<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 29, 2000.
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
(State of incorporation)
95-3666267
(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, 41,153,308 shares outstanding. Excluded
from the calculation of shares outstanding are 6,968,280 shares held by the
Registrant's Grantor Stock Ownership Trust.
<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 29, 2000 and February 28, 1999 3
Consolidated Balance Sheets -
February 29, 2000 and November 30, 1999 4
Consolidated Statements of Cash Flows -
Three Months ended February 29, 2000 and February 28, 1999 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
INDEX OF EXHIBITS 18
</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 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
TOTAL REVENUES $ 799,585 $ 694,143
========= =========
CONSTRUCTION:
Revenues $ 786,225 $ 682,209
Construction and land costs (640,631) (559,945)
Selling, general and administrative expenses (103,928) (93,362)
--------- ---------
Operating income 41,666 28,902
Interest income 1,921 1,910
Interest expense, net of amounts capitalized (6,064) (6,082)
Minority interests (5,802) (5,182)
Equity in pretax income of unconsolidated joint ventures 454 106
Gain on issuance of French subsidiary stock 39,630 --
--------- ---------
Construction pretax income 71,805 19,654
--------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 5,265 3,997
Other 8,095 7,937
--------- ---------
13,360 11,934
Expenses:
Interest (4,876) (3,756)
General and administrative (2,875) (2,946)
--------- ---------
Mortgage banking pretax income 5,609 5,232
--------- ---------
TOTAL PRETAX INCOME 77,414 24,886
Income taxes (13,200) (8,700)
--------- ---------
NET INCOME $ 64,214 $ 16,186
========= =========
BASIC EARNINGS PER SHARE $ 1.51 $ .36
========= =========
DILUTED EARNINGS PER SHARE $ 1.47 $ .35
========= =========
BASIC AVERAGE SHARES OUTSTANDING 42,662 44,648
========= =========
DILUTED AVERAGE SHARES OUTSTANDING 43,766 46,122
========= =========
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 29, November 30,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 29,892 $ 15,576
Trade and other receivables 228,428 205,847
Mortgages and notes receivable 62,564 58,702
Inventories 1,681,679 1,521,265
Investments in unconsolidated joint ventures 23,261 21,290
Deferred income taxes 98,308 99,519
Goodwill 202,343 205,618
Other assets 90,377 86,259
----------- -----------
2,416,852 2,214,076
----------- -----------
MORTGAGE BANKING:
Cash and cash equivalents 8,918 12,791
Receivables:
First mortgages and mortgage-backed securities 45,402 47,080
First mortgages held under commitments of
sale and other receivables 258,648 386,076
Other assets 5,474 4,212
----------- -----------
318,442 450,159
----------- -----------
TOTAL ASSETS $ 2,735,294 $ 2,664,235
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 348,060 $ 328,528
Accrued expenses and other liabilities 206,109 222,855
Mortgages and notes payable 965,214 813,424
----------- -----------
1,519,383 1,364,807
----------- -----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 4,503 9,711
Notes payable 251,844 377,666
Collateralized mortgage obligations secured by
mortgage-backed securities 34,544 36,219
----------- -----------
290,891 423,596
----------- -----------
Minority interests:
Consolidated subsidiaries and joint ventures 44,850 9,499
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company 189,750 189,750
----------- -----------
234,600 199,249
----------- -----------
Common stock 48,122 48,091
Paid-in capital 335,818 335,324
Retained earnings 460,975 376,626
Accumulated other comprehensive income (1,837) (1,584)
Grantor stock ownership trust (152,658) (81,874)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 690,420 676,583
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,735,294 $ 2,664,235
=========== ===========
</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 29, February 28,
2000 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64,214 $ 16,186
Adjustments to reconcile net income to net cash used by operating
activities:
Equity in pretax income of unconsolidated joint ventures (454) (106)
Minority interests 5,802 5,182
Gain on issuance of French subsidiary stock (39,630) --
Amortization of discounts and issuance costs 249 431
Depreciation and amortization 10,161 7,694
Provision for deferred income taxes 1,211 5,296
Change in:
Receivables 100,981 (4,206)
Inventories (149,082) (64,329)
Accounts payable, accrued expenses and other liabilities (4,274) 14,291
Other, net (9,734) (2,012)
--------- ---------
Net cash used by operating activities (20,556) (21,573)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired -- (8,568)
