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 July 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: 33,913,482 shares as of September 3, 1996
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) 1
as of July 31, 1996 and October 31, 1995
Condensed Consolidated Statements of Income (Unaudited) 2
For the Nine Months and Three Months Ended
July 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)For the Nine Months Ended
July 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II. Other Information 7
SIGNATURES 8
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.
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
July 31, October 31,
1996 1995
------------ -----------
ASSETS
Cash and cash equivalents $ 55,464 $ 27,772
Residential inventories 738,987 623,830
Property, construction and office
equipment 12,259 11,898
Receivables, prepaid expenses and
other assets 26,369 25,017
Mortgage notes receivable 2,968 3,940
--------- ---------
$836,047 $692,457
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $150,781 $ 59,057
Subordinated notes 208,401 221,226
Customer deposits on sales
contracts 49,192 36,194
Accounts payable 37,473 31,640
Accrued expenses 55,818 46,771
Collateralized mortgage
obligations payable 2,984 3,912
Income taxes payable 38,853 36,998
-------- --------
Total liabilities 543,502 435,798
-------- --------
Shareholders' equity:
Preferred stock
Common stock 339 336
Additional paid-in capital 42,971 38,747
Retained earnings 249,235 217,576
-------- --------
Total shareholders' equity 292,545 256,659
-------- --------
$836,047 $692,457
======== ========
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
Nine months Three months
ended July 31 ended July 31
----------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Housing sales $499,219 $445,030 $212,597 $186,604
Interest and other 1,137 1,703 181 324
-------- -------- -------- --------
500,356 446,733 212,778 186,928
-------- -------- -------- --------
Costs and expenses:
Land and housing construction 383,325 335,561 163,430 140,317
Selling, general &
administrative 50,260 43,393 17,787 16,211
Interest 16,194 15,491 6,952 6,040
-------- -------- -------- --------
449,779 394,445 188,169 162,568
Income before income taxes 50,577 52,288 24,609 24,360
Income taxes 18,918 19,342 9,196 9,118
-------- -------- -------- --------
Net income $ 31,659 $ 32,946 $ 15,413 $15,242
======== ======== ======== ========
Income per share:
Primary $ .92 $ .98 $ .45 $ .45
Fully-diluted $ .89 $ .94 $ .43 $ .43
Weighted average number of shares
Primary 34,496 33,769 34,435 34,074
Fully-diluted 36,910 36,504 36,780 36,605
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months
ended July 31
----------------
1996 1995
------ ------
Cash flows from operating activities:
Net income $ 31,659 $32,946
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,399 1,779
Loss (Gain)from repurchase of subordinated notes 540 (523)
Net realizable provisions 1,000 1,123
Increase in residential inventories (113,366) (108,964)
Increase in receivables, prepaid expenses
and other assets (2,185) (1,236)
Increase in customer deposits on sales contracts 12,998 253
Increase in accounts payable 5,833 1,456
Increase in accrued expenses and other
liabilities 9,047 5,345
Increase in income
taxes payable 1,992 3,024
-------- --------
Net cash used in operating activities (50,083) (64,797)
-------- --------
Cash flows from investing activities:
Proceeds from marketable
securities, net -0- 3,674
Purchase of property, construction and
office equipment, net (2,214) (1,636)
Principal repayments of mortgage notes receivable 972 576
-------- --------
Net cash (used in) provided by investing
activities (1,242) 2,614
--------- --------
Cash flows from financing activities:
Proceeds from loans payable 160,000 151,000
Principal payments of loans payable (71,186) (104,721)
Repurchase of subordinated notes (13,096) (3,166)
Principal payments of collateralized
mortgage obligations (928) (595)
Proceeds from stock options exercised
and employee stock plan purchases 4,227 1,499
--------- --------
Net cash provided by financing activities 79,017 44,017
--------- --------
Net increase (decrease) in cash and cash equivalents 27,692 (18,166)
Cash and cash equivalents, beginning of period 27,772 38,026
--------- --------
Cash and cash equivalents, end of period $ 55,464 $19,860
========= ========
Supplemental disclosures of cash flow information
Interest paid, net of capitalized amount $ 4,104 $ 3,669
========= ========
Income taxes paid $ 16,175 $15,999
========= ========
Supplemental disclosures of non-cash financing
activities:
Cost of residential inventories acquired
through seller financing $ 2,791 $ -0-
========= ========
Income tax benefit relating to exercise
of employee stock options $ 888 $ 318
========= ========
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 on 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 the Company's financial
position as of July 31, 1996 and 1995, the results of its operations for
the nine months and three months then ended and its cash flows for the
nine 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:
July 31, October 31,
1996 1995
---------- -----------
Land and land development costs $162,333 $182,790
Construction in progress 503,151 377,456
Sample homes 35,691 32,448
Land deposits and costs of future
development 18,626 13,555
Loan assets acquired for future
development 4,278 5,157
Deferred marketing and financing
costs 14,908 12,424
--------- ---------
$738,987 $623,830
========= =========
Construction in progress includes the cost of homes under construction,
land and land development 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:
Nine months Three months
ended July 31 ended July 31
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Interest capitalized,
beginning of period $43,142 $39,835 $46,636 $42,704
Interest incurred 19,950 18,856 6,983 6,439
Interest expensed (16,194) (15,491) (6,952) (6,040)
Write off to cost of sales (417) (176) (186) (79)
--------- -------- -------- --------
Interest capitalized,
end of period $46,481 $43,024 $46,481 $43,024
========= ======== ======== ========
3. Loans Payable
In the third quarter of 1996, the Company increased its revolving credit
facility to $250 million. The facility expires in June 2000 and
reduces by 50% in June 1999 unless extended pursuant to the Agreement.
