<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, 1999.
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, 47,900,301 shares outstanding
<PAGE> 2
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, 1999 and 1998 3
Consolidated Balance Sheets -
February 28, 1999 and November 30, 1998 4
Consolidated Statements of Cash Flows -
Three Months ended February 28, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
INDEX OF EXHIBITS 22
</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,
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
TOTAL REVENUES $ 694,143 $ 426,245
========= =========
CONSTRUCTION:
Revenues $ 682,209 $ 417,309
Construction and land costs (559,945) (344,879)
Selling, general and administrative expenses (93,362) (57,243)
--------- ---------
Operating income 28,902 15,187
Interest income 1,910 1,522
Interest expense, net of amounts capitalized (6,082) (7,137)
Minority interests (5,182) (259)
Equity in pretax income of unconsolidated
joint ventures 106 249
--------- ---------
Construction pretax income 19,654 9,562
--------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 3,997 3,662
Other 7,937 5,274
--------- ---------
11,934 8,936
Expenses:
Interest (3,756) (3,579)
General and administrative (2,946) (2,221)
--------- ---------
Mortgage banking pretax income 5,232 3,136
--------- ---------
TOTAL PRETAX INCOME 24,886 12,698
Income taxes (8,700) (4,600)
--------- ---------
NET INCOME $ 16,186 $ 8,098
========= =========
BASIC EARNINGS PER SHARE $ .36 $ .21
========= =========
DILUTED EARNINGS PER SHARE $ .35 $ .20
========= =========
BASIC AVERAGE SHARES OUTSTANDING 44,648 39,074
========= =========
DILUTED AVERAGE SHARES OUTSTANDING 46,122 40,589
========= =========
CASH DIVIDENDS PER COMMON SHARE $ .075 $ .075
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 8,600 $ 56,602
Trade and other receivables 226,108 194,841
Inventories 1,487,385 1,134,402
Investments in unconsolidated joint ventures 4,314 5,608
Deferred income taxes 68,310 24,094
Goodwill 217,590 45,533
Other assets 87,017 81,464
----------- -----------
2,099,324 1,542,544
----------- -----------
MORTGAGE BANKING:
Cash and cash equivalents 2,762 6,751
Receivables:
First mortgages and mortgage-backed securities 55,243 58,262
First mortgages held under commitment of sale and other
receivables 236,475 249,702
Other assets 3,078 2,945
----------- -----------
297,558 317,660
----------- -----------
TOTAL ASSETS $ 2,396,882 $ 1,860,204
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 222,676 $ 211,380
Accrued expenses and other liabilities 192,494 148,508
Mortgages and notes payable 855,113 529,846
----------- -----------
1,270,283 889,734
----------- -----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,178 8,924
Notes payable 227,401 239,413
Collateralized mortgage obligations secured by
mortgage-backed securities 44,898 49,264
----------- -----------
281,477 297,601
----------- -----------
Minority interests:
Consolidated subsidiaries and joint ventures 23,970 8,608
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company 189,750 189,750
----------- -----------
213,720 198,358
----------- -----------
Common stock 47,900 39,992
Paid-in capital 332,043 193,520
Retained earnings 255,950 243,356
Accumulated other comprehensive income (4,491) (2,357)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 631,402 474,511
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,396,882 $ 1,860,204
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,186 $ 8,098
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Equity in pretax income of unconsolidated joint ventures (106) (249)
Minority interests 5,182 259
Amortization of discounts and issuance costs 431 483
Depreciation and amortization 7,694 3,217
Provision for deferred income taxes 5,296 (1,235)
Change in:
Receivables (4,206) 70,896
Inventories (64,329) (43,303)
Accounts payable, accrued expenses and other liabilities 14,291 (14,701)
Other, net (2,012) (4,765)
--------- ---------
Net cash (used) provided by operating activities (21,573) 18,700
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (8,568) --
Investments in unconsolidated joint ventures 1,759 958
Net sales (originations) of mortgages held for long-term investment (1,832) 501
Payments received on first mortgages and mortgage-backed securities 5,063 2,152
Purchases of property and equipment, net (5,273) (3,610)
--------- ---------
Net cash provided (used) by investing activities (8,851) 1
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on credit agreements and other short-term borrowings (1,935) (33,020)
Payments on collateralized mortgage obligations (4,712) (1,969)
Payments on mortgages, land contracts and other loans (7,441) (7,706)
Payments to minority interests (3,887) (96)
Payments of cash dividends (3,592) (2,941)
--------- ---------
Net cash used by financing activities (21,567) (45,732)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,991) (27,031)
Cash and cash equivalents at beginning of period 63,353 68,242
--------- ---------
Cash and cash equivalents at end of period $ 11,362 $ 41,211
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ (1,920) $ 448
========= =========
Income taxes paid $ 166 $ 379
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 1,140 $ 4,724
========= =========
Issuance of common stock related to an acquisition $ 146,005 $ --
========= =========
Debt assumed related to an acquisition $ 303,239 $ --
========= =========
</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, 1998 contained in the Company's 1998
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, 1999, the results of its consolidated
operations for the three months ended February 28, 1999 and 1998, and
its consolidated cash flows for the three months ended February 28, 1999
and 1998. The results of operations for the three months ended February
28, 1999 are not necessarily indicative of the results to be expected
for the full year. The consolidated balance sheet at November 30, 1998
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,
----------- -----------
<S> <C> <C>
Homes, lots and improvements in production $ 1,088,379 $ 835,300
Land under development 399,006 299,102
----------- -----------
Total inventories $ 1,487,385 $ 1,134,402
=========== ===========
</TABLE>
The impact of capitalizing interest costs on consolidated pretax income
is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Interest incurred $ 15,771 $ 12,353
Interest expensed (6,082) (7,137)
----------- -----------
Interest capitalized 9,689 5,216
Interest amortized (10,928) (6,925)
----------- -----------
Net impact on consolidated pretax income $ (1,239) $ (1,709)
=========== ===========
</TABLE>
3. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
average number of common shares outstanding for the period. Diluted
earnings per share is calculated by dividing net income by the average
number of common shares outstanding including all dilutive potentially
issuable shares under various stock option plans and stock purchase
contracts.
