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 April 30, 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: 33,905,777 shares as of June 3, 1996
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) 1
as of April 30, 1996 and October 31, 1995
Condensed Consolidated Statements of Income (Unaudited) 2
For the Six Months and Three Months Ended
April 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)For the Six Months Ended
April 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. Other Information 8
SIGNATURES 9
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.
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
-------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 16,882 $ 27,772
Residential inventories 686,829 623,830
Property, construction and office
equipment 12,380 11,898
Receivables, prepaid expenses and
other assets 25,555 25,017
Mortgage notes receivable 3,276 3,940
-------- --------
$744,922 $692,457
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 91,900 $ 59,057
Subordinated notes 215,087 221,226
Customer deposits on sales
contracts 47,385 36,194
Accounts payable 34,167 31,640
Accrued expenses 45,896 46,771
Collateralized mortgage
obligations payable 3,715 3,912
Income taxes payable 29,722 36,998
-------- --------
Total liabilities 467,872 435,798
-------- --------
Shareholders' equity:
Preferred stock
Common stock 339 336
Additional paid-in capital 42,889 38,747
Retained earnings 233,822 217,576
-------- --------
Total shareholders' equity 277,050 256,659
-------- --------
$744,922 $692,457
======== ========
</TABLE>
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months
ended April 30 ended April 30
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Housing sales $286,622 $258,426 $145,208 $137,128
Interest and other 956 1,379 300 360
-------- -------- -------- --------
287,578 259,805 145,508 137,488
-------- -------- -------- --------
Costs and expenses:
Land and housing
construction 219,895 195,244 110,773 103,103
Selling, general &
administrative 32,473 27,182 17,241 13,940
Interest 9,242 9,451 4,741 5,364
-------- -------- -------- --------
261,610 231,877 132,755 122,407
-------- -------- -------- --------
Income before income taxes 25,968 27,928 12,753 15,081
Income taxes 9,722 10,224 4,775 5,636
-------- -------- -------- --------
Net income $ 16,246 $ 17,704 $ 7,978 $ 9,445
======== ======== ========= ========
Net income per share:
Primary $ .47 $ .53 $ .23 $ .28
Fully-diluted $ .46 $ .51 $ .23 $ .27
Weighted average number
of shares
Primary 34,527 33,617 34,506 33,707
Fully-diluted 36,976 36,095 36,929 36,153
</TABLE>
See accompanying notes<PAGE>
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended April 30
--------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $16,246 $17,704
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,602 1,425
Loss (gain) from repurchase of
subordinated notes 117 (523)
Deferred taxes 1,761 483
Net realizable provisions 500 1,500
Changes in operating assets and liabilities:
Increase in residential inventories (61,735) (93,984)
(Increase) decrease in receivables, prepaid
expenses and other assets (1,045) 661
Increase in customer deposits
on sales contracts 11,191 2,761
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 1,652 (2,458)
Decrease in current income taxes payable (8,946) (6,289)
-------- --------
Net cash used in operating activities (38,657) (78,720)
-------- --------
Cash flows from investing activities:
Proceeds from marketable securities, net 3,674
Purchase of property, construction and office
equipment, net (1,707) (900)
Principal repayments of mortgage notes receivable 664 453
-------- --------
Net cash (used in) provided by
investing activities (1,043) 3,227
-------- --------
Cash flows from financing activities:
Proceeds from loans payable 67,000 124,000
Principal payments of loans payable (35,999) (71,474)
Repurchase of subordinated notes (6,139) (3,166)
Principal payments of collateralized mortgage
obligations (197) (558)
Proceeds from stock options exercised and employee
stock plan purchases 4,145 311
-------- --------
Net cash provided by financing activities 28,810 49,113
-------- --------
Net decrease in cash and cash equivalents (10,890) (26,380)
Cash and cash equivalents, beginning of period 27,772 38,026
-------- --------
Cash and cash equivalents, end of period $16,882 $11,646
======== ========
Supplemental disclosures of cash flow information
Interest paid, net of capitalized amount $ 2,675 $ 2,265
======== ========
Income taxes paid $16,110 $15,999
======== ========
Supplemental disclosures of non-cash
financing activities:
Cost of residential inventories acquired through
seller financing $ 1,764 -
======== ========
Income tax benefit relating to exercise of employee
stock options $ 888 $ 30
======== ========
</TABLE>
See accompanying notes<PAGE>
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 April 30, 1996 and 1995, the results of its operations
for the six months and three months then ended and its cash flows for
the six 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:
April 30, October 31,
1996 1995
--------- -----------
<TABLE>
<CAPTION>
<S> <C> <C>
Land and land development costs $181,544 $182,790
Construction in progress 433,941 377,456
Sample homes 36,110 32,448
Land deposits and costs of future
development 15,970 13,555
Loan assets acquired for future
development 4,886 5,157
Deferred marketing and financing
costs 14,378 12,424
-------- --------
$686,829 $623,830
======== ========
</TABLE>
Construction in progress includes the cost of homes under construction,
land and land development and carrying costs of lots that have been
substantially improved.
