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, 1998
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: 36,957,064 shares as of February 24, 1998
<PAGE>
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
January 31, 1998 (Unaudited) and October 31, 1997
Condensed Consolidated Statements of Income (Unaudited) 2
Three Months Ended January 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
Three Months Ended January 31, 1998 and 1997
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 herein and in
other Company statements, reports and S.E.C. filings. 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>
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $94,312 $147,575
Residential inventories 979,623 921,595
Property, construction and office
equipment 14,871 15,074
Receivables, prepaid expenses and
other assets 34,340 31,793
Mortgage notes receivable 2,452 2,589
$1,125,598 $1,118,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable $184,292 $189,579
Subordinated notes 269,234 319,924
Customer deposits on sales
contracts 56,466 52,698
Accounts payable 42,653 48,600
Accrued expenses 73,771 75,237
Collateralized mortgage
obligations payable 2,457 2,577
Income taxes payable 38,000 44,759
Total liabilities 666,873 733,374
Stockholders' equity:
Preferred stock
Common stock 369 343
Additional paid-in capital 105,406 48,514
Retained earnings 352,950 336,395
Total stockholders' equity 458,725 385,252
$1,125,598 $1,118,626
</TABLE>
See accompanying notes<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended January 31
1998 1997
<S> <C> <C>
Revenues:
Housing sales $243,234 $201,437
Interest and other 1,481 1,083
244,715 202,520
Costs and expenses:
Land and housing construction 188,850 155,381
Selling, general and
administrative 23,518 18,820
Interest 7,031 6,137
219,399 180,338
Income before income taxes and
extraordinary loss 25,316 22,182
Income taxes 8,761 8,085
Income before extraordinary loss $ 16,555 $ 14,097
Extraordinary loss from extinguishment
of debt, net of income taxes of $1,659 2,772
Net income $ 16,555 $ 11,325
Earnings per share
Basic*
Income before extraordinary loss $ .47 $ .42
Extraordinary loss from extinguishment of debt .08
Net income $ .47 $ .33
Diluted
Income before extraordinary loss $ .44 $ .39
Extraordinary loss from extinguishment of debt .07
Net income $ .44 $ .32
Weighted average number of shares
Basic 34,983 33,945
Diluted 38,127 37,027
*Due to rounding, amounts may not add.
</TABLE>
See accompanying notes
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three months
ended January 31
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $16,555 $11,325
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,051 866
Amortization of discount on loans 585 62
Deferred taxes 3,066 624
Extraordinary loss from extinguishment of debt 4,431
Changes in operating assets and liabilities
Increase in residential inventories (61,032) (32,192)
Increase in receivables, prepaid
expenses and other assets (3,772) (328)
Increase (decrease) in customer deposits on
sales contracts 3,768 (383)
Decrease in accounts payable,
accrued expenses and other liabilities (2,648) (7,740)
Decrease in current income taxes payable (9,303) (6,942)
Net cash used in operating activities (51,730) (30,277)
Cash flows from investing activities:
Purchase of property, construction and office
equipment, net (682) (2,179)
Principal repayments of mortgage notes receivable 137 127
Net cash used in investing activities (545) (2,052)
Cash flows from financing activities:
Principal payments of loans and subordinated notes (3,034) (3,470)
Net proceeds from issuance of
senior subordinated notes 97,500
Principal payments of collateralized mortgage
obligations (120) (121)
Proceeds from stock options exercised and
employee stock plan purchases 2,166 1,238
Net cash (used in) provided by financing activities (988) 95,147
(Decrease) increase in cash and cash equivalents (53,263) 62,818
Cash and cash equivalents, beginning of period 147,575 22,891
Cash and cash equivalents, end of period $94,312 $85,709
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 805 $ 428
Income taxes paid $14,998 $12,501
Supplemental disclosures of non-cash financing activities:
Cost of residential inventories acquired
through seller financing $ 3,944
Income tax benefit relating to exercise of
employee stock options $ 476 $ 243
Stock bonus awards $ 3,564
Conversion of subordinated debt $50,712
See accompanying notes<PAGE>
</TABLE>
<PAGE>
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, 1997 balance sheet amounts and disclosures included
herein have been derived from the October 31, 1997 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, 1997 Annual Report to Stockholders. 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, 1998 and 1997, and the results of its
operations and cash flows for each of 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 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128,Earnings Per Share. Statement
128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share exludes any dilutive effects
of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
2. Residential inventories
Residential inventories consisted of the following (amounts in
thousands):
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
<S> <C> <C>
Land and land development costs $212,042 $234,855
Construction in progress 662,743 590,295
Sample homes 48,023 47,920
Land deposits and costs of future
development 34,924 28,314
Deferred marketing and financing costs 21,891 20,211
$979,623 $921,595
</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.
<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 (amounts in
thousands):
<TABLE>
<CAPTION>
Three months
ended January 31
1998 1997
<S> <C> <C>
Interest capitalized, beginning of period $51,687 $46,191
Interest incurred 10,353 9,225
Interest expensed (7,031) (6,137)
Write off to cost of sales and other ( 18) (81)
Interest capitalized, end of period $54,991 $49,198
</TABLE>
3. 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
by approximately $2 million annually.
In December 1997, the Company called for redemption on January 14, 1998
of all of its outstanding 4 3/4% Convertible Senior Subordinated Notes
due 2004 at 102.969% of principal amount plus accrued interest. Prior
to the redemption date, $50.8 million of bonds were converted into
common stock of the Company. The Company redeemed $165,000 of bonds.
