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, 1996
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: 33,895,842 shares as of February 27, 1996
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
January 31, 1996 (Unaudited) and October 31, 1995
Condensed Consolidated Statements of Income (Unaudited) 2
Three Months Ended January 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
Three Months Ended January 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
PART II. Other Information 6
SIGNATURES 7
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Report
and other such Company filings (collectively, "SEC filings") under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended (as well as information communicated orally or in writing between
the dates of such SEC filings) contains or may contain information that is
forward looking, related to subject matter such as national and local
economic conditions, the effect of governmental regulation on the Company,
the competitive environment in which the Company operates, changes in
interest rates, home prices, availability and cost of land for future growth,
availability of working capital and the availability and cost of labor and
materials. Such forward looking information involves important risks and
uncertainties that could significantly affect expected results. These risks
and uncertainties are addressed in this and other SEC filings.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
1996 1995
----------- -----------
(unaudited)
ASSETS
Cash and cash equivalents $ 15,879 $27,772
Residential inventories 646,025 623,830
Property, construction and office
equipment 12,277 11,898
Receivables, prepaid expenses and
other assets 25,484 25,017
Mortgage notes receivable 3,896 3,940
-------- --------
$703,561 $692,457
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 77,129 $ 59,057
Subordinated notes 221,241 221,226
Customer deposits on sales
contracts 34,795 36,194
Accounts payable 25,067 31,640
Accrued expenses 47,479 46,771
Collateralized mortgage
obligations payable 3,867 3,912
Income taxes payable 25,132 36,998
------- -------
Total liabilities 434,710 435,798
------- -------
Shareholders' equity:
Preferred stock
Common stock 339 336
Additional paid-in capital 42,668 38,747
Retained earnings 225,844 217,576
------- -------
Total shareholders' equity 268,851 256,659
-------- --------
$703,561 $692,457
======== ========
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
Three months
ended January 31
----------------
1996 1995
---- ----
Revenues:
Housing sales $141,414 $121,298
Interest and other 656 1,019
-------- --------
142,070 122,317
-------- --------
Costs and expenses:
Land and housing construction 109,122 92,141
Selling, general and
administrative 15,232 13,242
Interest 4,501 4,087
------- -------
128,855 109,470
------- -------
Income before income taxes 13,215 12,847
Income taxes 4,947 4,588
------- --------
Net income $ 8,268 $ 8,259
======= ========
Net income per share:
Primary $ .24 $ .25
Fully-diluted .23 .24
Weighted average number of shares
Primary 34,547 33,527
Fully-diluted 37,023 36,009
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
Three months
ended January 31
----------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $8,268 $ 8,259
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 802 731
Gain from repurchase of subordinated debt (531)
Deferred taxes 700 57
Net realizable value provisions 500 1,500
Changes in operating assets and liabilities
(Increase) in residential inventories (21,204) (59,218)
(Increase)in receivables, prepaid
expenses and other assets (665) (2,308)
(Decrease) increase in customer deposits on
sales contracts (1,399) 370
(Decrease)in accounts payable
accrued expenses and other liabilities (5,865) (2,285)
(Decrease) in current income taxes payable (12,520) (8,624)
-------- --------
Net cash used in operating activities (31,383) (62,049)
-------- --------
Cash flows from investing activities:
Proceeds from sale of marketable securities 546
Purchase of property, construction and office
equipment, net (976) (346)
Principal repayments of mortgage notes receivable 44 244
-------- --------
Net cash (used in) provided by investing activities (932) 444
-------- --------
Cash flows from financing activities:
Proceeds from loans payable 22,167 71,000
Principal payments of loans payable (5,624) (33,036)
Repurchase of subordinated debt (3,166)
Principal payments of collateralized mortgage
obligations (45) (350)
Proceeds from stock options exercised and
employee stock plan purchases 3,924 186
------ -------
Net cash provided by financing activities 20,422 34,634
------ -------
Decrease in cash and cash equivalents (11,893) (26,971)
Cash and cash equivalents, beginning of period 27,772 38,026
------- --------
Cash and cash equivalents, end of period $15,879 $11,055
======= ========
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 316 $ 207
======= ========
Income taxes paid $16,056 $13,195
======= ========
Supplemental disclosures of non-cash financing
activities:
Cost of residential inventories acquired
through seller financing $ 1,491 $ -0-
======= ========
Income tax benefit relating to exercise of
employee stock options $ 757 $ 6
======= ========
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
(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, 1995 balance sheet amounts and disclosures included herein
have been derived from the October 31, 1995 audited financial statements
of the Registrant. Since the accompanying condensed consolidated
financial statements do not include all the information and footnotes
required by generally accepted accounting principles 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, 1995 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, 1996, and the results of its operations and cash flows for the
three months then ended. The results of operations for such interim
period are not necessarily indicative of the results
to be expected for the full year.
