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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 1996.
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 charter)
Delaware 95-3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [ X ] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
Common stock, par value $1.00 per share, 38,872,836 shares outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q/A
INDEX
PAGE
NUMBER(S)
---------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Nine Months and Three Months ended August 31,
1996 and 1995 3
Consolidated Balance Sheets -
August 31, 1996 and November 30, 1995 4
Consolidated Statements of Cash Flows -
Nine Months ended August 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-17
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
INDEX OF EXHIBITS 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts - Unaudited)
Nine Months Three Months
Ended August 31, Ended August 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
TOTAL REVENUES $ 1,266,198 $ 917,639 $ 481,373 $ 372,314
============ ============ ============ ============
CONSTRUCTION:
Revenues $ 1,242,371 $ 897,131 $ 472,791 $ 364,347
Construction and land costs (1,020,837) (742,335) (388,505) (299,734)
Selling, general and administrative
expenses (158,674) (121,816) (58,538) (48,029)
Non-cash charge for impairment of long-
lived assets (170,757) - - -
------------ ------------ ------------ ------------
Operating income (loss) (107,897) 32,980 25,748 16,584
Interest income 1,937 1,605 494 580
Interest expense, net of amounts
capitalized (27,717) (20,538) (8,991) (7,528)
Minority interests in pretax income of
consolidated joint ventures (174) (435) (13) (288)
Equity in pretax income (loss) of
unconsolidated joint ventures (1,714) (1,286) 25 (1,170)
------------ ------------ ------------ ------------
Construction pretax income (loss) (135,565) 12,326 17,263 8,178
------------ ------------ ------------ ------------
MORTGAGE BANKING:
Revenues:
Interest income 11,033 11,865 3,585 3,779
Other 12,794 8,643 4,997 4,188
------------ ------------ ------------ ------------
23,827 20,508 8,582 7,967
Expenses:
Interest (10,291) (11,067) (3,396) (3,560)
General and administrative (4,800) (4,128) (1,782) (1,722)
------------ ------------ ------------ ------------
Mortgage banking pretax income 8,736 5,313 3,404 2,685
------------ ------------ ------------ ------------
TOTAL PRETAX INCOME (LOSS) (126,829) 17,639 20,667 10,863
Income taxes 45,700 (6,500) (7,400) (4,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (81,129) $ 11,139 $ 13,267 $ 6,863
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE $ (2.04) $ .28 $ .33 $ .17
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING 39,712 39,768 39,792 39,818
============ ============ ============ ============
CASH DIVIDENDS PER COMMON SHARE $ .225 $ .225 $ .075 $ .075
============ ============ ============ ============
See accompanying notes.
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
August 31, November 30,
1996 1995
--------------- ----------------
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 9,862 $ 24,793
Trade and other receivables 99,984 111,620
Inventories 889,760 1,059,179
Investments in unconsolidated joint ventures 6,229 21,154
Goodwill 41,410 13,884
Other assets 55,216 38,578
--------------- ---------------
1,102,461 1,269,208
--------------- ---------------
MORTGAGE BANKING:
Cash and cash equivalents 13,474 18,589
Receivables:
First mortgages and mortgage-backed securities 83,573 97,672
First mortgages held under commitment of sale and 143,551 181,764
other receivables
Other assets 5,880 6,946
--------------- ---------------
246,478 304,971
--------------- ---------------
TOTAL ASSETS $ 1,348,939 $ 1,574,179
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 132,552 $ 156,097
Accrued expenses and other liabilities 97,043 90,237
Mortgages and notes payable 580,568 639,575
--------------- ---------------
810,163 885,909
--------------- ---------------
MORTGAGE BANKING:
Accounts payable and accrued expenses 8,318 9,661
Notes payable 131,908 151,000
Collateralized mortgage obligations secured by mortgage- 70,938 84,764
backed securities --------------- ---------------
211,164 245,425
--------------- ---------------
Deferred income taxes - 24,448
--------------- ---------------
Minority interests in consolidated joint ventures 2,276 2,919
--------------- ---------------
Series B convertible preferred stock - 1,300
Common stock 38,873 32,347
Paid-in capital 183,948 188,839
Retained earnings 96,424 190,749
Cumulative foreign currency translation adjustments 6,091 2,243
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 325,336 415,478
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,348,939 $ 1,574,179
=============== ===============
See accompanying notes.
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
Nine Months Ended August 31,
-------------------------------------
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (81,129) $ 11,139
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Equity in pretax loss of unconsolidated joint
ventures 1,714 1,286
Minority interests in pretax income of consolidated
joint ventures 174 435
Amortization of discounts and issuance costs 1,264 1,182
Depreciation and amortization 7,785 4,593
Provision for deferred income taxes (34,960) (3,168)
Non-cash charge for impairment of long-lived assets 170,757 -
Change in assets and liabilities net of effects from
purchase of Rayco:
Receivables 53,634 37,455
Inventories 123,413 (115,075)
Accounts payable, accrued expenses and other
liabilities (40,262) (22,254)
Other, net 2,366 (18,248)
--------------- ---------------
Net cash provided (used) by operating activities 204,756 (102,655)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Rayco, net of cash acquired (80,556) -
Investments in unconsolidated joint ventures (5,127) 439
Net sales (originations) of mortgages held for long-term
investment (974) 256
Payments received on first mortgages and mortgage-backed
securities 15,827 9,481
Other, net (5,424) (3,413)
--------------- ---------------
Net cash provided (used) by investing activities (76,254) 6,763
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and other
short-term borrowings (79,677) 124,013
Payments on collateralized mortgage obligations (14,646) (9,033)
Payments on mortgages, land contracts and other loans (40,212) (26,065)
Payments to minority interests in consolidated joint
ventures (817) (701)
Payments of cash dividends (13,196) (14,694)
--------------- ---------------
Net cash provided (used) by financing activities (148,548) 73,520
--------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,046) (22,372)
Cash and cash equivalents at beginning of period 43,382 54,808
--------------- ---------------
Cash and cash equivalents at end of period $ 23,336 $ 32,436
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 32,473 $ 24,153
=============== ===============
Income taxes paid $ 3,321 $ 4,957
=============== ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 16,977 $ 27,330
=============== ===============
See accompanying notes.
