<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 February 28, 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 its charter)
Delaware 95-3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [X] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
Common stock, par value $1.00 per share, 38,829,586 shares outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER(S)
---------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Three Months ended February 28, 1997 and February 29, 1996 3
Consolidated Balance Sheets -
February 28, 1997 and November 30, 1996 4
Consolidated Statements of Cash Flows -
Three Months ended February 28, 1997 and February 29, 1996 5
Notes to Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
INDEX OF EXHIBITS 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
February 28, 1997 February 29, 1996
------------------ -------------------
<S> <C> <C>
TOTAL REVENUES $ 346,384 $ 302,475
================== ===================
CONSTRUCTION:
Revenues $ 339,635 $ 295,815
Construction and land costs (279,588) (243,956)
Selling, general and administrative expenses (48,301) (39,711)
------------------ -------------------
Operating income 11,746 12,148
Interest income 1,087 718
Interest expense, net of amounts capitalized (8,396) (8,102)
Minority interests in pretax income of consolidated
joint ventures (53) (65)
Equity in pretax income (loss) of unconsolidated joint
ventures 40 (232)
------------------ -------------------
Construction pretax income 4,424 4,467
------------------ -------------------
MORTGAGE BANKING:
Revenues:
Interest income 3,609 3,667
Other 3,140 2,993
------------------ -------------------
6,749 6,660
Expenses:
Interest (3,246) (3,469)
General and administrative (983) (1,272)
------------------ -------------------
Mortgage banking pretax income 2,520 1,919
------------------ -------------------
TOTAL PRETAX INCOME 6,944 6,386
Income taxes (2,500) (2,300)
------------------ -------------------
NET INCOME $ 4,444 $ 4,086
================== ===================
EARNINGS PER SHARE $ .11 $ .10
================== ===================
AVERAGE SHARES OUTSTANDING 39,692 39,821
================== ===================
CASH DIVIDENDS PER COMMON SHARE $ .075 $ .075
================== ===================
</TABLE>
See accompanying notes.
3
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
February 28, 1997 November 30, 1996
------------------ -------------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 5,259 $ 4,723
Trade and other receivables 115,230 107,037
Inventories 759,897 780,302
Investments in unconsolidated joint ventures 7,705 8,312
Goodwill 37,147 39,356
Other assets 64,026 60,429
------------------ -------------------
989,264 1,000,159
------------------ -------------------
MORTGAGE BANKING:
Cash and cash equivalents 5,819 5,058
Receivables:
First mortgages and mortgage-backed securities 79,683 81,536
First mortgages held under commitment of sale and
other receivables 95,569 153,459
Other assets 2,916 3,282
------------------ -------------------
183,987 243,335
------------------ ===================
TOTAL ASSETS $ 1,173,251 $ 1,243,494
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 113,957 $ 151,791
Accrued expenses and other liabilities 78,477 96,986
Mortgages and notes payable 477,338 442,629
------------------ -------------------
669,772 691,406
------------------ -------------------
MORTGAGE BANKING:
Accounts payable and accrued expenses 6,130 7,481
Notes payable 92,015 134,956
Collateralized mortgage obligations secured by mortgage-backed
securities 66,865 68,381
------------------ -------------------
165,010 210,818
------------------ -------------------
Minority interests in consolidated joint ventures 826 920
------------------ -------------------
Common stock 38,830 38,828
Paid-in capital 183,815 183,801
Retained earnings 114,931 113,398
Cumulative foreign currency translation adjustments 67 4,323
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 337,643 340,350
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,173,251 $ 1,243,494
================== ===================
</TABLE>
See accompanying notes.
