<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ].
Commission File No. 1-9195
KAUFMAN AND BROAD HOME CORPORATION
(Exact name of registrant as specified in charter)
Delaware 95-3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [X] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
Common stock, par value $1.00 per share, 38,964,636 outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER(S)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Nine Months and Three Months ended August
31, 1997 and 1996 3
Consolidated Balance Sheets -
August 31, 1997 and November 30, 1996 4
Consolidated Statements of Cash Flows -
Nine Months ended August 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16-17
SIGNATURES 18
INDEX OF EXHIBITS 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended August 31, Ended August 31,
------------------------- ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 1,229,362 $ 1,265,390 $ 468,776 $ 480,988
=========== =========== =========== ===========
CONSTRUCTION:
Revenues $ 1,207,220 $ 1,242,371 460,544 $ 472,791
Construction and land costs (994,489) (1,020,83) (379,963) (388,505)
Selling, general and
administrative expenses (154,707) (158,674) (54,893) (58,538)
Non-cash charge for impairment of
long-lived assets -- (170,757) -- --
----------- ----------- ----------- -----------
Operating income (loss) 58,024 (107,897) 25,688 25,748
Interest income 3,294 1,937 1,043 494
Interest expense, net of amounts
capitalized (23,108) (27,717) (6,664) (8,991)
Minority interests in pretax
income of consolidated joint
ventures (150) (174) (36) (13)
Equity in pretax income (loss) of
unconsolidated joint ventures (114) (1,714) (175) 25
----------- ----------- ----------- -----------
Construction pretax income (loss) 37,946 (135,565) 19,856 17,263
----------- ----------- ----------- -----------
MORTGAGE BANKING:
Revenues:
Interest income 9,697 11,033 3,060 3,585
Other 12,445 11,986 5,172 4,612
----------- ----------- ----------- -----------
22,142 23,019 8,232 8,197
Expenses:
Interest (9,010) (10,291) (2,788) (3,396)
General and administrative (3,666) (3,992) (1,537) (1,397)
----------- ----------- ----------- -----------
Mortgage banking pretax income 9,466 8,736 3,907 3,404
----------- ----------- ----------- -----------
TOTAL PRETAX INCOME (LOSS) 47,412 (126,829) 23,763 20,667
Income taxes (17,100) 45,700 (8,600) (7,400)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 30,312 $ (81,129) $ 15,163 $ 13,267
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ .76 $ (2.04) $ .38 $ .33
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 39,853 39,712 40,199 39,792
=========== =========== =========== ===========
CASH DIVIDENDS PER COMMON SHARE $ .225 $ .225 $ .075 $ .075
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 8,032 $ 4,723
Trade and other receivables 140,356 107,037
Inventories 852,793 780,302
Investments in unconsolidated joint ventures 5,817 8,312
Goodwill 33,135 39,356
Other assets 71,464 60,429
----------- -----------
1,111,597 1,000,159
----------- -----------
MORTGAGE BANKING:
Cash and cash equivalents 2,763 5,058
Receivables:
First mortgages and mortgage-backed
securities 74,322 81,536
First mortgages held under commitment
of sale and other receivables 134,141 153,459
Other assets 2,992 3,282
----------- -----------
214,218 243,335
----------- -----------
TOTAL ASSETS $ 1,325,815 $ 1,243,494
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 154,282 $ 151,791
Accrued expenses and other liabilities 97,553 96,986
Mortgages and notes payable 522,370 442,629
----------- -----------
774,205 691,406
----------- -----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 6,893 7,481
Notes payable 124,721 134,956
Collateralized mortgage obligations secured
by mortgage-backed securities 62,171 68,381
----------- -----------
193,785 210,818
----------- -----------
Minority interests in consolidated joint
ventures 1,188 920
----------- -----------
Common stock 38,965 38,828
Paid-in capital 185,258 183,801
Retained earnings 134,965 113,398
Cumulative foreign currency translation
adjustments (2,551) 4,323
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 356,637 340,350
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,325,815 $ 1,243,494
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
----------------------
<S> <C> <C>
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 30,312 $ (81,129)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Equity in pretax loss of unconsolidated joint 114 1,714
ventures
Minority interests in pretax income of
consolidated joint ventures 150 174
Amortization of discounts and issuance costs 1,235 1,264
Depreciation and amortization 8,789 7,785
Provision for deferred income taxes (2,291) (34,960)
Non-cash charge for impairment of long-lived -- 170,757
assets
Change in assets and liabilities, net of
effects from purchase of Rayco:
Receivables (14,295) 53,634
Inventories (65,427) 123,413
Accounts payable, accrued expenses
and other liabilities 2,470 (40,262)
Other, net (13,764) 2,366
--------- ---------
Net cash provided (used) by operating activities (52,707) 204,756
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Rayco, net of cash acquired -- (80,556
Investments in unconsolidated joint ventures 2,381 (5,127)
Net sales (originations) of mortgages held for
long-term investment 180 (974)
Payments received on first mortgages and
mortgage-backed securities 7,416 15,827
Other, net (3,100) (5,424)
--------- ---------
Net cash provided (used) by investing activities 6,877 (76,254)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and
other short-term borrowings 67,567 (79,677)
Payments on collateralized mortgage obligations (6,852) (14,646)
Payments on mortgages, land contracts and other loans (5,244) (40,212)
Payments from (to) minority interests in consolidated
joint ventures 118 (817)
Payments of cash dividends (8,745) (13,196)
--------- ---------
Net cash provided (used) by financing activities 46,844 (148,548)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,014 (20,046)
Cash and cash equivalents at beginning of period 9,781 43,382
--------- ---------
Cash and cash equivalents at end of period $ 10,795 $ 23,336
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 27,718 $ 32,473
========= =========
Income taxes paid $ 11,852 $ 3,321
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller
financing $ 7,064 $ 16,977
========= =========
</TABLE>
See accompanying notes.
