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, 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: 36,277,368 shares as of June 1, 2000
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) 1
as of April 30, 2000 and October 31, 1999
Condensed Consolidated Statements of Income (Unaudited) 2
For the Six Months and Three Months Ended
April 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)For the Six Months Ended
April 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 7
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, and
its ability to acquire land. 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>
<TABLE>
<CAPTION>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
April 30, October 31,
2000 1999
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 24,325 $ 96,484
Residential inventories 1,604,473 1,443,282
Property, construction and office
equipment, net 21,960 19,633
Receivables, prepaid expenses and
other assets 94,516 87,469
Investments in unconsolidated entities 30,785 21,194
$1,776,059 $1,668,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable $ 244,270 $ 213,317
Subordinated notes 469,458 469,418
Customer deposits on sales contracts 108,080 82,495
Accounts payable 81,211 84,777
Accrued expenses 140,312 141,835
Income taxes payable 66,877 59,886
Total liabilities 1,110,208 1,051,728
Stockholders' equity:
Common stock 364 365
Additional paid-in capital 105,252 105,239
Retained earnings 573,008 522,665
Treasury stock (12,773) (11,935)
Total stockholders' equity 665,851 616,334
$1,776,059 $1,668,062
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Six months Three months
ended April 30 ended April 30
2000 1999 2000 1999
<S>
Revenues: <C> <C> <C> <C>
Housing sales $708,205 $610,677 $373,985 $339,995
Land sales 20,517 11,492
Equity earnings from unconsolidated
joint venture 3,069 3,069
Interest and other 3,246 4,860 1,940 2,676
735,037 615,537 390,486 342,671
Costs and expenses:
Housing sales 545,273 477,225 287,479 266,264
Land sales 15,648 8,609
Selling, general & administrative75,130 58,764 39,673 32,175
Interest 19,295 17,258 10,362 9,511
655,346 553,247 346,123 307,950
Income before income taxes
and extraordinary loss 79,691 62,290 44,363 34,721
Income taxes 29,348 22,772 16,413 12,641
Income before extraordinary loss 50,343 39,518 27,950 22,080
Extraordinary loss from
extinguishment of debt,
net of income taxes of $857
in 1999 1,461
Net income $ 50,343 $ 38,057 $27,950 $ 22,080
Earnings per share:
Basic
Income before extraordinary loss$ 1.38 $ 1.07 $ .77 $ .60
Extraordinary loss from
extinguishment of debt .04
Net Income $ 1.38 $ 1.03 $ .77 $ .60
Diluted
Income before extraordinary loss$ 1.36 $ 1.05 $ .75 $ .59
Extraordinary loss from
extinguishment of debt .04
Net Income $ 1.36 $ 1.01 $ .75 $ .59
Weighted average number
of shares
Basic 36,434 36,840 36,396 36,717
Diluted 36,973 37,686 37,036 37,339
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six months
ended April 30
2000 1999
<S> <C> <C>
Cash flows used in operating activities:
Net income $50,343 $38,057
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,966 2,942
Equity in the earnings of unconsolidated
joint venture (3,069)
Extraordinary loss from extinguishment of debt 2,318
Deferred tax provision 2,656 2,838
Changes in operating assets and liabilities
net of assets and liabilities acquired:
Increase in residential inventories (159,515) (207,556)
Increase in receivables, prepaid
expenses and other assets (8,267) (16,396)
Increase in customer deposits on sales contracts25,585 13,426
(Decrease) increase in accounts payable and accrued
expenses (3,696) 10,312
Increase (decrease) in current income taxes payable 4,767 (674)
Net cash used in operating activities (87,230) (154,733)
Cash flows from investing activities:
Purchase of property, construction and office
equipment, net (4,759) (3,385)
Acquisition of company, net of cash acquired (11,092)
Investments in unconsolidated entities (12,635)
Distribution from unconsolidated entities 2,699
Net cash used in investing activities (2,060) (27,112)
Cash flows from financing activities:
Proceeds from loans payable 230,060 167,500
Principal payments of loans payable (210,275) (149,063)
Net proceeds from the issuance of senior
subordinated notes 267,716
Redemption of subordinated notes (71,359)
Proceeds from stock options exercised and employee stock
plan purchases 870 2,064
Purchase of treasury stock (3,524) (13,220)
Net cash provided by financing activities 17,131 203,638
Net (decrease) increase in cash and cash equivalents (72,159) 21,793
Cash and cash equivalents, beginning of period 96,484 80,143
Cash and cash equivalents, end of period $ 24,325 $101,936
</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, 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 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, 2000 and
April 30, 1999, 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 periods are not necessarily
indicative of the results to be expected for the full year.
