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, 2000
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: 36,397,803 shares as of February 25, 2000
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 2
January 31, 2000 (Unaudited) and October 31, 1999
Condensed Consolidated Statements of Income (Unaudited) 3
Three Months Ended January 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 4
Three Months Ended January 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 5
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. Other Information 12
SIGNATURES 13
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,
increases in revenues, increased profitability, interest expense, growth and
expansion, new business, stock market valuations, ability to acquire land and
Year 2000 issues. 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, uncertainties and
fluctuations in capital and securities markets, the availability and cost of
labor and materials, and weather conditions.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
2000 1999
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 35,301 $ 96,484
Inventories 1,556,919 1,443,282
Property, construction and office
equipment-net 21,021 19,633
Receivables, prepaid expenses and
other assets 92,631 87,469
Investments in unconsolidated entities 24,136 21,194
$1,730,008 $1,668,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable $ 272,469 $ 213,317
Subordinated notes 469,438 469,418
Customer deposits on sales
contracts 86,301 82,495
Accounts payable 71,284 84,777
Accrued expenses 139,517 141,835
Income taxes payable 51,899 59,886
Total liabilities 1,090,908 1,051,728
Stockholders' equity:
Common stock 365 365
Additional paid-in capital 105,366 105,239
Retained earnings 545,058 522,665
Treasury stock (11,689) (11,935)
Total stockholders' equity 639,100 616,334
$1,730,008 $1,668,062
</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
2000 1999
<S> <C> <C>
Revenues:
Housing sales $334,220 $270,682
Land sales 9,025
Interest and other 1,306 2,184
344,551 272,866
Costs and expenses:
Housing sales 257,794 210,961
Land sales 7,039
Selling, general and
administrative 35,457 26,589
Interest 8,933 7,747
309,223 245,297
Income before income taxes and
extraordinary loss 35,328 27,569
Income taxes 12,935 10,131
Income before extraordinary loss 22,393 17,438
Extraordinary loss from extinguishment
of debt, net of income taxes of $857 (1,461)
Net income $ 22,393 $ 15,977
Earnings per share
Basic:
Income before extraordinary loss $ .61 $ .47
Extraordinary loss from extinguishment
of debt (.04)
Net income $ .61 $ .43
Diluted:
Income before extraordinary loss $ .61 $ .46
Extraordinary loss from
extinguishment of debt (.04)
Net income $ .61 $ .42
Weighted average number of shares
Basic 36,471 36,963
Diluted 36,909 38,033
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
Three months
ended January 31
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $22,393 $15,977
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,093 1,256
Deferred tax provision 1,768 758
Extraordinary loss from extinguishment of debt 2,318
Changes in operating assets and liabilities:
Increase in inventories (110,744) (95,514)
Increase in receivables, prepaid
expenses and other assets (5,746) (1,070)
Increase (decrease) in customer deposits on
sales contracts 3,806 (283)
Decrease in accounts payable,
accrued expenses and other liabilities (14,416) (16,111)
Decrease in current income taxes payable (9,333) (8,484)
Net cash used in operating activities (110,179) (101,153)
Cash flows from investing activities:
Purchase of property, construction and office
equipment, net (2,539 (630)
Investment in unconsolidated affiliate (6,700)
Net cash used in investing activities (2,539) (7,330)
Cash flows from financing activities:
Proceeds from loans payable 105,060 90,000
Principal payments of loans payable (52,082) (32,512)
Net proceeds from issuance of
senior subordinated notes 168,569
Proceeds from stock-based benefit plans 134 317
Purchase of treasury stock (1,577) (1,102)
Net cash provided by financing activities 51,535 225,272
(Decrease) increase in cash and cash equivalents (61,183) 116,789
Cash and cash equivalents, beginning of period 96,484 80,143
Cash and cash equivalents, end of period $ 35,301 $196,932
</TABLE>
See accompanying notes
<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, 1999
balance sheet amounts and disclosures included herein have been derived from
