in thousands):



Assets acquired and liabilities assumed
Cash and cash equivalents	$	106,233
Inventory	1,509,501
Property, construction and office equipment, net	404
Receivables, prepaid expenses and other assets	10,759
Total assets acquired	1,626,897

Customer deposits	(5,429		)
Accounts payable and accrued liabilities	(26,119		)
Total liabilities assumed	(31,548		)
Total net assets acquired	$	1,595,349

Cash and cash equivalents, customer deposits and accounts payable were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Receivables, prepaid expenses and other assets and accrued expenses were adjusted to reflect fair values.

The Company determined the fair value of inventory on a community-by-community basis primarily using a combination of discounted cash flow models and market comparable land transactions, where available. These estimated cash flows are significantly impacted by estimates related to: (i) expected selling prices, (ii) expected settlement paces, (iii) expected land development and construction timelines, and anticipated land development costs and construction costs, and (iv) overhead costs

expected to be incurred in the future. Such estimates must be made for each individual community and may vary significantly between communities. See Note 1 in the Company’s Annual Report on Form 10-K and Note 14 in this Form 10-Q for additional discussion of the factors impacting the fair value of inventory.

The Company completed the majority of its business combination accounting as of April 30, 2014 and expects to substantially complete the remainder by October 31, 2014. The Company is in the process of finalizing its fair value estimates for all of the Shapell assets acquired and liabilities assumed and, therefore, the estimates used at April 30, 2014 are subject to change.

The Company recorded $5.9 million and $5.1 million in acquisition-related costs for the six and three month periods ended April 30, 2014 , which are included in the Condensed Consolidated Statements of Operations within “Selling, general and administrative.” Such costs were expensed as incurred in accordance with ASC 805. There were no acquisition-related costs incurred in the six and three month periods ended April 30, 2013 .

Supplemental pro forma information

The following presents unaudited pro forma amounts as if the acquisition had been completed as of November 1, 2012 (amounts in thousands, except per share data):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Revenues	$	1,637,554	$	1,145,337	$	860,374	$	606,564
Net income	137,943		39,485		74,674		29,488
Income per share – basic	0.78		0.22		0.42		0.17
Income per share – diluted	0.75		0.22		0.40		0.16

The unaudited pro forma operating results have been determined after adjusting the operating results of Shapell to reflect the purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the acquisition. The unaudited pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the Company may achieve as a result of the Acquisition, the costs to integrate Shapell’s operations, or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements. Accordingly, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.

Certain other adjustments, including those related to conforming accounting policies and interest capitalization, have not been reflected in the supplemental pro forma operating results due to the impracticability of estimating such impacts.

3. Inventory

Inventory at April 30, 2014 and October 31, 2013 consisted of the following (amounts in thousands):



	April 30, 2014		October 31, 2013
Land controlled for future communities	$	139,961	$	99,802
Land owned for future communities	2,385,234		1,287,630
Operating communities	4,022,829		3,262,980
	$	6,548,024	$	4,650,412

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 twelve 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.

Communities that were previously offering homes for sale but are temporarily closed due to business conditions that do not have any remaining backlog and are not expected to reopen within twelve months of the end of the fiscal period being reported on have been classified as land owned for future communities. Backlog consists of homes under contract but not yet delivered to the Company’s home buyers (“backlog”).

Information regarding the classification, number and carrying value of these temporarily closed communities, as of the date indicated, is provided in the table below.



	April 30, 2014		October 31, 2013
Land owned for future communities:
Number of communities	20		25
Carrying value (in thousands)	$	136,870	$	153,498
Operating communities:
Number of communities	14		15
Carrying value (in thousands)	$	83,172	$	88,534

The amounts the Company provided for inventory impairment charges and the expensing of costs that it 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,
	2014		2013		2014		2013
Land controlled for future communities	$	1,006	$	698	$	324	$	689
Operating communities	2,900		1,040		1,600		340
	$	3,906	$	1,738	$	1,924	$	1,029

See Note 14, “Fair Value Disclosures,” for information regarding the number of operating communities that the Company tested for potential impairment, the number of operating communities in which it recognized impairment charges, the amount of impairment charges recognized, and the fair values of those communities, net of impairment charges.

See Note 16, “Commitments and Contingencies,” for information regarding land purchase commitments.

At April 30, 2014 , the Company evaluated its land purchase contracts to determine if any of the selling entities were variable interest entities (“VIEs”) and, if they were, whether the Company was the primary beneficiary of any of them. Under these land purchase contracts, the Company does not possess legal title to the land and its risk is generally limited to deposits paid to the sellers, and the creditors of the sellers generally have no recourse against the Company. At April 30, 2014 , the Company determined that 79 land purchase contracts, with an aggregate purchase price of $802.7 million , on which it had made aggregate deposits totaling $47.9 million , were VIEs, and that it was not the primary beneficiary of any VIE related to its land purchase contracts. At October 31, 2013 , the Company determined that 87 land purchase contracts, with an aggregate purchase price of $1.12 billion , on which it had made aggregate deposits totaling $51.9 million , were VIEs, and that it was not the primary beneficiary of any VIE related to its 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,
	2014			2013			2014			2013
Interest capitalized, beginning of period	$	343,077		$	330,581		$	356,618		$	340,904
Interest incurred	82,628			64,051			42,684			32,303
Interest expensed to cost of revenues	(54,585		)	(42,990		)	(29,145		)	(23,016		)
Write-off against other income	(1,039		)	(1,221		)	(722		)	(1,133		)
Interest capitalized on investments in unconsolidated entities	(4,757		)	(2,872		)	(2,300		)	(1,509		)
Previously capitalized interest on investments in unconsolidated entities transferred to inventory	1,811			—			—			—
Interest capitalized, end of period	$	367,135		$	347,549		$	367,135		$	347,549

Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction and capitalized interest. The amounts included in the table directly above reflect the gross amount of capitalized interest without allocation of any impairment charges recognized. The Company estimates that, had inventory impairment charges been allocated on a pro-rata basis to the individual components of inventory, capitalized interest at April 30, 2014 and 2013 would have been reduced by approximately $35.4 million and $43.4 million , respectively.

4. Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities. These entities include land development joint ventures, home building joint ventures, rental property joint ventures, Toll Brothers Realty Trust and Trust II, and a structured asset joint venture. At April 30, 2014 , the Company had investments in and advances to these unconsolidated entities of $441.8 million and was committed to invest or advance up to an additional $101.7 million to these entities if they require additional funding. The Company’s investments in these entities are accounted for using the equity method of accounting.

More specific information regarding the Company’s investments in, advances to, and future commitments to these entities is provided below.

Land Development Joint Ventures

The Company has investments in and advances to a number of joint ventures with unrelated parties to develop land (“Land Development Joint Ventures”). Some of these Land Development Joint Ventures develop land for the sole use of the venture participants, including the Company, and others develop land for sale to the joint venture participants and to unrelated builders. The Company recognizes its share of earnings from the sale of home sites and other land by the Land Development Joint Ventures to other builders. With regard to home sites the Company purchases from the Land Development Joint Ventures, the Company adjusts its cost basis in those home sites by its share of the earnings/losses of the joint venture on the home sites the Company purchases. At April 30, 2014 , the Company had approximately $160.5 million invested in or advanced to the Land Development Joint Ventures and a funding commitment of $45.4 million to four of the Land Development Joint Ventures which would be funded if additional investment in the ventures is required. At April 30, 2014 , two of these joint ventures had aggregate loan commitments of $105.0 million and outstanding borrowings against these commitments of $29.2 million .

At April 30, 2014 , the Company had a purchase commitment to acquire 115 home sites from one of these Land Development Joint Ventures for an aggregate purchase price of $12.6 million . In addition, the Company expects to purchase approximately 3,800 additional lots from several Land Development Joint Ventures in which it has interests. The purchase price of the lots will be determined at a future date. The Company will also receive approximately 935 home sites from one of its Land Development Joint Ventures in consideration of its previous investment in the joint venture. Set forth below is additional information regarding activity in certain Land Development Joint Ventures; such activity is included in the summary information provided above.

In the first quarter of fiscal 2014, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas. The joint venture expects to develop a master planned community consisting of up to 6,500 home sites and retail and commercial property. The Company has a 50% interest in this joint venture. Prior to the formation of the joint venture, the Company had entered into a land purchase agreement to acquire the land for approximately $79.3 million . The Company contributed its rights under the purchase agreement to the joint venture and was reimbursed by the Company’s joint venture partner for 50% of the costs the Company incurred prior to the formation of the joint venture. At April 30, 2014 , the Company had an investment of $40.6 million in this joint venture. In May 2014, the joint venture obtained outside financing of $40.0 million to help fund the future development of the property.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Maryland. The property consists of 945 acres which the joint venture expects to develop into approximately 1,300 home sites. The Company has a 50% interest in this joint venture. The current plan is to develop the property and sell approximately 50% of the home sites to each of the members of the joint venture. The Company made an initial investment of $11.8 million of cash to the joint venture. At April 30, 2014 , the Company had an investment of $11.9 million in this joint venture.

In the second quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a parcel of land in Texas as a master planned community consisting of approximately 2,900 lots. The Company has a 50% interest in this joint venture. The joint venture expects to develop the property in multiple phases and sell groups of lots to the members of the joint venture and to other home builders. The Company made an initial investment of $15.5 million of cash to the joint venture. The joint venture entered into a $25.0 million line of credit with a bank, secured by a deed of trust on the property which can be expanded up to $40.0 million under certain conditions. At April 30, 2014 , the joint venture had $24.2 million of borrowings under this line of credit. At April 30, 2014 , the Company had an investment of $24.2 million in this joint venture and was committed to make additional contributions to this joint venture of up to $9.0 million .

The Company has a 50% interest in a joint venture that owns and is developing a master planned community in Orange County, California, consisting of over 2,000 home sites. At April 30, 2014 , the joint venture owned approximately 1,200 home sites. At April 30, 2014 , the Company had an investment of $77.3 million in this joint venture and was committed to make additional contributions to this joint venture of up to $10.0 million , if needed. The joint venture has an $80.0 million credit facility from a bank to fund the development of the property. At April 30, 2014 , the venture had $5.0 million borrowed under the facility.

Home Building Joint Ventures

At April 30, 2014 , the Company had an aggregate of $183.0 million of investments in and advances to various joint ventures with unrelated parties to develop approximately 600 luxury for-sale homes. At April 30, 2014 , the Company had $33.0 million of funding commitments to two of these joint ventures.

Rental Property Joint Ventures

At April 30, 2014 , the Company had an aggregate of $75.3 million of investments in and advances to several joint ventures with unrelated parties to develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”). At April 30, 2014 , the Company had $23.3 million of funding commitments to these joint ventures. At April 30, 2014 , four of these joint ventures had aggregate loan commitments of $319.8 million and outstanding borrowings against these commitments of $32.2 million . Set forth below is additional information regarding activity in certain Rental Property Joint Ventures; such activity is included in the summary information provided above.

In the first quarter of 2014, two of the Company’s Rental Property Joint Ventures entered into $126.0 million of construction loan agreements to finance construction of multi-family residential apartments in suburban Philadelphia and northern New Jersey. At April 30, 2014 , these ventures had $1.3 million borrowings under the new facilities.

In the fourth quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a 287 -unit luxury for-rent residential apartment building in the Capitol Riverfront of Washington, D.C. on land that the Company owned and conveyed to the joint venture. The Company has a 50% interest in this joint venture. As part of the Company’s initial capital contribution, it contributed land and improvements with a fair value of $27.1 million to the joint venture and subsequently received a cash distribution of $12.5 million to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $54.0 million construction loan agreement with a bank to finance the development of this project. At April 30, 2014 , the joint venture had $14.2 million borrowed under the construction loan agreement. At April 30, 2014 , the Company had an investment of $14.5 million in this joint venture.

In the second quarter of fiscal 2013, the Company entered into a joint venture with an unrelated party to develop a luxury, 38 -story for-rent residential apartment building and retail space in Jersey City, New Jersey on land that the Company owned and conveyed to the joint venture. The Company has a 50% interest in this joint venture. As part of the Company’s initial capital contribution, it contributed land and improvements with a fair value of $28.8 million to the joint venture and subsequently received distributions of $10.2 million and a $1.2 million payment by the joint venture on our behalf to align the capital accounts of each of the members of the joint venture. The joint venture entered into a $120.0 million construction loan agreement with a bank to finance the development of this project. At April 30, 2014 , the joint venture had no borrowings under the construction loan agreement. At April 30, 2014 , the Company had an investment of $29.4 million in this joint venture and was committed to make additional contributions to this joint venture of up to $0.2 million .

Toll Brothers Realty Trust and Trust II

In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System (“PASERS”), formed Toll Brothers Realty Trust II (“Trust II”) to invest in commercial real estate opportunities. Trust II is owned 50% by the Company and 50% by an affiliate of PASERS. In December 2013, Trust II sold substantially all of its assets to an unrelated party. As a result of this sale, the Company realized income of approximately $23.5 million in the first quarter of fiscal 2014 representing its share of the gain on the sale. In the three-month period ended April 30, 2014, we recognized an additional gain of $0.6 million from the sale of a property by Trust II. The gain on sale of assets is included in “Income from unconsolidated entities” on the Company’s Condensed Consolidated Statement of Operations. In December 2013, the Company received a $20.0 million cash distribution from Trust II. At April 30, 2014 , the Company had an investment of $1.2 million in Trust II. In addition, in the first quarter of fiscal 2014, the Company recognized $2.9 million in previously deferred gains on the Company’s initial sales of the properties to Trust II. This gain is included in “Other income - net” on the Company’s Condensed Consolidated Statements of Operations in this Form 10-Q.

In 1998, prior to the formation of Trust II, the Company formed Toll Brothers Realty Trust (“Trust”) to invest in commercial real estate opportunities. The Trust is effectively owned one-third by the Company; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of the Company’s senior management; and one-third by an affiliate of PASERS. As of April 30, 2014 , the Company had a negative investment in the Trust of $0.9 million resulting primarily from a loss recognized by the Trust in the fourth quarter of fiscal 2013. The Company provides development, finance and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $1.1 million in each of the six-month periods ended April 30, 2014 and 2013 and $0.6 million and $0.5 million in the three-month periods ended April 30, 2014 and 2013 , respectively. In the second quarter of fiscal 2014, the Trust refinanced the mortgage on one of its properties and distributed $36.0 million of the net proceeds from the refinancing to its partners. The Company received $12.0 million as its share of the proceeds and recognized this distribution as income in the quarter. This income is included in “Income from unconsolidated entities” in the Company’s Condensed Consolidated Statements of Operations in this Form 10-Q.

Structured Asset Joint Venture

The Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), is a 20% participant with two unrelated parties that purchased a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At April 30, 2014 , the Company had an investment of $22.8 million in this Structured Asset Joint Venture.

Guarantees

The unconsolidated entities in which the Company has investments generally finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities which may include any or all of the following: (i) project completion including any cost overruns, in whole or in part, (ii) repayment guarantees, generally covering a percentage of the outstanding loan, (iii) indemnification of the lender as to environmental matters affecting the unconsolidated entity, (iv) a hazardous material indemnity that holds the lender harmless against any obligations for which the lender may incur liability resulting from the threat or presence of any hazardous or toxic substances at or near the property covered by a loan, 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, the Company generally has a reimbursement agreement with its partner that provides that neither party is responsible for more than its proportionate share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share.

The Company believes that, as of April 30, 2014 , in the event it becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay a significant portion of the obligation. If it is not, the Company and its partners would need to contribute additional capital to the venture. At April 30, 2014 , the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $424.8 million and had borrowed an aggregate of $61.4 million . The term of these guarantees generally range from 19 months to 44 months . The Company estimates that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $424.8 million before any reimbursement from the Company’s partners. Based on the amounts borrowed at April 30, 2014 , the Company’s maximum potential exposure under these guarantees is estimated to be approximately $61.4 million before any reimbursement from the Company’s partners.

In addition, the Company has guaranteed approximately $11.4 million of ground lease payments and insurance deductibles for three joint ventures.

As of April 30, 2014 , the estimated aggregate fair value of the guarantees was approximately $2.0 million . The Company has not made payments under any of the guarantees, nor has it been called upon to do so.

Variable Interest Entities

At April 30, 2014 , the Company determined that three of its joint ventures were VIEs under the guidance within FASB Accounting Standards Codification (“ASC”) 810, “Consolidation.” The Company has, however, concluded that it was not the primary beneficiary of the VIEs because the power to direct the activities of these VIEs that most significantly impact their performance was shared by the Company and the VIEs’ other members. Business plans, budgets and other major decisions are required to be unanimously approved by all members. Management and other fees earned by the Company are nominal and believed to be at market rates and there is no significant economic disproportionality between the Company and other members.

The information presented below regarding the investments, commitments and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above. At April 30, 2014 and October 31, 2013 , the Company’s investments in its unconsolidated joint ventures deemed to be VIEs, which are included in “Investments in and advances to unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled $31.4 million and $22.9 million , respectively. At April 30, 2014 , the maximum exposure of loss to the Company’s investments in unconsolidated joint ventures that are VIEs is limited to its investment in the unconsolidated VIEs, except with regard to $47.8 million of additional commitments to the VIEs and $9.3 million of guarantees under ground lease agreements. At October 31, 2013 , the maximum exposure to loss of the Company’s investments in unconsolidated joint ventures that are VIEs is limited to its investment in the unconsolidated VIEs, except with regard to a $41.7 million additional commitment to fund the joint ventures and a $9.6 million guaranty of ground lease payments.

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 the Company has an investment, aggregated by type of business, are included below (in thousands). The column titled “Rental Property Joint Ventures” includes the Rental Property Joint Ventures and Toll Brothers Realty Trust and Trust II described above.

Condensed Balance Sheets:



	April 30, 2014
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	31,267	$	26,209	$	39,360	$	11,816	$	108,652
Inventory	256,691		409,188		392				666,271
Non-performing loan portfolio							69,909		69,909
Rental properties					125,298				125,298
Rental properties under development					177,390				177,390
Real estate owned (“REO”)							207,358		207,358
Other assets (1)	19,275		78,720		13,774		155,929		267,698
Total assets	$	307,233	$	514,117	$	356,214	$	445,012	$	1,622,576
Debt (1)	$	36,092	$	10,174	$	255,185	$	155,900	$	457,351
Other liabilities	26,279		38,783		19,210		218		84,490
Members’ equity	244,862		465,160		81,819		115,558		907,399
Noncontrolling interest							173,336		173,336
Total liabilities and equity	$	307,233	$	514,117	$	356,214	$	445,012	$	1,622,576
Company’s net investment in unconsolidated entities (2)	$	160,528	$	182,956	$	75,574	$	22,784	$	441,842



	October 31, 2013
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	30,826	$	31,164	$	35,014	$	40,097	$	137,101
Inventory	350,150		338,814		4,998				693,962
Non-performing loan portfolio							107,411		107,411
Rental properties					164,325				164,325
Rental properties under development					133,081				133,081
Real estate owned (“REO”)							202,259		202,259
Other assets (1)	12,700		70,180		18,526		155,921		257,327
Total assets	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Debt (1)	$	135,200	$	11,977	$	235,226	$	155,900	$	538,303
Other liabilities	21,015		19,636		9,461		379		50,491
Members’ equity	237,461		408,545		111,257		139,764		897,027
Noncontrolling interest							209,645		209,645
Total liabilities and equity	$	393,676	$	440,158	$	355,944	$	505,688	$	1,695,466
Company’s net investment in unconsolidated entities (2)	$	142,448	$	166,271	$	68,711	$	25,703	$	403,133


(1)	Included in other assets of the Structured Asset Joint Venture at April 30, 2014 and October 31, 2013 is $155.9 million of restricted cash held in a defeasance account which will be used to repay debt of the Structured Asset Joint Venture.

(2)

Differences between the Company’s net investment in unconsolidated entities and its underlying equity in the net assets of the entities is primarily a result of the acquisition price of an investment in a land development joint venture in fiscal 2012 which was in excess of the Company’s pro-rata share of the underlying equity; impairments related to the Company’s investments in unconsolidated entities; a loan made to one of the entities by the Company; interest capitalized on the Company’s investment; and distributions from entities in excess of the carrying amount of the Company’s net investment.

Condensed Statements of Operations and Comprehensive Income:



	For the six months ended April 30, 2014
	Land Development Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	111,950	$	23,228		$	17,006		$	3,789		$	155,973
Cost of revenues	62,170		21,825			7,390			6,482			97,867
Other expenses	465		2,047			21,558			874			24,944
Total expenses	62,635		23,872			28,948			7,356			122,811
Gain on disposition of loans and REO									6,458			6,458
Income (loss) from operations	49,315		(644		)	(11,942		)	2,891			39,620
Other income	5		201			43,199			1,533			44,938
Net income (loss)	49,320		(443		)	31,257			4,424			84,558
Less: income attributable to noncontrolling interest									(2,654		)	(2,654		)
Net income (loss) attributable to controlling interest	49,320		(443		)	31,257			1,770			81,904
Other comprehensive income						729						729
Total comprehensive income (loss)	$	49,320	$	(443	)	$	31,986		$	1,770		$	82,633
Company’s equity in earnings of unconsolidated entities (3)	$	103	$	327		$	36,622		$	190		$	37,242



	For the three months ended April 30, 2014
	Land Development Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	110,406	$	11,647		$	7,557		$	3,505		$	133,115
Cost of revenues	61,488		11,451			3,419			4,132			80,490
Other expenses	210		1,047			9,504			415			11,176
Total expenses	61,698		12,498			12,923			4,547			91,666
Gain on disposition of loans and REO									2,551			2,551
Income (loss) from operations	48,708		(851		)	(5,366		)	1,509			44,000
Other income	4		162			342			1,409			1,917
Net income (loss)	48,712		(689		)	(5,024		)	2,918			45,917
Less: income attributable to noncontrolling interest									(1,751		)	(1,751		)
Net income (loss) attributable to controlling interest	48,712		(689		)	(5,024		)	1,167			44,166
Other comprehensive loss						(56		)				(56		)
Total comprehensive income (loss)	$	48,712	$	(689	)	$	(5,080	)	$	1,167		$	44,110
Company’s equity in earnings of unconsolidated entities (3)	$	135	$	145		$	12,872		$	1,175		$	14,327



	For the six months ended April 30, 2013
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture			Total
Revenues	$	35,022	$	22,757	$	20,303	$	21,714		$	99,796
Cost of revenues	17,805		19,973		9,010		19,493			66,281
Other expenses	758		1,154		10,565		2,316			14,793
Total expenses	18,563		21,127		19,575		21,809			81,074
Gain on disposition of loans and REO							39,704			39,704
Income from operations	16,459		1,630		728		39,609			58,426
Other income	5		435		9		154			603
Net income	16,464		2,065		737		39,763			59,029
Less: income attributable to noncontrolling interest							(23,858		)	(23,858		)
Net income attributable to controlling interest	16,464		2,065		737		15,905			35,171
Other comprehensive income					282					282
Total comprehensive income	$	16,464	$	2,065	$	1,019	$	15,905		$	35,453
Company’s equity in earnings of unconsolidated entities (3)	$	2,796	$	1,079	$	1,130	$	3,071		$	8,076



	For the three months ended April 30, 2013
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	33,395	$	13,787	$	10,621		$	12,009		$	69,812
Cost of revenues	16,587		12,868		4,717			9,155			43,327
Other expenses	567		690		5,069			1,259			7,585
Total expenses	17,154		13,558		9,786			10,414			50,912
Gain on disposition of loans and REO								12,812			12,812
Income from operations	16,241		229		835			14,407			31,712
Other income	2		421		3			75			501
Net income	16,243		650		838			14,482			32,213
Less: income attributable to noncontrolling interest								(8,689		)	(8,689		)
Net income attributable to controlling interest	16,243		650		838			5,793			23,524
Other comprehensive loss					(20		)				(20		)
Total comprehensive income	$	16,243	$	650	$	818		$	5,793		$	23,504
Company’s equity in earnings of unconsolidated entities (3)	$	2,894	$	369	$	572		$	1,158		$	4,993

(3)

Differences between the Company’s equity in earnings (losses) of unconsolidated entities and the underlying net income (loss) of the entities is primarily a result of prior impairments related to the Company’s investment in unconsolidated entities, a basis difference of an acquired joint venture interest, distributions from entities in excess of the carrying amount of the Company’s net investment, and the Company’s share of the entities’ profits related to home sites purchased by the Company which reduces the Company’s cost basis of the home sites.

5. Investments in Distressed Loans and Foreclosed Real Estate

Investments in Distressed Loans

The Company’s investments in distressed loans consisted of the following as of the dates indicated (amounts in thousands):



	April 30, 2014			October 31, 2013
Unpaid principal balance	$	35,528		$	63,381
Discount on acquired loans	(16,729		)	(27,007		)
Carrying value	$	18,799		$	36,374

The Company’s investments in distressed loans includes performing loans and non-performing loans and also includes investments in loan participations classified as secured borrowings under ASC 860, “Transfers and Servicing.”

For acquired distressed loans where it is probable that the Company will collect less than the contractual amounts due under the terms of the loan based, at least in part, on the assessment of the credit quality of the borrowers, the loans are accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). Under ASC 310-30, provided the Company does not presently have the intention to utilize real estate secured by the loans for use in its operations or to significantly improve the collateral for resale, the amount by which the future cash flows expected to be collected at the acquisition date exceeds the estimated fair value of the loan, or accretable yield, is recognized in other income - net over the estimated remaining life of the loan using a level yield methodology. The difference between the contractually required payments of the loan as of the acquisition date and the total cash flows expected to be collected, or nonaccretable difference, is not recognized.