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements
for the year ended November 30, 1995 contained in the Company's 1995
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 August 31, 1996, the results of its consolidated
operations for the nine months and three months ended August 31, 1996
and 1995, and its consolidated cash flows for the nine months ended
August 31, 1996 and 1995. The results of operations for the nine months
and three months ended August 31, 1996 are not necessarily indicative of
the results to be expected for the full year. The consolidated balance
sheet at November 30, 1995 has been taken from the audited financial
statements as of that date.
2. Charge for Impairment of Long-Lived Assets
In the second quarter of 1996, the Company decided to accelerate the
disposition of certain real estate assets in order to further facilitate
pursuit of its four key operating strategies, including geographic
diversification, increased emphasis on return on investment, planned
debt reduction and improved operating margins. The disposition of these
assets effectuates the Company's strategies to improve its overall
return on investment, restore financial leverage to targeted levels,
and position the Company to continue its geographic expansion. In
addition, the Company also changed its strategy to substantially
eliminate its prior practice of investing in long term development
projects in order to reduce the operating risk associated with such
projects. The accelerated disposition of long term development assets
caused certain assets, primarily inventories and investments in
unconsolidated joint ventures in California and France, to be
identified as being impaired and to be written down. Only certain of
the Company's California properties were impacted by the charge while
none of the non-California domestic properties were affected. The
Company's non-California domestic properties were not affected since
they were not held for long term development and were expected to be
economically successful such that no impairment was determined. The
evaluation of impaired assets considered the depressed nature of the
real estate business in certain of the Company's California and French
markets, reduced demand from prospective homebuyers, availability of
ready buyers for the Company's properties, future costs of development
and holding costs during development. Accordingly, based on this
evaluation, the Company recorded a non-cash write-down of $170.8
million ($109.3 million, net of income taxes) to state these impaired
assets at their fair values. The fair values established were based on
various methods, including discounted cash flow projections, appraisals
and evaluations of comparable market prices, as appropriate. As the
inventories affected by the charge primarily consisted of land which
was not under active development, the Company does not anticipate that
the charge will have a material effect on its gross margins.
The Company also decided in the second quarter of 1996 to adopt
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS No. 121"). The Company elected to adopt SFAS No. 121 earlier
than required by this standard. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable and requires impairment losses to be recorded on long-lived
assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Under the new standard, when an impairment
loss is required, the related assets are adjusted to their estimated
fair value. Fair value for purposes of SFAS No. 121 is deemed to be the
amount a willing buyer would pay a
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2. Charge for Impairment of Long-Lived Assets (continued)
willing seller for such property in a current transaction, that is,
other than in a forced or liquidation sale. For homebuilders, this
is a change from the previous accounting standard which required
homebuilders to carry real estate assets at the lower of cost or net
realizable value. Fair value differs from net realizable value in
that, among other things, fair value assumes a cash sale under
current market conditions, considers a potential purchaser's
requirement for future profit and discounts the timing of estimated
future cash receipts. In contrast, net realizable value is the price
obtainable in the future based on the current intended use of the
land, net of disposal and holding costs, without provision for future
profits or discounting future cashflow to present value. The
write-down for impairment of long-lived assets recorded in the second
quarter was calculated in accordance with the requirements of SFAS
No. 121 but was not necessitated by implementation of this standard.
Had the Company not adopted SFAS No. 121 in the second quarter a
substantial write-down would have nonetheless been recorded.
The estimation process involved in determining if assets have been
impaired and in the determination of fair value is inherently
uncertain since it requires estimates of current market yields as well
as future events and conditions. Such future events and conditions
include economic and market conditions, as well as the availability of
suitable financing to fund development and construction activities.
The realization of the estimates applied to the Company's real estate
projects is dependent upon future uncertain events and conditions and,
accordingly, the actual timing and amounts realized by the Company may
be materially different from the estimated fair values as described
herein.
3. Acquisition
On March 1, 1996, the Company acquired San Antonio, Texas-based Rayco,
Ltd. and affiliates ("Rayco") for a total purchase price of
approximately $104.5 million, including cash to pay off certain debt
assumed. Rayco is San Antonio's largest homebuilder and sells a wide
variety of homes, primarily to first-time buyers. The total purchase
price was based on the net book values of the entities purchased and
the assumption of certain debt. The acquisition was accounted for as
a purchase with the results of operations of the acquired entities
included in the Company's consolidated financial statements as of the
date of acquisition. The purchase price was allocated based on
estimated fair values at the date of acquisition. This allocation was
based on preliminary estimates and may be revised at a later date. The
excess of the purchase price over the fair value of net assets
acquired was $32.3 million and is being amortized on a straight-line
basis over a period of seven years.
In connection with the acquisition of Rayco, the Company amended its
existing domestic unsecured revolving credit agreement with various
banks by entering into a Fourth Amended and Restated Loan Agreement
dated February 28, 1996, to increase its initial borrowing capacity
thereunder to $630 million from $500 million. The additional $130
million of financing obtained by the Company consisted of a $110
million term loan facility, used to finance the acquisition and to
refinance portions of the existing indebtedness of Rayco,and a $20
million revolving credit facility to be used for additional general
working capital requirements. The amendment to the Company's credit
facility provides for a maximum repayment term of eighteen months for
the additional $130 million of borrowing capacity. On March 1, 1996,
the Company borrowed $104.5 million under this credit facility to
consummate the Rayco acquisition, a portion of this amount was used to
refinance debt assumed in the acquisition.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Rayco as if the
acquisition had occurred as of December 1, 1994, 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. The pro forma results for the nine
months ended August 31, 1996 below are presented both before and after
the $170.8 million non-cash charge for impairment of long-lived
assets.
