-----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, JlDd8P3+Hhd8/7hRUipnr8cCEmrwBO3XKXjjtMqmfevBU/Mmnrfge0GkGl4z807t 3Bt3ldlGfCp7gWBqNQNUbw== 0000794170-99-000005.txt : 19990315 0000794170-99-000005.hdr.sgml : 19990315 ACCESSION NUMBER: 0000794170-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990312 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: 99563753 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 January 31, 1999 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: 36,879,162 shares as of February 22, 1999 TOLL BROTHERS, INC. AND SUBSIDIARIES INDEX Page No. PART I. Financial Information ITEM 1. Financial Statements Condensed Consolidated Balance Sheets 1 January 31, 1999 (Unaudited) and October 31, 1998 Condensed Consolidated Statements of Income (Unaudited) 2 Three Months Ended January 31, 1999 and 1998 Condensed Consolidated Statements of Cash Flows 3 (Unaudited) Three Months Ended January 31, 1999 and 1998 Notes to Condensed Consolidated Financial Statements 4 (Unaudited) ITEM 2. Management's Discussion and Analysis of 8 Financial Condition and Results of Operations PART II. Other Information 11 SIGNATURES 12 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 ability to acquire land, Year 2000 readiness, and the effect on the Company if the Company or significant third parties are not compliant. 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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) January 31, October 31, 1999 1998 (Unaudited) ASSETS Cash and cash equivalents $ 196,932 $ 80,143 Residential inventories 1,208,207 1,111,863 Property, construction and office equipment 14,215 14,425 Receivables, prepaid expenses and other assets 54,754 46,652 Mortgage notes receivable 1,379 1,385 $1,475,487 $1,254,468 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Loans payable $ 240,871 $ 182,292 Subordinated notes 439,316 269,296 Customer deposits on sales contracts 69,115 69,398 Accounts payable 43,853 58,081 Accrued expenses 94,505 97,449 Collateralized mortgage obligations payable 1,377 1,384 Income taxes payable 42,543 50,812 Total liabilities 931,580 728,712 Stockholders' equity: Common stock 370 369 Additional paid-in capital 106,751 106,099 Retained earnings 437,076 421,099 Treasury stock (290) (1,811) Total stockholders' equity 543,907 525,756 $1,475,487 $1,254,468
See accompanying notes PAGE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data) (Unaudited) Three months ended January 31 1999 1998 Revenues: Housing sales $270,682 $243,234 Interest and other 2,184 1,481 272,866 244,715 Costs and expenses: Land and housing construction 210,961 188,850 Selling, general and administrative 26,589 23,518 Interest 7,747 7,031 245,297 219,399 Income before income taxes and extraordinary loss 27,569 25,316 Income taxes 10,131 8,761 Income before extraordinary loss 17,438 16,555 Extraordinary loss from extinguishment of debt, net of income taxes of $857 (1,461) Net income $ 15,977 $ 16,555 Earnings per share Basic: Income before extraordinary loss $ .47 $ .47 Extraordinary loss from extinguishment of debt (.04) Net income $ .43 $ .47 Diluted: Income before extraordinary loss $ .46 $ .44 Extraordinary loss from extinguishment of debt (.04) Net income $ .42 $ .44 Weighted average number of shares Basic 36,963 34,983 Diluted 38,033 38,127
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Three months ended January 31 1999 1998 Cash flows from operating activities: Net income $15,977 $16,555 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 991 1,051 Amortization of loan discount 265 585 Deferred tax provision 758 3,066 Extraordinary loss from extinguishment of debt 2,318 Changes in operating assets and liabilities Increase in inventory (95,514) (61,032) Increase in receivables, prepaid expenses and other assets (1,070) (3,772) (Decrease) increase in customer deposits on sales contracts (283) 3,768 Decrease in accounts payable, accrued expenses and other liabilities (16,110) (2,648) Decrease in current income taxes payable (8,484) (9,303) Net cash used in operating activities (101,152) (51,730) Cash flows from investing activities: Purchase of property, construction and office equipment, net (630) (682) Principal repayments of mortgage notes receivable 6 137 Investment in unconsolidated affiliate (6,700) Net cash used in investing activities (7,324) (545) Cash flows from financing activities: Proceeds from loans payable 90,000 Principal payments of loans payable (32,512) (3,034) Net proceeds from issuance of senior subordinated notes 168,569 Principal payments of collateralized mortgage obligations (7) (120) Proceeds from stock-based benefit plans 317 2,166 Purchase of treasury stock (1,102) Net cash provided by (used in) financing activities 225,265 (988) Increase (decrease) in cash and cash equivalents 116,789 (53,263) Cash and cash equivalents, beginning of period 80,143 147,575 Cash and cash equivalents, end of period $196,932 $ 94,312
See accompanying notes 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, 1998 balance sheet amounts and disclosures included herein have been derived from the October 31, 1998 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, 1998 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, 1999 and 1998, 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. 2. Residential Inventories
