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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 23, 1998
KAUFMAN AND BROAD HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 1-9195 95-3666267
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 231-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
FOR RELEASE TUESDAY, JUNE 23, 1998 For further information:
6:00 AM - PDT Dennis Welsch - Investors
(310) 231-4010
Jeff Charney - Media
(310) 231-4252
KAUFMAN AND BROAD REPORTS
55.6% INCREASE IN SECOND QUARTER
EARNINGS PER SHARE
LOS ANGELES (June 23, 1998) --- Kaufman and Broad Home Corporation (NYSE:KBH)
today reported for the second quarter ended May 31, 1998, diluted earnings per
share of $.42, an increase of 55.6% compared to diluted earnings per share of
$.27 in the 1997 second quarter. Net income for the second quarter of 1998
totaled $17.2 million, up 60.9% compared to the prior year quarter. The improved
results were primarily driven by increases in unit deliveries and construction
gross margin, as well as significantly improved mortgage banking pretax income.
"We expected to record strongly improved deliveries in the second
quarter based on our excellent recent net orders and backlog trends; however, we
also recorded an eighty basis point year-over-year improvement in housing gross
margin for the second quarter which was particularly significant," said Bruce
Karatz, chairman and chief executive officer. "This is the first tangible
evidence that the expected KB2000-driven gross margin gains are being realized.
Assuming stable business conditions, we believe the prospects are good for very
favorable gross margin comparisons in the remaining quarters of 1998."
Construction revenues for the 1998 second quarter totaled $526.7
million, up 29.4% versus the prior year quarter, driven by a 38.3% increase in
unit deliveries which was partially offset by a 5.2% decline in average sales
price and lower land and commercial revenues. Unit deliveries were up in all
three of the Company's geographic segments, led by increases of 60.0% in Other
U.S. and 118.2% in Foreign operations. Included in the 1,938 Other U.S.
deliveries during the quarter were a total of 427 incremental deliveries from
the Company's three recent acquisitions in Houston, Denver and Phoenix/Tucson.
The decline in average sales price was due to a higher proportion of lower
priced Other U.S. deliveries and a 25.4% decline in the average sales price in
the Company's Foreign operations as a result of the SMCI acquisition in France
in the third quarter
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of 1997. These declines were partially offset by a 4.0% increase in the average
sales price for California.
"As evidenced by deliveries and order rates thus far, we are very
pleased with our recent acquisitions," Karatz said. "Integration of the acquired
companies is proceeding smoothly and should be substantially complete by the end
of our third quarter. We are increasingly confident that revenues and earnings
per share contributions from these transactions will meet or exceed our original
expectations, assuming stable business conditions."
Net orders for the 1998 second quarter totaled 4,861 units, up 43.1%
compared to the 1997 second quarter. California net orders were down 5.8%, as
higher order rates per community were more than offset by a 17.1% decline in the
average number of active communities, particularly in Northern California. Net
orders from Other U.S. operations totaled 2,907 units, up 72.9% compared to the
second quarter of 1997, including a total of 539 net orders attributable to the
three newly acquired companies. Foreign net orders increased 135.6% in the
quarter, driven primarily by the SMCI acquisition and improved market conditions
in France. Backlog at the end of the 1998 second quarter totaled 7,581 units, or
$1.1 billion, up 71.6% and 67.8%, respectively, compared to the prior year
quarter. Included in 1998 backlog were 940 units, or $120.0 million, associated
with the newly acquired companies.
"Net orders have continued at very strong levels in all regions except
California, where we expect to substantially close the gap in quarterly
comparisons for community counts in the fourth quarter of 1998," Karatz said.
"In addition, in selected markets, particularly in California, we have been
aggressively increasing prices in certain hard-to-replace communities with high
sales rates, with the effect of slowing sales rates in those communities to
better match production. We are extremely pleased that our backlog ratio at the
end of the 1998 second quarter reached 179.8%, showing steady progress toward
our KB2000 goal of 200%." The backlog ratio is defined as the ratio of beginning
backlog to deliveries in the succeeding quarter.
Construction operating income for the 1998 second quarter totaled $27.9
million, or 5.3% of construction revenues, up 35.6% and .2 percentage points,
respectively, compared to the 1997 second quarter. The increase in construction
operating margin was driven by a .8 percentage point increase in housing gross
margin to 18.8%, partially offset by a lower margin on land sales and an
increase in the construction selling, general and administrative expense
("SG&A") ratio. Included in 1998 second quarter gross profits were land losses
of $1.2 million, compared to an aggregate loss of $.1 million related to land
and commercial activities in the prior year quarter. Excluding these losses, the
1998 second quarter construction operating income margin would have improved .4
percentage points versus the prior year quarter. The 1998 second quarter SG&A
expense, measured as a percent of housing revenues, was 13.3%, down .5
percentage
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points from the 1998 first quarter, but up .4 percentage points from the 1997
second quarter. The quarterly year-over-year increase in the SG&A ratio was
primarily due to: higher sales commissions; expenditures incurred in connection
with extensive information systems revisions in support of the KB2000
operational business model; and expenses related to the acquisitions, including
temporary duplicate overhead, as well as sales incentives associated with the
sell through of non-KB2000 product. Partially offsetting the foregoing were
favorable variances related to total Company advertising and sales incentives.
