<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 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)
<TABLE>
<S> <C>
INCORPORATED IN DELAWARE 95-3666267
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
INCOME PRIDES NEW YORK STOCK EXCHANGE
GROWTH PRIDES NEW YORK STOCK EXCHANGE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE
7 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE
9 5/8% SENIOR SUBORDINATED NOTES DUE 2006 NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
COMPANY ON FEBRUARY 15, 2000 WAS $799,499,850. EXCLUDED FROM THE CALCULATION OF
MARKET VALUE ON FEBRUARY 15, 2000 ARE 6,491,400 SHARES HELD BY THE REGISTRANT'S
GRANTOR STOCK OWNERSHIP TRUST.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK ON FEBRUARY 15, 2000 WAS AS FOLLOWS:
Common Stock (par value $1.00 per share) 41,620,554 shares. Excluded
from the calculation of shares outstanding on February 15, 2000 are
6,491,400 shares held by the Registrant's Grantor Stock Ownership
Trust.
DOCUMENTS INCORPORATED BY REFERENCE
1999 Annual Report to Stockholders (incorporated into Part II).
Notice of 2000 Annual Meeting of Stockholders and Proxy Statement
(incorporated into Part III).
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a builder of single-family homes with domestic operations in
six western states, and international operations in France. Domestically, in
1999, the Company became the largest homebuilder in the United States based on
the number of homes delivered. Founded in 1957, the Company builds innovatively
designed homes which cater primarily to first-time homebuyers, generally in
medium-sized developments close to major metropolitan areas. Internationally,
the Company also builds commercial projects and high density residential
properties such as condominium complexes. The Company is among the largest
builders in France based on the number of homes delivered. The Company provides
mortgage banking services to domestic homebuyers through its wholly owned
subsidiary, Kaufman and Broad Mortgage Company ("KBMC").
The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. The
Company's telephone number is (310) 231-4000 and its Internet address is
www.kbhomes.com. As used herein, the term "Company" refers to Kaufman and Broad
Home Corporation and its subsidiaries, unless the context indicates otherwise.
MARKETS
The Company achieved an all-time record 22,422 unit deliveries in 1999
(excluding 38 deliveries from certain unconsolidated joint ventures) and became
the largest homebuilder in the United States, as measured by unit deliveries.
The Company's unit deliveries for the year ended November 30, 1999 were
approximately 47% higher than the previous Company record of 15,213 units
established in 1998. The increase in deliveries in 1999 reflected increases in
all of the Company's key markets. Growth in domestic deliveries reflected an
increase in the average number of active communities resulting from the
Company's continued expansion of its operations and the acquisitions completed
in 1999 and 1998. In January 1999, the Company completed its purchase of
substantially all of the homebuilding assets of the Lewis Homes group of
companies ("Lewis Homes"). Prior to the acquisition, Lewis Homes was one of the
largest privately held single-family homebuilders in the United States based on
units delivered. Lewis Homes' principal markets were Las Vegas and Northern
Nevada, Southern California and the greater Sacramento area in Northern
California. The Company also acquired the remaining minority interest in
Houston-based General Homes Corporation ("General Homes") in January 1999 (The
Company had acquired a majority interest in General Homes in August 1998).
During the second quarter of 1998, the Company completed its acquisitions of
Houston-based Hallmark Residential Group ("Hallmark"), Phoenix/Tucson-based
Estes Homebuilding Co. ("Estes") and the assets of Denver-based PrideMark
Homebuilding Group ("PrideMark"). Growth in French deliveries in 1999 resulted
partly from improved market conditions and the acquisition of Park, a French
condominium builder, in the second half of 1999.
Since 1997, the Company has nearly doubled its annual unit deliveries and
more than doubled its unit backlog. The Company hopes to continue to increase
unit deliveries in future years, with its current primary growth strategies to
expand existing operations to optimal market volume levels, while entering new
markets, at high volume levels, through acquisitions. The Company's growth could
be materially affected by various risk factors such as changes in general
economic conditions either nationally or in 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 hopes to continue to grow its business in 2000.
During 1999, the average number of active communities operated by the
Company was 315, an increase of approximately 50% over 1998. The average selling
price of the Company's homes was $166,500 in 1999, up approximately 6% from 1998
due to the inclusion of somewhat higher-priced deliveries in California and
Nevada related to the Lewis Homes acquisition, as well as higher-priced
deliveries in France. In addition, the Company increased prices in certain fast
selling, hard to replace communities due to improved market conditions in
several of its major markets.
The Company's principal geographic markets as of November 30, 1999 were:
California; "Other U.S." (comprised of the Company's operations in Arizona,
Colorado, Nevada, New Mexico and Texas); and France (principally
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metropolitan Paris). The Company delivered its first homes in California in
1963, France in 1970, Nevada in 1993, Arizona and Colorado in 1994, New Mexico
in 1995 and Texas in 1996.
To enhance its operating capabilities in regional submarkets, the Company
conducted its domestic homebuilding business in 1999 through five divisional
offices in California, one divisional office in each of Colorado and New Mexico,
two divisional offices in both Nevada and Arizona, and four divisional offices
in Texas. In addition, the Company operated 15 new home showrooms in 1999.
Internationally, the Company operates its construction business through two
divisional offices in France.
California. During the first half of the 1990s, weak conditions for new
housing and general recessionary trends in California prompted the Company in
1993 to begin diversifying its business through aggressive expansion into other
western states. Since 1995, the housing market has improved significantly in
California with the number of permits issued increasing in each succeeding year.
In 1999, new housing permits issued in the state increased approximately 8% from
the prior year. In 1999, the Company's California deliveries rose approximately
30% from the previous year to 6,323 units, reflecting an increase of
approximately 34% in the average number of active communities in the state.
Growth in the Company's California operations in 1999 was primarily driven by
the acquisition of Lewis Homes as well as improved market conditions. The
Company's market share in California was nearly 7% in 1999, which was the
largest market share of any homebuilder in the state.
In Southern California, the Company conducts its homebuilding activity in
Los Angeles, San Bernardino, Riverside, Ventura, Orange and San Diego counties.
In Northern California, the Company's activities are conducted in the San
Francisco Bay-Oakland-San Jose, Monterey Bay, Sacramento, Central Valley and
Fresno regions.
Most of the communities developed by the Company in California consist of
single-family detached homes primarily designed for the entry-level housing
market. These homes typically ranged in size from approximately 1,000 to 5,000
square feet in 1999 and sold at an average price of $246,000, well below the
statewide new home average of $282,400, as a result of the Company's emphasis on
the entry-level market. In 1999, the Company's average selling price in
California increased approximately 10% from the previous year, reflecting the
inclusion of higher-priced deliveries from the Lewis Homes operations and
selected increases in sales prices in certain markets based on improved market
conditions.
Other U.S. In the early 1990s, the greatly improved business conditions in
other western states coupled with the prolonged economic downturn in California
caused the Company to expand its domestic operations outside California. Since
1996, the Company has more than tripled the annual number of unit deliveries
generated from its Other U.S. operations. Deliveries from these operations
totaled 13,610 units in 1999, up approximately 56% from the prior year. This
increase was due to a higher average number of active communities, reflecting
the Company's growth strategy and the inclusion of operating results from
acquisitions. The Company's Other U.S. operations accounted for approximately
68% of its domestic home deliveries in 1999 compared to approximately 64% in
1998.
The Company conducts its Other U.S. homebuilding activities in Phoenix and
Tucson, Arizona; Denver, Colorado; Las Vegas and Reno, Nevada; Albuquerque, New
Mexico; and Austin, Dallas, Houston and San Antonio, Texas.
The communities developed by the Company's Other U.S. divisions primarily
consist of single-family detached entry-level homes. These homes typically
ranged in size from approximately 1,000 to 3,800 square feet in 1999 and sold at
an average price of $129,900. The average selling price of the Company's Other
U.S. homes increased approximately 9% in 1999 from $119,100 in 1998 due to the
inclusion of higher-priced deliveries from the Lewis Homes operations in Nevada
and selected increases in sales prices in certain markets due to favorable
market conditions.
France. The Company is one of the leading builders of homes (individual
homes in communities and condominium units) in France. Its principal market in
France is the Ile-de-France region, where it currently builds approximately 90%
of its individual homes and approximately 66% of its condominium units. The
Company also has activities in the regions of Marseille and Lyon (including
Besancon), as well as in Strasbourg and Rouen. At one time, the Company carried
out a large commercial building business; however, the Company's French
commercial operations, which developed commercial office buildings in Paris for
sale to institutional investors, became a smaller segment of the French
operations as the French economy declined in the first half of the 1990s. During
this time, the French economy experienced a significant recession reflecting low
consumer confidence, high unemployment and declines in both consumer and
business investments in real estate. Since 1996, the French economy has
continued to improve. In 1999,
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housing deliveries from the Company's French homebuilding operations increased
approximately 53% from the prior year to 2,465 units, partly due to improved
market conditions. The Company's French operations focused primarily on
single-family detached and attached homes in 1999, ranging in size from
approximately 800 to 2,700 square feet. The average selling price of the
Company's homes in France rose nearly 10% to $163,600 in 1999, primarily due to
a change in the mix of deliveries and price appreciation in the French housing
market. Revenues from the development of commercial buildings, all located in
metropolitan Paris, totaled $.7 million in 1999, $1.5 million in 1998 and $2.7
million in 1997.
On January 24, 2000, Kaufman & Broad S.A. ("KBSA"), the Company's wholly
owned French subsidiary filed a preliminary public offering memorandum for the
initial public offering of ordinary shares of KBSA. On February 7, 2000, KBSA
successfully completed its public offering and is now listed on the Premier
Marche of the ParisBourse. The offering of 5,148,937 shares (before exercise of
the over allotment option) was made in France and in Europe and was priced at 23
euros per share, representing a total offering of approximately $120.0 million.
Proceeds from the offering will be used to fund internal and external growth of
the French homebuilding operations, obtain better financing conditions, and
finance the payment of a dividend of approximately $85.0 million to the Company,
which the Company will use to reduce its domestic debt and repurchase additional
shares of its common stock. The Company continues to hold a majority interest in
KBSA and will continue to consolidate these operations in its financial
statements.
Unconsolidated Joint Ventures. The Company participates in the development,
construction and sale of residential properties and commercial projects through
a number of unconsolidated joint ventures. These include joint ventures in
California, Nevada, New Mexico, Texas and France.
Selected Market Data. The following table sets forth, for each of the
Company's principal markets, unit deliveries, average selling price of homes and
total construction revenues for the years ended November 30, 1999, 1998 and 1997
(excluding the effects of unconsolidated joint ventures).
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
California:
Unit deliveries........................................... 6,323 4,858 4,731
Average selling price..................................... $246,000 $224,500 $208,500
Total construction revenues (in millions)(1).............. $1,579.2 $1,105.9 $ 993.9
Other U.S.:
Unit deliveries........................................... 13,610 8,698 5,642
Average selling price..................................... $129,900 $119,100 $118,700
Total construction revenues (in millions)(1).............. $1,780.6 $1,042.4 $ 670.6
Foreign:
Unit deliveries........................................... 2,489 1,657 1,070
Average selling price(2).................................. $164,700 $152,400 $160,100
Total construction revenues (in millions)(1)(2)........... $ 412.3 $ 254.7 $ 179.1
Total:
Unit deliveries........................................... 22,422 15,213 11,443
Average selling price(2).................................. $166,500 $156,400 $159,700
Total construction revenues (in millions)(1)(2)........... $3,772.1 $2,403.0 $1,843.6
</TABLE>
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(1) Total construction revenues include revenues from residential development,
commercial activities and land sales.
(2) Average selling prices and total construction revenues for foreign
operations have been translated into U.S. dollars using weighted average
exchange rates for each period.
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STRATEGY
The Company remained focused throughout 1999 on two primary initiatives it
originally established in 1997: deepening the implementation of its KB2000
operational business model and continuing growth. To advance these initiatives,
the Company also concentrated on two complementary strategies consisting of
establishing optimally large local market positions and maintaining its focus on
integrating strategic acquisitions.
The KB2000 operational business model emphasizes efficiencies generated
from a more process-driven, systematic approach to homebuilding and also focuses
on gaining a deeper understanding of customer interests and needs. Key elements
of KB2000 include: improving the Company's understanding of customer desires and
preferences through frequent and localized surveys; emphasizing pre-sales in
contrast to speculative inventory; maintaining lower average levels of
in-process and standing inventory; establishing even flow production; providing
a wide spectrum of choice to customers in terms of location, design and options;
offering low base prices; and reducing the use of sales incentives. Since first
introducing the KB2000 operational business model in 1997, the Company has made
significant progress in implementing it by, among other things, focusing on the
pre-sale and backlog building strategy, developing and implementing a rigorous
and detailed customer survey program, and opening new KB2000 communities and new
home showrooms.
In order to leverage the benefits of the KB2000 operational business model,
the Company has concentrated on a strategy designed to achieve a leading
position in its major markets. By operating in fewer, larger markets at
sufficiently large volume levels, the Company believes it can better execute its
KB2000 operational business model and use economies of scale to increase
profits. The expected benefits of this strategy can include lower land
acquisition costs, improved terms with suppliers and subcontractors, the ability
to offer maximum choice and the best value to customers, and the retention of
the best management talent.
The Company hopes to continue to increase overall unit deliveries in future
years. The Company's growth strategies include expanding existing operations to
optimal market volume levels, as well as exploring entry into new markets at
high volume levels, through acquisitions from time to time. 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 continued successful
implementation of its KB2000 operational business model. Although the Company
has not made a major domestic acquisition since the January 1999 acquisition of
Lewis Homes, the Company continues to employ an acquisition strategy which has
enabled it to supplement growth in existing markets and facilitate expansion
into new markets. The Company believes that expanding its operations through the
acquisition of existing homebuilding companies affords several benefits such as
established land positions and existing relationships with land owners,
subcontractors and suppliers not found in start-up operations. During the last
four fiscal years, the Company has made the following acquisitions:
<TABLE>
<CAPTION>
ENTITY ACQUIRED DATE ACQUIRED MARKETS
- ----------------- ----------------- -----------------------------------
<S> <C> <C>
Rayco March 1996 San Antonio, Texas
SMCI July 1997 Paris, France
Hallmark March 1998 Austin, Houston and San Antonio,
Texas
PrideMark March 1998 Denver, Colorado
Estes April 1998 Phoenix and Tucson, Arizona
General Homes August 1998* Houston, Texas
Lewis Homes January 1999 Las Vegas, Nevada and Northern
Nevada; Southern California and the
greater Sacramento area of
California
Park August 1999 Paris, France
</TABLE>
* The Company also acquired the remaining minority interest in General Homes in
January 1999, bringing its total ownership interest to 100%.
In identifying acquisition targets, the Company seeks homebuilders that
possess the following characteristics: a business model similar to KB2000;
access to or control of land to support growth; a strong management team; and a
financial condition positioned to be accretive to earnings in the first full
year following acquisition. The Company believes that acquisitions fitting these
criteria will enable it to expand its operations in a focused and disciplined
manner.
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However, the Company's ability to acquire additional homebuilders could be
affected by several factors, including, among other things, conditions in the
U.S. securities markets, the Company's stock price, the general availability of
applicable acquisition candidates, pricing for such transactions, competition
among other national or regional builders for such target companies, changes in
general economic conditions nationally and in target markets, and capital or
credit market conditions.
The Company is in the process of reviewing its assets and businesses 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 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.
LOCAL EXPERTISE
Management believes that its business requires in-depth knowledge of local
markets in order to acquire land in desirable locations and on favorable terms,
to engage subcontractors, to plan communities keyed to local demand, to
anticipate customer tastes in specific markets and to assess the regulatory
environment. Accordingly, the Company's divisional structure is designed to
utilize local market expertise. The Company has experienced management teams in
each of its regional submarkets. Although the Company has centralized certain
functions, such as marketing, legal, materials purchasing and product
development, to benefit from economies of scale, local management continues to
exercise considerable autonomy in identifying land acquisition opportunities,
developing sales strategies, conducting production operations and controlling
costs. The Company seeks to operate at optimal volume levels in each of its
markets in order to maximize its competitive advantages and the benefits of the
KB2000 operational business model.
In France, the Company has assembled a French management team which is
highly experienced in its single-family housing and commercial real estate
businesses as well as the financing, development and construction of
high-density residential projects. This expertise includes knowledge of local
markets and the regulatory environment.
INNOVATIVE DESIGNS AND MARKETING STRATEGIES
The Company believes that it has been and continues to be an innovator in
the design of entry-level homes for the first-time buyer. The Company's in-house
architectural services group, whose plans are protected by copyright, has been
successful in creating distinctive design features that are not typically found
in comparably priced homes. In 1999, the Company continued its implementation of
KB2000, seeking to keep construction costs and base prices as low as possible
while achieving high quality levels and promoting customer choice.
Certain elements of the KB2000 operational business model include achieving
an in depth understanding of customer desires and preferences through detailed
market surveys and providing a wide spectrum of choice to customers in terms of
location, design and options. The Company's KB2000 communities offer entry-level
homebuyers an abundance of choices and options which allows customers to
customize their home to an extent not typically available with other builders.
The Company provides flooring and other options and upgrades to its homebuyers
through its new home showrooms. These showrooms, which are typically
approximately 10,000 square feet, are located separately from divisional
business offices and offer customers thousands of option combinations -- from
floor plans to fireplaces to garage doors -- in a retail environment convenient
to multiple communities. Company personnel are available at the showrooms to
assist homebuyers in selecting options and upgrades. During 1999, the Company
opened 2 new home showrooms, bringing its total to 15.
The Company markets its homes to prospective buyers through various types
of media, including newspaper advertisements, highway signs and direct mail. In
addition, the Company extends its marketing programs beyond these more
traditional approaches through the use of television advertising, off-site
telemarketing and large-scale promotions. The Company maintains market and
specific community information on its Internet website which can be reached at
www.kbhomes.com. The Company also utilizes a houseCall(TM) Center, a phone
service center designed to bring potential buyers to its communities while also
simplifying the home buying process for the consumer. The houseCall(TM) Center
can be reached at 1-800-34HOMES.
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The Company recently launched e.kb with the goal of increasing sales and
customer satisfaction, and improving the Company's financial performance through
e-commerce initiatives. Four key areas to be addressed by e.kb include:
enhancing the richness of up-to-date information available at www.kbhomes.com
and fully integrating the website with the houseCALL(TM) center, the new home
showrooms and all sales offices; developing strategic alliances that will enable
the Company to provide new products and services to homebuyers; utilizing
business-to-business resources to create cost and time savings for the Company;
and increasing the Company's ability to cross-sell communities through data
collection and retrieval, while protecting the privacy of its website visitors.
In France, the Company created a village concept through the elimination of
front-yard walls and the extensive use of landscaping. It also introduced to the
French market the American concept of a master bedroom suite, as well as walk-
in closets, built-in kitchen cabinetry and two-car garages. The Company believes
that in each of its residential markets, its value engineering enables it to
offer appealing and well-designed homes without increasing construction costs.
In 1998, the Company opened a 6,500 square foot new home showroom in Paris,
offering a broad choice of options to new home and condominium buyers. A French
website ("ketb.com") featuring available homes was also launched in 1998.
In all of the Company's domestic and international residential markets, the
sale of homes is carried out by its in-house sales force. The Company maintains
on-site sales offices, which are usually open seven days a week, and markets its
homes principally through the use of fully furnished and landscaped model homes
which are decorated to emphasize the distinctive design features and the choices
available to customers. Company sales representatives are available to assist
prospective buyers by providing them with floor plans, price information and
tours of model homes. These sales representatives are experienced, trained
individuals who can provide buyers with specific information regarding other
products in the area, the variety of financing programs available, construction
schedules and marketing and advertising plans. In all of its domestic
communities, the Company encourages participation of outside real estate brokers
in bringing prospective buyers to its communities.
COMMUNITY DEVELOPMENT
The community development process generally consists of three phases: land
acquisition; land development; and home construction and sale. The normal
development cycle for a community has historically ranged from six to 24 months
in California and is typically a somewhat shorter duration in the Company's
Other U.S. markets. In France, the development cycle has historically ranged
from 12 to 30 months. Development cycles vary depending on the extent of the
government approvals required, the size of the development, necessary site
preparation, weather conditions and marketing results.
When feasible, the Company acquires control of lot positions through the
use of options. In addition, the Company frequently acquires finished lots
within its pricing parameters, enabling it to deliver completed homes shortly
after acquisition. The total number of lots in the Company's domestic new home
communities vary significantly but typically are comprised of 50 to 250 lots.
These domestic developments usually include three different model home designs
and generally offer lot sizes ranging from approximately 3,000 to 10,000 square
feet, with premium lots often containing more square footage.
In prior years, the Company also acquired undeveloped and/or unentitled
properties, often with total lots significantly in excess of 250 lots. In 1996,
the Company decided to substantially eliminate its prior practice of investing
in such long-term development projects in order to reduce the operating risk
associated with such projects. However, as part of its recent acquisitions and
due to favorable market conditions for buildable land in California, the Company
has increased its long-term development holdings. In these holdings, however,
the Company typically offers multiple product lines through large model
complexes resulting in faster overall sales rates, shortening the total
investment cycle. In France, typical single-family developments consist of
approximately 30 to 40 lots, with average lot sizes of 3,500 square feet.
Land Acquisition and Development. In accordance with the KB2000
operational business model, all homebuyers of new and resale homes in each
market are carefully surveyed. Based upon these surveys, a marketing strategy is
developed which targets specific price points and geographic sectors which the
Company will pursue. The Company utilizes an in-house staff of land acquisition
specialists at each division who carry out extensive site selection research and
analysis in order to identify properties in desirable locations consistent with
the Company's market strategy. In acquiring land, the Company considers such
factors as: current market conditions, with an emphasis on the prices of
comparable new and resale homes in the particular market; expected sales rates;
proximity to metropolitan areas; population, industrial and
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<PAGE> 8
commercial growth patterns; estimated costs of completed lot development;
customer preferences; and environmental matters. Senior corporate management
controls the commitment of the Company's resources for all land acquisitions and
utilizes a series of specific financial and budgetary controls in approving
acquisition opportunities identified by division land acquisition personnel. The
Company employs strict standards for assessing all proposed land purchases
based, in part, upon specific discounted after tax cash flow internal rate of
return requirements and also evaluates each division's overall return on
investment. Consistent with these standards, the Company seeks to minimize, or
defer the timing of, cash expenditures for new land purchases and development by
acquiring lots under option, phasing the land purchase and lot development,
relying upon non-recourse seller financing or working with third-party land
developers. In addition, the Company focuses on acquiring finished or partially
improved lots, which allow the Company to begin delivery of finished homes
within six months of the purchase of such lots and reduces the risks of
unforeseen improvement costs and volatile market conditions. These techniques
are intended to enhance returns associated with new land investments by
minimizing the incremental capital required.
The following table shows the number of lots owned by the Company in
various stages of development and under option contracts in its principal
markets as of November 30, 1999 and 1998. The table does not include acreage
which has not yet been approved for subdivision into lots. This excluded acreage
consists of 767 acres and 863 acres owned in the United States in 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
TOTAL LOTS
HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR
PRODUCTION DEVELOPMENT OPTION UNDER OPTION
--------------- --------------- --------------- ---------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California........... 6,393 4,139 5,152 9,921 15,454 10,490 26,999 24,550
Other U.S............ 15,414 12,213 10,914 6,384 22,999 21,707 49,327 40,304
Foreign and Other.... 1,718 1,284 164 482 3,726 926 5,608 2,692
------ ------ ------ ------ ------ ------ ------ ------
Total...... 23,525 17,636 16,230 16,787 42,179 33,123 81,934 67,546
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company has reduced the proportion of unentitled and unimproved land in
its portfolio. In addition, the Company has and expects to continue to focus on
the purchase of raw land under options which require little or no initial
payments, or pursuant to purchase agreements in which the Company's obligations
are contingent upon the Company being satisfied with the feasibility of
developing and selling homes. During the option period of its acquisition
agreements, the Company performs technical, environmental, engineering and
entitlement feasibility studies and seeks to obtain necessary government
approvals. The use of such option arrangements allows the Company to evaluate
and obtain regulatory approvals for a project, to reduce its financial
commitments, including interest and other carrying costs, and to minimize land
inventories. It also improves the Company's capacity to estimate costs
accurately, an important element in planning communities and pricing homes. The
Company typically purchases amounts sufficient for its expected production needs
and does not purchase land for speculative investment.
In France, despite the improvement in the French real estate market, the
Company also employs conservative strategies, including a greater emphasis on
the entry-level market segment and generally restrictive policies regarding land
acquisition.
Home Construction and Sale. Following the purchase of land and, if
necessary, the completion of the entitlement process, the Company typically
begins marketing homes and constructing model homes. The time required for
construction of the Company's homes depends on the weather, time of year, local
labor situations, availability of materials and supplies and other factors. The
construction of production homes is generally contingent upon customer orders to
minimize the costs and risks of standing inventory. The Company's KB2000
operational business model emphasizes pre-selling, maintaining stringent control
of production inventory and reducing unsold inventory. The pre-selling of homes
benefits homebuyers by allowing them to personalize their homes by selecting
from a wider range of customizing options. As a result of the Company's KB2000
pre-sale and backlog building strategies, the percentage of sold inventory in
production at year end 1999 rose to approximately 73% from approximately 71% at
year end 1998.
The Company acts as the general contractor for its communities and hires
subcontractors for all production activities. The use of subcontractors enables
the Company to reduce its investment in direct labor costs, equipment and
facilities. Where practical, the Company uses mass production techniques, and
prepackaged, standardized components and
7
<PAGE> 9
materials to streamline the on-site production phase. During the early 1990s,
the Company developed systems for national and regional purchasing of certain
building materials, appliances and other items to take advantage of economies of
scale and to reduce costs. At all stages of production, the Company's own
administrative and on-site supervisory personnel coordinate the activities of
subcontractors and subject their work to quality and cost controls. As part of
its KB2000 strategies, the Company has also emphasized "even flow" production
methods to enhance the quality of its new homes, minimize production costs and
improve the predictability of revenues and earnings.
The Company generally prices its homes only after it has entered into
contracts for the construction of such homes with subcontractors, an approach
which improves its ability to estimate gross profits accurately. Wherever
possible, the Company seeks to acquire land and construct homes at costs which
allow selling prices to be set at levels below immediate competitors on a per
square foot basis, while maintaining appropriate gross margins.
The Company's division personnel provide assistance to the homebuyer during
all phases of the homebuying process and after the home is sold. The coordinated
efforts of sales representatives, on-site construction superintendents and post-
closing customer service personnel in the customer's homebuying experience is
intended to provide high levels of customer satisfaction and lead to enhanced
customer retention and referrals. In its domestic homebuilding operations, the
Company provides customers with a limited home warranty program administered by
the personnel in each of its divisions. This arrangement is designed to give
customers prompt and efficient post-delivery service directly from the Company.
The warranty program covers certain repairs which may be necessary following new
home construction for one or two year periods and covers structural integrity
for a period of ten years. In the aggregate, the costs associated with the
Company's warranty program are not material to its operations.
EXTERNAL RISK FACTORS
The Company's operations and markets are affected by local and regional
factors such as local economies, demographic demand for housing, population
growth, employment growth, property taxes and energy costs, and by national
factors such as short and long-term interest rates, consumer confidence, federal
mortgage financing programs, federal income tax provisions and general economic
trends. In addition, homebuilders are subject to various risks including
availability and cost of land, conditions of supply and demand in local markets,
weather conditions, and delays in construction schedules and the entitlement
process. Net orders often vary on a seasonal basis, with the lowest order
activity typically occurring in the winter months.
The Company's 1999 financial results were affected by various factors,
including but not limited to, improved demand for new housing in certain markets
in the United States and in France, the Company's acquisitions of Lewis Homes,
Park and the remaining minority interest in General Homes in 1999 and its
acquisitions in Arizona, Colorado and Texas completed during 1998, generally
favorable economic conditions in the Company's markets, and low domestic and
foreign interest rates. The Company believes that the homebuilding industry has
been significantly less cyclical over the past several years, and should
continue to be less cyclical if these favorable conditions continue. In
addition, the Company's strategies, including the KB2000 operational business
model, are also intended to reduce the cyclical nature of its business.
BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts
which generally require a customer deposit at the time of execution and an
additional payment upon mortgage approval. Subject to particular contract
provisions, the Company generally permits customers to cancel their obligations
and obtain refunds of their deposits in the event mortgage financing is
unobtainable within a specified period of time.
Backlog consists of homes for which the Company has entered into a sales
contract but which it has not yet delivered. Ending backlog represents the
number of units in backlog from the previous period plus the number of net
orders (sales made less cancellations) taken during the current period minus
unit deliveries made during the current period. The backlog at any given time
will be affected by cancellations which most commonly result from the inability
of a prospective purchaser to obtain financing. Historically, the Company's
cancellation rates have increased during difficult economic periods. In
addition, deliveries of new homes typically increase from the first to the
fourth quarter in any year.
8
<PAGE> 10
The Company's backlog at November 30, 1999 reached a new year end record of
8,558 units, up approximately 23% from the 6,943 backlog units at year end 1998.
Domestically, improvement occurred in both California and Other U.S. operations
primarily due to the Lewis Homes acquisition completed during the first quarter
of 1999, improved order rates reflecting generally good market conditions
throughout the United States, particularly in California, and the Company's
emphasis on pre-sales. The success of communities designed under its KB2000
operational business model also contributed to the increase in domestic backlog
levels. KB2000 initiatives caused the Company's backlog ratio to increase to
approximately 157% at year end 1999 from approximately 152% at year end 1998
(Backlog ratio is defined as the ratio of beginning unit backlog to actual
deliveries in the succeeding quarter).
Internationally, unit backlog in France was approximately 43% higher at
November 30, 1999 as compared to November 30, 1998. This increase was partly due
to substantial improvement in the French housing market and the acquisition of
Park in 1999.
The following table sets forth net orders, unit deliveries and ending
backlog relating to sales of homes and homes under contract for each quarter
during the three-year period ended November 30, 1999. The information in the
table excludes activity related to unconsolidated joint ventures. For the year
ended November 30, 1999, activity associated with unconsolidated joint ventures
included net orders, unit deliveries and ending backlog of 38, 38 and 219,
respectively.
<TABLE>
<CAPTION>
NET UNIT ENDING
ORDERS DELIVERIES BACKLOG*
------ ---------- --------
<S> <C> <C> <C>
Fiscal 1999:
First Quarter......................... 5,621 4,279 9,216
Second Quarter........................ 7,219 5,139 11,296
Third Quarter......................... 5,347 6,103 10,809
Fourth Quarter........................ 4,869 6,901 8,558
Fiscal 1998:
First Quarter......................... 3,716 2,629 5,301
Second Quarter........................ 4,861 3,409 7,581
Third Quarter......................... 3,883 4,167 7,630
Fourth Quarter........................ 4,321 5,008 6,943
Fiscal 1997:
First Quarter......................... 2,755 2,108 3,486
Second Quarter........................ 3,396 2,465 4,417
Third Quarter......................... 3,310 3,016 5,040
Fourth Quarter........................ 3,028 3,854 4,214
</TABLE>
* Backlog amounts for 1999 have been adjusted to reflect the acquisitions of
Lewis Homes and Park. Therefore, backlog amounts at November 30, 1998 combined
with net order and delivery activity for 1999 will not equal ending backlog at
November 30, 1999. Similarly, backlog amounts for 1998 were adjusted to
reflect the acquisitions of Hallmark, PrideMark and Estes, and the acquisition
of a majority interest in General Homes, while backlog amounts for 1997 were
adjusted to reflect the acquired SMCI developments in France.
LAND AND RAW MATERIALS
Management believes that the Company's current supply of land is sufficient
for its reasonably anticipated needs over the next several years, and that it
will be able to acquire land on acceptable terms for future housing developments
absent great changes in current land acquisition market conditions. The
principal raw materials used in the construction of homes are concrete and
forest products. (In France, the principal materials used in the construction of
commercial buildings are steel, concrete and glass.) In addition, the Company
uses a variety of other construction materials, including sheetrock, plumbing
and electrical items. The Company attempts to maintain efficient operations by
utilizing standardized materials which are commercially available on competitive
terms from a variety of sources. In addition, the Company's centralized
purchasing of certain building materials, appliances and fixtures, enable it to
benefit from large quantity purchase discounts for its domestic operations. When
possible, the Company makes bulk purchases of such products at favorable prices
from suppliers and instructs subcontractors to submit bids based on such prices.
9
<PAGE> 11
LAND SALES
In the normal course of its business, the Company sells land which either
can be sold at an advantageous price due to market conditions or does not meet
its marketing needs. This property may consist of land zoned for commercial use
which is part of a larger parcel being developed for single-family homes or in
areas where the Company may consider its inventory to be excessive. Generally,
land sales fluctuate with decisions to maintain or decrease the Company's land
ownership position in certain markets based upon the volume of its holdings, the
strength and number of competing developers entering particular markets at given
points in time, the availability of land in markets served by the Company and
prevailing market conditions. Land sales are expected to increase in 2000 in
connection with the Company's review of its assets and businesses for the
purpose of monetizing non-strategic or marginal positions. Land revenues totaled
$37.8 million in 1999, $22.5 million in 1998 and $13.6 million in 1997.
CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY
On-site personnel at the Company's communities in the United States
facilitate sales by offering to arrange financing for prospective customers
through KBMC. Management believes that the ability to offer customers financing
on firm, competitive terms as a part of the sales process is an important factor
in completing sales.
KBMC's business consists of providing the Company's domestic customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KBMC has its headquarters in Los Angeles and operates branch offices in Phoenix
and Tucson, Arizona; Fremont, Modesto, Newport Beach, Pomona, San Diego and
Vacaville, California; Denver, Colorado; Las Vegas and Reno, Nevada;
Albuquerque, New Mexico; and Austin, Dallas, Houston and San Antonio, Texas.
KBMC's principal sources of revenues are: (i) interest income earned on
mortgage loans during the period they are held by KBMC prior to their sale to
investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and
(iv) revenues from the sale of the rights to service loans.
KBMC is approved by the Government National Mortgage Association ("GNMA")
as a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated by
KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify
for inclusion in loan guarantee programs sponsored by Fannie Mae or the Federal
Home Loan Mortgage Corporation ("FHLMC"). KBMC arranges for fixed and adjustable
rate, conventional, privately insured mortgages, FHA-insured or VA-guaranteed
mortgages, and mortgages funded by revenue bond programs of states and
municipalities. In 1999, approximately 47% of the mortgages originated for the
Company's customers were conventional (most of which conformed to Fannie Mae and
FHLMC guidelines), approximately 40% were FHA-insured or VA-guaranteed (a
portion of which are adjustable rate loans), approximately 7% were funded by
mortgage revenue bond programs and approximately 6% were adjustable rate
mortgages ("ARMs") provided through commitments from institutional investors.
The percentages set forth above change from year to year reflecting then-current
fixed interest rates, introductory rates for ARMs, housing prices and other
economic conditions. In 1999, KBMC originated loans for approximately 80% of the
Company's domestic home deliveries to end users who obtained mortgage financing.
KBMC is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KBMC has delegated underwriting authority from Fannie Mae and
FHLMC. As a delegated underwriter, KBMC may underwrite and close mortgage loans
under programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.
KBMC customarily sells nearly all of the loans that it originates. Loans
are sold either individually or in pools to GNMA, Fannie Mae or FHLMC or against
forward commitments to institutional investors, including banks and savings and
loan associations.
KBMC typically sells servicing rights on a regular basis for substantially
all of the loans it originates. However, for a small percentage of loans, and to
the extent required for loans being held for sale to investors, KBMC services
the mortgages that it originates. Servicing includes collecting and remitting
loan payments, accounting for principal and interest, making inspections of
mortgaged premises as required, monitoring delinquent mortgages and generally
10
<PAGE> 12
administering the loans. KBMC receives fees for servicing mortgage loans,
generally ranging from .250% per annum to .375% per annum on the declining
principal balances of the loans.
The Company also assists its customers in France by arranging financing
through third-party lenders, primarily major French banks with which the Company
has established relationships. In some cases, French customers qualify for
certain government-assisted, home financing programs. A second mortgage is
usually handled through a government agency. A homebuyer in France may also have
a third mortgage provided through credit unions or other employee groups.
EMPLOYEES
All of the Company's operating divisions operate independently with respect
to day-to-day operations within the context of the KB2000 operational business
model. All land purchases and other significant construction, mortgage banking
and similar operating decisions must be approved by the operating division
and/or senior corporate management.
The Company employs a trained staff of land acquisition specialists,
architects, planners, engineers, construction supervisors, marketing and sales
personnel and finance and accounting personnel, supplemented as necessary by
outside consultants, who guide the development of communities from their
conception through the marketing and sale of completed homes.
At January 31, 2000, the Company had approximately 3,500 full-time
employees in its operations, including approximately 400 in KBMC's operations.
No employees are represented by a collective bargaining agreement.
Construction and mortgage banking personnel are paid performance bonuses
based on individual performance and incentive compensation based on the
performance of the applicable operating division or subsidiary. The Company's
corporate personnel are typically paid performance bonuses based on individual
performance and incentive compensation based on the overall performance of the
Company. Each operating division or subsidiary is given autonomy regarding
employment of personnel within policy guidelines established by the Company's
senior management.
COMPETITION AND OTHER FACTORS
The Company expects the use of the KB2000 operational business model,
particularly the aspects which involve gaining a deeper understanding of
customer interests and needs and offering a wide range of choice to homebuyers,
to provide it with long-term competitive advantages. The housing industry is
highly competitive, and the Company competes with numerous housing producers
ranging from regional and national firms to small local builders primarily on
the basis of price, location, financing, design, reputation, quality and
amenities. In addition, the Company competes with other housing alternatives
including existing homes and rental housing. In certain markets and at times
when housing demand is high, the Company also competes with other builders to
hire subcontractors. The Company has historically been one of the market leaders
in each of the markets where it operates.
Increases in interest rates typically have a negative impact on the
Company's operations in that such increases adversely affect the availability of
home financing to, or qualification for such financing by, the Company's
customers. Conversely, significant reductions in interest rates typically have a
positive effect on the Company's operations. The relatively low interest rates
which have been in effect since the mid-1990s have been beneficial to the
Company's improved domestic results. However, mortgage interest rates have risen
since the beginning of the Company's 1999 fiscal year. The Company anticipates
that recent increases in short-term interest rates instituted by the Federal
Reserve Board may give rise to further increases in mortgage interest rates. The
Company believes that, by virtue of its KB2000 operational business model and
the wide array of mortgage financing products readily available to its
homebuyers, the Company is less susceptible to adverse impacts of interest rate
increases on order rates than in the past.
The Company does not generally finance the development of its domestic
communities with proceeds of loans specifically obtained for, or secured by,
particular communities, i.e., project financing. Instead, financing of the
Company's domestic operations has been primarily generated from results of
operations, public debt and equity financing, and borrowings under its unsecured
revolving credit facility with various banks. Financing of the Company's French
operations has been primarily generated from results of operations and
borrowings from its unsecured committed credit lines with a series of foreign
banks. Furthermore, the initial public offering of the Company's French
operations,
11
<PAGE> 13
completed in February 2000, has strengthened the French business by providing it
with access to additional capital to support its growth. As a result of these
diverse external sources of financing, the Company was not adversely affected by
the tight credit conditions that much of the homebuilding industry experienced
during the recession of the early to mid-1990s, both domestically and in France.
