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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 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)
INCORPORATED IN DELAWARE 95-3666267
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
10 3/8% SENIOR NOTES DUE 1999 NEW YORK STOCK EXCHANGE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE
9 5/8% SENIOR SUBORDINATED NOTES DUE 2006 NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO __
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
COMPANY ON JANUARY 31, 1997 WAS $543,388,439.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK ON JANUARY 31, 1997 WAS AS FOLLOWS:
Common Stock (par value $1.00 per share) 38,818,951 shares
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Stockholders (incorporated into Part II).
Notice of 1997 Annual Meeting of Stockholders and Proxy Statement
(incorporated into Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a builder of single-family homes with domestic operations in
seven western states, and international operations in France and Mexico.
Domestically, the Company is the largest homebuilder west of the Mississippi
River, delivering more single-family homes than any other builder in the region.
Founded in 1957, the Company builds innovatively designed homes which cater
primarily to first-time home buyers, generally in medium-sized developments
close to major metropolitan areas. Internationally, the Company is among the
largest builders in greater metropolitan Paris, France, based on the number of
homes delivered. In France, the Company also builds commercial projects and
high-density residential properties, such as condominium and apartment
complexes. The Company provides mortgage banking services to domestic home
buyers through its wholly owned subsidiary, Kaufman and Broad Mortgage Company
("KBMC").
The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its
telephone number is (310) 231-4000. As used herein, the term "Company" refers to
Kaufman and Broad Home Corporation and its subsidiaries, unless the context
indicates otherwise.
MARKETS
The Company's principal geographic markets are: California; other United
States (Nevada, Arizona, Colorado, New Mexico, Utah and Texas); the greater
metropolitan area of Paris, France; and Mexico City, Mexico. The Company
delivered its first homes in California in 1963, France in 1970, Toronto in
1971, Nevada in 1993, Arizona and Colorado in 1994, New Mexico and Utah in 1995,
and Texas and Mexico in 1996. In recent years, the Company has focused on
expansion of its domestic operations outside of California where the new home
market remains soft. The Company established a significant position in the San
Antonio, Texas metropolitan area in 1996 through its acquisition of Rayco, Ltd.
("Rayco"), San Antonio's largest homebuilder. Additionally, in Texas the Company
commenced start-up operations in Dallas during the year and began operations in
Austin in early 1997.
To enhance its operating capabilities in regional submarkets, the Company
conducted its domestic homebuilding business in 1996 through nine divisional
offices and three satellite offices in California, one divisional office in each
of Nevada, Arizona, Colorado, New Mexico and Utah, and two divisional offices in
Texas. Internationally, the Company operates its construction business through
two divisional offices in France and one divisional office in Mexico.
California. During the 1980s, the Company benefited from the relative
strength and growth of the California housing market. However, in five of the
last seven years, new housing permits issued in the state have declined. New
housing permits issued in California increased approximately 9% in 1996 from
1995 but remain at historically low levels. In addition, the Company's strategy
of emphasizing more selective investment in California to improve overall return
on investment resulted in the Company's California deliveries decreasing nearly
5% from the previous year to 5,171 units in 1996. This decrease marked the
second straight year that the Company's California deliveries fell below prior
year levels after five previous years of increased deliveries. The Company's
shift away from a market share focus resulted in its California market share
decreasing to 7.3% in 1996 from the approximately 8% share it had maintained
since 1993. Despite this decrease, however, the Company continues to have the
largest market share in California, with its closest competitor having a market
share totaling less than half that of the Company.
In Southern California, the Company concentrates its home building activity
in Los Angeles, Kern, San Bernardino, Riverside, Ventura, Orange and San Diego
counties. In Northern California, the Company's activities are concentrated in
the San Francisco Bay-Oakland-San Jose, Monterey Bay, Sacramento, Central Valley
and Fresno regions.
Most of the communities developed by the Company in California consist of
single-family detached homes primarily designed for the entry-level housing
market. These homes ranged in size from approximately 1,000 to 3,000 square feet
in 1996 and sold at an average price of $192,900, well below the statewide new
home average of $223,000,
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as a result of the Company's emphasis on the entry-level market. Nevertheless,
the Company's 1996 average selling price in California increased from the prior
year reflecting a shift in mix to relatively higher-priced homes.
Other United States. The greatly improved business conditions in other
western states coupled with the diminished prospects for growth in California,
the Company's largest market, resulting from its prolonged economic downturn,
caused the Company to look for opportunities to expand its domestic operations
outside the state since the early 1990's. The Company began to implement its
expansion strategy in 1993 with the opening of its Nevada division and since
that time has developed a track record of profitable growth outside of
California. In 1996, the Company's other U.S. operations delivered 4,294 units,
up nearly 139% from the prior year, primarily due to the Rayco acquisition. The
Company's domestic operations outside of California accounted for approximately
45% of domestic home deliveries in 1996, compared to approximately 25% in 1995.
The increase in the proportion of domestic deliveries outside of California
in 1996 was primarily due to the Company's acquisition of Rayco, San Antonio,
Texas' largest homebuilder, on March 1, 1996. The Company acquired the San
Antonio business for a total purchase price of $104.5 million, including cash to
pay off certain assumed debt. With the acquisition, the Company established a
significant position in the San Antonio metropolitan area, where Rayco commanded
a 42% share of the new home market in 1996. The acquisition was accounted for as
a purchase, with the results of the San Antonio operations included in the
Company's financial statements as of March 1, 1996, the date of acquisition.
The communities developed by the Company's other U.S. divisions primarily
consist of single-family detached entry-level homes. These homes ranged in size
from approximately 900 to 2,500 square feet in 1996 and sold at an average price
of $119,700. The average selling price of the Company's other U.S. homes
decreased in 1996 from $136,300 in 1995 as a result of the inclusion of the
newly acquired San Antonio operations which had an average selling price of
$93,400 in 1996. Excluding the results of San Antonio, the Company's average
selling price for other U.S. homes was $143,200 in 1996.
France. The French residential and commercial real estate markets,
particularly within the greater metropolitan Paris region, where the Company's
operations are concentrated, experienced substantial growth through the second
half of the 1980s, as a strong economy and approaching European market
unification fueled business expansion and individual home purchases. In the
early 1990s, however, the French economy experienced a significant recession
reflecting low consumer confidence, high unemployment and declines in both
consumer and business investments in real estate. The French economy improved
modestly in 1996, and the Company continues to believe that the greater Paris
metropolitan area, which is the principal population, economic and government
center of France, continues to offer long-term growth potential for residential
builders.
In 1996, the Company's French operations were profitable with housing
deliveries increasing approximately 31% to 749 units in 1996. The French home
building operations focused primarily on single-family detached and attached
homes in 1996, ranging in size from approximately 800 to 2,220 square feet with
an average selling price of $206,600. The French commercial operations, which
has been engaged in developing commercial office buildings in Paris for sale to
institutional investors, has become a smaller segment of the French operations
in recent years. With the completion of large projects in the early 1990's, the
level of commercial operations has declined as the market absorbs existing
commercial properties. French commercial activities are likely to remain at or
below depressed 1996 levels as that market continues to absorb existing
properties and vacancy rates remain high in a generally weak economic climate.
Canada. In 1996, the Company received proceeds of $9.5 million from the
sale of all of the issued and outstanding shares of its Canadian subsidiary.
These proceeds were used to reduce the Company's debt. As the Company had been
slowly winding down its operations in Canada over the past several years, the
impact of the sale on the Company's financial position and results of operations
was not significant.
Mexico. In 1993, the Company determined that the then-projected growth in
the Mexican economy and housing shortages in that country's major metropolitan
areas would represent a unique opportunity for the Company and, on that basis,
established a new housing operation in Mexico City. In 1996, the Company
delivered its first homes from a community near Mexico City and generated 39 net
orders during the year. Nevertheless, the new home market in Mexico remains
seriously hampered by the decline in value of the peso in early 1995 and the
resulting economic recession created thereby. During 1997, the Company expects
to continue to closely monitor its level of activity in Mexico and the
desirability of expanding its market presence there.
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Unconsolidated Joint Ventures. The Company currently participates in the
development, construction and sale of residential properties and commercial
projects through a number of unconsolidated joint ventures. These include joint
ventures in California, New Mexico and France.
Selected Market Data. The following table sets forth, for each of the
Company's principal markets, unit deliveries, average selling price of homes and
total construction revenues for the years ended November 30, 1996, 1995 and 1994
(excluding the effect of unconsolidated joint ventures).
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
California:
Unit deliveries............................................. 5,171 5,430 6,238
Average selling price....................................... $ 192,900 $ 176,800 $ 165,900
Total construction revenues (in millions)(1)................ $ 1,058.0 $ 971.1 $ 1,048.1
Other United States:
Unit deliveries............................................. 4,294 1,800 834
Average selling price....................................... $ 119,700 $ 136,300 $ 114,900
Total construction revenues (in millions)(1)................ $ 516.9 $ 247.0 $ 101.1
France:
Unit deliveries............................................. 749 574 685
Average selling price(2).................................... $ 206,600 $ 203,700 $ 182,300
Total construction revenues (in millions)(1)(2)............. $ 171.4 $ 138.6 $ 143.4
Other:
Unit deliveries............................................. 35 53 67
Average selling price(2).................................... $ 212,500 $ 99,400 $ 97,300
Total construction revenues (in millions)(1)(2)............. $ 7.9 $ 10.2 $ 15.0
Total:
Unit deliveries............................................. 10,249 7,857 7,824
Average selling price(2).................................... $ 163,300 $ 168,900 $ 161,300
Total construction revenues (in millions)(1)(2)............. $ 1,754.2 $ 1,366.9 $ 1,307.6
</TABLE>
- ------------
(1) Total construction revenues include revenues from residential development
and commercial activities and land sales.
(2) Average selling prices and total construction revenues for France and Other
(Canada and Mexico) have been translated into U.S. dollars using weighted
average exchange rates for each period.
LOCAL EXPERTISE
Management believes that its business requires in-depth knowledge of local
markets in order to acquire land in desirable locations and on favorable terms,
to engage subcontractors, to plan communities keyed to local demand, to
anticipate customer tastes in specific markets and to assess the regulatory
environment. Accordingly, the Company's divisional structure is designed to
utilize local market expertise. The Company has experienced management teams in
each of its regional submarkets. Although the Company has centralized certain
functions, such as marketing, materials purchasing and product development, to
benefit from economies of scale, local management continues to exercise
considerable autonomy in identifying land acquisition opportunities, developing
sales strategies, conducting production operations and controlling costs.
In France, the Company has assembled a French management team which is
highly experienced in its single-family housing and commercial real estate
businesses as well as the financing, development, construction and
rehabilitation of high-density residential projects. This expertise includes
knowledge of local markets and the regulatory environment.
INNOVATIVE DESIGN AND MARKETING STRATEGY
The Company believes that it has been and continues to be an innovator in
the design of entry-level homes for the first-time buyer. The Company's in-house
architectural services group, whose plans are protected by copyright, has been
successful in creating distinctive design features that are not typically found
in comparably priced homes. Most recently, in selected markets throughout the
western United States, the Company has begun to develop the U Series(TM)
- -- innovative new homes which offer buyers wide ranges of square footages and
room counts along with a range of
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personalization options. The U Series(TM) is designed to keep construction costs
and base prices as low as possible while meeting customer desires and promoting
increased customer choice.
In France, the Company created a village concept through the elimination of
front-yard walls and the extensive use of landscaping. It also introduced to the
French market the American concept of a master bedroom suite, as well as walk-in
closets, built-in kitchen cabinetry and two-car garages. The Company believes
that in each of its residential markets, its value engineering enables it to
offer appealing and well-designed homes without increasing construction costs.
In all of its residential markets, the sale of homes is carried out by the
Company's in-house sales force. The Company markets its homes principally
through the use of fully furnished and landscaped model homes which are
decorated to emphasize the distinctive design features. The Company also markets
its homes through various types of media, including newspaper advertisements,
highway signs and direct mail. In addition, the Company extends its marketing
programs beyond these more traditional approaches through the use of television
advertising, off-site telemarketing, large-scale promotions and the internet.
Recently, the Company adopted a program in its domestic operations to encourage
participation of outside real estate brokers in bringing prospective buyers to
its communities.
COMMUNITY DEVELOPMENT
The community development process generally consists of three phases: land
acquisition; land development; and home construction and sale. The normal
development cycle for a community has historically ranged from six to 20 months
in California and is typically of a somewhat shorter duration in the Company's
other U.S. markets. In France, the development cycle has historically ranged
from 12 to 30 months. Development cycles vary depending on the extent of the
government approvals required, the size of the development, the site preparation
necessary and marketing results.
When feasible, the Company acquires finished lots within its pricing
parameters, enabling it to deliver completed homes shortly after acquisition.
The total number of lots in the Company's domestic new home communities vary
significantly but typically are comprised of 50 to 250 lots. These domestic
developments usually include three or more different home designs, and in 1996
generally offered lot sizes ranging from approximately 3,400 to 8,200 square
feet. In prior years, the Company also acquired undeveloped and/or unentitled
properties, often with total lots significantly in excess of 250 lots; however,
the acquisition of such properties is not consistent with the Company's current
land investment strategy. During 1996, the Company decided to substantially
eliminate its prior practice of investing in such long term development projects
in order to reduce the risks associated with such projects and to facilitate
pursuit of its four key operating strategies for the year: geographic
diversification, increased emphasis on return on investment, planned debt
reduction and improved operating margins. In France, typical single-family
developments consist of approximately 40 lots, with lot sizes generally ranging
from 2,700 to 5,400 square feet.
Land Acquisition and Development. The Company utilizes an in-house staff
of land acquisition specialists at each division who carry out extensive site
selection research and analysis in order to identify properties in desirable
locations consistent with the Company's market strategy. In acquiring land, the
Company considers such factors as: current market conditions, with an emphasis
on the prices of comparable new and resale homes in the particular market;
proximity to metropolitan areas; population, industrial and commercial growth
patterns; estimated costs of completed lot development; customer preferences;
and environmental matters. Senior corporate management controls the commitment
of the Company's resources for land acquisition and utilizes a series of
specific financial and budgetary controls, including after tax internal rate of
return requirements, in approving acquisition opportunities identified by
division land acquisition personnel. In 1995, the Company implemented stricter
standards for assessing all proposed land purchases based, in part, upon
specific discounted after tax cash flow internal rate of return requirements and
the Company began evaluating its operating divisions based upon overall return
on investment. Consistent with this change, the Company seeks to minimize, or
defer the timing of, cash expenditures for new land purchases and development by
acquiring lots under option, phasing the land purchase and lot development,
relying upon non-recourse seller financing or working with third party land
developers. In addition, the Company focuses on acquiring finished or partially
improved lots, which allow the Company to begin delivery of finished homes
within six months of the purchase of such lots and reduces the risks of
unforeseen improvement costs and volatile market conditions. These techniques
are intended to enhance returns associated with new land investments by
minimizing the incremental capital required.
In the second quarter of 1996, the Company decided to accelerate the
disposition of certain real estate assets in order to facilitate pursuit of its
four key operating strategies. Specifically, the disposition of these assets
helped effectuate the
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Company's strategies to improve overall return on investment, restore financial
leverage to targeted levels, and position the Company for continued geographic
expansion. In addition, the Company substantially eliminated its prior practice
of investing in long term development projects in order to reduce the operating
risk associated with such projects. The accelerated disposition of long term
development assets caused certain assets, primarily inventories and investments
in unconsolidated joint ventures in California and France, to be identified as
being impaired and to be written down. Certain of the Company's California
properties were impacted by the charge, while none of its non-California
domestic properties were affected. The Company's non-California domestic
properties were not affected since they were not held for long term development
and were expected to be economically successful such that they were determined
not to be impaired. The Company's focus on its key operating strategies also
resulted in reductions in new land purchases and inventory investment in
California during 1996 as a step toward improving the Company's overall return
on equity over time. Cash flow available from reduced California investment was
used to fund the Company's expansion into other western states, as well as to
reduce the Company's overall leverage as measured by the ratio of debt to total
capital.
The following table shows the number of lots owned by the Company in
various stages of development and under option contracts in its principal
markets as of November 30, 1996 and 1995. The table does not include acreage
which has not yet been approved for subdivision into lots. This excluded acreage
consists of 1,118 acres owned in the United States in 1996 and 1,089 acres and
223 acres owned in the United States and other areas, respectively, in 1995.
<TABLE>
<CAPTION>
TOTAL LOTS
HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR
PRODUCTION DEVELOPMENT OPTION UNDER OPTION
--------------- --------------- -------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California........... 6,545 9,698 7,960 11,331 7,689 10,338 22,194 31,367
Other United
States............. 5,897 2,046 3,877 825 1,554 2,515 11,328 5,386
France............... 477 694 217 547 275 373 969 1,614
Other................ 75 153 90 158 -- -- 165 311
------ ------ ------ ------ ----- ------ ------ ------
Total...... 12,994 12,591 12,144 12,861 9,518 13,226 34,656 38,678
====== ====== ====== ====== ===== ====== ====== ======
</TABLE>
While the Company has significantly reduced the proportion of unentitled
and unimproved land purchases in its portfolio, when all acquired property is
considered, the Company has and expects to continue to purchase raw land under
options which require little or no initial payments, or pursuant to purchase
agreements in which the Company's obligations are contingent upon the Company
being satisfied with the feasibility of developing and selling homes. During the
option period of its acquisition agreements, the Company performs technical,
environmental, engineering and entitlement feasibility studies and seeks to
obtain necessary government approvals. The use of such option arrangements
allows the Company to evaluate and obtain regulatory approvals for a project, to
reduce its financial commitments, including interest and other carrying costs,
and to minimize land inventories. It also improves the Company's capacity to
estimate costs accurately, an important element in planning communities and
pricing homes. The Company only purchases amounts sufficient for its expected
production needs and does not purchase land for speculative investment.
In France, as a result of the continued uncertainty in the French real
estate market, the Company is employing a number of recession-conscious
strategies, including a greater emphasis on the entry-level market segment and
generally more restrictive policies regarding new land acquisition.
Home Construction and Sale. Following the purchase of land and, if
necessary, the completion of the entitlement process, the Company typically
begins marketing homes and constructing the model homes. The construction of
production homes is generally contingent upon customer orders to minimize the
costs and risks of standing inventory. As part of its debt reduction program in
1996, the Company focused on contracting for sales prior to construction ("pre-
selling"), maintaining stringent control of production inventory and reducing
unsold inventory in production. As a result, unsold inventory units at year end
1996 declined 44% versus prior year end, and the percentage of sold inventory in
production at year end 1996 was 44%, up from 31% at prior year end. The
pre-selling of homes also benefits home buyers, allowing them to personalize
their homes by selecting from a wider range of options.
The Company acts as the general contractor for its communities and hires
subcontractors for all production activities. The use of subcontractors enables
the Company to reduce its investment in direct labor costs, equipment and
facilities. Where practical, the Company uses mass production techniques,
construction on contiguous lots, and prepackaged,
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standardized components and materials to streamline the on-site production
phase. During the early 1990s, the Company developed systems for national and
regional purchasing of certain building materials, appliances and other items to
take advantage of economies of scale and to reduce costs. At all stages of
production, the Company's own administrative and on-site supervisory personnel
coordinate the activities of subcontractors and subject their work to quality
and cost controls.
The Company generally prices its homes only after it has entered into
contracts for the construction of such homes with subcontractors, an approach
which improves its ability to estimate costs accurately.
The Company provides customers with a limited home warranty program
administered by the personnel in each of its divisions. This arrangement is
designed to give customers prompt and efficient post-delivery service. The
warranty program covers certain repairs which may be necessary following new
home construction and covers structural integrity for a period of ten years. In
the aggregate, the costs associated with the Company's warranty program are not
material to its operations.
CYCLICALITY
The Company's business, and the housing industry in general, are cyclical.
The Company's operations and markets are affected by local and regional factors
such as local economies, demographic demand for housing, population growth,
property taxes and energy costs, and by national factors such as short and
long-term interest rates, federal mortgage financing programs, federal income
tax provisions and general economic trends. In addition, homebuilders are
subject to various risks including availability and cost of land, conditions of
supply and demand in local markets, weather conditions, and delays in
construction schedules and the entitlement process. Net orders often vary on a
seasonal basis, with the lowest sales activity typically occurring in the winter
months.
The Company's 1996 financial results were affected by various factors,
including but not limited to, the continued low level of demand for new housing
in California and weak economic conditions in France, offset by generally
favorable economic conditions in the Company's other U.S. markets.
BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts
which generally require a customer deposit at the time of execution and an
additional payment upon mortgage approval. Subject to particular contract
provisions, the Company generally permits customers to cancel their obligations
and obtain refunds of their deposits in the event mortgage financing is
unobtainable within a specified period of time.
Backlog consists of homes for which the Company has entered into a sales
contract but which it has not yet delivered. Ending backlog represents the
number of units in backlog from the previous period plus the number of net
orders (sales made less cancellations) taken during the current period minus
unit deliveries made during the current period. The backlog at any given time
will be affected by cancellations which most commonly result from the inability
of a prospective purchaser to obtain financing. Historically, the Company's
cancellation rates have increased during difficult economic periods. In
addition, deliveries of new homes typically increase from the first to the
fourth quarter in any year. Although the Company usually experiences a
relatively low backlog of orders at year end, the Company's backlog at November
30, 1996 stood at 2,839 units, more than double the 1,412 units at year end
1995. This increase was due to the acquisition of the San Antonio operations, as
well as the Company's new strategy to emphasize the pre-selling of homes.
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The following table sets forth net orders, unit deliveries and ending
backlog relating to sales of homes and homes under contract for each quarter
during the three-year period ended November 30, 1996.
<TABLE>
<CAPTION>
NET UNIT ENDING
ORDERS DELIVERIES BACKLOG*
------ ---------- --------
<S> <C> <C> <C>
Fiscal 1996:
First Quarter......................... 1,976 1,683 1,705
Second Quarter........................ 3,238 2,883 3,497
Third Quarter......................... 2,650 2,749 3,398
Fourth Quarter........................ 2,375 2,934 2,839
Fiscal 1995:
First Quarter......................... 1,636 1,367 1,285
Second Quarter........................ 2,241 1,875 1,651
Third Quarter......................... 2,311 2,111 1,851
Fourth Quarter........................ 2,065 2,504 1,412
Fiscal 1994:
First Quarter......................... 1,684 1,539 1,204
Second Quarter........................ 2,035 1,954 1,285
Third Quarter......................... 2,078 2,082 1,281
Fourth Quarter........................ 1,984 2,249 1,016
</TABLE>
* Backlog amounts for 1996 have been adjusted to reflect the San Antonio
acquisition and the disposition of the Canadian operations. Therefore, backlog
amounts at November 30, 1995 combined with net order and delivery activity for
1996 will not equal ending backlog at November 30, 1996.
LAND AND RAW MATERIALS
Management believes that the Company's current supply of land is sufficient
for its reasonably anticipated needs over the next couple of years, and that it
will be able to acquire land on acceptable terms for future housing
developments. The principal raw materials used in the construction of homes are
concrete and forest products. In addition, the Company uses a variety of other
construction materials, including sheetrock, plumbing and electrical items. The
Company attempts to maintain efficient operations by utilizing standardized
materials which are commercially available on competitive terms from a variety
of sources. Since 1992, the Company has increasingly utilized centralized
purchasing of certain building materials, appliances and fixtures, enabling it
to benefit from large quantity purchase discounts for its domestic operations.
The Company makes bulk purchases of such products at favorable prices from
suppliers and instructs subcontractors to submit bids based on such prices.
The principal materials used in the construction of French commercial
buildings are steel, concrete and glass.