Investments in unconsolidated joint ventures (1,517) 1,759
Net originations of mortgages held for long-term investment (477) (1,832)
Payments received on first mortgages and mortgage-backed securities 2,182 5,063
Purchases of property and equipment, net (2,460) (5,273)
--------- ---------
Net cash used by investing activities (2,272) (8,851)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and
other short-term borrowings 6,749 (1,935)
Issuance of French subsidiary stock 113,118 --
Payments on collateralized mortgage obligations (1,696) (4,712)
Payments on mortgages, land contracts and other loans (4,987) (7,441)
Payments to minority interests (6,011) (3,887)
Payments of cash dividends (3,118) (3,592)
Repurchases of common stock (70,784) --
--------- ---------
Net cash provided (used) by financing activities 33,271 (21,567)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,443 (51,991)
Cash and cash equivalents at beginning of period 28,367 63,353
--------- ---------
Cash and cash equivalents at end of period $ 38,810 $ 11,362
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 1,579 $ (1,920)
========= =========
Income taxes paid $ 4,537 $ 166
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 11,332 $ 1,140
========= =========
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, 1999 contained in the Company's 1999
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 29, 2000, the results of its consolidated
operations for the three months ended February 29, 2000 and February 28,
1999, and its consolidated cash flows for the three months ended
February 29, 2000 and February 28, 1999. The results of operations for
the three months ended February 29, 2000 are not necessarily indicative
of the results to be expected for the full year. The consolidated
balance sheet at November 30, 1999 has been taken from the audited
financial statements as of that date.
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
------------ ------------
<S> <C> <C>
Homes, lots and improvements in production $1,228,265 $1,063,505
Land under development 453,414 457,760
---------- ----------
Total inventories $1,681,679 $1,521,265
========== ==========
</TABLE>
The impact of capitalizing interest costs on consolidated pretax income
is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Interest incurred $ 21,592 $ 15,771
Interest expensed (6,064) (6,082)
-------- --------
Interest capitalized 15,528 9,689
Interest amortized (8,031) (10,928)
-------- --------
Net impact on consolidated pretax income $ 7,497 $ (1,239)
======== ========
</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 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Basic average shares outstanding 42,662 44,648
Net effect of stock options assumed to be exercised 1,104 1,474
------ ------
Diluted average shares outstanding 43,766 46,122
====== ======
</TABLE>
4. Comprehensive Income
Comprehensive income consists of net income and foreign currency
translation adjustments and totaled $64.0 million and $14.1 million for
the three months ended February 29, 2000 and February 28, 1999,
respectively.
5. Segment Information
The Company has identified two reportable segments: construction and
mortgage banking. Information for the Company's reportable segments is
presented in its consolidated statements of income and consolidated
balance sheets included herein. The Company's reporting segments follow
the same accounting policies used for the Company's consolidated
financial statements. Management evaluates a segment's performance based
upon a number of factors including pretax results.
6. Issuance of French Subsidiary Stock
On February 7, 2000, Kaufman & Broad S.A. (KBSA), the Company's wholly
owned French subsidiary issued 5,314,327 common shares (including the
over allotment option) in an initial public offering. The offering was
made in France and in Europe and was priced at 23 euros per share. KBSA
is now listed on the Premier Marche of the ParisBourse. The offering
generated total net proceeds of $113.1 million of which $82.9 million
was used by the Company to reduce its domestic debt and repurchase
additional shares of its common stock. The remainder of the proceeds
will be used to fund internal and external growth of the French
homebuilding operations. The Company recognized a gain of $39.6 million,
or $.91 per diluted share as a result of the transaction. The Company
continues to own a majority interest in KBSA and will continue to
consolidate these operations in its financial statements.
7. Stock Repurchase Plan
As of April 13, 2000, the Company had repurchased 9.1 million of the
10.5 million shares of the Company's common stock authorized for
repurchase by the Board of Directors.