4
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
February 28, 1997 February 29, 1996
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,444 $ 4,086
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in pretax (income) loss of unconsolidated joint
ventures (40) 232
Minority interests in pretax income of consolidated joint
ventures 53 65
Amortization of discounts and issuance costs 443 356
Depreciation and amortization 2,934 1,801
Provision for deferred income taxes (3,435) (1,145)
Change in:
Receivables 49,596 87,667
Inventories 20,405 (18,494)
Accounts payable, accrued expenses
and other liabilities (57,694) (51,076)
Other, net (4,938) (1,071)
------------------ -------------------
Net cash provided by operating activities 11,768 22,421
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 647 1,707
Net originations of mortgages held for long-term investment (91) (223)
Payments received on first mortgages and mortgage-backed
securities 2,127 3,523
Other, net (10) (286)
------------------ -------------------
Net cash provided by investing activities 2,673 4,721
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on credit agreements and other short-term borrowings (6,170) (3,379)
Payments on collateralized mortgage obligations (1,815) (2,949)
Payments on mortgages, land contracts and other loans (2,101) (24,125)
Payments to minority interests in consolidated joint ventures (147) (34)
Payments of cash dividends (2,911) (4,896)
------------------ -------------------
Net cash used by financing activities (13,144) (35,383)
------------------ -------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,297 (8,241)
Cash and cash equivalents at beginning of period 9,781 43,382
================== ===================
Cash and cash equivalents at end of period $ 11,078 $ 35,141
================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 2,713 $ 4,687
================== ===================
Income taxes paid $ 1,034 $ 101
================== ===================
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 0 $ 12,893
================== ===================
</TABLE>
See accompanying notes.
5
<PAGE> 6
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 February 28, 1997, the results of its consolidated operations
for the three months ended February 28, 1997 and February 29, 1996, and its
consolidated cash flows for the three months ended February 28, 1997 and
February 29, 1996. The results of operations for the three months ended
February 28, 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
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
--------------------- ---------------------
<S> <C> <C>
Homes, lots and improvements in production $ 613,241 $ 646,069
Land under development 146,656 134,233
--------------------- ---------------------
Total inventories $ 759,897 $ 780,302
===================== =====================
</TABLE>
The impact of capitalizing interest costs on consolidated pretax income is
as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Interest incurred $ 13,173 $ 16,053
Interest expensed (8,396) (8,102)
------------ ------------
Interest capitalized 4,777 7,951
Interest amortized (5,742) (3,702)
------------ ------------
Net impact on consolidated pretax income $ (965) $ 4,249
============ ============
</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 convertible
preferred shares were considered common stock due to their being subject to
mandatory
6
<PAGE> 7
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 earnings per share of $.05 for the three months ended
February 29, 1996. This computation is not applicable for the three months
ended February 28, 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 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 three months ended
February 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
February 29,1996
-------------------------
<S> <C>
Total revenues $ 365,763
Total pretax income 9,390
Net income 5,890
Earnings per share .15
</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,
1995, nor are they necessarily indicative of future operating results.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Total revenues for the three months ended February 28, 1997 increased 14.5%
to $346.4 million from $302.5 million for the quarter ended February 29,
1996, almost entirely due to higher housing revenues. Net income for the
first quarter of 1997 increased to $4.4 million or $.11 per share from $4.1
million or $.10 per share for the same period a year ago, marking the
Company's sixth consecutive quarter of improved year-over-year earnings per
share (excluding the non-cash charge for impairment of long-lived assets
taken in the second quarter of 1996). As the Company's pretax income from
construction operations for the first quarter of 1997 remained relatively
flat compared to the prior year's quarter, the improved net income in the
current quarter primarily resulted from higher pretax income from mortgage
banking operations. Housing revenues for the first quarter increased 15.2%
from the year-earlier period, reflecting the combined effects of a 25.3%
increase in unit deliveries and an 8.0% decline in average sales price. Both
the increase in deliveries and decline in average selling price were
principally due to the inclusion of San Antonio-based Rayco, acquired at the
beginning of the second quarter of 1996. Mortgage banking pretax income
increased in the first three months of 1997 primarily due to improved loan
volume and lower administrative expenses.
CONSTRUCTION
Revenues increased by $43.8 million, or 14.8%, to $339.6 million in the
first quarter of 1997 from $295.8 million in the first quarter of 1996
primarily due to an increase in housing revenues. Residential revenues for
the period increased by $44.1 million to $333.9 million from $289.8 million
in the year-earlier period as a result of a 25.3% increase in unit
deliveries, partly offset by an 8.0% decline in average selling price. The
increase in deliveries and the decrease in average selling price in the
current quarter resulted mainly from the inclusion of the Company's San
Antonio operations, acquired at the beginning of the second quarter of 1996.
