<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ].
Commission File No. 1-9195
KAUFMAN AND BROAD HOME CORPORATION
(Exact name of registrant as specified in charter)
Delaware 95-3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [ X ] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
Common stock, par value $1.00 per share, 32,391,317 shares outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER(S)
---------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Nine Months and Three Months ended August 31, 1995 and 1994 3
Consolidated Balance Sheets -
August 31, 1995 and November 30, 1994 4
Consolidated Statements of Cash Flows -
Nine Months ended August 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
INDEX OF EXHIBITS 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended August 31, Ended August 31,
------------------------------- -----------------------------
1995 1994 1995 1994
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 917,639 $ 931,750 $ 372,314 $ 348,850
=============== ============== ============= =============
CONSTRUCTION:
Revenues $ 897,131 $ 909,675 $ 364,347 $ 341,646
Construction and land costs (742,335) (733,893) (299,734) (276,647)
Selling, general and administrative
expenses (121,816) (116,843) (48,029) (43,751)
--------------- -------------- ------------- -------------
Operating income 32,980 58,939 16,584 21,248
Interest income 1,605 1,449 580 366
Interest expense, net of amounts
capitalized (20,538) (13,313) (7,528) (4,202)
Minority interests in pretax income of
consolidated joint ventures (435) (631) (288) (238)
Equity in pretax loss of unconsolidated
joint ventures (1,286) (2,298) (1,170) (1,796)
--------------- -------------- ------------- -------------
Construction pretax income 12,326 44,146 8,178 15,378
--------------- -------------- ------------- -------------
MORTGAGE BANKING:
Revenues:
Interest income 11,865 12,866 3,779 3,971
Other 8,643 9,209 4,188 3,233
--------------- -------------- ------------- -------------
20,508 22,075 7,967 7,204
Expenses:
Interest (11,067) (13,291) (3,560) (4,094)
General and administrative (4,128) (3,945) (1,722) (1,404)
--------------- -------------- ------------- -------------
Mortgage banking pretax income 5,313 4,839 2,685 1,706
--------------- -------------- ------------- -------------
TOTAL PRETAX INCOME 17,639 48,985 10,863 17,084
Income taxes (6,500) (18,100) (4,000) (6,300)
--------------- -------------- ------------- -------------
NET INCOME $ 11,139 $ 30,885 $ 6,863 $ 10,784
=============== ============== ============= =============
EARNINGS PER SHARE $ .28 $ .77 $ .17 $ .27
=============== ============== ============= =============
AVERAGE SHARES OUTSTANDING 39,768 40,092 39,818 39,788
=============== ============== ============= =============
CASH DIVIDENDS PER COMMON SHARE $ .225 $ .225 $ .075 $ .075
=============== ============== ============= =============
</TABLE>
See accompanying notes.
3
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
August 31, November 30,
1995 1994
-------------- ---------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 24,681 $ 49,497
Trade and other receivables 83,540 114,921
Inventories 1,085,118 942,713
Investments in unconsolidated joint ventures 23,589 25,314
Other assets 54,397 34,691
-------------- ---------------
1,271,325 1,167,136
-------------- ---------------
MORTGAGE BANKING:
Cash and cash equivalents 7,755 5,311
Receivables:
First mortgages and mortgage-backed securities 101,223 110,223
First mortgages held under commitment of sale and
other receivables 157,868 164,365
Other assets 6,237 7,425
-------------- ---------------
273,083 287,324
-------------- ---------------
TOTAL ASSETS $ 1,544,408 $ 1,454,460
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 122,356 $ 146,179
Accrued expenses and other liabilities 75,447 72,845
Mortgages and notes payable 694,374 565,020
-------------- ---------------
892,177 784,044
-------------- ---------------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,260 10,293
Notes payable 121,000 125,000
Collateralized mortgage obligations secured by mortgage-
backed securities 88,554 96,731
-------------- ---------------
218,814 232,024
-------------- ---------------
Deferred income taxes 28,205 31,373
-------------- ---------------
Minority interests in consolidated joint ventures 2,006 2,272
-------------- ---------------
Series B convertible preferred stock 1,300 1,300
Common stock 32,393 32,378
Paid-in capital 189,028 188,970
Retained earnings 177,727 181,282
Cumulative foreign currency translation adjustments 2,758 817
-------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 403,206 404,747
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,544,408 $ 1,454,460
============== ===============
</TABLE>
See accompanying notes.
