Company Quick10K Filing
Quick10K
Toll Brothers
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$38.17 146 $5,570
10-Q 2019-01-31 Quarter: 2019-01-31
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-K 2017-10-31 Annual: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-K 2016-10-31 Annual: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-K 2015-10-31 Annual: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-K 2014-10-31 Annual: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-03-12 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-02-05 Regulation FD, Exhibits
8-K 2018-12-04 Earnings, Exhibits
8-K 2018-11-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-10-17 Officers, Other Events, Exhibits
8-K 2018-08-21 Earnings, Exhibits
8-K 2018-05-22 Earnings, Exhibits
8-K 2018-03-13 Shareholder Vote
8-K 2018-02-27 Earnings, Exhibits
8-K 2018-01-17 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-01-16 Officers
EGP Eastgroup Properties 4,110
GTHX G1 Therapeutics 775
ASNA Ascena Retail Group 269
ODC Oil-Dri Corp of America 234
WTER Alkaline Water 80
CGIX Cancer Genetics 13
WUC Western Uranium 0
LTRE Learning Tree 0
BNKL Bionik Laboratories 0
ATEA Astea 0
TOL 2019-01-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-4.1 tol-2019131x10qxex401.htm
EX-4.2 tol-2019131x10qxex402.htm
EX-31.1 tol-2019131x10qxex3101.htm
EX-31.2 tol-2019131x10qxex3102.htm
EX-32.1 tol-2019131x10qxex3201.htm
EX-32.2 tol-2019131x10qxex3202.htm

Toll Brothers Earnings 2019-01-31

TOL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2019
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-09186
TOLL BROTHERS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
23-2416878
(I.R.S. Employer
Identification No.)
 
 
 
250 Gibraltar Road, Horsham, Pennsylvania
(Address of principal executive offices)
 
19044
(Zip Code)
(215) 938-8000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
 
Smaller reporting company o
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At March 4, 2019, there were approximately 145,940,000 shares of Common Stock, $0.01 par value, outstanding.





TOLL BROTHERS, INC.
TABLE OF CONTENTS
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 







STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. One can identify these statements by the fact that they do not relate to matters of a strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information related to: market conditions; demand for our homes; anticipated operating results; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues; selling, general, and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; the ability to acquire land and pursue real estate opportunities; the ability to gain approvals and open new communities; the ability to sell homes and properties; the ability to deliver homes from backlog; the ability to secure materials and subcontractors; the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities; and legal proceedings, investigations, and claims.
From time to time, forward-looking statements also are included in other reports on Forms 10-K, 10-Q, and 8-K; in press releases; in presentations; on our website; and in other materials released to the public. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. Many factors mentioned in this report or in other reports or public statements made by us, such as market conditions, government regulation, and the competitive environment, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.
Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.



1



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
January 31,
2019
 
October 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
801,734

 
$
1,182,195

Inventory
7,714,643

 
7,598,219

Property, construction, and office equipment, net
294,658

 
193,281

Receivables, prepaid expenses, and other assets (1)
609,664

 
550,778

Mortgage loans held for sale
88,840

 
170,731

Customer deposits held in escrow
100,034

 
117,573

Investments in unconsolidated entities
409,374

 
431,813

Income taxes receivable
16,907

 

 
$
10,035,854

 
$
10,244,590

LIABILITIES AND EQUITY
 
 
 
Liabilities
 
 
 
Loans payable
$
1,000,467

 
$
686,801

Senior notes
2,511,932

 
2,861,375

Mortgage company loan facility
74,135

 
150,000

Customer deposits
406,355

 
410,864

Accounts payable
302,042

 
362,098

Accrued expenses
879,734

 
973,581

Income taxes payable

 
30,959

Total liabilities
5,174,665

 
5,475,678

Equity
 
 
 
Stockholders’ equity
 
 
 
Preferred stock, none issued

 

Common stock, 177,937 shares issued at January 31, 2019 and October 31, 2018
1,779

 
1,779

Additional paid-in capital
717,405

 
727,053

Retained earnings
5,239,251

 
5,161,551

Treasury stock, at cost — 32,049 and 31,774 shares at January 31, 2019 and October 31, 2018, respectively
(1,139,623
)
 
(1,130,878
)
Accumulated other comprehensive income
750

 
694

Total stockholders’ equity
4,819,562

 
4,760,199

Noncontrolling interest
41,627

 
8,713

Total equity
4,861,189

 
4,768,912

 
$
10,035,854

 
$
10,244,590

(1)
As of January 31, 2019 and October 31, 2018, receivables, prepaid expenses, and other assets include $115.5 million and $19.7 million, respectively, of assets related to consolidated variable interest entities ("VIEs"). See Note 3, “Investments in Unconsolidated Entities” for additional information regarding VIEs.


See accompanying notes.

