UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | | | | |
☑ | | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended April 30, 2020January 31, 2021
or
| | | | | | | | |
☐ | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 001-09186
Toll Brothers, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | | 23-2416878 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
250 Gibraltar Road1140 Virginia Drive | HorshamFort Washington | Pennsylvania | 1904419034 |
(Address of principal executive offices) | | | (Zip Code) |
(215) 938-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | TOL | New York Stock Exchange |
Guarantee of Toll Brothers Finance Corp. 5.625% Senior Notes due 2024 | TOL/24 | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At June 3, 2020,March 4, 2021, there were approximately 125,629,000123,124,000 shares of Common Stock, par value $0.01 per share, outstanding.
TOLL BROTHERS, INC.
TABLE OF CONTENTS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). One can identify these statements by the fact that they do not relate to matters of a strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” “likely”, “will” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information and statements regarding: the impact of the novel coronavirus (“COVID-19”) on the U.S. economy, the markets in which we operate or may operate, and on our business; our strategic objectives and priorities; our land acquisition, land development and capital allocation plans and priorities; market conditions; demand for our homes; anticipated operating results and guidance; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues, including expected labor and material costs; selling, general, and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; 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; our ability to acquire or dispose of land and pursue real estate opportunities; our ability to gain approvals and open new communities; our ability to market, construct and sell homes and properties; our ability to deliver homes from backlog; our ability to secure materials and subcontractors; our ability to produce the liquidity and capital necessary to conduct normal business operations or to expand and take advantage of opportunities; and the outcome of legal proceedings, investigations, and claims.
From time to time, forward-looking statements also are included in other reports on Forms 10-K, 10-Q, and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Therefore, we caution you not to place undue reliance on our forward-looking statements. The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•the effects of the ongoing COVID-19 pandemic, which are highly uncertain, unpredictablecannot be predicted and outside of our control,will depend upon future developments, including the severity of COVID-19the pandemic and its duration, the duration of the outbreak, the duration of existing social distancing and shelter-in-place orders, whether there is a secondary outbreak of the virus, further mitigation strategies taken by applicable government authorities, the availability and effectiveness of a vaccine,vaccines, adequate testing and therapeutic treatments and the prevalence of widespread immunity to COVID-19;
•the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
•market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels;
•access to adequate capital on acceptable terms;
•geographic concentration of our operations;
•levels of competition;
•the price and availability of lumber, other raw materialmaterials and labor prices and availability;labor;
•the effect of U.S. trade policies, including the imposition of tariffs and duties on home building products and retaliatory measures taken by other countries;
•the effects of weather and the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters;
•the risk of loss from acts of war, terrorism or outbreaks of contagious diseases, such as COVID-19;
•transportation costs;
•federal and state tax policies;
•transportation costs;
•the effect of land use, environmentenvironmental and other governmental laws and regulations;
•legal proceedings or disputes and the adequacy of reserves;
•risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, indebtedness, financial condition, losses and future prospects;
•the effect of potential loss of key management personnel;
•changes in accounting principles; and
•risks related to unauthorized access to our computer systems, theft of our and our homebuyers’ confidential information or other forms of cyber-attack; and
•other factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended October 31, 2019 and in other filings we make with the SEC.cyber-attack.
Many of the factors mentioned above, elsewhere in this report or in other reports or public statements made by us will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.
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 detailedfurther discussion of these factors that we believe could cause our actual results to differ materially from expected and historical results, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
| | | April 30, 2020 | | October 31, 2019 | | January 31, 2021 | | October 31, 2020 |
| | (unaudited) | | | | (unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
Cash and cash equivalents | Cash and cash equivalents | $ | 741,222 | | | $ | 1,286,014 | | Cash and cash equivalents | $ | 949,696 | | | $ | 1,370,944 | |
| Inventory | Inventory | 8,195,633 | | | 7,873,048 | | Inventory | 7,923,635 | | | 7,658,906 | |
Property, construction, and office equipment, net | Property, construction, and office equipment, net | 278,518 | | | 273,412 | | Property, construction, and office equipment, net | 277,696 | | | 316,125 | |
Receivables, prepaid expenses, and other assets (1) | Receivables, prepaid expenses, and other assets (1) | 983,094 | | | 715,441 | | Receivables, prepaid expenses, and other assets (1) | 907,775 | | | 956,294 | |
Mortgage loans held for sale, at fair value | Mortgage loans held for sale, at fair value | 141,007 | | | 218,777 | | Mortgage loans held for sale, at fair value | 125,475 | | | 231,797 | |
Customer deposits held in escrow | Customer deposits held in escrow | 74,690 | | | 74,403 | | Customer deposits held in escrow | 80,889 | | | 77,291 | |
Investments in unconsolidated entities | Investments in unconsolidated entities | 364,041 | | | 366,252 | | Investments in unconsolidated entities | 571,632 | | | 430,701 | |
Income taxes receivable | Income taxes receivable | 32,606 | | | 20,791 | | Income taxes receivable | 27,195 | | | 23,675 | |
| | $ | 10,810,811 | | | $ | 10,828,138 | | | $ | 10,863,993 | | | $ | 11,065,733 | |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
Liabilities | Liabilities | | Liabilities | |
Loans payable | Loans payable | $ | 1,556,572 | | | $ | 1,111,449 | | Loans payable | $ | 971,504 | | | $ | 1,147,955 | |
Senior notes | Senior notes | 2,660,815 | | | 2,659,898 | | Senior notes | 2,652,162 | | | 2,661,718 | |
Mortgage company loan facility | Mortgage company loan facility | 106,018 | | | 150,000 | | Mortgage company loan facility | 112,619 | | | 148,611 | |
Customer deposits | Customer deposits | 419,653 | | | 385,596 | | Customer deposits | 523,584 | | | 459,406 | |
Accounts payable | Accounts payable | 350,019 | | | 348,599 | | Accounts payable | 460,113 | | | 411,397 | |
Accrued expenses | Accrued expenses | 998,543 | | | 950,932 | | Accrued expenses | 1,109,129 | | | 1,110,196 | |
Income taxes payable | Income taxes payable | 105,469 | | | 102,971 | | Income taxes payable | 200,390 | | | 198,974 | |
Total liabilities | Total liabilities | 6,197,089 | | | 5,709,445 | | Total liabilities | 6,029,501 | | | 6,138,257 | |
Equity | Equity | | | | Equity | | | |
Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
Preferred stock, none issued | Preferred stock, none issued | — | | | — | | Preferred stock, none issued | 0 | | | 0 | |
Common stock, 152,937 shares issued at April 30, 2020 and October 31, 2019 | 1,529 | | | 1,529 | | |
Common stock, 152,937 shares issued at January 31, 2021 and October 31, 2020 | | Common stock, 152,937 shares issued at January 31, 2021 and October 31, 2020 | 1,529 | | | 1,529 | |
Additional paid-in capital | Additional paid-in capital | 725,246 | | | 726,879 | | Additional paid-in capital | 708,668 | | | 717,272 | |
Retained earnings | Retained earnings | 4,878,017 | | | 4,774,422 | | Retained earnings | 5,245,935 | | | 5,164,086 | |
Treasury stock, at cost — 27,329 and and 11,999 shares at April 30, 2020 and October 31, 2019, respectively | (1,034,999) | | | (425,183) | | |
Treasury stock, at cost — 29,981 and 26,410 shares at January 31, 2021 and October 31, 2020, respectively | | Treasury stock, at cost — 29,981 and 26,410 shares at January 31, 2021 and October 31, 2020, respectively | (1,162,811) | | | (1,000,454) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (5,275) | | | (5,831) | | Accumulated other comprehensive loss | (6,486) | | | (7,198) | |
Total stockholders’ equity | Total stockholders’ equity | 4,564,518 | | | 5,071,816 | | Total stockholders’ equity | 4,786,835 | | | 4,875,235 | |
Noncontrolling interest | Noncontrolling interest | 49,204 | | | 46,877 | | Noncontrolling interest | 47,657 | | | 52,241 | |
Total equity | Total equity | 4,613,722 | | | 5,118,693 | | Total equity | 4,834,492 | | | 4,927,476 | |
| | $ | 10,810,811 | | | $ | 10,828,138 | | | $ | 10,863,993 | | | $ | 11,065,733 | |
(1) As of April 30, 2020January 31, 2021 and October 31, 2019,2020, receivables, prepaid expenses, and other assets include $142.6$113.3 million and $145.8$163.0 million, respectively, of assets related to consolidated variable interest entities ("VIEs"). See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs.
See accompanying notes.
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Revenues: | Revenues: | | | | | | Revenues: | | | | |
Home sales | Home sales | $ | 2,813,571 | | | $ | 3,031,365 | | | $ | 1,516,234 | | | $ | 1,712,057 | | Home sales | $ | 1,410,704 | | | $ | 1,297,337 | | |
Land sales | 66,932 | | | 47,910 | | | 32,838 | | | 4,037 | | |
Land sales and other | | Land sales and other | 152,672 | | | 34,094 | | |
| | 2,880,503 | | | 3,079,275 | | | 1,549,072 | | | 1,716,094 | | | 1,563,376 | | | 1,331,431 | | |
| Cost of revenues: | Cost of revenues: | | Cost of revenues: | | |
Home sales | Home sales | 2,310,589 | | | 2,416,592 | | | 1,250,689 | | | 1,374,347 | | Home sales | 1,121,793 | | | 1,033,122 | | |
Land sales | 58,700 | | | 37,174 | | | 26,418 | | | 2,921 | | |
Land sales and other | | Land sales and other | 111,734 | | | 32,282 | | |
| | 2,369,289 | | | 2,453,766 | | | 1,277,107 | | | 1,377,268 | | | 1,233,527 | | | 1,065,404 | | |
Selling, general and administrative | Selling, general and administrative | 371,170 | | | 340,609 | | | 179,417 | | | 178,371 | | Selling, general and administrative | 210,739 | | | 218,531 | | |
Income from operations | Income from operations | 140,044 | | | 284,900 | | | 92,548 | | | 160,455 | | Income from operations | 119,110 | | | 47,496 | | |
Other: | Other: | | Other: | | |
Income (loss) from unconsolidated entities | 7,870 | | | 10,559 | | | (4,271) | | | 4,419 | | |
Income from unconsolidated entities | | Income from unconsolidated entities | 1,194 | | | 12,141 | | |
Other income – net | Other income – net | 20,131 | | | 32,146 | | | 13,836 | | | 11,285 | | Other income – net | 7,101 | | | 6,295 | | |
| Income before income taxes | Income before income taxes | 168,045 | | | 327,605 | | | 102,113 | | | 176,159 | | Income before income taxes | 127,405 | | | 65,932 | | |
Income tax provision | Income tax provision | 35,499 | | | 86,231 | | | 26,443 | | | 46,835 | | Income tax provision | 30,906 | | | 9,056 | | |
Net income | Net income | $ | 132,546 | | | $ | 241,374 | | | $ | 75,670 | | | $ | 129,324 | | Net income | $ | 96,499 | | | $ | 56,876 | | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | 556 | | | 112 | | | 278 | | | 56 | | Other comprehensive income, net of tax | 713 | | | 278 | | |
Total comprehensive income | Total comprehensive income | $ | 133,102 | | | $ | 241,486 | | | $ | 75,948 | | | $ | 129,380 | | Total comprehensive income | $ | 97,212 | | | $ | 57,154 | | |
| Per share: | Per share: | | Per share: | | |
Basic earnings | Basic earnings | $ | 1.00 | | | $ | 1.65 | | | $ | 0.59 | | | $ | 0.88 | | Basic earnings | $ | 0.77 | | | $ | 0.41 | | |
Diluted earnings | Diluted earnings | $ | 0.99 | | | $ | 1.63 | | | $ | 0.59 | | | $ | 0.87 | | Diluted earnings | $ | 0.76 | | | $ | 0.41 | | |
| Weighted-average number of shares: | Weighted-average number of shares: | | Weighted-average number of shares: | | |
Basic | Basic | 133,175 | | | 146,687 | | | 128,205 | | | 146,622 | | Basic | 126,060 | | | 138,145 | | |
Diluted | Diluted | 134,349 | | | 148,081 | | | 128,809 | | | 148,129 | | Diluted | 127,562 | | | 139,889 | | |
See accompanying notes.
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands)
(Unaudited)
For the sixthree months ended April 30, 2020January 31, 2021 and 2019:2020:
| | | | Common Stock | | Addi- tional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accum- ulated Other Compre- hensive Loss | | Non-controlling Interest | | Total Equity |
| | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
Balance, October 31, 2020 | | Balance, October 31, 2020 | 1,529 | | | 717,272 | | | 5,164,086 | | | (1,000,454) | | | (7,198) | | | 52,241 | | | 4,927,476 | |
Cumulative effect adjustment upon adoption of ASC 326, net of tax | | Cumulative effect adjustment upon adoption of ASC 326, net of tax | | (595) | | | (595) | |
Net income | | Net income | 0 | | 0 | | 96,499 | | | 0 | | 0 | | 0 | | 96,499 | |
| Purchase of treasury stock | | Purchase of treasury stock | 0 | | 0 | | 0 | | (179,395) | | | 0 | | 0 | | (179,395) | |
Exercise of stock options and stock based compensation issuances | | Exercise of stock options and stock based compensation issuances | 0 | | (21,445) | | | 0 | | 16,676 | | | 0 | | 0 | | (4,769) | |
Employee stock purchase plan issuances | | Employee stock purchase plan issuances | 0 | | 7 | | | 0 | | 362 | | | 0 | | 0 | | 369 | |
| Stock-based compensation | | Stock-based compensation | 0 | | 12,834 | | | 0 | | 0 | | 0 | | 0 | | 12,834 | |
| Dividends declared | | Dividends declared | 0 | | 0 | | (14,055) | | | 0 | | 0 | | 0 | | (14,055) | |
Other comprehensive income | | Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 712 | | | 0 | | 712 | |
Loss attributable to non-controlling interest | | Loss attributable to non-controlling interest | 0 | | 0 | | 0 | | 0 | | 0 | | (21) | | | (21) | |
Capital distributions, net | | Capital distributions, net | 0 | | 0 | | 0 | | 0 | | 0 | | (4,563) | | | (4,563) | |
Balance, January 31, 2021 | | Balance, January 31, 2021 | 1,529 | | | 708,668 | | | 5,245,935 | | | (1,162,811) | | | (6,486) | | | 47,657 | | | 4,834,492 | |
| | Common Stock | | Addi- tional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accum- ulated Other Compre- hensive (Loss)/Income | | Non-controlling Interest | | Total Equity | | | | | | | | | | | | | | |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
Balance, October 31, 2019 | Balance, October 31, 2019 | | 1,529 | | | 726,879 | | | 4,774,422 | | | (425,183) | | | (5,831) | | | 46,877 | | | 5,118,693 | | Balance, October 31, 2019 | 1,529 | | | 726,879 | | | 4,774,422 | | | (425,183) | | | (5,831) | | | 46,877 | | | 5,118,693 | |
| Net income | Net income | | | | | | | 132,546 | | | | | | | | | | | | 132,546 | | Net income | 0 | | 0 | | 56,876 | | | 0 | | 0 | | 0 | | 56,876 | |
| Purchase of treasury stock | Purchase of treasury stock | | | | | | | | | | (633,553) | | | | | | | | | (633,553) | | Purchase of treasury stock | 0 | | 0 | | 0 | | (476,024) | | | 0 | | 0 | | (476,024) | |
Exercise of stock options and stock based compensation issuances | Exercise of stock options and stock based compensation issuances | | | | (17,828) | | | | | | 22,401 | | | | | | | | | 4,573 | | Exercise of stock options and stock based compensation issuances | 0 | | (17,112) | | | 0 | | 21,042 | | | 0 | | 0 | | 3,930 | |
Employee stock purchase plan issuances | Employee stock purchase plan issuances | | | | (607) | | | | | | 1,336 | | | | | | | | | 729 | | Employee stock purchase plan issuances | 0 | | (41) | | | 0 | | 345 | | | 0 | | 0 | | 304 | |
| Stock-based compensation | Stock-based compensation | | | | 16,802 | | | | | | | | | | | | | | | 16,802 | | Stock-based compensation | 0 | | 13,383 | | | 0 | | 0 | | 0 | | 0 | | 13,383 | |
| Dividends declared | Dividends declared | | | | | | | (28,951) | | | | | | | | | | | | (28,951) | | Dividends declared | 0 | | 0 | | (15,012) | | | 0 | | 0 | | 0 | | (15,012) | |
Other comprehensive income | Other comprehensive income | | | | | | | | | | | | | 556 | | | | | | 556 | | Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 278 | | | 0 | | 278 | |
Loss attributable to non-controlling interest | Loss attributable to non-controlling interest | | | | | | | | | | | | | | | | (8) | | | (8) | | Loss attributable to non-controlling interest | 0 | | 0 | | 0 | | 0 | | 0 | | (1) | | | (1) | |
Capital contributions, net | | | | | | | | | | | | | | | | 2,335 | | | 2,335 | | |
Balance, April 30, 2020 | 1,529 | | | 725,246 | | | 4,878,017 | | | (1,034,999) | | | (5,275) | | | 49,204 | | | 4,613,722 | | |
| | Balance, October 31, 2018 | | 1,779 | | | 727,053 | | | 5,161,551 | | | (1,130,878) | | | 694 | | | 8,713 | | | 4,768,912 | | |
Cumulative effect adjustment upon adoption of ASC 606, net of tax | | | | | | | (17,987) | | | | | | | | | | | | (17,987) | | |
Net income | | | | | | | 241,374 | | | | | | | | | | | | 241,374 | | |
| Purchase of treasury stock | | | | | | | | | | (25,244) | | | | | | | | | (25,244) | | |
Exercise of stock options and stock based compensation issuances | | | | (19,667) | | | | | | 20,245 | | | | | | | | | 578 | | |
Employee stock purchase plan issuances | | | | 9 | | | | | | 711 | | | | | | | | | 720 | | |
| Stock-based compensation | | | | 13,916 | | | | | | | | | | | | | | | 13,916 | | |
| Dividends declared | | | | | | | (32,514) | | | | | | | | | | | | (32,514) | | |
Other comprehensive income | | | | | | | | | | | | | 112 | | | | | | 112 | | |
Loss attributable to non-controlling interest | | | | | | | | | | | | | | | | (4) | | | (4) | | |
Capital contributions | Capital contributions | | | | | | | | | | | | | | | | | 36,377 | | | 36,377 | | Capital contributions | 0 | | 0 | | 0 | | 0 | | 0 | | 2,653 | | | 2,653 | |
Balance, April 30, 2019 | 1,779 | | | 721,311 | | | 5,352,424 | | | (1,135,166) | | | 806 | | | 45,086 | | | 4,986,240 | | |
Balance, January 31, 2020 | | Balance, January 31, 2020 | 1,529 | | | 723,109 | | | 4,816,286 | | | (879,820) | | | (5,553) | | | 49,529 | | | 4,705,080 | |
For the three months ended April 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Addi- tional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accum- ulated Other Compre- hensive (Loss)/Income | | Non-controlling Interest | | Total Equity |
| $ | | $ | | $ | | $ | | $ | | $ | | $ |
Balance, January 31, 2020 | | 1,529 | | | 723,109 | | | 4,816,286 | | | (879,820) | | | (5,553) | | | 49,529 | | | 4,705,080 | |
| | | | | | | | | | | | | |
Net income | | | | | | | 75,670 | | | | | | | | | | | | 75,670 | |
| | | | | | | | | | | | | |
Purchase of treasury stock | | | | | | | | | | (157,529) | | | | | | | | | (157,529) | |
Exercise of stock options and stock based compensation issuances | | | | (716) | | | | | | 1,359 | | | | | | | | | 643 | |
Employee stock purchase plan issuances | | | | (566) | | | | | | 991 | | | | | | | | | 425 | |
| | | | | | | | | | | | | |
Stock-based compensation | | | | 3,419 | | | | | | | | | | | | | | | 3,419 | |
| | | | | | | | | | | | | |
Dividends declared | | | | | | | (13,939) | | | | | | | | | | | | (13,939) | |
Other comprehensive income | | | | | | | | | | | | | 278 | | | | | | 278 | |
Loss attributable to non-controlling interest | | | | | | | | | | | | | | | | (7) | | | (7) | |
Capital distributions, net | | | | | | | | | | | | | | | | (318) | | | (318) | |
Balance, April 30, 2020 | 1,529 | | | 725,246 | | | 4,878,017 | | | (1,034,999) | | | (5,275) | | | 49,204 | | | 4,613,722 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance, January 31, 2019 | | 1,779 | | | 717,405 | | | 5,239,251 | | | (1,139,623) | | | 750 | | | 41,627 | | | 4,861,189 | |
| | | | | | | | | | | | | |
Net income | | | | | | | 129,324 | | | | | | | | | | | | 129,324 | |
| | | | | | | | | | | | | |
Purchase of treasury stock | | | | | | | | | | (101) | | | | | | | | | (101) | |
Exercise of stock options and stock based compensation issuances | | | | (1,473) | | | | | | 4,201 | | | | | | | | | 2,728 | |
Employee stock purchase plan issuances | | | | 48 | | | | | | 357 | | | | | | | | | 405 | |
| | | | | | | | | | | | | |
Stock-based compensation | | | | 5,331 | | | | | | | | | | | | | | | 5,331 | |
| | | | | | | | | | | | | |
Dividends declared | | | | | | | (16,151) | | | | | | | | | | | | (16,151) | |
Other comprehensive income | | | | | | | | | | | | | 56 | | | | | | 56 | |
Loss attributable to non-controlling interest | | | | | | | | | | | | | | | | (4) | | | (4) | |
Capital contributions | | | | | | | | | | | | | | | | | 3,463 | | | 3,463 | |
Balance, April 30, 2019 | 1,779 | | | 721,311 | | | 5,352,424 | | | (1,135,166) | | | 806 | | | 45,086 | | | 4,986,240 | |
See accompanying notes.
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | Six months ended April 30, | | | Three months ended January 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flow used in operating activities: | | | | |
Cash flow provided by (used in) operating activities: | | Cash flow provided by (used in) operating activities: | | | |
Net income | Net income | $ | 132,546 | | | $ | 241,374 | | Net income | $ | 96,499 | | | $ | 56,876 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | 30,285 | | | 33,314 | | Depreciation and amortization | 16,876 | | | 14,667 | |
Stock-based compensation | Stock-based compensation | 16,802 | | | 13,916 | | Stock-based compensation | 12,834 | | | 13,383 | |
Income from unconsolidated entities | Income from unconsolidated entities | (7,870) | | | (10,559) | | Income from unconsolidated entities | (1,194) | | | (12,141) | |
Distributions of earnings from unconsolidated entities | Distributions of earnings from unconsolidated entities | 16,427 | | | 13,835 | | Distributions of earnings from unconsolidated entities | 1,080 | | | 14,703 | |
| Income from foreclosed real estate and distressed loans | (477) | | | (351) | | |
| Deferred tax provision | Deferred tax provision | 2,309 | | | 2,557 | | Deferred tax provision | 1,277 | | | 751 | |
| Inventory impairments and write-offs | Inventory impairments and write-offs | 15,245 | | | 26,956 | | Inventory impairments and write-offs | 1,267 | | | 1,031 | |
Gain on the sale of golf club properties and an office building | (12,970) | | | (13,331) | | |
Gain on sale of assets | | Gain on sale of assets | (38,279) | | | 0 |
Other | Other | 604 | | | 254 | | Other | 3,617 | | | 1,091 | |
| Changes in operating assets and liabilities | | | |
Increase in inventory | (247,104) | | | (215,141) | | |
Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | | |
Inventory | | Inventory | (274,327) | | | (303,384) | |
Origination of mortgage loans | Origination of mortgage loans | (745,847) | | | (673,032) | | Origination of mortgage loans | (376,036) | | | (316,852) | |
Sale of mortgage loans | Sale of mortgage loans | 823,354 | | | 720,231 | | Sale of mortgage loans | 478,982 | | | 422,376 | |
Increase in receivables, prepaid expenses, and other assets | (173,249) | | | (94,837) | | |
Increase in income taxes receivable | (11,815) | | | | | |
Increase in customer deposits – net | 33,271 | | | 28,726 | | |
Decrease in accounts payable and accrued expenses | (62,647) | | | (142,959) | | |
Decrease in income taxes payable | | | | (16,631) | | |
Net cash used in operating activities | (191,136) | | | (85,678) | | |
Cash flow (used in) provided by investing activities: | | | | |
Receivables, prepaid expenses, and other assets | | Receivables, prepaid expenses, and other assets | 34,733 | | | (172,153) | |
Income taxes receivable | | Income taxes receivable | (3,520) | | | (36,131) | |
Customer deposits – net | | Customer deposits – net | 60,580 | | | 34,058 | |
Accounts payable and accrued expenses | | Accounts payable and accrued expenses | 40,835 | | | (84,691) | |
Income taxes payable | | Income taxes payable | 99 | | | 0 |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 55,323 | | | (366,416) | |
Cash flow used in investing activities: | | Cash flow used in investing activities: | | | |
Purchase of property, construction, and office equipment – net | Purchase of property, construction, and office equipment – net | (50,757) | | | (44,941) | | Purchase of property, construction, and office equipment – net | (14,496) | | | (26,839) | |
| Investments in unconsolidated entities | Investments in unconsolidated entities | (10,263) | | | (31,560) | | Investments in unconsolidated entities | (112,828) | | | (4,909) | |
Return of investments in unconsolidated entities | Return of investments in unconsolidated entities | 34,884 | | | 70,465 | | Return of investments in unconsolidated entities | 37,853 | | | 28,983 | |
Investment in foreclosed real estate and distressed loans | (272) | | | (522) | | |
Return of investments in foreclosed real estate and distressed loans | 1,431 | | | 1,214 | | |
Proceeds from the sale of golf club properties and an office building | 15,617 | | | 33,539 | | |
Proceeds from the sale of assets | | Proceeds from the sale of assets | 79,356 | | | 0 |
| Acquisition of a business | (60,349) | | | | | |
Net cash (used in) provided by investing activities | (69,709) | | | 28,195 | | |
| Other | | Other | 334 | | | 649 | |
Net cash used in investing activities | | Net cash used in investing activities | (9,781) | | | (2,116) | |
Cash flow used in financing activities: | Cash flow used in financing activities: | | | | Cash flow used in financing activities: | | | |
| Proceeds from loans payable | Proceeds from loans payable | 2,732,493 | | | 1,339,641 | | Proceeds from loans payable | 597,973 | | | 702,729 | |
Debt issuance costs | | | | (1,948) | | |
| Principal payments of loans payable | Principal payments of loans payable | (2,354,113) | | | (1,131,795) | | Principal payments of loans payable | (847,415) | | | (608,481) | |
Redemption of senior notes | Redemption of senior notes | | | | (350,000) | | Redemption of senior notes | (10,020) | | | 0 |
| Proceeds from stock-based benefit plans, net | 5,305 | | | 1,302 | | |
(Payments) proceeds from stock-based benefit plans, net | | (Payments) proceeds from stock-based benefit plans, net | (4,397) | | | 4,235 | |
Purchase of treasury stock | Purchase of treasury stock | (633,553) | | | (25,244) | | Purchase of treasury stock | (179,395) | | | (476,024) | |
Dividends paid | Dividends paid | (28,783) | | | (32,434) | | Dividends paid | (14,285) | | | (14,956) | |
(Payments) receipts related to noncontrolling interest, net | (Payments) receipts related to noncontrolling interest, net | (936) | | | 13 | | (Payments) receipts related to noncontrolling interest, net | (4,728) | | | 44 | |
Net cash used in financing activities | Net cash used in financing activities | (279,587) | | | (200,465) | | Net cash used in financing activities | (462,267) | | | (392,453) | |
Net decrease in cash, cash equivalents, and restricted cash | Net decrease in cash, cash equivalents, and restricted cash | (540,432) | | | (257,948) | | Net decrease in cash, cash equivalents, and restricted cash | (416,725) | | | (760,985) | |
Cash, cash equivalents, and restricted cash, beginning of period | Cash, cash equivalents, and restricted cash, beginning of period | 1,319,643 | | | 1,182,939 | | Cash, cash equivalents, and restricted cash, beginning of period | 1,396,604 | | | 1,319,643 | |
Cash, cash equivalents, and restricted cash, end of period | Cash, cash equivalents, and restricted cash, end of period | $ | 779,211 | | | $ | 924,991 | | Cash, cash equivalents, and restricted cash, end of period | $ | 979,879 | | | $ | 558,658 | |
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,” “we,” “us,” or “our”), a Delaware corporation, and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The October 31, 20192020 balance sheet amounts and disclosures included herein have been derived from our October 31, 20192020 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, they should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 20192020 (“20192020 Form 10-K”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position as of April 30, 2020;January 31, 2021; the results of our operations and changes in equity for the six-month and three-month periods ended April 30, 2020January 31, 2021 and 2019;2020; and our cash flows for the six-monththree-month periods ended April 30, 2020January 31, 2021 and 2019.2020. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Use of Estimates-
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statementscondensed consolidated financial statements and accompanying notes. In times of economic disruption when uncertainty regarding future economic conditions is heightened, these estimates and assumptions are subject to greater variability. The Company is currently subject to risks and uncertainties resulting from the novel coronavirus (COVID-19)COVID-19 pandemic, which has adversely impacted our results of operations in the second quarter of fiscal 2020, and is likely to continuecontinues to impact our results of operations as well as our business operations. As a result, actual results could differ from the estimates and assumptions we make that affect the amounts reported in the Condensed Consolidated Financial Statementscondensed consolidated financial statements and accompanying notes, and such differences may be material.
Reclassifications
As discussed in our 2020 Form 10-K, effective October 31, 2020, we reclassified sales commissions paid to third-party brokers from home sales cost of revenues to selling, general and administrative expense in our Consolidated Statements of Operations and Comprehensive Income. The reclassification aligns the treatment of sales commissions paid to third-party brokers with the treatment of sales commissions paid to in-house salespersons, and is consistent with the manner in which the majority of the Company’s peers treat such commissions. The reclassification had the effect of lowering home sales cost of revenues (and increasing home sales gross margin) and increasing selling, general and administrative expense by the amount of third-party broker commissions, which totaled $26.8 million, or 2.1% of home sales revenues for the three months ended January 31, 2020. All prior period amounts have been reclassified to conform to the 2021 presentation.
Revenue Recognition
Home sales revenues: Revenues and cost of revenues from home sales are recognized at the time each home is delivered and title and possession are transferred to the buyer. For the majority of our home closings, our performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In certain states where we build, we are not able to complete certain outdoor features prior to the closing of the home. To the extent these separate performance obligations are not complete upon the home closing, we defer a portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of April 30, 2020,January 31, 2021, the home sales revenues and related costs we deferred related to these obligations were immaterial. Our contract liabilities, consisting of deposits received from customers for sold but undelivered homes, totaled $419.7$523.6 million and $385.6$459.4 million at April 30, 2020January 31, 2021 and October 31, 2019,2020, respectively. Of the outstanding customer deposits held as of October 31, 2019,2020, we recognized $176.7 million and $91.0$94.0 million in home sales revenues during the six months and three months ended April 30, 2020, respectively.January 31, 2021.
Land sales and other revenues: Our revenues from land sales and other generally consist of: (1) lot sales to third-party builders within our master planned communities; (2) land sales to joint ventures in which we retain an interest; and (3) bulk sales to third
parties of land we have decided no longer meets our development criteria.criteria and (4) sales of commercial and retail properties generally located at our City Living buildings. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. For land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture.
Forfeited Customer Deposits: Forfeited customer deposits are recognized in “Home sales revenues” in our Condensed Consolidated Statements of Operations and Comprehensive Income in the period in which we determine that the customer will not complete the purchase of the home and we have the right to retain the deposit.
Sales Incentives: In order to promote sales of our homes, we may offer our home buyers sales incentives. These incentives vary by type and amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sales revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds.
Recent Accounting PronouncementsDerivative Instruments and Hedging Activities
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entityOur objective in entering into derivative transactions is to manage our exposure to interest rate movements associated with certain variable rate debt. We recognize derivatives as either assets andor liabilities on the balance sheet forand measures those instruments at fair value.
