Toll Brothers, Inc. 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Toll Brothers, Inc., a homebuilder, for the quarterly period ended April 30, 1999. The report covers the six months and three months ended on this date. The company operates in various markets including Arizona, Florida, Nevada, North Carolina, and Texas, and recently acquired the homebuilding operations of the Silverman Companies in March 1999.
Key Financial Metrics
| Metric | Six Months Ended 4/30/99 | Six Months Ended 4/30/98 | Three Months Ended 4/30/99 | Three Months Ended 4/30/98 |
|---|---|---|---|---|
| Total Revenues | $615.5 million | $494.3 million | $342.7 million | $249.6 million |
| Net Income | $38.1 million | $31.1 million | $22.1 million | $14.6 million |
| Diluted EPS | $1.01 | $0.82 | $0.59 | $0.38 |
| Operating Cash Flow | ($154.7 million) used | ($74.3 million) used | N/A | N/A |
| Cash and Equivalents | $101.9 million | $55.1 million | N/A | N/A |
| Total Debt (Loans + Notes) | $710.6 million | $451.6 million | N/A | N/A |
| Backlog Value | $1.080 billion | $852.3 million | N/A | N/A |
Margins: Income before taxes was 10.1% of revenues for both the six-month and three-month periods in 1999. Land and housing construction costs were 77.5% of revenues for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 25% for the six months and 37% for the three months compared to the prior year. This was driven by a 17% increase in homes delivered (1,531 vs. 1,310 for six months) and a 6% increase in average selling price.
- Backlog Expansion: The backlog of homes under contract rose to $1.080 billion (2,516 homes), a 27% increase from the prior year and 33% from the previous fiscal year-end.
- Debt Restructuring: The company issued $270 million in new Senior Subordinated Notes (8% and 8 1/8% due 2009) and redeemed $70 million of 9 1/2% notes due 2003. This resulted in an extraordinary loss of $1.46 million.
- Acquisition: The company acquired the Silverman Companies for approximately $11.1 million in cash plus assumed debt, adding 1,800 home sites.
- Cost Pressures: Construction costs as a percentage of revenue increased slightly due to higher costs in newer markets and inventory write-offs ($2.4 million for six months).
Guidance, Outlook, and Risks
- Outlook: Management expects the Silverman acquisition to be accretive to earnings in fiscal 1999. The company anticipates continued growth driven by a larger backlog and expanded community footprint.
- Liquidity: The company maintains a $415 million unsecured revolving credit facility with $100 million in loans and $48.2 million in letters of credit outstanding as of April 30, 1999.
- Year 2000 Readiness: Management believes almost all programs are Year 2000 compliant and that costs will be immaterial. However, risks remain regarding third-party providers (suppliers, banks) not being compliant.
- Risks: Key risks include economic conditions, interest rate fluctuations, land availability, and the competitive environment.
Investor Verification Checklist
- Verify the sustainability of the 6% increase in average selling price amidst potential market saturation.
- Confirm the integration progress and cost performance of the newly acquired Silverman Companies operations.
- Monitor the impact of higher inventory write-offs ($2.4M) on future gross margins.
- Assess the company's ability to service increased debt levels following the $270M note issuance.
- Review the status of Year 2000 compliance for critical third-party suppliers and financial institutions.