<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended February 29, 1996.
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 its 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, 32,356,536 shares outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q/A
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER(S)
---------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Three Months ended February 29, 1996 and February 28, 1995 3
Consolidated Balance Sheets -
February 29, 1996 and November 30, 1995 4
Consolidated Statements of Cash Flows -
Three Months ended February 29, 1996 and February 28, 1995 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
INDEX OF EXHIBITS 17
</TABLE>
2
<PAGE> 3
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>
Three Months Ended
------------------------------
February 29, February 28,
1996 1995
---------- -----------
<S> <C> <C>
TOTAL REVENUES $ 302,475 $ 229,832
========= =========
CONSTRUCTION:
Revenues $ 295,815 $ 224,377
Construction and land costs (243,956) (187,201)
Selling, general and administrative expenses (39,711) (31,672)
--------- ---------
Operating income 12,148 5,504
Interest income 718 551
Interest expense, net of amounts capitalized (8,102) (5,641)
Minority interests in pretax income of
consolidated joint ventures (65) (23)
Equity in pretax loss of unconsolidated joint
ventures (232) (124)
--------- ---------
Construction pretax income 4,467 267
--------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 3,667 4,301
Other 2,993 1,154
--------- ---------
6,660 5,455
Expenses:
Interest (3,469) (3,972)
General and administrative (1,272) (1,065)
--------- ---------
Mortgage banking pretax income 1,919 418
--------- ---------
TOTAL PRETAX INCOME 6,386 685
Income taxes (2,300) (250)
--------- ---------
NET INCOME $ 4,086 $ 435
========= =========
EARNINGS PER SHARE $ .10 $ .01
========= =========
AVERAGE SHARES OUTSTANDING 39,821 39,743
========= =========
CASH DIVIDENDS PER COMMON SHARE $ .075 $ .075
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
February 29, November 30,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 27,919 $ 24,793
Trade and other receivables 96,204 111,620
Inventories 1,090,566 1,059,179
Investments in unconsolidated joint ventures 19,215 21,154
Other assets 51,155 52,462
---------- ----------
1,285,059 1,269,208
---------- ----------
MORTGAGE BANKING:
Cash and cash equivalents 7,222 18,589
Receivables:
First mortgages and mortgage-backed securities 94,557 97,672
First mortgages held under commitment of sale and
other receivables 109,350 181,764
Other assets 6,663 6,946
---------- ----------
217,792 304,971
---------- ----------
TOTAL ASSETS $1,502,851 $1,574,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 112,800 $ 156,097
Accrued expenses and other liabilities 84,451 90,237
Mortgages and notes payable 691,991 639,575
---------- ----------
889,242 885,909
---------- ----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 7,668 9,661
Notes payable 84,000 151,000
Collateralized mortgage obligations secured by
mortgage-backed securities 81,979 84,764
---------- ----------
173,647 245,425
---------- ----------
Deferred income taxes 23,303 24,448
---------- ----------
Minority interests in consolidated joint ventures 2,950 2,919
---------- ----------
Series B convertible preferred stock 1,300 1,300
Common stock 32,357 32,347
Paid-in capital 188,970 188,839
Retained earnings 189,939 190,749
Cumulative foreign currency translation adjustments 1,143 2,243
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 413,709 415,478
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,502,851 $1,574,179
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
February 29, February 28,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,086 $ 435
Adjustments to reconcile net income to net cash
provided (used) for operating activities:
Equity in pretax loss of unconsolidated joint
ventures 232 124
Minority interests in pretax income of
consolidated joint ventures 65 23
Amortization of discounts and issuance costs 356 431
Depreciation and amortization 1,801 1,372
Provision for deferred income taxes (1,145) (276)
Change in:
Receivables 87,667 74,978
Inventories (18,494) (78,187)
Accounts payable, accrued expenses
and other liabilities (51,076) (50,987)
Other, net (1,071) (19,965)
-------- --------
Net cash provided (used) by operating activities 22,421 (72,052)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 1,707 (247)
Net originations of mortgages held for long-term
investment (223) (295)
Payments received on first mortgages and
mortgage-backed securities 3,523 2,788
Other, net (286) (2,476)
-------- --------
Net cash provided (used) by investing activities 4,721 (230)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and
other short-term borrowings (3,379) 75,010
Payments on collateralized mortgage obligations (2,949) (2,678)
Payments on mortgages, land contracts and other loans (24,125) (14,437)
Payments to minority interests in consolidated joint
ventures (34) (270)
Payments of cash dividends (4,896) (4,898)
-------- --------
Net cash provided (used) by financing activities (35,383) 52,727
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,241) (19,555)
Cash and cash equivalents at beginning of period 43,382 54,808
-------- --------
Cash and cash equivalents at end of period $ 35,141 $ 35,253
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 4,687 $ 2,174
======== ========
Income taxes paid $ 101 $ 781
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 12,893 $ 16,628
======== ========
</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, 1995 contained in the Company's 1995 Annual Report to
Stockholders.