<PAGE>
<TABLE>
<CAPTION>
2. Residential Inventories
Residential inventories consisted of the following:
April 30, October 31,
2000 1999
<S> <C> <C>
Land and land development costs $ 396,722 $506,869
Construction in progress 1,072,114 794,599
Sample homes 53,923 57,995
Land deposits and costs of future
development 49,364 55,575
Deferred marketing costs 32,350 28,244
$1,604,473 $1,443,282
</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.
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:
<TABLE>
<CAPTION>
Six months Three months
ended April 30 ended April 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest capitalized,
beginning of period $64,984 $53,966 70,188 $56,338
Interest incurred 28,631 23,468 14,438 13,342
Interest expensed (19,295) (17,258) (10,362) (9,511)
Write off to cost of sales (149) (31) (93) (24)
Interest capitalized,
end of period $74,171 $60,145 $74,171 $60,145
</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 in the first quarter of fiscal 1999 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.
<PAGE>
<TABLE>
<CAPTION>
4. Earnings per share information: (in thousands)
Information pertaining to the calculation of earnings per
share for the six months and three months ended April 30,
2000 and 1999 is as follows:
Six months Three months
ended April 30 ended April 30
2000 1999 2000 1999
<S> <C> <C> <C>
Basic weighted average
shares outstanding 36,434 36,840 36,396 36,717
Stock options 539 846 640 622
Diluted weighted average
shares 36,973 37,686 37,036 37,339
</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 April 30, 2000, the Company had
repurchased 1,136,000 shares under the program, of which
approximately 487,000 shares have been re-issued under its
various employee benefit plans.
<TABLE>
<CAPTION>
6. Supplemental Disclosure to Statement of Cash Flows
The following are supplemental disclosures to the statements
of cash flow for six months ended April 30, 2000 and 1999:
2000 1999
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 4,575 $ 3,667
Income taxes paid $ 21,925 $19,750
Supplemental disclosures of non-cash activities:
Cost of residential inventories acquired
through seller financing $ 2,893 $ 7,504
Investment in unconsolidated subsidiary
acquired through seller financing $ 8,000
Income tax benefit relating to exercise of
employee stock options $ 492 $ 506
Stock bonus awards $ 1,395 $ 2,461
Contributions to employee retirement plan $ 781 490
Acquisition of company:
Fair value of assets acquired 56,124
Liabilities assumed 45,032
Cash paid $ 11,092
</TABLE>
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
certain income statement items related to the Company's
operations (dollars in millions):
Six months ended April 30 Three months ended April 30
2000 1999 2000 1999
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Housing sales
Revenues 708.2 610.7 374.0 340.0
Costs 545.3 77.0 477.2 78.1 287.5 76.9 266.3 78.3
Land sales
Revenues 20.5 11.5
Costs 15.6 76.3 8.6 74.9
Equity earnings in
unconsolidated joint
venture 3.1 3.1
Other 3.2 4.9 1.9 2.7
Total Revenues 735.0 615.5 390.5 342.7
Selling, general
& administrative
expense 75.1 10.2 58.8 9.5 39.7 10.2 32.2 9.4
Interest expense 19.3 2.6 17.3 2.8 10.4 2.7 9.5 2.8
Total costs and
expenses 655.3 89.2 553.2 89.9 346.1 88.6 308.0 89.9
</TABLE>
Note: Percentages of selling, general and administrative expense,
interest expense and total costs and expenses are based on total
revenues.
HOUSING SALES
Housing revenues for the six-month and three-month periods ended
April 30, 2000 were higher than those of the comparable periods of
1999 by approximately $98 million or 16%, and $34 million or 10%,
respectively. The increase in revenues in the six-month period of
2000 was attributable to an 8% increase in the number of homes
delivered and a 7% increase in the average price of the homes
delivered. The 10% increase in revenues in the three-month period of
2000 was attributable to an increase in the average price of the
homes delivered. The increase in the number of homes delivered in the
six month period 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 2000 as compared to the beginning of
fiscal 1999, offset in part by a slight decrease in the number of
homes delivered per community. The increase in the backlog was the
result of the 19% increase in contracts signed in fiscal 1999 as
compared to fiscal 1998. The increase in the average price of homes
delivered was the result of increased selling prices and a shift in
the location of homes delivered to more expensive areas. Over the
past ten years, housing revenues have grown at a 23% compound annual
rate.
<PAGE>
The aggregate sales value of signed contracts for the six-month and
three-month periods ended April 30, 2000 increased by 26% compared
to each of the comparable periods of fiscal 1999. These increases
were the result of increases in the number of communities that the
Company was offering homes for sale, increases in the average price
of homes sold (due primarily to the location, size and an increase
in the base selling prices) and increases in the number of homes sold
per community. The increases 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 April 30, 2000, the backlog of homes under contract but not
delivered amounted to $1.39 billion (2,957 homes), a 29% increase
over the $1.08 billion (2,516 homes) backlog as of April 30, 1999 and
a 31% increase over the $1.07 billion (2,381 homes) backlog as of
October 31, 1999.