2



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
Three months ended January 31,
 
2019
 
2018
Revenues:
 
 
 
   Home sales
$
1,319,308

 
$
1,175,468

   Land sales
43,873

 

 
1,363,181

 
1,175,468

 
 
 
 
Cost of revenues:
 
 
 
   Home sales
1,042,245

 
934,480

   Land sales
34,253

 

 
1,076,498

 
934,480

Selling, general and administrative
162,238

 
157,267

Income from operations
124,445

 
83,721

Other:
 
 
 
Income from unconsolidated entities
6,140

 
38,880

Other income – net
20,861

 
8,997

Income before income taxes
151,446

 
131,598

Income tax provision (benefit)
39,396

 
(509
)
Net income
$
112,050

 
$
132,107

 
 
 
 
Other comprehensive income, net of tax
56

 
171

Total comprehensive income
$
112,106

 
$
132,278

 
 
 
 
Per share:
 
 
 
Basic earnings
$
0.76

 
$
0.85

Diluted earnings
$
0.76

 
$
0.83

 
 
 
 
Weighted-average number of shares:
 
 
 
Basic
146,751

 
155,882

Diluted
148,032

 
158,897

See accompanying notes.


3



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in thousands)
(Unaudited)
 
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, 2018
1,779

 
727,053

 
5,161,551

 
(1,130,878
)
 
694

 
8,713

 
4,768,912

Cumulative effect adjustment upon adoption of ASU 2014-09, net of tax

 

 
(17,987
)
 

 

 

 
(17,987
)
Net income

 

 
112,050

 

 



 
112,050

Purchase of treasury stock

 

 

 
(25,143
)
 



 
(25,143
)
Exercise of stock options and stock based compensation issuances

 
(18,194
)
 

 
16,044

 



 
(2,150
)
Employee stock purchase plan issuances

 
(39
)
 

 
354

 



 
315

Stock-based compensation

 
8,585

 

 

 



 
8,585

Dividends declared

 

 
(16,363
)
 

 



 
(16,363
)
Other comprehensive income

 

 

 

 
56



 
56

Capital contributions

 

 

 

 


32,914

 
32,914

Balance, January 31, 2019
1,779

 
717,405

 
5,239,251

 
(1,139,623
)
 
750

 
41,627

 
4,861,189

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, October 31, 2017
1,779

 
720,115

 
4,474,064

 
(662,854
)
 
(1,910
)
 
5,896

 
4,537,090

Cumulative effect adjustment upon adoption of ASU 2016-09 and ASU 2018-02, net of tax

 
374

 
1,502

 

 
(411
)
 

 
1,465

Net income

 

 
132,107

 

 

 

 
132,107

Purchase of treasury stock

 

 

 
(209,970
)
 

 

 
(209,970
)
Exercise of stock options and stock based compensation issuances

 
(19,637
)
 

 
26,937

 

 

 
7,300

Employee stock purchase plan issuances

 
59

 

 
219

 

 

 
278

Stock-based compensation

 
8,889

 

 

 

 

 
8,889

Dividends declared

 

 
(12,440
)
 

 

 

 
(12,440
)
Other comprehensive income

 

 

 

 
171

 

 
171

Balance, January 31, 2018
1,779

 
709,800

 
4,595,233

 
(845,668
)
 
(2,150
)
 
5,896

 
4,464,890

See accompanying notes.



4



TOLL BROTHERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Three months ended January 31,
 
2019
 
2018
Cash flow used in operating activities:
 
 
 
Net income
$
112,050

 
$
132,107

Adjustments to reconcile net income to net cash used in operating activities:

 

Depreciation and amortization
15,669

 
6,171

Stock-based compensation
8,585

 
8,889

Income from unconsolidated entities
(6,140
)
 
(38,880
)
Distributions of earnings from unconsolidated entities
6,427

 
38,892

Income from foreclosed real estate and distressed loans
(170
)
 
(448
)
Deferred tax provision (benefit)
1,621

 
(30,575
)
Inventory impairments and write-offs
7,562

 
3,853

Gain on sale of golf club property
(12,186
)
 

Other
703

 
1,006

Changes in operating assets and liabilities
 
 
 
Increase in inventory
(158,258
)
 
(416,764
)
Origination of mortgage loans
(306,351
)
 
(231,436
)
Sale of mortgage loans
389,974

 
292,946

Increase in receivables, prepaid expenses, and other assets
(47,823
)
 
(16,594
)
Increase in income taxes receivable
(14,363
)
 

Increase in customer deposits – net
13,030

 
8,138

Decrease in accounts payable and accrued expenses
(166,751
)
 
(54,029
)
Decrease in income taxes payable
(28,804
)
 
(33,100
)
Net cash used in operating activities
(185,225
)
 
(329,824
)
Cash flow provided by investing activities:
 
 
 
Purchase of property and equipment – net
(19,576
)
 
(1,694
)
Investments in unconsolidated entities
(17,205
)
 
(4,422
)
Return of investments in unconsolidated entities
42,677

 
36,253

Investment in foreclosed real estate and distressed loans
(130
)
 
(92
)
Return of investments in foreclosed real estate and distressed loans
482

 
1,505

Proceeds from sale of golf club property
18,220

 

Net cash provided by investing activities
24,468

 
31,550

Cash flow (used in) provided by financing activities:
 
 
 
Proceeds from issuance of senior notes

 
400,000

Debt issuance costs for senior notes

 
(3,410
)
Proceeds from loans payable
809,506

 
589,819

Debt issuance costs for loans payable
(2,058
)
 

Principal payments of loans payable
(633,593
)
 
(687,740
)
Redemption of senior notes
(350,000
)
 

(Payments) proceeds from stock-based benefit plans, net
(1,831
)
 
7,580

Purchase of treasury stock
(25,143
)
 
(200,257
)
Dividends paid
(16,369
)
 
(12,293
)
Net cash (used in) provided by financing activities
(219,488
)
 
93,699

Net decrease in cash, cash equivalents, and restricted cash
(380,245
)
 
(204,575
)
Cash, cash equivalents, and restricted cash, beginning of period
1,182,939

 
715,311

Cash, cash equivalents, and restricted cash, end of period
$
802,694

 
$
510,736

See accompanying notes.