<PAGE>
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:
Six months Three months
ended April 30 ended April 30
-------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Interest capitalized,
beginning of period $43,142 $39,835 $44,849 $41,548
Interest incurred 12,967 12,417 6,640 6,577
Interest expensed (9,242) (9,451) (4,741) (5,364)
Write off to cost of sales (231) (97) (112) (57)
-------- -------- -------- --------
Interest capitalized,
end of period $46,636 $42,704 $46,636 $42,704
======== ======== ======== ========
</TABLE>
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:
Six months Three months
ended April 30 ended April 30
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Costs and expenses:
Land and housing construction 76.5 75.2 76.1 75.0
Selling, general and
administrative 11.3 10.5 11.8 10.1
Interest 3.2 3.6 3.3 3.9
------ ------ ------ ------
Total costs and expenses 91.0 89.3 91.2 89.0
------ ------ ------ ------
Income before taxes 9.0% 10.7% 8.8% 11.0%
====== ====== ====== ======
Number of homes delivered 806 754 415 390
====== ====== ====== ======
</TABLE>
Revenues for the six month and three month periods ended April 30, 1996 were
higher than those of the comparable periods of 1995 by approximately $27.8
million, or 11%, and $8.0 million, or 6%, 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 and the
larger backlog of homes at the beginning of fiscal 1996 as compared to the
beginning of fiscal 1995.
During the three month period ended April 30, 1996, the average selling price
of the homes delivered decreased as compared to the same period of fiscal
1995. This decrease was the result of a shift in the location of the homes
delivered to less expensive areas, offset in part by increases in selling
prices. For the six months ended April 30, 1996, the average selling price of
homes delivered increased as compared to the six months ended April 30, 1995.
The increase for the six month period was due to the significant increase in
the average price of homes delivered in the three months ended January 31,
1996 over the comparable period of 1995, offset in part by the decrease in the
three months ended April 30, 1996, as previously discussed. The increase in
the average selling price per home delivered in the first quarter of 1996 was
due to a shift of the location of the homes to more expensive areas, a change
in product mix to larger homes and increases in selling prices.
The value of new sales contracts signed amounted to $447 million (1,237 homes)
and $299 million (823 homes) for the six month and three month periods ended
April 30, 1996, respectively. The value of new contracts signed for the
comparable periods of fiscal 1995 were $321 million (903 homes) and $209
million (594 homes), respectively. The increase in 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.
Orders for new homes are generally the strongest during the Company's second
quarter and consequently the backlog at April 30 is generally at its highest
level in the Company's fiscal year. As of April 30, 1996, the backlog of
homes under contract amounted to $561 million (1,509 homes), approximately 30%
higher than the $433 million (1,174 homes) backlog as of April 30, 1995 and
approximately 40% higher than the $401 million (1,078 homes) backlog as of
October 31, 1995. The increase in backlog at April 30, 1996 is primarily
attributable to the increases in the new contracts signed as previously
discussed and the result of delays in the delivery of homes caused by the
severe winter weather conditions that the Company experienced in many of its
markets during the first half of fiscal 1996.
Land and construction costs as a percentage of revenues increased in the six
month and three month periods ended April 30, 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 late spring
and early autumn of 1995 to maintain sales levels. The increased overhead
costs were due to the previously discussed adverse weather conditions which
resulted in increased spending and reduced construction activity. The
effect of the previously mentioned weather conditions and sales incentives on
costs will continue to impact the Company's costs for the remainder of fiscal
1996. The cost increases were partially offset by the lower amount of
inventory writedowns recognized in 1996($1.5 million for the six month period
and $.4 million in the three month period) as compared to 1995 ($2 million in
the six month period and $.5 million in the three month period).
