-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NLxEQZBVRDzOUEhlDuR7viEOKvwH5a+ejCFxEaM76BsF8/2A36mWzOKt7RtfnsIr XhffzyLghMcJaYNxO2dbAA== 0000794170-98-000022.txt : 19980915 0000794170-98-000022.hdr.sgml : 19980915 ACCESSION NUMBER: 0000794170-98-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980914 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLL BROTHERS INC CENTRAL INDEX KEY: 0000794170 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 232416878 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09186 FILM NUMBER: 98708558 BUSINESS ADDRESS: STREET 1: 3103 PHILMONT AVE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 BUSINESS PHONE: 2159388000 MAIL ADDRESS: STREET 1: 3103 PHILMONT AVENUE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 10-Q 1 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 July 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: 36,988,347 shares as of September 9, 1998 TOLL BROTHERS, INC. AND SUBSIDIARIES INDEX Page No. PART I. Financial Information ITEM 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) 1 as of July 31,1998 and October 31,1997 Condensed Consolidated Statements of Income (Unaudited) 2 For the Nine Months and Three Months Ended July 31, 1998 and 1997 Condensed Consolidated Statements of Cash Flows 3 (Unaudited)For the Nine Months Ended July 31, 1998 and 1997 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 10 SIGNATURES 11 STATEMENT ON 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 the number of selling communities, 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 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, the availability and cost of labor and materials and the levels of spending for selling, general and administrative costs.
TOLL BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands) (Unaudited) July 31, October 31, 1998 1997 ASSETS Cash and cash equivalents $ 75,830 $ 147,575 Residential inventories 1,075,718 921,595 Property, construction and office equipment, net 14,405 15,074 Receivables, prepaid expenses and other assets 40,726 31,793 Mortgage notes receivable 1,615 2,589 $1,208,294 $1,118,626 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Loans payable $ 176,396 $ 189,579 Subordinated notes 269,275 319,924 Customer deposits on sales contracts 73,486 52,698 Accounts payable 52,058 48,600 Accrued expenses 85,853 75,237 Collateralized mortgage obligations payable 1,796 2,577 Income taxes payable 49,070 44,759 Total liabilities 707,934 733,374 Shareholders' equity: Preferred stock Common stock 370 343 Additional paid-in capital 106,746 48,514 Retained earnings 393,244 336,395 Total shareholders' equity 500,360 385,252 $1,208,294 $1,118,626
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (Unaudited) Nine months Three months ended July 31 ended July 31 1998 1997 1998 1997 Revenues: Housing sales $832,628 $651,142 $341,181 $241,192 Interest and other 3,843 2,410 952 634 836,471 653,552 342,133 241,826 Costs and expenses: Land and housing construction 643,709 504,235 262,553 186,255 Selling, general & administrative 77,003 60,807 28,486 21,914 Interest 24,991 19,975 10,366 7,233 745,703 585,017 301,405 215,402 Income before income taxes and extraordinary loss 90,768 68,535 40,728 26,424 Income taxes 32,804 25,285 15,006 9,874 Income before extraordinary loss 57,964 43,250 25,722 16,550 Extraordinary loss from extinguishment of debt, net of income taxes of $655 in 1,115 2,772 1998 and $1,659 in 1997 Net income $ 56,849 $ 40,478 $ 25,722 $ 16,550 Earnings per share: Basic Income before extraordinary loss$ 1.60 $ 1.27 $ .70 $ .48 Extraordinary loss from extinguishment of debt .03 .08 Net Income $ 1.57 $ 1.19 $ .70 $ .48 Diluted* Income before extraordinary loss$ 1.52 $ 1.20 $ .67 $ .46 Extraordinary loss from extinguishment of debt .03 .07 Net Income $ 1.49 $ 1.12 $ .67 $ .46 Weighted average number of shares Basic 36,322 34,090 37,005 34,200 Diluted 38,432 37,122 38,495 37,201
*Due to rounding, amounts may not add. See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Nine months ended July 31 1998 1997 Cash flows from operating activities: Net income $56,849 $40,478 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 3,121 2,758 Amortization of loan discount 1,197 194 Extraordinary loss from extinguishment of debt 1,770 4,431 Deferred taxes 3,629 2,803 Changes in operating assets and liabilities: Increase in residential inventories (149,627) (110,629) Increase in receivables, prepaid expenses and other assets (12,325) (3,059) Increase in customer deposits on sales contracts 20,788 9,985 Increase inaccounts payable, accrued expenses and other liabilities 18,839 10,531 Increase in current income taxes payable 1,691 259 Net cash used in operating activities (54,068) (42,249) Cash flows from investing activities: Purchase of property, construction and office equipment, net (1,939) (4,341) Principal repayments of mortgage notes receivable 974 213 Net cash used in investing activities (965) (4,128) Cash flows from financing activities: Proceeds from loans payable 55,000 125,000 Principal payments of loans payable (73,876) (83,447) Proceeds from the issuance of senior subordinated notes 97,500 Repurchase of subordinated notes (163) (90,434) Principal payments of collateralized mortgage obligations (781) (205) Proceeds from stock options exercised and employee stock plan purchases 3,645 2,113 Purchase of treasury stock (537) Net cash (used in) provided by financing activities (16,712) 50,527 Net (decrease) increase in cash and cash equivalents (71,745) 4,150 Cash and cash equivalents, beginning of period 147,575 22,891 Cash and cash equivalents, end of period $75,830 $27,041 Supplemental disclosures of cash flow information Interest paid, net of capitalized amount $ 7,033 $ 6,089 Income taxes paid $26,831 $20,156 Supplemental disclosures of non-cash financing activities: Cost of residential inventories acquired through seller financing $ 7,500 $11,144 Income tax benefit relating to exercise of employee stock options $ 872 $ 409 Stock bonus award $ 3,564 $ 2,295 Conversion of subordinated debt $50,712