5



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, 2018 balance sheet amounts and disclosures included herein have been derived from our October 31, 2018 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, 2018 (“2018 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 January 31, 2019; the results of our operations and changes in equity for the three-month periods ended January 31, 2019 and 2018; and our cash flows for the three-month periods ended January 31, 2019 and 2018. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
Revenue Recognition
As discussed under “Recent Accounting Pronouncements” below, on November 1, 2018 we adopted ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). As a result of this adoption, we updated our revenue recognition policies effective November 1, 2018, as follows:
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 that we build, we are not able to complete certain outdoor features prior to the closing of the home. Effective November 1, 2018, to the extent these separate performance obligations are not complete upon the home closing, we defer a portion of the home sales revenues related to these obligations and subsequently recognize the revenue upon completion of such obligations. As of January 31, 2019, we deferred home sales revenues and related costs of $3.1 million and $2.3 million, respectively, related to obligations not completed on closed homes. Our contract liabilities, consisting of deposits received from customers for sold but undelivered homes, totaled $406.4 million and $410.9 million at January 31, 2019 and October 31, 2018, respectively. Of the outstanding deposits held as of October 31, 2018, we recognized $96.5 million in home sales revenues during the three months ended January 31, 2019.
Land sales revenues: Our revenues from land sales generally consist of the following: (1) lot sales to third-party builders within our master planned communities; (2) land sales to joint ventures in which we retain an interest; and (3) bulk land sales to third parties of land we have decided no longer meets our development criteria. In general, our performance obligation for each of these land sales is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty. Effective November 1, 2018, in land sale transactions that contain repurchase options, revenues and related costs are not recognized until the repurchase option expires. In addition, when we sell land to a joint venture in which we retain an interest, we do not recognize revenue or gains on the sale to the extent of our retained interest in such joint venture.
Forfeited Customer Deposits: Effective November 1, 2018, forfeited customer deposits are recognized in “Home sales revenues” in our 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, from time to time we grant our home buyers sales incentives. These incentives will vary by type of incentive and by amount on a community-by-community and home-by-home basis. Incentives that impact the value of the home or the sales price paid, such as special or additional options, are generally reflected as a reduction in home sales revenues. Incentives that we pay to an outside party, such as paying some or all of a home buyer’s closing costs, are recorded as an additional home sales cost of revenues. Incentives are recognized at the time the home is delivered to the home buyer and we receive the sales proceeds.

6



Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU 2014-09 also supersedes some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the previous guidance. These judgments and estimates include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended by ASU 2015-14, became effective for our fiscal year beginning November 1, 2018, and we adopted the new standard under the modified retrospective transition method applied to contracts that were not completed as of November 1, 2018. We recognized the cumulative effect, net of tax, of applying ASU 2014-09 as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the previous accounting standards. The adoption of ASU 2014-09 did not have a material impact on our Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations or Comprehensive Income, and there have been no significant changes to our internal controls, processes, or systems as a result of implementing this new standard. However, the adoption of ASU 2014-09 resulted in the following changes:
Prior to adoption of ASU 2014-09, we capitalized certain costs related to our marketing efforts, including sales offices and model home upgrades and furnishings within “Inventory” on our Condensed Consolidated Balance Sheets and amortized such costs through “Selling, general, and administrative” on our Condensed Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we reclassified $104.8 million to “Property, construction, and office equipment, net” on our Condensed Consolidated Balance Sheets, primarily related to sales offices and model home improvement costs. The amortization of such costs will remain unchanged and will continue to be included in “Selling, general, and administrative” on our Condensed Consolidated Statements of Operations and Comprehensive Income. Additionally, we recorded a net cumulative effect adjustment to retained earnings of approximately $13.2 million for certain other marketing costs that no longer qualify for capitalization under the new guidance, and such costs will be expensed as incurred in the future.
Prior to adoption of ASU 2014-09, we recorded our land sale revenues, net of their related expenses, within “Other income – net” on our Condensed Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, we are presenting this activity in income from operations and breaking out the components of land sales revenues and land sales cost of revenues on our Condensed Consolidated Statements of Operations and Comprehensive Income. In addition, due to the existence of certain repurchase options in existing agreements to sell lots to third party builders in our master planned communities, both for wholly-owned projects as well as projects in which we are a joint venture partner, we recorded a net cumulative effect adjustment to retained earnings of approximately $4.6 million to account for previously settled lots for which the related repurchase option has not yet expired. The revenue and related expenses for such lots will be recognized in future periods when such repurchase options expire.
Prior to adoption of ASU 2014-09, retained customer deposits were classified in “Other income – net” on our Condensed Consolidated Statements of Operations and Comprehensive Income. As of November 1, 2018, retained customer deposits, which totaled $3.2 million during the three months ended January 31, 2019, are included in “Home sales revenue” on our Condensed Consolidated Statements of Operations and Comprehensive Income. Prior period balances for retained customer deposits have not been reclassified and are not material to our condensed consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of the original guidance within Subtopic 610-20 that was issued in connection with ASU 2014-09, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 also added guidance for partial sales of nonfinancial assets. ASU 2017-05 became effective for our fiscal year beginning November 1, 2018 and we adopted ASU 2017-05 concurrent with our adoption of ASU 2014-09. The adoption of ASU 2017-05 did not have a material effect on our condensed consolidated financial statements and disclosures.