KBMC competes with other mortgage lenders, including national, regional and
local mortgage bankers, savings and loan associations and other financial
institutions, in the origination, sale and servicing of mortgage loans.
Principal competitive factors include interest rates and other features of
mortgage loan products available to the consumer. KBMC's operations are financed
primarily through a $250 million revolving mortgage warehouse facility and a
$150 million Master Loan and Security Agreement with an investment bank.
REGULATION AND ENVIRONMENTAL MATTERS
The housing industry is subject to extensive and complex regulations. The
Company and its subcontractors must comply with various federal, state and local
laws, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. The operations of the Company are affected by
environmental laws and regulations, including regulations pertaining to
availability of water, municipal sewage treatment capacity, land use, protection
of endangered species, population density and preservation of the natural
terrain and coastlines. These and other requirements could become more
restrictive in the future, resulting in additional time and expense to obtain
approvals for the development of communities.
The Company is also subject to regulations and restrictions by the
government of France concerning investments in business operations in those
countries by U.S. companies, none of which has to date had a material adverse
effect on the Company's consolidated operations. The Company's foreign
operations are also subject to exchange rate fluctuations, which affect the
Company's financial statements and the reporting of profits and payment of
dividends from foreign subsidiaries, and to the terms of the Foreign Corrupt
Practices Act with which it is the strict policy of the Company to comply. In
addition, the Company periodically receives dividends and royalties from its
French operations without burdensome restrictions.
KBMC is subject to numerous federal, state and local laws, ordinances,
rules and regulations concerning loans to purchasers of homes as well as Company
eligibility for participation in programs of the VA, FHA, GNMA, Fannie Mae and
FHLMC.
The Company entered into a consent order with the Federal Trade Commission
in 1979, to which the Company is still subject and pursuant to which the Company
has agreed to provide explicit warranties on the quality and workmanship of its
new homes, follow certain guidelines in advertising and provide certain
disclosures to any prospective purchaser who visits Company sales offices or
model homes.
It is Company policy to use third-party environmental consultants to
investigate land considered for acquisition for environmental risks and
requiring disclosure from land sellers of known environmental risks. Despite
these activities, there can be no assurance that the Company will avoid material
liabilities relating to the removal of toxic wastes, site restoration,
monitoring or other environmental matters affecting properties currently or
previously owned by the Company. No estimate of such potential liabilities can
be made although the Company may, from time to time, purchase property which
requires modest environmental clean-up costs after appropriate due diligence. In
such instances, the Company takes steps prior to acquisition to assure itself as
to the precise scope of work required and costs associated with removal, site
restoration and/or monitoring, using detailed investigations by environmental
consultants. To the extent such contamination or other environmental issues have
occurred in the past, the Company believes it may be able to recover restoration
costs from third parties, including, but not limited to, the generators of
hazardous waste, land sellers or others in the prior chain of title and/or
insurers. Utilizing such policies, the Company anticipates that it is not likely
that environmental clean-up costs will have a material effect on future results
of operations or the Company's financial position. The Company has not been
notified by any governmental agency of any claim that any of the properties
owned or formerly owned by the Company are identified by the Environmental
Protection Agency as being a "Superfund" clean-up site requiring clean-up costs,
which could have a material effect on the Company's future financial position or
results of operations. Costs associated with the use of environmental
consultants are not material to the Company's results of operations.
12
<PAGE> 14
ITEM 2. PROPERTIES
The Company's executive offices are in leased premises at 10990 Wilshire
Boulevard, Los Angeles, California. The Company's housing operations are
principally conducted from leased premises located in Phoenix and Tucson,
Arizona; Fremont, Los Angeles, Modesto, Newport Beach, Palmdale, Pleasanton,
Pomona, Sacramento, San Diego and Vacaville, California; Denver, Colorado; Las
Vegas and Reno, Nevada; Albuquerque, New Mexico; Dallas and Houston, Texas; and
Paris, France.
The Company's mortgage banking subsidiaries lease executive offices in Los
Angeles, California and branch offices in Phoenix and Tucson, Arizona; Fremont,
Modesto, Newport Beach, Pomona, San Diego and Vacaville, California; Denver,
Colorado; Las Vegas and Reno, Nevada; Albuquerque, New Mexico; and Austin,
Dallas and Houston, Texas.
The Company's homebuilding operations in Austin, Texas and its homebuilding
and mortgage banking operations in San Antonio, Texas are principally conducted
from premises which the Company owns.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation incidental to its business. These
cases are in various procedural stages and, based on reports of counsel, it is
management's opinion that provisions or reserves made for potential losses are
adequate and any liabilities or costs arising out of currently pending
litigation will not have a materially adverse effect upon the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
13
<PAGE> 15
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of the Company as of January 31, 2000:
<TABLE>
<CAPTION>
YEAR
ASSUMED
PRESENT POSITION AT PRESENT OTHER POSITIONS AND OTHER BUSINESS EXPERIENCE WITHIN
NAME AGE JANUARY 31, 2000 POSITION THE LAST FIVE YEARS(1)
- --------------------- --- ------------------------- -------- ----------------------------------------------------
<S> <C> <C> <C> <C>
Bruce Karatz 54 Chairman, President and 1993
Chief Executive Officer
Jeffrey T. Mezger 44 Chief Operating Officer 1999 Senior Vice President and Regional General Manager
and Executive Vice President of Kaufman and Broad of Arizona, Inc.
President
Glen Barnard 55 Executive Vice President, 1999 Senior Vice President and Regional General Manager
President e.kb President of Kaufman and Broad of Utah, Inc.
President of Kaufman and Broad of Colorado, Inc.
Chairman, American Lives, Inc.
Guy Nafilyan 55 Executive Vice President, 1999 President of European Operations
Kaufman and Broad Home President and Chief Executive Officer of Kaufman and
Corporation; Chairman Broad France
and Chief Executive
Officer, Kaufman & Broad
S.A.
William R. Cardon 56 Senior Vice President and 1998 President of Kaufman and Broad Coastal, Inc.
Regional General Manager President of Kaufman and Broad of San Diego, Inc.
John "Buddy" E. 52 Senior Vice President and 1999 President, Texas Region
Goodwin Regional General Executive Vice President of Operations
Manager; President, of Kaufman and Broad of San Antonio
Kaufman and Broad of San Vice President of Sales and Marketing, Rayco Ltd.
Antonio
Michael F. Henn 51 Senior Vice President and 1994
Chief Financial Officer
Barton P. Pachino 40 Senior Vice President and 1993
General Counsel
Albert Z. Praw 51 Senior Vice President, 1999 Senior Vice President, Business Development
Asset Management and President of Kaufman and Broad of Southern
Acquisitions California, Inc.
Senior Vice President and Regional General Manager
Senior Vice President, Real Estate
Gary A. Ray 41 Senior Vice President, 1996 Vice President, Training and Development
Human Resources PepsiCo Restaurants International
William R. Hollinger 41 Vice President and 1992
Controller
Mary M. McAboy 47 Vice President, Investor 1999 Vice President, Investor Relations
and Public Relations Principal, McAboy & Associates
Vice President, Corporate Communications, The Vons
Companies, Inc.
<CAPTION>
NAME FROM - TO
- --------------------- ---------
<S> <C>
Bruce Karatz
Jeffrey T. Mezger 1998-1999
1995-1999
Glen Barnard 1996-1999
1997-1998
1995-1998
1991-1995
Guy Nafilyan 1992-1999
1983-1999
William R. Cardon 1997-Present
1987-Present
John "Buddy" E. 1997-1999
Goodwin 1996-1997
1988-1996
Michael F. Henn
Barton P. Pachino
Albert Z. Praw 1998-1999
1997-1998
1996-1998
1994-1996
Gary A. Ray 1994-1996
William R. Hollinger
Mary M. McAboy 1998-1999
1997-1998
1987-1997
</TABLE>
- ---------------
(1) All positions described were with the Company, unless otherwise indicated.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 2000, there were 1,522 holders of record of the Company's
common stock.
Information as to the Company's quarterly stock prices is included on page
83 of the Company's 1999 Annual Report to Stockholders, which is included as
part of Exhibit 13 hereto.
Information as to the principal markets on which the Company's common stock
is being traded and quarterly cash dividends is included on page 83 of the
Company's 1999 Annual Report to Stockholders, which is included as part of
Exhibit 13 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The Five Year Summary of Kaufman and Broad Home Corporation for the
five-year period ended November 30, 1999 is included on page 42 of the Company's
1999 Annual Report to Stockholders, which is included as part of Exhibit 13
hereto. It should be read in conjunction with the consolidated financial
statements included in the Company's 1999 Annual Report to Stockholders which
are also included as part of Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Kaufman and Broad Home Corporation is included on pages 43 through
57 of the Company's 1999 Annual Report to Stockholders, which are included as
part of Exhibit 13 hereto.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company primarily enters into debt obligations to support general
corporate purposes, including acquisitions, and the operations of its divisions.
The primary market risk facing the Company is the interest rate risk on its
senior and senior subordinated notes. The Company has no cash flow exposure due
to interest rate changes for these notes. In connection with the Company's
mortgage banking operations, mortgage loans held for sale and the associated
mortgage warehouse facility and Master Loan and Security Agreement are subject
to interest rate risk; however, such obligations reprice frequently and are
short-term in duration and accordingly the risk is not material. Under its
current policies, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes. The following table sets forth as
of November 30, 1999, the Company's long-term debt obligations, principal cash
flows by scheduled maturity, weighted average interest rates and estimated fair
market value (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, FAIR VALUE
----------------------------------------------------------------- AT NOVEMBER
2000 2001 2002 2003 2004 THEREAFTER TOTAL 30, 1999
-------- -------- -------- -------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt(1) -- -- -- $174,370 $175,000 $124,531 $473,901 $463,958
Fixed Rate
Weighted Average Interest Rate -- -- -- 9.4% 7.8% 9.6%
</TABLE>
- ---------------
(1) Includes senior and senior subordinated notes
A portion of the Company's construction operations are located in France.
As a result, the Company's financial results could be affected by factors such
as changes in the foreign currency exchange rate or weak economic conditions in
its markets. The Company's earnings are affected by fluctuations in the value of
the U.S. dollar as compared to foreign currency in France, as a result of its
sales in foreign markets. Therefore, for the year ending November 30, 1999, the
result of a 10% uniform strengthening in the value of the dollar relative to the
currency in which the Company's sales were denominated in France would have
resulted in a decrease in revenues of $40.5 million and a decrease in pretax
income of $2.8 million. Comparatively, the 1998 results of a 10% uniform
strengthening in the value of the dollar relative to the currencies in which the
Company's sales were denominated would have been a decrease in revenues of
15
<PAGE> 17
$25.5 million and a decrease in pretax income of $1.7 million. These
calculations assume that each exchange rate would change in the same direction
relative to the U.S. dollar. The Company's sensitivity analysis of the effects
of changes in foreign currency exchange rates does not factor in a potential
change in sales levels or local currency prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kaufman and Broad Home Corporation
are included on pages 58 through 79 of the Company's 1999 Annual Report to
Stockholders, which are included as part of Exhibit 13 hereto. Reference is made
to the Index to Financial Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Notice of 2000 Annual Meeting of Stockholders and Proxy Statement,
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, is
incorporated by reference in this Annual Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K and provides the information required under Part
III (Items 10, 11, 12 and 13) except for the information regarding the executive
officers of the Company, which is included in Part I on page 14 herein.
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Reference is made to the index set forth on page F-1 of this Annual
Report on Form 10-K.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Purchase Agreement (Amended and Restated), executed January
7, 1999, between the Company and the Lewis Homes sellers,
filed as an exhibit to the Company's Current Report on Form
8-K dated January 7, 1999, is incorporated by reference
herein.
2.2 Representation, Warranty and Indemnity Agreement, dated
January 7, 1999, between the Company and certain entities
affiliated with the Lewis Homes sellers, filed as an exhibit
to the Company's Current Report on Form 8-K dated January 7,
1999, is incorporated by reference herein.
3.1 Amended Certificate of Incorporation, filed as an exhibit to
the Company's Registration Statement No. 33-6471 on Form
S-1, is incorporated by reference herein.
3.2 Amendment to Certificate of Incorporation, filed as an
exhibit to the Company's Registration Statement No. 33-30140
on Form S-1, is incorporated by reference herein.
3.3 Certificate of Designation of Series A Participating
Cumulative Preferred Stock, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1,
is incorporated by reference herein.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.4 Certificate of Designation of Series B Mandatory Conversion
Premium Dividend Preferred Stock, filed as an exhibit to the
Company's Registration Statement No. 33-59516 on Form S-3,
is incorporated by reference herein.
3.5 Amended Certificate of Designation of Series B Mandatory
Conversion Premium Dividend Preferred Stock, filed as an
exhibit to the Company's Registration Statement No. 33-59516
on Form S-3, is incorporated by reference herein.
3.6 By-Laws, filed as an exhibit to the Company's Registration
Statement No. 33-30140 on Form S-1, is incorporated by
reference herein.
3.7 Amended Certificate of Designation of Series A Participating
Cumulative Preferred Stock, filed as an exhibit to the
Company's Registration Statement No. 001-09195 on Form
8-A12B, is incorporated by reference herein.
4.1 Amended Certificate of Incorporation, filed as an exhibit to
the Company's Registration Statement No. 33-6471 on Form
S-1, is incorporated by reference herein.
4.2 Amendment to Certificate of Incorporation, filed as an
exhibit to the Company's Registration Statement No. 33-30140
on Form S-1, is incorporated by reference herein.
4.3 By-Laws, filed as an exhibit to the Company's Registration
Statement No. 33-30140 on Form S-1, is incorporated by
reference herein.
4.4 Indenture relating to 9 3/8% Senior Subordinated Notes due
2003 between the Company and First National Bank of Boston,
dated May 1, 1993, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is
incorporated by reference herein.
4.5 Specimen of 9 3/8% Senior Subordinated Notes due 2003, filed
as an exhibit to the Company's Registration Statement No.
33-59516 on Form S-3, is incorporated by reference herein.
4.6 Indenture relating to 9 5/8% Senior Subordinated Notes due
2006 between the Company and SunTrust Bank, Atlanta, dated
November 19, 1996, filed as an exhibit to the Company's
Current Report on Form 8-K dated November 19, 1996, is
incorporated by reference herein.
4.7 Specimen of 9 5/8% Senior Subordinated Notes due 2006, filed
as an exhibit to the Company's Current Report on Form 8-K
dated November 19, 1996, is incorporated by reference
herein.
4.8 Indenture relating to 7 3/4% Senior Notes due 2004 between
the Company and SunTrust Bank, Atlanta, dated October 14,
1997, filed as an exhibit to the Company's Current Report on
Form 8-K dated October 14, 1997, is incorporated by
reference herein.
4.9 Specimen of 7 3/4% Senior Notes due 2004, filed as an
exhibit to the Company's Current Report on Form 8-K dated
October 14, 1997, is incorporated by reference herein.
4.10 Certificate of Trust of KBHC Financing I, filed as an
exhibit to the Company's registration Statement Nos.
333-51825 and 333-51825-01 (Amendment No. 4) on Form S-3, is
incorporated by reference herein.
4.11 Declaration of Trust of KBHC Financing I, filed as an
exhibit to the Company's Registration Statement Nos.
333-51825 and 333-51825-01 (Amendment No. 4) on Form S-3, is
incorporated by reference herein.
4.12 Amended and Restated Declaration of Trust of KBHC Financing
I, dated July 7, 1998, (including Capital Security
Certificate for KBHC Financing I, with respect to the
Capital Securities) filed as an exhibit to the Company's
Current Report on Form 8-K dated August 14, 1998, is
incorporated by reference herein.
4.13 Guarantee Agreement, dated July 7, 1998, in respect of KBHC
Financing I, in respect of the Capital Securities, filed as
an exhibit to the Company's Current Report on Form 8-K dated
August 14, 1998, is incorporated by reference herein.
4.14 Indenture, dated July 7, 1998 between the Company and The
First National Bank of Chicago, as Trustee, filed as an
exhibit to the Company's Current Report on Form 8-K dated
August 14, 1998, is incorporated by reference herein.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
4.15 First Supplement Indenture, dated July 7, 1998, between the
Company and The First National Bank of Chicago, as Trustee,
(including Debentures) filed as an exhibit to the Company's
Current Report on Form 8-K dated August 14, 1998, is
incorporated by reference herein.
4.16 Purchase Contract Agreement, dated July 7, 1998, between the
Company and The First National Bank of Chicago, as Purchase
Contract Agent, filed as an exhibit to the Company's Current
Report on Form 8-K dated August 14, 1998, is incorporated by
reference herein.
4.17 Pledge Agreement, dated July 7, 1998, between the Company,
The Chase Manhattan Bank, as Collateral Agent, Custodial
Agent and Securities Intermediary and The First National
Bank of Chicago, as Purchase Contract Agent, filed as an
exhibit to the Company's Current Report on Form 8-K dated
August 14, 1998, is incorporated by reference herein.
4.18 Remarketing Agreement, dated July 7, 1998, among the
Company, The First National Bank of Chicago and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, filed as an exhibit to the Company's Current
Report on Form 8-K dated August 14, 1998, is incorporated by
reference herein.
4.19 Rights Agreement between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, dated
February 4, 1999, filed as an exhibit to the Company's
Current Report on Form 8-K dated February 4, 1999, is
incorporated by reference herein.
10.1 1986 Stock Option Plan, filed as an exhibit to the Company's
Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
10.2 1988 Employee Stock Plan, filed as an exhibit to the
definitive Joint Proxy Statement for the Company's 1989
Special Meeting of Shareholders, is incorporated by
reference herein.
10.3 Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
10.4 SunAmerica Inc. Executive Deferred Compensation Plan,
approved September 25, 1985, filed as an exhibit to
SunAmerica Inc.'s 1985 Annual Report on Form 10-K, is
incorporated by reference herein.
10.5 Directors' Deferred Compensation Plan established effective
July 27, 1989, filed as an exhibit to the Company's 1989
Annual Report on Form 10-K, is incorporated by reference
herein.
10.6 Settlement with Federal Trade Commission of June 27, 1991,
filed as an exhibit to the Company's Current Report on Form
8-K, dated June 28, 1991, is incorporated by reference
herein.
10.7 Amendments to the Kaufman and Broad Home Corporation 1988
Employee Stock Plan dated January 27, 1994, filed as an
exhibit to the Company's 1994 Annual Report on Form 10-K,
are incorporated by reference herein.
10.8 Kaufman and Broad Home Corporation Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to
the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
10.9 Form of Stock Option Agreement under Kaufman and Broad Home
Corporation Performance-Based Incentive Plan for Senior
Management, filed as an exhibit to the Company's 1995 Annual
Report on Form 10-K, is incorporated by reference herein.
10.10 Employment Contract of Bruce Karatz, dated December 1, 1995,
filed as an exhibit to the Company's 1995 Annual Report on
Form 10-K, is incorporated by reference herein.
10.11 Kaufman and Broad Home Corporation Non-Employee Director
Stock Unit Plan, filed as an exhibit to the Company's 1996
Annual Report on Form 10-K, is incorporated by reference
herein.
10.12 Kaufman and Broad Home Corporation Unit Performance Program,
filed as an exhibit to the Company's 1996 Annual Report on
Form 10-K, is incorporated by reference herein.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.13 $500,000,000 1997 Revolving Loan Agreement dated April 21,
1997 by and among the Company, Bank of America National
Trust and Savings Association, as administrative agent,
co-syndication agent and managing agent, NationsBank of
Texas, N.A., as syndication agent and managing agent, Credit
Lyonnais Los Angeles Branch, as documentation agent and
managing agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as co-agents,
and the other banks listed therein ("Revolving Loan Agree-
ment") filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K, is incorporated by reference herein.
10.14 Kaufman and Broad France Incentive Plan, filed as an exhibit
to the Company's 1997 Annual Report on Form 10-K, is
incorporated by reference herein.
10.15 Registration Rights Agreement, dated January 7, 1999, filed
as an exhibit to the Company's Current Report on Form 8-K,
dated January 7, 1999, is incorporated by reference herein.
10.16 Term Loan Agreement among the Company, Bank of America
National Trust and Savings Association, as Administrative
Agent and Lead Arranger, Credit Lyonnais Los Angeles Branch,
as Syndication Agent, The First National Bank of Chicago, as
Documentation Agent and Union Bank of California as Co-Agent
and the banks listed therein, dated January 7, 1999 ("Term
Loan Agreement"), filed as an exhibit to the Company's
Current Report on Form 8-K, dated January 7, 1999, is
incorporated by reference herein.
10.17 Kaufman and Broad Home Corporation 1998 Stock Incentive
Plan, filed as an exhibit to the Company's 1998 Annual
Report on Form 10-K, is incorporated by reference herein.
10.18 Kaufman and Broad Home Corporation Directors' Legacy
Program, as amended January 1, 1999, filed as an exhibit to
the Company's 1998 Annual Report on Form 10-K, is
incorporated by reference herein.
10.19 Amendment No. 1 to Term Loan Agreement, dated April 19,
1999.
10.20 Amendment No. 3 to 1997 Revolving Loan Agreement, dated
April 19, 1999.
10.21 Kaufman and Broad Home Corporation 1999 Incentive Plan.
10.22 Trust Agreement between Kaufman and Broad Home Corporation
and Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999.
10.23 Non-Employee Directors Stock Plan, as amended and Restated
as of December 6, 1999.
13 Pages 42 through 79 and page 83 of the Company's 1999 Annual
Report to Stockholders.
22 Subsidiaries of the Company.
24 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements and notes thereto.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: MICHAEL F. HENN
------------------------------------
Michael F. Henn
Senior Vice President
and Chief Financial Officer
Dated: February 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
BRUCE KARATZ Chairman, President and February 28, 2000
- ----------------------------------------------------- Chief Executive Officer
Bruce Karatz (Principal Executive Officer)
MICHAEL F. HENN Senior Vice President February 28, 2000
- ----------------------------------------------------- and Chief Financial Officer
Michael F. Henn (Principal Financial Officer)
WILLIAM R. HOLLINGER Vice President and Controller February 28, 2000
- ----------------------------------------------------- (Principal Accounting Officer)
William R. Hollinger
Director February , 2000
- -----------------------------------------------------
Steve Bartlett
RONALD W. BURKLE Director February 28, 2000
- -----------------------------------------------------
Ronald W. Burkle
Director February , 2000
- -----------------------------------------------------
Jane Evans
DR. RAY R. IRANI Director February 28, 2000
- -----------------------------------------------------
Dr. Ray R. Irani
JAMES A. JOHNSON Director February 28, 2000
- -----------------------------------------------------
James A. Johnson
RANDALL W. LEWIS Director February 28, 2000
- -----------------------------------------------------
Randall W. Lewis
DR. BARRY MUNITZ Director February 28, 2000
- -----------------------------------------------------
Dr. Barry Munitz
GUY NAFILYAN Director February 28, 2000
- -----------------------------------------------------
Guy Nafilyan
LUIS G. NOGALES Director February 28, 2000
- -----------------------------------------------------
Luis G. Nogales
CHARLES R. RINEHART Director February 28, 2000
- -----------------------------------------------------
Charles R. Rinehart
SANFORD C. SIGOLOFF Director February 28, 2000
- -----------------------------------------------------
Sanford C. Sigoloff
</TABLE>
20
<PAGE> 22
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon of
Ernst & Young LLP, dated December 23, 1999, all appearing on pages 58 through 79
of the 1999 Annual Report to Stockholders, are incorporated in this Annual
Report on Form 10-K between page F-1 and the List of Exhibits Filed. With the
exception of the aforementioned information and the information incorporated in
Items 5, 6 and 7, the 1999 Annual Report to Stockholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
Separate combined financial statements of the Company's unconsolidated
joint venture activities have been omitted because, if considered in the
aggregate, they would not constitute a significant subsidiary as defined by Rule
3-09 of Regulation S-X.
------------------------
<TABLE>
<CAPTION>
PAGE NO. IN
ANNUAL REPORT
TO STOCKHOLDERS
---------------
<S> <C>
KAUFMAN AND BROAD HOME CORPORATION
Consolidated Statements of Income for the years ended
November 30, 1999, 1998 and 1997............................ 58
Consolidated Balance Sheets as of November 30, 1999 and 1998... 59
Consolidated Statements of Stockholders' Equity for the years
ended November 30, 1999, 1998 and 1997...................... 60
Consolidated Statements of Cash Flows for the years ended
November 30, 1999, 1998 and 1997............................ 61
Notes to Consolidated Financial Statements..................... 62 through 77
Report of Independent Auditors................................. 78
Report on Financial Statements................................. 79
</TABLE>
The following pages represent pages 42 through 79 and page 83 of the 1999
Annual Report to Stockholders of Kaufman and Broad Home Corporation, and include
the Five Year Summary, Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Consolidated Financial Statements and
related notes thereto, the Report of Independent Auditors, Report on Financial
Statements, Stockholder Information and Common Stock Prices. These pages were
filed with the Securities and Exchange Commission as Exhibit 13 hereto.
F-1
<PAGE> 23
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Years Ended November 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION:
Revenues $ 3,772,121 $ 2,402,966 $ 1,843,614 $ 1,754,147 $ 1,366,866
Operating income (loss)* 259,107 148,672 101,751 (72,078) 65,531
Total assets 2,214,076 1,542,544 1,133,861 1,000,159 1,269,208
Mortgages and notes payable 813,424 529,846 496,869 442,629 639,575
MORTGAGE BANKING:
Revenues $ 64,174 $ 46,396 $ 35,109 $ 33,378 $ 30,979
Operating income* 17,464 21,413 14,508 12,740 9,348
Total assets 450,159 317,660 285,130 243,335 304,971
Notes payable 377,666 239,413 200,828 134,956 151,000
Collateralized mortgage obligations 36,219 49,264 60,058 68,381 84,764
CONSOLIDATED:
Revenues $ 3,836,295 $ 2,449,362 $ 1,878,723 $ 1,787,525 $ 1,397,845
Operating income (loss)* 276,571 170,085 116,259 (59,338) 74,879
Net income (loss)* 147,469 95,267 58,230 (61,244) 29,059
Total assets 2,664,235 1,860,204 1,418,991 1,243,494 1,574,179
Mortgages and notes payable 1,191,090 769,259 697,697 577,585 790,575
Collateralized mortgage obligations 36,219 49,264 60,058 68,381 84,764
Mandatorily redeemable preferred securities
(Feline Prides) 189,750 189,750
Stockholders' equity* 676,583 474,511 383,056 340,350 415,478
BASIC EARNINGS (LOSS) PER SHARE* $ 3.16 $ 2.41 $ 1.50 $ (1.80) $ .59
DILUTED EARNINGS (LOSS) PER SHARE* 3.08 2.32 1.45 (1.80) .58
CASH DIVIDENDS PER COMMON SHARE .30 .30 .30 .30 .30
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects an $18.2 million mortgage banking pretax secondary marketing trading
loss recorded in the third quarter of 1999 and a $170.8 million construction
pretax noncash charge for impairment of long-lived assets recorded in the second
quarter of 1996.
42
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW Revenues are primarily generated from the Company's (i) housing
operations in the western United States and France and (ii) its domestic
mortgage banking operations.
The Company achieved record performance levels for the second consecutive year
in 1999, with net income of $147.5 million and unit deliveries totaling 22,422.
During the year, the Company remained focused on two primary initiatives it
originally established in 1997: deepening the implementation of its KB2000
operational business model and continuing growth. To advance these initiatives,
the Company also concentrated on two complementary strategies consisting of
establishing optimally large local market positions and maintaining its focus on
integrating strategic acquisitions.
The Company made two strategic acquisitions during early 1999 which fueled its
growth and contributed to the achievement of record results. In January 1999,
the Company completed its acquisition of Lewis Homes, which greatly supplemented
growth in the Company's existing California and Nevada markets. Also in January
1999, the Company purchased the remaining minority interest in Houston-based
General Homes.
Total Company revenues increased to a record $3.84 billion in 1999, up 56.6%
from $2.45 billion in 1998, which had increased 30.4% from revenues of $1.88
billion in 1997. The 1999 increase primarily resulted from higher housing and
land sale revenues, as well as increased revenues from mortgage banking
operations. Operating results for 1999 include the results of Lewis Homes from
the January 1999 acquisition date as well as the first full year of results from
the acquisitions of Houston-based Hallmark Residential Group ("Hallmark") and
Phoenix/Tucson-based Estes Homebuilding Co. ("Estes") and the assets of
Denver-based PrideMark Homebuilding Group ("PrideMark"), all of which the
Company completed in the second quarter of 1998. Operating results for 1999 also
reflect the acquisition of the remaining minority interest of General Homes,
which occurred on January 4, 1999. The increase in revenues in 1998 compared to
1997 was primarily due to higher housing and land sale revenues, as well as
increased revenues from mortgage banking operations. In addition, 1998 operating
results included revenues from the acquisitions of Hallmark, PrideMark and
Estes, as of their respective second quarter 1998 acquisition dates. Results for
1998 also reflected the Company's acquisition of a majority interest in General
Homes in August 1998. Included in total Company revenues were mortgage banking
revenues of $64.2 million in 1999, $46.4 million in 1998 and $35.1 million in
1997.
Net income increased $52.2 million or 54.8% to $147.5 million or $3.08 per
diluted share in 1999, both Company records, up from $95.3 million or $2.32 per
diluted share in 1998. Net income and diluted earnings per share for 1999
include the impact of a third quarter secondary marketing trading loss,
resulting from unauthorized trading by an employee at the Company's mortgage
banking subsidiary. The loss totaled $11.8 million, or $.25 per diluted share,
on an after tax basis. Excluding the impact of the trading loss, diluted
earnings per share for 1999 were $3.33. The growth in diluted earnings per share
occurred despite the trading loss and despite an increase of 16.6% in the
diluted average number of common shares outstanding in 1999, as a result of the
Lewis Homes acquisition which closed on January 7, 1999. The increase in diluted
earnings per share in 1999 was principally driven by significantly higher unit
deliveries, an improved construction gross margin and a reduction in the
selling, general and administrative expense ratio. Net income of $95.3 million
or $2.32 per diluted share in 1998 was 63.6% higher than the $58.2 million or
$1.45 per diluted share recorded in 1997. Net income increased in 1998 mainly
due to increases in unit deliveries and construction gross margin and increased
mortgage banking pretax income. The Company's 1998 operating results also
benefited from the earnings contributions of the three acquisitions completed
during the second quarter of 1998, as well as the acquisition of a majority
interest in General Homes.
CONSTRUCTION
REVENUES Construction revenues increased in 1999 to $3.77 billion from $2.40
billion in 1998, which had increased from $1.84 billion in 1997. The improvement
in 1999 was mainly the result of increased housing revenues, due, among other
things, to the acquisition of Lewis Homes in 1999, the inclusion of a full
year's operating results from the operations in Houston, Denver and
Phoenix/Tucson acquired during 1998, and higher land sale revenues. In 1998, the
increase in revenues primarily reflected increased housing revenues, partly due
to the operations in Houston, Denver and Phoenix/Tucson acquired during the
year, and increased revenues from land sales.
43
<PAGE> 25
<TABLE>
<CAPTION>
California Other U.S. Foreign Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNIT DELIVERIES
1999
First 1,199 2,757 323 4,279
Second 1,430 3,221 488 5,139
Third 1,629 3,526 948 6,103
Fourth 2,065 4,106 730 6,901
Total 6,323 13,610 2,489 22,422
Unconsolidated joint ventures 38 38
=============================================================================================================
1998
First 1,022 1,341 266 2,629
Second 1,124 1,938 347 3,409
Third 1,225 2,567 375 4,167
Fourth 1,487 2,852 669 5,008
Total 4,858 8,698 1,657 15,213
=============================================================================================================
NET ORDERS
1999
First 1,572 3,514 535 5,621
Second 2,104 4,198 917 7,219
Third 1,660 3,177 510 5,347
Fourth 1,314 2,908 647 4,869
Total 6,650 13,797 2,609 23,056
Unconsolidated joint ventures 38 38
=============================================================================================================
1998
First 1,269 2,062 385 3,716
Second 1,391 2,907 563 4,861
Third 1,117 2,387 379 3,883
Fourth 985 2,630 706 4,321
Total 4,762 9,986 2,033 16,781
=============================================================================================================
</TABLE>
44
<PAGE> 26
<TABLE>
<CAPTION>
California Other U.S. Foreign Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ENDING BACKLOG-UNITS
1999
First 1,925 6,095 1,196 9,216
Second 2,599 7,072 1,625 11,296
Third 2,630 6,723 1,456 10,809
Fourth 1,879 5,306 1,373 8,558
Unconsolidated joint ventures 219 219
=============================================================================================================
1998
First 1,563 3,011 727 5,301
Second 1,830 4,808 943 7,581
Third 1,722 4,961 947 7,630
Fourth 1,220 4,739 984 6,943
=============================================================================================================
ENDING BACKLOG-VALUE IN THOUSANDS
1999
First $ 449,993 $ 760,283 $ 196,028 $1,406,304
Second 613,466 913,523 270,229 1,797,218
Third 631,823 882,538 235,544 1,749,905
Fourth 457,439 696,482 228,213 1,382,134
Unconsolidated joint ventures 33,945 33,945
=============================================================================================================
1998
First $ 337,424 $ 363,340 $ 98,378 $ 799,142
Second 394,144 588,820 136,929 1,119,893
Third 388,998 594,575 148,464 1,132,037
Fourth 288,317 560,307 151,668 1,000,292
=============================================================================================================
</TABLE>
Housing revenues totaled a record $3.73 billion in 1999, $2.38 billion in 1998
and $1.83 billion in 1997. The increase in 1999 reflected a 47.4% increase in
unit volume and a 6.5% rise in the average selling price. Excluding the impact
of acquisitions within the trailing twelve-month period, housing revenues and
unit deliveries rose 21.3% and 15.2%, respectively. In 1998, housing revenues
totaled $2.38 billion, up 30.2% from 1997 as a result of a 33.0% increase in
unit volume, partially offset by a 2.1% decline in average selling price.
California housing operations generated 41.7% of Company-wide housing revenues
in 1999, down from 45.8% in 1998 and 54.0% in 1997, mainly as a result of the
Company's strategic acquisition activities and continued expansion of its Other
U.S. operations. (The Company's housing operations in Arizona, Colorado, Nevada,
New Mexico, Texas and Utah are collectively referred to as "Other U.S.").
Housing revenues from California operations were $1.56 billion in 1999, up 42.6%
from $1.09 billion in 1998. Other U.S. housing revenues totaled $1.77 billion in
1999, up 70.8% from $1.04 billion in 1998. Increased housing revenues in
California and Other U.S. operations in 1999 were due to acquisition activities
and improved market conditions. Operations in France generated housing revenues
of $403.4 million in 1999, an increase of 68.1% compared to $240.0 million in
1998, reflecting increases in housing deliveries and substantial improvement in
the French housing market. In 1997, housing revenues from operations in France
totaled $160.5 million.
45
<PAGE> 27
Housing deliveries rose 47.4% to 22,422 units in 1999, surpassing the previous
Company-wide record of 15,213 units established in 1998. This improvement
reflected increases in U.S. and French deliveries of 47.0% and 53.2%,
respectively. Growth in domestic deliveries was comprised of a 30.2% increase in
California and a 56.5% increase in Other U.S. operations. In California,
deliveries rose to 6,323 units in 1999 from 4,858 units in 1998, reflecting a
34.4% increase in the average number of active communities in the state. Other
U.S. operations delivered 13,610 units in 1999, up from 8,698 units in 1998 as
the average number of active communities rose 53.9% to 177. Excluding the impact
of acquisitions within the trailing twelve-month period, domestic unit
deliveries rose 12.2% in 1999 from the previous year. French deliveries
increased 53.2% to 2,465 units in 1999 from 1,609 units in 1998, partly due to
improved market conditions.
Housing deliveries increased 33.0% to 15,213 units in 1998 from 11,443 units in
1997. This improvement reflected increases in U.S. and French operations of
30.7% and 55.9%, respectively. Growth in domestic deliveries was primarily
driven by a 54.2% increase in results from Other U.S. operations, to 8,698 units
in 1998 from 5,642 units in 1997, and a 2.7% rise in California deliveries to
4,858 units in 1998 from 4,731 units in 1997. The increase in California
deliveries occurred despite a 17.9% year over year decline in the Company's
average number of active communities in the state to 64. Unit deliveries in
Other U.S. operations in 1998 included 1,702 deliveries from companies acquired
that year. Excluding results from these acquisitions, deliveries from Other U.S
operations increased 24.0% to 6,996 units, from 5,642 units delivered in 1997,
due to a higher average number of active communities in existing Other U.S
businesses. In 1998, French deliveries increased from the previous year
primarily as a result of the inclusion of a full year of results from SMCI. The
Company acquired SMCI, a builder of condominiums in Paris and other cities in
France, in mid-1997.
The Company-wide average new home price increased 6.5% in 1999, to $166,500 from
$156,400 in 1998. The 1998 average had decreased 2.1% from $159,700 in 1997. The
increase in the average selling price in 1999 reflected the inclusion of
somewhat higher-priced deliveries in California and Nevada related to the Lewis
Homes acquisition, as well as higher prices in France. In addition, the Company
increased prices in certain fast selling, hard to replace communities due to
improved market conditions in several of its major markets. These price
increases were partially offset by a higher proportion of lower-priced
deliveries from Other U.S. markets. Other U.S. operations accounted for 68.3% of
domestic deliveries in 1999 compared to 64.2% in 1998. The decrease in 1998 was
primarily due to the Company's decision to generate a greater proportion of
lower-priced domestic unit deliveries (primarily from Other U.S. operations) as
well as to the lower average selling price in France resulting from the
inclusion of SMCI deliveries.
In California, the average selling price rose 9.6% in 1999 to $246,000 from
$224,500 in 1998, which had increased 7.7% from $208,500 in 1997. The average
selling price in Other U.S. markets increased 9.1% to $129,900 in 1999, compared
with $119,100 in 1998 and $118,700 in 1997. Domestic price increases in 1999
resulted from the inclusion of higher-priced deliveries from the Lewis Homes
operations in California and Nevada and selected increases in sales prices in
certain markets due to favorable market conditions. In 1998, the increase in the
Company's California average selling price resulted from strategic increases in
sales prices in certain markets based on improved market conditions, 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.
The Company's average selling price in France rose to $163,600 in 1999 from
$149,200 in 1998, which had decreased from $155,500 in 1997. The average selling
price in France rose in 1999 primarily due to a change in the mix of deliveries
and price appreciation in the French housing market. The French average selling
price had declined in 1998 primarily due to the inclusion of a full year of
lower-priced deliveries generated from SMCI developments acquired in 1997.
Revenues from the development of commercial buildings, all located in
metropolitan Paris, totaled $.7 million in 1999, $1.5 million in 1998 and $2.7
million in 1997.