LAND SALES
In the normal course of its business, the Company sells land which either
can be sold at an advantageous price due to market conditions or does not meet
its marketing needs. This property may consist of land zoned for commercial use
which is part of a larger parcel being developed for single-family homes or in
areas where the Company may consider its inventory to be excessive. Generally,
land sale revenues fluctuate based on the Company's decisions to maintain or
decrease its land ownership position in certain markets, the strength and number
of competing developers entering particular markets at given points in time, the
availability of land in markets served by the Company's housing divisions, or
prevailing market conditions. Land sale revenues totaled $68.2 million in 1996,
$18.2 million in 1995 and $27.2 million in 1994. The higher level of land sales
in 1996 was largely due to an aggressive asset sale program implemented by the
Company during the year as part of its debt reduction strategy. Land sold in
1996 was primarily property previously held for long-term development which the
Company disposed of in pursuit of its four key 1996 operating strategies.
CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY
On-site personnel at the Company's communities in the United States
facilitate sales by offering to arrange financing for prospective customers
through KBMC. Management believes that the ability to offer customers financing
on firm, competitive terms as a part of the sales process is an important factor
in completing sales. The Company typically assists
7
<PAGE> 9
customers in arranging for guaranteed maximum interest rates at the time of sale
even though delivery may take place in the future.
KBMC's business consists of providing the Company's domestic customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KBMC has its headquarters in Los Angeles and operates branch offices in Anaheim,
Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale, Sacramento,
Salinas, San Diego and San Ramon, California; Las Vegas, Nevada; Phoenix,
Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City, Utah; and
Austin, Dallas and San Antonio, Texas.
KBMC's principal sources of revenues are: (i) interest income earned on
mortgage loans during the period they are held by KBMC prior to their sale to
investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and
(iv) revenues from the sale of the rights to service loans.
KBMC is approved by the Government National Mortgage Association ("GNMA")
as a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated by
KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify
for inclusion in loan guarantee programs sponsored by Fannie Mae or the Federal
Home Loan Mortgage Corporation ("FHLMC"). KBMC arranges for fixed and adjustable
rate, conventional, privately insured mortgages, FHA-insured or VA-guaranteed
mortgages, and mortgages funded by revenue bond programs of states and
municipalities. In 1996, approximately 47% of the mortgages originated for the
Company's customers were conventional (most of which conformed to Fannie Mae and
FHLMC guidelines), 35% were FHA-insured or VA-guaranteed (a portion of which are
adjustable rate loans), 11% were funded by mortgage revenue bond programs and 7%
were adjustable rate mortgages ("ARMs") provided through commitments from
institutional investors. The percentages set forth above change from year to
year reflecting then-current fixed interest rates, introductory rates for ARMs,
housing prices and other economic conditions. In 1996, KBMC originated loans for
71% of the Company's domestic home deliveries. Generally, KBMC receives an
origination fee of approximately 1% of the principal amount of the loan.
KBMC is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KBMC has delegated underwriting authority from Fannie Mae and
FHLMC. As a delegated underwriter, KBMC may underwrite and close mortgage loans
under programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.
KBMC, like other mortgage bankers, customarily sells nearly all of the
loans that it originates. Loans are sold either individually or in pools to
GNMA, Fannie Mae or FHLMC or against forward commitments to institutional
investors, including banks and savings and loan associations.
For a small percentage of loans, and to the extent required for loans being
held for sale to investors, KBMC services the mortgages that it originates.
Servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections of mortgaged premises as required,
monitoring delinquent mortgages and generally administering the loans.
KBMC receives fees for servicing mortgage loans, generally ranging from
.20% per annum to .50% per annum on the declining principal balances of the
loans. KBMC typically sells servicing rights on a regular basis for
substantially all of the loans it originates.
The Company also assists its customers in France by arranging financing
through third party lenders, primarily major French banks with which the Company
has established relationships. In some cases, French customers qualify for
certain government-assisted, home financing programs. A second mortgage is
usually handled through a government agency. A home buyer in France may also
have a third mortgage provided through credit unions or other employee groups.
EMPLOYEES
The Company employs a trained staff of land acquisition specialists,
architects, planners, engineers, construction supervisors, marketing and sales
personnel and finance and accounting personnel, supplemented as necessary by
outside consultants, who guide the development of communities from their
conception through the marketing and sale of completed homes.
8
<PAGE> 10
At January 31, 1997, the Company had approximately 1,730 full-time
employees in its operations, including approximately 130 in KBMC's operations.
COMPETITION AND OTHER FACTORS
The Company's business is highly competitive. It competes with numerous
housing producers ranging from regional and national firms to small local
builders primarily on the basis of price, location, financing, design,
reputation, quality and amenities. Resales of housing provide additional
competition. In certain markets and at times when housing demand is high, the
Company also competes with other builders to hire subcontractors.
KBMC competes with other mortgage lenders, including mortgage bankers,
savings and loan associations and other financial institutions, in the
origination, sale and servicing of mortgage loans.
Increases in interest rates typically have a negative impact on the
Company's operations in that such increases adversely affect the availability of
home financing to, or qualification for such financing by, the Company's
customers. Conversely, significant reductions in interest rates typically have a
positive effect on the Company's operations.
The Company does not generally finance the development of its domestic
communities with proceeds of loans specifically obtained for, or secured by,
particular communities, i.e., project financing. Instead, financing of the
Company's domestic operations has been primarily generated from results of
operations, public debt and equity financing and borrowings under its $500
million unsecured revolving credit facility with a consortium of domestic and
foreign banks. Financing of its French operations has been primarily generated
from results of operations and borrowings from its aggregate $70 million
unsecured committed credit lines from a series of foreign banks. As a result of
these diverse external sources of financing, the Company was not adversely
affected by the tight credit conditions that much of the homebuilding industry
experienced during the recent recession, both domestically and in France.
REGULATION AND ENVIRONMENTAL MATTERS
The housing industry is subject to extensive and complex regulations. The
Company and its subcontractors must comply with various federal, state and local
laws, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. The operations of the Company are affected by
environmental laws and regulations, including regulations pertaining to
availability of water, municipal sewage treatment capacity, land use, protection
of endangered species, population density and preservation of the natural
terrain and coastlines. These and other requirements could become more
restrictive in the future, resulting in additional time and expense to obtain
approvals for the development of communities.
The Company is also subject to regulations and restrictions by the
governments of France and Mexico concerning investments in business operations
in those countries by United States companies, none of which has to date had a
material adverse effect on the Company's consolidated operations. The Company's
foreign operations are also subject to exchange rate fluctuations, which affect
the Company's financial statements and the reporting of profits and payment of
dividends from foreign subsidiaries, and to the terms of the Foreign Corrupt
Practices Act with which it is the strict policy of the Company to comply. In
addition, the Company periodically receives dividends from its French operations
without burdensome restrictions, although tax considerations have limited the
amount of such dividends.
KBMC is subject to numerous federal, state and local laws, ordinances,
rules and regulations concerning loans to purchasers of homes as well as Company
eligibility for participation in programs of the VA, FHA, GNMA, Fannie Mae and
FHLMC.
The Company entered into a consent order with the Federal Trade Commission
("FTC") in 1979 pursuant to which the Company agreed to provide explicit
warranties on the quality and workmanship of its new homes, follow certain
guidelines in advertising and provide certain disclosures to any prospective
purchaser who visits Company sales offices or model homes. In 1991, the Company
reached a monetary settlement with the FTC, covering alleged violations of the
Company's consent order. The FTC acknowledged that the Company did not admit any
of the allegations and did not impose any additional requirements on the
Company.
The Company currently has a policy of using outside environmental
specialists to investigate land considered for acquisition for environmental
risks and requiring disclosure from land sellers of known environmental risks.
Despite these
9
<PAGE> 11
activities, there can be no assurance that the Company will avoid material
liabilities relating to the removal of toxic wastes, site restoration,
monitoring or other environmental matters affecting properties currently or
previously owned by the Company. Costs associated with the use of environmental
consultants are not material to the Company's results of operations. No estimate
of such potential liabilities can be made although the Company may, from time to
time, purchase property which requires modest environmental clean-up costs after
appropriate due diligence. In such instances, the Company takes steps prior to
acquisition to assure itself as to the precise scope of work required and costs
associated with removal, site restoration and/or monitoring, using detailed
investigations by environmental consultants. To the extent such contamination or
other environmental issues have occurred in the past, the Company believes it
may be able to recover restoration costs from third parties, including, but not
limited to, the generators of hazardous waste, land sellers or others in the
prior chain of title and/or insurers. Utilizing such policies, the Company
anticipates that it is not likely that environmental clean-up costs will have a
material effect on future results of operations or the Company's financial
position. The Company has not been notified by any governmental agency of any
claim that any of the properties owned or formerly owned by the Company are
identified by the Environmental Protection Agency as being a "Superfund" clean-
up site requiring clean-up costs, which could have a material effect on future
results of operations or the Company's financial position.
ITEM 2. PROPERTIES
The Company's executive offices are in leased premises at 10990 Wilshire
Boulevard, Los Angeles, California. The Company's housing operations are
principally conducted from leased premises located in Anaheim, Bakersfield,
Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale, Pleasanton,
Sacramento, Salinas, San Diego and San Ramon, California; Las Vegas, Nevada;
Phoenix, Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City,
Utah; Dallas, Texas; Paris, France; and Mexico City, Mexico.
The Company's mortgage banking subsidiaries lease executive offices in Los
Angeles, California and branch offices in Anaheim, Fremont, Fresno, Los Angeles,
Modesto, Newport Beach, Palmdale, Sacramento, Salinas, San Diego and San Ramon,
California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque,
New Mexico; Salt Lake City, Utah and Dallas, Texas.
The Company's operations in San Antonio and Austin, Texas are conducted
from premises which the Company owns.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
ITEM 3. LEGAL PROCEEDINGS
In August 1992, homeowners from the Company's California Meadows community
in Riverside County, California, filed a lawsuit against the Company in Superior
Court seeking compensatory and punitive damages and alleging, among other
things, defective construction, breach of warranty, negligence and fraud. The
owners of approximately 115 homes were involved in the litigation which was
consolidated under the title of Koetter et al. v. Kaufman and Broad Home
Corporation et al., in Riverside County Superior Court. In February 1994, the
Company filed cross-complaints against relevant subcontractors and certain other
third parties.
Although the Company and the other defendants (including subcontractors)
believed that they had acted fairly and responsibly toward all homeowners in the
community and denied the most serious allegations raised in the lawsuit, the
Company, in consultation with outside legal counsel and its primary liability
insurance carrier, determined that continuing the litigation to trial would be
unjustifiably protracted and expensive and concluded that it was desirable to
settle the litigation in order to limit further expense, risk, inconvenience and
distraction. As a result, in fiscal year 1996, the Company and its primary
insurer, together with the subcontractor defendants (and their insurers),
executed formal agreements to settle the litigation. During the pendency of the
litigation the Company made provisions for potential losses associated with the
litigation and, accordingly, the settlement had no material adverse effect upon
the Company's financial position or results of operations in 1996. Under the
terms of the settlement, the Company and the individual defendants expressly
denied any liability related to the plaintiffs' allegations.
10
<PAGE> 12
The Company is involved in other litigation incidental to its business.
These cases are in various stages of development and, based on reports of
counsel, it is management's opinion that provisions made for potential losses
are adequate and any further liabilities and costs arising out of currently
pending litigation will not have a materially adverse effect upon the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders, through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of the Company as of January 31, 1997:
<TABLE>
<CAPTION>
YEAR
ASSUMED OTHER POSITIONS AND OTHER
PRESENT POSITION AT PRESENT BUSINESS EXPERIENCE WITHIN
NAME AGE JANUARY 31, 1997 POSITION THE LAST FIVE YEARS(1) FROM - TO
- ---------------------- --- ------------------------------ -------- ------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Bruce Karatz 51 Chairman, President and 1993 President and Chief Executive Officer 1986-1993
Chief Executive Officer
Guy Nafilyan 52 Executive Vice President 1992 President and Chief Executive Officer 1983 - Present
and President of European of Kaufman and Broad France
Operations Senior Vice President 1987-1992
Glen Barnard 52 Senior Vice President, 1996 President of Kaufman and Broad of 1995 - Present
Regional General Manager and Colorado, Inc.
President of Kaufman and Chairman, American Lives, Inc. 1991-1995
Broad of Colorado, Inc.
Michael F. Henn 48 Senior Vice President and 1994 Executive Vice President, Chief 1986-1994
Chief Financial Officer Financial and Administrative
Officer, The Vons Companies, Inc.
Lisa G. Kalmbach 39 Senior Vice President, 1996 President of Kaufman and 1992 - Present
Regional General Manager, Broad - South Bay, Inc.
President of Kaufman and Vice President, Sales and Marketing, 1988-1992
Broad - South Bay, Inc. and Kaufman and Broad - South Bay, Inc.
Acting President of Kaufman
and Broad of Northern
California, Inc.
Barton P. Pachino 37 Senior Vice President 1993 Vice President and Corporate Counsel 1991-1993
and General Counsel
Albert Z. Praw 48 Senior Vice President, 1996 Senior Vice President, Real Estate 1994-1996
Regional General Manager Partner in law firm of Sidley & 1992-1994
Austin
Senior Vice President, General 1989-1992
Counsel and Secretary
Gary A. Ray 38 Senior Vice President, 1996 Vice President, Training and 1994-1996
Human Resources Development
PepsiCo Restaurants International
Regional Vice President of Human 1992-1994
Resoures -
South Pacific Region, PepsiCo
Restaurants International
Michael L. Woodley 39 Senior Vice President, 1992 Vice President, Architecture 1989-1992
Architecture
William R. Hollinger 38 Vice President 1992 Director of Accounting 1988-1992
and Controller
Dennis Welsch 39 Vice President 1995 Vice President and Controller 1995
and Treasurer of Kaufman and Broad - South Bay,
Inc.
Controller of Kaufman and Broad - 1993-1994
South Bay, Inc.
Vice President, Treasurer A-M Homes 1986-1993
</TABLE>
- ---------------
(1) All positions described were with the Company, unless otherwise indicated.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 1997, there were 2,078 holders of record of the Company's
common stock.
Information as to the Company's quarterly stock prices is included on the
inside back cover of the Company's 1996 Annual Report to Stockholders, which is
included as part of Exhibit 13 and is incorporated in this Annual Report on Form
10-K.
Information as to the principal markets on which the Company's common stock
is being traded and quarterly cash dividends is included on the inside back
cover of the Company's 1996 Annual Report to Stockholders, which is included as
part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The Five Year Summary of Kaufman and Broad Home Corporation and its
consolidated subsidiaries for the five-year period ended November 30, 1996 is
included on page 26 in the Company's 1996 Annual Report to Stockholders, which
is included as part of Exhibit 13 and is incorporated in this Annual Report on
Form 10-K. It should be read in conjunction with the consolidated financial
statements included in the Company's 1996 Annual Report to Stockholders which
are also included as part of Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Kaufman and Broad Home Corporation is included on pages 27 through
35 in the Company's 1996 Annual Report to Stockholders, which are included as
part of Exhibit 13 and are incorporated in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kaufman and Broad Home Corporation
are included on pages 36 through 49 in the Company's 1996 Annual Report to
Stockholders, which are included as part of Exhibit 13 and are incorporated in
this Annual Report on Form 10-K. Reference is made to the Index to Financial
Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Notice of 1997 Annual Meeting of Stockholders and Proxy Statement,
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
incorporated by reference in this Annual Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K, provides the information required under Part III
(Items 10, 11, 12 and 13) except for the information regarding the executive
officers of the Company, which is included in Part I on page 11 herein.
12
<PAGE> 14
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Reference is made to the index set forth on page F-1 of this Annual
Report on Form 10-K.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
3.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
3.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
3.3 Certificate of Designation of Series A Participating Cumulative
Preferred Stock, filed as an exhibit to the Company's Registration
Statement No. 33-30140 on Form S-1, is incorporated by reference herein.
3.4 Certificate of Designation of Series B Mandatory Conversion Premium
Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.5 Amended Certificate of Designation of Series B Mandatory Conversion
Premium Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.6 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
4.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
4.3 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.4 Rights Agreement between the Company and Bank of America National Trust
and Savings Association, successor-by-merger to Security Pacific
National Bank, as Rights Agent, dated February 21, 1989, filed as an
exhibit to the Company's 1989 Annual Report on Form 10-K, is
incorporated by reference herein.
4.5 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
4.6 Specimen of 10 3/8% Senior Notes filed as an exhibit to the Company's
Current Report on Form 8-K, reporting certain exhibits in connection
with the Company's Registration Statement No. 33-50732 on Form S-3 filed
by the Company relating to the registration of 10 3/8% Senior Notes due
1999, is incorporated by reference herein.
4.7 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
4.8 Specimen of 9 3/8% Senior Subordinated Notes filed as an exhibit to the
Company's Registration Statement No. 33-59516 on Form S-3 filed by the
Company relating to the registration of 9 3/8% Senior Subordinated Notes
due 2003, is incorporated by reference herein.
4.9 Indenture relating to 9 5/8% Senior Subordinated Notes due 2006 between
the Company and SunTrust Bank, Atlanta, dated November 19, 1996, filed
as an exhibit to the Company's Registration Statement No. 333-14977 on
Form S-3, is incorporated by reference herein.
4.10 Specimen of 9 5/8% Senior Subordinated Notes filed as an exhibit to the
Company's Registration Statement No. 333-14977 on Form S-3 filed by the
Company relating to the registration of 9 5/8% Senior Subordinated Notes
due 2006, is incorporated by reference herein.
10.1 1986 Stock Option Plan, filed as an exhibit to the Company's
Registration Statement No. 33-6471 on Form S-1, is incorporated by
reference herein.
10.2 1988 Employee Stock Plan, filed as an exhibit to the definitive Joint
Proxy Statement for the Company's 1989 Special Meeting of Shareholders,
is incorporated by reference herein.
10.3 Consent Order, Federal Trade Commission Docket No. C-2954, dated
February 12, 1979, filed as an exhibit to the Company's Registration
Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
10.4 SunAmerica Inc. Executive Deferred Compensation Plan, approved September
25, 1985, filed as an exhibit to SunAmerica Inc.'s 1985 Annual Report on
Form 10-K, is incorporated by reference herein.
10.5 Directors' Deferred Compensation Plan established effective July 27,
1989, filed as an exhibit to the Company's 1989 Annual Report on Form
10-K, is incorporated by reference herein.
10.6 Settlement with Federal Trade Commission of June 27, 1991, filed as an
exhibit to the Company's Current Report on Form 8-K, dated June 28,
1991, is incorporated by reference herein.
10.7 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
10.8 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
10.9 Indenture relating to 9 5/8% Senior Subordinated Notes due 2006 between
the Company and SunTrust Bank, Atlanta, dated November 19, 1996, filed
as an exhibit to the Company's Registration Statement No. 333-14977 on
Form S-3, is incorporated by reference herein.
10.10 Amendments to the Kaufman and Broad Home Corporation 1988 Employee Stock
Plan dated January 27, 1994, filed as an exhibit to the Company's 1994
Annual Report on Form 10-K, are incorporated by reference herein.
10.11 Employment Agreement of Michael F. Henn, dated June 7, 1994, filed as an
exhibit to the Company's 1994 Annual Report on Form 10-K, is
incorporated by reference herein.
10.12 Fourth Amended and Restated Loan Agreement among the Company, Bank of
America National Trust and Savings Association ("Bank of America"), as
Administrative Agent, the First National Bank of Chicago ("Bank of
Chicago"), as Documentation Agent, Bank of America and Bank of Chicago
as Co-Syndication Agents and Bank of America, Bank of Chicago, Credit
Lyonnais Los Angeles Branch and NationsBank of Texas, N.A., as managing
agents, and the banks listed therein, dated February 28, 1996, filed as
an exhibit to the Company's Current Report on Form 8-K, is incorporated
by reference herein.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
10.13 Kaufman and Broad Home Corporation Performance-Based Incentive Plan for
Senior Management, approved by Stockholders on March 23, 1995, filed as
an exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
10.14 Form of Stock Option Agreement under Kaufman and Broad Home Corporation
Performance-Based Incentive Plan for Senior Management, filed as an
exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
10.15 Employment Contract of Bruce Karatz, dated December 1, 1995, filed as an
exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
10.16 Kaufman and Broad Home Corporation Directors' Legacy Program, filed as
an exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
10.17 Kaufman and Broad Home Corporation Non-Employee Directors Stock Unit
Plan.
10.18 Employment Agreement of Glen Barnard, dated October 5, 1996.
10.19 Employment Agreement of Lisa G. Kalmbach, dated October 5, 1996.
10.20 Employment Agreement of Albert Z. Praw, dated October 5, 1996.
10.21 Kaufman and Broad Home Corporation Unit Performance Program.
11 Statement of Computation of Per Share Earnings (Loss).
13 Pages 26 through 49 and the inside back cover of the Company's 1996
Annual Report to Stockholders.
22 Subsidiaries of the Company.
24 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements and notes thereto.
REPORTS ON FORM 8-K
On October 29, 1996, the Company filed a Current Report on Form 8-K
(Item 5) reporting its filing of a universal shelf registration statement
with the Securities and Exchange Commission for up to $300 million of the
Company's debt and equity securities.
On November 18, 1996, the Company filed a Current Report on Form 8-K
(Item 7) which included an exhibit related to the issuance of its 9 5/8%
Senior Subordinated Notes due 2006 pursuant to Registration Statement Nos.
333-14977 and 33-50732.
On November 19, 1996, the Company filed a Current Report on Form 8-K
(Item 7) which included exhibits related to the issuance of its 9 5/8%
Senior Subordinated Notes due 2006 pursuant to Registration Statement Nos.
333-14977 and 33-50732.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
By: MICHAEL F. HENN
------------------------------------
Michael F. Henn
Senior Vice President
and Chief Financial Officer
Dated: February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ------------------
<C> <S> <C>
BRUCE KARATZ Chairman, President February 25, 1997
- --------------------------------------------- and Chief Executive
Bruce Karatz Officer
MICHAEL F. HENN Senior Vice President February 25, 1997
- --------------------------------------------- and Chief Financial Officer
Michael F. Henn
RONALD W. BURKLE Director February 25, 1997
- ---------------------------------------------
Ronald W. Burkle
JANE EVANS Director February 25, 1997
- ---------------------------------------------
Jane Evans
DR. RAY R. IRANI Director February 25, 1997
- ---------------------------------------------
Dr. Ray R. Irani
ANTOINE JEANCOURT-GALIGNANI Director February 25, 1997
- ---------------------------------------------
Antoine Jeancourt-Galignani
JAMES A. JOHNSON Director February 25, 1997
- ---------------------------------------------
James A. Johnson
GUY NAFILYAN Director; Executive Vice February 25, 1997
- --------------------------------------------- President, European
Guy Nafilyan Operations
LUIS G. NOGALES Director February 25, 1997
- ---------------------------------------------
Luis G. Nogales
CHARLES R. RINEHART Director February 25, 1997
- ---------------------------------------------
Charles R. Rinehart
SANFORD C. SIGOLOFF Director February 25, 1997
- ---------------------------------------------
Sanford C. Sigoloff
</TABLE>
16
<PAGE> 18
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon of
Ernst & Young LLP, dated January 3, 1997, all appearing on pages 36 through 49
in the 1996 Annual Report to Stockholders, are incorporated in this Annual
Report on Form 10-K between page F-1 and the List of Exhibits Filed. With the
exception of the aforementioned information and the information incorporated in
Items 5, 6 and 7, the 1996 Annual Report to Stockholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
Separate combined financial statements of the Company's unconsolidated
joint venture activities have been omitted because, if considered in the
aggregate, they would not constitute a significant subsidiary as defined by Rule
3-09 of Regulation S-X.