8. Mortgages and Notes Payable
On February 18, 2000, the Company's mortgage banking subsidiary renewed
its revolving mortgage warehouse agreement (the "Mortgage Warehouse
Facility") and increased the facility from $250 million to $300 million.
The Mortgage Warehouse Facility, which expires on February 18, 2003,
provides for an annual
7
<PAGE> 8
KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Mortgage and Notes Payable (continued)
fee based on the committed balance of the facility and provides for
interest at either the London Interbank Offered Rate or the Federal
Funds Rate plus an applicable spread on amounts borrowed. The amount
outstanding under the facility is secured by a borrowing base, which
includes certain mortgage loans held under commitments of sale and is
repayable from proceeds on the sales of first mortgages. There are no
compensating balance requirements under the facility. The terms of the
Mortgage Warehouse Facility include financial covenants and restrictions
which, among other things, require the maintenance of certain financial
statement ratios and a minimum tangible net worth.
The Company's mortgage banking subsidiary is in the process of renewing
its $150 million Master Loan and Security Agreement which expires on May
25, 2000.
9. Acquisition
Effective January 7, 1999, the Company acquired substantially all of the
homebuilding assets of the Lewis Homes group of companies ("Lewis
Homes"). 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. 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.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisitions
of Lewis Homes had occurred as of December 1, 1998 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):
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 28,
1999
------------------
<S> <C>
Total revenues $777,095
Total pretax income 29,401
Net income 19,101
Basic earnings per share .40
Diluted earnings per share .39
</TABLE>
10. Reclassification
Certain amounts in the consolidated financial statements of prior years
have been reclassified to conform to the 2000 presentation.
8
<PAGE> 9
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 29, 2000 increased $105.4
million or 15.2% to $799.6 million from $694.1 million for the quarter ended
February 28, 1999 due to higher housing and land sale revenues, as well as
increased revenues from mortgage banking operations. Net income for the first
quarter of 2000 rose to $64.2 million or $1.47 per diluted share from $16.2
million or $.35 per diluted share for the same period a year ago. Results for
the first quarter of 2000 included a one-time gain of $39.6 million, or $.91 per
diluted share, on the issuance of stock by the Company's French subsidiary (the
French IPO gain) in an initial public offering. Excluding the French IPO gain,
diluted earnings per share in the first quarter of 2000 totaled $.56 per share,
up 60.0% compared with the first quarter of 1999. The increase in net income
excluding the French IPO gain was principally driven by higher unit deliveries,
an improved construction gross margin and a reduction in the selling, general
and administrative expense ratio as well as increased mortgage banking pretax
income. Mortgage banking pretax income increased 7.2% in the first three months
of 2000 compared to the first three months of 1999 primarily due to a higher
volume of loan closings.
CONSTRUCTION
Revenues increased by $104.0 million, or 15.2%, to $786.2 million in the first
quarter of 2000 from $682.2 million in the first quarter of 1999 primarily due
to an increase in housing revenues. Housing revenues for the period increased by
$92.8 million to $770.9 million from $678.1 million in the year-earlier period
primarily as a result of a 6.7% increase in unit deliveries. Housing revenues in
the United States rose to $687.6 million on 4,045 unit deliveries in the first
three months of 2000, compared to $625.3 million on 3,956 units in the first
three months of 1999 as a result of increased housing revenues from both
California and Other U.S. operations. Housing revenues from California
operations totaled $290.1 million in the first quarter of 2000, up 3.1% from
$281.4 million in the year-earlier period. The increase in California housing
revenues occurred even as California unit deliveries decreased 5.9% to 1,128
units in the first quarter of 2000 from 1,199 units in the first quarter of
1999. Housing revenues from Other U.S. operations rose 15.6% to $397.4 million
in the first quarter of 2000 from $343.9 million in the first quarter of 1999.
Other U.S. deliveries increased 5.8% to 2,917 units in the first quarter of 2000
from 2,757 units in the first quarter of 1999 while the average number of active
communities remained flat. Revenues from French housing operations during the
first quarter of 2000 increased to $82.2 million on 516 units from $52.2 million
on 321 units in the prior year's quarter, reflecting improvement in the French
housing market.