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3. Acquisition (continued)
Nine Months Ended
------------------------------------------------------
August 31, 1996 August 31, 1995
------------------------------------ ---------------
After non-cash Before non-cash
(In thousands except per share amounts) charge charge
--------------- -----------------
Total revenues $ 1,329,486 $ 1,329,486 $ 1,092,722
Total pretax income (loss) (123,825) 46,932 26,769
Net income (loss) (79,225) 29,932 16,869
Earnings (loss) per share (1.99) .75 .42
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 Rayco acquisition been consummated as
of December 1, 1994, nor are they necessarily indicative of future
operating results.
4. Goodwill
Goodwill represents the excess of the purchase price over the fair value
of net assets acquired and is being amortized by the Company over
periods ranging from five to seven years using the straight-line method.
Accumulated amortization was $6.7 million and $1.6 million at August 31,
1996 and 1995, 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 value is required.
5. Inventories
Inventories consist of the following (in thousands):
August 31, November 30,
1996 1995
----------------- -----------------
Homes, lots and improvements in production $ 754,772 $ 803,926
Land under development 134,988 255,253
----------------- ----------------
Total inventories $ 889,760 $ 1,059,179
================= =================
The impact of capitalizing interest costs on consolidated pretax income
is as follows (in thousands):
Nine Months Ended Three Months Ended
------------------------------ -------------------------------
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
------------- ------------- -------------- -------------
Interest incurred $ 49,440 $ 48,222 $ 15,505 $ 16,706
Interest expensed (27,717) (20,538) (8,991) (7,528)
------------- ------------- ------------- -------------
Interest capitalized 21,723 27,684 6,514 9,178
Interest amortized (15,770) (11,964) (6,309) (5,002)
------------- ------------- ------------- -------------
Net impact on pretax income $ 5,953 $ 15,720 $ 205 $ 4,176
============= ============= ============= =============
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6. Mortgages and Notes Payable
On August 28, 1996, the Company's mortgage banking subsidiary entered
into a Mortgage Loan Purchase and Interim Servicing Agreement, which
provides for up to $100 million of financing for its mortgage banking
operations. The agreement, which expires on August 27, 1997, provides
for a commitment fee based upon the unused portion of the commitment
and a program fee on the amount outstanding based upon either the
Federal Funds or Eurodollar rate plus an applicable spread. The terms
of the agreement include financial covenants, which, among other
things, require the maintenance of certain financial statement ratios
and a minimum tangible net worth.
7. Earnings Per Share
The computation of earnings per share is based on the weighted average
number of common shares, equivalent Series B convertible preferred
shares and common share equivalents outstanding during the applicable
period. All of the Company's Series B convertible preferred shares
were converted into shares of the Company's common stock on April 1,
1996, the mandatory conversion date. Prior to their conversion the
Series B convertible preferred shares were considered common stock due
to their mandatory conversion into common stock, and the related
dividends were not deducted from net income for purposes of
calculating earnings per share. Common share equivalents include
dilutive stock options using the treasury stock method.
If, for purposes of calculating earnings per share, the Series B
convertible preferred shares were excluded from the weighted average
shares outstanding and the related dividends deducted from net income,
the computation would have resulted in a loss per share of $2.34 and
earnings per share of $.11 for the nine months ended August 31, 1996
and 1995, respectively. While this computation is not applicable for
the third quarter of 1996 due to the conversion of the Series B
convertible preferred shares into common stock, the same computation
would have resulted in earnings per share of $.13 for the three months
ended August 31, 1995.
8. Reclassifications
Certain amounts in the consolidated financial statements of 1995 have
been reclassified to conform to the 1996 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company took a major step forward in its non-California United States
expansion strategy during the second quarter of 1996, with the acquisition
of San Antonio, Texas-based Rayco. The acquisition of Rayco provides the
Company with a very substantial market position in San Antonio where, in
1995, Rayco commanded a 45% market share, delivering 2,585 units and
generating revenues of $236.2 million. San Antonio is the ninth largest
city in the United States and has ranked among the top ten cities in the
nation in both job creation and economic growth for the past several
years. The acquisition was accounted for as a purchase with the results
of operations of Rayco included in the Company's financial statements as
of March 1, 1996, the date of acquisition.
In large measure due to the Rayco acquisition, total Company revenues for
the three months ended August 31, 1996 increased 29.3% to $481.4 million
from $372.3 million for the three months ended August 31, 1995. For the
nine months ended August 31, 1996, total revenues increased 38.0% to
$1,266.2 million from $917.6 million for the first nine months of 1995.
Higher housing and land sale revenues primarily accounted for the
increases in total revenues for the three month and nine month periods.
Net income for the third quarter of 1996 increased to $13.3 million or
$.33 per share from $6.9 million or $.17 per share for the same period a
year ago. For the nine months ended August 31, 1996, the Company recorded
a net loss of $81.1 million or $2.04 per share. Excluding the $170.8
million non-cash charge for impairment of long-lived assets recorded in
the second quarter of 1996, earnings for the nine months ended August 31,
1996 totaled $28.1 million or $.70 per share compared with net income of
$11.1 million or $.28 per share for the nine months ended August 31, 1995.
The results for the three and nine months ended August 31, 1996, which
included operations of Rayco after the acquisition was consummated on
March 1, 1996, reflected improved unit deliveries, continued progress on
the Company's initiatives implemented throughout 1995 to improve gross
margins and contain costs, and an increase in pretax income from mortgage
banking operations. Mortgage banking pretax income improved primarily due
to increased loan volume, strong cost control and higher gains on the sale
of servicing rights.
CONSTRUCTION
Revenues increased by $108.5 million to $472.8 million in the third
quarter of 1996 from $364.3 million in the third quarter of 1995. This
increase was primarily due to the inclusion of $69.6 million in revenues
from Rayco as well as greater non-Rayco housing and land sale revenues.