------------------------
<TABLE>
<CAPTION>
PAGE NO. IN
ANNUAL REPORT
TO STOCKHOLDERS
-----------------
<S> <C>
KAUFMAN AND BROAD HOME CORPORATION
Report of Independent Auditors............................................ 49
Consolidated Statements of Income for the years ended November 30, 1996,
1995 and 1994.......................................................... 36
Consolidated Balance Sheets as of November 30, 1996 and 1995.............. 37
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1996, 1995 and 1994....................................... 38
Consolidated Statements of Cash Flows for the years ended November 30,
1996, 1995 and 1994.................................................... 39
Notes to Consolidated Financial Statements................................ 40 through 48
</TABLE>
The following pages represent pages 26 through 49 and the inside back cover
of the 1996 Annual Report to Stockholders of Kaufman and Broad Home Corporation,
and include the Five Year Summary, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Consolidated Financial
Statements and related notes thereto, the Report of Independent Auditors,
Stockholder Information and Quarterly Stock Prices. These pages were filed with
the Securities and Exchange Commission as Exhibit 13 to this Annual Report on
Form 10-K.
F-1
<PAGE> 19
26
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------------------------------------
In thousands, except per share amounts 1996 1995 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION:
Revenues $1,754,147 $1,366,866 $1,307,570 $1,199,776 $1,052,525
Operating income before non-cash charge for
impairment of long-lived assets 98,679 65,531 88,323 86,609 58,897
Operating income (loss)* (72,078) 65,531 88,323 86,609 58,897
Total assets 1,000,159 1,269,208 1,167,136 983,442 987,104
Mortgages and notes payable 442,629 639,575 565,020 313,357 258,147
========== ========== ========== ========== ==========
MORTGAGE BANKING:
Revenues $ 32,894 $ 29,660 $ 28,701 $ 38,078 $ 41,643
Operating income 12,740 9,348 6,003 7,534 4,556
Total assets 243,335 304,971 287,324 355,936 444,656
Notes payable 134,956 151,000 125,000 138,500 143,700
Collateralized mortgage obligations 68,381 84,764 96,731 144,143 222,948
========== ========== ========== ========== ==========
CONSOLIDATED:
Revenues $1,787,041 $1,396,526 $1,336,271 $1,237,854 $1,094,168
Operating income before non-cash charge for
impairment of long-lived assets 111,419 74,879 94,326 94,143 63,453
Operating income (loss)* (59,338) 74,879 94,326 94,143 63,453
Net income (loss)* (61,244) 29,059 46,550 39,921 28,198
Total assets 1,243,494 1,574,179 1,454,460 1,339,378 1,431,760
Mortgages and notes payable 577,585 790,575 690,020 451,857 401,847
Collateralized mortgage obligations 68,381 84,764 96,731 144,143 222,948
Convertible subordinated notes 162,022
Stockholders' equity* 340,350 415,478 404,747 444,340 318,433
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE* $ (1.54) $ .73 $ 1.16 $ .96 $ .78
CASH DIVIDENDS PER COMMON SHARE .30 .30 .30 .30 .30
========== ========== ========== ========== ==========
</TABLE>
*Reflects a $170.8 million pretax non-cash charge for impairment of long-lived
assets recorded in the second quarter of 1996.
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 20
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW Revenues are primarily generated from the Company's housing operations
in the western United States, France and Mexico; commercial development
activities in France; and domestic mortgage banking operations.
The Company's performance in 1996 reflected progress made during the year
in achieving four key operating strategies: expansion in domestic markets
outside of California; improvement in return on investment; aggressive inventory
and debt reduction; and improvement in operating margin. On March 1, 1996, the
Company took its most significant step to date in expanding beyond California
with the acquisition of Rayco, Ltd., San Antonio's largest homebuilder. With
this acquisition the Company established a significant position in the San
Antonio metropolitan area, where Rayco commanded a 42% share of the new home
market in 1996. The acquisition was accounted for as a purchase, with the
results of the San Antonio operations included in the Company's financial
statements as of March 1, 1996, the date of acquisition. Internationally, the
Company's start-up housing operation in Mexico delivered its first homes during
1996.
Total Company revenues increased to $1.79 billion in 1996, up 28.0% from
$1.40 billion in 1995, which had increased 4.5% from revenues of $1.34 billion
in 1994. The increase in 1996 was due in large measure to the acquisition of the
San Antonio homebuilding operations, as well as the continued maturation of the
Company's non-California domestic businesses and higher land sale revenues. In
1995, revenues rose due to higher housing revenues, partially offset by a
decline in revenues from land sales. Included in total revenues were mortgage
banking revenues of $32.9 million in 1996, $29.7 million in 1995 and $28.7
million in 1994.
The Company recorded a $170.8 million non-cash charge for impairment of
long-lived assets in the second quarter, resulting in a net loss of $61.2
million or $1.54 per share in 1996. Excluding the non-cash charge, net income
increased to $48.0 million or $1.20 per share in 1996 from $29.1 million or $.73
per share in 1995. Net income in 1995 was lower than the $46.6 million or $1.16
per share recorded in 1994. Excluding the non-cash charge, net income increased
in 1996 due to improved unit deliveries (including three quarters of San Antonio
operations), continued progress in implementing the Company's key initiatives to
improve gross margins and contain costs, and an increase in pretax income from
mortgage banking operations. Mortgage banking pretax income improved primarily
due to increased loan volume, improved income from sales of servicing rights
stemming from an improved mix of fixed rate to variable loans, and strong cost
controls. In 1995, net income fell due to lower earnings from housing
operations, as a decline in earnings from California operations, primarily
stemming from continued weakness in the state's housing markets, was only
partially offset by an increase in earnings from domestic operations outside the
state.
CONSTRUCTION
REVENUES Construction revenues increased in 1996 to $1.75 billion from $1.37
billion in 1995, which had increased from $1.31 billion in 1994. The increase in
1996 was primarily due to the inclusion of $189.3 million in revenues from San
Antonio operations, continued growth within the Company's non-California
domestic operations and increased land sale revenues. In 1995, the increase in
revenues primarily reflected higher domestic housing revenues, as a decline in
California housing revenues was more than offset by increased housing revenues
from other U.S. operations (including the Company's first deliveries in New
Mexico and Utah).
Housing revenues totaled $1.67 billion in 1996, $1.33 billion in 1995 and
$1.26 billion in 1994. Excluding revenues from the San Antonio operations,
housing revenues totaled $1.48 billion in 1996, up 11.8% from 1995 as a result
of a 4.6% increase in unit volume and a 6.9% higher average selling price. In
1995, housing revenues rose due to a 4.7% increase in the Company's average
selling price and a modest increase in unit volume. California housing
operations generated 59.6% of Company-wide housing revenues in 1996, down from
72.3% in 1995, reflecting both the Company's new San Antonio operations and
further diversification of its domestic operations beyond California. Housing
revenues from California operations were $997.3 million in 1996, up from $959.8
million in 1995. Including three quarters of revenues from operations in San
Antonio, the Company's other U.S. housing revenues more than doubled to $513.9
million in 1996 from $245.4 million in 1995. Excluding San Antonio results,
other U.S. housing revenues totaled $324.7 million in 1996, up 32.3% from the
prior year. In 1995, the Company's California-generated revenues as a percentage
of total housing revenues decreased from 82.0% in 1994 due to the Company's
expansion into New Mexico and Utah, the maturation of the Nevada, Arizona and
Colorado divisions and stagnant economic conditions in California.
Housing deliveries increased by 30.4% to 10,249 units in 1996, exceeding
the previous Company-wide record of 7,857 units set in 1995. Excluding 2,027 San
Antonio deliveries, Company-wide deliveries in 1996 increased 4.6% from the
prior year, reflecting increases in the U.S. and French markets of 2.9% and
30.5%, respectively. The modest increase in domestic deliveries, excluding San
Antonio operations, was driven by a 25.9% rise in non-California deliveries, to
2,267 units in 1996 from 1,800 units in 1995, substantially offset by a decline
in deliveries from California's still weak housing market.
<PAGE> 21
28
RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA
<TABLE>
<CAPTION>
Other
United
California States France Other Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNIT DELIVERIES
1996
First 1,095 487 96 5 1,683
Second 1,453 1,265 160 5 2,883
Third 1,259 1,307 180 3 2,749
Fourth 1,364 1,235 313 22 2,934
-------- -------- ------- ------ --------
Total 5,171 4,294 749 35 10,249
======== ======== ======= ====== ========
1995
First 972 293 102 1,367
Second 1,295 446 110 24 1,875
Third 1,454 511 133 13 2,111
Fourth 1,709 550 229 16 2,504
-------- -------- ------- ------ --------
Total 5,430 1,800 574 53 7,857
======== ======== ======= ====== ========
NET ORDERS
1996
First 1,292 540 123 21 1,976
Second 1,577 1,399 241 21 3,238
Third 1,395 1,144 104 7 2,650
Fourth 1,135 968 267 5 2,375
-------- -------- ------- ------ --------
Total 5,399 4,051 735 54 10,239
======== ======== ======= ====== ========
1995
First 1,101 374 152 9 1,636
Second 1,397 698 134 12 2,241
Third 1,588 572 138 13 2,311
Fourth 1,342 503 210 10 2,065
-------- -------- ------- ------ --------
Total 5,428 2,147 634 44 8,253
======== ======== ======= ====== ========
ENDING BACKLOG-UNITS
1996
First 823 599 256 27 1,705
Second 947 2,186 337 27 3,497
Third 1,083 2,023 261 31 3,398
Fourth 854 1,756 215 14 2,839
======== ======== ======= ====== ========
1995
First 757 280 219 29 1,285
Second 859 532 243 17 1,651
Third 993 593 248 17 1,851
Fourth 626 546 229 11 1,412
======== ======== ======= ====== ========
ENDING BACKLOG-VALUE In thousands
1996
First $153,074 $ 86,880 $51,820 $4,948 $296,722
Second 182,718 236,970 72,215 5,265 497,168
Third 225,486 229,348 55,236 7,595 517,665
Fourth 180,513 196,195 47,603 3,584 427,895
======== ======== ======= ====== ========
1995
First $125,870 $38,971 $44,820 $2,958 $212,619
Second 149,796 75,455 48,658 1,666 275,575
Third 191,182 86,096 54,560 1,683 333,521
Fourth 114,207 78,436 50,044 1,122 243,809
======== ======== ======= ====== ========
</TABLE>
California deliveries decreased 4.8% to 5,171 units in 1996 from 5,430 units in
1995.
Housing deliveries increased in 1995 from 7,824 units in 1994, as a 2.2%
increase in U.S. deliveries more than offset a 16.2% decline in French
deliveries during the period. The improvement in domestic unit volume in 1995
reflected continued domestic expansion outside of California, partially offset
by a decline in California deliveries. In France, unit volume remained depressed
in 1995, largely as a result of that country's adverse economic climate and more
specifically as a result of the deferral of home purchases by many buyers
anticipating new government incentive programs which did not take effect until
October 1995.
The Company-wide average new home price decreased 3.3% to $163,300 in 1996,
reflecting the impact of the recently acquired San Antonio operations, which had
an average selling price of $93,400 in 1996. Excluding San Antonio, the
Company-wide average selling price increased 6.9% to $180,500 in 1996 from
$168,900 in 1995, which had increased 4.7% from $161,300 in 1994. These
year-over-year increases reflected higher average selling prices in the United
States and France, resulting from shifts in product mix to higher priced, urban
in-fill locations and increases in move-up sales.
In California, the Company's average selling price rose 9.1% to $192,900 in
1996 from $176,800 in 1995. The 1995 figure increased 6.6% from $165,900 in
1994. The increases in both years reflected a shift in mix toward higher-priced
homes. Excluding San Antonio, the Company's average selling price in other U.S.
markets was $143,200 in 1996, $136,300 in 1995 and $114,900 in 1994. The
increase from 1995 to 1996 reflected greater development in higher priced, urban
in-fill locations and larger numbers of move-up sales. The increase in 1995 from
1994 resulted from the Company's entry into new markets with higher average
prices. The Company's average selling price in France increased in each of the
past two years as a result of changes in product mix. It rose to $206,600 in
1996 from $203,700 in 1995, up from $182,300 in 1994.
Revenues from the development of commercial buildings, all of which are
located in metropolitan Paris, totaled $12.2 million in 1996, $20.5 million in
1995 and $17.4 million in 1994. These revenues declined in 1996 on reduced
commercial development activities in France. In 1995, commercial development
revenues increased modestly compared to 1994, although the French commercial
markets were characterized by persistently high vacancy rates and poor operating
conditions.
Land sale revenues totaled $68.2 million in 1996, $18.2 million in 1995 and
$27.2 million in 1994. The higher level of land sales in 1996 was largely due to
an aggressive asset sale program implemented by the Company during the year as
part of its debt reduction strategy. Land sold in 1996 was primarily prop-
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 22
29
erty previously held for long-term development which the Company disposed of in
order to redeploy the invested capital at potentially higher returns. Generally,
land sale revenues fluctuate based on the Company's decision to maintain or
decrease its land ownership positions in certain markets, the strength and
number of competing developers entering particular markets at given points in
time, the availability of land in markets served by the Company's housing
divisions, or prevailing market conditions.
OPERATING INCOME Excluding the $170.8 million non-cash charge for impairment of
long-lived assets recorded in the second quarter, operating income increased by
$33.2 million or 50.6% to $98.7 million in 1996 from $65.5 million in 1995. This
increase was primarily due to higher gross profits on housing sales, reflecting
both higher unit volume and an improvement in margins, mainly due to the
addition of the acquired San Antonio operations. When the non-cash charge is
included, operating income decreased by $137.6 million, for an operating loss of
$72.1 million in 1996. Gross profits in 1996 (excluding profits from land sales)
increased by $74.3 million to $316.5 million from $242.2 million in 1995. As a
percentage of related revenues, the Company's gross profit margin (excluding
profits from land sales) was 18.8% in 1996, up from 18.0% in the prior year. The
Company's housing gross margin increased to 18.7% in 1996 from 17.9% in the
prior year, primarily reflecting the addition of San Antonio operations and
continued growth in the Company's higher margin operations in other
non-California markets. During each quarter of 1996, the Company's housing gross
margin was better than or equal to that of the comparable quarter a year
earlier, in part due to the favorable impact of the Company's key strategies,
implemented during the course of 1995 and into 1996, to enhance profitability.
Despite the increase in land sale revenues in 1996, Company-wide profits
from land sales decreased by $2.7 million to $2.6 million in 1996 from $5.3
million in 1995. This decrease resulted from the Company's accelerated
disposition of certain real estate assets, many of which were written down to
fair value, in 1996 in order to redeploy capital to improve overall return on
investment.
Selling, general and administrative expenses increased by $38.5 million in
1996. This increase was primarily due to the inclusion of the San Antonio
operations, which added $25.9 million of selling, general and administrative
expenses (including the amortization of goodwill), as well as higher marketing
expenses generated by increased unit volume from the Company's remaining
operations. As a percentage of housing revenues, to which these expenses are
most closely correlated, selling, general and administrative expenses declined
.5 percentage points to 13.2% in 1996 from 13.7% in 1995. This improvement
reflected higher unit volume, primarily as a result of the acquisition of San
Antonio operations, and more favorable ratios for sales incentives, advertising
expenses and general and administrative expenses, partially offset by increased
sales commissions associated with a higher proportion of third party broker
commissions. The Company intends to continue its cost-cutting initiatives in
1997 and believes that further improvement in the selling, general and
administrative expense ratio can be achieved in 1997 if volume equals or exceeds
1996 levels.
In 1995, operating income decreased by $22.8 million to $65.5 million from
$88.3 million in 1994. This decline reflected lower gross profits from
commercial activities and land sales as well as an increase in selling, general
and administrative expenses. Housing gross profits in 1995 were essentially flat
compared to 1994 on slightly higher unit volume offset by a lower housing gross
margin. Gross profits (excluding profits from land sales) decreased by $8.5
million to $242.2 million in 1995 from $250.7 million in 1994, largely due to
lower gross profits from French commercial operations resulting from a lower
commercial gross profit margin. As a percentage of related revenues, the
Company's gross profit margin (excluding profits from land sales) was 18.0% in
1995, down from 19.6% in the prior year, primarily reflecting a lower gross
margin in California. The lower gross margin from California operations stemmed
from severe and prolonged winter rain storms in early 1995 which reduced sales
volumes and slowed production, and from the large sales incentives required
throughout 1995 to stimulate buying activity in a generally stagnant market.
Rising mortgage rates in early 1995 also depressed Company performance. Despite
these obstacles, the Company's California housing gross margin showed steady
improvement from the first through the fourth quarters of 1995 as a rising
proportion of deliveries was generated from more recently opened higher-margin
communities.
Company-wide profits from land sales decreased to $5.3 million in 1995 from
$8.5 million in 1994 with profit margins from these sales down slightly.
Selling, general and administrative expenses increased by $11.0 million in
1995. As a percentage of housing revenues, these expenses increased to 13.7% in
1995 from 13.5% in 1994. Selling, general and administrative expenses rose in
1995 mainly due to the continued expansion of the Company's domestic operations
outside of California and increased financing incentives and sales commissions.
These increases were partially offset by ongoing cost reduction programs which
contributed to an improving expense ratio in each of the last three quarters of
1995. In the first quarter of 1995, selling, general and administrative expenses
were 14.6% of housing revenues, gradually declining to 13.3% by the fourth
quarter.
<PAGE> 23
30
In the second quarter of 1996, the Company decided to accelerate the
disposition of certain real estate assets in order to facilitate pursuit of its
four key operating strategies, including geographic diversification, increased
emphasis on return on investment, planned debt reduction and improved operating
margins. The disposition of these assets helped effectuate the Company's
strategies to improve overall return on investment, restore financial leverage
to targeted levels, and position the Company for continued geographic expansion.
In addition, the Company substantially eliminated its prior practice of
investing in long term development projects in order to reduce the operating
risk associated with such projects. The accelerated disposition of long term
development assets caused certain assets, primarily inventories and investments
in unconsolidated joint ventures in California and France, to be identified as
being impaired and to be written down. Certain of the Company's California
properties were impacted by the charge, while none of its non-California
domestic properties were affected. The Company's non-California domestic
properties were not affected since they were not held for long term development
and were expected to be economically successful such that they were determined
not to be impaired.
The evaluation of impaired assets considered the depressed nature of the
real estate business in certain of the Company's California and French markets,
reduced demand from prospective home buyers, availability of ready buyers for
the Company's properties, future costs of development and holding costs during
development. Based on this evaluation, the Company recorded a non-cash
write-down in the second quarter of 1996 of $170.8 million ($109.3 million, net
of income taxes) to state these impaired assets at their fair values. The fair
values established were based on various methods, including discounted cash flow
projections, appraisals and evaluations of comparable market prices, as
appropriate. As the inventories affected by the charge primarily consisted of
land which was not under active development, the Company does not anticipate
that the charge will have a material effect on its gross margins.
The write-down for impairment of long-lived assets was calculated in
accordance with 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 the Company decided to adopt in the second quarter
of 1996; however, the write-down was not necessitated by implementation of this
standard. Had the Company not adopted SFAS No. 121, a substantial write-down
would have nonetheless been recorded. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable, and
requires impairment losses to be recorded on long-lived assets 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.
Under the new standard, when an impairment write-down is required, the
related assets are adjusted to their estimated fair value. Fair value for
purposes of SFAS No. 121 is deemed to be the amount a willing buyer would pay a
willing seller for such property in a current transaction, that is, other than
in a forced or liquidation sale. For homebuilders, this is a change from the
previous accounting standard which required homebuilders to carry real estate
assets at the lower of cost or net realizable value.
INTEREST INCOME AND EXPENSE Interest income, which is generated from mortgages
receivable, principally from land sales, and from short-term investments,
amounted to $2.7 million in 1996, $2.1 million in 1995 and $2.0 million in 1994.
Interest income during the three-year period reflected little change in the
interest bearing average balances of short-term investments and mortgages
receivable.
Interest expense results principally from borrowings to finance land
purchases, housing inventory, and other operating and capital needs. In 1996,
interest expense, net of amounts capitalized, increased to $36.7 million from
$27.5 million in 1995, reflecting a lower percentage of interest capitalized.
The lower capitalization rate during 1996 reflected a higher proportion of land
in production in 1996 compared to 1995 and the non-capitalization of interest on
borrowings associated with the San Antonio acquisition. In 1995, interest
expense, net of amounts capitalized, increased to $27.5 million from $17.8
million in the prior year, reflecting higher average indebtedness, a higher
overall effective borrowing rate and a lower percentage of interest capitalized.
The Company's average debt level increased in 1995 as inventory levels grew due
to continued expansion.
MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES The Company
conducts a portion of both its residential and commercial development activities
through majority-owned partnerships, primarily in France, which are fully
consolidated in the accompanying financial statements. As a result, operating
income has been reduced by minority interests in the pretax income of these
partnerships of $.2 million in 1996, $.6 million in 1995 and $.9 million in
1994. Minority interests decreased in both years on declining profit
contributions from the Company's consolidated commercial development projects.
Minority interests are expected to remain at low levels in 1997, reflecting the
limited opportunities currently available in the French commercial market.
KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report
<PAGE> 24
31
EQUITY IN PRETAX INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES The Company's
unconsolidated joint venture activities, located in California, New Mexico and
France, posted combined revenues of $6.7 million in 1996, $33.9 million in 1995
and $82.7 million in 1994. Of these amounts, revenues from commercial activities
in France accounted for $.1 million in 1996, $5.9 million in 1995 and $34.0
million in 1994. These unconsolidated joint ventures generated combined pretax
losses of $14.8 million in 1996, $20.5 million in 1995 and $35.7 million in
1994. The losses primarily consisted of selling, general, administrative and
interest expenses from a single French multi-family residential project, as well
as reserves taken in 1996 and 1995 on a French commercial development project.
The Company's share of pretax losses from these joint ventures totaled $2.1
million in 1996, $3.5 million in 1995, and $3.7 million in 1994. The Company's
share of pretax losses declined in 1996 and 1995 due to lower activity from the
unconsolidated joint ventures and the effects of reserves taken in previous
years. As a result of the non-cash charge taken in 1996 to reflect the
impairment in unconsolidated joint ventures, the Company does not anticipate
incurring significant additional losses from these joint ventures.
MORTGAGE BANKING
INTEREST INCOME AND EXPENSE The Company's mortgage banking operations
principally consist of providing financing to purchasers of homes sold by the
Company's domestic housing operations through the origination of residential
mortgages. Mortgage banking operations also realize revenues from the sale of
such mortgages and related servicing rights to outside financial institutions.
Prior to 1989, substantially all such mortgages were pledged for collateralized
mortgage obligations. Accordingly, interest income is earned primarily from
mortgage-backed securities held for long-term investment as collateral, while
interest expense results mainly from the associated collateralized mortgage
obligations.
Interest income decreased to $14.6 million in 1996 from $15.6 million in
1995, and $17.0 million in 1994, while interest expense also declined to $13.5
million in 1996 from $14.8 million in 1995, and $17.2 million in 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 the
prepayment of mortgage collateral. These balances, and the related interest
income and expense, will continue to decline as the Company's practice of
participating in collateralized mortgage financings was discontinued in 1988 due
to market conditions and tax law changes. Combined interest income and expense
resulted in net interest income of $1.1 million in 1996 and $.8 million in 1995
and net interest expense of $.2 million in 1994. These differences reflect
variations in mortgage production mix; movements in short-term versus long-term
interest rates; and the amount, timing and rates of return on interim
reinvestments of monthly principal amortization and prepayments.