5
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended
November 30, 1996 contained in the Company's 1996 Annual Report to
Stockholders.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial
position as of August 31, 1997, the results of its consolidated operations
for the nine months and three months ended August 31, 1997 and 1996, and its
consolidated cash flows for the nine months ended August 31, 1997 and 1996.
The results of operations for the nine months and three months ended August
31, 1997 are not necessarily indicative of the results to be expected for the
full year. The consolidated balance sheet at November 30, 1996 has been taken
from the audited financial statements as of that date.
2. Inventories
<TABLE>
<CAPTION>
Inventories consist of the
following (in thousands):
August 31, November 30,
1997 1996
------------ ------------
<S> <C> <C>
Homes, lots and improvements in production $ 674,453 $ 646,069
Land under development 178,340 134,233
---------- ----------
Total inventories $ 852,793 $ 780,302
========== ==========
</TABLE>
The impact of capitalizing interest costs on consolidated pretax income is as
follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------- -------------------------
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest incurred $ 39,763 $ 49,440 $ 13,240 $ 15,505
Interest expensed (23,108) (27,717) (6,664) (8,991)
--------- -------- --------- --------
Interest capitalized 16,655 21,723 6,576 6,514
Interest amortized (16,485) (15,770) (5,985) (6,309)
======== ======== ========= ========
Net impact on
pretax income $ 170 $ 5,953 $ 591 $ 205
======== ======== ========= ========
</TABLE>
3. Earnings Per Share
The computation of earnings per share is based on the weighted average number
of common shares, equivalent Series B convertible preferred shares and common
share equivalents outstanding during the applicable period. All of the
Company's 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
6
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share (continued)
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 using the
treasury stock method.
If, for purposes of calculating earnings per share, the Series B convertible
preferred shares were excluded from the weighted average shares outstanding
and the related dividends deducted from net income, the computation would
have resulted in a loss per share of $2.34 for the nine months ended August
31, 1996. This computation is not applicable for the three months ended
August 31, 1996 or the three months and nine months ended August 31, 1997 due
to the conversion of the Series B convertible preferred shares into common
stock in April 1996.
4. Acquisition
On March 1, 1996, the Company acquired San Antonio, Texas-based Rayco, Ltd.
and affiliates (the "San Antonio operations") for a total purchase price of
approximately $104.5 million, including cash to pay off certain debt assumed.
The total purchase price for the San Antonio operations was based on the net
book values 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 $32.3 million
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 the San Antonio
operations as if the acquisition had occurred as of December 1, 1995, 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 nine months ended
August 31, 1996 below are presented both before and after the $170.8 million
non-cash charge for impairment of long-lived assets (in thousands except per
share amounts).
<TABLE>
<CAPTION>
Nine Months Ended August 31, 1996
----------------------------------
After non-cash Before non-cash
charge charge
---------------- ---------------
<S> <C> <C>
Total revenues $1,329,486 $1,329,486
Total pretax income (loss) (123,825) 46,932
Net income (loss) (79,225) 29,932
Earnings (loss) per share (1.99) .75
</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 acquisition of the San Antonio operations been
consummated as of December 1, 1995, nor are they necessarily indicative of
future operating results.
7
<PAGE> 8
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Mortgages and Notes Payable
On April 21, 1997, the Company entered into a new $500 million domestic
unsecured revolving credit agreement with various banks. The new credit
agreement is comprised of a $400 million revolving credit facility scheduled
to expire on April 30, 2001 and a $100 million 364-day revolving credit
facility. Upon expiration, the $100 million revolving credit facility is
renewable at the lenders' option or may be converted, at the Company's
option, to a term loan expiring on April 30, 2001. The new credit facility
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 new 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 and
indebtedness.
On February 24, 1997, the Company's mortgage banking subsidiary replaced its
$120 million commercial paper facility and $100 million mortgage loan
purchase facility with a $250 million revolving mortgage warehouse agreement
(the "mortgage warehouse facility"). The mortgage warehouse facility, which
expires on February 23, 2000, provides for an annual fee based on the
committed balance of the facility and provides for interest at either the
London Interbank Offered Rate or the Federal Funds Rate plus an applicable
spread on amounts borrowed. The amount outstanding under the facility is
secured by a borrowing base, which includes certain mortgage loans held under
commitment of sale and is repayable from proceeds on the sales of first
mortgages. There are no compensating balance requirements under the facility.
The terms of the mortgage warehouse facility include financial covenants and
restrictions which, among other things, require the maintenance of certain
financial statement ratios and a minimum tangible net worth.
6. Subsequent Event
On September 4, 1997, the Company completed the redemption of its $100
million principal amount of 10 3/8% senior notes due in 1999. The Company
used borrowings under its $500 million credit facility to retire the entire
$100 million of senior notes at 100% of the principal amount of the notes,
together with accrued and unpaid interest.
On October 14, 1997, pursuant to its universal shelf registration, the
Company issued $175 million of 7 3/4% senior notes at 100% of the principal
amount of the notes. The notes, which are due October 15, 2004 with interest
payable semi-annually, represent unsecured obligations of the Company and
rank pari passu in right of payment with all other senior unsecured
indebtedness of the Company. The notes are not redeemable at the option of
the Company prior to stated maturity.
7. Reclassifications
Certain amounts in the consolidated financial statements of 1996 have been
reclassified to conform to the 1997 presentation.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Total Company revenues for the three months ended August 31, 1997 decreased
2.5% to $468.8 million from $481.0 million for the three months ended August
31, 1996. For the nine months ended August 31, 1997, total revenues decreased
2.8% to $1,229.4 million from $1,265.4 million for the first nine months of
1996. The decreases in total revenues for the three and nine month periods
occurred as increases in housing revenues were more than offset by declines
in revenue from land sales. Net income for the third quarter of 1997
increased to $15.2 million or $.38 per share from $13.3 million or $.33 per
share for the same period a year ago, reflecting improved unit deliveries,
improved construction operating income margin and lower net interest expense.