Residential revenues for the three months ended August 31, 1996 increased
by $78.5 million, or 22.0%, to $435.5 million compared to $357.0 million
in the year-earlier period, as the Company delivered 2,749 units in the
current quarter (including 738 deliveries from Rayco) compared to 2,111
deliveries for the same quarter a year ago. Excluding the effects of the
Rayco acquisition, housing revenues for the third quarter of 1996
increased 2.5% over the same period a year ago, reflecting a 7.7% increase
in the average selling price, partially offset by a 4.7% decline in unit
volume. Housing revenues in the United States totaled $397.9 million on
2,566 unit deliveries in the third quarter of 1996 compared to $326.9
million on 1,965 units in the prior year's period. Excluding Rayco,
housing revenues in the United States totaled $328.3 million on 1,828 unit
deliveries in the current quarter representing a .4% increase in housing
revenues and a 7.0% decrease in deliveries from the same quarter a year
ago. California housing operations generated revenues of $245.7 million
on 1,259 units in the third quarter of 1996 compared to $257.8 million on
1,454 units in the same quarter a year ago. California housing revenues
and units declined 4.7% and 13.4%, respectively in the third quarter of
1996 compared to the same quarter a year ago while domestic operations
outside of California experienced improvement during this period.
Excluding Rayco, domestic operations outside of California generated $82.6
million of housing revenues on 569 units in the third quarter of 1996
compared to $69.1 million on 511 units for the same period a year ago.
The acquisition of Rayco coupled with continued growth in the Company's
operations outside of California resulted in non-California United States
deliveries accounting for 50.9% of the domestic unit total in the third
quarter of 1996 compared to 26.0% in the third quarter of 1995. Revenues
from French housing operations
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during the current period increased to $36.9 million on 180 units from
$28.7 million on 133 units in the prior year's third quarter.
During the third quarter of 1996, the Company's overall average selling
price decreased to $158,400 from $169,000 in the same quarter a year
ago, reflecting the integration of Rayco (which had an average selling
price of $94,300 for the quarter) into the Company's operations.
Excluding the effects of the Rayco acquisition, the Company-wide
average selling price increased 7.7% to $182,000 in the third quarter
of 1996. This increase resulted from a 7.9% increase in the Company's
domestic average selling price, partially offset by a 4.8% decrease in
the French average selling price compared to the year-earlier period.
Excluding Rayco, the Company's average new home price in the
United States increased in the third quarter of 1996 to $179,600 from
$166,400 in the same period of 1995, reflecting a 10.1% and 7.2% rise
in the average selling prices in California and other United States
operations, respectively. The increase in average selling prices in
the United States (excluding the operations of Rayco) occurred as a
result of a change in product mix favoring more higher priced urban
in-fill locations and first-time move-up sales. In France, the
Company's average selling price for the three months ended August 31,
1996 decreased to $205,000 from $215,400 in the year-earlier quarter
primarily as a result of a change in the mix of deliveries.
Third quarter revenues from commercial operations totaled $.7 million
in 1996 compared to $5.3 million in 1995, reflecting the
Company's decreasing commercial development activities in France
compared to the year-earlier period. Company revenues from land sales
increased $34.6 million to $36.6 million in the three months ended
August 31, 1996 compared to $2.0 million in the same period of 1995.
The higher level of land sale revenues in the third quarter of 1996 was
impacted by the Company's aggressive asset sale program implemented as
part of its debt reduction strategy. Generally, land sale revenues
fluctuate based on the Company's decision to maintain or decrease its
land ownership position in certain markets, the strength and number of
competing developers entering markets at given points in time, the
availability of land in markets served by the Company's housing
divisions, and prevailing market conditions.
For the nine months ended August 31, 1996, construction revenues
totaled $1,242.4 million, an increase of $345.3 million from $897.1
million for the same period a year ago, primarily as a result of higher
housing and land sale revenues. The increase in housing revenues
reflected higher unit volume and a higher average selling
price(excluding the operations of Rayco). Housing revenues totaled
$1,178.9 million on 7,315 units in the first nine months of 1996
compared to $877.7 million on 5,353 units for the same period a year
ago. Excluding Rayco, housing revenues for the first nine months of
1996 increased 19.2% from the same period a year ago. Housing
operations in the United States produced revenues of $1,086.2 million
on 6,866 units ($953.6 million on 5,445 units excluding Rayco) in the
first nine months of 1996 and $803.2 million on 4,971 units in the
comparable period of 1995. Deliveries in California increased 2.3% to
3,807 units for the first nine months of 1996 from 3,721 units for the
first nine months of 1995, while deliveries from other United States
operations (excluding Rayco) increased 31.0% to 1,638 from 1,250 units
during the same period. Including Rayco, such other United States
deliveries increased to 3,059 units, representing a 144.7% increase
from the year-earlier period. French housing revenues totaled $90.6
million on 436 units in the first nine months of 1996 and $70.4 million
on 345 units in the corresponding period of 1995. This represents an
increase of 28.7% and 26.4% in French housing revenues and deliveries,
respectively in the first nine months of 1996 compared to the same
period a year ago.
The Company-wide average new home price decreased to $161,100 in the
first nine months of 1996 from $163,900 in the year-earlier period.
Excluding Rayco, the Company-wide average selling price increased to
$177,500 for the first three quarters of 1996, reflecting a 11.2% and
5.0% increase in the average selling prices in California and other
United States operations, respectively. Additionally, the average
selling price in France for the nine month period increased to $207,900
in 1996 from $204,000 in 1995. The higher average selling prices in
the United States and France reflected higher priced urban in-fill
locations and first-time move up sales, and a change in the mix of
deliveries, respectively.
Revenues from the development of commercial buildings in France
increased to $12.1 million for the first nine months of 1996 from $10.2
million in the comparable period of 1995. Company-wide revenues from
land sales totaled $51.3 million for the first three quarters of 1996
compared to $9.2 million for the same period a
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12
year ago, an increase of $42.1 million. This increase in revenues from
land sales reflected the results of the Company's aggressive asset sale
program implemented as part of its strategy to reduce debt.
Operating income increased by $9.1 million to $25.7 million in the third
quarter of 1996 from $16.6 million in the third quarter of 1995. This
increase was primarily due to improved gross profits on housing sales,
reflecting higher unit volume and improved gross margins due, in part, to
the inclusion of Rayco in the Company's operations in the third quarter.