Land sale revenues totaled $37.8 million in 1999, $22.5 million in 1998 and
$13.6 million in 1997. Generally, land sale revenues fluctuate with decisions to
maintain or decrease the Company's land ownership position in certain markets
based upon the volume of its holdings, the strength and number of competing
developers entering particular markets at given points in time, the availability
of land in markets served by the Company and prevailing market conditions. Land
sales are expected to increase in 2000 in connection with the Company's review
of its assets and businesses for the purpose of monetizing non-strategic or
marginal positions.
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OPERATING INCOME Operating income increased 74.3% to a new Company record of
$259.1 million in 1999 from $148.7 million in 1998. The increase was primarily
due to higher housing gross profits, resulting from higher unit volume partially
offset by increased selling, general and administrative expenses. Housing gross
profits in 1999 increased 58.1% or $265.2 million to $721.6 million from $456.4
million in 1998. As a percentage of related revenues, housing gross profit
margin was 19.3% in 1999, up from 19.2% in the prior year. This increase in
housing gross margin was primarily due to efficient home designs and
construction costs in KB2000 communities, and overall improved market
conditions, as well as market-driven price increases in selected communities,
particularly in California. Company-wide land sales produced losses of $1.2
million and $3.2 million in 1999 and 1998, respectively.
Selling, general and administrative expenses increased 51.5%, or $156.7 million
in 1999 to $461.3 million. As a percentage of housing revenues, to which these
expenses are most closely correlated, selling, general and administrative
expenses decreased .4 percentage points to 12.4% in 1999 from 12.8% in 1998. The
improvement in the selling, general and administrative expense ratio was due to
the strong increase in unit volume and reduced reliance on sales initiatives,
partially 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.
Operating income increased to $148.7 million in 1998 from $101.8 million in
1997. This increase was primarily due to higher housing gross profits, resulting
from higher unit volume, partially offset by increased selling, general and
administrative expenses. Housing gross profits in 1998 increased 37.5% or $124.5
million from $331.9 million in 1997. As a percentage of related revenues,
housing gross profit margin was 19.2% in 1998, up from 18.2% in 1997. Housing
gross margin increased primarily due to the rising proportion of higher margin
deliveries produced by KB2000 communities, as well as price increases in certain
fast-selling, hard to replace communities, particularly in certain California
markets. Company-wide land sales produced losses of $3.2 million and $1.4
million in 1998 and 1997, respectively.
Selling, general and administrative expenses increased by 32.9% or $75.5 million
to $304.6 million in 1998. However, as a percentage of housing revenues,
selling, general and administrative expenses increased .3 percentage points to
12.8% in 1998 from 12.5% in 1997. This increase was mainly due to the inclusion
of selling, general and administrative expenses of acquired entities, including
goodwill amortization, expenditures incurred in connection with extensive
information systems revisions required to support the KB2000 operational
business model, system conversions related to acquisitions and initial efforts
toward year 2000 compliance, new market entries in Texas and higher third-party
sales commissions. Sales commissions rose because a higher percentage of
domestic sales were generated from third-party brokers as part of the KB2000
operational business model.
INTEREST INCOME AND EXPENSE Interest income, which is generated from short-term
investments and mortgages receivable, amounted to $7.8 million in 1999, $5.7
million in 1998 and $5.1 million in 1997. Increases in interest income in 1999
and 1998 primarily reflected increases in the interest bearing average balances
of mortgages receivable each year. In 1999, a higher average balance of
short-term investments also contributed to the increase in interest income.
Interest expense results principally from borrowings to finance land purchases,
housing inventory and other operating and capital needs. In 1999, interest
expense, net of amounts capitalized, increased to $28.3 million from $23.3
million in 1998. Gross interest incurred in 1999 was $23.7 million higher than
that incurred in 1998, reflecting an increase in average indebtedness, primarily
as a result of the Lewis Homes acquisition and growth in the number of new
communities in 1999.
The percentages of interest capitalized in 1999 and 1998 were 63.7% and 57.0%,
respectively. The higher capitalization rate in 1999 resulted from the effect of
the issuance of Feline Prides in the third quarter of 1998 and a higher
proportion of land under development in 1999 compared to the previous year. The
amounts of interest capitalized as a percentage of gross interest incurred and
distributions associated with the Feline Prides were 53.3% in 1999 and 51.3% in
1998.
In 1998, interest expense, net of amounts capitalized, decreased to $23.3
million from $29.8 million in 1997 primarily due to the issuance of Feline
Prides in the third quarter of 1998, as distributions associated with the Feline
Prides are included in minority interests rather than interest expense.
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Gross interest incurred in 1998 was higher than that incurred in 1997 by $1.8
million, reflecting an increase in average indebtedness in 1998, partially
offset by a lower average interest rate as a result of more favorable financing
terms obtained by the Company due to the redemption of its $100.0 million
10 3/8% senior notes and the issuance of $175.0 million of 7 3/4% senior notes
in the fourth quarter of 1997. The percentage of interest capitalized in 1998
increased from the 43.1% capitalized in 1997, due to the issuance of Feline
Prides in 1998 and a higher proportion of land under development in 1998
compared to 1997.
In 1998, the Company issued $189.8 million of Feline Prides and used the
proceeds to immediately pay down outstanding debt under its domestic unsecured
revolving credit facility. The distributions associated with the Feline Prides
are included in minority interests; therefore, interest expense in future
periods will generally be lower than it would be without this financing.
MINORITY INTERESTS Minority interests are comprised of two major components:
pretax income of consolidated subsidiaries and joint ventures related to
residential and commercial activities; and distributions associated with Feline
Prides issued in July 1998. Operating income was reduced by minority interests
of $29.4 million in 1999, $7.0 million in 1998 and $.4 million in 1997. Minority
interests increased in 1999 and 1998 due to the inclusion of $15.2 million and
$6.1 million, respectively, in distributions related to the Feline Prides. In
1999, increased joint venture activity also contributed to the rise in minority
interests. In the aggregate, minority interests are expected to remain at higher
levels due to increased joint venture activity and distributions associated with
the Feline Prides.
EQUITY IN PRETAX INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES The Company's
unconsolidated joint venture activities, located in California, Nevada, New
Mexico, Texas and France, posted combined revenues of $13.9 million in 1999,
$17.7 million in 1998 and $98.2 million in 1997. All unconsolidated joint
venture revenues in 1999 were generated from residential properties. French
commercial activities accounted for $6.5 and $87.7 million of the combined
revenues in 1998 and 1997, respectively. Combined revenues recorded by the
Company's joint ventures fluctuated during the three-year period mainly due to
the sale of a French commercial project in 1997. Unconsolidated joint ventures
generated combined pretax income of $3.6 million in 1999, compared with pretax
income of $5.0 million and a pretax loss of $2.9 million in 1998 and 1997,
respectively. The Company's share of pretax income from unconsolidated joint
ventures totaled $.2 million in 1999 and $1.2 million in 1998. In 1997, the
Company's share of pretax losses totaled $.1 million.
MORTGAGE BANKING
INTEREST INCOME AND EXPENSE The Company's mortgage banking operations provide
financing principally to purchasers of homes sold by the Company's domestic
housing operations through the origination of residential mortgages. Interest
income is earned primarily from first mortgages, and mortgage-backed securities
held for long-term investment as collateral, while interest expense results from
notes payable and the collateralized mortgage obligations. Interest income
increased to a record $19.2 million in 1999 from $15.6 million in 1998 and $13.3
million in 1997. Interest expense also reached record levels, increasing to
$16.9 million in 1999 from $15.0 million in 1998 and $12.7 million in 1997. In
both 1999 and 1998, interest income increased primarily due to a higher balance
of first mortgages held under commitments of sale and other receivables
outstanding compared to the previous year.
Interest expense rose in both 1999 and 1998 due to a higher amount of notes
payable outstanding compared to the prior year. Combined interest income and
expense resulted in net interest income of $2.3 million in 1999 and $.6 million
in both 1998 and 1997. These differences reflect variations in mortgage
production mix; movements in short-term versus long-term interest rates; and the
amount, timing and rates of return on interim reinvestments of monthly principal
amortization and prepayments.
OTHER MORTGAGE BANKING REVENUES Other mortgage banking revenues, which
principally consist of gains on sales of mortgages, servicing rights and, to a
lesser extent, mortgage servicing fees and insurance commissions, totaled $45.0
million in 1999, $30.8 million in 1998 and $21.8 million in 1997. The increases
in 1999 and 1998 reflected higher gains on the sales of mortgages and servicing
rights due to a higher volume of mortgage originations associated with increases
in housing unit volume and improved retention in the United States. In addition,
in 1998 a more favorable mix of fixed to variable interest rate loans
contributed to the increased revenues.
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GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses
associated with mortgage banking operations increased to $11.6 million in 1999
from $9.9 million in 1998 and $7.9 million in 1997. The increases in general and
administrative expenses in both 1999 and 1998 were primarily due to higher
mortgage production volume.
SECONDARY MARKETING TRADING LOSS On August 31, 1999, the Company disclosed that
it had discovered unauthorized mortgage loan trading activity by an employee of
its mortgage banking subsidiary resulting in a pretax trading loss of $18.2
million ($11.8 million, or $.25 per diluted share, on an after tax basis). It is
normal practice for the Company's mortgage banking subsidiary to sell loans into
the market that approximately match loan commitments to the Company's
homebuyers. This practice is intended to hedge exposure to changes in interest
rates that may occur until loans are sold to secondary market investors in the
ordinary course of business. The loss was the result of a single employee
engaging in unauthorized mortgage loan trading largely unrelated to mortgage
originations. The employee who conducted the unauthorized trading was
terminated.
INCOME TAXES
The Company recorded income tax expense of $79.4 million in 1999, $51.3 million
in 1998 and $32.8 million in 1997. These amounts represented effective income
tax rates of approximately 35.0% in both 1999 and 1998 and 36.0% in 1997. The
effective tax rate declined in 1998 as a result of greater utilization of
affordable housing tax credits. Pretax income for financial reporting purposes
and taxable income for income tax purposes historically have differed primarily
due to the impact of state income taxes, foreign tax rate differences,
intercompany dividends and the use of tax credits.
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 activities with internally
generated cash flows and external sources of debt and equity financing. In 1999,
operating, investing and financing activities used net cash of $35.0 million; in
1998, these activities used net cash of $4.9 million.
Operating activities in 1999 provided $106.8 million, while 1998 operating
activities used $12.8 million. In 1999, cash was provided by earnings of $147.5
million, an increase of $130.3 million in accounts payable, accrued expenses and
other liabilities, and various noncash items deducted from net income. The cash
provided was partially offset by an increase in receivables of $184.1 million
and an investment of $38.8 million in inventories (excluding the effect of
acquisitions and $43.5 million of inventories acquired through seller
financing). Excluding the effect of the Company's acquisitions, inventories
increased in 1999, primarily in domestic operations, reflecting continued growth
throughout U.S. markets.
In 1998, uses of operating cash included an investment of $125.7 million in
inventories (excluding the effect of acquisitions and $29.9 million of
inventories acquired through seller financing) and an increase in receivables of
$50.0 million. The use of cash was partially offset by earnings of $95.3
million, an increase of $51.3 million in accounts payable, accrued expenses and
other liabilities, and various noncash items deducted from net income.
Cash used by investing activities totaled $34.0 million in 1999 compared to
$161.8 million in 1998. In 1999, $19.2 million was used for net purchases of
property and equipment, $15.0 million was used for investments in unconsolidated
joint ventures, $11.6 million, net of cash acquired, was used for acquisitions,
and $2.8 million was used for originations of mortgages held for long-term
investment. Partially offsetting these uses were $14.6 million of proceeds
received from mortgage-backed securities, which were principally used to pay
down collateralized mortgage obligations for which the mortgage-backed
securities had served as collateral.
In 1998, cash used by investing activities included $162.8 million, net of cash
acquired, used for acquisitions and $15.9 million used for net purchases of
property and equipment. Among amounts partially offsetting these uses were $12.9
million of proceeds received from mortgage-backed securities, $2.2 million in
distributions related to investments in unconsolidated joint ventures and $1.7
million from the net sales of mortgages held for long-term investment.
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Financing activities in 1999 used $107.8 million of cash compared to $169.8
million provided in 1998. In 1999, the Company's uses of cash included
repurchases of common stock of $81.9 million, payments to minority interests of
$43.7 million, cash dividend payments of $14.2 million and payments on
collateralized mortgage obligations of $14.1 million. Partially offsetting these
uses was cash provided from net proceeds from borrowings of $46.1 million. The
Company's financial leverage, as measured by the ratio of debt to total capital,
net of invested cash, was 48.4% at the end of 1999 compared to 43.4% at the end
of 1998. The ratios were adjusted to reflect $.7 million and $20.2 million of
invested cash at November 30, 1999 and 1998, respectively. The Company seeks to
maintain its ratio of debt to total capital within a targeted range of 45% to
55%, and achieved this goal in 1999 despite its share repurchase program and the
impact of the secondary marketing trading loss. The Company believes its debt to
total capital ratio for 1999 reflects the initial impact of a strategic review
of its assets and businesses initiated late in the year. The debt to capital
ratio at the end of 1998 was impacted by an increase in capital from the
offering of $189.8 million of Feline Prides in the third quarter of 1998.
Financing activities in 1998 provided $183.1 million from the issuance of Feline
Prides and $17.9 million in net proceeds from borrowings. Partially offsetting
cash provided in 1998 were payments to minority interests of $7.0 million,
payments on collateralized mortgage obligations of $12.3 million and cash
dividend payments of $11.9 million.
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 for approximately $54.0 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 acquisition of Hallmark marked the Company's
entry into the Houston market and formed the core of those operations, while
strengthening its existing market positions in San Antonio and Austin.
The Company acquired substantially all of the assets of Denver-based PrideMark
on March 23, 1998 for approximately $65.0 million, including the assumption of
trade liabilities and debt. PrideMark built single-family homes in Denver,
Colorado, and its acquisition significantly increased the Company's already
substantial market presence in Denver.
On April 9, 1998, the Company acquired all of the issued and outstanding capital
stock of Estes for approximately $48.0 million, including the assumption of
debt. Estes built single-family homes in Phoenix and Tucson, Arizona. Estes
provided the Company's entry into the Tucson market and significantly increased
its already substantial market presence in Phoenix.
On August 18, 1998, the Company acquired a majority ownership investment in
General Homes, a builder of single-family homes primarily in Houston, Texas. The
Company invested approximately $31.8 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%.
Each acquisition and investment was accounted for under the purchase method and
the results of operations of the acquired entities were included in the
Company's consolidated financial statements as of their respective dates of
acquisition. Each of these was financed by borrowings under the Company's
domestic unsecured revolving credit facility.
Effective January 7, 1999, the Company acquired substantially all of the
homebuilding assets of Lewis Homes. Lewis Homes was engaged in the acquisition,
development and sale of residential real estate in California and Nevada. Prior
to the acquisition, Lewis Homes 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 were Las Vegas and Northern Nevada, Southern California and
the greater Sacramento area in Northern California.
The purchase price for Lewis Homes was approximately $449.2 million, comprised
of the assumption of approximately $303.2 million in debt and the issuance of
7.9 million shares of the Company's common stock valued at approximately $146.0
million. The purchase price was based on the
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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.
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 three
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, inventories and indebtedness. The
financing obtained under the Term Loan Agreement did not affect the amounts
available under the pre-existing borrowing arrangements, although 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.
During the second half of 1999, the Company completed the acquisition of the
outstanding shares of Park, a French apartment builder, for a total price of
approximately $16.6 million. The acquisition was financed by a three-year bank
loan that provides for interest at the Euro Interbank Offered Rate Plus 1.45%.
The acquisition was accounted for under the purchase method, and the results of
operations of the builder are included in the Company's consolidated financial
statements as of the date of purchase. The excess of the purchase price over the
estimated fair value of net assets acquired was $10.0 million and was allocated
to goodwill. The Company is amortizing goodwill related to the acquisition on a
straight-line basis over a period of ten years.
On August 4, 1999, the Company's Board of Directors authorized a share
repurchase program which allowed the Company to purchase up to 2.5 million
shares of the Company's common stock at prices not to exceed $28 per share. The
Company repurchased all of the 2.5 million shares originally authorized and on
November 1, 1999, the Board of Directors authorized the repurchase of up to 4.0
million additional shares of Company common stock. As of November 30, 1999, the
Company had repurchased 3.8 million shares under the repurchase program.
As of February 3, 2000, the Company had repurchased a total of 6.5 million
shares of the Company's common stock under authorizations made by the Board of
Directors on August 4, 1999 and November 1, 1999. On February 3, 2000, the
Company's Board of Directors authorized the repurchase of up to an additional
4.0 million shares of the Company's common stock.
In connection with the repurchase program, on August 27, 1999, the Company
established a grantor stock ownership trust (the "Trust") into which the
repurchased shares are transferred. The Trust, administered by an independent
trustee, acquires, holds and distributes the shares of common stock for the
purpose of funding certain employee compensation and employee benefit
obligations of the Company under its existing stock option, 401(k) and other
employee benefit plans. The existence of the Trust will have no impact on the
amount of benefits or compensation that will be paid under these plans.
For financial reporting purposes, the Trust is consolidated with the Company.
Any dividend transactions between the Company and the Trust are eliminated.
Acquired shares held by the Trust remain valued at the market price at the date
of purchase and are shown as a reduction to stockholders' equity in the
consolidated balance sheet. The difference between the Trust share value and the
fair market value on the date shares are released from the Trust, for the
benefit of employees, will be included in additional paid-in capital. Common
stock held in the Trust is not considered outstanding in the computation of
earnings per share. The Trust held 3.8 million shares of common stock at
November 30, 1999. The trustee votes shares held by the Trust in accordance with
voting directions from eligible employees, as specified in a trust agreement
with the trustee.
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External sources of financing for the Company's construction activities include
its domestic unsecured revolving credit facility, other domestic and foreign
bank lines, third-party secured financings, and the public debt and equity
markets. Substantial unused lines of credit remain available for the Company's
future use, if required, principally through its domestic unsecured revolving
credit facility. Under this facility, $500.0 million remained committed and
$416.9 million was available for the Company's future use at November 30, 1999.
The domestic unsecured revolving credit facility is comprised of a $400 million
revolving credit facility scheduled to expire on April 30, 2001 and a 364-day
revolving credit facility which has provisions for annual renewal. In addition,
the Company's French subsidiaries have lines of credit with various banks which
totaled $198.7 million at November 30, 1999 and have various committed
expiration dates through November 2001. Under these unsecured financing
agreements, $148.8 million was available in the aggregate at November 30, 1999.
Depending upon available terms and its negotiating leverage related to specific
market conditions, the Company also finances certain land acquisitions with
purchase-money financing from land sellers and other third parties. At November
30, 1999, the Company had outstanding seller-financed notes payable of $30.6
million secured primarily by the underlying property which had a carrying value
of $106.3 million.
On December 5, 1997, the Company filed a universal shelf registration statement
with the Securities and Exchange Commission for up to $500 million of the
Company's debt and equity securities. The universal shelf registration provides
that securities may be offered from time to time in one or more series and in
the form of senior, senior subordinated or subordinated debt, preferred stock,
common stock, and/or warrants to purchase such securities. The registration was
declared effective on December 16, 1997, and no securities have been issued
thereunder.
On July 7, 1998, the Company, together with a KBHC Trust that is wholly owned by
the Company, issued an aggregate of (i) 18,975,000 Feline Prides, and
(ii) 1,000,000 KBHC Trust capital securities, with a $10 stated liquidation
amount. The Feline Prides consisted of (i) 17,975,000 Income Prides with the
stated amount per Income Prides of $10, which are units comprised of a capital
security and a stock purchase contract under which the holders will purchase
common stock from the Company not later than August 16, 2001 and the Company
will pay to the holders certain unsecured contract adjustment payments, and
(ii) 1,000,000 Growth Prides with a face amount per Growth Prides equal to the
$10 stated amount, which are units consisting of a 1/100th beneficial interest
in a zero-coupon U.S. treasury security and a stock purchase contract under
which the holders will purchase common stock from the Company not later than
August 16, 2001 and the Company will pay to the holders certain unsecured
contract adjustment payments.
The distribution rate on the Income Prides is 8.25% per annum and the
distribution rate on the Growth Prides is .75% per annum. Under the stock
purchase contracts, investors will be required to purchase shares of common
stock of the Company for an effective price ranging between a minimum of $31.75
per share and a maximum of $38.10 per share, and the Company will issue
approximately 5 to 6 million common shares by August 16, 2001, depending upon
the price of the common stock upon settlement of the purchase contracts (subject
to adjustment under certain circumstances). The capital securities associated
with the Income Prides and the U.S. treasury securities associated with the
Growth Prides have been pledged as collateral to secure the holders' obligations
in respect of the common stock purchase contracts. The capital securities issued
by the KBHC Trust are entitled to a distribution rate of 8% per annum of their
$10 stated liquidation amount.
The Company uses its capital resources primarily for land purchases, land
development and housing construction. The Company typically manages its
investments in land by purchasing property under options and other types of
conditional contracts whenever possible, and similarly controls its investment
in housing inventories by emphasizing the pre-sale of homes over speculative
construction and carefully managing the timing of the production process. During
the 1990's, the Company's inventories became geographically more diverse,
primarily as a result of its extensive domestic expansion outside of California.
The Company continues to concentrate its housing operations in desirable areas
within targeted growth markets, principally oriented toward entry-level
purchasers.
The principal sources of liquidity for the Company's mortgage banking operations
are internally generated funds from the sales of mortgages and related servicing
rights. Mortgages originated by the mortgage banking operations are generally
sold in the secondary market within 60 days of origination. External sources of
financing for these operations include a $250.0 million revolving mortgage
warehouse facility, which expires on February 23, 2000. At November 30, 1999,
the mortgage banking operations had borrowed the maximum amount available under
the facility. The Company's mortgage banking subsidiary is currently in the
process of renewing its revolving mortgage warehouse facility.
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On May 25, 1999, the Company's mortgage banking subsidiary entered into a $150.0
million Master Loan and Security Agreement with an investment bank. The
agreement, which expires on May 25, 2000, provides for a facility fee based on
the $150.0 million maximum amount available and provides for interest to be paid
monthly at the Eurodollar Rate plus an applicable spread on amounts borrowed.
The amounts outstanding under the revolving mortgage warehouse facility and the
Master Loan and Security agreement are secured by a borrowing base, which
includes certain mortgage loans held under commitments of sale and are repayable
from sales proceeds. There are no compensating balance requirements under either
facility. Both facilities include financial covenants and restrictions which,
among other things, require the maintenance of certain financial statement
ratios, a minimum tangible net worth and a minimum net income.
Debt service on the Company's collateralized mortgage obligations is funded by
receipts from mortgage-backed securities. Such funds are expected to be adequate
to meet future debt-payment schedules for the collateralized mortgage
obligations and therefore these securities have virtually no impact on the
capital resources and liquidity of the mortgage banking operations.
The Company continues to benefit in all of its operations from the strength of
its capital position, which has allowed it to maintain overall profitability
during troubled economic times, finance domestic and international expansion,
re-engineer product lines and diversify into new markets. Secure access to
capital at competitive rates, among other reasons, should enable the Company to
continue to grow and expand. As a result of its geographic diversification, the
disciplines of the KB2000 operational business model and its strong capital
position, the Company believes it has adequate resources and sufficient credit
line facilities to satisfy its current and reasonably anticipated future
requirements for funds needed to acquire capital assets and land, to construct
homes, to fund its mortgage banking operations, and to meet 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 that was used to describe the
complications that were feared would arise from the use of existing computer
hardware and software designed by applicable manufacturers without consideration
for the change in the century as of January 1, 2000. If not corrected, software
programs with this embedded problem were considered to possibly cause computer
systems to fail or to miscalculate data.
During the late 1990's, the Company invested in information systems required to
support its KB2000 operational business model and effectively manage and control
growth. In conjunction with this investment in technology, and with respect to
the year 2000 issue in particular, the Company undertook to modify or replace
portions of its existing computer operating systems to ensure that they would
function properly with respect to dates in the year 2000 and thereafter.
In 1998, the Company formed a "Year 2000 Project Office" to direct the
Company-wide efforts encompassed by this project. During calendar year 1999, the
Company successfully completed a year 2000 effort that was comprised of 13
distinct projects. Each of the projects was timely completed and certified as
year 2000 compliant by key management participants. With the passing of the new
year and the month of January 2000 completed, neither the Company nor any of its
key vendors or other third party providers have been materially adversely
impacted by technological issues associated with the turning of the century. At
this time, the Company considers the risk of any year 2000 related failures or
the consequences of any year 2000 failures to be extremely low. Management
believes that the year 2000 issue has not and will not have any material adverse
effect on the Company's liquidity, financial condition or results of operations.
Several of the projects included in the Company's year 2000 plan were 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 was
approximately $4.0 million; however, because such projects involved conversions
and upgrades that were not necessitated to meet year 2000 concerns, it is not
possible to determine the portion of the total cost which is specifically
attributable to year 2000 compliance efforts.
53
<PAGE> 35
Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European Union (the "EU")
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "euro"). The Company conducts substantial
business in France, an EU member country. During the established transition
period for the introduction of the euro, which extends to June 30, 2002, the
Company will address the issues involved with the adoption of the new currency.
The most important issues facing the Company include: converting information
technology systems; reassessing currency risk; negotiating and amending
contracts; and processing tax and accounting records.
Based upon progress to date, the Company believes that use of the euro will not
have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the euro is not expected to have a material effect on the
Company's financial condition or results of operations.
Subsequent Events
On January 24, 2000, Kaufman & Broad S.A. ("KBSA"), the Company's wholly owned
French subsidiary filed a preliminary public offering memorandum for the initial
public offering of ordinary shares of KBSA. On February 7, 2000, KBSA
successfully completed its public offering and is now listed on the Premier
Marche of the ParisBourse. The offering of approximately 5.1 million shares
(before exercise of the over allotment option) was made in France and in Europe
and was priced at 23 euros per share, representing a total offering of
approximately $120.0 million.
Proceeds from the offering will be used to fund internal and external growth of
the French homebuilding operations, obtain better financing conditions, and
finance the payment of a dividend of approximately $85.0 million to the Company,
which the Company will use to reduce its domestic debt and repurchase additional
shares of its common stock. The Company continues to own a majority interest in
KBSA and will continue to consolidate these operations in its financial
statements.
In connection with the ongoing review of its assets and operations, and to
reposition its core homebuilding operations, the Company is actively exploring
the sale of certain of its operating divisions. Such divisions, which do not
individually or in the aggregate comprise a material portion of the Company's
financial position or results of operations, operate businesses that are
inconsistent with the Company's strategic focus on fewer, larger homebuilding
markets to maximize execution of its KB2000 operational business model. To the
extent the sale of any division occurs during fiscal year 2000 as planned, the
Company does not anticipate such transactions to have a material effect on its
financial position or results of operations in fiscal year 2000 or in future
years.
Outlook
The Company's residential backlog at November 30, 1999 consisted of 8,558 units,
representing aggregate future revenues of $1.38 billion. Both amounts
established new year-end records, and reflected increases of 23.3% and 38.2%,
respectively, when compared to the 6,943 units in residential backlog,
representing aggregate future revenues of $1.00 billion, at year-end 1998.
Company-wide net orders for the fourth quarter of 1999 totaled 4,869, up 12.7%
from the comparable quarter of 1998. The 1999 fourth quarter net order total
included orders generated by the acquired Lewis Homes operations and operations
acquired in France. Excluding the impact of acquisitions within the trailing
twelve-month period, Company-wide net orders decreased 12.2% in the fourth
quarter of 1999 compared to the year-earlier quarter.
The Company's domestic residential backlog at November 30, 1999 increased to
$1.15 billion, up 36.0% from $848.6 million at year-end 1998. On a unit basis,
the domestic backlog stood at 7,185 units at year-end 1999, up 20.6% from 5,959
units at year-end 1998. Improvement occurred in both California and Other U.S.
operations, and resulted primarily from the Lewis Homes acquisition, completed
during the first quarter of 1999, higher order rates reflecting generally good
market conditions throughout the United States, particularly in California, and
the Company's empha-
54
<PAGE> 36
sis on pre-sales. The success of communities designed under its KB2000
operational business model also contributed to the increase in total United
States backlog levels. California operations produced substantial year-over-year
growth, with backlog at November 30, 1999 rising to $457.4 million on 1,879
units from $288.3 million on 1,220 units at November 30, 1998. Net orders from
California operations increased 33.4% in the fourth quarter of 1999 to 1,314
units, up from 985 units in the fourth quarter of 1998; however, excluding 504
net orders associated with the Company's Lewis Homes acquisition, fourth quarter
net orders in California operations decreased 17.8%. In Other U.S. operations,
backlog increased to $696.5 million on 5,306 units at November 30, 1999, up from
$560.3 million on 4,739 units at November 30, 1998, as the average number of
active communities rose 53.9% from the prior year. Fourth quarter 1999 net
orders in Other U.S. operations increased 10.6% to 2,908 units from 2,630 units
in the year-earlier period.
In France, residential backlog at November 30, 1999 totaled $227.2 million on
1,369 units, up 55.7% and 42.5%, respectively, from $145.9 million on 961 units
at year-end 1998. French net orders decreased 7.3% to 647 units in the fourth
quarter of 1999 from 698 units in the year-earlier period primarily due to
existing communities selling out more quickly than expected. The value of the
backlog associated with French commercial development activities totaled
approximately $1.7 million at November 30, 1999 from $1.8 million at year end
1998, reflecting a reduced level of activity.
Substantially all homes included in the year-end 1999 backlog are expected to be
delivered during 2000. 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 during the first two months of fiscal 2000 decreased
2.1% from the comparable period of 1999. Domestic net orders during the
two-month period decreased 3.7% due to a 5.9% decrease in net orders from Other
U.S. operations, partially offset by a 1.9% increase in net orders from
California operations. Excluding net orders from operations acquired in the
trailing twelve-month period, domestic net orders decreased 14.8% in the first
two months of fiscal 2000 compared to the same period a year ago. The decrease
is primarily due to higher mortgage interest rates compared to the year-earlier
period. In France, net orders for the first two months of fiscal 2000 increased
12.9% compared to the same period in 1999, reflecting the inclusion of Park and
new community openings. Excluding net orders from operations acquired in the
trailing twelve-month period, French net orders rose 3.2% in the first two
months of fiscal 2000. Full year Company-wide net order results could be further
affected by current global market uncertainties, mortgage interest rate
volatility, declines in consumer confidence and/or other factors.
As a result of continued domestic expansion outside of California, the
percentage of domestic unit deliveries generated from California operations
decreased to 31.7% in 1999 from 35.8% in 1998. On a revenue basis, these
percentages were 46.8% in 1999 and 51.3% in 1998. In response to persistently
weak conditions for new housing and general recessionary trends in California
during the first half of the 1990's and in order to spur growth, the Company
diversified its business through aggressive expansion into other western states.
Since then, the housing market has improved significantly in California, and the
Company remains cautiously optimistic that the improved economic climate will
continue for the foreseeable future, thereby generally enabling the housing
market, and the Company's business in the state to retain its strength.
Other U.S. operations continued to experience substantial growth in 1999. The
acquisition of Lewis Homes' market-leading operations in Nevada, coupled with
the continued expansion of preexisting Other U.S. operations, resulted in a
56.5% increase in deliveries in 1999 compared to the prior year. The Company has
also achieved the most significant penetration of its KB2000 operational
business model in these Other U.S. markets. The Company is seeking to continue
to expand its Other U.S. operations and continues to explore opportunities to
enter new markets as well as grow its existing markets.
The French housing market has continued to improve in recent years. In 1999,
unit deliveries in France rose by 53.2% from the previous year, including the
impact of the acquisition of Park. The Company anticipates that increases in
deliveries from French housing operations in 2000 will be in line with that
nation's improving economy. French commercial activities are not likely to
increase materially, consistent with the strategy to focus primarily on the
expansion of its residential development business. The initial public offering
of KBSA, completed in February 2000, has strengthened the French business by
providing it with access to additional capital to support its growth.
55
<PAGE> 37
As the Company enters fiscal year 2000, it plans to continue to operate under
the principles of the KB2000 operational business model -- now renamed KBnxt --
and to strive for continued growth. The Company believes its KB2000 operational
business model has been instrumental in its achievement of record deliveries and
earnings in 1998 and 1999. Since implementing KB2000 in 1997, the Company has
leveraged the business model with additional and complementary initiatives
including strategies to establish leading market positions and maintain focus on
acquisitions.
In order to leverage the benefits of the KB2000/KBnxt operational business
model, the Company has concentrated on a strategy designed to achieve a leading
position in its major markets. By operating in fewer, larger markets at
sufficiently large volume levels, the Company believes it can better execute its
operational business model and use economies of scale to increase profits. The
expected benefits of this strategy can include lower land acquisition costs,
improved terms with suppliers and subcontractors, the ability to offer maximum
choice and the best value to customers, and the retention of the best management
talent.
The Company hopes to continue to increase overall unit delivery growth in future
years, with its current primary growth strategies to expand existing operations
to optimal market volume levels, while still exploring entry into new markets,
at high volume levels, through acquisitions.
The Company expects to continue to consider acquisitions from time to time to
supplement growth in existing markets and facilitate expansion into new markets.
However, the Company's ability to acquire other homebuilders could be affected
by several factors, including, among other things, conditions in U.S. securities
markets, the Company's stock price, the general availability of applicable
acquisition candidates, pricing for such transactions, competition among other
national or regional builders for such target companies, changes in general and
economic conditions nationally and in target markets, and capital or credit
market conditions. Merger and acquisition activity within the U.S homebuilding
industry has slowed in recent months as a result of the generally depressed
stock prices of leading builders.
The Company is also in the process of reviewing its assets and businesses 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 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. The Company believes that the improvement in its debt ratio
from the end of the third quarter to the end of the fourth quarter of fiscal
1999, which occurred despite the stock buyback program, reflects the early
benefits of this review.
The Company's agreement to joint venture its interest in "City Ranch", a master
planned community in north Los Angeles County, California, is an example of its
ongoing asset review process.
Notwithstanding the asset review, the Company hopes to continue to increase
overall unit deliveries in future years. Subject to various risk factors, the
Company's growth strategies include expanding existing operations to sizable
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 operational
business model.
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. In particular, interest rates have risen since the beginning of the
Company's 1999 fiscal year. Recent increases in short-term interest rates
instituted by the Federal Reserve Board may give rise to further increases in
mortgage interest rates. With its acquisition of companies in 1998 and 1999,
including Lewis Homes, its asset repositioning program, and its high current
backlog levels, the Company believes it is well-positioned to achieve record
earnings in 2000.
56
<PAGE> 38
Impact of Inflation
The Company's business is significantly affected by general economic conditions,
particularly by inflation and its generally associated adverse effect on
interest rates. Although inflation rates have been low in recent years, rising
inflation would likely affect the Company's revenues and earning power by
reducing demand for homes as a result of correspondingly higher interest rates.
In periods of high inflation, the rising costs of land, construction, labor,
interest and administrative expenses have often been recoverable through
increased selling prices, although this has not always been possible because of
high mortgage interest rates and competitive factors in the marketplace. In
recent years, inflation has had no significant adverse impact on the Company, as
average annual cost increases have not exceeded the average rate of inflation.
* * *
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 estate
development, capital or credit market conditions affecting the Company's cost of
capital; the availability and 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.
57
<PAGE> 39
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
in thousands, except per share amounts
Years Ended November 30, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES $ 3,836,295 $ 2,449,362 $ 1,878,723
==============================================================================================================
CONSTRUCTION:
Revenues $ 3,772,121 $ 2,402,966 $ 1,843,614
Construction and land costs (3,051,698) (1,949,729) (1,512,766)
Selling, general and administrative expenses (461,316) (304,565) (229,097)
- --------------------------------------------------------------------------------------------------------------
Operating income 259,107 148,672 101,751
Interest income 7,806 5,674 5,078
Interest expense, net of amounts capitalized (28,340) (23,341) (29,829)
Minority interests (29,392) (7,002) (425)
Equity in pretax income (loss) of unconsolidated joint ventures 224 1,151 (53)
- --------------------------------------------------------------------------------------------------------------
Construction pretax income 209,405 125,154 76,522
- --------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING:
Revenues:
Interest income 19,186 15,569 13,303
Other 44,988 30,827 21,806
- --------------------------------------------------------------------------------------------------------------
64,174 46,396 35,109
Expenses:
Interest (16,941) (15,046) (12,699)
General and administrative (11,614) (9,937) (7,902)
Secondary marketing trading loss (18,155)
- --------------------------------------------------------------------------------------------------------------
Mortgage banking pretax income 17,464 21,413 14,508
- --------------------------------------------------------------------------------------------------------------
Total pretax income 226,869 146,567 91,030
Income taxes (79,400) (51,300) (32,800)
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 147,469 $ 95,267 $ 58,230
==============================================================================================================
BASIC EARNINGS PER SHARE $ 3.16 $ 2.41 $ 1.50
==============================================================================================================
DILUTED EARNINGS PER SHARE $ 3.08 $ 2.32 $ 1.45
==============================================================================================================
</TABLE>
See accompanying notes.
58
<PAGE> 40
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARES
November 30, 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 15,576 $ 56,602
Trade and other receivables 205,847 140,771
Mortgages and notes receivable 58,702 54,070
Inventories 1,521,265 1,134,402
Investments in unconsolidated joint ventures 21,290 5,608
Deferred income taxes 99,519 24,094
Goodwill 205,618 45,533
Other assets 86,259 81,464
- -----------------------------------------------------------------------------------------------------------------
2,214,076 1,542,544
- -----------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING:
Cash and cash equivalents 12,791 6,751
Receivables:
First mortgages and mortgage-backed securities 47,080 58,262
First mortgages held under commitments of sale and other receivables 386,076 249,702
Other assets 4,212 2,945
- -----------------------------------------------------------------------------------------------------------------
450,159 317,660
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,664,235 $ 1,860,204
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 328,528 $ 211,380
Accrued expenses and other liabilities 222,855 148,508
Mortgages and notes payable 813,424 529,846
- -----------------------------------------------------------------------------------------------------------------
1,364,807 889,734
- -----------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,711 8,924
Notes payable 377,666 239,413
Collateralized mortgage obligations secured by mortgage-backed securities 36,219 49,264
- -----------------------------------------------------------------------------------------------------------------
423,596 297,601
- -----------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS:
Consolidated subsidiaries and joint ventures 9,499 8,608
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely debentures of the Company 189,750 189,750
- -----------------------------------------------------------------------------------------------------------------
199,249 198,358
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock--$1.00 par value; authorized, 10,000,000 shares: none outstanding
Common stock--$1.00 par value; authorized, 100,000,000 shares; 48,090,615 and
39,992,004 shares outstanding at November 30, 1999 and 1998, respectively 48,091 39,992
Paid-in capital 335,324 193,520
Retained earnings 376,626 243,356
Accumulated other comprehensive income (1,584) (2,357)
Grantor stock ownership trust, at cost: 3,750,100 shares at November 30, 1999 (81,874)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 676,583 474,511
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,664,235 $ 1,860,204
=================================================================================================================
</TABLE>
See accompanying notes.
