1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended February 28, 2001.
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
KB HOME
(Exact name of registrant as specified in its charter)
Delaware 95-3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [ X ] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF FEBRUARY 28, 2001.
Common stock, par value $1.00 per share, 44,275,869 shares outstanding,
including 8,773,512 shares held by the Registrant's Grantor Stock Ownership
Trust and excluding 1,448,100 shares held in treasury.
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KB HOME
FORM 10-Q
INDEX
PAGE
NUMBER(S)
---------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Three Months ended February 28, 2001 and February 29, 2000 3
Consolidated Balance Sheets -
February 28, 2001 and November 30, 2000 4
Consolidated Statements of Cash Flows -
Three Months ended February 28, 2001 and February 29, 2000 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KB HOME
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts - Unaudited)
Three Months Ended
----------------------------
February 28, February 29,
2001 2000
----------- -----------
TOTAL REVENUES $ 821,065 $ 799,585
========= =========
CONSTRUCTION:
Revenues $ 808,195 $ 786,225
Construction and land costs (652,852) (640,631)
Selling, general and administrative expenses (105,890) (103,928)
--------- ---------
Operating income 49,453 41,666
Interest income 904 1,921
Interest expense, net of amounts (9,835) (6,064)
capitalized
Minority interests (5,922) (5,802)
Equity in pretax income of unconsolidated joint 470 454
ventures
Gain on issuance of French subsidiary stock - 39,630
--------- ---------
Construction pretax income 35,070 71,805
--------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 4,574 5,265
Other 8,296 8,095
--------- ---------
12,870 13,360
Expenses:
Interest (4,296) (4,876)
General and administrative (4,526) (2,875)
--------- ---------
Mortgage banking pretax income 4,048 5,609
--------- ---------
TOTAL PRETAX INCOME 39,118 77,414
Income taxes (13,300) (13,200)
--------- ---------
NET INCOME $ 25,818 $ 64,214
========= =========
BASIC EARNINGS PER SHARE $ .74 $ 1.51
========= =========
DILUTED EARNINGS PER SHARE $ .70 $ 1.47
========= =========
BASIC AVERAGE SHARES OUTSTANDING 34,964 42,662
========= =========
DILUTED AVERAGE SHARES OUTSTANDING 36,892 43,766
========= =========
CASH DIVIDENDS PER COMMON SHARE $ .075 $ .075
========= =========
See accompanying notes.
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KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
February 28, November 30,
2001 2000
----------- -----------
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 11,922 $ 21,385
Trade and other receivables 338,933 306,581
Inventories 1,852,879 1,657,401
Investments in unconsolidated joint ventures 9,048 10,407
Deferred income taxes 72,224 73,842
Goodwill 197,043 202,177
Other assets 98,847 89,975
----------- -----------
2,580,896 2,361,768
----------- -----------
MORTGAGE BANKING:
Cash and cash equivalents 21,156 11,696
Receivables:
First mortgages and mortgage-backed securities 41,755 43,137
First mortgages held under commitments of sale
and other receivables 308,859 403,165
Other assets 8,554 9,155
----------- -----------
380,324 467,153
----------- -----------
TOTAL ASSETS $ 2,961,220 $ 2,828,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 313,210 $ 311,537
Accrued expenses and other liabilities 203,598 201,672
Mortgages and notes payable 1,155,117 987,980
----------- -----------
1,671,925 1,501,189
----------- -----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 10,640 11,135
Notes payable 303,952 385,294
Collateralized mortgage obligations secured by
mortgage-backed securities 28,529 29,928
----------- -----------
343,121 426,357
----------- -----------
Minority interests:
Consolidated subsidiaries and joint ventures 59,079 56,866
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
debentures of the Company 189,750 189,750
----------- -----------
248,829 246,616
----------- -----------
Common stock 45,724 44,397
Paid-in capital 254,416 240,761
Retained earnings 621,552 598,374
Accumulated other comprehensive income (5,328) (9,564)
Grantor stock ownership trust, at cost (190,682) (190,872)
Treasury stock, at cost (28,337) (28,337)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 697,345 654,759
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,961,220 $ 2,828,921
=========== ===========
See accompanying notes.
