<PAGE> 1
(CONFORMED COPY)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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 1-5899
U.S. HOME CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 21-0718930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10707 CLAY ROAD, HOUSTON, TEXAS 77041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-2311
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
------------------- ----------------------------
Common Stock, $.01 par value per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 31, 1999, the number of shares outstanding of Registrant's voting
stock was 13,337,624 and the aggregate market value of the Registrant's voting
stock held by non-affiliates was $445,514,386.
DOCUMENTS INCORPORATED BY REFERENCE
Part of 10-K
Where Incorporated
Proxy Statement dated March 12, 1999 for the ------------------
Annual Meeting of Stockholders to be held III
on April 21, 1999.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
U.S. Home Corporation ("U.S. Home" or the "Company"), organized in 1954
and incorporated in the State of Delaware in 1959, is one of the largest
single-family home builders in the United States based on homes delivered. The
Company currently builds and sells homes in more than 230 new home communities
in 33 market areas in 12 states. Since its formation, the Company has delivered
over 283,000 homes. In 1997, the Company was the sixth largest single-family
on-site home builder in the United States based on homes completed and delivered
and has been among the ten largest single-family on-site home builders in the
United States for more than 20 years. The Company conducts substantially all of
its home building business through U.S. Home, the parent company.
The Company offers a wide variety of moderately-priced homes that are
designed to appeal to the affordable, move-up and retirement and active adult
buyers. In each of its markets, the Company's strategy is to build quality homes
offering prospective homebuyers a high level of new home value. The Company
believes that many home purchasers compare homes on the basis of location,
perceived quality and dollars of purchase price per square foot of living area.
As a result, the Company attempts to purchase land and lots in popular growth
corridors, maintain high quality standards, design homes to maximize living
space and provide customers with opportunities to choose interior and exterior
features to enhance their homes.
In addition to building and selling single-family homes, the Company
provides mortgage-banking services to its customers. The Company originates,
processes and sells mortgages to third party investors. The Company does not
retain or service the mortgages that it originates but, rather, sells the
mortgages and related servicing rights to investors.
OPERATIONS
The Company is engaged in two related industries: home building and
financial services. Assets and results of operations of the Company's reportable
segments are separately disclosed in the Consolidated Financial Statements.
HOME BUILDING OPERATIONS
The Company's primary business is the on-site development of
single-family residential communities. During 1998, the Company's product mix
consisted of deliveries of approximately 35% affordable homes, 39% move-up homes
and 26% retirement and active adult homes.
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MARKETS
U.S. Home's building operations are currently conducted in the
following market areas:
<TABLE>
<CAPTION>
States Market Areas
- ------------------ -----------------------------------------------------------------------------------
<S> <C>
Arizona Phoenix and Tucson
California Corona, Palm Springs, Sacramento and Temecula
Colorado Colorado Springs, Denver and Fort Collins/Longmont/ Loveland
Florida Bonita Springs, Clearwater/Palm Harbor/Tarpon Springs, Fort Myers, Hernando County,
Naples, Orlando, Pasco County, Sarasota/Bradenton and Tampa
Maryland/Virginia Annapolis and Washington, D.C. area
Michigan Auburn Hills
Minnesota Minneapolis/St. Paul
Nevada Las Vegas
New Jersey Dover/Jackson/Howell, Monroe/Hillsborough and Lumberton
Ohio Cleveland and Columbus
Texas Dallas/Fort Worth, Fredericksburg, Houston, McAllen/Harlingen/Brownsville and San
Antonio
</TABLE>
The Company seeks to maintain geographic diversity and thus reduce the
potential risk of economic volatility in any given market.
Set forth below are revenues for the Company from the sale of
single-family homes by state for each of the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
States 1998 1997 1996
- ------------------ ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Arizona $ 162,103 $ 132,640 $ 137,606
California 151,476 118,843 92,193
Colorado 263,019 238,288 206,231
Florida 399,492 369,051 335,166
Maryland/Virginia 74,275 66,651 72,914
Minnesota 81,544 61,503 64,129
Nevada 59,981 60,561 62,088
New Jersey 93,612 85,878 86,656
Ohio/Indiana (1) 26,256 35,492 33,008
Texas 133,577 109,408 88,947
---------- ---------- ----------
$1,445,335 $1,278,315 $1,178,938
========== ========== ==========
</TABLE>
(1) In 1997, the Company discontinued its Indiana operations.
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Set forth below are tables providing information (expressed in number
of housing units) with respect to new orders taken, deliveries to purchasers and
backlog of single-family homes by state for each of the last three fiscal years:
NEW ORDERS TAKEN
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
States 1998 1997 1996
- ------------------ --------- --------- --------
<S> <C> <C> <C>
Arizona 1,287 899 832
California 873 636 532
Colorado 1,404 1,285 1,378
Florida 2,468 2,597 2,173
Maryland/Virginia 478 355 353
Minnesota 471 386 294
Nevada 306 301 371
New Jersey 427 422 471
Ohio/Indiana (3) 136 111 178
Texas 1,278 901 824
--------- --------- --------
9,128 7,893 7,406
Joint venture activity (1) 67 - -
--------- --------- --------
9,195 7,893 7,406
========= ========= ========
</TABLE>
DELIVERIES
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
States 1998 1997 1996
- ------------------ --------- ------- ------
<S> <C> <C> <C>
Arizona 1,012 850 948
California 677 560 494
Colorado 1,391 1,340 1,199
Florida 2,462 2,304 2,126
Maryland/Virginia 394 351 366
Minnesota 445 319 306
Nevada 307 327 356
New Jersey 449 441 475
Ohio/Indiana (3) 119 163 156
Texas 1,002 841 673
--------- ------- ------
8,258 7,496 7,099
========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
BACKLOG (2)
As Of December 31,
-------------------------------------------
States 1998 1997 1996
- ------------------ ------- ------- ------
<S> <C> <C> <C>
Arizona 593 318 269
California 421 225 149
Colorado 599 586 641
Florida 1,332 1,326 1,033
Maryland/Virginia 188 104 100
Minnesota 200 174 107
Nevada 107 108 134
New Jersey 138 160 179
Ohio/Indiana (3) 49 32 84
Texas 678 402 342
------- ------- ------
4,305 3,435 3,038
Joint venture activity (1) 67 - -
------- ------- ------
4,372 3,435 3,038
======= ======= ======
</TABLE>
(1) Includes unit data for a 50% owned retirement community joint venture
in Michigan of 35 new orders and 35 backlog and a 50% owned affordable
home joint venture in Texas of 32 new orders and 32 backlog for the
year ended December 31, 1998.
(2) Homes under contract for sale but not delivered at end of year.
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(3) In 1997, the Company discontinued its Indiana operations.
The Company anticipates that substantially all of its backlog units,
net of cancellations, as of December 31, 1998 will be completed and delivered
during 1999. While operations in certain market areas are affected by seasonal
factors which limit on-site building and sales activities, the Company's ability
to build and deliver its backlog is not considered to be seriously affected by
such factors.
SALES AND MARKETING
The Company employs sales consultants for the sale of single-family
homes, although sales by independent real estate brokers are also encouraged.
Specific sales training programs are provided which inform sales consultants
about sales techniques and methods as well as information about their local
market, realtors and products. The sales programs focus on the Company's Zero
Defect Program as a marketing tool because the sales force is the first contact
with the customer. The Zero Defect Program is a quality assurance program with
major emphasis on construction (see Construction below).
The Company markets homes in "model home parks" featuring one or more
model homes, attractively furnished and decorated and staffed by the Company's
sales consultants who provide information regarding floor plans, the various
elevations available, decorating options, as well as assisting with mortgage
financing information. The model may include a variety of options and upgrades
which the customer may request at an additional cost, and which include items
such as special floor and window treatments, custom cabinetry, pools, fireplaces
and decks. The Company constantly studies both aesthetic design and
architectural trends, as well as quality construction and engineering trends, in
order to provide customers with high quality, design and value. The Company has
received numerous awards in various markets for outstanding housing design.
The Company's home building and marketing activities are conducted
under the name of U.S. Home in each of its markets except in Minneapolis/St.
Paul where the Company markets its homes under the name of Orrin Thompson Homes,
and in Florida where homes are marketed under the name of Rutenberg Homes as
well as U.S. Home. Joint venture activities are conducted under the name of
Heritage for the retirement and active adult communities and NuHome Designs for
the affordable communities.
The Company provides customers, through its U.S. Home Custom Design
Studios, the opportunity to purchase options and upgrades for their new homes.
In 1998, the Company established U.S. Home Custom Design Studios in each of its
markets. The Design Studios provide an extra service to its customers.
The Company advertises primarily in magazines and local newspapers.
Additionally, homes are marketed by means of model homes, pictorial brochures
and on-site displays. The Company also maintains specific community information
at its internet home page which can be reached at http://www.ushome.com. The
Company's general marketing strategy seeks to generate one-third of housing
sales through advertisements, one-third through customer referrals and one-third
through realtor contacts.
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The Company's product lines include both single-family detached and
attached homes. During 1998, approximately 78% of the homes delivered were
single-family detached compared to 80% in 1997 and 83% in 1996. The number of
units and average sales prices of single-family homes delivered in 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
Single-Family Detached Single-Family Attached
---------------------- ----------------------
Number Average Number Average
of Units Sales Price of Units Sales Price
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
1998 6,476 $182,600 1,782 $147,600
1997 5,960 178,000 1,536 141,200
1996 5,891 170,500 1,208 144,200
</TABLE>
Selling prices are set in each area based on product features, local
market conditions and competitive factors. In 1998, the national average sales
price of new single-family homes (both detached and attached) as reported on a
preliminary basis by the U.S. Census Bureau was $181,300 compared with an
average sales price of $175,000 for the Company.
Variations in the general product and customer mix may exist from year
to year based on shifts in local market demand or product availability. The
table below sets forth the mix of the Company's deliveries for the affordable,
move-up and retirement and active adult home products during the last three
years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Affordable ..................................... 35% 33% 28%
Move-up ........................................ 39% 40% 49%
Retirement and active adult .................... 26% 27% 23%
</TABLE>
The Company has set a goal to increase its annual deliveries to over
10,000 homes in the year 2000, of which one third would be retirement and active
adult home deliveries. However, there can be no assurance such efforts will be
successful.
The Company presently has retirement, active adult and
intergenerational communities open in Arizona, California, Colorado, Florida,
Nevada, New Jersey, Ohio, Texas and Virginia and one joint venture community in
Michigan. During the next three years, the Company plans to open 17 additional
retirement, active adult and intergenerational communities. They include two new
communities in California, one in Colorado, seven in Florida, one in Minnesota,
three in New Jersey and two in Texas and one joint venture in North Carolina.
Many purchasers finance a large portion of the purchase price of a home
through conventional or government insured/guaranteed mortgages from lending
institutions. The Company generally assists purchasers in obtaining mortgages.
Approximately 84% of the homes delivered in 1998, 81% delivered in 1997 and 83%
delivered in 1996, were purchased using mortgage financing.
The Company takes steps to qualify certain of its homes under Veterans
Administration ("VA") and Federal Housing Administration ("FHA") mortgage
financing programs, which provide mortgage financing sources. Approximately 19%
of the homes delivered in 1998 and 17% of the homes delivered in 1997 and 1996
were financed under VA and FHA mortgage programs.
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CONSTRUCTION
The Company's investment in direct employee labor costs, equipment and
facilities is kept to a minimum because all construction of single-family homes
is performed by independent subcontractors. At all stages of construction,
however, on-site Company managers supervise and coordinate the activities of
these subcontractors and subject their work to quality and cost control
standards. The Company's Director of Construction and Quality Initiative
Programs provides centralized management of quality standards and supervises the
Company's Zero Defect Program with respect to the construction of homes. The
Company's Director of National Purchasing provides centralized management for
the purchase of certain major components used in the construction of homes.
Company employees are rated and compensation incentives are affected by a
measure of quality standards. The Company's commitment to quality and its use in
the Company's sales efforts are best illustrated by its Zero Defect Program.
Under the Zero Defect Program, the home buyer meets with the construction
supervisor prior to the commencement of, and during, construction in order to
ensure that the home buyer (i) is aware of all quality features of the house,
including those which are not readily apparent in the finished house, (ii)
agrees that the design features, including appliances, match those ordered and
(iii) is satisfied with the finished product. The Company considers a completed
house to have "zero defects" if, upon final inspection by the home buyer, only a
few minor cosmetic items remain to be corrected.
Construction subcontractors are selected on the basis of competitive
bids and written agreements govern their relationship with the Company. All bids
are based on detailed specifications and complete blueprints to ensure
commitment to the Company's expectation for high quality workmanship.
The Company purchases the majority of its construction material on a
decentralized basis with a "just in time" delivery schedule to each individual
job site. Materials are regularly purchased on a competitive bid basis to ensure
both competitive pricing and high quality. In addition to local purchasing, the
Company has entered into a number of national purchasing agreements in order to
maximize purchasing power. Agreements with each vendor are negotiated on an
annual basis by the Company's Director of National Purchasing.
In order to minimize the risk associated with completed but unsold
inventory, the Company generally does not commence construction of a
single-family detached home prior to receipt of an executed purchase contract, a
deposit from the customer and preliminary mortgage approval based on the
purchaser's mortgage application. For single-family attached homes, construction
does not generally commence until 50% of the units in a building have been sold.
REGULATION
The Company and its subcontractors must comply with various federal,
state and local zoning, building, pollution, environmental, health, advertising
and consumer credit statutes, ordinances, rules and regulations, as well as
regulations relating to specific building materials to be used, building design
and minimum elevations of properties. All of these regulations have increased
the time and cost required to market the Company's products by extending the
time between the initial acquisition of land and the commencement of
construction. The Company's operations, like those of other home builders, have
been periodically subject to moratoriums on development activities caused by
insufficient water, sewage and energy-related facilities.
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Moratoriums in local areas have not had a material adverse effect on the
Company's overall activities because of the geographic diversification of the
Company's operations.
COMPETITION
The single-family residential housing industry is highly competitive.
U.S. Home competes in each of its markets, with respect to the location, design
and price of its products, with numerous firms engaged in the on-site
development of single-family residential housing, ranging from regional and
national firms to small local companies. The Company is one of the largest
on-site builders of single-family homes in the United States, ranking among the
ten largest single-family on-site home builders in the United States for more
than 20 years. However, because there are so many firms engaged in the
single-family home building industry, the Company accounts for less than 1% of
all new on-site single-family housing sales in the United States.
RAW MATERIALS AND SUBCONTRACTORS
The Company uses numerous suppliers of raw materials and services in
its business and such materials and services have been and continue to be
available. Where appropriate, the Company has adopted national programs for
products to maximize price discounts through volume purchases. The Company also
utilizes numerous independent subcontractors representing all building trades in
connection with the construction of its homes.
COMMUNITY DEVELOPMENT
For a number of years, a significant portion of the Company's finished
lot needs, primarily in its affordable and move-up communities, have been
satisfied through rolling lot options, which enable the Company to initially pay
a small fraction of total lot cost and then purchase the lots on a scheduled
basis. For example, during 1998, 63% of the Company's unit deliveries were from
lots developed by the Company and 36% were from lots acquired by the exercise of
rolling lot options as compared with 62% and 37% in 1997 and 56% and 44% in
1996, respectively. See Management's Discussion and Analysis of Financial
Condition and Results of Operations-Financial Condition and Liquidity, Housing.
The Company's policy is that land cannot be purchased or sold without
prior approval of the Company's Asset Management Committee. Asset Management
Committee approval requires submission of data relating to sales forecasts, a
timing schedule (e.g., estimated dates for the commencement of land development,
housing construction, model opening and sales) and a projection of income and
internal rate of return. All development expenditures are reviewed by the Senior
Vice President-Community Development and the appropriate President of Operations
prior to the commencement of development. In addition, the Company's by-laws
require approval by the Company's Board of Directors of any acquisition of
unimproved real property or acreage by the Company which is material to the
Company in any single transaction involving an expenditure in excess of $10
million and any other material capital expenditures, borrowings (subject to
certain exceptions) and other commitments by the Company in excess of $10
million per transaction (excluding transactions involving housing inventory).
The Presidents of Operations and the Division Presidents are
responsible for maintaining continuity of housing sales through awareness of
trends in housing demand in each market area. Feasibility studies and market
research studies are generally required before approval of the purchase of land.
These
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studies examine the demographics of an area, including population trends, income
trends, employment trends, housing stock and housing demand. Products are
matched to customer profile, determined in part by the market studies and the
experience of the local manager in each market.
Housing communities are generally built in or near major metropolitan
areas and are normally located in growing markets for such areas. At December
31, 1998, the Company's land and finished lot inventories totaled $514.1
million, excluding option deposits. See Note 2 of Notes to Consolidated
Financial Statements. Substantially all housing communities are zoned for their
intended use and serviced by utilities. As of December 31, 1998, the Company had
refundable and nonrefundable deposits totaling $41.2 million for options and
contracts to purchase undeveloped land and finished lots for home building
operations for a total purchase price of approximately $435.5 million. The
Company has incurred pre-development costs of approximately $62.3 million
relating to these properties.
The following table sets forth as of December 31, 1998, by state, the
cost of certain of the Company's land inventories and the estimated number of
lots controlled through direct ownership and under option which are being used
or that are anticipated to be used in the Company's home building operations
(dollars in thousands):
<TABLE>
<CAPTION>
Estimated Number of Housing
Units That Could Be
Constructed On Land Controlled
Book as of December 31, 1998 (1)
Cost ----------------------------------
of Land Under
States Owned Owned Option Total
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Arizona ...................... $ 49,141 1,981 1,879 3,860
California ................... 53,471 1,579 2,930 4,509
Colorado ..................... 99,412 6,117 2,819 8,936
Florida ...................... 138,551 10,952 13,318 24,270
Maryland/Virginia ............ 47,499 2,286 1,166 3,452
Minnesota .................... 12,340 1,018 1,204 2,222
Nevada ....................... 25,990 628 98 726
New Jersey ................... 19,016 560 2,185 2,745
Ohio ......................... 13,890 417 278 695
Texas ........................ 36,497 2,509 1,307 3,816
-------- -------- -------- --------
$495,807 28,047 27,184 55,231
======== ======== ======== ========
</TABLE>
(1) The estimates set forth above have been prepared based on numerous
assumptions made at the date hereof, many of which are beyond the
control of the Company. Many of these assumptions, and hence the
estimates, are subject to change and there can be no assurances that
such lots will be used or as to when they will be used. This table does
not include commercial property and other properties which the Company
has no current plans to use, with an aggregate cost of $18.3 million
(including $2.3 million relating to land under contract for sale). In
view of the various stages of development of the land owned or
controlled by the Company as of December 31, 1998 (i.e., finished,
under development and development not started), any per lot cost
derived by dividing the book cost by the estimated number of units
would not be meaningful.
Inventory risk is substantial for all home building companies. The
market value of housing inventories, finished lots and raw land can
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change significantly over the life of a community, reflecting dynamic market
conditions. In addition, inventory carrying costs are significant, which can
result in losses when trying to exit a poorly performing community or market.
The Company seeks to reduce its risks associated with housing inventories,
finished lots and raw land through (i) maintaining its geographic diversity and
(ii) acquiring lots and land under option where possible, thereby enabling the
Company to control land and lots with a smaller capital investment.
In 1998, the Company's revenues from the sale of developed and
undeveloped land amounted to $17.6 million, as compared to revenues of $13.7
million in 1997 and $10.9 million in 1996.
FINANCIAL SERVICES OPERATIONS
The Company's other business consists primarily of its mortgage banking
activities. U.S. Home Mortgage Corporation ("Mortgage"), a wholly-owned
subsidiary of the Company, commenced operations in 1971 and serves an important
role in the Company's sale of its homes by arranging financing for customers.
Mortgage is a Federal National Mortgage Association/Government National
Mortgage Association/Federal Home Loan Mortgage Corporation approved
seller-servicer, headquartered in Clearwater, Florida with branch or satellite
offices in the metropolitan areas of Phoenix and Tucson, Arizona; Palm Springs
and Sacramento, California; Colorado Springs, Denver and Fort Collins, Colorado;
Washington, D.C.; Clearwater, Fort Myers, New Port Richey, Orlando and Sarasota,
Florida; Minneapolis, Minnesota; Las Vegas, Nevada; Freehold, New Jersey;
Cleveland, Ohio; and Dallas, Houston, McAllen and San Antonio, Texas. The
Company offers a wide variety of conventional, FHA and VA financing programs
through Mortgage, thereby providing prospective buyers the benefits of both
conventional and government-assisted loan programs. As a mortgage banker,
Mortgage originates and funds mortgage loans and sells the loans and the related
servicing rights directly to investors. Loans and servicing rights are generally
sold by Mortgage and funded by the investors within 30 days after home delivery.