6
<PAGE> 7
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share (continued)
The following table presents a reconciliation of average shares
outstanding (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
------------------------------
1999 1998
------ ------
<S> <C> <C>
Basic average shares outstanding 44,648 39,074
Net effect of stock options assumed to be exercised 1,474 1,515
------ ------
Diluted average shares outstanding 46,122 40,589
====== ======
</TABLE>
4. Comprehensive Income
During the quarter ended February 28, 1999, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Comprehensive income consists of net income and
foreign currency translation adjustments and totaled $14.1 million and
$6.4 million for the three months ended February 28, 1999 and 1998,
respectively.
5. Acquisitions
During the second quarter of 1998, the Company acquired three privately
held homebuilders with regional operations in certain key markets. On
March 19, 1998, the Company acquired all of the issued and outstanding
capital stock of Houston-based Hallmark Residential Group ("Hallmark")
for approximately $54 million, including the assumption of debt.
Hallmark built single-family homes primarily in Houston (with additional
operations in San Antonio and Austin, Texas) under the trade names of
Dover Homes and Ideal Builders. The Company acquired substantially all
of the assets of Denver-based PrideMark Homebuilding Group ("PrideMark")
on March 23, 1998 for approximately $65 million, including the
assumption of trade liabilities and debt. PrideMark built single-family
homes in Denver, Colorado. On April 9, 1998, the Company acquired all of
the issued and outstanding capital stock of Estes Homebuilding Co.
("Estes") for approximately $48 million, including the assumption of
debt. Estes built single-family homes in Phoenix and Tucson, Arizona.
On August 18, 1998, the Company acquired a majority ownership investment
in General Homes Corporation ("General Homes"), a builder of
single-family homes primarily in Houston, Texas. The Company invested
approximately $32 million, including the assumption of debt, to acquire
50.3% of the outstanding stock of General Homes, pursuant to a completed
plan of reorganization. Effective January 4, 1999, the Company invested
approximately $14.5 million to acquire the remaining 49.7% of the
outstanding stock of General Homes, bringing its ownership interest to
100%.
The acquisitions of Hallmark, PrideMark, Estes and General Homes
were financed by borrowings under the Company's $500 million domestic
unsecured revolving credit facility. Accounted for under the purchase
method, the results of operations of the acquired entities are included
in the Company's consolidated financial statements as of their
respective dates of acquisition. The excess of the purchase prices over
the fair value of net assets acquired was $23.5 million on an aggregate
basis and was allocated to goodwill. The Company is amortizing goodwill
related to the acquisitions on a straight-line basis over a period of
ten years.
Effective January 7, 1999, the Company acquired substantially all of the
homebuilding assets of the Lewis Homes group of companies ("Lewis
Homes"). Lewis Homes is engaged in the acquisition, development and
7
<PAGE> 8
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisitions (continued)
sale of residential real estate in California and Nevada. Prior to the
acquisition, Lewis Homes, based in Upland, California, was one of the
largest privately held single-family homebuilders in the United States
based on units delivered, with revenues for the year ended December 31,
1998 of $715 million on 3,631 unit deliveries. Lewis Homes also owned or
controlled approximately 24,000 lots and had a backlog of approximately
900 homes at December 31, 1998. Lewis Homes' principal markets are Las
Vegas and Northern Nevada, Southern California, and the greater
Sacramento area in Northern California.
The purchase price for Lewis Homes was approximately $449 million,
comprised of the assumption of approximately $303 million in debt and
the issuance of 7,886,686 shares of the Company's common stock valued at
approximately $146 million. The purchase price was based on the December
31, 1998 net book values of the entities purchased. While the Company
does not anticipate that there will be further adjustments to the
purchase price, should any adjustments occur, the Company does not
expect such adjustments to be material. The excess of the purchase price
over the estimated fair value of net assets acquired was $177.6 million
and was allocated to goodwill. The Company is amortizing the goodwill on
a straight-line basis over a period of ten years. The shares of Company
common stock issued in the acquisition are "restricted" shares and may
not be resold without a registration statement or compliance with
Securities and Exchange Commission regulations that limit the number of
shares that may be resold in a given period. The Company has agreed to
file a registration statement for those shares in three increments at
the Lewis family's request from July 1, 2000 to July 1, 2002. Under the
terms of the purchase agreement, a Lewis family member has also been
appointed to the Company's board of directors.
In connection with the acquisition of Lewis Homes, the Company obtained
a $200 million unsecured term loan agreement with various banks (the
"Term Loan Agreement") to refinance certain debt assumed. The Term Loan
Agreement dated January 7, 1999 provides for payments of $25 million due
on January 31, 2000, April 30, 2000 and July 31, 2000, with the
remaining principal balance due on April 30, 2001. Interest is payable
monthly at the London Interbank Offered Rate plus an applicable spread.
Under the terms of the Term Loan 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 and
indebtedness. The financing obtained under the Term Loan Agreement did
not impact the amounts available under the Company's pre-existing
borrowing arrangements. The Company used borrowings under its $500
million domestic unsecured revolving credit facility to refinance
certain other debt assumed in the Lewis Homes acquisition.
The acquisition consideration for Lewis Homes was determined by
arms-length negotiations between the parties. The acquisition was
accounted for as a purchase, with the results of Lewis Homes included in
the Company's consolidated financial statements as of January 7, 1999.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisitions
of Hallmark, PrideMark, Estes, General Homes and Lewis Homes had
occurred as of December 1, 1997 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
(in thousands, except per share amounts):
8
<PAGE> 9
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisitions (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Total revenues $777,095 $635,470
Total pretax income 29,401 18,317
Net income 19,101 11,917
Basic earnings per share .40 .25
Diluted earnings per share .39 .24
</TABLE>
6. Reclassification
Certain amounts in the consolidated financial statements of prior years
have been reclassified to conform to the 1999 presentation.