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 February 29, 1996, the results of its consolidated operations
for the three months ended February 29, 1996 and February 28, 1995, and its
consolidated cash flows for the three months ended February 29, 1996 and
February 28, 1995. The results of operations for the three months ended
February 29, 1996 are not necessarily indicative of the results to be
expected for the full year. The consolidated balance sheet at November 30,
1995 has been taken from the audited financial statements as of that date.
2. Earnings Per Share
The computation of earnings per share is based on the weighted average
number of 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 using the treasury
stock method. On April 1, 1996, the mandatory conversion date, the Series B
convertible preferred shares were converted into the Company's common stock.
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 $.05 and a loss per share of $.06 for
the three months ended February 29, 1996 and February 28, 1995,
respectively.
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
February 29, November 30,
1996 1995
----------- -----------
<S> <C> <C>
Homes, lots and improvements in production $ 827,624 $ 803,926
Land under development 262,942 255,253
---------- ----------
Total inventories $1,090,566 $1,059,179
========== ==========
</TABLE>
6
<PAGE> 7
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Inventories (continued)
The impact of capitalizing interest costs on consolidated pretax income is
as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
-----------------------------
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Interest incurred $ 16,053 $ 14,482
Interest expensed (8,102) (5,641)
-------- --------
Interest capitalized 7,951 8,841
Interest amortized (3,702) (2,462)
-------- --------
Net impact on consolidated pretax income $ 4,249 $ 6,379
======== ========
</TABLE>
4. Charge for Impairment of Long-Lived Assets
The Company is considering the implementation of a new business plan
involving the accelerated disposition of certain long term development
assets as a means of facilitating certain key operating strategies.
Although the Company has not completed its consideration of the
contemplated business plan, the Company believes disposition of these
assets would effectuate the Company's strategies to improve its overall
return on investment, restore financial leverage to targeted levels, and
position the Company to continue its geographic expansion. The accelerated
disposition of long term development assets will likely cause certain
assets, primarily inventories and investments in unconsolidated joint
ventures, to be identified as being impaired and to be written down.
Accordingly, if the Company adopts the new business plan and thereby
resolves to accelerate the disposition of certain long term development
assets, it would expect to record a material non-cash write-down upon
adoption of the plan to state the assets identified as impaired at their
fair values. As the evaluation of assets which would be impaired as a
result of adoption of the plan is not complete, an estimate of the amount
of the write-down is not currently available. The evaluation of such assets
will consider the depressed nature of the real estate business in certain
of the Company's markets, reduced demand from prospective homebuyers,
availability of ready buyers for the Company's properties, future costs
of development and holding costs during development.
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" ("SFAS
No. 121") which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. When an impairment loss is
required, the related assets are adjusted to their estimated "fair value"
as defined in SFAS No. 121. This new accounting pronouncement is effective
for fiscal years beginning after December 15, 1995.
The Company is currently contemplating the adoption of SFAS No. 121 as of
the end of the second quarter ended May 31, 1996, earlier than required
by the standard. It is anticipated that if the Company's new business
plan regarding the disposition of certain long term development assets
is adopted and if a final decision to adopt SFAS No. 121 is made, any
write-down associated with the impairment of such assets will be
calculated in accordance with the requirements of SFAS No. 121.