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, 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 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 July 31, 1998, the results of its operations for the nine months and three months ended July 31, 1998 and 1997 and its cash flows for the nine months ended July 31, 1998 and 1997. The results of operations for such interim periods 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 excludes 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: July 31, October 31, 1998 1997 Land and land development costs $ 264,794 $234,855 Construction in progress 683,244 590,295 Sample homes 52,703 47,920 Land deposits and costs of future development 53,304 28,314 Deferred marketing and financing costs 21,673 20,211 $1,075,718 $921,595
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: Nine months Three months ended July 31 ended July 31 1998 1997 1998 1997 Interest capitalized, beginning of period $51,687 $46,191 $56,749 $51,359 Interest incurred 28,962 26,250 9,257 8,257 Interest expensed (24,991) (19,975) (10,366) (7,233) Write off to cost of sales (18) (108) (25) Interest capitalized, end of period $55,640 $52,358 $55,640 $52,358
3. Extinguishment of Debt In December 1997, the Company called for redemption on January 14, 1998 all of its oustanding 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. 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 recognized an extraordinary charge in the second quarter of 1998 of $1.1 million, net of $655,000 of income taxes, related to the retirement of its previous revolving credit agreement and prepayment of the term loans. In January 1997, the Company called for redemption on March 15, 1997 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 in the first quarter of fiscal 1997 of $2,772,000, net of $1,659,000 of income taxes. The loss represents the redemption premium and the write-off of unamortized deferred issuance costs.
4. Earnings per share information: (in thousands) Nine months Three months ended July 31 ended July 31 1998 1997 1998 1997 Basic weighted average shares outstanding 36,322 34,090 37,005 34,200 Stock options 1,523 687 1,490 656 Convertible subordinated notes 587 2,345 2,345 Diluted weighted average shares 38,432 37,122 38,495 37,201 Earnings addback related to interest on convertible subordinated notes $ 315 $ 1,134 $ 378
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 July 31, 1998, the Company had repurchased 20,000 shares. The Company reissued these shares to employees upon exercise of stock options.
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: Nine months Three months ended July 31 ended July 31 1998 1997 1998 1997 Revenues 100.0% 100.0% 100.0% 100.0% Costs and expenses: Land and housing construction 77.0 77.2 76.8 77.0 Selling, general and administrative 9.2 9.3 8.3 9.1 Interest 3.0 3.0 3.0 3.0 Total costs and expenses 89.2 89.5 88.1 89.1 Income before taxes 10.8% 10.5% 11.9% 10.9%
Revenues for the nine month and three month periods ended July 31, 1998 were higher than those of the comparable periods of 1997 by approximately $183 million, or 28%, and $100 million, or 41%, respectively. The increased revenues for the 1998 periods were primarily attributable to the increase in the number and higher average price of the homes delivered during the periods. The increased number of homes delivered 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 the 1998 periods as compared to the beginning of the 1997 periods. The value of new sales contracts signed amounted to $1.039 billion (2,546 homes) and $333 million (795 homes) for the nine month and three month periods ended July 31, 1998, respectively. The value of new contracts signed for the comparable periods of fiscal 1997 were $779 million (1,952 homes) and $251 million (638 homes), respectively. The increase in the value of new contracts signed in both periods of 1998 was primarily attributable to an increase in the average selling price of the homes (due primarily to the location, size and increases in base selling prices), and an increase both in the number of communities in which the Company was offering homes for sale and in the number of contracts signed per community. As of July 31, 1998, the backlog of homes under contract amounted to $844 million (1,971 homes), approximately 29% higher than the $654 million (1,609 homes) backlog as of July 31, 1997 and approximately 35% higher than the $627 million (1,551 homes) backlog as of October 31, 1997. Land and construction costs as a percentage of revenues decreased slightly in the nine month and three month periods ended July 