For the nine months ended August 31, 1997, the Company recorded net income of
$30.3 million or $.76 per share compared to a net loss of $81.1 million or
$2.04 per share for the nine months ended August 31, 1996, including the
after tax non-cash charge of $109.3 million for impairment of long-lived
assets recorded in the second quarter of 1996. Excluding the charge, earnings
for the nine months ended August 31, 1996 totaled $28.1 million or $.70 per
share. Results from the first nine months of 1997 reflected higher unit
deliveries and lower net interest expense. Earnings for the first nine months
of 1997 included nine months of operating results from the San Antonio
operations, while results for the first nine months of 1996 included only six
months as the Company's acquisition of its San Antonio operations occurred on
March 1, 1996.
CONSTRUCTION
Revenues decreased by $12.3 million or 2.6% to $460.5 million in the third
quarter of 1997 from $472.8 million in the third quarter of 1996 as an
increase in housing revenues was more than offset by a decline in revenues
from land sales. Residential revenues for the three months ended August 31,
1997 increased by $23.1 million or 5.3% to $458.6 million from $435.5 million
in the year-earlier period as a result of a 9.7% increase in unit deliveries
to 3,016 units from 2,749 units, partly offset by a 4.0% decrease in the
average selling price. Housing revenues in the United States totaled $418.0
million on 2,717 unit deliveries in the third quarter of 1997 compared to
$397.9 million on 2,566 units in the prior year's period as a decline in
California housing revenues was more than offset by increased housing
revenues from other U.S. operations. California housing revenues for the
third quarter of 1997 decreased to $239.8 million from $245.7 million in the
same quarter a year ago. Domestic operations outside of California generated
$178.3 million of housing revenues in the third quarter of 1997, increasing
$26.1 million from $152.2 million for the same period a year ago. California
deliveries in the third quarter of 1997 decreased 4.4% to 1,204 units from
1,259 units in the third quarter of 1996, primarily reflecting a decline of
8.0% in the average number of active communities in the state. Other U.S.
deliveries increased 15.8% to 1,513 units in the third quarter of 1997 from
1,307 units in the same quarter of 1996 primarily as a result of an increase
of 25.4% in the average number of active communities. Revenues from French
housing operations during the current period increased to $39.2 million on
295 unit deliveries from $36.9 million on 180 units in the prior year's third
quarter primarily reflecting the acquisition of certain active developments
of SMCI in France, which contributed 80 unit deliveries in the 1997 third
quarter. These developments, which consist of apartments in the metropolitan
Paris region and other cities in France, were acquired on July 31, 1997 for
$2.2 million of cash and the assumption of approximately $8.1 million of
debt.
During the third quarter of 1997, the Company's overall average selling price
decreased 4.0% to $152,000 from $158,400 in the same quarter a year ago,
primarily reflecting a decrease in the French operation's average selling
price. The Company's domestic average selling price decreased slightly to
$153,900 in the third quarter of 1997 from $155,100 in the corresponding
period of 1996. This decrease was due to the increased weighting of lower
priced other U.S. deliveries as deliveries from other U.S. operations
accounted for 55.7% of total U.S. deliveries in the third quarter of 1997
compared to 50.9% in 1996. The Company's average selling price in California
increased 2.0% to $199,100 in the third quarter of 1997 compared to $195,200
in the same quarter of 1996. For the three months ended August 31, 1997, the
average selling price for other U.S. operations rose 1.2% to $117,800 from
$116,400 in the year-earlier period. In France, the Company's average selling
price for the three months ended August 31, 1997 decreased 35.1% to $133,000
from $205,000 in the year-earlier quarter, primarily as a result of the
inclusion of lower priced deliveries from the newly acquired French
developments.
9
<PAGE> 10
Third quarter revenues from commercial operations, all of which are located
in metropolitan Paris, totaled $.3 million in 1997 compared to $.7 million in
1996, reflecting the reduced opportunities in the French commercial market,
which remains mired in a long-term recession. Revenues from land sales
decreased $34.9 million to $1.7 million in the three months ended August 31,
1997 compared to $36.6 million in the same period of 1996. Generally, land
sale revenues fluctuate based on the Company's decision to maintain or
decrease its land ownership position in certain markets, the strength and
number of competing developers entering markets at given points in time, the
availability of land in markets served by the Company's housing divisions,
and prevailing market conditions. The 1997 figures represent more typical
levels of land sales activity in view of the Company's past history as 1996
results were impacted by the Company's aggressive asset sale program
implemented as part of its debt reduction strategy in 1996.
For the nine months ended August 31, 1997, construction revenues totaled
$1,207.2 million, decreasing $35.2 million from $1,242.4 million for the same
period a year ago as the increase in housing revenues was more than offset by
decreases in revenues from commercial activity and land sales. Housing
revenues increased $13.9 million to $1,192.8 million on 7,589 units in the
first nine months of 1997 compared to $1,178.9 million on 7,315 units for the
same period a year ago. Results for the first nine months of 1997 included a
full nine months of operating results for the Company's San Antonio
operations, while results for the nine months ended August 31, 1996 included
only six months as the Company's acquisition of its San Antonio operations
occurred on March 1, 1996. In the first quarter of 1997, the San Antonio
division recorded construction revenues of $57.6 million on 611 deliveries.