Nonetheless, the Company expects that the SG&A ratio for the entire 1998 fiscal
year will be approximately even with 1997, as quarterly year-over-year
comparisons improve in the remainder of 1998, assuming stable business
conditions.
"In addition to quarterly year-over-year improvements in both gross and
operating margins which are anticipated in the remainder of 1998, we are pleased
to note the breadth and consistency of operating income contributions across all
major regions of the Company," Karatz said.
Mortgage banking pretax income for the 1998 second quarter totaled $4.7
million, up 55.3% compared to the prior year quarter due to increased loan
closings and secondary marketing income. In addition, the loan mix was
favorable, with fixed rate loans representing 77% of closings in this year's
quarter, compared to 56% in the year ago quarter.
For the first six months of 1998, the Company reported net income of
$25.3 million, or $.62 diluted earnings per share, an increase of 63.2% versus
the $.38 diluted earnings per share in the first six months of 1997. For the
first six months of 1997, net income totaled $15.1 million. Construction
revenues for the first half of 1998 totaled $944.0 million, up 26.4% from
construction revenues of $746.7 million for the same period a year ago, as a
32.0% rise in deliveries to 6,038 units for the first six months of 1998 from
4,573 units for the first six months of 1997 was partially offset by lower land
sales and a 3.2% decline in average sales price.
As of the end of the 1998 second quarter, construction debt totaled
$688.3 million, up $189.8 million from the year earlier period due principally
to increased inventory levels resulting from the Company's overall growth in new
communities as well as the acquisitions closed in the 1998 second quarter. Total
consideration for the acquisitions, including debt assumed, was approximately
$162 million. The Company's ratio of debt to total capital as of the end of the
1998 second quarter was 62.7%, compared to 56.5% and 59.1% at the end of the
1997 fiscal year and the end of the 1997 second quarter, respectively.
As previously announced, the Company filed a registration statement,
dated May 5, 1998, for the sale of approximately $150.0 million of securities,
the proceeds of which will be used for general corporate purposes, including
support of the Company's growth strategies and potential future acquisitions.
The Company expects to complete the offering in the third quarter. The
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immediate use of proceeds will be to pay down existing bank debt. If the
offering had been completed during the second quarter, the Company's pro forma
ratio of debt to total capital at May 31, 1998, would have been below the
Company's targeted range of 50% to 60%.
Los Angeles-based Kaufman and Broad Home Corporation is the largest home
builder in the United States west of the Mississippi River, delivering more
single family homes than any other builder in the region. The Company operates
nineteen homebuilding divisions located in California, Nevada, Arizona, New
Mexico, Texas, Colorado, Utah, France and Mexico.
---------------------------------
Except for the historical information contained herein, certain of the
matters discussed in this press release are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995, which involve
certain risks and uncertainties, including but not limited to, changes in
general economic conditions, materials prices, labor costs, interest rates,
consumer confidence, competition, environmental factors, and government
regulations affecting the Company's operations. See the Company's Annual Report
on Form 10-K for the year ended November 30, 1997 for a further discussion of
these and other risks and uncertainties applicable to the Company's business.