59
<PAGE> 41
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of Shares
----------------- Accumulated
Grantor Other Grantor
in thousands Stock Compre- Stock Total
Years Ended November 30, 1999, Common Ownership Common Paid-in Retained hensive Ownership Stockholders'
1998 and 1997 Stock Trust Stock Capital Earnings Income Trust Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1996 38,828 $ 38,828 $183,801 $ 113,398 $ 4,323 $ 340,350
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 58,230 58,230
Foreign currency translation
adjustments (6,310) (6,310)
---------
Total comprehensive income 51,920
Dividends on common stock (11,668) (11,668)
Exercise of employee stock
options 169 169 2,285 2,454
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1997 38,997 38,997 186,086 159,960 (1,987) 383,056
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 95,267 95,267
Foreign currency translation
adjustments (370) (370)
---------
Total comprehensive income 94,897
Dividends on common stock (11,871) (11,871)
Exercise of employee stock
options 995 995 15,699 16,694
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust holding solely
debentures of the Company -
contract adjustment payments
and issuance costs (8,265) (8,265)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1998 39,992 39,992 193,520 243,356 (2,357) 474,511
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 147,469 147,469
Foreign currency translation
adjustments 773 773
---------
Total comprehensive income 148,242
Dividends on common stock (14,199) (14,199)
Exercise of employee stock options 212 212 3,686 3,898
Issuance of common stock related
to an acquisition 7,887 7,887 138,118 146,005
Grantor stock ownership trust (3,750) $(81,874) (81,874)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1999 48,091 (3,750) $ 48,091 $335,324 $ 376,626 $ (1,584) $(81,874) $ 676,583
===================================================================================================================================
</TABLE>
See accompanying notes.
60
<PAGE> 42
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
in thousands
Years Ended November 30, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 147,469 $ 95,267 $ 58,230
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Equity in pretax (income) loss of unconsolidated joint ventures (224) (1,151) 53
Minority interests 29,392 7,002 425
Amortization of discounts and issuance costs 1,501 1,882 2,341
Depreciation and amortization 38,251 16,178 11,860
Provision for deferred income taxes (25,913) 474 (5,028)
Change in assets and liabilities, net of effects from acquisitions:
Receivables (184,116) (50,040) (118,123)
Inventories (38,761) (125,719) 5,157
Accounts payable, accrued expenses and other liabilities 130,257 51,283 20,064
Other, net 8,911 (8,025) (4,023)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 106,767 (12,849) (29,044)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (11,646) (162,818)
Investments in unconsolidated joint ventures (15,022) 2,214 1,921
Net sales (originations) of mortgages held for long-term investment (2,756) 1,686 164
Payments received on first mortgages and mortgage-backed securities 14,629 12,933 9,988
Purchases of property and equipment, net (19,160) (15,859) (5,917)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (33,955) (161,844) 6,156
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from credit agreements and other short-term borrowings 119,425 63,187 37,900
Proceeds from Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures of the Company 183,057
Proceeds from issuance of senior notes 172,182
Payments on collateralized mortgage obligations (14,098) (12,324) (9,531)
Payments on mortgages, land contracts and other loans (73,329) (45,239) (8,047)
Redemption of senior notes (100,000)
Payments from (to) minority interests (43,723) (7,006) 513
Payments of cash dividends (14,199) (11,871) (11,668)
Repurchases of common stock (81,874)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) for financing activities (107,798) 169,804 81,349
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (34,986) (4,889) 58,461
Cash and cash equivalents at beginning of year 63,353 68,242 9,781
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 28,367 $ 63,353 $ 68,242
=========================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 43,014 $ 37,915 $ 43,559
Income taxes paid 74,560 40,521 29,982
=========================================================================================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 43,529 $ 29,911 $ 15,098
Issuance of common stock related to an acquisition 146,005
Debt assumed related to an acquisition 303,239
=========================================================================================================================
</TABLE>
See accompanying notes.
61
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
OPERATIONS Kaufman and Broad Home Corporation (the "Company") is a regional
builder of single-family homes with domestic operations throughout the western
United States, and international operations in France. The Company is also a
developer of commercial and high-density residential projects in France. Through
its mortgage banking subsidiary, Kaufman and Broad Mortgage Company, the Company
provides mortgage banking services to its domestic homebuyers.
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of the Company and all significant subsidiaries and joint ventures in which a
controlling interest is held. All significant intercompany transactions have
been eliminated. Investments in unconsolidated joint ventures in which the
Company has less than a controlling interest are accounted for using the equity
method.
USE OF ESTIMATES The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management. Actual results could differ from
these estimates.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt
instruments and other short-term investments purchased with a maturity of three
months or less to be cash equivalents. As of November 30, 1999 and 1998, the
Company's cash equivalents totaled $704,000 and $20,246,000, respectively.
FOREIGN CURRENCY TRANSLATION Results of operations for foreign entities are
translated using the average exchange rates during the period. For foreign
entities, assets and liabilities are translated to U.S. dollars using the
exchange rates in effect at the balance sheet date. Resulting translation
adjustments are recorded in stockholders' equity as foreign currency translation
adjustments.
CONSTRUCTION OPERATIONS Housing and other real estate sales are recognized when
title passes to the buyer and all of the following conditions are met: a sale is
consummated, a significant down payment is received, the earnings process is
complete and the collection of any remaining receivables is reasonably assured.
In France, revenues from development and construction of apartments,
condominiums and commercial buildings, under long-term contracts with individual
investors who own the land, are recognized using the percentage of completion
method, which is generally based on costs incurred as a percentage of estimated
total costs of individual projects. Revenues recognized in excess of amounts
billed are classified as receivables. Amounts received from buyers in excess of
revenues recognized, if any, are classified as other liabilities.
Construction and land costs are comprised of direct and allocated costs,
including estimated future costs for warranties and amenities. Land, land
improvements and other common costs are allocated on a relative fair value basis
to units within a parcel or subdivision. Land and land development costs
generally include related interest and property taxes incurred until development
is substantially completed or deliveries have begun within a subdivision.
Land to be developed and projects under development are stated at cost unless
the carrying amount of the parcel or subdivision is determined not to be
recoverable, in which case the impaired inventories are written down to fair
value. Write-downs of impaired inventories are recorded as adjustments to the
cost basis of the inventory. The Company's inventories typically do not consist
of completed projects.
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is amortized by the Company over periods ranging from five
to ten years using the straight-line method. Accumulated amortization was
$52,765,000 and $25,804,000 at November 30, 1999 and 1998, respectively. In the
event that facts and circumstances indicate that the carrying value of goodwill
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the goodwill would be compared to its carrying amount to determine if a
write-down to fair value or discounted cash flow is required.
MORTGAGE BANKING OPERATIONS First mortgages and mortgage-backed securities
consist of securities held for long-term investment and are valued at amortized
cost. First mortgages held under commitments of sale are valued at the lower of
aggregate cost or market. Market is principally based on public market
quotations or outstanding commitments obtained from investors to purchase first
mortgages receivable.
62
<PAGE> 44
Principal and interest payments received on mortgage-backed securities are
invested in short-term securities maturing on the next debt service date of the
collateralized mortgage obligations for which the securities are held as
collateral. Such payments are restricted to the payment of the debt service on
the collateralized mortgage obligations.
SECONDARY MARKETING TRADING LOSS On August 31, 1999, the Company disclosed that
it had discovered unauthorized mortgage loan trading activity by an employee of
its mortgage banking subsidiary resulting in a pretax trading loss of
$18,155,000 ($11,755,000, or $.25 per diluted share, on an after tax basis). It
is normal practice for the Company's mortgage banking subsidiary to sell loans
into the market that approximately match loan commitments to the Company's
homebuyers. This practice is intended to hedge exposure to changes in interest
rates that may occur until loans are sold to secondary market investors in the
ordinary course of business. The loss was the result of a single employee
engaging in unauthorized mortgage loan trading largely unrelated to mortgage
originations. The employee who conducted the unauthorized trading was
terminated.
STOCK OPTIONS The Company's employee stock option plans are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25").
INCOME TAXES Income taxes are provided for at rates applicable in the countries
in which the income is earned. Provision is made currently for United States
federal income taxes on earnings of foreign subsidiaries which are not expected
to be reinvested indefinitely.
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
shares outstanding including all dilutive potentially issuable shares under
various stock option plans and stock purchase contracts. Earnings per share
amounts for all periods have been presented and, where necessary, restated to
conform to the Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" requirements. The following table presents a reconciliation of
average shares outstanding:
<TABLE>
<CAPTION>
in thousands
Years Ended November 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic average shares outstanding 46,730 39,553 38,889
Net effect of stock options assumed to be exercised 1,101 1,480 1,169
- ------------------------------------------------------------------------------------------
Diluted average shares outstanding 47,831 41,033 40,058
==========================================================================================
</TABLE>
COMPREHENSIVE INCOME During the quarter ended February 28, 1999, the Company
adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements.
SEGMENT INFORMATION Effective November 30, 1999, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
new standards for segment reporting which are based on the way management
organizes segments within a company for making operating decisions and assessing
performance.
In accordance with SFAS No. 131, the Company identified two reportable segments:
construction and mortgage banking. The Company's construction segment consists
primarily of domestic and foreign homebuilding operations. The Company's
construction operations are engaged in the acquisition and development of land
primarily for residential purposes and offer a wide variety of homes that are
designed to appeal to the first-time homebuyer. Domestically, the Company
currently sells homes in six western states. Internationally, the Company
operates in France. The Company also builds commercial projects and high-density
residential properties, such as condominium and apartment complexes, in France.
The Company's mortgage banking operations provide mortgage banking services to
the Company's domestic homebuyers. The mortgage banking segment originates,
processes and sells mortgages to third-party investors. The Company does not
retain or service the mortgages that it originates but, rather, sells the
mortgages and related servicing rights to investors.
63
<PAGE> 45
Information for the Company's reportable segments are 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 as described in the
summary of significant accounting policies. Management evaluates a segment's
performance based upon a number of factors including pretax results.
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires all derivatives to be recorded on the balance sheet at
fair value. The Company will adopt SFAS No. 133 in its fiscal year 2000. The
Company does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on its results of operations or financial position.
RECLASSIFICATIONS Certain amounts in the consolidated financial statements of
prior years have been reclassified to conform to the 1999 presentation.
Note 2. Acquisitions
During the second quarter of 1998, the Company acquired three privately held
home builders 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
$54,000,000, 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
$65,000,000, 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 $48,000,000, 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 $31,837,000,
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 $14,500,000 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 domestic unsecured revolving credit facility.
Each acquisition was accounted for under the purchase method and the results of
operations of the acquired entities were included in the Company's consolidated
financial statements as of their respective dates of acquisition. The purchase
prices were allocated to the assets acquired and liabilities assumed based upon
their estimated fair market values at the date of acquisition. The excess of the
purchase prices over the fair value of net assets acquired was $23,450,000 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 was engaged in the acquisition, development and sale of residential real
estate in California and Nevada. Prior to the acquisition, Lewis Homes 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
$715,000,000 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 were Las Vegas and Northern
Nevada, Southern California and the greater Sacramento area in Northern
California.
The purchase price for Lewis Homes was approximately $449,244,000, comprised of
the assumption of approximately $303,239,000 in debt and the issuance of
7,886,686 shares of the Company's common stock valued at approximately
$146,005,000. 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
64
<PAGE> 46
was $177,600,000 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
$200,000,000 unsecured term loan agreement with various banks (the "Term Loan
Agreement") to refinance certain debt assumed. The Company used borrowings under
its existing $500,000,000 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 arm's-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:
<TABLE>
<CAPTION>
in thousands, except per share amounts
Years Ended November 30, 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues $3,919,247 $3,279,287
Total pretax income 231,384 184,993
Net income 150,384 120,293
Basic earnings per share 3.16 2.54
Diluted earnings per share 3.09 2.46
=======================================================================================================
</TABLE>
This pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated as of December 1, 1997, nor are
they necessarily indicative of future operating results.
Note 3. Receivables
CONSTRUCTION Trade receivables amounted to $138,250,000 and $67,771,000 at
November 30, 1999 and 1998, respectively. Included in these amounts are unbilled
receivables due from buyers on French apartment, condominium and commercial
building sales accounted for using the percentage of completion method, totaling
$97,264,000 at November 30, 1999 and $37,804,000 at November 30, 1998. The
buyers are contractually obligated to remit payments against their unbilled
balances. Other receivables of $67,597,000 at November 30, 1999 and $73,000,000
at November 30, 1998 included escrow deposits and amounts due from
municipalities and utility companies.
At November 30, 1999 and 1998, receivables were net of allowances for doubtful
accounts of $16,578,000 and $9,146,000, respectively.
MORTGAGE BANKING First mortgages and mortgage-backed securities consisted of
loans of $9,089,000 at November 30, 1999 and $6,334,000 at November 30, 1998 and
mortgage-backed securities of $37,991,000 and $51,928,000 at November 30, 1999
and 1998, respectively. The mortgage-backed securities serve as collateral for
related collateralized mortgage obligations. The properties covered by the
mortgages underlying the mortgage-backed securities are single-family
residences. Issuers of the mortgage-backed securities are the Government
National Mortgage Association and Fannie Mae. The first mortgages and
mortgage-backed securities bore interest at an average rate of 8 3/8% and 8 2/5%
at November 30, 1999 and 1998, respectively (with rates ranging from 7% to 12%
in both 1999 and 1998).
65
<PAGE> 47
First mortgages and mortgage-backed securities were net of discounts and
premiums of $18,000 at November 30, 1999 and $546,000 at November 30, 1998.
These discounts and premiums, which primarily represent loan origination
discount points and acquisition price discounts or premiums, are deferred as an
adjustment to the carrying value of the related first mortgages and
mortgage-backed securities and amortized into interest income using the interest
method.
The Company's mortgage-backed securities held for long-term investment have been
classified as held-to-maturity and are stated at amortized cost, adjusted for
amortization of discounts and premiums to maturity. Such amortization is
included in interest income. The total gross unrealized gains and gross
unrealized losses on the mortgage-backed securities were $685,000 and $0,
respectively at November 30, 1999 and $3,457,000 and $0, respectively at
November 30, 1998.
First mortgages held under commitments of sale and other receivables consisted
of first mortgages held under commitments of sale of $376,377,000 at November
30, 1999 and $242,537,000 at November 30, 1998 and other receivables of
$9,699,000 and $7,165,000 at November 30, 1999 and 1998, respectively. The first
mortgages held under commitments of sale bore interest at an average rate of
7 1/2% at both November 30, 1999 and 1998. The balance in first mortgages held
under commitments of sale and other receivables fluctuates significantly during
the year and typically reaches its highest level at quarter-ends, corresponding
to the Company's home and mortgage delivery activity.
Note 4. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
in thousands
November 30, 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Homes, lots and improvements in production $1,063,505 $ 835,300
Land under development 457,760 299,102
- -----------------------------------------------------------------------------------------
Total inventories $1,521,265 $1,134,402
=========================================================================================
</TABLE>
Land under development primarily consists of parcels on which 50% or less of
estimated development costs have been incurred.
The impact of capitalizing interest costs on consolidated pretax income is as
follows:
<TABLE>
<CAPTION>
in thousands
Years Ended November 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest incurred $ 78,041 $ 54,299 $ 52,468
Interest expensed (28,340) (23,341) (29,829)
- ------------------------------------------------------------------------------------------------
Interest capitalized 49,701 30,958 22,639
Interest amortized (44,257) (30,752) (25,480)
- ------------------------------------------------------------------------------------------------
Net impact on consolidated pretax income $ 5,444 $ 206 $ (2,841)
================================================================================================
</TABLE>
Note 5. Investments in Unconsolidated Joint Ventures
The Company participates in a number of joint ventures in which it has less than
a controlling interest. These joint ventures are based in California, Nevada,
New Mexico, Texas and France and are engaged in the development, construction
and sale of residential properties and commercial projects. Combined condensed
financial information concerning the Company's unconsolidated joint venture
activities follows:
66
<PAGE> 48
<TABLE>
<CAPTION>
in thousands
November 30, 1999 1998
- -------------------------------------------------------
<S> <C> <C>
Cash $ 3,386 $ 6,286
Receivables 4,914 5,727
Inventories 82,021 15,042
Other assets 377 637
- -------------------------------------------------------
Total assets $90,698 $27,692
=======================================================
Mortgages and notes payable $30,988 $ 4,593
Other liabilities 11,111 5,696
Equity of:
The Company 21,290 5,608
Others 27,309 11,795
- -------------------------------------------------------
Total liabilities and equity $90,698 $27,692
=======================================================
</TABLE>
The joint ventures finance land and inventory investments primarily through a
variety of borrowing arrangements. The Company typically does not guarantee
these financing arrangements.
<TABLE>
<CAPTION>
in thousands
Years Ended November 30, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 13,889 $ 17,657 $ 98,183
Cost of sales (9,842) (12,245) (94,901)
Other expenses, net (426) (384) (6,147)
- --------------------------------------------------------------------------------------------------------------------
Total pretax income (loss) $ 3,621 $ 5,028 $ (2,865)
====================================================================================================================
The Company's share of pretax income (loss) $ 224 $ 1,151 $ (53)
====================================================================================================================
</TABLE>
The Company's share of pretax income (loss) includes management fees earned from
the unconsolidated joint ventures.
Note 6. Mortgages and Notes Payable
CONSTRUCTION Mortgages and notes payable consisted of the following (interest
rates are as of November 30):
<TABLE>
<CAPTION>
in thousands
November 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured domestic borrowings with banks under a revolving
credit agreement (6 3/8% in 1999) $ 50,000
Other unsecured domestic borrowings with banks due within
one year (6 3/8% to 6 1/2% in 1999) 9,000
Unsecured French borrowings (3 3/4% to 7% in 1999 and 4 1/5% to 5 3/8% in 1998) 49,940 $ 33,647
Term loan borrowings due 2001 (6 7/8% in 1999) 200,000
Mortgages and land contracts due to land sellers and other loans (7% to 10 1/4% in 1999
and 8% to 10 1/4% in 1998) 30,583 22,492
Senior notes due 2004 at 7 3/4% 175,000 175,000
Senior subordinated notes due 2003 at 9 3/8% 174,370 174,221
Senior subordinated notes due 2006 at 9 5/8% 124,531 124,486
- ----------------------------------------------------------------------------------------------------------------
Total mortgages and notes payable $813,424 $529,846
================================================================================================================
</TABLE>
67
<PAGE> 49
On April 21, 1997, the Company entered into a $500,000,000 domestic unsecured
revolving credit agreement (the "Revolving Credit Facility") with various banks.
The Revolving Credit Facility is comprised of a $400,000,000 revolving credit
facility scheduled to expire on April 30, 2001 and a $100,000,000 364-day
revolving credit facility. Upon expiration, the $100,000,000 revolving credit
facility is renewable at the lenders' option or may be converted, at the
Company's option, to a term loan expiring on April 30, 2001. Under the Revolving
Credit Facility, $500,000,000 remained committed and $416,904,000 was available
for the Company's future use at November 30, 1999. The Revolving Credit Facility
provides for interest on borrowings at either the applicable bank reference rate
or the London Interbank Offered Rate plus an applicable spread and an annual
commitment fee based on the unused portion of the commitment.
On January 7, 1999, in connection with the acquisition of Lewis Homes, the
Company obtained a $200,000,000 Term Loan Agreement to refinance certain debt
assumed. The Term Loan Agreement provides for three payments of $25,000,000, 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, inventories and indebtedness. The financing
obtained under the Term Loan Agreement did not affect the amounts available
under the Company's pre-existing borrowing arrangements.
The Company's French subsidiaries have lines of credit with various banks which
totaled $198,658,000 at November 30, 1999 and have various committed expiration
dates through November 2000. These lines of credit provide for interest on
borrowings at either the French Federal Funds Rate or the Paris Interbank
Offered Rate plus an applicable spread.
The weighted average interest rate on aggregate unsecured borrowings, excluding
the senior and senior subordinated notes, was 6 3/5% and 4 3/5% at November 30,
1999 and 1998, respectively.
On April 26, 1993, the Company issued $175,000,000 principal amount of 9 3/8%
senior subordinated notes at 99.202%. The notes are due May 1, 2003 with
interest payable semi-annually. The notes represent unsecured obligations of the
Company and are subordinated to all existing and future senior indebtedness of
the Company. The Company may redeem the notes, in whole or in part, at any time
on or after May 1, 2000 at 100% of their principal amount.
On October 29, 1996, the Company filed a universal shelf registration statement
(the "1996 Shelf Registration") with the Securities and Exchange Commission for
up to $300,000,000 of the Company's debt and equity securities. The Company's
previously outstanding shelf registration for debt securities in the amount of
$100,000,000 was subsumed within the 1996 Shelf Registration. On November 14,
1996, the Company utilized the 1996 Shelf Registration to issue $125,000,000 of
9 5/8% senior subordinated notes at 99.525%. The notes, which are due November
15, 2006 with interest payable semi-annually, represent unsecured obligations of
the Company and are subordinated to all existing and future senior indebtedness
of the Company. The notes are redeemable at the option of the Company, in whole
or in part, at 104.8125% of their principal amount beginning November 15, 2001,
and thereafter at prices declining annually to 100% on and after November 15,
2004.
On September 4, 1997, the Company completed the optional redemption of its
$100,000,000 principal amount of 10 3/8% senior notes due in 1999. The Company
used borrowings under its Revolving Credit Facility to retire the entire
$100,000,000 of senior notes at 100% of the principal amount of the notes,
together with accrued and unpaid interest.
On October 14, 1997, pursuant to the 1996 Shelf Registration, the Company issued
$175,000,000 of 7 3/4% senior notes at 100% of the principal amount of the
notes. The notes, which are due October 15, 2004 with interest payable
semi-annually, represent unsecured obligations of the Company and rank pari
passu in right of payment with all other senior unsecured indebtedness of the
Company. The notes are not redeemable by the Company prior to stated maturity.
This offering resulted in the issuance of all available securities under the
1996 Shelf Registration.
The 7 3/4% senior notes and 9 3/8% and 9 5/8% senior subordinated notes contain
certain restrictive covenants that, among other things, limit the ability of the
Company to incur additional indebtedness, pay dividends, make certain
investments, create certain liens, engage in mergers, con-
68
<PAGE> 50
solidations, or sales of assets, or engage in certain transactions with
officers, directors and employees. Under the terms of the Revolving Credit
Facility, the Company is required, among other things, to maintain certain
financial statement ratios and a minimum net worth and is subject to limitations
on acquisitions, inventories and indebtedness. Based on the terms of the
Company's Revolving Credit Facility, Term Loan Agreement, senior notes and
senior subordinated notes, retained earnings of $150,180,000 were available for
payment of cash dividends or stock repurchases at November 30, 1999.
Principal payments on senior and senior subordinated notes, term loan
borrowings, mortgages, land contracts and other loans are due as follows: 2000,
$91,767,000; 2001, $135,644,000; 2002, $1,389,000; 2003, $175,205,000; 2004,
$175,948,000; and thereafter, $124,531,000.
Assets (primarily inventories) having a carrying value of approximately
$106,266,000 are pledged to collateralize mortgages, land contracts and other
secured loans.
On December 5, 1997, the Company filed a new universal shelf registration
statement with the Securities and Exchange Commission for up to $500,000,000 of
the Company's debt and equity securities. This universal shelf registration
provides that securities may be offered from time to time in one or more series
and in the form of senior, senior subordinated or subordinated debt, preferred
stock, common stock, and/or warrants to purchase such securities. The
registration was declared effective on December 16, 1997, and no securities have
been issued thereunder.
MORTGAGE BANKING Notes payable included the following (interest rates are as of
November 30):
<TABLE>
<CAPTION>
IN THOUSANDS
November 30, 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable secured by trust deed notes
(6 1/8% to 7 1/8% in 1999 and 5 3/5% in 1998) $377,666 $239,413
- --------------------------------------------------------------------------------
Total notes payable $377,666 $239,413
================================================================================
</TABLE>
First mortgages receivable are financed through a $250,000,000 revolving
mortgage warehouse agreement (the "Mortgage Warehouse Facility"). The Mortgage
Warehouse Facility, which expires on February 23, 2000, provides for an annual
fee based on the committed balance of the facility and provides for interest at
either the Federal Funds Rate or the London Interbank Offered Rate plus an
applicable spread on amounts borrowed. The Company is in the process of renewing
this facility.
On May 25, 1999, the Company's mortgage banking subsidiary entered into a
$150,000,000 Master Loan and Security Agreement with an investment bank. The
agreement, which expires on May 25, 2000, provides for a facility fee based on
the $150,000,000 maximum amount available and provides for interest to be paid
monthly at the Eurodollar Rate plus an applicable spread on amounts borrowed.
The amounts outstanding under the Mortgage Warehouse Facility and the Master
Loan and Security Agreement are secured by a borrowing base, which includes
certain mortgage loans held under commitments of sale and are repayable from
sales proceeds. There are no compensating balance requirements under either
facility. Both facilities include financial covenants and restrictions which,
among other things, require the maintenance of certain financial statement
ratios, a minimum tangible net worth and a minimum net income.
Collateralized mortgage obligations represent bonds issued to third parties
which are collateralized by mortgage-backed securities with substantially the
same terms. At both November 30, 1999 and 1998, the collateralized mortgage
obligations bore interest at rates ranging from 8% to 12 1/4% with stated
original principal maturities ranging from 3 to 30 years. Actual maturities are
dependent on the rate at which the underlying mortgage-backed securities are
repaid. No collateralized mortgage obligations have been issued since 1988.
69
<PAGE> 51
Note 7. Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Debentures of the Company (Feline
Prides)
On July 7, 1998, the Company, together with KBHC Financing I, a Delaware
statutory business trust (the "KBHC Trust") that is wholly owned by the Company,
issued an aggregate of (i) 18,975,000 Feline Prides, and (ii) 1,000,000 KBHC
Trust capital securities, with a $10 stated liquidation amount. The Feline
Prides consisted of (i) 17,975,000 Income Prides with a stated amount per Income
Prides of $10 (the "Stated Amount"), which are units comprised of a capital
security and a stock purchase contract under which the holders will purchase
common stock from the Company not later than August 16, 2001 and the Company
will pay to the holders certain unsecured contract adjustment payments, and (ii)
1,000,000 Growth Prides with a face amount per Growth Prides equal to the Stated
Amount, which are units consisting of a 1/100th beneficial interest in a
zero-coupon U.S. treasury security and a stock purchase contract under which the
holders will purchase common stock from the Company not later than August 16,
2001 and the Company will pay to the holders certain unsecured contract
adjustment payments.
The distribution rate on the Income Prides is 8.25% per annum and the
distribution rate on the Growth Prides is .75% per annum. Under the stock
purchase contracts, investors will be required to purchase shares of common
stock of the Company for an effective price ranging between a minimum of $31.75
per share and a maximum of $38.10 per share, and the Company will issue
approximately 5,000,000 to 6,000,000 common shares by August 16, 2001, depending
upon the price of the common stock upon settlement of the purchase contracts
(subject to adjustment under certain circumstances). The capital securities
associated with the Income Prides and the U.S. treasury securities associated
with the Growth Prides have been pledged as collateral to secure the holders'
obligations in respect of the common stock purchase contracts. The capital
securities issued by the KBHC Trust are entitled to a distribution rate of 8%
per annum of their $10 stated liquidation amount.
The KBHC Trust utilized the proceeds from the issuance of the Feline Prides and
capital securities to purchase an equivalent principal amount of the Company's
8% Debentures due August 16, 2003 (the "8% Debentures"). The 8% Debentures are
the sole asset of the KBHC Trust. The Company's obligations under the Debentures
and related agreements, taken together, constitute a firm and unconditional
guarantee by the Company of the KBHC Trust's obligations under the capital
securities. The interest rate on the 8% Debentures and the distribution rate on
the capital securities of the KBHC Trust are to be reset, subject to certain
limitations, effective August 16, 2001. The Company has recorded the present
value of the contract adjustment payments on the Feline Prides, totaling
$1,600,000, as a liability and a reduction of stockholders' equity. The
liability will be reduced as the contract adjustment payments are made. The
Company has the right to defer the contract adjustment payments and the payment
of interest on the 8% Debentures, but any such election will subject the Company
to restrictions on the payment of dividends on, and redemption of, its
outstanding shares of common stock, and on the payment of interest on, or
redemption of, debt securities of the Company junior in rank to the 8%
Debentures, none of which are currently outstanding. Distributions totaling
$15,180,000 and $6,072,000 are included as minority interests in the Company's
results of operations for the years ended November 30, 1999 and 1998,
respectively.
Note 8. Fair Values of Financial Instruments
The estimated fair values of financial instruments have been determined based on
available market information and appropriate valuation methodologies. However,
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. In that regard, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
70
<PAGE> 52
The carrying values and estimated fair values of the Company's financial
instruments, except for those financial instruments for which the carrying
values approximate fair values, are summarized as follows:
<TABLE>
<CAPTION>
in thousands
November 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Construction:
Financial liabilities
7 3/4% Senior notes $175,000 $163,520 $175,000 $169,698
9 3/8% Senior subordinated notes 174,370 174,738 174,221 178,833
9 5/8% Senior subordinated notes 124,531 125,700 124,486 134,288
Mortgage banking:
Financial assets
Mortgage-backed securities 37,991 38,676 51,928 55,386
Financial liabilities
Collateralized mortgage obligations secured by
mortgage-backed securities 36,219 36,897 49,264 53,693
Company obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely debentures of the Company 189,750 141,800 189,750 162,200
========================================================================================================================
</TABLE>
The Company used the following methods and assumptions in estimating fair
values:
Cash and cash equivalents; first mortgages held under commitments of sale and
other receivables; borrowings under the Revolving Credit Facility, Term Loan
Agreement, French lines of credit, Mortgage Warehouse Facility and Master Loan
and Security Agreement: The carrying amounts reported approximate fair values.
Senior notes and senior subordinated notes: The fair values of the Company's
senior notes and senior subordinated notes are estimated based on quoted market
prices.
Mortgage-backed securities and collateralized mortgage obligations secured by
mortgage-backed securities: The fair values of these financial instruments are
estimated based on quoted market prices for the same or similar issues.
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely debentures of the Company: The fair values of these
financial instruments are based on quoted market prices on the New York Stock
Exchange.
Note 9. Commitments and Contingencies
Commitments and contingencies include the usual obligations of homebuilders for
the completion of contracts and those incurred in the ordinary course of
business. The Company is also involved in litigation incidental to its business,
the disposition of which should have no material effect on the Company's
financial position or results of operations.
Note 10. Stockholders' Equity
On February 4, 1999, the Company adopted a new Stockholder Rights Plan to
replace its preexisting shareholder rights plan adopted in 1989 (the "1989
Rights Plan"), and declared a dividend distribution of one preferred share
purchase right for each outstanding share of common stock, such rights were
issued on March 7, 1999, simultaneously with the expiration of the rights issued
under the 1989 Rights Plan. Under certain circum-
71
<PAGE> 53
stances, each right entitles the holder to purchase 1/100th of a share of the
Company's Series A Participating Cumulative Preferred Stock at a price of
$135.00, subject to certain antidilution provisions. The rights are not
exercisable until the earlier to occur of (i) 10 days following a public
announcement that a person or group has acquired Company stock representing 15%
or more of the aggregate votes entitled to be cast by all shares of common stock
or (ii) 10 days following the commencement of a tender offer for Company stock
representing 15% or more of the aggregate votes entitled to be cast by all
shares of common stock. The holdings of or acquisitions by any of the members of
the Lewis family, a former officer of Lewis Homes and any entity controlled by
any of them (the "Lewis Holders"), who held in the aggregate approximately 16%
of the Company's common stock as of January 7, 1999, will not cause the rights
to become exercisable by virtue of their ownership so long as their aggregate
ownership remains below 17% of the issued and outstanding common stock. In the
event the aggregate ownership of the Lewis Holders falls below 15.5% of the
issued and outstanding shares of the Company's common stock, the rights will
become exercisable as described above if their holdings should at anytime
thereafter exceed 16% of the issued and outstanding shares of the Company's
common stock. In the event the aggregate ownership of the Lewis Holders falls
below 14.5% of the issued and outstanding shares of the Company's common stock,
the Lewis Holders' exemption will terminate, and the rights will become
exercisable as described above. If, without approval of the Board of Directors,
the Company is acquired in a merger or other business combination transaction,
or 50% or more of the Company's assets or earning power is sold, each right will
entitle its holder to receive, upon exercise, common stock of the acquiring
company having a market value of twice the exercise price of the right; and if,
without approval of the Board of Directors, any person or group acquires Company
stock representing 15% or more of the aggregate votes entitled to be cast by all
shares of common stock, each right will entitle its holder to receive, upon
exercise, common stock of the Company having a market value of twice the
exercise price of the right. At the option of the Company, the rights are
redeemable prior to becoming exercisable at $.005 per right. Unless previously
redeemed, the rights will expire on March 7, 2009. Until a right is exercised,
the holder will have no rights as a stockholder of the Company, including the
right to vote or receive dividends.
Note 11. Employee Benefit and Stock Plans
Benefits are provided to most employees under the Company's 401(k) Savings Plan
under which contributions by employees are partially matched by the Company. The
aggregate cost of this plan to the Company was $3,937,000 in 1999, $3,025,000 in
1998 and $2,081,000 in 1997.
The Company's 1988 Employee Stock Plan (the "1988 Plan") and the 1999 Incentive
Plan (the "1999 Plan") provide that stock options, associated limited stock
appreciation rights, restricted shares of common stock, stock units and other
securities may be awarded to eligible individuals for periods of up to 15 years.
The Company also has a Performance-Based Incentive Plan for Senior Management
(the "Incentive Plan") and the Company's 1998 Stock Incentive Plan which provide
for the same awards as may be made under the 1988 Plan and the 1999 Plan, but
require that such awards be subject to certain conditions which are designed to
assure that annual compensation paid in excess of $1,000,000 to participating
executives is tax deductible for the Company. The 1988 Plan and the 1999 Plan
are the Company's primary existing employee stock plans.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), issued in October 1995, established financial
accounting and reporting standards for stock-based employee compensation plans.
As permitted by SFAS No. 123, the Company elected to continue to use APB Opinion
No. 25 and related interpretations, in accounting for its stock options. Had
compensation expense for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1999, 1998 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net income and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
in thousands, except per share amounts
Years Ended November 30, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income -- as reported $ 147,469 $ 95,267 $ 58,230
Net income -- pro forma 142,816 91,398 57,463
Diluted earnings per share -- as reported 3.08 2.32 1.45
Diluted earnings per share -- pro forma 2.99 2.24 1.44
=========================================================================================
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1999, 1998 and 1997, respectively: a risk free interest rate of 6.14%,
4.38% and 5.84%; an expected volatility factor for the mar-
72
<PAGE> 54
ket price of the Company's common stock of 43.14%, 41.31% and 34.62%; a dividend
yield of 1.36%, 1.19% and 1.38%; and an expected life of 4 years, 4 years and 4
years. The weighted average fair value of options granted in 1999, 1998 and 1997
was $6.92, $6.09 and $3.68, respectively.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 2,965,067 $ 15.22 2,747,318 $ 9.98 2,830,268 $ 10.00
Granted 2,241,736 20.12 1,318,017 22.83 387,000 14.07
Exercised (211,925) 16.43 (995,235) 10.70 (169,183) 12.10
Cancelled (145,056) 21.00 (105,033) 16.56 (300,767) 14.25
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 4,849,822 $ 17.26 2,965,067 $ 15.22 2,747,318 $ 9.98
Options exercisable at end of year 2,041,106 $ 13.83 1,586,455 $ 12.16 1,816,346 $ 7.92
Options available for grant at end of year 2,867,334 2,464,014 1,776,998
===================================================================================================================================
</TABLE>
Stock options outstanding at November 30, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Price Options Life Price Options Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.38 to $14.13 1,232,191 5.97 $ 7.40 1,086,761 $ 6.58
$14.38 to $17.75 1,339,250 14.10 17.22 127,185 14.78
$19.06 to $22.44 1,749,193 13.57 21.94 372,965 21.43
$23.06 to $33.94 529,188 13.64 24.82 454,195 24.70
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4.38 to $33.94 4,849,822 11.79 $ 17.26 2,041,106 $ 13.83
===================================================================================================================================
</TABLE>
The Company records proceeds from the exercise of stock options as additions to
common stock and paid-in capital. The tax benefit, if any, is recorded as
additional paid-in capital.
In 1991, the Board of Directors approved the issuance of restricted stock awards
under the 1988 Plan of up to an aggregate 600,000 shares of common stock to
certain officers and key employees. Restrictions lapse each year through May 10,
2005 on specified portions of the shares awarded to each participant so long as
the participant has remained in the continuous employ of the Company. Restricted
shares under this grant outstanding at the end of the year totaled 129,998 in
1999, 151,665 in 1998 and 226,668 in 1997.
On August 4, 1999, the Company's Board of Directors authorized a share
repurchase program which allows the Company to purchase up to 2,500,000 shares
of the Company's common stock at prices not to exceed $28 per share. The Company
repurchased all of the 2,500,000 shares originally authorized and on November 1,
1999, the Board of Directors authorized the repurchase of up to 4,000,000
additional shares of Company common stock. As of November 30, 1999, the Company
had repurchased 3,750,100 shares under the repurchase program.
73
<PAGE> 55
In connection with its share repurchase program, on August 27, 1999, the Company
established a grantor stock ownership trust (the "Trust") into which the
repurchased shares are transferred. The Trust, administered by an independent
trustee, acquires, holds and distributes the shares of common stock for the
purpose of funding certain employee compensation and employee benefit
obligations of the Company under its existing stock option, 401(k) and other
employee benefit plans. The existence of the Trust will have no impact on the
amount of benefits or compensation that will be paid under these plans.
For financial reporting purposes, the Trust is consolidated with the Company.
Any dividend transactions between the Company and the Trust are eliminated.
Acquired shares held by the Trust remain valued at the market price at the date
of purchase and are shown as a reduction to stockholders' equity in the
consolidated balance sheet. The difference between the Trust share value and the
fair market value on the date shares are released from the Trust, for the
benefit of employees, will be included in additional paid-in capital. Common
stock held in the Trust is not considered outstanding in the computation of
earnings per share. The Trust held 3,750,100 shares of common stock at November
30, 1999. The trustee votes shares held by the Trust in accordance with voting
directions from eligible employees, as specified in a trust agreement with the
trustee.