To limit its risk of interest rate fluctuations, Mortgage regularly enters into
fixed price mandatory forward delivery contracts to sell mortgage-backed
securities to securities dealers or fixed price forward delivery commitments to
sell specific whole loans to investors on a mandatory or best efforts basis.
Mortgage has a secured revolving line of credit to fund the mortgage loans on an
interim basis until purchased by investors. See Note 3 of Notes to Consolidated
Financial Statements.
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The following table summarizes certain mortgage banking operating
information (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Residential mortgage loans
Number of loans originated ................ 6,050 4,761 3,786
Average amount of loan originated ......... $ 141 $ 138 $ 134
Total amount of loans originated:
Funded by Mortgage ...................... $769,000 $604,000 $466,000
Brokered by Mortgage .................... 84,000 54,000 43,000
-------- -------- --------
Total ..................................... $853,000 $658,000 $509,000
======== ======== ========
Company's homes delivered financed by
Mortgage as a percentage of Company's
homes delivered which were financed........ 83% 76% 61%
Company's homes delivered financed by
Mortgage as a percentage of
Mortgage's total originations.............. 95% 97% 95%
</TABLE>
While the Company continues to focus its attention primarily upon the
expansion of Mortgage's operations within the Company's own customer base,
Mortgage also offers its services to realtors, unaffiliated builders and
refinance customers.
Among the factors affecting Mortgage's operations are general economic
conditions, federal, state and local regulatory constraints, consumer confidence
and interest rate volatility. These factors, together with the number of homes
delivered by the Company, affect the volume of loan originations which in turn
impact the resulting volume of mortgage loans and mortgage servicing rights
available for sale.
OTHER
In 1998, the Company purchased a 13.3% interest in GIG Desarrolladores
Immitbilliories ("GIGDI"), the fourth largest homebuilder in Mexico, and created
a structure for a series of ventures in Mexico and the United States to develop
affordable housing. The first joint venture ("NuHome Designs") with GIGDI
commenced operations in 1998 in Dallas, San Antonio and Houston, Texas offering
affordable homes priced from the low $50,000s. It is expected NuHome Designs
will have a total of eight communities open for sales by the third quarter of
1999.
ADDITIONAL INFORMATION
EMPLOYEES
At December 31, 1998, the Company had 1,954 employees. None of the
Company's employees are represented by a union. The Company considers its
relations with its employees to be good. The Company's single-family housing and
community development operations are conducted primarily through independent
subcontractors, thereby limiting the number of direct employees required.
ITEM 2. PROPERTIES
The Company owns a 52,000 square foot office building located at 10707
Clay Road, Houston, Texas 77041, that serves as its executive offices. Prior to
February 1999, the Company leased its executive offices. The Company does
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not believe that its executive offices or its other facilities, consisting of
sales and administrative offices located in or near each of the Company's areas
of operations and generally held under leases with terms not exceeding five
years, are material to its operations. The Company believes its properties are
suitable and adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising from
the normal course of business, none of which, in the opinion of the Company, is
expected to have a material adverse effect on the financial position or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers during 1998 and their respective ages
and positions are set forth below:
<TABLE>
<CAPTION>
Name Age Position and Office
- --------------------- --- -------------------------------------------
<S> <C> <C>
Robert J. Strudler 56 Chairman and Co-Chief Executive Officer
Isaac Heimbinder 55 President, Co-Chief Executive Officer and
Chief Operating Officer
Gary L. Frueh 58 Senior Vice President - Tax and Audit
Craig M. Johnson 45 Senior Vice President - Community
Development
Chester P. Sadowski 52 Senior Vice President - Controller and Chief
Accounting Officer
Frank E. Matthews, II 49 Vice President - Human Resources
Thomas A. Napoli 57 Vice President - Corporate Finance and
Treasurer
Richard G. Slaughter 54 Vice President - Planning and Secretary
Kelly F. Somoza 45 Vice President - Investor Relations
</TABLE>
No family relationship exists among any of the executive officers of
the Company.
Each of the foregoing officers has been elected to serve in the office
indicated until the first meeting of the Board of Directors following the next
annual meeting of stockholders of U.S. Home and until his or her successor is
elected and qualified.
Mr. Strudler has served as Chairman and Co-Chief Executive Officer
since April 26, 1995; prior thereto, he had been Chairman and Chief Executive
Officer of the Company since May 12, 1986.
Mr. Heimbinder has served as President, Co-Chief Executive Officer and
Chief Operating Officer since April 26, 1995; prior thereto, he had been
President and Chief Operating Officer of the Company since May 12, 1986.
Mr. Frueh has served as Senior Vice President-Tax and Audit since June
11, 1998; prior thereto, he had been Vice President-Tax and Audit since February
5, 1992.
12
<PAGE> 13
Mr. Johnson has served as Senior Vice President-Community Development
since April 26, 1995; prior thereto, he had been Vice President-Community
Development since June 11, 1992.
Mr. Sadowski has served as Senior Vice President-Controller and Chief
Accounting Officer since June 11, 1998; prior thereto, he had been Vice
President-Controller and Chief Accounting Officer since December 17, 1987.
Mr. Matthews has served as Vice President-Human Resources since April
23, 1997; prior thereto, he had been Director-Human Resources since February 15,
1991.
Mr. Napoli has served as Vice President-Corporate Finance and Treasurer
since February 13, 1997; prior thereto, he had been Vice President-Finance and
Chief Financial Officer since April 21, 1989.
Mr. Slaughter has served as Vice President-Planning and Secretary since
December 18, 1986.
Ms. Somoza has served as Vice President - Investor Relations since
December 6, 1996; prior thereto, she had been a Vice President since June 11,
1992. Ms. Somoza is also the administrator of the Company's profit sharing and
employees' savings programs.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of February 4, 1999, there were approximately 1,895 holders of
record of the Company's common stock, $.01 par value per share. The principal
market on which the common stock is traded is the New York Stock Exchange.
Information concerning the high and low sales prices for the Company's common
stock for each calendar quarter during 1998 and 1997 is set forth below:
<TABLE>
<CAPTION>
Calendar Year Ended Year Ended
Quarter December 31, 1998 December 31, 1997
- ----------- -------------------- --------------------
High Low High Low
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First $ 46.50 $ 36.44 $ 29.75 $ 24.50
Second 47.88 36.81 27.75 23.00
Third 44.19 26.75 38.81 26.63
Fourth 36.19 25.56 39.38 32.94
</TABLE>
No dividends were paid by the Company during 1998 or 1997. The
Company's credit agreement (the most restrictive of the Company's borrowing
agreements) limits the payment of cash dividends in any fiscal quarter to fifty
percent of the Company's consolidated net income (as defined in the credit
agreement) for the preceding fiscal quarter.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
FOR THE FIVE YEARS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating Revenues $ 1,497,649 $ 1,319,752 $ 1,211,450 $ 1,107,945 $ 995,311
Income Before Income Taxes and
Extraordinary Loss 89,293 74,900 55,901 59,072 52,526
Income Taxes 25,564 27,713 11,713 22,152 19,697
----------- ----------- ----------- ----------- -----------
Income Before Extraordinary Loss 63,729 47,187 44,188 36,920 32,829
Extraordinary Loss, Net of Income
Tax Benefit 3,026 8,650 -- -- --
----------- ----------- ----------- ----------- -----------
Net Income $ 60,703 $ 38,537 $ 44,188 $ 36,920 $ 32,829
=========== =========== =========== =========== ===========
Basic Earnings Per Share:
Income before extraordinary loss $ 4.99(1) $ 4.08 $ 3.88(2) $ 3.29 $ 3.21
Extraordinary loss $ (.24) $ (.75) $ -- $ -- $ --
Net Income $ 4.75(1) $ 3.33 $ 3.88(2) $ 3.29 $ 3.21
Diluted Earnings Per Share:
Income before extraordinary loss $ 4.68(1) $ 3.50 $ 3.28(2) $ 2.78 $ 2.50
Extraordinary loss $ (.22) $ (.62) $ -- $ -- $ --
Net Income $ 4.46(1) $ 2.88 $ 3.28(2) $ 2.78 $ 2.50
Dividends Per Share $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA (at year end):
Total Assets $ 1,352,976 $ 1,067,114 $ 947,411 $ 842,084 $ 753,203
=========== =========== =========== =========== ===========
Revolving Credit Facilities -
Corporate and Housing $ 130,000 $ 29,000 $ -- $ 24,000 $ 7,553
Financial Services 33,112 40,343 42,414 35,371 10,014
----------- ----------- ----------- ----------- -----------
$ 163,112 $ 69,343 $ 42,414 $ 59,371 $ 17,567
=========== =========== =========== =========== ===========
Long-Term Debt -
Corporate and Housing $ 424,980 $ 395,918 $ 362,887 $ 300,599 $ 304,327
Financial Services -- -- -- -- 1,034
----------- ----------- ----------- ----------- -----------
$ 424,980 $ 395,918 $ 362,887 $ 300,599 $ 305,361
=========== =========== =========== =========== ===========
</TABLE>
(1) In 1998, basic earnings per share included $.59 per share and diluted
earnings per share included $.54 per share due to the effect of a
$7,474 tax benefit.
(2) In 1996, basic earnings per share included $.04 per share and diluted
earnings per share included $.03 per share due to the net effect of an
$8,233, net of tax, provision for impairment of land inventories and an
$8,691 tax benefit.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
HOUSING
The following table, which excludes the provision for impairment of
land inventories recorded in 1996 (see Results of Operations Other - Impairment
of Land Inventories below and Consolidated Statements of Operations), sets forth
certain financial information for the Company's housing segment for the periods
indicated (dollars in thousands, except average sales price):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues -
Single-family homes $1,445,335 $1,278,315 $1,178,938
Land and other 18,737 15,785 12,268
---------- ---------- ----------
Total $1,464,072 $1,294,100 $1,191,206
========== ========== ==========
Single-family homes -
Gross margin amount $ 265,977 $ 229,980 $ 217,461
Gross margin percentage 18.4% 18.0% 18.4%
Units delivered 8,258 7,496 7,099
Average sales price $ 175,000 $ 170,500 $ 166,100
New orders taken 9,195 7,893 7,406
Backlog at end of year:
Aggregate sales amount $ 844,714 $ 608,974 $ 530,857
Units 4,372 3,435 3,038
Selling, general and administrative
expenses as a percentage of
housing revenues 9.6% 9.5% 9.5%
Interest -
Paid or accrued $ 46,597 $ 38,153 $ 33,484
Percentage capitalized 100.0% 100.0% 100.0%
Previously capitalized interest
included in interest expense $ 40,787 $ 33,789 $ 30,786
Percentage of housing revenues 2.8% 2.6% 2.6%
</TABLE>
REVENUES AND SALES -
Revenues from sales of single-family homes for 1998 increased 13% from
1997. The increase resulted from a 10% increase in the number of housing units
delivered and a 3% increase in the average sales price. Revenues from sales of
single-family homes for 1997 increased 8% from 1996, resulting primarily from a
5% increase in the number of housing units delivered and a 3% increase in the
average sales price. The average sales price is impacted by product mix,
geographical mix and changing prices on units delivered. The change in the
average sales price in 1998 compared to 1997 and 1997 compared to 1996
reflects the proportionate increase in deliveries of affordable
(lower priced) homes.
New orders taken in 1998 increased 17% from 1997. New orders taken in
1997 increased 7% from 1996. The increases in new orders in 1998 and 1997
reflect the continued demand for new single-family homes which the Company
believes was brought about by strong consumer confidence, opening of new home
communities and stable mortgage interest rates.
16
<PAGE> 17
GROSS MARGINS -
The increase in the gross margin percentage for 1998 from 1997 was
primarily due to the continuation of strong overall market conditions and gross
margin improvements in certain of the Company's markets. There can be no
assurance margins will continue to improve because they could be adversely
affected by future events, including a change in the competitive housing
environment and increases in construction labor and material costs. The decrease
in the gross margin percentage in 1997 from 1996 was primarily due to a more
competitive housing environment, resulting in the increased use of sales
incentives, the cost of which the Company was not able to offset by increases in
the average sales prices.
BACKLOG -
The backlog aggregate sales amount at December 31, 1998 increased 39%
compared to December 31, 1997, and at December 31, 1997 increased 15% compared
to December 31, 1996. The increases in the value of the backlog reflect the
increases in the number of units under contract and increases in the average
sales price. Substantially all of the Company's backlog units at December 31,
1998, net of cancellations, are expected to result in revenues in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -
As a percentage of housing revenues, selling, general and
administrative expenses in 1998 increased when compared to 1997 and 1997
remained the same as compared to 1996. Actual selling, general and
administrative expenses for 1998 increased $17.6 million compared to 1997. This
increase was primarily due to increases in volume-related expenses ($5.8
million) resulting from increases in deliveries in 1998 when compared to 1997
and increased payroll costs and marketing center and other marketing expenses
resulting from increased activities. Similarly, actual selling, general and
administrative expenses for 1997 increased $9.9 million compared to 1996. This
increase was primarily due to increased payroll cost and advertising and
marketing center expenses resulting from increased activities.
INTEREST -
Interest paid or accrued for 1998 increased approximately 22% compared
to 1997 and increased approximately 14% in 1997 compared to 1996. These
increases were primarily due to increases in the average amount of outstanding
debt which was primarily incurred in connection with the increases in
single-family housing inventories resulting from increased activities.
The Company capitalizes interest cost into housing inventories and
charges the previously capitalized interest to interest expense when the related
inventories are delivered. The amount of interest capitalized and previously
capitalized interest expensed in any one year is a function of the amount of
housing assets, land sales and the number of housing units delivered, average
outstanding debt levels and average interest rates. Previously capitalized
interest amounts charged to interest expense in 1998 increased 21% compared to
1997 and 1997 increased 10% compared to 1996. These increases were attributable
to the increases in the number of housing units delivered and an increase in the
average interest expense per housing unit delivered.
17
<PAGE> 18
FINANCIAL SERVICES
REVENUES -
Revenues for the financial services segment for the periods indicated
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
U.S. Home Mortgage Corporation and
Subsidiary $28,951 $21,648 $16,363
Other financial services subsidiaries 4,626 4,004 3,881
------- ------- -------
$33,577 $25,652 $20,244
======= ======= =======
</TABLE>
U.S. Home Mortgage Corporation ("Mortgage") provides financing
primarily to purchasers of homes sold by the Company's housing operations
through origination of residential mortgage loans and engages in the sale of
such mortgages and related servicing rights to unaffiliated investors.
Mortgage's operations are affected, among other things, by general economic
conditions, consumer confidence and interest rate volatility. These factors,
together with the number of homes delivered by the Company, affect the volume of
loan originations which in turn impact the resulting volume of mortgages and
servicing rights for sale.
The increase in Mortgage's revenues in 1998 from 1997 and in 1997 from
1996 was primarily due to increases in mortgage loan originations and income
from the sales of mortgage loans and servicing rights.
Mortgage's "capture rates" for providing financing to buyers of homes
delivered by the Company improved to 83% in 1998 compared to 76% and 61% in 1997
and 1996, respectively. Since a certain percentage of buyers typically elect to
use other sources of financing, the Company believes Mortgage's capture rate of
83% for 1998 is nearing the maximum capture rate.
OTHER
IMPAIRMENT OF LAND INVENTORIES -
In 1996, in conjunction with the completion of the 1997 business plan,
the Company completed its annual detailed evaluation of the intended use of its
land inventories to insure that the primary and planned use reflected the
appropriate economic value for the Company's intended use. It was determined
during the evaluation that based on economic forecasts for 1997 the current best
use of certain land inventories located primarily in Florida, Maryland and Texas
had changed from the Company's previous intended use. Based on the change in
intended use, the Company revised its cash flow estimates and determined the
cash flow expected to be generated from the new intended use would be less than
the cost of the land. Accordingly, the Company recorded a non-cash provision for
impairment of approximately $13.0 million ($8.2 million, net of income taxes) to
reduce the carrying value of the land to its current fair value, which amount
has been included in "provision for impairment of land inventories" in the
Consolidated Statements of Operations. The provision for impairment reduced
basic and diluted earnings per common share in 1996 by $.72 per share and $.58
per share, respectively.
18
<PAGE> 19
CORPORATE GENERAL AND ADMINISTRATIVE -
Corporate general and administrative includes the operations of the
Company's corporate office. As a percentage of total revenues, such expenses
were .9%, .9% and 1.0% for 1998, 1997 and 1996, respectively. Actual corporate
overhead expenses for 1998 totaled $13.1 million compared with $11.7 million for
both 1997 and 1996.
INCOME TAXES -
In 1996, the Internal Revenue Service (the "IRS") completed an
examination of the Company's federal income tax returns for the years ended
December 31, 1993 and 1992. The results of this examination allowed certain
previously reserved deductions taken by the Company in its 1993 tax return but
disallowed certain other deductions taken in that tax return. In 1998, the
Company was informed that its appeal of the IRS decision to disallow these other
deductions had been resolved in favor of the Company. As a result of this
favorable ruling in 1998 and the deductions allowed in 1996, the Company reduced
its deferred tax liability and recognized income tax benefits totaling $7.5
million in 1998 and $8.7 million in 1996. The decreases in the deferred tax
liability increased basic and diluted earnings per share in 1998 by $.59 per
share and $.54 per share, respectively, and in 1996 by $.76 per share and $.61
per share, respectively.
FINANCIAL CONDITION AND LIQUIDITY
HOUSING
The Company is significantly affected by the cyclical nature of the
homebuilding industry, which is sensitive to fluctuations in economic activity
and interest rates and the level of consumer confidence. Sale of new homes are
also affected by market conditions for rental properties and by the condition of
the resale market for used homes, including foreclosed homes. For example, an
oversupply of resale units depresses prices and reduces the margins available on
sales of new homes. The sale of new homes and profitability from sales are
heavily influenced by the level and expected direction of interest rates.
Increases in interest rates tend to have a depressing effect on the market for
new homes in view of increased monthly mortgage costs to potential home buyers.
The Company's most significant needs for capital resources are land and
finished lot purchases, land development and housing construction. The Company's
ability to generate cash adequate to meet these needs is principally achieved
from the sale of homes and the margins thereon, the utilization of Company-owned
lots and borrowings under its financing facilities, including the unsecured
revolving credit agreement (the "Credit Facility").
Access to quality land and lot locations is an integral part of the
Company's success. Typically, in order to secure the rights to quality locations
and provide sufficient lead time for development, the Company must acquire land
rights well in advance of when orders for housing units are expected to occur.
Primarily in its affordable and move-up home communities, the Company attempts
to minimize its exposure to the cyclical nature of the housing market and its
use of working capital by employing rolling lot options, which enable the
Company to initially pay a small portion of the total lot cost and then purchase
the lots on a scheduled basis. However, with the increase in the number of
retirement and active adult communities, the use of rolling lot options as a
percentage of the Company's total finished lot needs has and is expected to
continue to decrease since the majority of
19
<PAGE> 20
the finished lots for these communities are developed on land owned by the
Company. In 1998, 1997 and 1996, respectively, 36%, 37% and 44%, of the units
delivered have been on lots acquired under rolling lot option agreements. The
retirement and active adult communities are generally long-term projects and
require greater investments by the Company than are required for its affordable
and move-up home communities. These communities generally include more units
than the affordable and move-up communities and generally have more extensive
amenities, including golf courses and club houses, which require substantial
capital investment. The increases in land inventories in 1998 from 1997 and in
1997 from 1996 were primarily the result of increased activities, including an
increase in the Company's retirement and active adult communities' activities.
The Company has financed, and expects to continue to finance, its
working capital needs from operations and borrowings, including those made under
the Credit Facility. The Credit Facility (and previous credit facilities) have
enabled the Company to meet peak operating needs. In September 1998, the Credit
Facility borrowing commitment was increased from $180 million to $300 million
and in August 1997, the Company entered into an interest rate swap agreement
which has effectively fixed the interest rate on $50 million of its Credit
Facility borrowings until August 2000. See Note 3 of Notes to Consolidated
Financial Statements.
In 1998, the Company sold $100 million principal amount of its 7.75%
senior notes due 2005 ("2005 Senior Notes") for the purpose of raising funds to
redeem the balance of the Company's 9.75% senior notes due 2003 ("the 2003
Senior Notes") which were first callable in June 1998. In 1998, the Company
redeemed $43.1 million principal amount of the 2003 Senior Notes and purchased
in open market transactions $36.6 million principal amount of the 2003 Senior
Notes. See Note 3 of Notes to Consolidated Financial Statements.
The Company's Class B warrants expired in 1998. Prior to their
expiration, 1,837,941 warrants were exercised in 1998 for total proceeds of
$36.8 million. See Note 5 of Notes to Consolidated Financial Statements.
Also, certain of the properties owned or under option by the Company
may be located within community development districts ("Districts") formed by
municipalities to construct and finance certain infrastructure/improvements on
property in the Districts' area. The Districts utilize ad valorem and assessment
revenue bonds to fund improvements and repay the bonds by annual tax assessments
on District property based on the property's relative value to other District
property. The Company provides no credit support for and is not liable for the
debt of the Districts, except to the extent of actual assessments made by the
Districts. The Company may utilize Districts to a greater extent in the future.
