Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today (August 22) reported results for net income, revenues, backlog and contracts for its third quarter and nine months ended July 31, 2007.
FY 2007’s third-quarter net income was $26.5 million, or $0.16 per share diluted, compared to FY 2006’s third-quarter results of $174.6 million, or $1.07 per share diluted. In FY 2007, third-quarter net income was reduced by after-tax write-downs of $88.5 million ($147.3 million pre-tax), or $0.54 per share diluted. In FY 2006, third-quarter after-tax write-downs totaled $14.6 million ($23.9 million pre-tax), or $0.09 per share diluted. Excluding write-downs, FY 2007’s third-quarter earnings were $0.70 per share diluted compared to $1.16 per share diluted in FY 2006’s third quarter.
FY 2007’s nine-month net income was $117.5 million, or $0.72 per share diluted, compared to FY 2006’s same period record results of $513.4 million, or $3.10 per share diluted. In FY 2007, nine-month net income was reduced by after-tax write-downs and a first-quarter goodwill impairment totaling $224.0 million ($372.9 million pre-tax), or $1.36 per share diluted. In FY 2006, nine-month after-tax write-downs totaled $22.7 million, or $0.14 per share diluted. Excluding write-downs and the goodwill impairment charge, FY 2007’s nine-month earnings were $2.08 per share diluted compared to $3.24 per share diluted in FY 2006’s first nine months.
FY 2007’s third-quarter total revenues were $1.21 billion compared to FY 2006’s third-quarter total revenues of $1.53 billion. FY 2007’s nine-month total revenues were $3.48 billion compared to the nine-month record of $4.31 billion in FY 2006. FY 2007’s third-quarter-end backlog was $3.67 billion compared to FY 2006’s third-quarter-end backlog of $5.59 billion.
FY 2007’s third-quarter net signed contracts were $727.0 million, as compared to FY 2006’s third-quarter total of $1.05 billion. The Company signed 1,457 contracts (before cancellations) in FY 2007’s third quarter, a 17% decline from the 1,760 signed in FY 2006’s third quarter. Net of cancellations, third-quarter contracts totaled 1,110 units, down 23% from 1,443 units in the third quarter of FY 2006. Third-quarter FY 2007 cancellations totaled 347 units, versus 384 units and 436 units in the second and first quarters of FY 2007, respectively, and 585 units in fourth-quarter FY 2006; FY 2007’s third-quarter cancellations were 23.8% as a percentage of current-quarter contracts and 6.0% as a percentage of beginning-quarter backlog compared to 18.9% and 6.5%, respectively, in the previous quarter, and highs of 36.7% and 7.3%, respectively, in the fourth quarter of FY 2006. FY 2007’s nine-month net contracts were $2.64 billion compared to FY 2006’s nine-month total of $3.75 billion.
The Company ended its third quarter with over $770 million in cash and more than $1.17 billion available under its bank credit facility, which matures in 2011. Its net debt-to-capital ratio (1) at July 31, 2007 stood at 28.6% compared to 36.8% one year ago. The Company, which has continued to renegotiate, and in some cases, reduce its optioned land positions, ended FY 2007’s third quarter with approximately 63,000 lots owned and optioned compared to approximately 91,200 at its peak at the second-quarter-end of FY 2006. The Company ended the third quarter with 315 selling communities, down from 325 at second-quarter-end, and expects to be selling from approximately 305 communities by Fiscal Year End 2007.
Robert I. Toll, chairman and chief executive officer, stated: “We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets. So far, nearly two years into the current housing slowdown, we have continued to remain profitable and increase stockholders’ equity. We believe our build-to-order operating model has helped. In single-family communities, we typically do not start a home until we have a contract in place and a significant non-refundable down-payment. In our multi-family and high-rise communities, although we do pre-sell, it generally is not feasible, nor desirable, towait for 100% pre-sales before breaking ground.
“Even with these policies, during this downturn, we have experienced a much higher rate of cancellations than at any time in our twenty-one-year history as a public company. While our cancellation rates are at the very low end of the range compared to the other major public builders, they are still, for us, quite elevated.
“As a luxury home builder, we try to focus on great locations with excellent schools in established, affluent markets where approvals are often very difficult to obtain. Therefore, we believe that in the medium- and long-term, our locations have value that we don’t wish to sacrifice to generate short-term sales volumes and cash flow. Our debt is of a long-term nature and our leverage is low by historical standards, which, we believe, gives us more flexibility to operate patiently as we deal with the current downturn.
“We, along with many others, are concerned about the dislocation in the secondary mortgage market. We maintain relationships with a widely diversified variety of mortgage providers, most of which are among the largest and, we believe, most reliable in our industry. With few exceptions, the investors who provide our customers with mortgages continue to issue new commitments. Through our third-quarter-end, our buyers generally were able to obtain both conforming and jumbo loans (loans over $417,000).
“Nevertheless, tightening credit standards will likely shrink the pool of potential home buyers: Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes. However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractivecredit profiles.
“We believe that reducing new home production until the current oversupply is absorbed is a key step in bringing housing markets back into equilibrium. Last week’s very low housing starts data implied that this is beginning to occur. Once equilibrium is achieved, we believe home prices will firm and customers, who are waiting on the sidelines, will have the confidence to enter the market.”