7
<PAGE> 8
5. Acquisition
On March 1, 1996, the Company acquired San Antonio, Texas-based Rayco, Ltd.
and affiliates for a total purchase price of approximately $104.3 million,
comprised of $80 million in cash paid on the closing date and the assumption
of $24.3 million in debt. Rayco, Ltd. is San Antonio's largest homebuilder
and sells a wide variety of homes, primarily to first-time buyers. The total
purchase price was based on the net book values of the entities purchased
and the assumption of certain debt and is subject to adjustment based on the
closing balance sheets of Rayco, Ltd. and affiliates as of February 29,
1996, which will be finalized before May 14, 1996. It is currently
anticipated that the purchase price will be increased through the
post-closing adjustment process by an amount not to exceed $.5 million. The
acquisition will be accounted for as a purchase with the results of
operations of the acquired entities included in the Company's consolidated
financial statements as of March 1, 1996, the date of acquisition.
In connection with the acquisition of Rayco, Ltd. and affiliates, the
Company amended its existing domestic unsecured revolving credit agreement
with various banks by entering into a Fourth Amended and Restated Loan
Agreement dated February 28, 1996, which increased its borrowing capacity
thereunder to $630 million from $500 million. The additional $130 million of
financing obtained by the Company consists of a $110 million term loan
facility to be used to finance the acquisition and to refinance existing
indebtedness of Rayco, Ltd. and affiliates and a $20 million revolving
credit facility to be used for additional general working capital
requirements. The amendment to the Company's credit facility provides for a
maximum repayment term of 18 months for the additional $130 million of
borrowing capacity obtained. On March 1, 1996, the Company increased its
borrowings by $104.3 to consummate the Rayco, Ltd. acquisition.
8
<PAGE> 9
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 February 29, 1996 increased 31.6%
to $302.5 million from $229.8 million for the quarter ended February 28,
1995, primarily due to higher housing revenues. Net income for the first
quarter of 1996 increased to $4.1 million or $.10 per share from $.4 million
or $.01 per share for the same period a year ago as a result of increased
housing revenues, higher gross margin and improved selling, general and
administrative expense ratios, as well as a three-fold increase in pretax
income from mortgage banking operations. Housing revenues for the current
period increased 33.8% from the year-earlier period reflecting a 23.1%
increase in unit deliveries and an 8.7% increase in the Company-wide average
selling price as the Company's California-based operations demonstrated
improvement and its recently-established divisions in other western states
continued to mature. The Company's initiatives implemented throughout 1995
to improve gross margin and contain costs also benefited the operating
results for the current quarter. In addition, more normal weather patterns
and a relatively stable interest rate environment compared favorably to the
first quarter of 1995, in which the Company's results were adversely
impacted by rising interest rates during the latter half of 1994 and severe
weather in California in early 1995. Mortgage banking pretax income
increased primarily due to higher gains on the sale of servicing rights.
CONSTRUCTION
Revenues increased by $71.4 million to $295.8 million in the first quarter
of 1996 from $224.4 million in the first quarter of 1995, primarily due to
higher housing revenues partially offset by lower land sale revenues.
Residential revenues for the period increased by $73.2 million to $289.8
million on 1,683 deliveries from $216.6 million on 1,367 deliveries in the
year-earlier period, primarily due to an increase of 12.7% in California
unit volume and a 66.2% increase in deliveries from other United States
operations. Housing revenues in the United States totaled $269.5 million on
1,582 unit deliveries in the first three months of 1996, compared to $196.1
million on 1,265 units in the first three months of 1995. These increases
reflected improvement in revenues and deliveries in each of the states where
the Company operates, including California which had been adversely affected
by severe weather in the first quarter of last year. Revenues from French
housing operations during the current quarter decreased slightly to $19.5
million on 96 units from $20.3 million on 102 units in the prior year's
quarter. During the first quarter of 1996, the Company's overall average
selling price increased 8.7% to $172,100 from $158,300 in the prior year's
period. The Company's domestic average selling price increased 9.9% to
$170,400 in the first quarter of 1996 from $155,100 in the first quarter of
1995, due primarily to a 14.1% increase in the California average selling
price to $184,100 from $161,400 and a 4.0% increase in the average selling
price in other United States operations. These increases occurred as a
result of a change in product mix favoring more higher priced urban in-fill
locations and first time move up sales. In France, the average selling price
in the first quarter of 1996 rose 2.1% to $202,800 from $198,700 in the
year-earlier quarter due to a change in the mix of deliveries.