The accretable yield activity for the Company’s investments in distressed loans accounted for under ASC 310-30 for the six -month and three -month periods ended April 30, 2014 and 2013 was as follows (amounts in thousands):



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Balance, beginning of period	$	6,606		$	17,196		$	3,090		$	13,406
Loans acquired
Additions	554			471			385			471
Deletions	(3,372		)	(3,915		)	(189		)	(1,528		)
Accretions	(956		)	(2,523		)	(454		)	(1,120		)
Balance, end of period	$	2,832		$	11,229		$	2,832		$	11,229

Additions primarily represent the reclassification to accretable yield from nonaccretable yield and the impact of impairments. Deletions primarily represent loan dispositions, which include foreclosure of the underlying collateral and resulting removal of the loans from the accretable yield portfolios, and reclassifications from accretable yield to nonaccretable yield. The reclassifications between accretable and nonaccretable yield and the accretion of interest income are based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continues to gather additional information regarding the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in the six -month and three -month periods ended April 30, 2014 and 2013 is not necessarily indicative of future results.

The Company acquires distressed loans where it has determined that (1) it is possible to collect all contractual amounts due under the terms of the loan, (2) it expects to utilize the real estate secured by the loans in its operations, or (3) forecasted cash flows cannot be reasonably estimated. For non-performing loans acquired meeting any of these conditions, in accordance with ASC 310-10, “Receivable,” (“ASC 310-10”), the loans are classified as nonaccrual and interest income is not recognized. When a loan is classified as nonaccrual, any subsequent cash receipt is accounted for using the cost recovery method. For performing loans, payments are applied to principal and interest in accordance with the terms of the loan when received. As of April 30, 2014 and October 31, 2013 , the Company had investments in non-performing loans, accounted for in accordance with ASC 310-10, of $11.5 million and $21.4 million , respectively. At October 31, 2013 , the Company had investments in performing loans of $0.8 million . The Company had no investments in performing loans as of April 30, 2014 .

Foreclosed Real Estate Owned (REO)

The table below provides, for the periods indicated, the activity in REO (amounts in thousands):



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Balance, beginning of period	$	72,972		$	58,353		$	79,267		$	68,764
Additions	8,036			14,317			871			3,277
Sales	(4,192		)	(911		)	(3,384		)	(472		)
Impairments	(2		)	(15		)	(2		)
Depreciation	(162		)	(286		)	(100		)	(111		)
Balance, end of period	$	76,652		$	71,458		$	76,652		$	71,458

As of April 30, 2014 , approximately $7.2 million and $69.5 million of REO was classified as held-for-sale and held-and-used, respectively. As of April 30, 2013 , approximately $9.4 million and $62.0 million of REO was classified as held-for-sale and held-and-used, respectively. For the six -month periods ended April 30, 2014 and 2013 , the Company recorded gains of $1.5 million and $1.5 million , respectively, from acquisitions of REO through foreclosure. For the three -month periods ended April 30, 2014 and 2013 , the Company recorded gains of $5,000 and $0.8 million , respectively, from the acquisition of REO through foreclosure.

General

The Company’s earnings from Gibraltar’s operations, excluding its investment in the Structured Asset Joint Venture, are included in “Other income - net” in its Condensed Consolidated Statements of Operations. In the six -month periods ended April 30, 2014 and 2013 , the Company recognized $5.7 million and $1.1 million of earnings (excluding earnings from its investment in the Structured Asset Joint Venture), respectively, from Gibraltar’s operations. In the three -month periods ended April 30, 2014 and 2013 , the Company recognized $1.4 million and $1.0 million of earnings (excluding earnings from its investment in the Structured Asset Joint Venture), respectively, from Gibraltar’s operations.

6. Loans Payable, Senior Notes and Mortgage Company Loan Facility

Loans Payable

At April 30, 2014 and October 31, 2013 , loans payable consisted of the following (amounts in thousands):



	April 30, 2014		October 31, 2013
Credit facility borrowings	$	95,000
Unsecured bank term loan	485,000
Loans payable - other	167,088		$	107,222
	$	747,088	$	107,222

Credit Facility

On August 1, 2013, the Company entered into an $1.035 billion (“Aggregate Credit Commitment”) unsecured, 5 -year credit facility (“Credit Facility”) with 15 banks which extends to August 1, 2018 . Up to 75% of the Aggregate Credit Commitment is available for letters of credit. The Credit Facility has an accordion feature under which the Company may, subject to certain conditions set forth in the agreement, increase the Credit Facility up to a maximum aggregate amount of $2.0 billion . The Company may select interest rates for the Credit Facility equal to (i) the London Interbank Offering Rate (“LIBOR”) plus an applicable margin or (ii) the lenders’ base rate plus an applicable margin, which in each case is based on the Company’s credit rating and leverage ratio. At April 30, 2014 , the interest rate on outstanding borrowings under the Credit Facility was 1.85% per annum. The Company is obligated to pay an undrawn commitment fee which is based on the average daily unused amount of the Aggregate Credit Commitment and the Company’s credit ratings and leverage ratio. Any proceeds from borrowings under the Credit Facility may be used for general corporate purposes. The Company and substantially all of its 100% owned home building subsidiaries are guarantors under the Credit Facility.

Under the terms of the Credit Facility, the Company is not permitted to allow its maximum leverage ratio (as defined in the Credit Facility) to exceed 1.75 to 1.00 and is required to maintain a tangible net worth (as defined in the Credit Facility) of no less than approximately $2.45 billion . Under the terms of the Credit Facility, at April 30, 2014 , the Company’s leverage ratio was approximately 0.81 and its tangible net worth was approximately $3.65 billion . Based upon the minimum tangible net

worth requirement at April 30, 2014 , the Company’s ability to repurchase its common stock is limited to approximately $1.71 billion .

At April 30, 2014 , the Company had $95.0 million outstanding borrowings under the Credit Facility and had outstanding letters of credit of approximately $90.8 million . As part of the Shapell acquisition, the Company borrowed $370.0 million under the Credit Facility on February 3, 2014, of which $275.0 million was repaid as of April 30, 2014 .

Senior Unsecured Term Loan

On February 3, 2014, the Company entered into a 5 -year senior, $485.0 million , unsecured term loan facility (the “Term Loan Facility”) with ten banks. The full amount of the Term Loan Facility was borrowed by the Company on February 3, 2014. The Company may select interest rates for the Term Loan Facility equal to (i) LIBOR plus an applicable margin, (ii) the base rate (which is defined as the greatest of (a) SunTrust Bank’s prime rate, (b) the federal funds effective rate plus 0.5% and (c) one-month LIBOR plus 1% ) plus an applicable margin or (iii) the federal funds / Euro rate (which is defined as the greater of (a) the sum of the federal funds effective rate plus an applicable margin plus 0.25% and (b) one-month LIBOR), with the applicable margin, in each case, based on the Company’s leverage ratio. At April 30, 2014 , the interest rate on the Term Loan Facility was 1.56% per annum.

The Company and substantially all of its 100% owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as the Company’s Credit Facility. The Term Loan Facility will mature, and amounts owing under it will become due and payable, on February 3, 2019.

364 -Day Senior Unsecured Revolving Credit Facility

On February 4, 2014, the Company entered into a 364 -day senior unsecured revolving credit facility (the “ 364 -Day Facility”) with five banks. The 364 -Day Facility provides for an unsecured revolving credit facility to be made available to the Company, from time to time after February 4, 2014 and prior to February 3, 2015, in the amount of $500.0 million . The Company intends for this facility to remain undrawn and its purpose is to provide the Company additional liquidity should unforeseen circumstances arise. The Company may select interest rates for the 364 -Day Facility equal to (i) LIBOR plus an applicable margin, (ii) the base rate (which is defined as the greatest of (a) Citibank’s prime rate, (b) the federal funds effective rate plus 0.5% and (c) one-month LIBOR plus 1% ) plus an applicable margin or (iii) the federal funds / Euro rate (which is defined as the greater of (a) the sum of the federal funds effective rate plus an applicable margin plus 0.25% and (b) one-month LIBOR), with the applicable margin, in each case, based on the Company’s leverage ratio. The Company is obligated to pay an undrawn commitment fee.

The Company and substantially all of its 100% owned home building subsidiaries are guarantors under the 364 -Day Facility. The 364 -Day Facility contains substantially the same financial covenants as the Company’s Credit Facility. The 364 -Day Facility will terminate, and amounts owed under the 364 -Day Facility will become due and payable, on February 3, 2015.

At April 30, 2014 , the Company had no outstanding borrowings under the 364 -Day Facility.

Loans Payable - Other

The Company’s loans payable - other represent purchase money mortgages on properties the Company had acquired that the seller had financed and various revenue bonds that were issued by government entities on behalf of the Company to finance community infrastructure and the Company’s manufacturing facilities. At April 30, 2014 , the weighted-average interest rate on the Company’s loans payable - other was 4.64% per annum.

Senior Notes

At April 30, 2014 , the Company, through Toll Brothers Finance Corp, had eight issues of Senior Notes outstanding with an aggregate principal amount of $2.66 billion .

In March 2014, the Company repaid the $268.0 million of outstanding 4.95% Senior Notes due March 15, 2014.

In November 2013, the Company issued $350.0 million principal amount of 4.0% Senior Notes due 2018 (the “ 4.0% Senior Notes”) and $250.0 million principal amount of 5.625% Senior Notes due 2024 (the “ 5.625% Senior Notes”). The Company received $596.2 million of net proceeds from the issuance of the 4.0% Senior Notes and the 5.625% Senior Notes.

In September 2013, the Company repaid the $104.8 million of outstanding 5.95% Senior Notes due September 15, 2013.

In April 2013, the Company issued $300.0 million principal amount of 4.375% Senior Notes due 2023 (the “ 4.375% Senior Notes”) at par. The Company received $298.1 million of net proceeds from this issuance of 4.375% Senior Notes.

In May 2013, the Company issued an additional $100.0 million principal amount of 4.375% Senior Notes at a price equal to 103% of par value. The Company received $102.3 million of net proceeds from this additional issuance of 4.375% Senior Notes.

In November 2012, the Company repaid the $59.1 million of outstanding 6.875% Senior Notes due November 15, 2012.

Mortgage Company Loan Facility

In July 2013, TBI Mortgage Company (“TBI Mortgage”), the Company’s wholly-owned mortgage subsidiary, amended its Master Repurchase Agreement (the “Repurchase Agreement”) with Comerica Bank. The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by TBI Mortgage and it is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” The Repurchase Agreement, as amended, provides for loan purchases of up to $50 million , subject to certain sublimits. In addition, the Repurchase Agreement provides for an accordion feature under which TBI Mortgage may request that the aggregate commitments under the Repurchase Agreement be increased to an amount up to $75 million for a short period of time. The Repurchase Agreement, as amended, expires on July 22, 2014 and bears interest at LIBOR plus 2.00% per annum, with a minimum rate of 3.00% . At April 30, 2014 , the Company had $56.8 million of outstanding borrowings under the Repurchase Agreement.

7. Accrued Expenses

Accrued expenses at April 30, 2014 and October 31, 2013 consisted of the following (amounts in thousands):



	April 30, 2014		October 31, 2013
Land, land development and construction	$	136,781	$	152,674
Compensation and employee benefit	111,664		111,561
Insurance and litigation	92,814		89,104
Warranty	52,579		43,819
Interest	37,444		25,675
Commitments to unconsolidated entities	4,259		3,804
Other	104,132		96,350
	$	539,673	$	522,987

The Company accrues for expected warranty costs at the time each home is closed and title and possession are transferred to the home buyer. Warranty costs are accrued based upon historical experience. The table below provides, for the periods indicated, a reconciliation of the changes in the Company’s warranty accrual (amounts in thousands):



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Balance, beginning of year	$	43,819		$	41,706		$	42,688		$	41,241
Additions - homes closed during the year	7,302			5,223			4,205			2,934
Addition - Shapell liabilities acquired	9,244						9,244
Increase (decrease) in accruals for homes closed in prior years	1,421			(478		)	1,077			(212		)
Charges incurred	(9,207		)	(5,342		)	(4,635		)	(2,854		)
Balance, end of year	$	52,579		$	41,109		$	52,579		$	41,109

8. Income Taxes

The table below provides, for the periods indicated, reconciliations of the Company’s effective tax rate from the federal statutory tax rate (amounts in thousands):



	Six months ended April 30,
	2014				2013
	$		%*		$		%*
Federal tax provision at statutory rate	57,652		35.0		17,253		35.0
State tax provision, net of federal benefit	7,851		4.8		2,051		4.2
Domestic production activities deduction	(4,251	)	(2.6	)
Other permanent differences	(2,338	)	(1.4	)
Reversal of accrual for uncertain tax positions	(9,112	)	(5.5	)
Accrued interest on anticipated tax assessments	1,126		0.7		1,982		4.0
Increase in unrecognized tax benefits	5,406		3.3
Valuation allowance – reversed	(1,226	)	(0.7	)	(1,277	)	(2.6	)
Other	(1,191	)	(0.7	)	179		0.4
Income tax provision	53,917		32.7		20,188		41.0



	Three months ended April 30,
	2014				2013
	$		%*		$		%*
Federal tax provision at statutory rate	32,719		35.0		14,339		35.0
State tax provision, net of federal benefit	4,866		5.2		1,705		4.2
Domestic production activities deduction	(2,417	)	(2.6	)
Other permanent differences	(1,324	)	(1.4	)
Reversal of accrual for uncertain tax positions	(9,112	)	(9.7	)
Accrued interest on anticipated tax assessments	340		0.4		817		2.0
Increase in unrecognized tax benefits	5,406		5.8
Valuation allowance – reversed	(778	)	(0.8	)	(1,061	)	(2.6	)
Other	(1,438	)	(1.5	)	494		1.2
Income tax provision	28,262		30.2		16,294		39.8

* Due to rounding, amounts may not add.

The Company currently operates in 20 states and is subject to various state tax jurisdictions. The Company estimates its state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and the Company’s ability to utilize certain tax-saving strategies. Based on the Company’s estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on the Company’s tax strategies, the Company estimated its rate for the full fiscal year for state income taxes at 7.3% and 6.5% for fiscal 2014 and 2013 , respectively.

For state tax purposes, due to past and projected losses in certain jurisdictions where the Company does not have carryback potential and/or cannot sufficiently forecast future taxable income, the Company has recognized net cumulative valuation allowances against its state deferred tax assets of $54.5 million and $55.7 million as of April 30, 2014 and October 31, 2013 , respectively.

9. Stock-Based Benefit Plans

The Company grants stock options, restricted stock, and various types of restricted stock units to its employees and its non-employee directors. Additionally, the Company has an employee stock purchase plan that allows employees to purchase Company stock at a discount.

Beginning in fiscal 2012, the Company changed the mix of stock-based compensation to its employees (other than certain senior executives) by reducing the number of stock options it grants and, in their place, issued non-performance based restricted stock units (“RSUs”) as a form of compensation. The Company also replaced its stock price-based restricted stock unit (“Stock Price-Based RSUs”) awards for certain senior executives with a performance-based restricted stock (“Performance-Based RSUs”) award program.

Information regarding the amount of total stock-based compensation expense and tax benefit recognized by the Company, for the periods indicated, is as follows (amounts in thousands):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Total stock-based compensation expense recognized	$	12,294	$	10,027	$	4,625	$	4,343
Income tax benefit recognized	$	4,619	$	3,666	$	1,647	$	1,588

At April 30, 2014 and October 31, 2013 , the aggregate unamortized value of outstanding stock-based compensation awards was approximately $33.1 million and $19.9 million , respectively.

Information about the Company’s more significant stock-based compensation programs is outlined below.

Stock Options

The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses assumptions noted in the following table. The lattice-based option valuation model incorporates ranges of assumptions for inputs, which are disclosed in the table below. Expected volatilities were based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock, and other factors. The expected lives of options granted were derived from the historical exercise patterns and anticipated future patterns and represent the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behaviors. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average assumptions and the fair value used for stock option grants in fiscal 2014 and 2013 were as follows:



	2014	2013
Expected volatility	36.44% - 44.71%	44.04% - 48.13%
Weighted-average volatility	42.71%	46.70%
Risk-free interest rate	1.45% - 2.71%	0.64% - 1.56%
Expected life (years)	4.55 - 9.02	4.48 - 8.88
Dividends	none	none
Weighted-average grant date fair value per share of options granted	$14.26	$13.05

Stock compensation expense, related to stock options, for the periods indicated, was as follows (amounts in thousands):



	2014		2013
Six months ended April 30,	$	5,660	$	4,835
Three months ended April 30,	$	1,630	$	1,360

Performance-Based Restricted Stock Units

The Executive Compensation Committee of the Company’s Board of Directors (“Executive Compensation Committee”) approved awards of Performance-Based RSUs relating to shares of the Company’s common stock to certain of its senior management. The Performance-Based RSUs are based on the attainment of certain performance metrics of the Company in the fiscal year of grant if the performance targets are met. The number of shares underlying the Performance-Based RSUs that will be issued to the recipients may range from 90% to 110% of the base award depending on the Company’s actual performance as compared to the target performance goals. The Performance-Based RSUs vest over a four-year period provided the recipients continue to be employed by the Company or serve on the board of directors of the Company (as applicable) as specified in the award document.

The value of the Performance-Based RSUs was determined to be equal to the estimated number of shares of the Company’s common stock to be issued multiplied by the closing price of the Company’s common stock on the New York Stock Exchange (“NYSE”) on the later of the date the performance goals were approved by the Executive Compensation Committee, or on the date the Performance-Based RSUs were granted (“Valuation Date”). The Company evaluates the performance goals quarterly and estimates the number of shares underlying the Performance-Based RSUs that are probable of being issued. Information regarding the issuance, valuation assumptions and amortization of the Company’s Performance-Based RSUs issued in the six-month periods ended April 30, 2014 and 2013 is provided below.



	2014		2013
Number of shares underlying Performance-Based RSUs to be issued	284,037		302,511
Closing price of the Company’s common stock on Valuation Date	$	35.16	$	37.78
Aggregate fair value of Performance-Based RSUs issued (in thousands)	$	9,987	$	11,429
Performance-Based RSU expense recognized in the six months ended April 30, (in thousands)	$	4,453	$	2,588
Performance-Based RSU expense recognized in the three months ended April 30, (in thousands)	$	2,382	$	2,074

Note: The fiscal 2014 number of shares underlying Performance-Based RSUs to be issued and their aggregate fair value is estimated.

Information regarding the aggregate number of outstanding Performance-Based RSUs and the aggregate unamortized value of the outstanding Performance-Based RSUs, as of the date indicated, is provided below.



	April 30, 2014		October 31, 2013
Aggregate outstanding Performance-Based RSUs	956,725		672,687
Cumulative unamortized value of Performance-Based RSUs (in thousands)	$	13,653	$	8,120

Stock Price-Based Restricted Stock Units

Information regarding the amortization of the Company’s Stock Price-Based RSUs, for the periods indicated, is provided below (amounts in thousands):



	2014		2013
Six months ended April 30,	$	231	$	979
Three months ended April 30,	$	—	$	416

Information regarding the aggregate number of outstanding Stock Price-Based RSUs and aggregate unamortized value of the outstanding Stock Price-Based RSUs, as of the date indicated, is provided below:



	April 30, 2014		October 31, 2013
Aggregate outstanding Stock Price-Based RSUs	—		306,000
Cumulative unamortized value of Stock Price-Based RSUs (in thousands)	$	—	$	231

In December 2013 and 2012, the Company distributed 306,000 and 200,000 shares, respectively, of stock pursuant to a Stock Price-Based RSU award.

Non-Performance Based Restricted Stock Units

The Company issued RSUs to various officers, employees and non-employee directors. The value of the RSUs was determined to be equal to the number of shares of the Company’s common stock to be issued pursuant to the RSUs, multiplied by the closing price of the Company’s common stock on the NYSE on the date the RSUs were awarded. Information regarding these RSUs issued in the six months ended April 30, 2014 and 2013 is as follows:



	2014		2013
Number of RSUs issued	99,336		94,080
Closing price of the Company’s common stock on date of issuance	$	35.16	$	32.22
Aggregate fair value of RSUs issued (in thousands)	$	3,493	$	3,031

Information regarding the amortization of the Company’s RSUs, for the periods indicated, is as follows (amounts in thousands):



	2014		2013
Six months ended April 30,	$	1,902	$	1,584
Three months ended April 30,	$	591	$	472

Information regarding the aggregate number of outstanding RSUs and aggregate unamortized value of the outstanding RSUs, as of the date indicated, is as follows:



	April 30, 2014		October 31, 2013
Aggregate outstanding RSUs	307,606		225,252
Cumulative unamortized value of RSUs (in thousands)	$	3,248	$	1,706

10. Employee Retirement Plans

The Company has two unfunded supplemental retirement plans (“SRPs”). The table below provides, for the periods indicated, costs recognized and payments made related to its SRPs (amounts in thousands):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Service cost	$	235	$	236	$	117	$	117
Interest cost	636		521		318		261
Amortization of prior service cost	322		422		161		211
Amortization of unrecognized losses	6		72		3		36
Total costs	$	1,199	$	1,251	$	599	$	625
Benefits paid	$	444	$	444	$	211	$	211

11. Accumulated Other Comprehensive (Loss) Income

The tables below provide, for the periods indicated, the components of accumulated other comprehensive (loss) income (amounts in thousands):



	Six months ended April 30, 2014
	Employee Retirement Plans			Available-for-Sale Securities			Derivative Instruments			Total
Balance, beginning of period	$	(2,112	)	$	(5	)	$	(270	)	$	(2,387	)
Other comprehensive (loss) income before reclassifications	(77		)	(29		)	365			259
Gross amounts reclassified from accumulated other comprehensive income (loss)	328			(6		)				322
Income tax (expense) benefit	(95		)	13			(142		)	(224		)
Other comprehensive income (loss), net of tax	156			(22		)	223			357
Balance, end of period	$	(1,956	)	$	(27	)	$	(47	)	$	(2,030	)



	Three months ended April 30, 2014
	Employee Retirement Plans			Available-for-Sale Securities			Derivative Instruments			Total
Balance, beginning of period	$	(2,059	)	$	(36	)	$	(29	)	$	(2,124	)
Other comprehensive loss before reclassifications							(28		)	(28		)
Gross amounts reclassified from accumulated other comprehensive income	164			15						179
Income tax (expense) benefit	(61		)	(6		)	10			(57		)
Other comprehensive income (loss), net of tax	103			9			(18		)	94
Balance, end of period	$	(1,956	)	$	(27	)	$	(47	)	$	(2,030	)



	Six months ended April 30, 2013
	Employee Retirement Plans			Available-for-Sale Securities			Derivative Instruments			Total
Balance, beginning of period	$	(4,446	)	$	180		$	(553	)	$	(4,819	)
Other comprehensive (loss) income before reclassifications	(519		)	71			24			(424		)
Gross amounts reclassified from accumulated other comprehensive income (loss)	494			(137		)	—			357
Income tax benefit (expense)	7			29			(11		)	25
Other comprehensive (loss) income, net of tax	(18		)	(37		)	13			(42		)
Balance, end of period	$	(4,464	)	$	143		$	(540	)	$	(4,861	)



	Three months ended April 30, 2013
	Employee Retirement Plans			Available-for-Sale Securities			Derivative Instruments			Total
Balance, beginning of period	$	(4,619	)	$	276		$	(460	)	$	(4,803	)
Other comprehensive loss before reclassifications	—			(67		)	(127		)	(194		)
Gross amounts reclassified from accumulated other comprehensive income (loss)	247			(137		)	—			110
Income tax (expense) benefit	(92		)	71			47			26
Other comprehensive income (loss), net of tax	155			(133		)	(80		)	(58		)
Balance, end of period	$	(4,464	)	$	143		$	(540	)	$	(4,861	)

Reclassifications for the amortization of the employee retirement plans are included in “Selling, general and administrative” expense in the Condensed Consolidated Statements of Operations. See Note 10, “Employee Retirement Plans” for additional information.

Reclassifications for the realized gain or loss on available-for-sale securities are included in “Other income - net” in the Condensed Consolidated Statements of Operations.

12. Stock Issuance and Stock Repurchase Program

Stock Issuance

In November 2013, in anticipation of the Shapell acquisition, the Company issued 7.2 million shares of its common stock, par value $0.01 per share, at a price to the public of $32.00 per share. The Company received $220.4 million of net proceeds from the issuance.

Stock Repurchase Program

In March 2003, the Company’s Board of Directors authorized the repurchase of up to 20 million shares of its common stock, par value $0.01 , in open market transactions or otherwise, for the purpose of providing shares for its various employee benefit plans.

The table below provides, for the periods indicated, information about the Company’s share repurchase program:



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Number of shares purchased (in thousands)	5		5		3		3
Average price per share	$	34.71	$	33.61	$	36.04	$	34.49
Remaining authorization at April 30 (in thousands)	8,263		8,760		8,263		8,760

13. 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 anti-dilutive options and shares issued (amounts in thousands except per share amounts):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Numerator:
Net income as reported	$	110,802	$	29,106	$	65,222	$	24,674
Plus: Interest and costs attributable to 0.5% Exchangeable Senior Notes, net of income tax benefit	789		804		392		401
Numerator for diluted earnings per share	$	111,591	$	29,910	$	65,614	$	25,075

Denominator:
Basic weighted-average shares	177,278		169,222		178,082		169,380
Common stock equivalents (a)	2,529		2,869		2,502		2,898
Shares attributable to 0.5% Exchangeable Senior Notes	5,858		5,858		5,858		5,858
Diluted weighted-average shares	185,665		177,949		186,442		178,136

Other information:
Weighted-average number of anti-dilutive options and restricted stock units (b)	1,426		1,139		1,249		1,299
Shares issued under stock incentive and employee stock purchase plans	1,225		634		212		110


(a)	Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method, Stock Price-Based RSUs whose Target Price criteria have been met but are unpaid and shares expected to be issued under Performance-Based Restricted Stock Units and Non-Performance-Based Restricted Stock Units.


(b)	Based upon the average closing price of the Company’s common stock on the NYSE for the period.