Housing operations in the United States produced revenues of $1,101.7 million
on 7,039 units in the first nine months of 1997 and $1,086.2 million on 6,866
units in the comparable period of 1996. During the first nine months of 1997,
California housing revenues decreased by $70.2 million or 9.8% to $650.8
million from $721.0 million in the same period of 1996, reflecting a 15.6%
decline in unit deliveries during the period. Housing revenues from other
U.S. operations increased $85.7 million or 23.5% to $450.9 million from
$365.2 million in the prior year's period primarily as a result of the
additional three months of San Antonio operations included in the 1997
period. Deliveries in California decreased to 3,213 units for the nine months
ended August 31, 1997 from 3,807 for the nine months ended August 31, 1996,
reflecting a decline in the average number of active communities in the state
during this period. Unit deliveries in other U.S. operations increased to
3,826 from 3,059 units during the same period due to a higher number of
average active communities in 1997 partly due to the inclusion of a full nine
months of operations of the San Antonio division in the 1997 period. French
housing revenues totaled $85.1 million on 529 units in the first nine months
of 1997 and $90.6 million on 436 units in the corresponding period of 1996.
The Company-wide average new home price decreased to $157,200 in the first
nine months of 1997 from $161,100 in the year-earlier period. The domestic
average selling price for the nine months ended August 31, 1997 decreased by
1.1% from the comparable period of 1996 as a 6.9% increase in the California
average selling price to $202,500 was more than offset by a decline of 1.3%
in the average selling price in other U.S. operations to $117,900. In
California, the average selling price increased as a result of a change in
product mix favoring a greater number of higher priced urban in-fill
locations and first time move up sales. The decrease in the average selling
price in other U.S. operations resulted from a change in the mix of
deliveries and the inclusion of nine months of San Antonio operations in the
1997 period versus only six months in the 1996 period. For the first nine
months of 1997, the San Antonio operations had an average selling price of
$93,200, substantially below the Company's average. The average selling price
in France for the nine month period decreased to $160,900 in 1997 from
$207,900 in 1996. The lower average selling prices in France primarily
reflected the impact of lower priced deliveries from the newly acquired
developments in France.
Revenues from the development of commercial buildings in France decreased to
$2.5 million for the first nine months of 1997 from $12.1 million in the
comparable period of 1996. Company-wide revenues from land sales totaled
$11.9 million for the first three quarters of 1997 compared to $51.3 million
for the same period a year ago, a decrease of $39.4 million and impacted by
the Company's aggressive asset sale program in 1996.
Operating income totaled $25.7 million in both the third quarter of 1997 and
the third quarter of 1996. As a percentage of construction revenues,
operating income increased by .2 percentage points to 5.6% in the third
quarter of 1997 compared to 5.4% in the third quarter of 1996. Gross profits
decreased by $3.7 million to $80.6 million in the three months ended August
31, 1997 from $84.3 million in the three months ended August 31, 1996.
10
<PAGE> 11
For the same period, the Company's housing gross profits decreased by $2.2
million to $81.4 million from $83.6 million. As a percentage of construction
revenues, gross profits decreased to 17.5% in the current quarter from 17.8%
in the year-earlier quarter. This decrease primarily reflected a decline in
the third quarter housing gross margin to 17.7% in 1997 from 19.2% in 1996,
mainly due to a decline in high margin deliveries from one of the Company's
Northern California divisions due to a temporary gap in deliverable units, to
initiatives to accelerate the sell-through of certain low margin communities,
particularly in California, and to below-average margins in certain new
markets in Texas. These factors were partially offset by significantly
improved gross margins on deliveries from newer communities developed under
the Company's revised operational business model. During the third quarter of
1997, land sales and commercial activities generated a loss of $.8 million
compared to profits of $.7 million generated in the same quarter a year ago.
Selling, general and administrative expenses decreased by $3.6 million to
$54.9 million in the third quarter of 1997 from $58.5 million in the third
quarter of 1996. The improvement in selling, general and administrative
expenses was primarily due to the impact of the Company's ongoing cost
containment efforts which resulted in reduced sales incentives and
advertising expenses, partially offset by higher sales commissions. As a
percentage of housing revenues, selling, general and administrative expenses
improved 1.4 percentage points to 12.0% in the third quarter of 1997 from
13.4% in the same quarter a year ago due to improved unit volume combined
with the lower selling, general and administrative expenses.
For the first nine months of 1997, operating income decreased by $4.9 million
to $58.0 million from $62.9 million in the corresponding period of 1996
(excluding the non-cash charge in 1996 for impairment of long-lived assets).
This decrease was primarily due to lower gross profits on housing and
commercial activities. For the nine month period, total gross profits
decreased by $8.8 million or 4.0% to $212.7 million in 1997 from $221.5
million in 1996 with housing gross profits decreasing by $3.5 million to
$211.9 million from $215.4 million during this same period. Total gross
profits as a percentage of construction revenues decreased to 17.6% in the
first nine months of 1997 from 17.8% in the year-earlier period as the
housing gross margin decreased .5 percentage points to 17.8% in the first
nine months of 1997, primarily due to a decline in the California housing
gross margin, and the gross margin on commercial activities also declined.
Gross profits generated from commercial activities decreased to $.4 million
during the first nine months of 1997 from $4.3 million in the prior year's
period. For the nine month periods ending August 31, 1997 and 1996, land
sales resulted in profits of $.5 million and $1.8 million, respectively.
Selling, general and administrative expenses decreased by $4.0 million to $154.7
million for the first nine months of 1997 from $158.7 million for the same
period of 1996, primarily due to the impact of the Company's cost containment
efforts, partly offset by the inclusion of results from the San Antonio
operations throughout the full nine months of 1997 compared to only six months
included through the Company's first three quarters of 1996. As a percentage of
housing revenues, selling, general and administrative expenses improved .5
percentage points to 13.0% for the first nine months of 1997 from 13.5% in the
corresponding period of 1996. This improvement reflected the impact of, among
other things, reduced sales incentives and advertising expenses, partially
offset by increased sales commissions.
