OREANDA-NEWS. Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today announced results for its second quarter and six months ended April 30, 2017. 

FY 2017 Second Quarter Financial Highlights:

  • FY 2017’s second-quarter net income was $124.6 million, or $0.73 per share diluted, compared to net income of $89.1 million, or $0.51 per share diluted, in FY 2016’s second quarter.
  • Pre-tax income was $199.2 million, compared to pre-tax income of $140.4 million in FY 2016’s second quarter.  Second quarter FY 2017 included inventory write-downs of $4.3 million, compared to $6.4 million in FY 2016’s second quarter.
  • Revenues of $1.36 billion and home building deliveries of 1,638 units increased 22% in dollars and 26% in units, compared to FY 2016’s second quarter.  The average price of homes delivered was $832,400, compared to $855,500 one year ago. The drop in the average price of homes delivered, as well as in contracts and backlog, was due to mix changes.
  • Net signed contracts of $2.02 billion and 2,511 units rose 23% in dollars and 26% in units, compared to FY 2016’s second quarter.  The average price of net signed contracts was $804,200, compared to $825,500 one year ago.
  • On a per-community basis, FY 2017’s second-quarter net signed contracts was 7.82 units per community, compared to second-quarter totals of 6.80 in FY 2016, 7.43 in FY 2015, and 7.14 in FY 2014.
  • For the first three weeks of FY 2017’s third quarter, beginning May 1, 2017, non-binding reservations deposits were up 12% in units, compared to the same period in FY 2016.
  • Backlog of $5.00 billion and 6,018 units rose 19% in dollars and 22% in units, compared to FY 2016’s second-quarter-end backlog.  The average price of homes in backlog was $831,000, compared to $848,600 one year ago.
  • Gross margin, as a percentage of revenues, was 21.0% in FY 2017 second quarter, compared to 22.0% in FY 2016’s second quarter.  Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margins”), was 24.3%, compared to 25.7% in FY 2016’s second quarter.     
  • Other income and Income from unconsolidated entities totaled $61.0 million, compared to $23.8 million one year ago.
  • The Company ended its second quarter with 316 selling communities, compared to 321 at FY 2017’s first-quarter end, and 299 at FY 2016’s second-quarter end.
  • Based on FY 2017’s second-quarter-end backlog and the pace of activity at its communities, the Company now estimates it will deliver between 6,950 and 7,450 homes in FY 2017, compared to previous guidance of 6,700 to 7,500 units, at an average delivered price for FY 2017’s full year of between $775,000 and $825,000 per home.  This translates to projected revenues of between $5.4 billion and $6.1 billion in FY 2017, compared to $5.17 billion in FY 2016.
  • The Company reaffirms its previous guidance for full FY Adjusted Gross Margin of between 24.8% to 25.3%, SG&A as a percentage of revenues of 10.6%, Other income and Income from unconsolidated entities of $160 million to $200 million and effective tax rate of 37.5%. 
  • The Company expects FY 2017 third-quarter deliveries of between 1,675 and 1,975 units with an average price of between $790,000 and $815,000.
  • The Company expects its third-quarter FY 2017 Adjusted Gross Margin to improve 10 basis points from FY 2017’s second-quarter results.
  • FY 2017 third-quarter SG&A is expected to be approximately 10.4% of third quarter revenues.
  • The Company’s third-quarter FY 2017 Other income and Income from unconsolidated entities is projected to be between $15 million and $30 million.
  • The FY 2017 third-quarter effective tax rate is projected to be approximately 39.0%.

Douglas C. Yearley, Jr., Toll Brothers’ chief executive officer, stated: “Solid and improving demand and the financial strength of our affluent buyer base are driving our growth.  Second-quarter net income grew 40%, revenues increased 22% in dollars and deliveries increased 26% in units, and contracts rose 23% in dollars and 26% in units, compared to the second quarter of FY 2016. This was our eleventh consecutive quarter of year-over-year growth in contract dollars and units, highlighted by double digit increases in each of the past four quarters.

“This was the best spring selling season we have had in over ten years.  The number of contracts in FY 2017’s second quarter was the highest since FY 2005’s third quarter and the number of contracts per community was the highest since FY 2006’s second quarter.