NOTE 12. INCOME TAXES
The components of pretax income are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
Years Ended November 30, 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $200,272 $136,042 $ 87,545
Foreign 26,597 10,525 3,485
- ----------------------------------------------------------------------------------
Total pretax income $226,869 $146,567 $ 91,030
==================================================================================
</TABLE>
The components of income taxes are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS Total Federal State Foreign
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Currently payable $ 87,428 $ 65,557 $ 11,755 $ 10,116
Deferred (8,028) (12,411) 4,383
- ---------------------------------------------------------------------------------------------------
Total $ 79,400 $ 53,146 $ 11,755 $ 14,499
===================================================================================================
1998
Currently payable $ 52,628 $ 39,989 $ 8,498 $ 4,141
Deferred (1,328) (3,145) 1,817
- ---------------------------------------------------------------------------------------------------
Total $ 51,300 $ 36,844 $ 8,498 $ 5,958
===================================================================================================
1997
Currently payable $ 35,159 $ 28,254 $ 4,847 $ 2,058
Deferred (2,359) (1,892) (467)
- ---------------------------------------------------------------------------------------------------
Total $ 32,800 $ 26,362 $ 4,847 $ 1,591
===================================================================================================
</TABLE>
74
<PAGE> 56
Deferred income taxes result from temporary differences in the financial and tax
bases of assets and liabilities. Significant components of the Company's
deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
November 30, 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Installment sales $ 15,471 $ 6,520
Bad debt and other reserves 449 166
Capitalized expenses 15,704 20,800
Partnerships and joint ventures 2,439 2,457
Repatriation of foreign subsidiaries 12,381 12,018
Other 12,179 3,491
- ---------------------------------------------------------------------------------------------
Total deferred tax liabilities 58,623 45,452
- ---------------------------------------------------------------------------------------------
Deferred tax assets:
Warranty, legal and other accruals 29,210 15,315
Depreciation and amortization 27,957 7,476
Capitalized expenses 16,370 9,827
Partnerships and joint ventures 13,183 4,186
Noncash charge for impairment of long-lived assets 7,686 8,902
Foreign tax credits 12,346 11,857
Net operating losses 40,121 931
Other 11,269 11,052
- ---------------------------------------------------------------------------------------------
Total deferred tax assets 158,142 69,546
- ---------------------------------------------------------------------------------------------
Net deferred tax assets $ 99,519 $ 24,094
=============================================================================================
</TABLE>
Net operating loss carryforwards expire in various years from 2000 through 2019.
The Company expects that the entire deferred tax benefit of the tax loss
carryforwards will be recognized in future periods.
Income taxes computed at the statutory United States federal income tax rate and
income tax expense provided in the financial statements differ as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
Years Ended November 30, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount computed at statutory rate $ 79,404 $ 51,298 $ 31,861
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit 7,641 5,524 3,150
Differences in foreign tax rates 4,379 1,594 (885)
Intercompany dividends 1,153 977 352
Tax credits (11,329) (3,351) (2,046)
Other, net (1,848) (4,742) 368
- ---------------------------------------------------------------------------------------------------------------
Total $ 79,400 $ 51,300 $ 32,800
===============================================================================================================
</TABLE>
The Company has commitments to invest $12,900,000 over six years in affordable
housing partnerships which are scheduled to provide tax credits.
75
<PAGE> 57
The Company had foreign tax credit carryforwards at November 30, 1999 of
$3,433,000 for United States federal income tax purposes which expire in 2000,
2002 and 2004.
The undistributed earnings of foreign subsidiaries, which the Company plans to
invest indefinitely and for which no United States federal income taxes have
been provided, totaled $28,421,000 at November 30, 1999. If these earnings were
currently distributed, the resulting withholding taxes payable would be
$1,420,000.
NOTE 13. GEOGRAPHICAL INFORMATION
Geographical information follows:
<TABLE>
<CAPTION>
Operating Identifiable
IN THOUSANDS Revenues Income Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Construction:
California $1,579,226 $ 110,942 $ 905,890
Other U.S. 1,780,595 112,765 987,141
Foreign 412,300 35,400 321,045
- ------------------------------------------------------------------------------------
Total construction 3,772,121 259,107 2,214,076
Mortgage banking 64,174 17,464 450,159
- ------------------------------------------------------------------------------------
Total $3,836,295 $ 276,571 $2,664,235
====================================================================================
1998
Construction:
California $1,105,849 $ 79,871 $ 655,920
Other U.S. 1,042,408 55,343 656,389
Foreign 254,709 13,458 230,235
- ------------------------------------------------------------------------------------
Total construction 2,402,966 148,672 1,542,544
Mortgage banking 46,396 21,413 317,660
- ------------------------------------------------------------------------------------
Total $2,449,362 $ 170,085 $1,860,204
====================================================================================
1997
Construction:
California $ 993,921 $ 65,554 $ 717,949
Other U.S. 670,590 34,166 283,794
Foreign 179,103 2,031 132,118
- ------------------------------------------------------------------------------------
Total construction 1,843,614 101,751 1,133,861
Mortgage banking 35,109 14,508 285,130
- ------------------------------------------------------------------------------------
Total $1,878,723 $ 116,259 $1,418,991
====================================================================================
</TABLE>
76
<PAGE> 58
NOTE 14. QUARTERLY RESULTS (UNAUDITED)
Quarterly results for the years ended November 30, 1999 and 1998 follow:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 694,143 $ 862,270 $1,057,113 $1,222,769
Operating income 34,134 56,494 72,058 113,885
Pretax income 24,886 43,975 58,781 99,227
Net income 16,186 28,575 38,181 64,527
Basic earnings per share .36 .60 .80 1.39
Diluted earnings per share .35 .58 .78 1.36
============================================================================================================================
1998
Revenues $ 426,245 $ 537,459 $ 659,014 $ 826,644
Operating income 18,323 32,637 48,888 70,237
Pretax income 12,698 26,222 43,298 64,349
Net income 8,098 17,222 28,098 41,849
Basic earnings per share .21 .44 .70 1.05
Diluted earnings per share .20 .42 .68 1.02
============================================================================================================================
</TABLE>
Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
NOTE 15. SUBSEQUENT EVENTS (UNAUDITED)
On January 24, 2000, Kaufman & Broad S.A. ("KBSA"), the Company's wholly owned
French subsidiary filed a preliminary public offering memorandum for the initial
public offering of ordinary shares of KBSA. On February 7, 2000, KBSA
successfully completed its public offering and is now listed on the Premier
Marche of the ParisBourse. The offering of 5,148,937 shares (before exercise of
the over allotment option) was made in France and in Europe and was priced at 23
euros per share, representing a total offering of approximately $120,000,000.
Proceeds from the offering will be used to fund internal and external growth of
the French homebuilding operations, obtain better financing conditions, and
finance the payment of a dividend of approximately $85,000,000 to the Company,
which the Company will use to reduce its domestic debt and repurchase additional
shares of its common stock. The Company continues to own a majority interest in
KBSA and will continue to consolidate these operations in its financial
statements.
As of February 3, 2000, the Company had repurchased a total of 6,500,000 shares
of the Company's common stock under authorizations made by the Board of
Directors on August 4, 1999 and November 1, 1999. On February 3, 2000, the
Company's Board of Directors authorized the repurchase of up to an additional
4,000,000 shares of the Company's common stock.
77
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Kaufman and Broad Home
Corporation:
We have audited the accompanying consolidated balance sheets of Kaufman and
Broad Home Corporation as of November 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended November 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kaufman and Broad
Home Corporation at November 30, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended November 30, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
- --------------------------------
Los Angeles, California
December 23, 1999
78
<PAGE> 60
REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles. Estimates and judgments of management based on
its current knowledge of anticipated transactions and events are made to prepare
the financial statements as required by generally accepted accounting
principles. Management relies on internal accounting controls, among other
things, to produce records suitable for the preparation of financial statements.
The responsibility of our external auditors for the financial statements is
limited to their expressed opinion on the fairness of the consolidated financial
statements taken as a whole. Their examination is performed in accordance with
generally accepted auditing standards which include tests of our accounting
records and internal accounting controls and evaluation of estimates and
judgments used to prepare the financial statements. The Company employs a staff
of internal auditors whose work includes evaluating and testing internal
accounting controls.
An audit committee of outside members of the Board of Directors periodically
meets with management, the external auditors and the internal auditors to
evaluate the scope of auditing activities and review results. Both the external
and internal auditors have the unrestricted opportunity to communicate privately
with the audit committee.
/s/ MICHAEL F. HENN
- ---------------------------------
Michael F. Henn
Senior Vice President and Chief Financial Officer
December 23, 1999
79
<PAGE> 61
STOCKHOLDER INFORMATION
COMMON STOCK PRICES
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
High Low High Low
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 31 $ 21 3/8 $ 26 7/8 $20 5/16
Second Quarter 28 3/4 21 34 1/2 22 5/16
Third Quarter 25 7/16 19 1/4 35 21 3/8
Fourth Quarter 25 9/16 16 3/4 31 1/4 17 1/8
==============================================================================================
</TABLE>
DIVIDEND DATA
Kaufman and Broad Home Corporation paid a quarterly cash dividend of $.075 per
common share in 1999 and 1998.
ANNUAL STOCKHOLDERS' MEETING
The 2000 Annual Stockholders' meeting will be held at the Company's offices at
10990 Wilshire Boulevard, Seventh Floor, in Los Angeles, California, at 9:00
a.m. on Thursday, April 6, 2000.
STOCK EXCHANGE LISTINGS
Kaufman and Broad Home Corporation's common stock is listed on the New York
Stock Exchange and is also traded on the Boston, Cincinnati, Midwest, Pacific
and Philadelphia Exchanges. The ticker symbol is KBH.
Kaufman & Broad S.A. is listed on the ParisBourse. The ticker symbol is KOF.
TRANSFER AGENT
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 356-2017
www.chasemellon.com
INDEPENDENT AUDITORS
Ernst & Young LLP
Los Angeles, California
SHAREHOLDER INFORMATION
The Company's common stock is traded on the New York Stock Exchange under the
symbol KBH. There were 48,090,615 shares of common stock outstanding as of
February 1, 2000.
FORM 10-K
The Company's 1999 Report on Form 10-K filed with the Securities and Exchange
Commission may be obtained without charge by writing to the Company's Investor
Relations department, or by visiting the Company's Web site at kbhomes.com.
HEADQUARTERS
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard, Seventh Floor
Los Angeles, California 90024
(310) 231-4000
(310) 231-4222 Fax
Location and Community Information:
kbhomes.com
(800) 34-HOMES
INVESTOR CONTACT
Mary M. McAboy
Vice President, Investor and Public Relations
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard, Seventh Floor
Los Angeles, California 90024
(310) 231-4033
[email protected]
BONDHOLDER SERVICES ADDRESSES &
PHONE NUMBERS
8 1/4% $189,750,000 FELINE PRIDES - Due 8/16/01
Trustee:
Bank One, N.A.
Corporate Trust Investor Relations
One Bank One Plaza
Mail Code IL1-0126
Chicago, Illinois 60670
[email protected]
(800) 524-9472
9 3/8% $175,000,000 Note - Due 5/1/03
Trustee:
State Street Bank and Trust Company of California, N.A.
Corporate Trust Department
633 West 5th Street, 12th Floor
Los Angeles, California 90071
corporatetrust.statestreet.com
(800) 531-0368
7 3/4% $175,000,000 Note - Due 10/15/04
9 5/8% $125,000,000 Note - Due 11/15/06
Trustee:
Sun Trust Bank
Corporate Trust Division
Mail Code 008
25 Park Place, 24th Floor
Building 10, Suite 810
Atlanta, Georgia 30303-2900
[email protected]
(800) 711-1614
83
<PAGE> 62
LIST OF EXHIBITS FILED
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<C> <S> <C>
10.19 Amendment No. 1 to Term Loan Agreement, dated April 19,
1999........................................................
10.20 Amendment No. 3 to 1997 Revolving Loan Agreement, dated
April 19, 1999..............................................
10.21 Kaufman and Broad Home Corporation 1999 Incentive Plan......
10.22 Trust Agreement between Kaufman and Broad Home Corporation
and Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999........................................................
10.23 Non-Employee Directors Stock Plan, as amended and Restated
as of December 6, 1999......................................
13 Pages 42 through 79 and page 83 of the Company's 1999 Annual
Report to
Stockholders................................................
22 Subsidiaries of the Company.................................
24 Consent of Independent Auditors.............................
27 Financial Data Schedule.....................................
</TABLE>
<PAGE> 1
EXHIBIT 10.19
AMENDMENT NO. 1 TO TERM LOAN AGREEMENT
This Amendment No. 1 to Term Loan Agreement (this "Amendment") is
entered into with reference to the Term Loan Agreement dated as of January 7,
1999 among Kaufman and Broad Home Corporation ("Borrower"), the Banks party
thereto, Credit Lyonnais Los Angeles Branch, as Syndication Agent, The First
National Bank of Chicago, as Documentation Agent, Union Bank of California,
N.A., as Co-Agent, and Bank of America National Trust and Savings Association,
as Administrative Agent (the "Loan Agreement"). Capitalized terms used but not
defined herein are used with the meanings set forth for those terms in the Loan
Agreement.
Borrower and the Administrative Agent, acting with the consent of
the Majority Banks pursuant to Section 11.2 of the Loan Agreement, agree as
follows:
1. Section 1.1. Section 1.1 of the Loan Agreement is hereby
amended to revise the following definition to read as follows:
"Consolidated Leverage Ratio" means, as of any date of
determination, the ratio of (a) Consolidated Total
Indebtedness on that date to (b) [Consolidated Tangible
Net Worth on that date minus the amount, if any, by which
the portion of Shareholder's Equity of Borrower and its
Consolidated Subsidiaries attributable to Borrower's
equity interest in the Shareholder's Equity of all Joint
Ventures (other than (i) KBMHG, (ii) any Subsidiary of
KBMHG engaged solely in development of multi-family
housing and related businesses, and (iii) any Consolidated
Joint Venture) exceeds $30,000,000].
2. Section 1.1. Section 1.1 of the Loan Agreement is amended
to add the following new definitions:
"Consolidated Joint Venture" means, as of any date of
determination, a Joint Venture that is consolidated in the
consolidated
-1-
<PAGE> 2
financial statements of Borrower and its Subsidiaries as
of such date.
"Specified Entities" means, collectively, (a) any Foreign
Subsidiary, (b) any Financial Subsidiary (other than a
Trust Issuer) and (c) any Person that is not a
wholly-owned Subsidiary of Borrower (other than a
Consolidated Joint Venture).
3. Section 6.16. Section 6.16 of the Loan Agreement is
amended to read as follows:
"Certain Investments. Make any Investment in any Specified
Entity if, giving effect thereto, the aggregate amount of
all such Investments made after November 30, 1996 exceeds
the sum of (i) $30,000,000 plus (ii) the aggregate amount
of Cash Distributions declared and paid by all Specified
Entities to Borrower after November 30, 1996, plus (iii)
the aggregate amount of capital of Specified Entities
returned to Borrower after November 30, 1996; provided
that Borrower may make further Investments after November
30, 1996 in Mortgage Company in addition to the amount
permitted by the foregoing so long as such further
Investments do not exceed $30,000,000."
4. Conditions Precedent. The effectiveness of this Amendment
shall be conditioned upon the receipt by the Administrative Agent of all of the
following, each properly executed by a Responsible Official of each party
thereto and dated as of the date hereof:
a. Counterparts of this Amendment executed by all parties
hereto;
b. Written consents of each of the Guarantor Subsidiaries to
the execution, delivery and performance hereof,
substantially in the form of Exhibit A to this Amendment;
and
-2-
<PAGE> 3
c. Written consent of the Majority Banks as required under
Section 11.2 of the Loan Agreement in the form of Exhibit
B to this Amendment.
5. Representation and Warranty. Borrower represents and
warrants to the Administrative Agent and the Banks that no Default or Event of
Default has occurred and remains continuing.
6. Confirmation. In all other respects, the terms of the Loan
Agreement and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of April 19, 1999 by their duly authorized
representatives.
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------------------
Michael F. Henn
Senior Vice President and
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ KELLY M. ALLRED
------------------------------------
Kelly M. Allred
Vice President
-3-
<PAGE> 4
Exhibit A to Amendment
CONSENT OF GUARANTOR SUBSIDIARIES
Reference is hereby made to that certain Term Loan Agreement
dated as of January 7, 1999 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Syndication Agent, The First National Bank of Chicago, as Documentation Agent,
Union Bank of California, N.A., as Co-Agent, and Bank of America National Trust
and Savings Association, as Administrative Agent, (the "Loan Agreement").
Each of the undersigned hereby consents to the execution,
delivery and performance by Borrower and the Administrative Agent of Amendment
No. 1 to the Loan Agreement.
Each of the undersigned represents and warrants to the
Administrative Agent and the Banks that the Subsidiary Guaranty remains in full
force and effect in accordance with its terms.
Dated: April 19, 1999
"GUARANTORS"
KAUFMAN AND BROAD OF NORTHERN
CALIFORNIA, INC., a California corporation
KAUFMAN AND BROAD OF SAN DIEGO,
INC., a California corporation
KAUFMAN AND BROAD - SOUTH BAY,
INC., a California corporation
KAUFMAN AND BROAD - CENTRAL
VALLEY, INC., a California corporation
KAUFMAN AND BROAD COASTAL, INC.,
a California corporation
-4-
<PAGE> 5
KAUFMAN AND BROAD OF NEVADA,
INC., a Nevada corporation
KAUFMAN AND BROAD OF ARIZONA,
INC., an Arizona corporation
KAUFMAN AND BROAD OF COLORADO,
INC., a Colorado corporation
KAUFMAN AND BROAD MULTI-
HOUSING GROUP, INC., a California
corporation
KAUFMAN AND BROAD OF NEW
MEXICO, INC., a New Mexico corporation
KAUFMAN AND BROAD - MONTEREY
BAY, INC., a California corporation
KAUFMAN AND BROAD OF
SACRAMENTO, INC., a California
corporation
KAUFMAN AND BROAD OF RENO, INC., a
Nevada corporation
GENERAL HOMES CORPORATION, a
Delaware corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Secretary
-5-
<PAGE> 6
KB HOLDINGS ONE, INC., a California
corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Secretary
and Vice President
KAUFMAN AND BROAD OF SOUTHERN
CALIFORNIA, INC., a California corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Treasurer
KAUFMAN AND BROAD OF UTAH, INC., a
California corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Vice President
KAUFMAN AND BROAD OF TEXAS, LTD.,
a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger,
Assistant Secretary
-6-
<PAGE> 7
KAUFMAN AND BROAD LONE STAR, L.P.,
a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger,
Assistant Secretary
KAUFMAN AND BROAD DEVELOPMENT
OF TEXAS, L.P., a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger,
Assistant Secretary
-7-
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 3 TO 1997 REVOLVING LOAN AGREEMENT
This Amendment No. 3 to 1997 Revolving Loan Agreement (this
"Amendment") is entered into with reference to the 1997 Revolving Loan Agreement
dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
Borrower and the Administrative Agent, acting with the consent of
the Majority Banks pursuant to Section 11.2 of the Loan Agreement, agree as
follows:
1. Section 1.1. Section 1.1 of the Loan Agreement is hereby
amended to revise the following definition to read as follows:
"Consolidated Leverage Ratio" means, as of any date of
determination, the ratio of (a) Consolidated Total
Indebtedness on that date to (b) [Consolidated Tangible
Net Worth on that date minus the amount, if any, by which
the portion of Shareholder's Equity of Borrower and its
Consolidated Subsidiaries attributable to Borrower's
equity interest in the Shareholder's Equity of all Joint
Ventures (other than (i) KBMHG, (ii) any Subsidiary of
KBMHG engaged solely in development of multi-family
housing and related businesses, and (iii) any Consolidated
Joint Venture) exceeds $30,000,000].
2. Section 1.1. Section 1.1 of the Loan Agreement is amended
to make the following revisions to certain definitions therein contained:
Financial Subsidiary: Insert as a new clause (b) thereof
the following:
-1-
<PAGE> 2
"(b) a Trust Issuer, so long as it engages in no
activities other than these incident to the Trust
Preferred Capital Securities"
and redesignate existing clause (b) thereof as clause (c)
and existing clause (c) thereof as clause (d).
"Senior Officer" Insert as a new clause (d) thereof the
following:
"(d) vice president and controller"
and redesignate existing clause (d) thereof as clause (e).
"Subsidiary Guaranty": Strike the word "Obligations" in
the first line thereof and substitute in its place the
words "Indebtedness of Borrower under this Agreement."
3. Section 1.1 of the Loan Agreement is amended to add the
following new definitions:
"Consolidated Joint Venture" means, as of any date of
determination, a Joint Venture that is consolidated in the
consolidated financial statements of Borrower and its
Subsidiaries as of such date.
"Specified Entities" means, collectively, (a) any Foreign
Subsidiary, (b) any Financial Subsidiary (other than a
Trust Issuer) and (c) any Person that is not a
wholly-owned Subsidiary of Borrower (other than a
Consolidated Joint Venture).
4. Section 2.6. Pursuant to Section 2.6, the Line B Maturity
Date is hereby extended to April 18, 2000.
5. Section 3.14. Section 3.14 of the Loan Agreement is
amended by inserting the words "without deduction, offset or counterclaim" after
the word "America" in the fourth line thereof.
-2-
<PAGE> 3
6. Section 6.16. Section 6.16 of the Loan Agreement is
amended to read as follows:
"Certain Investments. Make any Investment in any Specified
Entity if, giving effect thereto, the aggregate amount of
all such Investments made after November 30, 1996 exceeds
the sum of (i) $30,000,000 plus (ii) the aggregate amount
of Cash Distributions declared and paid by all Specified
Entities to Borrower after November 30, 1996, plus (iii)
the aggregate amount of capital of Specified Entities
returned to Borrower after November 30, 1996; provided
that Borrower may make further Investments after November
30, 1996 in Mortgage Company in addition to the amount
permitted by the foregoing so long as such further
Investments do not exceed $30,000,000."
7. Section 7.1(b). Section 7.1(b) of the Loan Agreement is
amended by adding the words "(in accordance with past practices of Borrower)"
after the word "consolidating" in the second and fifth lines thereof.
8. Section 9.1. Section 9.1 of the Loan Agreement is amended
by adding a new subsection (n) as follows:
"(n) the occurrence of an Event of Default (as such term
is defined in that certain Term Loan Agreement dated as of
January 7, 1999 among Borrower, Bank of America NT&SA, as
Administrative Agent, and the banks party thereto) under
such Term Loan Agreement."
9. Section 11.3. Section 11.3 of the Loan Agreement is
amended by inserting the word "actual" after the word "reasonable" in the tenth,
nineteenth and thirty-third lines thereof.
10. Section 11.8(e). Section 11.8(e) of the Loan Agreement is
amended to insert a new clause "(D)" as follows:
"(D) release any Guarantor Subsidiary from its obligations
under the Subsidiary Guaranty"
and to redesignate existing clause "(D)" as clause "(E)".
-3-
<PAGE> 4
11. Line B Commitment. The Pro Rata Shares of the Banks with
respect to the Line B Commitment are hereby revised as set forth in Schedule 1.1
attached hereto.
12. Conditions Precedent. The effectiveness of this Amendment
shall be conditioned upon the receipt by the Administrative Agent of all of the
following, each properly executed by a Responsible Official of each party
thereto and dated as of the date hereof:
a. Counterparts of this Amendment executed by all parties
hereto;
b. Instrument of Joinder to the Subsidiary Guaranty in the
form of Exhibit A to this Amendment executed by each
Significant Subsidiary of Borrower acquired by Borrower
pursuant to that certain Purchase Agreement executed as of
January 7, 1999 among Borrower and the sellers of the
"Homebuilding Business" of the Lewis Homes companies;
c. Line B Notes executed by Borrower in favor of those Banks
whose Pro Rata Share of the Line B Commitment has changed
pursuant to Paragraph 10 hereof;
d. Written consents of each of the Guarantor Subsidiaries to
the execution, delivery and performance hereof,
substantially in the form of Exhibit B to this Amendment;
e. Written consent of the Majority Banks as required under
Section 11.2 of the Loan Agreement in the form of Exhibit
C to this Amendment; and
f. A fee letter by Borrower in favor of the Administrative
Agent in form and substance satisfactory to the
Administrative Agent concerning the Pro Rata Shares of
certain Banks with respect to the Line B Commitment.
13. Representation and Warranty. Borrower represents and
warrants to the Administrative Agent and the Banks that no Default or Event of
Default has occurred and remains continuing.
-4-
<PAGE> 5
14. Confirmation. In all other respects, the terms of the Loan
Agreement and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of April 19, 1999 by their duly authorized
representatives.
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------------------
Michael F. Henn
Senior Vice President and
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By: /s/ KELLY M. ALLRED
------------------------------------
Kelly M. Allred
Vice President
-5-
<PAGE> 6
Exhibit A to Amendment
INSTRUMENT OF JOINDER
TO
GUARANTY
THIS INSTRUMENT OF JOINDER ("Joinder") is executed as of April
19, 1999, by LEWIS HOMES OF CALIFORNIA, a California general partnership, LEWIS
DEVELOPMENT CO., a California general partnership, LEWIS HOMES ENTERPRISES, a
California general partnership, LEWIS HOMES OF NEVADA, a Nevada general
partnership, and LEWIS PROPERTIES, a Nevada general partnership (each a "Joining
Party" and collectively, "Joining Parties"), and delivered to the Administrative
Agent pursuant to the Guaranty dated as of April 21, 1997 (the "Guaranty").
Terms used but not defined in this Joinder shall have the meanings defined for
those terms in the Guaranty.
RECITALS
1. The Guaranty was made by the Guarantors in favor of the
Banks that are parties to that certain 1997 Revolving Loan Agreement, dated as
of April 21, 1997 (the "Loan Agreement") among Kaufman and Broad Home
Corporation, as Borrower, the Banks signatory thereto, Bank of America National
Trust and Savings Association, as Administrative Agent and Co-Syndication Agent,
Credit Lyonnais Los Angeles Branch as Documentation Agent, and Guaranty Federal
Bank, F.S.B., Societe Generale and Union Bank of California, as Co-Agents.
2. Each Joining Party expects to realize direct and indirect
benefits as a result of the availability to Borrower of a credit facility
pursuant to the Loan Agreement, and as a result of becoming a party to the
Guaranty.
NOW THEREFORE, Joining Parties agree as follows:
AGREEMENT
I. By this Joinder, each Joining Party becomes a "Guarantor" under and
pursuant to Section 10 of the Guaranty. Each Joining Party agrees that, upon its
execution hereof, it will become a Guarantor under the Guaranty with respect to
all Indebtedness of Borrower heretofore or hereafter incurred under the Loan
Agreement, and will be
-6-
<PAGE> 7
bound by all terms, conditions, and duties applicable to a Guarantor under the
Guaranty.
II. The effective date of this Joinder is April 19, 1999.
"Joining Parties"
LEWIS HOMES OF CALIFORNIA, LEWIS DEVELOPMENT CO.,
a California general partnership a California general partnership
By: KB HOLDINGS ONE, INC., By: KB HOLDINGS ONE, INC.,
a California corporation, a California corporation,
its General Partner its General Partner
By: /s/ MICHAEL F. HENN By: /s/ MICHAEL F. HENN
------------------------ ------------------------
Name: Michael F. Henn Name:
---------------------- ----------------------
Title: President Title:
--------------------- ---------------------
LEWIS HOMES ENTERPRISES, LEWIS PROPERTIES,
a California general partnership a Nevada general partnership
By: KB HOLDINGS ONE, INC., By: KB HOLDINGS ONE, INC.,
a California corporation, a California corporation,
its General Partner its General Partner
By: /s/ MICHAEL F. HENN By: /s/ MICHAEL F. HENN
------------------------ ------------------------
Name: Name:
---------------------- ------------------------
Title: Title:
--------------------- ---------------------
LEWIS HOMES OF NEVADA,
a Nevada general partnership
By: KB HOLDINGS ONE, INC.,
a California corporation,
its General Partner
By: /s/ MICHAEL F. HENN
------------------------
Name:
----------------------
Title:
---------------------
-7-
<PAGE> 8
ACKNOWLEDGED:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ KELLY M. ALLRED
------------------------
Name: Kelly M. Allred
----------------------
Title: Vice President
---------------------
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------
Name: Michael F. Henn
----------------------
Title: SVP & CFO
---------------------
-8-
<PAGE> 9
Exhibit B to Amendment
CONSENT OF GUARANTOR SUBSIDIARIES
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
Each of the undersigned hereby consents to the execution,
delivery and performance by Borrower and the Administrative Agent of Amendment
No. 3 to the Loan Agreement.
Each of the undersigned represents and warrants to the
Administrative Agent and the Banks that the Subsidiary Guaranty remains in full
force and effect in accordance with its terms.
Dated: April 19, 1999
"GUARANTORS"
KAUFMAN AND BROAD OF NORTHERN
CALIFORNIA, INC., a California corporation
KAUFMAN AND BROAD OF SAN DIEGO,
INC., a California corporation
KAUFMAN AND BROAD - SOUTH BAY,
INC., a California corporation
KAUFMAN AND BROAD - CENTRAL
VALLEY, INC., a California corporation
KAUFMAN AND BROAD COASTAL, INC.,
a California corporation
-9-
<PAGE> 10
KAUFMAN AND BROAD OF NEVADA,
INC., a Nevada corporation
KAUFMAN AND BROAD OF ARIZONA,
INC., an Arizona corporation
KAUFMAN AND BROAD OF COLORADO,
INC., a Colorado corporation
KAUFMAN AND BROAD MULTI-
HOUSING GROUP, INC., a California
corporation
KAUFMAN AND BROAD OF NEW
MEXICO, INC., a New Mexico corporation
KAUFMAN AND BROAD - MONTEREY
BAY, INC., a California corporation
KAUFMAN AND BROAD OF
SACRAMENTO, INC., a California
corporation
KAUFMAN AND BROAD OF RENO, INC., a
Nevada corporation
GENERAL HOMES CORPORATION, a
Delaware corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Secretary
-10-
<PAGE> 11
KB HOLDINGS ONE, INC., a California
corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Secretary
and Vice President
KAUFMAN AND BROAD OF SOUTHERN
CALIFORNIA, INC., a California corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Assistant Treasurer
KAUFMAN AND BROAD OF UTAH, INC., a
California corporation
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger, Vice President
KAUFMAN AND BROAD OF TEXAS, LTD.,
a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger,
Assistant Secretary
-11-
<PAGE> 12
KAUFMAN AND BROAD LONE STAR, L.P.,
a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
-----------------------------------------
William R. Hollinger,
Assistant Secretary
KAUFMAN AND BROAD DEVELOPMENT
OF TEXAS, L.P., a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By: /s/ WILLIAM R. HOLLINGER
------------------------------------
William R. Hollinger,
Assistant Secretary
-12-
<PAGE> 13
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 22, 1999
The Industrial Bank of Japan - Los Angeles Agency
-------------------------------------------------
[Name of Institution]
By: /s/ TAKESHI KUBO
---------------------------------------------
Takeshi Kubo (Vice President)
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 14
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 16, 1999
Societe Generale
-------------------------------------------------
[Name of Institution]
By: /s/ MAUREEN KELLY
---------------------------------------------
Director
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 15
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 16, 1999
SunTrust Bank, Atlanta
-------------------------------------------------
[Name of Institution]
By: /s/ DONALD L. GAUDETTE, JR.
---------------------------------------------
Donald L. Gaudette, Jr.
Director/Vice President
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 16
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 16, 1999
PARIBAS
-------------------------------------------------
[Name of Institution]
By: /s/ JOHN KOPCHA
---------------------------------------------
John Kopcha
Director
-------------------------------------------------
[Printed Name and Title]
By: /s/ MARC PREISER
---------------------------------------------
Marc Preiser
Vice President
-13-
<PAGE> 17
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 16, 1999
THE CHASE MANHATTAN BANK
-------------------------------------------------
[Name of Institution]
By: /s/ MARC E. CONSTANTINO
---------------------------------------------
Marc E. Constantino
Vice President
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 18
VIA FACSIMILE
April 19, 1999
Mr. John E. Friedricks
Sheppard, Mullin, Richter, & Hampton, LLP
Attorneys At Law
333 S. Hope Street
Los Angeles, CA 90071
Re: Kaufman and Board Corporation
Reference is hereby made to that certain 1997 Revolving Loan Agreement
dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and delivery of
Amendment No. 3 to the Loan Agreement by the Administrative Agent on its behalf,
substantially in the form of the most recent draft thereof presented to the
undersigned Bank.
Dated: April 19, 1999
The First National Bank of Chicago
-------------------------------------------------
By: /s/ JAMES D. BENKO
---------------------------------------------
James D. Benko
Vice President
<PAGE> 19
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April ___, 1999
The Bank of New York
-------------------------------------------------
[Name of Institution]
By: /s/ ROBERT W. PIERSON
---------------------------------------------
Robert W. Pierson, VP
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 20
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
COMERICA BANK
-------------------------------------------------
[Name of Institution]
By: /s/ SAM MEEHAN
---------------------------------------------
Sam Meehan, Account Officer
-------------------------------------------------
[Printed Name and Title]
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<PAGE> 21
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
BANK OF AMERICA NT&SA
-------------------------------------------------
[Name of Institution]
By: /s/ KELLY M. ALLRED
---------------------------------------------
Kelly M. Allred, VP
-------------------------------------------------
[Printed Name and Title]
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<PAGE> 22
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
UNION BANK OF CALIFORNIA, N.A.
-------------------------------------------------
[Name of Institution]
By: /s/ GARY ROBERTS
---------------------------------------------
Gary Roberts
Vice President
-------------------------------------------------
[Printed Name and Title]
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<PAGE> 23
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 21, 1999
BANK UNITED
-------------------------------------------------
[Name of Institution]
By: /s/ THOMAS S. GRIFFIN
---------------------------------------------
Thomas S. Griffin, VP/MGR.
-------------------------------------------------
[Printed Name and Title]
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<PAGE> 24
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
Guaranty Federal Bank F.S.B.
-------------------------------------------------
[Name of Institution]
By: /s/ RICHARD V. THOMPSON
---------------------------------------------
Richard V. Thompson, Vice President
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 25
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
KBC BANK N.V.
-------------------------------------------------
[Name of Institution]
By: /s/ ROBERT SNAUFFER
---------------------------------------------
ROBERT SNAUFFER
FIRST VICE PRESIDENT
-------------------------------------------------
[Printed Name and Title]
/s/ DECLAN P. MEAGHER
-------------------------------------------------
DECLAN P. MEAGHER
VICE PRESIDENT
-13-
<PAGE> 26
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April 19, 1999
Credit Lyonnais Los Angeles Branch
-------------------------------------------------
[Name of Institution]
By: /s/ DIANNE M. SCOTT
---------------------------------------------
Dianne M. Scott
First Vice President and Manager
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 27
Exhibit C to Amendment
CONSENT OF BANK
Reference is hereby made to that certain 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Kaufman and Broad Home Corporation
("Borrower"), the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Documentation Agent and Managing Agent, Guaranty Federal Bank F.S.B., Societe
Generale and Union Bank of California, N.A., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, Co-Syndication
Agent and Managing Agent (as heretofore amended, the "Loan Agreement").
The undersigned Bank hereby consents to the execution and
delivery of Amendment No. 3 to the Loan Agreement by the Administrative Agent on
its behalf, substantially in the form of the most recent draft thereof presented
to the undersigned Bank.
Dated: April ___, 1999
Sanwa Bank California
-------------------------------------------------
[Name of Institution]
By: /s/ KURT MAIR
---------------------------------------------
Kurt Mair, AVP
-------------------------------------------------
[Printed Name and Title]
-13-
<PAGE> 1
EXHIBIT 10.21
KAUFMAN AND BROAD HOME CORPORATION
1999 INCENTIVE PLAN
SECTION 1. PURPOSE. The purpose of the 1999 Incentive Plan (the "Plan") is
to promote the success of Kaufman and Broad Home Corporation (the "Company") by
providing a method whereby a broad category of non-executive employees of the
Company and its subsidiaries and other eligible participants may be encouraged
to invest in the Common Stock, $1.00 par value, of the Company ("Common Stock"),
increase their proprietary interest in its business, remain in the employ of the
Company or its subsidiaries, and increase their personal interests in the
continued success and progress of the Company. The Plan provides for the grant
of Options that are not intended to satisfy the requirements for treatment as
Incentive Stock Options as defined under Section 422 of the Code, as well as for
certain other "Awards," as defined below.
SECTION 2. DEFINITIONS. As used in this Plan, the following terms shall
have the indicated meanings:
(a) AWARD: An award under this Plan of a Performance Stock Award,
Restricted Stock Award, or Stock Unit Award.
(b) BOARD: The board of directors of Kaufman and Broad Home Corporation.
(c) CODE: The Internal Revenue Code of 1986, as amended.
(d) COMMITTEE: The Committee specified in Section 3(a) of this Plan.
(e) COMPANY: Kaufman and Broad Home Corporation and its Subsidiaries.
(f) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
(g) LIMITED STOCK APPRECIATION RIGHT: A right granted pursuant to Section
6(b) to receive cash in certain circumstances with respect to a related Option.
(h) OPTION: An Option is a right granted under Section 6(a) to purchase a
number of shares of Common Stock at such exercise price, at such times, and on
such other terms and conditions as are specified in or determined pursuant to
the document(s) evidencing the Award.
(i) PARTICIPANT: An individual eligible under Section 5(a) to participate
in this Plan.
<PAGE> 2
(j) PERFORMANCE OBJECTIVES: With reference to a particular Option or
Award, the objectives established by the Committee under various criteria, the
satisfaction of which may result in the grant, issuance, retention and/or
vesting of an Option, a Performance Stock Award or Stock Unit Award, or which
may accelerate the release of shares of Common Stock from the restrictions of a
Restricted Stock Award. The Performance Objectives may differ from Participant
to Participant and from Award to Award, as determined by the Committee and
specified in the applicable Award, and may include any one or more of the
following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit or
subsidiary, either individually, alternatively or in any combination, and
measured either annually or cumulatively over a period of years, on an absolute
basis or relative to a pre-established target, to previous years' results or to
a designated comparison group, in each case as specified by the Committee in the
Award: (i) pre-tax income, (ii) after-tax income, (iii) cash flow, (iv) return
on equity, (v) return on capital, (vi) earnings per share (including earnings
before interest, taxes, depreciation and amortization), (vii) unit volume,
(viii) net sales, (ix) service quality or (v) total shareholder return, in each
case as determined in accordance with Generally Accepted Accounting Principles,
if applicable.
(k) PERFORMANCE STOCK AWARD: Performance Stock is an award of shares of
Common Stock made under Section 7(a), the grant, issuance, retention and/or
vesting of which is subject to such performance and other conditions as are
expressed in the document(s) evidencing the Award.
(l) PLAN: The Kaufman and Broad Home Corporation 1999 Incentive Plan, as
it may be amended from time to time.
(m) RESTRICTED STOCK AWARD: Restricted Stock is a right granted under
Section 7(b) to shares of Common Stock issued or issuable under the Plan but
subject during specified periods of time to such conditions on vesting,
restrictions on transferability and/or repurchase rights as are expressed in the
document(s) evidencing the Award.
(n) STOCK UNIT AWARD: An award granted under Section 8 of this Plan.
(o) SUBSIDIARY: Any corporation of which the Corporation owns, directly or
indirectly, fifty percent (50%) or more of the voting or capital stock, or any
partnership or other entity of which the Company owns, directly or indirectly, a
fifty percent (50%) or more participating interest or the general partner of
which is a Subsidiary.
(p) TAX DATE: The date on which taxes of any kind are required by law to
be withheld with respect to shares of Common Stock subject to an Option or
Award.
2
<PAGE> 3
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Board and/or by a committee of
the Board, as appointed from time to time by the Board (the "Committee").