Since all of our derivatives are designated as cash flow hedges, the rights and obligations created by leased assets and provide additional disclosures. In July 2018,entire change in the FASB issued ASU No. 2018-11, “Leases: Targeted Improvements” (“ASU 2018-11”), which provides an entity with the option to apply the transition provisionsfair value of the new standard at its adoption date instead of at its earliest comparative period presented. ASU 2018-11 also provides an entity with a practical expedient that permits lessors to not separate nonlease components fromderivative included in the associated lease component if certain conditions are met. ASU 2016-02, as amended by ASU 2018-11, became effective for our fiscal year beginning November 1, 2019, and we adopted the new standard using a modified retrospective approach. The prior year period was not recast and our Condensed Consolidated Balance Sheet as of October 31, 2019 does not reflect any changes resulting from the adoption of the new standard. We elected to apply the transition provisions that allow us to carry forward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification,hedge effectiveness is initially reported in accumulated other comprehensive loss and (3) initial direct costs. In addition, we electedsubsequently reclassified to home sales cost of revenues in the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. As a result of the adoption, we recorded a right-of-use (“ROU”) asset and lease liability of $114.5 million and $118.5 million, respectively, as of November 1, 2019. The ROU asset is included in “Receivables, prepaid expenses, and other assets” and the corresponding lease liability is included in “Accrued expenses” in our Condensed Consolidated Balance Sheet. The adoption of ASU 2016-02 had no impact on retained earnings and did not materially impact ouraccompanying Condensed Consolidated Statements of Operations and Comprehensive Income when the hedged transaction affects earnings. If it is determined that a derivative is not highly effective as a hedge, or Condensed Consolidated Statementsif the hedged forecasted transaction is no longer probable of Cash Flows.occurring, the amount recognized in Accumulated other comprehensive loss is released to earnings. See Note 12 “Fair Value Disclosures” for more information.
Recent Accounting Pronouncements
In June 2016, the FASB issuedcreated ASC 326 with the issuance of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 will bebecame effective for our fiscal year beginning November 1, 2020, with earlyand we adopted the new standard under the modified retrospective transition method. As a result of the adoption, permitted aswe recognized a cumulative effect adjustment, net of November 1, 2019. We are currently evaluatingtax, of $0.6 million to the impact that theopening balance of retained earnings. The adoption of ASU 2016-13 maydid not have a material impact on our consolidated financial statementsCondensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations or Comprehensive Income, and disclosures.there have been no significant changes to our internal controls, processes, or systems as a result of implementing this new standard.
2. Acquisitions
In our second quarter of fiscal 2020, we acquired substantially all of the assets and operations of The Thrive ResidentialGroup, LLC (“Thrive”), an urban in-fillinfill builder with operations in Atlanta, Georgia and Nashville, Tennessee, and Keller Homes, Inc. (“Keller”), a builder with operations in Colorado Springs, Colorado. The aggregate purchase price for these acquisitions was approximately $60.3$79.2 million in cash. The assets acquired based on our preliminary purchase price allocation, were primarily inventory, for future communities, including approximately 6801,100 home sites owned or controlled through land purchase agreements.
During fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), respectively, for an aggregate of approximately $162.4 million in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, based on our purchase price allocations, which we finalized in the second quarter of fiscal 2020, were primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements. There were no significant adjustments between the preliminary and final purchase price allocations. In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million. The average price of undelivered homes at the dates of acquisitions was approximately $471,100. As a result One of these acquisitions our selling community count increased by 22 communities.
The acquisitions discussed above werewas accounted for as a business combination and neither were not material to our results of operations or financial condition.
3. Inventory
Inventory at April 30, 2020January 31, 2021 and October 31, 20192020 consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| April 30, 2020 | | October 31, 2019 |
Land controlled for future communities | $ | 219,432 | | | $ | 182,929 | |
Land owned for future communities | 1,043,335 | | | 868,202 | |
Operating communities | 6,932,866 | | | 6,821,917 | |
| $ | 8,195,633 | | | $ | 7,873,048 | |
| | | | | | | | | | | |
| January 31, 2021 | | October 31, 2020 |
Land controlled for future communities | $ | 207,383 | | | $ | 223,525 | |
Land owned for future communities | 996,420 | | | 1,036,843 | |
Operating communities | 6,719,832 | | | 6,398,538 | |
| $ | 7,923,635 | | | $ | 7,658,906 | |
Operating communities include communities offering homes for sale; communities that have sold all available home sites but have not completed delivery of the homes; communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within 12 months of the
end of the fiscal period being reported on; and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities, and the carrying cost of model homes.
Communities that were previously offering homes for sale but are temporarily closed due to business conditions, do not have any remaining backlog, and are not expected to reopen within 12 months of the end of the fiscal period being reported on have been classified asare included in land owned for future communities.
Information regarding the classification, number, and carrying value of these temporarily closed communities, as of the dates indicated, is provided in the table below:
| | | April 30, 2020 | | October 31, 2019 | | January 31, 2021 | | October 31, 2020 |
Land owned for future communities: | Land owned for future communities: | | | | Land owned for future communities: | | | |
Number of communities | Number of communities | 15 | | | 16 | | Number of communities | 8 | | | 10 | |
Carrying value (in thousands) | Carrying value (in thousands) | $ | 113,168 | | | $ | 120,857 | | Carrying value (in thousands) | $ | 41,231 | | | $ | 68,064 | |
Operating communities: | Operating communities: | | | | Operating communities: | | | |
Number of communities | Number of communities | 1 | | | 1 | | Number of communities | 4 | | | 4 | |
Carrying value (in thousands) | Carrying value (in thousands) | $ | 5,824 | | | $ | 2,871 | | Carrying value (in thousands) | $ | 54,040 | | | $ | 32,112 | |
The amounts we have provided for inventory impairment charges and the expensing of costs that we believe 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, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Land controlled for future communities (1) | $ | 12,840 | | | $ | 3,676 | | | $ | 11,809 | | | $ | 1,899 | |
Land owned for future communities | 2,105 | | | | | | 2,105 | | | | |
Operating communities | 300 | | | 23,280 | | | 300 | | | 17,495 | |
| $ | 15,245 | | | $ | 26,956 | | | $ | 14,214 | | | $ | 19,394 | |
(1) The six-month and three-month periods ended April 30, 2020, include a $10.7 million impairment charge related to a land purchase agreement located in our Mid-Atlantic segment, which we terminated. | | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | | | |
Land controlled for future communities | $ | 167 | | | $ | 1,031 | | | | | |
| | | | | | | |
Operating communities | 1,100 | | | 0 | | | | |
| $ | 1,267 | | | $ | 1,031 | | | | | |
See Note 12, “Fair Value Disclosures,” for information regarding the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair values of those communities, net of impairment charges.
See Note 14, “Commitments and Contingencies,” for information regarding land purchase commitments.
At April 30, 2020,January 31, 2021, we evaluated our land purchase contracts, including those to acquire land for apartment developments, to determine whether any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our risk is generally limited to deposits paid to the sellers and predevelopment costs incurred; and the creditors of the sellers generally have no recourse against us. At April 30, 2020,January 31, 2021, we determined that 131218 land purchase contracts, with an aggregate purchase price of $2.15$2.31 billion, on which we had made aggregate deposits totaling $171.2$193.0 million, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2019,2020, we determined that 127207 land purchase contracts, with an aggregate purchase price of $2.00$2.31 billion, on which we had made aggregate deposits totaling $149.2$208.7 million, were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts.
Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Interest capitalized, beginning of period | Interest capitalized, beginning of period | $ | 311,323 | | | $ | 319,364 | | | $ | 320,751 | | | $ | 330,167 | | Interest capitalized, beginning of period | $ | 297,975 | | | $ | 311,323 | | |
Interest incurred | Interest incurred | 89,754 | | | 87,862 | | | 46,104 | | | 43,440 | | Interest incurred | 41,268 | | | 43,650 | | |
Interest expensed to home sales cost of revenues | Interest expensed to home sales cost of revenues | (70,811) | | | (79,227) | | | (38,037) | | | (44,786) | | Interest expensed to home sales cost of revenues | (33,325) | | | (32,774) | | |
Interest expensed to land sales cost of revenues | (1,304) | | | (635) | | | (737) | | | (283) | | |
Interest expensed in other income | (2,440) | | | | | | (2,440) | | | | | |
Interest expensed to land sales and other cost of revenues | | Interest expensed to land sales and other cost of revenues | (1,838) | | | (567) | | |
| | Interest capitalized on investments in unconsolidated entities | Interest capitalized on investments in unconsolidated entities | (1,778) | | | (3,084) | | | (897) | | | (1,270) | | Interest capitalized on investments in unconsolidated entities | (1,134) | | | (881) | | |
| Previously capitalized interest on investments in unconsolidated entities transferred to inventory | Previously capitalized interest on investments in unconsolidated entities transferred to inventory | 120 | | | 4,303 | | | 120 | | | 1,315 | | Previously capitalized interest on investments in unconsolidated entities transferred to inventory | 15 | | | 0 | |
Interest capitalized, end of period | Interest capitalized, end of period | $ | 324,864 | | | $ | 328,583 | | | $ | 324,864 | | | $ | 328,583 | | Interest capitalized, end of period | $ | 302,961 | | | $ | 320,751 | | |
During the three months ended January 31, 2021, we incurred $154,000 of interest related to our interest rate swaps which is included in accumulated other comprehensive loss, of which approximately $10,000 was expensed to home sales cost of revenues. NaN similar amounts were incurred during the three months ended January 31, 2020.
4. Investments in Unconsolidated Entities
We have investments in various unconsolidated entities.entities and our ownership interest in these investments ranges from 15.8% to 50%. These entities, which are structured as joint ventures, (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).
The table below provides information as of April 30, 2020,January 31, 2021, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):
| | | Land Development Joint Ventures | | Home Building Joint Ventures | | Rental Property Joint Ventures | | Gibraltar Joint Ventures | | Total | | Land Development Joint Ventures | | Home Building Joint Ventures | | Rental Property Joint Ventures | | Gibraltar Joint Ventures | | Total |
Number of unconsolidated entities | Number of unconsolidated entities | 8 | | 4 | | 22 | | 7 | | 41 | Number of unconsolidated entities | 12 | | 4 | | 28 | | 7 | | 51 |
Investment in unconsolidated entities | Investment in unconsolidated entities | $ | 103,301 | | | $ | 42,961 | | | $ | 197,377 | | | $ | 20,402 | | | $ | 364,041 | | Investment in unconsolidated entities | $ | 264,274 | | | $ | 26,191 | | | $ | 263,280 | | | $ | 17,887 | | | $ | 571,632 | |
Number of unconsolidated entities with funding commitments by the Company | Number of unconsolidated entities with funding commitments by the Company | 2 | | — | | 3 | | 1 | | | 6 | Number of unconsolidated entities with funding commitments by the Company | 3 | | 0 | | 8 | | 1 | | | 12 |
Company’s remaining funding commitment to unconsolidated entities | Company’s remaining funding commitment to unconsolidated entities | $ | 27,530 | | | $ | — | | | $ | 11,514 | | | $ | 6,232 | | | $ | 45,276 | | Company’s remaining funding commitment to unconsolidated entities | $ | 33,518 | | | $ | 0 | | | $ | 30,491 | | | $ | 25,649 | | | $ | 89,658 | |
Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at April 30, 2020,January 31, 2021, regarding the debt financing obtained by category ($ amounts in thousands):
| | | Land Development Joint Ventures | | Home Building Joint Ventures | | Rental Property Joint Ventures | | | Total | | Land Development Joint Ventures | | Home Building Joint Ventures | | Rental Property Joint Ventures | | | Total |
Number of joint ventures with debt financing | Number of joint ventures with debt financing | 3 | | 1 | | 20 | | | 24 | Number of joint ventures with debt financing | 4 | | 1 | | 25 | | | 30 |
Aggregate loan commitments | Aggregate loan commitments | $ | 110,842 | | | $ | 62,384 | | | $ | 1,516,624 | | | | $ | 1,689,850 | | Aggregate loan commitments | $ | 158,805 | | | $ | 29,786 | | | $ | 2,010,544 | | | | $ | 2,199,135 | |
Amounts borrowed under loan commitments | Amounts borrowed under loan commitments | $ | 95,900 | | | $ | 62,384 | | | $ | 1,082,342 | | | | $ | 1,240,626 | | Amounts borrowed under loan commitments | $ | 107,551 | | | $ | 29,786 | | | $ | 1,312,325 | | | | $ | 1,449,662 | |
More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below.
Land DevelopmentNew Joint Ventures
During the six months ended April 30,The table below provides information on joint ventures entered into during our first quarter of fiscal 2021 ($ amounts in thousands):
| | | | | | | | |
| Land Development Joint Ventures | Rental Property Joint Ventures |
Number of unconsolidated joint ventures entered into during the period | 3 | 2 |
Investment balance at January 31, 2021 | $ | 139,033 | | $ | 14,932 | |
| | |
| | |
| | |
The table below provides information on joint ventures entered into during our first quarter of fiscal 2020 our Land Development Joint Ventures sold approximately 333 lots and recognized revenues of $43.9 million. We acquired 86 of these lots for $7.8 million. During the six months ended April 30, 2019, our Land Development Joint Ventures sold approximately 498 lots and recognized revenues of $138.8 million. We acquired 195 of these lots for $96.5 million. Our share of the joint venture income from the lots we acquired was insignificant.($ amounts in thousands):
During the three months ended April 30, 2020, our Land Development Joint Ventures sold approximately 169 lots and recognized revenues of $19.3 million. We acquired 44 of these lots for $4.3 million. During the three months ended April 30, | | | | | | | | |
| Land Development Joint Ventures | Rental Property Joint Ventures |
Number of unconsolidated joint ventures entered into during the period | 0 | | 2 | |
Investment balance at January 31, 2020 | $ | 0 | | $ | 24,900 | |
| | |
| | |
| | |
2019, our Land Development Joint Ventures sold approximately 297 lots and recognized revenues of $49.0 million. We acquired 88 of these lots for $25.3 million. Our share of the joint venture income from the lots we acquired was insignificant.
Home Building Joint Ventures
During the six months ended April 30, 2020 and 2019, our Home Building Joint Ventures delivered 32 homes with a sales value of $91.4 million and 72 homes with a sales value of $121.8 million, respectively. During the three months ended April 30, 2020 and 2019, our Home Building Joint Ventures delivered 9 homes with a sales value of $24.3 million and 55 homes with a sales value of $94.6 million, respectively. We recognized an other than temporary impairment charge in connection with one Home Building Joint Venture of $3.0 million during the six months and three months ending April 30, 2020, which is included in “Income from unconsolidated entities” in our Condensed Consolidated StatementsResults of Operations and Comprehensive Income. NaN charges were recognized in the six-month or three-month periods ending April 30, 2019.Intra-entity Transactions
In our first quarterquarters of fiscal 2021 and 2020, onecertain of our Home Building Joint Ventures refinanced its existing $236.5 million construction loan with a $76.6 million post-construction loan that extended the maturity date of the loanland development and rental property joint ventures sold their underlying assets to November 2021 and revised certain guarantees provided for under the original construction loan. At April 30, 2020, thisunrelated parties or to our joint venture had $62.4 million of borrowings outstanding under the post-construction loan.
Rental Property Joint Ventures
As of April 30, 2020, our Rental Property Joint Ventures, including those that we consolidate, owned 25 for-rent apartment projects and a hotel, which are located in multiple metropolitan areas throughout the country. At April 30, 2020, these joint ventures had approximately 2,000 units that were occupied or ready for occupancy, 1,850 units in the lease-up stage, and 4,200 units in the design phase or under development. In addition, we either own, have under contract, or under a letter of intent approximately 13,050 units, including 200 units under active development; we intend to develop these units in joint ventures with unrelated parties in the future.
In the first quarter of fiscal 2020, we sold all of our ownership interest in one of our Rental Property Joint Ventures to our partner for cash of $16.8 million, net of closing costs. The joint venture had owned, developed, and operated multifamily residential apartments in northern New Jersey.partner. In connection with the sale, the joint venture’s existing $76.0these sales, we recognized gains of $5.9 million loan was assumed by our partner. We recognized a gain ofand $10.7 million, in the six months ended April 30, 2020,respectively, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income.
In the second quarter of fiscal 2020, a joint venture that we had previously consolidated due to our controlling financial interest entered into a separate unconsolidated joint venture to admit an unrelated capital member that acquired a 75% interest for an aggregate amount of $19.1 million. This unconsolidated joint venture purchased the assets of the consolidated joint venture and we recognized a gain on land sale of $0.9 million in the six and three months ended April 30, 2020. This unconsolidated joint venture is developing a luxury for-rent residential apartment project located in suburban Boston, Massachusetts. At April 30, 2020, we had an aggregate investment of $7.0 million in the unconsolidated joint venture. Concurrent with its formation, the unconsolidated joint venture entered into a construction loan agreement for an aggregate amount of $75.4 million to finance the development of this project. At April 30, 2020, the unconsolidated joint venture had 0 outstanding borrowings under this construction loan facility.
In the first quarter of fiscal 2020,2021, we entered into 2 separate joint ventures with unrelated parties to develop (i) a luxury for-rent residential apartment project locatedrecognized other-than-temporary impairment charges on certain Home Building Joint Ventures of $2.1 million. NaN similar charges were incurred in Dallas, Texas and (ii) a student housing community in State College, Pennsylvania. Prior to the formation of these joint ventures, we acquired the properties and incurred an aggregate of approximately $51.0 million of land and land development costs. Our partners acquired interests in these entities ranging from 50% to 70% for an aggregate amount of $26.2 million. At April 30, 2020, we had an aggregate investment of $24.9 million in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $121.5 million to finance the development of these projects. At April 30, 2020, the joint ventures had $11.4 million outstanding borrowings under these construction loan facilities.
In theour first quarter of fiscal 2019, we entered into 2 separate joint ventures with unrelated parties2020.
In our first quarters of fiscal 2021 and 2020, purchases from unconsolidated entities, principally related to develop luxury for-rent residential apartment projects located in Harrison, New Yorkour acquisition of lots from our Land Development Joint Ventures, were $4.3 million and Frisco, Texas. Prior to$3.5 million, respectively. Our share of income from the formation of these joint ventures,lots we acquired the properties and incurred approximately $41.9 million ofwas insignificant in each period. Sales to unconsolidated entities, which principally involved land and land development costs. Our partners each acquired a 75% interest in these entities for an aggregate amount of $39.8sales to our Rental Property Joint Ventures, were $57.3 million and we recognized a gain on land sale of $8.4$26.4 million in the six months ended April 30, 2019. At April 30,our first quarters of fiscal 2021 and 2020, we had an aggregate investment of $15.7 millionrespectively. These amounts are included in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $134.4 million. At April 30, 2020, the joint ventures had $62.6 million outstanding borrowings under these construction loan facilities.
In fiscal 2019 and 2018, we entered into 5 separate joint ventures with unrelated parties to develop luxury for-rent residential apartment projects and student housing communities located in Boston, Massachusetts, San Diego, California, Tempe, Arizona and Miami, Florida. We contributed an aggregate of $95.5 million for our initial ownership interests in these joint ventures, which ranged from 50% to 98%. Due to our controlling financial interest, our power to direct the activities that most significantly impact each joint venture’s performance, and/or our obligation to absorb expected losses or receive benefits from these joint ventures, we consolidated these joint ventures at April 30, 2020 and October 31, 2019. The carrying value of these joint ventures’ assets totaling $142.6 million and $145.8 million are reflected in “Receivables, prepaid expenses,“Land sales and other assets” inrevenue” on our Condensed Consolidated Balance Sheet asStatement of April 30, 2020Operations and October 31, 2019, respectively. Our partners’ interests aggregating $42.3 million and $41.0 millionComprehensive Income. Gains related to these sales were immaterial in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of April 30, 2020 and October 31, 2019, respectively. These joint ventures intend to obtain additional equity investors and secure third-party financing at a later date. At such time, it is expected that these entities would no longer be consolidated.
In fiscal 2019, we entered into a joint venture with unrelated parties to develop, build, and operate single-family rental communities. As of April 30, 2020, we have invested $2.4 million in this joint venture and have committed to invest up to $60.0 million.
In 1998, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by current and former members of our senior management; and one-third by an unrelated party. As of April 30, 2020, our investment in the Trust was 0 as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amount of $0.5 million in each of the six-month periods ended April 30, 2020 and 2019.
Gibraltar Joint Ventures
We, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), have entered into 6 ventures with an institutional investor to provide builders and developers with land banking and venture capital. These ventures will finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We also are a member in a separate venture with the same institutional investor, which purchased, from Gibraltar, certain foreclosed real estate owned and distressed loans in fiscal 2016. Our ownership interest in these ventures is approximately 25%. We may invest up to $100.0 million in these ventures. As of April 30, 2020, we had an aggregate investment of $20.4 million in these ventures.both periods.
Guarantees
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, thewe and our joint venture partner have provided joint and several guarantees provided in connection with loans to an unconsolidated entity are joint and several.entities. In these situations, we generally haveseek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, we are not always successful. In addition, if athe joint venture partner does not have adequate financial resources to meet its obligations under thesuch a reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of April 30, 2020,January 31, 2021, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At April 30, 2020,
Information with respect to certain of the Company’s unconsolidated entities haveentities’ outstanding debt obligations, loan commitments aggregating $1.35 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $190.6 million to beand our guarantees thereon are as follows ($ amounts in thousands):
| | | | | | | | |
| January 31, 2021 | | | |
Loan commitments in the aggregate | $ | 1,858,000 | | | | |
Our maximum estimated exposure under repayment and carry cost guarantees if the full amount of the debt obligations were borrowed | $ | 327,500 | | | | |
Debt obligations borrowed in the aggregate | $ | 1,108,500 | | | | |
Our maximum estimated exposure under repayment and carry cost guarantees of the debt obligations borrowed | $ | 236,700 | | | | |
Estimated fair value of guarantees provided by us related to debt and other obligations | $ | 8,800 | | | | |
Terms of guarantees | 1 month - 3.8 years | | | |
The maximum exposure related to repayment and carry cost guarantees. At April 30, 2020, the unconsolidated entities had borrowed an aggregate of $897.7 million, of which we estimate $137.2 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 4 months to 4.0 years. These maximum exposure estimates presented above do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
As of April 30, 2020, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $5.1 million. We have not made payments under any of the outstanding guarantees, nor have we been called upon to do so.
Variable Interest Entities
At April 30, 2020
The table below provide information as of January 31, 2021 and October 31, 2019, we determined that 16 and 18 of2020, regarding our unconsolidated joint ventures, respectively, wereventure-related variable interests in VIEs under($ amounts in thousands):
| | | | | | | | |
| January 31, 2021 | October 31, 2020 |
Number of Joint Venture VIEs that the Company is not the Primary Beneficiary (“PB”) | 12 | | 12 | |
Investment balance in unconsolidated Joint Venture VIEs included in Investments in unconsolidated entities in our Consolidated Balance Sheets | $ | 55,300 | | $ | 63,100 | |
Our maximum exposure to losses related to loan guarantees and additional commitments provided to unconsolidated Joint Venture VIEs | $ | 282,700 | | $ | 122,100 | |
Our ownership interest in the guidance of ASC 810, “Consolidation.” For 11 and 13 of theseabove unconsolidated Joint Venture VIEs ranges from 20% to 50%.
The table below provide information as of April 30, 2020January 31, 2021 and October 31, 2019, respectively, we concluded that we were not the primary beneficiary of these2020, regarding our consolidated joint venture-related variable interests in VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees($ amounts in unconsolidated entities deemed to be VIEs is also includedthousands):
| | | | | | | | | | | |
| Balance Sheet Classification | January 31, 2021 | October 31, 2020 |
Number of Joint Venture VIEs that the Company is the PB and consolidates | | 5 | | 5 | |
Carrying value of consolidated VIEs assets | Receivables prepaid expenses, and other assets | $ | 113,300 | | $ | 163,000 | |
Our partners’ interests in consolidated VIEs | Noncontrolling interest | $ | 41,700 | | $ | 46,200 | |
| | | |
Our ownership interest in the information provided above.above consolidated Joint Venture VIEs ranges from 50% to 98%.
As of April 30, 2020,shown above, we have consolidated 5 Rental Property Joint Ventures. The carrying value of these joint ventures’ assets totaling $142.6 million is reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of April 30, 2020. Our partners’ interests aggregating $42.3 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of April 30, 2020. These joint ventures were determined to be VIEs due to their current inability to finance their activities without additional subordinated financial support as well as our partners’ inability to participate in the significant decisions of the joint venture and their lack of substantive kick-out rights. We further concluded that we are the primary beneficiaryPB of thesecertain VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan.
At April 30, 2020 For other VIEs, we have concluded that we are not the PB because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and October 31, 2019,such VIEs’ other partners or such activities were controlled by our investments inpartner. For VIEs where the unconsolidated entities deemedpower to direct significant activities is shared, business plans, budgets, and other major decisions are required to be VIEs totaled $43.4 millionunanimously approved by all members. Management and $37.0 million, respectively. At April 30, 2020other fees earned by us are nominal and October 31, 2019, the maximum exposure of lossbelieved to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $42.0 millionbe at market rates, and $76.0 million, respectively, of loan guaranteesthere is no significant economic disproportionality between us and $14.9 million and $8.3 million, respectively, of additional commitments to the VIEs. Of our potential exposure for these loan guarantees at April 30, 2020 and October 31, 2019, $11.1 million and $76.0 million, respectively, is related to loan repayment and carry cost guarantees, of which $1.5 million and $76.0 million was borrowed at April 30, 2020 and October 31, 2019, respectively.other members.
Joint Venture Condensed Financial Information
The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations, for the periods indicated, for the unconsolidated entities in which we have an investment are included below (in thousands):
Condensed Balance Sheets:
| | | April 30, 2020 | | October 31, 2019 | | January 31, 2021 | | October 31, 2020 |
Cash and cash equivalents | Cash and cash equivalents | $ | 112,569 | | | $ | 85,819 | | Cash and cash equivalents | $ | 98,195 | | | $ | 109,478 | |
Inventory | Inventory | 487,705 | | | 579,226 | | Inventory | 736,821 | | | 511,000 | |
Loans receivable, net | Loans receivable, net | 33,287 | | | 56,545 | | Loans receivable, net | 66,974 | | | 78,576 | |
| Rental properties | Rental properties | 1,000,062 | | | 1,021,848 | | Rental properties | 1,428,734 | | | 1,244,911 | |
Rental properties under development | Rental properties under development | 708,022 | | | 535,197 | | Rental properties under development | 700,218 | | | 666,386 | |
Real estate owned | Real estate owned | 12,298 | | | 12,267 | | Real estate owned | 6,818 | | | 6,752 | |
Other assets | Other assets | 170,698 | | | 212,761 | | Other assets | 170,708 | | | 169,368 | |
Total assets | Total assets | $ | 2,524,641 | | | $ | 2,503,663 | | Total assets | $ | 3,208,468 | | | $ | 2,786,471 | |
Debt, net of deferred financing costs | Debt, net of deferred financing costs | $ | 1,229,197 | | | $ | 1,226,857 | | Debt, net of deferred financing costs | $ | 1,443,949 | | | $ | 1,368,065 | |
Other liabilities | Other liabilities | 186,831 | | | 175,827 | | Other liabilities | 211,245 | | | 186,817 | |
Members’ equity | Members’ equity | 1,108,232 | | | 1,100,563 | | Members’ equity | 1,544,803 | | | 1,231,173 | |
Noncontrolling interest | Noncontrolling interest | 381 | | | 416 | | Noncontrolling interest | 8,471 | | | 416 | |
Total liabilities and equity | Total liabilities and equity | $ | 2,524,641 | | | $ | 2,503,663 | | Total liabilities and equity | $ | 3,208,468 | | | $ | 2,786,471 | |
Company’s net investment in unconsolidated entities (1) | Company’s net investment in unconsolidated entities (1) | $ | 364,041 | | | $ | 366,252 | | Company’s net investment in unconsolidated entities (1) | $ | 571,632 | | | $ | 430,701 | |
(1) Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities amounted to $34.3 million and $29.4 million as of January 31, 2021 and October 31, 2020, respectively, and are primarily a result of the deferred recognition of a sale of assets to a joint venture; other than temporary impairments related to our investments in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; unrealized gains on our retained joint venture interests; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.
Condensed Statements of Operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | Three months ended April 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 212,282 | | | $ | 331,617 | | | $ | 79,112 | | | $ | 178,388 | |
Cost of revenues | 145,349 | | | 288,951 | | | 50,041 | | | 157,196 | |
Other expenses | 73,182 | | | 41,354 | | | 32,066 | | | 22,879 | |
Total expenses | 218,531 | | | 330,305 | | | 82,107 | | | 180,075 | |
Gain on disposition of loans and real estate owned | — | | | 3,694 | | | — | | | — | |
(Loss) income from operations | (6,249) | | | 5,006 | | | (2,995) | | | (1,687) | |
Other income (loss) | 529 | | | 1,737 | | | (84) | | | 1,090 | |
(Loss) income before income taxes | (5,720) | | | 6,743 | | | (3,079) | | | (597) | |
Income tax (benefit) provision | (147) | | | 225 | | | (287) | | | (40) | |
Net (loss) income including earnings from noncontrolling interests | (5,573) | | | 6,518 | | | (2,792) | | | (557) | |
Less: income (loss) attributable to noncontrolling interest | — | | | (2,078) | | | — | | | 31 | |
Net (loss) income attributable to controlling interest | $ | (5,573) | | | $ | 4,440 | | | $ | (2,792) | | | $ | (526) | |
| | | | | | | |
| | | | | | | |
Company’s equity in earnings of unconsolidated entities (1) | $ | 7,870 | | | $ | 10,559 | | | $ | (4,271) | | | $ | 4,419 | |
| | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | | | |
Revenues | $ | 92,530 | | | $ | 133,170 | | | | | |
Cost of revenues (3) | 96,723 | | | 95,308 | | | | | |
Other expenses (3) | 35,390 | | | 41,183 | | | | | |
Total expenses | 132,113 | | | 136,491 | | | | | |
| | | | | | | |
Loss from operations | (39,583) | | | (3,321) | | | | | |
Other income | 948 | | | 612 | | | | | |
Loss before income taxes | (38,635) | | | (2,709) | | | | | |
Income tax (benefit) provision | (1,506) | | | 140 | | | | | |
Net loss including earnings from noncontrolling interests | (37,129) | | | (2,849) | | | | | |
Less: loss attributable to noncontrolling interest | (174) | | | 0 | | | | | |
Net loss attributable to controlling interest | $ | (37,303) | | | $ | (2,849) | | | | | |
| | | | | | | |
| | | | | | | |
Company’s equity in earnings of unconsolidated entities (2) | $ | 1,194 | | | $ | 12,141 | | | | | |
(1)(2) Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of distributions from entities in excess of the carrying amount of our net investment; other than temporary impairments related to our investments in unconsolidated entities; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; gains recognized from the sale of our investment to our joint venture partner; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.
(3) Effective October 31, 2020, we reclassified sales commissions paid to third-party brokers from home sales cost of revenues to selling, general and administrative expense. Prior year periods have been reclassified to conform to the 2021 presentation.
5. Receivables, Prepaid Expenses, and Other Assets
Receivables, prepaid expenses, and other assets at April 30, 2020January 31, 2021 and October 31, 2019,2020, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| April 30, 2020 | | October 31, 2019 |
Expected recoveries from insurance carriers and others | $ | 86,914 | | | $ | 114,162 | |
Improvement cost receivable | 106,280 | | | 100,864 | |
Escrow cash held by our captive title company | 36,465 | | | 32,863 | |
Properties held for rental apartment and commercial development | 532,436 | | | 367,072 | |
Prepaid expenses | 24,809 | | | 26,041 | |
Right-of-use asset (1) | 109,458 | | | — | |
Other | 86,732 | | | 74,439 | |
| $ | 983,094 | | | $ | 715,441 | |
(1) On November 1, 2019, we adopted ASU 2016-02 which resulted in the establishment of a right-of-use asset on our Condensed Consolidated Balance Sheet as of January 31, 2020. The Condensed Consolidated Balance Sheet as of October 31, 2019 does not reflect any changes resulting from the adoption of the new standard. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the adoption of ASU 2016-02. | | | | | | | | | | | |
| January 31, 2021 | | October 31, 2020 |
Expected recoveries from insurance carriers and others | $ | 77,180 | | | $ | 79,269 | |
Improvement cost receivable | 85,539 | | | 86,116 | |
Escrow cash held by our captive title company | 28,540 | | | 24,712 | |
Properties held for rental apartment and commercial development | 504,580 | | | 542,796 | |
Prepaid expenses | 29,472 | | | 28,104 | |
Right-of-use asset | 101,495 | | | 105,004 | |
Other | 80,969 | | | 90,293 | |
| $ | 907,775 | | | $ | 956,294 | |
See Note 7, “Accrued Expenses,” for additional information regarding the expected recoveries from insurance carriers and others.
As of April 30, 2020January 31, 2021 and October 31, 2019,2020, properties held for rental apartment and commercial development include $142.6$113.3 million and $145.8$163.0 million, respectively, of assets related to consolidated VIEs. See Note 4, “Investments in Unconsolidated Entities” for additional information regarding VIEs.