the October 31, 1999 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, 1999 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,
2000 and 1999, and the results of its operations and cash flows for each of the
three months then ended. The results of operations for such interim periods are
not necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
2. Inventories
Inventories consisted of the following (amounts in thousands):
January 31, October 31,
2000 1999
<S> <C> <C>
Land and land development costs $ 517,938 $ 506,869
Construction in progress 910,417 794,599
Sample homes 50,768 57,995
Land deposits and costs of future
development 48,894 55,575
Deferred marketing costs 28,902 28,244
$1,556,919 $1,443,282
</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>
<TABLE>
<CAPTION>
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):
Three months
ended January 31
2000 1999
<S> <C> <C>
Interest capitalized, beginning of period $ 64,984 $ 53,966
Interest incurred 14,193 10,126
Interest expensed (8,933) (7,747)
Write-off to cost of sales and other (56) (7)
Interest capitalized, end of period $70,188 $ 56,338
</TABLE>
3. Extinguishment of Debt
In January 1999, the Company called for redemption on March 15, 1999 of all of
its outstanding 9 1/2% Senior Subordinated Notes due 2003 at 102% of principal
amount plus accrued interest. The principal amount outstanding at January 31,
1999 was $69,960,000. The redemption resulted in an extraordinary loss of
$1,461,000, net of $857,000 of income taxes. The loss represents the redemption
premium and a write-off of unamortized deferred issuance costs.
<TABLE>
<CAPTION>
4. Earnings Per Share
Information pertaining to the calculation of earnings per share for the three
months ended January 31, 2000 and 1999 is as follows:
2000 1999
<S> <C> <C>
Basic weighted average shares 36,471 36,963
Common stock equivalents 438 1,070
Diluted weighted average shares 36,909 38,033
</TABLE>
5. Stock Repurchase Program
In April 1997, the Company's Board of Directors authorized the repurchase of up
to 3,000,000 shares of its Common stock, par value $.01, from time to time, in
open market transactions or otherwise, for the purpose of providing shares for
its various employee benefit plans. As of January 31, 2000, the Company had
repurchased approximately 1,022,000 shares under the program, of which
approximately 443,000 shares had been reissued under its employee benefit plans.
<PAGE>
<TABLE>
<CAPTION>
6. Supplemental Disclosure to Statement of Cash Flows
The following are supplemental disclosures to the statements of cash flow for
three months ended January 31, 2000 and 1999:
2000 1999
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 3,414 $ 1,119
Income taxes paid $ 20,500 $ 17,000
Supplemental disclosures of non-cash activities:
Cost of residential inventories acquired
through seller financing $ 2,893 898
Investment in unconsolidated
subsidiary acquired through seller financing $ 3,000
Income tax benefit relating to exercise of
employee stock options $ 422 $ 497
Stock bonus awards $ 1,395 $ 2,461
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 three months ended January 31, 2000 and
1999, certain income statement items related to the Company's operations:
Three months ended January 31,
2000 1999
$ % $ %
<S> <C> <C> <C> <C>
House sales
Revenues 334.2 270.7
Costs 257.8 77.1 211.0 77.9
Land sales
Revenues 9.0
Costs 7.0 78.0
Interest and other 1.3 2.2
Total revenues 344.6 272.9
Selling, general and
administrative expenses* 35.5 10.3 26.6 9.8
Interest expense* 8.9 2.6 7.7 2.8
Total costs and expenses* 309.2 89.7 245.3 89.9
Operating income 35.3 10.3 27.6 10.1
</TABLE>
* Percentages are based on total revenues.
HOUSING SALES
Housing revenues for the three months ended January 31, 2000 increased $63.5
million, or 23% over housing revenues for the three months ended January 31,
1999. This increase was the result of a 19% increase in units delivered and a
4% increase in the average price of the homes delivered. The increase in the
number of homes delivered was the result of the larger backlog of homes to be
delivered at the beginning of the 2000 period as compared to the beginning of
the 1999 period. The increased backlog was the result of the 19% increase in
contracts signed in fiscal 1999 over fiscal 1998. The increase in the average
price of the homes delivered was the result of increases in selling price
offset in part by a shift in the location of homes delivered to less expensive
areas. Over the past ten years, housing revenue has grown at a 23% compound
annual rate.