14. Fair Value Disclosures

Fair Value Disclosures

The Company uses ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), to measure the fair value of certain assets and liabilities. ASC 820 provides a framework for measuring fair value in accordance with GAAP, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and requires certain disclosures about fair value measurements.

The fair value hierarchy is summarized below:



Level 1:		Fair value determined based on quoted prices in active markets for identical assets or liabilities.

Level 2:		Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.

Level 3:		Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Financial Instruments

The table below provides, as of the date indicated, a summary of assets (liabilities) related to the Company’s financial instruments, measured at fair value on a recurring basis (amounts in thousands):



		Fair value
Financial Instrument	Fair value hierarchy	April 30, 2014			October 31, 2013
Corporate Securities	Level 2	$	13,000		$	52,508
Residential Mortgage Loans Held for Sale	Level 2	$	68,642		$	113,517
Forward Loan Commitments—Residential Mortgage Loans Held for Sale	Level 2	$	67		$	(496	)
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	(250	)	$	(181	)
Forward Loan Commitments—IRLCs	Level 2	$	250		$	181

At April 30, 2014 and October 31, 2013 , the carrying value of cash and cash equivalents and restricted cash approximated fair value.

Mortgage Loans Held for Sale

The table below provides, as of the date indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):



	Aggregate unpaid principal balance		Fair value		Excess
At April 30, 2014	$	68,014	$	68,642	$	628
At October 31, 2013	$	111,896	$	113,517	$	1,621

At the end of the reporting period, the Company determines the fair value of its mortgage loans held for sale and the forward loan commitments it has entered into as a hedge against the interest rate risk of its mortgage loans using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and by applying such pricing to the mortgage loan portfolio. The Company recognizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, the Company recognizes the fair value of its forward loan commitments as a gain or loss. These gains and losses are included in “Other income - net.” Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is included in “Other income - net.”

IRLCs represent individual borrower agreements that commit the Company to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. The Company utilizes best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby the Company agrees to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. The Company

estimates the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses,” as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, the Company assesses the credit worthiness of the investors on a periodic basis.

Marketable Securities

The table below provides, as of the date indicated, the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of marketable securities (amounts in thousands):



	April 30, 2014			October 31, 2013
Amortized cost	$	13,045		$	52,502
Gross unrealized holding gains	—			71
Gross unrealized holding losses	(45		)	(65		)
Fair value	$	13,000		$	52,508

The estimated fair values of corporate securities are based on quoted prices provided by brokers. The remaining contractual maturities of marketable securities as of April 30, 2014 ranged from 5 days to 19 months .

Inventory

The Company recognizes inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies, Inventory” in the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2013 for additional information regarding the Company’s methodology on determining fair value. As further discussed in Note 1 in the Company’s Annual Report on Form 10-K, determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If the Company used a different input for any of the various unobservable inputs used in its impairment analysis, the results of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired communities:



	Selling price per unit (in thousands)	Sales pace per year (in units)	Discount rate
Three months ended April 30, 2014	$634 - $760	4 - 7	12.0% - 15.3%
Three months ended January 31, 2014	$388 - $405	21 - 23	16.6%
Three months ended October 31, 2013	$315 - $362	2 - 7	15.0%
Three months ended July 31, 2013	$475 - $500	2	15.0%
Three months ended April 30, 2013	—	—	—%
Three months ended January 31, 2013	$303 - $307	15	15.3%

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
Fiscal 2014:
January 31	67	1	$	7,131	$	1,300
April 30	65	2	$	6,211	1,600
					$	2,900
Fiscal 2013:
January 31	60	2	$	5,377	$	700
April 30	79	1	$	749	340
July 31	76	1	$	191	100
October 31	63	2	$	6,798	2,200
					$	3,340

Investments in Distressed Loans and REO

Gibraltar’s investments in distressed loans were recorded at estimated fair value at inception based on the acquisition price as determined by Level 3 inputs and was based on the estimated future cash flows to be generated by the loans discounted at the rates used to value the loans at the acquisition dates. The table below provides, as of the date indicated, the carrying amount and estimated fair value of distressed loans (amounts in thousands):



	April 30, 2014		October 31, 2013
Carrying amount	$	18,799	$	36,374
Estimated fair value	$	23,379	$	45,355

Gibraltar’s REO was recorded at estimated fair value at the time it was acquired through foreclosure or deed in lieu actions using Level 3 inputs. The valuation techniques used to estimate fair value are third-party appraisals, broker opinions of value, or internal valuation methodologies (which may include discounted cash flows, capitalization rate analysis or comparable transactional analysis). Unobservable inputs used in estimating the fair value of REO assets are based upon the best information available under the circumstances and take into consideration the financial condition and operating results of the asset, local market conditions, the availability of capital, interest and inflation rates and other factors deemed appropriate by management.

Debt

The table below provides, as of the date indicated, the book value and estimated fair value of the Company’s debt (amounts in thousands):



		April 30, 2014				October 31, 2013
	Fair value hierarchy	Book value		Estimated fair value		Book value		Estimated fair value
Loans payable (a)	Level 2	$	747,088	$	746,604	$	107,222	$	106,988
Senior notes (b)	Level 1	2,657,376		2,848,751		2,325,336		2,458,737
Mortgage company warehouse loan (c)	Level 2	56,842		56,842		75,000		75,000
		$	3,461,306	$	3,652,197	$	2,507,558	$	2,640,725


(a)	The estimated fair value of loans payable was based upon interest rates that the Company believed were available to it for loans with similar terms and remaining maturities as of the applicable valuation date.


(b)	The estimated fair value of the Company’s senior notes is based upon their indicated market prices.


(c)	The Company believes that the carrying value of its mortgage company warehouse loan borrowings approximates their fair value.

15. 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,
	2014			2013		2014			2013
Interest income	$	1,889		$	2,677	$	825		$	1,202
Income from ancillary businesses	3,950			3,432		2,337			2,154
Gibraltar	5,714			1,112		1,382			961
Management fee income	2,454			1,131		1,227			804
Retained customer deposits	1,310			1,123		422			445
Land sales, net	11,187			255		4,929			110
Income recognized from settlement of litigation				13,229					13,229
Directly expensed interest	(656		)	—		(656		)	—
Other	1,794			1,201		635			629
Total other income - net	$	27,642		$	24,160	$	11,101		$	19,534

In the six month period ended April 30, 2014 , land sales, net includes $2.9 million of previously deferred gains on the Company’s initial sales of the properties to Trust II as further described in Note 4 - “Investments in and Advances to Unconsolidated Entities.”

In fiscal 2013, the Company recognized income from the settlement of litigation as the result of three derivative lawsuits brought on behalf of the Company against certain officers and directors of the Company. The gross settlement of $16.2 million was reduced by the payment of attorney’s fees of $3.0 million . The Company’s insurance carriers paid approximately $9.8 million and certain officers and former officers paid the remainder.

Income from ancillary businesses includes the activity of the Company’s non-core businesses which include its mortgage, title, landscaping, security monitoring, and golf course and country club operations. The table below provides, for the periods indicated, revenues and expenses for the Company’s non-core ancillary businesses (amounts in thousands):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Revenue	$	43,748	$	39,426	$	22,808	$	22,785
Expense	$	39,798	$	35,994	$	20,471	$	20,631

16. Commitments and Contingencies

Legal Proceedings

The Company is involved in various claims and litigation arising principally in the ordinary course of business. The Company believes that adequate provision for resolution of all current claims and pending litigation has been made for probable losses and the disposition of these matters will not have a material adverse effect on the Company’s results of operations and liquidity or on its financial condition.

Investments in and Advances to Unconsolidated Entities

At April 30, 2014 , the Company had investments in and advances to a number of unconsolidated entities, was committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 4, “Investments in and Advances to Unconsolidated Entities,” for more information regarding the Company’s commitments to these entities.

Land Purchase Commitments

Generally, the Company’s purchase agreements to acquire land parcels do not require the Company to purchase those land parcels, although the Company may, in some cases, forfeit any deposit balance outstanding if and when it terminates a purchase agreement. If market conditions are weak, approvals needed to develop the land are uncertain, or other factors exist that make the purchase undesirable, the Company may choose not to acquire the land. Whether an option and purchase agreement is legally terminated or not, the Company reviews the amount recorded for the land parcel subject to the option and purchase agreement to determine if the amount is recoverable. While the Company may not formally terminate the option and purchase

agreements for those land parcels that it does not expect to acquire, it writes off any non-refundable deposits and costs previously capitalized to such land parcels in the periods that it determines such costs are not recoverable.

Information regarding the Company’s land purchase commitments, excluding the Shapell acquisition, as of the date indicated, is provided in the table below (amounts in thousands):



	April 30, 2014		October 31, 2013
Aggregate purchase commitments:
Unrelated parties	$	1,105,268	$	1,301,987
Unconsolidated entities that the Company has investments in	12,552		61,738
Total	$	1,117,820	$	1,363,725
Deposits against aggregate purchase commitments	$	96,002	$	76,986
Additional cash required to acquire land	1,021,818		1,286,739
Total	$	1,117,820	$	1,363,725
Amount of additional cash required to acquire land in accrued expenses	$	1,383	$	1,439

In addition, the Company expects to purchase approximately 3,800 additional home sites from several joint ventures in which it has interests; the purchase prices of these home sites will be determined at a future date. The Company will also receive approximately 935 home sites from one of its Land Development Joint Ventures in consideration of its previous investment in the joint venture.

At April 30, 2014 , the Company had purchase commitments to acquire land for apartment developments of approximately $56.0 million , of which it had outstanding deposits in the amount of $3.6 million .

The Company has additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since it does not believe that it will complete the purchase of these land parcels and no additional funds will be required from the Company to terminate these contracts.

Surety Bonds and Letters of Credit

At April 30, 2014 , the Company had outstanding surety bonds amounting to $560.3 million , primarily related to its obligations to governmental entities to construct improvements in the Company’s communities. The Company estimates that $377.4 million of work remains on these improvements. The Company has an additional $71.8 million of surety bonds outstanding that guarantee other obligations of the Company. The Company does not believe that it is probable that any outstanding bonds will be drawn upon.

At April 30, 2014 , the Company had outstanding letters of credit of $93.8 million , including $90.8 million under its Credit Facility and $3.0 million collateralized by restricted cash. These letters of credit were issued to secure various financial obligations of the Company including insurance policy deductibles and other claims, land deposits and security to complete improvements in communities which it is operating. The Company does not believe that it is probable that any outstanding letters of credit will be drawn upon.

Acquisition of Shapell Industries, Inc.

On February 4, 2014, the Company completed its previously announced acquisition of Shapell. The Purchase Agreement provides that SIPI will indemnify the Company for any loss arising out of or resulting from, among other things, (i) any liability (other than environmental losses, subject to certain exceptions) related to the Shapell Commercial Properties, and (ii) any liability (other than environmental losses, subject to certain exceptions) to the extent related to Shapell Mortgage, Inc. See Note 2 - “Acquisition” for more information regarding this acquisition.

Backlog

At April 30, 2014 , the Company had agreements of sale outstanding to deliver 4,324 homes with an aggregate sales value of $3.21 billion .

Mortgage Commitments

The Company’s mortgage subsidiary provides mortgage financing for a portion of the Company’s home closings. For those home buyers to whom the Company’s mortgage subsidiary provides mortgages, it determines whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources. For those home buyers that qualify, the Company’s mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will lock in an interest rate based upon the terms of the commitment. At the time of rate lock, the Company’s mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that is willing to honor the terms and conditions, including interest rate, committed to the home buyer. The Company believes that these investors have adequate financial resources to honor their commitments to its mortgage subsidiary.

Information regarding the Company’s mortgage commitments, as of the date indicated, is provided in the table below (amounts in thousands):



	April 30, 2014		October 31, 2013
Aggregate mortgage loan commitments:
IRLCs	$	292,588	$	247,995
Non-IRLCs	649,305		645,288
Total	$	941,893	$	893,283
Investor commitments to purchase:
IRLCs	$	292,588	$	247,995
Mortgage loans receivable	61,593		107,873
Total	$	354,181	$	355,868

17. Information on Operating Segments

At October 31, 2013, the Company determined that it operates in two segments: Traditional Home Building and Urban Infill (“City Living”). Amounts reported in the prior period have been reclassified to conform to the current period.

The Company has determined that its Traditional Home Building operations operate in four geographic segments: North, Mid-Atlantic, South and West. 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, South Carolina and Texas

West: Arizona, California, Colorado, Nevada and Washington

Revenue and income (loss) before income taxes for each of the Company’s reportable segments, for the periods indicated, were as follows (amounts in thousands):



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Revenues:
Traditional Home Building:
North	$	264,885		$	174,567		$	137,241		$	92,248
Mid-Atlantic	349,571			270,110			180,475			140,519
South	336,688			222,742			186,129			135,557
West	507,835			241,216			321,609			128,621
Traditional Home Building	1,458,979			908,635			825,454			496,945
City Living	45,076			31,970			34,920			19,059
Total	$	1,504,055		$	940,605		$	860,374		$	516,004

Income (loss) before income taxes:
Traditional Home Building:
North	$	17,152		$	7,915		$	8,806		$	3,195
Mid-Atlantic	45,909			31,990			24,358			17,140
South	40,952			17,013			23,584			14,199
West	78,714			21,055			44,844			13,008
Traditional Home Building	182,727			77,973			101,592			47,542
City Living	8,964			8,336			10,022			5,639
Corporate and other	(26,972		)	(37,015		)	(18,130		)	(12,213		)
Total	$	164,719		$	49,294		$	93,484		$	40,968

“Corporate and other” is comprised principally of general corporate expenses such as the offices of the Executive Officers of the Company and the corporate finance, accounting, audit, tax, human resources, risk management, marketing and legal groups; interest income and income from certain of the Company’s ancillary businesses, including Gibraltar; and income from a number of the Company’s unconsolidated entities.

Total assets for each of the Company’s geographic segments, as of the date indicated, are shown in the table below (amounts in thousands).



	April 30, 2014		October 31, 2013
Traditional Home Building:
North	$	1,004,364	$	963,597
Mid-Atlantic	1,254,364		1,231,438
South	1,157,627		953,955
West	2,831,037		1,290,388
Traditional Home Building	6,247,392		4,439,378
City Living	817,287		674,302
Corporate and other	1,180,387		1,713,779
Total	$	8,245,066	$	6,827,459

“Corporate and other” is comprised principally of cash and cash equivalents, marketable securities, restricted cash, deferred tax assets and the assets of the Company’s Gibraltar investments, manufacturing facilities and mortgage subsidiary.

The Company provided for inventory impairment charges and the expensing of costs that it believed not to be recoverable and recoveries of prior charges for the periods indicated, as shown in the table below; the net carrying value of inventory and investments in and advances to unconsolidated entities for each of the Company’s geographic segments, as of the dates indicated, are also shown in the table below (amounts in thousands):



	Net Carrying Value				Impairments
	At April 30,		At October 31,		Six months ended April 30,					Three months ended April 30,
	2014		2013		2014		2013			2014		2013
Inventory:
Land controlled for future communities:
Traditional Home Building:
North	$	16,783	$	16,267	$	247	$	799		$	67	$	712
Mid-Atlantic	29,987		29,423		326		17			81		1
South	29,813		14,606		339		361			90		5
West	14,274		13,371		94		(479		)	86		(29		)
Traditional Home Building	90,857		73,667		1,006		698			324		689
City Living	49,104		26,135
	139,961		99,802		1,006		698			324		689

Land owned for future communities:
Traditional Home Building:
North	155,192		135,282
Mid-Atlantic	226,783		308,585
South	257,587		158,457
West	1,428,525		448,125
Traditional Home Building	2,068,087		1,050,449		—		—			—		—
City Living	317,147		237,181
	2,385,234		1,287,630		—		—			—		—

Operating communities:
Traditional Home Building:
North	800,837		785,175		2,900		840			1,600		340
Mid-Atlantic	958,435		866,256
South	735,898		690,302
West	1,287,375		697,573				200
Traditional Home Building	3,782,545		3,039,306		2,900		1,040			1,600		340
City Living	240,284		223,674
	4,022,829		3,262,980		2,900		1,040			1,600		340
Total	$	6,548,024	$	4,650,412	$	3,906	$	1,738		$	1,924	$	1,029

Investments in and advances to unconsolidated entities:
Traditional Home Building:
Mid-Atlantic	$	11,850	$	11,850
South	98,409		50,452
West	83,851		110,467
Traditional Home Building	194,110		172,769		—		—			—		—
City Living	149,374		135,950
Corporate and other	98,358		94,414
Total	$	441,842	$	403,133	$	—	$	—		$	—	$	—

18. Supplemental Disclosure to Condensed Statements of Cash Flows

The following are supplemental disclosures to the Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2014 and 2013 (amounts in thousands):



	2014			2013
Cash flow information:
Interest capitalized, net of amount paid	$	3,798
Interest paid, net of amount capitalized				$	8,947
Income tax payment	$	30,968		$	1,107
Income tax refunds				$	1,156
Non-cash activity:
Cost of inventory acquired through seller financing or municipal bonds, net	$	71,662		$	26,566
Financed portion of land sale				$	7,200
Reduction in inventory for Company's share of earnings in land purchased from unconsolidated entities	$	1,229		$	1,327
Defined benefit plan amendment	$	77		$	519
Increase in accrued expenses related to Stock Price-Based RSUs paid	$	4,972		$	2,942
Reduction of investments in unconsolidated entities due to increase/reduction in letters of credit or accrued liabilities				$	49
Transfer of inventory to investment in unconsolidated entities	$	700		$	27,631
Unrealized gain on derivative held by equity investee	$	365		$	23
Increase in investments in unconsolidated entities for change in the fair value of debt guarantees	$	428		$	1,291
Miscellaneous (decreases) increases to investments in unconsolidated entities	$	(965	)	$	64
Acquisition of Business:
Fair value of assets purchased, excluding cash acquired	$	1,520,664
Liabilities assumed	$	31,548
Cash paid, net of cash acquired	$	1,489,116

19. Supplemental Guarantor Information

A 100% owned subsidiary of the Company, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following Senior Notes (amounts in thousands):



			Amount outstanding at
	Original Amount Issued		April 30, 2014
5.15% Senior Notes due 2015	$	300,000	$	300,000
8.91% Senior Notes due 2017	$	400,000	$	400,000
6.75% Senior Notes due 2019	$	250,000	$	250,000
5.875% Senior Notes due 2022	$	419,876	$	419,876
4.375% Senior Notes due 2023	$	400,000	$	400,000
0.50% Exchangeable Senior Notes due 2032	$	287,500	$	287,500
4.0% Senior Notes due 2018	$	350,000	$	350,000
5.625% Senior Notes due 2024	$	250,000	$	250,000

The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by the Company and substantially all of the Company’s 100% owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional. The Company’s non-home building subsidiaries and several of its home building subsidiaries (together, the “Non-Guarantor Subsidiaries”) do not guarantee the debt. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of other subsidiaries of the Company by lending the proceeds from the above described debt issuances. The indentures under which the Senior Notes were issued provide that any subsidiary of the Company that provides a guarantee of the 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 the Company’s 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 the Company’s consolidated net worth as of the end of the Company’s most recent fiscal quarter; (iv) such release would not have a material adverse effect on the home building business of the Company and its subsidiaries; and (v) the Guarantor Subsidiary is released from its guaranty under the Credit Facility. If there are no guarantors under the Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.

Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures would not be material to users of these financial statements.

Supplemental consolidating financial information of Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the eliminations to arrive at Toll Brothers, Inc. on a consolidated basis is presented below ($ amounts in thousands).

Condensed Consolidating Balance Sheet at April 30, 2014 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	—		—		235,689		116,132		—		351,821
Marketable securities					2,977		10,023				13,000
Restricted cash	15,202				6,066		1,274				22,542
Inventory					6,447,307		100,717				6,548,024
Property, construction and office equipment, net					116,677		14,545				131,222
Receivables, prepaid expenses and other assets	14		18,586		127,331		122,173		(18,170	)	249,934
Mortgage loans held for sale							68,642				68,642
Customer deposits held in escrow					54,417						54,417
Investments in and advances to unconsolidated entities					153,428		288,414				441,842
Investments in distressed loans							18,799				18,799
Investments in foreclosed real estate							76,652				76,652
Investments in and advances to consolidated entities	3,498,129		2,676,995		4,740				(6,179,864	)	—
Deferred tax assets, net of valuation allowances	268,171										268,171
	3,781,516		2,695,581		7,148,632		817,371		(6,198,034	)	8,245,066
LIABILITIES AND EQUITY
Liabilities:
Loans payable					747,088						747,088
Senior notes			2,620,373						34,065		2,654,438
Mortgage company warehouse loan							56,842				56,842
Customer deposits					254,621						254,621
Accounts payable					204,634		94				204,728
Accrued expenses	14		35,701		368,330		154,217		(18,589	)	539,673
Advances from consolidated entities					2,145,441		583,803		(2,729,244	)	—
Income taxes payable	84,619										84,619
Total liabilities	84,633		2,656,074		3,720,114		794,956		(2,713,768	)	4,542,009
Equity:
Stockholders’ equity:
Common stock	1,778				48		3,006		(3,054	)	1,778
Additional paid-in capital	694,335		49,400				1,734		(51,134	)	694,335
Retained earnings (deficits)	3,002,805		(9,893	)	3,428,533		11,438		(3,430,078	)	3,002,805
Treasury stock, at cost	(79	)									(79	)
Accumulated other comprehensive loss	(1,956	)			(63	)	(11	)			(2,030	)
Total stockholders’ equity	3,696,883		39,507		3,428,518		16,167		(3,484,266	)	3,696,809
Noncontrolling interest							6,248				6,248
Total equity	3,696,883		39,507		3,428,518		22,415		(3,484,266	)	3,703,057
	3,781,516		2,695,581		7,148,632		817,371		(6,198,034	)	8,245,066

Condensed Consolidating Balance Sheet at October 31, 2013 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Cash and cash equivalents	—		—		670,102		102,870		—		772,972
Marketable securities					42,491		10,017				52,508
Restricted cash	15,182				16,007		847				32,036
Inventory					4,625,252		25,160				4,650,412
Property, construction and office equipment, net					116,809		14,511				131,320
Receivables, prepaid expenses and other assets	33		15,675		101,321		131,701		(19,435	)	229,295
Mortgage loans held for sale							113,517				113,517
Customer deposits held in escrow					46,888						46,888
Investments in and advances to unconsolidated entities					175,159		227,974				403,133
Investments in distressed loans							36,374				36,374
Investments in foreclosed real estate							72,972				72,972
Investments in and advances to consolidated entities	3,113,203		2,334,503		4,740				(5,452,446	)	—
Deferred tax assets, net of valuation allowances	286,032										286,032
	3,414,450		2,350,178		5,798,769		735,943		(5,471,881	)	6,827,459
LIABILITIES AND EQUITY
Liabilities:
Loans payable					107,222						107,222
Senior notes			2,282,719						38,723		2,321,442
Mortgage company warehouse loan							75,000				75,000
Customer deposits					212,669						212,669
Accounts payable					167,733		54				167,787
Accrued expenses			25,045		355,590		161,402		(19,050	)	522,987
Advances from consolidated entities					1,627,130		467,929		(2,095,059	)	—
Income taxes payable	81,188										81,188
Total liabilities	81,188		2,307,764		2,470,344		704,385		(2,075,386	)	3,488,295
Equity:
Stockholders’ equity:
Common stock	1,694				48		3,006		(3,054	)	1,694
Additional paid-in capital	441,677		49,400				1,734		(51,134	)	441,677
Retained earnings (deficits)	2,892,003		(6,986	)	3,328,629		20,664		(3,342,307	)	2,892,003
Treasury stock, at cost											—
Accumulated other comprehensive loss	(2,112	)			(252	)	(23	)			(2,387	)
Total stockholders’ equity	3,333,262		42,414		3,328,425		25,381		(3,396,495	)	3,332,987
Noncontrolling interest							6,177				6,177
Total equity	3,333,262		42,414		3,328,425		31,558		(3,396,495	)	3,339,164
	3,414,450		2,350,178		5,798,769		735,943		(5,471,881	)	6,827,459

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the six months ended April 30, 2014 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries	Non- Guarantor Subsidiaries		Eliminations		Consolidated
Revenues					1,520,077	33,267		(49,289	)	1,504,055
Cost of revenues					1,206,293	4,059		(8,322	)	1,202,030
Selling, general and administrative	69		1,865		213,647	26,436		(39,827	)	202,190
	69		1,865		1,419,940	30,495		(48,149	)	1,404,220
Income (loss) from operations	(69	)	(1,865	)	100,137	2,772		(1,140	)	99,835
Other:
Income (loss) from unconsolidated entities					37,578	(336	)			37,242
Other income - net	4,660				17,815	7,208		(2,041	)	27,642
Intercompany interest income			76,107					(76,107	)	—
Interest expense			(78,899	)		(389	)	79,288		—
Income from subsidiaries	160,128				4,598			(164,726	)	—
Income (loss) before income taxes	164,719		(4,657	)	160,128	9,255		(164,726	)	164,719
Income tax provision (benefit)	53,917		(1,751	)	60,224	3,481		(61,954	)	53,917
Net income (loss)	110,802		(2,906	)	99,904	5,774		(102,772	)	110,802
Other comprehensive income	156				189	12				357
Total comprehensive income (loss)	110,958		(2,906	)	100,093	5,786		(102,772	)	111,159

