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 April 30, 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: 33,528,948 shares as of June 5, 1995
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
April 30, 1995 (Unaudited) and October 31, 1994
Condensed Consolidated Statements of Income (Unaudited) 2
For the Six Months and Three Months Ended
April 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows 3
(Unaudited)
For the Six Months Ended April 30, 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 7
SIGNATURES 8
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
April 30, October 31,
1995 1994
--------- -----------
ASSETS
Cash and cash equivalents $ 11,646 $38,026
Marketable securities, -- 3,674
Residential inventories 598,831 506,347
Property, construction and office
equipment 11,452 11,537
Receivables, prepaid expenses and
other assets 21,494 22,695
Mortgage notes receivable 4,167 4,614
-------- --------
$647,590 $586,893
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 70,107 $ 17,506
Subordinated notes 224,197 227,969
Customer deposits on sales
contracts 32,832 30,071
Accounts payable 30,020 28,914
Accrued expenses 37,308 40,872
Collateralized mortgage
obligations payable 4,133 4,686
Income taxes payable 26,802 32,699
-------- --------
Total liabilities 425,399 382,717
-------- --------
Shareholders' equity:
Preferred stock
Common stock 335 334
Additional paid-in capital 36,508 36,198
Retained earnings 185,348 167,644
-------- --------
Total shareholders' equity 222,191 204,176
-------- --------
$647,590 $586,893
======== ========
See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
Six months Three months
ended April 30 ended April 30
--------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Housing sales $258,426 $208,682 $137,128 $ 90,978
Interest and other 1,379 890 360 466
-------- -------- -------- --------
259,805 209,572 137,488 91,444
-------- -------- -------- --------
Costs and expenses:
Land and housing
construction 195,244 158,233 103,103 68,475
Selling, general &
administrative 27,182 22,775 13,940 12,398
Interest 9,451 8,092 5,364 3,595
-------- -------- -------- --------
231,877 189,100 122,407 84,468
-------- -------- -------- --------
Income before income taxes 27,928 20,472 15,081 6,976
Income taxes 10,224 7,617 5,636 2,626
-------- -------- -------- --------
Net income $ 17,704 $ 12,855 $ 9,445 $ 4,350
======== ======== ======== ========
Net income per share:
Primary $ .53 $ .38 $ .28 $ .13
Fully-diluted $ .51 $ .37 $ .27 $ .13
Weighted average number
of shares
Primary 33,617 33,708 33,707 33,676
Fully-diluted 36,095 35,236 36,153 36,317
See accompanying notes
PAGE
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six months
ended April 30
--------------------
1995 1994
------- -------
Cash flows from operating activities:
Net income $17,704 $12,855
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,425 1,281
Gain from repurchase of subordinated notes (523) (78)
Deferred Taxes 483 1,140
Net realizable provisions 1,500 2,575
Changes in operating assets and liabilities:
(Increase) in residential inventories (93,984) (48,009)
Decrease (increase) in receivables, prepaid
expenses and other assets 661 (725)
Increase in customer deposits on sales
contracts 2,761 7,592
(Decrease) increase in accounts payable,
accrued expenses and other liabilities (2,458) 3,848
Decrease in current income taxes payable (6,289) (8,268)
------- -------
Net cash used in operating activities (78,720) (27,789)
------- -------
Cash flows from investing activities:
Proceeds from (purchase of) marketable
securities, net 3,674 (7,754)
Purchase of property, construction and office
equipment, net (900) (1,362)
Principal repayments of mortgage notes receivable 453 3,527
------- -------
Net cash provided by (used in) investing
activities 3,227 (5,589)
------- -------
Cash flows from financing activities:
Proceeds from loans payable 124,000 13,493
Principal payments of loans payable (71,474) (24,433)
Net proceeds from issuance of subordinated notes -0- 55,575
Repurchase of subordinated notes (3,166) (405)
Principal payments of collateralized mortgage
obligations (558) (3,858)
Proceeds from stock options exercised and employee
stock plan purchases 311 823
------- -------
Net cash provided by financing activities 49,113 41,195
------- -------
Net (decrease) increase in cash and cash
equivalents (26,380) 7,817
Cash and cash equivalents, beginning of period 38,026 32,329
------- -------
Cash and cash equivalents, end of period $11,646 $40,146
======= =======
Supplemental disclosures of cash flow information
Interest paid, net of capitalized amount $ 2,265 $ 2,150
======= =======
Income taxes paid $15,999 $14,745
======= =======
Supplemental disclosures of non-cash financing
activities:
Income tax benefit relating to exercise of
employee stock options $ 30 $ 223
======= =======
See accompanying notes
PAGE
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 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 April 30, 1995 and 1994, the results of its operations
for the six months and three months then ended and its cash flows for
the six 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:
April 30, October 31,
1995 1994
--------- -----------
Land and land development costs $162,460 $158,686
Construction in progress 363,797 277,098
Sample homes 28,007 22,641
Land deposits and costs of future
development 15,863 13,943
Loan assets acquired for future
development 18,054 25,186
Deferred marketing and financing
costs 10,650 8,793
-------- --------
$598,831 $506,347
======== ========
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 closed. Interest
incurred, capitalized and expensed is summarized as follows:
Six months Three months
ended April 30 ended April 30
------------------ -----------------
1995 1994 1995 1994
------- ------- ------- -------
Interest capitalized,
beginning of period $39,835 $38,270 $41,548 $37,437
Interest incurred 12,417 10,569 6,577 5,493
Interest expensed (9,451) (8,092) (5,364) (3,595)
Write off to cost of sales (97) (1,412) (57) 0
------- ------- ------- -------
Interest capitalized,
end of period $42,704 $39,335 $42,704 $39,335
======= ======= ======= =======
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:
Six months Three months
ended April 30 ended April 30
--------------- ----------------
1995 1994 1995 1994
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Land and housing construction 75.2 75.5 75.0 74.9
Selling, general and
administrative 10.5 10.9 10.1 13.6
Interest 3.6 3.8 3.9 3.9
------ ------ ------ ------
Total costs and expenses 89.3 90.2 89.0 92.4
------ ------ ------ ------
Income before taxes and change
in accounting 10.7% 9.8% 11.0% 7.6%
====== ====== ====== ======
Number of homes closed 754 682 390 296
====== ====== ====== ======
Revenues for the six months and three months ended April 30, 1995 were higher
than those of the comparable periods of 1994 by approximately $50.2 million,
or 24%, and $46.0 million, or 50%, respectively. The higher revenues were
primarily attributable to the increased number of homes closed during the
periods, which was due to the significantly larger contract backlog at the
beginning of fiscal 1995 as compared to the beginning of fiscal 1994 and to
the construction delays caused by the adverse weather conditions during the
early part of fiscal 1994.