The Board shall fill vacancies on, and from time to time may remove or add
members to, the Committee. The Committee shall act pursuant to a majority vote
or unanimous written consent. Notwithstanding the foregoing, the Committee may
appoint one or more separate committees (any such committee, a "Subcommittee")
composed of one or more directors of the Corporation (who may but need not be
members of the Committee) and may delegate to any such Subcommittee(s) the
authority to grant Options, Limited Stock Appreciation Rights and/or Awards
under the Plan, to determine all terms of such Options, Limited Stock
Appreciation Rights and/or Awards, and to administer the Plan or any aspect of
it. Any action by any such Subcommittee shall be deemed for all purposes to have
been taken by the Committee. The Committee may designate the Secretary of the
Corporation or other Company employees to assist the Committee in the
administration of the Plan, and may grant authority to such persons to issue
and/or execute agreements or other documents under this Plan on behalf of the
Committee or the Company.
(b) The Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan as may
from time to time be issued or adopted by the Board, to grant to eligible
persons Options, Limited Stock Appreciation Rights and Awards pursuant to the
provisions of the Plan, to fix the exercise price and other terms of Options, to
fix the terms of any Performance Stock Award and/or Restricted Stock Award in a
manner consistent with the terms of Section 7, to fix the terms of any Stock
Unit Award in a manner consistent with the terms of Section 8, to prescribe,
amend and rescind rules and regulations, if any, relating to the Plan, to
interpret the provisions of the Plan, Options, Limited Stock Appreciation Rights
and Awards issued under the Plan, to amend such Options, Limited Stock
Appreciation Rights and Awards from time to time subject to the provisions of
the Plan, and to supervise the administration of the Plan. All decisions made by
the Committee pursuant to the provisions of the Plan and related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, stockholders, employees and optionees.
(c) Each person who is or shall have been a member of the Committee or of
the Board shall be indemnified and held harmless by the Company from any loss,
cost, liability or expense that may be imposed upon or reasonably incurred by
him or her in connection with any claim, action, suit or proceeding to which
he or she may be a party by reason of any action taken or any failure to act
under the Plan. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which
3
<PAGE> 4
such persons may be entitled under the Company's Articles of Incorporation or
Bylaws, or as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) The shares to be delivered upon exercise of Options or Limited Stock
Appreciation Rights granted under the Plan or pursuant to Awards, may be made
available from the authorized but unissued shares of the Company or from shares
reacquired by the Company, including shares purchased in the open market or in
private transactions.
(b) Subject to adjustments made pursuant to the provisions of Section 4(c)
and this Section 4(b), the aggregate number of shares reserved for issuance upon
the exercise of Options and pursuant to Awards which may be granted under the
Plan shall not exceed 2,000,000 shares of Common Stock. The aggregate number of
shares of Common Stock issued under this Plan shall equal only the number of
shares actually issued upon exercise or settlement of an Option or vesting or
settlement of any Award and not returned to the Company upon cancellation,
expiration or forfeiture of Options and Awards or delivered (either actually or
by attestation) in payment or satisfaction of the exercise price, purchase price
or tax obligation of Options and Awards.
(c) In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below fair
market value, or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available to Participants under this Plan, then the
Committee shall, in its sole discretion, subject to approval by the Board, and
in such manner as the Committee may deem equitable, adjust any or all of (1) the
number and kind of shares which thereafter may be awarded or optioned and sold
or made the subject of Limited Stock Appreciation Rights under the Plan, (2) the
number and kind of shares subject to outstanding Options and Awards, and Limited
Stock Appreciation Rights, and (3) the option price with respect to any of the
foregoing and/or, if deemed appropriate, make provision for a cash payment to a
Participant, including to reflect such an event occurring prior to an Option or
Award, the grant of which was intentionally deferred in anticipation of such
event; provided, however, that the number of shares subject to any Option or
Award shall always be a whole number.
4
<PAGE> 5
SECTION 5. ELIGIBILITY AND EXTENT OF PARTICIPATION.
(a) The persons eligible to receive Awards, Options and associated Limited
Stock Appreciation Rights under the Plan shall consist of employees or
prospective employees of the Company and consultants or advisors of the Company,
other than any person who is an "executive" of the Company within the meaning of
Rule 312 under the New York Stock Exchange Listed Company Manual. For purposes
of the administration of previously granted Options and Awards, the term
"Participant" shall also include a former Participant and any permitted
transferee (including any trust, partnership or estate) of a Participant or
former Participant.
(b) Subject to the limitations of the Plan, the Committee shall, after
such consultation with and consideration of the recommendations of management as
the Committee considers desirable, select from eligible persons those
Participants to be granted Options and Awards and determine the time when each
Option and Award shall be granted, the number of shares subject to each Option
and Award and whether Limited Stock Appreciation Rights should be granted in
connection with such Option, the number of shares for each Award and the
restrictions associated with such Award. Subject to the provisions of Section 4,
both Options and Awards may be granted to the same Participant.
SECTION 6. GRANTS OF OPTIONS AND LIMITED STOCK APPRECIATION RIGHTS.
(a) GRANT OF OPTIONS. Options on shares of Common Stock may be granted to
Participants by the Committee from time to time at its sole discretion. Each
Option grant shall contain such terms and conditions as may be approved by the
Committee. Subject to the terms of the Plan, the Committee may establish
provisions regarding (1) the number of shares of Common Stock which may be
issued upon exercise of the Option, (2) the purchase price of the shares of
Common Stock and the means of payment for the shares of Common Stock, (3) the
term of the Option, (4) such terms and conditions of exercisability as may be
determined from time to time by the Committee, (5) restrictions on the transfer
of the Option and forfeiture provisions, and (6) such further terms and
conditions, in each case not inconsistent with the Plan as may be determined
from time to time by the Committee. The grant of an Option shall not constitute
or be evidence of any agreement or other understanding, express or implied, on
the part of the Company or any Subsidiary to employ an individual for any
specific period.
(b) GRANT OF LIMITED STOCK APPRECIATION RIGHTS IN THE EVENT OF CHANGE OF
OWNERSHIP. If deemed by the Committee to be in the best interests of the
Company, any Option granted on or after the effective date of the Plan may
include a Limited Stock
5
<PAGE> 6
Appreciation Right at the time of grant of the Option; also, the Committee may
grant a Limited Stock Appreciation Right with respect to any unexercised Option
at any time after granting such Option prior to the end of its term, provided
such Option was granted after the effective date of the Plan. Unless otherwise
specified, any reference in this Plan to an Option or Options shall include any
associated Limited Stock Appreciation Right. Such Limited Stock Appreciation
Rights shall be subject to such terms and conditions not inconsistent with the
Plan as the Committee shall impose, provided that:
(1) A Limited Stock Appreciation Right shall be exercisable only during
the ninety-one (91) day period specified in the last sentence of
Section 9(a); and
(2) A Limited Stock Appreciation Right shall, upon its exercise, entitle
the optionee to whom such Limited Stock Appreciation Right was granted
to receive an amount of cash equal to the amount by which the "Offer
Price per Share" (as such term is hereinafter defined) shall exceed
the exercise price of the associated Option, multiplied by the number
of shares of Common Stock with respect to which such Limited Stock
Appreciation Right shall have been exercised. Upon the exercise of a
Limited Stock Appreciation Right, any associated Option shall cease to
be exercisable to the extent of the shares of Common Stock with
respect to which such Limited Stock Appreciation Right was exercised.
Upon the exercise or termination of an associated Option, any related
Limited Stock Appreciation Right shall terminate to the extent of the
shares of Common Stock with respect to which such associated Option
was exercised or terminated.
The term "Offer Price per Share" as used in this Section 6(b) shall
mean with respect to a Limited Stock Appreciation Right the higher of
(i) the fair market value per share of Common Stock on the date of
exercise of such Limited Stock Appreciation Right or (ii) the highest
price per share for Common Stock paid or to be paid in the
transaction, if any, giving rise to the event specified in clauses (1)
or (2) (as the case may be) of Section 9(a) which triggered the
exercisability of such Limited Stock Appreciation Right. For purposes
of clause (ii) above, any securities or property which are part of the
consideration paid or to be paid in such transactions shall be valued
in determining the Offer Price per Share at the highest of (A) the
valuation placed on such securities or property by the company, person
or other entity engaging in such transaction, or (B) the valuation
placed on such securities or property by the Committee.
6
<PAGE> 7
(c) OPTION PRICE.
(1) The price at which each share of Common Stock may be purchased upon
exercise of a particular Option shall be as specified by the
Committee, in its sole discretion, but in no event shall the exercise
price be less than 100% of the fair market value of a share of Common
Stock at the time such Option is granted, except that (i) in the event
that an optionee is required to make a payment or to forego the
receipt of other compensation pursuant to paragraph (c)(3) below prior
to receiving such Option, the exercise price per share of Common Stock
of such Option shall not be less than 100% of the fair market value of
a share of Common Stock at the time such Option is granted less the
purchase price per share of Common Stock of such Option, and (ii) the
Committee may specifically provide that the exercise price of an
Option may be higher or lower in the case of an Option granted to
employees of a company acquired by the Company in assumption and
substitution of options held by such employees at the time such
company is acquired.
(2) Unless approved by shareholders and subject to adjustment pursuant to
Section 4(c), the exercise price of any Option previously awarded
under the Plan may not be adjusted downward, whether through
amendment, cancellation or replacement grants, or by any other means.
(d) EXERCISE.
(1) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may, in its sole discretion,
specify, provided, however, that in no event may any Option granted
hereunder be exercisable after the expiration of 15 years from the
date of such grant. Subject to the foregoing, each Option grant shall
specify the effect thereon of the death, retirement or other
termination of employment of the optionee. In addition, the Committee
may impose such other conditions with respect to the exercise of
Options, including without limitation, any relating to the application
of Federal or state securities laws, as it may deem necessary or
advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option
until the Participant has made payment in full of the option price
therefor or provision for such payment satisfactory to the Committee.
The exercise price of an Option may be paid in cash or certified or
cashiers' check or by delivery (either actually or by attestation) of
shares of Common Stock that
7
<PAGE> 8
have been acquired or held by the Participant in such manner as to not
result in an accounting charge. To the extent authorized by the
Committee, either at the time of grant or at the time of exercise of
an Option, the exercise price of an Option also may be paid through
one of more of the following: (i) shares of capital stock of the
Corporation, (ii) other property deemed acceptable by the Committee,
(iii) a reduction in the number of shares or other property otherwise
issuable pursuant to such Option, (iv) a promissory note of or other
commitment to pay by the Participant or of a third party, the terms
and conditions of which shall be determined by the Committee, or (vi)
any combination of the foregoing. No optionee or the legal
representative, legatee or distributee of an optionee shall be deemed
to be a holder of any shares subject to any Option prior to the
issuance of such shares upon exercise of such Option.
(e) TRANSFERABILITY OF OPTIONS. Unless the documents evidencing the grant
of an Option (or an amendment thereto authorized by the Committee) expressly
states that the Option is transferable, no Option granted under the Plan may be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred
in any manner, other than by will or the laws of descent and distribution.
SECTION 7. PERFORMANCE STOCK AWARDS AND RESTRICTED STOCK AWARDS.
(a) PERFORMANCE STOCK AWARDS. Subject to the terms of this Plan,
Performance Stock Awards may be granted to Participants by the Committee from
time to time at its sole discretion. Performance Stock Awards shall consist of
an award of shares of Common Stock, the grant, issuance, retention and/or
vesting of which shall be subject to such Performance Objectives, and to such
further terms and conditions as the Committee deems appropriate. Each
Performance Stock Award shall contain provisions regarding (1) the number of
shares of Common Stock subject to such Award or a formula for determining such,
(2) the performance criteria and level of achievement versus these criteria
which shall determine the number of shares of Common Stock granted, issued,
retainable and/or vested, (3) the period as to which performance shall be
measured for determining achievement of such performance criteria (a
"Performance Period"), (4) forfeiture provisions, and (5) such further terms and
conditions, in each case not inconsistent with the Plan as may be determined
from time to time by the Committee. The grant, issuance, retention and/or
vesting of each Performance Stock Award shall be subject to such performance
criteria and level of achievement versus these criteria as the Committee shall
determine, which criteria may be based on financial performance and/or personal
performance evaluations. Notwithstanding anything in this Plan to the contrary,
Performance Stock Awards may provide that upon satisfaction of Performance
Objectives the shares subject to the Award are subject to such further holding
periods and/or restrictions on transferability as the Committee may provide.
8
<PAGE> 9
(b) RESTRICTED STOCK AWARDS. Subject to the terms of this Plan, Restricted
Stock Awards may be granted to Participants by the Committee from time to time
at its sole discretion. Restricted Stock consists of shares of Common Stock
which are registered or are issuable by the Company in the name of a Participant
in exchange for such cash or other consideration, if any, as determined by the
Committee. Restricted Stock shall be subject during specified periods of time to
such conditions to vesting, to restrictions on their sale or other transfer by
the Participant and/or to repurchase rights as may be determined by the
Committee, consistent with the terms of the Plan. The transfer and sale of
shares of Common Stock pursuant to Restricted Stock Awards shall be subject to
the following terms and conditions:
(1) The number of shares of Common Stock to be transferred or sold by the
Company to a Participant pursuant to a Restricted Stock award shall be
determined by the Committee.
(2) Subject to the requirements of applicable law, the Committee shall
determine the price, if any, at which shares of Restricted Stock shall
be sold or awarded to a Participant, which may vary from time to time
and among Participants and which may be below the fair market value of
such Shares at the date of grant or issuance.
(3) All shares of Common Stock transferred or sold as Restricted Stock
hereunder shall be subject to such restrictions or conditions as the
Committee may determine, including, without limitation any or all of
the following: (i) a prohibition against the sale, transfer, pledge or
other encumbrance of the Shares, such prohibition to lapse at such
time or times as the Committee shall determine (whether in annual or
more frequent installments, at the time of the death, disability or
retirement of the holder of such Shares, or otherwise); (ii) a
requirement that the holder of shares of Common Stock forfeit or
resell back to the Company at a price specified by the Committee
(which price may be more than the price, if any, paid by the
Participant for such Shares) all or part of such shares of Common
Stock in the event of termination of employment during any period in
which such shares of Common Stock are subject to conditions; (iii)
such other conditions or restrictions as the Committee may deem
advisable; and (iv) any applicable Performance Objectives which, if
achieved, shall cause acceleration of the lapsing of restrictions
imposed upon all or part of the shares covered by the Restricted Stock
Award.
Once established, Performance Objectives and the terms under which the lapsing
of restrictions may be accelerated may be changed, adjusted or amended by the
Committee in its sole discretion. Notwithstanding anything in this Plan to the
contrary,
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<PAGE> 10
Restricted Stock Awards may provide that upon the lapsing of restrictions set
forth above, the shares subject to the Award may be subject to such further
holding periods and/or restrictions on transferability as the Committee may
provide.
(c) RIGHTS WITH RESPECT TO SHARES. Unless the terms of the Award provide
otherwise, unless and until forfeited pursuant to the terms of this Plan or the
Award, a Participant shall have the right to vote and to receive dividends and
other distributions on shares subject to a Performance Stock Award or Restricted
Stock Award, subject, however, to the terms, conditions and restrictions
described in this Plan and the Award.
(d) ESCROW. Shares of Common Stock issued pursuant to a Performance Stock
Award or Restricted Stock Award may be held in escrow by the Company until such
time as the Committee shall have determined that the restrictions set forth in
Section 7 have lapsed or until the shares subject to such Performance Stock
Award or Restricted Stock Award are forfeited pursuant to their terms.
(e) RESTRICTIVE LEGENDS. Certificates for shares of Common Stock delivered
pursuant to Performance Stock Awards or Restricted Stock Awards may bear an
appropriate legend referring to the terms, conditions and restrictions described
in this Plan and in the applicable Award. Any attempt to dispose of any such
shares of Common Stock in contravention of the terms, conditions and
restrictions described in this Plan or in the applicable Award shall be
ineffective. Any shares of Common Stock of the Company or other property,
including cash, received by a Participant as a dividend or as a result of any
stock split, combination, exchange of shares, reorganization, merger,
consolidation or similar event with respect to shares of Common Stock received
pursuant to a Performance Stock Award or Restrictive Stock Award shall have the
same status and bear the same legend and be held in escrow pursuant to Section
7(d) as the shares received pursuant to the Performance Stock Award or
Restricted Stock Award unless otherwise determined by the Committee at the time
of such event.
(f) DESIGNATION OF BENEFICIARIES. A Participant may designate a
beneficiary or beneficiaries to receive such Participant's Common Stock
hereunder in the event of such Participant's death, and may, at any time and
from time to time, change any such beneficiary designation. All beneficiary
designations and changes therein shall be in writing and shall be effective if
and when delivered to the Committee during the lifetime of the Participant.
(g) DISCRETIONARY ADJUSTMENTS. Notwithstanding satisfaction of any
Performance Objectives, the number of shares of Common Stock granted, issued,
retainable and/or vested under a Performance Stock Award on account of either
financial performance or personal performance evaluations may be reduced by the
Committee on the basis of
10
<PAGE> 11
such further considerations as the Committee in its sole discretion shall
determine. The Committee may make adjustments or modifications, and its
determination thereof shall be conclusive, in any applicable Performance
Objectives to give effect to the intent of this Plan in connection with any
event affecting the performance criteria established as the Performance
Objectives, including without limitation, any reorganization, recapitalization,
merger, consolidation, offering of additional shares of Common Stock or other
change in the Company's shareholders' equity by means other than earnings, or
any similar event. The grant of an Award shall not constitute or be evidence of
any agreement or other understanding, express or implied, on the part of the
Company or any Subsidiary to employ an individual for any specific period.
SECTION 8. STOCK UNIT AWARDS.
(a) GRANT OF STOCK UNIT AWARDS. The Committee shall have authority to
grant to Participants Stock Unit Awards, the value of which is based, in whole
or in part, on the value of Common Stock. Each "Stock Unit" shall consist of a
bookkeeping entry representing an amount equivalent to the fair market value of
one share of Common Stock. Such Stock Units represent an unfunded and unsecured
obligation of the Company, except as otherwise provided for by the Committee.
Stock Units may be granted as additional compensation or in lieu of any other
compensation, as specified by the Committee, or may be issued upon exercise of
Options, or in lieu of a Performance Stock Award or Restricted Stock Award,
provided that for any Common Stock to be purchased in connection with a Stock
Unit Award other than upon exercise of an Option or in settlement of a
Performance Stock Award or Restricted Stock Award, the purchase price or the
amount of consideration paid or of other compensation foregone shall be equal to
at least 100% of the fair market value of such Common Stock on the date such
Award is granted. Subject to the provisions of the Plan, Stock Unit Awards shall
be subject to such terms, restrictions, conditions, vesting requirements and
payment rules as the Committee may determine in its sole discretion.
(b) TRANSFERABILITY OF STOCK UNITS. Unless the Stock Unit Award (or an
amendment thereto authorized by the Committee) expressly states otherwise, any
shares of Common Stock which are part of a Stock Unit Award shall not be
assigned, sold transferred, pledged or otherwise encumbered before the date on
which the shares are issued.
(c) SETTLEMENT OF STOCK UNITS. Unless provided otherwise by the Committee,
settlement of Stock Units shall be made by issuance of Common Stock and shall
occur within 60 days after a Participant's termination of employment for any
reason. The Committee may provide for Stock Units to be settled in cash (at the
election of the Company or the Participant, as specified by the Committee) and
to be made at such other times as it determines appropriate or as it permits a
Participant to choose. The
11
<PAGE> 12
amount of shares of Common Stock, or other settlement medium, to be so
distributed may be increased by an interest factor or by dividend equivalents,
which may be valued as if reinvested in Common Stock. Until a Stock Unit is
settled, the number of shares of Common Stock represented by a Stock Unit shall
be subject to adjustment pursuant to Section 4(d).
SECTION 9. SPECIAL RULES.
(a) Notwithstanding anything to the contrary in this Plan, unless
otherwise specifically determined by the Committee (regardless of whether at the
time of grant, at the time of a possible Change of Ownership, or otherwise) all
Options theretofore granted and not fully exercisable shall become exercisable
in full and the restrictions on all outstanding Awards shall lapse upon the
occurrence of a Change of Ownership. A "Change of Ownership" shall be deemed to
have occurred if either (1) individuals who, as of the effective date of this
Plan, constitute the Board of Directors of the Company (the "Board of Directors"
generally and as of the date hereof the "Incumbent Board") cease for any reason
to constitute at least a majority of the directors constituting the Board of
Directors, provided that any person becoming a director subsequent to the
effective date of this Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least three-quarters (3/4)
of the then directors who are members of the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is
(i) in connection with the acquisition by a third person, including a "group" as
such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Act"), of beneficial ownership, directly or indirectly, of 20% or
more of the combined voting securities ordinarily having the right to vote for
the election of directors of the Company (unless such acquisition of beneficial
ownership was approved by a majority of the Board of Directors who are members
of the Incumbent Board), or (ii) in connection with an actual or threatened
election contest relating to the election of the directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
shall be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board, or (2) the Board of Directors (a majority of
which shall consist of directors who are members of the Incumbent Board) has
determined that a Change of Ownership triggering the exercisability of Options
and the lapse of restrictions on Awards as described in this Section 10 shall
have occurred. Options which become fully exercisable by reason of events
specified in clauses (1) or (2) shall remain exercisable for 90 days following
the date on which they become so exercisable, after which they will revert to
being exercisable in accordance with their original terms, provided, however,
that no Option which has previously been exercised or has expired or otherwise
terminated shall become exercisable by virtue of this Section nor shall this
Section
12
<PAGE> 13
permit exercise of any option during the portion, if any, of such 90 day period
which follows the termination or expiration of any such Option.
(b) For purposes of this Plan and any Option or Award hereunder,
termination of employment shall not be deemed to occur upon the transfer of any
optionee from the employ of the Company to the employ of any Subsidiary or
affiliate. For purposes of this Plan, "affiliate" means (1) any entity 50% or
more of the voting interest in which is owned, directly or indirectly, by an
entity which owns, directly or indirectly, 50% or more of the voting interest in
the Company and (2) any entity which owns, directly or indirectly, 50% or more
of the voting interest in the Company.
SECTION 10. DELIVERY OF SHARES. No shares of Common Stock shall be
delivered pursuant to an Award or any exercise of an Option until the
requirements of such laws and regulations as may be deemed by the Committee
to be applicable thereto are satisfied.
SECTION 11. TAX WITHHOLDING.
(a) WITHHOLDING OF TAXES. As a condition to the making of an Award, to the
lapse of the restrictions pertaining to an Award, or to the delivery of shares
in connection with the exercise of an Option, the Company may require the
Participant to pay to the Company, or make arrangements satisfactory to the
Committee regarding payment of, any taxes of any kind required by law to be
withheld with respect to such shares of Common Stock.
(b) WITHHOLDING OF SHARES.
(1) If requested by a Participant who acquires shares of Common Stock upon
the exercise of an Option or who has received Common Stock pursuant to
an Award with respect to which the restrictions shall have lapsed, the
Committee may in its discretion permit the Participant to satisfy any
tax withholding obligations, in whole or in part, by having the
Company withhold a portion of such shares with a value equal to the
amount of taxes required by law to be withheld.
(2) Requests by a Participant to have shares of Common Stock withheld shall
be (i) made prior to the Tax Date and (ii) irrevocable.
SECTION 12. AMENDMENTS, SUSPENSION OR DISCONTINUANCE. The Board of
Directors or the Committee may amend, suspend or discontinue the Plan or any
Option or Award granted under the Plan.
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<PAGE> 14
SECTION 13. TERM OF PLAN. The Plan shall become effective on the date it
is approved and adopted by the Board. No Option or Award shall be granted under
the Plan after the date that is ten (10) years after the date on which the Plan
is approved and adopted by the Board or after such earlier date as the Committee
may decide, in its sole discretion.
SECTION 14. OPTION GRANTS BY SUBSIDIARIES. In the case of a grant of an
option to any Participant by a Subsidiary, such grant may, if the Committee so
directs, be implemented by the Corporation issuing any subject shares to the
Subsidiary, for such lawful consideration as the Committee may determine, upon
the condition or understanding that the Subsidiary will transfer the shares
to the optionholder in accordance with the terms of the option specified by the
Committee pursuant to the provisions of the Plan. Notwithstanding any other
provision hereof, such option may be issued by and in the name of the Subsidiary
and shall be deemed granted on such date as the Committee shall determine.
SECTION 15. NON-EXCLUSIVITY OF THE PLAN. The adoption of the Plan by the
Board shall not be construed as creating any limitations on the power of the
Board or the Committee to adopt such other incentive arrangements as it or they
may deem desirable, including without limitation, the granting of restricted
stock or stock options otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
14
<PAGE> 1
EXHIBIT 10.22
TRUST AGREEMENT
BETWEEN
KAUFMAN AND BROAD HOME CORPORATION
AND
WACHOVIA BANK, N.A.
AS TRUSTEE
<PAGE> 2
TRUST AGREEMENT
DATED AS OF AUGUST 27, 1999, BETWEEN
KAUFMAN & BROAD HOME CORPORATION
AND
WACHOVIA BANK, N.A., AS TRUSTEE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Definitions................................................. 4
SECTION 2 Establishment of the Trust.................................. 6
2.1 Trust Fund.................................................. 6
2.2 Irrevocability.............................................. 7
2.3 Claims of Creditors......................................... 7
SECTION 3 Acceptance by the Trustee................................... 7
SECTION 4 Investment of the Trust..................................... 7
4.1 General Duties of Trustee................................... 7
4.2 Additional Powers of Trustee................................ 9
SECTION 5 Establishment and Maintenance of Participant Schedule....... 11
5.1 Form of Participant Schedule................................ 11
5.2 Maintaining the Participant Schedule........................ 11
SECTION 6 Maintenance of the Trust.................................... 11
6.1 Trust Assets and Allocation to Plans........................ 11
6.2 Valuations of Trust and Accounts............................ 11
6.3 Trust Statements............................................ 11
SECTION 7 Voting and Tender of Company Stock Held in Trust............ 12
7.1 Voting of Company Stock..................................... 12
7.2 Tender Rights............................................... 12
7.3 Notices and Information Statements.......................... 13
SECTION 8 Distributions from the Trust................................ 14
8.1 Distribution of Company Stock from the Trust................ 14
8.2 Protection of Trustee....................................... 15
8.3 Company Obligations......................................... 15
8.4 Trustee as Holder of Legal Title to Trust Assets............ 16
8.5 Federal Income Tax Consequences of the Trust................ 16
SECTION 9 Expenses, Compensation and Indemnification.................. 16
9.1 Compensation................................................ 16
9.2 Expenses.................................................... 16
9.3 Charge on Trust Fund........................................ 16
9.4 Indemnification............................................. 16
9.5 Payment from Trust Fund..................................... 17
SECTION 10 Administration and Records.................................. 17
10.1 Records..................................................... 17
10.1 Settlement of Accounts...................................... 17
10.3 Audit....................................................... 18
10.4 Judicial Settlement......................................... 18
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
<C> <S> <S>
10.5 Delivery of Records to Successor.............................. 18
10.6 Tax Filings................................................... 18
SECTION 11 Removal or Resignation of the Trustee and Designation of
Successor Trustee............................................. 19
11.1 Removal....................................................... 19
11.2 Resignation................................................... 19
11.3 Successor Trustee............................................. 19
SECTION 12 Enforcement of the Trust Agreement............................ 19
12.1 Rights of Parties to Enforce the Trust Agreement.............. 19
12.2 Limitation on Rights of Participants, Beneficiaries and Other
Affiliates.................................................... 20
SECTION 13 Termination................................................... 20
13.1 Termination upon Specific Events.............................. 20
13.2 Termination in Other Events................................... 20
13.3 Limitation on Trustee Liability upon Total Distribution;
Continuation of Trustee Powers................................ 21
13.4 Nonapplicability of ERISA..................................... 21
SECTION 14 Amendment..................................................... 21
14.1 Amendments in General......................................... 21
14.2 Specific Amendments........................................... 22
SECTION 15 Nonalienation................................................. 22
SECTION 16 Communications................................................ 22
16.1 To the Company, Board of Directors and Committee.............. 22
16.2 To the Trustee................................................ 22
16.3 To a Participant.............................................. 24
16.4 Binding upon Receipt.......................................... 24
16.5 Authority to Act.............................................. 24
16.6 Authenticity of Instruments................................... 24
SECTION 17 Claims of Company's Bankruptcy Creditors...................... 24
17.1 Bankruptcy Creditors.......................................... 24
17.2 Resumption of Benefits, Restoration of Accounts............... 25
SECTION 18 Consolidation, Merger or Sale of the Company.................. 25
SECTION 19 Miscellaneous Provisions...................................... 25
19.1 Binding Effect................................................ 25
19.2 Inquiry as to Authority....................................... 25
19.3 Responsibility for Company Action............................. 26
19.4 Successor to Trustee.......................................... 26
19.5 Intercompany Agreements....................................... 26
19.6 Titles Not to Control......................................... 26
19.7 Laws of the State of Delaware to Govern....................... 26
19.8 Fractional Shares............................................. 26
19.9 Counterparts.................................................. 26
SCHEDULE A List of Plans and Administrators
SCHEDULE B Trustee's Compensation Schedule
SCHEDULE C Form of Promissory Note
</TABLE>
2
<PAGE> 4
This TRUST AGREEMENT is made and entered into as of August 27, 1999 (the
"Effective Date") by and between Kaufman and Broad Home Corporation, a
corporation organized under the laws of the State of Delaware (the "Company"),
Wachovia Bank, N.A., a national banking association, organized under the laws of
the United States of America (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company is the sponsor of various non-qualified and
qualified employee benefit plans and arrangements for the benefit of some
or all of the employees of the Company and certain of its subsidiaries and
affiliates and may from time to time adopt one or more additional plans or
arrangements;
WHEREAS, the Company and its subsidiaries or affiliates have and will
have certain legal obligations under these employee benefit plans or
arrangements;
WHEREAS, the Company wishes to establish a trust to assist it in meeting
certain of these obligations and to make contributions for the benefit of its
subsidiaries or affiliates and intends to make contributions and/or loans to
such trust at such time or times and in such amount or amounts as it may
determine;
WHEREAS, the Company intends that such contributions shall be held by the
Trustee and, if other than in the form of common stock of the Company, used for
the purpose of acquiring common stock of the Company and making payments with
respect to loans used to acquire common stock of the Company all in accordance
with the provisions of this Trust Agreement;
WHEREAS, the Company intends that any loans made to the Trustee by the
Company shall be used for the exclusive purpose of acquiring common stock of
the Company in accordance with the provisions of this Trust Agreement;
WHEREAS, inasmuch as the income and corpus of such trust may and will be
applied in discharge of the legal obligations of the Company, and for the
benefit of the Company's subsidiaries and affiliates, such trust is intended
to be a "grantor trust" within the meaning of Section 671 of the Code; and
WHEREAS, the Company intends that the assets of such trust at all times
shall be subject to the claims of bankruptcy and other general creditors of the
Company as provided in Section 17 of this Trust Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Company and the Trustee declare and agree as follows:
3
<PAGE> 5
SECTION 1 DEFINITIONS.
As used in this Trust Agreement, the following definitions apply to the
terms indicated below:
1.1 "Administrator" or "Administrators" shall refer to the Committee,
Company official(s) or other persons listed in Schedule A charged with
responsibility for overseeing and administering the Plans and
provision of Benefits.
1.2 "Affiliate" shall refer to any direct or indirect subsidiary related by
direct or indirect stock ownership of the Company that has adopted a
Plan while each such entity is a Subsidiary of the Company.
1.3 "Beneficiary" shall mean any person entitled to receive benefits
under any Plan on the death of a Participant.
1.4 "Benefits" shall mean amounts that the Company or an Affiliate has an
obligation to pay to Participants pursuant to any Plan under which the
Company has a legal obligation to (a) pay from its general assets,
(b) provide for the payment of by making contributions from its
general assets, or (c) deliver in shares of Company Stock.
1.5 "Board of Directors" shall mean the Board of Directors of the Company.
1.6 "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
1.7 "Committee" shall mean such committee as the Board of Directors shall
appoint from time to time to provide instructions to the Trustee as
provided herein. The Committee shall consist of three or more persons.
The members of the Committee will be certified to the Trustee by the
Secretary or Assistant Secretary of the Company. The Committee will
initially be comprised of the Chief Financial Officer, Secretary, and
Treasurer of the Company and shall remain so comprised until its
composition is changed by the Board of Directors.
1.8 "Company Stock" shall mean the common stock of the Company, par value
$1.00 per share.
1.9 "Daily Value" shall mean, with respect to a share of Company Stock, the
closing reported sales price per share of Company Stock on the New
York Stock Exchange Composite Tape, or if Company Stock is not traded
on such stock exchange, the principal national securities exchange on
which Company Stock is traded, or if not so traded, the mean between
the highest bid and lowest asked quotation on the over-the-counter
market as reported by the National Quotations
4
<PAGE> 6
Bureau, or any similar organization, on any relevant date, or if not so
reported, as determined by the Committee in a manner consistently applied.
1.10 "Eligible Participant" shall mean a Participant who is an Employee
and who, as of the date upon which Eligible Participants are determined, (a) is
a Participant in one of the Stock Option Plans (b) is not a member of the Board
of Directors.
1.11 "Employee" shall mean any individual who is actively employed by the
Company or an Affiliate.
1.12 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.14 "401(k) Plan" shall mean the Kaufman and Broad Home Corporation
Amended and Restated 401(k) Plan.
1.15 "Other Assets" shall mean any asset or investment aside from cash
held by the Trust that is not Company Stock.
1.16 "Participant Schedule" shall mean the schedule prepared by the
Company from time to time pursuant to Section 5.
1.17 "Participants" shall mean those individuals who participate in one or
more of the Plans.
1.18 "Plans" shall mean the plans or arrangements referred to in
Schedule A, as amended from time to time.
1.19 "Stock Option Plans" shall mean the Company's (a) 1999 Incentive Plan,
(b) 1988 Employee Stock Plan, (c) Performance Based Incentive Plan for Senior
Management, (d) 1998 Stock Incentive Plan, or (e) 1986 Stock Option Plan, as
each Stock Option Plan may be amended from time to time, or such successor or
substitute stock incentive or option plan as may be listed on Schedule A from
time to time by the Company.
1.20 "Specified Investments" shall mean (a) direct obligations of the
United States of America and agencies thereof for which the full faith and
credit of the United States is pledged or mutual funds, the sole assets of which
are such investments, (b) obligations fully guaranteed by the United States of
America or mutual fund, the sole assets of which are such investments, (c)
certificates of deposit issued by, or banker's acceptances of, or time deposits
with, any bank, trust company or national banking association incorporated or
doing business under the laws of the United States of America or one of the
states thereof having
5
<PAGE> 7
combined capital and surplus and retained earnings of at least $500,000,000
(including the Trustee if such conditions are met), (d) commercial paper of
companies, banks, trust companies or national banking associations incorporated
or doing business under the laws of the United States of America or one of the
states thereof and in each case having a rating assigned to such commercial
paper by Standard & Poor's Corporation or Moody's Investors' Service, Inc. (or,
if neither such organization shall rate such commercial paper at any time, by
any nationally recognized rating organization in the United States of America)
equal to the highest rating assigned by such organization, and (e) repurchase
agreements with any financial institution having a combined capital and surplus
of at least $750,000,000 fully collateralized by obligations of the type
described in clauses (a) through (d) above; PROVIDED that, if all of the above
investments are unavailable, the entire amount to be invested may be used to
purchase Federal Funds from an entity described in clause (c) above; and
provided further that no investment shall be eligible as a "Specified"
Investment" unless the final maturity or date of return of such investment is
12 months or less from the date of purchase thereof.
1.21 "Subsidiary" shall mean any corporation of which a majority of the
total voting power of its outstanding voting securities, or any partnership,
limited liability company, joint venture, or other entity of which a majority of
the partnership interests, membership or manager interests, or other similar
equity interests thereof, is owned, directly or indirectly by the Company.
1.22 "Trust" shall mean the Kaufman and Broad Home Corporation
Grantor Stock Trust established pursuant to this Trust Agreement.
1.23 "Trust Fund" shall mean all Company Stock, money and other property
from time to time obtained by the Trust and all investments and reinvestments
made therewith or proceeds thereof and all earnings and profits thereon, less
all payments and charges as authorized herein.
SECTION 2 ESTABLISHMENT OF THE TRUST.
2.1 TRUST FUND. The Company hereby establishes the Kaufman and Broad Home
Corporation Grantor Stock Trust. The Trust Fund shall consist of such sums of
Company Stock, money, and other property acceptable to the Trustee as are from
time to time paid to or otherwise acquired by the Trustee. Subject to Section
8.1(a) as to deemed forgiveness of debt, the Company shall have no duty or
obligation to make any contributions to the Trust, and the Trustee shall have no
duty or obligation to require the Company to make any contribution to the Trust.
The Trust Fund shall be held by the Trustee in trust and shall be dealt with in
accordance with the provisions of this Trust Agreement. The Trustee, and any
successor Trustee appointed pursuant to Section 11 hereof or resulting under
Subsection 19.4 hereof, shall at all times be a bank and trust company or other
6
<PAGE> 8
national banking association that is neither a subsidiary of, nor other firm
related by direct or indirect stock ownership to, the Company.
2.2 IRREVOCABILITY. This trust shall be irrevocable. Except as provided in
Section 17 hereof, the Trust shall be for the exclusive purpose of assisting the
Company in providing for the payment of Benefits and defraying expenses of the
Trust in accordance with the provisions of this Trust Agreement. No part of the
income or corpus of the Trust Fund shall be recoverable by the Company;
PROVIDED, HOWEVER, that the Trust Fund shall be applied in discharge of the
Company's legal obligations as provided in this Trust Agreement.
2.3 CLAIMS OF CREDITORS. Notwithstanding anything in this Trust Agreement
or the Plans to the contrary, the Trust Fund shall at all times be subject to
the claims of bankruptcy and other general creditors of the Company as provided
in Section 17 hereof. No Participant, Affiliate, or Plan shall have any claim
against the Trust Fund or Trustee.
SECTION 3 ACCEPTANCE BY THE TRUSTEE.
The Trustee accepts the Trust established under this Trust Agreement on the
terms and subject to the provisions set forth herein. The Trustee agrees to
discharge and perform fully and faithfully all of the duties and obligations
imposed upon it under this Trust Agreement.
SECTION 4 INVESTMENT OF THE TRUST.
4.1 GENERAL DUTY OF TRUSTEE. Except as otherwise provided in this
Subsection 4.1 or except as otherwise expressly provided in this Trust
Agreement, all assets received by the Trustee other than Company Stock shall be
invested as soon as practicable, and remain invested, in Company Stock.
(a) The Trustee shall not invest any cash contributed to the Trust
(other than cash contributed to repay loans to the Trust) in any investment
other than Company Stock, except that cash contributions may be invested in
Specified Investments on a temporary basis with the approval of the
Committee.
(b) From time to time, the Trustee shall have the ability, with the
approval of the Committee, to borrow funds for the purpose of acquiring
shares of Company Stock and/or to issue one or more notes to the Company
(together with the payment of cash for the aggregate par value) in exchange
for newly issued shares of Company Stock or in exchange for cash to be used
to purchase Company Stock on the open market. The Trustee shall have the
ability to pledge any shares so acquired as collateral. Subject to the
requirements of Subsection 8.1(d), the terms and conditions of any
7
<PAGE> 9
borrowing shall be fair and reasonable. It is contemplated that any such
obligation shall be repaid using cash contributions and earnings
attributable to Company Stock held by the Trust Fund.