“We believe we are benefiting from the appeal and national recognition of the Toll Brothers brand and a lack of large scale competition in the affordable end of the luxury new home market.  The breadth of products we offer, our beautiful home designs and our ability to appeal to a wide range of demographic groups, including affluent move-up, empty-nester and millennial buyers, are also fueling our advantage. 

“Increasingly, home buyers choose to buy new over used homes, particularly in the luxury market where consumers want, and can afford, to customize their homes. We think our customization program differentiates us within our segment of the luxury market.  Every Toll Brothers buyer can create their dream home to fit their current and future lifestyle. Our buyers spend an additional $120,000, on average, in structural and designer options to further customize their already well-appointed homes.

“The supply of new and existing homes continues to trail the growth in population and households.  We are producing strong results even with industry-wide home production levels still well below historic norms.  Our affluent discerning buyer base, combined with our strong balance sheet, and well located communities, is enabling us to outpace the industry in many metrics. Based on our land supply and other competitive advantages, we believe we are well positioned for the coming years.”

Martin P. Connor, Toll Brothers’ chief financial officer, stated: “We are very pleased with our results this quarter. Earnings per share rose 43% and we hit the high end of our projections in nearly all key metrics.  Revenues, deliveries and average delivered price were near the top of our range of guidance.  SG&A, as a percentage of revenues, was better than we had previously projected.  Gross Margin, as a percentage of revenues, improved nearly 60 basis points over the previous quarter. Adjusted Gross Margin also came in at the upper boundary of our guidance, improving 34 basis points over the previous quarter.  Income from unconsolidated entities and Other income combined were also well above the midpoint of our guidance. 

“Based on our strong results through FY 2017’s first six months, we are revising upward our target of FY 2017 return-on-beginning-equity to 12.5% from 12% previously.

“In the second quarter, we issued $300 million of 10-year bonds at a rate of 4.875%. With $691.3 million in cash and $1.18 billion available under our credit facility at second quarter end, we are opportunistically positioned to retire our $400 million of debt maturing in October 2017, as well as, potentially, our $288 million convertible bonds in late calendar 2017.  We paid our first quarterly dividend on April 28, 2017 of $.08 per share.  We ended FY 2017’s second quarter with a debt-to-capital ratio(1) of 45.4%, and our net debt-to-capital ratio(1) dropped to 39.8%.

“Subject to our normal caveats regarding forward-looking statements, we offer the following guidance:  Based on our strong first half results and our second-quarter-end $5 billion backlog, up 19% in dollars and 22% in units, compared to one year ago, we are increasing the mid-point of our delivery guidance range by 100 units for full FY 2017. We now project revenues and deliveries to be between $5.4 billion and $6.1 billion, and between 6,950 and 7,450 units, at an average price per unit of between $775,000 and $825,000. Adjusted Gross Margin is expected to be between 24.8% and 25.3% while SG&A, as a percentage of revenues, is projected to be about 10.6%. Other income and Income from unconsolidated entities is projected to be between $160 million and $200 million. We project the effective tax rate for FY 2017 to be approximately 37.5%. 

“For FY 2017’s third quarter, we project deliveries of between 1,675 and 1,975 units at an average delivered sales price of between $790,000 and $815,000. Adjusted Gross Margin is expected to improve 10 basis points from FY 2017’s second-quarter results, while SG&A, as a percentage of revenues, is projected to be about 10.4% of revenues. Other income and Income from unconsolidated entities is projected to be between $15 million and $30 million. We project the effective tax rate for our third quarter to be approximately 39.0%.” 

Robert I. Toll, executive chairman, stated: “We believe our strong results are being supported by the release of pent-up demand. Single family housing starts, while rising to 835,000 in April, are still just half the previous peak of 1.72 million in 2005.  

“Many factors are bringing buyers off the fence right now, including low interest rates, urgency created by the limited supply of resale and new homes, and improving personal balance sheets and credit profiles. Our luxury buyers are further benefiting from a solid employment picture, strong consumer confidence, a robust stock market and increasing equity in their existing homes. Additionally, as the Wall Street Journal recently reported, the number of new-owner households was double the number of new-renter households in the first calendar quarter of this year. According to Trulia, this was the first time in a decade that new buyers have exceeded new renters. Clearly, the new home market is alive and well.”