7



In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which provides guidance on the classification of restricted cash in the statement of cash flows. ASU 2016-18 became effective for our fiscal year beginning November 1, 2018 and resulted in a change in the presentation to our Condensed Consolidated Statement of Cash Flows but did not have a material effect on our condensed consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified and makes eight targeted changes to how cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 became effective for our fiscal year beginning November 1, 2018 and did not have a material effect on our condensed consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. In July 2018, the FASB issued ASU No. 2018-11, “Leases: Targeted Improvements” (“ASU 2018-11”), which provides an entity with the option to apply the transition provisions of the new standard at its adoption date instead of at its earliest comparative period presented. ASU 2018-11 also provides an entity with a practical expedient that permits lessors to not separate nonlease components from the associated lease component if certain conditions are met. ASU 2016-02, as amended by ASU 2018-11, is effective for our fiscal year beginning November 1, 2019, at which time we will adopt the new standard using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02, as amended by ASU 2018-11, may have on our consolidated financial statements and disclosures.
2. Inventory
Inventory at January 31, 2019 and October 31, 2018 consisted of the following (amounts in thousands):
 
January 31,
2019
 
October 31,
2018
Land controlled for future communities
$
156,731

 
$
139,985

Land owned for future communities
1,088,128

 
916,616

Operating communities
6,469,784

 
6,541,618

 
$
7,714,643

 
$
7,598,219


Operating communities include communities offering homes for sale; communities that have sold all available home sites but have not completed delivery of the homes; communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within 12 months of the end of the fiscal 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 as land owned for future communities.
Information regarding the classification, number, and carrying value of these temporarily closed communities, as of the dates indicated, is provided in the table below:
 
January 31,
2019
 
October 31,
2018
Land owned for future communities:
 
 
 
Number of communities
17

 
17

Carrying value (in thousands)
$
124,315

 
$
124,426

Operating communities:
 
 
 
Number of communities
1

 
1

Carrying value (in thousands)
$
2,625

 
$
2,622



8



The amounts we have provided for inventory impairment charges and the expensing of costs that we believed not to be recoverable, for the periods indicated, are shown in the table below (amounts in thousands):
 
Three months ended January 31,
 
2019
 
2018
Land controlled for future communities
$
1,777

 
$
117

Operating communities
5,785

 
3,736

 
$
7,562

 
$
3,853


See Note 11, “Fair Value Disclosures,” for information regarding the number of operating communities that we tested for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and the fair values of those communities, net of impairment charges.
At January 31, 2019, we evaluated our land purchase contracts, including those to acquire land for apartment developments, to determine whether any of the selling entities were VIEs and, if they were, whether we were the primary beneficiary of any of them. Under these land purchase contracts, we do not possess legal title to the land; our 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 January 31, 2019, we determined that 119 land purchase contracts, with an aggregate purchase price of $1.86 billion, on which we had made aggregate deposits totaling $124.2 million, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2018, we determined that 110 land purchase contracts, with an aggregate purchase price of $1.88 billion, on which we had made aggregate deposits totaling $120.5 million, were VIEs 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): 
 
Three months ended January 31,
 
2019
 
2018
Interest capitalized, beginning of period
$
319,364

 
$
352,049

Interest incurred
44,422

 
38,687

Interest expensed to home sales cost of revenues
(34,441
)
 
(33,885
)
Interest expensed to land sales cost of revenues
(352
)
 

Interest expensed in other income

 
(716
)
Interest capitalized on investments in unconsolidated entities
(1,814
)
 
(1,711
)
Previously capitalized interest on investments in unconsolidated entities transferred to inventory
2,988

 
72

Interest capitalized, end of period
$
330,167

 
$
354,496



3. Investments in Unconsolidated Entities
We have investments in various unconsolidated entities. These entities, which are structured as joint ventures, (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing and land banking to residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”).