However, there can be no assurance that it will do so.
The net cash provided or used by the operating, investing and financing
activities of the housing operations for the years ended December 31, 1998, 1997
and 1996 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net cash provided (used):
Operating activities ................. $(136,419) $ (44,622) $ (28,091)
Investing activities ................. (11,187) (2,493) (3,684)
Financing activities ................. 143,669 41,068 36,694
--------- --------- ---------
Net increase (decrease) in cash ........ $ (3,937) $ (6,047) $ 4,919
========= ========= =========
</TABLE>
20
<PAGE> 21
Housing operations are, at any time, affected by a number of factors,
including the number of housing units under construction and housing units
delivered. Housing operating activities for 1998 used more cash than 1997
primarily due to an increase in construction and land asset activities, offset
in part by increased profitability and the timing of payments related to these
activities. Housing operating activities for 1997 used more cash than 1996
primarily due to an increase in housing proceeds receivables and the timing of
payments related to construction and land asset activities, offset in part by
the decrease in construction and land asset activities and the increase in the
number of housing units delivered.
Cash flow from housing financing activities for 1998 provided cash
reflecting the sale of the Company's 2005 Senior Notes, proceeds received upon
the exercise of the Company's Class B warrants and net borrowings under the
Credit Facility, offset by the redemption and purchases of the Company's 2003
Senior Notes and the repurchase of shares of common stock. Cash flow from
housing financing activities for 1997 provided cash reflecting the sale of the
Company's 8.25% senior notes due 2004 and 8.88% senior subordinated notes due
2007 and net borrowings under the Credit Facility, offset by the purchase of the
Company's 2003 Senior Notes and 4.875% convertible subordinated debentures due
2005 and the repurchase of shares of common stock and Class B warrants.
The Company believes that cash flow from operations and amounts
available under the Credit Facility will be sufficient to meet its current
working capital obligations and other needs. However, should the Company require
capital in excess of that which is currently available, there can be no
assurance that it will be available.
FINANCIAL SERVICES
Mortgage's activities represent a substantial portion of the financial
services activities. As loan originations by Mortgage are primarily from homes
sold by the Company's home building operations, Mortgage's financial condition
and liquidity are to a significant extent dependent upon the financial condition
of the Company.
Financial services operating activities are affected primarily by the
volume of Mortgage's loan originations and the timing of the sale of mortgage
loans and related servicing rights to third party investors. Loans and servicing
rights are generally sold to investors within 30 days after homes are delivered.
Cash flow from financial services operating activities for 1998 provided more
cash compared to 1997 primarily due to increased profitability and the timing of
payments related to Mortgage's origination activities. Cash flow from financial
services operating activities for 1997 provided more cash compared to 1996
primarily due to increased profitability, offset in part by an increase in
residential mortgage loans receivable.
The Company finances its financial services operations primarily from
short-term debt which is repaid with internally generated funds, such as from
the origination and sale of residential mortgage loans and related servicing
rights. As more fully discussed in Note 3 of Notes to Consolidated Financial
Statements, the short-term debt consists of an $80 million secured revolving
line of credit (the "Mortgage Credit Facility") which matures on August 31,
1999. While the Mortgage Credit Facility contains numerous covenants, including
a debt to tangible net worth ratio and a minimum tangible net worth requirement,
these covenants are not anticipated to significantly limit Mortgage's
operations.
21
<PAGE> 22
The Company has no obligation to provide funding to its financial
services operations, nor does it guarantee any of its financial services
subsidiaries' debt. The Company believes that internally generated funds and the
Mortgage Credit Facility will be sufficient to provide for Mortgage's working
capital needs.
OTHER
IMPACT OF INFLATION -
Inflation not only affects interest rates on funds borrowed by the
Company, but also affects the affordability of permanent mortgage financing
available to prospective customers. Increased construction costs associated with
rising interest rates, as well as increased material costs, compress gross
margins in the short-term, but may be recovered in the long-term through
increases in sales prices, although such increases may reduce sales volume. In
recent years, inflation has not had a significant adverse effect on the Company.
22
<PAGE> 23
YEAR 2000 ISSUE -
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize the year 2000 as the year 1900. This could cause many computer
applications to fail completely or create erroneous results unless corrective
measures are taken.
The Company's year 2000 remediation program has been in place since
1995 and the costs of the program, which have not been significant, have been
expensed as incurred. The Company does not expect the remaining costs of the
program to have a material effect on the Company's results of operations. A
committee has been appointed to oversee the Company's year 2000 efforts and to
keep Company management and the Company's Board of Directors informed of these
efforts.
The Company utilizes proprietary integrated computer systems that
provide its administrative and operating groups the financial and operating
information needed to support current operations and future growth. The Company
implemented a program in 1995 to identify and remediate the computer systems
that would be affected by the year 2000 issue and, in 1998, expanded the program
to include other operating systems and equipment affected by the two digit date
field.
All of the Company's major computer systems, including its mortgage
banking operations' systems, are year 2000 compliant. The Company believes the
remaining computer systems and the other operating systems and equipment will be
compliant by the end of 1999. The Company is currently evaluating all major
supplier/contractor relationships and believes there are no significant risks
associated with year 2000 issues impacting its operations. The Company is also
assessing the year 2000 issues with other third-parties on which it relies,
including banking institutions, title companies and government agencies and has
been informed by its primary banking institution, its primary title company and
two major government agencies (Government National Mortgage Association and
Federal National Mortgage Association) that they are year 2000 compliant. While
other third-parties have informed the Company they are year 2000 compliant and
others have stated they will be compliant by the end of 1999, there can be no
assurance that the systems of third-parties on which the Company relies will be
compliant in a timely manner. Since the Company has not completed its assessment
of significant third parties on whom it relies, it does not currently have
adequate information to assess the risk of these entities not being able to
provide goods and services to the Company. As information is received and
evaluated, the Company will determine whether contingency plans are necessary.
Should one or more of the significant third-parties fail to achieve year 2000
compliance, the Company's business and its results of operations could be
adversely affected.
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS -
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and is including this
disclosure in order to do so.
Certain statements contained herein, in the Company's press releases,
oral communications and other filings with the Securities and Exchange
Commission that are not historical facts are, or may be considered to be,
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Given the risks, uncertainties and
contingencies of the Company's business, the actual results may differ
materially from those expressed or implied by such forward-looking statements.
Further, certain forward-looking statements are based on assumptions concerning
future events which may not prove to be accurate.
Forward-looking statements by the Company regarding results of
operations and, ultimately, financial condition, are subject to numerous risk
and assumptions, including the following:
o General economic and business conditions, the level and direction of
interest rates and the level of consumer confidence have significant impact
on the willingness and ability of purchasers to enter into contracts for
homes and to consummate purchases of such homes under contract (backlog),
as well as on the performance of Mortgage, the Company's mortgage banking
subsidiary.
o The development of many of the Company's communities, particularly its
retirement and active adult communities, result from a lengthy, complex
series of events involving land purchase, regulatory compliance, capital
availability, marketing and sales, any of which can materially affect the
financial results for a community.
o The Company is in a highly competitive and fragmented industry, which
places constant pressure on price (including the ability of the Company to
respond to increases in prices from its suppliers), quality and marketing
and particularly challenges the Company upon any entry into new geographic
markets.
o The Company faces numerous regulatory hurdles in its development efforts,
such as laws and regulations regarding zoning, environmental protection,
building design and construction, density and rate of development.
o The Company's access to capital sufficient to fund its development
activities is affected by the Company's financial leverage and by the
willingness of the capital markets and banks to absorb equity or debt of
the Company.
o The Company may encounter other contingencies, including labor shortages,
work stoppages, product liability, litigation, natural risks such as floods
or hurricanes and other factors over which the Company has little or no
control.
23
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its variable rate
Credit Facility. The Company hedges its exposure to changes in interest rates on
its variable rate debt under the Credit Facility by entering into interest rate
swap agreements to lock in a fixed rate for a portion of this debt. The
Company's publicly held debt and notes and mortgages payable are at fixed
interest rates. In connection with Mortgage's operations, mortgage loans held
for sale and the associated Mortgage Credit Facility are subject to interest
rate risk. The Company uses forward contracts and forward commitments to manage
this interest rate risk; however, all of Mortgage's obligations are short-term
in duration and repriced frequently. Accordingly, the Company does not believe
that the risks associated with Mortgage's financing activities are material.
The following table sets forth as of December 31, 1998, the Company's
long-term debt obligations, principal cash flow by scheduled maturity, weighted
average interest rates and estimated fair value. In addition, the table includes
the notional amount and interest rates of the Company's interest rate swap which
expires in August 2000.
<TABLE>
<CAPTION>
Estimated
Fair Value
Amount by Scheduled Maturity for Year Ended December 31, 1998 at
------------------------------------------------------------------------------------ December 31,
1999 2000 2001 2002 2003 Thereafter Total 1998
------------------------------------------------------------------------------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt -
Amount $ 5,369 $ 1,879 $79,315 $13,005 $ -- $325,639 $424,207 $ (1)
Average interest rate 7.71% 7.68% 7.98% 7.96% -- 8.31% 8.23%
Interest Rate Swap -
Variable to fixed $50,000 $50,000 $ -- $ -- $ -- $ -- $ 50,000 $(1,057)
Average pay rate 6.29% 6.29% -- -- -- -- 6.29%
Average receive rate 90 day LIBOR
</TABLE>
(1) The fair value of the Company's senior and senior subordinated notes
cannot be determined as none of these instruments are actively traded
on the open market. The Company has been informed that two of the
Company's senior note issues are trading at a nominal premium to their
face amount and one of the Company's senior note issues and the
Company's senior subordinated notes are currently trading at a nominal
discount to their face amount; however, the amount of the premium or
discount can not be determined because of the limited activity.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
U.S. HOME CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Operations - For the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity - For the Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - For the Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Home Corporation:
We have audited the accompanying consolidated balance sheets of U.S. Home
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
U.S. Home Corporation and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 3, 1999
26
<PAGE> 27
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- ------------
<S> <C> <C>
HOUSING:
Cash (including restricted funds of $3,626
and $1,655) $ 8,172 $ 4,211
Receivables, net 60,510 42,595
Single-Family Housing Inventories 986,878 789,236
Option Deposits on Real Estate 103,451 90,155
Other Assets 59,636 33,107
----------- -----------
1,218,647 959,304
----------- -----------
FINANCIAL SERVICES:
Cash (including restricted funds of $3,524
and $3,641) 5,660 5,492
Residential Mortgage Loans 82,479 69,209
Other Assets 8,987 10,151
----------- -----------
97,126 84,852
----------- -----------
CORPORATE:
Cash and Other Assets 37,203 22,958
----------- -----------
$ 1,352,976 $ 1,067,114
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CORPORATE AND HOUSING:
Accounts Payable $ 129,200 $ 92,160
Accrued Expenses and Other Current
Liabilities 89,156 68,848
Revolving Credit Facility 130,000 29,000
Long-Term Debt 424,980 395,918
----------- -----------
773,336 585,926
----------- -----------
FINANCIAL SERVICES:
Accrued Expenses and Other Current
Liabilities 32,287 21,067
Revolving Credit Facility 33,112 40,343
----------- -----------
65,399 61,410
----------- -----------
Total Liabilities 838,735 647,336
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, 13,501,630 and 11,762,518
shares outstanding at December 31, 1998 and 1997 137 119
Capital in Excess of Par Value 402,754 368,277
Retained Earnings 118,061 57,358
Unearned Compensation on Restricted Stock (1,475) (1,770)
----------- -----------
519,477 423,984
----------- -----------
Less Treasury Stock, at cost, 175,000 and 157,743
shares of common stock at December 31, 1998
and 1997 (5,236) (4,206)
----------- -----------
Total Stockholders' Equity 514,241 419,778
----------- -----------
$ 1,352,976 $ 1,067,114
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
27
<PAGE> 28
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
HOUSING:
Operating Revenues $ 1,464,072 $ 1,294,100 $ 1,191,206
----------- ----------- -----------
Operating Costs and Expenses -
Cost of products sold 1,192,791 1,059,571 971,896
Selling, general and administrative 140,904 123,300 113,352
Interest 40,787 33,789 30,786
----------- ----------- -----------
1,374,482 1,216,660 1,116,034
----------- ----------- -----------
89,590 77,440 75,172
Provision for Impairment of Land Inventories -- -- 12,965
----------- ----------- -----------
Housing Operating Income 89,590 77,440 62,207
----------- ----------- -----------
FINANCIAL SERVICES:
Operating Revenues 33,577 25,652 20,244
General, Administrative and Other
Expenses 20,824 16,485 14,850
----------- ----------- -----------
Financial Services Operating
Income 12,753 9,167 5,394
----------- ----------- -----------
CORPORATE GENERAL AND ADMINISTRATIVE 13,050 11,707 11,700
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS 89,293 74,900 55,901
----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Federal and State Income Taxes 33,038 27,713 20,404
Tax Benefit (7,474) -- (8,691)
----------- ----------- -----------
25,564 27,713 11,713
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS 63,729 47,187 44,188
EXTRAORDINARY LOSS FROM EARLY RETIREMENT OF
DEBT, NET OF INCOME TAX BENEFIT 3,026 8,650 --
----------- ----------- -----------
NET INCOME $ 60,703 $ 38,537 $ 44,188
=========== =========== ===========
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Loss $ 4.99 $ 4.08 $ 3.88
Extraordinary Loss $ (.24) $ (.75) $ --
Net Income $ 4.75 $ 3.33 $ 3.88
DILUTED EARNINGS PER SHARE:
Income Before Extraordinary Loss $ 4.68 $ 3.50 $ 3.28
Extraordinary Loss $ (.22) $ (.62) $ --
Net Income $ 4.46 $ 2.88 $ 3.28
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 29
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Unearned
Convertible Capital in Compensation
Common Preferred Excess of on Restricted Retained Treasury
Stock Stock Par Value Stock Earnings Stock
--------- ---------- ----------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 112 $ 7,981 $ 348,577 $ (2,311) $ (25,367) $ --
Conversion of convertible
redeemable preferred stock
to common stock (201,391
shares) 2 (5,034) 5,032 -- -- --
Other -- -- 221 289 -- --
Net income for the year -- -- -- -- 44,188 --
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 114 2,947 353,830 (2,022) 18,821 --
Conversion of convertible
redeemable preferred stock to
common stock (106,501 shares) 1 (2,663) 2,662 -- -- --
Redemption of convertible
redeemable preferred stock
(11,352 shares) -- (284) -- -- -- --
Conversion of 4.875% convertible
subordinated debentures to
common stock (302,866 shares) 3 -- 10,659 -- -- --
Purchase of common stock
(157,743 shares) -- -- -- -- -- (4,206)
Other 1 -- 1,126 252 -- --
Net income for year -- -- -- -- 38,537 --
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 119 -- 368,277 (1,770) 57,358 (4,206)
Stock issued on
exercise of Class B warrants
(1,837,941 shares) 18 -- 34,170 -- -- 2,571
Stock issued under
stock plans (48,051 shares) -- -- 387 -- -- 862
Purchase of common stock
(175,000 shares) -- -- -- -- -- (5,236)
Other -- -- (80) 295 -- 773
Net income for year -- -- -- -- 60,703 --
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 $ 137 $ -- $ 402,754 $ (1,475) $ 118,061 $ (5,236)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 30
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 60,703 $ 38,537 $ 44,188
Adjustments to reconcile net income
to net cash provided (used) by
operating activities -
Extraordinary loss 3,026 8,650 --
Provision for impairment of land
inventories -- -- 12,965
Provision for deferred income taxes 4,457 2,151 635
Tax benefit (7,474) -- (8,691)
Other, net (principally depreciation
and amortization) 12,556 10,205 9,431
Changes in assets and liabilities -
Increase in receivables (32,974) (20,229) (15,291)
Increase in inventories (186,884) (68,691) (91,111)
Increase in other assets (54,275) (29,809) (15,359)
Increase in accounts
payable and accrued liabilities 74,536 17,618 23,524
--------- --------- ---------
Net cash used by operating
activities (126,329) (41,568) (39,709)
--------- --------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant and
equipment, net of disposals (9,989) (3,056) (2,657)
Increase in restricted cash (1,854) (185) (773)
Principal collections on
investments in mortgage loans 3,882 4,136 1,989
Other (1,329) (106) (691)
--------- --------- ---------
Net cash provided (used) by investing (9,290) 789 (2,132)
--------- --------- ---------
activities
Cash Flows From Financing Activities:
Proceeds from revolving credit
facilities, net of repayments 93,769 26,929 (16,957)
Net proceeds from sale of senior and
senior subordinated notes 98,237 220,937 73,406
Proceeds from exercise of Class B warrants 36,759 110 14
Purchase of senior notes and convertible
subordinated debentures (82,980) (198,831) --
Repayment of notes and mortgages payable (4,675) (6,128) (12,712)
Repurchase of common stock and Class B
Warrants (5,236) (4,266) --
Other 564 356 --
--------- --------- ---------
Net cash provided by financing
activities 136,438 39,107 43,751
--------- --------- ---------
Net Increase (Decrease) In Cash 819 (1,672) 1,910
Cash At Beginning Of Year 6,466 8,138 6,228
--------- --------- ---------
Cash At End Of Year $ 7,285 $ 6,466 $ 8,138
========= ========= =========
Supplemental Disclosure:
Interest paid, before amount capitalized -
Housing $ 42,066 $ 32,063 $ 31,508
Financial Services 1,682 1,426 1,472
--------- --------- ---------
$ 43,748 $ 33,489 $ 32,980
========= ========= =========
Income taxes paid $ 20,945 $ 21,490 $ 16,069
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
U.S. HOME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION AND SEGMENT INFORMATION
BASIS OF PRESENTATION -
The accompanying consolidated financial statements include the accounts
of the Company and all wholly-owned subsidiaries after elimination of
all significant intercompany balances and transactions.
SEGMENT INFORMATION -
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes new standards for segment reporting which are based on the
way management organizes segments within a company for making operating
decisions and assessing performance.
The Company's financial reporting segments consist of home building,
financial services and corporate. The Company's home building
operations comprise the most substantial part of its business, with
approximately 98% of consolidated revenues in 1998, 1997 and 1996
contributed by the home building operations. The Company is one of the
largest single-family home builders in the United States based on homes
delivered. The Company currently builds and sells homes in more than
230 new home communities in 33 market areas in 12 states. The Company
offers a wide variety of moderately-priced homes that are designed to
appeal to the affordable, move-up and retirement and active adult
buyers. The Company's financial services operations provide mortgage
banking services to the home building operations' customers. The
Company originates, processes and sells mortgages to third-party
investors. The Company does not retain or service the mortgages that it
originates but, rather, sells the mortgages and related servicing
rights to investors. Corporate primarily includes the operations of the
Company's corporate office whose primary purpose is to provide
financing, cash management, risk management, capital allocations,
management reporting and general administration of the home building
and financial services segments.
The accounting policies of the reportable segments are described in
Note 2. Assets, operating revenues and operating income of the
Company's reportable segments are included in the consolidated balance
sheets and consolidated statements of operations. Expenditures for
long-lived assets and depreciation and amortization expenses for the
years ended December 31, 1998, 1997 and 1996 were insignificant.
31
<PAGE> 32
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
USE OF ESTIMATES -
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of any contingent assets and liabilities
at the date of the consolidated financial statements and revenues and
expenses during the reporting period. Management's estimates and
assumptions are reflective of, among other things, prevailing and
expected market conditions, current operating strategies and the
availability of capital which are all subject to change. Changes to the
aforementioned or other conditions could in turn cause changes to such
estimates and assumptions and, as a result, actual results could differ
from the original estimates.
CASH EQUIVALENTS -
The Company considers all short-term investments with an initial
maturity of less than 90 days to be cash equivalents.
FINANCIAL INSTRUMENTS -
The Company believes that fair value approximates recorded values for
such financial instruments as cash and cash equivalents, trade
receivables and payables, short-term debt and option deposits because
of the typically liquid, short-term nature, market rate terms and lack
of specific concentration of these instruments.
The fair value of the senior and senior subordinated notes cannot be
determined as none of these instruments are actively traded on the open
market. The Company has been informed that two of the senior notes
issues are currently trading at a nominal premium and one senior note
issue and the senior subordinated notes are currently trading at a
nominal discount; however, the amount of the premium or discount cannot
be determined because of the limited activity.
The fair value of the Company's residential mortgage loans approximate
their carrying value as such loans are packaged and sold to investors
generally within 30 days after home delivery. Additionally, a
significant portion of the Company's interest rate risk associated with
and generated by these loans is mitigated by the use of forward
delivery contracts and commitments. See Hedging Contracts below.
