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, 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.)
1140 Virginia Drive	Fort Washington	Pennsylvania	19034
(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

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 1, 2021, there were approximately 123,376,000 shares of Common Stock, par value $0.01 per share, outstanding.

TOLL BROTHERS, INC.

TABLE OF CONTENTS

	Page No.
Statement on Forward-Looking Information	1
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	2
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	3
Condensed Consolidated Statements of Changes in Equity (Unaudited)	4
Condensed Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
Item 4. Controls and Procedures	47
PART II. Other Information
Item 1. Legal Proceedings	48
Item 1A. Risk Factors	48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6. Exhibits	50
SIGNATURES	51

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 and on our business; expectations regarding interest rates and inflation; the markets in which we operate or may operate; our strategic objectives and priorities; our land acquisition, land development and capital allocation plans and priorities; housing 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; the rate at which we 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 ongoing effects of the COVID-19 pandemic, which remain highly uncertain, cannot be predicted and will depend upon future developments, including the duration of the pandemic, the impact of mitigation strategies taken by applicable government authorities, the continued availability and effectiveness of 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 land;

•access to adequate capital on acceptable terms;

•geographic concentration of our operations;

•levels of competition;

•the price and availability of lumber, other raw materials, home components and 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;

•federal and state tax policies;

•transportation costs;

•the effect of land use, environmental 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.

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 further discussion of factors that we believe could cause our actual results to differ materially from expected and historical results, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in this report.

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending October 31.

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	April 30, 2021		October 31, 2020
	(unaudited)
ASSETS
Cash and cash equivalents	$	714,968	$	1,370,944
Inventory	8,260,664		7,658,906
Property, construction, and office equipment, net	276,224		316,125
Receivables, prepaid expenses, and other assets (1)	849,764		956,294
Mortgage loans held for sale, at fair value	204,421		231,797
Customer deposits held in escrow	94,432		77,291
Investments in unconsolidated entities	533,595		430,701
Income taxes receivable	40,951		23,675
	$	10,975,019	$	11,065,733
LIABILITIES AND EQUITY
Liabilities
Loans payable	$	1,033,165	$	1,147,955
Senior notes	2,403,163		2,661,718
Mortgage company loan facility	146,932		148,611
Customer deposits	609,387		459,406
Accounts payable	502,293		411,397
Accrued expenses	1,115,437		1,110,196
Income taxes payable	203,853		198,974
Total liabilities	6,014,230		6,138,257
Equity
Stockholders’ equity
Preferred stock, none issued	—		—
Common stock, 152,937 shares issued at April 30, 2021 and October 31, 2020	1,529		1,529
Additional paid-in capital	709,422		717,272
Retained earnings	5,352,573		5,164,086
Treasury stock, at cost — 29,567 and 26,410 shares at April 30, 2021 and October 31, 2020, respectively	(1,148,406)		(1,000,454)
Accumulated other comprehensive loss	(2,048)		(7,198)
Total stockholders’ equity	4,913,070		4,875,235
Noncontrolling interest	47,719		52,241
Total equity	4,960,789		4,927,476
	$	10,975,019	$	11,065,733

(1)    As of April 30, 2021 and October 31, 2020, receivables, prepaid expenses, and other assets include $114.0 million and $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.

2

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Three months ended April 30,				Six months ended April 30,
	2021		2020		2021		2020
Revenues:
Home sales	$	1,836,260	$	1,516,234	$	3,246,964	$	2,813,571
Land sales and other	93,864		32,838		246,536		66,932
	1,930,124		1,549,072		3,493,500		2,880,503
Cost of revenues:
Home sales	1,434,493		1,220,978		2,556,286		2,254,100
Land sales and other	92,091		26,418		203,825		58,700
	1,526,584		1,247,396		2,760,111		2,312,800
Selling, general and administrative	219,170		209,128		429,909		427,659
Income from operations	184,370		92,548		303,480		140,044
Other:
Income (loss) from unconsolidated entities	10,483		(4,271)		11,677		7,870
Other income – net	9,213		13,836		17,285		20,131
Expenses related to early retirement of debt	(34,240)		—		(35,211)		—
Income before income taxes	169,826		102,113		297,231		168,045
Income tax provision	41,960		26,443		72,866		35,499
Net income	$	127,866	$	75,670	$	224,365	$	132,546
Other comprehensive income, net of tax	4,438		278		5,150		556
Total comprehensive income	$	132,304	$	75,948	$	229,515	$	133,102
Per share:
Basic earnings	$	1.03	$	0.59	$	1.79	$	1.00
Diluted earnings	$	1.01	$	0.59	$	1.77	$	0.99
Weighted-average number of shares:
Basic	124,295		128,205		125,177		133,175
Diluted	125,999		128,809		126,780		134,349

See accompanying notes.