Based upon the aforementioned 16% increase in homes delivered for the
six months ended April 30, 2000 and the 29% higher backlog of homes
under contract but not delivered as of April 30, 2000 as compared to
April 30, 1999, the Company expects fiscal 2000 homebuilding revenues
to be higher than fiscal 1999 homebuilding revenues.
Housing costs as a percentage of housing sales decreased in both
periods of fiscal 2000 as compared to the comparable periods of
fiscal 1999. The decreases were the result of improved operating
efficiencies and selling prices increasing at a greater rate than
costs, offset in part by higher overhead costs and higher inventory
write-offs. The Company incurred $4.1 million and $2.1 million in
write-offs in the six-month and three-month periods of fiscal 2000,
respectively, as compared to $2.4 million and $1.5 million in the
comparable periods of 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.
The Company recorded its first sale of land from this operation in
the third quarter of fiscal 1999. The Company is also developing
several other master planned communities which it may sell land to
other builders. In the three- month period ended April 30, 2000, the
Company realized land sales from South Riding and one other master
planned community. Land sales are expected to continue for the next
several years but the amounts will vary from quarter to quarter.
EQUITY EARNINGS IN UNCONSOLIDATED JOINT VENTURE
In fiscal 1998, the Company entered into a joint venture to develop
and sell land owned by the other partner. Under the terms of the
agreement the Company has the right to purchase up to a specified
number of lots with the majority of the lots to be sold to other
builders. In the quarter ended April 30, 2000, the joint venture sold
its first group of lots to other builders and to the Company. The
Company recognized earnings from the sale of lots to other builders
but does not recognize earnings from lots that it purchases but
reduces its cost basis in the lots. Earnings from this joint venture
will vary significantly from quarter to quarter and are expected to
continue into fiscal 2001.
<PAGE>
OTHER INCOME
Other income decreased $1.6 million in the six-month and $.7 million
in the three- month period ended April 30, 2000 as compared to the
same periods of fiscal 1999. The decrease was principally due to a
decrease in interest income and increases in expenses related to the
Company's expansion of its ancillary businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
SG&A spending increased by $16.4 million or 28%, and $7.5 million or
23% in the six-month and three-month periods ended April 30, 2000 as
compared to the same periods of fiscal 1999. This increased spending
was primarily due to the 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, expenses incurred in the opening of divisional offices to
manage the growth and spending related to the development of its
master planned communities and land sales.
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 28% in each of the six-month and three-month
periods of
fiscal 2000 over the same periods of fiscal 1999.
INCOME TAXES
Income taxes were provided at an effective rate of 36.8% and 37% for
the six-month and three-month periods of fiscal 2000, respectively.
For the comparable periods of fiscal 1999, income taxes were provided
at 36.6% and 36.4%.
EXTRAORDINARY LOSS FROM 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 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.
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.
<PAGE>
The Company has a $465 million unsecured revolving credit facility
with sixteen banks which extends through February 2003. As of April
30, 2000, the Company had $100 million of loans and approximately
$35.6 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, cash flow from
operations and existing sources of credit.
<TABLE>
<CAPTION>
HOUSING DATA
Six Months Three Months
Ended April 30 Ended April 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
# of homes closed 1,657 1,531 858 857
Sales value of homes
closed (in thous.) $708,205 $610,677 $373,985 $339,995
# of homes contracted 2,262 1,964 1,398 1,208
Sales value of homes
contracted (in thous.)$1,041,496 $826,583 $649,918 $517,303
Average number of
selling communities 146 135 151 143
April 30, April 30, Oct. 31, Oct. 31,
2000 1999 1999 1998
# of homes in backlog 2,957 2,516 2,381 1,892
Sales value of homes in
backlog (in thous.) $1,394,181 $1,080,156 $1,067,685 $814,714
</TABLE>
* Contract totals for the six-month and three-month periods ended April 30, 2000
include $7,894,000 (30 homes) and $3,135,000 (12 homes), respectively, from an
unconsolidated 50% owned joint venture. As of April 30, 2000 and October 31,
1999 backlog includes $14,855,000 (55 homes) and $13,756,000 (54 homes),
respectively, from the joint venture.
<PAGE>
PART II. Other Information
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company's 2000 Annual Meeting of Shareholders was held on
March 23, 2000.
(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.
(i) The election of three directors to hold office until the
2003 Annual Meeting of Shareholders.
WITHHELD
NOMINEES FOR AUTHORITY
Robert S. Blank 30,387,711 420,278
Roger S. Hillas 30,780,961 427,028
Paul E. Shapiro 30,383,143 424,846
(ii) The approval of Ernst & Young LLP as the Company's
independent auditors for the 2000 fiscal year.
FOR AGAINST ABSTAIN
30,740,267 54,667 12,392
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
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 5, 2000 By: /s/ Joel H. Rassman
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: June 5, 2000 By: /s/ Joseph R. Sicree
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE>