HEDGING CONTRACTS -
From time to time, the Company may utilize interest rate swap
agreements to manage interest costs and hedge against risks associated
with changing interest rates. The Company designates interest rate
swaps as hedges of specific debt instruments and recognizes interest
rate differentials as adjustments to interest paid or accrued as the
differentials occur. Counterparties to these agreements are major
financial institutions. The Company believes that the likelihood of
credit loss from counterparty non-performance is remote. At December
31, 1998, the Company had an interest rate swap agreement outstanding
with a notional amount of $50,000 which will mature in 2000 and
effectively fixed the interest rate on a portion of its revolving
credit facility borrowings. See Note 9.
32
<PAGE> 33
The Company manages its interest rate market risk on the inventory
loans held for sale and its estimated future commitments to originate
and close mortgage loans at fixed prices ("Loan Quotes") through
hedging techniques by regularly entering into either fixed price
mandatory forward delivery contracts ("Forward Contracts") to sell
mortgage-backed securities to security dealers or fixed price forward
delivery commitments ("Forward Commitments") to sell specific whole
loans to investors on a mandatory or best efforts basis ("Forward
Contracts" and "Forward Commitments", collectively "Hedging
Contracts"). The Company records the inventory of residential mortgage
loans at the lower of cost or market on an aggregate basis after
considering any market value changes in the inventory loans, Loan
Quotes and Hedging Contracts. See Note 9.
HOUSING
SALES AND PROFIT RECOGNITION -
Profit is recognized from the sale of real estate at time of closing,
i.e., when sufficient down payment has been made; any financing has
been arranged; title, possession and other attributes of ownership have
been transferred to the buyer; and the Company is not obligated to
perform additional significant activities after the sale.
INVENTORIES AND VALUATION -
The components of single-family housing inventories are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Housing completed and under construction $382,080 $302,258
Models 90,676 83,943
Finished lots 132,567 138,747
Land under development 133,791 75,959
Land held for development or sale 247,764 188,329
-------- --------
$986,878 $789,236
======== ========
</TABLE>
The cost of acquiring and developing land and constructing certain
amenities are allocated to the related parcels. Housing inventories are
recorded using the specific identification method. The Company measures
any impairments on land under development and to be developed at the
lower of cost or fair value and carries land substantially completed
and ready for its intended use, land held for sale and housing
inventories at the lower of cost or fair value less cost to sell. Fair
value is the amount at which a property could be bought or sold in a
current transaction between willing parties. The Company monitors the
valuation of its land and housing inventories on a continuous basis
with a detailed review each year in conjunction with the completion of
the following year's business plan. Provisions to reduce land and
housing inventories to the lower of cost or fair value in 1998, 1997,
and 1996 (other than the $12,965 provision for impairment of land
inventories discussed below) were not significant. Total land and
housing reserves were $23,894, $35,839 and $40,236 at December 31,
1998, 1997 and 1996, respectively.
During 1996, in conjunction with the completion of the 1997 business
plan, the Company completed its annual detailed evaluation of the
intended use of its land inventories to insure that the primary and
planned use reflected the appropriate economic value for the Company's
intended use. It was determined during the evaluation that based on
economic forecasts, the current best use of certain land inventories
located primarily in Florida, Maryland and Texas had changed from the
33
<PAGE> 34
Company's previous intended use. Based on the change in intended use,
the Company determined the cash flow expected to be generated from the
new intended use would be less than the cost of the land. Accordingly,
the Company recorded a non-cash provision for impairment of $12,965
($8,233, net of income taxes) to reduce the carrying value of the land
to its current fair value, which amount has been included in "provision
for impairment of land inventories" in the accompanying consolidated
statements of operations. The provision for impairment reduced basic
and diluted earnings per common share by $.72 per share and $.58 per
share, respectively.
During 1998 and 1997, the Company purchased land in several
transactions of which $13,667 and $14,456, respectively, were seller
financed. These transaction were treated as non-cash transactions for
purposes of the consolidated statements of cash flows.
INTEREST CAPITALIZATION -
Interest is capitalized on land, finished building lots and
single-family residential housing construction costs during the
development and construction period. Interest is capitalized to
eligible assets using an allocation method based on the Company's
actual interest costs. A summary of interest for 1998, 1997 and 1996
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Capitalized at beginning of year $ 62,950 $ 58,566 $ 59,898
Capitalized 46,597 38,153 33,484
Previously capitalized interest
included in interest expense (40,787) (33,789) (30,786)
Included in provision for impaired
land inventories and other (10) 20 (4,030)
-------- -------- --------
Capitalized at end of year $ 68,750 $ 62,950 $ 58,566
======== ======== ========
</TABLE>
FINANCIAL SERVICES
REVENUE RECOGNITION -
The sale of loans and loan servicing rights is recognized when the
closed loans are sold and delivered to an investor. During the years
ended December 31, 1998, 1997 and 1996, revenues included net losses
from the sale of loans of $525, $573 and $976, respectively, and net
gains from the sale of servicing of $14,122, $9,691 and $7,294,
respectively.
INTEREST INCOME -
Interest income relating to financial services for the years ended
December 31, 1998, 1997 and 1996 was $5,442, $4,785 and $4,412,
respectively, and is included in "Financial Services-operating
revenues" in the accompanying consolidated statements of operations.
INTEREST EXPENSE -
Interest expense relating to financial services for the years ended
December 31, 1998, 1997 and 1996 was $1,691, $1,417 and $1,507,
respectively, and is included in "Financial Services - general,
administrative and other expenses" in the accompanying consolidated
statements of operations.
RESIDENTIAL MORTGAGE LOANS -
Residential mortgage loans held for sale ($38,498 at December 31, 1998)
are included in the accompanying consolidated balance sheets at the
34
<PAGE> 35
lower of cost or market on an aggregate basis. The Company estimates
the fair value of residential mortgage loans held at December 31, 1998
approximated recorded value based on quoted market prices for similar
loans sold either on a whole loan basis or pooled and sold as
collateral for mortgage-backed securities.
CORPORATE
INVESTMENT -
In April 1998, the Company purchased a 13.3% interest in a Mexican home
building company for $13,092 which amount is included in "Corporate
Assets" in the accompanying consolidated balance sheets. The Company
accounts for its investment using the cost method of accounting. As
part of this agreement, the Company and the Mexican company agreed to
form a joint venture to, among other things, develop, construct and
sell affordable housing communities initially in Texas.
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
HOUSING -
The housing revolving credit facility and long-term debt consist of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Revolving credit facility $130,000 $ 29,000
-------- --------
7.95% Senior notes due 2001 75,000 75,000
9.75% Senior notes due 2003 -- 79,703
8.25% Senior notes due 2004 100,000 100,000
7.75% Senior Notes due 2005 99,773 --
8.88% Senior subordinated notes due 2007 125,000 125,000
Notes and mortgage notes payable 25,207 16,215
-------- --------
424,980 395,918
-------- --------
$554,980 $424,918
======== ========
</TABLE>
The Company has an unsecured revolving credit agreement (the "Credit
Facility") with a group of banks. In 1998, the maximum amount which the
Company may borrow under the Credit Facility was increased from
$180,000 to $300,000, of which up to $35,000 may be used for letter of
credit obligations, subject to a borrowing base limitation. Upon
approval of the agent bank, the borrowings under the Credit Facility
may be increased, in multiples of $10,000, to a maximum of $350,000,
either by having additional banks (which have been approved by the
Company) become lenders or by having one or more of the existing banks,
with the approval of the Company, increase the amount of their
commitment. The amount available for borrowing under the Credit
Facility is based on housing inventories, land, finished lots and
closing proceeds receivables less outstanding senior debt borrowings
(as defined), including amounts outstanding under the Credit Facility;
as the amount invested in these categories changes, the amount of
available borrowings will increase or decrease. At December 31, 1998,
$158,390 of the Credit Facility commitment was available for borrowing.
Borrowings bear interest at a premium over the London Interbank Offered
Rate ("LIBOR") or the base rate announced by the agent bank. The Credit
Facility, as amended, expires on May 31, 2001, but may be extended
annually beginning in 1999 for successive one-year periods with the
consent of the banks and contains numerous real estate and financial
covenants, including
35
<PAGE> 36
restrictions on the incurrence of additional debt, creation of liens
and the levels of land and housing inventories maintained by the
Company and a prohibition on the payment of dividends, other than stock
dividends.
In 1998, the Company completed the sale of $100,000 principal amount of
its 7.75% senior notes due 2005 (the "2005 Senior Notes") for the
purpose of raising proceeds to redeem the balance of its 9.75% senior
notes due 2003 (the "2003 Senior Notes") which were first callable in
June 1998. The 2005 Senior Notes were issued at original issue discount
of $263, which is being amortized over the term of the notes. Interest
is payable semi-annually commencing on July 15, 1998. On or after
January 15, 2003, the 2005 Senior Notes may be redeemed at the option
of the Company, in whole or in part, at prices ranging from 101.29%
during the 12 month period beginning January 15, 2003 to 100% (on or
after January 15, 2004) of the principal amount thereof, together with
accrued and unpaid interest.
In 1998, the Company redeemed $43,109 principal amount of the 2003
Senior Notes and purchased in open market transactions $36,594
principal amount of the 2003 Senior Notes. The early retirement of the
2003 Senior Notes resulted in an extraordinary loss in 1998 of $3,026,
net of income tax benefit of $1,777.
In 1997, the Company purchased $110,480 principal amount of the 2003
Senior Notes pursuant to a tender offer and, subsequent to the
expiration of the tender offer, purchased in an open market transaction
$9,817 principal amount of the 2003 Senior Notes. Also in 1997, the
Company redeemed $69,248 principal amount of its 4.875% convertible
subordinated debentures ("the Debentures"), and $10,752 principal
amount of the Debentures were converted, prior to the redemption date
in 1997, into 302,866 shares of the Company's common stock. The early
retirement of the 2003 Senior Notes and redemption of the Debentures
resulted in an extraordinary loss in 1997 of $8,650, net of income tax
benefit of $5,080.
The 7.95% senior notes are due March 1, 2001, the 8.25% senior notes
are due August 15, 2004 and the 8.88% senior subordinated notes are due
August 15, 2007. Interest is payable semi-annually. On or after August
15, 2002, the 8.88% senior subordinated notes may be redeemed at the
option of the Company, in whole or in part, at prices ranging from
104.44% (during the 12 month period beginning August 15, 2002) to 100%
(on or after August 15, 2005) of the principal amount thereof, together
with accrued and unpaid interest. The indentures relating to these
notes and the 2005 Senior Notes contain numerous covenants, including a
minimum tangible net worth requirement and a limitation on the
incurrence of additional debt.
Housing notes and mortgage notes payable are primarily for the
acquisition and development of land, with interest rates ranging from
8.0% to 10.0%. Assets pledged as collateral under these agreements
totaled approximately $48,826 at December 31, 1998.
Upon a change of control of the Company, holders of the senior notes
and the senior subordinated notes will have the right to require the
Company to redeem the notes at a price of 101% of the principal amount
of the notes, together with accrued and unpaid interest. There can be
no assurance that sufficient funds will be available to make the
required repurchases if a change of control occurs. In addition, the
Credit Facility prohibits the Company's repurchase of any of its
subordinated
36
<PAGE> 37
indebtedness and contains a limitation on the Company's repurchase of
its capital stock.. At December 31, 1998, $62,086 was available under
the Credit Facility for the repurchase of capital stock. Moreover, the
occurrence of a change of control will trigger an event of default
under the Credit Facility.
The maximum amounts of borrowings from banks and other financial
institutions outstanding at any time during 1998, 1997 and 1996 were
$185,000, $81,000 and $64,000, respectively. The average amounts of
debt outstanding from banks and other financial institutions during
1998, 1997 and 1996 were $95,100, $31,100 and $15,800, respectively,
and the weighted average interest rates, without giving effect to
commitment fees, were 7.8%, 7.8% and 8.4%, respectively. Computations
of the weighted average interest rates were based upon the weighted
average of outstanding loan balances during the respective years.
At December 31, 1998, housing long-term debt matures as follows: $5,369
in 1999, $1,879 in 2000, $79,315 in 2001, $13,005 in 2002 and $325,412
in 2004 and thereafter.
FINANCIAL SERVICES -
Financial services revolving credit facility consists of an agreement
with a financial institution whereby the Company's mortgage banking
subsidiary, U.S. Home Mortgage Corporation ("Mortgage"), may borrow up
to $80,000 under a revolving line of credit (the "Mortgage Credit
Facility") secured by residential mortgage loans and mortgage notes
receivables. The Mortgage Credit Facility is not guaranteed by the
Company, was renewed in August 1998 under substantially the same terms
and conditions as the previous agreement, matures on August 31, 1999
and bears interest at a premium over the LIBOR rate.
The maximum amounts of financial services borrowings from banks and
other financial institutions outstanding at any time during 1998, 1997
and 1996 were $44,300, $46,900 and $42,400, respectively. The average
amounts of short-term debt outstanding from banks and other financial
institutions during 1998, 1997 and 1996 were $25,200, $20,500 and
$22,300, respectively, and the weighted average interest rates, without
giving effect to commitment fees, were 6.5%, 6.7% and 6.6%,
respectively. Computations of such rates were made based upon the
weighted average of outstanding loan balances during the respective
years.
37
<PAGE> 38
(4) INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax
returns. The components of the provision for income taxes consisted of
the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current -
Federal $ 18,043 $ 21,547 $ 16,943
State 3,064 4,015 2,826
-------- -------- --------
21,107 25,562 19,769
-------- -------- --------
Deferred -
Federal 2,271 1,762 (8,147)
State 2,186 389 91
-------- -------- --------
4,457 2,151 (8,056)
-------- -------- --------
Total provision $ 25,564 $ 27,713 $ 11,713
======== ======== ========
</TABLE>
Deferred income taxes are determined based upon the difference between
the financial reporting and tax basis of assets and liabilities. At
December 31, 1998, the Company has recorded a net deferred tax
liability of $5,700 which is comprised of deferred tax assets of
$24,600 (including $9,800 relating to housing reserves which were
expensed for financial reporting purposes but deferred for federal
income tax purposes) and deferred tax liabilities of $30,300 (including
$20,000 relating to interest expense capitalized for financial
reporting purposes but expensed for federal income tax purposes). At
December 31, 1997, deferred tax assets and deferred tax liability were
$32,800 and $32,300, respectively, and were primarily attributable to
the same items noted above.
During 1996, the Internal Revenue Service (the "IRS") completed an
examination of the Company's federal income tax returns for the years
ended December 31, 1993 and 1992. The results of this examination
allowed certain previously reserved deductions taken by the Company in
its 1993 tax return but disallowed certain other deductions taken in
that tax return. In 1998, the Company was informed that its appeal of
the IRS decision to disallow these other deductions had been resolved
in favor of the Company. As a result of this favorable ruling in 1998
and the deductions allowed in 1996, the Company reduced its deferred
tax liability and recognized income tax benefits totaling $7,474 in
1998 and $8,691 in 1996. The decreases in the deferred tax liability
increased basic and diluted earnings per share in 1998 by $.59 per
share and $.54 per share, respectively, and in 1996 by $.76 per share
and $.61 per share, respectively.
The following table reconciles the statutory federal income tax rate to
the effective income tax rate for:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Tax provision at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in taxes resulting
from -
State and local income taxes, net of
federal income tax provision 4.0 4.0 4.0
Tax benefit (8.4) -- (15.5)
Other, net (2.0) (2.0) (2.5)
------ ------ ------
Effective rate 28.6% 37.0% 21.0%
====== ====== ======
</TABLE>
38
<PAGE> 39
(5) STOCKHOLDERS' EQUITY
As of December 31, 1998, the Company's capital structure consisted of
the following:
Common Stock - Authorized 50,000,000 shares, par value $.01 per share,
issued 13,676,630 shares and outstanding 13,501,630 shares.
At December 31, 1998, the Company had 2,145,638 shares of common stock
reserved for issuance under the stock plans.
In 1997, the Company's Board of Directors authorized the repurchase of
up to 750,000 shares of outstanding common stock or Class B warrants,
in the aggregate, from time to time in the open market and/or in
private transactions. In addition, the Company's Board of Directors
authorized an odd-lot repurchase program for holders of less than 100
shares of the Company's common stock. In 1998, the Company repurchased
175,000 shares of common stock for an aggregate purchase price of
$5,236. In 1997, the Company repurchased 157,743 shares of common stock
(including 57,343 shares in the odd-lot program) and 8,100 Class B
warrants for an aggregate purchase price of $4,266. The cost of the
repurchased shares has been included in "Treasury Stock" and the cost
of the repurchased warrants has been deducted from "Capital in Excess
of Par Value" in the accompanying consolidated balance sheets.
During 1998, 157,743 shares of treasury stock were issued primarily for
the exercise of stock options and Class B warrants. When the treasury
shares were reissued, any excess of the average acquisition cost of the
shares over the proceeds from re-issuance was charged to "Capital in
Excess of Par Value" in the accompanying consolidated balance sheets.
Preferred Stock - Authorized 10,000,000 shares, par value $.10 per
share, including 84,343 convertible redeemable preferred shares,
500,000 Series A junior non-cumulative preferred shares and 9,415,657
shares undesignated as to series.
(a) Convertible redeemable preferred stock - $25 per share
liquidation preference and redemption value, none outstanding.
As of March 10, 1997, all of the Company's outstanding
convertible redeemable preferred stock had been converted into
the Company's common stock or redeemed.
(b) Series A junior non-cumulative preferred stock - Authorized
500,000 shares, par value $.10 per share. The shares are
authorized for issuance pursuant to certain rights that trade
with the Company's common stock. There are no shares of the
Series A junior non-cumulative preferred stock outstanding;
however, all of the shares have been reserved for issuance
upon the exercise of the stock purchase rights as discussed in
"Stockholder Rights Plan" below.
(c) Undesignated as to series - None outstanding. Shares may be
issued in one or more classes or series with preferences,
limitations and relative rights as determined by the Company's
Board of Directors at the time of issuance. Any shares issued
will rank, as to dividends and liquidation preference, junior
to the convertible redeemable preferred stock, if any shares
are outstanding.
39
<PAGE> 40
Class B Warrants - The Company had issued Class B warrants which
allowed the holder to acquire an aggregate of 1,904,757 shares of
common stock for $20 per share. Prior to their expiration in 1998,
1,848,277 warrants had been exercised, of which 1,837,941 warrants were
exercised in 1998, and 8,100 warrants had been repurchased.
Stockholder Rights Plan - On November 7, 1996, the Company adopted a
rights plan and declared a dividend distribution of one preferred stock
purchase right for each outstanding share of the Company's common stock
and each outstanding share of the Company's outstanding convertible
redeemable preferred stock held of record on December 4, 1996. Under
certain circumstances, each right entitles the holder to purchase
1/100th of a share of the Company's Series A junior non-cumulative
preferred stock ("Series A Preferred Stock") at a price of $80
("Purchase Price"), subject to certain anti-dilution provisions. The
rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that (a) a person or group has
acquired, or has the right to acquire, 15% or more of the outstanding
shares of the Company's common stock or (b) an institutional
stockholder has acquired or has the right to acquire 20% or more of the
outstanding shares of common stock, or (ii) 10 business days following
the commencement of, or announcement of an intention to make, a tender
offer for 15% or more of the then outstanding shares of common stock.
In such event, each holder of a right (other than the acquiring person)
shall have the right to receive, upon exercise, the number of shares of
common stock or of 1/100th of a share of Series A Preferred Stock
having a value of equal to two times the Purchase Price. In the event
of any merger, consolidation or other transaction in which the
Company's common stock is exchanged, each holder of a right, upon
exercise, will be entitled to receive common stock of the acquiring
company equal to two times the Purchase Price. Unless and until the
rights become exercisable, they will be transferred with the Company's
common stock. At the option of the Company, the rights are redeemable
prior to becoming exercisable at $.01 per right. Unless earlier
redeemed or exchanged by the Company, the rights will expire on
November 7, 2006. Until a right is exercised, the holder will have no
rights as a stockholder of the Company, including the right to vote or
receive dividends.
The Credit Facility and each of the senior and senior subordinated note
indentures contain restrictions on the (i) payment of dividends on the
Company's common stock and (ii) purchase, redemption, retirement or
other acquisition of the Company's common stock, other than upon
exercise into the Company's common stock of options to acquire common
stock issued pursuant to stock options and stock payment plans. Under
the terms of the Credit Facility, the most restrictive of the Company's
borrowing agreements, payment of cash dividends in any fiscal quarter
is limited to fifty percent of the Company's consolidated net income
(as defined in the credit agreement) for the preceding fiscal quarter.
40
<PAGE> 41
(6) STOCK PLANS
STOCK OPTION PLANS -
The Company has three stock option plans for key employees (the "1997
Employee Plan", the "1996 Employee Plan" and the "1993 Employee Plan",
collectively the "Employee Plans") to purchase a maximum of 1,500,000
shares (500,000 shares for each plan) of the Company's common stock.