During the first quarter of 2000, the Company's overall average selling price
increased 6.6% to $168,900 from $158,500 in the prior year's period. The
Company's domestic average selling price increased 7.5% to $170,000 in the first
quarter of 2000 from $158,100 in the first quarter of 1999. During the first
quarter of 2000, the average selling price in the Company's California
operations rose to $257,200 from $234,700 in the same quarter of 1999 and the
average selling price for Other U.S. operations increased to $136,200 from
$124,800. These increases occurred as a result of selected increases in sales
prices in certain markets. In France, the average selling price in the first
quarter of 2000 decreased 2.1% to $159,300 from $162,700 in the year-earlier
quarter primarily due to a change in the mix of deliveries.
Revenues from land sales totaled $15.3 million in the first quarter of 2000
compared to $4.0 million in the first quarter of 1999.
Operating income increased by $12.8 million to $41.7 million in the first
quarter of 2000 from $28.9 million in the first quarter of 1999. As a percentage
of construction revenues, operating income increased by 1.1 percentage points to
5.3% in the first quarter of 2000 compared to 4.2% in the first quarter of 1999.
Gross profits increased by $23.3 million, or 19.1% to $145.6 million in the
first quarter of 2000 from $122.3 million in the prior year's period. Gross
profits as a percentage of construction revenues rose to 18.5% in the first
quarter of 2000 from 17.9% in the year-earlier quarter primarily due to an
increase in the Company's housing gross margin to 18.9% from 18.0%. The increase
in the Company's housing gross margin resulted primarily from the improved
pricing environment in the latter part of 1999 as well as the reduced impact
related to
9
<PAGE> 10
purchase accounting associated with the 1999 acquisition of Lewis Homes.
Company-wide land sales generated break-even results in the first quarters of
2000 and 1999.
Selling, general and administrative expenses increased by $10.6 million, or
11.3%, to $103.9 million in the three months ended February 29, 2000 from $93.4
million in the corresponding 1999 period. As a percentage of housing revenues,
selling, general and administrative expenses were 13.5% in the first quarter of
2000 compared to 13.8% in the same period a year ago as a result of reduced
reliance on sales incentives and leveraging of size to reduce overhead costs.
Interest income totaled $1.9 million in both the first quarter of 2000 and the
first quarter of 1999, reflecting relatively little change in the interest
bearing average balances of short-term investments and mortgages receivable
during the periods.
Interest expense (net of amounts capitalized) totaled $6.1 million in the first
quarter of 2000, remaining level with the same period of 1999. Gross interest
incurred in the three months ended February 29, 2000 was $5.8 million higher
than the amount incurred in the same period of 1999, reflecting an increase in
average indebtedness. The percentage of interest capitalized during the three
months ended February 29, 2000 and February 28, 1999 was 71.9% and 61.4%,
respectively. The higher capitalization rate in the 2000 period resulted from a
higher proportion of land under development in the first quarter of 2000
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 61.2% and 49.5% in the first quarter of 2000 and 1999,
respectively.
Minority interests totaled $5.8 million in the first quarter of 2000 and $5.2
million in the first quarter of 1999. Minority interests for the three month
periods ended February 29, 2000 and 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. Minority interests in the first quarter of
2000 increased from the same quarter of 1999 due to the impact of the French
IPO.
Equity in pretax income of unconsolidated joint ventures totaled $.5 million in
the first quarter of 2000 compared to $.1 million in the first quarter of 1999.
The Company's joint ventures recorded combined revenues of $28.4 million in the
first three months of 2000 compared to $.7 million in the corresponding period
of 1999. All of the joint venture revenues in the first quarters of 2000 and
1999 were generated from residential properties.
Gain on issuance of French subsidiary stock totaled $39.6 million in the first
quarter of 2000. This one-time gain resulted from the issuance of 5,314,327
common shares (including the over allotment option) by KBSA, the Company's
wholly owned French subsidiary, in an initial public offering. The offering was
made in France and in Europe and was priced at 23 euros per share. KBSA is now
listed on the Premiere Marche of the ParisBourse. The offering generated total
net proceeds of $113.1 million of which $82.9 million was used by the Company to
reduce its domestic debt and repurchase additional shares of its common stock.