3

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)

(Unaudited)

For the three months ended April 30, 2021 and 2020:

	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, 2021	$	1,529	$	708,668	$	5,245,935	$	(1,162,811)	$	(6,486)	$	47,657	$	4,834,492
Net income					127,866								127,866
Purchase of treasury stock							(253)						(253)
Exercise of stock options and stock based compensation issuances			(2,790)				14,422						11,632
Employee stock purchase plan issuances			98				236						334
Stock-based compensation			3,446										3,446
Dividends declared					(21,228)								(21,228)
Other comprehensive income									4,438				4,438
Income attributable to non-controlling interest											1		1
Capital contributions, net											61		61
Balance, April 30, 2021	$	1,529	$	709,422	$	5,352,573	$	(1,148,406)	$	(2,048)	$	47,719	$	4,960,789
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

4

For the six months ended April 30, 2021 and 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	$	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					(595)								(595)
Net income					224,365								224,365
Purchase of treasury stock							(179,648)						(179,648)
Exercise of stock options and stock based compensation issuances			(24,235)				31,098						6,863
Employee stock purchase plan issuances			106				598						704
Stock-based compensation			16,279										16,279
Dividends declared					(35,283)								(35,283)
Other comprehensive income									5,150				5,150
Loss attributable to non-controlling interest											(20)		(20)
Capital distributions, net											(4,502)		(4,502)
Balance, April 30, 2021	$	1,529	$	709,422	$	5,352,573	$	(1,148,406)	$	(2,048)	$	47,719	$	4,960,789
Balance, October 31, 2019	$	1,529	$	726,879	$	4,774,422	$	(425,183)	$	(5,831)	$	46,877	$	5,118,693
Net income					132,546								132,546
Purchase of treasury stock							(633,553)						(633,553)
Exercise of stock options and stock based compensation issuances			(17,828)				22,401						4,573
Employee stock purchase plan issuances			(607)				1,336						729
Stock-based compensation			16,802										16,802
Dividends declared					(28,951)								(28,951)
Other comprehensive income									556				556
Loss attributable to non-controlling interest											(8)		(8)
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

See accompanying notes.

5

TOLL BROTHERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six months ended April 30,
	2021		2020
Cash flow provided by (used in) operating activities:
Net income	$	224,365	$	132,546
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	33,181		30,285
Stock-based compensation	16,279		16,802
Income from unconsolidated entities	(11,677)		(7,870)
Distributions of earnings from unconsolidated entities	11,464		16,427
Deferred tax provision	3,222		2,309
Inventory impairments and write-offs	2,847		15,245
Gain on sale of assets	(38,706)		(12,970)
Other	1,882		127
Expenses related to early retirement of debt	35,211		—
Changes in operating assets and liabilities:
Inventory	(528,048)		(247,104)
Origination of mortgage loans	(906,251)		(745,847)
Sale of mortgage loans	929,763		823,354
Receivables, prepaid expenses, and other assets	77,624		(173,249)
Income taxes receivable	(17,276)		(11,815)
Customer deposits – net	132,840		33,271
Accounts payable and accrued expenses	60,449		(62,647)
Income taxes payable	98		—
Net cash provided by (used in) operating activities	27,267		(191,136)
Cash flow used in investing activities:
Purchase of property, construction, and office equipment – net	(29,606)		(50,757)
Investments in unconsolidated entities	(153,828)		(10,263)
Return of investments in unconsolidated entities	144,047		34,884
Proceeds from the sale of assets	80,418		15,617
Business acquisitions	—		(60,349)
Other	579		1,159
Net cash provided by (used in) investing activities	41,610		(69,709)
Cash flow used in financing activities:
Proceeds from loans payable	1,335,309		2,732,493
Principal payments of loans payable	(1,548,152)		(2,354,113)
Redemption of senior notes	(294,168)		—
Proceeds from stock-based benefit plans, net	7,569		5,305
Purchase of treasury stock	(179,648)		(633,553)
Dividends paid	(35,272)		(28,783)
Payments related to noncontrolling interest, net	(4,718)		(936)
Net cash used in financing activities	(719,080)		(279,587)
Net decrease in cash, cash equivalents, and restricted cash	(650,203)		(540,432)
Cash, cash equivalents, and restricted cash, beginning of period	1,396,604		1,319,643
Cash, cash equivalents, and restricted cash, end of period	$	746,401	$	779,211

See accompanying notes.