Under all three plans, the Company may grant incentive and
non-qualified stock options. The Company also has two stock option
plans whereby options may be granted to non-employee directors (the
"1998 Director Plan", and the "1993 Director Plan", collectively the
"Director Plans") to purchase a maximum of 200,000 shares of the
Company's common stock (100,000 shares for each plan). Options under
the Director Plans are granted annually in a fixed amount.
Options granted under the Employee Plans will be exercisable at not
less than the closing price of the Company's common stock on date of
grant. Options granted under the Director Plans will be exercisable at
not less than the average closing price of the Company's common stock
for the ten consecutive trading days prior to the date of grant. The
options are exercisable as specified in the stock option agreements
relating to them and may not be exercised later than ten years from the
date of grant.
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), the Company
accounts for its stock option plans under the accounting rules
prescribed by Accounting Principles Board Opinion No. 25, under which
no compensation costs are recognized as an expense. Had compensation
costs for the stock options been determined using the fair value method
of accounting as recommended by SFAS No. 123, net income and earnings
per share for 1998, 1997 and 1996 would have been reduced to the
following proforma amounts:
41
<PAGE> 42
<TABLE>
<CAPTION>
Net income - 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
As reported:
Income before extraordinary loss $63,729 $47,187 $44,188
Extraordinary loss $ 3,026 $ 8,650 $ --
Net income $60,703 $38,537 $44,188
Proforma:
Income before extraordinary loss $62,629 $46,420 $43,180
Extraordinary loss $ 3,026 $ 8,650 $ --
Net income $59,603 $37,770 $43,180
Basic earnings per share -
As reported:
Income before extraordinary loss $ 4.99 $ 4.08 $ 3.88
Extraordinary loss $ (.24) $ (.75) $ --
Net income $ 4.75 $ 3.33 $ 3.88
Proforma:
Income before extraordinary loss $ 4.90 $ 4.01 $ 3.85
Extraordinary loss $ (.24) $ (.75) $ --
Net income $ 4.66 $ 3.26 $ 3.85
Diluted earnings per share -
As reported:
Income before extraordinary loss $ 4.68 $ 3.50 $ 3.28
Extraordinary loss $ (.22) $ (.62) $ --
Net income $ 4.46 $ 2.88 $ 3.28
Proforma:
Income before extraordinary loss $ 4.60 $ 3.44 $ 3.26
Extraordinary loss $ (.22) $ (.62) $ --
Net income $ 4.38 $ 2.82 $ 3.26
</TABLE>
42
<PAGE> 43
A summary of the status of the stock option plans at December 31, 1998,
1997 and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
Wtd Avg Wtd Avg Wtd Avg
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of
year 1,110,392 $ 25.40 639,500 $ 22.89 531,169 $ 22.65
Options granted:
Employee Plans 220,000 $ 34.46 497,000 $ 28.28 102,000 $ 24.13
Director Plans 8,000 $ 45.22 9,000 $ 24.35 9,000 $ 23.74
Options exercised:
Employee Plans (25,700) $ 21.91 (23,108) $ 18.79 -- $ --
Director Plans -- $ -- (9,000) $ 22.67 -- $ --
Options forfeited:
Employee Plans (2,000) $ 26.13 (3,000) $ 24.36 (2,669) $ 24.09
Director Plans -- $ -- -- $ -- -- $ --
--------- --------- -------
Options outstanding
at end of year 1,310,692 $ 27.11 1,110,392 $ 25.40 639,500 $ 22.89
========= ========= =======
Options exercisable
at end of year 647,367 $ 24.69 578,069 $ 22.95 551,179 $ 23.12
========= ========= =======
Weighted average
fair value per
share of option
granted -
Employee Plans $ 14.39 $ 8.49 $ 8.39
Director Plans $ 19.06 $ 9.64 $ 9.97
</TABLE>
Options outstanding at December 31, 1998 had exercise prices ranging
from $15.13 to $47.56 per share and a weighted average remaining
contractual life of 7.4 years. Options exercisable at December 31, 1998
had a weighted average remaining contractual life of 6.9 years. At
December 31, 1998, 331,500 shares of common stock were available for
granting of options, including 103,500 shares of common stock to
non-employee directors.
The fair value of each option granted in 1998, 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: risk-free
interest of 5.4% for 1998, 6.1% for 1997 and 6.6% for 1996; expected
lives of 8.1 years in 1998, 5.5 years for 1997 and 7.1 years for 1996;
and expected volatility of 31.2% for 1998 and 25.0% for both 1997 and
1996.
STOCK PAYMENT PLAN -
The Company's employee stock payment plan (the "Payment Plan") provides
that up to 25% of a key employee's annual incentive pay (compensation
other than base salary), which is charged to expense when earned, may
be payable in shares of the Company's common stock as determined by the
Company's Board of Directors, of which up to 50% of the shares payable
will vest to the employee not later than two years after the end of the
incentive compensation year and will expire in the event the employee
is not employed by the Company on the vesting date. Shares to be issued
under the Payment Plan will be valued at the average
43
<PAGE> 44
closing price of the common stock for a ten consecutive trading day
period as defined in the Payment Plan. The Payment Plan, as amended,
has a 15-year term and commenced on January 1, 1994. In 1998, 9,095
shares were issued to corporate officers and key employees at prices
ranging from $25.05 to $45.09, in 1997, 18,559 shares were issued to
officers and key employees at prices ranging from $16.74 to $28.21 per
share and in 1996, 7,905 shares were issued to officers and key
employees at prices ranging from $25.05 to $27.93 per share. As of
December 31, 1998, 192,710 shares were available for issuance under the
Payment Plan.
RESTRICTED STOCK PLANS -
The Company has two restricted stock plans for officers and other key
employees (the "1994 Restricted Plan" and the "1998 Restricted Plan",
collectively the "Restricted Plans") under, which, a maximum of 370,000
shares (250,000 shares for the 1994 Restricted Plan and 120,000 shares
for the 1998 Restricted Plan, which is subject to stockholder approval
which will be sought at the 1999 annual meeting of the Company's
stockholders) of the Company's common stock may be granted as
restricted stock. Participants in the 1994 Restricted Plan may not
dispose of any of the stock granted for five years from date of grant
and restrictions lapse at the rate of 20% of the stock granted per
year, commencing with the end of the fifth year. Shares granted under
the 1998 Restricted Plan will be granted at not less than the closing
price of the common stock at date of grant. Participants in the 1998
Restricted Plan may not dispose of any of the stock grant until 2003
and restrictions lapse at the rate of 30% of the stock granted in 2003
and 10% per year thereafter. As defined in the Restricted Plans, the
lapsing of the restrictions may be accelerated if certain stipulated
improvements in the Company's financial performance over the base years
are achieved or if a change in control occurs.
In 1997 and 1995, a total of 146,008 restricted shares of the Company's
common stock were issued to officers and other key employees. The
market value of the shares issued has been charged to stockholders'
equity as Unearned Compensation on Restricted Stock and is being
amortized to expense over the terms of Restricted Plans. As of December
31, 1998, 223,992 shares were available for issuance under the
Restricted Plans.
NON-EMPLOYEE DIRECTOR STOCK PLAN -
In 1997, the Company adopted a stock plan for non-employee directors
(the "Director Stock Plan"). Under the Director Stock Plan, a maximum
of 100,000 shares of the Company's common stock may be granted to
non-employee directors as compensation for services as a director.
Shares granted under the Director Stock Plan will be granted annually
in an amount equal to each directors' base retainer at the closing
price of the common stock on date of grant. In 1998, 13,256 shares were
issued to non-employee directors at prices ranging from $24.62 to
$47.27 per share. As of December 31, 1998, 86,744 shares were available
for issuance under the Directors' Stock Plan.
44
<PAGE> 45
(7) EARNINGS PER SHARE
Basic earnings per share includes the weighted average number of common
shares outstanding for the periods. Diluted earnings per share includes
(i) the assumed exercise of stock options, (ii) the dilutive effect of
the Class B warrants through their exercise and expiration in June 1998
and the convertible redeemable preferred stock through its redemption
and conversion in March 1997, and (iii) the assumed conversion of the
Debentures through their redemption and conversion in September 1997.
The following table summarizes the basic earnings per share and diluted
earnings per share computations for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Basic earnings per share:
Income before extraordinary loss $ 63,729 $ 47,187 $ 44,188
Extraordinary loss 3,026 8,650 --
------------ ------------ ------------
Net income $ 60,703 $ 38,537 $ 44,188
============ ============ ============
Weighted average number of shares 12,782,881 11,573,094 11,383,720
============ ============ ============
Earnings per share -
Income before extraordinary loss $ 4.99 $ 4.08 $ 3.88
Extraordinary loss $ (.24) $ (.75) $ --
Net income $ 4.75 $ 3.33 $ 3.88
Diluted earnings per share:
Income before interest applicable to
convertible subordinated debentures
and extraordinary loss $ 63,729 $ 47,187 $ 44,188
Interest applicable to convertible
subordinated debentures, net of
income taxes -- 1,818 2,480
------------ ------------ ------------
Income before extraordinary loss,
assuming dilution 63,729 49,005 46,668
Extraordinary loss 3,026 8,650 --
------------ ------------ ------------
Net income, assuming dilution $ 60,703 $ 40,355 $ 46,668
============ ============ ============
Weighted average number of common shares 12,782,881 11,573,094 11,383,720
Incremental shares from assumed conversions -
Convertible preferred stock -- 19,070 185,247
Contingent common shares 61,508 29,253 16,888
Stock options 355,280 208,514 47,372
Class B warrants 404,415 650,259 325,212
Convertible subordinated debentures -- 1,555,856 2,253,521
------------ ------------ ------------
Adjusted weighted average number of common
shares 13,604,084 14,036,046 14,211,960
============ ============ ============
Earnings per share -
Income before extraordinary loss $ 4.68 $ 3.50 $ 3.28
Extraordinary loss $ (.22) $ (.62) $ --
Net income $ 4.46 $ 2.88 $ 3.28
</TABLE>
(8) PROFIT SHARING
The Company has a qualified profit sharing and 401(k) savings plan for
the benefit of its employees which may be terminated at any time at the
option of the Company. The annual contributions to the profit sharing
portion of the plan may be made in such amounts as the Board of
Directors of the Company determines. The Company matches portions of
45
<PAGE> 46
employees' voluntary contributions to the 401(k) savings portion of the
plan. The Company provided for profit sharing and matching 401(k)
contributions of $1,576 in 1998, $1,484 in 1997 and $1,313 in 1996.
(9) COMMITMENTS AND CONTINGENCIES
HOUSING -
The Company is significantly affected by the cyclical nature of the
home building industry, which is sensitive to fluctuations in economic
activity, interest rates and the level of consumer confidence. The sale
of new homes and profitability from sales are heavily influenced by the
level and expected direction of interest rates. Increases in interest
rates tend to have a depressing effect on the market for new homes in
view of increased monthly mortgage costs to potential home-buyers.
As of December 31, 1998, the Company had refundable and nonrefundable
deposits totaling $41,197 for options and contracts to purchase
undeveloped land and finished lots having a total purchase price of
approximately $435,476. The Company had incurred pre-development costs
of $62,254 relating to these properties. These options expire at
various dates through 2006.
At December 31, 1998, the Company, in connection with managing interest
costs, had an interest rate swap agreement outstanding with a notional
amount of $50,000. The fair value of the agreement at December 31, 1998
was $1,057. The fair value is based on the estimated termination value
and represents the amount the Company would have to pay to terminate
the agreement at December 31, 1998.
The Company is involved from time to time in litigation arising from
the normal course of business, none of which, in the opinion of the
Company, are expected to have a material adverse effect on the
financial position or results of operations of the Company.
FINANCIAL SERVICES -
At December 31, 1998, Mortgage, in connection with managing the
interest rate market risk on its inventory loans held for sale of
$38,498 and Loan Quotes of $24,270, had outstanding $43,425 (face
amount of $ 44,000 and estimated fair value of $43,502) of Forward
Contracts and $11,609 of Forward Commitments which expire over the next
three months, when the inventory loans are expected to be sold and Loan
Quotes are expected to close. At December 31, 1998, the estimated fair
value of the inventory loans and Loan Quotes hedged by Forward
Contracts and not covered by the Forward Commitments was $49,150.
Mortgage reduces its risk of nonperformance under the Hedging Contracts
by entering into those contracts with reputable security dealers and
investors and evaluating their financial condition. However, there is a
risk if certain of the Loan Quotes do not close or are renegotiated in
a declining interest rate market and close at lower prices. Mortgage
reduces this risk by collecting commitment fees on certain of the Loan
Quotes along with entering into Forward Commitments to deliver loans to
investors on a best efforts basis and adjusting, from time to time, the
estimate of loan closings covered by Forward Contracts.
46
<PAGE> 47
(10) UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized quarterly financial information for the years ended December
31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
Mar 31, June 30, Sept 30, Dec 31,
1998 1998 1998 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Housing -
Operating revenues $327,443 $359,383 $373,158 $404,088
Cost of products sold $264,845 $293,279 $304,344 $330,323
Operating income $ 20,117 $ 21,392 $ 22,180 $ 25,901
Financial Services -
Operating revenues $ 7,102 $ 8,124 $ 8,818 $ 9,533
Operating income $ 2,400 $ 3,076 $ 3,571 $ 3,706
Corporate General and Administrative $ 3,334 $ 3,141 $ 3,390 $ 3,185
Income before Extraordinary Loss $ 19,559 $ 13,436 $ 14,088 $ 16,646
Extraordinary Loss $ 1,530 $ 1,496 $ - $ -
Net Income $ 18,029 $ 11,940 $ 14,088 $ 16,646
Basic Earnings Per Share:
Income before extraordinary loss $ 1.66 $ 1.11 $ 1.03 $ 1.23
Extraordinary loss $ (.13) $ (.12) $ - $ -
Net income $ 1.53 $ .99 $ 1.03 $ 1.23
Diluted Earnings Per Share:
Income before extraordinary loss $ 1.49 $ 1.01 $ 1.00 $ 1.20
Extraordinary loss $ (.12) $ (.11) $ - $ -
Net income $ 1.37 $ .90 $ 1.00 $ 1.20
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
Mar 31, June 30, Sept 30, Dec 31,
1997 1997 1997 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Housing -
Operating revenues $310,648 $334,011 $330,379 $319,062
Cost of products sold $255,580 $275,641 $269,314 $259,036
Operating income $ 17,501 $ 18,265 $ 20,798 $ 20,876
Financial Services -
Operating revenues $ 5,385 $ 6,530 $ 6,888 $ 6,849
Operating income $ 1,510 $ 2,340 $ 2,433 $ 2,884
Corporate General and Administrative $ 2,911 $ 3,092 $ 2,553 $ 3,151
Income before Extraordinary Loss $ 10,143 $ 11,033 $ 13,028 $ 12,983
Extraordinary Loss $ - $ - $ 8,650 $ -
Net Income $ 10,143 $ 11,033 $ 4,378 $ 12,983
Basic Earnings Per Share:
Income before extraordinary loss $ .88 $ .96 $ 1.13 $ 1.11
Extraordinary loss $ - $ - $ (.75) $ -
Net income $ .88 $ .96 $ .38 $ 1.11
Diluted Earnings Per Share:
Income before extraordinary loss $ .75 $ .82 $ .94 $ 1.00
Extraordinary loss $ - $ - $ (.60) $ -
Net income $ .75 $ .82 $ .34 $ 1.00
</TABLE>
47
<PAGE> 48
(11) RECEIVABLES
The Company had housing and financial services receivables of
approximately $7,022 in 1998 and $3,679 in 1997 that were due after one
year. The 1998 balance due after one year included notes and mortgage
notes receivable of $3,034 with interest rates ranging from 5% to
12.5%. A majority of the balance matures within 5 years.
(12) ACCRUED EXPENSES
At December 31, 1998 and 1997, accrued expenses and other current
liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Corporate and Housing -
Customer deposits $38,711 $28,541
Salaries and other compensation 16,515 15,985
Interest 14,644 10,113
Income taxes 5,895 3,055
Taxes, other than income taxes 4,318 5,052
Other 9,073 6,102
------- -------
$89,156 $68,848
======= =======
Financial Services -
Accounts payable $24,441 $14,299
Other 7,846 6,768
------- -------
$32,287 $21,067
======= =======
</TABLE>
48
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors of the Company is incorporated by
reference from the Nominees for Director Section, pages 2 through 4, of the
Company's Proxy Statement, dated March 12, 1999, for the Annual Meeting of
Stockholders to be held on April 21, 1999, to be filed with the Securities and
Exchange Commission pursuant to Section 14 of the Securities Exchange Act of
1934 (the "1999 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information is incorporated by reference from the Executive
Compensation Section, pages 6 through 9 of the 1999 Proxy Statement (see Part
I-Item 4, Executive Officers of the Company).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to the security ownership of certain beneficial
owners and management is incorporated by reference from the Security Ownership
of Management and Certain Beneficial Owners Section, pages 16 and 17 of the 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. The following financial statements and financial
statement schedules are filed as part of this Report:
See Index to Financial Statements - Item 8.
(a) 3. Exhibits
3.1 -- Restated Certificate of Incorporation of U.S. Home Corporation
effective on June 21, 1993. Incorporated by reference from
exhibit 3.1 to Registration Statement on Form S-3 of U.S. Home
Corporation (Registration No. 33-68966).
3.1(I) -- Certificate of Amendment of Restated Certificate of
Incorporation as filed with the State of Delaware on May 13,
1994. Incorporated by reference from exhibit 3.1 to U.S. Home
Corporation's Quarterly Report on Form 10-Q for the period
ended June 30, 1994.
3.1(ii) -- Certificate of Retirement, dated as of September 11, 1995.
Incorporated by reference from exhibit 3.1 to U.S. Home
Corporation's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
3.1(iii) -- Certificate of Retirement, dated as of July 31, 1996.
Incorporated by reference from exhibit 3.2 to U.S. Home
Corporation's Quarterly Report on 10-Q for the period ended
September 30, 1996.
3.1(iv) -- Certificate of Retirement, dated as of June 16, 1997.
Incorporated by reference from exhibit 3.1 to U.S. Home
Corporation's Quarterly Report on Form 10-Q for the period
ended September 30, 1997.
3.2 -- Certificate of Designation, Preferences and Rights of
Series A Junior Non-Cumulative Preferred Stock as filed with
the State of Delaware on December 2, 1996.
3.3 -- Amended and Restated By-Laws of U.S. Home Corporation,
dated as of October 15, 1998. Incorporated by reference from
exhibit 3.1 to U.S. Home Corporation's Quarterly Report on
Form 10-Q for the period ended September 30, 1998.
10.1 -- Second Amended and Restated Credit Agreement, dated as of
September 11, 1998, between U.S. Home Corporation and The
First National Bank of Chicago, as Agent. Incorporated by
reference from exhibit 10.1 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for period ended September 30,
1998.
50
<PAGE> 51
10.2 -- Senior Indenture, dated as of February 16, 1996, by and
between U.S. Home Corporation and IBJ Schroder Bank & Trust
Company, as Trustee, relating to U.S. Home Corporation's 7.95%
Senior Notes due 2001. Incorporated by reference from
exhibit 4.1 to U.S. Home Corporation's Quarterly Report on
Form 10-Q for the period ended March 31, 1996.
10.2(i) -- Officers' Certificate, dated February 16, 1996,
establishing the form and terms of the $75 million aggregate
principal amount of 7.95% Senior Notes due 2001. Incorporated
by reference from exhibit 4.2 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended March 31,
1996.
10.3 -- Senior Indenture, dated as of August 28, 1997, by and
between U.S. Home Corporation and IBJ Schroder Bank & Trust
Company, as trustee, relating to U.S. Home Corporation's 8.25%
Senior Notes due 2004 and 7.75% Senior Notes due 2005.
Incorporated by reference from exhibit 10.2 to U.S. Home
Corporation's Quarterly Report on Form 10-Q for the period
ended September 30, 1997.
10.3(i) -- Officer's Certificate establishing the form and terms
of the 8.25% Senior Notes due 2004. Incorporated by reference
from exhibit 4.2 to U.S. Home Corporation's Current Report on
Form 8-K dated January 15, 1998.
10.4 -- Senior Subordinated Indenture, dated as of August 28, 1997,
by and between U.S. Home Corporation and IBJ Schroder Bank &
Trust Company, as trustee, relating to U.S. Home Corporation's
8.88% Senior Subordinated Notes due 2007. Incorporated by
reference from exhibit 10.3 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended September
30, 1997.
10.4(i) -- Officer's Certificate establishing the form and terms
of the 8.88% Senior Subordinated Notes due 2007. Incorporated
by reference from exhibit 4.3 to U.S. Home Corporation's
Current Report on Form 8-K dated January 15, 1998.