9
<PAGE> 10
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, 1999 increased 62.9% to
$694.1 million from $426.2 million for the quarter ended February 28, 1998 due
to higher housing and mortgage banking revenues. Net income for the first
quarter of 1999 rose to $16.2 million or $.35 per diluted share from $8.1
million or $.20 per diluted share for the same period a year ago. The increase
in net income was principally driven by significantly higher unit deliveries and
an improved construction gross margin along with increased mortgage banking
pretax income. The 75.0% growth in diluted earnings per share for the first
quarter of 1999 was achieved despite an increase of 13.6% in the average number
of common shares outstanding in conjunction with the Lewis Homes acquisition,
which closed on January 7, 1999. The Company's operating results for the first
quarter of 1999 include the results of Lewis Homes as of the acquisition date as
well as results from the acquisitions of Hallmark, PrideMark and Estes which the
Company completed during the second quarter of 1998. The Company's operating
results for the first quarter of 1999 also reflect results of General Homes, the
acquisition of which was completed on January 4, 1999. Mortgage banking pretax
income increased 66.8% in the first three months of 1999 compared to the first
three months of 1998 primarily due to a higher volume of loan closings and
increased premiums from the sale of servicing rights.
CONSTRUCTION
Revenues increased by $264.9 million, or 63.5%, to $682.2 million in the first
quarter of 1999 from $417.3 million in the first quarter of 1998 primarily due
to an increase in housing revenues. Housing revenues for the period increased by
$263.9 million to $678.1 million from $414.2 million in the year-earlier period
primarily as a result of a 62.8% increase in unit deliveries. Housing revenues
in the United States rose to $625.3 million on 3,956 unit deliveries in the
first three months of 1999, compared to $379.6 million on 2,363 units in the
first three months of 1998 as a result of increased housing revenues from both
California and Other U.S. operations. Results from domestic operations for the
first quarter of 1999 included housing revenues of approximately $178.4 million
and an aggregate 1,222 unit deliveries from the Lewis Homes and General Homes
operations and the three acquisitions completed in the second quarter of 1998.
Housing revenues from California operations totaled $281.4 million in the first
quarter of 1999, up 28.7% from $218.6 million in the year-earlier period.
Excluding operations acquired in 1999 and 1998, housing revenues from California
operations rose 6.3% to $232.4 million in the first quarter of 1999. The
increase in California housing revenues, including operations acquired in 1999
and 1998, occurred as California unit deliveries increased 17.3% to 1,199 units
in the first quarter of 1999 from 1,022 units in the first quarter of 1998 due
to a 12.5% increase in the average number of active communities. Housing
revenues from Other U.S. operations rose 113.6% to $343.9 million in the first
quarter of 1999 from $161.0 million in the first quarter of 1998. Excluding the
results of 1999 and 1998 acquisitions, Other U.S. housing revenues in the first
quarter of 1999 totaled $214.5 million, up 33.2% from the same quarter a year
ago. Other U.S. deliveries, including deliveries from the 1999 and 1998
acquisitions, increased 105.6% to 2,757 units in the first quarter of 1999 from
1,341 units in the first quarter of 1998 as a result of a 122.2% increase in the
average number of active communities. Revenues from French housing operations
during the first quarter of 1999 increased to $52.2 million on 321 units from
$32.8 million on 260 units in the prior year's quarter.
During the first quarter of 1999, the Company's overall average selling price
increased .6% to $158,500 from $157,600 in the prior year's period. This slight
increase reflected the inclusion of higher-priced deliveries from the recently
acquired Lewis Homes operations and a higher average selling price in France,
partially offset by a higher proportion of lower-priced deliveries from Other
U.S. markets. The domestic average selling price decreased 1.6% to $158,100 in
the first quarter of 1999 from $160,600 in the first quarter of 1998 as the
proportion of Other U.S. deliveries, which typically have lower selling prices,
increased to 69.7% from 56.7% in the year-earlier quarter. This reflected growth
in the Company's domestic operations outside of California partly due to
acquisitions. During the first quarter of 1999, the average selling price in the
Company's California operations rose to $234,700 from $213,900 in the same
quarter of 1998 and the average
10
<PAGE> 11
selling price for Other U.S. operations increased to $124,800 from $120,100.
These increases occurred as a result of the inclusion of higher-priced
deliveries from the Lewis Homes operations, selected increases in sales prices
in certain markets as well as 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 1999 rose 28.8% to
$162,700 from $126,300 in the year-earlier quarter primarily due to a change in
the mix of deliveries.
Revenues from land sales totaled $4.0 million in the first quarter of 1999
compared to $3.1 million in the first quarter of 1998.
Operating income increased by $13.7 million to $28.9 million in the first
quarter of 1999 from $15.2 million in the first quarter of 1998. As a percentage
of construction revenues, operating income increased by .6 percentage points to
4.2% in the first quarter of 1999 compared to 3.6% in the first quarter of 1998.
Gross profits increased by $49.9 million, or 68.8% to $122.3 million in the
first quarter of 1999 from $72.4 million in the prior year's period. During this
same period, housing gross profits increased by $50.1 million to $122.2 million
from $72.1 million. Gross profits as a percentage of construction revenues
increased to 17.9% in the first quarter of 1999 from 17.4% in the year-earlier
quarter primarily due to an increase in the Company's housing gross margin to
18.0% from 17.4%. The increase in the Company's housing gross margin resulted
from a higher housing gross margin on new KB2000 deliveries entering the mix as
well as market-driven price increases in selected communities, particularly in
California. Partially offsetting these improvements was the impact of purchase
accounting associated with the Lewis Homes transaction. Company-wide land sales
generated break-even results in the first quarter of 1999 compared to profits of
$.3 million in the first quarter of 1998.