Excluding the $57.6 million in revenues from the San Antonio operations,
housing revenues totaled $276.3 million in the first quarter of 1997, a
decrease of 4.6% from the first quarter of 1996. Housing revenues in the
United States, excluding San Antonio, decreased to $256.2 million on 1,405
unit deliveries in the first three months of 1997, compared to $269.5
million on 1,582 units in the first three months of 1996, reflecting a
decline in California housing revenues partly offset by an increase in
housing revenues from other U.S. operations. California housing revenues for
the first quarter of 1997 declined 8.8% to $183.8 million on 914 unit
deliveries from $201.6 million on 1,095 unit deliveries in the year-earlier
period. Excluding San Antonio, housing revenues from other U.S. operations
increased 6.7% to $72.4 million in the current quarter compared to $67.9
million in the same quarter a year ago. Including San Antonio, housing
revenues from other U.S. operations increased 91.5% to $130.0 million in the
current quarter. California deliveries in the quarter decreased 16.5%
compared to first quarter 1996, reflecting a decline of approximately 9% in
average active communities in the quarter, a revised marketing strategy
which de-emphasized the use of sales incentives, and the Company's strategy
to build and maintain lower levels of standing unsold inventory through an
increased emphasis on contracting for sales prior to construction. Other
U.S. deliveries, excluding San Antonio, increased slightly to 491 units in
the first quarter of 1997 from 487 units in the first quarter of 1996.
Revenues from French housing operations during the current quarter decreased
slightly to $17.4 million on 83 units from $19.5 million on 96 units in the
prior year's quarter.
During the first quarter of 1997, the Company's overall average selling
price decreased 8.0% to $158,400 from $172,100 in the prior year's period,
reflecting the impact of the San Antonio operations which established an
average selling price of $94,300 in the current quarter. Excluding the San
Antonio operations, the Company's overall average selling price increased
7.2% in the three months ended February 28, 1997 to $184,500. The domestic
average selling price (excluding San Antonio) rose 7.0% to $182,400 in the
first quarter of 1997, reflecting a 9.2% increase in the California average
selling price to $201,100 from $184,100 and a 5.8% increase in the average
selling price in other U.S. operations to $147,500 from $139,400. These
increases occurred 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. In France, the average selling price in the first quarter of 1997
rose 3.6% to $210,000 from $202,800 in the year-earlier quarter due to a
change in the mix of deliveries.
8
<PAGE> 9
During the first quarter of 1997, no revenues were generated from commercial
development activities in France compared to $3.6 million generated in the
same quarter a year ago, reflecting the reduced opportunities in the
recessionary French commercial market. Revenues from land sales totaled $5.8
million in the first quarter of 1997 compared to $2.4 million in the first
quarter 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/or prevailing market conditions.
Operating income decreased by $.3 million to $11.8 million in the first
quarter of 1997 from $12.1 million in the first quarter of 1996. This
decrease primarily resulted as higher gross profits on housing sales were
more than offset by higher selling, general and administrative expenses. The
increase in housing gross profits reflected both higher unit volume and an
improvement in housing gross margin. Gross profits increased by $8.3
million, or 15.8%, to $60.1 million in the first quarter of 1997 from $51.8
million in the prior year's period. During this same period, housing gross
profits increased by $8.3 million to $58.3 million from $50.0 million. Gross
profits as a percentage of revenues increased to 17.7% in the current
quarter from 17.5% in the year-earlier quarter primarily due to an increase
in the Company's housing gross margin to 17.5% from 17.3%. This increase
mainly reflected a housing gross margin improvement in the Company's other
U.S. operations (primarily due to the inclusion of the San Antonio
operations) partially offset by a decline in the California housing gross
margin. There were no profits generated from commercial activities in the
current quarter compared to $1.6 million in income generated from such
activities in the prior year's quarter. This decrease was offset by an
increase in profits from land sales which totaled $1.8 million and $.2
million in the first quarter of 1997 and 1996, respectively.