(c) The Company may transfer treasury shares of Company Stock to the
Trust Fund; PROVIDED, that the Trustee must pay consideration for such
treasury shares at least equal to the fair market value thereof in the form
of a promissory note as set forth in Schedule C.
(d) Notwithstanding anything herein to the contrary, unless
the Committee otherwise directs, cash (other than cash proceeds of a
loan and cash received as contributions or as dividends on Company
Stock) or Other Assets (other than Other Assets received as dividends on
Company Stock) received by the Trustee shall be retained and invested
in Other Assets, PROVIDED, HOWEVER, that the Trust shall make no new
investment in an Other Asset other than Specified Investments, and
PROVIDED FURTHER that, after payment of the costs of the Trust,
including, without limitation, Trustee fees and expenses and, if
applicable, debt repayment described in Subsection 4.1(b), through the
end of the calendar year during which such cash or Other Assets are
received by the Trustee, any such cash or Other Assets remaining
shall be distributed by the Trustee to the Administrators at the end of
such calendar year to provide for Company Matching Contributions under the
401(k) Plan.
(e) Except as otherwise provided herein, dividends paid in cash on
Company Stock held by the Trust shall be applied, immediately upon receipt
thereof by the Trustee, first to pay interest and then to repay or pre-pay
scheduled principal due under any loans to the Trust, which application
shall be in the order such principal payments are due. In the event that
dividends paid on Company Stock held in the Trust, other than extraordinary
dividends, exceed the amount of scheduled principal and interest due in any
Trust Year, such excess shall be distributed to the Administrator of the
401(k) Plan for the purpose of making Company Matching Contributions and,
to the extent not so needed, shall then be distributed to the
Administrators for the purpose of paying compensation to any other broad
cross-section of Participants, as determined in good faith by the
Committee. Extraordinary dividends shall not be used to pay interest on or
principal of any loans to the Trust, but shall be invested in additional
Company Stock as soon as practicable. Dividends which are not in cash or in
Company Stock (including extraordinary dividends, or portions thereof)
shall be reduced to cash by the Trustee and reinvested in Company Stock as
soon as practicable. For purposes of this Agreement, Company Stock
purchased with the proceeds of an extraordinary dividend or with the
proceeds of a non-cash dividend shall, for purposes of this, be
deemed to have been acquired with the proceeds of the loan. In the
Trustee's
8
<PAGE> 10
discretion, investments in Company Stock may be made through open-market
purchases, private transactions or (with Company's consent) purchases from
the Company.
4.2 ADDITIONAL POWERS OF TRUSTEE. Subject to the provisions of Section
4.1, the Trustee shall have the following additional powers and authority with
respect to all property constituting a part of the Trust Fund:
(a) To purchase securities or any other kind of property and to
retain such securities or other property, regardless of diversification and
without being limited to investments authorized by law for the investment
of trust funds.
(b) Subject to Subsection 7.2 hereof, to sell, exchange or transfer
any such property at public or private sale for cash or on credit and grant
options for the purchase or exchange thereof.
(c) Subject to Section 7 hereof, to participate in any plan of
reorganization, consolidation, merger, combination, liquidation or other
similar plan relating to any such property, and to consent to or oppose any
such plan or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any corporation or other entity any of
the securities of which may at any time be held in the Trust Fund, and to
do any act with reference thereto.
(d) To deposit cash or any Other Assets with any protective,
reorganization or similar committee; to delegate discretionary power to any
such committee; and to pay part of the expenses and compensation of any
such committee and any assessments levied with respect to any property so
deposited.
(e) To exercise any conversion privilege or subscription right
available in connection with any such property, and to do any act with
reference thereto, including the exercise of options, the making of
agreements or subscriptions and the payment of expenses, assessments or
subscriptions, which may be deemed necessary or advisable in connection
therewith, and to hold and retain any securities or other property which it
may so acquire.
(f) Subject to Subsection 9.4 hereof, to commence or defend suits or
legal proceedings and to represent the Trust in all suits or legal
proceedings; to settle, compromise or submit to arbitration any claims,
debts or damages, due or owing to or from the Trust; PROVIDED, HOWEVER,
that except as to suits brought by the Trustee against the Company or
against any other party to enforce an obligation of the Company under the
Trust Agreement, suits may be commenced on behalf of the Trust only with
the
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prior approval of the Committee, and such prior approval shall not be
unreasonably withheld.
(g) Subject to Section 7 hereof, to exercise, personally or by
general or limited power of attorney, any right, including the right to
vote, appurtenant to any securities or other such property.
(h) To hold cash awaiting investment uninvested, and to maintain such
additional cash balances as it shall deem reasonable or necessary to meet
anticipated cash distributions from or administrative costs of the Trust.
(i) To invest cash or Other Assets at Wachovia Bank, N.A. or another
bank and trust company or national banking association in any type of
interest-bearing investment, including, without limitation, deposit
accounts, certificates of deposit and repurchase agreements.
(j) To invest and reinvest all or any specified portion of cash or
Other Assets (i) through the medium of any common trust fund which has been
or may hereafter be established and maintained by the Trustee, or (ii) in
shares of open end or closed end investment companies, including companies
for which the Trustee provides management or custodial services, PROVIDED
that, prior to investing any portion of the Trust Fund for the first time
in any such common trust fund or investment company, the Trustee shall
advise the Company of its intent to make such an investment and furnish to
the Company any information it may reasonably request with respect to such
investment.
(k) To engage legal counsel, including counsel to the Company, or any
other suitable agents, to consult with such counsel or agents with respect
to the implementation or construction of this Trust Agreement, the duties
of the Trustee hereunder, the transactions contemplated by this Trust
Agreement or any act which the Trustee proposes to take or omit, to rely
upon the advice of such counsel or agents, and to pay any such counsel's or
agent's reasonable fees, expenses and compensation.
(l) To register or hold any securities or other property held by it
in its own name or in the name of any custodian of such property or of its
nominee, including the nominee of any system for the central handling of
securities, with or without the addition of words indicating that such
securities are held in a fiduciary capacity, to deposit or arrange for the
deposit of any such securities with such a system and to hold any
securities in bearer form.
(m) To make, execute and deliver, as Trustee, any and all deeds,
leases, notes, bonds, guarantees, mortgages, conveyances, contracts,
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waivers, releases or other instruments in writing that are necessary
or proper for the accomplishment of any of the foregoing powers.
(n) Subject to Section 7 hereof, generally, to exercise any of the
powers of an owner with respect to property held in the Trust Fund.
SECTION 5 ESTABLISHMENT AND MAINTENANCE OF PARTICIPANT SCHEDULE.
5.1 FORM OF PARTICIPANT SCHEDULE. The Trustee may, from time to time,
request the Company to prepare and deliver to the Trustee in accordance with
Subsection 5.2 hereof, a schedule that sets forth the name of each Participant
entitled to receive a Benefit under a Plan or such group of Participants that
the Trustee may need to know in order to carry out the provisions of this
Agreement.
5.2 MAINTAINING THE PARTICIPANT SCHEDULE. At the request of the Trustee,
the Company shall from time to time update the Participant Schedule. Each
Participant Schedule shall state the date as of which it applies, and the
Trustee shall be entitled to rely upon such Participant Schedule, without a duty
of further inquiry, until it receives an updated Participant Schedule bearing a
later date. Each Participant Schedule shall contain all information concerning a
Participant that the Trustee will need to complete its responsibilities under
this Agreement.
SECTION 6 MAINTENANCE OF TRUST.
6.1 TRUST ASSETS AND ALLOCATION TO PLANS. Subject to Sections 4.1 and 17,
the Trustee shall hold all assets contributed or otherwise obtained by the Trust
and shall distribute such assets and any earnings thereon to such Administrators
or Participants, as provided for and in accordance with this Trust Agreement or
use such assets to pay obligations of the Trust described in Section 9 or to
repay a loan described in Subsection 4.1(b).
6.2 VALUATION OF TRUST AND ACCOUNTS. The Trustee shall revalue the
Trust Fund as of the last business day of each calendar quarter. Shares of
Company Stock shall be valued at the Daily Value of Company Stock as of such
date.
6.3 TRUST STATEMENTS. As provided in Section 10.2, the Trustee shall, at
the end of each calendar quarter, furnish a statement to the Company reflecting
the assets held in the Trust Fund and the value thereof within ten business days
after the receipt of all information necessary to produce such report.
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SECTION 7 VOTING AND TENDER OF COMPANY STOCK HELD IN TRUST.
7.1 VOTING OF COMPANY STOCK.
(a) The Trustee shall vote (or abstain from voting) the shares of
Company Stock held by the Trust in accordance with, and by soliciting and
receiving, voting directions from or on behalf of Eligible Participants. As
soon as practicable following the record date in question, the Company
shall deliver to the Trustee a Participant Schedule listing Eligible
Participants determined as of such record date. Each Eligible Participant
listed on such Participant Schedule shall have the right to direct the vote
(or abstention) with respect to that number of shares of Company Stock held
by the Trust as determined by the following formula: multiply the shares of
Company Stock held by the Trust by a fraction for each Eligible Participant
who has given voting instructions. The numerator of such fraction shall
equal the total unexercised options granted pursuant to the Stock Option
Plans held by such Eligible Participant; and the denominator of such
fraction shall equal the total unexercised options granted pursuant to the
Stock Option Plans held by all Eligible Participants who have given voting
instructions.
(b) The Trustee shall devise and implement a procedure to assure
confidentiality of any directions given by or on behalf of Eligible
Participants in respect of votes. All actions taken by or on behalf of
Eligible Participants pursuant to this Subsection 7.1 shall be held
confidential by the Trustee and shall not be divulged or released to any
person, other than (i) agents of the Trustee who are not affiliated with
the Company or its Affiliates, (ii) by virtue of the execution by the
Trustee of any proxy, consent or letter of transmittal for the shares of
Company Stock held in the Trust, or (iii) as may be required by court
order.
7.2 TENDER RIGHTS.
(a) If any person shall commence a tender or exchange offer with
respect to the Company Stock, the Trustee shall tender or exchange, or not
tender or exchange, the shares of Company Stock held by the Trust as
directed by or on behalf of Eligible Participants, determined as of the
commencement of such tender or exchange offer, pursuant to the tender or
exchange instructions solicited by the Trustee. The Trustee shall first
divide the shares of Company Stock held in the Trust Fund into two equal
blocks of shares of Company Stock to be known as the 401(k) Plan Block and
the Stock Option Plans Block (with the odd share of stock, if any,
allocated to the 401(k) Plan Block).
(i) The Trustee shall tender or exchange the shares
of Company Stock held in the 401(k) Plan Block in the same proportions
as shares of Company Stock held in the 401(k) Plan are tendered or
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exchanged and shall in making such tender or exchange rely on a
certification from the Trustee of the 401(k) Plan as to the tender or
exchange instructions that the participants in the 401(k) Plan have
made with respect to shares of Company Stock allocated to their
accounts in the 401(k) Plan.
(ii) As soon as practicable following the commencement of such
tender or exchange offer, the Company shall deliver to the Trustee a
Participant Schedule listing the Eligible Participants determined as
of the commencement of such tender or exchange offer. Each Eligible
Participant listed on such Participant Schedule shall have the right
to direct the tender or exchange of that number of shares of Company
Stock held in the Stock Option Plan Block as determined by the
following formula: multiply the shares of Company Stock held in the
Stock Option Plan Block by a fraction for each Eligible Participant
who has given tender or exchange instructions. The numerator of such
fraction shall equal the total unexercised options granted pursuant to
the Stock Option Plans held by such Eligible Participant; and the
denominator of such fraction shall equal the total unexercised options
granted pursuant to the Stock Option Plans held by all Eligible
Participants who have given tender or exchange instructions.
(b) The Trustee shall devise and implement a procedure to assure the
confidentiality of any directions given by or on behalf of Participants in
response to such offers. All actions taken by or on behalf of Participants
pursuant to this Subsection 7.2 shall be held confidential by the Trustee
and shall not be divulged or released to any person, other than (i) agents
of the Trustee who are not affiliated with the Company or its Affiliates,
(ii) by virtue of the execution by the Trustee of any proxy, consent or
letter of transmittal for the shares of Company Stock held in the Trust, or
(iii) as may be required by court order.
7.3 NOTICES AND INFORMATION STATEMENTS. The Company shall provide the
Trustee in a timely manner with notices and information statements (including
proxy statements) when voting or consent rights are to be exercised, and with
respect to tender, exchange or similar offers, notices and offer materials, at
the same time and in the same manner (except to the extent the Exchange Act
requires otherwise) as such notices, information statements, and offer materials
are provided to shareholders of the Company generally. The Trustee shall, in
turn, provide all material received pursuant to this Subsection 7.3 to Eligible
Participants described in Subsections 7.1 and 7.2, who do not otherwise receive
such material.
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SECTION 8 DISTRIBUTIONS FROM THE TRUST.
8.1 DISTRIBUTIONS OF COMPANY STOCK FROM THE TRUST. Except as otherwise
provided in Sections 13 or 17, all distributions of Company Stock from the Trust
shall be used to provide for the payment of Benefits. For shares acquired with
the proceeds of a loan, distributions of such shares of Company Stock from the
Trust shall be made in proportion to the principal payment made (or deemed
forgiven) with respect to the loan used to acquire such Company Stock described
in Subsection 4.1(b). For purposes of the foregoing, the proportion of the
principal payment made (or deemed forgiven) with respect to the loan shall be
determined by dividing the amount of the principal payment made (or deemed
forgiven) by the sum of such principal payment and the principal balance of the
loan remaining after such payment. For shares acquired by way of a contribution
of cash or Company Stock to the Trust, distributions of such shares of Company
Stock from the Trust shall be made in accordance with Section 8.1(b).
(a) RELEASE OF SHARES ACQUIRED WITH PROCEEDS OF A LOAN. Shares of
Company Stock acquired with the proceeds of a loan shall be distributed
from the Trust in accordance with the following directions: (i) to the
extent available, shares of Company Stock sufficient to meet the current
obligations of the Stock Option Plans in the order listed in Schedule A
shall first be allocated to the Administrator of the Stock Option Plans in
such order, and (ii) remaining shares of Company Stock (if any) to the
extent available shall be transferred to the Administrator to assist the
Company to meet the current obligations of the Company under the 401(k)
Plan to fund Employee elections of Company Stock in the Investment Fund and
then the Company Matching Contribution. If the earnings attributable to the
shares of Company Stock acquired with the proceeds of such loan together
with any contributions made by the Company for the purpose of repayment of
such loan are not sufficient to enable the Trust to make a required
repayment of principal under such loan that will cause a release and
distribution of shares sufficient to provide for the payment of Benefits
described in Subsections 8.1(a)(i) and (ii), then shares of Company Stock
acquired by a contribution of cash or Company Stock to the Trust, to the
extent available, shall be distributed in accordance with Section 8.1(b) to
meet the Company's obligations to pay the Benefits described in Subsections
8.1(a)(i) and (ii). If a deficiency still remains after making such
distributions of shares under this Section 8.1(a) and Section 8.1(b), then
repayment of principal shall be deemed forgiven by the Company to the
extent necessary to cause a release and distribution of shares of Company
Stock to satisfy such deficiency.
(b) RELEASE OF SHARES ACQUIRED BY A CONTRIBUTION OF CASH OR COMPANY
STOCK TO THE TRUST. Subject to the provisions of Section 8.1(a), shares of
Company Stock acquired by a contribution of cash or Company Stock to the
Trust (including shares of Company Stock purchased by the Trustee with
extraordinary dividends) shall be distributed by the Trustee to
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the extent necessary to meet the Company's current obligations under the
Plans. Such shares of Company Stock released in any year shall first (i) be
used to meet the current obligations under the Stock Option Plans in the
order listed on Schedule A and shall be delivered by the Trustee to the
Administrator of the Stock Option Plans in such order, and (ii) remaining
shares of Company Stock (if any) to the extent available shall be
transferred to the Administrator to assist the Company to meet the
obligations of the Company under the 401(k) Plan to fund Employee elections
of Company Stock in the Investment Fund and then the Company Matching
Contribution. If at any time the Trust consists solely of shares of Company
Stock acquired by a contribution of cash or Company Stock, then
distributions of such shares of Company Stock in any year shall be made in
an amount which is not less than the lesser of (iii) 100,000 shares of
Company Stock, or (iv) a number of shares of Company Stock equal to 12% of
the assets of the Trust.
(c) RELIANCE UPON COMMITTEE INSTRUCTION. From time to time, the
Committee or its designee shall inform the Trustee in writing of how many
shares are required to provide for the payment of Benefits under such Plans
under Subsections 8.1(a) and (b). The Trustee may rely upon written
instructions received by the Committee to carry out the instructions
contained in this Subsection 8.1 and shall have no responsibility to verify
or monitor the determinations made by the Committee.
(d) ACCELERATION. Notwithstanding anything herein to the contrary, if
the Trustee undertakes a loan to acquire Company Stock pursuant to
Subsection 4.1, such loan shall at all times provide that principal
payments may be accelerated at any time at the discretion of the Committee.
8.2 PROTECTION OF TRUSTEE. The Trustee shall, to the maximum extent
permitted by applicable law, be fully protected in acting upon any written
statement, affidavit or certification from the Company or the Committee. The
Trustee shall at all times, to the maximum extent permitted by applicable law,
be fully protected in making distributions pursuant to Sections 4, 8, 9, 13 and
17 hereof.
8.3 COMPANY OBLIGATIONS. Notwithstanding the provisions of this Trust
Agreement, the Company and its Affiliates shall remain obligated with respect to
the Benefits attributable to their respective employees. Nothing in this Trust
Agreement shall relieve the Company or any of its Affiliates of their respective
liabilities with respect to the Benefits except to the extent such amounts are
paid to a Plan or a Participant from the Trust, it nevertheless being the
Company's intent that the Trust Fund shall be applied in discharge of the
Company's legal obligations as provided in this Trust Agreement. Notwithstanding
anything herein to the contrary, assets of the Trust Fund may not be used for
the payment of Benefits
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under the Plans pursuant to this Section 8 unless the Benefits give rise to
a contractual obligation of the Company, and it is a Benefit described in
Schedule A.
8.4 TRUSTEE AS HOLDER OF LEGAL TITLE TO TRUST ASSETS. Subject to Section
17 hereof, the Trustee shall hold legal title to all assets in the Trust.
8.5 FEDERAL INCOME TAX CONSEQUENCES OF THE TRUST. The Trust Fund may be
applied in the discharge of legal obligations of the Company and for the benefit
of the Company's investments in its Affiliates as provided herein. Accordingly,
the Trust shall be treated as a grantor trust of the Company under the Code, and
the Company shall take into account in computing its tax liability, those items
of income, deductions and credits against tax attributable to assets held in the
Trust to which the Company would have been entitled had the Trust not been in
existence. The Trustee shall notify the Company promptly after it becomes aware
of any tax liability assessed against, or imposed upon, the Trust or the Trustee
in its capacity as Trustee of the Trust. The Company shall be responsible for
all matters in respect of such assessment or imposition, and shall have sole
responsibility for any defense in connection therewith. Payments in respect of
any tax liability of the Company arising in connection with earnings, gains or
activities relating to the Trust, including, without limitation, interest and
penalties, shall be made from the Trust Fund after a final determination of such
liability, unless the Company promptly pays such liability. In the event the
assets of the Trust are insufficient to pay such liability, any deficit shall be
paid promptly by the Company.
SECTION 9 EXPENSES, COMPENSATION AND INDEMNIFICATION.
9.1 COMPENSATION. The Company shall pay the Trustee compensation in
accordance with the compensation schedule attached hereto as Schedule B, unless
the Company and the Trustee otherwise agree in writing.
9.2 EXPENSES. The Trustee shall be reimbursed by the Company for its
reasonable expenses of implementation, management and administration of the
Trust, including brokerage commissions and the reasonable compensation of
attorneys or other agents engaged by the Trustee or by the Company to assist in
such implementation, management and administration.
9.3 CHARGE ON TRUST FUND. All expenses and compensation referred to in
Sections 9.1 and 9.2 hereof shall be a charge on the Trust Fund and shall
constitute a lien on the Trust Fund in favor of the Trustee and shall be payable
from the Trust Fund unless paid when due by the Company.
9.4 INDEMNIFICATION. The Company hereby agrees to indemnify and hold
harmless the Trustee from and against any losses, costs, damages, claims or
expenses, including without limitation reasonable attorneys' fees, which
the Trustee may incur or pay out in connection with, or otherwise arising out
of:
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(a) the performance by the Trustee of its duties hereunder, unless
any such loss, cost, damage, claim or expense is a result of negligence or
willful misconduct by the Trustee or the breach by the Trustee of its
fiduciary duties hereunder; or
(b) any action taken by the Trustee in good faith pursuant to the
written direction of the Company or the Committee.
In the event that any action or regulatory proceeding shall be commenced or
claim asserted which may entitle the Trustee to be indemnified hereunder, the
Trustee shall give the Company written notice of such action or claim promptly
after becoming aware of such commencement or assertion unless the Company has
otherwise received notice of such action or claim. The Company shall be entitled
to participate in and, upon notice to the Trustee, assume the defense of any
such action or claim using counsel reasonably acceptable to the Trustee. The
Trustee shall cooperate with the Company in connection with the defense of any
such action or claim. Subject to Section 17 the Trustee shall have no claim on
the assets of the Trust Fund in respect of amounts payable to the Trustee under
this Subsection 9.4.
9.5 PAYMENT FROM TRUST FUND. All payments of expenses and compensation
referred to in Subsections 9.1 and 9.2 hereof shall be made only with the
written approval of or at the direction of the Committee.
SECTION 10 ADMINISTRATION AND RECORDS.
10.1 RECORDS. The Trustee shall keep or cause to be kept accurate and
detailed accounts of any investments, receipts, disbursements, loans, and other
transactions hereunder, and, subject to the confidentiality requirements of
Subsections 7.1 and 7.2, all accounts, books and records relating thereto shall
be open to inspection and audit at all reasonable times by any person designated
by the Company. The Trustee shall preserve all such accounts, books and records,
in original form or on microfilm, magnetic tape or any other similar process,
for such period as the Trustee may determine, but the Trustee may destroy such
accounts, books and records only after first notifying the Company in writing of
its intention to do so and transferring to the Company, subject to the
confidentiality requirements of Subsections 7.1 and 7.2 hereof, any of such
accounts, books and records that the Company shall request.
10.2 SETTLEMENT OF ACCOUNTS.
(a) Subject to the confidentiality requirements of Subsections 7.1
and 7.2, within 10 days after the close of each calendar quarter, and
within 60 days after the removal or resignation of the Trustee or the
termination of the Trust, the Trustee shall file with the Company a written
account setting forth all investments, receipts, disbursements, loans, and
other transactions
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effected by it with respect to the Trust during the preceding calendar
quarter or during the period from the close of the preceding calendar
quarter to the date of such removal, resignation or termination, including
a description of all investments and securities purchased and sold, with
the cost or net proceeds of such purchases or sales, and showing all cash,
securities, and other property held and loans payable at the end of such
calendar quarter or other period.
(b) It shall be the duty of the Company to review such written
account promptly within 90 days from the date of filing any such account
and if, within such 90-day period, the Company does not file with the
Trustee a written notice of objection to any of the Trustee's acts or
transactions, the initial account shall become an account stated between
the Trustee and the Company. If the Company files a written notice of
objection with the Trustee, the Trustee may file with the Company an
adjusted account, in which case it shall be the duty of the Company to
review such adjusted account promptly within 30 days from the date of its
filing. If, within such 30-day period, the Company fails to file a written
notice of objection to any of the Trustee's acts or transactions as so
adjusted with the Trustee, the adjusted account shall become an account
stated between the Trustee and the Company.
(c) Unless an account is fraudulent, when it becomes an account
stated it shall be finally settled, and the Trustee shall, to the maximum
extent permitted by applicable law, be forever released and discharged from
all liability and accountability with respect to the propriety of its acts
and transactions shown in such account.
10.3 AUDIT. The Trustee shall from time to time permit an independent
public accountant selected by the Company to have access during ordinary
business hours to such records as may be necessary to audit the Trustee's
accounts.
10.4 JUDICIAL SETTLEMENT. Nothing contained in this Trust Agreement shall
be construed as depriving the Trustee or the Company of the right to have a
judicial settlement of the Trustee's accounts. Upon any proceeding for a
judicial settlement of the Trustee's accounts or for instructions the only
necessary party thereto in addition to the Trustee shall be the Company.
10.5 DELIVERY OF RECORDS TO SUCCESSOR. In the event of the removal or
resignation of the Trustee, the Trustee shall deliver to the successor Trustee
all records which shall be required by the successor Trustee to enable it to
carry out the provisions of this Trust Agreement.
10.6 TAX FILINGS. In addition to any returns required of the Trustee by law
(E.G., any information return required to be filed on IRS Form 1041), the
Trustee
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shall prepare and file such tax reports and other returns as the Company
and the Trustee may from time to time agree.
SECTION 11 REMOVAL OR RESIGNATION OF THE TRUSTEE AND DESIGNATION OF
SUCCESSOR TRUSTEE.
11.1 REMOVAL. At any time the Company may remove the Trustee with or
without cause upon at least 60 days' notice in writing to the Trustee. No
removal of the Trustee shall be effective until the Company has appointed in
writing a successor Trustee, and such successor has accepted the appointment in
writing.
11.2 RESIGNATION. The Trustee may resign at any time upon at least 60 days'
notice in writing to the Company, except that any such resignation shall not be
effective until the Company has appointed in writing a successor Trustee, and
such successor has accepted the appointment in writing. At any time after 30
days following the sending of such notice of resignation, if the Company is
unable to appoint a successor Trustee or if a successor Trustee has not accepted
an appointment, the Trustee shall be entitled, at the expense of the Company, to
petition a United States District Court or any of the courts of the State of
Delaware or other court having jurisdiction to appoint its successor.
11.3 SUCCESSOR TRUSTEE. Subject to Subsection 2.1 hereof, each successor
Trustee, during such period as it shall act as such, shall have the powers and
duties herein conferred upon the Trustee, and the word "Trustee" wherever used
herein, except where the context otherwise requires, shall be deemed to include
any successor Trustee. Upon designation of a successor Trustee and delivery to
the resigned or removed Trustee of written acceptance by the successor Trustee
of such designation, such resigned or removed Trustee shall promptly assign,
transfer, deliver and pay over to such Trustee, in conformity with the
requirements of applicable law, the funds and properties in its control or
possession then constituting the Trust Fund and take all requisite action to
provide for the succession by such successor Trustee to any loans to the Trust.
SECTION 12 ENFORCEMENT OF TRUST AGREEMENT.
12.1 RIGHTS OF PARTIES TO ENFORCE THE TRUST AGREEMENT. The Company and the
Trustee shall have the exclusive right to enforce any provision of this Trust
Agreement. In any action or proceeding affecting the Trust, the only necessary
parties shall be the Company and the Trustee and, except as otherwise required
by applicable law, no other person shall be entitled to any notice or service of
process. Any judgment entered in such an action or proceeding shall, to the
maximum extent permitted by applicable law, be binding and conclusive on all
persons having or claiming to have any interest in the Trust or any Plan.
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12.2 LIMITATION ON RIGHTS OF PARTICIPANTS, BENEFICIARIES AND OTHER
AFFILIATES. Except as otherwise provided in Sections 7, 8, 13, and 14 hereof,
neither the Plans nor any Participant or Beneficiary shall have any rights with
respect to the Trust Fund, no Plan shall be deemed to have any beneficial
interest in the Trust Fund, no Employee shall be deemed to have any beneficial
interest in the Trust Fund arising from his participation in any particular
Plan, and no Affiliate shall have or be deemed to have any interest in the
Trust.
SECTION 13 TERMINATION.
13.1 TERMINATION UPON SPECIFIC EVENTS. The Trust shall be terminated as
soon as practicable after the Trustee has received written notice from the
Committee that one or more of the following events has occurred:
(a) the Department of Labor or a court of competent jurisdiction has
determined (or, in the Committee's sole discretion, would be likely to
determine) that the assets of the Trust are subject to Part 4 of Subtitle B
of Title I of ERISA, or
(b) the Internal Revenue Service or a court of competent jurisdiction
has determined (or, in the Committee's sole discretion, would be likely to
determine) that any portion of the Trust Fund is presently taxable to any
Participant or Beneficiary.
In the event of a termination pursuant to this Subsection 13.1, the Trustee
shall sell such shares of Company Stock, subject to a registration statement
being filed if necessary, held in the Trust as necessary to repay all principal
and interest remaining due under any loans to the Trust. The Trustee shall then
make distributions of shares of Company Stock as provided in Subsection 8.1(b)
as though all shares of Company Stock held in the Trust had been acquired by a
contribution of cash or Company Stock to the Trust. Any assets remaining in the
Trust following such distribution shall be distributed to the Administrators to
satisfy the Company's obligations under one or more other employee benefit plans
of the Company benefiting the Participants or to pay the compensation of any
broad cross-section of Participants, as determined in good faith by the
Committee.
13.2 TERMINATION IN OTHER EVENTS. Notwithstanding anything herein to the
contrary, the Trust shall terminate on the earliest of (a) the fifth anniversary
of the Effective Date, (b) the date on which the Committee informs the Trustee
in writing that the Company and its Affiliates have no obligations under any
Plans (or the date on which there are no Plans), (c) the date on which the
Committee demands repayment of the entire outstanding principal balance and
accrued interest on any loans to the Trust, or (d) the date on which the Trust
contains no assets and retains no claims to recover assets from the Company and
its Affiliates pursuant to any provision hereof, whichever shall first occur. In
the event of a termination described
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in clauses (a), (b), or (c) of this Section 13.2, the Trustee shall sell such
shares of Company Stock held in the Trust as necessary to repay all principal
and interest remaining due under any loans to the Trust and shall then
distribute all remaining assets then constituting the Trust Fund, as provided in
Section 13.1
13.3 LIMITATION ON TRUSTEE LIABILITY UPON TOTAL DISTRIBUTION; CONTINUATION
OF TRUSTEE POWERS. Upon a total distribution of the Trust assets pursuant to
Section 8 or this Section 13, the Trustee shall be relieved from all further
liability. The powers of the Trustee hereunder shall continue so long as any
assets of the Trust remain in its hands.
13.4 NONAPPLICABILITY OF ERISA. Notwithstanding anything herein to the
contrary, no amount shall be distributed to any Participant pursuant to this
Section 13 if such distribution could, in the opinion of independent counsel,
cause the Trust to be subject to ERISA (other than as an unfunded plan described
in ERISA section 201(2)). Prior to a distribution pursuant to this Section, the
Committee shall provide the Trustee with a Schedule of Participants eligible for
a distribution (taking into account this subsection 13.4).
SECTION 14 AMENDMENT.
14.1 AMENDMENTS IN GENERAL. The Company may, in its sole discretion, from
time to time amend, in whole or in part, any or all of the provisions of this
Trust Agreement, including, without limitation, by adding to, or subtracting
from, Schedule A hereto one or more employee benefit plans (within the meaning
of Section 3(3) of ERISA) or plans or arrangements that are not employee benefit
plans (within the meaning of such Section); PROVIDED, that (a) in making any
modification to Schedule A hereto, the Company shall act in good faith taking
into account the best interests of a broad cross-section of Employees, and (b)
the Company shall ensure that at all times Schedule A shall include (i) the
employee benefit plans included as items 6 and 7 under the list of Plans and
Benefits on Schedule A hereto on the Effective Date, and (ii) at least one
employee benefit plan that is not an employee benefit plan within the meaning of
Section 3(3) of ERISA. No amendment to this Trust Agreement or the Plans shall
be made that would (x) purport to alter the irrevocable character of the Trust,
(y) without the Trustee's prior written consent, adversely affect the Trustee's
rights, increase the Trustee's duties or responsibilities or decrease the
Trustee's compensation hereunder, or (z) without the approval of a majority of
the Eligible Participants, alter Sections 2, 4, 6, 7, 8, 9.4, 12, 13, or this
Section 14 so as to adversely affect the interests of the Participants. For
purposes of determining approval by Eligible Participants, each Eligible
Participant shall have one vote for each share of Company Stock allocated to
such Eligible Participant's account in the 401(k) Plan and one vote for each
share subject to outstanding options to purchase Company Stock granted under the
Stock Option Plans to such Eligible Participants. A vote in favor of an
amendment by
21
<PAGE> 23
Eligible Participants holding a majority of the total voting power, as described
in the foregoing sentence, shall constitute approval of such amendment.
14.2 SPECIFIC AMENDMENTS. Notwithstanding Subsection 14.1, the Company may
amend this Trust Agreement from time to time in such manner as may be necessary,
in the opinion of independent counsel, to prevent this Trust Agreement or the
Trust from becoming subject to ERISA and to prevent the current taxation of the
Trust Fund to Participants.
SECTION 15 NONALIENATION.
Except as otherwise provided by this Trust Agreement and except as
otherwise may be required by applicable law, (a) no amount payable to or in
respect of any Plan, Participant or Employee at any time under the Trust shall
be subject in any manner to alienation by any Participant or Employee by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge, or encumbrance of any kind, and any attempt to so alienate, sell,
transfer, assign, pledge, attach, charge, or otherwise encumber any such amount,
whether presently or thereafter payable, shall be void, and (b) the Trust Fund
shall in no manner be liable for or subject to the debts or liabilities of any
Participant or Employee.
SECTION 16 COMMUNICATIONS.
16.1 TO THE COMPANY, BOARD OF DIRECTORS AND COMMITTEE. Communications
to the Company, the Board of Directors and the Committee shall be addressed to:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Chief Financial Officer
with a copy to:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: General Counsel
PROVIDED, HOWEVER, that upon the Company's written request, such communications
shall be sent to such other address as the Company may specify.
16.2 TO THE TRUSTEE. Communications to the Trustee shall be addressed to:
Wachovia Bank, N.A.
100 Main Street
22
<PAGE> 24
Winston Salem, North Carolina 27150
Attention: Manager, Executive Services Administration
23
<PAGE> 25
with a copy to:
Wachovia Bank, N.A.
100 Main Street
Winston Salem, North Carolina 27150
Attention: Peter Quinn
PROVIDED, HOWEVER, that upon the Trustee's written request, such communications
shall be sent to such other address as the Trustee may specify.
16.3 TO A PARTICIPANT. Communications to a Participant or to his
Beneficiaries shall be addressed to the Participant or his Beneficiaries,
respectively, at the address indicated on the Participant Schedule as in effect
at the time of the communication.
16.4 BINDING UPON RECEIPT. No communication shall be binding on the
Trustee until it is received by the Trustee, and no communication shall be
binding on the Company, the Board of Directors, or the Committee until it is
received by the Company, the Board of Directors, or the Committee, respectively.
A communication shall be deemed binding on a Participant or the Participant's
Beneficiaries 60 days following the date notice is given or sent pursuant to
Subsection 16.3.
16.5 AUTHORITY TO ACT. The Secretary or Assistant Secretary of the Company
shall from time to time certify to the Trustee the person or persons authorized
to act for the Company, the Committee, and the Board of Directors and shall
provide the Trustee with such information regarding the Company as the Trustee
may reasonably request. The Trustee may continue to rely on any such
certification until notified to the contrary.
16.6 AUTHENTICITY OF INSTRUMENTS. The Trustee shall be fully protected in
acting upon any instrument, certificate, or paper reasonably believed by it to
be genuine and to be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statement contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements therein
contained.
SECTION 17 CLAIMS OF COMPANY'S BANKRUPTCY CREDITORS.
17.1 BANKRUPTCY CREDITORS. In the event of the Company's "insolvency," the
assets of the Trust shall be available to pay the claims of any creditor of the
Company to whom a distribution may be made in accordance with state and federal
bankruptcy laws. The Company shall be deemed to be "insolvent" if it is either
(a) unable to pay its debts and liabilities as they become due or (b) subject to
a pending proceeding as a debtor under the federal Bankruptcy Code (or any
successor federal statute) or any state bankruptcy code. In the event the
Company
24
<PAGE> 26
becomes insolvent, the Board of Directors and the Chief Executive Officer of the
Company shall notify the Trustee of the event as soon as practicable. Upon
receipt of such notice, or if the Trustee receives other written allegations of
the Company's insolvency from a third party considered by the Trustee to be
reliable and responsible, the Trustee shall cease making any distributions from
the assets of the Trust, shall hold the assets in the Trust for the benefit of
the Company's creditors and shall take such steps as are necessary to determine
within a reasonable period of time whether the Company is insolvent. In making
such determination, the Trustee may rely upon a certificate of the Board of
Directors and the Chief Executive Officer of the Company or a determination by a
court of competent jurisdiction that the Company is or is not insolvent. In the
case of the Trustee's determination of the Company's insolvency, the Trustee
will deliver assets of the Trust to satisfy claims of the Company's creditors as
directed pursuant to a final order of a court of competent jurisdiction.
17.2 RESUMPTION OF BENEFITS; RESTORATION OF ACCOUNTS. In the event the
Trustee ceases making distributions by reason of Subsection 17.1, the Trustee
shall resume making distributions pursuant to Sections 4, 8, or 13 of this
Agreement only after the Trustee has determined that the Company is no longer
insolvent or upon receipt of an order of a court of competent jurisdiction
requiring such distributions. In making any determination under this Section,
the Trustee may rely upon a certificate of the Board of Directors and the Chief
Executive Officer of the Company.
SECTION 18 CONSOLIDATION, MERGER OR SALE OF THE COMPANY.
In the event of consolidation of the Company with, or merger of the Company
with or into, any corporation or corporations or other entity or entities, or
any sale or conveyance of all or substantially all of the assets of the Company,
proper provisions shall be made in connection with such transaction such that
the Trustee shall deal with the corporation formed by such consolidation, or
with or into which the Company is merged, or the person that acquires the assets
of the Company on the same basis as it dealt with the Company prior to such
transactions and, in such event, the term "Company" within this Agreement shall
mean such corporation or person.
SECTION 19 MISCELLANEOUS PROVISIONS.
19.1 BINDING EFFECT. This Trust Agreement shall be binding on the
Company and the Trustee and their respective successors and assigns.
19.2 INQUIRY AS TO AUTHORITY. A third party dealing with the Trustee shall
not be required to make inquiry as to the authority of the Trustee to take any
action nor be under any obligation to follow the proper application by the
Trustee of the
25
<PAGE> 27
proceeds of sale of any property sold by the Trustee or to inquire into the
validity or propriety of any act of the Trustee.
19.3 RESPONSIBILITY FOR COMPANY ACTION. The Trustee assumes no obligation
or responsibility with respect to any action required by this Trust Agreement on
the part of the Company, the Board of Directors, the Committee, any Affiliate,
the Participants or any Beneficiaries. The Trustee shall be under no duties
except such duties as are specifically set forth as such in this Trust Agreement
or under applicable law, and no implied covenant or obligation shall be read
into this Trust Agreement against the Trustee.
