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, 1997
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: 34,014,730 shares as of February 24, 1997
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
January 31, 1997 (Unaudited) and October 31, 1996
Condensed Consolidated Statements of Income (Unaudited) 2
Three Months Ended January 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
Three Months Ended January 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II. Other Information 8
SIGNATURES 9
STATEMENT OF FORWARD-LOOKING INFORMATION
Certain information included herein and in other Company statements, reports
and S.E.C. filings is forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995, including, but not limited to,
statements concerning anticipated operating results, financial resources,
growth and expansion. Such forward-looking information involves important
risks and uncertainties that could significantly affect actual results and cause
them to differ materially from expectations expressed therein. These risks and
uncertainties include local, regional and national economic conditions, the
effects 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,
the availability and cost of labor and materials, and weather
conditions.
<PAGE>
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
1997 1996
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $85,709 $22,891
Residential inventories 808,607 772,471
Property, construction and office
equipment 14,467 12,948
Receivables, prepaid expenses and
other assets 26,838 26,783
Mortgage notes receivable 2,706 2,833
-------- --------
$938,327 $837,926
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable $132,645 $132,109
Subordinated notes 307,691 208,415
Customer deposits on sales
contracts 43,004 43,387
Accounts payable 32,940 42,423
Accrued expenses 62,588 58,211
Collateralized mortgage
obligations payable 2,695 2,816
Income taxes payable 29,524 35,888
-------- --------
Total liabilities 611,087 523,249
-------- --------
Shareholders' equity:
Preferred stock
Common stock 340 339
Additional paid-in capital 44,255 43,018
Retained earnings 282,645 271,320
-------- --------
Total shareholders' equity 327,240 314,677
-------- --------
$938,327 $837,926
======== ========
</TABLE>
See accompanying notes<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three months
ended January 31
----------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Housing sales $201,437 $141,414
Interest and other 1,083 656
-------- --------
202,520 142,070
-------- --------
Costs and expenses:
Land and housing construction 155,381 109,122
Selling, general and
administrative 18,820 15,232
Interest 6,137 4,501
-------- --------
180,338 128,855
-------- --------
Income before income taxes and
extraordinary loss 22,182 13,215
Income taxes 8,085 4,947
-------- -------
Income before extraordinary loss $ 14,097 $ 8,268
Extraordinary loss from extinguishment
of debt, net of income taxes of $1,659 2,772
-------- --------
Net income $ 11,325 $ 8,268
======== ========
Earnings per share
Primary
Income before extraordinary loss $ .41 $ .24
Extraordinary loss from extinguishment
of debt .08
-------- --------
Net income $ .33 $ .24
======== ========
Fully-diluted
Income before extraordinary loss $ .39 $ .23
Extraordinary loss from extinguishment of
debt .07
-------- --------
Net income $ .32 $ .23
======== ========
Weighted average number of shares
Primary 34,682 34,547
Fully-diluted 37,027 37,023
</TABLE>
See accompanying notes
<TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
<CAPTION>
Three months
ended January 31
----------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $11,325 $8,268
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 928 802
Deferred taxes 624 700
Extraordinary loss from extinguishment of debt 4,431
Net realizable value provisions 500
Changes in operating assets and liabilities
Increase in residential inventories (32,192) (21,204)
Increase in receivables, prepaid
expenses and other assets (328) (665)
Decrease in customer deposits on
sales contracts (383) (1,399)
Decrease in accounts payable
accrued expenses and other liabilities (7,740) (5,865)
Decrease in current income taxes payable (6,942) (12,520)
--------- --------
Net cash used in operating activities (30,277) (31,383)
--------- --------
Cash flows from investing activities:
Purchase of property, construction and office
equipment, net (2,179) (976)
Principal repayments of mortgage notes receivable 127 44
-------- --------
Net cash used in investing activities (2,052) (932)
-------- --------
Cash flows from financing activities:
Proceeds from loans payable 22,167
Principal payments of loans payable (3,470) (5,624)
Net proceeds from issuance of
senior subordinated notes 97,500
Principal payments of collateralized mortgage
obligations (121) (45)
Proceeds from stock options exercised and
employee stock plan purchases 1,238 3,924
------- -------
Net cash provided by financing activities 95,147 20,422
------- -------
Increase (decrease)in cash and cash equivalents 62,818 (11,893)
Cash and cash equivalents, beginning of period 22,891 27,772
------- -------
Cash and cash equivalents, end of period $85,709 $15,879
======= =======
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 428 $ 316
======= =======
Income taxes paid $12,501 $16,056
======= =======
Supplemental disclosures of non-cash financing
activities:
Cost of residential inventories acquired
through seller financing $ 3,944 $ 1,491
======= =======
Income tax benefit relating to exercise of
employee stock options $ 243 $ 757
======= =======
See accompanying notes<PAGE>
</TABLE>
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, 1996 balance sheet amounts and disclosures included herein
have been derived from the October 31, 1996 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, 1996
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, 1997, 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.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FASB 121"). The new rules establish standards for the recognition and
measurement of impairment losses on long-lived assets. The Company
adopted FASB 121 as of November 1, 1996. The adoption did not result in
the recognition of an impairment loss.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("FASB 123") establishes a fair value based
method of accounting for stock-based compensation plans, including stock
options. FASB 123 allows the Company to continue accounting for stock
option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") but requires it to provide proforma net income and earnings per
share information "as if" the new fair value approach had been adopted.