<PAGE>
The aggregate sales value of signed contracts for the three months ended
January 31, 2000 amounted to $391.6 million (864 homes), a 27% increase over
the same period in fiscal 1999. This increase is primarily the result of an
increase in the number of communities that the Company was offering homes for
sale, an increase in the average price of homes sold (due primarily to the
location, size and an increase in base selling prices) and a slight increase in
the number of contracts signed per community. The increase in the number of
selling communities was the result of the Company's continued expansion both
geographically and by product offering, and its continued penetration of
existing markets. Over the past ten years, the value of signed contracts has
grown at a 25% compound annual rate.
As of January 31, 2000, the backlog of homes under contract but not delivered
amounted to $1.122 billion (2,431 homes), a 31% increase over the $853.3
million (1,974 homes) backlog as of January 31, 1999. In order to slow demand
for homes and to keep our backlog from extending out too many months, the
Company has been raising prices in many markets. The value of homes in backlog
at January 31, 2000 is more than 11 times the value it was as of January 31,
1990.
Housing costs as a percentage of revenues decreased in fiscal 2000 as compared
to fiscal 1999. This decrease was the result of improved operating efficiencies
offset by higher overhead costs and higher inventory writeoffs in fiscal 2000
($2.0 million) as compared to fiscal 1999 ($.9 million).
Based upon the aforementioned 23% increase in first quarter 2000 revenues and
the 31% increase in backlog as of January 31, 2000, the Company expects
homebuilding revenues to be higher in fiscal 2000 as compared to fiscal 1999.
LAND SALES
In March 1999, the Company acquired land for homes, apartments, retail, office
and industrial space in the master planned community of South Riding, located
in Loudoun County, Virginia. The Company will use some of the property for its
own homebuilding operations and will also sell home sites and commercial
parcels to other builders. Land sale revenues are expected to continue for the
next several years.
INTEREST AND OTHER INCOME
Interest and other income decreased $878,000 in the fiscal 2000 period as
compared to the fiscal 1999 period. The decrease was due to a decrease in the
income from the Company's ancillary businesses offset in part by an increase in
interest earned.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
SG&A spending increased by $8.9 million or 33% in the three months ended
January 31, 2000 as compared to the three months ended January 31, 1999. This
increased spending was primarily due to the 23% increase in housing revenues in
fiscal 2000 as compared to 1999, the increase in the number of communities that
the Company was selling from, the Company's expansion into new markets,
spending related to the development of its master planned communities and the
Company's land sales in fiscal 2000.
INTEREST EXPENSE
The Company determines interest expense on a specific lot-by-lot basis for its
homebuilding operations and on a parcel-by-parcel basis for its land sales. As
a percentage of total revenues, interest expense will vary depending on many
factors including the period of time that the land was owned, the length of
time that the homes delivered during the period were 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. Interest expense as a
percentage of revenues was lower in fiscal 2000 than in fiscal 1999.
OPERATING INCOME
Operating income increased $7.8 million or 28% for the three months ended
January 31, 2000 over the three months ended January 31, 1999.
INCOME TAXES
Income taxes were provided at an effective rate of 36.6% for fiscal 2000 and
36.7% in fiscal 1999.
EXTRAORDINARY LOSS FROM EXTINQUISHMENT OF DEBT
In January 1999, the Company called for redemption on March 15, 1999 of all of
its outstanding 9 1/2% Senior Subordinated Notes due 2003 at 102% of principal
amount plus accrued interest. The redemption resulted in an extraordinary loss
of $1,461,000, net of $857,000 of income taxes. The loss represents the
redemption premium and a write-off of unamortized deferred issuance costs.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's operations has been principally provided by cash
flows from operations, unsecured bank borrowings, and from the public debt and
equity markets.
