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, 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
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TOLL BROTHERS, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2416878
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(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
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(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: 33,408,568 shares as of February 28, 1994
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 1
January 31, 1994 (Unaudited) and
October 31, 1993
Condensed Consolidated Statements
of Income (Unaudited) 2
Three Months Ended January 31, 1994 and 1993
Condensed Consolidated Statements
of Cash Flows 3
(Unaudited)
Three Months Ended January 31, 1994 and 1993
Notes to Condensed Consolidated Financial
Statements 4
(Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. Other Information 9
SIGNATURES 10
1
PART I. ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
1994 1993
-------- --------
(unaudited) (Note 1)
ASSETS
Cash and cash equivalents $ 55,436 $ 32,329
Marketable securities, at cost which
approximates market - 1,983
Residential inventories (Note 2) 428,720 402,515
Property, construction and office equipment,
at cost, net of accumulated depreciation of
$11,281 at January 31, 1994 and
$10,910 at October 31, 1993 10,910 10,296
Receivables, prepaid expenses and other assets 21,466 18,973
Mortgage notes receivable 7,707 9,902
-------- --------
$524,239 $475,998
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 14,067 $ 24,779
Subordinated notes and debentures (Note 3) 231,957 174,442
Customer deposits on sales contracts 21,531 22,449
Accounts payable 11,718 16,971
Accrued expenses and other liabilities 36,421 30,221
Collateralized mortgage obligations 8,967 10,810
Income taxes payable:
Current 10,107 15,471
Deferred 12,932 13,849
-------- --------
23,039 29,320
-------- --------
Total liabilities 347,700 308,992
-------- --------
Shareholders' equity (Note 3):
Preferred stock - -
Common stock 334 333
Additional paid-in capital 36,233 35,206
Retained earnings 139,972 131,467
-------- --------
Total shareholders' equity 176,539 167,006
-------- --------
$524,239 $475,998
======== ========
See accompanying notes
1
2
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
Three months
ended January 31
------------------
1994 1993
---- ----
(Note 1)
Revenues:
Housing sales $117,704 $75,461
Interest and other 424 333
-------- --------
118,128 75,794
-------- --------
Costs and expenses:
Land and housing construction 89,758 54,459
Selling, general and administrative 10,377 9,428
Interest 4,497 3,763
-------- --------
104,632 67,650
-------- --------
Income before income taxes and 13,496 8,144
change in accounting
Income taxes 4,991 3,253
-------- --------
Income before change in accounting 8,505 4,891
Cumulative effect of change in
accounting for income taxes - 1,307
-------- --------
Net income $ 8,505 $ 6,198
======== ========
Income per share:
Income before change in
accounting $ .25 $ .15
Cumulative change in accounting - .04
-------- --------
Net income $ .25 $ .19
======== ========
Weighted average number of shares 33,740 33,433
======== ========
See accompanying notes
2
3
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Notes 1 and 4)
(Amounts in thousands)
(Unaudited)
Three months
ended January 31
------------------
1994 1993
---- ----
Cash flows from operating activities:
Net income $ 8,505 $ 6,198
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 669 656
Net realizable provisions 2,575 -
Increase in residential inventories (30,130) (29,938)
Decrease (increase) in receivables, prepaid
expenses and other assets 575 (123)
(Decrease) increase in customer deposits on
sales contracts (918) 711
Decrease in accounts payable (5,253) (1,149)
Increase in accrued expenses and other
liabilities 6,200 4,084
Decrease in current income taxes payable (5,364) (1,148)
Decrease in deferred income taxes payable (639) (987)
-------- --------
Net cash used in operating activities (23,780) (21,696)
-------- --------
Cash flows from investing activities:
Sale of marketable securities 1,983 8,444
Purchase of property, construction and office
equipment, net (1,025) (343)
Principal repayments of mortgage notes receivable 2,199 4,822
-------- --------
Net cash provided by investing activities 3,157 12,923
-------- --------
Cash flows from financing activities:
Proceeds from loans payable 13,678 8,379
Principal payments of loans payable (24,422) (9,177)
Net proceeds from issuance of senior
subordinated notes 55,575 -
Principal payments of collateralized mortgage
obligations (1,851) (4,726)
Proceeds from stock options exercised and employee
stock plan purchases 750 610
-------- --------
Net cash provided by (used in) financing
activities 43,730 (4,914)
-------- --------
Net increase (decrease) in cash and cash equivalents 23,107 (13,687)
Cash and cash equivalents, beginning of period 32,329 33,407
-------- --------
Cash and cash equivalents, end of period $55,436 $19,720
======== ========
See accompanying notes
3
4
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 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, 1994, 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.
During the fourth quarter of 1993, the Company adopted Statement
of Financial Accounting Standard 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.