These proforma disclosures will be presented in the Registrant's
October 31, 1997 Annual Report to Shareholders. Because the Company
intends to continue accounting for its stock option plans
under APB 25, there is no impact on the Company's consolidated financial
statements resulting from adoption.
<PAGE>
2. Residential Inventories
Residential inventories consisted of the following:
<TABLE>
January 31, October 31,
1997 1996
----------- -----------
<S> <C> <C>
Land and land development costs $191,457 $204,527
Construction in progress 535,734 491,552
Sample homes 42,431 40,017
Land deposits and costs of future development 17,809 16,243
Loan assets acquired for future development 4,088 4,106
Deferred marketing and financing costs 17,088 16,026
-------- --------
$808,607 $772,471
======== ========
</TABLE>
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:
[CAPTION]
Three months
ended January 31
----------------
1997 1996
---- ----
<TABLE>
<S> <C> <C>
Interest capitalized, beginning of period $46,191 $43,142
Interest incurred 9,225 6,327
Interest expensed (6,137) (4,501)
Write off to cost of sales and other (81) (119)
-------- --------
Interest capitalized, end of period $49,198 $44,849
======== ========
</TABLE>
3. Extraordinary loss from extinguishment of debt
In January 1997, the Company called for redemption on March 15, 1997 of
all of its outstanding 10 1/2% Senior Subordinated Notes due 2002 at 103%
of principal amount plus accrued interest. The redemption resulted in an
extraordinary loss of $2,772,000, net of 1,659,000 of income taxes. The
loss represents the redemption premium and a write-off of unamortized
deferred issuance costs. The redemption and related refinancing will
result in the reduction of the Company's interest costs of approximately
$2 million annually.
<PAGE>
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:
<TABLE>
<CAPTION>
Three months
ended January 31
----------------
1997 1996
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
----- -----
Costs and expenses:
Land and housing construction 76.7 76.8
Selling, general and administrative 9.3 10.7
Interest 3.0 3.2
----- -----
Total costs and expenses 89.0 90.7
Income before taxes 11.0% 9.3%
===== =====
</TABLE>
Revenues for the three months ended January 31, 1997 amounted to $202.5 million
compared to $142.1 million reported in the first quarter of fiscal 1996. This
increase was due primarily to an increase in the number of homes delivered
in the first quarter of 1997 over the first quarter of 1996 and the increase
in the average selling price per home. The higher deliveries in the 1997
first quarter were due primarily to the higher backlog of homes at
October 31, 1996 as compared to October 31, 1995, which was the result of the
greater number of homes sold in fiscal 1996 over fiscal 1995. The increase
in the average selling price per home delivered in the first quarter of 1997
was the result of shifts in the location of homes closed to more expensive
areas, changes in product mix to larger homes and increases in selling
prices.
As of January 31, 1997, the backlog of homes under contract amounted to
$498.3 million (1,259 homes), approximately 22% higher than the $407.3
million (1,101 homes) backlog as of January 31, 1996. The aggregate sales
value of new contracts signed in the first quarter of fiscal 1997 amounted
to $173.5 million (442 homes), an increase of approximately 17% over the
$147.9 million (414 homes) signed in the first quarter of 1996.
Land and housing construction costs as a percentage of revenues decreased in
the first quarter of 1997 as compared to 1996 due principally to decreased
land and land development costs and decreased overhead costs offset in part
by increased material costs. The decreased overhead costs were principally
a result of better weather conditions in 1997 versus 1996.
As of November 1, 1996, the Company adopted FASB 121 as its valuation
criteria for its inventory. The Company had historically reviewed its
inventory on a quarterly basis using an evaluation criteria that it believed
was more conservative than those required by FASB 121. Accordingly, the
adoption of FASB 121 did not result in the recognition of an impairment loss.