The remainder of the proceeds will be used to fund internal and external growth
of the French homebuilding operations. The Company continues to own a majority
interest in KBSA and will continue to consolidate these operations in its
financial statements.
MORTGAGE BANKING
Interest income and interest expense increased by $1.3 million and $1.1 million,
respectively, in the first quarter of 2000 compared to the same quarter a year
ago. Interest income increased as a result of a higher balance of first
mortgages held under commitments of sale and other receivables outstanding
during the first quarter of 2000 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 million to $8.1 million in the
first three months of 2000 from $7.9 million in the first three months of 1999.
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.
10
<PAGE> 11
General and administrative expenses totaled $2.9 million for the quarters ended
February 29, 2000 and February 28, 1999. General and administrative expenses for
2000 remained flat with year ago levels due to the impact of cost containment
efforts offsetting the effect of higher mortgage production volume.
INCOME TAXES
Income tax expense totaled $13.2 million in the first quarter of 2000 and $8.7
million in the prior year's first quarter. These amounts represented effective
income tax rates of approximately 35% in both 2000 (excluding the gain on
issuance of French subsidiary stock) and 1999.
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 2000, net cash provided by operating, investing and financing
activities totaled $10.4 million compared to $52.0 million used in the prior
year's first quarter.
Operating activities used $20.6 million of cash during the first three months of
2000 compared to $21.6 million used during the same period of 1999. The
Company's uses of operating cash in the first quarter of 2000 included cash used
for investments in inventories of $149.1 million (excluding $11.3 million of
inventories acquired through seller financing), a gain on the issuance of French
subsidiary stock of $39.6 million, a decrease in accounts payable, accrued
expenses and other liabilities of $4.3 million and other operating uses of $9.7
million. Partially offsetting these uses was cash provided from a decrease in
receivables of $101.0 million, first quarter earnings of $64.2 million and
various noncash items deducted from net income.
Operating activities in the first quarter of 1999 used $64.3 million for net
investments in inventories (excluding $1.1 million of inventories acquired
through seller financing) and $4.2 million for an increase in receivables. The
cash used was partially offset by cash provided from first quarter earnings of
$16.2 million, an increase in accounts payable, accrued expenses and other
liabilities of $14.3 million and various noncash items deducted from net income.
Inventories increased, primarily in California and Other U.S. operations, as the
Company continued its accelerated growth strategy in certain markets.
Investing activities used $2.3 million of cash in the first quarter of 2000
compared with $8.9 million used in the year-earlier period. In the first quarter
of 2000, cash was used for net purchases of property and equipment of $2.5
million, investments in unconsolidated joint ventures of $1.5 million and
originations of mortgages held for long-term investment of $.5 million.
Partially offsetting these uses was cash provided from $2.2 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. 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 net originations of mortgages held
for long-term investment of $1.8 million. The cash used in 1999 was partly
offset by $5.1 million in proceeds received from mortgage-backed securities and
$1.7 million in distributions related to investments in unconsolidated joint
ventures.
Financing activities in the first three months of 2000 provided $33.3 million of
cash, while first quarter 1999 financing activities used $21.6 million. In the
first quarter of 2000, cash was provided from proceeds from the issuance of
French subsidiary stock of $113.1 million and net proceeds from borrowings of
$1.8 million. Partially offsetting these sources were payments for repurchases
of common stock of $70.8 million, payments to minority interests of $6.0
million, cash dividend payments of $3.1 million and payments on collateralized
mortgage obligations of $1.7 million. Financing activities in 1999's first
quarter resulted in net cash outflows due mainly to net payments on borrowings
of $9.4 million, payments on collateralized mortgage obligations of $4.7
million, payments to minority interests of $3.9 million and cash dividend
payments of $3.6 million.