Residential inventories consisted of the following (amounts in thousands): January 31, October 31, 1999 1998 Land and land development costs $ 408,122 $ 298,948 Construction in progress 680,472 693,971 Sample homes 46,650 47,520 Land deposits and costs of future development 50,520 50,174 Deferred marketing and financing costs 22,443 21,250 $1,208,207 $1,111,863
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. 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 1999 1998 Interest capitalized, beginning of period $53,966 $51,687 Interest incurred 10,126 10,353 Interest expensed (7,747) (7,031) Write-off to cost of sales and other (7) (18) Interest capitalized, end of period $56,338 $54,991
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. 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. Subordinated Notes In January 1999, the Company issued $170,000,000 of 8 1/8% Senior Subordinated Notes due 2009. The Company intends to use the proceeds to redeem all of the Company's 9 1/2% Senior Subordinated Notes due 2003, to repay bank indebtedness and for general corporate purposes. 5. Earnings Per Share
Information pertaining to the calculation of earnings per share for the three months ended January 31, 1999 and 1998 is as follows: 1999 1998 Basic weighted average shares 36,963 34,983 Common stock equivalents 1,070 1,381 Convertible subordinated notes 1,763 38,033 38,127 Earnings addback related to interest on convertible subordinated notes, net of income taxes -- $ 315
6. 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, 1999, the Company had repurchased approximately 180,000 shares under the program, and had reissued approximately 167,600 shares to employees upon exercise of stock options and for payments due under the Company's Cash Bonus Plan. 7. Acquisition In January 1999, the Company entered into an agreement to acquire the Silverman Companies, a Detroit, Michigan homebuilder and developer of luxury apartments for cash and the assumption of debt. The Silverman Companies own or control approximately 1,800 home sites and interests in over 1,000 existing and prospective apartments. The acquisition is expected to be completed during the Company's second fiscal quarter ended April 30, 1999 and is expected to be accretive to earnings in fiscal 1999. The acquisition price is not material to the financial position of the Company.
8. Supplemental Disclosure to Statement of Cash Flows The following are supplemental disclosures to the statements of cash flow for three months ended January 31, 1999 and 1998: 1999 1998 Supplemental disclosures of cash flow information: Interest paid, net of capitalized amount $ 1,119 $ 805 Income taxes paid $ 17,000 $ 14,998 Supplemental disclosures of non-cash activities: Cost of residential inventories acquired through seller financing $ 898 --- Income tax benefit relating to exercise of employee stock options $ 497 $ 476 Stock bonus awards $ 2,461 $ 3,564 Conversion of subordinated debt --- $ 50,712
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, 1999 and 1998, certain income statement items related to the Company's operations as percentages of total revenues: 1999 1998 Revenues 100.0% 100.0% Costs and expenses: Land and housing construction 77.3 77.2 Selling, general and administrative 9.8 9.6 Interest 2.8 2.9 Total costs and expenses 89.9 89.7 Income before taxes and extraordinary loss 10.1% 10.3%
Revenues for the three months ended January 31, 1999 amounted to $272.9 million compared to $244.7 million reported in the first quarter of fiscal 1998. This increase was due primarily to an increase in the number of homes delivered in the first quarter of 1999 over the first quarter of 1998 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, 1998 as compared to October 31, 1997, which was the result of the greater number of contracts of sale signed in fiscal 1998 over fiscal 1997. The increase in the average selling price per home delivered in the first quarter of 1999 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. As of January 31, 1999, the backlog of homes under contract amounted to $853.3 million (1,974 homes), approximately 28% higher than the $665.1 million (1,634 homes) backlog as of January 31, 1998. The aggregate sales value of new contracts signed in the first quarter of fiscal 1999 amounted to $309.3 million (756 homes), an increase of approximately 14% over the $270.4 million (675 homes) signed in the first quarter of 1998. Land and housing construction costs as a percentage of revenues increased slightly in the first quarter of 1999 as compared to 1998. This increase was the net result of higher inventory write-offs in the first quarter of 1999 ($914,000) as compared to 1998 ($75,000) and the higher number of closing from the Company's newer markets (Arizona, Florida, Nevada, North Carolina and Texas) in 1999 as compared to 1998 which had a higher cost as a percentage of revenues as compared to our more established markets, offset by lower costs as a percentage of revenues in the Company's more established markets resulting from increased selling prices and lower overhead costs. Selling, general and administrative expenses ("SG&A") in the first quarter of 1999 increased slightly as a percentage of revenues as compared to the first quarter of 1998. This increase was primarily attributable to the additional SG&A spending incurred by the Company in connection with its expansion into its new markets. 