Gross profits (excluding profits from land sales) increased by $19.5
million to $83.8 million in the third quarter of 1996 from $64.3 million
in the prior year's quarter. Gross profits (excluding profits from land
sales) as a percentage of related revenues increased to 19.2% in the
current quarter from 17.8% in the year-earlier quarter. For the same
period, the Company's housing gross margin was 19.2% in 1996, up from
17.7% in 1995. This increase primarily reflected an improvement in the
other United States housing gross margin mainly due to the acquisition of
Rayco, which generates a higher margin than the overall Company gross
margin, and continued growth in the Company's higher margin operations in
other western states. The Company's housing gross margin in the third
quarter of 1996 was not significantly impacted by the non-cash charge for
impairment of long-lived assets as the charge primarily related to land
which was not under active development. Land sales generated profits of
$.5 million in the third quarter of 1996 compared to $.3 million during
the same quarter a year ago.
Selling, general and administrative expenses increased by $10.5 million to
$58.5 million in the third quarter of 1996 from $48.0 million in the third
quarter of 1995. This increase was primarily due to the inclusion of
Rayco's operations, which added $8.9 million of selling, general and
administrative expenses (including the amortization of goodwill), and an
increase in marketing expenses from the Company's remaining operations due
to higher unit volume. As a percentage of housing revenues, selling,
general and administrative expenses improved .1 percentage point to 13.4%
in the third quarter of 1996 from 13.5% in the same quarter a year ago.
This improvement was due to higher unit volume, primarily resulting from
the Rayco acquisition, and the impact of the Company's cost containment
initiatives, including reductions in sales incentives, implemented during
the course of 1995.
For the nine months ended August 31, 1996, operating income (excluding the
$170.8 million non-cash charge for impairment of long-lived assets)
increased by $29.9 million to $62.9 million from $33.0 million in the
corresponding period of 1995. This increase was principally due to higher
gross profits on housing sales, reflecting both higher unit volume and an
improvement in margins, mainly due to the operations of Rayco. For the
nine-month period, gross profits (excluding profits from land sales)
increased by $68.1 million to $219.7 million in 1996 from $151.6 million
in 1995. As a percentage of related revenues, gross profits (excluding
profits from land sales) were 18.4% in the first nine months of 1996
compared to 17.1% in the prior year's period. Excluding the effects of
commercial development activities, housing gross profits as a percentage
of related revenues increased to 18.3% in the first nine months of 1996
from 17.0% a year earlier. This increase primarily reflected the addition
of Rayco, a .5 percentage point improvement in California gross margin and
continued growth in the Company's higher margin operations in other
western states. Gross profits from land sales decreased by $1.4 million
in the first nine months of 1996 to $1.8 million from the $3.2 million
recorded in the first nine months of 1995.
Selling, general and administrative expenses increased by $36.9 million to
$158.7 million for the first nine months of 1996 from $121.8 million for
the same period of 1995. This increase was primarily due to the inclusion
of Rayco's operations which added $17.4 million of selling, general and
administrative expenses (including the amortization of goodwill since its
inclusion in the Company since March 1, 1996), and an increase in
marketing expenses from the Company's remaining operations due to higher
unit volume. As a percentage of housing revenues, selling, general and
administrative expenses improved .4 percentage points to 13.5% for the
first nine months of 1996 from 13.9% in the corresponding period of 1995.
This improvement reflected higher unit volume, resulting from the
acquisition of Rayco, and the impact of the Company's cost containment
efforts.
In the second quarter of 1996, the Company decided to accelerate the
disposition of certain real estate assets in order to further facilitate
pursuit of its four key operating strategies, including geographic
diversification, increased emphasis on return on investment, planned debt
reduction and improved operating margins. The disposition of these
assets effectuates the Company's strategies to improve its overall
return on investment,
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restore financial leverage to targeted levels, and position the
Company to continue its geographic expansion. In addition, the Company
also changed its strategy to substantially eliminate its prior practice
of investing in long term development projects in order to reduce the
operating risk associated with such projects. The accelerated
disposition of long term development assets caused certain assets,
primarily inventories and investments in unconsolidated joint ventures
in California and France, to be identified as being impaired and to be
written down. Only certain of the Company's California properties were
impacted by the charge while none of the non-California domestic
properties were affected. The Company's non-California domestic
properties were not affected since they were not held for long term
development and were expected to be economically successful such that
no impairment was determined. The evaluation of impaired assets
considered the depressed nature of the real estate business in certain
of the Company's California and French markets, reduced demand from
prospective homebuyers, availability of ready buyers for the Company's
properties, future costs of development and holding costs during
development. Accordingly, based on this evaluation, the Company
recorded a non-cash write-down of $170.8 million ($109.3 million, net
of income taxes) to state these impaired assets at their fair values.
The fair values established were based on various methods, including
discounted cash flow projections, appraisals and evaluations of
comparable market prices, as appropriate. As the inventories affected
by the charge primarily consisted of land which was not under active
development, the Company does not anticipate that the charge will have
a material effect on its gross margins.
The Company also decided in the second quarter of 1996 to adopt SFAS No.
121 earlier than required by this standard. SFAS No. 121 requires that
long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not
be recoverable and requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Under the new standard, when an
impairment loss is required, the related assets are adjusted to their
estimated fair value. Fair value for purposes of SFAS No. 121 is deemed
to be the amount a willing buyer would pay a willing seller for such
property in a current transaction, that is, other than in a forced or
liquidation sale. For homebuilders, this is a change from the previous
accounting standard which required homebuilders to carry real estate
assets at the lower of cost or net realizable value. The write-down for
impairment of long-lived assets recorded in the second quarter was
calculated in accordance with the requirements of SFAS No. 121 but was
not necessitated by implementation of this standard. Had the Company
not adopted SFAS No. 121 in the second quarter a substantial write-down
would have nonetheless been recorded.
Interest income totaled $.5 million in the third quarter of 1996
compared to $.6 million in the prior year's third quarter. For the
first nine months, interest income totaled $1.9 million in 1996 and
$1.6 million in 1995. Interest income for the third quarter and first
nine months of 1996 reflected little change in the interest bearing
average balances of short-term investments and mortgages receivable
compared to the same periods a year ago.
Interest expense (net of amounts capitalized), reflecting a lower
percentage of interest capitalized, increased to $9.0 million in the
third quarter of 1996 from $7.5 million in the third quarter of 1995.