Revenues from commercial development activities in France totaled $3.6
million in the first quarter of 1996 compared to $.9 million for the same
period a year ago. Revenues from land sales decreased to $2.4 million in the
first quarter of 1996 compared to $6.8 million in the first quarter of 1995.
Generally, land sale revenues fluctuate based on the Company's decision to
maintain or decrease its land ownership position in certain markets, the
strength and number of competing developers entering markets at given points
in time, the availability of land in markets served by the Company's housing
divisions, and prevailing market conditions.
Operating income increased by $6.6 million to $12.1 million in the first
quarter of 1996 from $5.5 million in the first quarter of 1995. This
increase primarily reflected higher gross profits on housing sales. The
increase in housing gross profits reflected both higher unit volume and an
improvement in margins. Gross profits (excluding profits from land sales)
increased by $17.3 million to $51.6 million in the first quarter of 1996
from $34.3 million in the prior year's period. Gross profits (excluding
profits from land sales) as a percentage of related revenues increased to
17.6% in the current quarter from 15.8% in the year-earlier quarter. For the
same periods, the Company's housing gross margin was 17.3% in 1996, up from
15.7% in 1995. This increase primarily reflected a 1.5 percentage point
improvement in housing gross margin in California, mainly driven
9
<PAGE> 10
by higher unit volume, and continued growth in the Company's higher margin
operations in other western states. Gross profits from land sales decreased
to $.2 million in the first quarter of 1996 from $2.9 million in the same
quarter a year ago.
Selling, general and administrative expenses increased by $8.0 million to
$39.7 million in the first quarter of 1996 from $31.7 million in the
corresponding 1995 period. As a percentage of housing revenues, selling,
general and administrative expenses improved to 13.7% in the current quarter
from 14.6% for the year-earlier period. This improvement primarily resulted
from reduced selling incentives, mainly in California, and a reduction in
general and administrative expenses, reflecting the impact of the Company's
cost containment initiatives implemented during the course of 1995.
Interest income totaled $.7 million in the first quarter of 1996 compared to
$.6 million in the first quarter of 1995, reflecting little change in the
interest bearing average balances of short-term investments and mortgages
receivable compared to the same period a year ago.
Interest expense (net of amounts capitalized) increased to $8.1 million in
the first quarter of 1996 compared to $5.6 million in the first quarter of
1995, reflecting an increase in average indebtedness and a lower percentage
of interest capitalized in 1996. Debt levels increased primarily as a result
of additional borrowings under the Company's domestic unsecured revolving
credit facility in connection with higher inventory levels as growth in the
Company's western United States operations continued. The lower
capitalization rate reflected a higher proportion of land in production in
the first quarter of 1996 compared to the first quarter of 1995.
Minority interests in pretax income of consolidated joint ventures totaled
$.06 million in the first quarter of 1996 compared to $.02 million in the
prior year's period. 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 amounted to $.2
million in the first quarter of 1996, compared to the $.1 million loss
recorded in the first quarter of 1995. Joint ventures recorded combined
revenues of $.8 million in the current quarter compared to $13.3 million in
the corresponding period of 1995. Of these amounts, revenues from
residential properties totaled $.7 million in the first quarter of 1996 and
$10.4 million for the same period of 1995. Revenues of $.1 million and $2.9
million were generated from unconsolidated joint venture commercial projects
during the first quarter of 1996 and 1995, respectively. The losses recorded
in the quarters consisted mainly of selling, general, administrative and
interest expenses from a single French multi-family residential project.
MORTGAGE BANKING
Interest income and interest expense decreased by $.6 million and $.5
million, respectively, in the first quarter of 1996 compared to the same
quarter a year ago. 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. The decrease in interest expense resulting from the declining
balance of collateralized mortgage obligations was partially offset by an
increase in interest expense related to the higher amount of notes payable
outstanding during the first quarter of 1996 compared to the prior year's
quarter. Interest income and expense are expected to continue to decline as
the mortgage-backed securities and related collateralized mortgage
obligations pay off at approximately the same rate.
Other mortgage banking revenues increased by $1.8 million to $3.0 million in
the first three months of 1996 from $1.2 million in the first three months
of 1995. This increase was mainly the result of higher gains on the sale of
servicing rights due to a higher level of mortgage originations and a more
favorable mix of fixed to variable rate loans.