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the six months ended April 30, 2013 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries	Non- Guarantor Subsidiaries		Eliminations		Consolidated
Revenues					953,625	35,383		(48,403	)	940,605
Cost of revenues					772,981	9,935		(16,966	)	765,950
Selling, general and administrative	61		1,402		170,586	21,057		(35,509	)	157,597
	61		1,402		943,567	30,992		(52,475	)	923,547
Income (loss) from operations	(61	)	(1,402	)	10,058	4,391		4,072		17,058
Other:
Income from unconsolidated entities					5,040	3,036				8,076
Other income - net	4,685				24,472	2,567		(7,564	)	24,160
Intercompany interest income			60,060					(60,060	)	—
Interest expense			(63,330	)		(222	)	63,552		—
Income from subsidiaries	44,670				5,100			(49,770	)	—
Income (loss) before income taxes	49,294		(4,672	)	44,670	9,772		(49,770	)	49,294
Income tax benefit (provision)	20,188		(1,830	)	17,493	3,827		(19,490	)	20,188
Net income (loss)	29,106		(2,842	)	27,177	5,945		(30,280	)	29,106
Other comprehensive (loss) income	(18	)			36	(60	)			(42	)
Total comprehensive income (loss)	29,088		(2,842	)	27,213	5,885		(30,280	)	29,064

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended April 30, 2014 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Revenues					869,305		17,665		(26,596	)	860,374
Cost of revenues					690,656		1,457		(4,115	)	687,998
Selling, general and administrative	14		928		110,947		12,799		(20,368	)	104,320
	14		928		801,603		14,256		(24,483	)	792,318
Income (loss) from operations	(14	)	(928	)	67,702		3,409		(2,113	)	68,056
Other:
Income from unconsolidated entities					13,371		956				14,327
Other income - net	2,295				7,243		1,008		555		11,101
Intercompany interest income			37,963						(37,963	)	—
Interest expense			(39,325	)			(196	)	39,521		—
Income from subsidiaries	91,203				2,887				(94,090	)	—
Income (loss) before income taxes	93,484		(2,290	)	91,203		5,177		(94,090	)	93,484
Income tax provision (benefit)	28,262		(823	)	33,212		1,883		(34,272	)	28,262
Net income (loss)	65,222		(1,467	)	57,991		3,294		(59,818	)	65,222
Other comprehensive income (loss)	103				(11	)	2				94
Total comprehensive income (loss)	65,325		(1,467	)	57,980		3,296		(59,818	)	65,316

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) for the three months ended April 30, 2013 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Revenues					523,403		20,337		(27,736	)	516,004
Cost of revenues					424,278		5,704		(9,969	)	420,013
Selling, general and administrative	45		715		86,079		10,916		(18,205	)	79,550
	45		715		510,357		16,620		(28,174	)	499,563
Income (loss) from operations	(45	)	(715	)	13,046		3,717		438		16,441
Other:
Income from unconsolidated entities					3,890		1,103				4,993
Other income - net	2,299				18,477		833		(2,075	)	19,534
Intercompany interest income			30,333						(30,333	)	—
Interest expense			(31,908	)			(62	)	31,970		—
Income from subsidiaries	38,714				3,301				(42,015	)	—
Income (loss) before income taxes	40,968		(2,290	)	38,714		5,591		(42,015	)	40,968
Income tax provision (benefit)	16,294		(897	)	15,160		2,189		(16,452	)	16,294
Net income (loss)	24,674		(1,393	)	23,554		3,402		(25,563	)	24,674
Other comprehensive (loss) income	155				(189	)	(24	)			(58	)
Total comprehensive income (loss)	24,829		(1,393	)	23,365		3,378		(25,563	)	24,616

Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2014 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Net cash (used in) provided by operating activities	44,258		15,152		(87,965	)	(27,401	)	(10,229	)	(66,185	)
Cash flow used in investing activities:
Purchase of property and equipment - net					(5,718	)	(49	)			(5,767	)
Sale and redemption of marketable securities					39,243						39,243
Investments in and advances to unconsolidated entities					(13,602	)	(67,052	)			(80,654	)
Return of investments in unconsolidated entities					35,714		3,300				39,014
Investments in distressed loans and foreclosed real estate							(757	)			(757	)
Return of investments in distressed loans and foreclosed real estate							22,424				22,424
Acquisition of a business					(1,489,116	)					(1,489,116	)
Dividend received - intercompany					15,000				(15,000	)	—
Intercompany advances	(289,604	)	(342,492	)					632,096		—
Net cash used in investing activities	(289,604	)	(342,492	)	(1,418,479	)	(42,134	)	617,096		(1,475,613	)
Cash flow provided by financing activities:
Net proceeds from issuance of senior notes			600,000								600,000
Debt issuance costs for senior notes			(4,700	)							(4,700	)
Proceeds from loans payable					1,141,300		456,262				1,597,562
Debt issuance costs for loans payable					(3,005	)					(3,005	)
Principal payments of loans payable					(572,257	)	(474,420	)			(1,046,677	)
Redemption of senior notes			(267,960	)							(267,960	)
Net proceeds from issuance of common stock	220,357										220,357
Proceeds from stock-based benefit plans	23,333										23,333
Excess tax benefits from stock-based compensation	1,841										1,841
Purchase of treasury stock	(185	)									(185	)
Receipts related to noncontrolling interest							81				81
Dividend paid - intercompany							(15,000	)	15,000		—
Intercompany advances					505,993		115,874		(621,867	)	—
Net cash provided by financing activities	245,346		327,340		1,072,031		82,797		(606,867	)	1,120,647
Net (decrease) increase in cash and cash equivalents	—		—		(434,413	)	13,262		—		(421,151	)
Cash and cash equivalents, beginning of period	—		—		670,102		102,870		—		772,972
Cash and cash equivalents, end of period	—		—		235,689		116,132		—		351,821

Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2013 :



	Toll Brothers, Inc.		Subsidiary Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Net cash (used in) provided by operating activities	45,380		2,599		(484,680	)	3,688		(12,395	)	(445,408	)
Cash flow provided by (used in) investing activities:
Purchase of property and equipment — net					(8,588	)	(11,676	)			(20,264	)
Purchase of marketable securities					(25,938	)	(10,224	)			(36,162	)
Sale and redemption of marketable securities					209,484		30,000				239,484
Investments in and advances to unconsolidated entities					(21,637	)	(10,357	)			(31,994	)
Return of investments in unconsolidated entities					23,437		11,249				34,686
Investments in distressed loans and foreclosed real estate							(26,155	)			(26,155	)
Return of investments in distressed loans and foreclosed real estate							6,114				6,114
Intercompany advances	(53,632	)	(241,581	)					295,213		—
Net cash (used in) provided by investing activities	(53,632	)	(241,581	)	176,758		(11,049	)	295,213		165,709
Cash flow provided by financing activities:
Proceeds from issuance of senior notes			298,050								298,050
Proceeds from loans payable							501,884				501,884
Principal payments of loans payable					(29,153	)	(516,022	)			(545,175	)
Redemption of senior notes			(59,068	)							(59,068	)
Proceeds from stock-based benefit plans	8,430										8,430
Purchase of treasury stock	(178	)									(178	)
Receipts related to noncontrolling interest							33				33
Intercompany advances					233,990		48,828		(282,818	)	—
Net cash provided by financing activities	8,252		238,982		204,837		34,723		(282,818	)	203,976
Net (decrease) increase in cash and cash equivalents	—		—		(103,085	)	27,362		—		(75,723	)
Cash and cash equivalents, beginning of period	—		—		712,024		66,800		—		778,824
Cash and cash equivalents, end of period	—		—		608,939		94,162		—		703,101

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 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2013. 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. Contracts acquired in an acquisition of a business are not considered signed contracts and are not included in the amounts reported by us in net contracts signed.

OVERVIEW

Financial Highlights

In the six -month period ended April 30, 2014 , we recognized $1.50 billion of revenues and net income of $110.8 million , as compared to $940.6 million of revenues and net income of $29.1 million in the six -month period ended April 30, 2013 . During the fiscal 2014 six -month period, we recognized an income tax provision of $53.9 million , as compared to $20.2 million in the fiscal 2013 period.

At April 30, 2014 , we had $364.8 million of cash, cash equivalents and marketable securities on hand; approximately $849.2 million available under our $1.035 billion revolving credit facility that matures in August 2018; and $500.0 million available under our 364-day senior unsecured credit facility that expires in February 2015. At April 30, 2014, we had $95.0 million of outstanding borrowings and $90.8 million of letters of credit issued under the revolving credit facility.

Our Business

We design, build, market and arrange financing for detached and attached homes in luxury residential communities. We cater to move-up, empty-nester, active-adult, age-qualified and second-home buyers in the United States. We also build and sell homes in urban infill markets through Toll City Living® (“City Living”). At April 30, 2014 , we were operating in 20 states.

We operate our own land development, architectural, engineering, mortgage, title, landscaping, security monitoring, lumber distribution, house component assembly, and manufacturing operations. We also develop, own and operate golf courses and country clubs, which generally are associated with several of our master planned communities. We have investments in a number of joint ventures to develop land for the sole use of the venture participants, including ourselves, and to develop land for sale to the joint venture participants and to unrelated builders. We are a participant in joint ventures with unrelated parties to develop luxury condominium projects, including for-sale and rental residential units and commercial space, a single master planned community, and a high-rise luxury for-sale condominium/hotel project.

In the second quarter of fiscal 2014, the Trust refinanced the mortgage on one of its properties and distributed $36.0 million of the net proceeds from the refinancing to its partners. The Company received $12.0 million as its share of the proceeds and recognized this distribution as income in the quarter. This income is included in “Income from unconsolidated entities” in the six-month and three-month periods ended April 30, 2014 in our Condensed Consolidated Statements of Operations.

In addition, we own interests in Toll Brothers Realty Trust II (“Trust II”) which invests in commercial real estate opportunities. In the three-month period ended January 31, 2014, Trust II sold substantially all of its assets to an unrelated party. As a result of this sale, we realized a profit of approximately $23.5 million representing our share of the gain on the sale; this gain is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations. In addition, we recognized $2.9 million of previously deferred gains on the Company’s initial sales of the properties to Trust II. This gain was included in “Other income - net” for the three-month period ended January 31, 2014 of our Condensed Consolidated Statement of Operations. In the three-month period ended April 30, 2014, we recognized an additional gain of $0.6 million from the sale of a property by Trust II.

In fiscal 2010, we formed Gibraltar Capital and Asset Management LLC (“Gibraltar”) to invest in distressed real estate opportunities. Gibraltar focuses primarily on residential loans and properties, from unimproved ground to partially and fully improved developments, as well as commercial opportunities. See “Gibraltar Capital Asset and Management LLC” in this “Overview.”

Acquisition

On February 4, 2014 , we completed our acquisition of Shapell Industries, Inc. (“Shapell”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated November 6, 2013, with Shapell Investment Properties, Inc. (“SIPI”). Pursuant to the Purchase Agreement, we acquired, for cash, all of the equity interests in Shapell from SIPI for an aggregate purchase price of $1.60 billion (the “Acquisition”). We acquired the single-family residential real property development business of Shapell, including a portfolio of approximately 4,950 home sites in California, some of which the Company will sell to other builders. This acquisition provides us with a premier California land portfolio including 11 active selling communities, as of the acquisition date, in affluent, high-growth markets: the San Francisco Bay area, metro Los Angeles, Orange County and the Carlsbad market. As part of the acquisition, we assumed contracts to deliver 126 homes with an aggregate value of approximately $105.3 million .

We did not acquire the apartment and commercial rental properties owned and operated by Shapell (the “Shapell Commercial Properties”) or Shapell’s mortgage lending activities relating to its home building operations. Accordingly, the Purchase Agreement provides that SIPI will indemnify us for any loss arising out of or resulting from, among other things, (i) any liability (other than environmental losses, subject to certain exceptions) related to the Shapell Commercial Properties, and (ii) any liability (other than environmental losses, subject to certain exceptions) to the extent related to Shapell Mortgage, Inc.

We financed the Acquisition with a combination of $370.0 million of borrowings under our $1.035 billion unsecured revolving credit facility, $485.0 million from a term loan facility, as well as with $815.7 million in net proceeds from debt and equity financings completed in November 2013. See Note 6, “Loans Payable, Senior Notes and Mortgage Company Loan Facility” and Note 12, “Stock Issuance and Stock Repurchase Program” of our condensed consolidated financial statements for further details. As a result of the Acquisition, Shapell became our wholly-owned subsidiary. Accordingly, the Shapell results are included in our consolidated financial statements from the date of the Acquisition. For the period from February 5, 2014 to April 30, 2014, revenues and operating income from the Shapell operations, excluding $5.1 million of acquisition expenses, were $102.0 million and $6.1 million , respectively.

Our Challenging Business Environment and Current Outlook

During fiscal 2012 and the first nine months of fiscal 2013, we saw a strong recovery in the number and value of new sales contracts signed. Our net contracts signed in fiscal 2012 and 2013, as compared to fiscal 2011, increased approximately 50% and 90%, respectively, in the number of net contracts signed and 59% and 126%, respectively, in the value of net contracts signed. Although the number and value of fiscal 2012 and 2013 net contracts signed increased over fiscal 2011, they were still significantly below what we recorded in fiscal 2005.

We have experienced a leveling of demand which began in the fourth quarter of fiscal 2013 and has continued into fiscal 2014. In the six-month period ended April 30, 2014, we signed 2,665 contracts with an aggregate value of $1.98 billion, compared to 2,726 contracts with an aggregate value of $1.80 billion in the six-month period ended April 30, 2013. We believe this to be a temporary pause and expect continued growth in the future as demand grows to more normalized levels.

We market our high quality homes to upscale luxury home buyers, generally those persons who have previously owned a principal residence and who are seeking to buy a larger or more desirable home — the so-called “move-up” market. We believe our reputation as a developer of homes for this market enhances our competitive position with respect to the sale of our smaller, more moderately priced, detached homes, as well as our attached homes.

We also market to the 50+ year-old “empty-nester” market, which we believe has strong growth potential. We have developed a number of home designs with features such as one-story living and first-floor master bedroom suites, as well as communities with recreational amenities such as golf courses, marinas, pool complexes, country clubs and recreation centers that we believe appeal to this category of home buyers. We have integrated certain of these designs and features in some of our other home types and communities.

We develop active-adult, age-qualified communities for households in which at least one member is 55 years of age or older. As of April 30, 2014, we were selling from 29 such communities and expect to open additional age-qualified communities during

the next few years. For the six-month periods ended April 30, 2014 and 2013, the value of net contracts signed in active-adult communities were 9% and 7% of total contracts signed in the respective periods. As a percentage of the total number of contracts signed in the six-month periods ended April 30, 2014 and 2013, active-adult communities were 13% and 10%, respectively. Of the value and number of net contracts signed in fiscal 2013, approximately 9% and 12%, respectively, were in active-adult communities and in fiscal 2012, approximately 8% and 10%, respectively, were in such communities.

In order to serve a growing market of affluent move-up families, empty-nesters and young professionals seeking to live in or close to major cities, we have developed and are developing a number of high-density, high-, mid- and low-rise urban luxury communities. These communities are currently marketed under the Toll City Living brand. These communities, which we are currently developing or planning to develop on our own or through joint ventures, are located in Phoenix, Arizona; Hoboken, New Jersey; the boroughs of Manhattan and Brooklyn, New York; and Philadelphia, Pennsylvania and its suburbs.

We believe that the demographics of the move-up, empty-nester, active-adult, age-qualified and second-home upscale markets will provide us with the potential for growth in the coming decade. According to the U.S. Census Bureau, the number of households earning $100,000 or more (in constant 2012 dollars) at September 2013 stood at 26.9 million, or approximately 22% of all U.S. households. This group has grown at three times the rate of increase of all U.S. households since 1980. According to Harvard University’s June 2013 “The State of the Nation’s Housing,” the growth and aging of the current population, assuming the economic recovery is sustained over the next few years, supports the addition of about 1.16 million new household formations per year during the next decade. Preliminary estimates using the Census Bureau’s 2012 population projections suggest even stronger growth in net new households of 1.28 million between now and 2020. According to the April 2014 U.S. Census Bureau’s New Home Sales Report, new home inventory stands at just 5.3 months’ supply, based on current sales paces. If demand and pace increase, the 5.3 months’ supply could quickly be drawn down.

According to the U.S. Census Bureau, during the period 1970 through 2007, total housing starts in the United States averaged approximately 1.6 million per year, while in the period 2008 through 2013, total housing starts averaged approximately 0.9 million per year. During the 2006-2011 downturn, the pipeline of approved and improved home sites dwindled in many markets as many builders and developers lacked both the capital and the economic benefit for bringing sites through approvals. We believe that, as demand continues to strengthen, builders and developers with approved land in well-located markets will be poised to benefit. We believe that this will be particularly true for us because much of our land portfolio is in the Washington, D.C. to Boston corridor and in California where land is scarce and approvals are more difficult to obtain.

We continue to believe that many of our communities are in desirable locations that are difficult to replace and in markets where approvals have been increasingly difficult to obtain. We believe that many of these communities have substantial embedded value that may be realized in the future as the housing recovery strengthens.

Competitive Landscape

Based on our experience during prior downturns in the housing industry, we believe that attractive land acquisition opportunities arise in difficult times for those builders that have the financial strength to take advantage of them. In the current environment, we believe our strong balance sheet, liquidity, access to capital, broad geographic presence, diversified product line, experienced personnel, and national brand name all position us well for such opportunities now and in the future.

We continue to see reduced competition from the small and mid-sized private builders that had been our primary competitors in the luxury market. We believe that many of these builders are no longer in business and that access to capital by the remaining private builders continues to be severely constrained. There are fewer and more selective lenders serving our industry as the market rebounds and we believe it is likely that those lenders will gravitate to the home building companies that offer them the greatest security, the strongest balance sheets, and the broadest array of potential business opportunities. While some builders may re-emerge with new capital, the scarcity of attractive land is a further impediment to their re-emergence. We believe that reduced competition, combined with attractive long-term demographics, will reward those well-capitalized builders that can persevere through the current challenging environment.

We believe that geographic and product diversification, access to lower-cost capital, and strong demographics benefit those builders, like us, who can control land and persevere through the increasingly difficult regulatory approval process. We believe that these factors favor a large publicly traded home building company with the capital and expertise to control home sites and gain market share. We also believe that over the past five years, many builders and land developers reduced the number of home sites that were taken through the approval process. The process continues to be difficult and lengthy, and the political pressure from no-growth proponents continues to increase, but we believe our expertise in taking land through the approval process and our already-approved land positions will allow us to grow in the years to come as market conditions improve.

Land Acquisition and Development

Because of the length of time that it takes to obtain the necessary approvals on a property, complete the land improvements on it, and deliver a home after a home buyer signs an agreement of sale, we are subject to many risks. In certain cases, we attempt to reduce some of these risks by utilizing one or more of the following methods: controlling land for future development through options (also referred to herein as “land purchase contracts” or “option and purchase agreements”), thus allowing the necessary governmental approvals to be obtained before acquiring title to the land; generally commencing construction of a detached home only after executing an agreement of sale and receiving a substantial down payment from the buyer; and using subcontractors to perform home construction and land development work on a fixed-price basis.

Based on our belief that the housing market is in the early stages of recovery and the increased attractiveness of land available for purchase, we have increased our land positions. During fiscal 2013 and 2012, we acquired control of approximately 12,500 home sites (net of options terminated) and 6,100 home sites (net of options terminated), respectively. During the six -month period ended April 30, 2014 , we acquired control of approximately 3,900 home sites (net of lot options terminated and land we expect to sell). In February 2014, we acquired all of the equity interests in the single-family residential real property development business of Shapell, including a portfolio of approximately 4,950 home sites in California of which we currently expect to develop approximately 4,400 home sites and sell the remaining to other builders. See “Overview - Acquisition” in this MD&A for more information about the Shapell acquisition.

At April 30, 2014 , we controlled approximately 50,400 home sites of which we owned approximately 37,700. Significant improvements were completed on approximately 13,800 of the home sites we owned. At April 30, 2014 , we were selling from 252 communities, including 11 well-established selling communities in California that we acquired in February 2014 as part of the Shapell acquisition. We were selling from 232 communities at October 31, 2013 and 225 at April 30, 2013 . In addition, we expect to purchase approximately 3,800 additional home sites from several joint ventures in which we have interests.

We expect to be selling from 250 to 290 communities at October 31, 2014. At April 30, 2014 , we had 20 communities that were temporarily closed due to market conditions. We do not expect to re-open any of these communities during the next twelve months.

Availability of Customer Mortgage Financing

We maintain relationships with a widely diversified group of mortgage financial institutions, many of which are among the largest and, we believe, most reliable in the industry. We believe that regional and community banks continue to recognize the long-term value in creating relationships with high-quality, affluent customers such as our home buyers, and these banks continue to provide such customers with financing.

We believe that our home buyers generally are, and will continue to be, better able to secure mortgages due to their typically lower loan-to-value ratios and attractive credit profiles as compared to the average home buyer. Nevertheless, in recent years, tightened credit standards have reduced the pool of potential home buyers and hindered accessibility of or eliminated certain loan products previously available to our home buyers. Our home buyers continue to face stricter mortgage underwriting guidelines, higher down payment requirements and narrower appraisal guidelines than in the past. In addition, some of our home buyers continue to find it more difficult to sell their existing homes as prospective buyers of their homes may face difficulties obtaining a mortgage. In addition, other potential buyers may have little or negative equity in their existing homes and may not be able or willing to purchase a larger or more expensive home.

While the range of mortgage products available to a potential home buyer is not what it was in the period 2005 through 2007, we have seen improvements over the past several years. Indications from industry participants, including commercial banks, mortgage banks, mortgage real estate investment trusts and mortgage insurance companies are that availability, parameters and pricing of jumbo loans are all improving. We believe that improvement should not only enhance financing alternatives for existing jumbo loan buyers, but also help to offset the reduction in Fannie Mae/Freddie Mac-eligible loan amounts in some markets. Based on the mortgages provided by our mortgage subsidiary, we do not expect the change in the Fannie Mae/Freddie Mac-eligible loan amounts to have a significant impact on our business.

There has been significant media attention given to mortgage put-backs, a practice by which a buyer of a mortgage loan tries to recoup losses from the loan originator. This has not been, and we do not believe this is, a material issue for our mortgage subsidiary. Of the approximately 18,300 loans sold by our mortgage subsidiary since November 1, 2004, only 30 have been the subject of either actual indemnification payments or take-backs or contingent liability loss provisions related thereto. We believe that this is due to (i) our typical home buyer’s financial position and sophistication; (ii) on average, our home buyers who use mortgage financing to purchase a home pay approximately 30% of the purchase price in cash; (iii) our general practice of not originating certain loan types such as option adjustable rate mortgages and down payment assistance products, and our origination of few sub-prime and high loan-to-value/no documentation loans; (iv) our elimination of “early payment default” provisions from each of our agreements with our mortgage investors several years ago; and (v) the quality of our controls,

processes and personnel in our mortgage subsidiary. We have recently entered into two agreements with investors that contain limited early payment default provisions. As of April 30, 2014, we sold 21 loans under these agreements. We believe that these limited early payment default provisions will not expose us to a significant risk.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provides for a number of new requirements relating to residential mortgage lending practices. These include, among others, minimum standards for mortgages and related lender practices, the definitions and parameters of a Qualified Mortgage and a Qualified Residential Mortgage, future risk retention requirements, limitations on certain fees, prohibition of certain tying arrangements, and remedies for borrowers in foreclosure proceedings in the event that a lender violates fee limitations or minimum standards. We do not believe that the effect of these requirements on our mortgage subsidiary will be significant, although it will restrict us from providing a comprehensive package of services to some of our home buyers due to fee restrictions imposed upon our home buyers as to what they are permitted to pay to our affiliated businesses.

Gibraltar Capital and Asset Management LLC

We continue to look for distressed real estate opportunities through Gibraltar. Gibraltar continues to selectively review new opportunities, including bank portfolios and other distressed real estate investments.

In the six -month period ended April 30, 2013 , Gibraltar acquired four loans directly and invested in a loan participation for an aggregate purchase price of approximately $26.0 million. No loans were acquired in the six-month period ended April 30, 2014 .

At April 30, 2014 , Gibraltar had investments in distressed loans of approximately $18.8 million , investments in foreclosed real estate of $76.7 million , and an investment in a structured asset joint venture of $22.8 million. In the six-month periods ended April 30, 2014 and 2013 , we recognized income from Gibraltar’s operations, including Gibraltar’s equity in the earnings (losses) from its investment in a structured asset joint venture, of $5.9 million and $4.2 million, respectively. In the three-month periods ended April 30, 2014 and 2013 , we recognized income from Gibraltar’s operations, including Gibraltar’s equity in the earnings (losses) from its investment in a structured asset joint venture, of $2.6 million and $2.1 million, respectively.

Toll Brothers Apartment Living/Toll Brothers Campus Living

Over the past several years, we have acquired control of a number of land parcels as for-rent apartment projects, including two student housing sites. At April 30, 2014 , we controlled a number of land parcels as for-rent apartment projects containing approximately 5,300 units. These projects, which are located in the metro-Boston to metro-Washington, D.C. corridor, are being developed or will be developed with partners under the brand names Toll Brothers Apartment Living and Toll Brothers Campus Living. A number of these sites had been acquired by us as part of a larger purchase or were originally acquired to develop as for-sale homes. Of the 5,300 planned units, 1,500 are owned by joint ventures in which we have a 50% interest; approximately 1,900 are owned by us; 1,200 of them are under contract to be purchased; and 700 of them are under letters of intent. Through the Trust, we also have interests in approximately 1,500 operating apartment units in the Washington, D.C. area and in Princeton Junction, New Jersey.

CONTRACTS AND BACKLOG

The aggregate value of net contracts signed increase d $174.2 million or 9.7% in the six -month period ended April 30, 2014 , as compared to the six -month period ended April 30, 2013 . The value of net contracts signed was $1.98 billion ( 2,665 homes) and $1.80 billion ( 2,726 homes) in the six -month periods ended April 30, 2014 and 2013 , respectively. The increase in the aggregate value of net contracts signed in the fiscal 2014 period, as compared to the fiscal 2013 period, was the result of a 12.2% increase in the average value of each contract signed, offset, in part, by a 2.2% decline in the number of net contracts signed. The increase in the average value of each contract signed in the fiscal 2014 period, as compared to the fiscal 2013 period, was due primarily to a change in mix of contracts signed to more expensive areas and/or higher priced products, increased prices, and reduced incentives given on new contracts signed. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand, as well as the negative impact on our business due to the severe weather we have seen in many of our markets in the fiscal 2014 period.