Interest income totaled $1.0 million in the third quarter of 1997 compared to
$.5 million in the prior year's third quarter. For the nine months ended
August 31, 1997, interest income totaled $3.3 million compared to $1.9
million in the same period of 1996. The higher interest income for the third
quarter and first nine months of 1997 reflected an increase in the interest
bearing average balances of mortgages receivable compared to the same periods
a year ago.
Interest expense (net of amounts capitalized) decreased by $2.3 million to
$6.7 million in the third quarter of 1997 from $9.0 million in the third
quarter of 1996. For the nine month period, interest expense decreased by
$4.6 million to $23.1 million in 1997 from $27.7 million in 1996. Gross
interest incurred in the three months and nine months ended August 31, 1997
was lower than that incurred in the corresponding year ago periods by $2.3
million and $9.7 million, respectively, reflecting a decrease in average
indebtedness in 1997. The Company's average debt level for the three and nine
month periods ended August 31, 1997 decreased from the same periods a year
ago primarily as a result of the Company's 1996 debt reduction strategy. The
percentage of interest capitalized during the three months ended August 31,
1997 and 1996 was 49.7% and 42.0%, respectively. For the nine months ended
August 31, this percentage was 41.9% in 1997 and 43.9% in 1996. These
capitalization rates reflect the timing and proportion of land in production
during the periods.
11
<PAGE> 12
Minority interests in pretax income of consolidated joint ventures totaled
less than $.1 million in the third quarters of 1997 and 1996. For the first
nine months of 1997 and 1996, minority interests in pretax income of
consolidated joint ventures totaled $.2 million. Minority interests, which
primarily relate to commercial activities in France, are expected to remain
at relatively low levels, reflecting the limited opportunities currently
available and reasonably expected to be available in the French commercial
market and the Company's strategy to focus on its residential development
business.
Equity in pretax income (loss) of unconsolidated joint ventures reflected a
$.2 million loss in the third quarter of 1997 compared to slightly positive
results in the third quarter of 1996. Combined revenues recorded by the
Company's joint ventures increased to $82.3 million in the third quarter of
1997 from $2.8 million for the corresponding period of 1996, primarily as a
result of the sale of a commercial project in France. Of the joint venture
revenues in the third quarter of 1997, $11.0 million were generated from
residential properties, while in the third quarter of 1996, all joint venture
revenues were generated from residential properties. For the first nine
months of 1997, the Company's equity in pretax loss of unconsolidated joint
ventures totaled $.1 million, compared to a $1.7 million loss in the same
period of 1996. Combined revenues from these joint ventures increased to
$91.0 million in the first nine months of 1997 from $4.9 million in the first
nine months of 1996, mainly due to the sale of a French commercial project in
1997. Of these amounts, revenues from residential properties accounted for
$19.7 million in 1997 and $4.8 million in 1996. The loss recorded in the nine
month period ended August 31, 1996 primarily related to a single French
multi-family residential project. As a result of the non-cash charge for
impairment of long-lived assets taken in the second quarter of 1996 to
reflect the impairment in unconsolidated joint ventures, the Company does not
anticipate incurring significant future losses from these joint ventures.
MORTGAGE BANKING
Interest income and interest expense decreased by $.5 million and $.6
million, respectively, in the third quarter of 1997 compared to the Company's
mortgage banking operation's performance in the same quarter a year ago. For
the nine months ended August 31, 1997, interest income and related interest
expense from mortgage banking both declined by $1.3 million from the same
period of 1996. The amounts for the three and nine month periods decreased
due to the declining balances of outstanding mortgage-backed securities and
related collateralized mortgage obligations, stemming from both regularly
scheduled monthly principal amortization and prepayment activity of mortgage
collateral. In addition, the decrease in interest expense resulted partly
from the lower amount of notes payable outstanding during the third quarter
and first nine months of 1997 compared to the same periods of 1996. Interest
income and expense are expected to continue to decline as the mortgage-backed
securities and related collateralized mortgage obligations pay off at
approximately the same rate.
Other mortgage banking revenues increased by $.6 million to $5.2 million in
the third quarter of 1997 from $4.6 million in the prior year's third
quarter. For the first nine months of 1997, other mortgage banking revenues
totaled $12.4 million, an increase of $.4 million from $12.0 million in the
prior year's period. These increases were mainly the result of higher gains
on the sale of mortgages.
General and administrative expenses associated with mortgage banking
increased slightly to $1.5 million in the third quarter of 1997 from $1.4
million for the same quarter a year ago. For the nine-month period, these
expenses were $3.7 million in 1997 and $4.0 million in 1996. The slight
increase in general and administrative expenses in the third quarter of 1997
was due to higher mortgage production levels, partially offset by the
Company's cost containment efforts. The decrease in general and
administrative expenses for the nine months ended August 31, 1997 resulted
from lower mortgage production levels and the Company's emphasis on cost
control.
INCOME TAXES
Income taxes totaled $8.6 million and $7.4 million in the third quarters of
1997 and 1996, respectively. For the first nine months of 1997, income tax
expense totaled $17.1 million compared to an income tax benefit of $45.7
million in the same period of 1996. The income tax amounts represented
effective income tax rates of approximately 36% in both 1997 and 1996. The
tax benefit in the nine month period of 1996 reflected the pretax
12
<PAGE> 13
losses 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Historically, the Company has
funded its construction and mortgage banking concerns with internally
generated operating results and external sources of debt and equity
financing. For the nine months ended August 31, 1997, net cash provided by
operating, investing and financing activities totaled $1.0 million compared
to $20.0 million used in the first nine months of 1996.
The Company's operating activities for the first nine months of 1997 used
cash of $52.7 million compared to $204.8 million provided during the same
period of 1996. For the nine months ended August 31, 1997, the Company's uses
of cash included an investment of $65.4 million in inventories (excluding
$7.1 million of inventories acquired through seller financing), an increase
in receivables of $14.3 million and a change in deferred taxes of $2.3
million. The use of cash was partially offset by nine month earnings of $30.3
million, a $2.5 million increase in accounts payable, accrued expenses and
other liabilities, and various non-cash items deducted from net income.