The financial highlights for the second quarter and six months ended April 30, 2017 (unaudited):

  • FY 2017’s second-quarter net income was $124.6 million, or $0.73 per share diluted, compared to FY 2016’s second-quarter net income of $89.1 million, or $0.51 per share diluted. 
  • FY 2017’s second-quarter pre-tax income was $199.2 million, compared to FY 2016’s second-quarter pre-tax income of $140.4 million.  FY 2017’s second-quarter results included pre-tax inventory write-downs totaling $4.3 million ($2.94 million of which was attributable to operating communities, and $1.32 million of which was attributable to future communities). FY 2016’s second-quarter results included pre-tax inventory write-downs of $6.4 million ($6.1 million of which was attributable to one operating community, and $0.3 million of which was attributable to future communities). 
  • FY 2017’s six-month net income was $195.1 million, or $1.15 per share diluted, compared to FY 2016’s six-month net income of $162.2 million, or $0.91 per share diluted.  
  • FY 2017’s six-month pre-tax income was $309.0 million, compared to FY 2016’s six-month pre-tax income of $257.2 million.  
  • FY 2017’s six-month pre-tax income results included pre-tax inventory write-downs totaling $8.9 million ($8.1 million attributable to operating communities and $0.8 million attributable to future communities). FY 2016’s six-month results included pre-tax inventory write-downs of $7.6 million ($6.7 million attributable to operating communities and $0.9 million attributable to future communities). 
  • FY 2017’s second-quarter total revenues of $1.36 billion and 1,638 units increased 22% in dollars and 26% in units, compared to FY 2016’s second-quarter total revenues of $1.12 billion and 1,304 units.  The average price of homes delivered was $832,400, compared to $855,500 in FY 2016’s second quarter. The drop in the average price of homes delivered was due to mix changes. 
  • FY 2017’s six-month total revenues of $2.28 billion and 2,828 units rose 12% in dollars and 19% in units, compared to FY 2016’s same period totals of $2.04 billion and 2,367 units. 
  • The Company’s FY 2017 second-quarter net signed contracts of $2.02 billion and 2,511 units rose by 23% in dollars and 26% in units, compared to FY 2016’s second-quarter net contracts of $1.65 billion and 1,993 units. The average price of net signed contracts was $804,200, compared to $825,500 in FY 2016’s second quarter. The drop in the average price of net signed contracts was due to mix changes.  
  • On a per-community basis, FY 2017’s second-quarter net signed contracts were 7.82 units, compared to second-quarter totals of 6.80 units in FY 2016, 7.43 in FY 2015, and 7.14 in FY 2014. 
  • The Company’s FY 2017 six-month net signed contracts of $3.26 billion and 4,033 units increased 19% in dollars and 24% in units, compared to net contracts of $2.73 billion and 3,243 units in FY 2016’s six-month period. 
  • In FY 2017, second-quarter-end backlog of $5.00 billion and 6,018 units increased 19% in dollars and 22% in units, compared to FY 2016’s second-quarter-end backlog of $4.19 billion and 4,940 units.  At second-quarter end, the average price of homes in backlog was $831,000, compared to $848,600 at FY 2016’s second-quarter end. The drop in the average price of homes in backlog was due to mix changes.  
  • FY 2017’s second-quarter gross margin, as a percentage of revenues, was 21.0%, compared to 22.0% in FY 2016’s second quarter.  FY 2017’s second-quarter Adjusted Gross Margin was 24.3% compared to 25.7% in FY 2016’s second quarter.  
  • Interest included in cost of sales was 3.0% of revenues in FY 2017’s second quarter, compared to 3.2% of revenues in FY 2016’s second quarter. 
  • SG&A as a percentage of revenue was 10.8% in FY 2017’s second quarter, compared to 11.5% in FY 2016’s second quarter. 
  • Income from operations of $138.2 million represented 10.1% of revenues in FY 2017’s second quarter, compared to $116.6 million and 10.5% of revenues in FY 2016’s second quarter.  
  • Income from operations of $188.8 million represented 8.3% of revenues in FY 2017’s six-month period, compared to $211.1 million and 10.3% of revenues in FY 2016’s six-month period.  