Selling, general and administrative expenses increased by $8.6 million to
$48.3 million in the three months ended February 28, 1997 from $39.7 million
in the corresponding 1996 period. This increase was mainly due to the
inclusion of the San Antonio operations, which added $8.1 million of
selling, general and administrative expenses (including the amortization of
goodwill). As a percentage of housing revenues, selling, general and
administrative expenses increased to 14.5% in the current quarter from 13.7%
for the year-earlier period. This increase was primarily due to a higher
proportion of sales commissions, advertising and compensation expenses, as
well as start up costs related to operations in Austin and Dallas, Texas,
partly offset by lower sales incentives and the favorable impact of the
selling, general and administrative ratio of the San Antonio operations.
Interest income totaled $1.1 million in the first quarter of 1997 compared
to $.7 million in the first quarter of 1996, reflecting an increase in the
interest bearing average balances of short-term investments and mortgages
receivable compared to the same period a year ago.
Interest expense (net of amounts capitalized) increased slightly to $8.4
million in the first quarter of 1997 from $8.1 million in the first quarter
of 1996. Gross interest incurred in the three months ended February 28, 1997
was $2.9 million lower than the year ago period, reflecting a decrease in
average indebtedness. However, interest capitalized during the first quarter
of 1997 decreased by $3.2 million from the prior year's quarter, thereby
reducing the percentage of interest capitalized to 36.3% in 1997 from 49.5%
in 1996. The Company's average debt level for the three months ended
February 28, 1997 decreased from the same period a year ago primarily as a
result of the Company's 1996 debt reduction strategy. The lower
capitalization rate reflected a higher proportion of land in production in
the first quarter of 1997 compared to the first quarter of 1996.
Minority interests in pretax income of consolidated joint ventures totaled
$.1 million in the first quarter of 1997 and 1996. Minority interests, which
primarily relate to commercial activities in France, are expected to remain
at relatively low levels reflecting the limited opportunities currently
available in the French commercial market.
Equity in pretax income (loss) of unconsolidated joint ventures reflected
slightly positive results in the first quarter of 1997 compared to the $.2
million loss recorded in the first quarter of 1996. The Company's joint
ventures recorded combined revenues of $2.5 million in the first three
months of 1997 compared to $.8 million in the corresponding period of 1996.
All of the joint venture revenues in the 1997 first quarter were generated
from residential properties, while $.7 million of the revenues were related
to residential properties and $.1 million were generated from unconsolidated
joint venture commercial projects in the first quarter of 1996. The
9
<PAGE> 10
loss recorded in the first quarter of 1996 primarily related to a single
French multi-family residential project. As a result of the non-cash charge
recorded in the second quarter of 1996 to reflect the impairment in
unconsolidated joint ventures, the Company does not anticipate incurring
significant additional losses from these joint ventures in the future.
MORTGAGE BANKING
Interest income and interest expense decreased by $.1 million and $.3
million, respectively, in the first quarter of 1997 compared to the same
quarter a year ago. These amounts 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 partly resulted from the lower amount of
notes payable outstanding during the first quarter of 1997 compared to the
prior year's quarter. Interest income and expense are expected to continue
to decline as the mortgage-backed securities and related collateralized
mortgage obligations pay off at approximately the same rate.
Other mortgage banking revenues increased by $.1 million to $3.1 million in
the first three months of 1997 from $3.0 million in the first three months
of 1996. This increase was the result of higher gains on the sale of
mortgages and servicing rights due to a higher level of mortgage
originations resulting from higher unit volume in the United States.
General and administrative expenses decreased by $.3 million to $1.0 million
for the quarter ended February 28, 1997 from $1.3 million for the same
period a year ago. Despite increased mortgage production volume in the first
quarter of 1997, general and administrative expenses decreased as a result
of cost containment efforts.
INCOME TAXES
Income tax expense totaled $2.5 million in the first quarter of 1997 and
$2.3 million in the prior year's first quarter. These amounts represented an
effective income tax rate of approximately 36% in both 1997 and 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. In the first quarter of 1997, net cash provided by operating,
investing and financing activities totaled $1.3 million compared to $8.2
million used in the prior year's first quarter.
The Company's operating activities provided $11.8 million of cash during the
first three months of 1997 compared to $22.4 million provided during the
same period of 1996. In the first quarter of 1997, cash was provided by a
reduction in receivables of $49.6 million, a reduction in inventories of
$20.4 million and first quarter earnings of $4.4 million. Uses of cash
during the first three months of 1997 included $57.7 million to pay down
accounts payable, accrued expenses and other liabilities. The reduction in
receivables primarily related to a lower balance of mortgages held under
commitment of sale due to lower mortgage origination volume in the first
quarter of 1997 compared to the fourth quarter of 1996. Inventories
decreased, primarily in California, where the Company benefited by remaining
selective with regard to new investment in its home state where many new
home markets remain weak.