OTHER MORTGAGE BANKING REVENUES Other mortgage banking revenues, which
principally consist of gains on sales of mortgages and servicing rights and, to
a lesser extent, mortgage servicing fees, totaled $18.3 million in 1996, $14.1
million in 1995 and $11.7 million in 1994. The increases in these revenues in
1996 and 1995 reflected higher gains on the sales of mortgages and servicing
rights due to a higher volume of mortgage originations -- resulting from higher
housing unit volume in the United States -- and a more favorable mix of fixed to
variable rate loans.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for
mortgage banking operations amounted to $6.7 million in 1996 and $5.5 million in
1995 and 1994. The increase in general and administrative expenses in 1996
resulted from higher mortgage production levels due to a significant increase in
domestic unit deliveries, partially offset by cost reduction programs. Despite
increased mortgage production volume in 1995, general and administrative
expenses remained flat compared to 1994 levels due to the Company's successful
cost containment efforts which extended to its lending operations.
INCOME TAXES
The Company's income tax benefit totaled $34.5 million in 1996, and its
income tax expense totaled $16.4 million in 1995 and $27.3 million in 1994.
These amounts represented effective income tax rates of approximately 36.0% in
1996 and 1995 and 37.0% in 1994. The tax benefit in 1996 reflected the pretax
loss reported by the Company as a result of the non-cash charge for impairment
of long-lived assets recorded in the second quarter of 1996. The Company's
effective tax rate declined in 1995 compared to 1994 as a result of greater
utilization of affordable housing investment credits. The pretax income/loss for
financial reporting purposes and taxable income/loss for income tax purposes
historically have differed primarily due to the impact of state income taxes,
foreign tax rate differences, intercompany dividends and the use of affordable
housing credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Typically, the Company has
funded its construction and mortgage banking activities with internally
generated cash flows and external sources of debt and equity financing. In 1996,
operating, invest-
<PAGE> 25
32
ing and financing activities used net cash of $33.6 million; in 1995, these
activities used net cash of $11.4 million.
Operating activities in 1996 provided $330.8 million, while 1995 operating
activities used $52.9 million. The Company's sources of operating cash in 1996
included a reduction in inventories totaling $232.9 million (excluding $17.0
million of inventories acquired through seller financing and $73.9 million in
acquired San Antonio inventories), a reduction in receivables of $36.6 million
and various non-cash items. These non-cash items included the $170.8 million
non-cash charge for impairment of long-lived assets, which more than offset the
Company's net loss of $61.2 million (which included the non-cash charge for
impairment of long-lived assets) recorded for 1996. Uses of cash in 1996
included a $41.2 million change in deferred taxes and a $21.9 million decrease
in accounts payable, accrued expenses and other liabilities. The decrease in
inventories in 1996 (excluding San Antonio inventories acquired and the non-cash
charge for impairment of long-lived assets), occurred primarily in California as
the Company continued to execute a debt reduction strategy that included an
aggressive asset sale program.
In 1995, the use of operating cash included net investments of $80.3
million in inventories (excluding $36.1 million of inventories acquired through
seller financing), an increase of $14.7 million in receivables and $18.8 million
of other operating uses. The use of cash was partially offset by earnings of
$29.1 million, various non-cash items deducted from net income and a $26.7
million increase in accounts payable, accrued expenses and other liabilities. In
1995, inventories increased, primarily in the United States, rising to $901.4
million at November 30, 1995 from $807.5 million at year-end 1994, as the
Company continued its domestic expansion.
Cash used by investing activities totaled $73.9 million in 1996 compared to
$10.0 million provided in 1995. In 1996, $80.6 million of cash was used for the
March 1, 1996 San Antonio acquisition for a total purchase price of $104.5
million, which included cash to pay off debt assumed in the purchase. In
addition, cash of $7.6 million was used for investments in unconsolidated joint
ventures and $2.8 million was used for other investing activities. Partially
offsetting these uses was $18.1 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.
In 1995, cash provided by investing activities was primarily from $13.8
million in proceeds from mortgage-backed securities paid off during the year
within the mortgage banking operations. These proceeds were used largely to pay
down the collateralized mortgage obligations for which the mortgage-backed
securities had served as collateral.
Financing activities in 1996 used $290.5 million of cash compared to $31.5
million provided in 1995. In 1996, cash was used for net payments on borrowings
of $379.2 million, reflecting the Company's aggressive debt reduction strategy.
Uses of cash in 1996 also included payments on collateralized mortgage
obligations of $17.3 million, the funds for which were provided by receipts on
mortgage-backed securities, and $16.1 million of cash dividend payments. The
mandatory conversion of all of the Company's series B convertible preferred
shares into shares of common stock was completed on April 1, 1996 and has
reduced cash flow required for future dividends by approximately $2.0 million
per quarter. Partially offsetting these uses of cash were proceeds of $124.4
million from the issuance of 9 5/8% senior subordinated notes in the fourth
quarter. The Company's debt-to-capital ratio improved to 56.5% in 1996 from
60.6% in 1995 despite substantial additional borrowings related to the San
Antonio acquisition, and the non-cash charge for impairment of long-lived
assets.
Financing activities in 1995 provided $64.3 million in net proceeds from
borrowings, partially offset by payments on collateralized mortgage obligations
of $13.3 million, the funds for which were provided by receipts on
mortgage-backed securities, and $19.6 million of cash dividend payments. The
Company's debt-to-capital ratio increased to 60.6% in 1995 from 58.3% in 1994
reflecting additional financing required for the higher level of inventories
resulting from domestic expansion.
In connection with the San Antonio acquisition, the Company amended the
terms under its domestic unsecured revolving credit agreement with various
banks. The amended revolving credit agreement, dated February 28, 1996,
increased the Company's initial borrowing capacity from $500 million to $630
million. The additional $130 million of financing obtained by the Company
included a term loan facility used to finance the acquisition and to refinance
portions of the existing indebtedness of the acquired company. During 1996, the
Company repaid $301.4 million of debt (including $104.5 million of borrowings
related to the San Antonio acquisition). This significant progress in the
Company's aggressive debt reduction program lowered the Company's total debt to
$442.6 million at November 30, 1996, $196.9 million or 30.8% less than the
balance at November 30, 1995, despite borrowings of $104.5 million to acquire
the San Antonio operations. Key elements of the Company's debt reduction program
included an increased emphasis on contracting for sales prior to construction,
stringent control of production inventory, a focus on reducing unsold inventory
in production, and an aggressive land asset sale program. The debt reduction
program restored the Company's financial leverage (as measured by a debt to
total capital ratio) to 56.5% as of November 30, 1996, well within the Company's
targeted range of 50% to 60%. The Company's ratio of debt to total capital was
60.6% at the 1995 year end.
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 26
33
In 1996, the Company also sold its Canadian operations. Proceeds of $9.5
million received from the sale of all of the issued and outstanding shares of
the Canadian subsidiary were used to reduce the Company's debt. As the Company
had been slowly winding down its operations in Canada over the past several
years, the impact of the sale on the Company's financial position and results of
operations was not significant.
External sources of financing for the Company's construction activities
include its domestic unsecured revolving credit facility, other domestic and
foreign bank lines, third-party secured financings, and the public debt and
equity markets. Substantial unused lines of credit remain available for the
Company's future use, if required, principally through a domestic unsecured
revolving credit facility. This facility provides for a $500 million commitment
through December 31, 1997. As of November 30, 1996, $466.8 million was available
under the revolving credit facility for the Company's future use. In addition,
under the Company's French unsecured financing agreements, $63.2 million was
available in the aggregate at November 30, 1996. Depending upon available terms,
the Company also finances certain land acquisitions with borrowings from land
sellers and other third parties. At November 30, 1996, the Company had
outstanding seller-financed notes payable of $7.2 million secured primarily by
the underlying property which had a carrying value of $7.5 million.
On October 29, 1996, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for up to $300 million of
the Company's debt and equity securities. The Company's previously outstanding
shelf registration for debt securities in the amount of $100 million was
subsumed within the universal shelf registration. This universal shelf
registration provides that securities may be offered from time to time in one or
more series and in the form of senior, senior subordinated or subordinated debt,
preferred stock, common stock, and/or warrants to purchase such securities. On
November 14, 1996, the Company utilized this universal shelf registration to
issue $125 million of 9 5/8% senior subordinated notes at 99.525%. The notes are
due November 15, 2006 with interest payable semi-annually. The net proceeds of
the sale of these notes were used to reduce outstanding indebtedness to banks
under the Company's domestic unsecured revolving credit agreement. With the
issuance of the senior subordinated notes, the Company extended the overall
maturity of its financing structure, while providing additional availability
under its domestic revolving credit facility. A total of $175 million remains
available under the universal shelf registration which the Company may offer for
sale from time to time in the future.
The Company uses capital resources primarily for land purchases, land
development and housing construction. The Company typically manages its
investments in land by purchasing property under options and other types of
conditional contracts whenever possible, and similarly controls its investment
in housing inventories by carefully managing the timing of the production
process. The Company's inventories are geographically diverse and primarily
located in desirable areas within targeted growth markets principally oriented
toward entry-level purchasers. In 1996, the Company continued its expansion of
domestic operations outside of California, but remained selective with regard to
new investment in California, where many new home markets remain weak.
The principal sources of liquidity for the Company's mortgage banking
operations are internally generated funds from the sales of mortgages and
related servicing rights. Mortgages originated by the mortgage banking
operations are generally sold in the secondary market within 60 days of
origination. External sources of financing for these operations include a $120
million asset-backed commercial paper facility and a mortgage loan purchase and
interim servicing agreement, which provides up to $100 million for mortgage
banking operations. The Company's mortgage banking subsidiary entered into the
mortgage loan purchase and interim servicing agreement on August 28, 1996. This
agreement expires on August 27, 1997. At November 30, 1996, the mortgage banking
operations had a combined $85.0 million available for future use under the
commercial paper facility and mortgage loan purchase and interim servicing
agreement.
Debt service on the Company's collateralized mortgage obligations is funded
by receipts from mortgage-backed securities. Such funds are expected to be
adequate to meet future debt-payment schedules for the collateralized mortgage
obligations and therefore these securities have virtually no impact on the
capital resources and liquidity of the mortgage banking operations.
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 other needs of its business, both on a
short and long-term basis.
OUTLOOK
At November 30, 1996, the Company had outstanding sales contracts of 2,839
units in residential backlog, representing aggregate future revenues of
approximately $427.9 million. Excluding the effects of the San Antonio
acquisition, unit and dollar backlog as of November 30, 1996 totaled 1,635 and
$314.7 million, respectively. The 1996 year-end backlog increased from 1,412
units, representing aggregate future revenues of $243.8 million, at year-end
1995. Substantially all homes
<PAGE> 27
34
included in year-end 1996 backlog are expected to be delivered during 1997;
however, cancellations could occur, particularly if market conditions
deteriorate or interest rates rise, thereby decreasing backlog and related
future revenues. For the first two months of the 1997 fiscal year, Company-wide
net orders increased 36.8% from the same period a year ago. Excluding San
Antonio, net orders increased 1.0% during the same two-month period.
In the United States, the Company's residential backlog at November 30,
1996 totaled 2,610 units. Excluding San Antonio, domestic backlog at year-end
1996 totaled 1,406 units, up 20.0% from 1,172 units at year-end 1995, reflecting
higher backlog from both California and non-California operations. In
California, backlog increased to 854 units at November 30, 1996 compared to 626
units a year earlier, while non-California residential unit backlog (excluding
San Antonio) rose slightly to 552 units at November 30, 1996 from 546 units at
November 30, 1995. When compared to the fourth quarter of 1995, net orders in
California decreased 15.4% to 1,135 from 1,342, during the fourth quarter of
1996. California order rates have demonstrated continued softness during the
first two months of the 1997 fiscal year, with net orders down 18.1% compared to
the same period of fiscal 1996. Net orders from non-California U.S. operations
increased to 968 units in the fourth quarter of 1996 from 503 units in the
fourth quarter of 1995. Excluding the San Antonio operations, net orders from
non-California U.S. operations totaled 479 units in the fourth quarter of 1996,
a slight decrease from the prior year's period. Non-California U.S. net orders
(including San Antonio) for the first two months of fiscal 1997 increased 180.3%
compared to the same period of fiscal 1996. Excluding San Antonio, domestic net
orders from non-California operations increased 45.6% during the two-month
period.
In France, the residential backlog at November 30, 1996 totaled 215 units,
down 6.1% from 229 units at year-end 1995. Net orders in the fourth quarter of
1996 were up 27.1% compared to the year-earlier period at 267 versus 210 units.
For the year, French net orders increased 15.9% to 735 units from 634 units in
1995. In the first two months of 1997, net orders in France improved 18.6%
compared to the same period a year ago. Given the decreased level of the
Company's commercial development activities, the value of the backlog associated
with these operations declined to approximately $8.9 million at November 30,
1996 from $10.8 million at year-end 1995.
As a result of continued geographic expansion, 54.6% of the Company's
domestic deliveries were in California in 1996, compared to 75.1% in 1995.
Adverse economic conditions for new housing have persisted in California for
several years. As a result, the Company has diversified its risks through
geographic expansion into other western states during the 1990's. The Company
expects to continue to be selective in its investment in land in California
while focusing on improving gross margins, reducing overhead expenses and
maximizing rates of return. While the Company is cautiously optimistic, based on
current economic trends and forecasts, that market conditions for housing in
California have begun to improve in certain markets, the timing and depth of
sustained recoveries in the state's new home markets remain uncertain.
The Company's domestic operations outside of California continued their
profitable expansion during 1996. The San Antonio acquisition, along with growth
in other non-California operations, resulted in a 138.6% increase in
non-California domestic deliveries in 1996 from 1995. Each of the Company's
non-California domestic divisions was profitable in 1996. The Company expects to
continue to seek opportunities for non-California domestic expansion in the
future through either de novo entry or the acquisition of existing businesses,
or both.
The French housing market improved modestly in 1996 from the prior year,
which was marked by recession, high unemployment and the economic uncertainty
created by an election year. If France's economic climate improves, the Company
anticipates further modest improvement in deliveries from its French housing
operations in 1997. French commercial activities, however, are likely to remain
at or below depressed 1996 levels as that market continues to absorb existing
properties and vacancy rates remain high in a generally weak economic climate.
In Mexico, the Company delivered the first homes from its community near
Mexico City in 1996, generating 39 net orders during the year. Nevertheless, the
new home market in Mexico remains seriously hampered by the decline in the value
of the peso and the economic recession created by its devaluation. The Mexican
recession has slowed an already complex regulatory process and heightened
consumer concerns about new home purchases. Despite these troubled conditions,
demand for housing in Mexico remains substantial. The Company continues to
monitor the unsettled economic environment and remains cautious regarding its
Mexico operations. During 1997, the Company expects to continue to closely
monitor its level of activity in Mexico and the desirability of expanding its
market presence there.
The Company continues to benefit in all of its operations from the strength
of its capital position, which has allowed it to finance expansion, re-engineer
product lines and diversify into stronger new home building markets. The
Company's capital position has also helped enable it to maintain overall
profitability during troubled economic times in California, where the lingering
effects of a severe recession continue to inhibit demand for affordable new
housing. The Company believes it remains well-positioned to benefit if the
California home
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 28
35
building industry improves, and has established strategies to help maximize
future performance even under continued challenging market conditions.
The Company achieved measurable progress in 1996 with regard to its four
key operating strategies. In each quarter of 1996 (excluding the non-cash charge
for impairment of long-lived assets), the Company produced year-over-year
improvement in unit deliveries, total revenues, selling, general and
administrative expense ratio, pretax income and earnings per share.
Additionally, in each quarter of 1996, the Company's gross margin was better
than or equal to that of the comparable quarter a year earlier. Looking forward,
the Company expects to focus on two additional strategic initiatives in the new
year -- acceleration of the Company's growth and a substantial revision of its
operational business model.
The Company is targeting faster growth in two ways: a faster pace of
expansion in certain existing markets, and new market entries. The Company has
identified several of its existing domestic markets as candidates for
accelerated growth programs due to their strength, size and ability to generate
returns which meet or exceed Company objectives. As for new market entries, the
Company recently entered the Austin, Texas market and expects to actively
consider other western U.S. markets for expansion during the next few years,
either through acquisition of existing homebuilders or establishment of start-up
operations.
The Company's second strategic goal involves the revision of its
operational business model through a Company-wide integration of many of the
basic operating characteristics of the business model used in its San Antonio
operations. This business model emphasizes efficiencies generated from a more
process-driven, systematic approach to homebuilding and also focuses on gaining
a deeper understanding of customer interests and needs. This new model includes
specific initiatives related to many aspects of the Company's business,
including land purchase strategy, product design, production scheduling,
inventory control and pricing. In addition, the model provides for a pro-active
partnership with local real estate brokers in all communities and an integrated
mortgage loan function which supports the homebuilding operations. The Company
believes that the successful revision of its business model will result in
further improvement in its operating margin over time.
The Company maintains a cautious outlook for the first half of 1997
compared to year-earlier results due to exceptionally strong net orders in early
1996, recent heavy rains in Northern California and the Company's determination
to reduce its reliance on incentives to stimulate sales. Nonetheless, the
Company currently anticipates higher overall delivery volumes for full-year 1997
compared to 1996. Assuming stable or improving business conditions, interest
rates and consumer confidence in its major markets, the Company believes the
anticipated increase in delivery volumes, maintenance of its four key 1996
operational strategies and initial implementation of its two new strategic
initiatives should result in improved operating income and earnings per share in
1997 compared to 1996. Additionally, the Company believes that the integration
of its new operational business model, combined with its accelerated growth
strategy will provide long-term benefits to its operations and improve returns
in 1997 and beyond.
IMPACT OF INFLATION
The Company's business is significantly affected by general economic
conditions, particularly by the impact of inflation and the generally associated
adverse effect on interest rates. Although inflation rates have been low in
recent years, rising inflation would likely have a long-term impact on the
Company's revenues and earning power by reducing demand for homes as a result of
correspondingly higher interest rates. In periods of high inflation, the rising
costs of land, construction, labor, interest and administrative expenses have
often been recoverable through increased selling prices, although this has not
always been possible because of high mortgage interest rates and competitive
factors in the marketplace. In recent years, however, inflation has had no
significant adverse impact on the Company, as cost increases have not exceeded
the average rate of inflation.
* * *
Except for the historical information contained herein, certain of the matters
discussed in this 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.
<PAGE> 29
36
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended November 30,
-------------------------------------------------
In thousands, except per share amounts 1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES $ 1,787,041 $ 1,396,526 $ 1,336,271
=========== =========== ===========
CONSTRUCTION:
Revenues $ 1,754,147 $ 1,366,866 $ 1,307,570
Construction and land costs (1,435,081) (1,119,405) (1,048,323)
Selling, general and administrative expenses (220,387) (181,930) (170,924)
Non-cash charge for impairment of long-lived assets (170,757)
----------- ----------- -----------
Operating income (loss) (72,078) 65,531 88,323
Interest income 2,666 2,140 2,026
Interest expense, net of amounts capitalized (36,691) (27,501) (17,849)
Minority interests in pretax income of consolidated joint ventures (233) (584) (917)
Equity in pretax loss of unconsolidated joint ventures (2,148) (3,475) (3,736)
----------- ----------- -----------
Construction pretax income (loss) (108,484) 36,111 67,847
----------- ----------- -----------
MORTGAGE BANKING:
Revenues:
Interest income 14,594 15,555 16,978
Other 18,300 14,105 11,723
----------- ----------- -----------
32,894 29,660 28,701
Expenses:
Interest (13,462) (14,821) (17,151)
General and administrative (6,692) (5,491) (5,547)
----------- ----------- -----------
Mortgage banking pretax income 12,740 9,348 6,003
----------- ----------- -----------
Total pretax income (loss) (95,744) 45,459 73,850
Income taxes 34,500 (16,400) (27,300)
----------- ----------- -----------
NET INCOME (LOSS) $ (61,244) $ 29,059 $ 46,550
=========== =========== ===========
EARNINGS (LOSS) PER SHARE $ (1.54) $ .73 $ 1.16
=========== =========== ===========
</TABLE>
See accompanying notes.
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 30
37
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
-------------------------
In thousands, except shares 1996 1995
-------------------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 4,723 $ 24,793
Trade and other receivables 107,037 111,620
Inventories 780,302 1,059,179
Investments in unconsolidated joint ventures 8,312 21,154
Goodwill 39,356 13,884
Other assets 60,429 38,578
---------- ----------
1,000,159 1,269,208
---------- ----------
MORTGAGE BANKING:
Cash and cash equivalents 5,058 18,589
Receivables:
First mortgages and mortgage-backed securities 81,536 97,672
First mortgages held under commitment of sale
and other receivables 153,459 181,764
Other assets 3,282 6,946
---------- ----------
243,335 304,971
---------- ----------
TOTAL ASSETS $1,243,494 $1,574,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 151,791 $ 156,097
Accrued expenses and other liabilities 96,986 90,237
Mortgages and notes payable 442,629 639,575
---------- ----------
691,406 885,909
---------- ----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 7,481 9,661
Notes payable 134,956 151,000
Collateralized mortgage obligations secured by
mortgage-backed securities 68,381 84,764
---------- ----------
210,818 245,425
---------- ----------
Deferred income taxes 24,448
---------- ----------
Minority interests in consolidated joint ventures 920 2,919
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock--$1.00 par value; authorized,
10,000,000 shares:
Series A participating cumulative preferred
stock; none outstanding
Series B convertible preferred stock; none and
1,300,000 shares outstanding
at November 30, 1996 and 1995, respectively 1,300
Common stock--$1.00 par value; authorized,
100,000,000 shares; 38,827,586 and
32,346,736 shares outstanding at November 30, 1996
and 1995, respectively 38,828 32,347
Paid-in capital 183,801 188,839
Retained earnings 113,398 190,749
Cumulative foreign currency translation adjustments 4,323 2,243
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 340,350 415,478
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,243,494 $1,574,179
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 31
38
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended November 30, 1996, 1995 and 1994
---------------------------------------------------------------------------------------
Series B
Convertible Special Foreign Total
Preferred Common Common Paid-in Retained Currency Stockholders'
In thousands Stock Stock Stock Capital Earnings Translation Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1993 $ 1,300 $ 29,601 $ 5,123 $ 258,770 $ 154,338 $(4,792) $ 444,340
Net income 46,550 46,550
Dividends on Series B convertible
preferred stock (9,880) (9,880)
Dividends on common and special
common stock (9,726) (9,726)
Exercise of employee stock options 125 1,406 1,531
Purchase of special common stock
and warrants (2,332) (71,345) (73,677)
Exchange of special common stock
for common stock 2,652 (2,791) 139
Foreign currency translation adjustments 5,609 5,609
------- -------- ------- --------- --------- ------- ---------
Balance at November 30, 1994 1,300 32,378 188,970 181,282 817 404,747
------- -------- ------- --------- --------- ------- ---------
Net income 29,059 29,059
Dividends on Series B convertible
preferred stock (9,880) (9,880)
Dividends on common stock (9,712) (9,712)
Exercise of employee stock options 17 103 120
Cancellation of restricted stock (48) (234) (282)
Foreign currency translation adjustments 1,426 1,426
------- -------- ------- --------- --------- ------- ---------
Balance at November 30, 1995 1,300 32,347 188,839 190,749 2,243 415,478
------- -------- ------- --------- --------- ------- ---------
Net income (loss) (61,244) (61,244)
Dividends on Series B convertible
preferred stock (4,940) (4,940)
Dividends on common stock (11,167) (11,167)
Conversion of Series B convertible
preferred stock (1,300) 6,500 (5,200)
Exercise of employee stock options 37 390 427
Cancellation of restricted stock (56) (228) (284)
Foreign currency translation adjustments 2,080 2,080
------- -------- ------- --------- --------- ------- ---------
Balance at November 30, 1996 $ $ 38,828 $ $ 183,801 $ 113,398 $ 4,323 $ 340,350
======= ======== ======= ========= ========= ======= =========
</TABLE>
See accompanying notes.
KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report
<PAGE> 32
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 30,
-------------------------------------
In thousands 1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (61,244) $ 29,059 $ 46,550
Adjustments to reconcile net income (loss)
to net cash provided (used) by
operating activities:
Equity in pretax loss of unconsolidated joint ventures 2,148 3,475 3,736
Minority interests in pretax income of consolidated joint ventures 233 584 917
Amortization of discounts and issuance costs 1,510 1,765 2,276
Depreciation and amortization 10,819 6,274 3,408
Provision for deferred income taxes (41,208) (6,925) 4,498
Non-cash charge for impairment of long-lived assets 170,757
Change in assets and liabilities, net of effects from
purchase of Rayco:
Receivables 36,572 (14,664) (13,836)
Inventories 232,871 (80,317) (137,594)
Accounts payable, accrued expenses and other liabilities (21,918) 26,680 (26,314)
Other, net 244 (18,801) 5,279
--------- -------- ---------
Net cash provided (used) by operating activities 330,784 (52,870) (111,080)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Rayco, net of cash acquired (80,556)
Investments in unconsolidated joint ventures (7,644) 685 (5,329)
Net originations of mortgages held for long-term investment (996) (253) (442)
Payments received on first mortgages and mortgage-backed securities 18,069 13,786 49,687
Other, net (2,799) (4,252) (6,447)
--------- -------- ---------
Net cash provided (used) by investing activities (73,926) 9,966 37,469
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and other
short-term borrowings (325,323) 92,358 215,476
Proceeds from issuance of senior subordinated notes 124,406
Payments on collateralized mortgage obligations (17,309) (13,296) (49,259)
Payments on mortgages, land contracts and other loans (53,894) (28,055) (4,460)
Payments from (to) minority interests in consolidated joint ventures (2,232) 63 (15,177)
Purchase of special common stock and warrants (73,677)
Payments of cash dividends (16,107) (19,592) (19,606)
--------- -------- ---------
Net cash provided (used) for financing activities (290,459) 31,478 53,297
--------- -------- ---------
Net decrease in cash and cash equivalents (33,601) (11,426) (20,314)
Cash and cash equivalents at beginning of year 43,382 54,808 75,122
--------- -------- ---------
Cash and cash equivalents at end of year $ 9,781 $ 43,382 $ 54,808
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 52,063 $ 42,032 $ 36,034
Income taxes paid 5,093 17,275 45,270
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 16,977 $ 36,149 $ 27,054
========= ======== =========
</TABLE>
See accompanying notes.
<PAGE> 33
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS Kaufman and Broad Home Corporation (the Company) is a regional
builder of single-family homes with domestic operations throughout the western
United States, and international operations in France and Mexico. In France, the
Company is also a developer of commercial and high-density residential projects.
Through its mortgage banking subsidiary, Kaufman and Broad Mortgage Company, the
Company provides mortgage banking services to its domestic home buyers.
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of the Company and all significant majority-owned or controlled
subsidiaries and joint ventures. All significant intercompany transactions have
been eliminated. Investments in unconsolidated joint ventures in which the
Company has less than a controlling interest are accounted for using the equity
method.
USE OF ESTIMATES The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgements of management. Actual results could differ
from these estimates.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt
instruments and other short-term investments purchased with a maturity of three
months or less to be cash equivalents.
CONSTRUCTION OPERATIONS The Company adopted 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") in the second quarter of
1996. Prior to the adoption of SFAS No. 121, inventories were stated at the
lower of cost or estimated net realizable value for each parcel or subdivision.
Under the new standard, inventories to be held and used are stated at cost
unless a subdivision is determined to be impaired, in which case the impaired
inventories are written down to fair value. Write-downs of impaired inventories
are recorded as adjustments to the cost basis of the respective inventory.
Housing and other real estate sales are recognized when all conditions
precedent to closing have been fulfilled. In France, sales of apartments,
condominiums and commercial buildings to investors are recognized using the
percentage of completion method which is generally based on costs incurred as a
percentage of estimated total costs of individual projects. Revenues recognized
in excess of amounts billed are classified as receivables. Amounts received from
investors in excess of revenues recognized, if any, are classified as other
liabilities.
Construction and land costs are comprised of direct and allocated costs,
including estimated future costs for warranties and amenities. Land, land
improvements and other common costs are generally allocated equally to units
within a parcel or subdivision. Land and land development costs generally
include related interest and property taxes incurred until development is
substantially completed or deliveries have begun within a subdivision.
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized by the Company over periods ranging from
five to seven years using the straight-line method. Accumulated amortization was
$8,836,000 and $2,178,000 at November 30, 1996 and 1995, respectively. In the
event that facts and circumstances indicate that the carrying value of goodwill
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the goodwill would be compared to its carrying amount to determine if a
write-down to fair value or discounted cash flow is required.
CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS In the second quarter of 1996, the
Company decided to accelerate the disposition of certain real estate assets in
order to facilitate pursuit of its four key operating strategies, including
geographic diversification, increased emphasis on return on investment, planned
debt reduction and improved operating margins. The disposition of these assets
helped effectuate the Company's strategies to improve overall return on
investment, restore financial leverage to targeted levels, and position the
Company for continued geographic expansion. In addition, the Company
substantially eliminated its prior practice of investing in long term
development projects in order to reduce the operating risk associated with such
projects. The accelerated disposition of long term development assets caused
certain assets, primarily inventories and investments in unconsolidated joint
ventures in California and France, to be identified as being impaired and to be
written down. Certain of the Company's California properties were impacted by
the charge, while none of its non-California domestic properties were affected.
The Company's non-California domestic properties were not affected since they
were not held for long term development and were expected to be economically
successful such that they were determined not to be impaired.
The evaluation of impaired assets considered the depressed nature of the real
estate business in certain of the Company's California and French markets,
reduced demand from prospective home buyers, availability of ready buyers for
the Company's properties, future costs of development
KAUFMAN AND BROAD HOME CORPORATION 1996 ANNUAL REPORT
<PAGE> 34
41
and holding costs during development. Based on this evaluation, the Company
recorded a non-cash write-down of $170,757,000 ($109,257,000, net of income
taxes) to state these impaired assets at their fair values. The fair values
established were based on various methods, including discounted cash flow
projections, appraisals and evaluations of comparable market prices, as
appropriate. As the inventories affected by the charge primarily consisted of
land which was not under active development, the Company does not anticipate
that the charge will have a material effect on its gross margins.
The write-down for impairment of long-lived assets was calculated in
accordance with the requirements of SFAS No. 121 but was not necessitated by
implementation of this standard. Had the Company not adopted SFAS No. 121, a
substantial write-down would have nonetheless been recorded. SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable, and requires impairment losses to be recorded on long-lived
assets 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.
Under the new standard, when an impairment write-down is required, the
related assets are adjusted to their estimated fair value. Fair value for
purposes of SFAS No. 121 is deemed to be the amount a willing buyer would pay a
willing seller for such property in a current transaction, that is, other than
in a forced or liquidation sale. For homebuilders, this is a change from the
previous accounting standard which required homebuilders to carry real estate
assets at the lower of cost or net realizable value. Fair value differs from net
realizable value in that, among other things, fair value assumes a cash sale
under current market conditions, considers a potential purchaser's requirement
for future profit and discounts the timing of estimated future cash receipts. In
contrast, net realizable value is the price obtainable in the future based on
the current intended use of the land, net of disposal and holding costs, without
provision for future profits or discounting future cash flow to present value.
The estimation process involved in determining if assets have been impaired
and in the determination of fair value is inherently uncertain since it requires
estimates of current market yields as well as future events and conditions. Such
future events and conditions include economic and market conditions, as well as
the availability of suitable financing to fund development and construction
activities. The realization of the estimates applied to the Company's real
estate projects is dependent upon future uncertain events and conditions and,
accordingly, the actual timing and amounts realized by the Company may be
materially different from the estimated fair values as described herein.
MORTGAGE BANKING OPERATIONS Principal and interest payments received on
mortgage-backed securities are invested in short-term securities maturing on the
next debt service date of the collateralized mortgage obligations for which the
securities are held as collateral. Such payments are restricted to the payment
of the debt service on the collateralized mortgage obligations.
First mortgages and mortgage-backed securities consist of securities held for
long-term investment and are valued at amortized cost. First mortgages held
under commitment of sale are valued at the lower of aggregate cost or market.
Market is principally based on public market quotations or outstanding
commitments obtained from investors to purchase first mortgages receivable.
INCOME TAXES Income taxes are provided for at rates applicable in the countries
in which the income is earned. Provision is made currently for United States
federal income taxes on earnings of foreign subsidiaries which are not expected
to be reinvested indefinitely.
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 year. All of the Series B Convertible Preferred Shares were
converted into shares of the Company's common stock on April 1, 1996, the
mandatory conversion date. Prior to their conversion, the Series B Convertible
Preferred Shares were considered common stock due to their being subject to
mandatory conversion into common stock, and the related dividends were 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. Earnings per share were based on the weighted average number of
common shares, special common shares, equivalent Series B Convertible Preferred
Shares and common share equivalents outstanding of 39,763,000 in 1996,
39,757,000 in 1995 and 40,026,000 in 1994.
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 a loss per share of $1.76 in 1996 and earnings per share of $.58 in
1995 and $1.09 in 1994.
RECLASSIFICATIONS Certain amounts in the consolidated financial statements of
prior years have been reclassified to conform to the 1996 presentation.
<PAGE> 35
42
Note 2. ACQUISITION
On March 1, 1996, the Company acquired San Antonio, Texas-based Rayco, Ltd. and
affiliates ("Rayco") for a total purchase price of approximately $104,500,000,
including cash to pay off certain assumed debt. The acquisition was financed
through borrowings under the Company's amended revolving credit agreement dated
February 28, 1996. Rayco 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 assets of the entities purchased and the assumption of certain
debt. The acquisition was accounted for as a purchase with the results of
operations of the acquired entities included in the Company's consolidated
financial statements as of the date of acquisition. The purchase price was
allocated based on estimated fair values at the date of acquisition. The excess
of the purchase price over the fair value of net assets acquired was $32,274,000
and is being amortized on a straight-line basis over a period of seven years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Rayco as if the
acquisition had occurred as of December 1, 1994, with pro forma adjustments to
give effect to amortization of goodwill, interest expense on acquisition debt
and certain other adjustments, together with related income tax effects. The pro
forma results for the year ended November 30, 1996 below are presented both
before and after the $170,757,000 non-cash charge for impairment of long-lived
assets.
<TABLE>
<CAPTION>
Years Ended November 30,
1996
----------------------------
After Before
Non-cash Non-cash
In thousands, except per share amounts Charge Charge 1995
----------------------------------------------
<S> <C> <C> <C>
Total revenues $1,850,329 $1,850,329 $1,634,574
Total pretax income (loss) (92,740) 78,017 57,625
Net income (loss) (59,440) 49,817 36,825
Earnings (loss) per share (1.49) 1.25 .93
========== ========== ==========
</TABLE>
This pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the Rayco acquisition been consummated as of December 1, 1994, nor
are they necessarily indicative of future operating results.
Note 3. RECEIVABLES
CONSTRUCTION Trade receivables amounted to $28,368,000 and $48,699,000 at
November 30, 1996 and 1995, respectively. Included in these amounts are unbilled
receivables due from investors on French apartment, condominium and commercial
building sales accounted for using the percentage of completion method, totaling
$6,444,000 at November 30, 1996 and $8,478,000 at November 30, 1995. The
investors are contractually obligated to remit payments against their unbilled
balances. Other receivables of $78,669,000 at November 30, 1996 and $62,921,000
at November 30, 1995 included mortgages receivable, escrow deposits and amounts
due from municipalities and utility companies.
At November 30, 1996 and 1995, receivables were net of allowances for
doubtful accounts of $3,773,000 and $3,034,000, respectively.
MORTGAGE BANKING First mortgages and mortgage-backed securities consisted of
loans of $8,184,000 at November 30, 1996 and $7,187,000 at November 30, 1995 and
mortgage-backed securities of $73,352,000 and $90,485,000 at November 30, 1996
and 1995, respectively. The mortgage-backed securities serve as collateral for
related collateralized mortgage obligations. The property covered by the
mortgages underlying the mortgage-backed securities are single-family
residences. Issuers of the mortgage-backed securities are the Government
National Mortgage Association and Federal National Mortgage Association. The
first mortgages and mortgage-backed securities bore interest at an average rate
of 8 1/2% and 8 3/5% at November 30, 1996 and 1995, respectively (with rates
ranging from 7% to 12% in 1996 and 7% to 13% in 1995).
Mortgages were net of discounts of $2,490,000 at November 30, 1996 and
$4,353,000 at November 30, 1995. These discounts, which primarily represent loan
origination discount points and acquisition price discounts, are deferred as an
adjustment to the carrying value of the related first mortgages and
mortgage-backed securities and amortized into interest income using the interest
method.
The Company's mortgage-backed securities held for long-term investment have
been classified as held-to-maturity and are stated at amortized cost, adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. The total gross unrealized gains
and gross unrealized losses on the mortgage-backed securities were $4,391,000
and $0, respectively at November 30, 1996 and $6,175,000 and $0, respectively at
November 30, 1995.
KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report
<PAGE> 36
43
First mortgages held under commitment of sale and other receivables consisted
of first mortgages held under commitment of sale of $147,619,000 at November 30,
1996 and $173,487,000 at November 30, 1995 and other receivables of $5,840,000
and $8,277,000 at November 30, 1996 and 1995, respectively. The first mortgages
held under commitment of sale bore interest at an average rate of 7 3/4% and
7 2/5% at November 30, 1996 and 1995, respectively. The balance in first
mortgages held under commitment of sale and other receivables fluctuates
significantly during the year and typically reaches its highest level at
quarter-ends, corresponding with the Company's home and mortgage delivery
activity.
Note 4. INVENTORIES
Inventories consist of the following:
November 30,
--------------------------
In thousands 1996 1995
--------------------------
Homes, lots and improvements in production $646,069 $ 803,926
Land under development 134,233 255,253
-------- ----------
Total inventories $780,302 $1,059,179
======== ==========
Land under development primarily consists of parcels on which 50% or less of
estimated development costs have been incurred.
The impact of capitalizing interest costs on consolidated pretax income is as
follows:
<TABLE>
<CAPTION>
Years Ended November 30,
-------------------------------------
In thousands 1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Interest incurred $ 63,628 $ 64,629 $ 45,410
Interest expensed (36,691) (27,501) (17,849)
-------- -------- --------
Interest capitalized 26,937 37,128 27,561
Interest amortized (24,893) (18,508) (16,156)
-------- -------- --------
Net impact on consolidated
pretax income $ 2,044 $ 18,620 $ 11,405
======== ======== ========
</TABLE>
Note 5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company participates in a number of joint ventures in which it has less than
a controlling interest. These joint ventures are based primarily in New Mexico
and France and are engaged in the development, construction and sale of
residential properties and commercial projects. Combined condensed financial
information concerning the Company's unconsolidated joint venture activities
follows:
<TABLE>
<CAPTION>
November 30,
----------------------
In thousands 1996 1995
----------------------
<S> <C> <C>
Cash $ 5,449 $ 2,426
Receivables 6,112 9,407
Inventories 121,802 874,624
Other assets 168 5,854
-------- --------
Total assets $133,531 $892,311
======== ========
Mortgages and notes payable $116,477 $630,006
Other liabilities 8,583 98,539
Equity of:
The Company 8,312 21,154
Others 159 142,612
-------- --------
Total liabilities and equity $133,531 $892,311
======== ========
</TABLE>
The joint ventures finance land and inventory investments primarily through a
variety of borrowing arrangements. The Company typically does not guarantee
these financing arrangements.
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------
In thousands 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Revenues $ 6,678 $ 33,917 $ 82,734
Cost of sales (8,232) (49,289) (102,981)
Other expenses, net (13,207) (5,108) (15,434)
-------- -------- --------
Total pretax loss $(14,761) $(20,480) $(35,681)
======== ======== ========
The Company's share of pretax loss $ (2,148) $ (3,475) $ (3,736)
======== ======== ========
</TABLE>
The Company's share of pretax loss includes management fees earned from the
unconsolidated joint ventures.
Note 6. MORTGAGES AND NOTES PAYABLE
CONSTRUCTION Mortgages and notes payable consist of the following (interest
rates are as of November 30):
<TABLE>
<CAPTION>
November 30,
-----------------------
In thousands 1996 1995
-----------------------
<S> <C> <C>
Unsecured domestic borrowings with banks
under a revolving credit agreement (7% to
7 1/10% in 1995) $250,000
Other unsecured domestic borrowings with banks
due within one year (6 5/8% in 1996
and 6 3/5% to 6 7/8% in 1995) $ 30,400 13,000
Unsecured French borrowings (4 1/10% to
4 1/2% in 1996 and 6 3/8% to 7 1/5% in 1995) 6,617 59,011
Mortgages and land contracts due to land sellers
and other loans (7% to 30 7/10% in 1996 and
6 3/5% to 59 2/5% in 1995) 7,243 43,715
Senior notes due 1999 at 10 3/8% 100,000 100,000
Senior subordinated notes due 2003 at 9 3/8% 173,961 173,849
Senior subordinated notes due 2006 at 9 5/8% 124,408
-------- --------
Total mortgages and notes payable $442,629 $639,575
======== ========
</TABLE>
<PAGE> 37
44
In connection with the acquisition of Rayco, the Company amended the terms
under its domestic unsecured revolving credit agreement with various banks. The
amended revolving credit agreement, dated February 28, 1996, increased the
Company's initial borrowing capacity from $500,000,000 to $630,000,000. The
additional $130,000,000 of financing obtained included a term loan facility used
to finance the acquisition and to refinance portions of the existing
indebtedness of Rayco. The Company repaid the term loan in its entirety prior to
November 30, 1996. Under the amended revolving credit agreement, $500,000,000
remained committed and $466,800,000 was available for the Company's future use
at November 30, 1996. The agreement, scheduled to expire on December 31, 1997,
provides for interest on borrowings at either the applicable bank reference rate
or the London Interbank Offered Rate plus an applicable spread and an annual
commitment fee based on the unused portion of the commitment.
Under the terms of the amended revolving credit agreement, the Company is
required, among other things, to maintain certain financial statement ratios and
a minimum net worth and is subject to limitations on acquisitions, inventories,
indebtedness, dividend payments and repurchases of stock. Under the conditions
of the agreement, retained earnings of $9,917,000 were available for payment of
cash dividends or stock repurchases at November 30, 1996.
The Company's French subsidiaries have lines of credit with various banks
which totaled $69,807,000 at November 30, 1996 and have various committed
expiration dates through September 1998. These lines of credit provide for
interest on borrowings at either the French Federal Funds Rate or the Paris
Interbank Offered Rate plus an applicable spread.
The weighted average interest rate on aggregate unsecured borrowings,
excluding the senior and senior subordinated notes, was 6 2/10% and 6 9/10% at
November 30, 1996 and 1995, respectively.
On August 11, 1992, the Company filed a registration statement with the
Securities and Exchange Commission under which the Company could offer for sale
from time to time up to $200,000,000 of unsecured debt securities. On September
8, 1992, the Company, pursuant to this registration statement, issued
$100,000,000 of 10 3/8% senior notes, due September 1, 1999, with interest
payable semi-annually. The Company may redeem, in whole or in part, at any time
on or after September 1, 1997, 100% of the principal amount of the notes.
On April 26, 1993, the Company issued $175,000,000 principal amount of 9 3/8%
senior subordinated notes at 99.202%. The notes are due May 1, 2003 with
interest payable semi-annually. The notes represent unsecured obligations of the
Company and are subordinated to all existing and future senior indebtedness of
the Company. The Company may redeem the notes, in whole or in part, at any time
on or after May 1, 2000 at 100% of their principal amount.
On October 29, 1996, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for up to $300,000,000 of
the Company's debt and equity securities. The Company's previously outstanding
shelf registration for debt securities in the amount of $100,000,000 was
subsumed within the universal shelf registration. The universal shelf
registration provides that securities may be offered from time to time in one or
more series and in the form of senior, senior subordinated or subordinated debt,
preferred stock, common stock, and/or warrants to purchase such securities. On
November 14, 1996, the Company utilized this universal shelf registration to
issue $125,000,000 of 9 5/8% senior subordinated notes at 99.525%. The notes,
which are due November 15, 2006 with interest payable semi-annually, represent
unsecured obligations of the Company and are subordinated to all existing and
future senior indebtedness of the Company. The notes are redeemable at the
option of the Company, in whole or in part, at 104.8125% of their principal
amount beginning November 15, 2001, and thereafter at prices declining annually
to 100% on and after November 15, 2004.
The 10 3/8% senior notes and 9 3/8% and 9 5/8% senior subordinated notes
contain certain restrictive covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay dividends, make
certain investments, create certain liens, engage in mergers, consolidations, or
sales of assets, or engage in certain transactions with officers, directors and
employees.
Principal payments on senior and senior subordinated notes, mortgages, land
contracts and other loans are due as follows: 1997, $5,271,000; 1998,
$1,692,000; 1999, $100,156,000; 2000, $108,000; 2001, $16,000; and thereafter,
$298,369,000.
Assets (primarily inventories) having a carrying value of approximately
$7,530,000 are pledged to collateralize mortgages, land contracts and other
secured loans.
Kaufman and Broad Home Corporation 1996 Annual Report
<PAGE> 38
45
MORTGAGE BANKING Notes payable include the following (interest rates are as of
November 30):
<TABLE>
<CAPTION>
November 30,
----------------------
In thousands 1996 1995
----------------------
<S> <C> <C>
Advances under asset-backed commercial paper
facility (5 7/10% in 1996 and 5 9/10% in 1995) $ 74,000 $111,000
Advances under mortgage loan purchase and
interim servicing agreement (6 1/5% in 1996) 60,956
Notes payable secured by trust deed notes
(7 1/8% in 1995) 40,000
-------- --------
Total notes payable $134,956 $151,000
======== ========
</TABLE>
First mortgages receivable are financed through a $120,000,000 asset-backed
commercial paper facility (the Commercial Paper Facility) and a $100,000,000
Mortgage Loan Purchase and Interim Servicing Agreement (the Mortgage Loan
Purchase Facility). Prior to entering into the Mortgage Loan Purchase Facility
on August 28, 1996, the Company's mortgage banking subsidiary also obtained
financing under the Company's revolving credit agreement.
The Commercial Paper Facility expires on September 15, 1997 and provides
for an annual commitment fee based on the unused portion of the commitment.
Interest rates charged under the Commercial Paper Facility reflect those
available in commercial paper markets plus an applicable spread on amounts
borrowed.
The Mortgage Loan Purchase Facility, which expires on August 27, 1997,
provides for a commitment fee based upon the unused portion of the commitment
and interest on the amount outstanding based upon either the Federal Funds Rate
or the Eurodollar Rate plus an applicable spread on the amounts borrowed.
There are no compensating balance requirements under either the Commercial
Paper facility or the Mortgage Loan Purchase and Interim Servicing Agreement.
These facilities are collateralized by first mortgages held under commitment of
sale and are repayable from proceeds on the sales of first mortgages. The terms
of these facilities include financial covenants which, among other things,
require the maintenance of certain financial statement ratios and a minimum
tangible net worth.