4
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
-------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,139 $ 30,885
Adjustments to reconcile net income to net cash used for operating
activities:
Equity in pretax loss of unconsolidated joint ventures 1,286 2,298
Minority interests in pretax income of consolidated joint ventures 435 631
Amortization of discounts and issuance costs 1,182 1,692
Depreciation and amortization 4,593 2,432
Provision for deferred income taxes (3,168) 6,478
Change in:
Receivables 37,455 40,983
Inventories (115,075) (119,945)
Accounts payable, accrued expenses
and other liabilities (22,254) (47,498)
Other, net (18,248) (1,329)
--------------- ---------------
Net cash used for operating activities (102,655) (83,373)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 439 (5,460)
Net sales (originations) of mortgages held for long-term investment 256 (295)
Payments received on first mortgages and mortgage-backed securities 9,481 44,198
Other, net (3,413) (3,808)
--------------- ---------------
Net cash provided by investing activities 6,763 34,635
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from credit agreements and other short-term borrowings 124,013 180,323
Payments on collateralized mortgage obligations (9,033) (42,127)
Payments on mortgages, land contracts and other loans (26,065) (6,308)
Payments to minority interests in consolidated joint ventures (701) (13,287)
Purchase of special common stock and warrants - (73,677)
Payments of cash dividends (14,694) (14,708)
--------------- ---------------
Net cash provided by financing activities 73,520 30,216
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,372) (18,522)
Cash and cash equivalents at beginning of period 54,808 75,122
--------------- ---------------
Cash and cash equivalents at end of period $ 32,436 $ 56,600
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 24,153 $ 20,183
=============== ===============
Income taxes paid $ 4,957 $ 40,422
=============== ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 27,330 $ 19,416
=============== ===============
</TABLE>
See accompanying notes.
5
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements
for the year ended November 30, 1994 contained in the Company's 1994
Annual Report to Shareholders.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial
position as of August 31, 1995, the results of its consolidated
operations for the nine months and three months ended August 31, 1995
and 1994, and its consolidated cash flows for the nine months ended
August 31, 1995 and 1994. The results of operations for the nine months
and three months ended August 31, 1995 are not necessarily indicative of
the results to be expected for the full year. The consolidated balance
sheet at November 30, 1994 has been taken from the audited financial
statements as of that date.
2. Statement of Financial Accounting Standards No. 115
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" effective December 1, 1994. In accordance with this
pronouncement, the Company's mortgage-backed securities, which have been
classified as held-to-maturity, are stated at amortized cost, adjusted
for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. There was no impact
on the Company's financial position or results of operations from the
adoption of this pronouncement. The total amortized cost, gross
unrealized holding gains, gross unrealized holding losses, and aggregate
fair value of the mortgage-backed securities are $94,545,000,
$5,608,000, $0 and $100,153,000, respectively at August 31, 1995.
3. Earnings Per Share
The computation of earnings per share is based on the weighted average
number of common shares, special common shares, equivalent Series B
convertible preferred shares and common share equivalents outstanding
during each period. The Series B convertible preferred shares are
considered common stock due to their mandatory conversion into common
stock, and the related dividends are not deducted from net income for
purposes of calculating earnings per share. Common share equivalents
include dilutive stock options and warrants using the treasury stock
method.
If, for purposes of calculating earnings per share, the Series B
convertible preferred shares were excluded from the weighted average
shares outstanding and the related dividends deducted from net income,
the computation would have resulted in earnings per share of $.11 and
$.70 for the nine months ended August 31, 1995 and 1994, respectively.
The same computation would have resulted in earnings per share of $.13
for the three months ended August 31, 1995 and $.25 for the three months
ended August 31, 1994.