# # #
(Financials Follow)
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Six Months and Three Months Ended May 31, 1998 and 1997
(In Thousands, Except Per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 963,704 $ 762,246 $ 537,459 $ 415,000
========= ========= ========= =========
CONSTRUCTION:
Revenues $ 944,026 $ 746,676 $ 526,717 $ 407,041
Costs and expenses (900,923) (714,340) (498,801) (386,451)
--------- --------- --------- ---------
Operating income 43,103 32,336 27,916 20,590
Interest income 2,849 2,251 1,327 1,164
Interest expense, net of amounts capitalized (14,799) (16,444) (7,662) (8,048)
Minority interests in pretax income of
consolidated joint ventures (422) (114) (163) (61)
Equity in pretax income of
unconsolidated joint ventures 332 61 83 21
--------- --------- --------- ---------
Construction pretax income 31,063 18,090 21,501 13,666
--------- --------- --------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 7,302 6,637 3,640 3,028
Other 12,376 8,933 7,102 4,931
--------- --------- --------- ---------
19,678 15,570 10,742 7,959
Expenses:
Interest (7,136) (6,222) (3,557) (2,976)
General and administrative (4,685) (3,789) (2,464) (1,944)
--------- --------- --------- ---------
Mortgage banking pretax income 7,857 5,559 4,721 3,039
--------- --------- --------- ---------
TOTAL PRETAX INCOME 38,920 23,649 26,222 16,705
Income taxes (13,600) (8,500) (9,000) (6,000)
--------- --------- --------- ---------
NET INCOME $ 25,320 $ 15,149 $ 17,222 $ 10,705
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ .65 $ .39 $ .44 $ .28
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ .62 $ .38 $ .42 $ .27
========= ========= ========= =========
</TABLE>
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
May 31, November 30, May 31,
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 9,012 $ 66,343 $ 11,666
Receivables 169,760 169,988 121,593
Inventories 1,049,788 790,243 789,296
Investments in unconsolidated joint ventures 5,706 6,338 7,736
Goodwill 50,469 31,283 35,192
Other assets 91,873 69,666 64,989
---------- ---------- ----------
1,376,608 1,133,861 1,030,472
---------- ---------- ----------
MORTGAGE BANKING:
Cash and cash equivalents 8,674 1,899 6,121
Receivables 243,392 280,230 183,900
Other assets 2,781 3,001 3,000
---------- ---------- ----------
254,847 285,130 193,021
---------- ---------- ----------
TOTAL ASSETS $1,631,455 $1,418,991 $1,223,493
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 179,816 $ 163,646 $ 127,882
Accrued expenses and other liabilities 114,098 105,376 76,673
Mortgages and notes payable 688,283 496,869 498,496
---------- ---------- ----------
982,197 765,891 703,051
---------- ---------- ----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,308 7,300 6,323
Notes payable 172,530 200,828 103,418
Collateralized mortgage obligations secured by
mortgage-backed securities 55,198 60,058 64,726
---------- ---------- ----------
237,036 268,186 174,467
---------- ---------- ----------
Minority interests in consolidated joint ventures 1,985 1,858 657
Stockholders' equity 410,237 383,056 345,318
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,631,455 $1,418,991 $1,223,493
========== ========== ==========
</TABLE>
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KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended May 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
------------------------------ -----------------------------
CONSTRUCTION REVENUES: 1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Housing $ 939,112 $ 734,222 $ 524,912 $ 400,372
Commercial -- 2,185 -- 2,185
Land 4,914 10,269 1,805 4,484
------------- ------------ ------------ ------------
Total $ 944,026 $ 746,676 $ 526,717 $ 407,041
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Three Months
------------------------------ -----------------------------
COSTS AND EXPENSES: 1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Construction and land costs $ 773,872 $ 614,526 $ 428,993 $ 334,938
Selling, general and administrative
Expenses 127,051 99,814 69,808 51,513
------------- ------------ ------------ ------------
Total $ 900,923 $ 714,340 $ 498,801 $ 386,451
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Three Months
------------------------------ -----------------------------
AVERAGE SALES PRICES: 1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California $ 214,900 $ 204,600 $ 215,800 $ 207,500
Other U.S. 120,100 117,900 120,000 117,800
Foreign 137,600 201,400 143,400 192,100
------------- ------------ ------------ ------------
Total $ 155,500 $ 160,600 $ 154,000 $ 162,400
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Three Months
------------------------------ -----------------------------
NET ORDERS: 1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California 2,660 2,553 1,391 1,476
Other U.S. 4,969 3,209 2,907 1,681
Foreign 948 389 563 239
------------- ------------ ------------ ------------
Total 8,577 6,151 4,861 3,396
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Three Months
------------------------------ -----------------------------
UNIT DELIVERIES: 1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California 2,146 2,009 1,124 1,095
Other U.S. 3,279 2,313 1,938 1,211
Foreign 613 251 347 159
------------- ------------ ------------ ------------
Total 6,038 4,573 3,409 2,465
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1997
------------------------------ -----------------------------
Backlog Backlog Backlog Backlog
BACKLOG DATA: Units Value Units Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California 1,830 $ 394,144 1,398 $ 288,719
Other U.S. 4,808 588,820 2,652 307,977
Foreign 943 136,929 367 70,806
------------- ------------ ------------ ------------
Total 7,581 $ 1,119,893 4,417 $ 667,502
============= ============ ============ ============
</TABLE>
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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 hereunto duly authorized.
Date: June 23, 1998
KAUFMAN AND BROAD HOME CORPORATION
Registrant
By: /s/ Michael F. Henn
---------------------------------------------
Michael F. Henn
Senior Vice President and Chief Financial
Officer
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