9



The table below provides information as of January 31, 2019, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Gibraltar
Joint Ventures
 
Total
Number of unconsolidated entities
7
 
4
 
17
 
7
 
35
Investment in unconsolidated entities
$
154,633

 
$
63,075

 
$
174,627

 
$
17,039

 
$
409,374

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

 
6
Company’s remaining funding commitment to unconsolidated entities
$
15,869

 
$
1,400

 
$
1,150

 
$
9,621

 
$
28,040


Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at January 31, 2019, regarding the debt financing obtained by category ($ amounts in thousands):
 
Land
Development
Joint Ventures
 
Home Building
Joint Ventures
 
Rental Property
Joint Ventures
 
Total
Number of joint ventures with debt financing
4
 
3
 
16
 
23
Aggregate loan commitments
$
97,132

 
$
381,116

 
$
1,144,944

 
$
1,623,192

Amounts borrowed under loan commitments
$
78,487

 
$
309,556

 
$
819,672

 
$
1,207,715


More specific and/or recent information regarding our investments in, advances to, and future commitments to these entities is provided below.
Land Development Joint Ventures
During the three months ended January 31, 2019, our Land Development Joint Ventures sold approximately 201 lots and recognized revenues of $89.8 million. We acquired 107 of these lots for $71.2 million. Our share of the joint venture income from the lots we acquired was insignificant. During the three months ended January 31, 2018, our Land Development Joint Ventures sold approximately 249 lots and recognized revenues of $40.2 million. We acquired 30 of these lots for $3.2 million. Our share of the income of $500,000 from the lots we acquired was deferred by reducing our basis in those lots.
Home Building Joint Ventures
Our Home Building Joint Ventures are delivering homes in New York, New York, and Jupiter, Florida. During the three months ended January 31, 2019 and 2018, our Home Building Joint Ventures delivered 17 homes with a sales value of $27.3 million and 28 homes with a sales value of $32.6 million, respectively.
Rental Property Joint Ventures
As of January 31, 2019, our Rental Property Joint Ventures, including those that we consolidate, owned 20 for-rent apartment projects and a hotel, which are located in the metro Boston, Massachusetts to metro Washington, D.C. corridor; San Diego, California; Miami, Florida; Atlanta, Georgia; and Frisco, Texas. At January 31, 2019, these joint ventures had approximately 2,100 units that were occupied or ready for occupancy, 1,500 units in the lease-up stage, and 1,450 units under development. In addition, we either own, have under contract, or under a letter of intent approximately 13,050 units, of which 1,450 units are under active development; we intend to develop these units in joint ventures with unrelated parties in the future.
In the first quarter of fiscal 2019, we entered into two joint ventures with unrelated parties to develop luxury for-rent residential apartment projects located in Harrison, New York and Frisco, Texas. Prior to the formation of these joint ventures, we acquired the properties and incurred approximately $41.9 million of land and land development costs. Our partners each acquired a 75% interest in these entities for an aggregate amount of $39.8 million and we recognized a gain on land sale of $8.4 million in our first quarter of fiscal 2019. At January 31, 2019, we had an aggregate investment of $12.7 million in these joint ventures. Concurrent with their formation, these joint ventures entered into construction loan agreements for an aggregate amount of $134.4 million to finance the development of these projects. At January 31, 2019, the joint ventures had no outstanding borrowings under these construction loan facilities.
In addition, in the first quarter of fiscal 2019, we entered into three joint ventures with unrelated parties to develop luxury for-rent residential apartment projects located in Boston, Massachusetts, San Diego, California, and a student housing community in Miami, Florida. We contributed an aggregate of $62.4 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

10



significantly impact the 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 January 31, 2019. The carrying value of these joint ventures’ assets totaling $95.8 million are reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of January 31, 2019. Our partners’ interests aggregating $32.9 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of January 31, 2019. These joint ventures intend to obtain additional equity investors and secure third-party financing at a later date. At such time, it is expected that these entities would no longer be consolidated.
In the third quarter of fiscal 2018, we entered into a joint venture with an unrelated party to develop a 289-unit luxury for-rent residential apartment project in a suburb of Boston, Massachusetts. We contributed cash of $15.9 million for our initial 85% ownership interest in this joint venture. Due to our controlling financial interest, our power to direct the activities that most significantly impact the joint venture’s performance, and/or our obligation to absorb expected losses or receive benefits from the joint venture, we have consolidated this joint venture at January 31, 2019. The carrying value of the joint venture’s assets totaling $19.7 million are reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of January 31, 2019. Our partner’s 15% interest of $2.8 million in the joint venture is reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of January 31, 2019. The joint venture intends to obtain additional equity investors and secure third-party financing at a later date. At such time, it is expected that the entity would no longer be consolidated.
In the first quarter of fiscal 2018, one of our Rental Property Joint Ventures sold its assets to an unrelated party for $219.0 million. The joint venture had owned, developed, and operated a student housing community in College Park, Maryland. In connection with the sale, the joint venture’s existing $110.0 million loan was repaid. We received cash of $39.3 million and recognized a gain of $30.8 million in the three months ended January 31, 2018, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income.
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 January 31, 2019, our investment in the Trust was zero as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amount of $0.3 million and $0.6 million in the three-month periods ended January 31, 2019 and 2018, respectively.
Subsequent Event
In February 2019, we entered into a joint venture with an unrelated party to develop a 263-unit student housing community in Tempe, Arizona. We contributed cash of $17.0 million for our initial 87% ownership interest in this joint venture. Due to our controlling financial interest, our power to direct the activities that most significantly impact the joint venture’s performance, and/or our obligation to absorb expected losses or receive benefits from the joint venture, we expect to consolidate this joint venture. The joint venture expects to admit an additional investor and secure third-party financing at a later date.
Gibraltar Joint Ventures
We, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), have entered into five 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 January 31, 2019, we had an aggregate investment of $17.0 million in these ventures.
Guarantees
The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.
In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for

