<PAGE>
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, 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: 33,417,991 shares as of May 31, 1994
<PAGE>
<PAGE>
TOLL BROTHERS, INC. AND SUBSIDIARIES
INDEX
Page No.
---------
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance
Sheets April 30, 1994 (Unaudited)
and October 31, 1993 1
Condensed Consolidated Statements
of Income (Unaudited) For the
Six Months and Three Months Ended
April 30, 1994 and 1993 2
Condensed Consolidated Statements
of Cash Flows (Unaudited) For the
Six Months Ended April 30,
1994 and 1993 3
Notes to Condensed Consolidated
Financial Statements (Unaudited) 4
ITEM 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
PART II. Other Information 9
SIGNATURES 10
<PAGE>
<PAGE>1
PART I. ITEM 1. FINANCIAL STATEMENTS
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
April 30, October 31,
1994 1993
(unaudited) (Note 1)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 40,146 $ 32,329
Marketable securities, at cost which
approximates market 9,737 1,983
Residential inventories (Note 2) 446,599 402,515
Property, construction and office equipment,
at cost, net of accumulated depreciation of
$11,526 at April 30, 1994 and
$10,910 at October 31, 1993 10,930 10,296
Receivables, prepaid expenses and other assets 22,503 18,973
Mortgage notes receivable 6,386 9,902
-------- --------
$536,301 $475,998
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 13,906 $ 24,779
Subordinated notes (Note 3) 231,472 174,442
Customer deposits on sales contracts 30,041 22,449
Accounts payable 18,330 16,971
Accrued expenses and other liabilities 32,708 30,221
Collateralized mortgage obligations 6,968 10,810
Income taxes payable:
Current 7,203 15,471
Deferred 14,766 13,849
-------- --------
21,969 29,320
-------- --------
Total liabilities 355,394 308,992
-------- --------
Shareholders' equity (Note 3):
Preferred stock - -
Common stock 334 333
Additional paid-in capital 36,251 35,206
Retained earnings 144,322 131,467
-------- --------
Total shareholders' equity 180,907 167,006
-------- --------
$536,301 $475,998
======== ========
</TABLE>
See accompanying notes
<PAGE>
<PAGE>2
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months
ended April 30 ended April 30
1994 1993 1994 1993
(Note 1) (Note 1)
<S> <C> <C> <C> <C>
Revenues:
Housing sales $208,682 $148,566 $90,978 $73,105
Interest and other 890 1,170 466 837
-------- -------- -------- --------
209,572 149,736 91,444 73,942
-------- -------- -------- --------
Costs and expenses:
Land and housing construction 158,233 108,571 68,475 54,112
Selling, general and administrative 22,775 19,783 12,398 10,355
Interest 8,092 7,087 3,595 3,324
-------- -------- -------- --------
189,100 135,441 84,468 67,791
-------- -------- -------- --------
Income before income taxes and
change in accounting 20,472 14,295 6,976 6,151
Income taxes 7,617 5,699 2,626 2,446
-------- -------- -------- --------
Income before change in accounting 12,855 8,596 4,350 3,705
Cumulative effect of change in
accounting for income taxes - 1,307 - -
-------- -------- -------- --------
Net income $ 12,855 $ 9,903 4,350 3,705
======== ======== ======== ========
Income per share: (Note 4)
Income before change in
accounting $ .38 $ .26 $ .13 $ .11
Cumulative change in accounting - .04 - -
-------- -------- -------- --------
Net income $ .38 $ .30 $ .13 $ .11
======== ======== ======== ========
Weighted average number of shares 33,708 33,469 33,676 33,508
======== ======== ======== ========
</TABLE>
See accompanying notes
<PAGE>
<PAGE>3
TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 5)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended April 30
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $12,855 $ 9,903
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,281 1,326
Gain from repurchase of subordinated notes (78)
Net realizable provisions 2,575 600
Increase in residential inventories (48,009) (52,211)
(Increase) decrease in receivables, prepaid
expenses and other assets (725) 2,897
Increase in customer deposits on sales contracts 7,592 6,558
Increase in accounts payable 1,359 482
Increase in accrued expenses and other liabilities 2,489 2,921
Decrease in current income taxes payable (8,268) (1,354)
Increase (decrease) in deferred income taxes payable 1,140 (353)
-------- --------
Net cash used in operating activities (27,789) (29,231)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities, net (7,754) (27,903)
Purchase of property, construction and office
equipment, net (1,362) (849)
Principal repayments of mortgage notes receivable 3,527 8,083
-------- --------
Net cash used in investing activities (5,589) (20,669)
-------- --------
Cash flows from financing activities:
Proceeds from loans payable 13,493 11,379
Principal payments of loans payable (24,433) (12,215)
Net proceeds from issuance of subordinated notes 55,575 71,993
Repurchase of subordinated notes (405)
Principal payments of collateralized mortgage
obligations (3,858) (8,748)
Proceeds from stock options exercised and employee
stock plan purchases 823 1,007
-------- --------
Net cash provided by financing activities 41,195 63,416
-------- --------
Net increase in cash and cash equivalents 7,817 13,516
Cash and cash equivalents, beginning of period 32,329 33,407
-------- --------
Cash and cash equivalents, end of period $40,146 $46,923
======== ========
</TABLE>
See accompanying notes<PAGE>
<PAGE>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 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, 1994 and 1993, 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.