On February 18, 2000, the Company's mortgage banking subsidiary renewed its
revolving mortgage warehouse agreement (the "Mortgage Warehouse Facility") and
increased the facility from $250 million to $300 million. The mortgage warehouse
facility, which expires on February 18, 2003, provides for an annual fee based
on the committed balance of the facility and provides for interest at either the
London Interbank Offered Rate or the Federal Funds Rate plus an applicable
spread on amounts borrowed. The amount
11
<PAGE> 12
outstanding under the facility is secured by a borrowing base, which includes
certain mortgage loans held under commitments of sale and is repayable from
proceeds on the sales of first mortgages. There are no compensating balance
requirements under the facility. The terms of the Mortgage Warehouse Facility
include financial covenants and restrictions which, among other things, require
the maintenance of certain financial statement ratios and a minimum tangible net
worth. The Company's mortgage banking subsidiary is in the process of renewing
its $150 million Master Loan and Security Agreement which expires on May 25,
2000.
As of February 29, 2000, the Company had $131.1 million available under its $500
million domestic unsecured revolving credit facility. The Company's French
unsecured financing agreements, totaling $190.1 million, had in the aggregate
$132.6 million available at February 29, 2000. In addition, the Company's
mortgage banking operation had $57.9 million available under its $300 million
mortgage warehouse facility and $140.3 million available under its $150 million
Master Loan and Security Agreement at quarter-end. The Company's financial
leverage, as measured by the ratio of net debt to total capital, was 52.3% at
the end of the 2000 first quarter compared to 51.0% at the end of the 1999 first
quarter.
As of April 13, 2000, the Company had repurchased a total of 9.1 million of the
10.5 million shares of the Company's common stock authorized for repurchase by
the Board of Directors.
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 29, 2000 consisted of 9,473
units, representing aggregate future revenues of approximately $1.53 billion, up
2.8% and 9.0%, respectively, from 9,216 units, representing aggregate future
revenues of approximately $1.41 billion, a year ago. Company-wide net orders for
the first three months of 2000 totaled 5,325, down 5.3% compared to the 5,621
net orders in the first three months of 1999.
Company-wide net orders for the first four weeks of the second quarter of 2000
increased 24.2% from the same period a year ago. During this same period,
domestic net orders were up 34.2% from the prior year's period, reflecting a
19.5% increase in California net orders and a 42.1% increase in net orders from
Other U.S. operations. In France, net orders for the first four weeks of fiscal
2000 decreased 38.7% compared with the same period in 1999. 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.
The Company's domestic operations accounted for approximately $1.28 billion of
backlog value on 7,907 units at February 29, 2000, compared to approximately
$1.21 billion on 8,020 units at February 28, 1999. Backlog in California
increased to approximately $495.8 million on 2,092 units at February 29, 2000,
up from $450.0 million on 1,925 units at February 28, 1999 despite net orders
decreasing 14.7% to 1,341 in the first quarter of 2000 from 1,572 for the same
quarter a year ago. The Company's Other U.S. operations had approximately $787.9
million in backlog, based on 5,815 units at February 29, 2000, compared to
$760.3 million on 6,095 units at February 28, 1999, reflecting a 2.5% decrease
in Other U.S. net orders to 3,426 in the first quarter of 2000 from 3,514 in the
year-earlier quarter. The average number of active communities in the Company's
domestic operations for the first quarter of 2000 increased 2.6% from the same
quarter a year ago, representing a 6.9% increase in California and a relatively
flat number of communities in other U.S operations.
In France, the value of residential backlog at February 29, 2000 was
approximately $249.6 million on 1,566 units, up from $190.0 million on 1,172
units a year earlier. The Company's net orders in France increased by 4.9% to
558 in the first quarter of 2000 from 532 in the first quarter of 1999. The
value of backlog associated with the Company's French commercial development
activities rose to approximately $9.5 million at February 29, 2000 from $.2
million at February 28, 1999.
12
<PAGE> 13
Substantially all of the homes included in residential backlog are expected to
be delivered in 2000; however, cancellations could occur, particularly if market
conditions deteriorate or mortgage interest rates increase, thereby decreasing
backlog and related future revenues.
During 2000, the Company plans to continue to operate under its operational
business model KB2000 and to strive for continued growth. The Company has
leveraged the business model with additional and complementary initiatives
including strategies to establish leading market positions and maintain 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.
As part of its strategy, the Company has made a commitment to pursue
opportunities in the area of e-commerce under its recently formed subsidiary,
e.kb. These efforts include improving its web site, kbhomes.com, to provide more
information for consumers, utilizing its houseCALL center to support web site
efforts such as "chat" capabilities and making strategic investments. To date,
the Company has invested in BuildNet, a leading provider of e-business,
technology and project management systems for the homebuilding industry and has
been instrumental in the formation of a new company, along with other leading
homebuilders, that will launch a new homebuilder web site.