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KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,818 $ 64,214
Adjustments to reconcile net income to net cash used by
operating activities:
Equity in pretax income of unconsolidated joint ventures (470) (454)
Minority interests 5,922 5,802
Gain on issuance of French subsidiary stock - (39,630)
Amortization of discounts and issuance costs 281 249
Depreciation and amortization 11,022 10,161
Provision for deferred income taxes 1,618 1,211
Change in:
Receivables 61,954 100,981
Inventories (180,921) (149,082)
Accounts payable, accrued expenses and other liabilities 3,104 (4,274)
Other, net 9,336 (9,734)
--------- ---------
Net cash used by operating activities (62,336) (20,556)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 1,829 (1,517)
Net originations of mortgages held for long-term investment (100) (477)
Payments received on first mortgages and mortgage-backed securities 1,483 2,182
Purchases of property and equipment, net (1,813) (2,460)
--------- ---------
Net cash provided (used) by investing activities 1,399 (2,272)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and other
short-term borrowings (174,888) 6,749
Proceeds from issuance of senior subordinated notes 247,500 -
Issuance of French subsidiary stock - 113,118
Payments on collateralized mortgage obligations (1,399) (1,696)
Payments on mortgages, land contracts and other loans (3,930) (4,987)
Payments to minority interests (3,709) (6,011)
Payments of cash dividends (2,640) (3,118)
Repurchases of common stock - (70,784)
--------- ---------
Net cash provided by financing activities 60,934 33,271
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH (3) 10,443
EQUIVALENTS
Cash and cash equivalents at beginning of period 33,081 28,367
--------- ---------
Cash and cash equivalents at end of period $ 33,078 $ 38,810
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid, net of amounts capitalized $ 2,217 $ 1,579
========= =========
Income taxes paid $ 2,981 $ 4,537
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 14,557 $ 11,332
========= =========
See accompanying notes.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements
for the year ended November 30, 2000 contained in the Company's 2000
Annual Report to Stockholders.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's financial
position as of February 28, 2001, the results of its consolidated
operations for the three months ended February 28, 2001 and February 29,
2000, and its consolidated cash flows for the three months ended
February 28, 2001 and February 29, 2000. The results of operations for
the three months ended February 28, 2001 are not necessarily indicative
of the results to be expected for the full year. The consolidated
balance sheet at November 30, 2000 has been taken from the audited
financial statements as of that date.
2. Inventories
Inventories consist of the following (in thousands):
February 28, November 30,
2001 2000
----------- -----------
Homes, lots and improvements in production $1,290,699 $1,115,824
Land under development 562,180 541,577
---------- ----------
Total inventories $1,852,879 $1,657,401
========== ==========
The impact of capitalizing interest costs on consolidated pretax income
is as follows (in thousands):
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
----------- -----------
Interest incurred $ 25,787 $ 21,592
(9,835) (6,064)
Interest expensed
-------- --------
Interest capitalized 15,952 15,528
Interest amortized (11,626) (8,031)
-------- --------
Net impact on consolidated pretax income $ 4,326 $ 7,497
======== ========
3. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
average number of common shares outstanding for the period. Diluted
earnings per share is calculated by dividing net income by the average
number of common shares outstanding including all dilutive potentially
issuable shares under various stock option plans and stock purchase
contracts.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share (continued)
The following table presents a reconciliation of average shares
outstanding (in thousands):
Three Months Ended
-------------------------
February 28, February 29,
2001 2000
----------- -----------
Basic average shares outstanding 34,964 42,662
Net effect of stock options assumed to be exercised 1,928 1,104
------ ------
Diluted average shares outstanding 36,892 43,766
====== ======
4. Comprehensive Income
The following table presents the components of comprehensive income (in
thousands):
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
----------- ------------
Net income $ 25,818 $ 64,214
Foreign currency translation adjustments 5,836 (253)
Net derivative losses (1,600) -
-------- --------
Comprehensive income $ 30,054 $ 63,961
======== ========
5. Segment Information
The Company has identified two reportable segments: construction and
mortgage banking. Information for the Company's reportable segments is
presented in its consolidated statements of income and consolidated
balance sheets included herein. The Company's reporting segments follow
the same accounting policies used for the Company's consolidated
financial statements. Management evaluates a segment's performance based
upon a number of factors including pretax results.
6. Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998.
This statement addresses the accounting for and disclosure of derivative
instruments, including derivative instruments imbedded in other
contracts, and hedging activities. The statement requires the Company to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset
against the change in fair value of assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change is recognized in earnings. The impact of the
adoption of the new statement as of December 1, 2000 did not have a
significant impact on the earnings or financial position of the Company.
As of February 28, 2001, the Company had $1.6 million in net derivative
losses included in other comprehensive income.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Recent Accounting Pronouncements (continued)
The Company manages its interest rate risk on mortgage loans held for
sale and its estimated future commitments to originate and close
mortgage loans at fixed prices through the use of mandatory forward
commitments to sell mortgage-backed securities and best-efforts whole
loan delivery commitments. The Company estimates the portion of the
locked mortgage loan pipeline that is expected to close in order to
determine the amount of hedging instruments. These hedging instruments
are classified as cash flow hedges, generally have maturities of three
months or less, and are effective as hedges for interest rate market
risk on mortgage loans held for sale and estimated future commitments.
Accordingly, gains and losses are included in other comprehensive income
until the ultimate disposition of the contract.
7. Mortgages and Notes Payable
On February 8, 2001, pursuant to its universal shelf registration
statement filed with the Securities and Exchange Commission on December
5, 1997 (the "1997 Shelf Registration"), the Company issued $250.0
million of 9-1/2% senior subordinated notes at 100% of the principal
amount of the notes. The notes, which are due February 15, 2011 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 104.750% of their principal amount
beginning February 15, 2006, and thereafter at prices declining annually
to 100% on and after February 15, 2009. Proceeds from the issuance of
the notes were used to pay down bank borrowings.
8. Reclassifications
Certain amounts in the consolidated financial statements of prior years
have been reclassified to conform to the 2001 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Total revenues for the three months ended February 28, 2001 increased $21.5
million, or 2.7%, to $821.1 million from $799.6 million for the quarter ended
February 29, 2000 due to higher housing and commercial revenues. Net income for
the first quarter of 2001 totaled $25.8 million or $.70 per diluted share
compared to net income and diluted earnings per share for the first quarter of
2000 of $64.2 million and $1.47, respectively, including a one-time gain of
$39.6 million, or $.91 per diluted share on the issuance of stock by the
Company's French subsidiary in an initial public offering in February 2000 (the
French IPO gain). Excluding this gain, net income was $24.6 million and diluted
earnings per share were $.56 for the first quarter of 2000. The increase in net
income, excluding the French IPO gain, was principally driven by higher housing
gross profits and increased profits from commercial activities. Diluted earnings
per share for the quarter ended February 28, 2001 reflected a 15.7% decrease in
the average number of diluted shares outstanding as compared to the year-earlier
quarter due to stock repurchases made during 2000.
In January 2001, the Company announced that it had changed its name to "KB
Home". This new name, which resulted from homebuyer input, is intended to convey
the Company's strong customer focus and its commitment to helping homebuyers
realize their dream of homeownership.
CONSTRUCTION
Revenues increased by $22.0 million, or 2.8%, to $808.2 million in the first
quarter of 2001 from $786.2 million in the first quarter of 2000 primarily due
to higher housing and commercial revenues. With unit deliveries, excluding joint
ventures, roughly flat, housing revenues for the three months ended February 28,
2001 rose by $18.2 million to $789.1 million from $770.9 million in the
year-earlier period as a result of a 3.2% increase in the Company's average
selling price. Housing revenues in the United States rose to $703.9 million on
3,975 unit deliveries in the first three months of 2001, compared to $687.6
million on 4,045 units in the first three months of 2000. Within the Company's
domestic operations, increases in housing revenues from the Southwest (Nevada,
Arizona, and New Mexico operations) and Central (Texas and Colorado operations)
regions were partly offset by a decrease in the West Coast (California
operations) region. Housing revenues from the West Coast region totaled $272.8
million in the first quarter of 2001, down 6.0% from $290.1 million in the
year-earlier period. Unit deliveries in the West Coast region fell 13.0% to 981
in the first quarter of 2001 from 1,128 in the first quarter of 2000 due to the
Company's emphasis on expanding its Southwest and Central regions and
transitioning its West Coast region, following the Lewis merger to better align
with the overall corporate strategy. Housing revenues from the Southwest region
rose 4.0% to $194.6 million in the first quarter of 2001 from $187.2 million in
the first quarter of 2000, despite unit deliveries in the region decreasing
slightly to 1,248 from 1,264 in the same quarter a year ago. In the Central
region, housing revenues increased 12.5% to $236.5 million in the first quarter
of 2001 from $210.3 million in the year-earlier quarter as unit deliveries rose
5.6% to 1,746 from 1,653 units despite construction delays caused by inclement
weather, mainly in Texas. Revenues from French housing operations during the
first quarter of 2001 increased to $85.2 million on 553 units from $82.2 million
on 516 units in the prior year's quarter.
