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, 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: 33,593,067 shares as of August 30, 1995
TOLL BROTHERS, INC. AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. PART I. Financial Information ITEM 1. Financial Statements <S> <C> Condensed Consolidated Balance Sheets 1 July 31, 1995 (Unaudited) and October 31, 1994 Condensed Consolidated Statements of Income (Unaudited) 2 For the Nine Months and Three Months Ended July 31, 1995 and 1994 Condensed Consolidated Statements of Cash Flows 3 (Unaudited) For the Nine Months Ended July 31, 1995 and 1994 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 8 SIGNATURES 9 </TABLE>
PART I. ITEM 1. FINANCIAL STATEMENTS TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) <TABLE> <CAPTION> July 31, October 31, 1995 1994 (unaudited) (Note 1) ----------- ----------- ASSETS <S> <C> <C> Cash and cash equivalents $ 19,860 $ 38,026 Marketable securities -- 3,674 Residential inventories 614,188 506,347 Property, construction and office equipment 11,660 11,537 Receivables, prepaid expenses and other assets 23,569 22,695 Mortgage notes receivable 4,047 4,614 -------- -------- $673,324 $586,893 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Loans payable $ 63,895 $ 17,506 Subordinated notes 224,212 227,969 Customer deposits on sales contracts 30,324 30,071 Accounts payable 30,370 28,914 Accrued expenses 46,217 40,872 Collateralized mortgage obligations payable 4,098 4,686 Income taxes payable 35,586 32,699 ------- -------- Total liabilities 434,702 382,717 ======== ======== Shareholders' equity: Preferred stock - - Common stock 336 334 Additional paid-in capital 37,695 36,198 Retained earnings 200,591 167,644 -------- -------- Total shareholders' equity 238,622 204,176 -------- -------- $673,324 $586,893 ======== ======== </TABLE> See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (Unaudited) <TABLE> <CAPTION> Nine months Three months ended July 31 ended July 31 1995 1994 1995 1994 -------------------- ------------------- Revenues: <S> <C> <C> <C> <C> Housing sales $445,030 $327,725 $186,604 $119,043 Interest and other 1,703 1,907 324 1,017 -------- -------- -------- -------- 446,733 329,632 186,928 120,060 -------- -------- -------- -------- Costs and expenses: Land and housing construction 335,561 248,781 140,317 90,548 Selling, general & administrative 43,393 35,447 16,211 12,672 Interest 15,491 12,001 6,040 3,909 -------- -------- -------- -------- 394,445 296,229 162,568 107,129 -------- -------- -------- -------- Income before income taxes 52,288 33,403 24,360 12,931 Income taxes 19,342 12,556 9,118 4,939 -------- -------- -------- -------- Net income $ 32,946 $ 20,847 $ 15,242 $ 7,992 ======== ======== ======== ======== Income per share: Primary $ .98 $ .62 $ .45 $ .24 Fully-diluted $ .94 $ .61 $ .43 $ .23 Weighted average number of shares Primary 33,769 33,660 34,074 33,563 Fully-diluted 36,504 35,545 36,605 36,149 </TABLE> See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 5) (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Nine Months ended July 31 -------------------- 1995 1994 ------- ------- Cash flows from operating activities: <S> <C> <C> Net income $32,946 $20,847 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,779 1,993 Gain from repurchase of subordinated notes (523) (549) Net realizable provisions 1,123 4,875 Increase in residential inventories (108,964) (78,240) Increase in receivables, prepaid expenses and other assets (1,236) (1,116) Increase in customer deposits on sales contracts 253 10,322 Increase in accounts payable 1,456 6,854 Increase in accrued expenses and other liabilities 5,345 8,817 Increase (decrease) in current income taxes payable 2,865 (3,312) Increase in deferred income taxes payable 159 996 Net cash used in operating activities (64,797) (28,513) Cash flows from investing activities: Proceeds from (purchase of) marketable securities, net 3,674 (6,554) Purchase of property, construction and office equipment, net (1,636) (2,411) Principal repayments of mortgage notes receivable 576 4,714 Net cash provided by (used in) investing activities 2,614 (4,251) Cash flows from financing activities: Proceeds from loans payable 151,000 13,493 Principal payments of loans payable (104,721) (25,465) Net proceeds from issuance of subordinated notes -0- 55,541 Repurchase of subordinated notes (3,166) (2,353) Principal payments of collateralized mortgage obligations (595) (5,607) Proceeds from stock options exercised and employee stock plan purchases 1,499 848 Net cash provided by financing activities 44,017 36,457 Net increase (decrease) in cash and cash equivalents (18,166) 3,693 Cash and cash equivalents, beginning of period 38,026 32,329 Cash and cash equivalents, end of period $19,860 $36,022 Supplemental disclosures of cash flow information Interest paid, net of capitalized amount $ 3,669 $ 3,177 Income taxes paid $15,999 $14,872 Supplemental disclosures of non-cash financing activities: Cost of residential inventories acquired through seller financing $ -0- $ 5,000 Income tax benefit relating to exercise of employee stock options $ 318 $ 223 </TABLE> 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 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, 1995 and October 31, 1994, the results of its operations for the nine months and three months ended July 31, 1995 and 1994 and its cash flows for the nine months ended July 31, 1995 and 1994. 