6
<PAGE> 7
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, November 30,
1995 1994
-------------- ---------------
<S> <C> <C>
Homes, lots and improvements in production $ 810,080,000 $ 712,563,000
Land under development 275,038,000 230,150,000
-------------- ---------------
Total inventories $1,085,118,000 $ 942,713,000
============== ===============
</TABLE>
5. Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The provisions of this statement are effective for
fiscal years beginning after December 15, 1995. The Company is not
in a position currently to accurately assess the impact on the
financial statements. However, the future adoption of this
pronouncement is not expected to have a material effect on the
Company's financial position or results of operations.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Total revenues for the three months ended August 31, 1995 increased to $372.3
million from $348.9 million for the three months ended August 31, 1994. For
the third quarter of 1995, total revenues were up primarily as a result of
higher housing revenues. For the nine months ended August 31, 1995, total
revenues declined to $917.6 million from $931.8 million for the first nine
months of 1994 as a result of lower housing and commercial revenues. Net
income for the third quarter of 1995 decreased to $6.9 million or $.17 per
share from $10.8 million or $.27 per share for the same period a year ago. Net
income for the nine months ended August 31, 1995 decreased to $11.1 million or
$.28 per share from $30.9 million or $.77 per share for the same period of
1994. The results for the third quarter demonstrated improvement from the
earnings per share of $.01 and $.10 reported in the first and second quarters
of 1995, respectively. During the third quarter of 1995, each of the Company's
newer United States divisions, outside of California, profitably expanded their
businesses while housing markets in California generally remained soft. Third
quarter 1995 deliveries in the western states outside of California increased
163.4% from the year-earlier quarter while California deliveries declined 14.2%
for the same period. The Company's United States operations outside of
California continue to generate a greater portion of business for the Company,
accounting for 26.0% of domestic deliveries in the third quarter of 1995
compared to 10.3% in the third quarter of 1994.
CONSTRUCTION
Revenues increased by $22.7 million to $364.3 million in the third quarter of
1995 from $341.6 million in the third quarter of 1994 primarily due to higher
domestic housing revenues. Residential revenues for the three months ended
August 31, 1995 increased by $19.1 million to $357.0 million on 2,111
world-wide deliveries from $337.9 million on 2,082 deliveries in the
year-earlier period. Housing revenues in the United States totaled $326.9
million on 1,965 unit deliveries in the third quarter of 1995 compared to
$301.8 million on 1,888 units in the prior year's period. Increases of 4.1% in
both domestic deliveries and average selling price led to a higher level of
residential revenues in the United States for the current quarter. California
housing operations generated revenues of $257.8 million on 1,454 units in the
third quarter of 1995 compared to $278.8 million on 1,694 units in the same
quarter a year ago; however, the 240 unit decline in California deliveries was
more than offset by a 317 unit increase in deliveries from other United States
operations. The decrease in California unit volume mainly reflected the still
relatively weak housing markets throughout the state. Domestic operations
outside of California experienced continued growth in the third quarter of 1995
as these operations continued to mature, accounting for 26.0% of domestic
deliveries in the third quarter of 1995 compared to 10.3% in the third quarter
of 1994. During the three months ended August 31, 1995, the Company delivered
homes in Utah and New Mexico, markets in which it had no corresponding
deliveries in the year-earlier period. Revenues from French housing operations
during the current period decreased to $28.7 million on 133 units from $34.1
million on 176 units in the prior year's quarter. The decline in French
deliveries was due to the continuing adverse economic climate in France, as
well as the decision by many buyers to defer home purchase plans in anticipation
of the availability of new government incentive programs which did not become
effective until October 1995.
During the third quarter of 1995, the Company's overall average selling price
increased to $169,000 from $162,200 a year ago on a 4.1% and 11.2% increase in
the Company's average selling price in the United States and France,
respectively. The Company's average new home price in the United States
increased to $166,400 in the third quarter of 1995 from $159,800 a year ago
largely due to an increase in California where the average selling price rose
to $177,300 in the current quarter from $164,600 in the same quarter last year.
In France, the Company's average selling price for the three months ended
August 31, increased to $215,400 in 1995 from $193,800 in 1994. Each of these
increases mainly resulted from changes in product mix.
Revenues from commercial development activities in France increased to $5.3
million in the third quarter of 1995 from $2.9 million in the third quarter of
1994. Company-wide third quarter revenues from land sales
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totaled $2.0 million in 1995 compared to $.8 million in 1994. Land sale
revenues are impacted by the availability of land and market conditions and
fluctuate from quarter to quarter.
For the first nine months of 1995, construction revenues totaled $897.1
million, a decrease of $12.6 million from $909.7 million in the prior year's
first nine months on lower housing and commercial revenues partially offset
by higher land sale revenues. The decrease in housing revenues reflected
lower unit volume, partially offset by a higher average selling price.