The Company's overall average selling price increased 3.2% in the first quarter
of 2001 to $174,300 from $168,900 in the first quarter of 2000. During this
period, the Company's domestic average selling price rose 4.2% to $177,100 from
$170,000 a year earlier as a result of price increases implemented in certain
markets within each region. The average selling price in the Company's West
Coast region rose 8.1% to $278,100 in the first three months of 2001 from
$257,200 in the same period of 2000 and the average selling price for the
Southwest region increased 5.3% to $155,900 from $148,100. In the Central
region, the average selling price increased 6.5% to $135,500 in the first
quarter of 2001 from $127,200 in the first quarter of 2000. In France, the
Company's average selling price for the quarter ended February 28, 2001
decreased 3.3% to $154,100 from $159,300 in the year-earlier quarter primarily
due to an increase in the proportion of deliveries generated from condominiums,
which are generally priced below single-family homes.
The Company's commercial activities in France generated revenues of $9.3 million
in the first quarter of 2001. By comparison, no commercial revenues were
recorded in the first quarter of 2000. Revenues from land sales totaled $9.8
million in the first three months of 2001 compared to $15.3 million in the first
three months of 2000.
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Operating income increased $7.8 million to $49.5 million in the first three
months of 2001 from $41.7 million in the first three months of 2000. As a
percentage of construction revenues, operating income increased .8 percentage
points to 6.1% in the first quarter of 2001 from 5.3% in the first quarter of
2000 due to both a higher housing gross margin and an improved selling, general
and administrative expense ratio. Gross profits rose $9.7 million, or 6.7%, to
$155.3 million in the first quarter of 2001 from $145.6 million in the prior
year's period. Gross profits as a percentage of construction revenues rose to
19.2% in the first quarter of 2001 from 18.5% in the year-earlier quarter
primarily due to an increase in the Company's housing gross margin to 19.5% from
18.9%. The .6 percentage point increase in housing gross margin was driven by
both aggressive price increases and lower construction costs. Commercial
activities in France generated profits of $1.4 million during the three months
ended February 28, 2001 while no commercial profits were generated during the
three months ended February 29, 2000. Company-wide land sales generated
essentially break-even results in the first quarters of both 2001 and 2000.
Selling, general and administrative expenses increased $2.0 million, or 1.9%, to
$105.9 million in the three months ended February 28, 2001 from $103.9 million
in the corresponding 2000 period. However, as a percentage of housing revenues,
selling, general and administrative expenses improved to 13.4% in the first
quarter of 2001 compared to 13.5% in the same period a year ago as a result of
increased efficiencies and leveraging of size to reduce overhead costs.
Interest income totaled $.9 million in the first quarter of 2001 and $1.9
million in the first quarter of 2000. Interest income was lower in the first
three months of 2001 as compared to the same period of 2000 due to a decrease in
the interest bearing average balances of short-term investments and mortgages
receivable outstanding during the period.
Interest expense (net of amounts capitalized) totaled $9.8 million in the first
quarter of 2001, up from $6.1 million for the same period of 2000. Gross
interest incurred during the three months ended February 28, 2001 was $4.2
million higher than the amount incurred in the same period of 2000 due to
increased debt levels associated with the share repurchases executed by the
Company throughout 2000. In addition, the percentage of interest capitalized
decreased to 61.9% in the first quarter of 2001 from 71.9% a year earlier.