6. Loans Payable, Senior Notes, and Mortgage Company Loan Facility
Loans Payable
At April 30, 2020January 31, 2021 and October 31, 2019,2020, loans payable consisted of the following (amounts in thousands):
| | | April 30, 2020 | | October 31, 2019 | | January 31, 2021 | | October 31, 2020 |
Senior unsecured term loan | Senior unsecured term loan | $ | 800,000 | | | $ | 800,000 | | Senior unsecured term loan | $ | 650,000 | | | $ | 800,000 | |
Revolving credit facility borrowings | 450,000 | | | — | | |
| Loans payable – other | Loans payable – other | 309,390 | | | 314,577 | | Loans payable – other | 324,140 | | | 351,257 | |
Deferred issuance costs | Deferred issuance costs | (2,818) | | | (3,128) | | Deferred issuance costs | (2,636) | | | (3,302) | |
| | $ | 1,556,572 | | | $ | 1,111,449 | | | $ | 971,504 | | | $ | 1,147,955 | |
Senior Unsecured Term Loan
At April 30, 2020, we had an $800.0 million, five-yearWe have a five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks that is scheduled to expire on November 1, 2024.2025. Prior to January 28, 2021, the principal amount outstanding under the Term Loan Facility was $800.0 million. On January 28, 2021, we voluntarily repaid $150.0 million of the Term Loan Facility, and the remaining $650.0 million principal amount outstanding will become due and payable at maturity on November 1, 2025. No prepayment charges were incurred in connection with the repayment. At April 30, 2020,January 31, 2021, the interest rate on borrowings was 1.46%1.18% per annum. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Term Loan Facility. The Term Loan Facility contains substantially the same financial covenants as the Revolving Credit Facility described below.
In November 2020, we entered into 5 interest rate swap transactions to hedge $400.0 million of the Term Loan Facility through October 2025. The interest rate swaps effectively fix the interest cost on the $400.0 million at 0.369% plus the spread set forth in the pricing schedule in the Term Loan Facility, which was 1.05% as of January 31, 2021. These interest rate swaps were designated as cash flow hedges.
Revolving Credit Facility
We have a $1.905 billion, five-yearfive-year senior unsecured revolving credit facility (the “Revolving Credit Facility”) with a syndicate of banks. TheOn October 31, 2020, we entered into extension letter agreements which extended the maturity date of $1.85 billion of the revolving loans and commitments under the Revolving Credit Facility is scheduledfrom November 1, 2024 to matureNovember 1, 2025, with the remainder of the revolving loans and commitments continuing to terminate on November 1, 2024. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Revolving Credit Facility.
Under the terms of the Revolving Credit Facility, at April 30, 2020,January 31, 2021, our maximum leverage ratio, as defined, may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth, as defined, of no less than approximately $2.11$2.10 billion. Under the terms of the Revolving Credit Facility, at April 30, 2020,January 31, 2021, our leverage ratio was approximately 0.750.57 to
1.00, and our tangible net worth was approximately $4.51$4.72 billion. Based upon the limitations related to our repurchase of common stock in the Revolving Credit Facility, our ability to repurchase our common stock was limited to approximately $3.03$3.66 billion
as of April 30, 2020.January 31, 2021. In addition, under the provisions of the Revolving Credit Facility, our ability to pay cash dividends was limited to approximately $2.41$2.62 billion as of April 30, 2020.January 31, 2021.
At April 30, 2020,January 31, 2021, we had $450.0 million0 outstanding borrowings under the Revolving Credit Facility and had approximately $164.8$120.2 million of outstanding letters of credit that were issued under the Revolving Credit Facility. At April 30, 2020,January 31, 2021, the interest rate on borrowings under the Revolving Credit Facility was 1.71%would have been 1.32% per annum. Subsequent to April 30, 2020, we repaid $100.0 million of the outstanding balance under the Revolving Credit Facility.
Loans Payable – Other
“Loans payable – other” primarily represents purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. At April 30, 2020,January 31, 2021, the weighted-average interest rate on “Loans payable – other” was 4.38%4.35% per annum.
Senior Notes
At April 30, 2020,January 31, 2021, we had 7 issues of senior notes outstanding with an aggregate principal amount of $2.67$2.66 billion.
In our first quarter of fiscal 2021, we redeemed, prior to maturity, approximately $10.0 million of the $419.9 million then-outstanding principal amount of 5.875% Senior Notes due February 15, 2022, at par, plus accrued interest.
Subsequent event
In February 2021, we delivered notice to the holders of our outstanding 5.625% Senior Notes due 2024 that we intend to redeem, prior to maturity, all $250.0 million aggregate principal amount of such notes on March 15, 2021. In connection with this redemption, we expect to incur a pre-tax charge of approximately $34.0 million in our second quarter of fiscal 2021.
Mortgage Company Loan Facility
In October 2017, TBI Mortgage® Company (“TBI Mortgage”), our wholly owned mortgage subsidiary, entered into a mortgage warehousing agreement (the “Warehousing Agreement”) with a bank to finance the origination of mortgage loans by TBI Mortgage. The Warehousing Agreement is accounted for as a secured borrowing under ASC 860, “Transfers and Servicing.” In December 2018, the Warehousing Agreement was amended to provide for loan purchases up to $75.0 million, subject to certain sublimits. In addition, the Warehousing Agreement, as amended, provides for an accordion feature under which TBI Mortgage may request that the aggregate commitments under the Warehousing Agreement be increased to an amount up to $150.0 million for a short period of time. In December 2019, the Warehousing Agreement was amended to extend the expiration date on substantially the same terms as the existing agreement. The Warehousing Agreement, as amended, expiresexpired on DecemberMarch 4, 2020,2021, and borrowings thereunder bearbore interest at LIBOR plus 1.90% per annum. At April 30, 2020,January 31, 2021, the interest rate on the Warehousing Agreement, as amended, was 2.27%2.02% per annum. In March 2021, the Warehousing Agreement was amended and restated to extend the expiration date to March 3, 2022 and borrowings thereunder will bear interest at LIBOR (with a LIBOR floor of 0.75%) plus 1.75% per annum.
7. Accrued Expenses
Accrued expenses at April 30, 2020January 31, 2021 and October 31, 20192020 consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| April 30, 2020 | | October 31, 2019 |
Land, land development, and construction | $ | 180,212 | | | $ | 192,658 | |
Compensation and employee benefits | 168,959 | | | 183,592 | |
Escrow liability | 34,113 | | | 31,587 | |
Self-insurance | 194,969 | | | 193,405 | |
Warranty | 157,154 | | | 201,886 | |
Lease liabilities (1) | 127,754 | | | — | |
Deferred income | 34,904 | | | 51,678 | |
Interest | 41,351 | | | 31,307 | |
Commitments to unconsolidated entities | 8,141 | | | 9,283 | |
Other | 50,986 | | | 55,536 | |
| $ | 998,543 | | | $ | 950,932 | |
(1) On November 1, 2019, we adopted ASU 2016-02 which resulted in the establishment of lease liabilities on our Condensed Consolidated Balance Sheet as of January 31, 2020. The Condensed Consolidated Balance Sheet as of October 31, 2019 does not reflect any changes resulting from the adoption of the new standard. See Note 1, “Significant Accounting Policies – Recent Accounting Pronouncements” for additional information regarding the adoption of ASU 2016-02. | | | | | | | | | | | |
| January 31, 2021 | | October 31, 2020 |
Land, land development, and construction | $ | 219,033 | | | $ | 233,783 | |
Compensation and employee benefits | 183,795 | | | 219,965 | |
Escrow liability | 27,047 | | | 23,067 | |
Self-insurance | 222,809 | | | 215,884 | |
Warranty | 150,877 | | | 157,351 | |
Lease liabilities | 121,246 | | | 124,756 | |
Deferred income | 80,253 | | | 34,096 | |
Interest | 47,607 | | | 38,446 | |
Commitments to unconsolidated entities | 11,584 | | | 8,928 | |
Other | 44,878 | | | 53,920 | |
| $ | 1,109,129 | | | $ | 1,110,196 | |
The table below provides, for the periods indicated, a reconciliation of the changes in our warranty accrual (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 201,886 | | | $ | 258,831 | | | $ | 188,916 | | | $ | 237,326 | | Balance, beginning of period | $ | 157,351 | | | $ | 201,886 | | |
Additions – homes closed during the period | Additions – homes closed during the period | 14,278 | | | 14,954 | | | 7,254 | | | 8,329 | | Additions – homes closed during the period | 7,402 | | | 7,024 | | |
Addition – liabilities assumed in a business acquisition | 60 | | | | | | 60 | | | | | |
| Increase in accruals for homes closed in prior years | Increase in accruals for homes closed in prior years | 3,579 | | | 272 | | | 2,361 | | | 963 | | Increase in accruals for homes closed in prior years | 1,194 | | | 1,218 | | |
| Decrease to water intrusion accrual | (24,400) | | | | | | (24,400) | | | | | |
| Charges incurred | Charges incurred | (38,249) | | | (50,402) | | | (17,037) | | | (22,963) | | Charges incurred | (15,070) | | | (21,212) | | |
Balance, end of period | Balance, end of period | $ | 157,154 | | | $ | 223,655 | | | $ | 157,154 | | | $ | 223,655 | | Balance, end of period | $ | 150,877 | | | $ | 188,916 | | |
Since fiscal 2014, we have received water intrusion claims from owners of homes built since 2002 in communities located in Pennsylvania and Delaware (which are in our North region). During the second quarter of fiscal 2020,2021, we continued to receive water intrusion claims from homeowners in this region, mostly related to older homes, and we continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs.
Our review process, conducted quarterly, includes an analysis of many factors applicable to these communities to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration.
SinceFrom October 31, 2016 through the second quarter of fiscal 2020, our recorded aggregate estimated repair costs to be incurred for known and unknown water intrusion claims has beenwas $324.4 million and our recorded aggregate expected recoveries from insurance carriers and suppliers were approximately $152.6 million. Based on trends in claims experience over the past several years and lower than anticipated repair costs, in the second fiscal quarter of 2020, we reduced the estimate of the aggregate estimated repair costs to be incurred for known and unknown water intrusion claims by $24.4 million. Because this reduction was associated with periods in which we expect our insurance deductibles and self-insured retentions to be exhausted, we reduced our aggregate expected recoveries from insurance carriers and suppliers by a corresponding $24.4 million. Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $85.1$75.2 million at April 30, 2020January 31, 2021 and $124.6$79.5 million at October 31, 2019.2020. Our recorded remaining expected recoveries from insurance carriers and suppliers were approximately $70.5$67.3 million at April 30, 2020January 31, 2021 and $97.9$68.4 million at October 31, 2019.2020.
As noted above, our review process includes a number of estimates that are based on assumptions with uncertain outcomes, including, but not limited to, the number of homes to be repaired, the extent of repairs needed, the repair procedures employed, the cost of those repairs, outcomes of litigation or arbitrations,arbitration, and expected recoveries from insurance carriers and suppliers. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded and such differences could be material. In addition, due to such uncertainty, we are unable to estimate the range of any such differences. With respect to our insurance receivables, disputes between home builders and carriers over coverage positions relating to construction defect claims are common, and resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action. While our primary insurance carrier has funded substantially all of the water intrusion claims that we have submitted to it to date, other insurance carriers have recently disputed coverage for the same claims under policies that are substantially the same. As a result, we entered arbitration proceedings during the third quarter of fiscal 2019 with these carriers. Based on the legal merits that support our pending insurance claims, review by legal counsel, our history of collecting significant amounts funded by our primary carrier under policies that are substantially the same, and the high credit ratings of our insurance carriers, we believe collection of our remaining recorded insurance receivables is probable. However, due to the complexity of the underlying claims and the variability of the other factors described above, it is reasonably possible that our actual insurance recoveries could materially differ from those recorded. Resolution of these known and unknown claims is expected to take several years.
8. Income Taxes
We recorded income tax provisions of $35.5$30.9 million and $86.2$9.1 million for the sixthree months ended April 30,January 31, 2021 and 2020, and 2019, respectively. The effective tax rate was 21.1% for the six months ended April 30, 2020, compared to 26.3% for the six months ended April 30, 2019. For the three months ended April 30, 2020 and 2019, we recorded income tax provisions of $26.4 million and $46.8 million, respectively. The effective tax rate was 25.9%24.3% for the three months ended April 30, 2020,January 31, 2021, compared to 26.6%13.7% for the three months ended April 30, 2019.January 31, 2020. The lowerhigher effective tax rate for the sixthree months ended April 30, 2020January 31, 2021 was primarily due to a benefit recognized of $6.9 million in the fiscal 2020 period from the retroactive extension of the federal energy efficient home
credit, which was enacted into law on December 20, 2019. The income tax provisions for all periods included the provision for state income taxes, interest accrued on anticipated tax assessments, excess tax benefits related to stock-based compensation, and other permanent differences.
We are subject to state tax in the jurisdictions in which we operate. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimate that our state income tax rate for the full fiscal year 20202021 will be approximately 5.5%6.0%. Our state income tax rate for the full fiscal year 20192020 was 6.1%5.6%.
At April 30, 2020,January 31, 2021, we had $8.4$6.7 million of gross unrecognized tax benefits, including interest and penalties. If these unrecognized tax benefits were to reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that our unrecognized tax benefits will change, but we are not able to provide a range of such change. The possible changes would be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties.
9. Stock-Based Benefit Plans
We grant stock options and various types of restricted stock units to our employees and our nonemployeenon-employee directors. Additionally, we have an employee stock purchase plan that allows employees to purchase our stock at a discount. Information regarding the amount of total stock-based compensation expense and tax benefit recognized by us, for the periods indicated, is as follows (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Total stock-based compensation expense recognized | Total stock-based compensation expense recognized | $ | 16,802 | | | $ | 13,916 | | | $ | 3,419 | | | $ | 5,331 | | Total stock-based compensation expense recognized | $ | 12,834 | | | $ | 13,383 | | |
Income tax benefit recognized | Income tax benefit recognized | $ | 4,278 | | | $ | 3,652 | | | $ | 870 | | | $ | 1,396 | | Income tax benefit recognized | $ | 3,289 | | | $ | 3,407 | | |
At April 30, 2020January 31, 2021 and October 31, 2019,2020, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $23.6$26.0 million and $18.7$15.9 million, respectively.
10. Stock Repurchase Program and Cash Dividends
Stock Repurchase Program
On March 10, 2020, our Board of Directors terminated our existing 20 million share repurchase program, which was authorized in December 2019, and authorized, under a new repurchase program, the repurchase of 20 million shares of our common stock in open market transactions, privately negotiated transactions (including accelerated share repurchases), issuer tender offers or other financial arrangements or transactions, in each case for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. Our Board of Directors did not fix any expiration date for this repurchase program.
The table below provides, for the periods indicated, information about our share repurchase programs:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | Three months ended April 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Number of shares purchased (in thousands) | 15,938 | | | 788 | | | 4,252 | | | 3 | |
Average price per share | $ | 39.75 | | | $ | 32.04 | | | $ | 37.05 | | | $ | 36.95 | |
Remaining authorization at April 30 (in thousands) | 19,998 | | | 19,784 | | | 19,998 | | | 19,784 | |
| | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | | | |
Number of shares purchased (in thousands) | 4,027 | | | 11,686 | | | | | |
Average price per share | $ | 44.54 | | | $ | 40.73 | | | | | |
Remaining authorization at January 31 (in thousands) | 15,957 | | | 8,314 | | | | | |
Cash Dividends
During the six months ended April 30, 2020 and 2019, we declared and paid cash dividends of $0.22 per share to our shareholders. During the three months ended April 30,January 31, 2021 and 2020, and 2019, we declared and paid cash dividends of $0.11 per share to our shareholders.
11. Earnings per Share Information
The table below provides, for the periods indicated, information pertaining to the calculation of earnings per share, common stock equivalents, weighted-average number of antidilutive options, and shares issued (amounts in thousands):
| | | | Six months ended April 30, | | | Three months ended April 30, | | | | Three months ended January 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 | |
Numerator: | Numerator: | | | | | | | | | Numerator: | | | | | |
Net income as reported | Net income as reported | | $ | 132,546 | | | $ | 241,374 | | | $ | 75,670 | | | $ | 129,324 | | Net income as reported | | $ | 96,499 | | | $ | 56,876 | | |
| Denominator: | Denominator: | | Denominator: | | |
Basic weighted-average shares | Basic weighted-average shares | | 133,175 | | | 146,687 | | | 128,205 | | | 146,622 | | Basic weighted-average shares | | 126,060 | | | 138,145 | | |
Common stock equivalents (1) | Common stock equivalents (1) | | 1,174 | | | 1,394 | | | 604 | | | 1,507 | | Common stock equivalents (1) | | 1,502 | | | 1,744�� | | |
Diluted weighted-average shares | Diluted weighted-average shares | | 134,349 | | | 148,081 | | | 128,809 | | | 148,129 | | Diluted weighted-average shares | | 127,562 | | | 139,889 | | |
| Other information: | Other information: | | Other information: | | |
| Weighted-average number of antidilutive options and restricted stock units (2) | Weighted-average number of antidilutive options and restricted stock units (2) | | 2,321 | | | 1,690 | | | 3,967 | | | 756 | | Weighted-average number of antidilutive options and restricted stock units (2) | | 589 | | | 675 | | |
Shares issued under stock incentive and employee stock purchase plans | Shares issued under stock incentive and employee stock purchase plans | | 608 | | | 654 | | | 60 | | | 144 | | Shares issued under stock incentive and employee stock purchase plans | | 456 | | | 547 | | |
(1) Common stock equivalents represent the dilutive effect of outstanding in-the-money stock options using the treasury stock method and shares expected to be issued upon the conversion of restricted stock units under our equity award programs.
(2) Weighted-average number of antidilutive options and restricted stock units are based upon the average closing price of our common stock on the New York Stock Exchange for the period.
12. Fair Value Disclosures
Financial Instruments
The table below provides, as of the dates indicated, a summary of assets/(liabilities) related to our financial instruments, measured at fair value on a recurring basis (amounts in thousands):
| | | | | | Fair value | | | | | | Fair value |
Financial Instrument | Financial Instrument | | Fair value hierarchy | | April 30, 2020 | | October 31, 2019 | Financial Instrument | | Fair value hierarchy | | January 31, 2021 | | October 31, 2020 |
Residential Mortgage Loans Held for Sale | Residential Mortgage Loans Held for Sale | | Level 2 | | $ | 141,007 | | | $ | 218,777 | | Residential Mortgage Loans Held for Sale | | Level 2 | | $ | 125,475 | | | $ | 231,797 | |
Forward Loan Commitments — Residential Mortgage Loans Held for Sale | Forward Loan Commitments — Residential Mortgage Loans Held for Sale | | Level 2 | | $ | (43) | | | $ | 298 | | Forward Loan Commitments — Residential Mortgage Loans Held for Sale | | Level 2 | | $ | 52 | | | $ | (31) | |
Interest Rate Lock Commitments (“IRLCs”) | Interest Rate Lock Commitments (“IRLCs”) | | Level 2 | | $ | 1,461 | | | $ | 964 | | Interest Rate Lock Commitments (“IRLCs”) | | Level 2 | | $ | (358) | | | $ | 628 | |
Forward Loan Commitments — IRLCs | Forward Loan Commitments — IRLCs | | Level 2 | | $ | (1,461) | | | $ | (964) | | Forward Loan Commitments — IRLCs | | Level 2 | | $ | 358 | | | $ | (628) | |
Interest Rate Swap Contracts | | Interest Rate Swap Contracts | | Level 2 | | $ | 652 | | | $ | 0 | |
At April 30, 2020January 31, 2021 and October 31, 2019,2020, the carrying value of cash and cash equivalents and customer deposits held in escrow approximated fair value.
The fair values of the interest rate swap contracts are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each swap contract. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swap contracts fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of January 31, 2021, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap contract positions and have determined that the credit valuation adjustments were not significant to the overall valuation of our interest rate swap contracts. As a result, we have determined that our interest rate swap contracts valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Mortgage Loans Held for Sale
At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value.
The table below provides, as of the dates indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| Aggregate unpaid principal balance | | Fair value | | Excess |
At April 30, 2020 | $ | 138,773 | | | $ | 141,007 | | | $ | 2,234 | |
At October 31, 2019 | $ | 216,280 | | | $ | 218,777 | | | $ | 2,497 | |
| | | | | | | | | | | | | | | | | |
| Aggregate unpaid principal balance | | Fair value | | Excess |
At January 31, 2021 | $ | 122,879 | | | $ | 125,475 | | | $ | 2,596 | |
At October 31, 2020 | $ | 225,826 | | | $ | 231,797 | | | $ | 5,971 | |
Inventory
We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of inventory was determined using Level 3 criteria. See Note 1, “Significant Accounting Policies – Inventory,” in our 20192020 Form 10-K for information regarding our methodology for determining fair value. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired operating communities:
| Three months ended: | Three months ended: | Selling price per unit ($ in thousands) | | Sales pace per year (in units) | | Discount rate | Three months ended: | Selling price per unit ($ in thousands) | | Sales pace per year (in units) | | Discount rate |
Fiscal 2020: | | | | | | |
Fiscal 2021: | | Fiscal 2021: | | | | | |
January 31 | January 31 | — | | — | | — | January 31 | 2,003 | | 2 | | 14.3% |
April 30 | 613 - 789 | | 9 | | 14.3% | |
| | Fiscal 2019: | | |
| Fiscal 2020: | | Fiscal 2020: | |
January 31 | January 31 | 836 - 13,495 | | 2 - 12 | | 12.5% - 15.8% | January 31 | — | | — | | —% |
April 30 | April 30 | 372 - 1,915 | | 2 - 19 | | 12.0% - 26.0% | April 30 | 613 - 789 | | 9 | | 14.3% |
July 31 | July 31 | 530 - 1,113 | | 2 - 9 | | 7.8% - 13% | July 31 | — | | — | | —% |
October 31 | October 31 | 478 - 857 | | 2 - 5 | | 13.8% - 14.5% | October 31 | — | | — | | —% |
In fiscal 2020, we recognized $31.7 million of impairment charges on land owned for future communities relating to 9 communities. As of the period the impairment charges were recognized, the estimated fair value of these communities in the aggregate, net of impairment charges, was $21.8 million. For the majority of these communities, the estimated fair values were determined based upon the expected sales price per lot in a community sale to another builder. The range of sales price per lot utilized in determining fair values in fiscal 2020 was approximately $33,000 - $180,000 per lot.
The table below provides, for the periods indicated, the number of operating communities that we reviewed for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges ($ amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Impaired operating communities | | | | |
Three months ended: | Number of communities tested | | Number of communities | | Fair value of communities, net of impairment charges | | Impairment charges recognized |
Fiscal 2020: | | | | | | | |
January 31 | 65 | | — | | $ | — | | | $ | — | |
April 30 | 80 | | 1 | | $ | 2,754 | | | 300 | |
| | | | | | | |
| | | | | | | $ | 300 | |
Fiscal 2019: | | | | | | | |
January 31 (1) | 49 | | 5 | | $ | 37,282 | | | $ | 5,785 | |
April 30 (2) | 64 | | 6 | | $ | 36,159 | | | 17,495 | |
July 31 | 69 | | 3 | | $ | 5,436 | | | 1,100 | |
October 31 (3) | 71 | | 7 | | $ | 18,910 | | | 6,695 | |
| | | | | | | $ | 31,075 | |
(1) Includes impairments of $2.8 million (1 community), $1.5 million (3 communities), and $1.5 million (1 community) located in our City Living, North, and South segments, respectively.
(2) Includes impairments of $2.0 million (1 community), $15.0 million (4 communities), and $0.5 million (1 community) located in our City Living, North, and South segments, respectively.
(3) Includes impairments of $5.1 million (4 communities), $0.6 million (2 communities) and $1.0 million (1 community) located in our North, South, and Pacific segments, respectively | | | | | | | | | | | | | | | | | | | | | | | |
| | | Impaired operating communities |
Three months ended: | Number of communities tested | | Number of communities | | Fair value of communities, net of impairment charges | | Impairment charges recognized |
Fiscal 2021: | | | | | | | |
January 31 | 53 | | 1 | | $ | 419 | | | $ | 1,100 | |
| | | | | | | |
| | | | | | | |
| | | | | | | $ | 1,100 | |
Fiscal 2020: | | | | | | | |
January 31 | 65 | | 0 | | $ | 0 | | | $ | 0 | |
April 30 | 80 | | 1 | | $ | 2,754 | | | 300 | |
July 31 | 66 | | 0 | | $ | 0 | | | 0 | |
October 31 | 53 | | 1 | | $ | 1,113 | | | 375 | |
| | | | | | | $ | 675 | |
Debt
The table below provides, as of the dates indicated, the book value and estimated fair value of our debt (amounts in thousands):
| | | | April 30, 2020 | | | October 31, 2019 | | | | January 31, 2021 | | October 31, 2020 |
| | Fair value hierarchy | | Book value | | Estimated fair value | | Book value | | Estimated fair value | | Fair value hierarchy | | Book value | | Estimated fair value | | Book value | | Estimated fair value |
Loans payable (1) | Loans payable (1) | Level 2 | | $ | 1,559,389 | | | $ | 1,559,587 | | | $ | 1,114,577 | | | $ | 1,112,040 | | Loans payable (1) | Level 2 | | $ | 974,139 | | | $ | 979,592 | | | $ | 1,151,257 | | | $ | 1,157,315 | |
Senior notes (2) | Senior notes (2) | Level 1 | | 2,669,876 | | | 2,676,884 | | | 2,669,876 | | | 2,823,043 | | Senior notes (2) | Level 1 | | 2,659,856 | | | 2,914,484 | | | 2,669,876 | | | 2,888,822 | |
Mortgage company loan facility (3) | Mortgage company loan facility (3) | Level 2 | | 106,018 | | | 106,018 | | | 150,000 | | | 150,000 | | Mortgage company loan facility (3) | Level 2 | | 112,619 | | | 112,619 | | | 148,611 | | | 148,611 | |
| | $ | 4,335,283 | | | $ | 4,342,489 | | | $ | 3,934,453 | | | $ | 4,085,083 | | | $ | 3,746,614 | | | $ | 4,006,695 | | | $ | 3,969,744 | | | $ | 4,194,748 | |
(1) The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.
(2) The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.
(3) We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.
13. Other Income – Net
The table below provides the significant components of other income – net (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Interest income | Interest income | $ | 6,798 | | | $ | 10,210 | | | $ | 1,896 | | | $ | 4,338 | | Interest income | $ | 1,455 | | | $ | 4,902 | | |
Income from ancillary businesses | Income from ancillary businesses | 15,104 | | | 18,086 | | | 14,582 | | | 4,242 | | Income from ancillary businesses | 6,859 | | | 522 | | |
Management fee income from home building unconsolidated entities, net | 1,553 | | | 4,727 | | | 207 | | | 3,119 | | |
Directly expensed interest | (2,440) | | | | | | (2,440) | | | | | |
Management fee income from Home Building Joint Ventures, net | | Management fee income from Home Building Joint Ventures, net | 117 | | | 1,346 | | |
| Other | Other | (884) | | | (877) | | | (409) | | | (414) | | Other | (1,330) | | | (475) | | |
Total other income – net | Total other income – net | $ | 20,131 | | | $ | 32,146 | | | $ | 13,836 | | | $ | 11,285 | | Total other income – net | $ | 7,101 | | | $ | 6,295 | | |
Management fee income from home building unconsolidated entities presented above primarily represents fees earned by Toll Brothers City Living® (“City Living”) and traditional home building operations. In addition, in the six-monththree-month periods ended April 30,January 31, 2021 and 2020, and 2019, our apartment living operations earned fees from unconsolidated entities of $7.2$4.8 million and $4.7 million, respectively. In the three-months ended April 30, 2020 and 2019, our apartment living operations earned fees from unconsolidated entities of $3.5 million and $2.1$3.8 million, respectively. Fees earned by our apartment living operations are included in income from ancillary businesses.
Income from ancillary businesses is generated by our mortgage, title, landscaping, security monitoring, Gibraltar, apartment living and golf course and country club operations. The table below provides, for the periods indicated, revenues and expenses for our ancillary businesses (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Revenues | Revenues | $ | 53,842 | | | $ | 65,129 | | | $ | 27,432 | | | $ | 32,846 | | Revenues | $ | 29,101 | | | $ | 26,410 | | |
Expenses | Expenses | $ | 51,708 | | | $ | 60,374 | | | $ | 25,820 | | | $ | 29,749 | | Expenses | $ | 22,242 | | | $ | 25,888 | | |
Other income | $ | 12,970 | | | $ | 13,331 | | | $ | 12,970 | | | $ | 1,145 | | |
|
In April 2020, we sold one of our golf club properties to a third party for $15.6 million and recognized a gain of $9.1 million in the second quarter of fiscal 2020. In addition, we recognized a previously deferred gain of $3.8 million in our second quarter of fiscal 2020 related to the sale of a golf club property. In December 2018, we sold one of our golf club properties to a third party for $18.2 million and we recognized a gain of $12.2 million in the first quarter of fiscal 2019. In addition, in the fourth quarter of fiscal 2019, we sold six of our golf club properties to a third party.
14. Commitments and Contingencies
Legal Proceedings
We are involved in various claims and litigation arising principally in the ordinary course of business. We believe that adequate provision for resolution of all current claims and pending litigation has been made and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
In March 2018, the Pennsylvania Attorney General informed the Company that it was conducting a review of our construction of stucco homes in Pennsylvania after January 1, 2005 and requested that we voluntarily produce documents and information. The Company has produced documents and information in response to this request and, in addition, has produced requested information and documents in response to a subpoena issued in the second quarter of fiscal 2019. Management cannot at this time predict the eventual scope or outcome of this matter.
Land Purchase Commitments
Generally, our agreements to acquire land parcels do not require us to purchase those land parcels, although we, in some cases, forfeit any deposit balance outstanding if and when we terminate an agreement. Information regarding our land purchase commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
| | | April 30, 2020 | | October 31, 2019 | | January 31, 2021 | | October 31, 2020 |
Aggregate purchase commitments: | Aggregate purchase commitments: | | | | Aggregate purchase commitments: | | | |
Unrelated parties | Unrelated parties | $ | 2,607,742 | | | $ | 2,349,900 | | Unrelated parties | $ | 2,744,059 | | | $ | 2,630,128 | |
Unconsolidated entities that the Company has investments in | Unconsolidated entities that the Company has investments in | 7,776 | | | 10,826 | | Unconsolidated entities that the Company has investments in | 8,787 | | | 10,097 | |
Total | Total | $ | 2,615,518 | | | $ | 2,360,726 | | Total | $ | 2,752,846 | | | $ | 2,640,225 | |
| Deposits against aggregate purchase commitments | Deposits against aggregate purchase commitments | $ | 189,705 | | | $ | 168,778 | | Deposits against aggregate purchase commitments | $ | 207,600 | | | $ | 223,571 | |
| Additional cash required to acquire land | Additional cash required to acquire land | 2,425,813 | | | 2,191,948 | | Additional cash required to acquire land | 2,545,246 | | | 2,416,654 | |
Total | Total | $ | 2,615,518 | | | $ | 2,360,726 | | Total | $ | 2,752,846 | | | $ | 2,640,225 | |
Amount of additional cash required to acquire land included in accrued expenses | Amount of additional cash required to acquire land included in accrued expenses | $ | 14,582 | | | $ | 14,620 | | Amount of additional cash required to acquire land included in accrued expenses | $ | 18,092 | | | $ | 19,590 | |
In addition, we expect to purchase approximately 2,5003,900 additional home sites over a number of years from several joint ventures in which we have interests; the purchase prices of these home sites will be determined at a future date.
At April 30, 2020,January 31, 2021, we also had similar purchase commitments to acquire land for apartment developments of approximately $165.0$121.5 million, of which we had outstanding deposits in the amount of $7.6$6.5 million. We intend to develop these projects in joint ventures with unrelated parties in the future.
We have additional land parcels under option that have been excluded from the aggregate purchase commitments since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
Investments in Unconsolidated Entities
At April 30, 2020,January 31, 2021, we had investments in a number of unconsolidated entities, were committed to invest or advance additional funds, and had guaranteed a portion of the indebtedness and/or loan commitments of these entities. See Note 4, “Investments in Unconsolidated Entities,” for more information regarding our commitments to these entities.
Surety Bonds and Letters of Credit
At April 30, 2020,January 31, 2021, we had outstanding surety bonds amounting to $823.2$800.4 million, primarily related to our obligations to governmental entities to construct improvements in our communities. We estimate that approximately $390.5$383.6 million of work remains on these improvements. We have an additional $181.3$188.5 million of surety bonds outstanding that guarantee other obligations. We do not believe that it is probable that any outstanding bonds will be drawn upon.
At April 30, 2020,January 31, 2021, we had outstanding letters of credit of $164.8$120.2 million under our Revolving Credit Facility. These letters of credit were issued to secure various financial obligations, including insurance policy deductibles and other claims, land deposits, and security to complete improvements in communities in which we are operating. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.
Backlog
At April 30, 2020,January 31, 2021, we had agreements of sale outstanding to deliver 6,4288,888 homes with an aggregate sales value of $5.49$7.47 billion.
Mortgage Commitments
Our mortgage subsidiary provides mortgage financing for a portion of our home closings. For those home buyers to whom our mortgage subsidiary provides mortgages, we determine whether the home buyer qualifies for the mortgage based upon information provided by the home buyer and other sources. For those home buyers who qualify, our mortgage subsidiary provides the home buyer with a mortgage commitment that specifies the terms and conditions of a proposed mortgage loan based upon then-current market conditions. Prior to the actual closing of the home and funding of the mortgage, the home buyer will lock in an interest rate based upon the terms of the commitment. At the time of rate lock, our mortgage subsidiary agrees to sell the proposed mortgage loan to one of several outside recognized mortgage financing institutions (“investors”) that is willing to honor the terms and conditions, including interest rate, committed to the home buyer. We believe that these investors have adequate financial resources to honor their commitments to our mortgage subsidiary.