The Company is also in the process of reviewing its assets and business for the
purpose of monetizing non-strategic or marginal positions, and has instituted
even more stringent criteria for prospective land acquisitions. Included among
these initiatives is the Company's exploration of the sale of certain domestic
operating divisions, which do not individually or in the aggregate comprise a
material portion of the Company's business. These initiatives are intended to
increase cash flows available to reduce debt and/or repurchase additional stock.
Based on its current projections, the Company expects to establish record
earnings in fiscal 2000, although 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 and the extent of its internal asset review, among other
things. Recent increases in short-term interest rates instituted by the Federal
Reserve Board may give rise to further increases in mortgage interest rates.
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 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, national or regional changes in general economic conditions,
employment levels, costs of homebuilding material and labor, home mortgage and
other interest rates, the secondary market for mortgage loans, competition,
currency exchange rates as they affect the Company's operations in France,
consumer confidence, government regulation or restrictions on real
13
<PAGE> 14
estate development, capital or credit market conditions affecting the Company's
cost of capital; the availabilityand cost of land in desirable areas;
environmental factors, governmental regulations, unanticipated violations of
Company policy, 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, 1999 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.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Stockholders of the Company was held on April 6,
2000, 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 2003 Annual
Meeting of Stockholders:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
------- --------- ------------------
<S> <C> <C>
Bruce Karatz 45,043,841 661,972
Randall W. Lewis 45,044,187 661,626
</TABLE>
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 2001 Annual Meeting of Stockholders; Ms. Jane Evans and Messrs.
James A. Johnson, Barry Munitz and Sanford C. Sigoloff also continue as
directors and, if nominated, will next stand for re-election at the 2002
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>
19,482,797 20,737,962 1,895,579 3,589,475
</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 29, 2000 and February 28,
1999, together with backlog data in terms of units and value by
geographical market as of February 29, 2000 and February 28, 1999.
<TABLE>
<CAPTION>
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
----------------------- ----------------------- ----------------------- -----------------------
Market 2000 1999 2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 1,128 1,199 1,341 1,572 2,092 1,925 $ 495,782 $ 449,993
Other U.S. 2,917 2,757 3,426 3,514 5,815 6,095 787,861 760,283
Foreign 520 323 558 535 1,566 1,196 249,581 196,028
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 4,565 4,279 5,325 5,621 9,473 9,216 $1,533,224 $1,406,304
========== ========== ========== ========== ========== ========== ========== ==========
Unconsolidated
joint ventures 123 -- 115 -- 211 -- $ 38,824 $ --
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
Backlog amounts for 1999 were 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.
15
<PAGE> 16
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 1999 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 29, 2000.
16
<PAGE> 17
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 14, 2000 /s/ BRUCE KARATZ
-------------------- --------------------------------------
Bruce Karatz
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Dated April 14, 2000 /s/ WILLIAM R. HOLLINGER
-------------------- --------------------------------------
William R. Hollinger
Vice President and Controller
(Chief Accounting Officer)
17
<PAGE> 18
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Page of Sequentially
Numbered Pages
--------------------
<S> <C>
27 Financial Data Schedule 19
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-28-2000
<CASH> 38,810
<SECURITIES> 45,402<F1>
<RECEIVABLES> 549,640
<ALLOWANCES> 0
<INVENTORY> 1,681,679
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,735,294
<CURRENT-LIABILITIES> 0
<BONDS> 508,496<F2>
0
0
<COMMON> 48,122
<OTHER-SE> 642,298
<TOTAL-LIABILITY-AND-EQUITY> 2,735,294
<SALES> 786,225
<TOTAL-REVENUES> 799,585
<CGS> 640,631
<TOTAL-COSTS> 645,507<F3>
<OTHER-EXPENSES> 106,803<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,064
<INCOME-PRETAX> 77,414
<INCOME-TAX> 13,200
<INCOME-CONTINUING> 64,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,214
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.47
<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>