  • Other income and Income from unconsolidated entities in FY 2017’s second quarter totaled $61.0 million, compared to $23.8 million in FY 2016’s same quarter. Contributing to Income from unconsolidated entities was a $20.5 million gain on the disposition of 50% of the Company’s 50% interest in a Toll Brothers Apartment Living project - the Morgan at Provost Square, a 417-unit, 38-story luxury rental project in Jersey City, New Jersey which the Company continues to manage.  
  • Other income and Income from unconsolidated entities in FY 2017’s six-month period totaled $120.2 million, compared to $46.1 million in FY 2016’s same period. Contributing to Income from unconsolidated entities was $26.7 million of gains on the disposition of 50% of the Company’s 50% interest in two Toll Brothers Apartment Living projects - the Morgan at Provost Square (mentioned above) and Parc at Plymouth Meeting, a  398-unit, garden style luxury rental project in Plymouth Meeting, Pennsylvania. 
  • FY 2017’s second-quarter cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) was 3.5%, compared to 5.0% in FY 2016’s second quarter. As a percentage of beginning-quarter backlog, FY 2017’s second-quarter cancellation rate was 1.7%, compared to 2.5% in FY 2016’s second quarter. 
  • The Company ended its FY 2017 second quarter with $691.3 million in cash, compared to $373.5 million at 2017’s first-quarter end and $423.2 million at FY 2016's second-quarter end.  At FY 2017’s second-quarter end, it had $1.18 billion available under its $1.295 billion 20-bank credit facility, which is scheduled to mature in May 2021. 
  • On March 7, 2017, the Company issued $300 million of 4.875% 10-year senior notes. 
  • On April 28, 2017, the Company paid its first quarterly dividend of $0.08 per share to shareholders of record on the close of business on April 14, 2017.
  • The Company’s Stockholders’ Equity at FY 2017’s second-quarter end was $4.45 billion, compared to $4.16 billion at FY 2016’s second-quarter end.
  • The Company ended FY 2017’s second quarter with a debt-to-capital ratio(1) of 45.4%, compared to 45.7% at FY 2017’s first-quarter end and 45.7% at FY 2016’s second-quarter end. The Company ended FY 2017’s second quarter with a net debt-to-capital ratio(1) of 39.8%, compared to 42.6% at FY 2017’s first-quarter end and 41.7% at FY 2016’s second-quarter end.
  • The Company ended FY 2017’s second quarter with approximately 46,600 lots owned and optioned, compared to 47,800 one quarter earlier and 45,400 one year earlier. At 2017’s second-quarter end, approximately 32,600 of these lots were owned, of which approximately 18,000 lots, including those in backlog, were substantially improved. 
  • In the second quarter of FY 2017, the Company purchased 623 lots for $107.0 million.
  • The Company ended FY 2017’s second quarter with 316 selling communities, compared to 321 at FY 2017’s first-quarter end and 299 at FY 2016’s second-quarter end.
  • Based on FY 2017’s second-quarter-end backlog and the pace of activity at its communities, the Company now estimates it will deliver between 6,950 and 7,450 homes in FY 2017, compared to previous guidance of 6,700 to 7,500 units.  It believes the average delivered price for FY 2017’s full year will be between $775,000 and $825,000 per home.  This translates to projected revenues of between $5.4 billion and $6.1 billion in FY 2017, compared to $5.17 billion in FY 2016.
  • The Company reaffirms its previous guidance for full FY 2017 Adjusted Gross Margin of between 24.8% and 25.3%, SG&A as a percentage of revenues of 10.6%, Other income and Income from unconsolidated entities of $160 million to $200 million and effective tax rate of 37.5%.
  • The Company expects FY 2017 third-quarter deliveries of between 1,675 and 1,975 units with an average price of between $790,000 and $815,000.
  • The Company expects its third-quarter FY 2017 Adjusted Gross Margin to improve 10 basis points from FY 2017’s second-quarter results.
  • FY 2017 third-quarter SG&A is expected to be approximately 10.4% of third quarter revenues.
  • The Company’s third-quarter FY 2017 Other income and Income from unconsolidated entities is expected to be between $15 million and $30 million.
  • The FY 2017 third-quarter effective tax rate is expected to be approximately 39.0%. 