Operating activities for the first quarter of 1996 provided $87.7 million
from a reduction in receivables and $4.1 million from first quarter
earnings. The cash provided was partially offset by cash used to fund a net
investment of $18.5 million in inventories (excluding $12.9 million of
inventories acquired through seller financing) and to pay down $51.1 million
in accounts payable, accrued expenses and other liabilities. Inventories
increased mainly due to the continued growth in the Company's domestic
operations. The reduction in receivables related primarily to a decrease in
mortgage origination volume in the first quarter of 1996 compared to the
fourth quarter of 1995.
10
<PAGE> 11
Cash provided by investing activities totaled $2.7 million in the first
quarter of 1997 and $4.7 million in the year-earlier period. In the first
quarter of 1997, cash was provided from $2.1 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
have served as collateral and $.6 million in distributions related to
investments in unconsolidated joint ventures. In the first quarter of 1996,
cash was provided from $3.5 million in proceeds received from
mortgage-backed securities and $1.7 million in distributions related to
investments in unconsolidated joint ventures. Among amounts offsetting the
first quarter 1996 proceeds was $.3 million of cash used for other investing
activities.
Financing activities in the first three months of 1997 used $13.1 million of
cash, while first quarter 1996 financing activities used $35.4 million. In
the first quarter of 1997, cash was used for net payments on borrowings of
$8.3 million, cash dividend payments of $2.9 million and payments on
collateralized mortgage obligations of $1.8 million. Financing activities in
1996's first quarter resulted in net cash outflows due mainly to $27.5
million in net payments on borrowings, payments on collateralized mortgage
obligations of $2.9 million and cash dividend payments of $4.9 million.
Under the Company's $500 million domestic unsecured revolving credit
facility, a total of $458.5 million was available for future use as of
February 28, 1997. The Company's French unsecured financing agreements had
in the aggregate $24.1 million available at February 28, 1997. In addition,
the Company's mortgage banking operations had $158.0 million available under
its $250 million secured revolving mortgage warehouse facility at
quarter-end. As a result of the Company's execution of an aggressive debt
reduction plan throughout 1996, its financial leverage, as measured by the
ratio of debt to total capital, was 58.6% at the end of the 1997 first
quarter compared to 62.6% at the end of the 1996 first 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%.
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 February 28, 1997 consisted of 3,486
units, representing aggregate future revenues of approximately $529.8
million, up 104.5% and 78.6%, respectively, from 1,705 units, representing
aggregate future revenues of approximately $296.7 million, a year ago.
Excluding the San Antonio operations, unit and dollar backlog as of February
28, 1997 rose 27.7% and 37.1%, respectively, from February 29, 1996 levels.
Company-wide net orders for the first three months of 1997 totaled 2,755, up
39.4% compared to the first three months of 1996. Excluding the 716 net
orders generated from the San Antonio operations, net orders rose 3.2% in
the first quarter of 1997.
The Company's operations in the United States accounted for approximately
$468.7 million of backlog value on 3,199 units at February 28, 1997.
Excluding San Antonio, residential backlog from domestic operations totaled
$345.7 million on 1,890 units at February 28, 1997, up from $240.0 million
on 1,422 units at February 29, 1996, reflecting higher backlogs from both
California and other U.S. operations. Backlog in California increased to
approximately $219.9 million on 1,017 units at February 28, 1997 from $153.1
million on 823 units at February 29, 1996 due primarily to the Company's
strategy of emphasizing pre-sales. However, in California net orders
declined 16.6% in the first quarter of 1997 due to heavy rains in Northern
California, reduced emphasis on sales incentives, a temporary absence of
homes to sell in certain strong markets in Northern California, and fewer
actual communities versus a year ago. Other U.S. operations, excluding San
Antonio, also demonstrated year-over-year growth in backlog levels with the
backlog value at February 28, 1997 increasing to approximately $125.8
million on 873 units from $86.9 million on 599 units at February 29, 1996,
reflecting a 50.4% increase in other U.S. net orders.