The aggregate value of net contracts signed increase d $87.0 million or 7.3% in the three-month period ended April 30, 2014 , as compared to the three-month period ended April 30, 2013 . The value of net contracts signed was $1.27 billion (1,749 homes) and $1.19 billion (1,753 homes) in the three-month periods ended April 30, 2014 and 2013 , respectively. The increase in the aggregate value of net contracts signed in the fiscal 2014 period, as compared to the fiscal 2013 period, was the result of a 7.6% increase in the average value of each contract signed, offset, in part, by a 0.2% decline in the number of net contracts signed. The increase in the average value of each contract signed in the fiscal 2014 period, as compared to the fiscal 2013 period, was due primarily to a change in mix of contracts signed to more expensive areas and/or higher priced products, increased prices,

and reduced incentives given on new contracts signed. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand.

Backlog consists of homes under contract but not yet delivered to our home buyers. The value of our backlog at April 30, 2014 of $3.21 billion ( 4,324 homes) increased 26.7%, as compared to our backlog at April 30, 2013 of $2.53 billion ( 3,655 homes). Our backlog at October 31, 2013 and 2012 was $2.63 billion (3,679 homes) and $1.67 billion (2,569 homes), respectively. The increase in the value of the backlog at April 30, 2014 , as compared to the backlog at April 30, 2013 , was primarily attributable to the higher backlog at October 31, 2013, as compared to the backlog at October 31, 2012 and the increase in the aggregate value of net contracts signed in the six -month period ended April 30, 2014 , as compared to the six -month period ended April 30, 2013 , offset, in part, by the increase in the aggregate value of our deliveries in the six -month period ended April 30, 2014 , as compared to the aggregate value of deliveries in the six -month period ended April 30, 2013 . The 57.5% and 43.2% increases in the value and number of homes in backlog at October 31, 2013, as compared to October 31, 2012, were due to the increase in the number and the average value of net contracts signed in fiscal 2013, as compared to fiscal 2012, offset, in part, by the increase in the aggregate value and number of our deliveries in fiscal 2013, as compared to the aggregate value and number of deliveries in fiscal 2012.

In February 2014, as part of the Shapell acquisition, we assumed contracts to deliver approximately 126 homes with an aggregate value of approximately $105.3 million. At April 30, 2014, 35 of these contracts remained in backlog.

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

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2013, our most critical accounting policies relate to inventory, income taxes-valuation allowances and revenue and cost recognition. Since October 31, 2013, there have been no material changes to those critical accounting policies.

OFF-BALANCE SHEET ARRANGEMENTS

We have investments in and advances to various unconsolidated entities. We have investments in joint ventures (i) to develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) to develop for-sale homes (“Home Building Joint Ventures”); (iii) to develop luxury for-rent residential apartments, commercial space and a hotel (“Rental Property Joint Ventures”); (iv) to invest in commercial real estate opportunities (Trust and Trust II); and (v) to invest in a portfolio of distressed loans and real estate (“Structured Asset Joint Venture”).

Our investments in these entities are accounted for using the equity method of accounting. At April 30, 2014 , we had investments in and advances to these entities of $441.8 million , and were committed to invest or advance $101.7 million to these entities if they require additional funding. At April 30, 2014 , we had joint venture purchase commitments to acquire 115 home sites for approximately $12.6 million . In addition, we expect to purchase approximately 3,800 additional home sites from several joint ventures in which we have interests; the purchase price of these home sites will be determined at a future date. We will also receive approximately 935 home sites from one of our Land Development Joint Ventures in consideration of our previous investment in the joint venture.

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 which may include any, or all, of the following: (i) project completion including any cost overruns, in whole or in part; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) indemnification of the lender from environmental matters of the unconsolidated entity; (iv) a hazardous material indemnity that holds the lender harmless against any obligations for which the lender may incur liability resulting from the threat or presence of any hazardous or toxic substances at or near the property covered by a loan; 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 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, 2014 , in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral should be sufficient to repay 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, 2014 , the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $424.8 million and had borrowed an aggregate of $61.4 million . We estimate that our maximum potential exposure under these guarantees, if the full

amount of the loan commitments were borrowed, would be $424.8 million before any reimbursement from our partners. Based on the amounts borrowed at April 30, 2014 , our maximum potential exposure under these guarantees is estimated to be $61.4 million before any reimbursement from our partners.

In addition, we have guaranteed approximately $11.4 million of ground lease payments and insurance deductibles for three joint ventures.

For more information regarding these joint ventures, see Note 4, “Investments in and Advances to Unconsolidated Entities” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

The trends, uncertainties or other factors that have negatively impacted our business and the industry in general have also impacted the unconsolidated entities in which we have investments. We review each of our investments on a quarterly basis for indicators of impairment. A series of operating losses of an investee, the inability to recover our invested capital, or other factors may indicate that a loss in value of our investment in the unconsolidated entity has occurred. If a loss exists, we further review to determine if the loss is other than temporary, in which case we write down the investment to its fair value. The evaluation of our investment in unconsolidated entities entails a detailed cash flow analysis using many estimates including but not limited to expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, market conditions and anticipated cash receipts, in order to determine projected future distributions. Each of the unconsolidated entities evaluates its inventory in a similar manner. See “Critical Accounting Policies - Inventory” contained in the MD&A in our Annual Report on Form 10-K for the year ended October 31, 2013 for more detailed disclosure on our evaluation of inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in income (loss) from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities. Based upon our evaluation of the fair value of our investments in unconsolidated entities, we determined that no impairments of our investments occurred in the six -month and three-month periods ended April 30, 2014 and 2013 .

RESULTS OF OPERATIONS

The following table sets forth, for the six -month and three -month periods ended April 30, 2014 and 2013 , a comparison of certain items in the Condensed Consolidated Statements of Operations ($ amounts in millions):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
	$	%*	$	%*	$	%*	$	%*
Revenues	1,504.1		940.6		860.4		516.0
Cost of revenues	1,202.0	79.9	766.0	81.4	688.0	80.0	420.0	81.4
Selling, general and administrative	202.2	13.4	157.6	16.8	104.3	12.1	79.6	15.4
	1,404.2	93.4	923.5	98.2	792.3	92.1	499.6	96.8
Income from operations	99.8		17.1		68.1		16.4
Other
Income from unconsolidated entities	37.2		8.1		14.3		5.0
Other income - net	27.6		24.2		11.1		19.5
Income before income taxes	164.7		49.3		93.5		41.0
Income tax provision	53.9		20.2		28.3		16.3
Net income	110.8		29.1		65.2		24.7

* Percent of revenues

Note: Due to rounding, amounts may not add.

REVENUES AND COST OF REVENUES

Revenues for the six months ended April 30, 2014 were higher than those for the comparable period of fiscal 2013 by approximately $563.5 million , or 59.9% . This increase was primarily attributable to a 30.9% increase in the number of homes delivered and a 22.2% increase in the average price of the homes delivered. In the fiscal 2014 six -month period, we delivered 2,146 homes with a value of $1.50 billion , as compared to 1,640 homes in the fiscal 2013 six -month period with a value of $940.6 million . The average price of the homes delivered in the fiscal 2014 period was $700,900, as compared to $573,500 in the fiscal 2013 period. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to the higher number of homes in backlog at the beginning of fiscal 2014 , as compared to the beginning of fiscal 2013 and the homes closed from home building operations of Shapell which we acquired in February 2014.

The increase in the average price of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily attributable to a shift in the number of homes delivered to more expensive areas and higher priced products and price increases, or both. For the period from February 5, 2014 to April 30, 2014, revenue from the Shapell acquisition was $102.0 million (119 homes).

Cost of revenues as a percentage of revenues was 79.9 % in the six -month period ended April 30, 2014 , as compared to 81.4% in the six -month period ended April 30, 2013 . In the six -month periods ended April 30, 2014 and 2013 , we recognized inventory impairment charges and write-offs of $3.9 million and $1.7 million , respectively. Cost of revenues as a percentage of revenues, excluding inventory impairments, was 79.7% of revenues in the fiscal 2014 period, as compared to 81.2% in the fiscal 2013 period. The decrease in cost of revenues, excluding inventory impairment charges, as a percentage of revenue in the fiscal 2014 period, as compared to the fiscal 2013 period, was due primarily to a change in product mix/areas to higher margin areas, lower interest, and increased prices in the fiscal 2014 period, as compared to the fiscal 2013 period, offset in part, by an increase in cost of sales of approximately 1.0% due to the application of purchase accounting for the homes sold from the Shapell acquisition inventory. In the six -month periods ended April 30, 2014 and 2013 , interest cost as a percentage of revenues was 3.6% and 4.6%, respectively.

Revenues for the three months ended April 30, 2014 were higher than those for the comparable period of fiscal 2013 by approximately $344.4 million, or 66.7%. This increase was primarily attributable to a 36.2% increase in the number of homes delivered and a 22.4% increase in the average price of the homes delivered. In the fiscal 2014 period, we delivered 1,218 homes with a value of $860.4 million, as compared to 894 homes in the fiscal 2013 period with a value of $516.0 million. The average price of the homes delivered in the fiscal 2014 period was $706,400, as compared to $577,200 in the fiscal 2013 period. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to the higher number of homes in backlog at the beginning of fiscal 2014 , as compared to the beginning of fiscal 2013 and the revenues generated from home building operations of Shapell which we acquired in February 2014. The increase in the average price of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily attributable either to a shift in the number of homes delivered to more expensive areas or higher priced products and price increases, or both. For the period from February 5, 2014 to April 30, 2014, revenue from the Shapell acquisition was $102.0 million (119 homes).

Cost of revenues as a percentage of revenues was 80.0% in the three-month period ended April 30, 2014 , as compared to 81.4% in the three-month period ended April 30, 2013 . In the three-month periods ended April 30, 2014 and 2013 , we recognized inventory impairment charges and write-offs of $1.9 million and $1.0 million, respectively. Cost of revenues as a percentage of revenues, excluding inventory impairments, was 79.7% of revenues in the fiscal 2014 period, as compared to 81.2% in the fiscal 2013 period. The decrease in cost of revenues, excluding inventory impairment charges, as a percentage of revenue in the fiscal 2014 period, as compared to the fiscal 2013 period, was due primarily to a change in product mix/areas to higher margin areas, lower interest, and increased prices in the fiscal 2014 period, as compared to the fiscal 2013 period, offset in part, by an increase in cost of sales of approximately 1.5% due to the application of purchase accounting for the homes sold from the Shapell acquisition inventory. In the three-month periods ended April 30, 2014 and 2013 , interest cost as a percentage of revenues was 3.4% and 4.5%, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”)

SG&A increased by $44.6 million in the six -month period ended April 30, 2014 , as compared to the six -month period ended April 30, 2013 . As a percentage of revenues, SG&A was 13.4% in the fiscal 2014 period, as compared to 16.8% in the fiscal 2013 period. The fiscal 2014 period includes $5.9 million of expenses incurred in the Shapell acquisition. The decline in SG&A, excluding the Shapell acquisition costs, as a percentage of revenues was due to SG&A spending increasing by 24.5% while revenues increased 59.9%. The dollar increase in SG&A costs, excluding the Shapell acquisition costs, was due primarily to increased compensation costs due to our increased number of employees and higher sales commissions, increased sales and marketing costs, and increased insurance costs. The higher sales commissions were the result of our increase in sales revenues and the increase in the value of sales contracts signed during the fiscal 2014 period over the comparable period of fiscal 2013.

SG&A increased by $24.8 million in the three-month period ended April 30, 2014 , as compared to the three-month period ended April 30, 2013 . As a percentage of revenues, SG&A was 12.1% in the fiscal 2014 period, as compared to 15.4% in the fiscal 2013 period. The fiscal 2014 period includes $5.1 million of expenses incurred in the Shapell acquisition. The decline in SG&A, excluding the Shapell acquisition costs, as a percentage of revenues was due to SG&A spending increasing by 24.7% while revenues increased 66.7%. The dollar increase in SG&A costs, excluding the Shapell acquisition costs, was due primarily to increased compensation costs due to our increased number of employees and higher sales commissions, and increased sales and marketing costs. The higher sales commissions were the result of our increase in sales revenues and the increase in the value of sales contracts signed during the fiscal 2014 period over the comparable period of fiscal 2013.

INCOME FROM UNCONSOLIDATED ENTITIES

We are a participant in several joint ventures. We recognize our proportionate share of the earnings and losses from these entities. Many of our joint ventures are land development projects or high-rise/mid-rise construction projects and do not generate revenues and earnings for a number of years during the development of the property. Once development is complete, it has been our experience that these joint ventures generally, over a relatively short period of time, generate revenues and earnings until all 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 will vary significantly from quarter-to-quarter and year-to-year.

In the six -month period ended April 30, 2014 , we recognized $37.2 million of income from unconsolidated entities, as compared to $8.1 million in the comparable period of fiscal 2013 . The increase in income from unconsolidated entities was due primarily from our recognition of a $23.5 million gain representing our share of the gain on the sale by Trust II of substantially all of its assets to an unrelated party in December 2013 and a $12.0 million distribution from the Trust in April 2014 due to the refinancing of one of the Trust’s apartment complexes. The increase attributable to the Trust and Trust II gains was partially offset by lower income realized from Gibraltar’s Structured Asset Joint Venture and several of our Land Development Joint Ventures in the fiscal 2014 period, as compared to the income recognized in the fiscal 2013 period. The lower income from the Land Development Joint Ventures was attributable primarily to decreased activity from these joint ventures in the fiscal 2014 period as compared to the fiscal 2013 period.

In the three-month period ended April 30, 2014 , we recognized $14.3 million of income from unconsolidated entities, as compared to $5.0 million in the comparable period of fiscal 2013 . The increase in income from unconsolidated entities was due primarily to our recognition of a $12.0 million distribution from the Trust in April 2014 due to the refinancing of one of the Trust’s apartment complexes. The increase attributable to the Trust gain was partially offset by lower income realized from several of our Land Development Joint Ventures in the fiscal 2014 period, as compared to the income recognized in the fiscal 2013 period. The lower income from the Land Development Joint Ventures was attributable primarily to decreased activity from these joint ventures in the fiscal 2014 period as compared to the fiscal 2013 period.

OTHER INCOME - NET

Other income - net includes the gains and losses from our ancillary businesses, income from Gibraltar, interest income, management fee income, retained customer deposits, income/losses on land sales, directly expensed interest and other miscellaneous items.

For the six months ended April 30, 2014 and 2013 , other income - net was $27.6 million and $24.2 million , respectively. The increase in other income - net in the six -month period ended April 30, 2014 , as compared to the fiscal 2013 period, was primarily due to an increase in income from higher earnings from land sales, increased income from our Gibraltar operations and higher management fee and other miscellaneous income in the fiscal 2014 period, as compared to the fiscal 2013 period, offset, in part, by the recognition of $13.2 million of income in the fiscal 2013 period from the settlement of litigation, lower interest income in the fiscal 2014 period as compared to the fiscal 2013 period, and the recognition of $0.7 million of directly expensed interest in the 2014 period. Included in Land sales, net, is $2.9 million of previously deferred gains on our initial sales of the properties to Trust II.

For the three months ended April 30, 2014 and 2013 , other income - net was $11.1 million and $19.5 million, respectively. The decrease in other income - net in the three-month period ended April 30, 2014 , as compared to the fiscal 2013 period, was primarily due to the recognition of $13.2 million of income in the fiscal 2013 period from the settlement of litigation, lower interest income in the fiscal 2014 period, as compared to the fiscal 2013 period, and the recognition of $0.7 million of directly expensed interest in the 2014 period, offset in part, by an increase in income from higher earnings from land sales, increased income from our Gibraltar operations, higher management fee and other miscellaneous income in the fiscal 2014 period, as compared to the fiscal 2013 period.

INCOME BEFORE INCOME TAXES

For the six -month period ended April 30, 2014 , we reported income before income taxes of $164.7 million , as compared to $49.3 million in the six -month period ended April 30, 2013 .

For the three-month period ended April 30, 2014 , we reported income before income taxes of $93.5 million, as compared to $41.0 million in the three-month period ended April 30, 2013 .

INCOME TAX PROVISION

We recognized a $53.9 million income tax provision in the six -month period ended April 30, 2014 . Based upon the federal statutory rate of 35%, our federal tax provision would have been $57.7 million . The difference between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to the recognition of a $6.6 million

provision for state income taxes, net of a reversal of $1.2 million of state valuation allowance; the recognition of a $5.4 million provision for uncertain tax positions taken in a prior period; and $1.1 million of accrued interest and penalties (net of federal tax provision) for previously accrued taxes on uncertain tax positions, offset, in part, by the reversal of $9.1 million of previously accrued tax provisions on uncertain tax positions that were no longer necessary due to the expiration of the statute of limitations and the settlement of a state income tax audit, a $4.3 million tax benefit from our utilization of domestic production activities deductions, and $2.3 million related to other miscellaneous permanent deductions.

We recognized a $20.2 million tax provision in the six -month period ended April 30, 2013 . Based upon the federal statutory rate of 35%, our federal tax provision would have been $17.3 million . The difference between the tax benefit recognized and the tax provision based on the federal statutory rate was due primarily to the recognition of $2.0 million of accrued interest and penalties (net of federal tax provision) for previously accrued taxes on uncertain tax positions and a $0.8 million provision for state income taxes, net of a reversal of $1.3 million of state valuation allowance.

We recognized a $28.3 million income tax provision in the three-month period ended April 30, 2014 . Based upon the federal statutory rate of 35%, our federal tax provision would have been $32.7 million. The difference between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to the recognition of a $4.1 million provision for state income taxes, net of a reversal of $0.8 million of state valuation allowance; the recognition of a $5.4 million provision for uncertain tax positions taken in a prior period; and $0.3 million of accrued interest and penalties (net of federal tax provision) for previously accrued taxes on uncertain tax positions, offset, in part, by the reversal of $9.1 million of previously accrued tax provision on uncertain tax positions that were no longer needed due to the expiration of the statute of limitations and the settlement of a state income tax audit, a $2.4 million tax benefit from our utilization of domestic production activities deductions, and $1.3 million related to other miscellaneous permanent deductions.

We recognized a $16.3 million tax provision in the three-month period ended April 30, 2013 . Based upon the federal statutory rate of 35%, our tax benefit would have been $14.3 million. The difference between the tax provision recognized and the tax provision based on the federal statutory rate was due primarily to the recognition of $0.8 million of accrued interest and penalties (net of federal tax provision) for previously accrued taxes on uncertain tax positions and a $0.6 million provision for state income taxes, net of a reversal of $1.1 million of state valuation allowance.

CAPITAL RESOURCES AND LIQUIDITY

Funding for our business has been provided principally by cash flow from operating activities before inventory additions, unsecured bank borrowings, and the public debt and equity markets. At April 30, 2014 , we had $351.8 million of cash and cash equivalents and $13.0 million of marketable securities. At October 31, 2013 , we had $773.0 million of cash and cash equivalents and $52.5 million of marketable securities. Cash used in operating activities during the six -month period ended April 30, 2014 was $66.2 million . Cash used in operating activities during the fiscal 2014 period was primarily used for the purchase of inventory and an increase in receivables, prepaid expenses and other assets, offset, in part, by cash generated from net income, stock-based compensation and depreciation and amortization, an increase in customer deposits, increases in accounts payable and accrued expenses, a reduction in restricted cash, and the sale of mortgage loans to outside investors in excess of mortgage loans originated.

In the six -month period ended April 30, 2014 , cash used in our investing activities was $1.48 billion . The cash used in investing activities was primarily related to the $1.49 billion used to acquire Shapell, $80.7 million used to fund joint venture investments, and $5.8 million for the purchase of property and equipment, offset, in part, by $39.2 million of net sales of marketable securities and $61.4 million of cash received as returns on our investments in unconsolidated entities, distressed loans and foreclosed real estate.

We generated $1.12 billion of cash from financing activities in the six -month period ended April 30, 2014 , primarily from: the issuance of 7.2 million shares of our common stock in November 2013 that raised $220.4 million ; the issuance in November 2013 of $350.0 million of 4.0% Senior Notes due 2018 and $250.0 million of 5.625% Senior Notes due 2024; the borrowing of $485.0 million under a five-year term loan from ten banks; $95.0 million of borrowings under our $1.035 billion credit facility, net of repayments; and $23.3 million from the proceeds of our stock-based benefit plans, offset in part, by $18.2 million of repayments of borrowings under our mortgage company warehouse facility, net of new borrowings under it, and repayment of $268.0 million of our 4.95% senior notes in March 2014.

At April 30, 2013 , we had $703.1 million of cash and cash equivalents and $232.9 million of marketable securities. At October 31, 2012, we had $778.8 million of cash and cash equivalents and $439.1 million of marketable securities. Cash used in operating activities during the six -month period ended April 30, 2013 was $445.4 million . Cash used in operating activities during the fiscal 2013 period was primarily used to fund the purchase of inventory, offset, in part, by cash generated from net income before stock-based compensation and depreciation and amortization, the sale of mortgage loans to outside investors in excess of mortgage loans originated, a reduction in restricted cash, and an increase in customer deposits.

In the six -month period ended April 30, 2013 , cash provided by our investing activities was $165.7 million . The cash provided by investing activities was primarily generated from $203.3 million of net sales of marketable securities, $40.8 million of cash received as returns on our investments in unconsolidated entities, distressed loans and foreclosed real estate, offset, in part, by $32.0 million used to fund joint venture projects, $26.2 million for investments in distressed loans, and $20.3 million for the purchase of property and equipment.

We generated $204.0 million of cash from financing activities in the six -month period ended April 30, 2013 , primarily from the issuance of $300 million of 4.375% senior notes due 2023 and $8.4 million from the proceeds of our stock-based benefit plans, offset, in part, by the repayment of $59.1 million of our 6.875% senior notes in November 2012 and $14.1 million of repayments of borrowings under our mortgage company warehouse facility, net of new borrowings under it, and $29.2 million of repayments of other loans, net of new borrowings.

On February 4, 2014, we completed our previously announced acquisition of Shapell for an aggregate purchase price of $1.60 billion in cash. At January 31, 2014, we had deposited $161.0 million of the purchase price with an escrow agent. As part of the purchase price, we acquired $106.2 million of cash. We financed the Acquisition with a combination of (a) $370.0 million of borrowings under its $1.035 billion unsecured revolving credit facility; (b) $485.0 million from the term loan facility; and (c) proceeds from debt and equity financings completed in November 2013. See Note 2, “Acquisition,” Note 6, “Loans Payable, Senior Notes and Mortgage Company Loan Facility” and Note 12, “Stock Issuances and Stock Repurchase Program” of our condensed consolidated financial statements for more information on these transactions.

We expect to selectively sell assets to reduce land concentration and outstanding borrowings; however, the timing and size of any asset sale transactions will be dependent on market and other factors, some of which are outside of our control. We make no assurance that we will be able to complete asset sale transactions on attractive terms or at all. In the six-month period ended April 30, 2014, we sold approximately $95 million of land, sold substantially all of the assets of Trust II, and completed the refinancing of one of the mature stabilized properties owned by the Trust. These activities have generated approximately $150 million of cash which has allowed us to repay a portion of our borrowings under our credit facility.

At April 30, 2014 , the aggregate purchase price of land parcels under option and purchase agreements was approximately $1.12 billion . Of the $1.12 billion of land purchase commitments, we paid or deposited $96.0 million , and, if we acquire all of these land parcels, we will be required to pay an additional $1.02 billion . In addition, we expect to acquire an additional 3,800 home sites from joint ventures in which we have a 50% interest. The purchase price of these home sites will be determined in the future. The purchases of these land parcels are scheduled over the next several years. 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. At April 30, 2014 , we also had purchase commitments to acquire land for apartment developments of approximately $56.0 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 owned approximately 37,700 home sites at April 30, 2014 , of which approximately 13,800 are substantially improved, 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 single-family detached homes until we have a signed contract with the home buyer. Should our business decline from present levels, 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, or incur additional costs to improve land we already own, and as we sell and deliver any speculative homes that are then in inventory, all of which should result in additional cash flow from operations. In addition, we might curtail our acquisition of additional land which would further reduce our inventory levels and cash needs. During the six-month period ended April 30, 2014 , we acquired control of approximately 3,900 home sites (net of lot options terminated and land sales), including approximately 4,350 home sites in the Shapell acquisition. At April 30, 2014 , we owned or controlled through options approximately 50,400 home sites, as compared to 48,600 at October 31, 2013 and 45,200 at April 30, 2013.

On August 1, 2013, we entered into an $1.035 billion unsecured, five-year credit facility with 15 banks which extends to August 1, 2018 . Up to 75% of the credit facility is available for letters of credit. Under the terms of the credit facility, we are not permitted to allow our maximum leverage ratio (as defined in the credit agreement) to exceed 1.75 to 1.00 , and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of approximately $2.45 billion at April 30, 2014 . At April 30, 2014 , our leverage ratio was approximately 0.81 , and our tangible net worth was approximately $3.65 billion . Based upon the minimum tangible net worth requirement at April 30, 2014 , our ability to repurchase our common stock was limited to approximately $1.71 billion . At April 30, 2014 , we had $95.0 million outstanding borrowings under our credit facility and had outstanding letters of credit of approximately $90.8 million . As part of the Shapell acquisition, we borrowed $370.0 million under the credit facility on February 3, 2014, of which $275.0 million was repaid as of April 30, 2014 .

In addition, at April 30, 2014 , we had $3.0 million of letters of credit outstanding which were not part of our credit facility; these letters of credit are collateralized by $3.0 million of restricted cash deposits.