11



more than its proportionate share or agreed upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.
We believe that, as of January 31, 2019, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At January 31, 2019, certain unconsolidated entities have loan commitments aggregating $1.28 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $308.3 million to be our maximum exposure related to repayment and carry cost guarantees. At January 31, 2019, the unconsolidated entities had borrowed an aggregate of $861.2 million, of which we estimate $261.5 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 5 months to 45 months. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners.
As of January 31, 2019, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $6.2 million. We have not made payments under any of the guarantees, nor have we been called upon to do so.
Variable Interest Entities
At January 31, 2019 and October 31, 2018, we determined that fourteen and eleven, respectively, of our joint ventures were VIEs under the guidance of ASC 810, “Consolidation.” For ten of these VIEs as of January 31, 2019 and October 31, 2018, we concluded that we were not the primary beneficiary of these VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and such VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above.
As discussed under “Rental Property Joint Ventures” above, we consolidated four joint ventures as of January 31, 2019. The carrying value of these joint ventures’ assets totaling $115.5 million is reflected in “Receivables, prepaid expenses, and other assets” in our Condensed Consolidated Balance Sheet as of January 31, 2019. Our partners’ interests aggregating $35.7 million in the joint ventures are reflected as a component of “Noncontrolling interest” in our Condensed Consolidated Balance Sheet as of January 31, 2019. These joint ventures were determined to be VIEs due to their current inability to finance their activities without additional subordinated financial support as well as our partners’ inability to participate in the significant decisions of the joint venture and their lack of substantive kick-out rights. We further concluded that we are the primary beneficiary of these VIEs due to our controlling financial interest in such ventures as we have the power to direct the activities that most significantly impact the joint ventures’ performance and the obligation to absorb expected losses or receive benefits from the joint ventures. The assets of these VIEs can only be used to settle the obligations of the VIEs. In addition, in certain of the joint ventures, in the event additional contributions are required to be funded to the joint ventures prior to the admission of any additional investor at a future date, we will fund 100% of such contributions, including our partner’s pro rata share, which we expect would be funded through an interest-bearing loan.
At January 31, 2019 and October 31, 2018, our investments in the unconsolidated entities deemed to be VIEs totaled $34.6 million and $33.8 million, respectively. At January 31, 2019 and October 31, 2018, the maximum exposure of loss to our investments in these entities was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $10.8 million of additional commitments to the VIEs. Of our potential exposure for these loan guarantees, $70.0 million is related to loan repayment and carry cost guarantees, of which $70.0 million was borrowed at January 31, 2019 and October 31, 2018.
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):

12



Condensed Balance Sheets:
 
January 31,
2019
 
October 31,
2018
Cash and cash equivalents
$
102,587

 
$
102,462

Inventory
892,412

 
973,990

Loans receivable, net
36,778

 
40,065

Rental properties
879,352

 
808,785

Rental properties under development
485,442

 
437,586

Real estate owned
14,857

 
14,838

Other assets
166,650

 
166,029

Total assets
$
2,578,078

 
$
2,543,755

Debt, net of deferred financing costs
$
1,201,125

 
$
1,145,998

Other liabilities
184,267

 
158,570

Members’ equity
1,187,758

 
1,235,974

Noncontrolling interest
4,928

 
3,213

Total liabilities and equity
$
2,578,078

 
$
2,543,755

Company’s net investment in unconsolidated entities (1)
$
409,374

 
$
431,813

 
(1)
Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of impairments related to our investments in unconsolidated entities; interest capitalized on our investments; the estimated fair value of the guarantees provided to the joint ventures; unrealized gains on our retained joint venture interests; gains recognized from the sale of our ownership interests; and distributions from entities in excess of the carrying amount of our net investment.
Condensed Statements of Operations:
 
Three months ended January 31,
 
2019
 
2018
Revenues
$
153,230

 
$
193,620

Cost of revenues
131,755

 
148,750

Other expenses
18,475

 
24,286

Total expenses
150,230

 
173,036

Gain on disposition of loans and real estate owned
3,694

 
14,671

Income from operations
6,694

 
35,255

Other income
647

 
79,363

Income before income taxes
7,341

 
114,618

Income tax provision
265

 
198

Net income including earnings from noncontrolling interests
7,076

 
114,420

Less: income attributable to noncontrolling interest
(2,109
)
 
(6,082
)
Net income attributable to controlling interest
$
4,967

 
$
108,338

Company’s equity in earnings of unconsolidated entities (1)
$
6,140

 
$
38,880

(1)
Differences between our equity in earnings of unconsolidated entities and the underlying net income of the entities are primarily a result of a basis difference of an acquired joint venture interest; distributions from entities in excess of the carrying amount of our net investment; recoveries of previously incurred charges; unrealized gains on our retained joint venture interests; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.