In France, the value of residential backlog at February 28, 1997 was
approximately $56.8 million on 272 units, up slightly from $51.8 million on
256 units a year earlier. The Company's net orders in France increased by
11
<PAGE> 12
13.8% during the first quarter of 1997 to 140 units from 123 units for the
same period a year ago. Backlog associated with consolidated commercial
development activities was valued at approximately $10.6 million at February
28, 1997 compared to $7.1 million at February 29, 1996. The relatively low
levels of commercial backlog in 1997 and 1996 reflected continued reduced
opportunities in the French commercial market.
In Mexico, the value of residential backlog at February 28, 1997 was
approximately $4.3 million on 15 units compared to $4.0 million on 19 units
at February 29, 1996. The operations in Mexico generated 10 net orders in
the first quarter of 1997, a decrease from the 19 net orders generated in
the same period a year ago. The new home market in Mexico remains seriously
hampered by the depressed value of the peso and economic instability created
by its devaluation. Despite troubled conditions and an unsettled economic
environment, demand for housing in Mexico remains substantial. 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 residential backlog are expected
to be delivered in 1997; however, cancellations could occur, particularly if
market conditions deteriorate or mortgage interest rates increase, thereby
decreasing backlog and related future revenues.
As previously announced for 1997, the Company has determined to focus on two
new strategic initiatives: acceleration of the Company's growth and the
implementation of a substantially different operational business model
through a Company-wide integration of many of the basic operating
characteristics of the business model used in the San Antonio operations.
Moving ahead on its growth strategy, the Company entered the Austin, Texas
market in the first quarter of 1997, and progressed on land acquisitions to
position certain of its existing markets for accelerated growth. The Company
also made progress toward the implementation of the new operational business
model through instituting specific initiatives relating to the Company's
land purchase strategy, product design, pre-sale of homes, fewer spec
starts, production scheduling, inventory control and pricing. As expected,
the Company's new focus resulted in higher backlog levels at the end of the
first quarter compared to year ago levels, as well as an increase in the
percentage of sold inventory in production at February 28, 1997 to 55%
compared to 49% at February 29, 1996.
Company-wide net orders for the first four weeks into the second quarter of
1997 have decreased 19.2% from the same period a year ago. During this same
period, domestic net orders were down 19.4% from the strong net order rates
of the prior year's period. The decrease in domestic net orders for this
period included a 33.8% decrease in California net orders, partly due to the
absence of homes to sell in certain strong markets in Northern California,
and a 3.9% decrease in net orders from other U.S. operations. The Company
expects California net order comparisons to begin improving later in the
second quarter as additional new communities open. However, mortgage rate
increases beyond those effectuated by the Federal Reserve Board in March
1997, continuing rate volatility and/or an appreciable decline in consumer
confidence could mitigate the effects of the Company's anticipated community
openings. Despite the decrease in net orders at the outset of the second
quarter and the Company's generally cautious outlook for the second quarter
of 1997, the Company continues to anticipate 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 continues to believe the anticipated increase in delivery volumes,
maintenance of its four key 1996 operational strategies and continued
progress on the two 1997 strategic initiatives should also 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
12
<PAGE> 13
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.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 3, 1997, at the Company's 1997 Annual Meeting of Stockholders, the
following matter was submitted for stockholder vote:
Election of Directors. Messrs. Antoine Jeancourt-Galignani, Bruce Karatz and
Charles R. Rinehart were re-elected as directors. Mr. Jeancourt-Galignani
received 31,712,981 affirmative votes with 3,294,356 votes withheld; Mr.
Karatz received 34,703,091 affirmative votes with 304,246 votes withheld;
and Mr. Rinehart received 34,713,485 affirmative votes with 293,852 votes
withheld.
Messrs. Ronald W. Burkle, Ray R. Irani, Guy Nafilyan and Luis G. Nogales
continue as directors and, if nominated, will next stand for re-election at
the 1998 Annual Meeting of Stockholders; Messrs. James A. Johnson, Sanford
C. Sigoloff and Ms. Jane Evans also continue as directors and, if nominated,
will next stand for re-election at the 1999 Annual Meeting of Stockholders.