Mortgage loans are sold to investors with limited recourse provisions derived from industry-standard representations and warranties in the relevant agreements. These representations and warranties primarily involve the absence of misrepresentations by the borrower or other parties, the appropriate underwriting of the loan and in some cases, a required minimum number of payments to be made by the borrower. The Company generally does not retain any other continuing interest related to mortgage loans sold in the secondary market.
Information regarding our mortgage commitments, as of the dates indicated, is provided in the table below (amounts in thousands):
| | | | | | | | | | | |
| April 30, 2020 | | October 31, 2019 |
Aggregate mortgage loan commitments: | | | |
IRLCs | $ | 537,787 | | | $ | 565,634 | |
Non-IRLCs | 1,686,419 | | | 1,364,972 | |
Total | $ | 2,224,206 | | | $ | 1,930,606 | |
Investor commitments to purchase: | | | |
IRLCs | $ | 537,787 | | | $ | 565,634 | |
Mortgage loans held for sale | 129,648 | | | 208,591 | |
Total | $ | 667,435 | | | $ | 774,225 | |
Lease Commitments
We lease certain facilities, equipment, and properties held for rental apartment operation or development under non-cancelable operating leases which, in the case of certain rental properties, have an initial term of 99 years. We recognize lease expense for these leases on a straight-line basis over the lease term. ROU assets and lease liabilities are recorded on the balance sheet for all leases with an expected term over one year. A majority of our facility lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.
ROU assets are classified within “Receivables, prepaid expenses, and other assets” and the corresponding lease liability is included in “Accrued expenses” in our Condensed Consolidated Balance Sheet. Leases with an initial term of 12 months or less are not recorded on the balance sheet. At April 30, 2020, ROU assets and lease liabilities were $109.5 million and $127.8 million, respectively. Payments on lease liabilities during the six months and three months ended April 30, 2020 totaled $8.2 million and $4.3 million, respectively.
Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of one year or less. For the six months and three months ended April 30, 2020, our total lease expense was $12.8 million and $6.4 million, respectively, inclusive of variable lease costs of approximately $1.5 million and $0.9 million, respectively, and short-term lease costs of approximately $2.0 million and $1.0 million, respectively. Sublease income was de minimis.
Information regarding our remaining lease payments as of April 30, 2020 is provided in the table below (amounts in thousands):
| | | | | | | | |
Year ended April 30, 2020 | | |
2020 (a) | | | $ | 8,455 | |
2021 | | | 19,327 | |
2022 | | | 17,437 | |
2023 | | | 15,039 | |
2024 | | | 12,133 | |
Thereafter | | 213,509 | |
Total lease payments (b) | | 285,900 | |
Less: Interest (c) | | 158,146 | |
Present value of lease liabilities | | $ | 127,754 | |
(a)Remaining payments are for the six months ending October 31, 2020
(b) Lease payments include options to extend lease terms that are reasonably certain of being exercised
(c) Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.
The majority of our facility leases give us the option to extend the lease term. The exercise of lease renewal options is at our discretion. For several of our facility leases we are reasonably certain the option will be exercised and thus the renewal term has been included in our calculation of the ROU asset and lease liability. The weighted average remaining lease term and weighted
average discount rate used in calculating these facility lease liabilities, excluding our land leases, were 9 years and 4.0%, respectively, at April 30, 2020.
We have a small number of land leases with initial terms of 99 years. We are not reasonably certain that, if given the option, we would extend these leases. We have therefore excluded the renewal terms from our ROU asset and lease liability for these leases.The weighted average remaining lease term and weighted average discount rate used in calculating these land lease liabilities were 94 years and 4.5%, respectively, at April 30, 2020. | | | | | | | | | | | |
| January 31, 2021 | | October 31, 2020 |
Aggregate mortgage loan commitments: | | | |
IRLCs | $ | 521,022 | | | $ | 381,116 | |
Non-IRLCs | 2,280,509 | | | 1,688,801 | |
Total | $ | 2,801,531 | | | $ | 2,069,917 | |
Investor commitments to purchase: | | | |
IRLCs | $ | 521,022 | | | $ | 381,116 | |
Mortgage loans held for sale | 117,309 | | | 217,876 | |
Total | $ | 638,331 | | | $ | 598,992 | |
15. Information on Segments
We operate in 2 segments: traditional home building and urban infill. We build and sell detached and attached homes in luxury residential communities located in affluent suburban markets that cater to move-up, empty-nester, active-adult, affordable luxury, age-qualified, and second-home buyers in the United States (“Traditional Home Building”). We also build and sell homes in urban infill markets through City Living.
Our Traditional Home Building segment operates in the following 5 geographic segments. In the first quarter of fiscal 2020, we made certain changes to our Traditional Home Building regional management structure and realigned certain ofsegments, wtih current operations in the states falling among our five geographic segments, as follows:
Eastern Region:listed below:
•The North region: Connecticut, Delaware, Illinois, Massachusetts, Michigan, Pennsylvania, New Jersey and New York;
•The Mid-Atlantic region: Georgia, Maryland, North Carolina, Tennessee and Virginia;
•The South region: Florida, South Carolina and Texas;
Western Region:
•The Mountain region: Arizona, Colorado, Idaho, Nevada and Utah; and
•The Pacific region: California, Oregon and Washington.
Previously, our geographic segments were:
•North: Connecticut, Illinois, Massachusetts, Michigan, New Jersey and New York;
•Mid-Atlantic: Delaware, Maryland, Pennsylvania and Virginia;
•South: Florida, Georgia, North Carolina, South Carolina and Texas;
•West: Arizona, Colorado, Idaho, Nevada, Oregon, Utah and Washington; and
•California: California.
Our new geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocating capital following the realignment of the regional management structure. The realignment did not have any impact on our consolidated financial position, results of operations, earnings per share or cash flows. Prior period segment information was restated to conform to the new reporting structure.
RevenueRevenues and income (loss) before income taxes for each of our segments, for the periods indicated, were as follows (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended April 30, | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | Three months ended January 31, | |
| | | | (Restated) | | | | (Restated) | | 2021 | | 2020 | |
Revenues: | Revenues: | | Revenues: | | | | |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | |
North | North | $ | 550,082 | | | $ | 616,608 | | | $ | 296,023 | | | $ | 345,090 | | North | $ | 312,639 | | | $ | 254,059 | | |
Mid-Atlantic | Mid-Atlantic | 355,376 | | | 308,987 | | | 192,900 | | | 174,089 | | Mid-Atlantic | 163,984 | | | 162,476 | | |
South | South | 414,490 | | | 419,689 | | | 230,860 | | | 242,761 | | South | 216,884 | | | 183,630 | | |
Mountain | Mountain | 600,600 | | | 512,208 | | | 337,504 | | | 285,809 | | Mountain | 377,977 | | | 263,096 | | |
Pacific | Pacific | 818,648 | | | 1,023,665 | | | 423,292 | | | 579,616 | | Pacific | 331,158 | | | 395,356 | | |
Traditional Home Building | Traditional Home Building | 2,739,196 | | | 2,881,157 | | | 1,480,579 | | | 1,627,365 | | Traditional Home Building | 1,402,642 | | | 1,258,617 | | |
City Living | City Living | 76,607 | | | 152,668 | | | 36,772 | | | 84,074 | | City Living | 7,793 | | | 39,835 | | |
Corporate and other | Corporate and other | (2,232) | | | (2,460) | | | (1,117) | | | 618 | | Corporate and other | 269 | | | (1,115) | | |
Total home sales revenue | 2,813,571 | | | 3,031,365 | | | 1,516,234 | | | 1,712,057 | | |
Land sales revenue | 66,932 | | | 47,910 | | | 32,838 | | | 4,037 | | |
Total revenue | $ | 2,880,503 | | | $ | 3,079,275 | | | $ | 1,549,072 | | | $ | 1,716,094 | | |
Total home sales revenues | | Total home sales revenues | 1,410,704 | | | 1,297,337 | | |
Land sales and other revenues | | Land sales and other revenues | 152,672 | | | 34,094 | | |
Total revenues | | Total revenues | $ | 1,563,376 | | | $ | 1,331,431 | | |
| Income (loss) before income taxes: | Income (loss) before income taxes: | | Income (loss) before income taxes: | | |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | |
North | North | $ | 19,527 | | | $ | 22,358 | | | $ | 16,996 | | | $ | 7,287 | | North | $ | 18,882 | | | $ | 2,531 | | |
Mid-Atlantic | Mid-Atlantic | 6,833 | | | 17,605 | | | (155) | | | 10,463 | | Mid-Atlantic | 18,813 | | | 6,988 | | |
South | South | 29,190 | | | 44,313 | | | 20,113 | | | 28,648 | | South | 21,483 | | | 9,077 | | |
Mountain | Mountain | 50,784 | | | 52,980 | | | 33,199 | | | 27,377 | | Mountain | 36,013 | | | 17,585 | | |
Pacific | Pacific | 131,059 | | | 214,614 | | | 67,737 | | | 122,982 | | Pacific | 47,554 | | | 63,322 | | |
Traditional Home Building | Traditional Home Building | 237,393 | | | 351,870 | | | 137,890 | | | 196,757 | | Traditional Home Building | 142,745 | | | 99,503 | | |
City Living | 18,247 | | | 40,476 | | | 8,698 | | | 25,834 | | |
City Living (1) | | City Living (1) | 32,692 | | | 9,549 | | |
Corporate and other | Corporate and other | (87,595) | | | (64,741) | | | (44,475) | | | (46,432) | | Corporate and other | (48,032) | | | (43,120) | | |
Total | Total | $ | 168,045 | | | $ | 327,605 | | | $ | 102,113 | | | $ | 176,159 | | Total | $ | 127,405 | | | $ | 65,932 | | |
(1) In the first quarter of fiscal 2021, we sold certain commercial assets associated with our Hoboken, New Jersey condominium projects for $82.4 million which is included in Land sales and other revenues above. City Living recognized net gains of $38.3 million from these sales.
“Corporate and other” is comprised principally of general corporate expenses such as our executive offices; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including Gibraltar; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.
Total assets for each of our segments, as of the dates indicated, are shown in the table below (amounts in thousands):
| | | April 30, 2020 | | October 31, 2019 | | | | | | | | | | |
| | | | (Restated) | | January 31, 2021 | | October 31, 2020 |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | | |
North | North | $ | 1,540,813 | | | $ | 1,487,012 | | North | $ | 1,415,114 | | | $ | 1,427,523 | |
Mid-Atlantic | Mid-Atlantic | 961,159 | | | 854,470 | | Mid-Atlantic | 984,134 | | | 918,641 | |
South | South | 1,250,034 | | | 1,165,974 | | South | 1,289,620 | | | 1,176,962 | |
Mountain | Mountain | 1,979,579 | | | 1,769,649 | | Mountain | 2,053,597 | | | 1,961,348 | |
Pacific | Pacific | 2,527,780 | | | 2,627,417 | | Pacific | 2,343,787 | | | 2,226,685 | |
Traditional Home Building | Traditional Home Building | 8,259,365 | | | 7,904,522 | | Traditional Home Building | 8,086,252 | | | 7,711,159 | |
City Living | City Living | 542,483 | | | 529,507 | | City Living | 542,763 | | | 539,750 | |
Corporate and other | Corporate and other | 2,008,963 | | | 2,394,109 | | Corporate and other | 2,234,978 | | | 2,814,824 | |
Total | Total | $ | 10,810,811 | | | $ | 10,828,138 | | Total | $ | 10,863,993 | | | $ | 11,065,733 | |
“Corporate and other” is comprised principally of cash and cash equivalents, restricted cash, deferred tax assets, investments in our Rental Property Joint Ventures, expected recoveries from insurance carriers and suppliers, our Gibraltar investments and operations, manufacturing facilities, and our mortgage and title subsidiaries.
The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable for each of our segments, for the periods indicated, were as follows (amounts in thousands):
| | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | | | |
Traditional Home Building: | | | | | | | |
North | $ | 35 | | | $ | 94 | | | | | |
Mid-Atlantic | 32 | | | 1 | | | | | |
South | 25 | | | 747 | | | | | |
Mountain | 9 | | | 178 | | | | | |
Pacific | 66 | | | 11 | | | | | |
Total | 167 | | | 1,031 | | | | | |
City Living | 1,100 | | | 0 | | | | | |
| | | | | | | |
| $ | 1,267 | | | $ | 1,031 | | | | | |
16. Supplemental Disclosure to Condensed Consolidated Statements of Cash Flows
The following are supplemental disclosures to the Condensed Consolidated Statements of Cash Flows, for the periods indicated (amounts in thousands):
| | | Six months ended April 30, | | | Three months ended January 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flow information: | Cash flow information: | | | | | Cash flow information: | | | | |
Interest paid, net of amount capitalized | | | | | $ | 13,999 | | |
| Interest capitalized, net of amount paid | Interest capitalized, net of amount paid | | $ | 11,178 | | | | | Interest capitalized, net of amount paid | | $ | 3,733 | | | $ | 11,686 | |
Income tax payments | Income tax payments | | $ | 46,375 | | | $ | 101,232 | | Income tax payments | | $ | 34,427 | | | $ | 45,752 | |
Income tax refunds | Income tax refunds | | $ | 1,370 | | | $ | 927 | | Income tax refunds | | $ | 1,377 | | | $ | 1,315 | |
Noncash activity: | Noncash activity: | | Noncash activity: | |
Cost of inventory acquired through seller financing, municipal bonds, or included in accrued expenses, net | Cost of inventory acquired through seller financing, municipal bonds, or included in accrued expenses, net | | $ | 26,717 | | | $ | 110,269 | | Cost of inventory acquired through seller financing, municipal bonds, or included in accrued expenses, net | | $ | 40,511 | | | $ | 21,827 | |
| Increase in inventory for capitalized interest, our share of earnings, and allocation of basis difference in land purchased from unconsolidated entities, net | | $ | (120) | | | $ | (4,276) | | |
| Increase in receivables, prepaid expenses, and other assets and accrued expenses related to the adoption of ASU 2016-02 and other lease activity | Increase in receivables, prepaid expenses, and other assets and accrued expenses related to the adoption of ASU 2016-02 and other lease activity | | $ | 122,269 | | | | | Increase in receivables, prepaid expenses, and other assets and accrued expenses related to the adoption of ASU 2016-02 and other lease activity | | $ | 0 | | | $ | 108,769 | |
Reclassification from inventory to property, construction, and office equipment, net due to the adoption of ASC 606 | | | | | $ | 104,807 | | |
Net decrease in inventory and retained earnings due to the adoption of ASC 606 | | | | | $ | 8,989 | | |
Net increase in accrued expenses and decrease in retained earnings due to the adoption of ASC 606 | | | | | $ | 6,541 | | |
Net decrease in investment in unconsolidated entities and retained earnings due to the adoption of ASC 606 | | | | | $ | 2,457 | | |
Net decrease in other assets and retained earnings due to the adoption of ASC 326 | | Net decrease in other assets and retained earnings due to the adoption of ASC 326 | | $ | 595 | | | $ | 0 | |
| | Noncontrolling interest | Noncontrolling interest | | $ | 3,262 | | | $ | 36,362 | | Noncontrolling interest | | $ | 144 | | | $ | 2,610 | |
| Transfer of other assets to inventory | | | | | $ | 7,100 | | |
| Transfer of inventory to investment in unconsolidated entities | | Transfer of inventory to investment in unconsolidated entities | | $ | 49,979 | | | $ | 0 | |
| Transfer of other assets to investment in unconsolidated entities, net | Transfer of other assets to investment in unconsolidated entities, net | | $ | 31,758 | | | $ | 11,656 | | Transfer of other assets to investment in unconsolidated entities, net | | $ | 13,228 | | | $ | 24,736 | |
| Unrealized gain on derivatives | | Unrealized gain on derivatives | | $ | 522 | | | $ | 0 | |
Increase in investments in unconsolidated entities for change in the fair value of debt guarantees | | Increase in investments in unconsolidated entities for change in the fair value of debt guarantees | | $ | 2,656 | | | $ | 0 | |
| | Acquisition of a Business: | | |
Fair value of assets purchased | | $ | 61,906 | | | | | |
Liabilities assumed | | $ | 1,557 | | | | | |
Cash paid | | $ | 60,349 | | | | | |
| | | | At April 30, | | | At January 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash, cash equivalents, and restricted cash | Cash, cash equivalents, and restricted cash | | | | | Cash, cash equivalents, and restricted cash | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 741,222 | | | $ | 924,448 | | Cash and cash equivalents | | $ | 949,696 | | | $ | 519,793 | |
Restricted cash included in receivables, prepaid expenses, and other assets | Restricted cash included in receivables, prepaid expenses, and other assets | | 37,989 | | | 543 | | Restricted cash included in receivables, prepaid expenses, and other assets | | 30,183 | | | 38,865 | |
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 779,211 | | | $ | 924,991 | | Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 979,879 | | | $ | 558,658 | |
17. Supplemental Guarantor Information
At April 30, 2020, our 100%-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), has issued the following outstanding Senior Notes (amounts in thousands):
| | | | | | | | |
| | Original amount issued and amount outstanding |
| | |
5.875% Senior Notes due February 15, 2022 | | $ | 419,876 | |
4.375% Senior Notes due April 15, 2023 | | $ | 400,000 | |
5.625% Senior Notes due January 15, 2024 | | $ | 250,000 | |
4.875% Senior Notes due November 15, 2025 | | $ | 350,000 | |
4.875% Senior Notes due March 15, 2027 | | $ | 450,000 | |
4.350% Senior Notes due February 15, 2028 | | $ | 400,000 | |
3.80% Senior Notes due November 1, 2029 | | $ | 400,000 | |
The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our 100%-owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are full and unconditional. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Nonguarantor Subsidiaries”) do not guarantee these Senior Notes. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds from the above-described debt issuances. The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the Revolving Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter; (iv) such release would not have a material adverse effect on our and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the Revolving Credit Facility. If there are no guarantors under the Revolving Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures would not be material to investors.
Supplemental consolidating financial information of Toll Brothers, Inc., the Subsidiary Issuer, the Guarantor Subsidiaries, the Nonguarantor Subsidiaries, and the eliminations to arrive at Toll Brothers, Inc. on a consolidated basis is presented below ($ amounts in thousands).
Condensed Consolidating Balance Sheet at April 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | |
Cash and cash equivalents | — | | | — | | | 610,591 | | | 130,631 | | | — | | | 741,222 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Inventory | | | | | | | 8,099,842 | | | 95,791 | | | | | | 8,195,633 | |
Property, construction and office equipment, net | | | | | | | 276,552 | | | 1,966 | | | | | | 278,518 | |
Receivables, prepaid expenses and other assets | 5,667 | | | | | | 254,310 | | | 774,796 | | | (51,679) | | | 983,094 | |
Mortgage loans held for sale | | | | | | | | | | 141,007 | | | | | | 141,007 | |
Customer deposits held in escrow | | | | | | | 74,648 | | | 42 | | | | | | 74,690 | |
Investments in unconsolidated entities | | | | | | | 44,545 | | | 319,496 | | | | | | 364,041 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Investments in and advances to consolidated entities | 4,656,426 | | | 2,712,458 | | | 185,516 | | | 206,756 | | | (7,761,156) | | | — | |
Income taxes receivable | 32,606 | | | | | | | | | | | | | | | 32,606 | |
| 4,694,699 | | | 2,712,458 | | | 9,546,004 | | | 1,670,485 | | | (7,812,835) | | | 10,810,811 | |
LIABILITIES AND EQUITY | | | | | | | | | | | |
Liabilities | | | | | | | | | | | |
Loans payable | | | | | | | 1,554,721 | | | 36,109 | | | (34,258) | | | 1,556,572 | |
Senior notes | | | | 2,660,815 | | | | | | | | | | | | 2,660,815 | |
Mortgage company loan facility | | | | | | | | | | 106,018 | | | | | | 106,018 | |
Customer deposits | | | | | | | 418,047 | | | 2,122 | | | (516) | | | 419,653 | |
Accounts payable | | | | | | | 330,970 | | | 19,049 | | | | | | 350,019 | |
Accrued expenses | 6,724 | | | 33,802 | | | 566,295 | | | 444,970 | | | (53,248) | | | 998,543 | |
Advances from consolidated entities | | | | | | | 351,458 | | | 578,997 | | | (930,455) | | | — | |
Income taxes payable | 105,469 | | | | | | | | | | | | | | | 105,469 | |
Total liabilities | 112,193 | | | 2,694,617 | | | 3,221,491 | | | 1,187,265 | | | (1,018,477) | | | 6,197,089 | |
Equity | | | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | | |
Common stock | 1,529 | | | | | | 48 | | | 3,006 | | | (3,054) | | | 1,529 | |
Additional paid-in capital | 725,246 | | | 49,400 | | | | | | 199,034 | | | (248,434) | | | 725,246 | |
Retained earnings (deficit) | 4,896,005 | | | (31,559) | | | 6,324,465 | | | 231,976 | | | (6,542,870) | | | 4,878,017 | |
Treasury stock, at cost | (1,034,999) | | | | | | | | | | | | | | | (1,034,999) | |
Accumulated other comprehensive loss | (5,275) | | | | | | | | | | | | | | | (5,275) | |
Total stockholders’ equity | 4,582,506 | | | 17,841 | | | 6,324,513 | | | 434,016 | | | (6,794,358) | | | 4,564,518 | |
Noncontrolling interest | | | | | | | | | | 49,204 | | | | | | 49,204 | |
Total equity | 4,582,506 | | | 17,841 | | | 6,324,513 | | | 483,220 | | | (6,794,358) | | | 4,613,722 | |
| 4,694,699 | | | 2,712,458 | | | 9,546,004 | | | 1,670,485 | | | (7,812,835) | | | 10,810,811 | |
Condensed Consolidating Balance Sheet at October 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | |
Cash and cash equivalents | — | | | — | | | 1,082,067 | | | 203,947 | | | — | | | 1,286,014 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Inventory | | | | | | | 7,791,759 | | | 81,289 | | | | | | 7,873,048 | |
Property, construction and office equipment, net | | | | | | | 263,140 | | | 10,272 | | | | | | 273,412 | |
Receivables, prepaid expenses and other assets | | | | | | | 224,681 | | | 610,541 | | | (119,781) | | | 715,441 | |
Mortgage loans held for sale | | | | | | | | | | 218,777 | | | | | | 218,777 | |
Customer deposits held in escrow | | | | | | | 74,303 | | | 100 | | | | | | 74,403 | |
Investments in unconsolidated entities | | | | | | | 50,594 | | | 315,658 | | | | | | 366,252 | |
Investments in and advances to consolidated entities | 5,172,737 | | | 2,704,551 | | | 163,371 | | | 147,413 | | | (8,188,072) | | | — | |
Income taxes receivable | 20,791 | | | | | | | | | | | | | | | 20,791 | |
| 5,193,528 | | | 2,704,551 | | | 9,649,915 | | | 1,587,997 | | | (8,307,853) | | | 10,828,138 | |
LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | |
Loans payable | | | | | | | 1,109,614 | | | 36,092 | | | (34,257) | | | 1,111,449 | |
Senior notes | | | | 2,659,898 | | | | | | | | | | | | 2,659,898 | |
Mortgage company loan facility | | | | | | | | | | 150,000 | | | | | | 150,000 | |
Customer deposits | | | | | | | 383,583 | | | 2,013 | | | | | | 385,596 | |
Accounts payable | | | | | | | 347,715 | | | 884 | | | | | | 348,599 | |
Accrued expenses | 754 | | | 26,812 | | | 569,476 | | | 443,180 | | | (89,290) | | | 950,932 | |
Advances from consolidated entities | | | | | | | 1,052,370 | | | 503,058 | | | (1,555,428) | | | — | |
Income taxes payable | 102,971 | | | | | | | | | | | | | | | 102,971 | |
Total liabilities | 103,725 | | | 2,686,710 | | | 3,462,758 | | | 1,135,227 | | | (1,678,975) | | | 5,709,445 | |
Equity | | | | | | | | | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | | | | | | | | |
Common stock | 1,529 | | | | | | 48 | | | 3,006 | | | (3,054) | | | 1,529 | |
Additional paid-in capital | 726,879 | | | 49,400 | | | | | | 177,034 | | | (226,434) | | | 726,879 | |
Retained earnings (deficit) | 4,792,409 | | | (31,559) | | | 6,187,109 | | | 225,853 | | | (6,399,390) | | | 4,774,422 | |
Treasury stock, at cost | (425,183) | | | | | | | | | | | | | | | (425,183) | |
Accumulated other comprehensive loss | (5,831) | | | | | | | | | | | | | | | (5,831) | |
Total stockholders’ equity | 5,089,803 | | | 17,841 | | | 6,187,157 | | | 405,893 | | | (6,628,878) | | | 5,071,816 | |
Noncontrolling interest | | | | | | | | | | 46,877 | | | | | | 46,877 | |
Total equity | 5,089,803 | | | 17,841 | | | 6,187,157 | | | 452,770 | | | (6,628,878) | | | 5,118,693 | |
| 5,193,528 | | | 2,704,551 | | | 9,649,915 | | | 1,587,997 | | | (8,307,853) | | | 10,828,138 | |
Condensed Consolidating Statement of Operations and Comprehensive Income for the six months ended April 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Home sales | | | | | | | 2,798,935 | | | 14,636 | | | | | | 2,813,571 | |
Land sales and other | | | | | | | 43,964 | | | 112,929 | | | (89,961) | | | 66,932 | |
| — | | | — | | | 2,842,899 | | | 127,565 | | | (89,961) | | | 2,880,503 | |
| | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | |
Home sales | | | | | | | 2,301,861 | | | 11,286 | | | (2,558) | | | 2,310,589 | |
Land sales and other | | | | | | | 26,132 | | | 71,086 | | | (38,518) | | | 58,700 | |
| — | | | — | | | 2,327,993 | | | 82,372 | | | (41,076) | | | 2,369,289 | |
Selling, general and administrative | 100 | | | 36 | | | 385,041 | | | 32,991 | | | (46,998) | | | 371,170 | |
Income (loss) from operations | (100) | | | (36) | | | 129,865 | | | 12,202 | | | (1,887) | | | 140,044 | |
Other: | | | | | | | | | | | | | | | | | |
Income (loss) from unconsolidated entities | | | | | | | 14,715 | | | (6,845) | | | | | | 7,870 | |
Other income – net | | | | | | | 14,068 | | | 10,476 | | | (4,413) | | | 20,131 | |
Intercompany interest income | | | | 65,642 | | | 2,930 | | | 2,802 | | | (71,374) | | | — | |
Interest expense | | | | (65,606) | | | (2,802) | | | (3,266) | | | 71,674 | | | — | |
| | | | | | | | | | | |
Income from subsidiaries | 168,145 | | | | | | 15,369 | | | | | | (183,514) | | | — | |
Income before income taxes | 168,045 | | | — | | | 174,145 | | | 15,369 | | | (189,514) | | | 168,045 | |
Income tax provision | 35,499 | | | | | | 36,788 | | | 3,246 | | | (40,034) | | | 35,499 | |
Net income | 132,546 | | | — | | | 137,357 | | | 12,123 | | | (149,480) | | | 132,546 | |
Other comprehensive income | 556 | | | | | | | | | | | | | | | 556 | |
Total comprehensive income | 133,102 | | | — | | | 137,357 | | | 12,123 | | | (149,480) | | | 133,102 | |
Condensed Consolidating Statement of Operations and Comprehensive Income for the six months ended April 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Home sales | | | | | | | 2,967,351 | | | 64,014 | | | | | | 3,031,365 | |
Land sales and other | | | | | 30,793 | | | 107,644 | | | (90,527) | | | 47,910 | |
| — | | | — | | | 2,998,144 | | | 171,658 | | | (90,527) | | | 3,079,275 | |
| | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | |
Home sales | | | | | | | 2,365,786 | | | 50,965 | | | (159) | | | 2,416,592 | |
Land sales and other | | | | | 7,979 | | | 62,801 | | | (33,606) | | | 37,174 | |
| — | | | — | | | 2,373,765 | | | 113,766 | | | (33,765) | | | 2,453,766 | |
Selling, general and administrative | 491 | | | 1,395 | | | 355,050 | | | 36,095 | | | (52,422) | | | 340,609 | |
Income (loss) from operations | (491) | | | (1,395) | | | 269,329 | | | 21,797 | | | (4,340) | | | 284,900 | |
Other: | | | | | | | | | | | | | | | | | |
Income from unconsolidated entities | | | | | | | 8,541 | | | 2,018 | | | | | | 10,559 | |
Other income – net | | | | | | | 12,255 | | | 14,250 | | | 5,641 | | | 32,146 | |
Intercompany interest income | | | | 67,004 | | | 870 | | | 2,980 | | | (70,854) | | | — | |
Interest expense | | | | (65,609) | | | (2,980) | | | (964) | | | 69,553 | | | — | |
| | | | | | | | | | | |
Income from subsidiaries | 328,096 | | | | | | 40,081 | | | | | | (368,177) | | | — | |
Income before income taxes | 327,605 | | | — | | | 328,096 | | | 40,081 | | | (368,177) | | | 327,605 | |
Income tax provision | 86,231 | | | | | | 86,355 | | | 10,549 | | | (96,904) | | | 86,231 | |
Net income | 241,374 | | | — | | | 241,741 | | | 29,532 | | | (271,273) | | | 241,374 | |
Other comprehensive income | 112 | | | | | | | | | | | | | | | 112 | |
Total comprehensive income | 241,486 | | | — | | | 241,741 | | | 29,532 | | | (271,273) | | | 241,486 | |
Condensed Consolidating Statement of Operations and Comprehensive Income for the three months ended April 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Home sales | | | | | | | 1,509,558 | | | 6,676 | | | | | | 1,516,234 | |
Land sales and other | | | | | | | 26,168 | | | 54,653 | | | (47,983) | | | 32,838 | |
| — | | | — | | | 1,535,726 | | | 61,329 | | | (47,983) | | | 1,549,072 | |
| | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | |
Home sales | | | | | | | 1,248,159 | | | 5,284 | | | (2,754) | | | 1,250,689 | |
Land sales and other | | | | | | | 14,274 | | | 32,250 | | | (20,106) | | | 26,418 | |
| — | | | — | | | 1,262,433 | | | 37,534 | | | (22,860) | | | 1,277,107 | |
Selling, general and administrative | 47 | | | 11 | | | 187,091 | | | 16,195 | | | (23,927) | | | 179,417 | |
Income (loss) from operations | (47) | | | (11) | | | 86,202 | | | 7,600 | | | (1,196) | | | 92,548 | |
Other: | | | | | | | | | | | | | | | | |
Income (loss) from unconsolidated entities | | | | | | | 513 | | | (4,784) | | | | | | (4,271) | |
Other income – net | | | | | | | 9,402 | | | 9,508 | | | (5,074) | | | 13,836 | |
Intercompany interest income | | | | 29,272 | | | 1,425 | | | 1,509 | | | (32,206) | | | — | |
Interest expense | | | | (29,261) | | | (1,509) | | | (1,705) | | | 32,475 | | | — | |
| | | | | | | | | | | |
Income from subsidiaries | 102,161 | | | | | | 12,128 | | | | | | (114,289) | | | — | |
Income before income taxes | 102,114 | | | — | | | 108,161 | | | 12,128 | | | (120,290) | | | 102,113 | |
Income tax provision | 26,443 | | | | | | 27,725 | | | 2,802 | | | (30,527) | | | 26,443 | |
Net income | 75,671 | | | — | | | 80,436 | | | 9,326 | | | (89,763) | | | 75,670 | |
Other comprehensive income | 278 | | | | | | | | | | | | | | | 278 | |
Total comprehensive income | 75,949 | | | — | | | 80,436 | | | 9,326 | | | (89,763) | | | 75,948 | |
Condensed Consolidating Statement of Operations and Comprehensive Income for the three months ended April 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | |
Home sales | | | | | | | 1,675,155 | | | 36,902 | | | | | | 1,712,057 | |
Land sales and other | | | | | 15,460 | | | 34,329 | | | (45,752) | | | 4,037 | |
| — | | | — | | | 1,690,615 | | | 71,231 | | | (45,752) | | | 1,716,094 | |
| | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | |
Home sales | | | | | | | 1,344,891 | | | 29,616 | | | (160) | | | 1,374,347 | |
Land sales and other | | | | | 3,841 | | | 16,909 | | | (17,829) | | | 2,921 | |
| — | | | — | | | 1,348,732 | | | 46,525 | | | (17,989) | | | 1,377,268 | |
Selling, general and administrative | 101 | | | 662 | | | 185,133 | | | 17,342 | | | (24,867) | | | 178,371 | |
Income (loss) from operations | (101) | | | (662) | | | 156,750 | | | 7,364 | | | (2,896) | | | 160,455 | |
Other: | | | | | | | | | | | | | | | | | |
Income from unconsolidated entities | | | | | | | 3,154 | | | 1,265 | | | | | | 4,419 | |
Other income - net | | | | | | | 6,758 | | | 1,019 | | | 3,508 | | | 11,285 | |
Intercompany interest income | | | | 32,883 | | | 343 | | | 1,475 | | | (34,701) | | | — | |
Interest expense | | | | (32,221) | | | (1,475) | | | (393) | | | 34,089 | | | — | |
| | | | | | | | | | | |
Income from consolidated subsidiaries | 176,260 | | | | | | 10,730 | | | | | | (186,990) | | | — | |
Income before income taxes | 176,159 | | | — | | | 176,260 | | | 10,730 | | | (186,990) | | | 176,159 | |
Income tax provision | 46,835 | | | | | | 46,859 | | | 2,914 | | | (49,773) | | | 46,835 | |
Net income | 129,324 | | | — | | | 129,401 | | | 7,816 | | | (137,217) | | | 129,324 | |
Other comprehensive income | 56 | | | | | | | | | | | | | | | 56 | |
Total comprehensive income | 129,380 | | | — | | | 129,401 | | | 7,816 | | | (137,217) | | | 129,380 | |
Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Net cash (used in) provided by operating activities | 3,362 | | | 7,917 | | | (73,779) | | | (90,059) | | | (38,577) | | | (191,136) | |
Cash flow (used in) provided by investing activities: | | | | | | | | | | | | | | | | |
Purchase of property and equipment - net | | | | | | | (51,752) | | | 995 | | | | | | (50,757) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Investments in unconsolidated entities | | | | | | | (542) | | | (9,721) | | | | | | (10,263) | |
Return of investments in unconsolidated entities | | | | | | | 9,508 | | | 25,376 | | | | | | 34,884 | |
Investment in foreclosed real estate and distressed loans | | | | | | | | | | (272) | | | | | | (272) | |
Return of investments in foreclosed real estate and distressed loans | | | | | | | | | | 1,431 | | | | | | 1,431 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Acquisition of a business | | | | | | | (60,349) | | | | | | | | | (60,349) | |
Proceeds from sales of golf club properties and an office building | | | | | | | | | | 15,617 | | | | | | 15,617 | |
| | | | | | | | | | | |
Investment paid - intercompany | | | | | | | (85,631) | | | | | | 85,631 | | | — | |
Intercompany advances | 653,669 | | | (7,917) | | | | | | | | | (645,752) | | | — | |
Net cash (used in) provided by investing activities | 653,669 | | | (7,917) | | | (188,766) | | | 33,426 | | | (560,121) | | | (69,709) | |
Cash flow (used in) provided by financing activities: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Proceeds from loans payable | | | | | | | 1,425,008 | | | 1,307,485 | | | | | | 2,732,493 | |
| | | | | | | | | | | |
Principal payments of loans payable | | | | | | | (1,002,646) | | | (1,351,467) | | | | | | (2,354,113) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Proceeds from stock-based benefit plans, net | 5,305 | | | | | | | | | | | | | | | 5,305 | |
| | | | | | | | | | | |
Purchase of treasury stock | (633,553) | | | | | | | | | | | | | | | (633,553) | |
Dividends paid | (28,783) | | | | | | | | | | | | | | | (28,783) | |
Payments related to noncontrolling interest, net | | | | | | | | | | (936) | | | | | | (936) | |
Dividend paid - intercompany | | | | | | | | | | (6,000) | | | 6,000 | | | — | |
Investment received - intercompany | | | | | | | | | | 85,628 | | | (85,628) | | | — | |
Intercompany advances | | | | | | | (631,294) | | | (47,032) | | | 678,326 | | | — | |
Net cash (used in) provided by financing activities | (657,031) | | | — | | | (208,932) | | | (12,322) | | | 598,698 | | | (279,587) | |
Net decrease in cash, cash equivalents, and restricted cash | — | | | — | | | (471,477) | | | (68,955) | | | — | | | (540,432) | |
Cash, cash equivalents, and restricted cash, beginning of period | — | | | — | | | 1,082,090 | | | 237,553 | | | — | | | 1,319,643 | |
Cash, cash equivalents, and restricted cash, end of period | — | | | — | | | 610,613 | | | 168,598 | | | — | | | 779,211 | |
Condensed Consolidating Statement of Cash Flows for the six months ended April 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Toll Brothers, Inc. | | Subsidiary Issuer | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
Net cash used in operating activities | (525) | | | (3,635) | | | (69,339) | | | (1,854) | | | (10,325) | | | (85,678) | |
Cash flow provided by (used in) investing activities: | | | | | | | | | | | | | | | | | |
Purchase of property and equipment — net | | | | | | | (45,805) | | | 864 | | | | | | (44,941) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Investments in unconsolidated entities | | | | | | | (3,091) | | | (28,469) | | | | | | (31,560) | |
Return of investments in unconsolidated entities | | | | | | | | | | 70,465 | | | | | | 70,465 | |
Investment in foreclosed real estate and distressed loans | | | | | | | | | | (522) | | | | | | (522) | |
Return of investments in foreclosed real estate and distressed loans | | | | | | | | | | 1,214 | | | | | | 1,214 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Investment paid - intercompany | | | | | | | (57,917) | | | | | | 57,917 | | | — | |
Proceeds from the sale of a golf club property | | | | | 15,319 | | | 18,220 | | | | | 33,539 | |
Intercompany advances | 56,901 | | | 353,635 | | | | | | | | | (410,536) | | | — | |
Net cash provided by (used in) investing activities | 56,901 | | | 353,635 | | | (91,494) | | | 61,772 | | | (352,619) | | | 28,195 | |
Cash flow (used in) provided by financing activities: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Proceeds from loans payable | | | | | | | 300,000 | | | 1,039,641 | | | | | | 1,339,641 | |
Debt issuance costs for loans payable | | | | | | | (1,948) | | | | | | | | | (1,948) | |
Principal payments of loans payable | | | | | | | (52,165) | | | (1,079,630) | | | | | | (1,131,795) | |
Redemption of senior notes | | | | (350,000) | | | | | | | | | | | | (350,000) | |
| | | | | | | | | | | |
Proceeds from stock-based benefit plans, net | 1,302 | | | | | | | | | | | | | | | 1,302 | |
Excess tax benefits from stock-based compensation | | | | | | | | | | | | | | | | — | |
Purchase of treasury stock | (25,244) | | | | | | | | | | | | | | | (25,244) | |
Dividends paid | (32,434) | | | | | | | | | | | | | | | (32,434) | |
Receipts related to noncontrolling interest, net | | | | | | | | | | 13 | | | | | | 13 | |
| | | | | | | | | | | |
Investment received - intercompany | | | | | | | | | | 57,917 | | | (57,917) | | | — | |
Intercompany advances | | | | | | | (395,905) | | | (24,956) | | | 420,861 | | | — | |
Net cash used in financing activities | (56,376) | | | (350,000) | | | (150,018) | | | (7,015) | | | 362,944 | | | (200,465) | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | — | | | — | | | (310,851) | | | 52,903 | | | — | | | (257,948) | |
Cash, cash equivalents, and restricted cash, beginning of period | — | | | — | | | 1,011,867 | | | 171,072 | | | — | | | 1,182,939 | |
Cash, cash equivalents, and restricted cash, end of period | — | | | — | | | 701,016 | | | 223,975 | | | — | | | 924,991 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements, notes thereto, and the related MD&A contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 20192020 (“20192020 Form 10-K”). It also should be read in conjunction with the disclosure under “Statement on Forward-Looking Information” and “Risk Factors” in this report and in our 20192020 Form 10-K.