<PAGE>
Cash flow from operations, before inventory additions, has improved as
operating results have improved. The Company anticipates that the cash flow
from operations, before inventory additions, will continue to improve as a
result of an increase in revenues from the delivery of homes from its existing
backlog as well as from new sales contracts and land sales. The Company has
used the cash flow from operations, bank borrowings and public debt to acquire
additional land for new communities, to fund additional expenditures for land
development and construction costs needed to meet the requirements of the
increased backlog and continuing expansion of the number of communities in
which the Company is offering homes for sale, and to reduce debt. The Company
expects that inventories will continue to increase and is currently negotiating
and searching for additional opportunities to obtain control of land for future
communities.
The Company has a $465 million unsecured revolving credit facility with sixteen
banks which extends through February 2003. As of January 31, 2000, the Company
had $130 million of loans and approximately $34.2 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.
OTHER
In November 1999, a financial website interviewed Robert I. Toll, Chief
Executive Officer of the Company. In that interview, Mr. Toll stated that,
although the past is not an indication of the future, the Company, over the
last nine, five and three years, has been on a growth scale greater than that of
General Electric which he chose for illustrative purposes. He stated that,
notwithstanding the Company's performance, the Company's stock currently had
a market multiple of under seven times earnings whereas General Electric's
stock had a multiple of approximately forty; that, while he is not suggesting
that the two companies should be compared, if the market applied even part of
General Electric's earnings multiple to the Company's earnings, an investor in
the Company would have significant appreciation in investment value. He further
stated that, even if the Company's current multiple remained constant, while
its historical growth continued, there would still be significant price
appreciation. Mr. Toll did not make any reference to a time frame or other
factors that would be necessary to realize such results; he was merely
illustrating his views on stock market valuations. He also indicated that the
Company had expanded into new geographical markets which, if they grow
consistent with the Company's experience in the Philadelphia market, would
cause the Company to be three times its current size; he also stated that the
Company had expanded into the empty-nester and age-qualified businesses and
that the Company could possibly double or triple its size from the penetration
of these markets. Again, he did not place a time frame on these comments.
The Company has not experienced any significant delays, malfunctions or errors
in its operating systems, computer equipment and other equipment with embedded
electronic circuits that it is currently using due to the Year 2000 issue. The
Company will continue to monitor its systems and equipment and those of its
subcontractors, suppliers and other providers of goods and services throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
<PAGE>
<TABLE>
<CAPTION>
HOUSING DATA
(Dollars in thousands)
New Contracts Closings
Three Months Ended Contract Backlog Three Months Ended
January 31 January 31 January 31
2000 * 1999 2000 * 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Sales value $391,578 $309,280 $1,121,599 $ 853,312 $334,216 $270,682
Homes 864 756 2,431 1,974 799 674
* Contract totals for the three month period ended January 31, 2000 includes
$4,759,000 (18 homes) from an unconsolidated 50% owned joint venture. Backlog
as of January 31, 2000 includes $15,067,000 (57 homes) from this joint venture.
</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 27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended January 31, 2000, the Company did not file a
current report on Form 8-K.
<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 28, 2000 By: /s/ Joel H. Rassman
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 28, 2000 By: /s/ Joseph R. Sicree
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794170
<NAME> TOLL BROTHERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 35,301
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,556,919
<CURRENT-ASSETS> 0
<PP&E> 47,962
<DEPRECIATION> 26,941
<TOTAL-ASSETS> 1,730,008
<CURRENT-LIABILITIES> 0
<BONDS> 469,438
<COMMON> 365
0
0
<OTHER-SE> 638,735
<TOTAL-LIABILITY-AND-EQUITY> 1,730,008
<SALES> 343,245
<TOTAL-REVENUES> 344,551
<CGS> 264,833
<TOTAL-COSTS> 300,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,933
<INCOME-PRETAX> 35,328
<INCOME-TAX> 12,935
<INCOME-CONTINUING> 22,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,393
<EPS-BASIC> .61
<EPS-DILUTED> .61
</TABLE>