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: <TABLE> <CAPTION> July 31, October 31, 1995 1994 ----------- ----------- <S> <C> <C> Land and land development costs $157,437 $158,686 Construction in progress 398,440 277,098 Sample homes 27,944 22,641 Land deposits and costs of future development 12,439 13,943 Loan assets acquired for future development 6,127 25,186 Deferred marketing and financing costs 11,801 8,793 -------- -------- $614,188 $506,347 ======== ======== </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. 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: <TABLE> <CAPTION> Nine months Three months ended July 31 ended July 31 ----------------- ----------------- 1995 1994 1995 1994 ------- ------- ------- ------- Interest capitalized, <S> <C> <C> <C> <C> beginning of period $39,835 $38,270 $42,704 $39,335 Interest incurred 18,856 16,107 6,439 5,538 Interest expensed (15,491) (12,001) (6,040) (3,909) Write off to cost of sales and other (176) (1,941) (79) (529) Interest capitalized, end of period $43,024 $40,435 $43,024 $40,435 </TABLE> 3. Loans Payable In the third quarter of 1995, the Company increased its revolving credit facility to $230 million and extended the expiration date to June 2000. The facility reduces by 50% in June 1998 unless extended pursuant to the Agreement. 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 assumes conversion of the Company's 4 3/4% Convertible Subordinated Notes at a conversion price of $21.75 per share. 5. Subsequent Event In August 1995, the Company acquired certain assets of Geoffrey H. Edmunds & Associates, Inc., a privately owned, Scottsdale, Arizona, luxury homebuilder. The Company, through this acquisition, will own or control approximately 750 lots in the Scottsdale area. The acquisition will take place in phases with the merger of the organization completed by April 1, 1996.
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> Nine months Three months ended July 31 ended July 31 1995 1994 1995 1994 <S> <C> <C> <C> <C> Revenues 100.0% 100.0% 100.0% 100.0% Costs and expenses: Land and housing construction 75.1 75.5 75.1 75.4 Selling, general and administrative 9.7 10.8 8.7 10.6 Interest 3.5 3.6 3.2 3.3 ----- ----- ----- ----- Total costs and expenses 88.3 89.9 87.0 89.3 ----- ----- ----- ----- Income before income taxes 11.7% 10.1% 13.0% 10.7% ===== ===== ===== ===== Number of homes closed 1,270 1,056 516 374 ===== ===== ===== ===== </TABLE> Revenues for the nine months and three months ended July 31, 1995 were higher than those of the comparable period of the prior year by approximately $117.1 million, or 36%, and $66.9 million, or 56%, 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 1995, as compared to the beginning of 1994 and to the construction delays caused by the adverse weather conditions during the early part of 1994. 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. As of July 31, 1995 and 1994, the backlog of homes under contract amounted to $393.3 million (1,058 homes) and $377.3 million (1,080 homes), respectively. The aggregate sales value of new contracts signed during the nine months and three months ended July 31, 1995 amounted to $467.8 million (1,303 homes) and $147.0 million (400 homes), respectively. This compares to $419.5 million (1,244 homes) and $126.4 million (363 homes) for the same periods of 1994. The increase in new contracts signed and backlog in 1995 over 1994 is primarily 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. As a percentage of revenues, land and housing construction costs decreased slightly in the nine months and three months ended July 31, 1995 as compared to the same periods of 1994. During both periods of 1995, the Company saw lower overhead costs per home and lower writeoffs of inventory and previously capitalized costs that the Company no longer considered realizable. These lower costs were partially offset by higher material and labor costs. The Company provided writeoffs of approximately $3.3 million and $1.3 million in the nine month and three month periods of 1995, and $4.9 million and $2.3 million for the same periods 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 decline in the SG&A percentages is principally the result of revenue increasing at a greater rate than spending. The increased spending was principally due to the increased number of communities that the Company was operating in during the 1995 periods. Interest expense was slightly lower as a percentage of revenues in the nine 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 nine month periods of 1995 and 1994 were provided at effective rates of 37.0% and 37.6%, respectively. For the three month periods of 1995 and 1994, income taxes were provided at effective rates of 37.4% and 38.2%, 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 $230 million unsecured revolving credit facility with fourteen banks which extends to June 2000. The facility reduces by 50% in June 1998 unless extended pursuant to the agreement. As of July 31, 1995, the Company had $59 million of loans and approximately $35.3 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 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, 1995 By: /s/ Joel H. Rassman -------------------- ------------------------ Joel H. Rassman Senior Vice President, Treasurer and Chief Financial Officer Date: September 12, 1995 By: /s/ Joseph R. Sicree -------------------- ------------------------ Joseph R. Sicree Vice President - Chief Accounting Officer (Principal Accounting Officer)