The Company's average indebtedness for the quarter ended August 31, 1996
decreased from the same period a year ago as a result of the Company's
debt reduction strategy. For the nine-month period, interest expense
increased by $7.2 million to $27.7 million in 1996 compared to $20.5
million in 1995 due to higher average debt levels and a lower percentage
of interest capitalized. Average debt levels for the nine months ended
August 31, 1996 increased from the same period a year ago primarily as a
result of additional borrowings under the Company's amended domestic
unsecured revolving credit agreement for the acquisition of Rayco and
continued growth in the Company's western United States operations. The
lower capitalization rate during the three and nine months ended August
31, 1996 reflected a higher proportion of land in production in 1996
compared to 1995 and non-capitalization of interest on borrowings
associated with the acquisition of Rayco.
Minority interests in pretax income of consolidated joint ventures
totaled less than $.1 million in the three months ended August 31, 1996
compared to $.3 million for the same period of 1995. For the first
nine months of 1996, minority interests in pretax income of
consolidated joint ventures totaled $.2 million compared to $.4 million
for the same period a year ago. Minority interests, which primarily
relate to commercial activities in France, are expected to remain at
relatively low levels reflecting the limited opportunities currently
available in the French commercial market.
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Equity in pretax income (loss) of unconsolidated joint ventures reflected
slightly positive results in the third quarter of 1996 compared to a loss
of $1.2 million in the third quarter of 1995. The Company's joint ventures
recorded combined revenues of $2.8 million in the current quarter compared
to $10.2 million for the corresponding period of 1995. All of these
revenues in the third quarter of 1996 and 1995 were from residential
properties. For the first nine months of 1996, the Company's equity in
pretax loss of unconsolidated joint ventures totaled $1.7 million,
increasing from $1.3 million in the same period of 1995. Combined revenues
from these joint ventures totaled $4.9 million in the first nine months of
1996 compared to $26.8 million in the first nine months of 1995. Of these
amounts, revenues from residential properties accounted for $4.8 million in
1996 and $23.8 million in 1995. The losses recorded in the nine month
period ended August 31, 1996 and the three and nine month periods ended
August 31, 1995 primarily related to a single French multi-family
residential project. As a result of the non-cash charge for impairment of
long-lived assets taken in the second quarter of 1996 to reflect the
impairment in unconsolidated joint ventures, the Company does not
anticipate incurring significant additional losses from these joint
ventures in the future.
MORTGAGE BANKING
Interest income and interest expense both decreased by $.2 million in the
third quarter of 1996 compared to the mortgage banking's performance in
the same quarter a year ago. For the nine months ended August 31, 1996,
interest income from mortgage banking declined by $.8 million and related
interest expense dropped by $.8 million from the same period of 1995. The
amounts for the three and nine month periods decreased primarily due to
the decline in balances of outstanding mortgage-backed securities and
related collateralized mortgage obligations from the prior year's period,
stemming from both regularly scheduled monthly principal amortization and
prepayment activity of mortgage collateral. Interest income and expense
are expected to continue to decline as the mortgage-backed securities and
related collateralized mortgage obligations pay off at approximately the
same rate.
Other mortgage banking revenues increased by $.8 million to $5.0 million
in the third quarter of 1996 from $4.2 million in the prior year's third
quarter. For the first nine months of 1996, other mortgage banking
revenues totaled $12.8 million, an increase of $4.2 million from $8.6
million in the prior year's period. These increases were mainly the
result of higher gains on the sale of servicing rights due to a higher
volume of mortgage originations and a more favorable mix of fixed to
variable rate loans.
General and administrative expenses associated with mortgage banking
increased slightly to $1.8 million in the third quarter of 1996 from $1.7
million in the prior year's third quarter. For the nine-month period,
these expenses were $4.8 million in 1996 and $4.1 million in 1995. The
increase in general and administrative expenses in 1996 resulted from
higher mortgage production levels, due to the increase in domestic unit
deliveries, partially offset by the benefit of cost reduction programs.
INCOME TAXES
Income taxes consisted of income tax expense of $7.4 million and $4.0
million in the third quarter of 1996 and 1995, respectively. For the
first nine months of 1996, the income tax benefit totaled $45.7 million
compared to $6.5 million of income tax expense in the same period of 1995.
The tax benefit in the nine month period of 1996 reflected the pretax
losses reported by the Company as a result of the non-cash charge for
impairment of long-lived assets recorded in the second quarter of 1996.
The income tax amounts represented effective income tax rates of
approximately 36% and 37% in 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate
cash to fund its operating and investing activities. Historically, the
Company has funded its construction and mortgage banking concerns with
internally generated operating results and external sources of debt and
equity financing.
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For the nine months ended August 31, 1996, net cash used for operating,
investing and financing activities totaled $20.0 million compared to
$22.4 million used in the first nine months of 1995. The Company's
operating activities for the first nine months of 1996 provided cash of
$204.8 million compared to $102.7 million used during the first nine
months of 1995. The sources of operating cash for the nine months ended
August 31, 1996, were a reduction in inventories totaling $123.4 million
(excluding $17.0 million of inventories acquired through seller
financing) a reduction in receivables of $53.6 million and various
non-cash items, including the $170.8 million non- cash charge for
impairment of long-lived assets, offsetting the net loss of $81.1
million (which included the non-cash charge for impairment of long-lived
assets) recorded for the first three quarters of 1996. Uses of cash
during the first nine months of 1996 included a $35.0 million change in
deferred taxes and a $40.3 million decrease in accounts payable, accrued
expenses and other liabilities. During the nine months ended August 31,
1996, excluding the acquisition of Rayco and the non-cash charge for the
impairment of long-lived assets, inventories decreased, primarily in
California, as the Company continued to execute its debt reduction
strategy in 1996, including the aggressive asset sale program. The
reduction in receivables mainly related to a decrease in mortgage
origination volume in the third quarter of 1996 compared to the fourth
quarter of 1995, resulting in a lower balance of mortgages held under
commitment of sale.