Selling, general and administrative expenses ("SG&A") in the six month and
three month periods ended April 30, 1996 increased over the comparable periods
of 1995 by $5.3 million or 19% and $3.3 million or 24%, 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. In addition, SG&A as a percentage of sales increased
due to the lower than expected number of homes delivered in the 1996 periods
resulting from the previously mentioned adverse weather conditions. The
Company believes that SG&A, as a percentage of revenues, will decrease for the
full 1996 fiscal year as compared to the six month and three month periods
ended April 30, 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 the six month and three month periods
of 1996 as compared to 1995.
Income taxes for the six month period ended April 30, 1996 and 1995 were
provided at effective rates of 37.4% and 36.6%, respectively. For the three
month periods ended April 30, 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 $230 million unsecured revolving credit facility with
fourteen banks which extends through June 2000. The facility reduces by 50%
in June 1999 unless extended as provided for in the agreement. As of April
30, 1996, the Company had $85 million of loans and approximately $22.7 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.
<PAGE>
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
(a) The Company's 1996 Annual Meeting of Shareholders was held on
March 7, 1996.
(b) Not required.
(c) The following proposals were submitted to a vote of
shareholders and were approved by the affirmative vote of a
majority of the shares of common stock of the Company that were
present in person or by proxy, as indicated below.
The approval of Ernst & Young LLP as the Company's independent
auditors for the 1996 fiscal year.
FOR AGAINST ABSTAIN
29,271,881 28,965 15,616
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.
<PAGE>
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: June 12, 1996 By: /s/ Joel H. Rassman
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: June 12, 1996 By: /s/ Joseph R. Sicree
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
TOLL BROTHERS, INC. & SUBSIDIARIES EXHIBIT 11
STATEMENT: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Six Months
ended April 30 ended April 30
-------------- --------------
1996 1995
---- ----
<S> <C> <C>
Net income per income statement $16,246,000 $17,704,000
Addback: Interest on convertible
debentures, net of income taxes 785,000 795,000
----------- -----------
Net income (Fully-diluted) $17,031,000 $18,499,000
=========== ===========
Earnings per share:
Primary $ 0.47 $ 0.53
Fully-diluted $ 0.46 $ 0.51
PRIMARY SHARES:
Weighted average shares outstanding 33,823,950 33,447,960
Common stock equivalents - stock options 702,829 168,995
----------- ----------
TOTAL 34,526,779 33,616,955
=========== ==========
FULLY-DILUTED SHARES:
Weighted average shares outstanding 33,823,950 33,447,734
Common stock equivalents - stock options 717,702 191,253
Shares issuable on conversion of
subordinated debentures 2,434,182 2,456,466
----------- ----------
TOTAL 36,975,834 36,095,453
=========== ==========
</TABLE>
Three Months Three Months
ended April 30 ended April 30
1996 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Net income per income statement $ 7,978,000 $ 9,445,000
Addback: Interest on convertible
debentures, net of income taxes 390,000 395,000
----------- -----------
Net income (Fully diluted) $ 8,368,000 $ 9,840,000
Earnings per share:
Primary $ 0.23 $ 0.28
Fully Diluted $ 0.23 $ 0.27
PRIMARY SHARES:
Weighted average shares outstanding 33,899,709 33,461,796
Common stock equivalents - stock options 606,758 245,269
----------- -----------
TOTAL 34,506,467 33,707,065
=========== ===========
FULLY-DILUTED SHARES:
Weighted average shares outstanding 33,899,709 33,461,796
Common stock equivalents - stock options 606,890 245,286
Shares issuable on conversion of
subordinated debentures 2,422,432 2,445,931
----------- -----------
TOTAL 36,929,031 36,153,013
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794170
<NAME> TOLL BROTHERS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 16,882
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 686,829
<CURRENT-ASSETS> 0
<PP&E> 27,413
<DEPRECIATION> 15,033
<TOTAL-ASSETS> 744,922
<CURRENT-LIABILITIES> 0
<BONDS> 215,087
<COMMON> 339
0
0
<OTHER-SE> 276,711
<TOTAL-LIABILITY-AND-EQUITY> 744,922
<SALES> 286,622
<TOTAL-REVENUES> 287,578
<CGS> 219,895
<TOTAL-COSTS> 252,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,242
<INCOME-PRETAX> 25,968
<INCOME-TAX> 9,722
<INCOME-CONTINUING> 16,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,246
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