General and administrative expenses for the current quarter increased to
$1.3 million from $1.1 million for the same period a year ago as a result of
higher mortgage production levels, due to the increase in domestic unit
deliveries, partially offset by the benefit of cost reduction programs.
10
<PAGE> 11
INCOME TAXES
Income tax expense totaled $2.3 million in the first quarter of 1996 and $.3
million in the prior year's first quarter. These amounts represented
effective income tax rates of approximately 36% and 37% in 1996 and 1995,
respectively.
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. In the first quarter of 1996, net cash used for operating,
investing and financing activities totaled $8.2 million, compared to $19.6
million used in the prior year's first quarter.
The Company's operating activities for the first quarter of 1996 provided
$22.4 million, while first quarter 1995 operating activities used $72.1
million. In the first quarter of 1996, cash was provided by a reduction in
receivables of $87.7 million and first quarter earnings of $4.1 million. The
cash provided was partially offset by cash used to fund a net investment of
$18.5 million in inventories, excluding $12.9 million of inventories
acquired through seller financing, and to pay down $51.1 million in accounts
payable, accrued expenses and other liabilities. The reduction in
receivables primarily related to a lower mortgage origination volume in the
first quarter of 1996 as compared to the fourth quarter of 1995, resulting
in a lower balance of mortgages held under commitment of sale. Inventories
increased primarily in the United States where they rose to $938.2 million
at February 29, 1996 from $901.4 million at November 30, 1995, as the
Company experienced continued growth in its domestic operations.
Operating activities for the first quarter of 1995 used cash for a net
investment of $78.2 million in inventories, excluding $16.6 million of
inventories acquired through seller financing, and to pay down $51.0 million
in accounts payable, accrued expenses and other liabilities. The use of cash
was partially offset by a $75.0 million reduction in receivables.
Inventories increased mainly due to the Company's continued domestic
expansion and sluggish sales rates in the first quarter of 1995. The
reduction in receivables related primarily to a decrease in mortgage
origination volume in the first quarter of 1995 when compared to the fourth
quarter of 1994.
Cash provided by investing activities totaled $4.7 million in the first
quarter of 1996 compared to cash used by investing activities of $.2 million
in the year-earlier period. In the first quarter of 1996, cash was provided
from $3.5 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 have served as
collateral and $1.7 million related to investments in unconsolidated joint
ventures. Partially offsetting these proceeds was $.3 million of cash used
for other investing activities. In the first quarter of 1995, proceeds of
$2.8 million received from mortgage-backed securities provided cash from
investing activities. Among amounts offsetting these proceeds was $2.5
million of cash used for other investing activities.
Financing activities in the first quarter of 1996 used $35.4 million of
cash, while first quarter 1995 financing activities provided $52.7 million.
In the first quarter of 1996, cash was used for net payments on borrowings
of $27.5 million, cash dividend payments of $4.9 million and payments on
collateralized mortgage obligations of $2.9 million. Financing activities in
1995's first quarter resulted in net cash inflows due mainly to $60.6
million in net proceeds from borrowings, partially offset by payments on
collateralized mortgage obligations of $2.7 million and cash dividend
payments of $4.9 million.
In connection with the acquisition of Rayco, Ltd. and affiliates, the
Company amended its domestic unsecured revolving credit agreement with
various banks to increase the borrowing capacity thereunder to $630 million
from $500 million. The additional $130 million of financing obtained by the
Company consists of a $110 million term loan facility to be used to finance
the acquisition of Rayco, Ltd. and affiliates and to refinance existing
indebtedness of Rayco, Ltd. and a $20 million revolving credit facility to
be used for general working capital requirements. The amendment to the
Company's credit facility is set forth in the Fourth Amended and
11
<PAGE> 12
Restated Loan Agreement, dated February 28, 1996, which provides for a
maximum repayment term of 18 months for the additional borrowing capacity
obtained.
Under the Company's $630 million domestic unsecured revolving credit
facility, which contains a $200 million sublimit for the Company's mortgage
banking operations, a total of $300.7 million was available for future use
as of February 29, 1996. In addition to the $200 million sublimit, all of
which was available for the mortgage banking operation's use at February 29,
1996, 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, $36.0 million was
available at quarter-end. The Company's French unsecured financing
agreements had in the aggregate $51.1 million available at February 29,
1996.