Unless otherwise stated in this report, net contracts signed represents a number or value equal to the gross number or value of contracts signed during the relevant period, less the number or value of contracts canceled during the relevant period, which includes contracts that were signed during the relevant period and in prior periods. Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”). Backlog conversion represents the percentage of homes delivered in the period from backlog at the beginning of the period (“backlog conversion”).
We operate in two segments: Traditional Home Building and Urban Infill (“City Living. In the first quarter of fiscal 2020, we appointed co-chief operating officers and split oversight responsibility for the Company’sLiving”). Within Traditional Home Building, we operate in the following five geographic segments, with current operations between eastern and western regions. In connection with these appointments, we made certain changes to our Traditional Home Building regional management structure and realigned certain ofin the states falling among our five home building regions, as follows:
Eastern Region:listed below:
•The North region: Connecticut, Delaware, Illinois, Massachusetts, Michigan, Pennsylvania, New Jersey and New York;
•The Mid-Atlantic region: Georgia, Maryland, North Carolina, Tennessee and Virginia;
•The South region: Florida, South Carolina and Texas;Texas
Western Region:
•The Mountain region: Arizona, Colorado, Idaho, Nevada and Utah; and
•The Pacific region: California, Oregon and Washington.
Prior to the first quarter of fiscal 2020, the Company’s home building regional segments were:
•North: Connecticut, Illinois, Massachusetts, Michigan, New Jersey and New York;
•Mid-Atlantic: Delaware, Maryland, Pennsylvania and Virginia;
•South: Florida, Georgia, North Carolina, South Carolina and Texas;
•West: Arizona, Colorado, Idaho, Nevada, Oregon, Utah and Washington; and
•California: California.
Our new geographic reporting segments are consistent with how our chief operating decision makers are assessing operating performance and allocates capital following the realignment of the regional management structure. The realignment did not have any impact on our consolidated financial position, results of operations, earnings per share or cash flows. Prior period segment information was restated to conform to the new reporting structure.
OVERVIEW
Our Business Environment and Current Outlook
We continue to experience very strong demand for our homes. This resurgence in demand began for us in mid-May 2020, following the significant drop in sales we experienced in our fiscal second quarter of 2020 as the initial impact of the COVID-19 pandemic was felt in the United States. In the three months ended April 30, 2020,January 31, 2021, we signed 1,8862,874 net contracts for the sale of Traditional Home Building Productsproducts and City Living unitshomes with an aggregate value of $1.55$2.51 billion, compared to 2,4241,806 net contracts with an aggregate value of $2.00$1.49 billion in the three months ended April 30, 2019,January 31, 2020, representing a 22% declineincreases of 59% and 68% in both units and dollars.dollars, respectively. Our backlog at January 31, 2021 was 8,888 homes and $7.47 billion, up 38% in units and 37% in dollars as compared to our backlog at January 31, 2020. In response to the strong demand and in an effort to drive profitability and manage growth, we continued to raise sales prices in substantially all of our communities during our fiscal first quarter of 2021. We have also continued to limit lot releases in some communities. We expect to continue these pricing and lot-release measures during the remainder of fiscal 2021 assuming the strong demand environment continues.
Through mid-March 2020,We attribute the strong demand for ourto a number of factors, including favorable demographic trends, a very tight supply of for-sale homes was strong, driven by solid economic fundamentals underlying the housing market, includingstemming from a healthy economy,decade of underproduction, low interestmortgage rates, and a limited supplyrenewed appreciation for the importance of new and existing homes across most of our markets. Through March 15, 2020, net contracts increased 43% compared to the comparable six-week period in fiscal 2019.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared the pandemic a national emergency, which was followed by numerous states and municipalities issuing stay-at-home and business closure orders. A significant number of our operating communities were located in states and municipalities that were highly impacted by the pandemic and its effect on economic activity, including Pennsylvania, New Jersey, New York City and its suburbs, Connecticut, Massachusetts, Michigan, metro Seattle and California, making it especially challenging to sell, construct and deliver homes in the second half of our fiscal second quarter. As a result, we experienced a decline of 64% in the number of contracts signed in the second half of the quarter compared to the comparable period in fiscal 2019.
In response to COVID-19, we implemented a number of new operating measures relating to our sales, construction and other operations, including protocols relating to worker safety, social distancing, enhanced sanitation and other processes. Our focus was on keeping our employees, trade partners and customers safe while attempting to keep our business operating. Actions that we took included the following:
•Closed our corporate headquarters and most of our division offices and modified functions to allow all of our impacted employees to work remotely except for essential minimum basic operations;
•Modified our construction operations in markets where we were permitted to continue construction to implement enhanced safety protocols around social distancing, hygiene, and health screening;
•Closed our model homes and design centers to the general public and shifted to appointment-only interactions with our customers where permitted, following recommended distancing and other health and safety protocols when meeting in person with a customer;
•Utilized virtual sales tools to give customers an immersive ability to shop for and design their new home online;
•Suspended non-emergency warranty work in our customers’ homes; and
•Modified much of our customer interactions around the mortgage origination and closing process to be virtual and minimized in-person interactions.
home. We believe these factors will continue to review and modify our business operations as we prepare for a reopening of the economy. Following the onset of the COVID-19 pandemic, we accelerated and expanded a number of cost reduction initiatives to improve efficiencies and rationalize overhead expenses, including workforce reductions.support demand through fiscal 2021.
At the outset of our fiscal third quarter, we have seen an increase in traffic and deposits from the significantly lower levels seen in March and April as pandemic-related government restrictions have eased. However, we remain cautious as to the impact of the pandemic on the U.S.Although housing industry and the economy more generally. Economicmarket demand has recently been very strong, future economic conditions in the United States have deteriorated as a result ofand the pandemic, in particular with respectdemand for homes remain uncertain due to unemployment levels, and there is significant uncertainty regarding the extent to which and how long COVID-19 and relatedcontinuing pandemic-related disruptions, government directives, actions and economic relief efforts willrelated thereto, and the impact of these actions on the U.S. economy, mortgage rates and markets, employment levels, capital markets, secondary mortgage markets, consumer confidence, demand forand financial markets, among other things. The potential effect of these factors on our homes and availability of mortgage loans to homebuyers. The extent to which COVID-19 impacts ourfuture operational and financial performance will depend on future developments, including the duration and spread of COVID-19, whether there is a secondary outbreak of the virus, and the related impacts on our customers, trade partners and employees, all of which are highly uncertain, unpredictable and outside our control. If COVID-19 continues to haveAs a significant negative impact on economic conditions over a prolonged periodresult, our past performance may not be indicative of time, our results of operations and financial condition could be materially adversely impacted.future results.
Financial and Operational Highlights
In the six-monththree-month period ended April 30, 2020,January 31, 2021, we recognized $2.88$1.56 billion of revenues, consisting of $2.81$1.41 billion of home sales revenue and $66.9$152.7 million of land sales and other revenue, and net income of $132.5$96.5 million, as compared to $3.08 billion of revenues and $241.4 million of net income in the six-month period ended April 30, 2019. In the three-month period ended April 30, 2020, we recognized $1.55$1.33 billion of revenues, consisting of $1.52$1.30 billion of home sales revenue and $32.8$34.1 million of land sales and other revenue, and net income of $75.7 million, as compared to $1.72 billion of revenues and $129.3$56.9 million of net income in the three-month period ended April 30, 2019.January 31, 2020.
In the six-monththree-month periods ended April 30,January 31, 2021 and 2020, and 2019, the value of net contracts signed was $3.04$2.51 billion (3,692(2,874 homes) and $3.17$1.49 billion (3,803(1,806 homes), respectively. In the three-month periods ended April 30, 2020 and 2019, the value of net contracts signed was $1.55 billion (1,886 homes) and $2.00 billion (2,424 homes), respectively.
The value of our backlog at April 30, 2020January 31, 2021 was $5.49$7.47 billion (6,428(8,888 homes), as compared to our backlog at April 30, 2019January 31, 2020 of $5.66$5.45 billion (6,467(6,461 homes). Our backlog at October 31, 20192020 was $5.26$6.37 billion (6,266(7,791 homes), as compared to backlog of $5.52$5.26 billion (6,105(6,266 homes) at October 31, 2018.2019.
At April 30, 2020,January 31, 2021, we had $741.2$949.7 million of cash and cash equivalents on hand and approximately $1.29$1.785 billion available under our $1.905 billion revolving credit facility (the “Revolving Credit Facility”) that is scheduled to expire on, substantially all of which matures in November 1, 2024.2025. At April 30, 2020,January 31, 2021, we had $450.0 million ofno borrowings and we had approximately $164.8$120.2 million of outstanding letters of credit under the Revolving Credit Facility. Subsequent to April 30, 2020, we repaid $100.0 million of the outstanding balance under the Revolving Credit Facility.
At April 30, 2020,January 31, 2021, we owned or controlled through options approximately 62,10067,700 home sites, as compared to approximately 59,20063,200 at October 31, 2019;2020; and approximately 53,400 at October 31, 2018.2019. Of the approximately 62,10067,700 total home sites that we owned or controlled through options at April 30, 2020,January 31, 2021, we owned approximately 37,10036,400 and controlled approximately 25,00031,300 through options. Of the 37,10036,400 home sites owned, approximately 17,20017,400 were substantially improved. In addition, as of April 30, 2020,January 31, 2021, we expect to purchase approximately 2,5003,900 additional home sites over several years from certain of the joint ventures in which we have interests, at prices to be determined.
At April 30, 2020,January 31, 2021, we were selling from 326309 communities, compared to 317 at October 31, 2020; and 333 at October 31, 2019; and 315 at October 31, 2018.2019.
At April 30, 2020,January 31, 2021, our total stockholders’ equity and our debt to total capitalization ratio were $4.56$4.79 billion and 0.490.44 to 1.00, respectively.
Acquisitions
In February 2020, we acquired substantially all of the assets and operations of Thrive Residential (“Thrive”), an urban in-fill builder with operations in Atlanta, Georgia and Nashville, Tennessee, for approximately $60.3 million in cash. The assets acquired, based on our preliminary purchase price allocation, were primarily inventory for future communities, including approximately 680 home sites owned or controlled through land purchase agreements.
In fiscal 2019, we acquired substantially all of the assets and operations of Sharp Residential, LLC (“Sharp”) and Sabal Homes LLC (“Sabal”), for an aggregate of approximately $162.4 million in cash. Sharp operates in metropolitan Atlanta, Georgia; Sabal operates in the Charleston, Greenville, and Myrtle Beach, South Carolina markets. The assets acquired, based on our purchase price allocations, which we finalized in the second quarter of fiscal 2020,were primarily inventory, including approximately 2,550 home sites owned or controlled through land purchase agreements. There were no significant
adjustments between the preliminary and final purchase price allocations. In connection with these acquisitions, we assumed contracts to deliver 204 homes with an aggregate value of $96.1 million. The average price of undelivered homes as of the respective acquisition date was approximately $471,100. As a result of these acquisitions, our selling community count increased by 22 communities.
RESULTS OF OPERATIONS – OVERVIEW
The following table compares certain items in our Condensed Consolidated Statements of Operations and Comprehensive Income and other supplemental information for the six months and three months ended April 30,January 31, 2021 and 2020 and 2019 ($ amounts in millions, unless otherwise stated). For more information regarding results of operations by segment, see “Segments” in this MD&A.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | | | Three months ended April 30, | | | | |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Revenues: | | | | | | | | | | | |
Home sales | $ | 2,813.6 | | | $ | 3,031.4 | | | (7) | % | | $ | 1,516.2 | | | $ | 1,712.1 | | | (11) | % |
Land sales | 66.9 | | | 47.9 | | | | | 32.8 | | | 4.0 | | | |
| 2,880.5 | | | 3,079.3 | | | (6) | % | | 1,549.1 | | | 1,716.1 | | | (10) | % |
Cost of revenues: | | | | | | | | | | | |
Home sales | 2,310.6 | | | 2,416.6 | | | (4) | % | | 1,250.7 | | | 1,374.3 | | | (9) | % |
Land sales | 58.7 | | | 37.2 | | | | | 26.4 | | | 2.9 | | | |
| 2,369.3 | | | 2,453.8 | | | (3) | % | | 1,277.1 | | | 1,377.3 | | | (7) | % |
Selling, general and administrative | 371.2 | | | 340.6 | | | 9 | % | | 179.4 | | | 178.4 | | | 1 | % |
Income from operations | 140.0 | | | 284.9 | | | (51) | % | | 92.5 | | | 160.5 | | | (42) | % |
Other | | | | | | | | | | | |
Income (loss) from unconsolidated entities | 7.9 | | | 10.6 | | | (25) | % | | (4.3) | | | 4.4 | | | (197) | % |
Other income – net | 20.1 | | | 32.1 | | | (37) | % | | 13.8 | | | 11.3 | | | 22 | % |
Income before income taxes | 168.0 | | | 327.6 | | | (49) | % | | 102.1 | | | 176.2 | | | (42) | % |
Income tax provision | 35.5 | | | 86.2 | | | (59) | % | | 26.4 | | | 46.8 | | | (44) | % |
Net income | $ | 132.5 | | | $ | 241.4 | | | (45) | % | | $ | 75.7 | | | $ | 129.3 | | | (41) | % |
| | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sales revenues | 82.1 | % | | 79.7 | % | | | | 82.5 | % | | 80.3 | % | | |
Land sales cost of revenues as a percentage of land sales revenues | 87.7 | % | | 77.7 | % | | | | 80.4 | % | | 72.5 | % | | |
SG&A as a percentage of home sale revenues | 13.2 | % | | 11.2 | % | | | | 11.8 | % | | 10.4 | % | | |
Effective tax rate | 21.1 | % | | 26.3 | % | | | | 25.9 | % | | 26.6 | % | | |
| | | | | | | | | | | |
Deliveries – units | 3,534 | | | 3,441 | | | 3 | % | | 1,923 | | | 1,911 | | | 1 | % |
Deliveries – average delivered price (1) | $ | 796.1 | | | $ | 881.0 | | | (10) | % | | $ | 788.5 | | | $ | 895.9 | | | (12) | % |
| | | | | | | | | | | |
Net contracts signed – value | $ | 3,042.5 | | | $ | 3,166.6 | | | (4) | % | | $ | 1,553.2 | | | $ | 2,003.3 | | | (22) | % |
Net contracts signed – units | 3,692 | | | 3,803 | | | (3) | % | | 1,886 | | | 2,424 | | | (22) | % |
Net contracts signed – average selling price (1) | $ | 824.1 | | | $ | 832.7 | | | (1) | % | | $ | 823.5 | | | $ | 826.4 | | | — | % |
| | | | | | | | | | | |
| April 30, 2020 | | April 30, 2019 | | % Change | | October 31, 2019 | | October 31, 2018 | | % Change |
Backlog – value | $ | 5,492.9 | | | $ | 5,661.7 | | | (3) | % | | $ | 5,257.1 | | | $ | 5,522.5 | | | (5) | % |
Backlog – units | 6,428 | | | 6,467 | | | (1) | % | | 6,266 | | | 6,105 | | | 3 | % |
Backlog – average selling price (1) | $ | 854.5 | | | $ | 875.5 | | | (2) | % | | $ | 839.0 | | | $ | 904.6 | | | (7) | % |
(1) $ amounts in thousands. | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | % Change | | | | | | |
Revenues: | | | | | | | | | | | |
Home sales | $ | 1,410.7 | | | $ | 1,297.3 | | | 9 | % | | | | | | |
Land sales and other | 152.7 | | | 34.1 | | | | | | | | | |
| 1,563.4 | | | 1,331.4 | | | 17 | % | | | | | | |
Cost of revenues: | | | | | | | | | | | |
Home sales (1) | 1,121.8 | | | 1,033.1 | | | 9 | % | | | | | | |
Land sales and other | 111.7 | | | 32.3 | | | | | | | | | |
| 1,233.5 | | | 1,065.4 | | | 16 | % | | | | | | |
Selling, general and administrative (1) | 210.7 | | | 218.5 | | | (4) | % | | | | | | |
Income from operations | 119.1 | | | 47.5 | | | 151 | % | | | | | | |
Other | | | | | | | | | | | |
Income from unconsolidated entities | 1.2 | | | 12.1 | | | (90) | % | | | | | | |
Other income – net | 7.1 | | | 6.3 | | | 13 | % | | | | | | |
Income before income taxes | 127.4 | | | 65.9 | | | 93 | % | | | | | | |
Income tax provision | 30.9 | | | 9.1 | | | 240 | % | | | | | | |
Net income | $ | 96.5 | | | $ | 56.9 | | | 70 | % | | | | | | |
| | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sales revenues (1) | 79.5 | % | | 79.6 | % | | | | | | | | |
Land sales and other cost of revenues as a percentage of land sales and other revenues | 73.2 | % | | 94.7 | % | | | | | | | | |
SG&A as a percentage of home sale revenues (1) | 14.9 | % | | 16.8 | % | | | | | | | | |
Effective tax rate | 24.3 | % | | 13.7 | % | | | | | | | | |
| | | | | | | | | | | |
Deliveries – units | 1,777 | | | 1,611 | | | 10 | % | | | | | | |
Deliveries – average delivered price (in ‘000s) | $ | 793.9 | | | $ | 805.3 | | | (1) | % | | | | | | |
| | | | | | | | | | | |
Net contracts signed – value | $ | 2,508.0 | | | $ | 1,489.3 | | | 68 | % | | | | | | |
Net contracts signed – units | 2,874 | | | 1,806 | | | 59 | % | | | | | | |
Net contracts signed – average selling price (in ‘000s) | $ | 872.7 | | | $ | 824.6 | | | 6 | % | | | | | | |
| | | | | | | | | | | |
| At January 31, | | | | | | |
| 2021 | | 2020 | | % Change | | | | | | |
Backlog – value | $ | 7,473.5 | | | $ | 5,450.2 | | | 37 | % | | | | | | |
Backlog – units | 8,888 | | | 6,461 | | | 38 | % | | | | | | |
Backlog – average selling price (in ‘000s) | $ | 840.9 | | | $ | 843.6 | | | — | % | | | | | | |
Note: Due to rounding, amounts may not add.
(1) As previously disclosed in our 2020 Form 10-K, effective October 31, 2020, we reclassified sales commissions paid to third-party brokers from home sales cost of revenues to selling, general and administrative expense in our Consolidated Statements of Operations and Comprehensive Income. The reclassification had the effect of lowering home sales cost of revenues (and increasing home sales gross margin) and increasing selling, general and administrative expense by the amount of third-party broker commissions, which totaled $26.8 million, or 2.1% of home sales revenues for the three months ended January 31, 2020. All prior period amounts have been reclassified.
Home Sales Revenues and Home Sales Cost of Revenues
The decreaseincrease in home sale revenues for the sixthree months ended April 30, 2020,January 31, 2021, as compared to the sixthree months ended April 30, 2019,January 31, 2020, was attributable to a 10% decreaseincrease in the average pricenumber of homes delivered, offset, in part, by a 3%1% decrease in the average price of homes delivered. The increase in the number of homes delivered.delivered in the three months ended January 31, 2021 was primarily due to higher backlog at October 31, 2020, as compared to October 31, 2019, partially offset by lower backlog conversion in the fiscal 2021 period. The decrease in the average delivered home price was mainly due to a shift in the number of homes delivered to less expensive areas and/or products.products, offset, in part, by sales price increases. The shift in the number of homes delivered to less expensive areas and/or products in the fiscal 2020 period, as compared to the fiscal 20192021 period was primarily related to a decrease in the number of
homes closed in City Living and Southern California where the average prices are higher than the Company average; an increase in homes delivered in metropolitan Atlanta, Georgiaaverage. The shift was also the result of our strategic expansion into more affordable luxury home and several markets in South Carolina from the Sharp and Sabal acquisitions where average prices were significantly lower than the Company average; and an increase in the number of quick delivery homes delivered, where average prices are lower than the Company average. Government mandated stay-at-home and business closure orders, and related social distancing and health and safety protocols resulting from COVID-19 had a limited impact on the number of homes delivered in the six-month period, as these restrictions were instituted in late March and April. attractive high-growth markets.
The increase in the number of homes delivered in the six months ended April 30, 2020, as compared to the the six months ended April 30, 2019, was primarily due to home deliveries resulting from the Sharp and Sabal acquisitions; an increase in homes delivered in Northern California mainly attributable to closings at a large high-density condominium community; and an increase in the number of quick delivery homes in the fiscal 2020 period. These increases were partially offset by decreases in homes delivered in Southern California, and City Living primarily due to lower backlog at October 31, 2019, as compared to October 31, 2018, and lower backlog conversion in the fiscal 2020 period, as compared to the fiscal 2019 period. The increasedecrease in home sales cost of revenues, as a percentage of home sales revenues, in the six months ended April 30, 2020,fiscal 2021 period, as compared to the the six months ended April 30, 2019,fiscal 2020 period, was principally due to higher sales prices, the impact of purchase accounting for homes delivered in the fiscal 2020 period from businesses acquired in fiscal 2019, and lower interest expense as a percentage of home sales revenues. These decreases were partially offset by a shift in the mix of revenues to lower margin products/areas; higher land, land development, material and labor costs; and the impact of purchase accounting for homes delivered from the Sharp and Sabal acquisitions. These increases were offset, in part, by lower inventory impairment charges and lower interest expense in the fiscal 2020 period, as compared to the fiscal 2019 period.areas. In the sixthree months ended April 30,January 31, 2021 and 2020, and 2019, interest expense, as a percentage of home sales revenues, was 2.5%2.4% and 2.6%2.5%, respectively, and we recognized inventory impairments and write-offs of $15.2 million and $27.0 million, respectively.
The decrease in home sale revenues for the three months ended April 30, 2020, as compared to the three months ended April 30, 2019, was attributable to a 12% decrease in the average price of homes delivered, offset, in part, by a 1% increase in the number of homes delivered. The decrease in the average delivered home price was mainly due to a shift in the number of homes delivered to less expensive areas and/or products. The shift in the number of homes delivered to less expensive areas and/or products in the fiscal 2020 period, as compared to the fiscal 2019 period, was primarily related to an increase in homes delivered in metropolitan Atlanta, Georgia and several markets in South Carolina from the Sharp and Sabal acquisitions, where average prices were significantly lower than the Company average; a decrease in the number of homes closed in City Living and Southern California where the average prices are higher than the Company average; and an increase in the number of homes delivered in Idaho, where the average prices are lower than the Company average. In addition, government mandated stay-at-home and business closure orders, and related social distancing and health and safety protocols resulting from COVID-19 adversely impacted our ability to deliver homes in certain markets where average prices are generally higher than Company average, such as New Jersey, New York City, metro Seattle and California. The increase in the number of homes delivered in the three months ended April 30, 2020, as compared to the three months ended April 30, 2019, was primarily due to home deliveries resulting from the Sharp and Sabal acquisitions and an increase in homes delivered in Northern California, mainly attributable to closings at a large high-density condominium community. These increases were partially offset by decreases in homes delivered in Southern California and City Living primarily due to lower backlog at October 31, 2019, as compared to October 31, 2018, lower backlog conversion in the fiscal 2020 period, as compared to the fiscal 2019 period, as well as the impact of COVID-19 in the latter half of the quarter. The increase in home sales cost of revenues, as a percentage of home sales revenues, in the three months ended April 30, 2020, as compared to the three months ended April 30, 2019, was principally due to a shift in the mix of revenues to lower margin products/areas; higher land, land development, material and labor costs; and the impact of purchase accounting for homes delivered from the Sharp and Sabal acquisitions. These increases were offset, in part, by lower inventory impairment charges and lower interest expense in the fiscal 2020 period, as compared to the fiscal 2019 period. In the six months ended April 30, 2020 and 2019, interest expense, as a percentage of home sales revenues, was 2.5% and 2.6%, respectively, and we recognized inventory impairments and write-offs of $14.2 million and $19.4 million, respectively.
Land Sales and Other Revenues and Land Sales and Other Cost of Revenues
Our revenues from land sales and other generally consist of the following: (1) land sales to joint ventures in which we retain an interest; (2) lot sales to third-party builders within our master planned communities; and (3) bulk sales to third parties of land we have decided no longer meets our development criteria.criteria; and (4) sales of commercial and retail properties generally located at our City Living buildings. In the six months ended April 30, 2019,first quarter of fiscal 2021, we sold a parking garage and retail space associated with our Hoboken, New Jersey condominium projects for $82.4 million and we recognized a gaingains of $8.4 million from the sale of land to a newly formed Rental Property Joint Venture in which we have a 25% interest.$38.3 million.
Selling, General and Administrative Expenses (“SG&A”)
SG&A spending increaseddecreased by $30.6$7.8 million in the six-monthfiscal 2021 period, ended April 30, 2020, as compared to the six-month period ended April 30, 2019.fiscal 2020 period. As a percentage of home sales revenues, SG&A was 13.2%14.9% in the six months ended April 30, 2020,fiscal 2021 period, as compared to 11.2%16.8% in the six months ended April 30, 2019.fiscal 2020 period. The dollar increasedecrease in SG&A was due primarily to increased compensation costs resulting primarily from a higher number of employees for most of the six month period, a $7.5 million charge for severance costs, which was incurred following the onset of the COVID-19 pandemic, and other compensation
increases; increased sales and marketing costs; and costs related to the implementation, of new enterprise information technology systems. Most of the increased sales and marketing costs were incurred prior to the onset of the COVID-19, resulting from an increased number of selling communities, increased spending on advertising, and higher design studio operating costs compared to the prior year period. The increased number of employees was due primarily to an increased number of selling communities and anticipated community count growth. The increasecommencing in SG&A spending in the six-month period ended April 30, 2020 was offset, in part, by the reversalfiscal 2020’s second quarter, of an $8.0 million accrual for discretionary benefit plan contributions in respect of fiscal 2019. The discretionary contributions were canceled in connection with a number of cost-saving initiatives implemented following the onset of the COVID-19 pandemic. The increase in SG&A as a percentage of revenues was due to a higher increase in SG&A spending, at 9%, relative to revenues, which decreased 7% in the six-month period ended April 30, 2020, as compared to the six-month period ended April 30, 2019.