Selling, general and administrative expenses ("SG&A") in the 1997 quarter
decreased as a percentage of revenues as compared to the first quarter of
1996. This decrease was attributable to revenues increasing at a faster
rate than SG&A spending.
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 under
the home was owned, the length 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 1997 as compared to 1996.
Income Taxes
Income taxes for fiscal 1997 and 1996 were provided at effective rates of
36.4% and 37.4%, respectively. The decrease in the effective tax rate in
1997 was the result of non-taxable investment income. The Company does not
expect to have this income in the subsequent quarters of 1997 due to the
Company's use of its available funds to redeem its 10 1/2% Senior
Subordinated Notes in March 1997.
Extraordinary loss from extinguishment of debt
In January 1997, the Company called for redemption on March 15, 1997 of all
of its outstanding 10 1/2% Senior Subordinated Notes due 2002 at 103% of
principal amount plus accrued interest. The redemption resulted in an
extraordinary loss of $2,772,000, net of 1,659,000 of income taxes. The
loss represents the redemption premium and a write-off of unamortized
deferred issuance costs. The redemption and related refinancing will
result in the reduction of the Company's interest costs of approximately
$2 million annually. (See - "Capital Resources and Liquidity" below).
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 $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
January 31, 1997, the Company had $50 million of loans and approximately
$25 million of letters of credit outstanding under the facility.
In November 1996, the Company issued $100 million of 8 3/4% Senior Subordinated
Notes due 2006. In addition, in August 1996, the Company secured a
$50 million forward commitment for a five year term loan, priced at 7.82%, to
be drawn down on March 17, 1997. The Company expects to use the proceeds
from these sources of funds to redeem the $87.8 million of 10 1/2% Senior
Subordinated Notes due 2002.
The Company believes that it will be able to fund its activities through a
combination of existing cash resources, operating cash flow and existing
sources of credit.
<TABLE>
<CAPTION>
HOUSING DATA
(Dollars in thousands)
New Contracts Closings
Three Months Ended Contract Backlog Three Months Ended
January 31 January 31 January 31
------------------ ---------------- -------------------
1997 1996 1997 1996 1997 1996
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales value $173,515 $147,893 $498,272 $407,297 $201,437 $141,414
Homes 442 414 1,259 1,101 550 391
</TABLE>
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
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated November 6, 1996 filed for the purpose of filing as
exhibits an Indenture, dated as of November 12, 1996, among Toll
Corp., as Issuer, Toll Brothers, Inc. as Guarantor, and NBD Bank,
as Trustee, and Authorizing Resolutions dated as of
November 6, 1996, which collectively constitute the Indenture
terms relating to the 8 3/4 % Senior Subordinated Notes due 2006
of Toll Corp.
<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: March 4, 1997 By: /s/ Joel H. Rassman
------------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 4, 1997 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
Three Months Ended
January 31,
1997 1996
---- ----
Income before extraordinary loss
per income statement $ 14,097 $ 8,268
Addback: Interest on convertible
debentures, net of income taxes 378 395
-------- --------
Income before extraordinary loss (Fully diluted) $ 14,475 $ 8,663
======== ========
Per share:
Primary $ 0.41 $ 0.24
Fully Diluted $ 0.39 $ 0.23
PRIMARY SHARES:
Weighted average shares outstanding 33,945 33,748
Common stock equivalents - stock options 737 799
-------- --------
TOTAL 34,682 34,547
======== ========
FULLY DILUTED SHARES:
Weighted average shares outstanding 33,945 33,748
Common stock equivalents - stock options 737 829
Shares issuable on conversion of
subordinated debentures 2,345 2,446
------- -------
TOTAL 37,027 37,023
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794170
<NAME> TOLL BROTHERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 85,709
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 808,607
<CURRENT-ASSETS> 0
<PP&E> 31,225
<DEPRECIATION> 16,758
<TOTAL-ASSETS> 938,327
<CURRENT-LIABILITIES> 0
<BONDS> 307,691
<COMMON> 340
0
0
<OTHER-SE> 326,900
<TOTAL-LIABILITY-AND-EQUITY> 938,327
<SALES> 201,437
<TOTAL-REVENUES> 202,520
<CGS> 155,381
<TOTAL-COSTS> 174,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,137
<INCOME-PRETAX> 22,182
<INCOME-TAX> 8,085
<INCOME-CONTINUING> 14,097
<DISCONTINUED> 0
<EXTRAORDINARY> 2,772
<CHANGES> 0
<NET-INCOME> 11,325
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
