SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED January 31, 2001
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 1-9186
TOLL BROTHERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2416878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006
(Address of principal executive offices) (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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value: 36,480,124 shares as of February 28, 2001
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
Statement of Forward Looking Information 1
PART I. Financial Information 2
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 2
January 31, 2001 (Unaudited) and October 31, 2000
Condensed Consolidated Statements of Income (Unaudited) 3
Three Months Ended January 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows (Unaudited) 4
Three Months Ended January 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. Other Information 13
SIGNATURES 14
STATEMENT OF FORWARD-LOOKING INFORMATION
Certain information included herein and in other Company reports, SEC
filings, statements and presentations is forward-looking within the meaning
of the Private Securities Litigation Reform Act of 1995, including, but not
limited to, statements concerning the Company's anticipated operating
results, financial resources, changes in revenues, changes in profitability,
interest expense, growth and expansion, ability to acquire land, ability to
sell homes and properties, ability to deliver homes from backlog, ability to
secure materials and subcontractors and stock market valuations. Such
forward-looking information involves important risks and uncertainties that
could significantly affect actual results and cause them to differ materially
from expectations expressed herein and in other Company reports, SEC filings,
statements and presentations. These risks and uncertainties include local,
regional and national economic conditions, the effect of governmental
regulation, the competitive environment in which the Company operates,
fluctuations in interest rates, changes in home prices, the availability and
cost of land for future growth, the availability of capital, fluctuations in
capital and securities markets, the availability and cost of labor and
materials, and weather conditions.
Additional information concerning potential factors that the Company believes
could cause its actual results to differ materially from expected and
historical results is included under the caption "Factors That May Affect Our
Future Results" in Item 1 of our Annual Report on Form 10-K for the fiscal
year ended October 31, 2000. If one or more of the assumptions underlying our
forward-looking statements proves incorrect, then the Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by the forward-looking statements contained in this report.
Therefore, we caution you not to place undue reliance on our forward-looking
statements. This statement is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
2001 2000
(Unaudited)
ASSETS
Cash and cash equivalents $ 229,451 $ 161,860
Inventory 1,846,120 1,712,383
Property, construction and office
equipment-net 26,150 24,075
Receivables, prepaid expenses and
other assets 122,811 113,025
Investments in unconsolidated entities 17,403 18,911
$2,241,935 $2,030,254
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable $ 327,389 $ 326,537
Subordinated notes 669,520 469,499
Customer deposits on sales
contracts 105,527 104,924
Accounts payable 85,324 110,927
Accrued expenses 183,051 185,141
Income taxes payable 69,290 88,081
Total liabilities 1,440,101 1,285,109
Stockholders' equity:
Common stock 365 359
Additional paid-in capital 108,786 105,454
Retained earnings 708,533 668,608
Treasury stock (15,850) (29,276)
Total stockholders' equity 801,834 745,145
$2,241,935 $2,030,254
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three months
ended January 31
2001 2000
Revenues:
Housing sales $458,369 $334,220
Land sales 10,907 9,025
Equity earnings in unconsolidated joint venture 2,386
Interest and other 3,599 1,306
475,261 344,551
Costs and expenses:
Housing sales 344,813 257,794
Land sales 8,540 7,039
Selling, general and administrative 46,949 35,457
Interest 11,764 8,933
412,066 309,223
Income before income taxes 63,195 35,328
Income taxes 23,270 12,935
Net income $ 39,925 $ 22,393
Earnings per share:
Basic: $ 1.10 $ .61
Diluted: $ 1.01 $ .61
Weighted average number of shares
Basic 36,163 36,471
Diluted 39,415 36,909
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three months
ended January 31
2001 2000
Cash flows from operating activities:
Net income $39,925 $22,393
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,265 2,093
Equity in earnings of unconsolidated joint ventures (2,386)
Deferred tax provision 1,685 1,768
Changes in operating assets and liabilities:
Increase in inventory (136,047) (110,744)
Origination of mortgage loans (26,186)
Sale of mortgage loans 24,877
Increase in receivables, prepaid
expenses and other assets (5,800) (5,746)
Increase in customer deposits on sales contracts 603 3,806
Decrease in accounts payable and
accrued expenses (23,279) (14,416)
Decrease in current income taxes payable (16,165) (9,333)
Net cash used in operating activities (140,508) (110,179)
Cash flows from investing activities:
Purchase of property, construction and office
equipment, net (3,396) (2,539)
Distribution from investment in
unconsolidated joint venture 8,750
Net cash provided by (used in) investing activities 5,354 (2,539)
Cash flows from financing activities:
Proceeds from loans payable 40,000 105,060
Principal payments of loans payable (42,268) (52,082)
Net proceeds from issuance of
senior subordinated notes 196,975
Proceeds from stock-based benefit plans 9,680 134
Purchase of treasury stock (1,642) (1,577)
Net cash provided by financing activities 202,745 51,535
Increase (decrease) in cash and cash equivalents 67,591 (61,183)
Cash and cash equivalents, beginning of period 161,860 96,484
Cash and cash equivalents, end of period $229,451 $ 35,301
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for interim financial information. The October 31,
2000 balance sheet amounts and disclosures included herein have been derived
from the October 31, 2000 audited financial statements of the Registrant.