Collateralized mortgage obligations represent bonds issued to third parties
which are collateralized by mortgage-backed securities with substantially the
same terms. At November 30, 1996, the collateralized mortgage obligations bore
interest at rates ranging from 8% to 12 1/4% with stated principal maturities
ranging from 3 to 30 years. Actual maturities are dependent on the rate at which
the underlying mortgage-backed securities are repaid. No collateralized mortgage
obligations have been issued since 1988.
Note 7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments has been determined based on
available market information and appropriate valuation methodologies. However,
judgement is necessarily required in interpreting market data to develop the
estimates of fair value. In that regard, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying values and fair values of the Company's financial instruments,
except for those financial instruments for which the carrying values approximate
fair values, are summarized as follows:
<TABLE>
<CAPTION>
November 30,
-----------------------------------------------------
1996 1995
----------------------- -----------------------
Carrying Fair Carrying Fair
In thousands Value Value Value Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Construction:
Financial liabilities
10 3/8% Senior notes $100,000 $102,800 $100,000 $101,875
9 3/8% Senior
subordinated notes 173,961 177,415 173,849 171,063
9 5/8% Senior
subordinated notes 124,408 125,375
Mortgage banking:
Financial assets
Mortgage-backed
securities 73,352 77,743 90,485 96,660
Financial liabilities
Collateralized mortgage
obligations secured
by mortgage-backed
securities 68,381 77,979 84,764 97,597
======== ======== ======== ========
</TABLE>
The Company used the following methods and assumptions in estimating fair
values:
Cash and cash equivalents; first mortgages held under commitment of sale
and other receivables; borrowings under the amended domestic revolving credit
agreement, French lines of credit, Commercial Paper Facility and Mortgage Loan
Purchase Facility: The carrying amounts reported approximate fair values.
Senior notes and senior subordinated notes: The fair values of the
Company's senior notes and senior subordinated notes are estimated based on
quoted market prices.
<PAGE> 39
46
Mortgage-backed securities and collateralized mortgage obligations secured
by mortgage-backed securities: The fair values of these financial instruments
were based on quoted market prices for the same or similar issues.
Note 8. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies include the usual obligations of housing producers
for the completion of contracts and those incurred in the ordinary course of
business. The Company is also involved in litigation incidental to its business,
the disposition of which should have no material effect on the Company's
financial position or results of operations.
Note 9. STOCKHOLDERS' EQUITY
PREFERRED STOCK On January 11, 1989, the Company adopted a Stockholder Rights
Plan and declared a dividend distribution of one preferred share purchase right
for each outstanding share of common stock. Under certain circumstances, each
right entitles the holder to purchase 1/100th of a share of a new Series A
Participating Cumulative Preferred Stock at a price of $30.00, subject to
certain antidilution provisions. The rights are not exercisable until the
earlier to occur of (i) 10 days following a public announcement that a person or
group has acquired 20% or more of the aggregate votes entitled from all shares
of common stock or (ii) 10 days following the commencement of a tender offer for
20% or more of the aggregate votes entitled from all shares of common stock. In
the event the Company is acquired in a merger or other business combination
transaction, or 50% or more of the Company's assets or earning power is sold,
each right will entitle its holder to receive, upon exercise, common stock of
the acquiring company having a market value of twice the exercisable price of
the right. At the option of the Company, the rights are redeemable prior to
becoming exercisable at $.01 per right. Unless previously redeemed, the rights
will expire on March 7, 1999. Until a right is exercised, the holder will have
no rights as a stockholder of the Company, including the right to vote or
receive dividends.
In 1993, the Company issued 6,500,000 depository shares, each representing
a one-fifth ownership interest in a share of Series B Mandatory Conversion
Premium Dividend Preferred Stock (the Series B Convertible Preferred Shares).
Dividends were cumulative and payable quarterly in arrears at an annual dividend
rate of $1.52 per depository share. On the mandatory conversion date of April 1,
1996, each of the Company's 6,500,000 depository shares was converted into one
share of the Company's common stock.
SPECIAL COMMON STOCK In connection with its restructuring in 1989, the Company
issued warrants (the Warrants) to certain subsidiaries of SunAmerica Inc., the
Company's former parent. The Warrants gave the holder the right to purchase, at
any time prior to March 1, 1999, up to 7,500,000 shares of special common stock
at an exercise price of $6.96 per share. The rights of the special common stock
were generally identical to the rights of the common stock except that the
holder of special common stock was entitled to one-tenth of a vote per share on
all matters to be voted on by stockholders.
In 1992, the Company issued in a public offering 5,123,000 shares of the
special common stock in connection with the exercise of the Warrants. On
November 8, 1993, the Company commenced a tender offer to purchase all of the
outstanding shares of its special common stock at a price of $19 per share. The
offer expired on December 7, 1993 with 2,331,785 shares of special common stock
tendered. In addition, on December 23, 1993, the Company purchased the remaining
2,377,000 Warrants at a price equal to the tender offer price per share less the
$6.96 per Warrant exercise price. The total consideration paid for these
transactions was $73,677,000, including related costs.
The remaining 2,791,215 outstanding shares of special common stock were
exchanged by the Company at a ratio of .95 shares of common stock for each share
of special common stock on various dates throughout 1994.
Note 10. EMPLOYEE BENEFIT AND STOCK PLANS
Benefits are provided to most employees under the Company's 401(k) Savings Plan
under which contributions by employees are partially matched by the Company. The
aggregate cost of this plan to the Company was $1,867,000 in 1996, $1,795,000 in
1995 and $1,734,000 in 1994.
The Kaufman and Broad Home Corporation 1988 Employee Stock Plan (the 1988
Plan) provides that stock options, associated limited stock appreciation rights,
restricted shares of common stock and stock units may be awarded to eligible
individuals for periods of up to 15 years. The 1988 Plan is the Company's
primary existing employee stock plan. The Company also has the Kaufman and Broad
Home Corporation Performance-Based Incentive Plan for Senior Management (the
Incentive Plan) in which certain key executives of the Company participate. The
Incentive Plan provides for the same awards as may be made under the 1988 Plan,
but requires that such awards be subject to certain conditions which are
designed to assure that annual compensation paid in excess of $1,000,000 to
participating executives is tax deductible for the Company.
KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report
<PAGE> 40
47
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
beginning of year 2,406,718 2,044,718 2,191,268
Granted 665,000 512,000 52,000
Exercised (37,100) (17,000) (125,000)
Cancelled (204,350) (133,000) (73,550)
-------------- -------------- --------------
Options outstanding at
end of year 2,830,268 2,406,718 2,044,718
-------------- -------------- --------------
Options exercisable at
end of year 1,732,468 1,646,768 1,614,068
Options available for grant
at end of year 1,863,431 2,268,581 954,100
Price range of options
exercised $3.50 - $16.13 $3.50 - $12.38 $3.50 - $16.13
Price range of options
outstanding $3.50 - $19.06 $3.50 - $22.94 $3.50 - $22.94
============== ============== ==============
</TABLE>
The Company records proceeds from the exercise of stock options as
additions to common stock and paid-in capital. The tax benefit, if any, is
recorded as additional paid-in capital.
In 1991, the Board of Directors approved the issuance of restricted stock
awards under the 1988 Plan of up to an aggregate 600,000 shares of common stock
to certain officers and key employees. Restrictions lapse each year through May
10, 2005 on specified portions of the shares awarded to each participant so long
as the participant has remained in the continuous employ of the Company.
Restricted shares outstanding at the end of the year totaled 255,001 in 1996,
345,834 in 1995 and 421,667 in 1994.
In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Statement allows companies to measure compensation cost in
connection with employee stock compensation plans using a fair value based
method or to continue to use an intrinsic value based method, which generally
does not result in compensation cost. The Company currently plans to continue
using the intrinsic value based method.
Note 11. INCOME TAXES
The components of pretax income (loss) are as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------
In thousands 1996 1995 1994
----------------------------
<S> <C> <C> <C>
Domestic $(51,399) $45,393 $72,352
Foreign (44,345) 66 1,498
-------- ------- -------
Total pretax income (loss) $(95,744) $45,459 $73,850
======== ======= =======
</TABLE>
The components of income taxes are as follows:
<TABLE>
<CAPTION>
In thousands Total Federal State Foreign
-----------------------------------------
<S> <C> <C> <C> <C>
1996
Currently payable $ 5,659 $ 17,013 $(7,003) $ (4,351)
Deferred (40,159) (28,754) (11,405)
-------- -------- ------- --------
Total $(34,500) $(11,741) $(7,003) $(15,756)
======== ======== ======= ========
1995
Currently payable $ 22,569 $ 16,700 $ 2,634 $ 3,235
Deferred (6,169) (3,729) (2,440)
-------- -------- ------- --------
Total $ 16,400 $ 12,971 $ 2,634 $ 795
======== ======== ======= ========
1994
Currently payable $ 30,835 $ 24,931 $ 5,000 $ 904
Deferred (3,535) (3,603) 68
-------- -------- ------- --------
Total $ 27,300 $ 21,328 $ 5,000 $ 972
======== ======== ======= ========
</TABLE>
Deferred income taxes result from temporary differences in the financial
and tax bases of assets and liabilities. Significant components of the Company's
deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
November 30,
------------------------
In thousands 1996 1995
------------------------
<S> <C> <C>
Deferred tax liabilities:
Installment sales $ 831 $ 4,840
Bad debt and other reserves 463 1,758
Depreciation and amortization 5,465
Capitalized expenses 18,311 23,479
Partnerships and joint ventures 3,718 4,511
Computer equipment leases 439 6,573
Repatriation of foreign subsidiaries 13,481 25,961
Other 4,725 3,579
-------- -------
Total deferred tax liabilities 41,968 76,166
-------- -------
Deferred tax assets:
Warranty, legal and other accruals 10,943 9,194
Depreciation and amortization 2,542 1,281
Capitalized expenses 7,576 8,383
Non-cash charge for impairment of
long-lived assets 17,096
Foreign tax credits 13,254 25,563
Net operating losses 1,557 943
Other 5,760 6,354
-------- -------
Total deferred tax assets 58,728 51,718
-------- -------
Net deferred tax liabilities (assets) $(16,760) $24,448
======== =======
</TABLE>
<PAGE> 41
48
Net operating loss carryforwards expire in 1999, 2000 and 2001. The Company
expects that the entire deferred tax benefit of the tax loss carryforwards will
be recognized in future periods.
Income taxes computed at the statutory United States federal income tax
rate and income tax expense provided in the financial statements differ as
follows:
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------------
In thousands 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Amount computed at statutory rate $(33,510) $ 15,911 $ 25,848
Increase (decrease) resulting from:
California franchise taxes, net of
federal income tax benefit (4,552) 1,712 3,250
Differences in foreign tax rates (167) 2,042 550
Intercompany dividends 1,170 391
Affordable housing credits (2,024) (2,387) (1,179)
Other, net 4,583 (878) (1,560)
-------- -------- --------
Total $(34,500) $ 16,400 $ 27,300
======== ======== ========
</TABLE>
The Company has commitments to invest $6,458,000 over three years in
affordable housing partnerships which are scheduled to provide tax credits.
The Company had foreign tax credit carryforwards at November 30, 1996 of
$4,165,000 for United States federal income tax purposes which expire in 1997
through 2001.
The undistributed earnings of foreign subsidiaries, which the Company plans
to invest indefinitely and for which no United States federal income taxes have
been provided, totaled $14,769,000 at November 30, 1996. If these earnings were
currently distributed, the resulting withholding taxes payable would be
$737,000.
Note 12. GEOGRAPHICAL AND SEGMENT INFORMATION
Geographical and segment information follows:
<TABLE>
<CAPTION>
Operating
Income Identifiable
In thousands Revenues (Loss) Assets
---------------------------------------------
<S> <C> <C> <C>
1996
Construction:
California $ 1,057,980 $ 65,308 $ 620,823
Other United States 516,921 33,251 234,959
France 171,371 4,177 130,335
Other 7,875 (4,057) 14,042
Non-cash charge for impairment
of long-lived assets* (170,757)
----------- -------- ----------
Total construction 1,754,147 (72,078) 1,000,159
Mortgage banking 32,894 12,740 243,335
----------- -------- ----------
Total $ 1,787,041 $(59,338) $1,243,494
=========== ======== ==========
1995
Construction:
California $ 971,132 $ 51,428 $ 852,753
Other United States 246,958 12,308 139,875
France 138,616 4,700 235,031
Other 10,160 (2,905) 41,549
----------- -------- ----------
Total construction 1,366,866 65,531 1,269,208
Mortgage banking 29,660 9,348 304,971
----------- -------- ----------
Total $ 1,396,526 $ 74,879 $1,574,179
=========== ======== ==========
1994
Construction:
California $ 1,048,050 $ 81,149 $ 836,783
Other United States 101,129 4,145 69,448
France 143,422 5,019 210,686
Other 14,969 (1,990) 50,219
----------- -------- ----------
Total construction 1,307,570 88,323 1,167,136
Mortgage banking 28,701 6,003 287,324
----------- -------- ----------
Total $ 1,336,271 $ 94,326 $1,454,460
=========== ======== ==========
</TABLE>
*The $170.8 million pretax non-cash charge for impairment of long-lived assets
was recorded in the geographic regions as follows: California $112.1 million;
France $43.5 million; and Other $15.2 million.
Note 13. QUARTERLY RESULTS (UNAUDITED)
Quarterly results for the years ended November 30, 1996 and 1995 follow:
<TABLE>
<CAPTION>
In thousands, except
per share amounts First Second Third Fourth
-------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues $302,475 $ 482,350 $481,373 $520,843
Operating income (loss)* 14,067 (142,380) 29,152 39,823
Pretax income (loss)* 6,386 (153,882) 20,667 31,085
Net income (loss)* 4,086 (98,482) 13,267 19,885
Earnings (loss) per share* .10 (2.47) .33 .50
======== ========= ======== ========
1995
Revenues $229,832 $ 315,493 $372,314 $478,887
Operating income 5,922 13,102 19,269 36,586
Pretax income 685 6,091 10,863 27,820
Net income 435 3,841 6,863 17,920
Earnings per share .01 .10 .17 .45
======== ========= ======== ========
</TABLE>
*Reflects a $170.8 million pretax non-cash charge for impairment of long-lived
assets recorded in the second quarter.
KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report
<PAGE> 42
49
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Kaufman and Broad Home Corporation
We have audited the accompanying consolidated balance sheets of Kaufman and
Broad Home Corporation as of November 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended November 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kaufman and
Broad Home Corporation at November 30, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended November 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
- ---------------------
Los Angeles, California
January 3, 1997
REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles. Estimates and judgments of management based on
its current knowledge of anticipated transactions and events are made to prepare
the financial statements as required by generally accepted accounting
principles. Management relies on internal accounting controls, among other
things, to produce records suitable for the preparation of financial statements.
The responsibility of our external auditors for the financial statements is
limited to their expressed opinion on the fairness of the consolidated financial
statements taken as a whole. Their examination is performed in accordance with
generally accepted auditing standards which include tests of our accounting
records and internal accounting controls and evaluation of estimates and
judgements used to prepare the financial statements. The Company employs a staff
of internal auditors whose work includes evaluating and testing internal
accounting controls.
An audit committee of outside members of the Board of Directors
periodically meets with management, the external auditors and the internal
auditors to evaluate the scope of auditing activities and review results. Both
the external and internal auditors have the unrestricted opportunity to
communicate privately with the audit committee.
/s/ Michael F. Henn
- -------------------
Michael F. Henn
Senior Vice President and Chief Financial Officer
January 3, 1997
<PAGE> 43
STOCKHOLDER INFORMATION
<TABLE>
<CAPTION>
Common Stock
------------------
Stock Prices High Low
------------------
<S> <C> <C>
1996
First Quarter $16 7/8 $12 3/4
Second Quarter 16 3/8 13 3/8
Third Quarter 15 11 1/4
Fourth Quarter 13 5/8 11 3/4
1995
First Quarter $14 3/4 $12 1/8
Second Quarter 15 7/8 11 1/8
Third Quarter 16 13 1/8
Fourth Quarter 13 3/8 10 7/8
======= =======
</TABLE>
DIVIDEND DATA
Kaufman and Broad Home Corporation paid a quarterly cash dividend of $.075 per
common share in 1996 and 1995.
ANNUAL STOCKHOLDERS' MEETING
The annual stockholders' meeting will be held at the Company's offices at 10990
Wilshire Boulevard, Seventh Floor, in Los Angeles, California, at 9:00 a.m. on
Thursday, April 3, 1997.
STOCK EXCHANGE LISTINGS
The Company's common stock (ticker symbol: KBH) is listed on the New York Stock
Exchange and is also traded on the Boston, Cincinnati, Midwest, Pacific and
Philadelphia Exchanges.
TRANSFER AGENT
ChaseMellon Shareholder Services, LLC
Los Angeles, California
INDEPENDENT AUDITORS
Ernst & Young LLP
Los Angeles, California
FORM 10-K
The Company's Report on Form 10-K filed with the Securities and Exchange
Commission may be obtained without charge by writing to Investor Relations,
Kaufman and Broad Home Corporation or by calling 1-888-KBH-NYSE toll free.
COMPANY INFORMATION
News and earnings releases may be obtained at no charge by facsimile. Call
1-888-KBH-NYSE toll free. Company information can also be obtained on-line
through Company News On Call, a service provided by PR Newswire, at
http://www.prnewswire.com
HEADQUARTERS
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(310) 231-4222 Fax
DESIGN: Louey/Rubino Design Group Inc., Santa Monica, CA - NYC - Jakarta,
Indonesia ILLUSTRATION: Brant Day PHOTOGRAPHY: Stanley Klimek
PRINTING: Lithographix
<PAGE> 44
LIST OF EXHIBITS FILED
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ------------------------------------------------------------------ ---------------
<C> <S> <C>
10.17 Kaufman and Broad Home Corporation Non-Employee Directors Stock
Unit Plan.........................................................
10.18 Employment Agreement of Glen Barnard, dated October 5, 1996.......
10.19 Employment Agreement of Lisa G. Kalmbach, dated October 5, 1996...
10.20 Employment Agreement of Albert Z. Praw, dated October 5, 1996.....
10.21 Kaufman and Broad Home Corporation Unit Performance Program.......
11 Statement of Computation of Per Share Earnings (Loss).............
13 Pages 26 through 49 and the inside back cover of the Company's
1996 Annual Report to Stockholders................................
22 Subsidiaries of the Company.......................................
24 Consent of Independent Auditors...................................
27 Financial Data Schedule...........................................
</TABLE>
<PAGE> 1
EXHIBIT 10.17
KAUFMAN AND BROAD HOME CORPORATION
NON-EMPLOYEE DIRECTORS STOCK UNIT PLAN
1. PURPOSE OF THE PLAN. The purpose of the Kaufman and Broad Home
Corporation Non-Employee Directors Stock Unit Plan ("Plan") is to grant Awards
of Stock Units to non-employee Directors of Kaufman and Broad Home Corporation
(the "Company") in order to align their compensation with the equity interests
of the Company's stockholders. The Plan provides for compensation through (i)
annual grants of Stock Units to Directors and (ii) the payment of Directors'
Annual Retainer and Meeting Fees in cash or Stock Units. The effective date of
the Plan is September 26, 1996.
2. DEFINITIONS.
"ANNUAL MEETING" shall mean an annual meeting of stockholders of the
Company.
"ANNUAL RETAINER" shall mean the retainer fee, established by the
Board, paid to a Director for (i) services as a Director on the Board for a
Director Year and (ii) for services as Chairman of a committee of the Board of
Directors for a Director Year.
"AWARD" shall mean an award of Stock Units pursuant to the Plan.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" of the Company shall have occurred if either: (1)
individuals who, as of the effective date of this Plan, constitute the
Board of the Company (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Directors constituting the Board, provided that any person becoming a
Director subsequent to the effective date of this Plan whose election,
or nomination for election by the Company's shareholders, was approved
by a vote of at least three-quarters (3/4) of the then Directors who
are members of the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is (A)
in connection with the acquisition by a third person, including a
"group" as such term is used in Section 13(d)(3) of the Exchange Act,
of beneficial ownership, directly or indirectly, of 20% or more of the
combined voting securities ordinarily having the right to vote for the
election of Directors of the Company (unless such acquisition of
beneficial ownership was approved by a majority of the Board who are
members of the Incumbent Board), or (B) in connection with an actual
or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this Plan, considered as though such person were a member
of the Incumbent Board, or (2) the Board (a majority of which shall
consist of Directors who are members of the Incumbent Board) has
determined that a Change of Ownership, for purposes of
1
<PAGE> 2
this Plan, shall have occurred. If any of the events enumerated in
clauses (1) or (2) occur, the Board shall determine the effective date
of the Change of Ownership resulting therefrom, for purposes of the
Plan.
"COMMITTEE" shall mean the Nominating and Corporate Governance
Committee of the Board or such other committee as may be designated by the
Board.
"COMPANY" shall mean Kaufman and Broad Home Corporation.
"DIRECTOR" shall mean a non-employee director of the Company.
"DIRECTOR YEAR" shall mean the fiscal year commencing on the date of
the Company's Annual Meeting and ending on the date immediately preceding the
next Annual Meeting.
"DIVIDEND EQUIVALENT PAYMENTS" shall mean the payment described in
Section 7 hereof, to a holder of Stock Units with respect to certain dividend
paid on outstanding shares of Stock.
"EFFECTIVE DATE" shall mean September 26, 1996.
"FAIR MARKET VALUE" of the Stock on a particular date shall equal the
average of the reported closing prices for the Stock on the New York Stock
Exchange for the ten (10) consecutive trading days immediately preceding such
date.
"FEES" shall mean the sum, for any Director Year, of the Annual
Retainer and the meeting Fees and Per Diem Fees, if any.
"MEETING FEES" shall mean the fees, established by the Board, paid to
a Director for attending a meeting of the Board or a committee of the Board.
This term shall include all fees paid to a Director for extraordinary or
special Board and/or committee meetings.
"PER DIEM FEES" shall mean a fee, established by the Board, authorized
by the Chief Executive Officer of the Company, in his or her sole discretion,
to a Director who is asked to work on Board issues for a significant part of
the day outside of normal Board or committee meetings.
"PRIOR PLANS" shall mean the Kaufman and Broad Home Corporation
Directors Restricted Stock Plan and the Kaufman and Broad Home Corporation 1993
Director Stock Plan.
"RESTRICTED STOCK" shall mean Restricted Stock (as defined in the
Kaufman and Broad Home Corporation Directors Restricted Stock Plan) of the
Company.
2
<PAGE> 3
"RULE 16B-3" shall mean Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
"STOCK" shall mean shares of Common Stock, par value $1.00 per share,
of the Company.
"STOCK UNIT" shall mean a right to (i) receive a share of Common Stock
or (ii) receive a cash payment, in accordance with the conditions set forth
herein, of the Fair Market Value of a share of Stock.
"TERMINATION DATE" shall mean the date a Director's service on the
Board terminates for any reason.
3. SOURCE OF SHARES DELIVERED UNDER AWARDS. Any Stock delivered
pursuant to an Award shall consist of shares of stock acquired by the Company
on the open market.
4. ANNUAL STOCK UNIT AWARDS.
(a) On the Effective Date, each Director shall receive a
one-time Award of 700 Stock Units.
(b) On the date of each Annual Meeting, commencing with
the 1997 Annual Meeting, each person who has served as a Director for at least
90 days preceding such Annual Meeting shall receive an Award of Stock Units.
The initial annual Award to each Director shall be 1200 Stock Units; provided,
that such amount shall be subject to adjustment from time to time in the
discretion of the Committee; provided, further, that any such adjustment shall
be subject to the approval of the Board.