4. Subsequent Event
In February 1998, the Company entered into a new five year, $355 million
bank credit facility. In connection therewith, the Company repaid $62
million of fixed rate long-term bank loans. The Company will recognize
an extraordinary charge in the second quarter of 1998 of approximately
$1.1 million, net of $600,000 of income taxes, related to the retirement
of its previous revolving credit agreement and prepayment of the term
loans.
<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>
Three months
ended January 31
1998 1997
<S> <C> <C>
Revenues 100.0% 100.0%
Costs and expenses:
Land and housing construction 77.2 76.7
Selling, general and administrative 9.6 9.3
Interest 2.9 3.0
Total costs and expenses 89.7 89.0
Income before taxes 10.3% 11.0%
</TABLE>
Revenues for the three months ended January 31, 1998 amounted to $244.7
million compared to $202.5 million reported in the first quarter of fiscal
1997. This increase was due primarily to an increase in the number of homes
delivered in the first quarter of 1998 over the first quarter of 1997 and an
increase in the average delivered price per home. The higher unit deliveries
in the 1998 first quarter were due primarily to the higher backlog of homes
at October 31, 1997 as compared to October 31, 1996, which was the result of
the greater number of homes sold in fiscal 1997 over fiscal 1996 and the
Company's expansion into Las Vegas, Nevada. The increase in the average
selling price per home delivered in the first quarter of 1998 was the result
of the shift in the location of homes delivered to more expensive areas,
changes in product mix to larger homes and increases in selling prices in its
existing markets. The increase in the average selling price per home was
partially offset by the Company's deliveries of smaller, less expensive homes
in the Las Vegas market.
As of January 31, 1998, the backlog of homes under contract amounted to
$665.1 million (1,634 homes), approximately 33% higher than the $498.3
million (1,259 homes) backlog as of January 31, 1997. The aggregate sales
value of new contracts signed in the first quarter of fiscal 1998 amounted to
$270.4 million (675 homes), an increase of approximately 56% over the $173.5
million (442 homes) signed in the first quarter of 1997.
Land and housing construction costs as a percentage of revenues increased in
the first quarter of 1998 as compared to 1997 due principally to the higher
costs incurred in the Las Vegas market and in the Company's other newer
markets (Arizona, California, Florida, Texas and North Carolina). These
higher costs were partially offset by lower inventory writeoffs in 1998
($75,000) as compared to 1997 ($1,020,000).
Selling, general and administrative expenses ("SG&A") in the first quarter of
1998 increased as a percentage of revenues as compared to the first quarter
of 1997. This increase was primarily attributable to the additional SG&A
spending incurred by the Company in connection with its expansion into newer
markets and the greater number of communities in which the Company was
operating in the 1998 quarter compared to 1997.
<PAGE>
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 the first quarter
of 1998 as compared to 1997.
Income Taxes
The Company's estimated combined state and federal tax rate before providing
for the effect of permanent book-tax differences ("Base Rate") was 37% and
37.5% in the first quarter of 1998 and 1997, respectively. The decrease in
the Base Rate was due to a decrease in the Company's estimated effective
state tax rate. The primary differences between the Company's Base Rate and
effective tax rate were tax free income in the first quarter of both periods
of 1998 and 1997 and, in the first quarter of 1998, an adjustment due to the
recomputation of the Company's deferred tax liability resulting from the
change in the Company's estimated Base Rate. The Company expects the
effective rate for the remainder of the year to increase and for the full
1998 fiscal year to be approximately 36.5%.
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 by approximately $2 million
annually.
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.
In February 1998, the Company entered into a new a $355 million unsecured
revolving credit facility with fifteen banks which extends through February
2003. As of February 27, 1998, the Company had $50 million of loans and
approximately $17 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, operating cash flow and existing
sources of credit.
<PAGE>
HOUSING DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
New Contracts Closings
Three Months Ended Contract Backlog Three Months Ended
January 31 January 31 January 31
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Sales value $270,420 $173,515 $665,097 $498,272 $243,234 $201,437
Homes 675 442 1,634 1,259 645 550
</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
None
<PAGE>
<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 3, 1998 By: /s/ Joel H. Rassman
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 3, 1998 By: /s/ Joseph R. Sicree
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
<PAGE>
TOLL BROTHERS, INC. & SUBSIDIARIES EXHIBIT 11
STATEMENT: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1998 1997
<S> <C> <C>
Income before extraordinary loss
per income statement $ 16,555 $ 14,097
Addback: Interest on convertible
debentures, net of income taxes 315 378
Income before extraordinary loss (diluted) $ 16,870 $ 14,475
Per share:
Basic $ 0.47 $ 0.42
Diluted $ 0.44 $ 0.39
Weighted average shares outstanding(Basic shares) 34,983 33,945
Common stock equivalents - stock options 1,381 737
Shares issuable on conversion of
subordinated debentures 1,763 2,345
TOTAL (Diluted shares) 38,127 37,027
</TABLE>
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794170
<NAME> TOLL BROTHERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 94,312
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 979,623
<CURRENT-ASSETS> 0
<PP&E> 34,659
<DEPRECIATION> 19,788
<TOTAL-ASSETS> 1,125,598
<CURRENT-LIABILITIES> 0
<BONDS> 269,234
<COMMON> 369
0
0
<OTHER-SE> 458,356
<TOTAL-LIABILITY-AND-EQUITY> 1,125,598
<SALES> 243,234
<TOTAL-REVENUES> 244,715
<CGS> 188,850
<TOTAL-COSTS> 212,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,031
<INCOME-PRETAX> 25,316
<INCOME-TAX> 8,761
<INCOME-CONTINUING> 16,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,555
<EPS-PRIMARY> 0
<EPS-DILUTED> .44
</TABLE>