(1)   See “Reconciliation of Non-GAAP Measures” below for more information on the calculation of the Company’s net debt-to-capital ratio.

Toll Brothers will be broadcasting live via the Investor Relations section of its website, www.tollbrothers.com, a conference call hosted by CEO Douglas C. Yearley, Jr. at 11:00 a.m. (EDT) today, May 23, 2017, to discuss these results and its outlook for FY 2017. To access the call, enter the Toll Brothers website, click on the Investor Relations page, and select "Conference Calls”. Participants are encouraged to log on at least fifteen minutes prior to the start of the presentation to register and download any necessary software.

The call can be heard live with an online replay which will follow. MP3 format replays will be available after the conference call via the "Conference Calls" section of the Investor Relations portion of the Toll Brothers website.

Toll Brothers, Inc., A FORTUNE 600 Company, is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. Its common stock is listed on the New York Stock Exchange under the symbol “TOL.” The Company serves move-up, empty-nester, active-adult, and second-home buyers and operates in 20 states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Texas, Virginia, and Washington, as well as in the District of Columbia.

Toll Brothers builds an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management, home security, and landscape subsidiaries. The Company also operates its own lumber distribution, house component assembly, and manufacturing operations. Through its Gibraltar Capital and Asset Management joint venture, the Company provides builders and developers with land banking and joint venture capital. The Company acquires and develops commercial and apartment properties through Toll Brothers Apartment Living, Toll Brothers Campus Living, and the affiliated Toll Brothers Realty Trust, and develops urban low-,  mid-, and high-rise for-sale condominiums through Toll Brothers City Living.

In 2017, Toll Brothers was named World’s Most Admired Home Building Company in FORTUNE magazine’s survey of the World’s Most Admired Companies, the third year in a row it has been so honored. Toll Brothers was named 2014 Builder of the Year by BUILDER magazine, and is honored to have been awarded Builder of the Year in 2012 by Professional Builder magazine, making it the first two-time recipient.  Toll Brothers proudly supports the communities in which it builds; among other philanthropic pursuits, the Company sponsors the Toll Brothers Metropolitan Opera International Radio Network, bringing opera to neighborhoods throughout the world.

TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
  April 30,
 2017		   October 31,
 2016
  (Unaudited)    
ASSETS      
Cash and cash equivalents $ 691,266     $ 633,715  
Restricted cash and investments 797     31,291  
Inventory 7,602,695     7,353,967  
Property, construction and office equipment, net 173,449     169,576  
Receivables, prepaid expenses and other assets 536,514     582,758  
Mortgage loans held for sale 89,485     248,601  
Customer deposits held in escrow 74,493     53,057  
Investments in unconsolidated entities 540,215     496,411  
Deferred tax assets, net of valuation allowances 158,050     167,413  
  $ 9,866,964     $ 9,736,789  
       
LIABILITIES AND EQUITY      
Liabilities:      
Loans payable $ 637,931     $ 871,079  
Senior notes 2,993,882     2,694,372  
Mortgage company loan facility 61,129     210,000  
Customer deposits 387,940     309,099  
Accounts payable 305,500     281,955  
Accrued expenses 937,396     1,072,300  
Income taxes payable 89,191     62,782  
Total liabilities 5,412,969     5,501,587  
       
Equity:      
Stockholders’ Equity      
Common stock 1,779     1,779  
Additional paid-in capital 716,124     728,464  
Retained earnings 4,159,300     3,977,297  
Treasury stock, at cost (426,116 )   (474,912 )
Accumulated other comprehensive loss (2,999 )   (3,336 )
Total stockholders' equity 4,448,088     4,229,292  
Noncontrolling interest 5,907     5,910  
Total equity 4,453,995     4,235,202  
  $ 9,866,964     $ 9,736,789  
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data and percentages)
(Unaudited)
       