Operating activities for the first nine months of 1996 provided cash from a
reduction of $123.4 million in inventories (excluding $17.0 million of
inventories acquired through seller financing), a reduction in receivables of
$53.6 million and various non-cash items including a $170.8 million non-cash
charge for impairment of long-lived assets, offsetting the net loss of $81.1
million (which included the non-cash charge for impairment of long-lived
assets) recorded for the first three quarters of 1996. The cash provided was
partially offset by uses of cash, including a $35.0 million change in
deferred taxes and a $40.3 million decrease in accounts payable, accrued
expenses and other liabilities. During the nine months ended August 31, 1996,
excluding the acquisition of the San Antonio operations and the non-cash
charge for impairment of long-lived assets, inventories decreased, primarily
in California, as the Company continued to execute its debt reduction
strategy in 1996, including the aggressive asset sale program. The reduction
in receivables related primarily to a decrease in mortgage origination volume
in the third quarter of 1996 compared to the fourth quarter of 1995.
Cash provided by investing activities totaled $6.9 million in the nine months
ended August 31, 1997 compared to $76.3 million used in the year-earlier
period. In the first nine months of 1997, cash was provided from $7.4 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, and $2.4 million in
distributions related to investments in unconsolidated joint ventures.
Partially offsetting these proceeds was $3.1 million of cash used for other
investing activities. In the first nine months of 1996, $80.6 million of cash
was used for the purchase of the San Antonio operations, acquired on March 1,
1996, $5.1 million was used for investments in unconsolidated joint ventures
and $5.4 million was used for other investing activities. Partially offsetting
these 1996 nine month uses was $15.8 million of proceeds received from
mortgage-backed securities.
Financing activities in the first three quarters of 1997 provided $46.8
million of cash, while financing activities used $148.5 million in the same
period of 1996. In the first nine months of 1997, cash was provided from net
proceeds from borrowings of $62.3 million. Partially offsetting the cash
provided were cash dividend payments of $8.7 million and payments on
collateralized mortgage obligations of $6.9 million. Financing activities for
the nine months ended August 31, 1996 resulted in net cash outflows due
mainly to net payments on borrowings of $119.9 million, payments on
collateralized mortgage obligations of $14.6 million and cash dividend
payments of $13.2 million.
During the second quarter of 1997, the Company entered into a new $500
million domestic unsecured revolving credit agreement as a result of improved
operating results and a lower debt to total capital ratio. Under the
Company's new $500 million credit facility, a total of $410.7 million was
available for future use as of August 31, 1997. The Company's French
unsecured financing agreements had in the aggregate $13.1 million available
at August 31, 1997. In addition, the Company's mortgage banking operations
had $125.3 million available under its $250 million secured revolving
mortgage warehouse facility at quarter-end. As a result of the Company's
13
<PAGE> 14
execution of an aggressive debt reduction plan throughout 1996, its financial
leverage, as measured by the ratio of debt to total capital, was 59.4% at the
end of the 1997 third quarter compared to 64.1% at the end of the 1996 third
quarter. Despite $104.5 million in borrowings made during the second quarter
of 1996 to acquire the San Antonio operations, the Company achieved the goal
it set a year ago of targeting its financial leverage within the range of 50%
to 60%.
On September 4, 1997, the Company completed the redemption of its $100 million
principal amount of 10 3/8% Senior notes due in 1999. The Company used
borrowings under its $500 million credit facility to retire the entire $100
million of senior notes at 100% of the principal amount of the notes, together
with accrued and unpaid interest. Pursuant to its universal shelf registration,
the Company issued, on October 14, 1997, $175 million of 7 3/4% senior notes at
100% of the principal amount of the notes. The notes, which are due October 15,
2004 with interest payable semi-annually, represent unsecured obligations of the
Company and rank pari passu in right of payment with all other senior unsecured
indebtedness of the Company. The notes are not redeemable at the option of the
Company prior to stated maturity.
The Company believes it has adequate resources and sufficient credit line
facilities to satisfy its current and reasonably anticipated future
requirements for funds to acquire capital assets and land, to construct
homes, to fund its mortgage banking operations and to meet any other needs of
its business, both on a short and long-term basis.
OUTLOOK
The Company's residential backlog as of August 31, 1997 consisted of 5,040
units, representing aggregate future revenues of approximately $777.7
million, up 48.3% and 50.2%, respectively from 3,398 units, representing
aggregate future revenues of $517.7 million a year earlier. The backlog units
and value at August 31, 1997 were the highest of any quarter-end backlog in
the Company's history. Company-wide net orders for the third quarter of 1997
totaled 3,310, up 24.9% compared to the third quarter of 1996.
The Company's operations in the United States accounted for approximately $698.3
million of backlog value on 4,438 units at August 31, 1997, up from $454.8
million on 3,106 units at August 31, 1996, reflecting higher backlogs from both
California and other U.S. operations. The Company's domestic backlog at August
31, 1997 represented record quarter-end levels for the Company in terms of both
units and value. Backlog in California increased to approximately $377.3 million
on 1,700 units at August 31, 1997 from $225.5 million on 1,083 units at August
31, 1996 as net orders increased to 1,506 in the current quarter from 1,395 for
the same quarter a year ago and the Company continued its strategy of
emphasizing pre-sales. The Company's other United States operations also
demonstrated year-over-year growth in backlog levels with the backlog value at
August 31, 1997 increasing to approximately $321.0 million on 2,738 units
compared to $229.3 million on 2,023 units at August 31, 1996, reflecting a 39.8%
increase in other U.S. net orders. The growth in total United States backlog
units and value at August 31, 1997 compared to August 31, 1996 resulted
primarily from improved absorption rates and the Company's switch to a greater
emphasis on pre-sales. Improved market conditions in California and the success
of the Company's communities designed under its revised operational business
model also contributed to the increase in United States backlog levels.