SG&A spending increased by $1.0 million in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019. As a percentage of home sales revenues, SG&A was 11.8% in the three months ended April 30, 2020, as compared to 10.4% in the three months ended April 30, 2019. The dollar increase in SG&A was due primarily to increased compensation costs resulting primarily from a higher number of employees in February and March, and a $7.5 million charge for severance costs, which was incurred following the onset of the COVID-19 pandemic. Following the onset of the pandemic, we accelerated and expanded a number of cost reduction initiatives to improve efficiencies and rationalize overhead expenses, including workforce reductions. As a result, the increase in SG&A was offset, in part, by the reversal of an $8.0 million accrual related to discretionary benefit plan contributions in respect of fiscal 2019.reductions and reduced advertising and broker commission spend. The discretionary contributions were canceled following the onset of the COVID-19 pandemic. The increase in SG&A costs was also offset by lower sales and marketing costs in the second half of the quarter as expenditures were reduced following the onset of the pandemic. The increased number of employees in February and March was due primarily to an increased number of selling communities and anticipated community count growth. The increasedecrease in SG&A as a percentage of revenues was due to a higher increase in SG&A spending, at 1%, relative to revenues which decreased 11% in the six-month period ended April 30, 2020,increasing 9% as compared to the six-monthfiscal 2020 period, ended April 30, 2019.while SG&A spending decreased 4%.
Income (loss) from Unconsolidated Entities
We have investments in various unconsolidated entities. These entities, which are structured as joint ventures to (i) develop land for the joint venture participants and for sale to third-partyoutside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).
We recognize our proportionate share of the earnings and losses from these various unconsolidated entities. Many of our unconsolidated entities are land development projects, high-rise/mid-rise condominium construction projects, or for-rent apartmentsapartment and single-family home projects, which do not generate revenues and earnings for a number of years during the development of the property.properties. Once development is complete for land development projects and high-rise/mid-rise condominium construction projects, these unconsolidated entities will generally, over a relatively short period of time, generate revenues and earnings until all of the assets of the entity are sold. Further, once for-rent apartments and single-family home projects are complete and stabilized, we may monetize a portion of these projects through a recapitalization or a sale of all or a portion of our ownership interest in the joint venture, generally resulting in an income producing event. Because of the long development periods associated with these entities, the earnings recognized from these entities may vary significantly from quarter to quarter and year to year.
Income (loss) from unconsolidated entities decreased by $2.7$10.9 million in the six-monththree-month period ended April 30, 2020,January 31, 2021, as compared to the six-monththree-month period ended April 30, 2019.January 31, 2020. This decrease was primarily due to a $10.7 million gain recognized in the fiscal 2020 period from the sale of our investment in our of our Rental Property Joint Ventures to our joint venture partner; a decrease in earnings from twoa Home Building Joint VenturesVenture which delivered their last homescompleted its operations in fiscal 2019; a $3.0the prior year; $2.1 million other thanof other-than temporary impairment chargecharges that we recognized on onetwo of our Home Building Joint venturesVentures in the three-month period ended April 30, 2020;fiscal 2021 period; losses recognized by a joint venture that owns a hotel that was adversely impacted by COVID-19; and an increase in losses in several Rental Property Joint Ventures related to the commencement of operations and lease up activities. The decrease wasactivities in
the fiscal 2021 period. These decreases were offset, in part, by a $10.7$6.0 million gain recognized in the fiscal 20202021 period from thean asset sale of our investment incommercial property by one of our Rental PropertyLand Development Joint Ventures to our joint venture partner.
We recognized a loss of $4.3 million from unconsolidated entities in the three-month period ended April 30, 2020, representing a decrease of $8.7 million compared to the three-month period ended April 30, 2019. This decrease was primarily due to a decrease in earnings from one Home Building Joint Venture which delivered its last home in the third quarter of fiscal 2019 and a $3.0 million other than temporary impairment charge we recognized on one of our Home Building Joint ventures in the three-month period ended April 30, 2020.
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, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Income from ancillary businesses | $ | 15,104 | | | $ | 18,086 | | | $ | 14,582 | | | $ | 4,242 | |
Management fee income from home building unconsolidated entities, net | 1,553 | | | 4,727 | | | 207 | | | 3,119 | |
Other | 3,474 | | | 9,333 | | | (953) | | | 3,924 | |
Total other income – net | $ | 20,131 | | | $ | 32,146 | | | $ | 13,836 | | | $ | 11,285 | |
The decrease in income from ancillary businesses in the six months ended April 30, 2020, as compared to the six months ended April 30, 2019, was mainly due to a $12.2 million gain recognized from the sale of a golf club in the fiscal 2019 period; higher losses incurred in our apartment living operations; lower income from golf club operations; and $0.3 million of severance costs. This decrease was partially offset by gains of $13.0 million recognized in the fiscal 2020 period from the sale of golf clubs. | | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | | | |
Income from ancillary businesses | $ | 6,859 | | | $ | 522 | | | | | |
Management fee income from Home Building Joint Ventures, net | 117 | | | 1,346 | | | | | |
Other | 125 | | | 4,427 | | | | | |
Total other income – net | $ | 7,101 | | | $ | 6,295 | | | | | |
The increase in income from ancillary businesses in the three months ended April 30, 2020, as compared to the three months ended April 30, 2019,January 31, 2021 was mainly due to gains of $13.0 million recognizedhigher earnings from volume increases and wider spreads in the fiscal 2020 period from the sale of golf clubs, offset, in part, by higherour mortgage operations, as well as lower losses incurred in our apartment living operations; lower income from golf club operations; and $0.3 million of severance costs.operations.
Management fee income from home building unconsolidated entities presented above includes fees earned by our City Living and Traditional Home Building operations. The decreasesdecrease in income in the six months and three months ended April 30, 2020, as compared to the six months and three months ended April 30, 2019, wereJanuary 31, 2021 was primarily related to thea decrease in the number of communities.unconsolidated entities to which we provide services. In addition to the fees earned by our City Living and Traditional Home Building operations, in the six-monththree-month periods ended April 30,January 31, 2021 and 2020, and 2019, our apartment living operations earned fees from unconsolidated entities of $7.2$4.8 million and $4.7 million, respectively. In the three-month periods ended April 30, 2020 and 2019, our apartment living operations earned fees from unconsolidated entities of $3.5 million and $2.1$3.8 million, respectively. Fees earned by our apartment living operations are included in income from ancillary businesses.
The decreasesdecrease in “other” in the six months and three months ended April 30, 2020, as compared to the six months and three months ended April 30, 2019, wereJanuary 31, 2021 was primarily due to lower interest income and directly expensed interest.income.
Income Before Income Taxes
For the six-monththree-month period ended April 30, 2020,January 31, 2021, we reported income before income taxes of $168.0$127.4 million, as compared to $327.6 million in the six-month period ended April 30, 2019. For the three-month period ended April 30, 2020, we reported income before income taxes of $102.1 million, as compared to $176.2$65.9 million in the three-month period ended April 30, 2019.January 31, 2020.
Income Tax Provision
We recognized an income tax provision of $35.5 million and $26.4$30.9 million in the six-month and three month periodsthree-month period ended April 30, 2020, respectively.January 31, 2021. Based upon the federal statutory rate of 21.0% for the fiscal 2019 periods,2021 period, our federal tax provision would have been $35.3 million and $21.4$26.8 million in the six-monththree-month period ended January 31, 2021. The difference between the tax provisions recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes, offset, in part, by excess tax benefits related to stock-based compensation.
In the three-month periodsperiod ended April 30,January 31, 2020, respectively.we recognized an income tax provision of $9.1 million. Based upon the federal statutory rate of 21.0% for the fiscal 2020 period, our federal tax provision would have been $13.8 million in the three-month period ended January 31, 2020. The difference between the tax provision recognized and the tax provision based on the federal statutory rate was mainly due to the the retroactive extension of the federal energy efficient home credit, which was enacted into law on December 20, 2019 whichand allowed us to recognize energy credits on homes that settled primarily in fiscal 2018 and 2019, and excess tax benefits related to stock-based compensation. These benefits were offset, in part, by the provision for state income taxes.
In the six-month and three-month periods ended April 30, 2019, we recognized income tax provisions of $86.2 million and $46.8 million, respectively. Based upon the federal statutory rate of 21.0% for the fiscal 2019 periods, our federal tax provision would have been $68.8 million and $37.0 million in the six-month and three-month periods ended April 30, 2019, respectively. The differences between the tax provisions recognized and the tax provisions based on the federal statutory rate in the six-month and three-month periods ended April 30, 2019 were mainly due to the provision for state income taxes.
Contracts
The aggregate value of net contracts signed decreased $124.1 million,increased $1.02 billion, or 4%68%, in the six-monththree-month period ended April 30, 2020,January 31, 2021, as compared to the six-monththree-month period ended April 30, 2019.January 31, 2020. In the six-monththree-month periods ended April 30,January 31, 2021 and 2020, and 2019, the value of net contracts signed was $3.04$2.51 billion (3,692(2,874 homes) and $3.17$1.49 billion (3,803(1,806 homes), respectively.
The aggregate value of net contracts signed decreased $450.1 million, or 22.5%, in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019. In the three-month periods ended April 30, 2020 and 2019, the value of net contracts signed was $1.55 billion (1,886 homes) and $2.00 billion (2,424 homes), respectively.
Through mid-March 2020, demand for our homes was strong and, through the six week period ended March 15, 2020, net signed contracts had increased by 43% compared to the same period in fiscal 2019. Following the implementation of COVID-19 stay-at-home and business closure orders in mid-March by many states and municipalities, demand for our homes fell significantly, and, from March 16, 2020 through April 30, 2020, net signed contracts had decreased by 64% compared to the same prior year period. The decreasesincrease in the aggregate value of net contracts signed was due to a 59% increase in the six-month and three-month periods ended April 30, 2020,number of 3% and 22%, respectively, as compared to the six-month and three-month periods ended April 30, 2019, reflects the substantial decrease innet contracts signed and a 6% increase in the latter halfaverage value of our fiscal second quarter. A significanteach signed contract. The increase in the number of net contracts signed reflects an overall increase in demand in the housing market, including a resurgence in demand for our operating communities were located in stateshomes that began at the outset of fiscal 2020’s third quarter. We attribute the strong demand to a number of factors, including favorable demographic trends, a very tight supply of for-sale homes stemming from a decade of underproduction, low mortgage rates, and municipalities that were highly impacted bya renewed appreciation for the COVID-19 pandemic and its effect on economic activity, includingimportance of home. Pennsylvania, New Jersey, New York City and its suburbs, Connecticut, Massachusetts, Michigan, metro Seattle and California.
The decreasesincrease in average price of net contracts signed in the fiscal 2020 periods, as compared to the fiscal 2019 periods, werewas principally due to sale price increases partially offset by mix changes. The change in mix was primarily due to our strategic expansion into more affordable luxury home and attractive high-growth markets, resulting in a shift in the number of contracts signed to less expensive areas and/or products, which was partially impacted by difficult selling conditions in the markets noted above in the latter half of our fiscal second quarter.products.
Backlog
The value of our backlog at April 30, 2020 decreased 3%January 31, 2021 increased 37% to $5.49$7.47 billion (6,428(8,888 homes), as compared to the value of our backlog$5.45 billion (6,461 homes) at April 30, 2019 of $5.66 billion (6,467 homes).January 31, 2020. Our backlog at October 31, 2020 and 2019 was $6.37 billion (7,791 homes) and 2018 was $5.26 billion (6,266 homes) and $5.52 billion (6,105 homes), respectively.
The decreaseincrease in the value of our backlog at April 30, 2020,January 31, 2021, as compared to the backlog at April 30, 2019,January 31, 2020, was primarily attributable to a decreasean increase in the value of net contracts signed in the sixthree months ended April 30, 2020,January 31, 2021, as compared to the sixthree-month period ended April 30, 2019, and lower value of backlog at OctoberJanuary 31, 2019, as compared to October 31, 2018,2020, partially offset by lowerhigher home sales revenues in the sixthree months ended April 30, 2020, as compared to the six-month period ended April 30, 2019.January 31, 2021.
For more information regarding results of operations by segment, see “Segments” in this MD&A.
CAPITAL RESOURCES AND LIQUIDITY
Funding for our business has been, and continues to be, provided principally by cash flow from operating activities before inventory additions, unsecured bank borrowings, and the public capital markets.
Fiscal 2021
At January 31, 2021 and October 31, 2020, we had $949.7 million and $1.37 billion, respectively, of cash and cash equivalents. Cash provided by operating activities during the three-month period ended January 31, 2021 was $55.3 million. Cash provided by operating activities during the fiscal 2021 period was primarily related to net income (adjusted for stock-based compensation, inventory impairments, depreciation and amortization, gain on sale of assets and deferred taxes); mortgage loans sold, net of mortgage loans originated; increases in customer deposits – net and accounts payable and accrued expenses; and a decrease in receivables, prepaid expenses, and other assets, offset, in part, by an increase in inventory.
In the three-month period ended January 31, 2021, cash used in investing activities was $9.8 million, which was primarily related to $112.8 million used to fund our investments in unconsolidated entities and $14.5 million used for the purchase of property and equipment. This activity was offset, in part, by $79.4 million of cash received from the sale of commercial properties and $37.9 million of cash received as returns from our investments in unconsolidated entities.
We used $462.3 million of cash in financing activities in the three-month period ended January 31, 2021, primarily for the repurchase of $179.4 million of our common stock; the payment of dividends on our common stock of $14.3 million; payments of $249.4 million of loans payable, net of borrowings; and redemption of senior notes of $10.0 million.
Fiscal 2020
At April 30,January 31, 2020 and October 31, 2019, we had $741.2$519.8 million and $1.29 billion, respectively, of cash and cash equivalents. Cash used in operating activities during the six-monththree-month period ended April 30,January 31, 2020 was $191.1$366.4 million. Cash used in operating activities during the fiscal 2020 period was primarily related to increases in inventory, receivables, prepaid expenses, and other assets, and income taxes receivable, and a decrease in accounts payable and accrued expenses, offset, in part, by mortgagemortgages loans sold, net of mortgage loansloan originated and net income (adjusted for stock-based compensation, inventory impairments, depreciation and amortization, and deferred taxes) and an increase in customer deposits – net.
In the six-monththree-month period ended April 30,January 31, 2020, cash used in investing activities was $69.7$2.1 million, which was primarily related to $60.3 million used to acquire Thrive; $50.8$26.8 million used for the purchase of property and equipment;equipment and $10.3$4.9 million used to fund our investments in unconsolidated entities. This activity was offset, in part, by $34.9$29.0 million of cash received as returns from our investments in unconsolidated entities and $15.6 million cash received from the sale of a golf club property.entities.
We used $279.6$392.5 million of cash in financing activities in the six-monththree-month period ended April 30,January 31, 2020, primarily for the repurchase of $633.6$476.0 million of our common stock and the payment of dividends on our common stock of $28.8$15.0 million, offset, in part, by borrowings of $378.4$94.2 million of loans payable, net of repayments, and proceeds of $5.3$4.2 million from our stock-based benefit plans.
Fiscal 2019
At April 30, 2019 and October 31, 2018, we had $924.4 million and $1.18 billion, respectively, of cash and cash equivalents. Cash used in operating activities during the six-month period ended April 30, 2019 was $85.7 million. Cash used in operating activities during the fiscal 2019 period was primarily related to the purchase of inventory; decreases in accounts payable, accrued expenses, and income taxes payable; and an increase in receivables, prepaid expenses, and other assets; offset, in part,
by net income (adjusted for stock-based compensation, inventory impairments, depreciation and amortization, and deferred taxes); an increase in mortgage loans sold, net of mortgage loans originated; and an increase in customer deposits – net.
In the six-month period ended April 30, 2019, cash provided by investing activities was $28.2 million, which was primarily related to $70.5 million of cash received as returns of our investments in unconsolidated entities and proceeds of $33.5 million of cash received from the sale of one of our golf club properties and an office building in two separate transactions with unrelated third parties. This activity was offset, in part, by $44.9 million for the purchase of property and equipment and $31.6 million used to fund our investments in unconsolidated entities.
We used $200.5 million of cash in financing activities in the six-month period ended April 30, 2019, primarily for the repayment of $350.0 million of senior notes; the repurchase of $25.2 million of our common stock; and the payment of dividends on our common stock of $32.4 million; offset, in part, by borrowings of $207.8 million of loans payable, net of repayments.
Other
In general, our cash flow from operating activities assumes that, as each home is delivered, we will purchase a home site to replace it. Because we own a supply of several years of home sites, we do not need to buy home sites immediately to replace those that we deliver. In addition, we generally do not begin construction of our detached homes until we have a signed contract with the home buyer. Should our business decline, we believe that our inventory levels would decrease as we complete and deliver the homes under construction but do not commence construction of as many new homes, as we complete the improvements on the land we already own, and as we sell and deliver quick delivery homes that are then in inventory, resulting in additional cash flow from operations. In addition, we might delay, decrease, or curtail our acquisition of additional land,
which would further reduce our inventory levels and cash needs. In response to the economic disruption and uncertainty caused by the COVID-19 pandemic, during the second quarter of fiscal 2020, we significantly reduced spending on new land acquisitions. At April 30, 2020,January 31, 2021, we owned or controlled through options approximately 62,10067,700 home sites, of which we owned approximately 37,100.36,400. Of our owned home sites at April 30, 2020,January 31, 2021, significant improvements were completed on approximately 17,20017,400 of them.
At April 30, 2020,January 31, 2021, the aggregate purchase price of land parcels under option and purchase agreements was approximately $2.62$2.75 billion (including $7.8$8.8 million of land to be acquired from joint ventures in which we have invested). Of the $2.62$2.75 billion of land purchase commitments, we paid or deposited $189.7$207.6 million, and, if we acquire all of these land parcels, we will be required to pay an additional $2.43$2.55 billion. The purchases of these land parcels are scheduled to occur over the next several years. In addition, we expect to purchase approximately 2,5003,900 additional home sites over a number of years from several joint ventures in which we have interests. We have additional land parcels under option that have been excluded from the aforementioned aggregate purchase amounts since we do not believe that we will complete the purchase of these land parcels and no additional funds will be required from us to terminate these contracts.
During the past several years, we have made a number of investments in unconsolidated entities related to the acquisition and development of land for future home sites, the construction of luxury for-sale condominiums, and for-rent apartments. Our investment activities related to investments in, and distributions of investments from, unconsolidated entities are contained in the Condensed Consolidated Statements of Cash Flows under “Net cash (used in) provided byused in investing activities.” At April 30, 2020,January 31, 2021, we had investments in these entities of $571.6 million, and were committed to invest or advance up to an additional $89.7 million to these entities if they require additional funding.At January 31, 2021, we had purchase commitments to acquire land for apartment developments of approximately $165.0$121.5 million, of which we had outstanding deposits in the amount of $7.6$6.5 million. We generally intend to develop these apartment projects in joint ventures with unrelated parties in the future.
We have a $1.905 billion, unsecured, five-year revolving credit facility (the “Revolving Credit Facility”) that is scheduled to expire onsubstantially all of which matures in November 1, 2024.2025. Under the terms of the Revolving Credit Facility, our maximum leverage ratio (as defined in the credit agreement) may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth (as defined in the credit agreement) of no less than approximately $2.11$2.10 billion. Under the terms of the Revolving Credit Facility, at April 30, 2020,January 31, 2021, our leverage ratio was approximately 0.750.57 to 1.00, and our tangible net worth was approximately $4.51$4.72 billion. At April 30, 2020,January 31, 2021, we had $450.0 millionno outstanding borrowings under our Revolving Credit Facility and had outstanding letters of credit thereunder of approximately $164.8$120.2 million. Subsequent to April 30, 2020, we repaid $100.0 million of the outstanding balance under the Revolving Credit Facility.
At April 30, 2020, we had an $800.0 million,We have a five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks that is scheduledbanks. Prior to expireJanuary 28, 2021, the principal amount outstanding under the Term Loan Facility was $800 million. On January 28, 2021 we voluntarily repaid $150.0 million of the Term Loan Facility, and the remaining $650.0 million principal amount outstanding will become due and payable at maturity on November 1, 2024. The2025. No prepayment charges were incurred in connection with the repayment.The Term Loan Facility contains substantially the same financial covenants as our Revolving Credit Facility, as described above.
In November 2020, we entered into five interest rate swap transactions to hedge $400.0 million of the Term Loan Facility through October 2025. The interest rate swaps effectively fix the interest cost on the $400.0 million at 0.369% plus the spread set forth in the pricing schedule in the Term Loan Facility, which was 1.05% as of January 31, 2021. These interest rate swaps were designated as cash flow hedges.
On February 12, 2021, we delivered a notice of optional redemption (the “Redemption Notice”) to the holders of our outstanding 5.625% Senior Notes due 2024 (the “2024 Notes”), pursuant to which the we will redeem all $250.0 million aggregate principal amount of outstanding 2024 Notes. The 2024 Notes will be redeemed on March 15, 2021 (the “Redemption Date”) at a redemption price in cash of the greater of (a) 100% of the principal amount of the Notes being redeemed and (b) the present value of the Remaining Scheduled Payments (as defined in the Indenture) on the 2024 Notes being redeemed on the Redemption Date, discounted to the Redemption Date, on a semiannual basis, at the Treasury Rate (as defined in the Indenture) plus 50 basis points. Accrued and unpaid interest to, but excluding, March 15, 2021 will be paid in accordance with the terms of the Indenture and the Notes. In connection with the redemption, the Company expects to incur a pre-tax charge of approximately $34.0 million in its second fiscal quarter for the early extinguishment of debt.
Under the provisions of the Revolving Credit Facility and Term Loan Facility, our ability to repurchase our common stock was limited to approximately $3.03$3.66 billion and our ability to pay cash dividends was limited to approximately $2.41$2.62 billion as of April 30, 2020.
While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have createdthere is significant uncertainty as to general economic and housing market conditions for the remainder of fiscal 20202021 and potentially beyond, we continue to believe that we will have adequate resources and sufficient access to the capital markets and external financing sources to continue to fund our current operations and meet our contractual obligations. However, due to the inherent difficulty in making long-term predictions about the economy and the capital markets for home builders, which has been exacerbated by COVID-19, we cannot be certain that we will be able to replace existing financing arrangements when they mature or find sources of additional financing in the future.
OFF-BALANCE SHEET ARRANGEMENTS
We also operate through a number of joint ventures. We earn construction and management fee income from many of these joint ventures. Our investments in these entities are generally accounted for using the equity method of accounting. We are a party to several joint ventures with unrelated parties to develop and sell land that is owned by the joint ventures. We recognize our proportionate share of the earnings from the sale of home sites to other builders, including our joint venture partners. We do not recognize earnings from the home sites we purchase from these ventures at the time of our purchase; instead, our cost basis in the home sites is reduced by our share of the earnings realized by the joint venture from those home sites.
At April 30, 2020,January 31, 2021, we had investments in these entities of $364.0$571.6 million and were committed to invest or advance up to an additional $45.3$89.7 million to these entities if they require additional funding. At April 30, 2020,January 31, 2021, we had agreed to terms for the acquisition of 110112 home sites from one joint venturesventure for an estimated aggregate purchase price of $7.8$8.8 million. In addition, we expect to purchase approximately 2,5003,900 additional home sites over a number of years from several joint ventures in which we have interests; the purchase price of these home sites will be determined at a future date.
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, thewe and our joint venture partner have provided joint and several guarantees provided in connection with loans to an unconsolidated entity are joint and several.entities. In these situations, we generally haveseek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee; however, we are not always successful. In addition, if the joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of April 30, 2020,January 31, 2021, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay all or a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the entity. At April 30, 2020,January 31, 2021, we had guaranteed the debt of certain unconsolidated entities have loan commitments aggregating $1.35$1.86 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $190.6$327.5 million to be our maximum exposure related to repayment and carry cost guarantees. At April 30, 2020,January 31, 2021, the unconsolidated entities had borrowed an aggregate of $897.7$1,108.5 million, of which we estimate $137.2$236.7 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 4 months1 month to 4.03.8 years. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
For more information regarding these joint ventures, see Note 4, “Investments in Unconsolidated Entities,” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
CRITICAL ACCOUNTING POLICIES
As disclosed in our 20192020 Form 10-K, our most critical accounting policies relate to inventory, income taxes–valuation allowances, revenue and cost recognition, and warranty and self-insurance. Since October 31, 2019,2020, there have been no material changes to those critical accounting policies.
SUPPLEMENTAL GUARANTOR INFORMATION
At January 31, 2021, our 100%-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), had issued and outstanding $2.66 billion aggregate principal amount of senior notes maturing on various dates between February 15, 2022 and November 1, 2029 (the “Senior Notes”). For further information regarding the Senior Notes, see Note 6 to our Consolidated Condensed Financial Statements under the caption “Senior Notes.”
The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by us and substantially all of our 100%-owned home building subsidiaries (the “Guarantor Subsidiaries” and, together with us, the “Guarantors”). The guarantees are full and unconditional, and the Subsidiary Issuer and each of the Guarantor Subsidiaries are consolidated subsidiaries of Toll Brothers, Inc. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Non-Guarantor Subsidiaries”) do not guarantee the Senior Notes. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds of its public debt offerings, including the Senior Notes. Our home building operations are conducted almost entirely through the Guarantor Subsidiaries. Accordingly, the Subsidiary Issuer’s cash flow and ability to service the Senior Notes is dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Subsidiary Issuer, whether by dividends, loans or otherwise. Holders of the Senior Notes have a direct claim only against the Subsidiary Issuer and the Guarantors. The obligations of the Guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference or similar laws affecting the rights of creditors generally) under applicable law.
The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the Revolving Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter; (iv) such release would not have a material adverse effect on ours and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the Revolving Credit Facility. If there are no guarantors under the Revolving Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X, under Rule Release No. 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities (“Rule 33-10762”), that reduce and simplify the financial disclosure requirements applicable to SEC-registered debt offerings for guarantors and issuers of guaranteed debt securities (which we previously included within the notes to our consolidated financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q). While amendments under Rule 33-10762 are effective January 4, 2021, voluntary compliance is permitted in advance of the effective date, and we had previously adopted the new disclosure requirements for the period ending October 31, 2020.
The following summarized financial information is presented for Toll Brothers, Inc., the Subsidiary Issuer, and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among Toll Brothers, Inc., the Subsidiary Issuer and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from the Non-Guarantor Subsidiaries.
Summarized Balance Sheet Data ($ amounts in millions):
| | | | | |
| January 31, 2021 |
Assets | |
Cash | $ | 758.7 | |
Inventory | $ | 7,783.9 | |
Amount due from Nonguarantor Subsidiaries | $ | 637.6 | |
Total assets | $ | 9,935.6 | |
| |
Liabilities & Stockholders' Equity | |
Loans payable | $ | 951.5 | |
Senior notes | $ | 2,652.2 | |
Total liabilities | $ | 5,464.6 | |
Stockholders' equity | $ | 4,471.0 | |
Summarized Statement of Operations Data ($ amounts in millions):
| | | | | |
| For the three months ended January 31, 2021 |
Revenues | $ | 1,500.8 | |
Cost of revenues | $ | 1,171.9 | |
Selling, general and administrative | $ | 210.1 | |
Income before income taxes | $ | 125.5 | |
Net income | $ | 93.4 | |
SEGMENTS
The tables below summarize information related to units delivered and revenues, net contracts signed, and income (loss) before income taxes, by segment, for the periods indicated, and information related to backlog, by segment, as of the dates indicated.
