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, 1996 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: 33,905,777 shares as of June 3, 1996
TOLL BROTHERS, INC. AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. <S> <C> PART I. Financial Information ITEM 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) 1 as of April 30, 1996 and October 31, 1995 Condensed Consolidated Statements of Income (Unaudited) 2 For the Six Months and Three Months Ended April 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows 3 (Unaudited)For the Six Months Ended April 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements 5 (Unaudited) ITEM 2. Management's Discussion and Analysis of 7 Financial Condition and Results of Operations PART II. Other Information 8 SIGNATURES 9 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Report and other such Company filings (collectively, "SEC filings") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC filings) contains or may contain information that is forward looking, related to subject matter such as national and local 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 and the availability and cost of labor and materials. Such forward looking information involves important risks and uncertainties that could significantly affect expected results. These risks and uncertainties are addressed in this and other SEC filings.
TOLL BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands) (Unaudited) </TABLE> <TABLE> <CAPTION> April 30, October 31, 1996 1995 -------- ---------- ASSETS <S> <C> <C> Cash and cash equivalents $ 16,882 $ 27,772 Residential inventories 686,829 623,830 Property, construction and office equipment 12,380 11,898 Receivables, prepaid expenses and other assets 25,555 25,017 Mortgage notes receivable 3,276 3,940 -------- -------- $744,922 $692,457 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Loans payable $ 91,900 $ 59,057 Subordinated notes 215,087 221,226 Customer deposits on sales contracts 47,385 36,194 Accounts payable 34,167 31,640 Accrued expenses 45,896 46,771 Collateralized mortgage obligations payable 3,715 3,912 Income taxes payable 29,722 36,998 -------- -------- Total liabilities 467,872 435,798 -------- -------- Shareholders' equity: Preferred stock Common stock 339 336 Additional paid-in capital 42,889 38,747 Retained earnings 233,822 217,576 -------- -------- Total shareholders' equity 277,050 256,659 -------- -------- $744,922 $692,457 ======== ======== </TABLE>
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (Unaudited) <TABLE> <CAPTION> Six months Three months ended April 30 ended April 30 -------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: <S> <C> <C> <C> <C> Housing sales $286,622 $258,426 $145,208 $137,128 Interest and other 956 1,379 300 360 -------- -------- -------- -------- 287,578 259,805 145,508 137,488 -------- -------- -------- -------- Costs and expenses: Land and housing construction 219,895 195,244 110,773 103,103 Selling, general & administrative 32,473 27,182 17,241 13,940 Interest 9,242 9,451 4,741 5,364 -------- -------- -------- -------- 261,610 231,877 132,755 122,407 -------- -------- -------- -------- Income before income taxes 25,968 27,928 12,753 15,081 Income taxes 9,722 10,224 4,775 5,636 -------- -------- -------- -------- Net income $ 16,246 $ 17,704 $ 7,978 $ 9,445 ======== ======== ========= ======== Net income per share: Primary $ .47 $ .53 $ .23 $ .28 Fully-diluted $ .46 $ .51 $ .23 $ .27 Weighted average number of shares Primary 34,527 33,617 34,506 33,707 Fully-diluted 36,976 36,095 36,929 36,153 </TABLE> See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Six months ended April 30 -------------- 1996 1995 ---- ---- <S> <C> <C> Cash flows from operating activities: Net income $16,246 $17,704 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,602 1,425 Loss (gain) from repurchase of subordinated notes 117 (523) Deferred taxes 1,761 483 Net realizable provisions 500 1,500 Changes in operating assets and liabilities: Increase in residential inventories (61,735) (93,984) (Increase) decrease in receivables, prepaid expenses and other assets (1,045) 661 Increase in customer deposits on sales contracts 11,191 2,761 Increase (decrease) in accounts payable, accrued expenses and other liabilities 1,652 (2,458) Decrease in current income taxes payable (8,946) (6,289) -------- -------- Net cash used in operating activities (38,657) (78,720) -------- -------- Cash flows from investing activities: Proceeds from marketable securities, net 3,674 Purchase of property, construction and office equipment, net (1,707) (900) Principal repayments of mortgage notes receivable 664 453 -------- -------- Net cash (used in) provided by investing activities (1,043) 3,227 -------- -------- Cash flows from financing activities: Proceeds from loans payable 67,000 124,000 Principal payments of loans payable (35,999) (71,474) Repurchase of subordinated notes (6,139) (3,166) Principal payments of collateralized mortgage obligations (197) (558) Proceeds from stock options exercised and employee stock plan purchases 4,145 311 -------- -------- Net cash provided by financing activities 28,810 49,113 -------- -------- Net decrease in cash and cash equivalents (10,890) (26,380) Cash and cash equivalents, beginning of period 27,772 38,026 -------- -------- Cash and cash equivalents, end of period $16,882 $11,646 ======== ======== Supplemental disclosures of cash flow information Interest paid, net of capitalized amount $ 2,675 $ 2,265 ======== ======== Income taxes paid $16,110 $15,999 ======== ======== Supplemental disclosures of non-cash financing activities: Cost of residential inventories acquired through seller financing $ 1,764 - ======== ======== Income tax benefit relating to exercise of employee stock options $ 888 $ 30 ======== ======== </TABLE> See accompanying notes
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, 1995 balance sheet amounts and disclosures included herein have been derived from the October 31, 1995 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, 1995 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, 1996 and 1995, 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 period are not necessarily indicative of the results to be expected for the full year. 2. Residential Inventories Residential inventories consisted of the following: April 30, October 31, 1996 1995 --------- ----------- <TABLE> <CAPTION> <S> <C> <C> Land and land development costs $181,544 $182,790 Construction in progress 433,941 377,456 Sample homes 36,110 32,448 Land deposits and costs of future development 15,970 13,555 Loan assets acquired for future development 4,886 5,157 Deferred marketing and financing costs 14,378 12,424 -------- -------- $686,829 $623,830 ======== ======== </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: Six months Three months ended April 30 ended April 30 -------------- ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- <TABLE> <CAPTION> <S> <C> <C> <C> <C> Interest capitalized, beginning of period $43,142 $39,835 $44,849 $41,548 Interest incurred 12,967 12,417 6,640 6,577 Interest expensed (9,242) (9,451) (4,741) (5,364) Write off to cost of sales (231) (97) (112) (57) -------- -------- -------- -------- Interest capitalized, end of period $46,636 $42,704 $46,636 $42,704 ======== ======== ======== ======== </TABLE> 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: Six months Three months ended April 30 ended April 30 -------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- <TABLE> <CAPTION> <S> <C> <C> <C> <C> Revenues 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ Costs and expenses: Land and housing construction 76.5 75.2 76.1 75.0 Selling, general and administrative 11.3 10.5 11.8 10.1 Interest 3.2 3.6 3.3 3.9 ------ ------ ------ ------ Total costs and expenses 91.0 89.3 91.2 89.0 ------ ------ ------ ------ Income before taxes 9.0% 10.7% 8.8% 11.0% ====== ====== ====== ====== Number of homes delivered 806 754 415 390 ====== ====== ====== ====== </TABLE> Revenues for the six month and three month periods ended April 30, 1996 were higher than those of the comparable periods of 1995 by approximately $27.8 million, or 11%, and $8.0 million, or 6%, respectively. The increased revenues for the 1996 periods were primarily attributable to the increased number of homes delivered during the periods, which 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 fiscal 1996 as compared to the beginning of fiscal 1995. During the three month period ended April 30, 1996, the average selling price of the homes delivered decreased as compared to the same period of fiscal 1995. This decrease was the result of a shift in the location of the homes delivered to less expensive areas, offset in part by increases in selling prices. For the six months ended April 30, 1996, the average selling price of homes delivered increased as compared to the six months ended April 30, 1995. The increase for the six month period was due to the significant increase in the average price of homes delivered in the three months ended January 31, 1996 over the comparable period of 1995, offset in part by the decrease in the three months ended April 30, 1996, as previously discussed. The increase in the average selling price per home delivered in the first quarter of 1996 was due to a shift of the location of the homes to more expensive areas, a change in product mix to larger homes and increases in selling prices. The value of new sales contracts signed amounted to $447 million (1,237 homes) and $299 million (823 homes) for the six month and three month periods