6

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, 2020 balance sheet amounts and disclosures included herein have been derived from our October 31, 2020 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, 2020 (“2020 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, 2021; the results of our operations and changes in equity for the three-month and six-month periods ended April 30, 2021 and 2020; and our cash flows for the six-month periods ended April 30, 2021 and 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 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 subject to risks and uncertainties, including risks and uncertainties resulting from the COVID-19 pandemic, which continue to impact our business operations. As a result, actual results could differ from the estimates and assumptions we make that affect certain amounts reported in the condensed 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 $29.7 million, or 2.0% of home sales revenues for the three months ended April 30, 2020 and $56.5 million, or 2.0% of home sales revenues for the six months ended April 30, 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, 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 $609.4 million and $459.4 million at April 30, 2021 and October 31, 2020, respectively. Of the outstanding customer deposits held as of October 31, 2020, we recognized $105.1 million and $199.1 million in home sales revenues during the three months and six months ended April 30, 2021.

7

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; (3) bulk sales to third parties of land we have decided no longer meets our development 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.

Derivative Instruments and Hedging Activities

Our objective in entering into derivative transactions is to manage our exposure to interest rate movements associated with certain variable rate debt, mortgage loans held for sale and forward loan commitments we have entered into related to our mortgage operations. We recognize derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value.

We have entered into interest rate swaps related to a portion of our variable rate debt. These derivative transactions are designated as cash flow hedges. The entire change in the fair value of these derivative transactions included in the assessment of hedge effectiveness is initially reported in accumulated other comprehensive loss and subsequently reclassified to home sales cost of revenues in the accompanying 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 if the hedged forecasted transaction is no longer probable of occurring, the amount recognized in Accumulated other comprehensive loss is released to earnings.

Our derivative transactions related to our mortgage loans held for sale and our forward loan commitments are not designated as hedges and therefore the entire change in the fair value of these derivative transactions is included as a gain or loss in Other income – net in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income.

See Note 12 “Fair Value Disclosures” for more information.

Recent Accounting Pronouncements

In June 2016, the FASB created 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 became effective for our fiscal year beginning November 1, 2020, and we adopted the new standard under the modified retrospective transition method. As a result of the adoption, we recognized a cumulative effect adjustment, net of tax, of $0.6 million to the opening balance of retained earnings. The adoption of ASU 2016-13 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.

2. Acquisitions

In fiscal 2020, we acquired substantially all of the assets and operations of The Thrive Group, LLC (“Thrive”), an urban infill 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 $79.2 million in cash. The assets acquired were primarily inventory, including approximately 1,100 home sites owned or controlled through land purchase agreements. One of these acquisitions was accounted for as a business combination and neither were material to our results of operations or financial condition.

8

3. Inventory

Inventory at April 30, 2021 and October 31, 2020 consisted of the following (amounts in thousands):

	April 30, 2021		October 31, 2020
Land controlled for future communities	$	132,449	$	223,525
Land owned for future communities	605,619		1,036,843
Operating communities	7,522,596		6,398,538
	$	8,260,664	$	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 are 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, 2021		October 31, 2020
Land owned for future communities:
Number of communities	7		10
Carrying value (in thousands)	$	53,230	$	68,064
Operating communities:
Number of communities	1		4
Carrying value (in thousands)	$	7,277	$	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):

	Three months ended April 30,				Six months ended April 30,
	2021		2020		2021		2020
Land controlled for future communities	$	1,581	$	11,809	$	1,747	$	12,840
Land owned for future communities	—		2,105		1,100		2,105
Operating communities	—		300		—		300
	$	1,581	$	14,214	$	2,847	$	15,245

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, 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, 2021, we determined that 275 land purchase contracts, with an aggregate purchase price of $2.77 billion, on which we had made aggregate deposits totaling $204.4 million, were VIEs, and that we were not the primary beneficiary of any VIE related to our land purchase contracts. At October 31, 2020, we determined that 207 land purchase contracts, with an aggregate purchase price of $2.31 billion, on which we had made aggregate deposits totaling $208.7 million, were VIEs and that we were not the primary beneficiary of any VIE related to our land purchase contracts.