  Six Months Ended
April 30,		   Three Months Ended
April 30,
  2017   2016   2017   2016
  $ %   $ %   $ %   $ %
Revenues $ 2,284,242       $ 2,044,123       $ 1,363,512       $ 1,115,557    
Cost of revenues 1,810,443   79.3 %   1,582,882   77.4 %   1,077,441   79.0 %   870,571   78.0 %
Gross margin 473,799   20.7 %   461,241   22.6 %   286,071   21.0 %   244,986   22.0 %
                       
Selling, general and administrative expenses 284,971   12.5 %   250,136   12.2 %   147,876   10.8 %   128,340   11.5 %
Income from operations 188,828   8.3 %   211,105   10.3 %   138,195   10.1 %   116,646   10.5 %
                       
Other:                      
Income from unconsolidated entities 92,349       17,756       45,904       9,118    
Other income - net 27,813       28,353       15,110       14,633    
Income before income taxes 308,990       257,214       199,209       140,397    
Income tax provision 113,936       94,980       74,571       51,343    
Net income $ 195,054       $ 162,234       $ 124,638       $ 89,054    
Per share:                      
Basic earnings $ 1.20       $ 0.95       $ 0.76       $ 0.53    
Diluted earnings $ 1.15       $ 0.91       $ 0.73       $ 0.51    
Cash dividend declared $ 0.08             $ 0.08          
Weighted-average number of shares:                      
Basic 163,040       171,578       163,492       168,952    
Diluted 170,910       179,403       171,403       176,414    
                       
Effective tax rate 36.9 %     36.9 %     37.4 %     36.6 %  
TOLL BROTHERS, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
(Amounts in thousands)
(unaudited)
       
  Six Months Ended
April 30,		   Three Months Ended
April 30,
  2017   2016   2017   2016
Impairment charges recognized:              
Cost of sales - land owned/controlled for future communities $ 1,982     $ 934     $ 1,321     $ 253  
Cost of sales - operating communities 6,935     6,700     2,935     6,100  
  $ 8,917     $ 7,634     $ 4,256     $ 6,353  
               
Depreciation and amortization $ 12,123     $ 11,029     $ 6,089     $ 5,302  
Interest incurred $ 85,310     $ 80,412     $ 43,536     $ 40,305  
Interest expense:              
Charged to cost of sales $ 68,486     $ 67,745     $ 40,558     $ 35,722  
Charged to other income - net 1,995     309     1,953     34  
  $ 70,481     $ 68,054     $ 42,511     $ 35,756  
               
Home sites controlled:              
Owned 32,561     34,612          
Optioned 14,031     10,827          
  46,592     45,439          
 

Inventory at April 30, 2017 and October 31, 2016 consisted of the following (amounts in thousands):

  April 30,
 2017		   October 31,
 2016
Land and land development costs $ 2,324,856     $ 2,497,603  
Construction in progress 4,591,606     4,225,456  
Sample homes 506,165     460,948  
Land deposits and costs of future development 155,034     144,417  
Other 25,034     25,543  
  $ 7,602,695     $ 7,353,967  
 

Toll Brothers operates in two segments: Traditional Home Building and Urban Infill ("City Living").  Within Traditional Home Building, Toll operates in five geographic segments:

North:   Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey and New York
Mid-Atlantic:   Delaware, Maryland, Pennsylvania and Virginia
South: Florida, North Carolina and Texas
West:  Arizona, Colorado, Idaho, Nevada, and Washington
California:  California
  Three Months Ended
April 30,
  Units   $ (Millions)   Average Price Per Unit $
  2017   2016   2017   2016   2017   2016
HOME BUILDING REVENUES                      
North 277     235     $ 189.3     $ 165.7     $ 683,600     $ 705,000  
Mid-Atlantic 367     300     226.5     186.6     617,100     622,000  
South 274     239     195.1     192.5     712,100     805,200  
West 441     288     302.7     188.4     686,400     654,100  
California 248     216     373.3     328.4     1,505,300     1,520,500  
Traditional Home Building 1,607     1,278     1,286.9     1,061.6     800,800     830,600  
City Living 31     26     76.6     54.0     2,469,700     2,078,500  
Total consolidated 1,638     1,304     $ 1,363.5     $ 1,115.6     $ 832,400     $ 855,500  
                       