Minority interests totaled $5.9 million in the first quarter of 2001 and $5.8
million in the first quarter of 2000. Minority interests for the three month
periods ended February 28, 2001 and February 29, 2000 are comprised of two major
components: the minority ownership portion of income from consolidated
subsidiaries and joint ventures related to residential and commercial activities
and distributions associated with the Company's Feline Prides. In the first
quarter of 2001, distributions associated with the Feline Prides remained
unchanged from the same period of 2000 at $3.8 million. Minority interests
related to consolidated subsidiaries and joint ventures in the first quarter of
2001 were also essentially flat with the year-earlier quarter.
Equity in pretax income of unconsolidated joint ventures totaled $.5 million in
both the first quarter of 2001 and the first quarter of 2000. The Company's
joint ventures recorded combined revenues of $18.9 million in the first three
months of 2001 compared to $28.4 million in the corresponding period of 2000.
All of the joint venture revenues in the first three months of 2001 and 2000
were generated from residential properties.
MORTGAGE BANKING
Interest income and interest expense decreased by $.7 million and $.6 million,
respectively, in the first quarter of 2001 compared to the same quarter a year
ago. Interest income was lower primarily due to a decrease in market interest
rates on first mortgages held under commitments of sale and other receivables
outstanding during the first three months of 2001 compared to the first three
months of 2000. Similarly, interest expense was down mainly due to a decrease in
the interest rates on notes payable outstanding during the period.
Other mortgage banking revenues increased by $.2 million to $8.3 million in the
first three months of 2001 from $8.1 million in the first three months of 2000.
This increase was primarily the result of higher gains on the sale of servicing
rights.
General and administrative expenses totaled $4.5 million for the quarter ended
February 28, 2001 and $2.9 million for the quarter ended February 29, 2000.
General and administrative expenses for the first quarter of 2001 increased as a
result of the start up of certain ancillary businesses, higher staff levels in
place to accommodate the Company's growing backlog and the overall expansion of
the mortgage company in anticipation of higher origination volumes expected in
2001.
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INCOME TAXES
Income tax expense totaled $13.3 million in the first quarter of 2001 and $13.2
million in the prior year's first quarter. These amounts represented effective
income tax rates of approximately 34% in 2001 and 35% in 2000 (excluding the
gain on issuance of French subsidiary stock).
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash to
fund its operating and investing activities. Historically, the Company has
funded its construction and mortgage banking concerns with internally generated
operating results and external sources of debt and equity financing. In the
first quarter of 2001, net cash used by operating activities was offset by net
cash provided by investing and financing activities. In the first quarter of
2000, net cash provided by operating, investing and financing activities totaled
$10.4 million.
Operating activities used $62.3 million of cash during the first three months of
2001 compared to $20.6 million used during the same period of 2000. The
Company's uses of operating cash in the first quarter of 2001 included cash used
for investments in inventories of $180.9 million (excluding $14.6 million of
inventories acquired through seller financing). Partially offsetting this use
was cash provided from a decrease in receivables of $62.0 million, first quarter
earnings of $25.8 million, an increase in accounts payable, accrued expenses and
other liabilities of $3.1 million, other operating sources of $9.3 million and
various noncash items deducted from net income.
Operating uses in the first quarter of 2000 included $149.1 million for net
investments in inventories (excluding $11.3 million of inventories acquired
through seller financing), the French IPO gain of $39.6 million, a decrease in
accounts payable, accrued expenses and other liabilities of $4.3 million and
other operating uses of $9.7 million. The cash used was partially offset by cash
provided from a decrease in receivables of $101.0 million, first quarter
earnings of $64.2 million and various noncash items deducted from net income.
Investing activities provided $1.4 million of cash in the first quarter of 2001
compared with $2.3 million used in the year-earlier period. In the first quarter
of 2001, cash was provided from distributions relating to investments in
unconsolidated joint ventures of $1.8 million and proceeds received from
mortgage-backed securities of $1.5 million, which were principally used to pay
down the collateralized mortgage obligations for which the mortgage-backed
securities have served as collateral. The cash provided was partially offset by
cash used for net purchases of property and equipment of $1.8 million and
originations of mortgages held for long-term investment of $.1 million. In the
first quarter of 2000, cash was used for net purchases of property and equipment
of $2.5 million, investments in unconsolidated joint ventures of $1.5 million
and originations of mortgages held for long-term investment of $.5 million. The
cash used in 2000 was partly offset by $2.2 million in proceeds received from
mortgage-backed securities.