9

Interest incurred, capitalized, and expensed, for the periods indicated, was as follows (amounts in thousands): 

	Three months ended April 30,				Six months ended April 30,
	2021		2020		2021		2020
Interest capitalized, beginning of period	$	302,961	$	320,751	$	297,975	$	311,323
Interest incurred	38,047		46,104		79,315		89,754
Interest expensed to home sales cost of revenues	(44,092)		(38,037)		(77,417)		(70,811)
Interest expensed to land sales and other cost of revenues	(579)		(737)		(2,417)		(1,304)
Interest expensed in other income – net	—		(2,440)		—		(2,440)
Interest capitalized on investments in unconsolidated entities	(1,192)		(897)		(2,326)		(1,778)
Previously capitalized interest on investments in unconsolidated entities transferred to inventory	—		120		15		120
Interest capitalized, end of period	$	295,145	$	324,864	$	295,145	$	324,864

During the three months ended April 30, 2021, we incurred $246,000 of interest related to our interest rate swaps which is included in accumulated other comprehensive loss, of which approximately $32,000 was expensed to home sales cost of revenues. During the six months ended April 30, 2021, we incurred $400,000 of interest related to our interest rate swaps which is included in accumulated other comprehensive loss, of which approximately $42,000 was expensed to home sales cost of revenues. No similar amounts were incurred during the three months or six months ended April 30, 2020.

4. Investments in Unconsolidated Entities

We have investments in various unconsolidated 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”); 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, 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
Number of unconsolidated entities	13		3		28		4		48
Investment in unconsolidated entities	$	215,465	$	24,326	$	271,317	$	22,487	$	533,595
Number of unconsolidated entities with funding commitments by the Company	6		—		8		1		15
Company’s remaining funding commitment to unconsolidated entities	$	31,126	$	—	$	29,608	$	27,543	$	88,277

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, 2021, 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	6		1		25		32
Aggregate loan commitments	$	326,753	$	3,211	$	2,069,244	$	2,399,208
Amounts borrowed under loan commitments	$	253,808	$	3,211	$	1,391,948	$	1,648,967

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

10

New Joint Ventures

The table below provides information on joint ventures entered into during the six-months ended April 30, 2021 ($ amounts in thousands):

	Land Development Joint Ventures		Rental Property Joint Ventures
Number of unconsolidated joint ventures entered into during the period	4		3
Investment balance at April 30, 2021	$	86,200	$	43,700

The table below provides information on joint ventures entered into during the six-months ended April 30, 2020 ($ amounts in thousands):

	Land Development Joint Ventures		Rental Property Joint Ventures
Number of unconsolidated joint ventures entered into during the period	—		3
Investment balance at April 30, 2020	$	—	$	31,800

Results of Operations and Intra-entity Transactions

From time to time, certain of our land development and rental property joint ventures sell assets to unrelated parties or to our joint venture partner. In connection with these sales, we recognized gains of $11.5 million in the three-month period ended April 30, 2021. No similar gains were recognized in the three-month period ended April 30, 2020. In the six-month periods ended April 30, 2021 and 2020, we recognized gains of $17.5 million and $10.7 million, respectively. These gains are included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income.

In the three-month period ended April 30, 2020, we recognized an other-than-temporary impairment charge on an investment in a Home Building Joint Venture of $3.0 million. No similar charges were incurred in the three-month period ended April 30, 2021. In the six-month periods ended April 30, 2021 and 2020, we recognized other-than-temporary impairment charges on our investments in certain Home Building Joint Ventures of $2.1 million and $3.0 million, respectively.

Purchases from unconsolidated entities, principally related to our acquisition of lots from our Land Development Joint Ventures, were $3.5 million and $4.3 million in the three-month periods ended April 30, 2021 and 2020, respectively, and $7.8 million and $7.8 million in the six-month periods ended April 30, 2021 and 2020, respectively. Our share of income from the lots we acquired was insignificant in each period. Sales to unconsolidat