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 six months ended April 30,
1993.
The net results of the Company's collateralized mortgage
financing operations have been included in interest and other
revenues. Certain amounts for the six months and three months
ended April 30, 1993 have been restated to reflect this
treatment.
2. Residential Inventories
Residential inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1994 1993
<S> <C> <C>
Land and land development costs $145,939 $122,258
Construction in progress 253,345 220,680
Sample homes 18,923 15,297
Land deposits and costs of future development 14,405 15,773
Loan assets acquired for future development 5,728 21,873
Deferred marketing and financing costs 8,259 6,634
-------- --------
$446,599 $402,515
======== ========
</TABLE>
Construction in progress includes the cost of homes under
construction, land and land development and carrying costs of
lots that have been substantially improved.
<PAGE>
<PAGE>5
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:
<TABLE>
<CAPTION>
Six months Three months
ended April 30 ended April 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest capitalized,
beginning of period $38,270 $34,470 $37,437 $35,023
Interest incurred 10,569 9,422 5,493 5,105
Interest expensed (8,092) (7,087) (3,595) (3,323)
Write off to cost of sales (1,412) - - -
-------- -------- -------- --------
Interest capitalized,
end of period $39,335 $36,805 $39,335 $36,805
======== ======== ======== ========
</TABLE>
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
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. In April 1994 the Company acquired
$500,000 of these notes in the open market. 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 six month and three month
periods ended April 30, 1994.
5. Supplemental Disclosures to Statements of Cash Flows
The following are supplemental disclosures to the statements of
cash flows:
<TABLE>
<CAPTION>
Six months
ended April 30
1994 1993
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Interest paid, net of amount capitalized $ 2,150 $2,543
======== ========
Income taxes paid $14,745 $6,099
======== ========
Supplemental disclosures of non-cash
financing activities:
Income tax benefit relating to
exercise of employee stock options $ 223 $ 533
======== ========
</TABLE>
<PAGE>
<PAGE>6
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:
<TABLE>
<CAPTION>
Six months Three months
ended April 30 ended April 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Land and housing construction 75.5 72.5 74.9 73.2
Selling, general and administrative 10.9 13.2 13.6 14.0
Interest 3.8 4.7 3.9 4.5
------ ------ ------ ------
Total costs and expenses 90.2 90.4 92.4 91.7
------ ------ ------ ------
Income before taxes and change in
in accounting 9.8% 9.6% 7.6% 8.3%
====== ====== ====== ======
Number of homes closed 682 504 296 254
====== ====== ====== ======
</TABLE>
Revenues for the six months and three months ended April 30, 1994 were
higher than those of the comparable period of the prior year by
approximately $59.8 million, or 40%, and $17.5 million, or 24%,
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 six month and three month periods of fiscal 1994 as compared to the
same periods of fiscal 1993 as the result of a change in product mix and
a shift in the location of homes closed to more expensive communities.
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. This mix
change resulted in an increase in the average sales price per home closed
in the second quarter of fiscal 1994 as compared to the second quarter of
fiscal 1993 and to the first quarter of fiscal 1994, whereas, the average
selling price per home settled declined in the second quarter of 1993 as
compared to the first quarter of 1993. Based upon the backlog of homes
under contract at April 30, 1994, the Company anticipates that the
average selling price per home closed will increase throughout the
remainder of 1994 as compared to fiscal 1993 and the first half of 1994.