Joel H. Rassman, chief financial officer, stated: “Consistent with our statement in our August 8, 2007 conference call and press release, given the numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments, in the current environment we are not comfortable providing fourth-quarter guidance at this time or confirming any previous guidance.”
Robert Toll continued: ”We thank our dedicated and loyal associates as, together, we weather these difficult times and remain focused on providing our buyers with the highest standards of quality, value and service.”
Toll Brothers’ financial highlights for the third-quarter and nine-month periods ended July 31, 2007 (unaudited):
FY 2007?s third-quarter net income was $26.5 million, or $0.16 per share diluted, compared to FY 2006?s third-quarter of $174.6 million, or $1.07 per share diluted. In FY 2007, third-quarter net income included pre-tax write-downs of $147.3 million, or $0.54 per share diluted. $139.6 million of the write-downs were attributable to operating communities and owned land and $7.7 million was attributable to optioned land. In FY 2006, third-quarter pre-tax write-downs totaled $23.9 million. FY 2007 third-quarter earnings per share, including write-downs, declined 85% versus FY 2006; excluding write-downs, earnings were $0.70 per share diluted, down 40% versus FY 2006.
In FY 2007’s third quarter, “Interest and other” included $15 million of pre-tax income from the sale of Toll Brothers’ Westminster Security Company, the Company’s home security monitoring subsidiary, to an unrelated buyer.
FY 2007’s nine-month net income was $117.5 million, or $0.72 per share diluted, compared to FY 2006’s nine-month record of $513.4 million, or $3.10 per share diluted. In FY 2007, nine-month net income included pre-tax write-downs and a goodwill impairment charge totaling $372.9 million, or $1.36 per share diluted. $338.7 million of the write-downs was attributable to operating communities and owned land and $25.2 million was attributable to optioned land. In FY 2006, nine-month pre-tax write-downs totaled $37.0 million. FY 2007 nine-month earnings per share, including write-downs, declined 77% versus FY 2006; excluding write-downs and the impairment charge, earnings were $2.08 per share diluted, down 36% versus FY 2006.
FY 2007’s third-quarter total revenues of $1.21 billion decreased 21% from FY 2006’s third-quarter total revenues of $1.53 billion. FY 2007’s third-quarter home building revenues of $1.21 billion decreased 21% from FY 2006’s third-quarter home building revenues of $1.53 billion. Revenues from land sales totaled $4.5 million in FY 2007’s third quarter, compared to $1.1 million in FY 2006’s third quarter.
FY 2007’s nine-month total revenues of $3.48 billion decreased 19% from FY 2006’s nine-month total revenues of $4.31 billion, the nine-month record. FY 2007’s nine-month home building revenues of $3.47 billion decreased 19% from FY 2006’s nine-month home building revenues of $4.31 billion, the nine-month record. Revenues from land sales totaled $9.9 million in FY 2007’s first nine months, compared to $7.9 million in the first nine months of FY 2006.
In addition, in the Company’s third quarter and first nine months of FY 2007, unconsolidated entities in which the Company had an interest delivered $11.7 million and $47.1 million of homes, respectively, compared to $14.2 million and $95.3 million during the third quarter and first nine months, respectively, of FY 2006. The Company’s share of profits from the delivery of these homes is included in “Equity Earnings from Unconsolidated Entities” on the Company’s Income Statement.
In FY 2007, the Company’s third-quarter-end backlog of $3.67 billion decreased 34% from FY 2006’s third-quarter-end backlog of $5.59 billion. In addition, at the end of third quarter FY 2007, unconsolidated entities in which the Company had an interest had a backlog of $68.3 million.
The Company’s FY 2007 third-quarter net contracts of $727.0 million declined by 31% from FY 2006’s third-quarter net contracts of $1.05 billion. In addition, in FY 2007’s third quarter, unconsolidated entities in which the Company had an interest signed contracts of $33.6 million.
FY 2007’s nine-month net contracts of $2.64 billion declined by 30% from FY 2006’s nine-month net contracts of $3.75 billion. In addition, in FY 2007’s nine-month period, unconsolidated entities in which the Company had an interest signed contracts of $97.4 million.
(1)Net debt-to-capital is calculated as total debt minus mortgage warehouse loans minus cash, divided by total debt minus mortgage warehouse loans minus cash plus stockholders’ equity.
Toll Brothers will be broadcasting live via the Investor Relations section of its website, www.tollbrothers.com, a conference call hosted by chairman and chief executive officer Robert I. Toll at 2:00 p.m. (EDT) today, August 22, 2007, to discuss these results and its outlook for the remainder of FY 2007. To access the call, enter the Toll Brothers website, then click on the Investor Relations page, and select “Conference Calls”. Participants are encouraged to log on at least fifteen minutes prior to the start of the presentation to register and download any necessary software. The call can be heard live with an on-line replay which will follow and continue through September 30, 2007.
Toll Brothers, Inc. is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. Its common stock is listed on the New York Stock Exchange under the symbol "TOL". The Company serves move-up, empty-nester, active-adult and second-home home buyers and operates in 22 states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and West Virginia.
Toll Brothers builds luxury single-family detached and attached home communities, master planned luxury residential resort-style golf communities and urban low-, mid- and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management and landscape subsidiaries. The Company also operates its own lumber distribution and house component assembly and manufacturing operations. -Toll Brothers
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