Operating activities for the first nine months of 1995 used cash for a
net investment of $115.1 million in inventories (excluding $27.3
million of inventories acquired through seller financing) and to pay
down $22.3 million in accounts payable, accrued expenses and other
liabilities. The use of cash was partially offset by nine months'
earnings of $11.1 million, a reduction in receivables of $37.5 million
and various non-cash items deducted from net income. Inventories
increased in 1995 mainly due to the Company's domestic expansion. The
reduction in receivables related to a decrease in receivables from both
construction and mortgage banking operations. Construction receivables
decreased as a result of increased collections on mortgages receivable
and customer accounts, while mortgage banking receivables related to
mortgages held under commitment of sale decreased due to lower mortgage
origination volume in the third quarter of 1995 compared to the fourth
quarter of 1994.
Cash used by investing activities totaled $76.3 million in the nine
months ended August 31, 1996 compared to $6.8 million provided in the
year-earlier period. In the first nine months of 1996, $80.6 million of
cash was used for the purchase of Rayco, acquired on March 1, 1996 for
a total of $104.5 million, including cash to pay off the debt assumed.
In addition, cash of $5.1 million was used for investments in
unconsolidated joint ventures and $5.4 million was used for other
investing activities. Partially offsetting these uses was $15.8
million in proceeds received from mortgage-backed securities which were
principally used to pay down the collateralized mortgage obligations
for which the mortgage-backed securities had served as collateral. In
the first nine months of 1995, proceeds of $9.5 million received from
mortgage-backed securities were partially offset by $3.4 million of
cash used for other investing activities.
Financing activities in the first three quarters of 1996 used $148.5
million of cash compared to $73.5 million provided in the same period
of 1995. In the first nine months of 1996, cash was used for net
payments on borrowings of $119.9 million, reflecting the Company's
progress on its debt reduction strategy; payments on collateralized
mortgage obligations of $14.7 million, the funds for which were
provided by receipts on mortgage-backed securities; and cash dividend
payments of $13.2 million. The mandatory conversion of 6.5 million
outstanding depositary shares into shares of common stock was completed
on April 1, 1996 and has reduced cash flow required for future
dividends by approximately $2.0 million per quarter. Financing
activities for the nine months ended August 31, 1995 resulted in net
cash inflows due mainly to $97.9 million in net proceeds from
borrowings, partially offset by payments on collateralized mortgage
obligations of $9.0 million; and $14.7 million of cash dividend
payments.
In connection with the acquisition of Rayco, the Company amended its
existing domestic unsecured revolving credit agreement with various
banks to increase its initial borrowing capacity thereunder to $630
million from $500 million. The additional $130 million of financing
obtained by the Company consisted of a $110 million term loan facility,
used to finance the acquisition and to refinance portions of the
existing indebtedness of Rayco, and a $20 million revolving credit
facility to be used for general working capital requirements. The
amendment to the Company's credit facility is set forth in the Fourth
Amended and Restated Loan Agreement,
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dated February 28, 1996, which provides for a maximum repayment term of
eighteen months for the additional $130 million of borrowing capacity.
Despite borrowings of $104.5 million in the second quarter to acquire
Rayco, the Company's debt totaled $580.6 million at August 31, 1996, $99.1
million less than the balance at the end of the second quarter of 1996,
reflecting progress in the Company's aggressive debt reduction program.
Key elements of the Company's debt reduction program include an increased
emphasis on contracting for sales prior to construction ("pre sales")
rather than on sales of inventory or "spec" homes, stringent control of
production inventory, a focus on reducing standing inventory, and an
aggressive land asset sale program. The debt reduction program is intended
to reduce the Company's indebtedness in order to assist in restoring
financial leverage (as measured by a debt to total capital ratio) to the
Company's targeted range of 50% to 60% over time. The Company's ratio of
debt to total capital was 64.1% at the end of the 1996 third quarter
compared to 68.4% at the end of the 1996 second quarter.
Under the Company's $630 million domestic unsecured revolving credit
facility, which contains a $200 million sublimit for the Company's
mortgage banking operations, a total of $337.8 million was available for
future use as of August 31, 1996. In addition to the $200 million
sublimit, all of which was available for the mortgage banking operation's
use at August 31, 1996, the Company's mortgage banking operations had
commitments of $120 million on the asset-backed commercial paper facility.
Of the total $120 million potentially available under this facility, $46.0
million was available at August 31, 1996. On August 28, 1996, the
Company's mortgage banking subsidiary entered into a Mortgage Loan
Purchase and Interim Servicing Agreement, which provides for up to $100
million for its mortgage banking operations. The agreement, which expires
on August 27, 1997, provides for a commitment fee based upon the unused
portion of the commitment and a program fee on the amount outstanding
based upon either the Federal Funds or Eurodollar rate plus an applicable
spread. At August 31, 1996, the mortgage banking operations had $57.9
million outstanding under this agreement. The Company's French unsecured
financing agreements had in the aggregate $25.8 million available at
August 31, 1996.
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.
The Company's residential backlog as of August 31, 1996, consisted of
3,398 units, representing aggregate future revenues of approximately
$517.7 million compared to 1,851 units representing $333.5 million a year
earlier. Excluding the effects of the Rayco acquisition, unit and dollar
backlog as of August 31, 1996 rose 12.2% and 18.0%, respectively, from
August 31, 1995 levels. The Company's operations in the United States,
including Rayco, accounted for approximately $454.8 million of backlog
value on 3,106 units at August 31, 1996 compared to $277.3 million on
1,586 units at August 31, 1995 as net orders increased to 2,539 in the
third quarter of 1996 from 2,160 in the third quarter of 1995. Backlog in
California increased to approximately $225.5 million on 1,083 units at
August 31, 1996 compared to $191.2 million on 993 units at August 31, 1995
despite net orders decreasing 12.2% to 1,395 in the current quarter from
1,588 for the same quarter a year ago. The Company's other United States
operations, excluding Rayco, demonstrated year-over-year growth in
backlog levels with backlog at August 31, 1996 increasing to approximately
$105.2 million on 702 units from $86.1 million on 593 units at August 31,
1995. Net orders for other United States operations (excluding Rayco)
increased 2.3% to 585 for the three months ended August 31, 1996 from 572
for the same period of 1995.