Since the accompanying condensed consolidated financial statements do not
include all the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements, it
is suggested that they be read in conjunction with the financial statements
and notes thereto included in the Registrant's October 31, 2000 Annual Report
to Shareholders. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements include all adjustments, which
are of a normal recurring nature, necessary to present fairly the Company's
financial position as of January 31, 2001, and the results of its operations
and cash flows for the three months ended January 31, 2001 and 2000. The
results of operations for such interim periods are not necessarily indicative
of the results to be expected for the full year.
2. Inventory
Inventory consisted of the following (amounts in thousands):
January 31, October 31,
2001 2000
Land and land development costs $ 613,086 $ 558,503
Construction in progress 1,068,210 992,098
Sample homes 67,182 60,511
Land deposits and costs of future
development 63,996 68,560
Deferred marketing costs 33,646 32,711
$1,846,120 $1,712,383
Construction in progress includes the cost of homes under construction, land
and land development costs and the carrying costs of lots that have been
substantially improved.
The Company capitalizes certain interest costs to inventories during the
development and construction period. Capitalized interest is charged to
interest expense when the related inventory is delivered to a customer.
Interest incurred, capitalized and expensed is summarized as follows
(amounts in thousands):
Three months
ended January 31
2001 2000
Interest capitalized, beginning of period $ 78,443 $ 64,984
Interest incurred 16,913 14,193
Interest expensed (11,764) (8,933)
Write-off to cost of sales and other (56)
Interest capitalized, end of period $83,592 $ 70,188
3. Earnings Per Share
Information pertaining to the calculation of earnings per share for the three
months ended January 31, 2001 and 2000 is as follows (amounts in thousands):
2001 2000
Basic weighted average shares 36,163 36,471
Common stock equivalents 3,252 438
Diluted weighted average shares 39,415 36,909
4. Subordinated Notes
In January 2001, the Company issued $200,000,000 of 8 1/4 % Senior Subordinated
Notes due 2011. The Company will use the proceeds for general corporate
purposes including the acquisition of inventory.
5. Stock Repurchase Program
The Company's Board of Directors has authorized the repurchase of up to
5,000,000 shares of the Company's Common Stock, par value $.01, from time to
time, in open market transactions or otherwise, for the purpose of providing
shares for the Company's various employee benefit plans. As of January 31,
2001, the Company had repurchased approximately 46,000 shares under the
program.
6. Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for
the three months ended January 31, 2001 and 2000 (amounts in thousands):
2001 2000
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 3,045 $ 3,414
Income taxes paid $ 37,750 $ 20,500
Supplemental disclosures of non-cash activities:
Cost of residential inventories acquired
through seller financing $ 4,500 $ 2,893
Investment in unconsolidated
subsidiary acquired through seller financing $ 3,000
Income tax benefit relating to exercise of
employee stock options $ 4,312 $ 422
Stock bonus awards $ 4,413 $ 1,395
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended January 31, 2001
and 2000, certain income statement items related to the Company's operations:
Three months ended January 31,
2001 2000
$ % $ %
(millions) (millions)
Housing sales
Revenues 458.4 334.2
Costs 344.8 75.2 257.8 77.1
Land sales
Revenues 10.9 9.0
Costs 8.5 78.3 7.0 78.0
Equity earning in unconsolidated
joint venture 2.4 -
Interest and other 3.6 1.3
Total revenues 475.3 344.6
Selling, general and
administrative expenses* 46.9 9.9 35.5 10.3
Interest expense* 11.8 2.5 8.9 2.6
Total costs and expenses* 412.1 86.7 309.2 89.7
Income before income taxes 63.2 13.3 35.3 10.3
Note: Due to rounding, amounts may not add.