10.5 -- Officers' Certificate establishing the form and terms of
the 7.75% Senior Notes due 2005. Incorporated by reference
from exhibit 10.6 to U.S. Home Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.6 -- Rights Agreement, dated as of November 7, 1996, between
U.S. Home Corporation and First Chicago Trust Company of New
York, and exhibits thereto. Incorporated by reference from
exhibit 4 to U.S. Home Corporation's Current Report on Form
8-K/A Amendment No. 1 filed November 18, 1996.
51
<PAGE> 52
10.7 -- U.S. Home Corporation 1997 Employees' Stock Option Plan.
Incorporated by reference from exhibit 10.7 to U.S. Home
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.8 -- U.S. Home Corporation Amended and Restated 1996 Employees'
Stock Option Plan. Incorporated by reference from exhibit 10.8
to U.S. Home Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996.
10.9 -- U.S. Home Corporation's Amended and Restated 1993
Employees' Stock Option Plan. Incorporated by reference from
exhibit 10.9 to U.S. Home Corporation's Annual Report on Form
10-K for the year ended December 31, 1996.
10.10 -- U.S. Home Corporation's Amended and Restated Non-Employee
Directors' Stock Option Plan. Incorporated by reference from
exhibit 10.10 to U.S. Home Corporation's Annual Report on Form
10-K for the year ended December 31, 1996.
10.11 -- U.S. Home Corporation's Second Amended and Restated
Employee Stock Payment Plan. Incorporated by reference from
exhibit 10.1 to U.S. Home Corporation's Quarterly Report on
Form 10-Q for the period ended June 30, 1998.
10.12 -- U.S. Home Corporation's Second Amended and Restated
Corporate Officers and President of Operations Restricted
Stock Plan.
10.13 -- U.S. Home Corporation's 1998 Key Employee Restricted Stock
Plan.
10.14 -- Non-Employee Director Stock Plan. Incorporated by reference
from exhibit 10.15 to U.S. Home Corporation's Form 10-K for
the year ended December 31, 1997.
10.15 -- U.S. Home Corporation's 1998 Non-Employee Directors' Stock
Option Plan. Incorporated by reference from exhibit 10.16 to
U.S. Home Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997.
10.16 -- U.S. Home Corporation's Corporate Officers Incentive
Compensation Program for the Incentive Period January 1, 1999
to December 31, 1999.
10.17 -- U.S. Home Corporation's Amended and Restated Key Employees'
Severance Plan.
10.18 -- U.S. Home Corporation's Amended and Restated Retirement
Plan for Non-Employee Directors. Incorporated by reference
from exhibit 10.6 to U.S. Home Corporation's Quarterly Report
on Form 10-Q for the period ended September 30, 1997.
52
<PAGE> 53
10.19 -- Corrected copy of Amended and Restated Employment and
Consulting Agreement, dated as of October 17, 1995, between
U.S. Home Corporation and Robert J. Strudler. Incorporated by
reference from exhibit 10.3 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
10.19(i) -- First Amendment to Amended and Restated Employment and
Consulting Agreement, dated as of February 11, 1997, between
U.S. Home Corporation and Robert J. Strudler. Incorporated by
reference from exhibit 10.16(i) to U.S. Home Corporation's
Annual Report on Form 10-K for the year ended December 31,
1996.
10.20 -- Corrected copy of Amended and Restated Employment and
Consulting Agreement, dated as of October 17, 1995, between
U.S. Home Corporation and Isaac Heimbinder. Incorporated by
reference from exhibit 10.4 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
10.20(i) -- First Amendment to Amended and Restated Employment and
Consulting Agreement, dated as of February 11, 1997, between
U.S. Home Corporation and Isaac Heimbinder. Incorporated by
reference from exhibit 10.17(i) to U.S. Home Corporation's
Annual Report on Form 10-K for the year ended December 31,
1996.
10.21 -- Registration Rights Agreement, dated as of June 21, 1993,
between U.S. Home Corporation and Loomis, Sayles & Company
Incorporated, on behalf of certain holders of the common stock
of U.S. Home Corporation. Incorporated by reference from
exhibit 10.10 to Registration Statement on Form S-3 of U.S.
Home Corporation (Registration No. 33-68966).
10.22 -- Trust Agreement, dated December 18, 1986, between U.S. Home
Corporation, as Grantor, and Kenneth J. Hanau, Jr., as
Trustee, with respect to retirement benefits for Isaac
Heimbinder. Incorporated by reference from exhibit 10.25 to
U.S. Home Corporation's Annual Report on Form 10-K for the
year ended December 31, 1986.
10.23 -- Trust Agreement, dated December 18, 1986, between U.S. Home
Corporation, as Grantor, and Kenneth J. Hanau, Jr., as
Trustee, with respect to retirement benefits for Robert J.
Strudler. Incorporated by reference from exhibit 10.26 to U.S.
Home Corporation's Annual Report on Form 10-K for the year
ended December 31, 1986.
53
<PAGE> 54
10.24 -- Letter, dated as of March 20, 1990, between U.S. Home
Corporation and William E. Reichard, as Successor Trustee,
with respect to Trust Agreements dated December 18, 1986
between U.S. Home Corporation, as Grantor, Kenneth J. Hanau,
Jr., as Trustee, with respect to retirement benefits for
Robert J. Strudler and Isaac Heimbinder. Incorporated by
reference from exhibit 10.19 to U.S. Home Corporation's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.25 -- First Amended and Restated Warehousing Credit and Security
Agreement (single-family mortgage loans), dated as of August
31, 1995, between U.S. Home Mortgage Corporation and
Residential Funding Corporation. Incorporated by reference
from exhibit 10.2 to U.S. Home Corporation's Quarterly Report
on Form 10-Q for the period ended September 30, 1995.
10.25(i) -- First Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single-family mortgage loans),
dated as of December 27, 1995, between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.19(i) to U.S. Home Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995.
10.25(ii)-- Second Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single-family mortgage loans),
dated as of August 30, 1996, between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.2 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
10.25(iii)-- Third Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single-family mortgage loans),
dated as of January 2, 1997, between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.22 (iii) to U.S. Home
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.25(iv)-- Fourth Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single family mortgage loans),
dated as of June 25, 1997 between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.2 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended June 30,
1997.
54
<PAGE> 55
10.25(v) -- Fifth Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single family mortgage loans),
dated as of August 28, 1997 between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.1 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended September
30, 1997.
10.25(vi)-- Sixth Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single family mortgage loans),
dated as of March 30, 1998 between U.S. Home Mortgage
Corporation and Residential Funding Corporation. Incorporated
by reference from exhibit 10.2 to U.S. Home Corporation's
Quarterly Report on Form 10-Q for the period ended March 31,
1998.
10.25(vii)-- Seventh Amendment to First Amended and Restated
Warehousing Credit and Security Agreement (single family
mortgage loans), dated as of August 14, 1998 between U.S. Home
Mortgage Corporation and Residential Funding Corporation.
Incorporated by reference from exhibit 10.2 to U.S. Home
Corporation's Quarterly Report on Form 10-Q for the period
ended September 30, 1998.
10.26 -- U.S. Home Corporation's Amortizing Incentive Plan.
Incorporated by reference from exhibit 4.2 to Registration
Statement on Form S-8 of U.S. Home Corporation (Registration
No. 33-64712).
10.27 -- Form of Indemnification Agreement for directors and
executive officers. Incorporated by reference from exhibit
10.15 to Amendment No. 2 to Registration Statement on Form S-1
of U.S. Home Corporation (Registration No. 33-60638).
21 -- Subsidiaries of U.S. Home Corporation
23 -- Consent of Independent Public Accountants
27 -- Financial Data Schedule
(b) Report on Form 8-K
No Current Report on Form 8-K was filed by the Company during
October, November or December 1998.
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 11, 1999 U.S. HOME CORPORATION
By: /s/Isaac Heimbinder
------------------------------
Isaac Heimbinder
President,
Co-Chief Executive Officer
and Chief Operating Officer
By: /s/Chester P. Sadowski
-------------------------------
Chester P. Sadowski
Senior Vice President-
Controller and Chief
Accounting Officer
(principal accounting officer)
By: /s/Thomas A. Napoli
-------------------------------
Thomas A. Napoli
Vice President-Corporate
Finance and Treasurer
(principal financial officer)
56
<PAGE> 57
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ----------------------- ------------------
<S> <C> <C>
/s/Robert J. Strudler Director, Chairman and Co-Chief February 11, 1999
- ------------------------ Executive Officer (principal executive
Robert J. Strudler officer)
/s/Isaac Heimbinder Director, President, February 11, 1999
- ------------------------ Co-Chief Executive Officer and Chief
Isaac Heimbinder Operating Officer
/s/Glen Adams Director February 11, 1999
- ------------------------
Glen Adams
/s/Steven L. Gerard Director February 11, 1999
- ------------------------
Steven L. Gerard
/s/Kenneth J. Hanau, Jr. Director February 11, 1999
- ------------------------
Kenneth J. Hanau, Jr.
/s/Malcolm T. Hopkins Director February 11, 1999
- ------------------------
Malcolm T. Hopkins
/s/Charles A. McKee Director February 11, 1999
- ------------------------
Charles A. McKee
/s/George A. Poole, Jr. Director February 11, 1999
- ------------------------
George A. Poole, Jr.
/s/Herve Ripault Director February 11, 1999
- ------------------------
Herve Ripault
/s/James W. Sight Director February 11, 1999
- ------------------------
James W. Sight
</TABLE>
57
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.12 U.S. Home Corporation's Second Amended and Restated Corporate Officers and
President of Operations Restricted Stock Plan
10.13 U.S. Home Corporation's 1998 Key Employees Restricted Stock Plan
10.16 U.S. Home Corporation's Corporate Officers Incentive Compensation Program
for the Incentive Period January 1, 1999 to December 31, 1999
10.17 U.S. Home Corporation's Amended and Restated Key Employees' Severance Plan
21 Subsidiaries of U.S. Home Corporation
23 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.12
U.S. HOME CORPORATION
SECOND AMENDED AND RESTATED
CORPORATE OFFICERS AND PRESIDENTS OF OPERATIONS
RESTRICTED STOCK PLAN
1. PURPOSE.
The purpose of the U.S. Home Corporation Amended and Restated
Corporate Officers and Presidents of Operations Restricted Stock Plan (the
"Plan") is to create incentives for the corporate officers and presidents of
operations of U.S. Home Corporation (the "Company") to provide services to the
Company over a long period of time and to enhance the level of performance of
the Company by awarding such employees shares of Stock (as defined herein)
subject to certain vesting requirements.
2. ADMINISTRATION.
(a) A committee (the "Committee"), which shall initially be
the Compensation and Stock Option Committee of the board of directors of the
Company (the "Board"), and which will be comprised of at least three members of
the Board, all of whom are "disinterested persons" (as defined below), will (i)
administer the Plan, (ii) establish, subject to the provisions of the Plan, such
rules and regulations as it may deem appropriate for the proper administration
of the Plan and (iii) make such determinations under, and such interpretations
of, and take such steps in connection with, the Plan or the Stock issued
thereunder as it may deem necessary or advisable. The members of the Committee
may be appointed from time to time by the Board and serve at the pleasure of the
Board. The Committee will hereinafter be referred to as the "Administrator."
(b) For the purposes of this Section 2, a "disinterested
person" is a person who, on a given date, is disinterested within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
3. STOCK.
The stock which is the subject of the Plan will be the shares
of common stock of the Company, $.01 par value per share (the "Stock"), whether
authorized and unissued or treasury stock. The total number of shares of Stock
which may be issued under the Plan will not exceed, in the aggregate, 250,000.
4. AWARD OF STOCK.
(a) All of the corporate officers and presidents of operations
of the Company listed on Schedule A attached hereto (each an "Employee" and
collectively, "Employees"), shall be eligible to receive Stock in accordance
with the terms hereof.
<PAGE> 2
(b) In consideration of future services to be provided by each
Employee to the Company, each Employee shall be awarded, on a one-time basis,
the number of shares of Stock, subject to the restrictions contained herein,
determined by dividing $200,000 by the average closing price of the Stock on the
New York Stock Exchange (the "NYSE") for the 10 consecutive trading days
immediately following the date on which the Company releases its financial
results for the fiscal year ending December 31, 1994; provided that no
fractional shares of Stock shall be issued under the Plan.
(c) The closing price of the Stock, as of any particular day,
will be as reported in The Wall Street Journal; provided, however, that if the
Stock is not listed on the NYSE on any applicable day, the closing price for
such day will be not less than the fair market value of the Stock on such day,
as determined by the Administrator based on such empirical evidence as it deems
to be appropriate under the circumstances.
(d) The Administrator shall have the right pursuant to the
terms hereof to award Stock to any individual who becomes a corporate officer or
president of operations of the Company after the effective date of the Plan and
prior to the initial Vesting Date (as defined herein). The Administrator shall
make such award substantially in accordance with the terms of the Plan,
including the vesting requirements contained in Section 5 hereof, but shall be
permitted to award a smaller number of shares of Stock based on the date on
which the individual commences employment as a corporate officer or president of
operations of the Company.
5. VESTING.
(a) On each Vesting Date, unless all shares of Stock awarded
to each Employee shall have previously vested with each Employee and subject to
the forfeiture provisions contained herein, a percentage of the shares of Stock
awarded hereunder to each Employee shall vest with each Employee such that the
cumulative percentage of total shares of Stock vested with each Employee shall
be the greatest of the applicable percentages set forth below:
(i) (A) 20% as of the Vesting Date in the year 2000;
(B) 40% as of the Vesting Date in the year 2001;
(C) 60% as of the Vesting Date in the year 2002;
(D) 80% as of the Vesting Date in the year 2003;
(E) 100% as of the Vesting Date in the year 2004;
(ii) If, on a Vesting Date, the Return on Assets Improvement
(as defined herein) is:
(A) greater than 1.05 and less than or equal to 1.10,
then 40%;
(B) greater than 1.10 and less than or equal to 1.15,
then 60%;
(C) greater than 1.15 and less than or equal to 1.20,
then 80%;
(D) greater than 1.20, then 100%;
(iii) If the Company achieves its Closing Goal (as defined
herein) and the Return on Sales Improvement (as defined herein) is:
<PAGE> 3
(A) equal to or greater than 1.00 and less than 1.05,
then 75%;
(B) greater than 1.05, then 100%;
provided, however, that no Employee shall be required to forfeit any shares of
Stock previously vested hereunder.
For the purposes hereof:
"Return on Assets Improvement" means (x) the sum of the Return
on Assets for the two fiscal years of the Company immediately prior to the
applicable Vesting Date divided by two, and the result divided by (y) the Return
on Assets for the fiscal year ended December 31, 1994, rounded to the nearer
hundredth.
"Return on Assets" means (x) the amount contained in the
Company's "income (loss) before income tax" line-item for the applicable year of
the Company as reported in the consolidated statements of operations set forth
in the audited financial statements for the Company for such fiscal year,
divided by (y) the Average Total Assets for such year.
"Average Total Assets" means an amount equal to (x) (1) total
housing assets at the beginning of the applicable fiscal year of the Company (as
reported in the consolidated balance sheet set forth in the audited financial
statements for the Company for the prior year), plus (2) total housing assets at
the end of such fiscal year (as reported in the consolidated balance sheet set
forth in the audited financial statements for the Company for such fiscal year),
divided by (y) two.
"Closing Goal" means closing 10,000 housing units for a fiscal
year ending on or before December 31, 2000; provided, however, that the Closing
Goal shall be adjusted upward by the Administrator to account for an increase in
the number of closings that are the result of a Significant Acquisition.
"Significant Acquisition" means the acquisition of a home
building company whose operating revenue for the 12 months preceding the month
in which the acquisition is closed was equal to or greater than 25% of the
Company's operating revenue for such 12-month period.
"Return on Sales Improvement" means (x) the Return on Sales
for the fiscal year in which the Closing Goal is achieved, divided by (y) the
Return on Sales for the fiscal year ended December 31, 1997, adjusted for any
Significant Acquisition, rounded to the nearer hundredth.
"Return on Sales" means (x) the amount contained in the
Company's "income (loss) before income tax" line-item for the applicable year of
the Company as reported in the consolidated statements of operations set forth
in the audited financial statements for the Company for such fiscal year,
divided by (y) the amount contained in the Company's "housing operating
revenues" line-item for the applicable year of the Company as reported in the
consolidated statements of operations set forth in the audited financial
statements for the Company for such fiscal year. If a Significant Acquisition
occurs, the income and revenues of the Significant Acquisition during the
12-month period preceding the acquisition shall be combined
<PAGE> 4
with the income and revenues of the Company for the fiscal year ended December
31, 1997 to determine the adjusted Return on Sales for the fiscal year ended
December 31, 1997.
(b) In the event an Employee is not employed by the Company on
or prior to December 31 of any year which is immediately prior to any Vesting
Date, due to voluntary termination of employment by the Employee or termination
for Cause (as defined herein), all of the shares of Stock remaining to be vested
with such Employee hereunder and all rights arising from such shares of Stock
shall be forfeited by such Employee and returned to the Company.
(c) For purposes of the Plan, a voluntary termination by an
Employee will not be deemed to occur in the event such Employee is
Constructively Terminated (as defined herein).
(d) In the event an Employee is terminated without Cause prior
to January 1, 2000, 20% of the shares of Stock awarded hereunder shall
immediately vest with such Employee and the remaining shares of Stock to be
vested hereunder and all rights arising from such shares of Stock shall be
forfeited by such Employee and returned to the Company.
(e) In the event there is a Change of Control (as defined
herein), all shares of Stock remaining to be vested with such Employee hereunder
shall immediately vest with such Employee. The Company shall immediately cause
the issuance to such Employee of appropriate stock certificates representing
such shares of Stock in such Employee's name in accordance with Section 6
hereof.
(f) In the event an Employee dies, is Permanently Disabled (as
defined herein), or retires (after not less than 20 years of employment by the
Company), the Administrator shall have the authority, in its sole discretion, to
vest such Employee (or such Employee's estate, if applicable) in as many shares
of Stock as the Administrator shall deem appropriate, based upon such Employee's
prior job performance.
(g) For purposes of the Plan:
(i) "Base Salary" shall mean an amount equal to an
Employee's maximum annual base salary in effect at any time after the effective
date of the Plan, excluding any incentive compensation or bonus payable or paid
to an Employee.
(ii) "Cause" means (1) an Employee's continuing
willful failure to perform his duties with respect to the Company (other than as
a result of total or partial incapacity due to physical or mental illness), (2)
gross negligence or malfeasance by an Employee in the performance of his duties
with respect to the Company, (3) an act or acts on an Employee's part
constituting a felony under the laws of the United States or any state thereof
which results or was intended to result directly or indirectly in gain or
personal enrichment by such Employee at the expense of the Company or (4) any
other circumstances set forth in an employment agreement between the Company and
such Employee which would constitute grounds for the Company to terminate the
employment of such Employee for cause (as defined in the applicable employment
agreement).
<PAGE> 5
(iii) "Change of Control" shall mean any of the
following: (i) a report on Schedule 13D is filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Exchange Act, disclosing
that any person or group of persons (within the meaning of Section 13(d) of the
Exchange Act), other than the Company (or one of its subsidiaries) or any
employee benefit plan sponsored by the Company (or one of its subsidiaries), is
the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of fifty percent (50%) or more of the combined
voting power of the then outstanding equity of the Company (as determined under
paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to
acquire the Stock, (ii) any transaction or a series of related transactions (as
a result of a tender offer, merger, consolidation or otherwise whether or not
the Company is the continuing or surviving entity) that results in, or that is
in connection with, any person or group of persons (within the meaning of
Section 13(d) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or one of
its subsidiaries), acquiring beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the combined voting power of the then outstanding equity of the
Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act,
in the case of rights to acquire the Stock) or of any person or group of persons
(within the meaning of Section 13(d) of the Exchange Act) that possesses
beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of fifty percent (50%) or more of the combined
voting power of the then outstanding equity of the Company; (iii) the sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company to any person or group of persons (within the meaning of Section
13(d) of the Exchange Act) in one transaction or a series of related
transactions; provided, that a transaction where the holders of all classes of
the then outstanding equity of the Company immediately prior to such transaction
own, directly or indirectly, fifty percent (50%) or more of the aggregate voting
power of all classes of equity of such person or group immediately after such
transaction will not be a Change of Control under this clause (iii); (iv) the
liquidation or dissolution of the Company; provided, that a liquidation or
dissolution of the Company which is part of a transaction or series of related
transactions that does not constitute a Change of Control under the "provided"
clause of clause (iii) above will not constitute a Change of Control under this
clause (iv); or (v) a change in a majority of the members of the Board of
Directors of the Company within a 12-month period, unless the election or
nomination for election by the Company's stockholders of each new director
during such 12-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the beginning of such
12-month period.