Selling, general and administrative expenses increased by $36.2 million, or
63.1%, to $93.4 million in the three months ended February 28, 1999 from $57.2
million in the corresponding 1998 period. As a percentage of housing revenues,
selling, general and administrative expenses were 13.8% in the first quarter of
1999, flat compared to the same period a year ago as the impact of the strong
increase in unit volume was offset by increased expenditures for information
systems in support of the KB2000 operational business model and the Company's
year 2000 compliance plan, and by goodwill amortization and other expenses
related to the Lewis Homes transaction.
Interest income totaled $1.9 million in the first quarter of 1999 compared to
$1.5 million in the first quarter of 1998, reflecting increases 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) decreased by $1.0 million to $6.1
million in the first quarter of 1999 from $7.1 million in the first quarter of
1998. This decrease was primarily due to the impact of the Company's issuance of
the Feline Prides in the third quarter of 1998, since distributions associated
with the Feline Prides are included in minority interests rather than in
interest expense. Gross interest incurred in the three months ended February 28,
1999 was $3.4 million higher than the amount incurred in the same period of
1998, reflecting an increase in average indebtedness. The percentage of interest
capitalized during the three months ended February 28, 1999 and 1998 was 61.4%
and 42.2%, respectively. The higher capitalization rate in the 1999 period
resulted from the effects of the issuance of the Feline Prides in the third
quarter of 1998 and a higher proportion of land under development in the first
quarter of 1999 compared to the previous year's quarter. The amount of interest
capitalized as a percentage of gross interest incurred and distributions
associated with the Feline Prides was 49.5% in the first quarter of 1999.
Minority interests totaled $5.2 million in the first quarter of 1999 and $.3
million in the first quarter of 1998. Minority interests for the three months
ended February 28, 1999 are comprised of two major components: pretax income of
consolidated subsidiaries and joint ventures related to residential and
commercial activities and distributions associated with the Company's Feline
Prides issued in July 1998. In the first three months of 1998, minority
interests related only to residential joint venture activities. Minority
interests in the first quarter of 1999 increased from the same quarter of 1998
due to the inclusion of $3.8 million in distributions related to
11
<PAGE> 12
the Feline Prides and increased joint venture activity. Minority interests are
expected to remain at this higher level for the remainder of the year.
Equity in pretax income of unconsolidated joint ventures totaled $.1 million in
the first quarter of 1999 compared to $.2 million in the first quarter of 1998.
The Company's joint ventures recorded combined revenues of $.7 million in the
first three months of 1999 compared to $4.6 million in the corresponding period
of 1998. All of the joint venture revenues in the first quarter of 1999 and 1998
were generated from residential properties.
MORTGAGE BANKING
Interest income and interest expense increased by $.3 million and $.2 million,
respectively, in the first quarter of 1999 compared to the same quarter a year
ago. Interest income increased as a result of the higher balance of first
mortgages held under commitment of sale and other receivables outstanding during
the first quarter of 1999 compared to the prior year's first quarter, while
interest expense rose due to the higher balance of notes payable outstanding
during the period.
Other mortgage banking revenues increased by $2.6 million to $7.9 million in the
first three months of 1999 from $5.3 million in the first three months of 1998.
This increase was primarily the result of higher gains on the sale of servicing
rights due to a higher level of mortgage originations associated with increases
in housing unit volume in the United States.
General and administrative expenses increased by $.7 million to $2.9 million for
the quarter ended February 28, 1999 from $2.2 million for the same period a year
ago. The increase in general and administrative expenses was primarily due to
higher mortgage production volume.
INCOME TAXES
Income tax expense totaled $8.7 million in the first quarter of 1999 and $4.6
million in the prior year's first quarter. These amounts represented effective
income tax rates of approximately 35% and 36% in 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash to
fund its operating and investing activities. Historically, the Company has
funded its construction and mortgage banking concerns with internally generated
operating results and external sources of debt and equity financing. In the
first quarter of 1999, net cash used by operating, investing and financing
activities totaled $52.0 million compared to $27.0 million used in the prior
year's first quarter.
Operating activities used $21.6 million of cash during the first three months of
1999 compared to $18.7 million provided during the same period of 1998. The
Company's uses of operating cash in the first quarter of 1999 included an
increase in receivables of $4.2 million and net investments in inventories of
$64.3 million (excluding the effect of acquisitions and $1.1 million of
inventories acquired through seller financing). Sources of operating cash in the
first quarter of 1999 included an increase in accounts payable, accrued expenses
and other liabilities of $14.3 million, first quarter earnings of $16.2 million
and various noncash items deducted from net income.
Operating activities for the first quarter of 1998 provided $70.9 million from a
reduction in receivables and $8.1 million from first quarter earnings. The cash
provided was partially offset by cash used for net investments of $43.3 million
in inventories (excluding $4.7 million of inventories acquired through seller
financing) and cash used to pay down $14.7 million in accounts payable, accrued
expenses and other liabilities. Inventories increased, primarily in California
and Other U.S. operations, as the Company continued its accelerated growth
strategy in certain markets. The reduction in receivables related primarily to a
lower
12
<PAGE> 13
balance of mortgages held under commitment of sale due to lower mortgage
origination volume in the first quarter of 1998 compared to the fourth quarter
of 1997.
Cash used by investing activities was $8.9 million in the first quarter of 1999
compared with essentially zero provided in the year-earlier period. In the first
quarter of 1999, cash was used for acquisitions, net of cash acquired of $8.6
million, net purchases of property and equipment of $5.3 million and
originations of mortgages held for long-term investment of $1.8 million.