Housing revenues totaled $877.7 million on 5,353 units in the first three
quarters of 1995 compared to $890.3 million on 5,575 units for the same
period a year ago. Housing operations in the United States produced revenues
of $803.2 million on 4,971 units in the first nine months of 1995 and $808.1
million on 5,110 units in the comparable period of 1994. The decline in
United States unit volume for the nine month period primarily reflected weak
housing markets throughout California in 1995. In addition, the impact of
unusually severe weather conditions in California early in the year and the
cumulative effect of interest rate increases implemented by the Federal
Reserve Board throughout 1994 and into early 1995 contributed to the decrease
in unit volume for the nine months. Deliveries in California decreased to
3,721 units for the first nine months of 1995 from 4,535 units for the first
nine months of 1994. Partially offsetting this decrease was the increase in
deliveries from other United States operations which expanded substantially
during 1995, generating 1,250 deliveries in the first three quarters of 1995
compared to 575 a year ago. French housing revenues totaled $70.4 million on
345 units in the first nine months of 1995 and $77.7 million on 425 units in
the corresponding 1994 period.
The Company's overall average new home price increased to $163,900 in the
first nine months of 1995 from $159,600 in the year-earlier period primarily
reflecting increases in the United States and France as a result of changes
in product mix. For the nine months ended August 31, 1995 the average
selling price in the United States rose to $161,600 from $158,200 in the same
period of 1994 as the average selling price in California for the first three
quarters climbed to $170,400 in 1995 from $164,000 in 1994. During the first
nine months of the year, the Company's average selling price in France
increased to $204,000 in 1995 from $182,900 in 1994.
Revenues from the development of commercial buildings in France decreased to
$10.2 million during the first nine months of 1995 from $14.8 million in the
same period of 1994 reflecting the Company's reduced level of operations in
France's weak commercial market. The Company expects revenues from French
commercial activities to remain at reduced levels as relatively high vacancy
rates persist in that market. Company-wide revenues from land sales totaled
$9.2 million for the first nine months of 1995 compared to $4.6 million for
the same period a year ago.
Operating income decreased by $4.6 million to $16.6 million in the third
quarter of 1995 from $21.2 million in the third quarter of 1994. This
decrease primarily reflected an increase in selling, general and
administrative expenses as gross profits on housing sales remained relatively
flat. While unit volume increased in the third quarter of 1995 compared to
the third quarter of 1994, housing gross profits remained essentially
unchanged due to a decrease in housing gross margin. For the third quarter,
gross profits (from housing and commercial activities) decreased slightly by
$.4 million to $64.3 million in 1995 from $64.7 million in the prior year.
Housing and commercial gross profits as a percentage of related revenues
decreased to 17.8% in the current quarter from 19.0% in the year-earlier
quarter. Excluding commercial activity for the three months ended August 31,
the Company's housing gross margin was 17.7% in 1995, down from 18.4% in
1994, primarily reflecting a lower housing gross margin in California as
higher sales incentives continue to be required to stimulate buying activity
there. Nonetheless, the .7 percentage point decrease in housing gross margin
in the current quarter reflected improvement when compared to the larger
year-over- year declines of 3.7 and 1.1 percentage points for the first and
second quarters of 1995 and 1994, respectively. This sequential improvement
primarily resulted from a higher housing gross margin in California in the
recently completed third quarter versus the first two quarters of 1995 and an
increased proportion of deliveries from new, higher margin communities as the
year progressed. The Company expects these trends to continue for the
balance of 1995. Gross profits from the Company's land sales were flat at
$.3 million in both the third quarter of 1995 and 1994.
Selling, general and administrative expenses increased by $4.2 million to
$48.0 million in the third quarter of 1995 from $43.8 million in the third
quarter of 1994. This increase was mainly due to higher unit volume along
with increased financing incentives and sales commissions, partially offset
by savings associated with
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<PAGE> 10
the cost cutting programs implemented in early 1995. As a percentage of
housing revenues, selling, general and administrative expenses increased to
13.5% in the third quarter of 1995 compared to 13.0% a year earlier.
Nevertheless, the third quarter percentage reflected improvement from 14.6% for
the first quarter of 1995 and 13.8% for the second quarter of 1995 due to
higher unit volume and the impact of on- going cost cutting measures. The
Company anticipates that this positive trend will continue for the balance of
1995 due to the benefits of its cost cutting program and anticipated
improvements in volume.
Operating income for the first three quarters of 1995 decreased by $25.9
million to $33.0 million from $58.9 million in the corresponding period of
1994. This decrease was due to lower gross profits on housing sales and
commercial activities and an increase in selling, general and administrative
expenses. For the nine month period, gross profits (from housing and
commercial activities) decreased by $22.8 million to $151.6 million in 1995
from $174.4 million in 1994. As a percentage of related revenues, gross
profits (from housing and commercial activities) were 17.1% in the first nine
months of 1995 compared to 19.3% in the prior year's period. Excluding the
effect of commercial development activities, housing gross profits as a
percentage of related revenues decreased to 17.0% in the period from 18.6% a
year earlier. These decreases primarily reflected a lower gross margin in
California where substantially higher sales incentives were required to
stimulate buying activity. In addition, the volume decline caused the fixed
component of gross margin to increase as a percentage of housing revenues.