ended April 30, 1996, respectively. The value of new contracts signed for the comparable periods of fiscal 1995 were $321 million (903 homes) and $209 million (594 homes), respectively. The increase in new contracts signed in both periods of 1996 was primarily attributable to an increase in the number of communities in which the Company was offering homes for sale and an increase in the number of contracts signed per community. Orders for new homes are generally the strongest during the Company's second quarter and consequently the backlog at April 30 is generally at its highest level in the Company's fiscal year. As of April 30, 1996, the backlog of homes under contract amounted to $561 million (1,509 homes), approximately 30% higher than the $433 million (1,174 homes) backlog as of April 30, 1995 and approximately 40% higher than the $401 million (1,078 homes) backlog as of October 31, 1995. The increase in backlog at April 30, 1996 is primarily attributable to the increases in the new contracts signed as previously discussed and the result of delays in the delivery of homes caused by the severe winter weather conditions that the Company experienced in many of its markets during the first half of fiscal 1996. Land and construction costs as a percentage of revenues increased in the six month and three month periods ended April 30, 1996 as compared to the same periods of 1995. The increases were due principally to increased material and overhead costs and the cost of incentives granted to buyers in the late spring and early autumn of 1995 to maintain sales levels. The increased overhead costs were due to the previously discussed adverse weather conditions which resulted in increased spending and reduced construction activity. The effect of the previously mentioned weather conditions and sales incentives on costs will continue to impact the Company's costs for the remainder of fiscal 1996. The cost increases were partially offset by the lower amount of inventory writedowns recognized in 1996($1.5 million for the six month period and $.4 million in the three month period) as compared to 1995 ($2 million in the six month period and $.5 million in the three month period). Selling, general and administrative expenses ("SG&A") in the six month and three month periods ended April 30, 1996 increased over the comparable periods of 1995 by $5.3 million or 19% and $3.3 million or 24%, respectively. These increases were primarily attributable to the higher level of spending due to the increased number of communities which the Company was operating during the 1996 periods as compared to the same periods of 1995 and the Company's geographic expansion. In addition, SG&A as a percentage of sales increased due to the lower than expected number of homes delivered in the 1996 periods resulting from the previously mentioned adverse weather conditions. The Company believes that SG&A, as a percentage of revenues, will decrease for the full 1996 fiscal year as compared to the six month and three month periods ended April 30, 1996 due to revenues increasing at a faster pace than SG&A expenses. 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 was owned, the period 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 six month and three month periods of 1996 as compared to 1995. Income taxes for the six month period ended April 30, 1996 and 1995 were provided at effective rates of 37.4% and 36.6%, respectively. For the three month periods ended April 30, 1996 and 1995, income taxes were provided at effective rates of 37.4% in both periods. 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 $230 million unsecured revolving credit facility with fourteen banks which extends through June 2000. The facility reduces by 50% in June 1999 unless extended as provided for in the agreement. As of April 30, 1996, the Company had $85 million of loans and approximately $22.7 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 operating cash flow and existing sources of credit.
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 (a) The Company's 1996 Annual Meeting of Shareholders was held on March 7, 1996. (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. The approval of Ernst & Young LLP as the Company's independent auditors for the 1996 fiscal year. FOR AGAINST ABSTAIN 29,271,881 28,965 15,616 ITEM 5. Other Information None. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11. Statement Regarding Computation of Per Share Earnings. Exhibit 27. Financial Data Schedule (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: June 12, 1996 By: /s/ Joel H. Rassman Joel H. Rassman Senior Vice President, Treasurer and Chief Financial Officer Date: June 12, 1996 By: /s/ Joseph R. Sicree Joseph R. Sicree Vice President - Chief Accounting Officer (Principal Accounting Officer)