CONTRACTS                      
North 408     327     $ 264.2     $ 230.4     $ 647,400     $ 704,500  
Mid-Atlantic 563     502     346.9     308.6     616,200     614,800  
South 406     367     294.1     266.0     724,500     724,700  
West 703     466     438.2     340.6     623,400     730,900  
California 388     275     594.1     408.5     1,531,200     1,485,500  
Traditional Home Building 2,468     1,937     1,937.5     1,554.1     785,100     802,300  
City Living 43     56     81.8     91.1     1,901,000     1,627,700  
Total consolidated 2,511     1,993     $ 2,019.3     $ 1,645.2     $ 804,200     $ 825,500  
                       
BACKLOG                      
North 1,175     1,046     $ 793.7     $ 735.7     $ 675,500     $ 703,400  
Mid-Atlantic 1,265     1,034     782.9     658.2     618,900     636,600  
South 1,168     964     897.2     762.8     768,200     791,300  
West 1,427     1,073     975.9     788.7     683,900     735,100  
California 744     671     1,203.9     1,014.0     1,618,100     1,511,100  
Traditional Home Building 5,779     4,788     4,653.6     3,959.4     805,300     827,000  
City Living 239     152     347.3     232.7     1,453,000     1,530,700  
Total consolidated 6,018     4,940     $ 5,000.9     $ 4,192.1     $ 831,000     $ 848,600  
  Six Months Ended
April 30,
  Units   $ (Millions)   Average Price Per Unit $
  2017   2016   2017   2016   2017   2016
HOME BUILDING REVENUES                      
North 486     415     $ 335.0     $ 286.5     $ 689,300     $ 690,400  
Mid-Atlantic 664     579     410.5     356.4     618,200     615,500  
South 464     437     337.3     339.3     726,900     776,400  
West 776     490     513.8     325.6     662,100     664,500  
California 403     375     593.1     545.3     1,471,700     1,454,100  
Traditional Home Building 2,793     2,296     2,189.7     1,853.1     784,000     807,100  
City Living 35     71     94.5     191.0     2,700,000     2,690,100  
Total consolidated 2,828     2,367     $ 2,284.2     $ 2,044.1     $ 807,700     $ 863,600  
                       
CONTRACTS                      
North 684     571     $ 435.9     $ 403.0     $ 637,300     $ 705,800  
Mid-Atlantic 943     802     583.5     495.7     618,800     618,100  
South 672     577     498.1     432.9     741,200     750,300  
West 1,055     747     684.4     540.8     648,700     724,000  
California 614     437     929.3     661.6     1,513,500     1,514,000  
Traditional Home Building 3,968     3,134     3,131.2     2,534.0     789,100     808,600  
City Living 65     109     131.1     198.3     2,016,900     1,819,300  
Total consolidated 4,033     3,243     $ 3,262.3     $ 2,732.3     $ 808,900     $ 842,500  
 

Unconsolidated entities:

Information related to revenues and contracts of entities in which we have an interest for the three-month and six-month periods ended April 30, 2017 and 2016, and for backlog at April 30, 2017 and 2016 is as follows:

  Units   $ (Millions)   Average Price Per Unit $
  2017   2016   2017   2016   2017   2016
Three months ended April 30,                      
Revenues 56     21     $ 153.2     $ 21.5     $ 2,736,100     $ 1,022,100  
Contracts 41     38     $ 36.5     $ 57.6     $ 889,600     $ 1,514,900  
                       
Six months ended April 30,                      
Revenues 143     40     $ 370.6     $ 37.5     $ 2,591,700     $ 937,600  
Contracts 69     68     $ 79.9     $ 105.2     $ 1,158,400     $ 1,547,500  
                       
Backlog at April 30, 110     214     $ 180.8     $ 534.3     $ 1,643,600     $ 2,496,700  
                                           

RECONCILIATION OF NON-GAAP MEASURES

This press release contains, and Company management’s discussion of the results presented in this press release may include, information about the Company’s Adjusted Gross Margin and the Company’s net debt-to-capital ratio.