In France, the residential backlog value at August 31, 1996 totaled
approximately $55.2 million on 261 units and $54.6 million on 248 units a
year earlier. Backlog levels in France were slightly improved at August
31, 1996 although net orders decreased 24.6% to 104 in the third quarter
of 1996 from 138 net orders for the same period a year ago. Backlog
associated with consolidated commercial development activities in France
totaled $5.9 million at August 31, 1996 compared to $20.1 million at
August 31, 1995, reflecting reduced opportunities in the French commercial
market.
In Mexico, the Company delivered its first 3 homes during the quarter
ended August 31, 1996. The Company also recorded 7 net orders in the
current quarter bringing backlog at August 31, 1996 to $7.6 million on 31
units.
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Although the Company generated these net orders in 1996, the new home
market in Mexico remains seriously hampered by the decline in the value
of the peso and the economic recession created by the devaluation. The
Mexican recession has slowed an already complex regulatory process and
has heightened consumer concerns about new home purchases. Despite
these troubled conditions, demand for housing in Mexico remains
substantial. The Company continues to closely monitor the unsettled
economic environment and remains cautious regarding these operations,
and continues to reassess its level of activity in Mexico and the
desirability of expanding its market presence there.
Substantially all of the homes included in the Company's third quarter
residential backlog are expected to be delivered in 1996; however,
cancellations could occur, particularly if market conditions
deteriorate or mortgage interest rates increase, thereby decreasing
backlog and related future revenues.
The third quarter of 1996 marked the Company's fourth consecutive
quarter of improved year-over-year unit deliveries, total revenues,
housing gross margin, selling, general and administrative expense ratio,
pretax income and earnings per share (excluding the non-cash charge for
impairment of long-lived assets). This improvement has been largely
driven by progress achieved in each of the four major strategies
(non-California United States expansion, improved return on investment,
an aggressive inventory and debt reduction program, and improved
operating margin) upon which the Company has focused during 1996. In
light of higher backlog levels at August 31, 1996, the Company is
optimistic that this trend can continue for the remainder of the year.
The Company is also in the early stages of developing two new
strategies, which include the acceleration of the Company's growth and
the substantial revision of its operational business model. These new
strategies, which the Company expects to articulate in the next few
months, are intended to extend and accelerate the Company's current
earnings trend over the next few years.
The Company's outlook for 1997, however, is cautious due to recent
softness in Company-wide net orders. Total Company-wide net orders,
excluding net orders from Rayco, in the first six weeks of the fourth
quarter were down 10.0% from the same period a year ago. Domestic net
orders, excluding Rayco, decreased 15.4% during the first five weeks of
the fourth quarter of 1996 compared to the same period a year ago,
reflecting an 18.9% decrease in California net orders and a 4.1%
decrease in other United States net orders. In France, net orders
during the first five weeks of the 1996 fourth quarter were up 47.5%
from the corresponding period last year. The continued softness in
domestic net orders into the fourth quarter along with other external
factors such as the potential for interest rate increases, contribute to
the caution in the Company's outlook for 1997.
* * * * * *
Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act
of 1995, which involve certain risks and uncertainties, including but
not limited to, changes in general economic conditions, materials
prices, labor costs, interest rates, consumer confidence, competition,
environmental factors, and government regulations affecting the
Company's operations. See the Company's Annual Report on Form 10-K for
the year ended November 30, 1995 for a further discussion of these and
other risks and uncertainties applicable to the Company's business.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The following table presents residential information in terms of unit
deliveries to home buyers and net orders taken by geographical market for the
three months and nine months ended August 31, 1996 and 1995, together with
backlog data in terms of units and value by geographical market as of August
31, 1996 and 1995.
Three Months Ended August 31,
-----------------------------------
Deliveries Net Orders
--------------- ----------------
Market 1996 1995 1996 1995
- ------------------- ------ -------- ------ --------
California 1,259 1,454 1,395 1,588
Other United States 1,307 511 1,144 572
France 180 133 104 138
Canada - 13 - 13
Mexico 3 - 7 -
------ ------- ------ -------
Total 2,749 2,111 2,650 2,311
====== ======= ====== =======
Nine Months Ended August 31,
----------------------------------- Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
--------------- ---------------- ------------------- ---------------------
Market 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------- -------- -------- -------- -------- -------- -------- -------- --------
California 3,807 3,721 4,264 4,086 1,083 993 $225,486 $191,182
Other United States 3,059 1,250 3,083 1,644 2,023 * 593 229,348* 86,096
France 436 345 468 424 261 248 55,236 54,560
Canada 10 37 15 34 - * 17 -* 1,683
Mexico 3 - 34 - 31 - 7,595 -
-------- -------- -------- -------- -------- -------- -------- --------
Total 7,315 5,353 7,864 6,188 3,398 * 1,851 $517,665* $333,521
======== ======== ======== ======== ======== ======== ======== ========
* Backlog amounts for 1996 have been adjusted to reflect the
acquisition of Rayco and disposition of Canadian operations.
Therefore, backlog amounts at November 30, 1995 combined with
sales and delivery activity for the first nine months of 1996 will
not equal ending backlog at August 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Statement of Computation of Per Share Earnings (Loss).
24 The consent of Ernst & Young LLP, independent auditors, filed as
an exhibit to the Company's 1995 Annual Report on Form 10-K, is
incorporated by reference herein.
27 Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31, 1996.
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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.
KAUFMAN AND BROAD HOME CORPORATION
----------------------------------
Registrant
Dated November 8, 1996 /s/ BRUCE KARATZ
--------------------- ----------------------------------
Bruce Karatz
Chairman, President and Chief
Executive Officer
Dated November 8, 1996 /s/ MICHAEL F. HENN
--------------------- ----------------------------------
Michael F. Henn
Senior Vice President and Chief
Financial Officer
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Page of Sequentially
INDEX OF EXHIBITS Numbered Pages
--------------------
11 Statement of Computation of Per Share Earnings (Loss) 21
27 Financial Data Schedule 22
20