19.4 SUCCESSOR TO TRUSTEE. Subject to Subsection 2.1, any corporation into
which the Trustee may be merged or with which it may be consolidated, or any
corporation resulting from any merger, reorganization or consolidation to which
the Trustee may be a party, or any corporation to which all or substantially all
the trust business of the Trustee may be transferred shall be the successor of
the Trustee hereunder without the execution or filing of any instrument or the
performance of any act.
19.5 INTERCOMPANY AGREEMENTS. The Company may require any Affiliate to
enter into such other agreement or agreements as it shall deem necessary to
obligate such Affiliate to reimburse the Company for any other amounts paid by
the Company hereunder, directly or indirectly, in respect of such Affiliate's
employees.
19.6 TITLES NOT TO CONTROL. Titles to the Sections of this Trust Agreement
are included for convenience only and shall not control the meaning or
interpretation of any provision of this Trust Agreement.
19.7 LAWS OF THE STATE OF DELAWARE TO GOVERN. This Trust Agreement and the
Trust established hereunder shall be governed by and construed, enforced, and
administered in accordance with the laws of the State of Delaware, without
reference to the principles of conflicts of law thereof.
19.8 FRACTIONAL SHARES. Notwithstanding anything herein to the contrary,
the Trustee may distribute any fractional share otherwise required to be
distributed to Administrators or Participants pursuant to Sections 8 or 13, in
cash in an amount equal to the Daily Value, multiplied by such fraction.
19.9 COUNTERPARTS. For the purpose of facilitating the execution of this
Trust Agreement and for other purposes, this Trust Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute but
one and the same instrument.
26
<PAGE> 28
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto as of the day and year first above written.
KAUFMAN AND BROAD HOME CORPORATION
By: /S/ MICHAEL F. HENN
-----------------------------------------
Michael F. Henn, its Senior Vice President
and Chief Financial Officer
Attest: /S/ KIMBERLY N. KING
-----------------------------------------
Kimberly N. King, its Corporate Secretary
and Corporate Counsel
WACHOVIA BANK, N.A., as Trustee
By: /S/ JOE O. LONG
---------------------------------------
Joe O. Long, its Senior Vice President/
Group Executive
Attest: /S/ JOHN N. SMITH III
------------------------------------------
John N. Smith III, its Assistant Secretary
26
<PAGE> 29
STATE OF CALIFORNIA )
)ss
COUNTY OF LOS ANGELES )
On August 30, 1999, before me, Michelle Tillen, personally appeared Michael
F. Henn, personally known to me to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal
- -----------------------------
Michelle Tillen
Commission #1090909
Notary Public - California /s/ MICHELLE TILLEN
Los Angeles County ----------------------------
My Comm. Expires Mar 17, 2000 Notary Public
- -----------------------------
STATE OF __________________________________
COUNTY OF __________________________________
On the ______ day of August, 1999, before me personally came to
me ____________________, who, being by me duly sworn, did depose and say that he
resides at ; that he is the ____________________ of Wachovia Bank, N.A., one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the board of
directors of said corporation; and that he signed his name thereto by like
order.
----------------------------
Notary Public
27
<PAGE> 30
STATE OF CALIFORNIA )
)ss
COUNTY OF LOS ANGELES )
On August __, 1999, before me, _________________, personally appeared
_______________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal
Notary Public
STATE OF NORTH CAROLINA
COUNTY OF STOKES
On the 30 day of August, 1999, before me personally came to me John N.
Smith, III, who, being by me duly sworn, did depose and say that he resides at
Winston-Salem, NC; that he is the Assistant Secretary of Wachovia Bank, N.A.,
one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
board of directors of said corporation; and that he signed his name thereto by
like order.
/s/ BONNIE D. HARTSOE
----------------------------
Notary Public
OFFICIAL SEAL
BONNIE D. HARTSOE
[SEAL] Notary Public-North Carolina
COUNTY OF STOKES
My Commission Expires
December 20, 2000
<PAGE> 31
Schedule A
LIST OF PLANS AND BENEFITS
1. Kaufman and Broad Home Corporation 1999 Incentive Plan
2. Kaufman and Broad Home Corporation 1988 Employee Stock Plan
3. Kaufman and Broad Home Corporation Performance Based Incentive Plan for
Senior Management
4. Kaufman and Broad Home Corporation 1998 Stock Incentive Plan
5. Kaufman and Broad Home Corporation 1986 Stock Option Plan
6. Company Stock Investment Fund under Kaufman and Broad Home
Corporation Amended and Restated 401(k) Plan
7. Company Matching Contribution under Kaufman and Broad Home
Corporation Amended and Restated 401(k) Plan
LIST OF PLAN ADMINISTRATORS
The Company is the Administrator of all plans.
29
<PAGE> 32
Schedule B
TRUSTEE'S COMPENSATION SCHEDULE
The following fees shall be paid to Wachovia in consideration of its services as
Trustee of the Trust:
1. ACCEPTANCE AND IMPLEMENTATION FEE...................................$10,000
Wachovia agrees to implement the Trust for a fee of Ten Thousand Dollars
($10,000). Initial services will include reviewing drafts of the Trust and
all other pertinent documents, the establishment of a trust account and the
establishment of administrative procedures among Kaufman and Broad,
Wachovia and the agent receiving shares from the trust. The Acceptance and
Implementation Fee will be due 30 days after the Trust document is signed.
2. ONGOING ANNUAL ADMINISTRATION FEE...................................$30,000
Wachovia agrees to provide trustee services for an annual fee of Thirty
Thousand Dollars ($30,000). This fee will include all transfers of stock
from the Trust (reporting gross transfers, not participant transactions),
holding Kaufman and Broad common stock in an amount not to exceed 3 million
shares, voting of the shares as tabulated by the Company or transfer agent
and issuing trust reports on a quarterly basis. The Annual Administration
Fee will be billed quarterly, in arrears.
Wachovia will guarantee this pricing for a period of two years. Any future
increases will be limited to 5% per annum.
30
<PAGE> 33
Schedule C
FORM OF PROMISSORY NOTE
$75,000,000 August 27, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned, WACHOVIA BANK, N.A., not in its
individual or corporate capacity, but solely in its capacity as Trustee of the
Kaufman and Broad Home Corporation Grantor Stock Trust (the "Trust"), hereby
promises on behalf of the Trust to pay to the order of Kaufman and Broad Home
Corporation, a Delaware corporation (the "Company"), at the principal offices of
the Company in Los Angeles, California, or at such other place as the Company
shall designate in writing, the aggregate principal amount of Seventy-Five
Million Dollars ($75,000,000), as shown on Schedule A attached hereto as such
may be amended from time to time, with interest in arrears thereon, as
hereinafter provided.
Principal shall be paid in installments in the amounts and on the dates set
forth on the Maturity Schedule attached hereto as Schedule A, with the last such
installment due on August 29, 2004; PROVIDED, HOWEVER, that this Note may be
prepaid in whole or in part at any time without penalty; and provided further
that the principal amount of this Note and any accrued but unpaid interest (i)
shall be accelerated in the event that the Trust shall have been terminated in
accordance with Section 13.2 of the Trust, and the Trustee shall have complied
with the requirements of such Section 13.2, or (ii) shall be deemed forgiven, if
applicable, in accordance with Section 8.1(a) of the Trust. Interest on the
unpaid principal balance, at an annual interest rate (the "Interest Rate") equal
to the Midterm AFR Rate in effect on the date that any principal is advanced
under this Note, as shown on Schedule A, shall be paid quarterly, in arrears, on
each January 1, April 1, July 1, and October 1, commencing October 1, 1999, and
shall be calculated on the basis of a 360-day year of 30-day months. Whenever
any payment fall due on a Saturday, Sunday, or public holiday, such payment
shall be made on the next succeeding business day.
This Note shall be construed under the laws of the State of Delaware.
The undersigned represents and warrants that the indebtedness
represented by this Note was incurred for the purpose of purchasing shares of
Common Stock, $1.00 par value, of the Company.
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<PAGE> 34
This Note may not be assigned by the Company, other than by operation of
law, without the prior express written consent of the undersigned.
The Company shall have no recourse whatsoever to any assets of the Trustee
in its individual or corporate capacity for repayment. The Trustee is
entering into this Agreement not it its individual or corporate capacity but
solely as Trustee, and no personal or corporate liability or personal or
corporate responsibilities are assumed by, or shall at any time be asserted
or enforceable against, the Trustee in its individual or corporate
capacity under, or with respect to, this Agreement.
WACHOVIA BANK, N.A., on behalf
of the Kaufman and Broad Home
Corporation Stock Benefit Trust
By: _____________________________
_______________, its __________
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<PAGE> 35
SCHEDULE A:
<TABLE>
<CAPTION>
DATE THAT AMOUNT OF REPAYMENT
PRINCIPAL IS PRINCIPAL INTEREST SCHEDULE FOR
ADVANCED ADVANCED RATE PRINCIPAL ADVANCED
- --------- --------- ---- ------------------
<S> <C> <C> <C>
August 27, 1999 $6,300,000 5.97% $630,000 on August 26, 2000
$630,000 on August 26, 2001
$630,000 on August 26, 2002
$630,000 on August 26, 2003
Balance Outstanding on August 26, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
</TABLE>
1
<PAGE> 36
SCHEDULE A:
<TABLE>
<CAPTION>
DATE THAT AMOUNT OF REPAYMENT
PRINCIPAL IS PRINCIPAL INTEREST SCHEDULE FOR
ADVANCED ADVANCED RATE PRINCIPAL ADVANCED
- --------- --------- ---- ------------------
<S> <C> <C> <C>
August 27, 1999 $6,300,000 5.97% $630,000 on August 26, 2000
$630,000 on August 26, 2001
$630,000 on August 26, 2002
$630,000 on August 26, 2003
Balance Outstanding on August 26, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
$________________ $_________ ____% [10% of Principal] on [First Anniversary of Date Principal Advanced]
[10% of Principal] on [Second Anniversary of Date Principal Advanced]
[10% of Principal] on [Third Anniversary of Date Principal Advanced]
[10% of Principal] on [Fourth Anniversary of Date Principal Advanced]
Balance Outstanding on August 29, 2004
</TABLE>
1
<PAGE> 37
Schedule C
FORM OF PROMISSORY NOTE
-----------------------
$75,000,000 August 31, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned, WACHOVIA BANK, N.A., not in its
individual or corporate capacity, but solely in its capacity as Trustee of the
Kaufman and Broad Home Corporation Grantor Stock Trust (the "Trust"), hereby
promises on behalf of the Trust to pay to the order of Kaufman and Broad Home
Corporation, a Delaware corporation (the "Company"), at the principal offices
of the Company in Los Angeles, California, or at such other place as the
Company shall designate in writing, the aggregate principal amount of
Seventy-Five Million Dollars ($75,000,000), as shown on Schedule A attached
hereto as such may be amended from time to time, with interest in arrears
thereon, as hereinafter provided.
Principal shall be paid in installments in the amounts and on the dates
set forth on the Maturity Schedule attached hereto as Schedule A, with the last
such installment due on August 27, 2004; PROVIDED, HOWEVER, that this Note may
be prepaid in whole or in part at any time without penalty; and provided
further that the principal amount of this Note and any accrued but unpaid
interest (i) shall be accelerated in the event that the Trust shall have been
terminated in accordance with Section 13.2 of the Trust, and the Trustee shall
have complied with the requirements of such Section 13.2, or (ii) shall be
deemed forgiven, if applicable, in accordance with Section 8.1(a) of the Trust.
Interest on the unpaid principal balance, at an annual interest rate (the
"Interest Rate") equal to the Midterm AFR Rate in effect on the date that any
principal is advanced under this Note, as shown on Schedule A, shall be paid
quarterly, in arrears, on each January 1, April 1, July 1, and October 1,
commencing October 1, 1999, and shall be calculated on the basis of a 360-day
year of 30-day months. Whenever any payment falls due on a Saturday, Sunday, or
public holiday, such payment shall be made on the next succeeding business day.
This Note shall be construed under the laws of the State of Delaware.
The undersigned represents and warrants that the indebtedness represented
by this Note was incurred for the purpose of purchasing shares of Common Stock,
$1.00 par value, of the Company.
30
<PAGE> 38
This Note may not be assigned by the Company, other than by operation of
law, without the prior express written consent of the undersigned.
The Company shall have no recourse whatsoever to any assets of the Trustee
in its individual or corporate capacity for repayment. The Trustee is entering
into this Agreement not in its individual or corporate capacity but solely as
Trustee, and no personal or corporate liability or personal or corporate
responsibilities are assumed by, or shall at any time be asserted or
enforceable against, the Trustee in its individual or corporate capacity under,
or with respect to, this Agreement.
WACHOVIA BANK, N.A., on behalf of
the Kaufman and Broad Home
Corporation Stock Benefit Trust
By: /s/ JOE O. LONG
-------------------------------
Joe O. Long
Senior VP / Group Executive
31
<PAGE> 39
SCHEDULE A:
- -----------
<TABLE>
<CAPTION>
Date that Amount of Repayment
Principal is Principal Interest Schedule for
Advanced Advanced Rate Principal Advanced
- ---------- ---------- -------- ------------------
<S> <C> <C> <C>
August 31, 1999 $7,852,818.75 5.97% $785,281.88 on August 27, 2000
$785,281.88 on August 27, 2001
$785,281.88 on August 27, 2002
$785,281.88 on August 27, 2003
Balance Outstanding on August 27, 2004
</TABLE>
1
<PAGE> 1
EXHIBIT 10.23
KAUFMAN AND BROAD HOME CORPORATION
NON-EMPLOYEE DIRECTORS STOCK PLAN
(as amended and restated December 6, 1999)
1. PURPOSE OF THE PLAN. The purpose of the Kaufman and Broad Home
Corporation Non-Employee Directors Stock Plan ("Plan") is to grant Awards of
Stock Units and/or Options to non-employee Directors of Kaufman and Broad Home
Corporation (the "Company") in order to align their compensation with the equity
interests of the Company's stockholders. The Plan provides for compensation
through (i) annual grants of Stock Units to Directors and Committee Chairs, (ii)
the payment of Directors' Annual Retainer and Meeting Fees in cash or Stock
Units, and (iii) the ability under certain conditions for Directors to elect to
receive any or all of the foregoing in the form of Options. The Plan was adopted
effective as of September 26, 1996, was subsequently amended as of December 4,
1998 and, with respect to all Awards first made after December 6, 1999, was
amended and restated as of December 6, 1999.
2. DEFINITIONS.
"ANNUAL MEETING" shall mean an annual meeting of stockholders of the
Company.
"ANNUAL RETAINER" shall mean the retainer fee, established by the
Board, paid to a Director for service as a Director on the Board for a Director
Year.
"ANNUAL STOCK UNIT AWARD" shall mean the annual Award of Stock Units,
established by the Board, paid to a Director at the beginning of a Director Year
in consideration for such Director's agreement to serve as a Director on the
Board for the Director Year.
"AWARD" shall mean an award of Stock Units or Options pursuant to the
Plan.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" of the Company shall have occurred if either: (1)
individuals who, as of the effective date of this Plan, constitute the Board of
the Company (as of the date hereof, the "Incumbent Board") cease for any reason
to constitute at least a majority of the Directors constituting the Board,
provided that any person becoming a Director subsequent to the effective date of
this Plan whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three-quarters (3/4) of the
then Directors who are members of
1
<PAGE> 2
the Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is (A) in connection with the acquisition by a
third person, including a "group" as such term is used in Section 13(d)(3) of
the Exchange Act, of beneficial ownership, directly or indirectly, of 20% or
more of the combined voting securities ordinarily having the right to vote for
the election of Directors of the Company (unless such acquisition of beneficial
ownership was approved by a majority of the Board who are members of the
Incumbent Board), or (B) in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board, or (2) the Board (a majority of which shall
consist of Directors who are members of the Incumbent Board) has determined that
a Change of Ownership, for purposes of this Plan, shall have occurred. If any of
the events enumerated in clauses (1) or (2) occur, the Board shall determine the
effective date of the Change of Ownership resulting therefrom, for purposes of
the Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Nominating and Corporate Governance
Committee of the Board or such other committee as may be designated by the
Board.
"COMMITTEE CHAIR RETAINER" shall mean the annual Award of Stock Units,
established by the Board, to be paid to a Director for service as Chairman of a
committee of the Board of Directors for a Director Year.
"COMPANY" shall mean Kaufman and Broad Home Corporation.
"DIRECTOR" shall mean a non-employee director of the Company.
"DIRECTOR YEAR" shall mean the fiscal year commencing on the date of
the Company's Annual Meeting and ending on the date immediately preceding the
next Annual Meeting.
"DIVIDEND EQUIVALENT PAYMENTS" shall mean the payment described in
Section 7 hereof, to a holder of Stock Units with respect to certain dividend
paid on outstanding shares of Stock.
"EFFECTIVE DATE" shall mean September 26, 1996.
"FAIR MARKET VALUE" of the Stock on a particular date shall equal the
average of the reported closing prices for the Stock on the New York Stock
Exchange for the ten (10) consecutive trading days immediately preceding such
date.
2
<PAGE> 3
"FEES" shall mean the amount, for any Director Year, of the Annual
Retainer and/or the Meeting Fees, if any.
"MEETING FEES" shall mean the fees, established by the Board, paid to a
Director for attending a meeting of the Board or a committee of the Board and
any Per Diem Fees. This term shall include all fees paid to a Director for
extraordinary or special Board and/or committee meetings.
"OPTION" shall mean a right to purchase a number of shares of Stock at
such exercise price, at such times, and on such other terms and conditions as
are specified herein or pursuant to such other documentation as may evidence the
Award. Options granted under this Plan are not intended to satisfy the
requirements for treatment as Incentive Stock Options as defined under Section
422 of the Internal Revenue Code of 1986, as amended.
"PER DIEM FEES" shall mean a fee, established by the Board, authorized
by the Chief Executive Officer of the Company, in his or her sole discretion, to
a Director who is asked to work on Board issues for a significant part of the
day outside of normal Board or committee meetings.
"PRIOR PLANS" shall mean the Kaufman and Broad Home Corporation
Directors Restricted Stock Plan and the Kaufman and Broad Home Corporation 1993
Director Stock Plan.
"RESTRICTED STOCK" shall mean Restricted Stock (as defined in the
Kaufman and Broad Home Corporation Directors Restricted Stock Plan) of the
Company.
"RATIO" shall mean such ratio of the grant-date value of an Option to
the Fair Market Value of the Stock underlying the Option as may be determined by
the Committee from time to time for the purposes to calculating the number of
Options to be granted to a Director, provided that any adjustment in such ratio
shall be subject to the approval of the Board.
"RULE 16B-3" shall mean Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
"STOCK" shall mean shares of Common Stock, par value $1.00 per share,
of the Company.
"STOCK UNIT" shall mean a right to (i) receive a share of Stock or (ii)
receive a cash payment, in accordance with the conditions set forth herein, of
the Fair Market Value of a share of Stock.
3
<PAGE> 4
"TERMINATION DATE" shall mean the date a Director's service on the
Board terminates for any reason.
3. SOURCE OF SHARES DELIVERED UNDER AWARDS. Any Stock delivered
pursuant to an Award shall consist of shares of stock acquired by the Company
on the open market.
4. ANNUAL FEES AND AWARDS.
(a) The Committee shall from time to time establish the dollar
amount of the Annual Retainer and Meeting Fees for a Director Year, the number
of shares of Stock subject to the Annual Stock Unit Award and Committee Chair
Retainer for a Director Year , and the applicable Ratio for Options granted
during a Director Year, provided that any adjustment in such amounts or numbers
shall be subject to the approval of the Board.
(b) On the date of each Annual Meeting, commencing with
the 2000 Annual Meeting, each person who has served as a Director for at least
90 days preceding such Annual Meeting shall receive an Annual Stock Unit Award
of 2,000 Stock Units, which amount shall be subject to adjustment in future
Director Years as contemplated in Section 4(a) hereof. If an individual is first
elected as Director during a Director Year, at the earliest of 90 days following
such election, he or she shall receive a prorated Annual Stock Unit Award for
the remaining balance of the Director Year.
(c) On the date of each Annual Meeting, commencing with the
2000 Annual Meeting, each Director who has served as the Chairman of a Committee
for at least 90 days preceding such Annual Meeting shall receive an Committee
Chair Retainer of 500 Stock Units, which amount shall be subject to adjustment
in future Director Years as contemplated in Section 4(a) hereof. If a Director
is elected as the Chairman of a Committee during a Director Year, at the
earliest of 90 days following such election, he or she shall receive a prorated
Committee Chair Retainer for the remaining balance of the Director Year.
5. FEES. Each Director shall be entitled to receive Fees with respect
to each Director Year in accordance with the provisions of this Section 6. Each
Director shall be given an opportunity by the Company on an annual basis to
elect ("Annual Election") to defer or to receive his or her Annual Retainer
and/or Meeting Fees: (i) in cash, (ii) in Stock Units, (iii) in a combination of
cash and Stock Units or (iv) in certain circumstances, as provided in Section 6
hereof, in Options or in a combination of cash and Options.
(a) The Annual Election must be in writing and shall be
delivered to the Secretary of the Company no later than the tenth day preceding
4
<PAGE> 5
the date of the Annual Meeting. (The Annual Election shall be irrevocable after
the tenth day preceding the date of the Annual Meeting.) The Annual Election
shall specify the Annual Retainer and/or meeting Fees that such Director elects
to receive in cash, or Stock Units, or Options, or to defer.
(b) If a Director elects to receive Fees in cash, cash payment
for the Annual Retainer shall be paid as soon as practicable after the beginning
of a Director Year and cash payment for Meeting Fees shall be paid as soon as
practicable after each meeting. If a Director elects to receive Stock Units in
lieu of the Annual Retainer, the Director shall receive Stock Units (including
fractional Stock Units) with respect to Stock having a Fair Market Value (on the
date of the Company's Annual Meeting) equal to 110% of the Annual Retainer. If a
Director elects to receive Stock Units in lieu of the Meeting Fees, the Director
shall receive Stock Units (including fractional Stock Units) at the Annual
Meeting at the end of the Director Year for which the election was made having a
Fair Market Value (determined as of such following Annual Meeting) equal to 110%
of the Meeting Fees earned during such Director Year.
(c) If a Director elects to defer all or a portion of the
Fees, such deferred Fees shall be credited to the deferred account established
for each Director in accord with the Kaufman and Broad Home Corporation
Directors Deferred Compensation Plan.
(d) Any person who becomes a Director following an Annual
Meeting, whether by appointment or election as a Director (or by change in
status from a full-time employee), shall receive an Annual Retainer prorated for
the balance of that Director Year. In the event a Director voluntarily resigns
from the Board during a Director Year, (i) the Director shall return to the
Company any cash payment covering the prorated portion of the Annual Retainer
for the balance of that Director Year, (ii) the Director shall forfeit a
percentage of any Stock Units or Options awarded (or if an option has been
exercised, the Director shall return to the Company a cash amount equal to the
taxable amount realized by the Director on the date of the Option exercise)
prorated for the balance of the portion of the Director Year (if any) as to
which such Stock Units or Options were awarded, and (iii) any Fees credited to
the Deferred Account, in respect of the prorated portion of the Annual Retainer
for the balance of that Director Year shall be forfeited. No return of any
portion of the Annual Retainer shall be required in the event a Director leaves
the Board as the result of retirement, incapacity or death.
6. OPTION AWARDS IN LIEU OF FEES OR STOCK UNITS.
(a) On the date of each Annual Meeting, commencing with the
2000 Annual Meeting, each person who has served as a Director for at
5
<PAGE> 6
least 90 days preceding such Annual Meeting and who as of such Annual Meeting
beneficially owns at least 10,000 Stock Units or shares of Stock, shall be
entitled to elect to receive an Award of Options in lieu of the Annual Retainer,
Committee Chair Retainer, Meeting Fees and/or Annual Stock Unit Award that such
Director otherwise would be entitled to receive. If a Director elects to receive
Options in lieu of the Annual Retainer, the Annual Stock Unit Award, or the
Committee Chair Retainer, the Director shall receive Options on the date of the
Company's Annual Meeting. If a Director elects to receive Options in lieu of the
Meeting Fees, the Director shall receive Options at the Annual Meeting at the
end of the Director Year for which the election was made.
(b) The number of shares of Stock subject to an Option granted
in lieu of the Annual Retainer or Meeting Fees shall equal the number of shares,
rounded up to the nearest whole number, obtained by dividing (i) 110% of the
dollar amount of such retainer or fee, by (ii) the product of the Ratio and the
Fair Market Value of a share of Stock on the date of the Award. The number of
shares of Stock subject to an Option granted in lieu of the Annual Stock Unit
Award and/or the Committee Chair Retainer shall equal the number of shares,
rounded up to the nearest whole number, obtained by dividing (i) the Fair Market
Value of the number of shares of Stock subject to the Annual Stock Unit Award
and/or the Committee Chair Retainer, by (ii) the product of the Ratio and the
Fair Market Value of a share of Stock on the date of the Award.
(c) The price at which each share of Stock may be purchased
upon exercise of a particular Option shall be the Fair Market Value of the Stock
on the date of the Annual Meeting at which the Option is granted. The exercise
price of any Option previously awarded under the Plan may not be adjusted
downward, whether through amendment, cancellation or replacement grants, or by
any other means.
(d) Each Option shall be exercisable as of the date of grant
and shall have a maximum term of 15 years from the date of grant. Except as
provided in Section 6 (d) herein, Options shall remain outstanding and fully
exercisable for one (1) year for the Date of Termination, except in the event of
removal for cause, in which case Options shall remain outstanding and fully
exercisable for 30 days.
(e) No Stock shall be delivered pursuant to any exercise of an
Option until the Director has made payment in full of the option price therefor
or provision for such payment satisfactory to the Committee. The exercise price
of an Option may be paid in cash or certified or cashiers' check or by delivery
(either actually or by attestation) of shares of Stock that have been acquired
or held by the Director in such manner as to not result in an accounting charge.
6
<PAGE> 7
(f) Unless the documents evidencing the grant of an Option (or
an amendment thereto authorized by the Committee) expressly states that the
Option is transferable, no Option granted under the Plan may be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner,
other than by will or the laws of descent and distribution.
7. CONVERSION OF PRIOR AWARDS. As of the Effective Date, all Shares of
Restricted Stock outstanding under the Kaufman and Broad Home Corporation
Directors Restricted Stock Plan which are held by Directors shall be canceled.
Each Director who, immediately prior to the Effective Date, holds Restricted
Stock which shall be canceled in accordance with the immediately preceding
sentence, shall receive, in consideration for such cancellation, an Award of
Stock Units equal to the sum of number of such Director's shares of canceled
Restricted Stock.
8. DIVIDEND EQUIVALENT PAYMENTS. Effective as of each dividend payment
date for outstanding shares of Stock, a current cash payment shall be made on
each outstanding Stock Unit to the holder thereof in an amount equal to dividend
paid on an outstanding share of Stock.
9. TIME OF PAYMENT. Unless otherwise provided herein, all payments
in respect of a Director's Stock Units and in settlement of a Director's
Deferred Account shall be made as soon as practicable after the earlier of: (i)
the occurrence of a Change in Control and (ii) the Termination Date.
10. FORM OF PAYMENT. Payment in respect of Stock Units and/or Options
shall be made in Stock or in cash, in accord with the previous annual elections
made by the Director. The Company shall not issue fractions of a share. Whenever
under the terms of the Plan a fractional share would otherwise be required to be
issued, the Director shall be paid in cash for such fractional share.
11. STATEMENT OF ACCOUNT. Each Director shall receive an annual
statement showing the number of Stock Units that have been awarded to the
Director under the plan.
12. CHANGE IN CAPITAL STRUCTURE. In the event of any change in the
Stock by reason of any stock dividend, split, combination of shares, exchange of
shares warrants or rights offering to purchase Stock at a price below its fair
market value, reclassification, recapitalization, merger, consolidation or other
change in capitalization, appropriate adjustment shall be made by the Committee
in the number and kind of shares subject to the Plan and any other relevant
provisions of the Plan, whose determination shall be binding and conclusive on
all persons.
7
<PAGE> 8
13. NONTRANSFERABILITY. Stock Units shall not be transferable and may
not be alienated by a Director except by will or the laws of descent and
distribution.
14. RIGHTS. Except to the extent otherwise set forth herein, Directors
shall not have any of the rights of a stockholder with respect to the Stock
Units.
15. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall have full power, discretion and authority to
interpret and administer the Plan, except that the Committee shall have no power
to (a) determine the eligibility for Awards or the number of Stock Units or
timing or value of Awards to be granted to any Director, or (b) take any action
specifically delegated to the Board under the plan. With respect to any
determination contemplated in subsection (a) of the preceding sentence, the
Committee shall make recommendations to the Board, but any final determination
with respect to such recommendation shall be subject to the approval of the full
Board.
16. AMENDMENT OR TERMINATION OF THE PLAN. The Board may, at any time,
amend or terminate the plan; but no amendment or termination shall, without the
written consent of a Director, reduce the Director's rights under previously
granted Awards or with respect to any Fees previously earned. No amendment which
requires stockholder approval in order for the Plan to continue to comply with
Rule 16b-3 shall be effective unless the same shall be approved by the requisite
vote of the stockholders of the Company. This Plan was amended and restated as
of December 6, 1999, provided that such amendment shall not affect or impair the
rights or benefits accrued by any Director under this Plan with respect to
Awards earned or granted prior to December 6, 1999, which Awards shall be
governed by the terms of the Plan as it existed prior to being amended and
restated.
17. NO RIGHT TO RENOMINATION. Nothing in the plan or in any Award shall
confer upon any Director the right to be nominated for reelection to the Board.
18. PAYMENTS UPON DEATH. In the event of a Director's death, payments
with respect to any Stock Units shall be made in a single lump sum payment to
the beneficiary designated by the Director, and the right to exercise any
Options shall be accorded to such beneficiary, or in the absence of an executed
beneficiary form, to the person legally entitled thereto, as designated under
his or her will, or to such heirs as determined under the laws of intestacy for
the state of his or her domicile.
19. GOVERNING LAW. The plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
California.
8
<PAGE> 1
EXHIBIT 13
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
PAGES 42 THROUGH 79 AND PAGE 83 OF THE COMPANY'S
1999 ANNUAL REPORT TO STOCKHOLDERS
This exhibit is incorporated in this Annual Report on Form 10-K between
page F-1 and the List of Exhibits Filed.
<PAGE> 1
EXHIBIT 22
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
The following subsidiaries of the Company were included in the November 30,
1999 consolidated financial statements:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
OF THE COMPANY
NAME OF COMPANY -----------------------
<S> <C>
Arizona
Kaufman and Broad Home Sales of Arizona, Inc. ....... 100
Kaufman and Broad Home Sales of Tucson, Inc. ........ 100
Kaufman and Broad of Arizona, Inc. .................. 100
Kaufman and Broad of Tucson, Inc. ................... 100
California
Affordable Multi-Family, Inc. ....................... 100
Branching Tree Corp. ................................ 100
Cable Associates, Inc. .............................. 100
Custom Decor, Inc. .................................. 100
First Northern Builders Servicing, Inc. ............. 100
Fullerton Affordable Housing, Inc. .................. 100
Gateway Town Center Investors, Inc. ................. 100
KBASW Mortgage Acceptance Corporation................ 100
KBI/Mortgage Acceptance Corporation.................. 100
KBMH Capital, Inc.................................... 100
KBMH Construction, Inc. ............................. 100
KBMH Property Management, Inc........................ 100
KBRAC IV Mortgage Acceptance Corporation............. 100
Kaufman and Broad Architecture, Inc.................. 100
Kaufman and Broad -- Central Valley, Inc. ........... 100
Kaufman and Broad Coastal, Inc. ..................... 100
Kaufman and Broad Communities, Inc. ................. 100
Kaufman and Broad Development Group.................. 100
Kaufman and Broad Embarcadero, Inc. ................. 100
Kaufman and Broad Holdings, Inc. .................... 100
Kaufman and Broad Home Sales, Inc. .................. 100
Kaufman and Broad Home Sales of Northern California,
Inc. .............................................. 100
Kaufman and Broad Insurance Agency, Inc. ............ 100
Kaufman and Broad International, Inc. ............... 100
Kaufman and Broad Land Company....................... 100
Kaufman and Broad Land Development Venture, Inc. .... 100
Kaufman and Broad -- Monterey Bay, Inc............... 100
Kaufman and Broad -- Moreno/Perris Valleys, Inc. .... 100
Kaufman and Broad Multi-Family, Inc. ................ 100
Kaufman and Broad Multi-Housing Group, Inc........... 100
Kaufman and Broad North Stockton, Inc. .............. 100
Kaufman and Broad of Northern California, Inc. ...... 100
Kaufman and Broad of Sacramento, Inc. ............... 100
Kaufman and Broad of San Diego, Inc. ................ 100
Kaufman and Broad of Southern California, Inc. ...... 100
Kaufman and Broad of Utah, Inc....................... 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
OF THE COMPANY
NAME OF COMPANY -----------------------
<S> <C>
Kaufman and Broad Patterson, Inc. ................... 100
Kaufman and Broad Properties......................... 100
Kaufman and Broad -- South Bay, Inc. ................ 100
KB Holdings One, Inc. ............................... 100
Kent Land Company.................................... 100
Kingsbay Escrow Company.............................. 100
Lewis Homes Management Corp. ........................ 100
Mather Housing Company, LLC.......................... 100
Multi-Housing G.P. VI, Inc. ......................... 100
Multi-Housing G.P. VIII, Inc. ....................... 100
Multi-Housing G.P. X, Inc. .......................... 100
Multi-Housing G.P. XII............................... 100
Multi-Housing G.P. XIV............................... 100
Multi-Housing G.P. XVIII, Inc. ...................... 100
Multi-Housing G.P. XX, Inc. ......................... 100
Multi-Housing G.P. XXII, Inc. ....................... 100
Multi-Housing G.P. XXIV, Inc. ....................... 100
Multi-Housing Investments, Inc. ..................... 100
Simi Affordable Housing, Inc. ....................... 100
Colorado
Kaufman and Broad of Colorado, Inc. ................. 100
Delaware
Eden Land Development Corp. ......................... 100
Estes Homebuilding Co. .............................. 100
General Homes Corporation............................ 100
General Homes of Arizona............................. 100
General Homes of Dallas.............................. 100
General Homes of Florida............................. 100
General Homes of Houston............................. 100
General Homes Development LLC........................ 100
GH Homebuilding Holdings, Inc. ...................... 100
HomeSafe Escrow Company.............................. 100
International Mortgage Acceptance Corporation........ 100
Kaufman and Broad Development Company................ 100
Kaufman and Broad Limited............................ 100
KBHC Financing I..................................... 3
LDC Arctic LLC....................................... 100
LHC Arctic LLC....................................... 100
LHE Arctic LLC....................................... 100
LHN Arctic LLC....................................... 100
LP Arctic LLC........................................ 100
Rate One Associates, Inc. ........................... 100
Rate One Holdings, Inc. ............................. 100
rateOne Home Loans, LLC.............................. 100
Illinois
Kaufman and Broad Mortgage Company................... 100
Kaufman and Broad of Illinois, Inc. ................. 100
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
-----------------------
<S> <C>
Massachusetts
Kaufman and Broad Homes, Inc. ....................... 100
Michigan
Keywick, Inc. ....................................... 100
Minnesota
Kaufman and Broad Custom Homes, Inc. ................ 100
Nevada
Desert Inn Development, LLC.......................... 100
Kaufman and Broad Home Sales of Nevada, Inc. ........ 100
Kaufman and Broad Home Sales of Reno, Inc. .......... 100
Kaufman and Broad of Nevada, Inc. ................... 100
Kaufman and Broad of Reno, Inc. ..................... 100
KB Spring Mountain, Inc. ............................ 100
Lewis Homes -- Carlyle Venture L.L.C. ............... 100
New Mexico
Kaufman and Broad Home Sales of New Mexico, Inc. .... 100
Kaufman and Broad of New Mexico, Inc. ............... 100
New York
Kaufman and Broad Homes of Long Island, Inc. ........ 100
Texas
Eden Corporation..................................... 100
Envirographic, Inc. ................................. 100
FGMC................................................. 100
Hallmark Residential Group, Inc...................... 100
Kaufman and Broad Insurance Agency of Texas Holdings,
Inc................................................ 100
Kaufman and Broad Lone Star, LP...................... 100
Kaufman and Broad of Texas, Ltd...................... 100
Kaufman and Development of Texas, L.P................ 100
KBSA, Inc. .......................................... 100
Rayco Land Development, Inc.......................... 100
San Antonio Title Co. ............................... 100
Satex Properties, Inc. .............................. 100
Quoin Investments, Inc. ............................. 100
Canadian
Margreen Investments, Inc. .......................... 100
3238865 Canada Inc................................... 100
French
Gie KB............................................... 100
Kaufman and Broad Developpement S.A. ................ 100
Kaufman and Broad France S.A......................... 100
Kaufman and Broad Promotion Maisons Individuelles
S.A................................................ 100
Kaufman and Broad Renovation S.A.R.L................. 100
LMP Chancy S.A.R.L. ................................. 100
Millet S.A.R.L. ..................................... 100
Park S.A. ........................................... 100
SMCI Developpement................................... 100
Mexican
Kaufman y Broad de Mexico............................ 100
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
OF THE COMPANY
NAME OF COMPANY -----------------------
<S> <C>
Kaufman y Broad Asesoria Administrativa.............. 100
Operadora Los Robles................................. 100
Desarrollos Los Robles............................... 100
</TABLE>
<PAGE> 1
EXHIBIT 24
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of
Kaufman and Broad Home Corporation
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the 1986 Stock Option Plan (No. 33-11692), the 1988
Employee Stock Plan (No. 33-28624 and No. 333-49311), the 1998 Stock Incentive
Plan, the Performance-Based Incentive Plan for Senior Management and the resale
of certain shares by officers of the Company (No. 333-49309), the 401(k) Savings
Plan (No. 333-49307), and the Registration Statements on Form S-3 (No.
333-14977, No. 333-51825 and No. 333-51825-01), as amended, of Kaufman and Broad
Home Corporation of our report dated December 23, 1999, with respect to the
consolidated financial statements of Kaufman and Broad Home Corporation included
in the Annual Report (Form 10-K) for the year ended November 30, 1999.
ERNST & YOUNG LLP
Los Angeles, California
February 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 28,367
<SECURITIES> 47,080<F1>
<RECEIVABLES> 650,625
<ALLOWANCES> 0
<INVENTORY> 1,521,265
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,664,235
<CURRENT-LIABILITIES> 0
<BONDS> 510,120<F2>
0
0
<COMMON> 48,091
<OTHER-SE> 628,492
<TOTAL-LIABILITY-AND-EQUITY> 2,664,235
<SALES> 3,772,121
<TOTAL-REVENUES> 3,836,295
<CGS> 3,051,698
<TOTAL-COSTS> 3,068,639<F3>
<OTHER-EXPENSES> 491,085<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,340
<INCOME-PRETAX> 226,869
<INCOME-TAX> 79,400
<INCOME-CONTINUING> 147,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,469
<EPS-BASIC> 3.16
<EPS-DILUTED> 3.08
<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
and a secondary marketing trading loss.
</FN>
</TABLE>