(iv) "Constructively Terminated" means (1) a
reduction in an amount equal to or greater than 15 percent of an Employee's Base
Salary, (2) a material reduction in an Employee's job function, duties or
responsibilities or (3) a required relocation of an Employee of more than 50
miles from such Employee's current job location; provided, however, that the
employment with the Company or its divisions or subsidiaries of a President of
Operations will not be deemed to be Constructively Terminated in the event he or
she is required to be a Division Chairman or Division President with the Company
or its divisions or subsidiaries and has job functions, duties or
responsibilities of a Division Chairman or Division President and/or is required
to relocate in connection with such change in position; provided, further, that
the employment of an Employee will not be deemed Constructively Terminated
unless such
<PAGE> 6
Employee actually terminates his or her employment with the Company within 60
days after the occurrence of an event specified in clause (1), (2) or (3) above.
(v) "Permanently Disabled" means physical or mental
incapacity of such nature that an Employee is unable to engage in or perform the
principal duties of his customary employment or occupation on a continuing or
sustained basis. All determinations as to the date and extent of disability of
any Employee shall be made by the Administrator upon the basis of such evidence
as it deems necessary or desirable.
(vi) "Vesting Date" means the date each year,
commencing in 2000, on which the Company releases its financial results for the
previous fiscal year.
6. STOCK CERTIFICATES.
(a) Each Employee shall receive a stock certificate reflecting
the number of shares of Stock awarded hereunder. Such certificate shall be
registered in the name of such Employee and shall bear the following legend:
"The securities (the "Shares") represented by this stock
certificate are restricted by the terms of the U.S. Home
Corporation Corporate Officers and Presidents of Operations
Restricted Stock Plan ("Restricted Stock Plan"), effective as
of January 1, 1995, which contains provisions affecting the
rights and obligations of the holder of the Shares and
restrictions on the transfer of the Shares. Any transfer of
the Shares represented by this stock certificate in violation
of the Restricted Stock Plan is null and void."
(b) The Administrator may, in its sole discretion, require
that the stock certificates evidencing the shares of Stock be held in custody by
the Company until the restrictions thereon shall have lapsed, and that, as a
condition of receiving the shares of Stock, the Employee shall have delivered a
stock power, endorsed in blank, relating to the shares of Stock. If and to the
extent any shares of Stock vest with an Employee in accordance with terms
hereof, stock certificates for the appropriate number of unrestricted shares of
Stock shall be delivered promptly to the Employee. Shares of Common Stock will
not be released to an Employee unless and until the amount of federal, state or
local taxes required to be withheld has been paid or satisfied. Tax withholding
liabilities may be satisfied by the Employee relinquishing shares of Common
Stock vested pursuant to the Plan, valued at the market price of the Common
Stock on the date such shares of Common Stock are released to the Employee.
7. TERM AND EFFECTIVE DATE.
The Plan will become effective upon (i) approval by the Board
and (ii) approval by the affirmative vote of a majority of the shares of voting
capital stock of the Company present or represented and entitled to vote at the
1995 annual meeting of the Company's stockholders. Subject to Section 15 hereof,
the Plan shall terminate upon issuance and vesting of the Stock issuable
pursuant to the Plan.
<PAGE> 7
8. TRANSFERABILITY.
Employees shall not be permitted to sell, transfer, pledge,
assign or otherwise encumber shares of Stock awarded hereunder prior to the
vesting of such shares of Stock. Upon vesting of such shares of Stock, an
Employee will only transfer such shares of Stock in compliance with applicable
federal and state securities laws. Employees who are affiliates of the Company
may generally dispose of their shares in accordance with Rule 144 promulgated
under the Securities Act of 1933, as amended.
9. RIGHTS AS A STOCKHOLDER.
Except as provided in Section 8 hereof or this Section 9,
Employees shall have, with respect to any shares of Stock remaining to be vested
hereunder, all of the rights of stockholders of the Company, including the right
to vote such shares of Stock and to receive any cash dividends. Stock dividends,
if any, issued with respect to such shares of Stock shall be subject to the same
restrictions and other terms and conditions hereunder that apply to such shares
of Stock.
10. INVESTMENT PURPOSE.
At the time of issuance of any shares of Stock, the
Administrator may, if it will deem it necessary or desirable for any reason,
require an Employee to represent in writing to the Company that (a) it is such
Employee's then intention to acquire the Stock for investment purposes and not
with a view to the distribution thereof and/or (b) upon acquisition of the
Stock, the Employee will not beneficially own in excess of 4.9 percent of the
value of the equity securities (as defined in Rule 3a11-1 under the Exchange
Act) of the Company; provided that for purposes of this Section 10(b), all
outstanding options and convertible securities to acquire Stock shall be deemed
to be exercised or converted; provided, further, that this Section 10(b) shall
be inoperative after June 21, 1995.
11. RIGHT TO TERMINATE EMPLOYMENT.
Nothing contained herein will restrict the right of the
Company to terminate the employment of any Employee at any time.
12. FINALITY OF DETERMINATIONS.
Each determination, interpretation, or other action made or
taken pursuant to the provisions of the Plan by the Administrator will be final
and be binding and conclusive for all purposes.
<PAGE> 8
13. SUBSIDIARY AND PARENT CORPORATIONS.
Unless the context requires otherwise, references under the
Plan to the Company will be deemed to include any subsidiary corporations and
parent corporations of the Company, as those terms are defined in Section 424 of
the Internal Revenue Code of 1986, as amended.
14. GOVERNING LAW.
The Plan will be governed by the laws of the State of
Delaware.
15. AMENDMENT AND TERMINATION.
The Administrator may at any time terminate, amend or modify
the Plan in any respect it deems suitable; provided, however, that, solely with
respect to persons subject to Section 16 of the Exchange Act, no such action of
the Administrator, without the approval of the stockholders of the Company, may
(i) materially increase the benefits accruing to employees eligible to receive
Stock under the Plan, (ii) materially increase the total amount of Stock which
may be awarded under the Plan or (iii) materially modify the requirements for
participation in the Plan; provided, further, that no amendment, modification or
termination of the Plan may in any manner affect any Stock (whether vested or
not) theretofore awarded under the Plan without the consent of the Employee to
whom Stock has been awarded.
16. OVERRIDE.
(a) With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
(b) All transactions pursuant to terms of the Plan, including,
without limitation, awards and vesting of Stock, shall only be effective at such
time as counsel to the Company shall have determined that such transaction will
not violate federal or state securities or other laws. The Administrator may, in
its sole discretion, defer the effectiveness of such transaction to pursue
whatever actions may be required to ensure compliance with such federal or state
securities or other laws.
<PAGE> 1
EXHIBIT 10.13
U.S. HOME CORPORATION
1998 KEY EMPLOYEES RESTRICTED STOCK PLAN
1. PURPOSE.
The purpose of the U.S. Home Corporation Key Employees
Restricted Stock Plan (the "Plan") is to create incentives for the corporate
officers, presidents of operations and division presidents of U.S. Home
Corporation (the "Company") to provide services to the Company over a long
period of time and to enhance the level of performance of the Company by
awarding such employees shares of Stock (as defined herein) subject to certain
vesting requirements.
2. ADMINISTRATION.
(a) A committee (the "Committee"), which shall initially be
the Compensation and Stock Option Committee of the board of directors of the
Company (the "Board"), and which will be comprised of at least three members of
the Board, all of whom are "disinterested persons" (as defined below), will (i)
administer the Plan, (ii) establish, subject to the provisions of the Plan, such
rules and regulations as it may deem appropriate for the proper administration
of the Plan and (iii) make such determinations under, and such interpretations
of, and take such steps in connection with, the Plan or the Stock issued
thereunder as it may deem necessary or advisable. The members of the Committee
may be appointed from time to time by the Board and serve at the pleasure of the
Board. The Committee will hereinafter be referred to as the "Administrator."
(b) For the purposes of this Section 2, a "disinterested
person" is a person who, on a given date, is disinterested within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
3. STOCK.
The stock which is the subject of the Plan will be the shares
of common stock of the Company, $.01 par value per share (the "Stock"), whether
authorized and unissued or treasury stock. The total number of shares of Stock
which may be issued under the Plan will not exceed, in the aggregate, 120,000.
4. AWARD OF STOCK.
(a) All of the corporate officers, presidents of operations
and division presidents of the Company listed on Schedule A attached hereto
(each an "Employee" and collectively, "Employees"), shall be eligible to receive
Stock in accordance with the terms hereof.
<PAGE> 2
(b) In consideration of future services to be provided by each
Employee to the Company, each corporate officer and president of operations
shall be awarded 5,000 shares of Stock and each division president will be
awarded 1,000 shares of stock.
(c) The Administrator shall have the right pursuant to the
terms hereof to award Stock to any individual who becomes a corporate officer,
president of operations or division president of the Company after the effective
date of the Plan. The Administrator shall make such award substantially in
accordance with the terms of the Plan, including the vesting requirements
contained in Section 5 hereof, but shall be permitted to award a smaller number
of shares of Stock based on the date on which the individual commences
employment as a corporate officer, president of operations or division president
of the Company.
5. VESTING.
(a) On each Vesting Date, unless all shares of Stock awarded
to each Employee shall have previously vested with each Employee and subject to
the forfeiture provisions contained herein, a percentage of the shares of Stock
awarded hereunder to each Employee shall vest with each Employee such that the
cumulative percentage of total shares of Stock vested with each Employee shall
be the greatest of the applicable percentages set forth below:
(i) (A) 30% as of the Vesting Date in the year 2003;
(B) 40% as of the Vesting Date in the year 2004;
(C) 50% as of the Vesting Date in the year 2005;
(D) 60% as of the Vesting Date in the year 2006;
(E) 70% as of the Vesting Date in the year 2007;
(F) 80% as of the Vesting Date in the year 2008;
(G) 90% as of the Vesting Date in the year 2009;
(H) 100% as of the Vesting Date in the year 2010;
(ii) If, the Earnings per Share (as defined herein) for a
fiscal year ending on or before December 31, 2001 is:
(A) greater than $6.74 and less than or equal to
$6.99, then 25%;
(B) greater than $6.99 and less than or equal to
$7.49, then 50%;
(C) greater than $7.49, then 100%
provided, however, that no Employee shall be required to
forfeit any shares of Stock previously vested hereunder.
For purposes hereof, "Earnings per Share" means the "Diluted
Earnings Per Common Share" based upon the audited financial statements of the
Company for such year as reported in the Company's annual report or other SEC
filings excluding extraordinary gains or losses and prior to giving effect to
accelerated vesting of restricted stock issued under the terms of this Plan;
provided, however, that gains or losses from the sale or disposition of any
asset, other than land, with a book cost in excess of ten million dollars
($10,000,000) may be excluded at the discretion of the Administrator.
<PAGE> 3
The Earnings per Share amounts set forth in Sections 5(a)(ii)
will be appropriately adjusted for any increase or decrease in the number of
outstanding shares of Stock resulting from payment of a stock dividend on the
Stock, a subdivision or combination of the Stock, or a reclassification of the
Stock, and in the event of a consolidation or merger.
(b) In the event an Employee is not employed by the Company on
or prior to December 31 of any year which is immediately prior to any Vesting
Date, due to voluntary termination of employment by the Employee or termination
for Cause (as defined herein), all of the shares of Stock remaining to be vested
with such Employee hereunder and all rights arising from such shares of Stock
shall be forfeited by such Employee and returned to the Company.
(c) For purposes of the Plan, a voluntary termination by an
Employee will not be deemed to occur in the event such Employee is
Constructively Terminated (as defined herein).
(d) In the event an Employee is terminated without Cause prior
to January 1, 2003, 20% of the shares of Stock awarded hereunder shall
immediately vest with such Employee and the remaining shares of Stock to be
vested hereunder and all rights arising from such shares of Stock shall be
forfeited by such Employee and returned to the Company.
(e) In the event there is a Change of Control (as defined
herein), all shares of Stock remaining to be vested with such Employee hereunder
shall immediately vest with such Employee. The Company shall immediately cause
the issuance to such Employee of appropriate stock certificates representing
such shares of Stock in such Employee's name in accordance with Section 6
hereof.
(f) In the event an Employee dies, is Permanently Disabled (as
defined herein), or retires after age 60 with not less than 20 years of
employment by the Company, the Administrator shall have the authority, in its
sole discretion, to vest such Employee (or such Employee's estate, if
applicable) in as many shares of Stock as the Administrator shall deem
appropriate, based upon such Employee's prior job performance.
(g) For purposes of the Plan:
(i) "Base Salary" shall mean an amount equal to an
Employee's maximum annual base salary in effect at any time after the effective
date of the Plan, excluding any incentive compensation or bonus payable or paid
to an Employee.
(ii) "Cause" means (1) an Employee's continuing
willful failure to perform his duties with respect to the Company (other than as
a result of total or partial incapacity due to physical or mental illness), (2)
gross negligence or malfeasance by an Employee in the performance of his duties
with respect to the Company, (3) an act or acts on an Employee's part
constituting a felony under the laws of the United States or any state thereof
which results or was intended to result directly or indirectly in gain or
personal enrichment by such Employee at the expense of the Company or (4) any
other circumstances set forth in an employment agreement between the Company and
such Employee which would constitute
<PAGE> 4
grounds for the Company to terminate the employment of such Employee for cause
(as defined in the applicable employment agreement).
(iii) "Change of Control" shall mean any of the
following: (i) a report on Schedule 13D is filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), disclosing that any person or group of
persons (within the meaning of Section 13(d) of the Exchange Act), other than
the Company (or one of its subsidiaries) or any employee benefit plan sponsored
by the Company (or one of its subsidiaries), is the beneficial owner (as such
term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of fifty percent (50%) or more of the combined voting power of the then
outstanding equity of the Company (as determined under paragraph (d) of Rule
13d-3 under the Exchange Act, in the case of rights to acquire the common stock,
$.01 par value per share (the "Common Stock"), of the Company); (ii) any
transaction or a series of related transactions (as a result of a tender offer,
merger, consolidation or otherwise whether or not the Company is the continuing
or surviving entity) that results in, or that is in connection with, any person
or group of persons (within the meaning of Section 13(d) of the Exchange Act),
other than the Company (or one of its subsidiaries) or any employee benefit plan
sponsored by the Company (or one of its subsidiaries), acquiring beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of fifty percent (50%) or more of the combined voting
power of the then outstanding equity of the Company (as determined under
paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to
acquire the Common Stock) or of any person or group of persons (within the
meaning of Section 13(d) of the Exchange Act) that possesses beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of fifty percent (50%) or more of the combined voting
power of the then outstanding equity of the Company; (iii) the sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company to any person or group of persons (within the meaning of Section 13(d)
of the Exchange Act) in one transaction or a series of related transactions;
provided, that a transaction where the holders of all classes of the then
outstanding equity of the Company immediately prior to such transaction own,
directly or indirectly, fifty percent (50%) or more of the aggregate voting
power of all classes of equity of such person or group immediately after such
transaction will not be a Change of Control under this clause (iii); (iv) the
liquidation or dissolution of the Company; provided, that a liquidation or
dissolution of the Company which is part of a transaction or series of related
transactions that does not constitute a Change of Control under the "provided"
clause of clause (iii) above will not constitute a Change of Control under this
clause (iv); or (v) a change in a majority of the members of the Board of
Directors of the Company within a 12-month period, unless the election or
nomination for election by the Company's stockholders of each new director
during such 12-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the beginning of such
12-month period.
(iv) If the Employee is a Corporate Officer or
President of Operations, "Constructively Terminated" means (1) a reduction in an
amount equal to or greater than 15 percent of an Employee's Base Salary, (2) a
material reduction in an Employee's job function, duties or responsibilities or
(3) a required relocation of an Employee of more than 50 miles from such
Employee's current job location; provided, however, that the employment with
<PAGE> 5
the Company or its divisions or subsidiaries of a President of Operations will
not be deemed to be Constructively Terminated in the event he or she is required
to be a Division Chairman or Division President with the Company or its
divisions or subsidiaries and has job functions, duties or responsibilities of a
Division Chairman or Division President and/or is required to relocate in
connection with such change in position; provided, further, that the employment
of an Employee will not be deemed Constructively Terminated unless such Employee
actually terminates his or her employment with the Company within 60 days after
the occurrence of an event specified in clause (1), (2) or (3) above.
(v) If the Employee is a Division President,
"Constructively Terminated" means a reduction in an amount equal to or greater
than 15 percent of an Employee's Base Salary; provided that the employment of an
Employee will not be deemed Constructively Terminated unless such Employee
actually terminates his or her employment with the Company within 60 days after
the reduction in Base Salary.
(vi) "Permanently Disabled" means physical or mental
incapacity of such nature that an Employee is unable to engage in or perform the
principal duties of his customary employment or occupation on a continuing or
sustained basis. All determinations as to the date and extent of disability of
any Employee shall be made by the Administrator upon the basis of such evidence
as it deems necessary or desirable.
(vii) "Vesting Date" means the date each year,
commencing in 2000 and through 2010, on which the Company releases its financial
results for the previous fiscal year.
6. STOCK CERTIFICATES.
(a) Each Employee shall receive a stock certificate reflecting
the number of shares of Stock awarded hereunder. Such certificate shall be
registered in the name of such Employee and shall bear the following legend:
"The securities (the "Shares") represented by this stock
certificate are restricted by the terms of the U.S. Home
Corporation 1998 Key Employees Restricted Stock Plan
("Restricted Stock Plan"), effective as of ____________, 1998,
which contains provisions affecting the rights and obligations
of the holder of the Shares and restrictions on the transfer
of the Shares. Any transfer of the Shares represented by this
stock certificate in violation of the Restricted Stock Plan is
null and void."
(b) The Administrator may, in its sole discretion, require
that the stock certificates evidencing the shares of Stock be held in custody by
the Company until the restrictions thereon shall have lapsed, and that, as a
condition of receiving the shares of Stock, the Employee shall have delivered a
stock power, endorsed in blank, relating to the shares of Stock. If and to the
extent any shares of Stock vest with an Employee in accordance with terms
hereof, stock certificates for the appropriate number of unrestricted shares of
Stock shall be
<PAGE> 6
delivered promptly to the Employee. Shares of Common Stock will not be released
to an Employee unless and until the amount of federal, state or local taxes
required to be withheld has been paid or satisfied. Tax withholding liabilities
may be satisfied by the Employee relinquishing shares of Common Stock vested
pursuant to the Plan, valued at the market price of the Common Stock on the date
such shares of Common Stock are released to the Employee.
7. TERM AND EFFECTIVE DATE.
The Plan will become effective upon (i) approval by the Board
and (ii) approval by the affirmative vote of a majority of the shares of voting
capital stock of the Company present or represented and entitled to vote at the
1999 annual meeting of the Company's stockholders. Subject to Section 15 hereof,
the Plan shall terminate upon issuance and vesting all of the Stock issuable
pursuant to the Plan.
8. TRANSFERABILITY.
Employees shall not be permitted to sell, transfer, pledge,
assign or otherwise encumber shares of Stock awarded hereunder prior to the
vesting of such shares of Stock. Upon vesting of such shares of Stock, an
Employee will only transfer such shares of Stock in compliance with applicable
federal and state securities laws. Employees who are affiliates of the Company
may generally dispose of their shares in accordance with Rule 144 promulgated
under the Securities Act of 1933, as amended.
9. RIGHTS AS A STOCKHOLDER.
Except as provided in Section 8 hereof or this Section 9,
Employees shall have, with respect to any shares of Stock remaining to be vested
hereunder, all of the rights of stockholders of the Company, including the right
to vote such shares of Stock and to receive any cash dividends. Stock dividends,
if any, issued with respect to such shares of Stock shall be subject to the same
restrictions and other terms and conditions hereunder that apply to such shares
of Stock.
10. INVESTMENT PURPOSE.
At the time of issuance of any shares of Stock, the
Administrator may, if it will deem it necessary or desirable for any reason,
require an Employee to represent in writing to the Company that it is such
Employee's then intention to acquire the Stock for investment purposes and not
with a view to the distribution thereof.
11. RIGHT TO TERMINATE EMPLOYMENT.
Nothing contained herein will restrict the right of the
Company to terminate the employment of any Employee at any time.
<PAGE> 7
12. FINALITY OF DETERMINATIONS.
Each determination, interpretation, or other action made or
taken pursuant to the provisions of the Plan by the Administrator will be final
and be binding and conclusive for all purposes.
13. SUBSIDIARY AND PARENT CORPORATIONS.
Unless the context requires otherwise, references under the
Plan to the Company will be deemed to include any subsidiary corporations and
parent corporations of the Company, as those terms are defined in Section 424 of
the Internal Revenue Code of 1986, as amended.
14. GOVERNING LAW.
The Plan will be governed by the laws of the State of
Delaware.
15. AMENDMENT AND TERMINATION.
The Board may at any time terminate, amend or modify the Plan
in any respect it deems suitable, including the amendment or modification of the
vesting provisions in Section 2 hereof, without the approval of the stockholders
of the Company, except to the extent that such stockholder approval is required
under applicable law or the Board determines that such approval is necessary or
desirable in order to ensure that the stock granted hereunder qualifies under
any applicable section of the Internal Revenue Code or the Exchange Act;
provided, however, that no amendment, modification or termination of the Plan
may (A) adversely affect any unvested shares theretofore issued under the Plan
without the consent of the Employee to whom such shares were issued or (B)
modify the allocation of shares issued to the employees designated by the
Administrator.