On February 4, 2014, we entered into a 364-day senior unsecured revolving credit facility (the “364-Day Facility”) with five banks. The 364-Day Facility provides for an unsecured revolving credit facility to be made available to us prior to February 3, 2015, in the amount of $500.0 million. We intend for this facility to remain undrawn and its purpose is to provide us additional liquidity should unforeseen circumstances arise. On February 3, 2014, we entered into a five-year senior, $485.0 million , unsecured term loan facility (the “Term Loan Facility”) with ten banks. We borrowed the full amount of the Term Loan Facility on February 3, 2014. The initial interest rate on the Term Loan was 1.56% per annum.

See Note 2, “Acquisition,” Note 6, “Loans Payable, Senior Notes and Mortgage Company Loan Facility” and Note 12, “Stock Issuances and Stock Repurchase Program” of our condensed consolidated financial statements for more information on these transactions.

We believe that we will be able to continue to fund our current operations and meet our contractual obligations through a combination of existing cash resources and other sources of capital and credit. Due to the tight credit markets and the uncertainties that exist 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; moreover, if we are able to replace all or some of such facilities, we may be subjected to more restrictive borrowing terms and conditions. At April 30, 2014, we had $849.2 million available under our five-year credit facility through August 1, 2018 and $500.0 million available under the 364-Day Facility through February 3, 2015.

OPERATING SEGMENTS

We operate in two segments: Traditional Home Building and Urban Infill (“City Living”). We operate our Traditional Home Building operations in four geographic segments around the United States: the North, consisting of Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey and New York; the Mid-Atlantic, consisting of Delaware, Maryland, Pennsylvania, Virginia; the South, consisting of Florida, North Carolina, South Carolina, and Texas; and the West, consisting of Arizona, California, Colorado, Nevada and Washington.

The tables below summarize information related to units delivered and revenues and net contracts signed by segment for the six -month and three -month periods ended April 30, 2014 and 2013 , and information related to backlog by segment at April 30, 2014 and 2013 , and at October 31, 2013 and 2012 .

Units Delivered and Revenues ($ amounts in millions):



	Six months ended April 30,						Three months ended April 30,
	2014 Units	2013 Units	2014 $		2013 $		2014 Units	2013 Units	2014 $		2013 $
Traditional Home Building:
North	448	321	$	264.9	$	174.6	239	170	$	137.3	$	92.2
Mid-Atlantic	546	495	349.6		270.1		273	259	180.5		140.5
South	510	367	336.7		222.7		285	224	186.1		135.6
West	581	407	507.8		241.2		377	207	321.6		128.6
Traditional Home Building	2,085	1,590	1,459.0		908.6		1,174	860	825.5		496.9
City Living	61	50	45.1		32.0		44	34	34.9		19.1
Total	2,146	1,640	$	1,504.1	$	940.6	1,218	894	$	860.4	$	516.0

Net Contracts Signed ($ amounts in millions):



	Six months ended April 30,						Three months ended April 30,
	2014 Units	2013 Units	2014 $		2013 $		2014 Units	2013 Units	2014 $		2013 $
Traditional Home Building:
North	484	558	$	317.8	$	309.8	303	323	$	199.6	$	179.3
Mid-Atlantic	630	740	390.5		428.6		367	478	226.6		281.7
South	596	580	424.6		390.5		374	377	256.3		253.0
West	836	660	707.2		517.7		637	419	519.4		339.8
Traditional Home Building	2,546	2,538	1,840.1		1,646.6		1,681	1,597	1,201.9		1,053.8
City Living	119	188	136.5		155.8		68	156	73.0		134.1
Total	2,665	2,726	$	1,976.6	$	1,802.4	1,749	1,753	$	1,274.9	$	1,187.9

Backlog ($ amounts in millions):



	At April 30,						At October 31,
	2014 Units	2013 Units	2014 $		2013 $		2013 Units	2012 Units	2013 $		2012 $
Traditional Home Building:
North	984	862	$	615.5	$	485.2	948	625	$	562.5	$	350.0
Mid-Atlantic	986	879	613.9		532.9		902	634	573.0		374.5
South	1,042	962	761.4		651.3		956	749	673.5		483.5
West	1,056	760	897.9		627.5		675	507	593.2		351.0
Traditional Home Building	4,068	3,463	2,888.7		2,296.9		3,481	2,515	2,402.2		1,559.0
City Living	256	192	318.7		234.7		198	54	227.3		110.9
Total	4,324	3,655	$	3,207.4	$	2,531.6	3,679	2,569	$	2,629.5	$	1,669.9

Revenues and Income (Loss) Before Income Taxes:

The following table summarizes by segment total revenues and income (loss) before income taxes for the six -month and three -month periods ended April 30, 2014 and 2013 (amounts in millions):



	Six months ended April 30,				Three months ended April 30,
	2014		2013		2014		2013
Revenue:
Traditional Home Building:
North	$	264.9	$	174.6	$	137.3	$	92.2
Mid-Atlantic	349.6		270.1		180.5		140.5
South	336.7		222.7		186.1		135.6
West	507.8		241.2		321.6		128.6
Traditional Home Building	1,459.0		908.6		825.5		496.9
City Living	45.1		32.0		34.9		19.1
Total	$	1,504.1	$	940.6	$	860.4	$	516.0



	Six months ended April 30,						Three months ended April 30,
	2014			2013			2014			2013
Income (loss) before income taxes:
Traditional Home Building:
North	$	17.1		$	7.9		$	8.8		$	3.2
Mid-Atlantic	45.9			32.0			24.4			17.2
South	41.0			17.0			23.6			14.2
West	78.7			21.1			44.8			13.0
Traditional Home Building	182.7			78.0			101.6			47.6
City Living	9.0			8.3			10.0			5.6
Corporate and other (a)	(27.0		)	(37.0		)	(18.1		)	(12.2		)
Total	$	164.7		$	49.3		$	93.5		$	41.0


(a)	“Corporate and other” is comprised principally of general corporate expenses such as the offices of the Executive Officers of the Company; the corporate finance, accounting, audit, tax, human resources, risk management, marketing and legal groups; interest income and income from the our ancillary businesses, including Gibraltar; and income from a number of our unconsolidated entities.

North

Revenues in the six -month period ended April 30, 2014 were higher than those for the comparable period of fiscal 2013 by $90.3 million , or 51.7% . The increase in revenues was primarily attributable to increases of 39.6% and 8.7% in the number and average selling price of homes delivered, respectively. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was due to a higher backlog at October 31, 2013, as compared to October 31, 2012. The increase in the average selling price of the homes delivered in the fiscal 2014 period was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and increases in selling prices in fiscal 2014 .

The value of net contracts signed in the six -month period ended April 30, 2014 was $317.8 million , a 2.6% increase from the $309.8 million of net contracts signed during the six -month period ended April 30, 2013 . This increase was primarily due to an 18.3% increase in the average value of each net contract, offset, in part, by a decrease of 13.3% in the number of net contracts signed. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products, in the fiscal 2014 period, as compared to the fiscal 2013 period, and increases in base selling prices. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand, as well as the negative impact on our business due to the severe weather we have seen in this region in the fiscal 2014 period.

For the six -month period ended April 30, 2014 , we reported income before income taxes of $17.1 million , as compared to $7.9 million for the six -month period ended April 30, 2013 . This increase in income before income taxes was primarily attributable to higher earnings from the increased revenues, offset, in part, by higher SG&A and higher inventory impairment charges, in the fiscal 2014 period, as compared to the fiscal 2013 period. Inventory impairment charges, in the fiscal 2014 and 2013 periods, were $3.1 million and $1.6 million, respectively.

Revenues in the three -month period ended April 30, 2014 were higher than those for the comparable period of fiscal 2013 by $45.1 million , or 48.9% . The increase in revenues was primarily attributable to increases of 40.6% and 5.8% in the number and average selling price of homes delivered, respectively. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was due to a higher backlog at October 31, 2013, as compared to October 31, 2012. The increase in the average selling price of the homes delivered in the fiscal 2014 period was primarily due to a shift in the number of homes delivered to more expensive areas and/or products and increases in selling prices in fiscal 2014 .

The value of net contracts signed in the three -month period ended April 30, 2014 was $199.6 million , a 11.3% increase from the $179.3 million of net contracts signed during the three -month period ended April 30, 2013 . This increase was primarily due to an 18.7% increase in the average value of each net contract, offset, in part, by a decrease of 6.2% in the number of net contracts signed. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products, in the fiscal 2014 period, as compared to the fiscal 2013 period, and increases in base selling prices. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand, as well as the negative impact on our business due to the severe weather we have seen in this region in the fiscal 2014 period.

For the three -month period ended April 30, 2014 , we reported income before income taxes of $8.8 million , as compared to $3.2 million for the three -month period ended April 30, 2013 . This increase in income before income taxes was primarily attributable to higher earnings from the increased revenues, offset, in part, by higher SG&A and higher inventory impairment charges, in the fiscal 2014 period, as compared to the fiscal 2013 period. Inventory impairment charges, in the three -month periods ended April 30, 2014 and 2013 , were $1.7 million and $1.1 million, respectively.

Mid-Atlantic

For the six -month period ended April 30, 2014 , revenues were higher than those for the six -month period ended April 30, 2013 , by $79.5 million , or 29.4% . The increase in revenues was primarily attributable to a 10.3% increase in the number of homes delivered and a 17.3% increase in the average selling price of the homes delivered. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012. The increase in the average price of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or products and increases in selling prices in the fiscal 2014 period.

The value of net contracts signed during the six -month period ended April 30, 2014 decreased by $38.1 million , or 8.9% , from the six -month period ended April 30, 2013 . The decrease was due to a 14.9% decrease in the number of net contracts signed partially offset by a 7.0% increase in the average value of each net contract signed. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand, as well as the negative impact on our business due to the severe weather we have seen in this region in the fiscal 2014 period. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2014 period, as compared to the fiscal 2013 period and increases in selling prices.

We reported income before income taxes for the six -month periods ended April 30, 2014 and 2013 , of $45.9 million and $32.0 million , respectively. The increase in income before income taxes was primarily due to higher earnings from the increased revenues and $2.9 million of earnings from land sales in the fiscal 2014 period, offset, in part, by higher SG&A costs, in the fiscal 2014 period, as compared to the fiscal 2013 period. The earnings from land sales in six months ended April 30, 2014 represents previously deferred gains on our initial sales of properties to Trust II.

For the three -month period ended April 30, 2014 , revenues were higher than those for the three -month period ended April 30, 2013 , by $40.0 million , or 28.5% . The increase in revenues was primarily attributable to a 5.4% increase in the number of homes delivered and a 21.8% increase in the average selling price of the homes delivered. The increase in the average price of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or products and increases in selling prices the fiscal 2014 period. The increase in the number of homes delivered in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012.

The value of net contracts signed during the three -month period ended April 30, 2014 decreased by $55.1 million , or 19.6% , from the three -month period ended April 30, 2013 . The decrease was due to a 23.2% decrease in the number of net contracts signed, offset, in part, by a 4.8% increase in the average value of each net contract signed. The decrease in the number of net contracts signed was primarily due to the previously discussed leveling in demand in the fiscal 2014 period. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2014 period, as compared to the fiscal 2013 period and increases in selling prices.

We reported income before income taxes for the three -month periods ended April 30, 2014 and 2013 , of $24.4 million and $17.2 million , respectively. The increase in income before income taxes was primarily due to higher earnings from the increased revenues, offset, in part, by higher SG&A costs, in the fiscal 2014 period, as compared to the fiscal 2013 period.

South

Revenues in the six -month period ended April 30, 2014 were higher than those for the six -month period ended April 30, 2013 by $114.0 million , or 51.2% . This increase was attributable to a 39.0% increase in the number of homes delivered and an 8.8% increase in the average price of the homes delivered. The increase in the number of homes delivered in the fiscal 2014 period was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012, primarily in Florida and Texas. The increase in the average price of the homes delivered was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or products in the fiscal 2014 period and increases in in selling prices in fiscal 2014 .

For the six -month period ended April 30, 2014 , the value of net contracts signed increased by $34.1 million , or 8.7% , as compared to the six -month period ended April 30, 2013 . The increase was attributable to increase s of 2.8% and 5.8% in the number and average value of net contracts signed, respectively. The increase in the number of net contracts signed in the six -month period ended April 30, 2014 was primarily due to increased demand in Florida and Texas in the fiscal 2014 period, as

compared to the fiscal 2013 period. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products and increases in base selling prices in the fiscal 2014 period.

For the six -month periods ended April 30, 2014 and 2013 , we reported income before income taxes of $41.0 million and $17.0 million , respectively. The increase in income before income taxes was primarily due to higher earnings from the increased revenues in the fiscal 2014 period, as compared to the fiscal 2013 period, and earnings from land sales of $3.4 million in the fiscal 2014 period, partially offset by higher SG&A costs.

Revenues in the three -month period ended April 30, 2014 were higher than those for the three -month period ended April 30, 2013 by $50.5 million , or 37.2% . This increase was attributable to a 27.2% increase in the number of homes delivered and a 7.9% increase in the average price of the homes delivered. The increase in the number of homes delivered in the fiscal 2014 period was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012, primarily in Texas and Florida. The increase in the average price of the homes delivered was primarily attributable to a shift in the number of homes delivered to more expensive areas and/or products in the fiscal 2014 period and increases in selling prices in fiscal 2014 .

For the three -month period ended April 30, 2014 , the value of net contracts signed increased by $3.3 million , or 1.3% , as compared to the three -month period ended April 30, 2013 . The increase was attributable to an increase of 2.1% in the average value of net contracts signed. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products and increases in base selling prices in the fiscal 2014 period.

For the three -month periods ended April 30, 2014 and 2013, we reported income before income taxes of $23.6 million and $14.2 million , respectively. The increase in income before income taxes was primarily due to higher earnings from the increased revenues in the fiscal 2014 period, as compared to the fiscal 2013 period, partially offset by higher SG&A costs.

West

Revenues in the six -month period ended April 30, 2014 were higher than those in the six -month period ended April 30, 2013 by $266.6 million , or 110.5% . The increase in revenues was attributable to a 47.5% increase in the average sales price of the homes delivered and a 42.8% increase in the number of homes delivered. The increase in the average price of the homes delivered was primarily due to a shift in the number of homes delivered to more expensive products, including newly acquired Shapell communities, and/or locations and an increase in selling prices. The increase in the number of homes delivered was primarily attributable to the delivery of 119 Shapell homes in California in the period from February 2, 2014 to April 30, 2014. Excluding these deliveries, the number of homes delivered increased by 13.5% which was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012, primarily in California and Nevada.

The value of net contracts signed during the six -month period ended April 30, 2014 increase d $189.5 million , or 36.6% , as compared to the six -month period ended April 30, 2013 . This increase was due to an increase of 26.7% in the number of net contracts signed and a 7.9% increase in the average value of each net contract. During the six -month period ended April 30, 2014 , we signed 186 contracts with a value of $172.5 million at communities we acquired from Shapell. Excluding these Shapell net contracts signed, the value of net contracts signed during the six -month period ended April 30, 2014 increased by $17.0 million, or 3.3%, as compared to the six -month period ended April 30, 2013 . The increase in the value of net contracts signed, excluding Shapell, was due to a 4.9% increase in the average value of each net contract signed, offset, in part, by a decrease of 1.5% in the number of net contracts signed. The increase in the average sales price of net contracts signed, excluding Shapell, was primarily due to a shift in the number of contracts signed to more expensive areas and/or products and increases in base selling prices. The decrease in the number of net contracts signed, excluding Shapell, was primarily due to a reduction of available inventory in the fiscal 2014 period, as compared to the fiscal 2013 period, in California.

For the six -month period ended April 30, 2014 and 2013 , we reported income before income taxes of $78.7 million and $21.1 million , respectively. The increase in income before income taxes was primarily due to higher earnings from increased revenues, lower cost of revenues as a percentage of revenues, and $4.8 million of earnings from land sales in the fiscal 2014 period, offset, in part, by higher SG&A costs in the fiscal 2014 period, which includes $5.9 million of expenses incurred in the Shapell acquisition. Cost of revenues as a percentage of revenues was 77.6% in the six -month period ended April 30, 2014 , as compared to 82.8% in the fiscal 2013 period. The decrease in cost of revenues as a percentage of revenues in the fiscal 2014 period was primarily due to a shift in the number of homes delivered to better margin products and/or locations and increases in selling prices, offset, in part, by the impact of purchase accounting on the homes delivered in the fiscal 2014 period from our acquisition of Shapell. Excluding Shapell’s deliveries, cost of revenues as a percentage of revenues in the fiscal 2014 period was 74.3%.

Revenues in the three -month period ended April 30, 2014 were higher than those in the three -month period ended April 30, 2013 by $193.0 million , or 150.1% . The increase in revenues was attributable to an 82.1% increase in the number of homes

delivered and a 37.3% increase in the average sales price of the homes delivered. The increase in the number of home delivered was primarily attributable to the delivery of 119 Shapell homes in the period from February 2, 2014 to April 30, 2014. Excluding these deliveries, the number of homes delivered increased by 24.6% which was primarily due to a higher backlog at October 31, 2013, as compared to October 31, 2012, primarily in California and Nevada. The increase in the average price of the homes delivered was primarily due to a shift in the number of homes delivered to more expensive products and/or locations and an increase in selling prices.

The value of net contracts signed during the three -month period ended April 30, 2014 increased $179.6 million , or 52.9% , as compared to the three -month period ended April 30, 2013 . This increase was due to an increase of 52.0% in the number of net contracts signed. During the three -month period ended April 30, 2014 , we signed 186 contracts with a value of $172.5 million at communities we acquired from Shapell. Excluding these Shapell net contracts signed, the value of net contracts signed during the three -month period ended April 30, 2014 increased by $7.1 million, or 2.1%, as compared to the three -month period ended April 30, 2013 . The increase in the value of net contracts signed, excluding Shapell, was due to an increase of 7.6% in the number of net contracts signed, offset, in part, by a 5.1% decrease in the average value of each net contract signed. The increase in the number of net contracts signed was primarily due to an increase in selling communities in Colorado and Nevada, partially offset by a reduction of available inventory in California. The decrease in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to less expensive areas and/or products.

For the three -month period ended April 30, 2014 and 2013 , we reported income before income taxes of $44.8 million and $13.0 million , respectively. The increase in income before income taxes was primarily due to higher earnings from the increased revenues, lower cost of revenues as a percentage of revenues, and $4.8 million of earnings from land sales in the fiscal 2014 period, offset, in part, by higher SG&A costs in the fiscal 2014 period, which includes $5.1 million of expenses incurred in the Shapell acquisition. Cost of revenues as a percentage of revenues was 79.8% in the three -month period ended April 30, 2014 , as compared to 82.4% in the fiscal 2013 period. The decrease in cost of revenues as a percentage of revenues in the fiscal 2014 period was primarily due to a shift in the number of homes delivered to better margin products and/or locations and increases in selling prices, offset, in part, by the impact of purchase accounting on the homes delivered in the fiscal 2014 period from our acquisition of Shapell. Excluding Shapell’s deliveries, cost of revenues as a percentage of revenues in the fiscal 2014 period was 74.9%.

City Living

For the six -months ended April 30, 2014 , revenues were higher than those for the six -months ended April 30, 2013 , by $13.1 million , or 40.9% . The increase in revenues was primarily attributable to a 22.0% increase in the number of homes delivered and an increase of 15.6% in the average selling price of the homes delivered. The increase in the number of homes delivered was primarily due to an increase in homes delivered in the Pennsylvania City Living communities, which was primarily attributable to a higher backlog at October 31, 2013, as compared to October 31, 2012. The increase in the average sales price of homes delivered was primarily due to a shift in the number of homes delivered to more expensive areas and/or products.

For the six -month period ended April 30, 2014 , the value of net contracts signed decreased by $19.3 million , or 12.4% , as compared to the six -month period ended April 30, 2013 . The decrease was attributable to a decrease of 36.7% in the number of net contracts signed, partially offset by a 38.4% increase in the average value of net contracts signed. The decrease in the number of net contracts signed in the six -month period ended April 30, 2014 was primarily due to the commencement of sales at two of our buildings in the second quarter of fiscal 2013 where sales were high during the initial opening. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2014 period.

We reported income before income taxes of $9.0 million in the six -months ended April 30, 2014 , as compared to $8.3 million in the six -months ended April 30, 2013 . The increase in income before income taxes was primarily attributable to higher earnings from the increased revenues and higher management fee income, partially offset by higher SG&A costs, in the six months ended April 30, 2014 , as compared to the six months ended April 30, 2013 .

For the three months ended April 30, 2014 , revenues were higher than those for the three -months ended April 30, 2013 , by $15.8 million , or 82.7% . The increase in revenues was primarily attributable to increases of 41.6% and 29.4% in the average selling price of the homes delivered and the number of homes delivered, respectively. The increase in the average sales price of homes delivered was primarily due to a shift in the number of homes delivered to more expensive areas and/or products. The increase in the number of homes delivered was primarily due to an increase in homes delivered in the New Jersey urban market, which was primarily attributable to a higher backlog at October 31, 2013, as compared to October 31, 2012.

For the three -month period ended April 30, 2014 , the value of net contracts signed decreased by $61.1 million , or 45.6% , as compared to the three -month period ended April 30, 2013 . The decrease was attributable to a 56.4% decrease in the number of net contracts signed, offset, in part, by a 24.8% increase in the average value of net contracts signed. The decrease in the

number of net contracts signed in the three-month period ended April 30, 2014 was primarily due to the commencement of sales at two of our buildings in the second quarter of fiscal 2013 where sales were high during the initial opening. The increase in the average sales price of net contracts signed was primarily due to a shift in the number of contracts signed to more expensive areas and/or products in the fiscal 2014 period.

We reported income before income taxes of $10.0 million in the three -months ended April 30, 2014 , as compared to $5.6 million in the three -months ended April 30, 2013 . The increase in income before income taxes was primarily attributable to higher earnings from the increased revenues, lower cost of revenues as a percentage of revenues and higher management fee income, partially offset by higher SG&A costs, in the three months ended April 30, 2014 , as compared to three -months ended April 30, 2013 . Cost of revenues as a percentage of revenues was 65.0% and 68.2% in the three months ended April 30, 2014 and 2013 , respectively. This decrease in cost of revenues as a percentage of revenues was primarily due to a shift in the number of homes delivered to better margin products and/or locations.

Corporate and Other

For the six -month period ended April 30, 2014 and 2013 , corporate and other loss before income taxes was $27.0 million and $37.0 million , respectively. This decrease in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to an increase in income from unconsolidated entities from $4.2 million in the fiscal 2013 period to $36.8 million in the fiscal 2014 period, and increased income from our Gibraltar operations in the fiscal 2014 period, as compared to the fiscal 2013 period, offset, in part, by $13.2 million of income in the fiscal 2013 period from the settlement of litigation and higher unallocated SG&A in the fiscal 2014 period, as compared to the fiscal 2013 period. The increase in income from unconsolidated entities was due primarily to our recognition of a $23.5 million gain representing our share of the gain on the sale by Trust II of substantially all of its assets to an unrelated party in December 2013 and a $12.0 million distribution from the Trust in April 2014 due to the refinancing of one of the Trust’s apartment properties. The increase attributable to the Trust and Trust II gains was partially offset by lower income realized from Gibraltar’s Structured Asset Joint Venture. The increase in unallocated SG&A costs was due primarily to increased compensation costs due to our increased number of employees.

For the three -month period ended April 30, 2014 and 2013 , corporate and other loss before income taxes was $18.1 million and $12.2 million , respectively. The increase in the loss in the fiscal 2014 period, as compared to the fiscal 2013 period, was primarily due to higher unallocated SG&A and $13.2 million of income in the fiscal 2013 period from the settlement of litigation, offset, in part, by an increase in income from unconsolidated entities from $2.5 million in the fiscal 2013 period to $14.0 million in the fiscal 2014 period, and increased income from our Gibraltar operations in the fiscal 2014 period, as compared to the fiscal 2013 period. The increase in income from unconsolidated entities was due primarily from our recognition of a $12.0 million distribution from the Trust in April 2014 due to the refinancing of one of the Trust’s apartment properties. The increase in unallocated SG&A costs was due primarily to increased compensation costs due to our increased number of employees.

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 market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.

The table below sets forth, at April 30, 2014 , our debt obligations, principal cash flows 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
2014	$	39,449		5.06%	$	56,842	3.00%
2015	360,053			5.07%	150		0.24%
2016	12,924			5.04%	150		0.24%
2017	404,337			8.88%	150		0.24%
2018	3,537			4.73%	95,150		1.85%
Thereafter	1,989,904			4.54%	498,660		1.52%
Discount	(2,938		)
Total	$	2,807,266		5.24%	$	651,102	1.70%
Fair value at April 30, 2014	$	3,000,095			$	651,102


(a)	Based upon the amount of variable-rate debt outstanding at April 30, 2014 , and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $6.5 million per year.

ITEM 4. CONTROLS AND PROCEDURES

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 management, with the participation of our Chief Executive Officer and Chief Financial Officer, has 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 during our quarter ended April 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors as previously disclosed in our Form 10-K for the fiscal year ended October 31, 2013 .

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

During the three-month period ended April 30, 2014 , we repurchased the following shares of our common stock:



Period	Total number of shares purchased (b)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (a)	Maximum number of shares that may yet be purchased under the plans or programs (a)
	(in thousands)			(in thousands)	(in thousands)
February 1, 2014 to February 28, 2014	—			—	8,266
March 1, 2014 to March 31, 2014	2	$	36.21	2	8,264
April 1, 2014 to April 30, 2014	1	$	34.95	1	8,263
Total	3	$	36.04	3


(a)	On March 26, 2003, we announced that our Board of Directors had authorized the repurchase of up to 20 million shares of our common stock, par value $.01, in open market transactions or otherwise, for the purpose of providing shares for our various employee benefit plans. The Board of Directors did not fix an expiration date for the repurchase program.