Partially offsetting these uses was cash provided from $5.1 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 $1.7 million in distributions related
to investments in unconsolidated joint ventures. In the first quarter of 1998,
cash was provided from $2.1 million in proceeds received from mortgage-backed
securities, $1.0 million in distributions related to investments in
unconsolidated joint ventures and $.5 million from net sales of mortgages held
for long-term investment. The cash provided in 1998 was partly offset by $3.6
million used for net purchases of property and equipment.
Financing activities in the first three months of 1999 used $21.6 million of
cash, while first quarter 1998 financing activities used $45.7 million. In the
first quarter of 1999, cash was used for net payments on borrowings of $9.4
million, payments to minority interests of $3.9 million, payments on
collateralized mortgage obligations of $4.7 million and cash dividend payments
of $3.6 million. Financing activities in 1998's first quarter resulted in net
cash outflows due mainly to net payments on borrowings of $40.7 million,
payments on collateralized mortgage obligations of $2.0 million and cash
dividend payments of $2.9 million.
The Company acquired the remaining equity interest in Houston-based General
Homes effective January 4, 1999. The Company invested approximately $14.5
million to acquire the remaining 49.7% of the outstanding stock of General
Homes, bringing its ownership interest to 100%.
Effective January 7, 1999, the Company acquired substantially all of the
homebuilding assets of Lewis Homes. Lewis Homes is engaged in the acquisition,
development and sale of residential real estate in California and Nevada. Prior
to the acquisition, Lewis Homes, based in Upland, California, was one of the
largest privately held single-family homebuilders in the United States based on
units delivered, with revenues for the year ended December 31, 1998 of $715
million on 3,631 unit deliveries. Lewis Homes also owned or controlled
approximately 24,000 lots and had a backlog of approximately 900 homes at
December 31, 1998. Lewis Homes' principal markets are Las Vegas and Northern
Nevada, Southern California, and the greater Sacramento area in Northern
California.
The purchase price for Lewis Homes was approximately $449 million, comprised of
the assumption of approximately $303 million in debt and the issuance of
7,886,686 shares of the Company's common stock valued at approximately $146
million. The purchase price was based on the December 31, 1998 net book values
of the entities purchased. While the Company does not anticipate that there will
be further adjustments to the purchase price, should any adjustments occur, the
Company does not expect such adjustments to be material. The excess of the
purchase price over the estimated fair value of net assets acquired was $177.6
million and was allocated to goodwill. The Company is amortizing the goodwill on
a straight-line basis over a period of ten years. The shares of Company common
stock issued in the acquisition are "restricted" shares and may not be resold
without a registration statement or compliance with Securities and Exchange
Commission regulations that limit the number of shares that may be resold in a
given period. The Company has agreed to file a registration statement for those
shares in three increments at the Lewis family's request from July 1, 2000 to
July 1, 2002. Under the terms of the purchase agreement, a Lewis family member
has also been appointed to the Company's board of directors.
In connection with the acquisition of Lewis Homes, the Company obtained a $200
million unsecured Term Loan Agreement with various banks to refinance certain
debt assumed. The Term Loan Agreement dated January 7, 1999 provides for payment
of $25 million due on January 31, 2000, April 30, 2000 and July 31, 2000, with
the remaining principal balance due on April 30, 2001. Interest is payable
monthly at the London Interbank Offered Rate plus an applicable spread. Under
the terms of the Term Loan Agreement, the Company is required, among other
things, to maintain certain financial statement ratios and a minimum net
13
<PAGE> 14
worth and is subject to limitations on acquisitions and indebtedness. The
financing obtained under the Term Loan Agreement did not impact the amounts
available under the Company's pre-existing borrowing arrangements. The Company
used borrowings under its $500 million domestic unsecured revolving credit
facility to refinance certain other debt assumed in the Lewis Homes acquisition.
The acquisition consideration for Lewis Homes was determined by arms-length
negotiations between the parties. The acquisition was accounted for as a
purchase, with the results of Lewis Homes included in the Company's consolidated
financial statements as of January 7, 1999.
As of February 28, 1999, the Company had $391.5 million available under its $500
million domestic unsecured revolving credit facility. The Company's French
unsecured financing agreements, totaling $132.5 million, had in the aggregate
$81.0 million available at February 28, 1999. In addition, the Company's
mortgage banking operation had $22.6 million available under its $250 million
mortgage warehouse facility at quarter-end. The Company's financial leverage, as
measured by the ratio of net debt to total capital, was 51.0% at the end of the
1999 first quarter compared to 56.9% at the end of the 1998 first quarter.
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.
YEAR 2000 ISSUE
The term "year 2000 issue" is a general term used to describe the complications
that may arise from the use of existing computer hardware and software designed
by applicable manufacturers without consideration for the upcoming change in the
century. If not corrected, software programs with this embedded problem may
cause computer systems to fail or to miscalculate data.
The Company has invested in information systems required to support its KB2000
operational business model and effectively manage and control growth. In
conjunction with its investment in technology, with respect to the year 2000
issue, the Company has undertaken a project to modify or replace portions of its
existing computer operating systems to ensure they will function properly with
respect to dates in the year 2000 and thereafter. A "Year 2000 Project Office"
has been formed to direct the Company-wide efforts encompassed by this project.
The Year 2000 Project Office is responsible to assure proper planning,
sufficient resources, contemporaneous monitoring, proper certification and
timely completion of the year 2000 projects. The Company's year 2000 projects
encompass its information technology systems as well as its non-information
technology systems, such as systems embedded in its office equipment and
facilities.