2. Residential Inventories
Residential inventories consisted of the following:
January 31, October 31,
1996 1995
----------- -----------
Land and land development costs $187,994 $182,790
Construction in progress 392,472 377,456
Sample homes 32,784 32,448
Land deposits and costs of future
development 14,460 13,555
Loan assets acquired for future development 5,017 5,157
Deferred marketing costs 13,298 12,424
-------- --------
$646,025 $623,830
======== ========
Construction in progress includes the cost of homes under construction, land
and land development costs and 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 inventories are closed. Interest
incurred, capitalized and expensed is summarized as follows:
Three months
ended January 31
----------------
1996 1995
------ ------
Interest capitalized, beginning of period $43,142 $39,835
Interest incurred 6,327 5,840
Interest expensed (4,501) (4,087)
Write off to cost of sales and other (119) (40)
-------- --------
Interest capitalized, end of period $44,849 $41,548
======== ========
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement items related to the Company's operations as percentages of total
revenues and certain other data:
Three months
ended January 31
----------------
1996 1995
---- ----
Revenues 100.0% 100.0%
Costs and expenses:
Land and housing construction 76.8 75.3
Selling, general and administrative 10.7 10.8
Interest 3.2 3.4
----- -----
Total costs and expenses 90.7 89.5
----- -----
Income before taxes 9.3% 10.5%
===== =====
Number of homes delivered 391 364
===== =====
Revenues for the three months ended January 31, 1996 amounted to $142.1 million
compared to $122.3 million reported in the first quarter of fiscal 1995.
This increase was due primarily to the increase in the average selling price
per home and an increase in the number of homes delivered in the first
quarter of 1996 over the first quarter of 1995. The increase in the average
selling price per home delivered in the first quarter of 1996 was the result
of a shift in the location of homes closed to more expensive areas, a change
in product mix to larger homes and increases in selling prices. The higher
deliveries in the 1996 first quarter was due primarily to the
greater number of communities from which the Company was delivering homes.
As of January 31, 1996, the backlog of homes under contract amounted to $407.3
million (1,101 homes), approximately 13% higher than the $360.9 million (970
homes) backlog as of January 31, 1995. The aggregate sales value of new
contracts signed in the first quarter of fiscal 1996 amounted to $147.9
million (414 homes), an increase of approximately 33% over the $111.6 million
(309 homes) signed in the first quarter of 1995. The increase in new
contracts signed and backlog in 1996 over 1995 was primarily attributable to
the increase in the number of communities in which the
Company was offering homes for sale.
Land and housing construction costs as a percentage of revenues increased in the
first quarter of 1996 as compared to 1995 due principally to increased land
and land development costs, increased material costs and increased overhead
costs caused by weather conditions in the first quarter of 1996 which
resulted in increased spending as well as reducing construction activity.
The increase was partially offset by the lower amount of inventory writedowns
recognized in fiscal 1996 ($1.1 million) over fiscal 1995 ($1.5 million).
Selling, general and administrative expenses ("SG&A") in the 1996 quarter
amounted to $15.2 million, an increase of $2.0 million over the 1995 first
quarter. This increase was primarily attributable to the higher level of
spending due to the increased number of communities which the Company was
operating during the 1996 quarter as compared to 1995. The Company
anticipates that SG&A as a percentage of revenues will decrease for
the full fiscal 1996 year as compared to the first quarter of 1996, due to
revenues increasing at a faster pace than SG&A expenses.
Interest expense is determined on a specific house-by-house basis and will vary
depending on many factors including the period of time that the land was owned,
the period of time that the house was 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. As a percentage of revenues,
interest expense was lower in 1996 as compared to 1995. The decline was
principally the result of an increase in the average price of homes closed
in 1996 over 1995 offset in part by higher interest costs
allocated to the homes closed in 1996.
Income Taxes
Income taxes for fiscal 1996 and 1995 were provided at effective rates of
37.4% and 35.7%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's residential development activities has been
principally provided by cash flows from homebuilding operations, unsecured
bank borrowings, and from the public debt and equity markets.
The Company has a $230 million unsecured revolving credit facility with fourteen
banks which extends through June 2000. The facility reduces by 50% in June
1998 unless extended as provided for in the agreement. As of
January 31, 1996, the Company had $69 million of loans and approximately
$25.1 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 operating cash flow and existing sources of credit.
PART II. Other Information
ITEM 1. Legal Proceedings - None.
ITEM 2. Changes in Securities - None.
ITEM 3. Defaults upon Senior Securities - None.
ITEM 4. Submission of Matters to a Vote of Security Holders - None.
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement regarding Computation of Earnings Per Share
(b) Reports on Form 8-K
None
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 7, 1996 By: /s/ Joel H. Rassman
-------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 7, 1996 By: /s/ Joseph R. Sicree
-------------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)