(b)

Our stock incentive plans permit participants to exercise non-qualified stock options using a “net exercise” method at the discretion of the Executive Compensation Committee of our Board of Directors. 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, 2014 , the net exercise method was employed to exercise stock options to acquire 9,816 of our common stock; we withheld 6,308 of the shares subject to stock options to cover $249,000 of option exercise price and income tax withholdings and we issued the remaining 3,508 shares to the recipients. The shares withheld in connection with the net exercise method are not included in the total number of shares purchased in the table above.

Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the restricted stock unit recipient. During the three months ended April 30, 2014 , we withheld 94 of the shares subject to restricted stock unit to cover $3,000 of income tax withholdings and we issued the remaining 220 shares to the recipients. The shares withheld in connection with the net exercise method are not included in the total number of shares purchased in the table above.

Except as set forth above, we have not repurchased any of our equity securities during the three-month period ended April 30, 2014 .

We have not paid any cash dividends on our common stock to date and expect that, for the foreseeable future, we will not do so.

ITEM 6. EXHIBITS



4.1*	Third Supplemental Indenture dated as of April 30, 2014, to the Indenture dated as of February 7, 2012 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.

4.2*	Fifth Supplemental Indenture dated as of April 30, 2014, 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.

4.3*	Second Supplemental Indenture dated as of April 30, 2014, 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.

4.4*	Twenty-third Supplemental Indenture dated as of April 30, 2014, to the Indenture dated as of November 22, 2002 by and among the parties listed on Schedule A thereto, and The Bank of New York Mellon, as successor Trustee.

10.1	Credit Agreement by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the lenders party thereto and Citibank, N.A., as Administrative Agent dated February 4, 2014, is hereby incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2014

10.2	Credit Agreement by and among First Huntingdon Finance Corp., Toll Brothers, Inc., the lenders party thereto and SunTrust Bank, as Administrative Agent dated February 3, 2014, is hereby incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2014

10.3*	Toll Brothers, Inc. Supplemental Executive Retirement Plan, as amended and restated effective as of March 12, 2014.

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.

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 6, 2014	By:	/s/ Martin P. Connor
			Martin P. Connor
			Senior Vice President and Chief Financial
			Officer (Principal Financial Officer)

Date:	June 6, 2014	By:	/s/ Joseph R. Sicree
			Joseph R. Sicree
			Senior Vice President and Chief Accounting
			Officer (Principal Accounting Officer)

Exhibit 4.1

THIS THIRD SUPPLEMENTAL INDENTURE , dated as of April 30, 2014, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Third Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture (as defined on Exhibit A attached hereto).

RECITALS

WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Revolving Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Revolving Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;

WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Third Supplemental Indenture; and

WHEREAS, the consent of Holders to the execution and delivery of this Third Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Third Supplemental Indenture have been taken.

NOW, THEREFORE IT IS AGREED:

Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Third Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 5.875% Senior Notes, (ii) the 4.375% Senior Notes, (iii) the 4.0% Senior Notes, (iv) the 5.625% Senior Notes, (v) any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (vi) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.

Section 2. Ratification of Indenture . This Third Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Third Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 3. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4. Successors and Assigns . All covenants and agreements in this Third Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.

Section 5. Separability Clause . In case any one or more of the provisions contained in this Third Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 6. Governing Law . This Third Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Third Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Third Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

Section 7. Counterparts . This Third Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

Section 8. Role of Trustee . The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Third Supplemental Indenture.

IN WITNESS WHEREOF , the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the date first above written.



	THE ADDITIONAL GUARANTORS NAMED ON
	SCHEDULE A HERETO, as Guarantors


	By:	/s/ Joseph R. Sicree
		Name: Joseph R. Sicree
		Title: Designated Officer



THE BANK OF NEW YORK MELLON,
as Trustee


By:	/s/ Laurence J. O’Brien
	Name: Laurence J. O’Brien
	Title: Vice President

SCHEDULE A

Additional Guarantors as of April 30, 2014

Arbors Porter Ranch, LLC

Placentia Development Company, LLC

Plum Canyon Master LLC

Porter Ranch Development Co.

PRD Investors, Inc.

PRD Investors, LLC

Rancho Costera LLC

Shapell Hold Properties No. 1, LLC

Shapell Homes, Inc.

Shapell Industries, Inc.

Shapell Land Company, LLC

Toll Austin TX II LLC

Toll CA III LLC

Toll PA XVI, L.P.

Toll PA XVII, L.P.

Upper K Investors, Inc.

Upper K Investors, LLC

Upper K-Shapell, LLC

EXHIBIT A

For purposes of this Third Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of February 7, 2012 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 5.875% Senior Notes due 2022 (the “ 5.875% Senior Notes ”) by Toll Brothers Finance Corp. (the “ Issuer ”) and the issuance of related guarantees by Toll Brothers, Inc. (the “ Company ”) and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of January 31, 2012; (ii) the issuance of $119,876,000 aggregate principal amount of 5.875% Senior Notes issued by the Issuer and the issuance of related guarantees by the Company and the other Guarantors in an exchange for a portion of the Issuer’s outstanding 6.875% Senior Notes due 2012 and 5.95% Senior Notes due 2013; (iii) the First Supplemental Indenture dated as of April 27, 2012 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (iv) the Authorizing Resolutions relating to the $300,000,000 principal amount of 4.375% Senior Notes due 2023 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of April 3, 2013; (v) the Second Supplemental Indenture dated as of April 29, 2013 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vi) the Authorizing Resolutions relating to the $100,000,000 principal amount of 4.375% Senior Notes due 2023 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of May 8, 2013; (vii) the Authorizing Resolutions relating to the $350,000,000 principal amount of 4.000% Senior Notes due 2018 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of November 21, 2013; (viii) the Authorizing Resolutions, dated as of November 21, 2013, relating to the $250,000,000 principal amount of 5.625% Senior Notes due 2024 of the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of November 21, 2013; and as may be further supplemented (including by this Third Supplemental Indenture) and/or amended.

Exhibit 4.2

THIS FIFTH SUPPLEMENTAL INDENTURE , dated as of April 30, 2014, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Fifth Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture (as defined on Exhibit A attached hereto).

RECITALS

WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Bank Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Bank Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;

WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Fifth Supplemental Indenture; and

WHEREAS, the consent of Holders to the execution and delivery of this Fifth Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Fifth Supplemental Indenture have been taken.

NOW, THEREFORE IT IS AGREED:

Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Fifth Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 8.910% Senior Notes, (ii) the 6.750% Senior Notes, (iii) any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (vi) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.

Section 2. Ratification of Indenture . This Fifth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Fifth Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 3. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4. Successors and Assigns . All covenants and agreements in this Fifth Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.

Section 5. Separability Clause . In case any one or more of the provisions contained in this Fifth Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 6. Governing Law . This Fifth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Fifth Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Fifth Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

Section 7. Counterparts . This Fifth Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

IN WITNESS WHEREOF , the parties hereto have caused this Fifth Supplemental Indenture to be duly executed as of the date first above written.



	THE ADDITIONAL GUARANTORS NAMED ON
	SCHEDULE A HERETO, as Guarantors


	By:	/s/ Joseph R. Sicree
		Name: Joseph R. Sicree
		Title: Designated Officer



THE BANK OF NEW YORK MELLON,
as Trustee


By:	/s/ Laurence J. O'Brien
	Name: Laurence J. O'Brien
	Title: Vice President

SCHEDULE A

Additional Guarantors as of April 30, 2014

Arbors Porter Ranch, LLC

Placentia Development Company, LLC

Plum Canyon Master LLC

Porter Ranch Development Co.

PRD Investors, Inc.

PRD Investors, LLC

Rancho Costera LLC

Shapell Hold Properties No. 1, LLC

Shapell Homes, Inc.

Shapell Industries, Inc.

Shapell Land Company, LLC

Toll Austin TX II LLC

Toll CA III LLC

Toll PA XVI, L.P.

Toll PA XVII, L.P.

Upper K Investors, Inc.

Upper K Investors, LLC

Upper K-Shapell, LLC

EXHIBIT A

For purposes of this Fifth Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of April 20, 2009 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $400,000,000 aggregate principal amount of 8.910% Senior Notes due 2017 (the “ 8.910% Senior Notes ”) by Toll Brothers Finance Corp. (the “ Issuer ”) and the issuance of related guarantees by Toll Brothers, Inc. (the “ Company ”) and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of April 27, 2009; (ii) the Authorizing Resolutions, related to the issuance of $250,000,000 aggregate principal amount of 6.750% Senior Notes due 2019 (the “ 6.750% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of Toll Brothers Finance Corp., Toll Brothers, Inc. and Each of the Entities listed on Schedule I thereto dated as of September 22, 2009; (iii) the First Supplemental Indenture dated October 27, 2011 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, thereby became Guarantors) and the Trustee; (iv) the Second Supplemental Indenture dated as of November 1, 2011 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, thereby became Guarantors) and the Trustee; (v) the Third Supplemental Indenture dated as of April 27, 2012 (the “Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; (vi) the Fourth Supplemental Indenture dated as of April 30, 2013 (the “Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; and as may be further supplemented (including by this Fifth Supplemental Indenture) and/or amended.

Exhibit 4.3

THIS SECOND SUPPLEMENTAL INDENTURE , dated as of April 30, 2014, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as trustee (the “ Trustee ”). Capitalized terms used in this Second Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture (as defined on Exhibit A attached hereto).

RECITALS

WHEREAS, Section 4.10 of the Indenture provides that if in accordance with the provisions of the Revolving Credit Facility the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Original Indenture as a guarantor under the Revolving Credit Facility, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;

WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Second Supplemental Indenture; and

WHEREAS, the consent of Holders to the execution and delivery of this Second Supplemental Indenture is not required, and all other actions required to be taken under the Indenture with respect to this Second Supplemental Indenture have been taken.

NOW, THEREFORE IT IS AGREED:

Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Second Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under (i) the 0.5% Exchangeable Senior Notes due September 2032, (ii) any other Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and (iii) the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Original Indenture.

Section 2. Ratification of Indenture . This Second Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 3. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4. Successors and Assigns . All covenants and agreements in this Second Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.

Section 5. Separability Clause . In case any one or more of the provisions contained in this Second Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 6. Governing Law . This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Second Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Second Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

Section 7. Counterparts . This Second Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

IN WITNESS WHEREOF , the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first above written.



	THE ADDITIONAL GUARANTORS NAMED ON
	SCHEDULE A HERETO, as Guarantors


	By:	/s/ Joseph R. Sicree
		Name: Joseph R. Sicree
		Title: Designated Officer



THE BANK OF NEW YORK MELLON,
as Trustee


By:	/s/ Laurence J. O'Brien
	Name: Laurence J. O'Brien
	Title: Vice President

SCHEDULE A

Additional Guarantors as of April 30, 2014

Arbors Porter Ranch, LLC

Placentia Development Company, LLC

Plum Canyon Master LLC

Porter Ranch Development Co.

PRD Investors, Inc.

PRD Investors, LLC

Rancho Costera LLC

Shapell Hold Properties No. 1, LLC

Shapell Homes, Inc.

Shapell Industries, Inc.

Shapell Land Company, LLC

Toll Austin TX II LLC

Toll CA III LLC

Toll PA XVI, L.P.

Toll PA XVII, L.P.

Upper K Investors, Inc.

Upper K Investors, LLC

Upper K-Shapell, LLC

EXHIBIT A

For purposes of this Second Supplemental Indenture, the term “Indenture” shall mean that certain Indenture, dated as of September 11, 2012 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp., Toll Brothers, Inc. as Guarantor, the other Guarantors identified therein and the Trustee; (i) the First Supplemental Indenture dated as of April 30, 2013 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, affirmed their obligation as Guarantors) and the Trustee; and as may be further supplemented (including by this Second Supplemental Indenture) and/or amended.

Exhibit 4.4

THIS TWENTY-THIRD SUPPLEMENTAL INDENTURE , dated as of April 30, 2014, by and among the parties listed on Schedule A hereto (each an “ Additional Guarantor ” and collectively, the “ Additional Guarantors ”) and THE BANK OF NEW YORK MELLON, as successor to J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as trustee (the “ Trustee ”). Capitalized terms used in this Twenty-third Supplemental Indenture and not otherwise defined herein (including terms used on Exhibit A attached hereto) shall have the meanings ascribed to them in the Indenture (as defined on Exhibit A attached hereto).

RECITALS

WHEREAS, Section 4.04 of the Indenture provides that if in accordance with the provisions of the Bank Credit Facilities the Company adds, or causes to be added, any Subsidiary that was not a Guarantor at the time of execution of the Indenture as a guarantor under the Bank Credit Facilities, such Subsidiary shall contemporaneously become a Guarantor under the Indenture;

WHEREAS, desiring to become a Guarantor under the Indenture, each of the Additional Guarantors is executing and delivering this Twenty-third Supplemental Indenture; and

WHEREAS, the Issuer and the Trustee may modify or amend the Guarantees under the Indenture without notice to or consent of any Holder to add Guarantors, and all other actions required to be taken under the Indenture with respect to this Twenty-third Supplemental Indenture have been taken.

NOW, THEREFORE IT IS AGREED:

Section 1. Joinder . Each Additional Guarantor agrees that by its entering into this Twenty-third Supplemental Indenture it hereby unconditionally guarantees all of the Issuer’s obligations under the Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company, and the Indenture (as it relates to all such Series) on the terms set forth in the Indenture, as if each such Additional Guarantor was a party to the Indenture.

Section 2. Ratification of Indenture . This Twenty-third Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture, and as supplemented and modified hereby, the Indenture is in all respects ratified and confirmed, and the Indenture and this Twenty-third Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 3. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4. Successors and Assigns . All covenants and agreements in this Twenty-third Supplemental Indenture by each Additional Guarantor shall bind each such Additional Guarantor’s successors and assigns, whether so expressed or not.

Section 5. Separability Clause . In case any one or more of the provisions contained in this Twenty-third Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 6. Governing Law . This Twenty-third Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Twenty-third Supplemental Indenture is subject to the provisions of the TIA that are required to be part of this Twenty-third Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

Section 7. Counterparts . This Twenty-third Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

IN WITNESS WHEREOF , the parties hereto have caused this Twenty-third Supplemental Indenture to be duly executed as of the date first above written.



	THE ADDITIONAL GUARANTORS NAMED ON
	SCHEDULE A HERETO, as Guarantors


	By:	/s/ Joseph R. Sicree
		Name: Joseph R. Sicree
		Title: Designated Officer



THE BANK OF NEW YORK MELLON,
as Trustee


By:	/s/ Laurence J. O’Brien
	Name: Laurence J. O’Brien
	Title: Vice President

SCHEDULE A

Additional Guarantors as of April 30, 2014

Arbors Porter Ranch, LLC

Placentia Development Company, LLC

Plum Canyon Master LLC

Porter Ranch Development Co.

PRD Investors, Inc.

PRD Investors, LLC

Rancho Costera LLC

Shapell Hold Properties No. 1, LLC

Shapell Homes, Inc.

Shapell Industries, Inc.

Shapell Land Company, LLC

Toll Austin TX II LLC

Toll CA III LLC

Toll PA XVI, L.P.

Toll PA XVII, L.P.

Upper K Investors, Inc.

Upper K Investors, LLC

Upper K-Shapell, LLC

EXHIBIT A

For purposes of this Twenty-third Supplemental Indenture, the term “Indenture” shall mean that certain Indenture dated as of November 22, 2002 (the “ Original Indenture ”) by and among Toll Brothers Finance Corp. (the “ Issuer ”), Toll Brothers, Inc. (the “ Company ”) as Guarantor, the other Guarantors identified therein and the Trustee, as supplemented by: (i) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 6.875% Senior Notes due 2012 (the “ 6.875% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of November 22, 2002; (ii) the First Supplemental Indenture dated May 1, 2003 (the “ First Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such First Supplemental Indenture, thereby became Guarantors) and the Trustee; (iii) the Authorizing Resolutions related to the issuance of $250,000,000 aggregate principal amount of 5.95% Senior Notes due 2013 (the “ 5.95% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors, attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of September 3, 2003; (iv) the Second Supplemental Indenture dated November 3, 2003 (the “ Second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Second Supplemental Indenture, thereby became Guarantors) and the Trustee; (v) the Third Supplemental Indenture dated January 26, 2004 (the “ Third Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Third Supplemental Indenture, thereby became Guarantors) and the Trustee; (vi) the Fourth Supplemental Indenture dated March 1, 2004 (the “ Fourth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourth Supplemental Indenture, thereby became Guarantors) and the Trustee; (vii) the Authorizing Resolutions related to the issuance of $300,000,000 aggregate principal amount of 4.95% Senior Notes due 2014 (the “ 4.95% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on. Schedule I thereto dated as of March 9, 2004; (viii) the Fifth Supplemental Indenture dated September 20, 2004 (the “ Fifth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifth Supplemental Indenture, thereby became Guarantors) and the Trustee; (ix) the Sixth Supplemental Indenture, dated as of October 28, 2004 (the “ Sixth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Sixth Supplemental Indenture, thereby became Guarantors) and the Trustee; (x) the Seventh Supplemental Indenture, dated as of October 31, 2004 (the “ Seventh Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Seventh Supplemental Indenture, thereby became Guarantors) and the Trustee; (xi) the Eighth Supplemental Indenture, dated as of January 31, 2005 (the “ Eighth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eighth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xii) the Authorizing Resolutions, related to the issuance of $300,000,000 aggregate principal amount of 5.15% Senior Notes due 2015 (the “ 5.15% Senior Notes ”) by the Issuer and the issuance of related guarantees by the Company and the other Guarantors attached as Exhibit A to the Joint Action of the Persons Authorized to Act on Behalf of Each of the Issuer, the Company and Each of the Entities listed on Schedule I thereto dated as of May 26, 2005; (xiii) the Ninth Supplemental Indenture, dated as of June 6, 2005 (the “ Ninth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Ninth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xiv) the Tenth Supplemental Indenture, dated as of August 1, 2005 (the “ Tenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Tenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xv) the Eleventh Supplemental Indenture, dated as of January 31, 2006 (the

“ Eleventh Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eleventh Supplemental Indenture, thereby became Guarantors) and the Trustee; (xvi) the Twelfth Supplemental Indenture, dated as of April 30, 2006 (the “ Twelfth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Twelfth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xvii) the Thirteenth Supplemental Indenture, dated as of July 31, 2006 (the “ Thirteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Thirteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xviii) the Fourteenth Supplemental Indenture, dated as of October 31, 2006 (the “ Fourteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fourteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xix) the Fifteenth Supplemental Indenture, dated as of June 25, 2007 (the “ Fifteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Fifteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xx) the Sixteenth Supplemental Indenture, dated as of June 27, 2007 (the “ Sixteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Sixteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxi) the Seventeenth Supplemental Indenture, dated as of January 31, 2008 (the “ Seventeenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Seventeenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxii) the Eighteenth Supplemental Indenture, dated as of October 27, 2011 (the “ Eighteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Eighteenth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxiii) the Nineteenth Supplemental Indenture, dated as of November 1, 2011 (the “ Nineteenth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to such Nineteenth Supplemental Indenture, thereby became Guarantors) and the Trustee, and as may be further supplemented, (xxiv) the Twentieth Supplemental Indenture, dated as of April 27, 2012 (the “ Twentieth Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twentieth Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxv) the Twenty-first Supplemental Indenture, dated as of February 1, 2013 (the “ Twenty-first Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-first Supplemental Indenture, thereby became Guarantors) and the Trustee; (xxvi) the Twenty-second Supplemental Indenture, dated as of April 30, 2013 (the “ Twenty-second Supplemental Indenture ”), by and among the parties listed on Schedule A thereto (who, pursuant to the Twenty-second Supplemental Indenture, thereby became Guarantors) and the Trustee; and as may be further supplemented (including by this Twenty-third Supplemental Indenture) and/or amended.

Exhibit 10.3

TOLL BROTHERS, INC.
Supplemental Executive Retirement Plan
(Amended and Restated effective as of March 12, 2014)

ARTICLE I — ESTABLISHMENT AND PURPOSE

1.1 Establishment . The Company hereby amends and restates the defined benefit pension plan known as the Toll Brothers, Inc. Supplemental Executive Retirement Plan (the “Plan”) which was effective as of June 15, 2006 (the “Effective Date”). The amended and restated Plan includes amendments that were adopted prior to March 12, 2014, and other technical, conforming and clarifying provisions.

1.2 Purpose . The principal purposes of the Plan are to provide certain executives and consultants or advisors, as defined in Article III, with competitive retirement benefits, protect against reductions in retirement benefits due to tax law limitations on qualified plans, and encourage the continued employment or service of such individuals with the Company.

ARTICLE II — DEFINITIONS

2.1 Actuarial Equivalent. “Actuarial Equivalent” means, with respect to the benefit accrued for any Participant under the terms of the Plan, the present value of such Participant’s future benefit payments, determined using as a discount rate an interest rate equal to the “applicable interest rate” as defined in Code Section 417(e)(3)(C) in effect at the applicable time, compounded annually.

2.2 Board . “Board” means the Board of Directors of the Company.

2.3 Cause . “Cause” means conduct by the Participant reasonably likely to cause material harm to the Company that consists of proven gross negligence, wanton or willful disregard of duties, acts of fraud, embezzlement, theft or the commission of a felony in the course of his employment or service, as determined by the Board after full consideration of the facts presented on behalf of both the Company and the Participant.

2.4 Code. “Code” means the Internal Revenue Code of 1986, as amended.

2.5 Code Section 409A. “Code Section 409A” means the Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.6 Company. “Company” means Toll Brothers, Inc., a Delaware corporation.

2.7 Disability. “Disability” means a mental or physical incapacity of the Participant that is considered significant enough to qualify the Participant for benefits under Section 4.3, as determined by the Plan Administrator thereunder.

2.8 Employment . “Employment” means the period or periods during which a Participant is an employee of the Company, or, in the case of a consultant or advisor to the Company, is providing services to the Company.

2.9 ERISA . “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor act thereto.

2.10 Normal Retirement Age. “Normal Retirement Age” shall mean age sixty-two (62).

2.11 Participant . “Participant” means an eligible executive, consultant or advisor of the Company selected to receive benefits under the Plan as provided in Article III of this Plan.

2.12 Plan Administrator. “Plan Administrator” means either the Board or a committee designated by the Board in accordance with Section 5.1.

2.13 Retirement. “Retirement” means a Participant who experiences a Separation from Service after retaining the Normal Retirement Age.

2.14 Schedule of Retirement Benefits. “Schedule of Retirement Benefits” means the schedule of Participants and retirement benefits attached hereto, as that may be amended from time to time.

2.15 Separation from Service. “Separation from Service” means a Participant is no longer employed by the Employer or any “Affiliated Employers” as determined using the “single employer” rules for employee benefit plans under Code Section 414(b) and 414(c). The term “Separation from Service” generally means a Participant is no longer employed by the Employer or any Affiliated Employer on account of a termination of Employment, Retirement, Disability or death. Consistent with the Treasury Regulations, or any subsequent guidance under Code Section 409A, no Separation from Service shall occur if a Participant continues to perform services as a consultant or an employee in excess of any amount of time permitted under such Treasury Regulations or other guidance.

(a) Leave of Absence . For purposes of Code Section 409A, in the case of an employee, the Employment relationship is treated as continuing in effect while a Participant is on military leave, sick leave, or other bona fide leave of absence, as long as the period of leave does not exceed six (6) months, or if longer, as long as the Participant’s right to reemployment with the Employer provided either by statute or contract. Otherwise, after a six (6) month leave of absence, the employment relationship if deemed terminated.

(b) Part-Time Status . Whether or not a Separation from Service occurs is determined based upon all facts and circumstances. If a Participant provides services to the Employer or any Affiliated Employers at a rate that is less than twenty percent (20%) of the services rendered, on average, during the immediately preceding three (3) full calendar years of employment (or such lesser period if the Participant has less than three (3) calendar years of employment), a Separation from Service shall be deemed to have occurred, since such services are considered to be insignificant under the Treasury Regulations under Code Section 409A.

(c) Consulting Services . Where a Participant continues to provide services to the Employer or any Affiliated Employers in a capacity other than as an employee, whether or not a Separation from Service has occurred shall be determined in the same manner as provided in paragraph (b) above.

(d) Foreign Transfers . A Separation from Service means a Participant is no longer employed by the Employer or any Affiliated Employer within or outside of the United States. Accordingly, to the extent that an Employee is transferred outside the United States, no Separation from Service shall be deemed to have occurred for purposes of distributions.

Notwithstanding anything herein to the contrary, for purposes of determining whether a Participant is entitled to benefits hereunder, there must be a complete cessation of services to the Employer and all Affiliated Employers (as defined above).

2.15 Specified Employee. “Specified Employee” means any employee who is a “specified employee” as that term is defined in Treasury Regulation Section 1.409A-1(i). For purposes of Treasury Regulations Section 1.409A-1(i)(3), and for purposes of determining whether a Participant is a Specified Employee, the Specified Employee “Determination Date” shall be December 31.

2.16 Spouse. “Spouse” means the individual legally married to a Participant, as determined under Federal law for purposes of filing individual income tax returns. The term “Spouse” shall include a same-sex Spouse, to the extent recognized in the state or jurisdiction in which such a relationship is celebrated, even if such a relationship is not recognized in the state in which any Participant resides.

2.17 Termination by the Company. “Termination by the Company” means, in the case of an employee, either a termination by the Company of a Participant’s Employment, or a termination by the Participant of his Employment with the Company by reason of: (a) a material diminution in his title, position, reporting relationship, status, duties or responsibilities; (b) the assignment of duties and responsibilities that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with his position; (c) a material reduction to his base salary; or (d) a material reduction to incentive, retirement and welfare plans available to the Participant; provided, however, that a Participant’s termination of Employment shall only be treated as a Termination by the Company if the Participant has provided notice to the Company of the basis for his determination that he intends to terminate his Employment and the Company has not corrected the situation within thirty (30) days. No Termination by the Company shall be considered to have occurred if the Participant’s termination of Employment is for Cause.