The Company's financial leverage, as measured by the ratio of debt to total
capital, was 62.6% at the end of the 1996 first quarter compared to 63.5% at
the end of the 1995 first quarter and 60.6% at year end 1995. As of March 1,
1996, the Company increased its borrowings by $104.3 million to consummate
the Rayco, Ltd. acquisition. If the acquisition had occurred as of February
29, 1996, the Company's ratio of debt to total capital would have been 65.8%
at that date. In view of the increase in indebtedness related to this
acquisition, the Company has undertaken an aggressive program to reduce its
indebtedness by at least $100 million over the course of 1996 and 1997 in
order to progress more rapidly toward its goal of restoring the Company's
debt to capital ratio in the range of 50% to 60%.
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.
The Company's residential backlog as of February 29, 1996 consisted of 1,705
units, representing aggregate future revenues of approximately $296.7
million, up from the 1,285 units representing $212.6 million a year ago.
Total backlog at the end of the first quarter of 1996 was the Company's
highest first quarter level, in terms of both units and value, since 1990.
The Company's operations in the United States accounted for approximately
$240.0 million of backlog value on 1,422 units at February 29, 1996,
compared to $164.8 million on 1,037 units at February 28, 1995. Backlog in
California totaled approximately $153.1 million on 823 units at February 29,
1996 and $125.9 million on 757 units at February 28, 1995. Other United
States operations demonstrated year-over-year growth in backlog levels with
the backlog value at February 29, 1996 increasing to approximately $86.9
million on 599 units from $39.0 million on 280 units at February 28, 1995.
The overall growth reflected a 20.8% increase in Company-wide net orders for
the first three months of 1996 compared to the first three months of 1995.
California net orders for the three months ended February 29, 1996 totaled
1,292, the highest first quarter net order level for California in the
Company's history, an increase of 17.4% from the same period a year ago.
Other United States operations generated 540 net orders in the current
quarter, an increase of 44.4% over the same quarter of 1995. Because the
Rayco, Ltd. acquisition closed on March 1, 1996, the Company's first quarter
1996 backlog and order data were not impacted.
In France, the value of residential backlog at February 29, 1996 was
approximately $51.8 million on 256 units, up from $44.8 million on 219 units
a year earlier. First quarter 1996 backlog also improved slightly from $50.0
million on 229 units at November 30, 1995. The Company's net orders in
France decreased during the first quarter of 1996 by 19.1% to 123 units from
152 units for the same period a year ago. Backlog associated with
consolidated commercial development activities was valued at approximately
$7.1 million at February 29, 1996, compared to $32.7 million at February 28,
1995, reflecting continued reduced opportunities in the French commercial
market.
Substantially all of the homes included in residential backlog are expected
to be delivered in 1996; however, cancellations could occur, particularly if
market conditions deteriorate or mortgage interest rates increase, thereby
decreasing backlog and related future revenues.
In Mexico, where a start-up operation has yet to deliver its first homes,
the Company continues to closely monitor the unsettled economic environment.
The new home market in Mexico remains seriously hampered by the decline in
the value of the peso and the economic recession created by the devaluation.
The recession has slowed a complex regulatory process and has heightened
consumer concerns about new home purchases.
12
<PAGE> 13
In spite of troubled conditions, demand for housing in Mexico remains
substantial and the Company has begun to generate a modest level of orders
which it believes should result in 1996 deliveries. Nevertheless, the
Company remains cautious regarding these operations and continues to
reassess its level of activity in Mexico and the desirability of expanding
its market presence there.
Effective March 1, 1996, the Company acquired San Antonio, Texas-based
Rayco, Ltd. and affiliates for approximately $104.3 million, comprised of
$80 million in cash paid on the closing date and the assumption of $24.3
million in debt. The total purchase price was based on the net book values
of the entities purchased and the assumption of certain debt and is subject
to adjustment based on the closing balance sheets of Rayco, Ltd. and
affiliates as of February 29, 1996, which will be finalized before May 14,
1996. It is currently anticipated that the purchase price will be increased
through the post-closing adjustment process by an amount not to exceed $.5
million. The acquisition will be accounted for as a purchase with the
results of operations of the acquired entities included in the Company's
consolidated financial statements as of March 1, 1996, the date of
acquisition.