13



4. Receivables, Prepaid Expenses, and Other Assets
Receivables, prepaid expenses, and other assets at January 31, 2019 and October 31, 2018, consisted of the following (amounts in thousands):
 
January 31, 2019
 
October 31, 2018
Expected recoveries from insurance carriers and others
$
122,183

 
$
126,291

Improvement cost receivable
100,680

 
96,937

Escrow cash held by our captive title company
30,851

 
33,471

Properties held for rental apartment and commercial development
250,679

 
193,015

Prepaid expenses
22,828

 
23,065

Other
82,443

 
77,999

 
$
609,664

 
$
550,778


See Note 6, “Accrued Expenses,” for additional information regarding the expected recoveries from insurance carriers and others.
5. Loans Payable, Senior Notes, and Mortgage Company Loan Facility
Loans Payable
At January 31, 2019 and October 31, 2018, loans payable consisted of the following (amounts in thousands):
 
January 31,
2019
 
October 31,
2018
Senior unsecured term loan
$
800,000

 
$
500,000

Loans payable – other
203,623

 
188,115

Deferred issuance costs
(3,156
)
 
(1,314
)
 
$
1,000,467

 
$
686,801


Senior Unsecured Term Loan
At January 31, 2019, we had an $800.0 million, five-year senior unsecured term loan facility (the “Term Loan Facility”) with a syndicate of banks. On November 1, 2018, we entered into an amendment to the Term Loan Facility to, among other things, (i) increase the size of the outstanding term loan to $800.0 million; (ii) extend the maturity date to November 1, 2023, with no principal payments being required before the maturity date; (iii) provide an accordion feature under which we may, subject to certain conditions set forth in the agreement, increase the Term Loan Facility up to a maximum aggregate amount of $1.0 billion; (iv) revise certain provisions to reduce the interest rate applicable on outstanding borrowings; and (v) modify certain provisions relating to existing financial maintenance and negative covenants. At January 31, 2019, the interest rate on borrowings was 3.81% per annum. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Term Loan Facility.
Under the terms of the Term Loan Facility, at January 31, 2019, our maximum leverage ratio, as defined, may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth, as defined, of no less than approximately $2.71 billion. Under the terms of the Term Loan Facility, at January 31, 2019, our leverage ratio was approximately 0.60 to 1.00, and our tangible net worth was approximately $4.78 billion. Based upon the limitations related to our repurchase of common stock in the Term Loan Facility, our ability to repurchase our common stock was limited to approximately $3.28 billion as of January 31, 2019. In addition, our ability to pay cash dividends was limited to approximately $2.10 billion as of January 31, 2019.
Credit Facility
We have a $1.295 billion, five-year senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks. The Credit Facility is scheduled to expire in May 2021. We and substantially all of our 100%-owned home building subsidiaries are guarantors under the Credit Facility.
Under the terms of the Credit Facility, at January 31, 2019, our maximum leverage ratio, as defined, may not exceed 1.75 to 1.00, and we are required to maintain a minimum tangible net worth, as defined, of no less than approximately $2.53 billion. Under the terms of the Credit Facility, at January 31, 2019, our leverage ratio was approximately 0.60 to 1.00, and our tangible

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net worth was approximately $4.78 billion. Based upon the limitations related to our repurchase of common stock in the Credit Facility, our ability to repurchase our common stock was limited to approximately $2.94 billion as of January 31, 2019. In addition, under the provisions of the Credit Facility, our ability to pay cash dividends was limited to approximately $2.25 billion as of January 31, 2019.
At January 31, 2019, we had no outstanding borrowings under the Credit Facility and had approximately $174.4 million of outstanding letters of credit that were issued under the Credit Facility. At January 31, 2019, the interest rate on borrowings under the Credit Facility would have been 4.01% per annum.
Loans Payable – Other
“Loans payable – other” primarily represent purchase money mortgages on properties we acquired that the seller had financed and various revenue bonds that were issued by government entities on our behalf to finance community infrastructure and our manufacturing facilities. At January 31, 2019, the weighted-average interest rate on “Loans payable – other” was 4.87% per annum.
Senior Notes
At January 31, 2019, we had seven issues of senior notes outstanding with an aggregate principal amount of $2.52 billion. In January 2018, we issued $400.0 million principal amount of 4.350% Senior Notes due 2028. We received $396.4 million of net proceeds from the issuance of these senior notes. On November 30, 2018, we redeemed, prior to maturity, the $350.0 million of then-outstanding principal amount of 4.00% Senior Notes due December 31, 2018, at par, plus accrued interest.
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 again 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. The Warehousing Agreement, as amended, expires on December 6, 2019, and borrowings thereunder bear interest at LIBOR plus 1.90% per annum. At January 31, 2019, the interest rate on the Warehousing Agreement, as amended, was 4.41% per annum.
Prior to the December 2018 amendment, the Warehousing Agreement was operating pursuant to the December 2017 amendment which had substantially similar terms to the December 2018 amendment.
6. Accrued Expenses
Accrued expenses at January 31, 2019 and October 31, 2018 consisted of the following (amounts in thousands):
 