State of Year 2000 Readiness. The scope of the Company's year 2000 compliance
effort has been defined to include 13 distinct projects. Four of the 13 projects
address areas of greatest business risk and require the greatest technical
effort and, therefore, have been given the highest priority. These four high
priority projects are the following: conversion and upgrade of the Company's JD
Edwards primary accounting programs (the "JD Edwards Programs"); conversion and
upgrade of the operating systems for the Company's Texas operations which were
not associated with the JD Edwards Programs; conversion and upgrade of the
operating systems for the Company's mortgage banking operations which were not
associated with the JD Edwards Programs; and the upgrade of the Company's
primary computer network and personal computers. Of these four high priority
projects, as of April 14, 1999, the upgrade of the Company's primary computer
network and personal computers is substantially complete and is being tested,
the remediation of the JD Edwards Programs is complete and is being tested, the
upgrade of the Company's mortgage banking operating systems is complete and is
being tested, and the conversion and upgrade of the operating systems for the
Company's Texas operations are in the process of being remediated. These four
projects are on schedule for completion by June 1999.
14
<PAGE> 15
The remaining nine projects that comprise the balance of the Company's year 2000
compliance effort present a lower business risk and require less technical
effort to complete. Eight of these nine projects are comprised of the following:
conversion of business unit personal computer applications and templates that
are not associated with the JD Edwards Programs; upgrade of the Company's
telephone and voice mail systems; certification of year 2000 readiness or
upgrade of the Company's fax machines, copiers, miscellaneous equipment and
office facilities; verification, involving three projects, that material
third-party suppliers to the Company are year 2000 compliant; upgrade and/or
certification of the systems used by the Company's operations in France; and
certification and/or upgrade of the systems used by the Company's operations in
Mexico. As of April 14, 1999 these eight projects are in various stages of
assessment and/or remediation. The ninth project is comprised of the Company's
contingency plan in the event problems are encountered as the year 2000 begins.
This project is in the assessment stage and is expected to be completed by
September 1999.
As noted, three of the 13 projects that comprise the Company's year 2000
compliance effort involve verification that the third parties with which the
Company has a material relationship are year 2000 compliant. The Company is
currently in various stages of assessment with respect to these third-party
verification projects. As part of these projects, the Company's relationships
with suppliers, subcontractors, financial institutions, vendors and other third
parties will be examined to determine the status of the year 2000 issue efforts
as related to the Company's operations. As a general matter, the Company is
vulnerable to its vendors' inability to remedy their own year 2000 issues.
Furthermore, the Company relies both domestically and internationally on
financial institutions, government agencies (particularly for zoning, building
permits and related matters), utility companies, telecommunication service
companies and other service providers outside of its control. There is no
assurance that such third parties will not suffer a year 2000 business
disruption and it is conceivable that such failures could, in turn, have a
material adverse effect on the Company's liquidity, financial condition or
results of operations.
Cost of Addressing Year 2000 Issues. Several of the projects included in the
Company's year 2000 plan are projects which were necessary to support the
Company's KB2000 operational business model, and would have been undertaken
regardless of year 2000 exposure. The total cost of all of the Company's
projects associated with its year 2000 plan is currently estimated to be
approximately $4.1 million; however, because such projects involve conversions
and upgrades that were not necessitated to meet year 2000 concerns, it is not
possible to determine the portion of that amount which is specifically
attributable to year 2000 compliance efforts. The total amount expended on all
projects related to year 2000 compliance was $2.9 million as of April 14, 1999.
The Company believes that the total costs incurred to specifically address the
year 2000 issue will not have a material impact on the Company's liquidity,
financial condition or results of operations, for any year in the reasonably
foreseeable future. The schedule for the successful completion of the Company's
year 2000 project and the estimated costs are based upon certain assumptions by
management regarding future events, including the continued availability of
qualified resources to implement the program and the costs of such resources.
Risks Presented by Year 2000 Issues. The Company's failure to resolve a material
year 2000 issue could result in the interruption in, or a failure of, certain
normal business activities or operations. Such failures could materially and
adversely affect the Company's results of operations. Although the Company
considers its exposure to the year 2000 issue risks from third-party suppliers
as generally low, due to the uncertainty of the year 2000 readiness of
third-party suppliers, the Company is unable to determine at this time the
consequences of a year 2000 failure. In addition, the Company could be
materially impacted by the widespread economic or financial market disruption by
year 2000 computer system failures at government agencies on which the Company
is dependent for mortgage lending, zoning, building permits and related matters.
Possible risks of year 2000 failure could include, among other things, delays or
errors with respect to payments, third-party delivery of materials and
government approvals. The Company's year 2000 project is expected to
significantly reduce the Company's level of uncertainty and exposure to the year
2000 issue and, in particular, its vulnerability to the year 2000 compliance of
material third parties. To date, the Company has not identified any operating
systems, either of its own or of a third-party supplier, that present a material
risk of not being year 2000 ready or for which a suitable alternative cannot be
implemented.
Contingency Plan. The Company's year 2000 project calls for a year 2000-specific
contingency plan to be developed. This plan is expected to be completed by
August 1999. As a normal course of business, the
15
<PAGE> 16
Company maintains contingency plans designed to address various other potential
business interruptions. In addition to the Company's year 2000-specific
contingency plan, these pre-existing contingency plans should assist in
mitigating any adverse effect because of the interruption of support provided by
third parties resulting from their failure to be year 2000 ready.
Management currently anticipates that its operating systems will be year 2000
compliant well before January 1, 2000, and that its third-party verification and
overall contingency plans should enable it to mitigate third-party disruptions
to its business which are of short duration or geographically localized. At the
present time, management believes that the year 2000 issue will not have a
material adverse effect on the Company's liquidity, financial condition or
results of operations.
OUTLOOK
The Company's residential backlog as of February 28, 1999 consisted of 9,216
units, representing aggregate future revenues of approximately $1.4 billion, up
73.9% and 76.0%, respectively, from 5,301 units, representing aggregate future
revenues of approximately $799.1 million, a year ago. The backlog units and
value at February 28, 1999 were the highest of any quarter-end backlog in the
Company's history and include 2,412 units from the Lewis Homes, Hallmark,
PrideMark, Estes and General Homes operations. Company-wide net orders for the
first three months of 1999 totaled 5,621, up 51.3% compared to the 3,716 net
orders in the first three months of 1998, including a total of 1,623 net orders
generated from operations acquired in 1999 and 1998.
