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, 1994
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: 33,421,737 shares as of September 6,
1994
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
July 31, 1994 (Unaudited) and October 31, 1993
Condensed Consolidated Statements of Income (Unaudited) 2
For the Nine Months and Three Months Ended
July 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
For the Nine Months Ended July 31, 1994 and 1993
Notes to Condensed Consolidated Financial Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II. Other Information 10
SIGNATURES 11
PART I. ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
July 31, October 31,
1994 1993
___________ ___________
(unaudited) (Note 1)
ASSETS
Cash and cash equivalents $ 36,022 $ 32,329
Marketable securities, at cost which
approximates market 8,537 1,983
Residential inventories (Note 2) 479,530 402,515
Property, construction and office
equipment, at cost, net of accumulated
depreciation of $11,921 at July 31, 1994
and $10,910 at October 31, 1993 11,584 10,296
Receivables, prepaid expenses and other
assets 22,584 18,973
Mortgage notes receivable 5,204 9,902
________ ________
$563,461 $475,998
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 17,908 $ 24,779
Subordinated notes (Note 3) 228,987 174,442
Customer deposits on sales contracts 32,771 22,449
Accounts payable 23,825 16,971
Accrued expenses and other liabilities 39,038 30,221
Collateralized mortgage obligations 5,227 10,810
Income taxes payable:
Current 11,936 15,471
Deferred 14,845 13,849
________ ________
26,781 29,320
________ ________
Total liabilities 374,537 308,992
________ ________
Shareholders' equity (Note 3):
Preferred stock _ -
Common stock 334 333
Additional paid-in capital 36,276 35,206
Retained earnings 152,314 131,467
________ ________
Total shareholders' equity 188,924 167,006
________ ________
$563,461 $475,998
======== ========
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
1994 1993 1994 1993
(Note 1) (Note 1)
Revenues:
Housing sales $327,725 $249,729 $119,043 $101,163
Interest and other 1,907 2,386 1,017 1,216
________ ________ ________ ________
329,632 252,115 120,060 102,379
________ ________ ________ ________
Costs and expenses:
Land and housing
construction 248,781 184,743 90,548 76,172
Selling, general &
administrative 35,447 31,019 12,672 11,236
Interest 12,001 11,511 3,909 4,424
________ ________ ________ ________
296,229 227,273 107,129 91,832
________ ________ ________ ________
Income before income taxes
and change in accounting 33,403 24,842 12,931 10,547
Income taxes 12,556 9,926 4,939 4,227
________ ________ ________ ________
Income before change in
accounting 20,847 14,916 7,992 6,320
Cumulative effect of change
in accounting for income
taxes - 1,307 - -
________ ________ ________ ________
Net income $ 20,847 $ 16,223 7,992 6,320
======== ======== ======== ========
Income per share: (Note 4)
Income before change in
accounting $ .62 $ .45 $ .24 $ .19
Cumulative change in
accounting - .04 - -
________ ________ ________ ________
Net income $ .62 $ .49 $ .24 $ .19
======== ======== ======== ========
Weighted average number of
shares 33,660 33,460 33,563 33,463
======== ======== ======== ========
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 5)
(Amounts in thousands)
(Unaudited)
Nine months
ended July 31
1994 1993
Cash flows from operating activities:
Net income $20,847 $16,223
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,993 2,033
Gain from repurchase of subordinated notes (549) -
Net realizable provisions 4,875 1,400
Increase in residential inventories (78,240) (109,821)
(Increase) decrease in receivables,
prepaid expenses and other assets (1,116) 2,651
Increase in customer deposits on
sales contracts 10,322 8,880
Increase in accounts payable 6,854 4,370
Increase in accrued expenses and other
liabilities 8,817 11,135
(Decrease) increase in current income
taxes payable (3,312) 2,720
Increase (decrease) in deferred income
taxes payable 996 (230)
________ ________
Net cash used in operating activities (28,513) (60,639)
________ ________
Cash flows from investing activities:
Purchase of marketable securities, net (6,554) (14,912)
Purchase of property, construction and
office equipment, net (2,411) (1,260)
Principal repayments of mortgage notes
receivable 4,714 10,020
-------- --------
Net cash used in investing activities (4,251) (6,152)
________ ________
Cash flows from financing activities:
Proceeds from loans payable 13,493 11,379
Principal payments of loans payable (25,465) (13,259)
Net proceeds from issuance of subordinated
notes 55,541 71,993
Repurchase of subordinated notes (2,353) -
Principal payments of collateralized
mortgage obligations (5,607) (10,898)
Proceeds from stock options exercised
and employee stock plan purchases 848 1,116
________ ________
Net cash provided by financing activities 36,457 60,331
________ ________
Net increase (decrease) in cash and cash
equivalents 3,693 (6,460)
Cash and cash equivalents, beginning
of period 32,329 33,407
________ ________
Cash and cash equivalents, end of period $36,022 $26,947
======== ========
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, 1993 balance sheet amounts
and disclosures included herein have been derived from the October
31, 1993 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, 1993 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, 1994 and 1993, the results of its
operations for the nine months and three months then ended and its
cash flows for the nine 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.