These two measures are non-GAAP financial measures which are not calculated in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures should not be considered a substitute for, or superior to, the comparable GAAP financial measures, and may be different from non-GAAP measures used by other companies in the homebuilding business.

The Company’s management considers these non-GAAP financial measures as we make operating and strategic decisions and evaluate our performance, including against other homebuilders that may use similar non-GAAP financial measures. The Company’s management believes these non-GAAP financial measures are useful to investors in understanding our operations and leverage and may be helpful in comparing the Company to other homebuilders to the extent they provide similar information.

Adjusted Gross Margin
The following table reconciles the Company’s gross margin as a percentage of revenues (calculated in accordance with GAAP) to the Company’s Adjusted Gross Margin (a non-GAAP financial measure). Adjusted Gross Margin is calculated as (i) gross margin plus interest recognized in cost of sales plus inventory write-downs divided by (ii) revenues.

 
Adjusted Gross Margin Reconciliation
(Amounts in thousands, except percentages)
         
        Three
    Three Months Ended April 30,   Months Ended
    2017   2016   January 31, 2017
Revenues $ 1,363,512     $ 1,115,557     $ 920,730  
Cost of revenues 1,077,441     870,571     733,002  
Gross margin 286,071     244,986     187,728  
Add: Interest recognized in cost of sales 40,558     35,722     27,928  
  Inventory write-downs 4,256     6,353     4,661  
Adjusted gross margin $ 330,885     $ 287,061     $ 220,317  
             
Gross margin as a percentage of revenues 20.98 %   21.96 %   20.39 %
             
Adjusted Gross Margin 24.27 %   25.73 %   23.93 %

The Company’s management believes Adjusted Gross Margin is a useful financial measure to investors because it allows them to evaluate the performance of our homebuilding operations without the often varying effects of capitalized interest costs and inventory impairments. The use of Adjusted Gross Margin also assists the Company’s management in assessing the profitability of our homebuilding operations and making strategic decisions regarding community location and product mix.

Forward-looking Adjusted Gross Margin
The Company has not provided projected third quarter and full year fiscal 2017 gross margin or a GAAP reconciliation for forward-looking Adjusted Gross Margin because such measure cannot be provided without unreasonable efforts on a forward-looking basis, since inventory write-downs are based on future activity and observation and therefore cannot be projected for the third quarter or the full fiscal year. The variability of these charges may have a potentially unpredictable, and potentially significant, impact on our third quarter and full year fiscal 2017 gross margin.

Net Debt-to-Capital Ratio
The following table reconciles the Company’s ratio of debt to capital (calculated in accordance with GAAP) to the Company’s net debt-to-capital ratio (a non-GAAP financial measure). The net debt-to-capital ratio is calculated as (i) total debt minus mortgage warehouse loans minus cash and cash equivalents divided by (ii) total debt minus mortgage warehouse loans minus cash and cash equivalents plus stockholders’ equity.

 
Net Debt-to-Capital Ratio Reconciliation
(Amounts in thousands, except percentages)
 
    April 30,   January 31
    2017   2016   2017
Loans payable $ 637,931     $ 711,293     $ 879,894  
Senior notes 2,993,882     2,692,061     2,695,524  
Mortgage company loan facility 61,129     100,000     57,040  
Total debt 3,692,942     3,503,354     3,632,458  
Total stockholders' equity 4,448,088     4,159,139     4,315,114  
Total capital $ 8,141,030     $ 7,662,493     $ 7,947,572  
Ratio of debt-to-capital 45.4 %   45.7 %   45.7 %
             
Total debt $ 3,692,942     $ 3,503,354     $ 3,632,458  
Less: Mortgage company loan facility (61,129 )   (100,000 )   (57,040 )
  Cash and cash equivalents (691,266 )   (423,178 )   (373,469 )
Total net debt 2,940,547     2,980,176     3,201,949  
Total stockholders' equity 4,448,088     4,159,139     4,315,114  
Total net capital $ 7,388,635     $ 7,139,315     $ 7,517,063  
Net debt-to-capital ratio 39.8 %   41.7 %   42.6 %

The Company’s management uses the net debt-to-capital ratio as an indicator of its overall leverage and believes it is a useful financial measure to investors in understanding the leverage employed in the Company’s operations.