2.18 Top Hat Plan . “Top Hat Plan” means a nonqualified, unfunded plan maintained primarily to provide deferred compensation benefits to a Participant who falls within a select group of “management or highly compensated employees” within the meaning of Section 201, 301 and 401 of ERISA.

2.19 Treasury Regulations. “Treasury Regulations” are the income tax regulations issued by the Treasury Department.

ARTICLE III — RETIREMENT

3.1 Eligibility . Only those key executives, consultants or advisors who are designated as eligible to participate in the Plan on the Schedule of Retirement Benefits shall be eligible for benefits hereunder.

3.2 Participation . The Board, or such person or entity designated by the Board, acting in its discretion, may designate any eligible employee, consultant or advisor as a Participant under this Plan, and may designate any conditions applicable to any such Participant. Such designation shall be in writing and shall be effective as of the date contained therein. No person shall be eligible to participate in the Plan if that person’s participation would cause the Plan to not qualify as a Top Hat Plan. Subject to Section 409A, participation in the Plan is terminable by the Board, in its discretion, upon written notice to the Participant, and termination shall be effective as of the date contained therein, but in no event earlier than the date of such notice, provided that no such termination shall in any material manner reduce or adversely affect any Participant’s rights to vested benefits hereunder without the consent of the Participant.

3.3 Noncompetition . Notwithstanding any other provisions hereof, neither a Participant nor a Participant’s Spouse nor any other beneficiary of a Participant shall receive any further benefits hereunder if the Participant, without prior written consent of the Board, engages in (as a principal, partner, director, officer, agent, employee, consultant, owner, independent contractor or otherwise), or acquires a material financial interest in, any business that is a direct competitor of the Company under circumstances where the Participant’s actions or interests with respect to such competitor are reasonably likely to cause material harm to the Company; provided, however, that this Section 3.3 shall cease to be applicable with respect to any Participant upon (i) the Termination by the Company of the Participant’s Employment without Cause, or (ii) termination of a Participant’s Employment with the Company following, or as a result of, a Change of Control, as described in Section 4.4 below.

ARTICLE IV - AMOUNT, FORM, AND PAYMENT OF SUPPLEMENTAL BENEFIT

4.1 Normal Retirement Benefit . Subject to the terms of this Plan, a Participant who experiences a Separation from Service after attaining Normal Retirement Age shall be entitled to receive an annual retirement benefit as set forth in the Schedule of Retirement Benefits starting as of the date of the Participant’s Separation from Service on or after attaining Normal Retirement Age.

4.2 Form of Benefit . For Participants who are not Specified Employees, when benefits are to commence following the attainment of the Normal Retirement Age, benefits shall be paid or commence to be paid within ninety (90) days after the occurrence of such event, provided that if such ninety (90)-day period spans two years, that the Participant shall not be entitled to determine, directly or indirectly, in which year the benefit shall be paid, in accordance with Section 7.12. For Participants who are Specified Employees, when benefits are to commence following the attainment of the Normal Retirement Age, benefits shall be paid in accordance with the preceding sentence, subject to Section 4.6. Payments shall be made in accordance with the Schedule of Retirement Benefits, provided that in the event of an conflict between the Plan and the Schedule of Retirement Benefits, the terms of the Plan shall prevail,

and provided further that in no event shall any payment be made to any Participant to the extent such payment would result in a violation of Code Section 409A, federal securities laws or other applicable law.

4.3 Death Benefit and Disability . If a Participant who is credited with five (5) or more years of service dies before such Participant experiences a Separation from Service, or experiences a Separation from Service because of the onset of a Disability prior to attaining Normal Retirement Age, the benefit that would have been payable to the Participant shall be paid to the Participant or to the Participant’s designated beneficiary, if any (and if there is no surviving designated beneficiary to the Participant’s estate), as the case may be, commencing as of the date the Participant attains (or would have attained) his Normal Retirement Age, subject to Section 7.12. For purposes of the five (5) years of service requirement, the Board, in its sole discretion, may, but is not required to, grant prior service credits for service with any prior employers or acquired entities. If a Participant dies after payment of benefits under the Plan has commenced, the remaining installments, if any, shall be paid to the Participant’s designated beneficiary, if any, and if there is no surviving designated beneficiary, to the Participant’s estate. For purposes of this Section 4.3, a determination of whether a Participant’s employment has terminated because of the onset of a Disability shall be made by the Plan Administrator. Notwithstanding any provisions of the Plan to the contrary, in the event of any death that occurs on or after April 1, 2014, a Participant’s Beneficiary shall be entitled to the death benefit under the Plan if the Participant has been credited with at least five (5) Years of Service from the Participant’s date of hire with Toll Brothers. For purposes of the Years of Service requirement the Board, in its sole discretion, may, but is not required to, grant prior service credits for service with any prior employers or acquired entities.

In the event a Participant has begun to receive any payments, and dies, benefits shall nevertheless continue to be paid in accordance with the above provisions of the Plan.

4.4 Change of Control.

(a) In connection with a Change of Control (as defined below), the Company shall establish and fund a trust (the “Trust”) as hereinafter described (and as permitted under Section 7.4) prior to the consummation of the transaction that constitutes the Change of Control, which Trust shall be irrevocable as of the date such transaction is consummated. The amount required to be contributed to fund the Trust shall be the sum of: (A) the Actuarial Equivalent present value, as of the date of funding, of the aggregate benefits expected to be paid to all Participants under the Plan, with such amount to be determined by a nationally recognized actuarial firm, which may be an actuarial firm that is at the time of determination providing actuarial or other services to the Company or its benefit plans; plus (B) the Actuarial Equivalent present value of the Trust administration and trustee fees and expenses (including the fees and expenses of any agent of the trustee) which the trustee reasonably expects to be incurred over the life of the Trust. The terms of the Trust shall generally follow the model grantor trust set forth in Internal Revenue Service Revenue Procedure 92-64, except that (1) the Trust shall be irrevocable as of the date the transaction constituting a Change of Control is consummated; (2) the Trust shall be non-amendable by the Company (or any successor thereto) except with the prior written consent of the Participant; (3) the power to direct the investment of the Trust assets shall be held by the Company; (4) the Company (or any successor thereto) shall remain liable for the payment

of Plan benefits to the extent there is any shortfall of assets under the Trust; (5) the initial trustee and any successor thereto shall be a bank or trust company with shareholder equity of at least $1.0 billion; and (6) neither the Trust nor its assets shall be located or transferred outside the United States or otherwise violate the funding requirements of Code Section 409A(b).

(b) Upon the occurrence of a Change of Control:

(i) all Participants shall, notwithstanding any other provision of the Plan to the contrary, be fully vested in their benefit hereunder. If the event constituting the Change of Control also constitutes a “change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company” for purposes of Code Section 409A, each Participant shall be entitled to payment of his or her benefit hereunder, at the time the event constituting such Change of Control is consummated, in the form of a single lump sum payment equal to the Actuarial Equivalent present value of his or her benefit as of the date of payment.

(ii) Notwithstanding the foregoing, if the event constituting the Change of Control does not also constitute a “change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company” for purposes of Code Section 409A, the Company shall take all such steps as are necessary or appropriate in order to terminate the Plan, and pay out distributions of each Participant’s benefit in the form of a lump sum at the earliest date such payment is permissible without violating the distribution rules of Code Section 409A, including for these purposes, the provisions of Treasury Regulation Section 1.409A-3(j)(4)(ix) (relating to payments permitted upon a plan termination and/or liquidation), or any applicable successor regulation or IRS guidance regarding such distributions, with the amount of each Participant’s lump sum benefit being determined consistent with the provisions of Section 4.4(b)(i), above. In general, this will mean that payments will not be made within twelve (12) months of the date the actions required to irrevocably terminate and liquidate the Plan have been completed, and all payments are made no later than twenty-four (24) months after the actions required to irrevocably terminate and liquidate the Plan have been completed. In addition, the Company must also terminate and liquidate all other agreements, methods, programs, and other arrangements that it sponsors that are of a type that would cause them to be aggregated with the Plan if the same employee or service provider were both participating in the Plan and in that other agreement, method, program, or other arrangement, and must not, within three (3) years following the date the actions required to irrevocably terminate and liquidate the Plan have been completed establish a new plan of a type that would be aggregated with the Plan under applicable provisions of Code Section 409A or the Treasury Regulations promulgated thereunder. Furthermore, the Plan may not be terminated proximate to a downturn in the financial health of the Company.

(iii) In the event the termination and liquidation of the Plan, pursuant to Section 4.4(b)(ii) above, is determined to have inadvertently constituted a violation or Code Section 409A resulting in recognition of income pursuant to Code Section 409A(a), the Company shall pay to each affected Participant an amount (a “409A Gross-Up Amount”) that is sufficient so that, net after payment by the Participant of all federal, state and local taxes, including such additional taxes as may be imposed under Code Section 409A(a), the Participant

is left in the economic position the Participant would have been in had there not been a violation of Code Section 409A.

(c) For purposes of this Plan, a “Change of Control” shall be deemed to have occurred upon the earliest to occur of the following events: (i) the consummation of a plan or other arrangement pursuant to which the Company shall be dissolved or liquidated or (ii) the consummation of a sale or other disposition of all or substantially all of the assets of the Company, or (iii) the consummation of a merger or consolidation of the Company (either directly or through a wholly-owned subsidiary) with or into another corporation, other than, in either case, a merger or consolidation of the Company in which holders of shares of the Company’s common stock immediately prior to the merger or consolidation will hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation’s voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders’ ownership of Company common stock immediately before the merger or consolidation, or (iv) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), (other than (A) the Company or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (B) any person who, on the date the Plan is effective, shall have been the beneficial owner of at least fifteen percent (15%) of the outstanding Company common stock), shall have become the beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of the outstanding shares of the Company common stock, or (v) the first day after the date this Plan is effective when directors are elected such that a majority of the Board of Directors shall have been members of the Board of Directors for less than twenty-four (24) months, unless the nomination for election of each new director who was not a director at the beginning of such twenty-four (24) month period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

(d) Notwithstanding any provisions of the Plan to the contrary, any payment attributable to a Change in Control shall be made during the calendar year in which the Change in Control occurs or in the ninety (90) day period following the Change in Control, subject to the restrictions in Section 7.12 which does not permit Participants to choose the payment year when the ninety (90) day period spans two separate tax years.

4.5 Vesting. Except as otherwise provided in the Schedule of Retirement Benefits, a Participant’s benefit under the Plan shall be forfeited if the Participant’s Employment terminates for any reason prior to his or her attainment of Normal Retirement Age. Notwithstanding the foregoing, for purposes of this Section 4.5, a Participant shall be vested in his benefit: (x) if his Separation from Service occurs by reason of his death or the onset of a Disability while in Employment, as provided in Section 4.3, above, (y) in the event there is a Change of Control of the Company, as provided in Section 4.4 above, or (z) upon Termination by the Company without Cause prior to Participant’s attainment of Normal Retirement Age as of the date of such Termination by the Company. Upon a Participant’s vesting due to one of the occurrences described in the foregoing sentence, such Participant shall be entitled to commence receipt of

benefits hereunder upon attainment of Normal Retirement Age, subject to Section 7.12, in accordance with the Schedule of Retirement Benefits and shall be entitled to any other benefit provided hereunder with respect to a vested Participant. The intent of this Section 4.5, as it applies to a Termination by the Company without Cause, is to fully vest any Participant who is Terminated by the Company without Cause, but not to accelerate the time at which benefit payments with respect to such Participant commence. In the event there is a Change of Control of the Company, payment of benefits hereunder shall be as provided in Section 4.4. In the event the Plan is terminated in accordance with Section 6.2, payment of benefits hereunder shall be as provided in Section 6.2.

4.6 Special Rules Regarding Distributions; Compliance With Code Section 409A. Notwithstanding anything to the contrary set forth in the Plan, no benefit under the Plan shall be distributed at a time or in a manner that will be treated as a violation of the distribution rules of Code Section 409A(a)(2) and no alternative form of payment shall be permitted to be made under the Plan if such alternative benefit form would violate any of the requirements of Code Section 409A(a)(3) or (4) relating to acceleration of benefits and changes in time and form of distribution (taking into account any regulations or other guidance issued by Treasury or the IRS with regard to these Code provisions as may be in effect from time to time). In addition, the following specific rules regarding distribution of Plan benefits shall be applicable:

(a) Except as provided in Section 4.6(c), no benefit under the Plan shall be distributed to any Participant who is a Specified Employee by reason of such Participant’s Separation from Service until the date that is six months following the date of the Participant’s Separation from Service.

(b) No distribution to any Participant of any benefit under the Plan shall be made prior to the date of such Participant’s Separation from Service (which for this purpose means the complete cessation of services to the Company and all Affiliated Employers (as defined in the definition of “Separation from Service”)).

(c) Notwithstanding any provisions herein to the contrary, as permitted under Code Section 409A(a)(2)(B)(i) and Treasury Regulations Section 1.409A-1(c)(3)(v), the six (6) month delay in payment rule shall not apply in the event of a death of a Specified Employee and any permitted payments shall be made, or shall commence, within ninety (90) days after death.

(d) Notwithstanding any provisions in the Plan to the contrary, including Sections 4.2 and 4.3, in no event shall any payments to a Specified Employee, that are delayed under the six (6) month delay in payment rule, be paid later than the last day of the calendar year that includes the first day of the first calendar month that is at least six (6) months after the date of a Participant’s Separation from Service occurs or, if later, the fifteenth (15 ^th ) day of the third calendar month following the date specified under the Plan, provided that the Participant may not directly or indirectly designate the year of payment. Any payments that are delayed under the six (6) month delay in payment rule will be paid in a lump sum without interest following expiration of such six-month period.

ARTICLE V - ADMINISTRATION

5.1 Authority of the Board . This Plan shall be administered by the Plan Administrator. Subject to the provisions of the Plan, the Plan Administrator shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and to decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with this Plan. Notwithstanding the foregoing, the Company shall act as the Plan Administrator for purposes of any filings with any governmental entity or in the event claims for benefits are made by any Participant.

5.2 Agents . In the administration of this Plan, the Plan Administrator may, from time to time, employ agents and delegate to such agents such administrative duties as it deems advisable and allowable under the terms of the Plan.

5.3 Decisions Binding . The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation, and application of this Plan and any rules or guidelines made in connection with this Plan shall be final and conclusive, and shall be binding upon all persons and entities having any interest in this Plan.

5.4 Indemnity of Board . The Company shall indemnify and hold harmless the Board and its individual members along with any other committee that may be established to administer the Plan pursuant to Paragraph 5.1 and any members thereof, against any and all claims, loss, damage, expense, or liability arising from any action or failure to act with respect to this Plan.

5.5 Cost of Administration . The Company shall bear all expenses of administration of this Plan.

5.6 Claims.

(a) A Participant or a Participant’s beneficiary for benefits under the Plan may file a written claim for benefits under the Plan with the Plan Administrator, if he believes that he is entitled to receive benefits under the Plan but is not receiving benefits under the Plan or if he is receiving benefits under the Plan, but disputes the amount and/or form of benefits received. Such written claim for benefits shall set forth the nature of the claim and/or dispute, and set forth all facts and circumstances which are relevant to the claim.

(b) If, pursuant to the provisions of the Plan, the Company denies the claim of the Participant or the Participant’s beneficiary for benefits under the Plan, the Company shall provide written notice, within ninety (90) days after receipt of the claim, setting forth in a manner calculated to be understood by the claimant:

(i) the specific reasons for such denial;

(ii) the specific reference to the Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is needed; and

(iv) an explanation of the Plan’s claim review procedure and the time limitations of this subsection applicable thereto.

(c) The Participant or the Participant’s beneficiary whose claim for benefit has been denied may request review by the Company of the denied claim by notifying the Company in writing within sixty (60) days after receipt of the notification of claim denial. As part of said review procedure, the claimant or the claimant’s authorized representative may review pertinent documents and submit issues and comments to the Company in writing. The Company shall render its decision to the claimant in writing in a manner calculated to be understood by the claimant not later than sixty (60) days after receipt of the request for review, unless special circumstances require an extension of time, in which case decision shall be rendered as soon after the sixty-day period as possible, but not later than one hundred and twenty (120) days after receipt of the request for review. The decision on review shall state the specific reasons therefor and the specific Plan reference on which it is based.

ARTICLE VI - AMENDMENT AND TERMINATION

6.1 Amendment. The Company hereby reserves the right to amend, modify, or terminate the Plan (and the Schedule of Retirement Benefits) at any time, and from time to time, by action of a majority of the members of the Board. Except as described below in this Article VI, no such amendment or termination shall in any material manner reduce or adversely affect any Participant’s rights to vested benefits hereunder without the consent of such Participant. Notwithstanding the foregoing, no amendment or modification shall be made if such amendment or modification would violate Code Section 409A. No amendment or modification shall be made to the Schedule of Retirement Benefits if such amendment or modification changes the time and/or form in which benefits will be paid, unless such amendment or modification is effected in a manner that is compliant with the terms of the Plan and with the subsequent deferral rules of Code Section 409A(a)(4)(C) and the Treasury Regulations thereunder.

6.2 Termination. The Board may terminate the Plan and commence termination payout for all Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA ( i.e ., is not a Top Hat Plan); provided, however, that if the Plan is terminated pursuant to this sentence, then all Participants shall be deemed to be fully vested in the benefits described in Article IV as of the date immediately preceding such termination and, if permitted by Code Section 409A, shall be paid in a single lump-sum the Actuarial Equivalent present value of such benefit as soon as practicable (but in no case more than 90 days) after such termination (subject to Section 7.12). Notwithstanding the foregoing, termination of the Plan and accelerated payment of benefits to any Participant following a Change of Control shall not be permitted to the extent such payment would result in a violation of Code Section 409A. The Plan shall be terminated in accordance with the requirements of Treasury Regulations Section 1.409A-3(j)(4)(ix)(C).

ARTICLE VII - MISCELLANEOUS

7.1 Unfunded Plan . This Plan is intended to be a Top Hat Plan and therefore exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Such status shall not be adversely affected by the establishment of any trust pursuant to Paragraph 7.4 below.

7.2 Unsecured General Creditor . Each Participant and his or her beneficiaries, heirs, successors, and assigns shall have no secured legal or equitable rights, interests, or claims in any property or assets of the Company, nor shall any such persons have any rights, interests or claims in any life insurance policies, annuity contracts, or the proceeds therefrom owned or which may be acquired by the Company. Except as provided in Paragraph 7.4, such policies, annuity contracts, or other assets of the Company shall not be held under any trust for the benefit of a Participant, his or her beneficiaries, heirs, successors or assigns, or held, in any way, as collateral security for the fulfilling of any obligations of the Company under this Plan. Any and all of the Company’s assets and policies shall be, and shall remain for purposes of this Plan, the general, unpledged, unrestricted assets of the Company. The Company’s obligation under this Plan shall be that of an unfunded and unsecured promise to pay money in the future.

7.3 Supplemental Benefits. As of the Effective Date, the Plan is the intended to be a supplemental source of Company paid retirement benefits for Participants and not the sole source of such benefits. The benefit payable hereunder shall, therefore, not be subject to any reduction because of benefits that may be paid or otherwise provided to a Participant, except to the extent that an offset is explicitly provided for in a contractual arrangement with a particular Participant.

7.4 Trust Fund .

(a) At its discretion, the Company may establish one or more grantor trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of benefits under this Plan. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company’s general creditors. To the extent any benefits provided under this Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Company.

(b) At its discretion, the Company may, in addition to or in lieu of establishing one or more grantor trusts as described in clause (a) above, take other actions to fund the benefits provided for under this Plan, but in no event shall the Company establish any funding mechanism which would result in the Plan failing to qualify as a Top Hat Plan exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA or violate the funding requirements of Code Section 409A(b) and any Treasury Regulations or guidance issued thereunder.

7.5 Nonassignability . Neither a Participant nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable, provided that a Participant may assign the right to receive such amounts to trusts or limited partnerships established for the benefit of the Participant’s Spouse, children or their

issue. No part of the amount payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall such amounts or rights to such amounts be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency. Notwithstanding the general inability to assign benefits under the Plan, consistent with IRS Revenue Ruling 2002-22, to the extent that a valid property settlement or divorce decree directs that any portion of a Participant’s benefits under the Plan be designated to a former Spouse, benefits shall be paid to the Spouse, at the same time benefits would otherwise have been payable to the Participant, provided that such payment or related transfer is described in IRS Revenue Ruling 2002-22. In no event, shall any former Spouse obtain any additional rights to receive any form of distribution, or benefits payable in any manner not permitted under the Plan, or at any time earlier than when a Participant would otherwise have been entitled to receive such benefits. The preceding two sentences shall be applied in a manner consistent with Code Section 409A.

7.6 Not a Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company and any Participant, and Participants (and Participants’ beneficiaries) shall have no rights against the Company except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge any Participant at any time.

7.7 Validity . If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

7.8 Successors . The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns, and the Company shall require all its successors and assigns to expressly assume its obligations hereunder. The term “successors,” as used herein, shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company.

7.9 Tax Withholding . The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy federal, state, and local tax withholding requirements, or to deduct from payments made pursuant to the Plan amounts sufficient to satisfy such tax withholding requirements.

7.10 Governing Law . The provisions of this agreement shall be construed and interpreted according to the laws of the State of Pennsylvania except as preempted by Federal law.

7.11 Forfeiture . All benefits hereunder shall be subject to forfeiture in their entirety in the event that Participant’s Employment is terminated for Cause.

7.12 Compliance with the Code . The Plan is intended to comply with the provisions of Code Section 409A, and the Treasury Regulations and other guidance issued thereunder. If

there is any discrepancy between the provisions of this Plan and the provisions of Code Section 409A, such discrepancy shall be resolved in a manner as to give full effect to the provisions of Code Section 409A. Furthermore, without limiting the foregoing provisions of this Section 7.12, if any benefits are to be paid within ninety (90) days or any other period after any payment event, and such payment period shall span more than one taxable year of a Participant or a beneficiary, then neither the Participant nor any beneficiary may determine in which tax year the payment shall be made.

7.13 Consequences of a Violation of Code Section 409A . All Participants shall be notified of the potential tax consequences under Code Section 409A, if the provisions of the Plan and Code Section 409A are not followed, including the imposition of immediate income taxes, a twenty percent (20%) excise tax, underpayment of interest penalties, and Form W-2 reporting. All Participants shall also be informed that the amount of their benefits under the Plan shall be reported to the IRS, as required for nonqualified deferred compensation programs.

7.14 FICA Taxes . All Participants shall be informed that when their benefits become vested under the Plan, and not subject to any substantial risk of forfeiture under Code Sections 3121(v) and 3306(r) and other provisions of the Code, the Participants shall be subject to FICA taxes (unless any benefits are undeterminable). The Employer shall have the right to withhold from a Participant’s other wages, any FICA or other related taxes required to be withheld.

7.15 Compliance with Code Section 280G . Notwithstanding anything to the contrary in this Plan, in the event that: (i) the aggregate payments of benefits to be made or afforded to any employee under this Plan (the “Termination Benefits”) would be deemed to include an “excess parachute payment” under Code Section 280G or any successor thereto then the Termination Benefits shall be reduced to an amount, the value of which is one dollar ($1) less than an amount equal to the total amount of any payments permissible ( e.g. , not triggering any excise tax or loss of deduction) under Code Section 280G or any successor thereto. Any allocations of any reductions required hereby among the Termination Benefits, shall be determined by the Company within its discretion. To the extent the Company must allocate the payments to be made from this Plan and any severance plans or employment agreements with the above limits, the Company shall first make all payments due under the Severance Plan and then make all payments due under this Plan, all subject to the foregoing limits.

7.16 Delay in Payment for Code Section 162(m) and Securities Law Violations . Notwithstanding the foregoing, any payment of benefits (and earnings thereon) to a Participant under the Plan that are subject to and not exempt from Code Section 409A shall be delayed upon the Committee’s reasonable anticipation of one or more of the following events:

(a) The Company’s deduction with respect to such payment would be eliminated by application of Code Section 162(m); or

(b) The making of the payment would violate federal securities laws or other applicable law; provided, that any payment delayed pursuant to this Section 7.16 shall be paid at the earliest time the Company reasonably anticipates that such payment may be made without giving rise to the matters described in Sections 7.16(a) or (b), all in accordance with Code Section 409A.

7.17 No Material Modifications . Notwithstanding any provisions in the Plan to the contrary and/or any future amendments, no amendments to any pre-Code Section 409A benefits are intended to result in a material modification unless such amendment specifically identifies that it is intended to result in a material modification, losing grandfathered status for any pre-2005 vested benefits under Code Section 409A.

IN WITNESS WHEREOF, the Company has caused the Plan, as amended and restated, to be adopted as of the Effective Date.




TOLL BROTHERS, INC.
By:	/s/ Martin P. Connor
	Name:	Martin P. Connor
	Title:	Chief Financial Officer

Exhibit 31.1

CERTIFICATION

I, Douglas C. Yearley Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Toll Brothers, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	Signed:		/s/ Douglas C. Yearley, Jr.
			Name: Douglas C. Yearley, Jr.
			Title: Chief Executive Officer

Date: June 6, 2014

Exhibit 31.2

CERTIFICATION

I, Martin P. Connor, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Toll Brothers, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	Signed:		/s/ Martin P. Connor
			Name: Martin P. Connor
			Title: Chief Financial Officer

Date: June 6, 2014

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Toll Brothers, Inc. (the “Company”) on Form 10-Q for the three months ended April 30, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas C. Yearley Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:		/s/ Douglas C. Yearley Jr.
		Name: Douglas C. Yearley Jr.
		Title: Chief Executive Officer

Date: June 6, 2014

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Toll Brothers, Inc. (the “Company”) on Form 10-Q for the three months ended April 30, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin P. Connor, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:		/s/ Martin P. Connor
		Name: Martin P. Connor
		Title: Chief Financial Officer

Date: June 6, 2014