During the fourth quarter of 1993, the Company adopted Statement of
Financial Accounting Standards Board ("FASB") No. 109, "Accounting
for Income Taxes", effective November 1, 1992. This Statement
requires a liability approach for measuring deferred taxes based on
temporary differences between the financial statement and tax bases
of assets and liabilities existing at each balance sheet date using
enacted tax rates for years in which taxes are expected to be paid
or recovered. In accordance with FASB 109, the cumulative effect
of this change in accounting for income taxes of $1.3 million of
income has been included in the consolidated statement of income
for the quarter ended January 31, 1993 and for the nine months
ended July 31, 1993.
The net results of the Company's collateralized mortgage financing
operations have been included in interest and other revenues.
Certain amounts for the nine months and three months ended July 31,
1993 have been restated to reflect this treatment.
2. Residential Inventories
Residential inventories consisted of the following:
July 31, October 31,
1994 1993
________ _________
Land and land development costs $155,049 $122,258
Construction in progress 276,221 220,680
Sample homes 20,107 15,297
Land deposits and costs of future
development 13,646 15,773
Loan assets acquired for future
development 5,728 21,873
Deferred marketing and financing costs 8,779 6,634
________ ________
$479,530 $402,515
======== ========
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 settled. Interest incurred, capitalized and
expensed is summarized as follows:
Nine months Three months
ended July 31 ended July 31
1994 1993 1994 1993
Interest capitalized,
beginning of period $38,270 $34,470 $39,335 $36,805
Interest incurred 16,107 15,456 5,538 6,034
Interest expensed (12,001) (11,510) (3,909) (4,423)
Write off to cost of sales
and other (1,941) - (529) -
_______ _______ _______ _______
Interest capitalized,
end of period $40,435 $38,416 $40,435 $38,416
======= ======= ======= =======
3. Public Offering of Convertible Senior Subordinated Notes
In January 1994, the Company completed a public offering of $57.5
million principal amount of 4 3/4% convertible senior subordinated
notes due January 15, 2004. The notes were issued at par by one of
the Company's subsidiaries and are guaranteed by the Company. The
notes are convertible into shares of common stock of the Company at
the option of the noteholder at any time prior to maturity, unless
previously redeemed, at a conversion price of $21.75 per share.
The Company acquired $2,500,000 and $3,000,000 of these notes in
the open market during the third quarter and nine months ended July
31, 1994, respectively. The gain realized by the Company was
immaterial and is included in other income.
4. Net Income Per Share
Net income per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding.
Common stock equivalents include dilutive stock options. Fully
diluted earnings per share did not differ significantly from
primary earnings per share for the nine month and three month
periods ended July 31, 1994.