Gross profits from land sales increased by $1.8 million in the first nine
months of 1995 to $3.2 million from $1.4 million in 1994.
Selling, general and administrative expenses increased by $5.0 million to
$121.8 million for the first nine months of 1995 from $116.8 million for the
same period of 1994, mainly due to the expansion of the Company's domestic
operations in western states outside of California and an increase in financing
incentives and sales commissions, partially offset by the impact of the
Company's cost reduction program. As a percentage of housing revenues,
selling, general and administrative expenses increased to 13.9% for the first
nine months of 1995 from 13.1% in the corresponding period of 1994.
Interest income totaled $.6 million in the third quarter of 1995 compared to
$.4 million in the same quarter a year ago. For the first nine months,
interest income totaled $1.6 million and $1.4 million in 1995 and 1994,
respectively. These essentially flat levels of interest income reflected
little change in the interest bearing average balances of short-term
investments and mortgages receivable compared to the same periods a year ago.
Interest expense (net of amounts capitalized) increased to $7.5 million in the
third quarter of 1995 from $4.2 million in the same period a year ago, while
interest expense for the first nine months grew to $20.5 million in 1995
compared to $13.3 million in 1994. The higher level of interest expense for
both periods reflected an increase in average indebtedness, an overall higher
effective borrowing rate and a lower percentage of interest capitalized in
1995. Debt levels grew in 1995 primarily as a result of additional borrowings
under the Company's domestic unsecured revolving credit facility in connection
with higher inventory levels associated with the Company's growing domestic
operations outside of California. The Company's effective borrowing rate
increased as a result of the impact on the revolving credit agreement from rate
hikes implemented by the Federal Reserve Board throughout 1994 and into early
1995.
Minority interests in pretax income of consolidated joint ventures decreased to
$.4 million for the first nine months of 1995 from $.6 million in the
corresponding period of 1994. Minority interests, which primarily relate to
commercial activities in France, are expected to remain at relatively low
levels reflecting the limited opportunities available in the weak French
commercial market.
Equity in pretax loss of unconsolidated joint ventures was $1.2 million in the
third quarter of 1995 compared to $1.8 million in third quarter of 1994. Joint
ventures recorded combined revenues, all of which were generated from
residential properties, of $10.2 million in the current quarter compared to
$18.1 million for the same period a year ago. For the first three quarters of
1995, the Company's equity in pretax loss of unconsolidated joint ventures
decreased to $1.3 million from $2.3 million in the same period of 1994.
Combined revenues from these joint ventures totaled $26.8 million in the first
nine months of 1995 compared to $39.8 million in the same period of 1994. Of
these amounts, all revenues but $3.0 million in 1995 were generated from
residential properties. The losses generated in the third quarter and nine
month periods
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<PAGE> 11
primarily consisted of selling, general, administrative and interest expenses
from a single French multi-family residential project.
MORTGAGE BANKING
Interest income and interest expense decreased by $.2 million and $.5
million, respectively, in the third quarter of 1995 compared to the same
quarter a year ago. For the first nine months of 1995, interest income
declined by $1.0 million and related interest expense dropped by $2.2 million
from the same period of 1994. These amounts decreased primarily due to the
declining balances of outstanding mortgage-backed securities and related
collateralized mortgage obligations, stemming from both regularly scheduled
monthly principal amortization and prepayment activity of mortgage
collateral. Interest income and expense are expected to continue to decline
as the mortgage-backed securities and related collateralized mortgage
obligations will continue to pay off at approximately the same rate.
Other mortgage banking revenues increased to $4.2 million in the third
quarter of 1995 compared to $3.2 million in the prior year's third quarter.
This increase was mainly the result of higher gains on the sale of mortgages
and servicing rights due to a higher level of mortgage originations and a
more favorable mix of fixed to variable rate loans. For the first three
quarters of 1995, other mortgage banking revenues totaled $8.6 million, a
decrease from $9.2 million in the prior year's period principally due to
lower gains from the sale of servicing rights.