In France, the value of residential backlog at August 31, 1997 was
approximately $71.0 million on 576 units compared to $55.2 million on 261
units a year earlier. The Company's net orders in France increased 83.7% to
191 in the third quarter of 1997 from 104 net orders for the same period a
year ago. The developments acquired on July 31, 1997 recorded 27 net orders
in the third quarter of 1997 and contributed 329 units to backlog at August
31, 1997. Backlog associated with consolidated commercial development
activities in France totaled $.2 million at August 31, 1997 compared to $5.9
million at August 31, 1996. The relatively low levels of commercial backlog
in 1997 and 1996 reflected continued reduced opportunities in the French
commercial market and the Company's strategy to focus on its residential
development business.
In Mexico, the value of residential backlog at August 31, 1997 was
approximately $8.3 million on 26 units compared to $7.6 million on 31 units
at August 31, 1996. Operations in Mexico generated 14 net orders in the third
quarter of 1997 compared to seven net orders recorded in the same period a
year ago. While the Mexico economy currently appears to be recovering from
the recent deep recession brought about by the devaluation of
14
<PAGE> 15
the peso, economic conditions, nevertheless remain tenuous and unsettled and the
Company continues to closely monitor its level of activity in Mexico and the
desirability of expanding its market presence there.
Substantially all of the homes included in the Company's third quarter
residential backlog are expected to be delivered; however, cancellations could
occur, particularly if market conditions deteriorate or mortgage interest rates
increase, thereby decreasing backlog and related future revenues.
The Company continues to focus on its two 1997 strategic initiatives:
acceleration of the Company's growth and the implementation of a substantially
different operational business model, known as "KB2000," integrating many of the
basic operating characteristics of the business model used in the San Antonio
operations, including an emphasis on pre-sales and on maintaining lower levels
of standing inventory and a de-emphasis of sales incentives. As expected, the
Company's focus resulted in both higher backlog levels at the end of the third
quarter compared to year ago levels and an increase in the percentage of sold
inventory in production (75% at August 31, 1997 compared to 65% at August 31,
1996). The Company made excellent progress with regard to these initiatives
during the first three quarters of 1997 and anticipates the KB2000 strategies
will favorably impact revenues and earnings in the fourth quarter of 1997
compared to the year earlier.
Based on the greater number of communities which are expected to be open, the
Company anticipates California net order comparisons to continue to be
favorable against the prior year in the fourth quarter of 1997. In addition,
the Company continues to anticipate higher overall delivery volumes for
full-year 1997 compared to 1996. However, mortgage rate increases above those
effectuated by the Federal Reserve Board in March 1997, continuing rate
volatility, an appreciable decline in consumer confidence, poor weather and/or
other factors could mitigate the effects of the Company's anticipated community
openings.
Assuming stable or improving business conditions, employment, interest rates,
weather conditions and consumer confidence in its major markets, the Company
continues to believe that the anticipated increase in delivery volumes and
continued progress on the two 1997 strategic initiatives will result in
improved operating income and earnings per share in 1997 compared to 1996.
The Company continues to believe that its accelerated growth strategy
combined with the integration of its new operational business model will also
provide long-term benefits to its operations beyond 1997.
SAFE HARBOR STATEMENT
Investors are cautioned that certain statements contained herein (except for
historical information) are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, which involves
certain risks and uncertainties. Statements which are predictive in nature,
which depend upon or refer to future events or conditions, or which include
words such as "expects", "anticipates", "intends", "plans", "believes",
"estimates", "hopes", and similar expressions constitute forward-looking
statements. In addition, any estimates of future revenues, earnings or
prospects which may be provided by management are also forward-looking
statements as defined by the Act. Forward-looking statements are based on
current expectations and projections about the Company, economic and market
factors, the homebuilding industry and assumptions made by management. These
statements are not guaranties of future performance.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements due to factors which include,
but are not limited to, changes in general economic conditions, material
prices, labor costs, interest rates, consumer confidence, seasonality, the
availability and cost of land in desirable areas, competition, currency
exchange rates, conditions in the overall homebuilding market in the
Company's geographic markets (including the historic cyclicality of the
industry), population growth, property taxes, delays in construction
schedules and the entitlement process, environmental factors and governmental
regulations affecting the Company's operations. See the Company's Annual
Report on Form 10-K for the year ended November 30, 1996 and other Company
filings with the Securities and Exchange Commission for a further discussion
of risks and uncertainties applicable to the Company's business.
The Company undertakes no obligation to update any forward-looking statements
in this Report on Form 10-Q or elsewhere.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The following table presents residential information in terms of unit
deliveries to home buyers and net orders taken by geographical market for the
three months and nine months ended August 31, 1997 and 1996, together with
backlog data in terms of units and value by geographical market as of August
31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended August 31,
---------------------------------
Deliveries Net Orders
---------------- ---------------
Market 1997 1996 1997 1996
- ----------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
California 1,204 1,259 1,506 1,395
Other United 1,513 1,307 1,599 1,144
States
Foreign 299 183 205 111
------- ------- ------- ------
Total 3,016 2,749 3,310 2,650
======== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended August 31,
--------------------------------
Deliveries Net Orders Backlog - Units
--------------- --------------- ------------------
Market 1997 1996 1997 1996 1997 1996
- ----------------- ------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
California 3,213 3,807 4,059 4,264 1,700 1,083
Other United 3,826 3,059 4,808 3,083 2,738 2,023*
States
Foreign 550 449 594 517 602* 292
------- ------ ------- ------- -------- -------
Total 7,589 7,315 9,461 7,864 5,040* 3,398*
======= ====== ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended August 31,
--------------------------------
Backlog - Value
In Thousands
--------------------
Market 1997 1996
- -------------------------- ---------
<S> <C> <C>
California $377,332 $225,486
Other United 321,007 229,348*
States
Foreign 79,361* 62,831
--------- ---------
Total $777,700* $517,665*
========= =========
</TABLE>
* Backlog amounts for 1997 have been adjusted to reflect the newly acquired
developments in France. Therefore, backlog amounts at November 30, 1996
combined with sales and delivery activity for the first nine months of 1997
will not equal ending backlog at August 31,1997. Backlog amounts for 1996
have been adjusted to reflect the acquisition of the San Antonio operations
and disposition of Canadian operations. Therefore, backlog amounts at
November 30, 1995 combined with sales and delivery activity for the first
nine months of 1996 will not equal ending backlog at August 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Statement of Computation of Per Share Earnings (Loss).