31, 1998 as compared to the same periods of 1997. The decreases were due principally to lower overhead costs in both periods of 1998 as compared to the 1997 periods and lower inventory writedowns in the nine months of 1998 as compared to 1997. Inventory writedowns recognized in 1998($.5 million for the nine month period and $.1 million in the three month period) as compared to 1997($1.3 million in the nine month period and $.1 million in the three month period). Selling, general and administrative expenses ("SG&A") in the nine month and three month periods ended July 31, 1998 increased over the comparable periods of 1997 by $16.2 million and $6.6 million, respectively, but decreased as a percentage of revenue. The increased spending was primarily attributable to the increased revenues and the increased number of communities which the Company was operating during the 1998 periods as compared to the same periods of 1997 and the Company's geographic expansion. The decrease in SG&A as a percentage of revenues in the nine months and third quarter of 1998 as compared to the 1997 periods was due to spending increasing at a slower rate than revenues. Interest expense is determined on a specific home-by-home 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 home 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 approximately the same in the nine month and three month periods 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 1998 and 1997 periods, respectively. The decrease in the Base Rate was due to a decrease in the Company's estimated effective state tax rate. The effective tax rate for the nine month and three month periods of 1998 were 36.1% and 36.8% as compared to 36.9% and 37.4% for the comparable periods of 1997. The primary differences between the Company's Base Rate and effective tax rate were tax free income in 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 fiscal 1998 to increase and for the full 1998 fiscal year to be approximately 36.5%. EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT 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 recognized an extraordinary charge in the second quarter of 1998 of $1.1 million, net of $655,000 of income taxes, related to the retirement of its previous revolving credit agreement and prepayment of the term loans. In January 1997, the Company called for redemption on March 15, 1997 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 in the first quarter of fiscal 1997 of $2,772,000, net of $1,659,000 of income taxes. The loss represents the redemption premium and the write-off of unamortized deferred issuance costs. 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 $355 million unsecured revolving credit facility with fifteen banks which extends through February 2003. As of July 31, 1998, the Company had $50 million of loans and approximately $22 million of letters of credit outstanding under the facility. The Company believes that it will be able to continue to fund its activities through a combination of operating cash flow and existing sources of credit. YEAR 2000 In prior years, many computer programs were written using two digits rather than four digits to define the applicable year which could result in systems failures or errors. Management has reviewed its internal software systems and believes that the required changes will be completed without causing operational issues or have a material impact on the Company's results of operations or financial condition.
HOUSING DATA Nine Months Three Months Ended July 31 Ended July 31 1998 1997 1998 1997 Period ended July 31: # of homes closed 2,179 1,710 869 622 # of homes contracted 2,546 1,952 795 638 Sales value of homes contracted (in thous.)$1,038,643 $778,761 $332,770 $250,636 July 31, Oct.31 July 31, Oct. 31 1998 1997 1997 1996 # of homes in backlog 1,971 1,551 1,609 1,367 Sales value of homes in backlog (in thous.) $843,925 $627,220 $653,813 $526,194
PART II. Other Information ITEM 1. Legal Proceedings None. ITEM 2. Changes in Securities In July 1998, the Company amended its stockholder rights plan to eliminate the use of continuing Directors as defined in the Rights Agreement. 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 4.1 Rights Agreement dated as of June 12, 1997, by and between the Company and ChaseMellon Shareholder Service, L.L.C. as Rights Agent (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated June 20,1997). Exhibit 4.2 Amendment to Rights Agreement dated as of July 31, 1998, by and between the Company and ChaseMellon Shareholder Service, L.L.C. as Rights Agent (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A/A dated August 21, 1998. Exhibit 27* Financial Data Schedule *Filed electronically herewith. (b) Reports on Form 8-K None. 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: September 10, 1998 By: /s/Joel H. Rassman Joel H. Rassman Senior Vice President, Treasurer and Chief Financial Officer Date: September 10, 1998 By: /s/Joseph R. Sicree Joseph R. Sicree Vice President - Chief Accounting Officer (Principal Accounting Officer) EX-27 2
5 0000794170 TOLL BROTHERS, INC. 9-MOS OCT-31-1998 JUL-31-1998 75,830 0 0 0 1,075,318 0 35,814 21,409 1,208,294 0 269,275 370 0 0 499,990 1,208,294 832,628 836,471 643,709 720,712 0 0 24,991 90,768 32,804 57,964 0 1,115 0 56,849 1.57 1.49
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