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, 1995
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: 33,463,820 shares as of March 3, 1995
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
January 31, 1995 (Unaudited) and October 31, 1994
Condensed Consolidated Statements of Income (Unaudited) 2
Three Months Ended January 31, 1995 and 1994
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
Three Months Ended January 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
PART II. Other Information 6
SIGNATURES 7
PART I. ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
1995 1994
(unaudited) (Note 1)
ASSETS
Cash and cash equivalents $ 11,055 $38,026
Marketable securities, 3,128 3,674
Residential inventories (Note 2) 564,065 506,347
Property, construction and office
equipment 11,393 11,537
Receivables, prepaid expenses and
other assets 24,679 22,695
Mortgage notes receivable 4,374 4,614
-------- --------
$618,694 $586,893
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 55,508 $ 17,506
Subordinated notes 224,197 227,969
Customer deposits on sales
contracts 30,441 30,071
Accounts payable 26,296 28,914
Accrued expenses 41,205 40,872
Collateralized mortgage
obligations payable 4,340 4,686
Income taxes payable 24,086 32,699
-------- --------
Total liabilities 406,073 382,717
======== ========
Shareholders' equity:
Preferred stock
Common stock 335 334
Additional paid-in capital 36,383 36,198
Retained earnings 175,903 167,644
-------- --------
Total shareholders' equity 212,621 204,176
-------- --------
$618,694 $586,893
======== ========
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
Three months
ended January 31
1995 1994
Revenues:
Housing sales $121,298 $117,704
Interest and other 1,019 424
-------- --------
122,317 118,128
-------- --------
Costs and expenses:
Land and housing construction 92,141 89,758
Selling, general and
administrative 13,242 10,377
Interest (Note 2) 4,087 4,497
-------- --------
109,470 104,632
-------- --------
Income before income taxes 12,847 13,496
Income taxes 4,588 4,991
-------- --------
Net income $ 8,259 $ 8,505
======== ========
Net income per share:
Primary $ .25 $ .25
Fully-diluted .24 .25
Weighted average number of shares
Primary 33,527 33,740
Fully-diluted 36,009 34,195
See accompanying notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) (Unaudited)
Three months
ended January 31
1995 1994
Cash flows from operating activities:
Net income $ 8,259 $ 8,505
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 731 669
Gain from repurchase of subordinated debt (531)
Deferred taxes 57 (639)
Net realizable value provisions 1,500 2,575
Changes in operating assets and liabilities
Increase in residential inventories (59,218) (30,130)
(Decrease) increase in receivables, prepaid
expenses and other assets (2,308) 575
Increase (decrease) in customer deposits on
sales contracts 370 (918)
(Decrease) increase in accounts payable
accrued expenses and other liabilities (2,285) 947
Decrease in current income taxes payable (8,624) (5,364)
------- -------
Net cash used in operating activities (62,049) (23,780)
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable securities 546 1,983
Purchase of property, construction and office
equipment, net (346) (1,025)
Principal repayments of mortgage notes receivable 244 2,199
------- -------
Net cash provided by investing activities 444 3,157
------- -------
Cash flows from financing activities:
Proceeds from loans payable 71,000 13,678
Principal payments of loans payable (33,036) (24,422)
Net proceeds from issuance of senior
subordinated notes - 55,575
Repurchase of subordinated debt (3,166)
Principal payments of collateralized mortgage
obligations (350) (1,851)
Proceeds from stock options exercised and
employee stock plan purchases 186 750
------- -------
Net cash provided by financing activities 34,634 43,730
------- -------
Net (decrease) increase in cash and cash equivalents (26,971) 23,107
Cash and cash equivalents, beginning of period 38,026 32,329
------- -------
Cash and cash equivalents, end of period $11,055 $55,436
======= =======
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized amount $ 207 $ 315
======= =======
Income taxes paid $13,195 $10,994
======= =======
Supplemental disclosures of non-cash financing
activities:
Income tax benefit relating to exercise of
employee stock options $ 6 $ 278
======= =======
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, 1994 balance sheet amounts and disclosures included
herein have been derived from the October 31, 1994 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, 1994 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, 1995, and the results of its
operations and cash flows for 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:
January 31, October 31,
1995 1994
Land and land development costs $139,255 $158,686
Construction in progress 356,263 277,098
Sample homes 24,323 22,641
Land deposits and costs of future development 16,523 13,943
Loan assets acquired for future development 18,081 25,186
Deferred marketing costs 9,620 8,793
-------- --------
$564,065 $506,347