5. Supplemental Disclosures to Statements of Cash Flows
The following are supplemental disclosures to the statements of
cash flows:
Nine months
ended July 31
1994 1993
Supplemental disclosures of cash flow
information:
Interest paid, net of amount capitalized $ 3,117 $3,430
======= ======
Income taxes paid $14,872 $6,129
======= ======
Supplemental disclosures of non-cash
financing activities:
Cost of residential inventories
acquired through seller financing $ 5,000 $ 818
======= ======
Income tax benefit relating to
exercise of employee stock options $ 223 $ 568
======= ======
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Homebuilding
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
1994 1993 1994 1993
Revenues 100.0% 100.0% 100.0% 100.0%
______ ______ ______ ______
Costs and expenses:
Land and housing construction 75.5 73.3 5.4 74.4
Selling, general and
administrative 10.8 12.3 10.6 11.0
Interest 3.6 4.6 3.3 4.3
______ ______ ______ ______
Total costs and expenses 89.9 90.2 89.3 89.7
______ ______ ______ ______
Income before taxes and change
in accounting 10.1% 9.8% 10.7% 10.3%
====== ====== ====== ======
Number of homes closed 1,056 846 374 342
====== ====== ====== ======
Revenues for the nine months and three months ended July 31, 1994
were higher than those of the comparable period of the prior year
by approximately $77.5 million, or 31%, and $17.7 million, or 17%,
respectively. The higher revenues were primarily attributable to
the increased number of homes closed, which was due to the
significantly larger contract backlog at the beginning of fiscal
1994, as compared to a year earlier. In addition, the average
sales price per home increased in the periods as the result of a
change in product mix, a shift in the location of homes closed to
more expensive communities and increases in selling prices.
The average sales price per home settled will vary on a period to
period basis due to the product and community mix of homes closed,
as well as changes in selling prices. These changes resulted in an
increase in the average sales price per home closed in the nine
months and the third quarter of fiscal 1994, as compared to the
same periods of fiscal 1993. Based upon the backlog of homes under
contract at July 31, 1994, the Company anticipates that the average
selling price per home closed will continue to increase throughout
the remainder of 1994 and into fiscal 1995.
The aggregate sales value of new contracts signed during the nine
months and three months ended July 31, 1994 amounted to $419.5
million (1,244 homes) and $126.4 million (363 homes), respectively,
as compared to $345.2 million (1,137 homes) and $105.5 million (345
homes) for the same periods of 1993. The Company believes that
these increases of 22% for the nine months and 20% for the three
months of fiscal 1994 over the same periods of fiscal 1993 are the
result of (a) the Company's expansion through a greater penetration
of existing markets and its entry into new markets such as New York
State and California, (b) a shift in product mix to higher priced
communities as well as price increases in existing communities, (c)
diminished competition due to the poor economic conditions of the
past several years and (d) pent up demand.
The Company's backlog of homes under contract of July 31, 1994 and
1993 were $377.3 million (1,080 homes) and $282.5 million (912
homes), respectively.
Land and construction costs for the three months ended July 31,
1994, increased as a percentage of sales as compared to the
comparable quarter of 1993 due principally to the increase in the
cost of materials (primarily lumber) and an increase in costs due
to the severe weather conditions that the Company experienced in
the latter part of its first quarter of fiscal 1994 and a
substantial portion of the second quarter. These weather
conditions resulted in increased spending as well as reduced
construction activity during the first six months of fiscal 1994,
which increased per home overhead costs. The additional costs were
partially offset by a decrease in the cost of land development
costs. Costs for the nine months ended July 31, 1994 were
similarly affected by the aforementioned material price increases
and adverse weather conditions. The additional weather related
costs are expected to continue to effect earnings into fiscal 1995.
During the third quarter of 1994, the Company provided $2.3 million
for the writedown to net realizable value of a future community and
of one existing community. For the nine months of fiscal 1994, the
Company provided for an aggregate writeoff of $4.9 million related
to the aforementioned net realizable value writedown and for the
writeoff in the Company's first fiscal quarter of previously
capitalized costs of a future community that it no longer
considered realizable. During fiscal 1993, the Company provided
$800,000 for a writedown to net realizable value of a future
community in its third quarter and a $600,000 net realizable value
writedown during its second quarter of a community under
development.