The acquisition of Rayco, Ltd. provides the Company with a very substantial
market position in San Antonio where Rayco, Ltd. commanded a 45% market
share in 1995. San Antonio is the ninth largest city in the United States
and has ranked among the top ten cities in the nation in both job creation
and economic growth for the past several years. Rayco, Ltd. delivered 2,585
homes and generated revenues of $236.2 million during the year ended
December 31, 1995.
With the Rayco, Ltd. acquisition complete and economic conditions more
stable, the Company's outlook for the second quarter is generally favorable.
Improved domestic backlog levels and strong new order activity are
anticipated to generate a higher level of domestic deliveries in the second
quarter of 1996 compared to the second quarter of 1995. Domestic net orders
for the first four weeks of the second quarter of 1996 were up 77.0% over
the same period a year ago. The increase in this brief period included a
38.0% increase in California net orders and a 154.7% increase in net orders
from other United States operations (primarily due to Rayco, Ltd. orders)
during the period. Excluding the net orders related to Rayco, Ltd., domestic
net orders were up 28.3% and other United States net orders were up 8.9%
during the first four weeks of the 1996 second quarter compared to the same
period a year ago.
SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995, which
involve certain risks and uncertainties, including but not limited to,
changes in general economic conditions, materials prices, labor costs,
interest rates, consumer confidence, competition, environmental factors, and
government regulations affecting the Company's operations. See the Company's
Annual Report on Form 10-K for the year ended November 30, 1995 for a
further discussion of these and other risks and uncertainties applicable to
the Company's business.
CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company is considering the implementation of a new business plan
involving the accelerated disposition of certain long term development
assets as a means of facilitating certain key operating strategies.
Although the Company has not completed its consideration of the
contemplated business plan, the Company believes disposition of these
assets would effectuate the Company's strategies to improve its overall
return on investment, restore financial leverage to targeted levels, and
position the Company to continue its geographic expansion. The accelerated
disposition of long term development assets will likely cause certain
assets, primarily inventories and investments in unconsolidated joint
ventures, to be identified as being impaired and to be written down.
Accordingly, if the Company adopts the new business plan and thereby
resolves to accelerate the disposition of certain long term development
assets, it would expect to record a material non-cash write-down upon
adoption of the plan to state the assets identified as impaired at their
fair values. As the evaluation of assets which would be impaired as a
result of adoption of the plan is not complete, an estimate of the amount
of the write-down is not currently available. The evaluation of such
assets will consider the
13
<PAGE> 14
depressed nature of the real estate business in certain of the Company's
markets, reduced demand from prospective homebuyers, availability of ready
buyers for the Company's properties, future costs of development and
holding costs during development.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121 which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. When an impairment loss is required,
the related assets are adjusted to their estimated "fair value" as defined
in SFAS No. 121. This new accounting pronouncement is effective for fiscal
years beginning after December 15, 1995.
The Company is currently contemplating the adoption of SFAS No. 121 as of
the end of the second quarter ended May 31, 1996, earlier than required by
the standard. It is anticipated that if the Company's new business plan
regarding the disposition of certain long term development assets is
adopted and if a final decision to adopt SFAS No. 121 is made, any
write-down associated with the impairment of such assets will be calculated
in accordance with the requirements of SFAS No. 121.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 28, 1996, at the Company's 1996 Annual Meeting of Stockholders, two
matters were submitted for stockholder vote:
Election of Directors. Ms. Jane Evans and Messrs. James A. Johnson and
Sanford C. Sigoloff were re-elected as directors. Over 99% of the shares
voted were voted in favor of the director candidates. Ms. Evans received
27,537,934 affirmative votes with 125,153 votes withheld; Mr. Johnson
received 27,543,423 affirmative votes with 119,664 votes withheld; and Mr.
Sigoloff received 27,537,394 affirmative votes with 125,693 votes withheld.
Classification of Board of Directors. At the Annual Meeting, stockholders
were also asked to vote on a stockholder proposal to eliminate the
classification of the Company's Board of Directors. The proposal was
defeated by stockholders with 53% of the shares voted on the matter voted
against (11,924,767 shares) or abstaining (478,112 shares) on the proposal
and 47% of the shares (11,129,102 shares) voted in favor.