General and administrative expenses increased to $1.7 million in the third
quarter of 1995 compared to $1.4 million in the same period a year ago as
loan origination volume increased due to a combination of higher domestic
deliveries and a better retention rate. For the nine-month period, these
expenses were $4.1 million in 1995 and $3.9 million in 1994 reflecting higher
mortgage production levels partially offset by the benefit of aggressive cost
reduction programs.
INCOME TAXES
Income tax expense totaled $4.0 million in the third quarter of 1995 and $6.3
million in the prior year's third quarter. For the first nine months of
1995, income tax expense totaled $6.5 million compared to $18.1 million in
the same period of 1994. These amounts represented effective income tax
rates of approximately 37% in both periods of 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Historically, the Company
has funded its construction and mortgage banking concerns with internally
generated operating results and external sources of debt and equity
financing. For the nine months ended August 31, 1995, net cash used for
operating, investing and financing activities totaled $22.4 million compared
to $18.5 million used in the nine months ended August 31, 1994.
The Company's operating activities for the first nine months of 1995 and 1994
used $102.7 million and $83.4 million, respectively. For the nine months
ended August 31, 1995, the Company primarily used cash to fund a net
investment of $115.1 million in inventories, excluding $27.3 million of
inventories acquired through seller financing, and to pay down $22.3 million
in accounts payable, accrued expenses and other liabilities. The use of cash
was partially offset by nine months' earnings of $11.1 million, a reduction
in receivables of $37.5 million and various noncash items deducted from net
income. Inventories increased primarily in the United States where they rose
to $932.2 million at August 31, 1995 from $807.5 million at November 30,
1994, as the Company continued its domestic expansion into western states
outside of California. The reduction in receivables related to a decrease in
receivables from both construction and mortgage banking operations.
Construction receivables decreased as a result of increased collections on
mortgages receivable and customer accounts, while mortgage banking
receivables related to mortgages held under commitment of sale decreased due
to lower mortgage origination volume in the third quarter of 1995 compared to
the fourth quarter of 1994.
11
<PAGE> 12
Operating activities for the first three quarters of 1994 used cash for a net
investment of $119.9 million in inventories, excluding $19.4 million of
inventories acquired through seller financing, and to pay down $47.5 million in
accounts payable, accrued expenses and other liabilities. The use of cash was
partially offset by third quarter earnings of $30.9 million and a $41.0 million
reduction in receivables. Inventories increased mainly due to the Company's
domestic expansion. The reduction in receivables related primarily to a
decrease in mortgage origination volume in the third quarter of 1994 compared
to the fourth quarter of 1993, resulting in a lower balance of mortgages held
under commitment of sale.
Cash provided by investing activities totaled $6.8 million in the first nine
months of 1995 compared to $34.6 million in the year-earlier period. In the
first nine months of 1995, cash was provided from $9.5 million in proceeds
received from mortgage-backed securities which were principally used to pay
down the collateralized mortgage obligations for which the mortgage-backed
securities had served as collateral. Partially offsetting these proceeds was
$3.4 million of cash used for other investing activities. In the first nine
months of 1994, proceeds of $44.2 million received from mortgage-backed
securities were partially offset by $5.5 million of cash used for investments
in unconsolidated joint ventures and $3.8 million of cash used for other
investing activities.
Financing activities in the first nine months of 1995 provided $73.5 million of
cash compared to $30.2 million provided in the same period of 1994. In the
first nine months of 1995, cash was provided by $97.9 million in net proceeds
from borrowings. These cash inflows were partially offset by payments on
collateralized mortgage obligations of $9.0 million, the funds for which were
provided by receipts on mortgage-backed securities; and $14.7 million of cash
dividend payments. Financing activities for the nine months ended August 31,
1994 resulted in net cash inflows due mainly to $174.0 million in net proceeds
from borrowings substantially offset by the purchase of special common stock
and warrants for $73.7 million; payments on collateralized mortgage obligations
of $42.1 million; and $14.7 million of cash dividend payments.
Under the Company's $500 million domestic unsecured revolving credit facility,
which contains a $200 million sublimit for the Company's mortgage banking
operations, a total of $143.9 million was available for future use as of August
31, 1995. The Company's French unsecured financing agreements had in the
aggregate $81.5 million available at August 31, 1995. In addition to the $200
million sublimit, the Company's mortgage banking operations had commitments of
$120 million on the asset-backed commercial paper facility. Of the total $120
million potentially available under this facility, $29.0 million was available
at quarter-end for the mortgage banking operation's future use.