Financing activities provided cash of $60.9 million in first three months of
2001 and $33.3 million in the first three months of 2000. In the first quarter
of 2001, $247.5 million of cash was provided from the issuance of 9-1/2% senior
subordinated notes, partially offset by net payments on borrowings of $178.9
million, payments to minority interests of $3.7 million, dividend payments of
$2.6 million and payments on collateralized mortgage obligations of $1.4
million. Pursuant to its 1997 Shelf Registration, the Company issued the 9-1/2%
senior subordinated notes at 100% of the principal amount of the notes. The
notes, which are due February 15, 2011 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 104.750% of their
principal amount beginning February 15, 2006, and thereafter at prices declining
annually to 100% on and after February 15, 2009.
Financing activities in 2000's first quarter resulted in net cash inflows due
mainly to proceeds from the issuance of French subsidiary stock of $113.1
million and net proceeds from borrowings of $1.8 million. Partially offsetting
these sources were payments for repurchases of common stock of $70.8 million,
payments to minority interests of $6.0 million, cash dividend payments of $3.1
million and payments on collateralized mortgage obligations of $1.7 million.
As of February 28, 2001, the Company had $517.3 million available under its
$732.0 million domestic unsecured credit facility. The Company's French
unsecured financing agreements, totaling $262.6 million, had in the aggregate
$115.0 million available at February 28, 2001. In addition, the Company's
mortgage banking operation had $61.8
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million available under its $300 million Mortgage Warehouse Facility and $184.3
million available under its $250 million Master Loan and Security Agreement at
quarter-end. The Company's financial leverage, as measured by the ratio of debt
to total capital, was 56.6% at the end of the 2001 first quarter compared to
52.3% at the end of the 2000 first quarter. The Company's leverage ratio at
February 28, 2001 was up slightly from its target range of 45%-55% mainly due to
higher debt levels associated with the stock repurchases made during 2000. The
Company expects its leverage ratio to be within its target range by the end of
2001.
The Company believes it has adequate resources and sufficient credit line
facilities to satisfy its current and reasonably anticipated future requirements
for funds to acquire capital assets and land, to construct homes, to fund its
mortgage banking operations and to meet any other needs of its business, both on
a short and long-term basis.
OUTLOOK
The Company's residential backlog as of February 28, 2001 consisted of 12,375
units, excluding joint ventures, representing aggregate future revenues of
approximately $2.18 billion. This was the highest first quarter-end backlog in
the Company's history and reflected strong growth in all regions. Backlog, in
terms of both units and value, at February 28, 2001 was up 30.6% and 42.2%,
respectively, from 9,473 units, representing aggregate future revenues of
approximately $1.53 billion, at February 29, 2000. Company-wide net orders for
the first three months of 2001 totaled 6,344, up 19.1% compared to the 5,325 net
orders generated in the first three months of 2000.
The Company's domestic operations accounted for approximately $1.88 billion of
backlog value on 10,447 units at February 28, 2001 compared to $1.28 billion on
7,907 units at February 29, 2000. Backlog in the West Coast region increased to
approximately $754.6 million on 2,616 units at February 28, 2001, up from $495.8
million on 2,092 units at February 29, 2000 despite net orders decreasing 12.3%
to 1,176 units in the first quarter of 2001 from 1,341 for the same quarter a
year ago. The Company's Southwest operations had approximately $460.4 million in
backlog, based on 3,036 units at February 28, 2001, compared to $349.1 million
on 2,366 units at February 29, 2000, reflecting a 29.5% increase in net orders
to 1,973 in the first quarter of 2001 from 1,523 in the year-earlier quarter.
Backlog in the Company's Central region totaled approximately $667.2 million on
4,795 units at the end of the first quarter of 2001 compared to $438.7 million
on 3,449 units a year earlier. Central region net orders for the first three
months of 2001 were up 33.0% to 2,531 units from 1,903 units in the same period
of 2000. The average number of active communities in the Company's domestic
operations for the first quarter of 2001 remained essentially flat with the same
quarter a year ago as decreases of 5.2% and 2.1% in the West Coast and Central
regions, respectively, were offset by an increase of 11.9% in the Southwest
region.