* Percentages are based on total revenues.
HOUSING SALES
Housing revenues for the three months ended January 31, 2001 increased $124.1
million, or 37%, over housing revenues for the three months ended January 31,
2000. This increase was the result of a 22% increase in units delivered and a
13% increase in the average price of the homes delivered. The increase in the
number of homes delivered was the result of the larger backlog of homes to be
delivered at the beginning of the 2001 period as compared to the beginning of
the 2000 period. The increased backlog was the result of the 31% increase in
contracts signed in fiscal 2000 over fiscal 1999. The increase in the average
price of the homes delivered was the result of increases in selling price due
to increases in base sales prices and a shift in the location of homes
delivered to more expensive areas.
The aggregate sales value of contracts signed during the three months ended
January 31, 2001 amounted to $448.0 million (883 homes), a 14% increase over
the same period in fiscal 2000. This increase is primarily the result of an
increase in the average price of homes sold (due primarily to increases in
base selling prices and a shift in the location of homes sold to more
expensive areas) and a slight increase in the number of contracts signed.
As of January 31, 2001, the backlog of homes under contract but not delivered
amounted to $1.42 billion (2,678 homes), a 27% increase over the $1.12
billion (2,431 homes) backlog as of January 31, 2000.
Housing costs as a percentage of housing sales decreased in fiscal 2001 as
compared to the comparable period of fiscal 2000. The decrease was largely
the result of selling prices increasing at a greater rate than costs, lower
land and improvement costs and improved operating efficiencies offset in part
by higher inventory write-offs. The Company incurred $2.7 million in
write-offs in the three-month period of fiscal 2001 as compared to $2.0
million in the comparable period of fiscal 2000.
Based upon the aforementioned 37% increase in first quarter 2001 housing
revenues and the 27% increase in backlog as of January 31, 2001, the Company
expects homebuilding revenues to be higher in fiscal 2001 as compared to
fiscal 2000.
LAND SALES
The Company operates a land development and sales operation in Loudoun County,
Virginia. The Company is also developing several master planned communities in
which it may sell land to other builders. The amount of land sales will vary
from quarter to quarter depending upon the scheduled timing of the delivery
of the land parcels. Land sales amounted to $10.9 million for the three
months ended January 31, 2001, a 21% increase over the comparable quarter of
2000.
INTEREST AND OTHER INCOME
For the three months ended January 31, 2001, other income increased $2.3
million as compared to the three-months ended January 31, 2000. This
increase was primarily the result of an increase in interest income due to
the investment of available cash and increased earnings from the Company's
ancillary businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
SG&A spending increased by $11.5 million, or 33%, in the three months ended
January 31, 2001 as compared to the three months ended January 31, 2000.
This increased spending was primarily due to the increase in the level of
construction and sales activities in the fiscal 2001 period as compared to
the fiscal 2000 period.
INTEREST EXPENSE
The Company determines interest expense on a specific lot-by-lot basis for its
homebuilding operations and on a parcel-by-parcel basis for its land sales.
As a percentage of total revenues, interest expense will vary depending on
many factors including the period of time that the land was owned, the length
of time that the homes delivered during the period were under construction,
and the interest rates and the amount of debt carried by the Company in
proportion to the amount of its inventory during those periods. Interest
expense as a percentage of revenues was slightly lower in the fiscal 2001
period compared to the comparable period of fiscal 2000.
INCOME TAXES
Income taxes were provided at an effective rate of 36.8% and 36.6% in the
first quarter of fiscal 2001 and fiscal 2000, respectively.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's operations has been principally provided by cash
flows from operations, unsecured bank borrowings, and from the public debt
and equity markets.