<PAGE> 8
16. OVERRIDE.
(a) With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
(b) All transactions pursuant to terms of the Plan, including,
without limitation, awards and vesting of Stock, shall only be effective at such
time as counsel to the Company shall have determined that such transaction will
not violate federal or state securities or other laws. The Administrator may, in
its sole discretion, defer the effectiveness of such transaction to pursue
whatever actions may be required to ensure compliance with such federal or state
securities or other laws.
<PAGE> 1
EXHIBIT 10.16
(1/4/99)
U.S. HOME CORPORATION
CORPORATE OFFICERS'(1)
INCENTIVE COMPENSATION PROGRAM
FOR THE INCENTIVE PERIOD
JANUARY 1, 1999 TO DECEMBER 31, 1999
Set forth below is an outline of the Corporate Officers' Incentive
Compensation Program for the incentive period January 1, 1999 to December 31,
1999 ("Incentive 1999").
Corporate Officers who are employed by the Corporation as of January 1,
1999 will be eligible to participate in the Corporate Officers' Incentive
Compensation Program for the period commencing January 1, 1999 and ending
December 31, 1999. Effective January 1, 1999, base salaries are established as
set forth in Exhibit A hereto.
Under this Program, an incentive compensation pool equal to the lesser
of $950,000 or 2% of the pre-tax profits of the Corporation earned in fiscal
1999, shall be established to be distributed to the Corporate Officers at the
sole discretion and upon approval of a majority of the non-management members of
the Compensation Committee and of the Board of Directors of the Corporation
based on its evaluation of the following factors:
1. The Board of Directors shall review the profit and loss of the Company
for the fiscal year ended December 31, 1999 as compared to the
projected profit and loss for the period January 1, 1999 through
December 31, 1999 as set forth in the 1999 Business Plan as presented
to the Board of Directors.
2. The Board of Directors shall review the cash flow of the Company as
compared to the projected cash flow for the period January 1, 1999
through December 31, 1999 as set forth in the 1999 Business Plan as
presented to the Board of Directors.
3. The Board of Directors shall review the overall performance of the
Company in comparison to competitive industry performance taking into
consideration, an analysis of rates of growth, return on equity and
return on sales.
4. The Board of Directors shall review incentive bonus payments by
competitors in relation to proposed payments to said officers to insure
that they are designed to retain and motivate executives.
5. All other actions by said Officers to maximize the value of
shareholders' equity.
- ---------------
(1) Excludes Chairman and President who are subject to Employment and
Consulting Agreements which govern payment of bonus (see Exhibit A).
<PAGE> 2
Corporate Officers' Incentive Compensation Program Page 2 of 3 pages
Upon the recommendation of the Chairman and President of the Company,
the Board of Directors shall determine, in its sole discretion, the amount each
respective Officer shall receive from the said incentive compensation pool,
provided that the maximum incentive compensation payable to any Senior Vice
President and any Vice President shall not exceed the percentage of their
respective base compensation set forth in Schedule I hereto.
To be entitled to receive a bonus, a Corporate Officer must remain in
the employ of the Company for the entire fiscal year.
Notwithstanding the foregoing, the Corporation shall have the right to
terminate employment of any Corporate Officer covered under this Program at
will, without notice, and without cause, at any time.
The total bonus earned pursuant to the incentive program set forth
herein shall be paid upon approval of the Board of Directors of the Company as
follows:
A. 75% of the aggregate incentive bonus earned by the Corporate Officer
shall be paid in cash within 30 days following receipt of 1999 audited
financial statements.
B. The balance of the aggregate incentive bonus earned by the Corporate
Officer shall be paid as follows:
1. If the respective Corporate Officer shall own of record or
beneficially, as of the last trading day of December, 1999,
shares of common stock of the Corporation which shall have a
market value on such date equal to or in excess of his/her base
salary as of such date, the balance of such incentive bonus
shall be paid in cash within 30 days following receipt of the
1999 audited financial statements.
2. If the respective Corporate Officer shall not own of record
beneficially, as of the last trading day of December, 1999,
shares of common stock of the Corporation which shall have a
market value on such date(1) equal to or in excess of his/her
base salary as of such date, the balance of such incentive bonus
shall be paid in shares of stock as set forth below:
25% of the aggregate incentive bonus earned by the Corporate
Officer shall be paid in shares of U.S. Home Corporation's
common stock, with each share valued at the closing price of
said shares on the New York Stock Exchange, as of the last
trading day of December, 1999. Said shares shall be held in
escrow by the Company to be delivered to the respective
Corporate Officers as follows:
i) 1/2 of such shares shall be delivered to the Corporate
Officer within thirty (30) days following receipt of the
1999 audited financial statements.
- ---------------
(1) Shares earned as part of prior year bonus but not delivered shall be
included. Restricted shares not vested as of such date shall not be
included.
<PAGE> 3
Corporate Officers' Incentive Compensation Program Page 3 of 3 pages
ii) 1/2 of such shares shall be delivered to the Corporate
Officer on or prior to January 31, 2002. However, in order
to receive such shares, the Corporate Officer must remain
in the employ of the Corporation as of December 31, 2001.
Notwithstanding the foregoing, in the event that said Corporate
Officer's employment with the Corporation is terminated by the Corporation other
than for "Cause", all remaining shares not previously delivered to the Corporate
Officer shall be delivered to said Corporate Officer within thirty (30) days
following termination. For purposes of this Program, the term "Cause" shall mean
(i) the Officer's continuing, willful failure to perform his/her duties required
of his/her position (other than as a result of total or partial incapacity due
to physical or mental illness), (ii) gross negligence or malfeasance by the
Officer in the performance of his/her duties hereunder, (iii) an act or acts on
the Officer's part constituting a felony under the laws of the United States or
any state thereof which results or was intended to result directly or indirectly
in gain or personal enrichment by the Officer at the expense of the Company, or
(iv) breach of the provisions of Exhibit B hereto pertaining to confidentiality
and competitive activities, but shall not mean (A) the refusal to relocate to
another city more than 50 miles from the Officer's present place of business,
nor (B) a refusal to perform the duties required of his/her position as a result
of either a material change in the scope of his/her job responsibilities or a
reduction in base compensation.
The transfer of said shares by such Corporate Officer shall be required
to conform to all applicable laws and regulations pertaining thereto.
Upon a Change in Control (as defined in the Key Employee Severance Pay
Plan) and the Corporate Officer's involuntary termination, other than for cause,
prior to the end of the Incentive Year, in addition to any amounts payable under
any other compensation plan, the Corporate Officer will be paid an amount equal
to the maximum incentive compensation which could be earned pro-rated for the
number of full months employed during the Incentive Year.
<PAGE> 1
EXHIBIT 10.17
U.S. HOME CORPORATION
AMENDED AND RESTATED KEY
EMPLOYEES' SEVERANCE PAY PLAN
1. Purpose
U.S. Home Corporation (the "Company") Key Employees' Severance Pay Plan
(the "Plan") is intended to encourage continuity of employment by key
employees by providing them with an incentive to remain in the employ
of the Company or its subsidiaries despite a potential for a change of
control of the Company.
2. Eligibility
The corporate officers, other than the Chairman and Co-Chief Executive
Officer and President, Co-Chief Executive Officer and Chief Operating
Officer, and the presidents of operations of the Company shall be
eligible for, and shall participate in, benefits provided under the
Plan (each an "Eligible Employee"). Such individuals as of the
Effective Date (as defined below) are set forth on Schedule A attached
hereto.
3. Benefits
(A) An Eligible Employee whose employment with the Company or a
subsidiary of the Company is terminated, whether voluntarily or
involuntarily other than for Cause (as defined below), within one (1)
year after the occurrence of a Change of Control (as defined below)
shall be entitled to receive an amount equal to the greater of (x) the
salary and bonus received by the Eligible Employee for the preceding
incentive year or (y) one (1) month of such Eligible Employee's Base
Salary (as defined below) for each full year during which such Eligible
Employee was employed by the Company or its subsidiaries.
(B) An Eligible Employee whose employment with the Company or a
subsidiary of the Company is terminated by the Company other than for
Cause (as defined below) or whose employment is Constructively
Terminated (as defined below) within two (2) years, but more than one
(1) year, after the occurrence of a Change of Control (as defined
below) shall be entitled to receive an amount equal to the greater of
(x) twelve (12) months of such Eligible Employee's Base Salary (as
defined below) or (y) one (1) month of such Eligible Employee's Base
Salary (as defined below) for each full year during which such Eligible
Employee was employed by the Company or its subsidiaries.
<PAGE> 2
(C) In addition to those benefits under Paragraphs (A) and (B) above,
such Eligible Employee shall also continue to participate in each of
the Company's employee benefit plans, policies or arrangements, which
provide insurance, including, without limitation, life insurance and
long-term disability insurance, and medical benefits (the "Company
Insurance Plans"), on the same basis as the Company's other executive
officers for one year after the date of termination of employment
(together with the benefits under Paragraphs (A) and (B), the
"Termination Benefits").
4. Payment of Benefits
The Termination Benefits payable pursuant to Section 3(A) or Section
3(B) hereunder shall be paid to an Eligible Employee in a single lump
sum in cash as soon as practicable (but in no event later than thirty
(30) days) after such Eligible Employee's employment is terminated
pursuant to Section 3 hereunder. If continued coverage under any of the
Company Insurance Plans is not possible under the terms of any
insurance policy or applicable law following the date of termination of
employment, the Company shall provide the Eligible Employee with
coverage equivalent to that provided to the Company's other executive
officers under a policy or arrangement reasonably acceptable to the
Eligible Employee. If an Eligible Employee dies after becoming entitled
to the Termination Benefits payable pursuant to Section 3(A) or Section
3(B) hereunder but before payment thereof is made to such Eligible
Employee, such Termination Benefits shall be paid to the Eligible
Employee's estate in a single lump sum in cash as soon as practicable
after such Eligible Employee's death. If an Eligible Employee dies
within one year after becoming entitled to the Termination Benefits
pursuant to Section 3(C) hereunder, such Termination Benefits shall
continue to be provided for one year after the date of termination of
the Eligible Employee to the Eligible Employee's spouse and dependents
on the same basis as provided to the Company's other executive
officers. The Company may deduct from any Termination Benefit any
federal, state or local taxes required by law to be withheld.
5. Definitions
(a) "Base Salary" shall mean an amount equal to an Eligible
Employee's maximum annual base salary in effect at any time
after the Effective Date (as defined below), excluding any
discretionary compensation or bonus payable or paid to an
Eligible Employee.
(b) "Change of Control" shall mean any of the following: (i) a
report on Schedule 13D is filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person or group of persons (within
the meaning of Section 13(d) of the Exchange Act), other than
the Company (or one of its subsidiaries) or any employee
benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of fifty percent (50%) or more of the combined
voting power of the then outstanding equity of the Company (as
determined under paragraph (d) of Rule 13d-3 under the
Exchange Act, in the
<PAGE> 3
case of rights to acquire the common stock, $.01 par value per
share (the "Common Stock"), of the Company); (ii) any
transaction or a series of related transactions (as a result
of a tender offer, merger, consolidation or otherwise whether
or not the Company is the continuing or surviving entity) that
results in, or that is in connection with, any person or group
of persons (within the meaning of Section 13(d) of the
Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the
Company (or one of its subsidiaries), acquiring beneficial
ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of fifty percent (50%)
or more of the combined voting power of the then outstanding
equity of the Company (as determined under paragraph (d) of
Rule 13d-3 under the Exchange Act, in the case of rights to
acquire the Common Stock) or of any person or group of persons
(within the meaning of Section 13(d) of the Exchange Act) that
possesses beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
fifty percent (50%) or more of the combined voting power of
the then outstanding equity of the Company; (iii) the sale,
lease, exchange or other transfer of all or substantially all
of the assets of the Company to any person or group of persons
(within the meaning of Section 13(d) of the Exchange Act) in
one transaction or a series of related transactions; provided,
that a transaction where the holders of all classes of the
then outstanding equity of the Company immediately prior to
such transaction own, directly or indirectly, fifty percent
(50%) or more of the aggregate voting power of all classes of
equity of such person or group immediately after such
transaction will not be a Change of Control under this clause
(iii); (iv) the liquidation or dissolution of the Company;
provided, that a liquidation or dissolution of the Company
which is part of a transaction or series of related
transactions that does not constitute a Change of Control
under the "provided" clause of clause (iii) above will not
constitute a Change of Control under this clause (iv); or (v)
a change in a majority of the members of the Board of
Directors of the Company within a 12-month period, unless the
election or nomination for election by the Company's
stockholders of each new director during such 12-month period
was approved by the vote of two-thirds of the directors then
still in office who were directors at the beginning of such
12-month period.
(c) "Constructively Terminated" shall mean (i) a reduction in
an amount equal to or greater than fifteen percent (15%) of an
Eligible Employee's Base Salary, (ii) a material reduction in
an Eligible Employee's job function, duties or
responsibilities or (iii) a required relocation of an Eligible
Employee of more than fifty (50) miles from such Eligible
Employee's current job location; provided, however, that the
employment with the Company or its subsidiaries of a President
of Operations who is an Eligible Employee will not be deemed
to be Constructively Terminated in the event he or she is
required to be a Division Chairman or Division President with
the Company or its subsidiaries and has job functions, duties
or responsibilities of a Division Chairman or Division
President and/or is required to relocate in connection with
such change in position; provided, further, that the
employment of an Eligible Employee will not be
<PAGE> 4
deemed Constructively Terminated unless such Eligible Employee
actually terminates his or her employment with the Company
within sixty (60) days after the occurrence of an event
specified in clause (i), (ii) or (iii) above.
(d) "Cause" shall mean (i) an Eligible Employee's continuing
willful failure to perform his or her duties (other than as a
result of total or partial incapacity due to physical or
mental illness), (ii) gross negligence or malfeasance by an
Eligible Employee in the performance of his or her duties,
(iii) an act or acts on the part of an Eligible Employee
constituting a felony under the laws of the United States of
America, or any state thereof that results or was intended to
result directly or indirectly in gain or personal enrichment
by such Eligible Employee at the expense of the Company or its
subsidiaries or (iv) breach of any of the provisions set forth
on Schedule B attached hereto pertaining to confidentiality
and competitive activities.
6. Miscellaneous
(a) The Plan shall be effective as of December 6, 1996 (the
"Effective Date").
(b) The Company reserves the right to modify or amend, in
whole or in part, the Plan; provided, however, that no such
modification or amendment shall be made within two (2) years
following the occurrence of a Change of Control.
(c) The compensation committee of the Board of Directors of
the Company (the "Compensation Committee") shall respond to
claims for benefits under the Plan within thirty (30) days of
their receipt and, if a claim is wholly or partially denied,
the Compensation Committee shall provide the Eligible Employee
with a written explanation of the denial which shall state the
specific reason or reasons the claim was denied; the exact
references to the Plan provisions that dealt with the claim; a
description of any additional material or information
necessary for him or her to revise and perfect the claim; an
explanation as to why such material or information is
necessary; and an explanation of the Plan's claims procedure.
Within forty-five (45) days after an Eligible Employee
receives a denial of his or her claim, such Eligible Employee
may appeal his or her claim denial to the Compensation
Committee. The Eligible Employee or such Eligible Employee's
authorized representative may make a written request for a
review of the denial and to review applicable documents and
may submit comments and issues in writing. The Compensation
Committee shall decide an appeal within fifteen (15) days
after receiving the request for review. The Compensation
Committee's decision on the review shall be in writing, and
shall include specific reasons for the decision and references
to the Plan provision upon which it was based.
(d) The Company shall reimburse an Eligible Employee (or such
Eligible Employee's estate, as applicable) for any and all
costs (including, but not limited to, legal fees) incurred by
such Eligible Employee (or such Eligible Employee's estate, as
applicable) in successfully appealing (whether pursuant to
paragraph 6(c) above, in a court of competent jurisdiction or
otherwise) a claim for benefits
<PAGE> 5
under the Plan which was denied. Such Eligible Employee's
benefits under the Plan shall be paid to him or her (or to his
or her estate, as applicable) as soon as practicable (but not
later than ten (10) days) after such successful appeal,
together with interest on such amount from his or her date of
termination of employment to the date of payment at the
average prime or base lending rate of interest published or
publicly announced by the financial institution then providing
financing to the Company under the Company's credit facility
(whether or not such rate is actually charged by such
financial institution) in effect on such termination date.
(e) The establishment of the Plan shall not be construed as
conferring any legal rights upon any Eligible Employee or
other person for a continuation of employment, nor will it
interfere with the rights of the Company or any of its
subsidiaries to discharge any Eligible Employee and to treat
such Eligible Employee without regard to the effect which such
treatment might have upon such Eligible Employee as an
Eligible Employee under the Plan.
(f) In the event that the Company finds that an Eligible
Employee is unable to care for his or her affairs because of
illness or accident, the Compensation Committee may direct
that any payment due such Eligible Employee, unless claim has
been made therefor by a duly appointed legal representative,
be paid to such Eligible Employee's spouse, child, parent or
other blood relative, or to a person with whom such Eligible
Employee resides, and any such payment so made will be a
complete discharge of the liabilities under the Plan therefor.
(g) The Plan shall be construed, regulated and administered
under the internal laws of the State of Delaware without
regard to principles of conflicts of laws.
(h) The Company shall request and use its best efforts to
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company
or any of its subsidiaries expressly to assume and agree to
perform the obligations under the Plan in the same manner and
to the same extent that the Company would be required to
perform such obligations if no such succession had taken
place.
<PAGE> 6
SCHEDULE B
All capitalized terms used but not defined herein have the meaning
ascribed thereto in the U.S. Home Corporation Key Employees' Severance Plan.
A. Confidentiality.
The Eligible Employee has and will acquire confidential information
with respect to the business of the Company and its subsidiaries. The
Eligible Employee will not, without the written consent of the Company
as authorized by the Board of Directors of the Company, at any time,
willfully disclose any such confidential information to any
unauthorized third party with an intent that such disclosure will
result in financial benefit to the Eligible Employee or to any person
other than the Company and its subsidiaries. For this purpose,
information will be considered confidential only if such information is
uniquely proprietary to the Company or any of its subsidiaries and has
not been made publicly available prior to its disclosure by the
Eligible Employee.
B. Competitive Activity.
Until the end of his or her employment, the Eligible Employee will
devote full business time to the business of the Company or its
subsidiaries and will not, without the written consent of the Board of
Directors of the Company, directly or indirectly, knowingly engage or
be interested in (as owner, partner, shareholder, employee, director,
officer, agent, consultant or otherwise), with or without compensation,
any business which is in competition with any line of business being
actively conducted by the Company or its subsidiaries during his or her
employment period. Nothing herein, however, will prohibit the Eligible
Employee from acquiring or holding not more than one percent (1%) of
any class of publicly-traded securities of any such business.
33
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Company
The following table sets forth the names of U.S. Home's subsidiaries
and the state in which incorporated. All subsidiaries are directly or indirectly
wholly-owned by U.S. Home. Certain insignificant subsidiaries are omitted.
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
---------------
<S> <C>
Fidelity Guaranty and Acceptance Corporation Delaware
USH Holding, Inc. Delaware
U.S. Home Acceptance Corporation Delaware
U.S. Home Insurors, Inc. Florida
U.S.H. Indemnity Company, Ltd. Bermuda
San Felipe Indemnity Company, Ltd. Bermuda
U.S. Home Mortgage Corporation Florida
USH Funding Corp. Texas
USH Millennium Ventures Corp. Florida
</TABLE>
35
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 3, 1999 included in this Form 10-K,
into the Company's previously filed Registration Statements No. 33-64712,
33-52993, 333-02775, 333-25759 and 333-50819.
ARTHUR ANDERSEN LLP
Houston, Texas
February 11, 1999
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND FOR THE
YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,435
<SECURITIES> 0
<RECEIVABLES> 142,989
<ALLOWANCES> 0
<INVENTORY> 986,878
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,352,976
<CURRENT-LIABILITIES> 0
<BONDS> 424,980
0
0
<COMMON> 137
<OTHER-SE> 514,104
<TOTAL-LIABILITY-AND-EQUITY> 1,352,976
<SALES> 0
<TOTAL-REVENUES> 1,497,649
<CGS> 1,192,791
<TOTAL-COSTS> 1,365,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,478
<INCOME-PRETAX> 89,293
<INCOME-TAX> 25,564
<INCOME-CONTINUING> 63,729
<DISCONTINUED> 0
<EXTRAORDINARY> 3,026
<CHANGES> 0
<NET-INCOME> 60,703
<EPS-PRIMARY> 4.75
<EPS-DILUTED> 4.46
</TABLE>