The Company's domestic operations accounted for approximately $1.2 billion of
backlog value on 8,020 units at February 28, 1999, up from approximately $700.8
million on 4,574 units at February 28, 1998, reflecting higher backlogs from
both California and Other U.S. operations. Backlog in California increased to
approximately $450.0 million on 1,925 units at February 28, 1999 from $337.4
million on 1,563 units at February 28, 1998 as net orders increased 23.9% to
1,572 in the first quarter from 1,269 for the same quarter a year ago. The
Company's Other U.S. operations more than doubled their backlog levels from the
year earlier, with approximately $760.3 million in backlog, based on 6,095 units
at February 28, 1999, up from $363.3 million on 3,011 units at February 28,
1998, reflecting a 70.4% increase in Other U.S. net orders to 3,514 in the first
quarter of 1998 from 2,062 in the year-earlier quarter. The year-over-year
growth in total United States backlog units and value resulted primarily from
the acquisitions completed during 1999 and 1998 as well as improved absorption
rates and the Company's emphasis on pre-sales. Excluding backlog related to the
1998 and 1999 acquisitions, the Company's domestic unit backlog as of February
28, 1999 rose 28.4% compared to February 28, 1998. Improved market conditions in
California and the success of the Company's communities designed under its
KB2000 operational business model also contributed to the increase in United
States backlog levels. The average number of active communities in the Company's
domestic operations for the first quarter of 1999 increased 70.6% from the same
quarter a year ago, representing a 12.5% increase in California and a 122.2%
increase in Other U.S operations.
In France, the value of residential backlog at February 28, 1999 was
approximately $190.0 million on 1,172 units, up from $89.3 million on 696 units
a year earlier. The Company's net orders in France increased by 43.8% to 532 in
the first quarter of 1999 from 370 in the first quarter of 1998. The value of
backlog associated with the Company's French commercial development activities
declined to approximately $.2 million at February 28, 1999 from $4.1 million at
February 28, 1998, reflecting a reduced level of activity due to the Company's
strategy to focus primarily on the expansion of its residential development
business.
In Mexico, the value of residential backlog at February 28, 1999 was
approximately $6.1 million on 24 units compared to $9.1 million on 31 units at
February 28, 1998. Operations in Mexico generated 3 net orders in the first
quarter of 1999, compared to 15 net orders generated in the same period a year
ago. Mexico's economy has shown signs of recovering from the country's recent
deep recession brought about by the 1994 devaluation of its currency.
Nevertheless, economic and political conditions remain unsettled. As a result,
the Company has decided to deliver its current backlog and sell the remaining
lots at its Mexico project while it reassesses its strategy with regard to
operating in Mexico.
16
<PAGE> 17
Substantially all of the homes included in residential backlog are expected to
be delivered in 1999; however, cancellations could occur, particularly if market
conditions deteriorate or mortgage interest rates increase, thereby decreasing
backlog and related future revenues.
Company-wide net orders for the first four weeks of the second quarter of 1999
increased 35.5% from the same period a year ago. During this same period,
domestic net orders were up 31.3% from the prior year's period, reflecting a
21.8% increase in California net orders and a 37.1% increase in net orders from
Other U.S. operations. In France, net orders for the first four weeks of fiscal
1999 increased 71.3% compared with the same period in 1998. Despite the overall
improvement in net orders Company-wide, current global market uncertainties,
mortgage interest rate volatility, declines in consumer confidence and/or other
factors could have mitigating effects on full year results.
During 1999, the Company plans to remain focused on the two primary initiatives
it originally established in 1997: deepening the implementation of its KB2000
operational business model throughout the Company's operations and continued
acceleration of the Company's growth. To advance these initiatives, the Company
also continues to concentrate on its two complementary strategies consisting of
establishing optimum local market positions and maintaining its focus on
acquisitions.
The Company hopes to continue to increase overall unit delivery growth in future
years. The Company's growth strategies include expanding existing operations to
optimal market volume levels, as well as entering new markets at high volume
levels, principally through acquisitions. Growth in existing markets will be
driven by the Company's ability to increase the average number of active
communities in its major markets through the successful implementation of its
KB2000 operational business model. The Company's ongoing acquisition strategy is
expected to supplement growth in existing markets and facilitate expansion into
new markets.
In January 1999, the Company continued its growth through acquiring the
remaining minority interest in General Homes and completing its purchase of
Lewis Homes. Including the Lewis Homes operations, which are expected to deliver
approximately 3,500 homes in 1999, the Company believes it will be the largest
homebuilder in the United States in 1999, as measured by the total number of
units delivered during the year. The Company continues to explore opportunities
to enter new markets and plans to grow in its existing markets with growth in
both new and existing markets expected to be supplemented by strategic
acquisitions.
In the aggregate, the Company has established a goal of delivering approximately
21,500 units Company-wide in 1999. This goal could be materially affected by
various risk factors such as changes in general economic conditions either
nationally or in the regions in which the Company operates or may commence
operations, job growth and employment levels, home mortgage interest rates or
consumer confidence, among other things. Nevertheless, the Company remains
optimistic about its ability to continue to grow its business in 1999. With the
addition of the companies acquired in 1998 and 1999, including Lewis Homes, and
high current backlog levels, the Company believes it is well positioned to
achieve record earnings in 1999.