24 The consent of Ernst & Young LLP, independent auditors, filed as an
exhibit to the Company's 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
16
<PAGE> 17
Reports on Form 8-K
On October 9, 1997, the Company filed a Current Report on Form 8-K (Item 5)
and on October 14, 1997 the Company filed a Current Report on Form 8-K/A
(Item 5), which included its consolidated statements of income for the three
months and nine months ended August 31, 1997 and 1996 and consolidated
balance sheets as of August 31, 1997 and 1996 and November 30, 1996. The Form
8-K and Form 8-K/A also included supplemental information for the three and
nine months ended August 31, 1997 and 1996.
On October 10, 1997, the Company filed a Current Report on Form 8-K (Item 7)
which included certain exhibits in connection with the issuance of its 7 3/4%
Senior Notes due 2004 pursuant to Registration Statement Nos. 333-14977 and
33-50732.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
---------------------------------------
Registrant
Dated October 15, 1997 /s/ BRUCE KARATZ
---------------------- ---------------------------------------
Bruce Karatz
Chairman, President and Chief Executive
Officer
Dated October 15, 1997 /s/ MICHAEL F. HENN
------------------------ ---------------------------------------
Michael F. Henn
Senior Vice President and Chief Financial
Officer
18
<PAGE> 19
Page of
INDEX OF EXHIBITS Sequentially
Numbered Pages
------------------
11 Statement of Computation of Per Share Earnings (Loss) 20
27 Financial Data Schedule 21
19
<PAGE> 1
EXHIBIT 11
KAUFMAN AND BROAD HOME CORPORATION
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
(In Thousands Except Per Share Amounts - Unaudited)
Nine Months Ended Three Months Ended
August 31, August 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- ---------
PRIMARY:
Net income (loss) $30,312 $(81,129) $15,163 $ 13,267
======= ======== ======= ========
Weighted average common shares
outstanding 38,857 35,975 38,907 38,868
Weighted average Series B
convertible preferred
shares(1) -- 2,884 -- --
Common share equivalents:
Stock options 996 853 1,292 924
------ -------- ------- --------
39,853 39,712 40,199 39,792
====== ======== ======= ========
PRIMARY EARNINGS (LOSS)
PER SHARE(2) $ .76 $ (2.04) $ .38 $ .33
======= ======== ======= ========
FULLY DILUTED:
Net income (loss) $30,312 $(81,129) $15,163 $ 13,267
======= ======== ======= ========
Weighted average common shares
outstanding 38,857 35,975 38,907 38,868
Weighted average Series B
convertible preferred
shares(1) -- 2,884 -- --
Common share equivalents:
Stock options 1,380 853 1,400 924
------- -------- ------- --------
40,237 39,712 40,307 39,792
======= ======== ======= ========
FULLY DILUTED EARNINGS (LOSS) $ .75 $ (2.04) $ .38 $ .33
PER SHARE(2),(3) ======= ======== ======= ========
- --------
(1) Each of the 1,300 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 depository shares, each
representing 1/5 of a Series B convertible preferred share was converted
into one share of the Company's common stock.
(2) If, for purposes of calculating primary and fully diluted earnings per
share, the Series B convertible preferred shares were excluded from the
weighted average shares outstanding and the related dividends deducted
from net income, the computations would have resulted in both a primary
and fully diluted loss per share of $2.34 for the nine months ended
August 31, 1996. This computation is not applicable for the three months
ended August 31, 1996 or the three and nine months ended August 31, 1997
due to the conversion of the Series B convertible preferred shares into
common stock in April 1996.
(3) Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is
not material.
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 10,795
<SECURITIES> 74,322<F1>
<RECEIVABLES> 274,497
<ALLOWANCES> 0
<INVENTORY> 852,793
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,325,815
<CURRENT-LIABILITIES> 0
<BONDS> 460,659<F2>
0
0
<COMMON> 38,965
<OTHER-SE> 317,672
<TOTAL-LIABILITY-AND-EQUITY> 1,325,815
<SALES> 1,207,220
<TOTAL-REVENUES> 1,229,362
<CGS> 994,489
<TOTAL-COSTS> 1,003,499<F3>
<OTHER-EXPENSES> 158,573<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,108
<INCOME-PRETAX> 47,412
<INCOME-TAX> 17,100
<INCOME-CONTINUING> 30,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,312
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0<F5>
<FN>
<F1>Marketable securities are comprised of first mortgages and mortgage-backed
securities which are held for long-term investment. The mortgage-backed
securities serve as collateral for related collateralized mortgage obligations.
<F2>Bonds are comprised of senior and senior subordinated notes and
collateralized mortgage obligations.
<F3>Total Costs include interest expense on the collateralized mortgage
obligations, as the associated interest income generated from the
mortgage-backed securities is included in Total Revenues.
<F4>Other Expenses are comprised of selling, general and administrative
expenses.
<F5>Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is not
material.
</FN>
</TABLE>