Cash flow from operations, before inventory additions, has improved as
operating results have improved. The Company anticipates that the cash flow
from operations, before inventory additions, will continue to improve as a
result of an increase in revenues from the delivery of homes from its
existing backlog as well as from new sales contracts and
land sales. The Company has used the cash flow from operations, bank
borrowings and public debt to acquire additional land for new communities,
to fund additional expenditures for land development and construction needed
to meet the requirements of the increased backlog and continuing expansion of
the number of communities in which the Company is offering homes for sale, to
reduce debt and repurchase its Common Stock. The Company expects that
inventories will continue to increase and is currently negotiating and
searching for additional opportunities to obtain control of land for future
communities.
The Company has a $465 million unsecured revolving credit facility with
sixteen banks which extends through February 2003. As of January 31, 2001,
the Company had $80 million of loans and approximately $34.3 million of
letters of credit outstanding under the facility. The Company believes that
it will be able to fund its activities through a combination of existing cash
resources, cash flow from operations and other sources of credit similar in
nature to those the Company has accessed in the past.
In January 2001, the Company issued $200 million of 8 1/4% Senior
Subordinated Notes due 2011 to the public. The Company will use the proceeds
for general corporate purposes including the acquisition of inventory.
HOUSING DATA
New Contracts
Three months ended January 31,
2001 2000
units $000 units $000
Northeast (MA, RI, NH, CT, NY, NJ) 180 $ 92,759 229 $107,416
Mid-Atlantic (PA, DE, MD, VA) 309 146,397 250 114,274
Midwest (OH, IL, MI) 109 45,829 101 41,623
Southeast (FL, NC, TN) 76 40,153 63 30,901
Southwest (AZ, NV, TX) 111 59,604 152 56,627
West Coast (CA) 98 63,256 69 40,737
Total 883 $447,998 864 $391,578
New contract amounts for the three months ended January 31, 2001 and 2000
include $4,333,000 (15 homes) and $4,759,000 (18 homes), respectively, from
an unconsolidated joint venture.
Closings
Three months ended January 31,
2001 2000
units $000 units $000
Northeast (MA, RI, NH, CT, NY, NJ) 244 $118,685 223 $99,684
Mid-Atlantic (PA, DE, MD, VA) 304 139,806 272 116,730
Midwest (OH, IL, MI) 92 39,865 75 24,056
Southeast (FL, NC, TN) 113 50,536 50 23,273
Southwest (AZ, NV, TX) 128 55,795 155 55,680
West Coast (CA) 90 53,682 24 14,797
Total 971 $458,369 799 $334,220
Backlog
As of January 31,
2001 2000
units $000 units $000
Northeast (MA, RI, NH, CT, NY, NJ) 659 $ 341,660 729 $353,949
Mid-Atlantic (PA, DE, MD, VA) 684 325,811 670 308,940
Midwest (OH, IL, MI) 315 149,535 251 96,659
Southeast (FL, NC, TN) 275 136,248 175 84,189
Southwest (AZ, NV, TX) 400 213,136 417 171,179
West Coast (CA) 345 254,542 189 106,683
Total 2,678 $1,420,932 2,431 $1,121,599
Backlog amounts as of January 31, 2001 and 2000 include $10,116,000
(35 homes) and $15,067,000 (57 homes) respectively, from an unconsolidated
50% owned joint venture.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 4.1 - *Indenture dated as of January 25, 2001 among Toll Corp.,
as issuer, the Registrant, as guarantor and Bank One Trust
Company, as trustee, including form of guarantee
(b) Reports on Form 8-K
During the quarter ended January 31, 2001, the
Company filed a current report on Form 8-K on
January 24, 2001, reporting under items five and
seven, for the purpose of filing documents
pertaining to Toll Corp.'s issuance of
$200,000,000 of 8 1/4% Senior Subordinated
Notes due 2011 guaranteed on a senior
subordinated basis by Toll Brothers, Inc.
* Filed electronically herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOLL BROTHERS, INC.
(Registrant)
Date: March 12, 2001 By: /s/ Joel H. Rassman
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 12, 2001 By: /s/ Joseph R. Sicree
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)