5. FEES. Each Director shall be entitled to receive Fees with
respect to each Director Year in accordance with the provisions of this Section
5. Each Director shall be given an opportunity by the Company on an annual
basis to elect ("Annual Election") to receive his or her Annual Retainer and
Meeting Fees: (i) in cash, (ii) in Stock Units, or (iii) in a combination of
cash and Stock Units.
(a) The Annual Election must be in writing and shall be delivered to
the Secretary of the Company no later than the tenth day preceding the date of
the Annual Meeting. (The Annual Election shall be irrevocable after the tenth
day preceding the date of the Annual Meeting.) The Annual Election shall
specify the Annual Retainer and/or meeting Fees that such Director elects to
receive in cash, or Stock Units, or to defer.
(b) If a Director elects to receive Fees in cash, cash payment for
the Annual Retainer shall be paid as soon as practicable after the beginning of
a Director Year, and cash payment for Meeting Fees shall be paid as soon as
practicable after each meeting. If a Director elects to receive Stock Units in
lieu of the Annual Retainer, the Director shall receive Stock Units (including
fractional Stock Units) with respect to Stock having a Fair
3
<PAGE> 4
Market Value (on the date of the Company's Annual Meeting) equal to 110% of the
Annual Retainer. If a Director elects to receive Stock Units in lieu of the
Meeting Fees, the Director shall receive Stock Units (including fractional
Stock Units) at the Annual Meeting at the end of the Director Year for which
the election was made having a Fair Market Value (determined as of such
following Annual Meeting) equal to 110% of the Meeting Fees earned during such
Director Year.
(c) If a Director elects to defer all or a portion of the Fees, such
deferred Fees shall be credited to the deferred account established for each
Director in accord with the Kaufman and Broad Home Corporation Directors
Deferred Compensation Plan.
(d) Any person who becomes a Director following an Annual Meeting,
whether by appointment or election as a Director (or by change in status from a
full-time employee), shall receive an Annual Retainer prorated for the balance
of that Director Year. In the event a Director voluntarily resigns from the
Board during a Director Year, (i) the Director shall return to the Company any
cash payment covering the prorated portion of the Annual Retainer for the
balance of that Director Year, (ii) any Stock Units awarded, and (iii) any Fees
credited to the Deferred Account, in respect of the prorated portion of the
Annual Retainer for the balance of that Director Year shall be forfeited. No
return of any portion of the Annual Retainer shall be required in the event a
Director leaves the Board as the result of retirement, incapacity or death.
6. CONVERSION OF PRIOR AWARDS. As of the Effective Date, all Shares
of Restricted Stock outstanding under the Kaufman and Broad Home Corporation
Directors Restricted Stock Plan which are held by Directors shall be canceled.
Each Director who, immediately prior to the Effective Date, holds Restricted
Stock which shall be canceled in accordance with the immediately preceding
sentence, shall receive, in consideration for such cancellation, an Award of
Stock Units equal to the sum of number of such Director's shares of canceled
Restricted Stock.
7. DIVIDEND EQUIVALENT PAYMENTS. Effective as of each dividend
payment date for outstanding shares of Stock, a current cash payment shall be
made on each outstanding Stock Unit to the holder thereof in an amount equal to
dividend paid on an outstanding share of Stock.
8. TIME OF PAYMENT. Unless otherwise provided herein, all payments
in respect of a Director's Stock Units and in settlement of a Director's
Deferred Account shall be made as soon as practicable after the earlier of:
(i) the occurrence of a Change in Control and (ii) the Termination Date.
9. FORM OF PAYMENT. Payment in respect of Stock Units shall be made
in Stock or in cash, in accord with the previous annual elections made by the
Director. The Company shall not issue fractions of a share. Whenever under
the terms of the Plan a fractional share would otherwise be required to be
issued, the Director shall be paid in cash for such fractional share.
4
<PAGE> 5
10. STATEMENT OF ACCOUNT. Each Director shall receive an annual
statement showing the number of Stock Units that have been awarded to the
Director under the plan.
11. CHANGE IN CAPITAL STRUCTURE. In the event of any change in the
Stock by reason of any stock dividend, split, combination of shares, exchange
of shares warrants or rights offering to purchase Stock at a price below its
fair market value, reclassification, recapitalization, merger, consolidation or
other change in capitalization, appropriate adjustment shall be made by the
Committee in the number and kind of shares subject to the Plan and any other
relevant provisions of the Plan, whose determination shall be binding and
conclusive on all persons.
12. NONTRANSFERABILITY. Stock Units shall not be transferable by a
Director except by will or the laws of descent and distribution.
Notwithstanding the above, Stock Units shall be transferable to the extent the
Company concludes that nontransferability is not then required in order for the
Plan to continue to comply with Rule 16b-3.
13. RIGHTS. Except to the extent otherwise set forth herein,
Directors shall not have any of the rights of a stockholder with respect to the
Stock Units.
14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Committee. The Committee shall have full power, discretion and authority
to interpret and administer the Plan, except that the Committee shall have no
power to (a) determine the eligibility for Awards or the number of Stock Units
or timing or value of Awards to be granted to any Director, or (b) take any
action specifically delegated to the Board under the plan. With respect to any
determination contemplated in subsection (a) of the preceding sentence, the
Committee shall make recommendations to the Board, but any final determination
with respect to such recommendation shall be subject to the approval of the
full Board.
15. AMENDMENT OR TERMINATION OF THE PLAN. The Board may, at any
time, amend or terminate the plan; but no amendment or termination shall,
without the written consent of a Director, reduce the Director's rights under
previously granted Awards or with respect to any Fees previously earned. No
amendment which requires stockholder approval in order for the Plan to continue
to comply with Rule 16b-3 shall be effective unless the same shall be approved
by the requisite vote of the stockholders of the Company. To the extent then
required in order for the plan to continue to comply with Rule 16b-3, the Plan
may not be amended more than once every six months other than to comply with
the changes in the Internal Revenue Code of 1986, as amended, or ERISA or rules
thereunder.
16. NO RIGHT TO RENOMINATION. Nothing in the plan or in any Award
shall confer upon any Director the right to be nominated for reelection to the
Board.
5
<PAGE> 6
17. PAYMENTS UPON DEATH. In the event of a Director's death,
payments with respect to any Stock Units shall be made in a single lump sum
payment to the beneficiary designated by the Director, or in the absence of an
executed beneficiary form, to the person legally entitled thereto, as
designated under his or her will, or to such heirs as determined under the laws
of intestacy for the state of his or her domicile.
18. GOVERNING LAW. The plan and all actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
California.
6
<PAGE> 1
EXHIBIT 10.18
October 5, 1996
Glen Barnard
4500 South Downing
Englewood, CO 80110
Dear Glen:
Sincere congratulations on your recent promotion to Senior Vice President,
Regional General Manager. I am extremely excited about the future of our Company
with this new structure. With your talent, skills and energy I am confident that
we will not only meet, but exceed our future goals!
In light of your promotion, I am pleased to confirm the following changes in
your compensation which will became effective September 1, 1996.
Title/Position: Senior Vice President, Regional General Manager
Central Region
President, Colorado Division
Base Salary: $250,000
Auto Allowance: $500 per month and gasoline credit card for business use.
Auto Insurance: Up to $1,000 reimbursement per year for your primary business
vehicle.
Fiscal Year 1997 Incentive Compensation:
For fiscal year 1997, subject to the provisions below, you will be eligible to
receive 30% of Kaufman and Broad of Colorado, Inc.'s, incentive compensation
pool. The Division's pool will be generated by 7.5% of pre-tax profits
(including KBMC pre-tax) for fiscal year ending November 30, 1997. In addition,
an "ROI Modifier" will be applied to the incentive pool based on the division's
ROI pre-tax performance. As you know, a Customer Satisfaction rating will also
effect the incentive compensation pool. In addition, you will be eligible to
receive 5% of your Region's incentive compensation pool. The Region's pool will
be generated based on 7.5% of the total pretax of all divisions within the
region including KBMC pre-tax. Kaufman and Broad of Colorado,
<PAGE> 2
Inc.'s pre-tax will be excluded from the Region's incentive pool. An "ROI
Modifier" will be applied to the incentive compensation pool based on each
Division's ROI pre-tax performance.
The incentive award(s) described above shall only be earned in a lump sum after
your continuous employment with the Company through the expected payment date in
January, 1998. Earning of this incentive award is contingent upon such
continuous employment with the Company through the January, 1998 payment date.
If you leave the Company or if your employment is terminated for any reason
before such date, you will not have earned any portion of the incentive award.
Restricted Stock: Should your TOTAL cash compensation (1997 base and earned
incentive) exceed $750,000, any amounts over $750,000 will be received in the
form of restricted stock. The stock will (cliff vest) two years from the award
date.
If additional incentive compensation is earned via the ROI modifier, the amount
earned over target performance will also be paid in the form of restricted
stock. The stock will (cliff vest) two years from the award date.
Stock Options: You have been granted 25,000 shares of stock options as of
September 26, 1997 at a price of $13.13. These options will vest over a three
year period, and become fully vested on September 26, 2000.
Benefits Program: You will continue to be covered under the Comprehensive
Executive Benefits Program. If you have any questions regarding any of these
benefits please contact Kathy Knoblauch in Human Resources.
Executive Commitment:
a. During the performance of your duties on behalf of the Company, you
will receive and be entrusted with certain confidential and/or secret
information of a proprietary nature. You agree not to disclose or use,
during your employment or anytime thereafter, any such information
which is not otherwise publicly available.
b. Accordingly, you will not make any public statements concerning Kaufman
and Broad Home Corporation or any of their affiliates or subsidiaries
regarding your employment, unless previously approved by the Company.
c. You agree that in the event of your termination, you will not for a
period of one year thereafter employ nor seek to employ any person
employed by Kaufman and Broad Home Corporation or any of their
affiliates or subsidiaries.
d. You agree that during the term of your employment you will not engage,
as owner, part owner, stockholder (other than passive), director, joint
venturer, or otherwise, in any business competitive with Kaufman and
Broad Home Corporation or any of
<PAGE> 3
their affiliates or subsidiaries. Nothing in this paragraph d. shall
prevent you from obtaining normal employment (after the termination of
your employment with the Company), in general industry, or housing
industry as long as you comply with the provisions of this letter.
Employment at Will; Termination: Nothing in this letter shall be construed as an
employment contract obligating the Company (expressly or implicitly) to employ
you for any specified period of time. Either party has the right to terminate
the employment relationship at any time with or without cause.
Limitation: The compensation described in the preceding paragraphs represents
our entire obligation to you during the term of your employment. Kaufman and
Broad shall have no obligation to pay any compensation (in any form or any kind)
to you in excess of the above described compensation unless our Human Resources
Department has verified such increased compensation and processed a personnel
change notice reflecting such increase.
Entire Agreement: This letter together with the documents referenced herein
contain all of the agreements and understandings regarding your employment and
the obligations of Kaufman and Broad in connection with employment. Kaufman and
Broad has not made, nor are you relying upon any oral or written promises or
statements made by Kaufman and Broad or any agent of Kaufman and Broad except as
expressly set forth herein. This letter supersedes any and all prior agreements
and understandings between you and Kaufman and Broad and alone expresses the
agreement of the parties. This letter containing all of the agreements and
understandings regarding your employment cannot be amended other than in writing
by Kaufman and Broad.
Glen, again I am delighted to have you on the Executive Committee team in a
heightened leadership role. I look forward to working more closely with you and
to the success we can all achieve!
Best regards,
Bruce Karatz
Chairman, President & CEO
Agreed to and Acknowledged by:
/s/ GLEN BARNARD 10/10/96
- ---------------------------------------
Glen Barnard Date
<PAGE> 1
EXHIBIT 10.19
October 5, 1996
Lisa Kalmbach
5295 Harbord Dr.
Oakland, CA 94618
Dear Lisa:
Sincere congratulations on your recent promotion to Senior Vice President,
Regional General Manager. I am extremely excited about the future of our Company
with this new structure. With your talent, skills and energy I am confident that
we will not only meet, but exceed our future goals!
In light of your promotion, I am pleased to confirm the following changes in
your compensation which will became effective September 1, 1996.
Title/Position: Senior Vice President, Regional General Manager
North Region
President, South Bay Division
Base Salary: $250,000
Auto Allowance: $500 per month and gasoline credit card for business use.
Auto Insurance: Up to $1,000 reimbursement per year for your primary business
vehicle.
Fiscal Year 1997 Incentive Compensation:
For fiscal year 1997, subject to the provisions below, you will be eligible to
receive 25% of Kaufman and Broad of South Bay, Inc.'s, incentive compensation
pool. The Division's pool will be generated by 7.5% of pre-tax profits
(including KBMC pre-tax) for fiscal year ending November 30, 1997. In addition,
an "ROI Modifier" will be applied to the incentive pool based on the division's
ROI pre-tax performance. As you know, a Customer Satisfaction rating will also
effect the incentive compensation pool. In addition, you will be eligible to
receive 5% of your Region's incentive compensation pool. The Region's pool will
be generated based on 7.5% of the total pretax of all divisions within the
region including KBMC pre-tax. Kaufman and Broad of South Bay, Inc.'s pre-tax
will be excluded from the Region's incentive pool. An "ROI Modifier" will
<PAGE> 2
be applied to the incentive compensation pool based on each Division's ROI
pre-tax performance.
The incentive award(s) described above shall only be earned in a lump sum after
your continuous employment with the Company through the expected payment date in
January, 1998. Earning of this incentive award is contingent upon such
continuous employment with the Company through the January, 1998 payment date.
If you leave the Company or if your employment is terminated for any reason
before such date, you will not have earned any portion of the incentive award.
Restricted Stock: Should your TOTAL cash compensation (1997 base and earned
incentive) exceed $750,000, any amounts over $750,000 will be received in the
form of restricted stock. The stock will (cliff vest) two years from the award
date.
If additional incentive compensation is earned via the ROI modifier, the amount
earned over target performance will also be paid in the form of restricted
stock. The stock will (cliff vest) two years from the award date.
Stock Options: You have been granted 25,000 shares of stock options as of
September 26, 1997 at a price of $13.13. These options will vest over a three
year period, and become fully vested on September 26, 2000.
Benefits Program: You will continue to be covered under the Comprehensive
Executive Benefits Program. If you have any questions regarding any of these
benefits please contact Kathy Knoblauch in Human Resources.
Executive Commitment:
a. During the performance of your duties on behalf of the Company, you
will receive and be entrusted with certain confidential and/or secret
information of a proprietary nature. You agree not to disclose or use,
during your employment or anytime thereafter, any such information
which is not otherwise publicly available.
b. Accordingly, you will not make any public statements concerning Kaufman
and Broad Home Corporation or any of their affiliates or subsidiaries
regarding your employment, unless previously approved by the Company.
c. You agree that in the event of your termination, you will not for a
period of one year thereafter employ nor seek to employ any person
employed by Kaufman and Broad Home Corporation or any of their
affiliates or subsidiaries.
d. You agree that during the term of your employment you will not engage,
as owner, part owner, stockholder (other than passive), director, joint
venturer, or otherwise, in any business competitive with Kaufman and
Broad Home Corporation or any of their affiliates or subsidiaries.
Nothing in this paragraph d. shall prevent you from
<PAGE> 3
obtaining normal employment (after the termination of your employment
with the Company), in general industry, or housing industry as long as
you comply with the provisions of this letter.
Employment at Will; Termination: Nothing in this letter shall be construed as an
employment contract obligating the Company (expressly or implicitly) to employ
you for any specified period of time. Either party has the right to terminate
the employment relationship at any time with or without cause.
Limitation: The compensation described in the preceding paragraphs represents
our entire obligation to you during the term of your employment. Kaufman and
Broad shall have no obligation to pay any compensation (in any form or any kind)
to you in excess of the above described compensation unless our Human Resources
Department has verified such increased compensation and processed a personnel
change notice reflecting such increase.
Entire Agreement: This letter together with the documents referenced herein
contain all of the agreements and understandings regarding your employment and
the obligations of Kaufman and Broad in connection with employment. Kaufman and
Broad has not made, nor are you relying upon any oral or written promises or
statements made by Kaufman and Broad or any agent of Kaufman and Broad except as
expressly set forth herein. This letter supersedes any and all prior agreements
and understandings between you and Kaufman and Broad and alone expresses the
agreement of the parties. This letter containing all of the agreements and
understandings regarding your employment cannot be amended other than in writing
by Kaufman and Broad.
Lisa, again I am delighted to have you on the Executive Committee team in a
heightened leadership role. I look forward to working more closely with you and
to the success we can all achieve!
Best regards,
Bruce Karatz
Chairman, President & CEO
Agreed to and Acknowledged by:
/s/ LISA KALMBACH 10/6/96
- ---------------------------------------
Lisa Kalmbach Date
<PAGE> 1
Exhibit 10.20
[KAUFMAN & BROAD LETTERHEAD]
BRUCE KARATZ
Chairman and
Chief Executive Officer
October 5, 1996
Albert Praw
3350 Scadlock Lane
Sherman Oaks, CA 91403
Dear Albert:
Sincere congratulations on your recent promotion to Senior Vice
President, Regional General Manager. I am extremely excited about the
future of our Company with this new structure. With your talent, skills
and energy I am confident that we will not only meet, but exceed our
future goals!
In light of your promotion, I am pleased to confirm the following
changes in your compensation which will become effective December 1,
1996.
Title/Position: Senior Vice President, Regional General Manager
South Region
Base Salary: $250,000
Auto Allowance: $500 per month and gasoline credit card for
business use.
Auto Insurance: Up to $1,000 reimbursement per year for your
primary business vehicle.
Fiscal Year 1997 Incentive Compensation:
For fiscal year 1997 (ending November 30, 1997), subject to the
provisions below, you will be eligible for a Discretionary Incentive
Award based on profits and the degree of success achieved in meeting
specific mutually agreed upon goals. At achievement of business plan
and with expected performance by you, your discretionary award will
range from 0 to 60% of your base salary. Your individual performance
shall be judged at the sole discretion of company management. In
addition, you will be eligible to receive 5% of your Region's incentive
compensation pool. The Region's pool (excluding Multi-Housing) will be
generated based on 7.5% of the total pretax of all divisions within the
region including KBMC pre-tax. The Multi-Housing contribution will be
based on 8% of that division's pre-tax. In addition, an "ROI Modifier"
will be applied to the incentive pool
<PAGE> 2
based on the divisions' ROI pre-tax performance. As you know, a Customer
Satisfaction rating will also effect the incentive compensation pool.
The incentive award(s) described above shall only be earned in a lump sum after
your continuous employment with the Company through the expected payment date
in January, 1998. Earning of this incentive award is contingent upon such
continuous employment with the Company through the January, 1998 payment date.
If you leave the Company or if your employment is terminated for any reason
before such date, you will not have earned any portion of the incentive award.
Restricted Stock: Should your total cash compensation (1997 base and earned
incentive) exceed $750,000, any amounts over $750,000 will be received in the
form of restricted stock. The stock will (cliff vest) two years from the award
date.
If additional incentive compensation is earned via the ROI modifier, the amount
earned over target performance will also be paid in the form of restricted
stock. The stock will (cliff vest) two years from the award date.
Stock Options: Additionally, you have been granted 25,000 shares of stock
options as of September 26, 1997 at a price of $13.13. These options will vest
over a three year period, and become fully vested on September 26, 2000.
Benefits Program: You will continue to be covered under the Comprehensive
Executive Benefits Program. If you have any questions regarding any of these
benefits please contact Kathy Knoblauch in Human Resources.
Executive Commitment:
a. During the performance of your duties on behalf of the Company, you will
receive and be entrusted with certain confidential and/or secret information
of a proprietary nature. You agree not to disclose or use, during your
employment or anytime thereafter, any such information which is not
otherwise publicly available.
b. Accordingly, you will not make any public statements concerning Kaufman and
Broad Home Corporation or any of their affiliates or subsidiaries regarding
your employment, unless previously approved by the Company.
c. You agree that in the event of your termination, you will not for a period
of one year thereafter employ nor seek to employ any person employed by
Kaufman and Broad Home Corporation or any of their affiliates or
subsidiaries.
d. You agree that during the term of your employment you will not engage, as
owner, part owner, stockholder (other than passive), director, joint
venturer, or otherwise, in any business competitive with Kaufman and Broad
Home Corporation or any of their affiliates or subsidiaries. Nothing in
this paragraph d. shall prevent you from
<PAGE> 3
obtaining normal employment (after the termination of your employment
with the Company), in general industry, or housing industry as long as
you comply with the provisions of this letter.
Employment at Will; Termination: Nothing in this letter shall be construed as
an employment contract obligating the Company (expressly or implicity) to employ
you for any specified period of time. Either party has the right to terminate
the employment relationship at any time with or without cause.
Limitation: The compensation described in the preceding paragraphs represents
our entire obligation to you during the term of your employment. Kaufman and
Broad shall have no obligation to pay any compensation (in any form or any
kind) to you in excess of the above described compensation unless our Human
Resources Department has verified such increased compensation and processed a
personnel change notice reflecting such increase.
Entire Agreement: This letter together with the documents referenced herein
contain all of the agreements and understandings regarding your employment and
the obligations of Kaufman and Broad in connection with employment. Kaufman
and Broad has not made, nor are you relying upon any oral or written promises
or statements made by Kaufman and Broad or any agent of Kaufman or Broad except
as expressly set forth herein. This letter supersedes any and all prior
agreements and understandings between you and Kaufman and Broad and alone
expresses the agreement of the parties. This letter containing all of the
agreements and understandings regarding your employment cannot be amended other
than in writing by Kaufman and Broad.
Albert, again I am delighted to have you on the Executive Committee team in a
heightened leadership role. I look forward to working more closely with you
and to the success we can all achieve!
Best regards,
/s/ BRUCE KARATZ
Bruce Karatz
Chairman, President & CEO
Agreed to and Acknowledged by:
/s/ ALBERT PRAW
- ------------------------------
Albert Praw Date
<PAGE> 1
EXHIBIT 10.21
KAUFMAN AND BROAD HOME CORPORATION
UNIT PERFORMANCE PROGRAM
SECTION 1. PURPOSE. The purposes of the Kaufman and Broad
Home Corporation Unit Performance Program (the "Program") are to promote the
achievement of sustained long term growth in the shareholder value of the
Company by providing tangible, performance-driven compensation to Company
executives for achieving success against key performance measures, and to
establish financial incentives to enhance the retention of key executives.
SECTION 2. DEFINITIONS. As used in the Program, the
following terms shall have the meanings set forth below:
"ACTUAL PERFORMANCE" shall mean the actual performance by the
Company with respect to the Performance Measures in effect for a Performance
Period.
"AFFILIATE" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee.
"AWARD" shall mean an award of Performance Units to a
Participant at the beginning of a Performance Period.
"AWARD AGREEMENT" shall mean any written agreement, contract,
letter or other instrument or document evidencing an Award, which may, but need
not, be executed or acknowledged by a Participant.
"AWARD PAYOUT" shall mean the total payment, if any, made to a
Participant in cash or in Shares, as shall be determined by the Committee prior
to the payment date, upon the vesting of Performance Units at the conclusion of
a Performance Period. The Award Payout shall be the product of (i) the number
of Performance Units that comprise the Award multiplied by (ii) the Unit Payout
Factor multiplied by (iii) the stated dollar value of each Performance Unit.
"BOARD" shall mean the Board of Directors of the Company.