Units Delivered and Revenues:
| | | Six months ended April 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Revenues ($ in millions) | | | Units Delivered | | | Average Delivered Price ($ in thousands) | | | Three months ended January 31, |
| | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | Revenues ($ in millions) | | Units Delivered | | Average Delivered Price ($ in thousands) |
| | | | Restated | | | | | | Restated | | | | | | Restated | | | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | | | | | | | | | | | | | | | | |
North | North | $ | 550.1 | | | $ | 616.6 | | | (11) | % | | 842 | | | 902 | | | (7) | % | | $ | 653.3 | | | $ | 683.6 | | | (4) | % | North | $ | 312.6 | | | $ | 254.1 | | | 23 | % | | 451 | | | 393 | | | 15 | % | | $ | 693.2 | | | $ | 646.5 | | | 7 | % |
Mid-Atlantic | Mid-Atlantic | 355.4 | | | 309.0 | | | 15 | % | | 543 | | | 463 | | | 17 | % | | $ | 654.5 | | | $ | 667.4 | | | (2) | % | Mid-Atlantic | 164.0 | | | 162.5 | | | 1 | % | | 227 | | | 240 | | | (5) | % | | $ | 722.4 | | | $ | 677.0 | | | 7 | % |
South | South | 414.5 | | | 419.7 | | | (1) | % | | 622 | | | 541 | | | 15 | % | | $ | 666.4 | | | $ | 775.8 | | | (14) | % | South | 216.9 | | | 183.6 | | | 18 | % | | 341 | | | 274 | | | 24 | % | | $ | 636.0 | | | $ | 670.2 | | | (5) | % |
Mountain | Mountain | 600.6 | | | 512.2 | | | 17 | % | | 906 | | | 782 | | | 16 | % | | $ | 662.9 | | | $ | 655.0 | | | 1 | % | Mountain | 378.0 | | | 263.1 | | | 44 | % | | 525 | | | 401 | | | 31 | % | | $ | 720.0 | | | $ | 656.1 | | | 10 | % |
Pacific | Pacific | 818.6 | | | 1,023.7 | | | (20) | % | | 556 | | | 617 | | | (10) | % | | $ | 1,472.3 | | | $ | 1,659.2 | | | (11) | % | Pacific | 331.1 | | | 395.3 | | | (16) | % | | 226 | | | 267 | | | (15) | % | | $ | 1,465.3 | | | $ | 1,480.7 | | | (1) | % |
Traditional Home Building | Traditional Home Building | 2,739.2 | | | 2,881.2 | | | (5) | % | | 3,469 | | | 3,305 | | | 5 | % | | $ | 789.6 | | | $ | 871.8 | | | (9) | % | Traditional Home Building | 1,402.6 | | | 1,258.6 | | | 11 | % | | 1,770 | | | 1,575 | | | 12 | % | | $ | 792.5 | | | $ | 799.1 | | | (1) | % |
City Living | City Living | 76.6 | | | 152.7 | | | (50) | % | | 65 | | | 136 | | | (52) | % | | $ | 1,178.5 | | | $ | 1,122.8 | | | 5 | % | City Living | 7.8 | | | 39.8 | | | (80) | % | | 7 | | | 36 | | | (81) | % | | $ | 1,113.4 | | | $ | 1,106.5 | | | 1 | % |
Other | Other | (2.2) | | | (2.5) | | | Other | 0.3 | | | (1.1) | | |
Total home sales revenue | 2,813.6 | | | 3,031.4 | | | (7) | % | | 3,534 | | | 3,441 | | | 3 | % | | $ | 796.2 | | | $ | 881.0 | | | (10) | % | |
Land sales revenue | 66.9 | | | 47.9 | | | | | | | |
Total revenue | $ | 2,880.5 | | | $ | 3,079.3 | | | |
Total home sales revenues | | Total home sales revenues | 1,410.7 | | | 1,297.3 | | | 9 | % | | 1,777 | | | 1,611 | | | 10 | % | | $ | 793.9 | | | $ | 805.3 | | | (1) | % |
Land sales revenues | | Land sales revenues | 152.7 | | | 34.1 | | | | | | |
Total revenues | | Total revenues | $ | 1,563.4 | | | $ | 1,331.4 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 30, | | | | | | | | | | | | | | | | |
| Revenues ($ in millions) | | | | | | Units Delivered | | | | | | Average Delivered Price ($ in thousands) | | | | |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Traditional Home Building: | | | Restated | | | | | | Restated | | | | | | Restated | | |
North | $ | 296.0 | | | $ | 345.1 | | | (14) | % | | 449 | | | 518 | | | (13) | % | | $ | 659.3 | | | $ | 666.2 | | | (1) | % |
Mid-Atlantic | 192.9 | | | 174.1 | | | 11 | % | | 303 | | | 252 | | | 20 | % | | $ | 636.6 | | | $ | 690.8 | | | (8) | % |
South | 230.8 | | | 242.8 | | | (5) | % | | 348 | | | 313 | | | 11 | % | | $ | 663.4 | | | $ | 775.6 | | | (14) | % |
Mountain | 337.5 | | | 285.8 | | | 18 | % | | 505 | | | 416 | | | 21 | % | | $ | 668.3 | | | $ | 687.0 | | | (3) | % |
Pacific | 423.3 | | | 579.6 | | | (27) | % | | 289 | | | 340 | | | (15) | % | | $ | 1,464.7 | | | $ | 1,704.8 | | | (14) | % |
Traditional Home Building | 1,480.5 | | | 1,627.4 | | | (9) | % | | 1,894 | | | 1,839 | | | 3 | % | | $ | 781.7 | | | $ | 884.9 | | | (12) | % |
City Living | 36.8 | | | 84.1 | | | (56) | % | | 29 | | | 72 | | | (60) | % | | $ | 1,268.0 | | | $ | 1,167.7 | | | 9 | % |
Other | (1.1) | | | 0.6 | | | | | | | | | | | | | | | |
Total home sales revenue | 1,516.2 | | | 1,712.1 | | | (11) | % | | 1,923 | | | 1,911 | | | 1 | % | | $ | 788.5 | | | $ | 895.9 | | | (12) | % |
Land sales revenue | 32.9 | | | 4.0 | | | | | | | | | | | | | | | |
Total revenue | $ | 1,549.1 | | | $ | 1,716.1 | | | | | | | | | | | | | | | |
Net Contracts Signed:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended January 31, |
| Net Contract Value ($ in millions) | | Net Contracted Units | | Average Contracted Price ($ in thousands) |
| 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Traditional Home Building: | | | | | | | | | | | | | | | | | |
North | $ | 356.8 | | | $ | 287.2 | | | 24 | % | | 449 | | | 400 | | | 12 | % | | $ | 794.6 | | | $ | 717.9 | | | 11 | % |
Mid-Atlantic | 327.5 | | | 169.4 | | | 93 | % | | 373 | | | 242 | | | 54 | % | | $ | 878.0 | | | $ | 700.1 | | | 25 | % |
South | 388.8 | | | 244.4 | | | 59 | % | | 568 | | | 353 | | | 61 | % | | $ | 684.5 | | | $ | 692.4 | | | (1) | % |
Mountain | 751.8 | | | 357.5 | | | 110 | % | | 978 | | | 490 | | | 100 | % | | $ | 768.7 | | | $ | 729.5 | | | 5 | % |
Pacific | 644.1 | | | 383.4 | | | 68 | % | | 473 | | | 287 | | | 65 | % | | $ | 1,361.8 | | | $ | 1,335.8 | | | 2 | % |
Traditional Home Building | 2,469.0 | | | 1,441.9 | | | 71 | % | | 2,841 | | | 1,772 | | | 60 | % | | $ | 869.1 | | | $ | 813.7 | | | 7 | % |
City Living | 39.0 | | | 47.4 | | | (18) | % | | 33 | | | 34 | | | (3) | % | | $ | 1,181.8 | | | $ | 1,394.9 | | | (15) | % |
Total | $ | 2,508.0 | | | $ | 1,489.3 | | | 68 | % | | 2,874 | | | 1,806 | | | 59 | % | | $ | 872.6 | | | $ | 824.6 | | | 6 | % |
Net Contracts Signed:Backlog:
| | | Six months ended April 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Contract Value ($ in millions) | | | Net Contracted Units | | | Average Contracted Price ($ in thousands) | | | At January 31, |
| | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | Backlog Value ($ in millions) | | Backlog Units | | Average Backlog Price ($ in thousands) |
| | | | Restated | | | | | | Restated | | | | | | Restated | | | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | | | | | | | | | | | | | | | | |
North | North | $ | 557.0 | | | $ | 730.0 | | | (24) | % | | 777 | | | 1,089 | | | (29) | % | | $ | 716.9 | | | $ | 670.3 | | | 7 | % | North | $ | 1,413.5 | | | $ | 1,213.1 | | | 17 | % | | 1,904 | | | 1,749 | | | 9 | % | | $ | 742.4 | | | $ | 693.6 | | | 7 | % |
Mid-Atlantic | Mid-Atlantic | 389.4 | | | 397.2 | | | (2) | % | | 536 | | | 597 | | | (10) | % | | $ | 726.5 | | | $ | 665.3 | | | 9 | % | Mid-Atlantic | 934.0 | | | 542.5 | | | 72 | % | | 1,136 | | | 786 | | | 45 | % | | $ | 822.1 | | | $ | 690.2 | | | 19 | % |
South | South | 517.7 | | | 440.8 | | | 17 | % | | 748 | | | 605 | | | 24 | % | | $ | 692.1 | | | $ | 728.6 | | | (5) | % | South | 1,210.4 | | | 818.4 | | | 48 | % | | 1,715 | | | 1,127 | | | 52 | % | | $ | 705.8 | | | $ | 726.1 | | | (3) | % |
Mountain | Mountain | 719.5 | | | 646.7 | | | 11 | % | | 999 | | | 931 | | | 7 | % | | $ | 720.2 | | | $ | 694.6 | | | 4 | % | Mountain | 2,044.8 | | | 1,246.4 | | | 64 | % | | 2,727 | | | 1,695 | | | 61 | % | | $ | 749.8 | | | $ | 735.4 | | | 2 | % |
Pacific | Pacific | 783.8 | | | 849.2 | | | (8) | % | | 581 | | | 517 | | | 12 | % | | $ | 1,349.1 | | | $ | 1,642.6 | | | (18) | % | Pacific | 1,700.7 | | | 1,472.6 | | | 15 | % | | 1,291 | | | 994 | | | 30 | % | | $ | 1,317.4 | | | $ | 1,481.5 | | | (11) | % |
Traditional Home Building | Traditional Home Building | 2,967.4 | | | 3,063.9 | | | (3) | % | | 3,641 | | | 3,739 | | | (3) | % | | $ | 815.0 | | | $ | 819.4 | | | (1) | % | Traditional Home Building | 7,303.4 | | | 5,293.0 | | | 38 | % | | 8,773 | | | 6,351 | | | 38 | % | | $ | 832.5 | | | $ | 833.4 | | | — | % |
City Living | City Living | 75.1 | | | 102.7 | | | (27) | % | | 51 | | | 64 | | | (20) | % | | $ | 1,472.5 | | | $ | 1,604.7 | | | (8) | % | City Living | 170.1 | | | 157.2 | | | 8 | % | | 115 | | | 110 | | | 5 | % | | $ | 1,478.9 | | | $ | 1,428.9 | | | 3 | % |
Total | Total | $ | 3,042.5 | | | $ | 3,166.6 | | | (4) | % | | 3,692 | | | 3,803 | | | (3) | % | | $ | 824.1 | | | $ | 832.7 | | | (1) | % | Total | $ | 7,473.5 | | | $ | 5,450.2 | | | 37 | % | | 8,888 | | | 6,461 | | | 38 | % | | $ | 840.9 | | | $ | 843.5 | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 30, | | | | | | | | | | | | | | | | |
| Net Contract Value ($ in millions) | | | | | | Net Contracted Units | | | | | | Average Contracted Price ($ in thousands) | | | | |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Traditional Home Building: | | | Restated | | | | | | Restated | | | | | | Restated | | |
North | $ | 269.8 | | | $ | 454.8 | | | (41) | % | | 377 | | | 687 | | | (45) | % | | $ | 715.7 | | | $ | 662.0 | | | 8 | % |
Mid-Atlantic | 219.9 | | | 236.8 | | | (7) | % | | 294 | | | 344 | | | (15) | % | | $ | 748.1 | | | $ | 688.5 | | | 9 | % |
South | 273.3 | | | 288.4 | | | (5) | % | | 395 | | | 404 | | | (2) | % | | $ | 691.8 | | | $ | 713.8 | | | (3) | % |
Mountain | 362.0 | | | 405.6 | | | (11) | % | | 509 | | | 600 | | | (15) | % | | $ | 711.3 | | | $ | 675.9 | | | 5 | % |
Pacific | 400.5 | | | 554.6 | | | (28) | % | | 294 | | | 348 | | | (16) | % | | $ | 1,362.1 | | | $ | 1,593.6 | | | (15) | % |
Traditional Home Building | 1,525.5 | | | 1,940.2 | | | (21) | % | | 1,869 | | | 2,383 | | | (22) | % | | $ | 816.2 | | | $ | 814.2 | | | — | % |
City Living | 27.7 | | | 63.1 | | | (56) | % | | 17 | | | 41 | | | (59) | % | | $ | 1,627.3 | | | $ | 1,538.9 | | | 6 | % |
Total | $ | 1,553.2 | | | $ | 2,003.3 | | | (22) | % | | 1,886 | | | 2,424 | | | (22) | % | | $ | 823.5 | | | $ | 826.4 | | | — | % |
Backlog:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At April 30, | | | | | | | | | | | | | | | | |
| Backlog Value ($ in millions) | | | | | | Backlog Units | | | | | | Average Backlog Price ($ in thousands) | | | | |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
| | | Restated | | | | | | Restated | | | | | | Restated | | |
Traditional Home Building: | | | | | | | | | | | | | | | | | |
North | $ | 1,187.1 | | | $ | 1,264.5 | | | (6) | % | | 1,677 | | | 1,885 | | | (11) | % | | $ | 707.9 | | | $ | 670.8 | | | 6 | % |
Mid-Atlantic | 574.2 | | | 588.5 | | | (2) | % | | 781 | | | 871 | | | (10) | % | | $ | 735.2 | | | $ | 675.7 | | | 9 | % |
South | 861.4 | | | 802.8 | | | 7 | % | | 1,174 | | | 1,035 | | | 13 | % | | $ | 733.8 | | | $ | 775.6 | | | (5) | % |
Mountain | 1,271.4 | | | 958.8 | | | 33 | % | | 1,699 | | | 1,369 | | | 24 | % | | $ | 748.4 | | | $ | 700.4 | | | 7 | % |
Pacific | 1,450.7 | | | 1,919.4 | | | (24) | % | | 999 | | | 1,213 | | | (18) | % | | $ | 1,452.1 | | | $ | 1,582.3 | | | (8) | % |
Traditional Home Building | 5,344.8 | | | 5,534.0 | | | (3) | % | | 6,330 | | | 6,373 | | | (1) | % | | $ | 844.4 | | | $ | 868.4 | | | (3) | % |
City Living | 148.1 | | | 127.7 | | | 16 | % | | 98 | | | 94 | | | 4 | % | | $ | 1,510.9 | | | $ | 1,358.4 | | | 11 | % |
Total | $ | 5,492.9 | | | $ | 5,661.7 | | | (3) | % | | 6,428 | | | 6,467 | | | (1) | % | | $ | 854.5 | | | $ | 875.5 | | | (2) | % |
| | | At October 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Backlog Value ($ in millions) | | | Backlog Units | | | Average Backlog Price ($ in thousands) | | | At October 31, |
| | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change | | Backlog Value ($ in millions) | | Backlog Units | | Average Backlog Price ($ in thousands) |
| | Restated | | Restated | | | | Restated | | Restated | | | | Restated | | Restated | | | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | | | | | | | | | | | | | | | | |
North | North | $ | 1,179.6 | | | $ | 1,150.1 | | | 3 | % | | 1,742 | | | 1,698 | | | 3 | % | | $ | 677.2 | | | $ | 677.3 | | | — | % | North | $ | 1,369.1 | | | $ | 1,179.6 | | | 16 | % | | 1,906 | | | 1,742 | | | 9 | % | | $ | 718.3 | | | $ | 677.2 | | | 6 | % |
Mid-Atlantic | Mid-Atlantic | 535.3 | | | 500.1 | | | 7 | % | | 784 | | | 737 | | | 6 | % | | $ | 682.7 | | | $ | 678.6 | | | 1 | % | Mid-Atlantic | 770.4 | | | 535.3 | | | 44 | % | | 990 | | | 784 | | | 26 | % | | $ | 778.2 | | | $ | 682.7 | | | 14 | % |
South | South | 757.3 | | | 780.3 | | | (3) | % | | 1,048 | | | 971 | | | 8 | % | | $ | 722.6 | | | $ | 803.6 | | | (10) | % | South | 1,038.4 | | | 757.3 | | | 37 | % | | 1,488 | | | 1,048 | | | 42 | % | | $ | 697.9 | | | $ | 722.6 | | | (3) | % |
Mountain | Mountain | 1,150.9 | | | 823.8 | | | 40 | % | | 1,606 | | | 1,220 | | | 32 | % | | $ | 716.6 | | | $ | 675.3 | | | 6 | % | Mountain | 1,670.7 | | | 1,150.9 | | | 45 | % | | 2,274 | | | 1,606 | | | 42 | % | | $ | 734.7 | | | $ | 716.6 | | | 3 | % |
Pacific | Pacific | 1,484.4 | | | 2,090.6 | | | (29) | % | | 974 | | | 1,313 | | | (26) | % | | $ | 1,524.0 | | | $ | 1,592.2 | | | (4) | % | Pacific | 1,387.1 | | | 1,484.4 | | | (7) | % | | 1,044 | | | 974 | | | 7 | % | | $ | 1,328.6 | | | $ | 1,524.0 | | | (13) | % |
Traditional Home Building | Traditional Home Building | 5,107.5 | | | 5,344.9 | | | (4) | % | | 6,154 | | | 5,939 | | | 4 | % | | $ | 829.9 | | | $ | 900.0 | | | (8) | % | Traditional Home Building | 6,235.7 | | | 5,107.5 | | | 22 | % | | 7,702 | | | 6,154 | | | 25 | % | | $ | 809.6 | | | $ | 829.9 | | | (2) | % |
City Living | City Living | 149.6 | | | 177.6 | | | (16) | % | | 112 | | | 166 | | | (33) | % | | $ | 1,335.6 | | | $ | 1,069.7 | | | 25 | % | City Living | 138.9 | | | 149.6 | | | (7) | % | | 89 | | | 112 | | | (21) | % | | $ | 1,560.3 | | | $ | 1,335.6 | | | 17 | % |
Total | Total | $ | 5,257.1 | | | $ | 5,522.5 | | | (5) | % | | 6,266 | | | 6,105 | | | 3 | % | | $ | 839.0 | | | $ | 904.6 | | | (7) | % | Total | $ | 6,374.6 | | | $ | 5,257.1 | | | 21 | % | | 7,791 | | | 6,266 | | | 24 | % | | $ | 818.2 | | | $ | 839.0 | | | (2) | % |
Income (Loss) Before Income Taxes ($ amounts in millions):
| | | Six months ended April 30, | | | Three months ended April 30, | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | | Three months ended January 31, | |
| | | | Restated | | | | | | Restated | | | | 2021 | | 2020 | | % Change | |
Traditional Home Building: | Traditional Home Building: | | Traditional Home Building: | | | | | | |
North | North | $ | 19.5 | | | $ | 22.3 | | | (13) | % | | $ | 17.0 | | | $ | 7.3 | | | 133 | % | North | $ | 18.9 | | | $ | 2.5 | | | 656 | % | |
Mid-Atlantic | Mid-Atlantic | 6.8 | | | 17.6 | | | (61) | % | | (0.2) | | | 10.4 | | | (102) | % | Mid-Atlantic | 18.8 | | | 7.0 | | | 169 | % | |
South | South | 29.2 | | | 44.3 | | | (34) | % | | 20.1 | | | 28.6 | | | (30) | % | South | 21.5 | | | 9.1 | | | 136 | % | |
Mountain | Mountain | 50.8 | | | 53.0 | | | (4) | % | | 33.2 | | | 27.4 | | | 21 | % | Mountain | 36.0 | | | 17.6 | | | 105 | % | |
Pacific | Pacific | 131.1 | | | 214.6 | | | (39) | % | | 67.8 | | | 123.0 | | | (45) | % | Pacific | 47.5 | | | 63.3 | | | (25) | % | |
Traditional Home Building | Traditional Home Building | 237.4 | | | 351.8 | | | (33) | % | | 137.9 | | | 196.7 | | | (30) | % | Traditional Home Building | 142.7 | | | 99.5 | | | 43 | % | |
City Living | 18.2 | | | 40.5 | | | (55) | % | | 8.7 | | | 25.9 | | | (66) | % | |
City Living (1) | | City Living (1) | 32.7 | | | 9.5 | | | 244 | % | |
Corporate and other | Corporate and other | (87.6) | | | (64.7) | | | (35) | % | | (44.5) | | | (46.4) | | | 4 | % | Corporate and other | (48.0) | | | (43.1) | | | (11) | % | |
Total | Total | $ | 168.0 | | | $ | 327.6 | | | (49) | % | | $ | 102.1 | | | $ | 176.2 | | | (42) | % | Total | $ | 127.4 | | | $ | 65.9 | | | 93 | % | |
(1) In the first quarter of fiscal 2021, we sold certain commercial assets associated with our Hoboken, New Jersey condominium projects for $82.4 million which is included in Land sales and other revenues. City Living recognized net gains of $38.3 million from these sales.
“Corporate and other” is comprised principally of general corporate expenses such as our executive offices; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups;
interest income; income from certain of our ancillary businesses, including Gibraltar; and income from our Rental Property Joint Ventures and Gibraltar Joint Ventures.
Traditional Home Building
North
| | | Six months ended April 30, | | | Three months ended April 30, | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | Three months ended January 31, | |
| | | | Restated | | | | | Restated | | | 2021 | | 2020 | | Change | |
Units Delivered and Revenues: | Units Delivered and Revenues: | | Units Delivered and Revenues: | | | | | | |
Home sales revenues ($ in millions) | Home sales revenues ($ in millions) | $ | 550.1 | | | $ | 616.6 | | | (11) | % | | $ | 296.0 | | | $ | 345.1 | | | (14) | % | Home sales revenues ($ in millions) | $ | 312.6 | | | $ | 254.1 | | | 23 | % | |
Units delivered | Units delivered | 842 | | | 902 | | | (7) | % | | 449 | | | 518 | | | (13) | % | Units delivered | 451 | | | 393 | | | 15 | % | |
Average delivered price ($ in thousands) | Average delivered price ($ in thousands) | $ | 653.3 | | | $ | 683.6 | | | (4) | % | | $ | 659.3 | | | $ | 666.2 | | | (1) | % | Average delivered price ($ in thousands) | $ | 693.2 | | | $ | 646.5 | | | 7 | % | |
| Net Contracts Signed: | Net Contracts Signed: | | Net Contracts Signed: | | |
Net contract value ($ in millions) | Net contract value ($ in millions) | $ | 557.0 | | | $ | 730.0 | | | (24) | % | | $ | 269.8 | | | $ | 454.8 | | | (41) | % | Net contract value ($ in millions) | $ | 356.8 | | | $ | 287.2 | | | 24 | % | |
Net contracted units | Net contracted units | 777 | | | 1,089 | | | (29) | % | | 377 | | | 687 | | | (45) | % | Net contracted units | 449 | | | 400 | | | 12 | % | |
Average contracted price ($ in thousands) | Average contracted price ($ in thousands) | $ | 716.9 | | | $ | 670.3 | | | 7 | % | | $ | 715.7 | | | $ | 662.0 | | | 8 | % | Average contracted price ($ in thousands) | $ | 794.6 | | | $ | 717.9 | | | 11 | % | |
| Home sales cost of revenues as a percentage of home sale revenues | Home sales cost of revenues as a percentage of home sale revenues | 86.0 | % | | 86.9 | % | | 85.3 | % | | 89.5 | % | | Home sales cost of revenues as a percentage of home sale revenues | 84.0 | % | | 85.4 | % | | |
| Income before income taxes ($ in millions) | Income before income taxes ($ in millions) | $ | 19.5 | | | $ | 22.3 | | | (13) | % | | $ | 17.0 | | | $ | 7.3 | | | 133 | % | Income before income taxes ($ in millions) | $ | 18.9 | | | $ | 2.5 | | | 656 | % | |
| Number of selling communities at April 30, | 86 | | | 88 | | | (2) | % | | |
Number of selling communities at January 31, | | Number of selling communities at January 31, | 61 | | | 82 | | | (26) | % | |
The decreasesincrease in the number of homes delivered in the fiscal 2021 period was mainly due to an increase in the number of homes in backlog at October 31, 2020, periods, as compared to the fiscalnumber of homes in backlog at October 31, 2019, periods, were mainly due to lowerand higher backlog conversion which reflected difficulties in delivering homes following the institution of COVID-19 related government restrictions in many markets in the North region, including Pennsylvania, New York City and its suburbs, New Jersey, Connecticut, Massachusetts and Michigan, in the latter half of our fiscal second quarter.2021 period. The decreasesincrease in the average price of homes delivered in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was due primarily to a shift in the number of homes delivered to lessmore expensive areas and/or products.products and sales price increases.
The decreasesincrease in the number of net contracts signed in the fiscal 2020 periods, as compared2021 period was due mainly to the fiscal 2019 periods, were principally due to the impacts of COVID-19, as government restrictions in many marketsincreased demand partially offset by a decrease in the North region resulted in significantly reduced signed contracts in the latter halfnumber of our fiscal second quarter.selling communities. The increasesincrease in the average value of each contract signed in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was mainly due to shiftssales price increases and a shift in the number of contracts signed to more expensive areas and/or products.
The decrease in income before income taxes in the six-month period ended April 30, 2020, as compared to the six-month period ended April 30, 2019, was principally attributable to lower earnings from decreased revenues partially offset by lower home sales cost of revenues, as a percentage of home sale revenues. The increase in income before income taxes in the three-monthfiscal 2021 period ended April 30, 2020, as comparedwas principally attributable to the three-month period ended April 30, 2019, was primarily due tohigher earnings from increased revenues, lower home sales cost of revenues, as a percentage of home sale revenues, offset, in part, byand lower earnings from decreased revenues and higher SG&A costs. The decreasesdecrease in home sales cost of revenues, as a percentage of home sales revenues, in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was primarily due to lower inventory impairment charges offset, in part, by a shift in product mix/areas to lower-margin areas.
Inventory impairment charges were $0.4 millionhigher-margin areas and $0.3 million in the six-month and three-month periods ended April 30, 2020, as compared to $17.6 million and $15.9 million in the six-month and three-month periods ended April 30, 2019. During our review of operating communities for impairment in the three months ended April 30, 2019, we determined that the pricing assumptions used in prior impairment reviews for one operating community located in Illinois and two operating communities located in Pennsylvania needed to be reduced primarily because weaker-than-expected market conditions drove a lack of improvement and/or a decrease in customer demand for homes in these communities. As a result of this reduction in expected sales prices, we determined that these communities were impaired. Accordingly, the carrying values of these communities were written down in the three months ended April 30, 2019 to their estimated fair values resulting in a charge to income before income taxes of $14.6 million.price increases.
Mid-Atlantic
| | | Six months ended April 30, | | | Three months ended April 30, | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | Three months ended January 31, | |
| | | | Restated | | | | | Restated | | | 2021 | | 2020 | | Change | |
Units Delivered and Revenues: | Units Delivered and Revenues: | | Units Delivered and Revenues: | | | | | | |
Home sales revenues ($ in millions) | Home sales revenues ($ in millions) | $ | 355.4 | | | $ | 309.0 | | | 15 | % | | $ | 192.9 | | | $ | 174.1 | | | 11 | % | Home sales revenues ($ in millions) | $ | 164.0 | | | $ | 162.5 | | | 1 | % | |
Units delivered | Units delivered | 543 | | | 463 | | | 17 | % | | 303 | | | 252 | | | 20 | % | Units delivered | 227 | | | 240 | | | (5) | % | |
Average delivered price ($ in thousands) | Average delivered price ($ in thousands) | $ | 654.5 | | | $ | 667.4 | | | (2) | % | | $ | 636.6 | | | $ | 690.8 | | | (8) | % | Average delivered price ($ in thousands) | $ | 722.4 | | | $ | 677.0 | | | 7 | % | |
| Net Contracts Signed: | Net Contracts Signed: | | Net Contracts Signed: | | |
Net contract value ($ in millions) | Net contract value ($ in millions) | $ | 389.4 | | | $ | 397.2 | | | (2) | % | | $ | 219.9 | | | $ | 236.8 | | | (7) | % | Net contract value ($ in millions) | $ | 327.5 | | | $ | 169.4 | | | 93 | % | |
Net contracted units | Net contracted units | 536 | | | 597 | | | (10) | % | | 294 | | | 344 | | | (15) | % | Net contracted units | 373 | | | 242 | | | 54 | % | |
Average contracted price ($ in thousands) | Average contracted price ($ in thousands) | $ | 726.5 | | | $ | 665.3 | | | 9 | % | | $ | 748.1 | | | $ | 688.5 | | | 9 | % | Average contracted price ($ in thousands) | $ | 878.0 | | | $ | 700.1 | | | 25 | % | |
| Home sales cost of revenues as a percentage of home sale revenues | Home sales cost of revenues as a percentage of home sale revenues | 88.4 | % | | 84.9 | % | | 91.7 | % | | 85.7 | % | | Home sales cost of revenues as a percentage of home sale revenues | 77.9 | % | | 82.3 | % | | |
| Income (loss) before income taxes ($ in millions) | $ | 6.8 | | | $ | 17.6 | | | (61) | % | | $ | (0.2) | | | $ | 10.4 | | | (102) | % | |
Income before income taxes ($ in millions) | | Income before income taxes ($ in millions) | $ | 18.8 | | | $ | 7.0 | | | 169 | % | |
| Number of selling communities at April 30, | 39 | | | 32 | | | 22 | % | | |
Number of selling communities at January 31, | | Number of selling communities at January 31, | 38 | | | 40 | | | (5) | % | |
The increasesdecrease in the number of homes delivered in the fiscal 2021 period was mainly due to lower backlog conversion, offset, in part, by an increase in the number of homes in backlog at October 31, 2020, periods, as compared to the number of homes in backlog at
October 31, 2019. The increase in the average price of homes delivered in the fiscal 2019 periods, were2021 period was primarily due to a shift in the number of homes delivered to more expensive areas and/or products, primarily in Virginia, and sales price increases in the fiscal 2021 period.
The increase in the number of net contracts signed in the fiscal 2021 period was due mainly to increased demand partially offset by a decrease in the average number of selling communities in the fiscal 2021 period. The increase in the average value of each contract signed in the fiscal 2021 period was mainly due to a shift in the deliverynumber of contracts signed to more expensive areas and/or products and sales price increases in the fiscal 2021 period.
The increase in income before income taxes in the fiscal 2021 period was mainly due lower home sales cost of revenues, as a percentage of home sale revenues, and higher joint venture income, partially offset by higher SG&A costs in the fiscal 2021 period. The decrease in home sales cost of revenues, as a percentage of home sales revenues, in the fiscal 2021 period was primarily due to a shift in product mix/areas to higher-margin areas in the fiscal 2021 period, the impact of purchase accounting on the fiscal 2020 period related to a builder acquisition in Georgia, which was completed in fiscal 2019, and sales price increases in the fiscal 2021 period. The higher joint venture income in the fiscal 2021 period was due to a $6.0 million gain recognized from an asset sale of commercial property by one of our Land Development Joint Ventures in the fiscal 2021 period.
South
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | Change | | | | | | |
Units Delivered and Revenues: | | | | | | | | | | | |
Home sales revenues ($ in millions) | $ | 216.9 | | | $ | 183.6 | | | 18 | % | | | | | | |
Units delivered | 341 | | | 274 | | | 24 | % | | | | | | |
Average delivered price ($ in thousands) | $ | 636.0 | | | $ | 670.2 | | | (5) | % | | | | | | |
| | | | | | | | | | | |
Net Contracts Signed: | | | | | | | | | | | |
Net contract value ($ in millions) | $ | 388.8 | | | $ | 244.4 | | | 59 | % | | | | | | |
Net contracted units | 568 | | | 353 | | | 61 | % | | | | | | |
Average contracted price ($ in thousands) | $ | 684.5 | | | $ | 692.4 | | | (1) | % | | | | | | |
| | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sale revenues | 77.5 | % | | 82.3 | % | | | | | | | | |
| | | | | | | | | | | |
Income before income taxes ($ in millions) | $ | 21.5 | | | $ | 9.1 | | | 136 | % | | | | | | |
| | | | | | | | | | | |
Number of selling communities at January 31, | 73 | | | 71 | | | 3 | % | | | | | | |
The increase in the number of homes delivered in the fiscal 2021 period was mainly due to an increase in the number of homes in metropolitan Atlanta, Georgia frombacklog at October 31, 2020, as compared to the Sharp acquisition. Deliveries in eachnumber of these periods were adversely impacted by fewer homes in backlog at October 31, 2019, (excluding Sharp homes), as well as production delays stemming from COVID-19 and related government restrictions.partially offset by lower backlog conversion in the fiscal 2021 period. The decrease in the average price of homes delivered in the fiscal 2020 period, as compared to the fiscal 20192021 period was primarily due to a shift in the number of homes delivered to less expensive areas and/or products mainly due to the homes delivered in Georgia, where average prices were significantly lower than the average in the Mid-Atlantic region.fiscal 2021 period.
The decreasesincrease in the number of net contracts signed in the fiscal 2020 periods, as compared2021 period was due principally to the fiscal 2019 periods, were principally due to the impacts of COVID-19, offset, in part, by an increase in contracts resulting fromdemand and an increase in the Sharp acquisition.average number of selling communities in the fiscal 2021 period. The increasesdecrease in the average value of each contract signed in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were mainly2021 period was primarily due to shiftsa shift in the number of contracts signed to moreless expensive areas and/or products, primarily in North Carolina and Virginia,Florida, offset, in part, by net contracts signed in Georgia, where average prices were significantly lower than the averagesales price increases in the Mid-Atlantic region.fiscal 2021 period.
The decreasesincrease in income (loss) before income taxes in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were mainly2021 period was principally due to an increase inhigher earnings from increased revenues and lower home sales costscost of revenues, as a percentage of home sale revenues and higher SG&A costs. These decreases were partially offset by higher earnings on increased revenues.SG&A costs in the fiscal 2021 period. The increasesdecrease in home sales costscost of revenues, as a percentage of home salesales revenues, in the fiscal 2020 periods were2021 period was primarily due to higher inventory impairment charges;a shift in product mix/areas to higher-margin areas and the impact of purchase accounting for the homes delivered from the Sharp acquisition; and higher incentives associated with the prior year selling environment. This increase was offset, in part, by lower material and labor costs.
Inventory impairment charges were $10.7 million in each of the six-month and three-month periods ended April 30, 2020, as compared to $0.1 million in each of the six-month and three-month periods ended April 30, 2019. In the three months ended April 30, 2020, following the onset of the COVID-19 pandemic, we terminated a land purchase agreement in Virginia and wrote-off the deposit and soft costs incurred. This resulted in an impairment charge of $10.7 million inon the fiscal 2020 periods.period related to a builder acquisition in South Carolina, which was completed in fiscal 2019.
SouthMountain
| | | Six months ended April 30, | | | Three months ended April 30, | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | Three months ended January 31, | |
| | | | Restated | | | | | Restated | | | 2021 | | 2020 | | Change | |
Units Delivered and Revenues: | Units Delivered and Revenues: | | Units Delivered and Revenues: | | | | | | |
Home sales revenues ($ in millions) | Home sales revenues ($ in millions) | $ | 414.5 | | | $ | 419.7 | | | (1) | % | | $ | 230.8 | | | $ | 242.8 | | | (5) | % | Home sales revenues ($ in millions) | $ | 378.0 | | | $ | 263.1 | | | 44 | % | |
Units delivered | Units delivered | 622 | | | 541 | | | 15 | % | | 348 | | | 313 | | | 11 | % | Units delivered | 525 | | | 401 | | | 31 | % | |
Average delivered price ($ in thousands) | Average delivered price ($ in thousands) | $ | 666.4 | | | $ | 775.8 | | | (14) | % | | $ | 663.4 | | | $ | 775.6 | | | (14) | % | Average delivered price ($ in thousands) | $ | 720.0 | | | $ | 656.1 | | | 10 | % | |
| Net Contracts Signed: | Net Contracts Signed: | | Net Contracts Signed: | | |
Net contract value ($ in millions) | Net contract value ($ in millions) | $ | 517.7 | | | $ | 440.8 | | | 17 | % | | $ | 273.3 | | | $ | 288.4 | | | (5) | % | Net contract value ($ in millions) | $ | 751.8 | | | $ | 357.5 | | | 110 | % | |
Net contracted units | Net contracted units | 748 | | | 605 | | | 24 | % | | 395 | | | 404 | | | (2) | % | Net contracted units | 978 | | | 490 | | | 100 | % | |
Average contracted price ($ in thousands) | Average contracted price ($ in thousands) | $ | 692.1 | | | $ | 728.6 | | | (5) | % | | $ | 691.8 | | | $ | 713.8 | | | (3) | % | Average contracted price ($ in thousands) | $ | 768.7 | | | $ | 729.5 | | | 5 | % | |
| Home sales cost of revenues as a percentage of home sale revenues | Home sales cost of revenues as a percentage of home sale revenues | 83.7 | % | | 83.3 | % | | 82.9 | % | | 82.7 | % | | Home sales cost of revenues as a percentage of home sale revenues | 79.5 | % | | 79.5 | % | | |
| Income before income taxes ($ in millions) | Income before income taxes ($ in millions) | $ | 29.2 | | | $ | 44.3 | | | (34) | % | | $ | 20.1 | | | $ | 28.6 | | | (30) | % | Income before income taxes ($ in millions) | $ | 36.0 | | | $ | 17.6 | | | 105 | % | |
| Number of selling communities at April 30, | 70 | | | 58 | | | 21 | % | | |
Number of selling communities at January 31, | | Number of selling communities at January 31, | 93 | | | 83 | | | 12 | % | |
The increasesincrease in the number of homes delivered in the fiscal 2021 period was mainly due to an increase in the number of homes in backlog at October 31, 2020, periods, as compared to the fiscal 2019 periods, were mainly due to the deliverynumber of homes in several marketsbacklog at October 31, 2019, partially offset by lower backlog conversion in South Carolina from the Sabal acquisition. Deliveries in each of these periods were adversely impacted by production delays stemming from COVID-19 and related government restrictions, though to a lesser extent than our other regions.fiscal 2021 period. The decreasesincrease in the average price of homes delivered in the fiscal 2021 period 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 net contracts signed in the fiscal 2021 period was primarily due to increased demand and an increase in the average number of selling communities in the fiscal 2021 period. The increase in the average value of each contract signed in the fiscal 2021 period was mainly due to sales price increases partially offset by a shift in the number of contracts signed to less expensive areas and/or products in the fiscal 2021 period.