The net results of the Company's collateralized mortgage
financing operations have been included in interest and other
revenues. Certain amounts for the three months ended January 31,
1993 have been restated to reflect this treatment.
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5
2. Residential Inventories
Residential inventories consisted of the following:
January 31, October 31,
1994 1993
---------- ----------
Land and land development costs $135,695 $122,258
Construction in progress 243,190 220,680
Sample homes 17,374 15,297
Land deposits and costs of future development 11,798 15,773
Loan assets acquired for future development 13,352 21,873
Deferred marketing and financing costs 7,311 6,634
-------- --------
$428,720 $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 closed. Interest incurred, capitalized and
expensed is summarized as follows:
Three months
ended January 31
------------------
1994 1993
---- ----
Interest capitalized,
beginning of period $38,270 $34,470
Interest incurred 5,076 4,317
Interest expensed (4,497) (3,764)
Write off to cost of sales (1,412) -
-------- --------
Interest capitalized,
end of period $37,437 $35,023
======== ========
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 net proceeds from the sale of the notes,
approximately $55.8 million, was or will be used to repay bank
debt, acquire residential property and for general corporate
purposes. Pending such applications, the net proceeds are
expected to be invested in high-grade, short-term, marketable,
interest-bearing securities. 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.
5
6
4. Supplemental Disclosures to Statements of Cash Flows
The following are supplemental disclosures to the statements of
cash flows:
Three months
ended January 31
------------------
1994 1993
---- ----
Supplemental disclosures of cash
flow information:
Interest paid, net of amount capitalized $ 315 $ 677
======== ========
Income taxes paid $10,994 $4,078
======== ========
Supplemental disclosures of non-cash
financing activities:
Income tax benefit relating to
exercise of employee stock options $ 278 $ 415
======== ========
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:
Three months
ended January 31
----------------
1994 1993
---- ----
Revenues 100.0% 100.0%
----- -----
Costs and expenses:
Land and housing construction 76.0 71.9
Selling, general and administrative 8.8 12.4
Interest 3.8 5.0
------ ------
Total costs and expenses 88.6 89.2
------ ------
Income before taxes and change in
in accounting 11.4% 10.7%
====== ======
Number of homes closed 386 250
====== ======
6
7
Homebuilding revenues for the three months ended January 31, 1994 were
higher than those of the comparable period of the prior year by
approximately $42.3 million, or 56%. 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 as a result of a change in product mix and due
to a shift in the location of homes closed to more expensive communities.
The aggregate sales value of new contracts signed during the three months
ended January 31, 1994 was $99.3 million (299 homes). This compared to
$88.2 million (290 homes) in the three months ended January 31, 1993.
Land and housing construction costs as a percentage of revenues increased
in the first quarter of 1994 as compared to the first quarter of 1993 due
principally to a writeoff in fiscal 1994 of $2.6 million related to
previously capitalized costs in one community which the Company no longer
considered realizable, an increase in material costs (primarily lumber)
and increased costs due to adverse weather conditions.
Selling, general and administrative expenses were lower as a percentage
of revenues in the first quarter of 1994 as compared to 1993 due to the
increase in revenues year-to-year being greater than the increase in the
costs incurred. The increase in costs was due primarily to an increase
in selling expenses which were attributable to the increased number of
homes closed during the 1994 quarter over the 1993 quarter and the
increased number of communities in which the Company was offering homes
for sale.
Interest expense for the first quarter of fiscal 1994 was lower as a
percentage of revenues and on a per home basis than in fiscal 1993. On
average, the land and land development costs associated with the homes
closed in the fiscal 1994 quarter 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 fiscal 1994 and 1993 were provided at effective rates of
37% and 39.9% respectively. The effective rate for the first quarter of
fiscal 1994 was lower than the anticipated effective rate of 39% due
principally to the recognition in the quarter 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.
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting
7
8
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 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 1996. As of January 31, 1994,
the Company had $10.0 million of loans and approximately $47.6 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 net proceeds from
the sale of the notes, approximately $55.8 million, was or will be used
to repay bank debt and for general corporate purposes and working capital
needs. Pending such applications, the net proceeds are expected to be
invested in high-grade, short-term, marketable, interest-bearing
securities.
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 and existing sources
of credit.
8
9
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
Exhibits None.
ITEM 7. Reports on Form 8-K
Form 8-K dated December 17, 1993 related to the adoption by
the Board of Directors, subject to shareholder approval of
the Toll Brothers, Inc. Key Executives and Non-Employee
Directors Stock Option Plan (1993) and the Toll Brothers,
Inc. Cash Bonus Plan.
9
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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 11, 1994 By: /s/ Joel H. Rassman
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Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: March 11, 1994 By: /s/ Joseph R. Sicree
-------------- -----------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting
Officer)
10