In France, the value of residential backlog at February 28, 2001 was
approximately $297.7 million on 1,928 units, up from $249.6 million on 1,566
units a year earlier. The Company's net orders in France increased by 19.0% to
664 in the first quarter of 2001 from 558 in the first quarter of 2000. The
value of backlog associated with the Company's French commercial development
activities rose to approximately $75.2 million at February 28, 2001 from $9.5
million at February 29, 2000.
Substantially all of the homes included in residential backlog are expected to
be delivered in 2001; 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, excluding joint ventures, for the first four weeks of
the second quarter of 2001 decreased 26.0% from the same period a year ago.
During this same period, domestic net orders were down 28.4% from the prior
year's period, reflecting a 45.0% decrease in West Coast net orders, a 22.2%
decrease in Southwest net orders and a 20.1% decrease in Central net orders. In
France, net orders for the first four weeks of the second quarter of 2001
increased 7.4% compared with the same period of 2000. Overall domestic net
orders for the first four weeks of the second quarter were lower in 2001
compared to 2000 primarily due to the Company's "March Madness" internal sales
contest in 2000 which resulted in March being an unusually strong month for net
orders last year. The Company did not have any similar promotional events in
March 2001. Despite the negative year-over-year comparison, the Company-wide net
orders for March 2001 were otherwise sound, were comparable to 1999 levels and
reflected community counts that have remained fairly consistent in all three
years. In spite of the net order pattern for the first four weeks of the second
quarter, the Company currently believes that overall net orders for April and
May 2001 should compare favorably to the prior year and remains confident in its
financial projections for the second quarter and full year 2001.
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The Company remains confident in its outlook for the remainder of 2001 with
appropriate caution that the homebuilding industry is impacted by a variety of
economic factors including consumer confidence, employment levels and interest
rates. For the rest of 2001, the Company intends to continue to focus on
high-growth markets while at the same time looking for ways to increase
efficiencies and leverage its volume to take advantage of economies of scale.
The Company hopes to continue to increase overall unit delivery growth in future
years through the strategies it has in place. The Company's growth strategies
include the expansion of existing operations to achieve optimal market volume
levels and the possible entry into new geographic markets through acquisitions
or de novo entry. Growth in the Company's existing markets will be driven by the
Company's ability to increase the average number of active communities in its
major markets.
Based on its current projections, the Company expects to deliver approximately
24,000 homes in 2001. The Company also currently expects to establish another
record level of earnings in 2001 based upon such projected deliveries. However,
these goals could be materially affected by various risk factors such as changes
in general economic conditions either nationally, in the U.S. or France, or in
the localized regions in which the Company operates; continued diminution in
domestic job growth or employment levels, a continued downturn in the economy's
pace; or changes in home mortgage interest rates or consumer confidence, among
other things.
SAFE HARBOR STATEMENT
Investors are cautioned that certain statements contained in this document, as
well as some statements by the Company in periodic press releases and some oral
statements by Company officials to securities analysts and stockholders during
presentations about the Company are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements which are predictive in nature, which depend upon or refer to future
events or conditions, or which include words such as "expects", "anticipates",
"intends", "plans", "believes", "estimates", "hopes", and similar expressions
constitute forward-looking statements. In addition, any statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Company
actions, which may be provided by management are also forward-looking statements
as defined by the Act. Forward-looking statements are based on current
expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about the Company, economic and market factors
and the homebuilding industry, among other things. These statements are not
guaranties of future performance, and the Company has no specific intention to
update these statements.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements made by the Company or Company
officials due to a number of factors. The principal important risk factors that
could cause the Company's actual performance and future events and actions to
differ materially from such forward-looking statements include, but are not
limited to, changes in general economic conditions, material prices, labor
costs, interest rates, uncertainties associated with California's electricity
supply problems, the secondary market for loans, consumer confidence,
competition, currency exchange rates (insofar as they affect the Company's
operations in France), environmental factors, government regulations affecting
the Company's operations, the availability and cost of land in desirable areas,
unanticipated violations of Company policy, unanticipated legal proceedings, and
conditions in the capital, credit and homebuilding markets. See the Company's
Annual Report on Form 10-K for the year ended November 30, 2000 and other
Company filings with the Securities and Exchange Commission for a further
discussion of risks and uncertainties applicable to the Company's business.