In addition, the average selling price per home closed increased in 1995 as
compared to 1994 as the result of a shift in the location of homes closed to
more expensive communities, a change in product mix and increases in selling
prices. Based on the backlog of homes under contract at April 30, 1995 and
the homes that the Company expects to deliver during the remainder of 1995,
the Company anticipates that the average price of the homes delivered for the
remainder of 1995 will be higher than the homes delivered in the same period
of 1994.
As of April 30, 1995 and 1994, the backlog of homes under contract amounted to
$432.9 million(1,174 homes) and $369.9 million(1,091 homes), respectively.
The aggregate sales value of new contracts signed during the six months and
three months ended April 30, 1995 amounted to $320.8 million(903 homes) and
$209.2 million(594 homes), respectively. This compares to $293.2 million(881
homes) and $193.9 million (582 homes) for the same periods of 1994.
The increase in new contracts signed and backlog in 1995 over 1994 is
attributable to the increase in the number of communities in which the Company
is offering homes for sale, a shift in location of the communities to more
expensive areas, an increase in the size of the homes that our customers
purchased and increases in selling prices. On a per community basis, customer
traffic and new contracts signed has declined.
As a percentage of revenues, land and housing construction costs decreased
slightly in the first six months of 1995 as compared to the same period of
1994 and increased slightly for the second quarter of 1995 over the second
quarter of 1994. During both periods of 1995, the Company saw, as a
percentage of revenues, increases in material and labor costs and a decrease
in land, land development and overhead costs as compared to the same periods
of 1994. The Company also provided approximately $2 million and $.5 million
in the six month and three month periods of 1995, and $2.6 million the first
three months of fiscal 1994, for the writeoff of inventory and previously
capitalized costs that the Company no longer considered realizable. The
Company did not provide for any writeoff of inventory in the second quarter
of fiscal 1994.
Selling, general and administrative expenses("SG&A") as a percentage of
revenues decreased in both periods of 1995 as compared to 1994 although SG&A
spending increased for the 1995 periods over the same periods of 1994. The
increased spending was principally due to the increased number of communities
that the Company was operating in during the 1995 periods. SG&A decreased as
a percentage of revenues for the three months ended April 30, 1995 as compared
to 1994 from 13.6% to 10.1%. This decrease is due in part to SG&A expenses
increasing significantly in the second quarter of 1994 over the first quarter
of 1994 in anticipation of increased revenues which were delayed due to the
adverse weather conditions that the Company encountered in the early part of
fiscal 1994. The Company anticipates that SG&A as a percentage of revenues
will continue to decrease for the full fiscal year as compared to the six
months and three months ended April 30, 1995, due to revenues increasing at a
faster pace than SG&A expenses.
Interest expense was slightly lower as a percentage of revenues in the six
month and three month periods of 1995 as compared to 1994. 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 was owned, the period 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 for the six month periods of 1995 and 1994 were provided at
effective rates of 36.6% and 37.2%, respectively. For the three month periods
of 1995 and 1994, income taxes were provided at effective rates of 37.4% and
37.6%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
Funding for the Company's residential development activities has been
principally provided by cash flows from operations, unsecured bank borrowings
and 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 April 30, 1995, the Company
had $63 million of loans and approximately $47.6 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
(a) The Company's 1995 Annual Meeting of Shareholders was held
on March 16, 1995.
(b) Not required.
(c) The following proposals were submitted to a vote of
shareholders and were approved by the affirmative vote of
a majority of the shares of common stock of the Company
that were present in person or by proxy, as indicated
below.
The approval of Ernst & Young as the Company's independent
auditors for the 1995 fiscal year.
FOR AGAINST ABSTAIN
------- ------- -------
25,232,423 41,184 19,439
To consider and act upon the adoption of the Toll
Brothers, Inc. Stock Option and Incentive Stock Plan (1995).
FOR AGAINST ABSTAIN
------- ------- -------
20,413,069 1,679,002 168,381
To consider and act upon the adoption of the Amendment to
the Toll Brothers, Inc. Key Employee and Non-Employee
Directors Stock Plan (1993).
FOR AGAINST ABSTAIN
------- ------- -------
20,865,812 1,216,328 178,312
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1. Toll Brothers, Inc. Stock Option and Incentive
Stock Plan (1995)
Exhibit 10.2. Amendment to the Toll Brothers, Inc. Key Employee
and Non-Employee Directors Stock Plan (1993)
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: June 9, 1995 By: /s/ Joel H. Rassman
--------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: June 9, 1995 By: /s/ Joseph R. Sicree
-------------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting Officer)