January 31,
2019
 
October 31,
2018
Land, land development, and construction
$
159,892

 
$
213,641

Compensation and employee benefits
134,120

 
159,374

Escrow liability
30,205

 
32,543

Self-insurance
172,898

 
168,012

Warranty
237,326

 
258,831

Deferred income
45,465

 
42,179

Interest
45,120

 
40,325

Commitments to unconsolidated entities
9,716

 
10,553

Other
44,992

 
48,123

 
$
879,734

 
$
973,581



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The table below provides, for the periods indicated, a reconciliation of the changes in our warranty accrual (amounts in thousands):
 
Three months ended January 31,
 
2019
 
2018
Balance, beginning of period
$
258,831

 
$
329,278

Additions – homes closed during the period
6,625

 
6,225

(Decrease) increase in accruals for homes closed in prior years
(691
)
 
1,943

Charges incurred
(27,439
)
 
(25,996
)
Balance, end of period
$
237,326

 
$
311,450


Since fiscal 2014, we have received water intrusion claims from owners of homes built since 2002 in communities located in Pennsylvania and Delaware (which are in our Mid-Atlantic region). During fiscal 2019, we continued to receive water intrusion claims from homeowners in this region, mostly related to older homes, and we continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs.
Our review process, conducted quarterly, includes an analysis of many factors applicable to these communities to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration.
As of January 31, 2019, our recorded aggregate estimated repair costs to be incurred for known and unknown water intrusion claims was $324.4 million, which was unchanged from October 31, 2016, and our recorded aggregate expected recoveries from insurance carriers and suppliers were approximately $152.6 million, which was also unchanged from October 31, 2016. Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $161.0 million at January 31, 2019 and $177.6 million at October 31, 2018. Our recorded remaining expected recoveries from insurance carriers and suppliers were approximately $104.1 million at January 31, 2019 and $109.3 million at October 31, 2018. As noted above, our review process includes a number of estimates that are based on assumptions with uncertain outcomes, including, but not limited to, the number of homes to be repaired, the extent of repairs needed, the repair procedures employed, the cost of those repairs, outcomes of litigation or arbitrations, and expected recoveries from insurance carriers and suppliers. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded and such differences could be material. In addition, due to such uncertainty, we are unable to estimate the range of any such differences. We believe collection of our recorded insurance receivables is probable based on the legal merits that support our pending insurance claims and the high credit ratings of our insurance carriers; 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.
7. Income Taxes
We recorded an income tax provision of $39.4 million for the three months ended January 31, 2019 as compared to an income tax benefit of $0.5 million for the three months ended January 31, 2018. The effective tax rate was 26.0% for the three months ended January 31, 2019, compared to (0.4)% for the three months ended January 31, 2018. The lower effective tax rate for the three months ended January 31, 2018 was primarily due to a $31.2 million income tax benefit from the remeasurement of the Company’s net deferred tax liability as a result of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law on December 22, 2017. The income tax provisions for both periods included a provision for state income taxes; interest accrued on anticipated tax assessments; excess tax benefits related to stock-based compensation; and other permanent differences.
The Tax Act, among other changes, reduced the corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. For companies with a fiscal year that does not end on December 31, the change in law requires the application of a blended tax rate for the year of the change. Our blended tax rate for the fiscal 2018 period was 23.3%. For the fiscal 2019 period and thereafter, the applicable statutory rate is 21%. The Tax Act also repealed the domestic production activities deduction effective for the fiscal 2019 period.
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.

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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 2019 will be approximately 6.8%. Our state income tax rate for the full fiscal year 2018 was 6.6%.
At January 31, 2019, we had $9.7 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.
8. Stock-Based Benefit Plans
We grant stock options and various types of restricted stock units to our employees and our nonemployee directors. Additionally, we have an employee stock purchase plan that allows employees to purchase our stock at a discount. Information regarding the amount of total stock-based compensation expense and tax benefit recognized by us, for the periods indicated, is as follows (amounts in thousands):
 
Three months ended January 31,
 
2019
 
2018
Total stock-based compensation expense recognized
$
8,585

 
$
8,889

Income tax benefit recognized
$
2,256

 
$
2,516


At January 31, 2019 and October 31, 2018, the aggregate unamortized value of outstanding stock-based compensation awards was approximately $35.7 million and $20.9 million, respectively.
9. Stock Repurchase Program and Cash Dividend
On December 12, 2018, our Board of Directors terminated our existing 20 million share repurchase program, which was authorized in December 2017, and authorized, under a new repurchase program, the repurchase of 20 million shares of our common stock in open market transactions or otherwise for general corporate purposes, including to obtain shares for the Company’s equity award and other employee benefit plans. The Board of Directors did not fix any expiration date for this repurchase program.
The table below provides, for the periods indicated, information about our share repurchase programs:
 
Three months ended January 31,
 
2019
 
2018
Number of shares purchased (in thousands)
785

 
4,427

Average price per share
$
32.02

 
$
47.43

Remaining authorization at January 31 (in thousands)
19,787

 
18,670


On February 21, 2017, our Board of Directors approved the initiation of quarterly cash dividends to shareholders. During the three months ended January 31, 2019 and 2018, we declared and paid aggregate cash dividends of $0.11 and $0.08 per share, respectively, to our shareholders.

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10. 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):