As of July 31, 1996, the Company had $75 million of loans and $24
million of letters of credit outstanding against the facility.
In addition, the Company entered into a five year fixed rate, term loan
with eight banks in the amount of $68,000,000. The loan bears interest
at 7.91%, is due in July 2001 and is subject to the same covenants as
the revolving credit agreement.
4. Net Income Per Share
Net income per share is based on the weighted average number of shares
of common stock and common stock equivalents outstanding. Common stock
equivalents include dilutive stock options. Fully-diluted earnings per
share assumes conversion of the Company's 4 3/4% Convertible
Subordinated Notes at a conversion price of $21.75 per share.
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:
Nine months Three months
ended July 31 ended July 31
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Land and housing construction 76.6 75.1 76.8 75.1
Selling, general and
administrative 10.1 9.7 8.3 8.7
Interest 3.2 3.5 3.3 3.2
----- ----- ----- -----
Total costs and expenses 89.9 88.3 88.4 87.0
----- ----- ----- -----
Income before taxes 10.1% 11.7% 11.6% 13.0%
====== ====== ====== ======
Number of homes delivered 1,391 1,270 585 516
===== ====== ====== ======
Revenues for the nine month and three month periods ended July 31, 1996 were
higher than those of the comparable periods of 1995 by approximately $53.6
million, or 12%, and $25.9 million, or 14%, respectively. The increased
revenues for the 1996 periods were primarily attributable to the increased
number of homes delivered during the periods, which was due to the greater
number of communities from which the Company was delivering homes, the larger
backlog of homes at the beginning of fiscal 1996 as compared to the beginning
of fiscal 1995 and the higher volume of new sales contracts signed in the
first quarter of 1996.
For the nine month and three month periods ended July 31, 1996, the average
selling price of homes delivered increased as compared to the same periods of
fiscal 1995. The average price per home delivered is affected by various
factors such as the location of the homes delivered, size of the home, changes
in selling prices and the amount of options the homebuyer selects.
The value of new sales contracts signed amounted to $653.2 million (1,795
homes) and $206.1 million (558 homes) for the nine month and three month
periods ended July 31, 1996, respectively. The value of new contracts signed
for the comparable periods of fiscal 1995 were $467.8 million (1,303 homes)
and $147.0 million (400 homes), respectively. The increase in the number of
new contracts signed in both periods of 1996 was primarily attributable to an
increase in the number of communities in which the Company was offering homes
for sale and an increase in the number of contracts signed per community.
As of July 31, 1996, the backlog of homes under contract amounted to $554.8
million (1,482 homes), approximately 41% higher than the $393.3 million (1,058
homes) backlog as of July 31, 1995 and approximately 38% higher than the
$400.8 million (1,078 homes) backlog as of October 31, 1995. The increase in
backlog at July 31, 1996 is primarily attributable to the increases in the
number of new contracts signed in fiscal 1996 as compared to fiscal 1995 and
the delays in the delivery of homes caused by the adverse weather conditions
in many of its markets in the first half of the fiscal 1996.
Land and construction costs as a percentage of revenues increased in the nine
month and three month periods ended July 31, 1996 as compared to the same
periods of 1995. The increases were due principally to increased material and
overhead costs and the cost of incentives granted to buyers in the spring and
early autumn of 1995. The increased overhead costs were due principally to
the previously mentioned winter weather conditions which resulted in increased
spending and reduced construction activity. In addition, due to the Company's
expansion in the past two years into California, Texas, Arizona, Florida and
North Carolina, the Company has incurred additional costs associated with the
startup of these areas. The cost increases were partially offset by the lower
amount of inventory writedowns recognized in 1996($2.6 million for the nine
month period and $1.1 million in the three month period) as compared to 1995
($3.5 million in the nine month period and $1.3 million in the three month
period).
Selling, general and administrative expenses ("SG&A") in the nine month and
three month periods ended July 31,1996 increased over the comparable periods
of 1995 by $6.9 million or 16% and $1.6 million or 10%, respectively. These
increases were primarily attributable to the higher level of spending due to
the increased number of communities which the Company was operating during the
1996 periods as compared to the same periods of 1995 and the Company's
geographic expansion. The Company believes that SG&A, as a percentage of
revenues, will decrease for the full 1996 fiscal year as compared to the nine
month period ended July 31, 1996 due to revenues increasing at a faster pace
than SG&A expenses.
Interest expense is determined on a specific home-by-home basis and will vary
depending on many factors including the period of time that the land under the
home 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.
Income taxes for the nine month period ended July 31, 1996 and 1995 were
provided at effective rates of 37.4% and 37.0%, respectively. For the three
month periods ended July 31, 1996 and 1995, income taxes were provided at
effective rates of 37.4% in both periods.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's residential development activities has been
principally provided by cash flows from operations, unsecured bank borrowings
and the public debt and equity markets.
The Company has a $250 million unsecured revolving credit facility with
fifteen banks which extends through June 2000. The facility reduces by 50% in
June 1999 unless extended as provided for in the agreement. As of July 31,
1996, the Company had $75 million of loans and approximately $24 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 Per
Share Earnings.
Exhibit 27. Financial Data Schedule
(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: September 10, 1996 By: /s/ Joel H. Rassman
-------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: September 10, 1996 By: /s/ Joseph R. Sicree
--------------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)