Selling, general and administrative expenses were lower as a
percentage of revenues in the nine month and three month periods
ended July 31, 1994 compared to the same periods of 1993 but actual
costs incurred in each period of fiscal 1994 were greater than the
comparable period of fiscal 1993. The increase in selling
expenses, approximately $2.5 million for the nine month and
$600,000 for the three months were due to the greater number of
homes closed in the 1994 periods over the 1993 periods, and to the
higher number of communities that the Company was offering homes
for sale in fiscal 1994 compared to 1993. The remaining increase,
attributable to increased general and administrative expenses, was
primarily due to increased payroll and payroll related costs and
was due to the greater number of communities that the Company had
open in 1994 as compared to 1993.
Interest expense for the nine months and three months ended July
31, 1994 was lower as a percentage of revenues and on a per home
basis than in the comparable periods of fiscal 1993. On average,
the land and land development costs associated with the homes
closed in the fiscal 1994 periods remained in inventory for a
shorter period of time than those closed in the prior year. In
addition, the amount of interest incurred in recent years has
declined as a percentage of inventory due to lower interest rates
and the decline in the amount of debt in proportion to the amount
of inventory. Accordingly, less capitalized interest was
accumulated on the homes closed in 1994 than on those closed in
1993.
Collateralized Mortgage Financing
The Company has not chosen to participate in any collateralized
mortgage financings since fiscal 1987. Accordingly, revenues and
expenses have declined in each successive year since then as a
result of, and to the extent of, prepayments and normal
amortization of the mortgage notes receivable. The results of
collateralized mortgage financing operations have been and are
expected to continue to be insignificant to consolidated results of
operations. The net results of the collateralized mortgage
financings are included in interest and other revenue.
Income Taxes
Income taxes for the nine months ended July 31, 1994 and 1993 were
provided at effective rates of 37.6% and 40.0%, respectively. The
effective rate for the nine months of fiscal 1994 was lower than
the anticipated effective rate of 39% due principally to the
recognition of a benefit from the application of FASB 109 related
to a change in the Company's projected tax rate on its deferred tax
assets and liabilities and the effect of non-taxable income from
investments. Income taxes for the third quarter of 1994 and 1993
were provided at effective rates of 38.2% and 40.1%, respectively.
The effective tax rate for the third quarter of 1994 was lower than
the anticipated rate of 39% due primarily to the effect of non-
taxable income from investments.
Effective November 1, 1992, the Company adopted Statement of
Financial Accounting Standard No. 109, "Accounting for Income
Taxes". This Statement requires a liability approach for measuring
deferred taxes based on temporary differences between the financial
statement and tax bases of assets and liabilities existing at each
balance sheet date using enacted tax rates for years in which taxes
are expected to be recovered or paid. The cumulative effect of
this change in accounting for income taxes of $1.3 million of
income has been included in the consolidated statement of income
for the three months ended January 31, 1993 and the nine months
ended July 31, 1993.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's residential development activities is
principally provided by cash flows from homebuilding operations,
unsecured bank borrowings, and from the public debt and equity
markets.
The Company has a $150 million unsecured revolving credit facility
with nine banks which extends through October 1997. As of July 31,
1994, the Company had $10.0 million of loans and approximately
$51.5 million of letters of credit outstanding under the facility.
In January 1994, the Company completed a public offering of $57.5
million principal amount of 4 3/4% convertible senior subordinated
notes due January 15, 2004. The notes were issued by one of the
Company's subsidiaries and are guaranteed by the Company.
The Company has not participated in collateralized mortgage
financing activities since 1987 and the effect on consolidated
capital resources and liquidity is insignificant.
The Company believes that it will be able to fund its activities
through a combination of operating cash flow, cash balances, bank
borrowings and the public debt and equity markets.
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 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: September 12, 1994 By: /s/ Joel H. Rassman
______________________
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: September 12, 1994 By: /s/ Joseph R. Sicree
______________________
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting
Officer)