ITEM 5. OTHER INFORMATION
The following table presents residential information in terms of unit
deliveries to home buyers and net orders taken by geographical market for
the three-month periods ended February 28, 1997 and February 29, 1996,
together with backlog data in terms of units and value by geographical
market as of February 28, 1997 and February 29, 1996.
<TABLE>
<CAPTION>
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
--------------------- ---------------------- ------------------------ ----------------------------
Market 1997 1996 1997 1996 1997 1996 1997 1996
- ------ ---------- ---------- ---------- ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 914 1,095 1,077 1,292 1,017 823 $219,908 $153,074
Other United States 1,102 487 1,528 540 2,182 599 248,835 86,880
France 83 96 140 123 272 256 56,783 51,820
Other 9 5 10 21 15 27 4,290 4,948
========== ========== ========== ========== =========== ============ ============= =============
Total 2,108 1,683 2,755 1,976 3,486 1,705 $529,816 $296,722
========== ========== ========== ========== =========== ============ ============= =============
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Statement of Computation of Per Share Earnings.
24 The consent of Ernst & Young LLP, independent auditors, filed as an
exhibit to the Company's 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 28, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
------------------------------------------
Registrant
Dated April 11, 1997 /s/ BRUCE KARATZ
--------------------------- -----------------------------------------
Bruce Karatz
Chairman, President and
Chief Executive Officer
Dated April 11, 1997 /s/ MICHAEL F. HENN
--------------------------- -----------------------------------------
Michael F. Henn
Senior Vice President and
Chief Financial Officer
15
<PAGE> 16
<TABLE>
<CAPTION>
Page of Sequentially
Numbered Pages
INDEX OF EXHIBITS ---------------------
<C> <C>
11 Statement of Computation of Per Share Earnings 17
27 Financial Data Schedule 18
</TABLE>
16
<PAGE> 1
EXHIBIT 11
KAUFMAN AND BROAD HOME CORPORATION
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In Thousands Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
February 28, February 29,
1997 1996
------------------- --------------------
<S> <C> <C>
PRIMARY:
Net income $ 4,444 $ 4,086
=================== ====================
Weighted average common shares outstanding 38,829 32,350
Weighted average Series B convertible preferred shares(1) 6,500
Common share equivalents:
Stock options 863 971
------------------- --------------------
39,692 39,821
=================== ====================
PRIMARY EARNINGS PER SHARE(2) $ .11 $ .10
=================== ====================
FULLY DILUTED:
Net income $ 4,444 $ 4,086
=================== ====================
Weighted average common shares outstanding 38,829 32,350
Weighted average Series B convertible preferred shares(1) 6,500
Common share equivalents:
Stock options 912 1,019
------------------- --------------------
39,741 39,869
=================== ====================
FULLY DILUTED EARNINGS PER SHARE(2,3) $ .11 $ .10
=================== ====================
</TABLE>
- --------
(1) Each of the 1,300 Series B convertible preferred shares was convertible into
five shares of common stock. On the mandatory conversion date of April 1,
1996, each of the Company's 6,500 depositary shares, each representing 1/5
of a Series B convertible preferred share was converted into one share of
the Company's common stock.
(2) If, for purposes of calculating primary and fully diluted earnings per
share, the Series B convertible preferred shares were excluded from the
weighted average shares outstanding and the related dividends deducted from
net income, the computations would have resulted in both primary and fully
diluted earnings per share of $.05 for the three months ended February 29,
1996. This computation is not applicable for the three months ended February
28, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 11,078
<SECURITIES> 79,683<F1>
<RECEIVABLES> 210,799
<ALLOWANCES> 0
<INVENTORY> 759,897
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,173,251
<CURRENT-LIABILITIES> 0
<BONDS> 465,273<F2>
0
0
<COMMON> 38,830
<OTHER-SE> 298,813
<TOTAL-LIABILITY-AND-EQUITY> 1,173,251
<SALES> 339,635
<TOTAL-REVENUES> 346,384
<CGS> 279,588
<TOTAL-COSTS> 282,834<F3>
<OTHER-EXPENSES> 49,284<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,396
<INCOME-PRETAX> 6,944
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 4,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,444
<EPS-PRIMARY> 0.11
<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>