The Company believes it has adequate resources and sufficient credit line
facilities to satisfy its current and reasonably anticipated future
requirements for funds to acquire capital assets and land, to construct homes,
to fund its mortgage banking operations and to meet any other needs of its
business, both on a short and long-term basis.
As of August 31, 1995, the Company's residential backlog reached its highest
third quarter levels, in terms of both units and dollar value, in six years.
Residential backlog at the end of the third quarter of 1995 consisted of 1,851
orders, representing aggregate future revenues of approximately $333.5 million
compared to 1,281 orders representing $208.4 million a year earlier. The
Company achieved a single quarter record of 2,311 net orders in the third
quarter of 1995. This milestone resulted from the Company's strong domestic
order activity outside of California where the percent of the Company's other
United States business has more than doubled since last year, comprising 24.8%
of net orders in the current quarter versus 11.6% a year ago.
The Company's operations in the United States accounted for approximately
$277.3 million of backlog value on 1,586 orders at August 31, 1995 compared to
$164.8 million on 1,047 orders at August 31, 1994. In addition, net domestic
orders were up 12.3% in the third quarter of 1995 compared to the year-earlier
quarter. Backlog in California grew to $191.2 million on 993 orders at August
31, 1995 compared to $137.3 million on 837 orders at August 31, 1994, despite a
5.6% decrease in third quarter net orders to 1,588 in 1995 from 1,683 net
orders in 1994. Other United States operations demonstrated substantial
year-over-year growth in backlog levels with the backlog at August 31, 1995
increasing to approximately $86.1 million on 593 orders from $27.5 million on
210 orders at August 31, 1994. Growth in these other western states reflected
a 137.3% increase in net orders for the third quarter of 1995 compared to the
same quarter of 1994 as a result of the
12
<PAGE> 13
Company's domestic expansion. The Company expects the improved backlog and
an anticipated continuation of strong new order activity in the other United
States operations to contribute to an improved level of domestic deliveries
in the fourth quarter of 1995 when compared to the first three quarters of
the year; however, backlog cancellations could occur, particularly if market
conditions deteriorate or mortgage interest rates increase. In addition, the
Company continues to experience a relatively weak economy and new housing
market in California, its largest market, as net orders in September 1995
were down 10.1% from September 1994.
In France, the residential backlog value at August 31, 1995 totaled
approximately $54.6 million on 248 orders compared to $41.5 million on 214
orders a year earlier. The Company's 138 net orders in France for the third
quarter of 1995 virtually matched the 137 orders generated during the same
period a year ago. The Company remains cautious regarding the French housing
market in light of the country's high unemployment rate and general
uncertainty surrounding the economy; however, with the presidential election
recently completed and new government assistance programs to benefit
homebuyers implemented in October 1995, the Company believes the French
housing operations may improve in the balance of 1995 and into 1996. Backlog
associated with consolidated commercial development activities was valued at
approximately $20.1 million at August 31, 1995 compared to $31.2 million at
August 31, 1994, reflecting reduced opportunities in the French commercial
market. French commercial activities will likely remain at reduced levels as
the market continues to absorb existing properties.
In Mexico, the operating environment continues to be affected by the series
of sharp devaluations of the peso which have occurred in 1995 and slowed an
already complex regulatory process and heightened market concerns for new
home sales. Thus, the level and timing of sales or deliveries from
operations in Mexico remain uncertain as the Company continues to re-assess
its start-up operation there.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The following table presents residential information in terms of unit
deliveries to home buyers and net orders taken by geographical market for the
three months and nine months ended August 31, 1995 and 1994, together with
backlog data in terms of units and value by geographical market as of August
31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended August 31,
------------------------------------
Deliveries Net Orders
----------------- ----------------
Market 1995 1994 1995 1994
- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
California 1,454 1,694 1,588 1,683
Other United States 511 194 572 241
France 133 176 138 137
Canada 13 18 13 17
------- ------- ------- -------
Total 2,111 2,082 2,311 2,078
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended August 31,
-------------------------------------------------------------------------------------
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
----------------- ---------------- ------------------ --------------------
Market 1995 1994 1995 1994 1995 1994 1995 1994
- ------ ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 3,721 4,535 4,086 4,602 993 837 $191,182 $137,289
Other United States 1,250 575 1,644 648 593 210 86,096 27,548
France 345 425 424 502 248 214 54,560 41,546
Canada 37 40 34 45 17 20 1,683 2,000
------- ------- ------- ------- ------- ------- -------- --------
Total 5,353 5,575 6,188 5,797 1,851 1,281 $333,521 $208,383
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Statement of Computation of Per Share Earnings.