SAFE HARBOR STATEMENT
Investors are cautioned that certain statements contained in this document, as
well as some statements by the Company in periodic press releases and some oral
statements by Company officials to securities analysts and stockholders during
presentations about the Company are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
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 statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Company
actions, 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 future events and are subject to risks,
uncertainties, and assumptions about the Company, economic and market factors
and the
17
<PAGE> 18
homebuilding industry, among other things. These statements are not guaranties
of future performance, and the Company has no specific intention to update these
statements.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements made by the Company or Company
officials due to a number of factors. The principal important risk factors that
could cause the Company's actual performance and future events and actions to
differ materially from such forward-looking statements include, but are not
limited to, changes in general economic conditions either nationally or in
regions where the Company operates or may commence operations, employment growth
or unemployment rates, lumber or other homebuilding material prices, labor
costs, home mortgage interest rates, competition, currency exchange rates as
they affect the Company's operations in France, consumer confidence, and
government regulation or restrictions on real estate development, costs and
effects of unanticipated legal or administrative proceedings and capital or
credit market conditions affecting the Company's cost of capital; the
availability and cost of land in desirable areas, and conditions in the overall
homebuilding market in the Company's geographic markets (including the historic
cyclicality of the industry); the success of the Company and its significant
suppliers in identifying and addressing operating systems and programs that are
not year 2000 ready; as well as seasonality, competition, population growth,
property taxes, and unanticipated delays in the Company's operations. See the
Company's Annual Report on Form 10-K for the year ended November 30, 1998 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.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Stockholders of the Company was held on April 1,
1999, at which the two matters described below were submitted to a vote of
stockholders with the voting results as indicated.
(1) Election of directors for a three-year term expiring at the 2002 Annual
Meeting of Stockholders:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
------------------- ----------- ------------------
<S> <C> <C>
Jane Evans 39,527,673 5,350,681
James A. Johnson 39,522,172 5,356,182
Sanford C. Sigoloff 39,516,175 5,362,179
</TABLE>
Messrs. Steve Bartlett, Bruce Karatz, Randall W. Lewis and Charles R.
Rinehart continue as directors and, if nominated, will next stand for
re-election at the 2000 Annual Meeting of Stockholders; Messrs. Ronald
W. Burkle, Ray R. Irani, Guy Nafilyan and Luis G. Nogales also continue
as directors and, if nominated, will next stand for re-election at the
2001 Annual Meeting of Stockholders.
(2) A stockholder resolution concerning the elimination of the
classification of the board of directors:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
---------- ---------- -------- ---------------
<S> <C> <C> <C>
21,155,613 19,896,257 156,976 3,668,508
</TABLE>
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, 1999 and 1998, together with backlog data in terms of
units and value by geographical market as of February 28, 1999 and 1998.
<TABLE>
<CAPTION>
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
--------------- --------------- --------------- -----------------------
Market 1999 1998 1999 1998 1999 1998 1999 1998
------ ----- ----- ----- ----- ----- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 1,199 1,022 1,572 1,269 1,925 1,563 $ 449,993 $337,424
Other U.S. 2,757 1,341 3,514 2,062 6,095 3,011 760,283 363,340
Foreign 323 266 535 385 1,196 727 196,028 98,378
----- ----- ----- ----- ----- ----- ---------- --------
Total 4,279 2,629 5,621 3,716 9,216 5,301 $1,406,304 $799,142
===== ===== ===== ===== ===== ===== ========== ========
</TABLE>
* Backlog amounts for 1999 have been adjusted to reflect the acquisition of
Lewis Homes. Therefore, backlog amounts at November 30, 1998 combined with
net order and delivery activity for the first three months of 1999 will not
equal ending backlog at February 28, 1999.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
24 The consent of Ernst & Young LLP, independent auditors, filed as an
exhibit to the Company's 1998 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
Reports on Form 8-K
On January 22, 1999, the Company filed a Current Report on Form 8-K (Item 5),
dated January 7, 1999, announcing the consummation of the acquisition of Lewis
Homes and which included therewith, among other things, the Purchase Agreement
(Amended and Restated), executed January 7, 1999, Representation Warranty and
Indemnity Agreement, dated January 7, 1999, Registration Rights Agreement, dated
January 7, 1999 and Term Loan Agreement, dated as of January 7, 1999.
On February 12, 1999, the Company filed a Current Report on Form 8-K (Item 5),
dated February 4, 1999, announcing the Company's declaration of a dividend of
one preferred stock purchase right for each share of common stock and special
common stock held of record on March 5, 1999 and which included therewith the
Rights Agreement, dated February 4, 1999, between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent.
On March 22, 1999, the Company filed a Current Report on Form 8-K/A (Item 5),
amending the Current Report on Form 8-K filed on January 22, 1999 which reported
the acquisition of Lewis Homes. The filing included the audited combined
statements of assets and liabilities of Lewis Homes as of December 31, 1998 and
1997, and the related combined statements of operations, changes in equity and
cash flows for each of the three years in the period ended December 31, 1998. In
addition, the Form 8-K/A included unaudited pro forma combined financial
statements and related notes of the Company, giving effect to the acquisition of
Lewis Homes.
20
<PAGE> 21
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 15, 1999 /s/ BRUCE KARATZ
--------------------------------- ---------------------------------------
Bruce Karatz
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Dated April 15, 1999 /s/ MICHAEL F. HENN
--------------------------------- ---------------------------------------
Michael F. Henn
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
21
<PAGE> 22
<TABLE>
<CAPTION>
Page of
Sequentially
INDEX OF EXHIBITS Numbered Pages
---------------------
<S> <C> <C>
27 Financial Data Schedule 23
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 11,362
<SECURITIES> 55,243<F1>
<RECEIVABLES> 462,583
<ALLOWANCES> 0
<INVENTORY> 1,487,385
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,396,882
<CURRENT-LIABILITIES> 0
<BONDS> 473,754<F2>
0
0
<COMMON> 47,900
<OTHER-SE> 583,502
<TOTAL-LIABILITY-AND-EQUITY> 2,396,882
<SALES> 682,209
<TOTAL-REVENUES> 694,143
<CGS> 559,945
<TOTAL-COSTS> 563,701<F3>
<OTHER-EXPENSES> 96,308<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,082
<INCOME-PRETAX> 24,886
<INCOME-TAX> 8,700
<INCOME-CONTINUING> 16,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,186
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
<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.
</FN>
</TABLE>