The aggregate sales value of new contracts signed during the six months
and three months ended April 30, 1994 amounted to $293.2 million (881
homes) and $193.9 million (582 homes), respectively, as compared to
$239.7 million (792 homes) and $151.5 million (502 homes) for the same
periods of 1993. The Company believes that these increases of 22% for
the six months and 28% 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 April 30, 1994 and 1993
were $369.9 million (1,091 homes) and $278.2 million (909 homes),
respectively. Orders for new homes are generally the strongest during
the Company's second quarter and consequently the backlog at April 30 is
generally at its highest level for the Company's fiscal year.
<PAGE>
<PAGE>7
Land and construction costs for the three months ended April 30, 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 later 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 which increased per home overhead costs.
Costs for the six months ended April 30, 1994 were similarly affected by
the aforementioned material price increases and adverse weather
conditions. During the April 30, 1993 quarter the Company provided
$600,000 for the writedown to net realizable value of one community. In
the first quarter of 1994, the Company recognized a $2.6 million charge
related to the writeoff of previously capitalized costs of a future
community that it no longer considered realizable. No writeoffs were
made in the first quarter of fiscal 1993 or the second quarter of fiscal
1994.
Selling, general and administrative expenses were lower as a percentage
of revenues in the six month and three month periods ended April 30, 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 $1.9 million for
the six month and $1.0 million 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 increased number of communities that the Company had open in 1994
as compared to 1993.
Interest expense for the six months and three months ended April 30, 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 six months ended April 30, 1994 and 1993 were
provided at effective rates of 37.2% and 39.9%, respectively. The
effective rate for the six 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 second quarter of 1994 and 1993 were provided at effective rates of
37.6% and 39.8%, respectively. The effective tax rate for the second
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
six months ended April 30, 1993.
<PAGE>
<PAGE>8
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 April 30, 1994, the
Company had $10.0 million of loans and approximately $45.5 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 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
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, bank borrowings and
the public debt and equity markets.
<PAGE>
<PAGE>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
(a) The Company's 1994 Annual Meeting of Shareholders
was held on March 17, 1994.
(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 outstanding and entitled to
vote, as indicated below.
The approval of Ernst & Young as the Company's
independent auditors for the 1994 fiscal year.
FOR AGAINST ABSTAIN
------- ------- -------
20,595,840 8,329 4,365
To consider and act upon the adoption of the Toll
Brothers, Inc. Key Executives and Non-Employee
Directors Stock Option Plan (1993).
FOR AGAINST ABSTAIN
------- ------- -------
20,241,840 356,369 9,505
To consider and act upon the adoption of the Toll
Brothers, Inc. Cash Bonus Plan.
FOR AGAINST ABSTAIN
------- ------- -------
20,172,855 428,554 6,305
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 11. Statement Regarding Computation of Per
Share Earnings.
(b) Reports on Form 8-K
Form 8-K dated December 17, 1993 related to the
adoption by the Board of Directors and by the
shareholders of the Toll Brothers, Inc. Key
Executives and Non-Employee Directors Stock Option
Plan (1993) and the Toll Brothers, Inc. Cash Bonus
Plan.
<PAGE>
<PAGE>10
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 13, 1994 By: /s/ Joel H. Rassman
------------------------
Joel H. Rassman
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: June 13, 1994 By: /s/ Joseph R. Sicree
------------------------
Joseph R. Sicree
Vice President -
Chief Accounting Officer
(Principal Accounting
Officer)
<PAGE>
TOLL BROTHERS, INC. & SUBSIDIARIES EXHIBIT 11
STATEMENT: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Three Months
ended April 30 ended April 30
1994 1994
<S> <C> <C>
Net income per income statement $12,855,000 $ 4,350,000
Addback: Interest on convertible
debentures, net of income taxes 320,000 271,000
----------- -----------
Net income (Fully diluted) $13,175,000 $ 4,621,000
=========== ===========
Earnings per share:
Primary $ 0.38 $ 0.13
Fully Diluted $ 0.37 $ 0.13
PRIMARY SHARES:
Weighted average shares outstanding 33,376,043 33,412,331
Common stock equivalents - stock options 332,268 263,805
----------- -----------
TOTAL 33,708,311 33,676,136
=========== ===========
FULLY DILUTED SHARES:
Weighted average shares outstanding 33,375,447 33,412,331
Common stock equivalents - stock options 386,354 263,788
Shares issuable on conversion of
subordinated debentures 1,473,932 2,641,095
----------- -----------
TOTAL 35,235,733 36,317,214
=========== ===========
</TABLE>