The Company undertakes no obligation to update any forward-looking statements in
this Report on Form 10-Q or elsewhere.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Stockholders of the Company was held on April 5,
2001, at which the following matters set forth in the Company's Proxy Statement
dated March 1, 2001, which was filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934, were voted
upon with the results indicated below. All numbers reported are shares of the
Company's common stock.
(1) The nominees listed below were elected directors for a three-year term
expiring at the 2004 Annual Meeting of Stockholders with the respective
votes set forth opposite their names:
Nominee For Authority Withheld
------- ---------- ------------------
Ronald W. Burkle 39,625,714 478,212
Dr. Ray R. Irani 39,922,386 181,540
Guy Nafilyan 38,432,492 1,671,434
Luis G. Nogales 39,931,927 171,999
Ms. Jane Evans and Messrs. James A. Johnson, Barry Munitz and Sanford C.
Sigoloff continue as directors and, if nominated, will next stand for
re-election at the 2002 Annual Meeting of Stockholders; Messrs. Henry G.
Cisneros and Bruce Karatz also continue as directors and, if nominated, will
next stand for re-election at the 2003 Annual Meeting of Stockholders.
(2) A proposal seeking approval of the KB Home 2001 Stock Incentive Plan was
approved with the votes as set forth below:
For Against Withheld
-------------------- ----------------- ----------------
21,689,080 13,304,606 174,630
(3) A proposal seeking re-approval of the KB Home Performance-Based
Incentive Plan for Senior Management was approved with the votes as set
forth below:
For Against Withheld
-------------------- ----------------- ----------------
36,772,118 3,147,616 166,659
(4) A stockholder resolution concerning the hiring of a proxy advisory firm
for one year was not approved with the votes as set forth below:
For Against Withheld
-------------------- ----------------- ----------------
1,398,476 33,384,073 385,827
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ITEM 5. OTHER INFORMATION
The following table presents residential information in terms of unit deliveries
to home buyers and net orders taken by geographical region for the three-month
periods ended February 28, 2001 and February 29, 2000, together with backlog
data in terms of units and value by geographical region as of February 28, 2001
and February 29, 2000.
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
------------------------ ------------------------ ------------------------ ------------------------
Region 2001 2000 2001 2000 2001 2000 2001 2000
- -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
West Coast 981 1,128 1,176 1,341 2,616 2,092 $ 754,618 $ 495,782
Southwest 1,248 1,264 1,973 1,523 3,036 2,366 460,411 349,122
Central 1,746 1,653 2,531 1,903 4,795 3,449 667,155 438,739
Foreign 553 520 664 558 1,928 1,566 297,706 249,581
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 4,528 4,565 6,344 5,325 12,375 9,473 $2,179,890 $1,533,224
========== ========== ========== ========== ========== ========== ========== ==========
Unconsolidated
joint ventures 84 123 65 115 189 211 $ 37,611 $ 38,824
========== ========== ========== ========== ========== ========== ========== ==========
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
24 The consent of Ernst & Young LLP, independent auditors, filed as an
exhibit to the Company's 2000 Annual Report on Form 10-K, is
incorporated by reference herein.
Reports on Form 8-K
On January 18, 2001, the Company filed a Current Report on Form 8-K (Item 9),
which included its January 17, 2001 press release announcing that its name,
Kaufman and Broad Home Corporation, was changed to KB Home.
On February 2, 2001, the Company filed a Current Report on Form 8-K (Item 5),
which included press releases dated January 11, 2001 and February 2, 2001,
wherein it provided updated financial and other information.
On February 8, 2001, the Company filed a Current Report on Form 8-K (Items 5 and
7), which included certain exhibits in connection with the issuance of its
9-1/2% Senior Subordinated Notes due 2011 pursuant to Registration Statement No.
333-41549.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KB HOME
----------------------------------------
Registrant
Dated April 12, 2001 /s/ BRUCE KARATZ
---------------------------- ----------------------------------------
Bruce Karatz
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
Dated April 12, 2001 /s/ THOMAS G. CONFORTI
---------------------------- ----------------------------------------
Thomas G. Conforti
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
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