24 The consent of Ernst & Young LLP, independent auditors, filed as an
exhibit to the Company's 1994 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31, 1995.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
----------------------------------
Registrant
Dated October 13, 1995 /s/ BRUCE KARATZ
------------------------------- ----------------------------------
Bruce Karatz
Chairman, President and Chief
Executive Officer
Dated October 13, 1995 /s/ MICHAEL F. HENN
------------------------------- ----------------------------------
Michael F. Henn
Senior Vice President and Chief
Financial Officer
15
<PAGE> 16
<TABLE>
<CAPTION>
INDEX OF EXHIBITS Page of Sequentially
Numbered Pages
--------------------
<S> <C> <C>
11 Statement of Computation of Per Share Earnings 17
27 Financial Data Schedule
</TABLE>
16
<PAGE> 1
EXHIBIT 11
KAUFMAN AND BROAD HOME CORPORATION
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In Thousands Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended August 31, Ended August 31,
------------------------------- -------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 11,139 $ 30,885 $ 6,863 $ 10,784
============== ============== ============== ==============
Weighted average common shares
outstanding 32,385 32,475 32,391 32,359
Weighted average Series B convertible
preferred shares(1) 6,500 6,500 6,500 6,500
Common share equivalents:
Stock options 883 1,117 927 929
-------------- -------------- -------------- --------------
39,768 40,092 39,818 39,788
============== ============== ============== ==============
PRIMARY EARNINGS PER SHARE(2) $ .28 $ .77 $ .17 $ .27
============== ============== ============== ==============
FULLY DILUTED:
Net income $ 11,139 $ 30,885 $ 6,863 $ 10,784
============== ============== ============== ==============
Weighted average common shares
outstanding 32,385 32,475 32,391 32,359
Weighted average Series B convertible
preferred shares(1) 6,500 6,500 6,500 6,500
Common share equivalents:
Stock options 883 1,117 927 963
-------------- -------------- -------------- --------------
39,768 40,092 39,818 39,822
============== ============== ============== ==============
FULLY DILUTED EARNINGS PER SHARE(2)(3) $ .28 $ .77 $ .17 $ .27
============== ============== ============== ==============
</TABLE>
________________
(1) Each of the 1,300 Series B convertible preferred shares is convertible
into five shares of common stock.
(2) If, for purposes of calculating primary and fully diluted earnings per
share, the Series B convertible preferred shares were excluded from the
weighted average shares outstanding and the related dividends deducted
from net income, the computations would have resulted in both primary and
fully diluted earnings per share of $.11 and $.70 for the nine months
ended August 31, 1995 and 1994, respectively. The same computation would
have resulted in both primary and fully diluted earnings per share of $.13
and $.25 for the three months ended August 31, 1995 and August 31, 1994,
respectively.
(3) Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is not
material.
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 32,436
<SECURITIES> 101,223<F1>
<RECEIVABLES> 241,408
<ALLOWANCES> 0
<INVENTORY> 1,085,118
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,544,408
<CURRENT-LIABILITIES> 0
<BONDS> 362,376<F2>
<COMMON> 32,393
0
1,300
<OTHER-SE> 369,513
<TOTAL-LIABILITY-AND-EQUITY> 1,544,408
<SALES> 897,131
<TOTAL-REVENUES> 917,639
<CGS> 742,335
<TOTAL-COSTS> 753,402<F3>
<OTHER-EXPENSES> 125,944<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,538
<INCOME-PRETAX> 17,639
<INCOME-TAX> 6,500
<INCOME-CONTINUING> 11,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,139
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0<F5>
<FN>
<F1>Marketable securities are comprised of first mortgages and mortgage-backed
securities which are held for long-term investment. The mortgage-backed
securities serve as collateral for related collateralized mortgage obligations.
<F2>Bonds are comprised of senior and senior subordinated notes and collateralized
mortgage obligations.
<F3>Total Costs include interest expense on the collateralized mortgage
obligations, as the associated interest income generated from the
mortgage-backed securities is included in Total Revenues.
<F4>Other Expenses are comprised of selling, general and administrative expenses.
<F5>Fully diluted earnings per share is not disclosed in the Company's consolidated
financial statements since the maximum dilutive effect is not material.
</FN>
</TABLE>