<PAGE> 2
"CHANGE OF OWNERSHIP" shall be deemed to have occurred if
either (1) individuals who, as of the effective date of this Program,
constitute the Board of Directors of the Company (as of the date hereof, the
"Incumbent Board") cease for any reason to constitute at least a majority of
the directors constituting the Board, provided that any person becoming a
director subsequent to the effective date of this Program whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least three-quarters (3/4) of the then directors who are members of the
Incumbent Board [other than an election or nomination of an individual whose
initial assumption of office is (A) in connection with the acquisition by a
third person, including a "group" as such term is used in Section 13(d)(3) of
the Exchange Act, of beneficial ownership, directly or indirectly, of 20% or
more of the combined voting securities ordinarily having the right to vote for
the election of directors of the Company (unless such acquisition of beneficial
ownership was approved by a majority of the Board who are members of the
Incumbent Board), or (B) in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act]
shall be, for purposes of this Program, considered as though such person were a
member of the Incumbent Board, or (2) the Board (a majority of which shall
consist of directors who are members of the Incumbent Board) has determined
that a Change of Ownership, for purposes of this Program, shall have occurred.
If any of the events enumerated in clauses (1) or (2) occur, the Board shall
determine the effective date of the Change of Ownership resulting therefrom,
for purposes of the Program.
"COMMITTEE" shall mean a committee of the Board designated by
the Board to administer the Program. Until otherwise determined by the Board,
the Personnel, Compensation and Stock Plan Committee of the Board of Directors
shall be the Committee under the Program.
"COMPANY" shall mean, collectively, Kaufman and Broad Home
Corporation and its Affiliates, together with any successor thereto, unless the
context indicates otherwise.
"EMPLOYEE" shall mean an employee of the Company.
"EPS" shall mean the earnings per share of the Company for a
Fiscal Year determined in accordance with GAAP.
"FISCAL YEAR" shall mean any one-year period between December
1 and November 30, or such other one-year period as may be designated from time
to time as the Company's fiscal year.
<PAGE> 3
"MAXIMUM PERFORMANCE" shall mean, as to any Performance
Measure, the level of Actual Performance for any given Performance Period at
which a Maximum Unit Payout Factor is achieved.
"MAXIMUM UNIT PAYOUT FACTOR" shall mean the maximum Unit
Payout Factor (expressed as a percentage of the Target Unit Payout Factor)
which shall be applied in the calculation of an Award Payout upon achievement
of Maximum Performance for the applicable Performance Measure.
"MINIMUM PERFORMANCE" shall mean, as to any Performance
Measure, the level of Actual Performance for any given Performance Period at
which a Minimum Unit Payout Factor is earned.
"MINIMUM UNIT PAYOUT FACTOR" shall mean the minimum Unit
Payout Factor (expressed as a percentage of the Target Unit Payout Factor)
which shall be applied in the calculation of an Award Payout upon achievement
of Minimum Performance for the applicable Performance Period.
"OTHER PLAN" shall have the meaning ascribed to such term in
Section 6(a) hereof.
"PARTICIPANT" shall mean any employee of the Company who shall
have been granted an Award by the Committee with respect to a given Performance
Period.
"PAYOUT THRESHOLDS" shall mean, collectively, the Minimum,
Maximum, and Target Unit Payout Factors established for an Award.
"PERFORMANCE MEASURE" shall mean each measure of Company
performance, and the relative weighting ascribed to such measure, which the
Committee, in its sole discretion, shall designate from time-to-time for the
purpose of determining Award Payouts which may be earned under the Program for
any Performance Period; such performance measures shall be ROI and EPS, until
such time as the Committee designates new measures.
"PERFORMANCE PERIOD" shall mean the number of Fiscal Years, or
such other period of time as may be established by the Committee, that a
Performance Unit shall remain outstanding. Each Performance Unit which has
remained outstanding for the entire Performance Period shall vest at the
conclusion thereof. For purposes of the Program, a Performance Period shall be
three (3) Fiscal Years, unless otherwise determined by the Committee.
<PAGE> 4
"PERFORMANCE THRESHOLDS" shall mean, collectively, the
Minimum, Maximum, and Target Performance values established by the Committee
for an Award.
"PERFORMANCE UNIT" shall mean the individual unit(s) which
shall comprise an Award, each of which shall vest at the end of the Performance
Period for which it was awarded and, upon such vesting, shall entitle the
Participant to whom it was granted an Award Payout, calculated in accordance
with the Program and the terms of the Participant's Award Agreement.
"PERSON" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"PROGRAM" shall mean this Kaufman and Broad Home Corporation
Unit Performance Program.
"ROI" shall mean the return on investment of the Company or a
specified operational unit or units of the Company. Return on investment shall
be calculated in accord with the following general formula for a Performance
Period, using such methodology as approved by the Committee not later than one
hundred and twenty (120) calendar days after the beginning of such Performance
Period.
Adjusted Earnings Before Interest and Taxes
ROI = -------------------------------------------
Average Adjusted Capital Employed
"SHARE" shall mean a share of the Common Stock of the Company,
a Common Stock equivalent, or such other security of the Company as may be
designated by the Committee from time to time.
"TARGET PERFORMANCE" shall mean, as to any Performance
Measure, the level of Actual Performance for any given Performance Period at
which the Target Unit Payout Factor is earned.
"TARGET UNIT PAYOUT FACTOR" shall be equal to 1.0.
"UNIT PAYOUT FACTOR" shall mean, as to each Performance
Measure, the ratio which reflects the comparison of Actual Performance to the
Performance Thresholds. Where Actual Performance is less than Minimum
Performance, the Unit Payout Factor shall be zero. With respect to Actual
Performance which meets or exceeds Maximum Performance, the Unit Payout Factor
shall be deemed to be equal to the Maximum Unit Payout Factor. For Actual
Performance which falls between Minimum Performance and
<PAGE> 5
Maximum Performance, the value of the Unit Payout Factor will be interpolated
as between the Performance Thresholds. In the event more than one Performance
Measure is in effect for a Performance Period, the weighted average of the
individual Unit Payout Factor for each Performance Measure will be deemed the
Unit Payout Factor to be used in calculating Award Payouts with respect to that
Performance Period.
SECTION 3. ADMINISTRATION.
(a) Authority of Committee. Subject to the provisions of
Section 8(d) and applicable law, the Program shall be administered by the
Committee, which shall have the sole authority to: (i) designate Participants;
(ii) determine the Performance Period, Performance Measures, Performance
Thresholds, Payout Thresholds, calculation methodology and such other items
associated with Performance Units granted for a Performance Period; (iii)
determine the number of Performance Units which shall comprise each Award; (iv)
determine the terms and conditions of each Performance Unit; (v) set the dollar
value of each Performance Unit; (vi) establish, interpret and administer the
Program, any Award Agreement or any other instrument or agreement relating to
the Program; (vii) amend, alter, suspend, or terminate the Program, and to take
any such action not required by applicable law to be taken by the Board; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the
Program; and (ix) make any other determinations and take any other actions that
the Committee deems necessary or desirable for the administration of the
Program.
SECTION 4. ELIGIBILITY. Any Employee shall be eligible to be
designated a Participant by the Committee.
SECTION 5. AWARD TERMS AND CONDITIONS.
(a) Establishment by Committee. The Committee shall
determine, in its sole discretion, not later than one hundred twenty (120)
calendar days following the beginning of each Performance Period: (i) the
Employees who shall be Participants in the Program for such Performance Period;
(ii) the number of Performance Units which shall comprise each Participant's
Award; (iii) the Performance Thresholds and Payout Thresholds for each
Performance Unit; (iv) the Performance Measures, if other than EPS and ROI; (v)
the calculation methodology for each of the Performance Measures and related
calculation methodologies; (vi) the dollar value of each Performance Unit;
(vii) the Performance Period, if other than three (3) Fiscal Years; (viii) the
calculation methodology that shall be used to determine the number of Shares to
be issued to a Participant in the event an Award Payout is to be made in
Shares; and (ix) any other rules, parameters or other factors which the
Committee deems pertinent to the issuance of Awards.
<PAGE> 6
(b) Award Agreements. The terms and conditions as
determined in Section 5(a) shall be set forth in an Award Agreement distributed
to each Participant not later than one hundred and fifty (150) days after the
commencement of the applicable Performance Period.
(c) Award Payout. An Award Payout shall be made by the
Company no later than one hundred and fifty (150) calendar days after the
vesting of Performance Units subject to an Award.
SECTION 6. AWARD PAYOUT IN SHARES.
(a) Program Shares. To the extent Shares are issued in an
Award Payout, such Shares (i) may be acquired by the Company on the open market
or otherwise or (ii) may be issued under and subject to the terms of the
Company's 1988 Employee Stock Plan, the Company's Performance-Based Incentive
Plan for Senior Management, or such other employee stock plan as may be
designated by the Committee from time to time (each, an "Other Plan"). In the
event there shall be Shares issued in an Award Payout and there is a conflict
between the terms of this Program and the terms of the Other Plan under which
such Shares are to be issued, the terms of such Other Plan shall prevail.
(b) Sources of Shares Deliverable. Any Shares delivered
pursuant to an Award Payout may consist, in whole or in part, of authorized and
unissued Shares or of Shares acquired by the Company on the open market or
otherwise.
SECTION 7. CERTAIN EVENTS.
(a) Change of Ownership. In the event there shall be a Change
of Ownership of the Company, on the effective date of such Change of Ownership
(i) all outstanding Performance Units shall vest, (ii) the Target Unit Payout
Factor will be used in the calculation of each Award Payout, and (iii) all
Award Payouts shall be paid in cash immediately prior to such Change of
Ownership, or promptly following the determination of a Change of Ownership.
(b) Retirement or Permanent Disability. In the event a
Participant shall retire at or after age 55 or shall become permanently
disabled, each outstanding, unvested Performance Unit held by such Participant
shall immediately vest as of the date of such retirement or determination of
permanent disability and an Award Payout calculated using the Target Unit
Payout Factor shall be made to the Participant as soon as reasonably
practicable; provided, however, that the amount of any such Award Payout shall
be prorated based on the number of months each Performance Unit was outstanding
prior to
<PAGE> 7
the date of the Participant's retirement or determination of permanent
disability, with any partial month being treated as a full month.
(c) Death. In the event of a Participant's death, each
outstanding, unvested Performance Unit held by such Participant shall
immediately vest as of the date of death and an Award Payout calculated using
the Target Unit Payout Factor shall be made to the Participant's designated
beneficiary or estate, as the case may be, as soon as reasonably practicable;
provided, however, that the amount of any such Award Payout shall be prorated
based on the number of months each Performance Unit was outstanding prior to
the date of the Participant's death, with any partial month being treated as a
full month.
(d) Termination of Employment. If a Participant's employment
with the Company shall terminate for any reason other than those set forth in
the preceding subsections of this Section 7, all outstanding, unvested Awards
held by such Participant shall be immediately forfeited to the Company, no
Award Payout shall be paid or payable with respect to such Awards, and such
Participant shall have no other rights under the Program or any Award
Agreement.
SECTION 8. AMENDMENT AND TERMINATION.
(a) Amendments to the Program. Subject to the provisions of
Sections 3(a) and 8(d) hereof, the Committee may amend, alter, suspend,
discontinue, or terminate the Program or any portion thereof at any time.
(b) Amendments to Performance Units and Awards. Subject to
the provisions of Sections 3(a) and 8(d) hereof, the Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Performance Unit or Award theretofore granted,
prospectively or retroactively.
(c) Adjustment of Performance Units Upon the Occurrence of
Certain Unusual or Nonrecurring Events. Subject to the provisions of Sections
3(a) and 8(d) hereof, the Committee may make adjustments in the terms and
conditions of, and the criteria included in, Performance Units in recognition
of unusual or nonrecurring events affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate.
(d) No Adverse Change. Notwithstanding anything to the
contrary contained in this Program, subsequent to the issuance of an Award
Agreement in accordance with Section 5(b), the Committee may not amend or
change any material term or provision of such Award Agreement, the Award issued
under an Award Agreement
<PAGE> 8
or the Program, in a manner adverse to a Participant without the written
consent of such Participant.
SECTION 9. GENERAL PROVISIONS.
(a) Nontransferability. No Performance Unit shall be
assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant, except to a trust or other estate planning entity
formed for the benefit of the Participant and/or Participant's heirs, by will
or the laws of descent and distribution or as otherwise provided in the Award
Agreement.
(b) No Rights to an Award. Except as may be provided in a
Participant's employment agreement, no Participant or other Person shall have
any claim to be granted an Award, and there is no obligation for uniformity of
treatment of Participants. The terms and conditions of an Award need not be
the same with respect to each Participant.
(c) Share Certificates. All certificates for Shares
delivered under the Program pursuant to an Award Payout shall be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the Program or the rules, regulations, and other requirements
of the applicable United States law, any stock exchange upon which such Shares
or other securities are then listed, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(d) Delegation. Subject to the terms of the Program and
applicable law, the Committee may delegate to one or more officers or managers
of the Company, or to a committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to
grant Awards to, or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend, or terminate an Award held by a Participant.
(e) Withholding. A Participant may be required to pay to the
Company, and the Company shall have the right and is hereby authorized to
withhold from any Award Payout or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities, or other
property) of any applicable withholding taxes in respect of such Award Payout
and to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes. The Committee may
provide for additional cash payments to holders of Performance Units to defray
or offset any tax arising from such Award Payout.
<PAGE> 9
(f) No Limit on Other Compensation Arrangements. Nothing
contained in the Program shall prevent the Company from adopting or continuing
in effect other compensation arrangements, which may, but need not, provide for
the grant of bonuses, options, restricted stock, Shares and other types of
awards, and such arrangements may be either generally applicable or applicable
only in specific cases.
(g) No Right to Employment. The grant of an Award shall not
be construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or any Affiliate may at any
time dismiss a Participant from employment, free from any liability or any
claim under the Program, unless otherwise expressly provided in the Program or
in any Award Agreement.
(h) No Rights as Stockholder. Subject to the provisions of
the applicable Award Agreement, no Participant or holder or beneficiary of any
Performance Unit shall have any rights as a stockholder with respect to any
Shares to be distributed under the Program until he or she has become the
holder of such Shares.
(i) Governing Law. The validity, construction, and effect of
the Program and any rules and regulations relating to the Program and any Award
Agreement shall be determined in accordance with the laws of the State of
California, except to the extent that the General Corporation Law of the State
of Delaware shall be applicable to the Company.
(j) Severability. If any provision of the Program, any Award
Agreement or any Performance Unit is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person, or would
disqualify the Program or any Performance Unit under any law deemed applicable
by the Committee, such provision shall be construed or deemed amended to
conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Program or the Performance Unit, such provision shall be stricken as to
such jurisdiction, Person or Performance Unit and the remainder of the Program
and any such Performance Unit shall remain in full force and effect.
(k) Arbitration. All claims, disputes and other matters in
question arising out of or relating to an Award Agreement, the Program or a
breach thereof, shall be decided by arbitration in accordance with rules of the
American Arbitration Association then obtaining unless the parties mutually
agree otherwise. Notice of the demand for arbitration shall be filed in
writing with the other party to the dispute or claim. The award rendered by
the arbitrators shall be final, and judgment may be entered upon it in
accordance with applicable law in any court having jurisdiction thereof.
<PAGE> 10
(l) Other Laws. No Performance Unit granted hereunder shall
be construed as an offer to sell securities of the Company, and no such offer
shall be outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of United States securities laws and any other laws to
which such offer, if made, would be subject.
(m) No Trust or Fund Created. Neither the Program nor any
Performance Unit shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company or any
Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate pursuant
to a Performance Unit, such right shall be no greater than the right of any
unsecured general creditor of the Company or any Affiliate.
(n) Headings. Headings are given to the Sections and
subsections of the Program solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Program or any provision thereof.
(o) Effective Date. The Program shall be effective as of
December 1, 1995.
<PAGE> 1
EXHIBIT 11
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
PRIMARY:
Net income (loss)...................................... $(61,244,000) $29,059,000 $46,550,000
=========== ========== ==========
Weighted average common shares outstanding............. 36,693,000 32,386,000 32,449,000
Weighted average Series B convertible preferred
shares(1)............................................ 2,167,000 6,500,000 6,500,000
Common share equivalents:
Stock options........................................ 903,000 871,000 1,077,000
------------ ----------- -----------
39,763,000 39,757,000 40,026,000
=========== ========== ==========
PRIMARY EARNINGS (LOSS) PER SHARE(3)................... $ (1.54) $ .73 $ 1.16
=========== ========== ==========
FULLY DILUTED:
Net income (loss)...................................... $(61,244,000) $29,059,000 $46,550,000
=========== ========== ==========
Weighted average common shares outstanding............. 36,693,000 32,386,000 32,449,000
Weighted average Series B convertible preferred
shares(1)............................................ 2,167,000 6,500,000 6,500,000
Common share equivalents:
Stock options........................................ 903,000 871,000 1,077,000
------------ ----------- -----------
39,763,000 39,757,000 40,026,000
=========== ========== ==========
FULLY DILUTED EARNINGS (LOSS) PER SHARE(2)(3).......... $ (1.54) $ .73 $ 1.16
=========== ========== ==========
</TABLE>
- ------------
(1) Each of the 1,300,000 Series B convertible preferred shares were 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. The 6,500,000 equivalent
shares of common stock are weighted for the period outstanding.
(2) Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is not
material.
(3) 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 a primary and fully
diluted loss per share of $1.76 in 1996 and both primary and fully diluted
earnings per share of $.58 in 1995 and $1.09 in 1994.
<PAGE> 1
EXHIBIT 13
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
PAGES 26 THROUGH 49 AND THE INSIDE BACK COVER OF THE COMPANY'S
1996 ANNUAL REPORT TO STOCKHOLDERS
This exhibit is incorporated in this Annual Report on Form 10-K between
page F-1 and the List of Exhibits Filed.
<PAGE> 1
EXHIBIT 22
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
The following subsidiaries of the Company were included in the November 30,
1996 consolidated financial statements:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
Arizona Corporations
Kaufman and Broad of Arizona, Inc. .................. 100
Kaufman and Broad Home Sales of Arizona, Inc. ....... 100
California Corporations
Affordable Multi-Family, Inc. ....................... 100
BKJ Construction Company, Inc. ...................... 100
Cable Associates, Inc. .............................. 100
Custom Decor, Inc. .................................. 100
First Northern Builders Servicing, Inc. ............. 100
Fullerton Affordable Housing, Inc. .................. 100
KBASW Mortgage Acceptance Corporation................ 100
KBI/Mortgage Acceptance Corporation.................. 100
KBMH Property Management, Inc........................ 100
KBMH Capital, Inc.................................... 100
KBRAC IV Mortgage Acceptance Corporation............. 100
K&B Multi-Housing Advisors, Inc. .................... 100
KBMH Construction, Inc. ............................. 100
Kaufman and Broad Architecture, Inc.................. 100
Kaufman and Broad -- Central Valley, Inc. ........... 100
Kaufman and Broad Coastal, Inc. ..................... 100
Kaufman and Broad Communities, Inc. ................. 100
Kaufman and Broad of Dallas, Inc..................... 100
Kaufman and Broad Development Group.................. 100
Kaufman and Broad Embarcadero, Inc. ................. 100
Kaufman and Broad Holdings, Inc. .................... 100
Kaufman and Broad Home Sales, Inc. .................. 100
Kaufman and Broad Insurance Agency, Inc. ............ 100
Kaufman and Broad International, Inc. ............... 100
Kaufman and Broad Land Company....................... 100
Kaufman and Broad Land Development Venture, Inc. .... 100
Kaufman and Broad -- Monterey Bay, Inc............... 100
Kaufman and Broad -- Moreno/Perris Valleys, Inc. .... 100
Kaufman and Broad Multi-Family, Inc. ................ 100
Kaufman and Broad Multi-Housing Group, Inc........... 100
Kaufman and Broad of Northern California, Inc. ...... 100
Kaufman and Broad North Stockton, Inc. .............. 100
Kaufman and Broad Properties......................... 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
Kaufman and Broad of San Diego, Inc. ................ 100
Kaufman and Broad -- South Bay, Inc. ................ 100
Kaufman and Broad of Southern California, Inc. ...... 100
Kaufman and Broad of Utah, Inc....................... 100
Kent Land Company.................................... 100
Kingsbay Escrow Company.............................. 100
Multi-Housing Investments, Inc. ..................... 100
Colorado Corporation
Kaufman and Broad of Colorado, Inc. ................. 100
Delaware Corporations
International Mortgage Acceptance Corporation........ 100
Kaufman and Broad Development Company................ 100
Kaufman and Broad Limited............................ 100
Illinois Corporations
Kaufman and Broad of Illinois, Inc. ................. 100
Kaufman and Broad Mortgage Company................... 100
Massachusetts Corporation
Kaufman and Broad Homes, Inc. ....................... 100
Michigan Corporation
Keywick, Inc. ....................................... 100
Minnesota Corporation
Kaufman and Broad Custom Homes, Inc. ................ 100
Nevada Corporation
Kaufman and Broad of Nevada, Inc. ................... 100
New Mexico Corporations
Kaufman and Broad of New Mexico, Inc. ............... 100
New York Corporation
Kaufman and Broad Homes of Long Island, Inc. ........ 100
Texas Corporations and Partnerships
Kaufman and Broad of Texas, Ltd. .................... 100
KBSA, Inc. .......................................... 100
San Antonio Title Co. ............................... 100
Satex Properties, Inc. .............................. 100
Texas Homestead Mortgage Company..................... 100
Oppel Jenkins Development, Inc. ..................... 100
Oppel Jenkins of El Paso, Inc. ...................... 100
Canadian Corporations
Margreen Investments, Inc. .......................... 100
3238865 Canada Inc................................... 100
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
French Corporations
Bati Service Development S.A.R.L. ................... 100
Bati Service Promotion S.A. ......................... 100
Kaufman and Broad Developpement S.A. ................ 99.4
Kaufman and Broad France S.A......................... 100
Kaufman and Broad Investissements S.A.R.L............ 100
Kaufman and Broad Maisons Individuelles S.A.......... 99.94
Kaufman and Broad Rehabilitation S.A.R.L............. 99.94
Kaufman and Broad Renovation S.A..................... 99.4
Kaufman and Broad Residences S.A.R.L................. 100
German Corporation
Kaufman and Broad GmbH............................... 100
Mexican Corporations
Kaufman y Broad de Mexico............................ 100
Kaufman y Broad Asesoria Administrativa.............. 100
</TABLE>
<PAGE> 1
EXHIBIT 24
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of
Kaufman and Broad Home Corporation
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the 1986 Stock Option Plan (No. 33-11692), the 1988
Employee Stock Plan (No. 33-28624) and the Registration Statement on Form S-3
(No. 333-14977), as amended, of Kaufman and Broad Home Corporation of our report
dated January 3, 1997 with respect to the consolidated financial statements of
Kaufman and Broad Home Corporation included in the Annual Report (Form 10-K) for
the year ended November 30, 1996.
ERNST & YOUNG LLP
Los Angeles, California
February 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<CASH> 9,781
<SECURITIES> 81,536<F1>
<RECEIVABLES> 260,496
<ALLOWANCES> 0
<INVENTORY> 780,302
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,243,494
<CURRENT-LIABILITIES> 0
<BONDS> 466,750<F2>
0
0
<COMMON> 38,828
<OTHER-SE> 301,522
<TOTAL-LIABILITY-AND-EQUITY> 1,243,494
<SALES> 1,754,147
<TOTAL-REVENUES> 1,787,041
<CGS> 1,435,081
<TOTAL-COSTS> 1,448,543<F3>
<OTHER-EXPENSES> 397,836<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,691
<INCOME-PRETAX> (95,744)
<INCOME-TAX> 34,500
<INCOME-CONTINUING> (61,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,244)
<EPS-PRIMARY> (1.54)
<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
and a non-cash charge for impairment of long-lived assets.
<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>