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-month periods ended February 29, 1996 and February 28, 1995,
together with backlog data in terms of units and value by geographical
market as of February 29, 1996 and February 28, 1995.
<TABLE>
<CAPTION>
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
-------------------- -------------------- -------------------- --------------------
Market 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 1,095 972 1,292 1,101 823 757 $153,074 $125,870
Other United States 487 293 540 374 599 280 86,880 38,971
France 96 102 123 152 256 219 51,820 44,820
Canada 5 -- 2 9 8 29 920 2,958
Mexico -- -- 19 -- 19 -- 4,028 --
======== ======== ======== ======== ======== ======== ======== ========
Total 1,683 1,367 1,976 1,636 1,705 1,285 $296,722 $212,619
======== ======== ======== ======== ======== ======== ======== ========
</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 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
Reports on Form 8-K
On March 13, 1996, the Company filed a Current Report on Form 8-K (Items 2,
7(a) and 7(b)) dated March 12, 1996 reporting its acquisition of Rayco, Ltd.
and affiliates. The filing included the audited balance sheets of Rayco,
Ltd. as of December 31, 1995 and 1994, and the related statements of income,
partners' equity, and cash flows for each of the three years in the period
ended December 31, 1995. In addition, the Form 8-K included unaudited pro
forma combined financial statements and related notes of the Company, giving
effect to the acquisition of Rayco, Ltd. and affiliates.
15
<PAGE> 16
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 22, 1996 /s/ BRUCE KARATZ
------------------------- -----------------------------------
Bruce Karatz
Chairman, President and
Chief Executive Officer
Dated October 22, 1996 /s/ MICHAEL F. HENN
------------------------- -----------------------------------
Michael F. Henn
Senior Vice President and
Chief Financial Officer
16
<PAGE> 17
<TABLE>
<CAPTION>
Page of
Sequentially
INDEX OF EXHIBITS Numbered Pages
---------------------
<S> <C> <C>
11 Statement of Computation of Per Share Earnings 18
27 Financial Data Schedule 19
</TABLE>
17
<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>
Three Months Ended
-----------------------------
February 29, February 28,
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY:
Net income $ 4,086 $ 435
======= =======
Weighted average common shares outstanding 32,350 32,380
Weighted average Series B convertible preferred shares(1) 6,500 6,500
Common share equivalents:
Stock options 971 863
------- -------
39,821 39,743
======= =======
PRIMARY EARNINGS PER SHARE(2) $ .10 $ .01
======= =======
FULLY DILUTED:
Net income $ 4,086 $ 435
======= =======
Weighted average common shares outstanding 32,350 32,380
Weighted average Series B convertible preferred shares(1) 6,500 6,500
Common share equivalents:
Stock options 1,019 927
------- -------
39,869 39,807
======= =======
FULLY DILUTED EARNINGS PER SHARE(2,3) $ .10 $ .01
======= =======
</TABLE>
- ----------------------------
(1) Each of the 1,300 Series B convertible preferred shares is convertible
into five shares of common stock. On the mandatory conversion date of
April 1, 1996, each of the Company's 6,500,000 depositary shares, each
representing 1/5 of a Series B convertible preferred share was
converted into one share of the Company's 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 $.05 for the three months ended
February 29, 1996 and loss per share of $.06 for the three months ended
February 28, 1995.
(3) Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is
not material.
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 35,141
<SECURITIES> 94,557<F1>
<RECEIVABLES> 205,554
<ALLOWANCES> 0
<INVENTORY> 1,090,566
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,502,851
<CURRENT-LIABILITIES> 0
<BONDS> 355,855<F2>
0
1,300
<COMMON> 32,357
<OTHER-SE> 380,052
<TOTAL-LIABILITY-AND-EQUITY> 1,502,851
<SALES> 295,815
<TOTAL-REVENUES> 302,475
<CGS> 243,956
<TOTAL-COSTS> 247,425<F3>
<OTHER-EXPENSES> 40,983<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,102
<INCOME-PRETAX> 6,386
<INCOME-TAX> 2,300
<INCOME-CONTINUING> 4,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,086
<EPS-PRIMARY> 0.10
<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>