======== ========
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:
Three months
ended January 31
1995 1994
Interest capitalized, beginning of period $39,835 $38,270
Interest incurred 5,840 5,076
Interest expensed (4,087) (4,497)
Write off to cost of sales and other (40) (1,412)
------- -------
Interest capitalized, end of period $41,548 $37,437
======= =======
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:
Three months
ended January 31
1995 1994
----- -----
Revenues 100.0% 100.0%
Costs and expenses:
Land and housing construction 75.3 76.0
Selling, general and administrative 10.8 8.8
Interest 3.4 3.8
Total costs and expenses 89.5 88.6
Income before taxes 10.5% 11.4%
Number of homes delivered 364 386
Revenues for the three months ended January 31, 1995 amounted to $122.3
million compared to $118.1 million reported in the first quarter of fiscal
1994. This increase was due primarily to the increase in the average
selling price per home in the 1995 first quarter over the first quarter
of 1994, offset in part by the decrease in the number of homes delivered
in the 1995 period as compared to the 1994 period. The increase in the
average selling price per home delivered in the first quarter of 1995
was the result of a shift in the location of homes closed to more expensive
areas, a change in product mix to larger homes and increases in selling
prices. The higher deliveries in the first quarter of 1994 was due in part
to the Company's concentration on the completion of homes "under roof"
caused by the adverse weather conditions which prevented the Company from
commencing the construction of new homes, continuing construction of
unenclosed homes and constructing community infrastructure. Due to the
delays encountered in the first quarter of 1994, deliveries in the
subsequent quarters of 1994 were delayed. Accordingly, the Company expects
revenues and unit deliveries for the 1995 second quarter to significantly
exceed those reported in the second quarter of 1994.
As of January 31, 1995, the backlog of homes under contract amounted to
$360.9 million (970 homes), approximately 35% higher than the $267.0 million
(805 homes) backlog as of January 31, 1994. The aggregate sales value of new
contracts signed in the first quarter of fiscal 1995 amounted to $111.6
million (309 homes), an increase of approximately 12% over the $99.3 million
(299 homes) signed in the first quarter of 1994. The increase in new
contracts signed and backlog in 1995 over 1994 was attributable to the
increase in the number of communities in which the Company was offering homes
for sale, a shift in location of the communities to more expensive
areas, an increase in the size of the homes that homebuyers purchased and
increases in selling prices. On a per community basis, the Company has seen
a decline in customer traffic and in new contracts signed.
Land and housing construction costs as a percentage of revenues decreased in
the first quarter of 1995 as compared to 1994 due principally to the lower
amount of inventory write-down recognized in fiscal 1995 ($1.5 million) over
the amount recognized in the first quarter of 1994 ($2.6 million) and lower
land and land development costs. The decrease was partially offset by
increased material and production costs.
Selling, general and administrative expenses ("SG&A") in the 1995 quarter
amounted to $13.2 million, an increase of $2.9 million over the 1994 first
quarter. This increase was attributable to the higher level of spending due
to the increased number of communities which the Company was operating during
the 1995 quarter as compared to 1994. The Company anticipates that SG&A as a
percentage of revenues will decrease for the full fiscal 1995 year as
compared to the first quarter of 1995, due to revenues increasing at a faster
pace than SG&A expenses.
Interest expense was lower as a percentage of revenues and on a per home
closed basis in the 1995 quarter as compared to the 1994 quarter. This
decrease was due to the decline in the amount of interest incurred by the
Company over the past several years as a percentage of inventory due to lower
interest rates and the decline in the amount of debt carried by the Company
in proportion to the amount of its inventory.
Income Taxes
Income taxes for fiscal 1995 and 1994 were provided at effective rates of
35.7% and 37%, respectively.
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 $150 million unsecured revolving credit facility with nine
banks which extends through October 1997. As of January 31, 1995, the
Company had $48 million of loans and approximately $54 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, cash balances 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 - None.
ITEM 5. Other Information - None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement regarding Computation of Earnings Per
Share
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: March 10, 1995 By: /s/ Joel H. Rassman
------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 10, 1995 By: /s/ Joseph R. Sicree
------------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)