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. 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% in 1999 and 1998. 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 1999 and 1998 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 effective tax rate. 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 residential development activities has been principally provided by cash flows from homebuilding operations, unsecured bank borrowings, and from the public debt and equity markets. The Company has a $415 million unsecured revolving credit facility with fourteen banks which extends through February 2003. As of January 31, 1999, the Company had $110 million of loans and approximately $27.3 million of letters of credit outstanding under the facility. In January 1999, the Company issued $170,000,000 of 8 1/8% Senior Subordinated Notes due 2009. The Company intends to use the proceeds to redeem all of its 9 1/2% Senior Subordinated Notes due 2003, repay bank indebtedness and for general corporate purposes. 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. YEAR 2000 READINESS DISCLOSURE The Company has assessed and is continuing to assess its operating systems, computer software applications, computer equipment and other equipment with embedded electronic circuits ("Programs") that it currently uses to identify whether they are Year 2000 compliant and, if not, what steps are needed to bring them into compliance. The Company expects that almost all Programs will be Year 2000 compliant by the end of the first quarter of calendar 1999. For those Programs that will not be compliant by then, the Company is reviewing the potential impact on the Company and the alternatives that are available to it if the Programs cannot be brought into compliance by December 31, 1999. The Company believes that the required changes to its Programs will be made on a timely basis without causing material operational issues or having a material impact on its results of operations or its financial position. The Company believes that its core business of homebuilding is not heavily dependent on the Year 2000 compliance of its Programs and that, should a reasonably likely worst case Year 2000 situation occur, the Company, because of the basic nature of its systems, would not likely suffer material loss or disruption in remedying the situation. The costs incurred and expected to be incurred in the future regarding Year 2000 compliance have been and are expected to be immaterial to the results of operation and financial position of the Company. Costs related to Year 2000 compliance are expensed. The Company has been reviewing whether its significant subcontractors, suppliers, financial institutions and other service providers ("Providers") are Year 2000 compliant. The Company is not aware of any Providers that do not expect to be compliant; however, the Company has no means of ensuring that its Providers will be Year 2000 ready. The inability of Providers to be Year 2000 ready in a timely fashion could have an adverse impact on the Company. The Company plans to respond to any such contingency involving any of its Providers by seeking to utilize alternative sources for such goods and services, where practicable. In addition, widespread disruptions in the national or international economy, including, for example, disruptions affecting financial markets, commercial and investment banks, governmental agencies and utility services, such as heat, lights, power and telephones, could also have an adverse impact on the Company. The likelihood and effects of such disruptions are not determinable at this time.
HOUSING DATA (Dollars in thousands) New Contracts Closings Three Months Ended Contract Backlog Three Months Ended January 31 January 31 January 31 1999 1998 1999 1998 1999 1998 Sales value $309,280 $270,420 $853,312 $665,097 $270,682 $243,234 Homes 756 675 1,974 1,634 674 645
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 Report on Form 8-K dated as of January 22, 1999 pertaining to Terms Agreement and Authorizing Resolutions relating to the issuance of the Company's $170,000,000 Senior Subordinated Notes due 2009. 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 05, 1999 By: /s/ Joel H. Rassman Joel H. Rassman Senior Vice President, Treasurer and Chief Financial Officer Date: March 05, 1999 By: /s/ Joseph R. Sicree Joseph R. Sicree Vice President - Chief Accounting Officer (Principal Accounting Officer) EX-27 2
5 0000794170 TOLL BROTHERS, INC. 3-MOS OCT-31-1999 JAN-31-1999 196,932 0 0 0 1,208,207 0 36,938 22,722 1,475,487 0 439,316 370 0 0 543,537 1,475,487 270,682 272,866 210,961 237,550 0 0 7,747 27,569 10,131 17,438 0 (1,461) 0 15,977 .43 .42
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