The increase in income before income taxes in the fiscal 2021 period was due mainly to higher earnings from increased revenues in the fiscal 2021 period.
Pacific
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended January 31, | | |
| 2021 | | 2020 | | Change | | | | | | |
Units Delivered and Revenues: | | | | | | | | | | | |
Home sales revenues ($ in millions) | $ | 331.1 | | | $ | 395.3 | | | (16) | % | | | | | | |
Units delivered | 226 | | | 267 | | | (15) | % | | | | | | |
Average delivered price ($ in thousands) | $ | 1,465.3 | | | $ | 1,480.7 | | | (1) | % | | | | | | |
| | | | | | | | | | | |
Net Contracts Signed: | | | | | | | | | | | |
Net contract value ($ in millions) | $ | 644.1 | | | $ | 383.4 | | | 68 | % | | | | | | |
Net contracted units | 473 | | | 287 | | | 65 | % | | | | | | |
Average contracted price ($ in thousands) | $ | 1,361.8 | | | $ | 1,335.8 | | | 2 | % | | | | | | |
| | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sale revenues | 76.3 | % | | 74.8 | % | | | | | | | | |
| | | | | | | | | | | |
Income before income taxes ($ in millions) | $ | 47.5 | | | $ | 63.3 | | | (25) | % | | | | | | |
| | | | | | | | | | | |
Number of selling communities at January 31, | 41 | | | 48 | | | (15) | % | | | | | | |
The decrease in the number of homes delivered in the fiscal 2021 period was mainly due to the decreased number of homes delivered in California as a result the lower number of homes in backlog at October 31, 2020, periods, as compared to the number of homes in backlog at October 31, 2019, and lower backlog conversion in the fiscal 2019 periods, were2021 period. The decrease in the average price of homes delivered in fiscal 2021 period was primarily due to a shift in the number of homes delivered to less expensive areas and/or products, mainly due to homes delivered in South Carolina, where average prices were significantly lower than the average of the South region.
The increase in the number of net contracts signed in the six-month period ended April 30, 2020, as compared to the six-month period ended April 30, 2019, was mainly due to an increase in the average number of selling communities and net contracts we signed in several markets in South Carolina due to the Sabal acquisition, offset, in part, by the impacts of COVID-19. The decrease in the number of net contracts signed in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019, was mainly due to the impacts of COVID-19, offset, in part, by an increase in the average number of selling communities and net contracts we signed in several markets in South Carolina due to the Sabal acquisition. The decreases in the average value of each contract signed were mainly due to contracts signed in South Carolina resulting from the Sabal acquisition, where average prices are significantly lower than the regional average.
The decreases in income before income taxessales price increases in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were mainly due to higher SG&A costs; lower joint venture and management fee income from one Home Building Joint Venture which delivered its last home in the third quarter of fiscal 2019; and lower earnings from decreased revenues. The higher SG&A costs were mainly due to the increase in the number of operating communities.
Mountain
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | | | Three months ended April 30, | | | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| | | Restated | | | | | | Restated | | |
Units Delivered and Revenues: | | | | | | | | | | | |
Home sales revenues ($ in millions) | $ | 600.6 | | | $ | 512.2 | | | 17 | % | | $ | 337.5 | | | $ | 285.8 | | | 18 | % |
Units delivered | 906 | | | 782 | | | 16 | % | | 505 | | | 416 | | | 21 | % |
Average delivered price ($ in thousands) | $ | 662.9 | | | $ | 655.0 | | | 1 | % | | $ | 668.3 | | | $ | 687.0 | | | (3) | % |
| | | | | | | | | | | |
Net Contracts Signed: | | | | | | | | | | | |
Net contract value ($ in millions) | $ | 719.5 | | | $ | 646.7 | | | 11 | % | | $ | 362.0 | | | $ | 405.6 | | | (11) | % |
Net contracted units | 999 | | | 931 | | | 7 | % | | 509 | | | 600 | | | (15) | % |
Average contracted price ($ in thousands) | $ | 720.2 | | | $ | 694.6 | | | 4 | % | | $ | 711.3 | | | $ | 675.9 | | | 5 | % |
| | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sale revenues | 81.5 | % | | 80.1 | % | | | | 81.4 | % | | 81.1 | % | | |
| | | | | | | | | | | |
Income before income taxes ($ in millions) | $ | 50.8 | | | $ | 53.0 | | | (4) | % | | $ | 33.2 | | | $ | 27.4 | | | 21 | % |
| | | | | | | | | | | |
Number of selling communities at April 30, | 82 | | | 77 | | | 6 | % | | | | | | |
The increases in the number of homes delivered in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were mainly due to an increase in the number of homes in backlog at October 31, 2019, as compared to the number of homes in backlog at October 31, 2018, partially offset by lower backlog conversion. The increase in the average price of homes delivered in the six-month period ended April 30, 2020, as compared to the six-month period ended April 30, 2019, was primarily due to a shift in the number of homes delivered to more expensive areas and/or products. The decrease in the average price of homes delivered in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019, was primarily due to an increase in the number of home delivered in Idaho where average prices were significantly lower than the regional average, offset, in part, by a shift in the number of homes delivered to more expensive areas and/or products in Nevada and Colorado.2021 period.
The increase in the number of net contracts signed in the six-monthfiscal 2021 period ended April 30, 2020, as compared to the six-month period ended April 30, 2019, was primarily due to increased demand prior to the onset of the COVID-19 pandemic and an increase in the average number of selling communities, offset, in part, by a significant decrease in demand in the latter half of our fiscal second quarter due to the impacts of the COVID-19 pandemic. The decrease in the number of net contracts signed in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019, was mainly due to the impacts of the COVID-19 pandemic, partially offset by an increase in the number of selling communities and an increase in demand in Idaho.
The decrease in income before income taxes in the six months ended April 30, 2020, as compared to the six months ended April 30, 2019, was due mainly to higher SG&A costs and higher home sales cost of revenues, as a percentage of home sales revenues, offset, in part, by higher earnings from increased revenues. The increase in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas and higher incentives associated with the prior year selling environment. The increase in income before income taxes in the three months ended April 30, 2020, as compared to the three months ended April 30, 2019, was due principally to higher earnings from increased revenues offset, in part, by higher SG&A costs.
Pacific
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | | | Three months ended April 30, | | | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| | | Restated | | | | | | Restated | | |
Units Delivered and Revenues: | | | | | | | | | | | |
Home sales revenues ($ in millions) | $ | 818.6 | | | $ | 1,023.7 | | | (20) | % | | $ | 423.3 | | | $ | 579.6 | | | (27) | % |
Units delivered | 556 | | | 617 | | | (10) | % | | 289 | | | 340 | | | (15) | % |
Average delivered price ($ in thousands) | $ | 1,472.3 | | | $ | 1,659.2 | | | (11) | % | | $ | 1,464.7 | | | $ | 1,704.8 | | | (14) | % |
| | | | | | | | | | | |
Net Contracts Signed: | | | | | | | | | | | |
Net contract value ($ in millions) | $ | 783.8 | | | $ | 849.2 | | | (8) | % | | $ | 400.5 | | | $ | 554.6 | | | (28) | % |
Net contracted units | 581 | | | 517 | | | 12 | % | | 294 | | | 348 | | | (16) | % |
Average contracted price ($ in thousands) | $ | 1,349.1 | | | $ | 1,642.6 | | | (18) | % | | $ | 1,362.1 | | | $ | 1,593.6 | | | (15) | % |
| | | | | | | | | | | |
Home sales cost of revenues as a percentage of home sale revenues | 77.8 | % | | 73.5 | % | | | | 78.5 | % | | 73.7 | % | | |
| | | | | | | | | | | |
Income before income taxes ($ in millions) | $ | 131.1 | | | $ | 214.6 | | | (39) | % | | $ | 67.8 | | | $ | 123.0 | | | (45) | % |
| | | | | | | | | | | |
Number of selling communities at April 30, | 46 | | | 52 | | | (12) | % | | | | | | |
The decreases in the number of homes delivered in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were mainly due to the decreased number of homes in backlog at October 31, 2019, as compared to the number of homes in backlog at October 31, 2018, as well as difficulties in delivering homes following the institution of COVID-19 related government restrictions in a number of markets in the Pacific region, including the San Francisco Bay area and Seattle, Washington. The decrease in the average price of homes delivered in fiscal 2020 periods, as compared to the fiscal 2019 periods, were primarily due to a shift in the number of homes delivered to less expensive areas.
The increase in the number of net contracts signed in the six-month period ended April 30, 2020, as compared to the six-month period ended April 30, 2019, was primarily due to an increase in demand, prior to the onset of the COVID-19 pandemic, offset, in part, by a significant decrease in demand in the latter half of our fiscal second quarter due to the impacts of the COVID-19 pandemic. The decrease in the number of net contracts signed in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019, was mainly due to the impacts of the COVID-19 pandemic and a decrease in theaverage number of selling communities.communities in the fiscal 2021 period. The decreasesincrease in the average value
of each contract signed in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was mainly due to sales price increases, offset, in part, by a shift in the number of contracts signed to less expensive areas and/or products.
The decreasesdecrease in income before income taxes in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was mainly due to lower earnings from decreased revenues and higher home sales cost of revenues, as a percentage of home sales revenues.revenues in the fiscal 2021 period. This decrease was partially offset lower SG&A costs. The increasesincrease in home sales cost of revenues, as a percentage of home sales revenues, were primarily due to cost overruns at a large high-density condominium community in Northern California, higher incentives associated with the prior year selling environment, and a shift in product mix/areas to lower-margin areas.areas partially offset by sales price increases in the fiscal 2021 period.
City Living
| | | Six months ended April 30, | | | Three months ended April 30, | | | Three months ended January 31, | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | 2021 | | 2020 | | Change | |
Units Delivered and Revenues: | Units Delivered and Revenues: | | | | | | | | | | | | Units Delivered and Revenues: | | | | | | |
Home sales revenues ($ in millions) | Home sales revenues ($ in millions) | $ | 76.6 | | | $ | 152.7 | | | (50) | % | | $ | 36.8 | | | $ | 84.1 | | | (56) | % | Home sales revenues ($ in millions) | $ | 7.8 | | | $ | 39.8 | | | (80) | % | |
Units delivered | Units delivered | 65 | | | 136 | | | (52) | % | | 29 | | | 72 | | | (60) | % | Units delivered | 7 | | | 36 | | | (81) | % | |
Average delivered price ($ in thousands) | Average delivered price ($ in thousands) | $ | 1,178.5 | | | $ | 1,122.8 | | | 5 | % | | $ | 1,268.0 | | | $ | 1,167.7 | | | 9 | % | Average delivered price ($ in thousands) | $ | 1,113.4 | | | $ | 1,106.5 | | | 1 | % | |
| Net Contracts Signed: | Net Contracts Signed: | | Net Contracts Signed: | | |
Net contract value ($ in millions) | Net contract value ($ in millions) | $ | 75.1 | | | $ | 102.7 | | | (27) | % | | $ | 27.7 | | | $ | 63.1 | | | (56) | % | Net contract value ($ in millions) | $ | 39.0 | | | $ | 47.4 | | | (18) | % | |
Net contracted units | Net contracted units | 51 | | | 64 | | | (20) | % | | 17 | | | 41 | | | (59) | % | Net contracted units | 33 | | | 34 | | | (3) | % | |
Average contracted price ($ in thousands) | Average contracted price ($ in thousands) | $ | 1,472.5 | | | $ | 1,604.7 | | | (8) | % | | $ | 1,627.3 | | | $ | 1,538.9 | | | 6 | % | Average contracted price ($ in thousands) | $ | 1,181.8 | | | $ | 1,394.9 | | | (15) | % | |
| Home sales cost of revenues as a percentage of home sale revenues | Home sales cost of revenues as a percentage of home sale revenues | 65.9 | % | | 70.3 | % | | 62.6 | % | | 65.6 | % | | Home sales cost of revenues as a percentage of home sale revenues | 88.2 | % | | 66.9 | % | | |
| Income before income taxes ($ in millions)(1) | Income before income taxes ($ in millions)(1) | $ | 18.2 | | | $ | 40.5 | | | (55) | % | | $ | 8.7 | | | $ | 25.9 | | | (66) | % | Income before income taxes ($ in millions)(1) | $ | 32.7 | | | $ | 9.5 | | | 244 | % | |
| Number of selling communities at April 30, | 3 | | | 4 | | | (25) | % | | |
Number of selling communities at January 31, | | Number of selling communities at January 31, | 3 | | | 4 | | | (25) | % | |
(1) In the first quarter of fiscal 2021, we sold certain commercial assets associated with our Hoboken, New Jersey condominium projects for $82.4 million which is included in Land sales and other revenues. City Living recognized net gains of $38.3 million from these sales.
The decreasesdecrease in the number of homes delivered in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was mainly attributable to the decreased number of homes in backlog at October 31, 2019,2020, as compared to the number of homes in backlog at October 31, 2018,2019, and lower backlog conversion in the impacts of the COVID-19 pandemic, in particular in New York City and northern New Jersey.fiscal 2021 period. The increasesincrease in the average price of homes delivered in fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was primarily due to a shift in the number of homes delivered to more expensive areas and/or products.
The decreases in the number of net contracts signed in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were primarily due to a significant decrease in demand following the onset of the COVID-19 pandemic, offset, in part, by increased demand prior to its onset. The decrease in the average sales price of net contracts signed in the six-monthfiscal 2021 period ended April 30, 2020, as compared to the six-month-period ended April 30, 2019, was principally due a shift to less expensive units. The increaseunits in the average sales price of net contracts signed in the three-month period ended April 30, 2020, as compared to the three-month period ended April 30, 2019, was principally due a shift to more expensive units.fiscal 2021 period.
The decreasesincrease in income before income taxes in the fiscal 2020 periods, as compared to the fiscal 2019 periods, were2021 period was mainly due to gains of $38.3 million recognized from the sales of a parking garage and retail space associated with one of our Hoboken, New Jersey condominium projects, offset, in part, by higher home sales cost of revenues, as a percentage of home sale revenues; lower earnings from decreased revenuesrevenues; and decreases$2.1 million of other-than temporary impairment charges that we recognized on two of our Home Building Joint Ventures in earnings from our investments in unconsolidated entities. This decrease was partially offset by lowerthe fiscal 2021 period. The higher home sales cost of revenues, as a percentage of home sale revenues and lower SG&A costs. The lower home sales cost of revenues, as a percentage of home sale revenues,in the fiscal 2021 period was principally due primarily to a shift in the number of homes delivered to buildings with higherlower margins and an impairment chargescharge of $4.8$1.1 million and $2.0 in the six and three months ended fiscal April 30, 2019, respectively, offset, in part, by a state reimbursement of $6.5 million of previously expensed environmental cleanup costs received in the fiscal 2019 periods. As a result of decreased demand, in the six months ended April 30, 2019, we wrote down the carrying values of units in two buildings, located in Maryland and New York, New York, to their estimated fair values, which resulted in impairment charges of $4.8 million and $2.0 million in the six and three months ended fiscal April 30, 2019, respectively.
In the six months and three months ended April 30, 2020, earnings from our investments in unconsolidated entities decreased $5.1 million and $2.0 million, respectively, as compared to the six months and three months ended April 30, 2019. These decreases were primarily due to a $3.0 million other than temporary impairment charge recognized in the fiscal 2020 periods related to one Home Building Joint Venture located in New York City. In addition, the six-month period ended April 30, 2019 benefited from earnings from one joint venture which delivered its last home in the third quarter of fiscal 2019. The tables below provide information related to deliveries, revenues, and net contracts signed by our City Living Home Building Joint Ventures, for the periods indicated, and the related backlog for the dates indicated ($ amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 30, | | | | | | | | Three months ended April 30, | | | | | | |
| 2020 Units | | 2019 Units | | 2020 $ | | 2019 $ | | 2020 Units | | 2019 Units | | 2020 $ | | 2019 $ |
Deliveries | 32 | | | 42 | | | $ | 91.4 | | | $ | 91.5 | | | 9 | | | 38 | | | $ | 24.3 | | | $ | 74.3 | |
Net contracts signed | 15 | | | 15 | | | $ | 50.5 | | | $ | 53.4 | | | 7 | | | 13 | | | $ | 26.7 | | | $ | 43.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At April 30, | | | | | | | | At October 31, | | | | | | |
| 2020 Units | | 2019 Units | | 2020 $ | | 2019 $ | | 2019 Units | | 2018 Units | | 2019 $ | | 2018 $ |
Backlog | 9 | | | 107 | | | $ | 35.4 | | | $ | 240.9 | | | 26 | | | 134�� | | | $ | 76.3 | | | $ | 279.0 | |
2021 period.Corporate and Other
In the sixthree months ended April 30,January 31, 2021 and 2020, and 2019, loss before income taxes was $87.6$48.0 million and $64.7$43.1 million, respectively. The increase in the loss before income taxes in the fiscal 2020 period, as compared to the fiscal 20192021 period was principally due to higher SG&A costs; lower interest income; higher losses incurred in our apartment living operations; an increase in losses in several Rental Property Joint Ventures related to the commencement of operations and lease up activities; and directly expensed interest of $2.4 million in the fiscal 2020 period. In addition, during the fiscal 2019 period, we recognized $12.2 million from the sale of a golf club and $8.4 million from the sale of land to a newly formed Rental Property Joint Venture. These increases were partially offset by gains of $13.0 million recognized in the fiscal 2020 period from the sale of golf club properties and a $10.7 million gain recognized in the fiscal 2020 period from the sale of our investment in oneour of our Rental Property Joint Ventures to our joint venture partner. The increase in SG&A was due primarily to increased compensation costs resulting from a higher number of employees for most of the six-month period, $7.5 million in charges for severance costs, which was incurred following the onset of the COVID-19 pandemic, and other compensation increases; and costs related to the implementation of new enterprise information technology systems. The increased number of employees was due primarily to an increased number of selling communities and anticipated community count growth. The increase in SG&A spending in the six-month period ended April 30, 2020 was offset, in part, by the reversal of an $8.0 million accrual for discretionary benefit plan contributions in respect of fiscal 2019. The discretionary contributions were canceled in connection with a number of cost-saving initiatives implemented following the onset of the COVID-19 pandemic.
In the three months ended April 30, 2020 and 2019, loss before income taxes was $44.5 million and $46.4 million, respectively. The decrease in the loss before income taxes in the fiscal 2020 period, as compared to the fiscal 2019 period, was principally due to gains of $13.0 millionpartner; lower interest income; losses recognized in the fiscal 20202021 period from the sale of golf club properties, offset, in part, by lower interest income; higher losses incurred in our apartment living operations;a joint venture that owns a hotel that was adversely impacted by COVID-19; and an increase in losses in several Rental Property Joint Ventures related to the commencement of operations and lease up activities in the fiscal 2021 period. These increases were partially offset by lower SG&A costs, higher earnings from our mortgage company operations primarily due to increases in volume increases and higherwider spreads, and lower losses incurred in our apartment living operations, in the fiscal 2021 period. The decrease in SG&A costs in the fiscal 20202021 period as comparedwas primarily due to the implementation, commencing in fiscal 2019 period; and directly expensed interest of $2.4 million in the fiscal 2020 period. The increase in SG&A was due primarily to increased compensation costs resulting primarily from a higher number of employees in the first half of the2020’s second quarter, and $7.5 million in charges for severance costs, which was incurred following the onset of the COVID-19 pandemic. The increased number of employees that we had at the beginning of the quarter was due primarily to an increased number of selling communities and anticipated community count growth. This increase was offset, in part by the reversal of an $8.0 million accrual related to discretionary benefit plan contributions in respect of fiscal 2019. The discretionary contributions were canceled in connection with a number of cost reduction initiatives implemented following the onset of the COVID-19 pandemic. During the quarter, we undertook a number of cost reduction initiatives to improve efficiencies and rationalize overhead expenses, including workforce reductions.reductions and reduced advertising spend.
AVAILABLE INFORMATION
Our principal Internet address is www.tollbrothers.com, and our Investor Relations website is located at www.tollbrothers.com/investor-relations.investors.tollbrothers.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available through our Investor Relations website, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We provide information about our business and financial performance, including our corporate profile, on our Investor Relations website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on our Investor Relations website. Corporate governance information, including our codes of ethics, corporate governance guidelines, and board committee charters, is also available on our Investor Relations website. The content of our websites is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but do affect our earnings and cash flow. We generally do not have the obligation to prepay fixed-rate debt before
maturity, and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
The table below sets forth, at April 30, 2020,January 31, 2021, our debt obligations by scheduled maturity, weighted-average interest rates, and estimated fair value (amounts in thousands):
| | | | Fixed-rate debt | | | Variable-rate debt (a) | | | | Fixed-rate debt | | Variable-rate debt (a) |
Fiscal year of maturity | Fiscal year of maturity | | Amount | | Weighted- average interest rate | | Amount | | Weighted- average interest rate | Fiscal year of maturity | | Amount | | Weighted- average interest rate | | Amount | | Weighted- average interest rate |
2020 | | $ | 60,942 | | | 4.24% | | $ | 13,360 | | | 0.81% | |
2021 | | 71,361 | | | 4.20% | | 106,018 | | | 2.27% | |
2021 (b) | | 2021 (b) | | $ | 292,959 | | | 5.32% | | $ | 125,829 | | | 1.83% |
2022 | 2022 | | 439,219 | | | 5.85% | | — | | | —% | 2022 | | 453,011 | | | 5.71% | | — | | |
2023 | 2023 | | 423,077 | | | 4.37% | | — | | | —% | 2023 | | 466,323 | | | 4.37% | | — | | |
2024 | 2024 | | 288,801 | | | 5.35% | | — | | | —% | 2024 | | 57,943 | | | 3.29% | | — | | |
2025 (b) | | 2025 (b) | | 61,759 | | | 5.66% | | — | | |
Thereafter(c) | Thereafter(c) | | 1,682,506 | | | 4.51% | | 1,250,000 | | | 1.43% | Thereafter(c) | | 1,638,790 | | | 4.49% | | 650,000 | | | 1.18% |
Bond discounts, premiums and deferred issuance costs, net | Bond discounts, premiums and deferred issuance costs, net | | (9,061) | | | | | (2,818) | | | | Bond discounts, premiums and deferred issuance costs, net | | (7,694) | | | (2,635) | | |
Total | Total | | $ | 2,956,845 | | | 4.76% | | $ | 1,366,560 | | | 1.49% | Total | | $ | 2,963,091 | | | 4.74% | | $ | 773,194 | | | 1.28% |
Fair value at April 30, 2020 | | $ | 2,973,111 | | | | | $ | 1,369,378 | | | | |
Fair value at January 31, 2021 | | Fair value at January 31, 2021 | | $ | 3,230,866 | | | | | $ | 775,829 | | | |
(a) Based upon the amount of variable-rate debt outstanding at April 30, 2020,January 31, 2021, and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $13.7$7.8 million per year.year, without consideration of the interest rate swap transactions described in (c) below.
(b) On February 12, 2021, we delivered a notice of optional redemption to the holders of our outstanding 5.625% Senior Notes due 2024 (the “2024 Notes”), pursuant to which the we will redeem, on March 15, 2021, all $250.0 million aggregate principal amount of outstanding 2024 Notes.
(c) In November 2020, we entered into 5 interest rate swap transactions to hedge $400.0 million of the Term Loan Facility through October 2025, which is included in the variable-rate debt column in the table above. The interest rate swaps effectively fix the interest cost on the $400.0 million at 0.369% plus the spread set forth in the pricing schedule in the Term Loan Facility, which was 1.05% as of January 31, 2021. These interest rate swaps were designated as cash flow hedges.
ITEM 4. CONTROLS AND PROCEDURES
Any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected; however, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the 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 SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We continue to implement a new ERPenterprise resource planning (“ERP”) system that affects many of our financial processes and is expected to improve the efficiency and effectiveness of certain financial and business transaction processes, as well as the underlying systems environment. The new ERP system will be a significant component of our internal control over financial reporting. Other than the ERP system implementation noted above, there has not been any change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our quarter ended April 30, 2020,January 31, 2021, 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 and that the disposition of these matters will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
In March 2018, the Pennsylvania Attorney General informed the Company that it was conducting a review of our construction of stucco homes in Pennsylvania after January 1, 2005 and requested that we voluntarily produce documents and information. The Company has produced documents and information in response to this request and, in addition, has produced requested information and documents in response to a subpoena issued in the second quarter of fiscal 2019. Management cannot at this time predict the eventual scope or outcome of this matter.
ITEM 1A. RISK FACTORS
Part I, Item 1A., “Risk Factors” in our 2019 Form 10-K includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our 2019 Form 10-K. Except as presented below, thereThere have been no material changes in our risk factors since those reportedas previously disclosed in 2019Part I, Item 1A., “Risk Factors” in our 2020 Form 10-K.
Public health issues such as a major epidemic or pandemic have adversely affected, and could in the future adversely affect our business or financial results.
The United States and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk. In December 2019, a novel coronavirus (COVID-19) emerged in Wuhan, China and subsequently spread worldwide. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide, and on March 13, 2020, the United States issued a proclamation declaring a national emergency concerning COVID-19. Numerous states and municipalities also declared public health emergencies. Along with these declarations, extraordinary and wide-ranging actions have been taken by international, federal, state, and local public health and governmental authorities to mitigate the impact of COVID-19, including quarantines, stay-at-home orders and business closure mandates requiring that individuals substantially restrict daily activities and that businesses substantially modify, curtail or cease normal operations. These actions adversely impacted our results of operations in the second quarter of fiscal 2020. In addition, due to these restrictions, and in an effort to ensure the safety of our employees, customers, trade partners and the communities in which we operate, we have substantially modified our business operations.
Our results of operations are affected by a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. There is significant uncertainty regarding the extent to which and how long COVID-19 and related government directives, actions and economic relief efforts will disrupt the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers. The extent to which COVID-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of COVID-19, whether there is a secondary outbreak of the virus, and the impact of COVID-19 and related containment and mitigation measures on our customers, trade partners and employees, all of which are highly uncertain, unpredictable and outside our control. If COVID-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be materially adversely impacted.
Information technology failures and data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational and marketing activities as well as maintain our business records, including information provided by our customers. Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards. Our ability to conduct our business may be impaired if these resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption, failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. A significant and extended disruption in the functioning of these resources could impair our operations, damage our reputation and cause us to lose customers, sales and revenue.
In addition, breaches of our data security systems, including by cyber-attacks, could result in the unintended public disclosure or the misappropriation of our proprietary information or personal and confidential information, about our employees, consumers who view our homes, home buyers, mortgage loan applicants and business partners, requiring us to incur significant expense to address and resolve these kinds of issues. The release of confidential information may lead to identity theft and related fraud, litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our reputation, business, financial condition and results of operations. Depending on its nature, a particular breach or series of breaches of our systems may result in the unauthorized use, appropriation or loss of confidential or proprietary information on a one-time or continuing basis, which may not be detected for a period of time. In addition, the costs of maintaining adequate protection against such threats, as they develop in the future (or as legal requirements related to data security increase) could be material.
In 2019, certain of our loan applicants experienced identity theft that we determined had occurred through the unauthorized access of one of our third-party service provider’s information systems, and, more recently, we were the direct target of an external cyber-attack that temporarily disrupted access to certain of our systems and may have resulted in the compromise of some proprietary internal data. To date, neither of these incidents has individually or in the aggregate resulted in any material liability to us, any material damage to our reputation, or any material disruption to our operations. However, we expect that we will continue to be the target of additional and increasingly sophisticated cyber-attacks and data security breaches, and the safeguards we have designed to help prevent these incidents from occurring may not be successful. Recently, there has been a surge in widespread cyber-attacks during the COVID-19 pandemic. Any increase in the frequency or scope of cyber-attacks during the pandemic may exacerbate these data security risks. If we experience additional cyber-attacks or data security breaches in the future, we could suffer material liabilities, our reputation could be materially damaged and our operations could be materially disrupted.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
During the three-month period ended April 30, 2020,January 31, 2021, we repurchased the following shares of our common stock:
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Period | | Total number of shares purchased (a) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs (b) | | Maximum number of shares that may yet be purchased under the plans or programs (b) |
| | (in thousands) | | | | (in thousands) | | (in thousands) |
February 1, 2020 to February 29, 2020 | | 485 | | | $ | 37.47 | | | 485 | | | 7,829 | |
March 1, 2020 to March 31, 2020 | | 3,766 | | | $ | 37.00 | | | 3,766 | | | 19,999 | |
April 1, 2020 to April 30, 2020 | | 1 | | | $ | 21.25 | | | 1 | | | 19,998 | |
Total | | 4,252 | | | $ | 37.05 | | | 4,252 | | | |
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Period | | Total number of shares purchased (a) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs (b) | | Maximum number of shares that may yet be purchased under the plans or programs (b) |
| | (in thousands) | | | | (in thousands) | | (in thousands) |
November 1, 2020 to November 30, 2020 | | 1 | | | $ | 43.94 | | | 1 | | | 19,983 | |
December 1, 2020 to December 31, 2020 | | 3,373 | | | $ | 44.92 | | | 3,373 | | | 16,610 | |
January 1, 2021 to January 31, 2021 | | 653 | | | $ | 42.62 | | | 653 | | | 15,957 | |
Total | | 4,027 | | | | | 4,027 | | | |
(a) Our stock incentive plans permit us to withhold from the total number of shares that otherwise would be issued to a performance based restricted stock unit recipient or a restricted stock unit recipient upon distribution that number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining shares to the recipient. During the three months ended April 30, 2020,January 31, 2021, we withheld 2,719153,986 of the shares subject to performance based restricted stock units and restricted stock units to cover approximately $94,000$7.2 million of income tax withholdings and we issued the remaining 6,714316,976 shares to the recipients. The shares withheld are not included in the total number of shares purchased in the table above.
Our stock incentive plans also permit participants to exercise non-qualified stock options using a “net exercise” method. In a net exercise, we generally withhold from the total number of shares that otherwise would be issued to the participant upon exercise of the stock option that number of shares having a fair market value at the time of exercise equal to the option exercise price and applicable income tax withholdings, and remit the remaining shares to the participant. During the three-month period ended April 30, 2020,January 31, 2021, the net exercise method was not employed to exercise options.
(b) On March 10, 2020, our Board of Directors authorized the repurchase of 20 million shares of our common stock in open market transactions, privately negotiated transactions (including accelerated share repurchases), issuer tender offers or other financial arrangements or transactions for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. This new authorization terminated, effective March 10, 2020, the existing authorization that had been in effect since December 10, 2019. Our Board of Directors did not fix any expiration date for the current share repurchase program.
Except as set forth above, we have not repurchased any of our equity securities during the three-month period ended
April 30, 2020.January 31, 2021.
Dividends
During the sixthree months ended April 30, 2020,January 31, 2021, we paid cash dividends of $0.22$0.11 per share to our shareholders. The payment of dividends is within the discretion of our Board of Directors and any decision to pay dividends in the future will depend upon an evaluation of a number of factors, including our results of operations, our capital requirements, our operating and financial condition, and any contractual limitations then in effect. Our revolving credit agreement and term loan agreement each require us to maintain a minimum tangible net worth (as defined in the applicable agreement), which restricts the amount of dividends we may pay. At April 30, 2020,January 31, 2021, under our bank credit agreements, we could have paid up to approximately $2.41$2.62 billion of cash dividends.
ITEM 6. EXHIBITS
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4.1* | |
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31.1* | |
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31.2* | |
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32.1* | |
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32.2* | |
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101 | The following financial statements from Toll Brothers, Inc. Quarterly Report on Form 10-Q for the quarter ended April 30, 2020,January 31, 2021, filed on JuneMarch 8, 2020,2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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* | 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.
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| | TOLL BROTHERS, INC. | | |
| | (Registrant) | | |
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Date: | JuneMarch 8, 20202021 | By: | | /s/ Martin P. Connor |
| | | | Martin P. Connor Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
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Date: | JuneMarch 8, 20202021 | By: | | /s/ Michael J. Grubb |
| | | | Michael J. Grubb Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |