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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 May 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ].
Commission File No. 1-9195
KAUFMAN AND BROAD HOME CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3666267
(State of incorporation) (IRS employer
identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal and executive offices)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [X] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
Common stock, par value $1.00 per share, 39,853,702 shares outstanding
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KAUFMAN AND BROAD HOME CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER(S)
---------
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Consolidated Statements of Income -
Six Months and Three Months ended May 31, 1998 and 1997 3
Consolidated Balance Sheets -
May 31, 1998 and November 30, 1997 4
Consolidated Statements of Cash Flows -
Six Months ended May 31, 1998 and 1997 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 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5.OTHER INFORMATION 18-19
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
INDEX OF EXHIBITS 21
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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)
Six Months Ended May 31, Three Months Ended May 31,
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
TOTAL REVENUES $ 963,704 $ 762,246 $ 537,459 $ 415,000
========= ========= ========= =========
CONSTRUCTION:
Revenues $ 944,026 $ 746,676 526,717 $ 407,041
Construction and land costs (773,872) (614,526) (428,993) (334,938)
Selling, general and administrative
expenses (127,051) (99,814) (69,808) (51,513)
--------- --------- --------- ---------
Operating income 43,103 32,336 27,916 20,590
Interest income 2,849 2,251 1,327 1,164
Interest expense, net of amounts
capitalized (14,799) (16,444) (7,662) (8,048)
Minority interests in pretax income
of consolidated joint ventures (422) (114) (163) (61)
Equity in pretax income of
unconsolidated joint ventures 332 61 83 21
--------- --------- --------- ---------
Construction pretax income 31,063 18,090 21,501 13,666
--------- --------- --------- ---------
MORTGAGE BANKING:
Revenues:
Interest income 7,302 6,637 3,640 3,028
Other 12,376 8,933 7,102 4,931
--------- --------- --------- ---------
19,678 15,570 10,742 7,959
Expenses:
Interest (7,136) (6,222) (3,557) (2,976)
General and administrative (4,685) (3,789) (2,464) (1,944)
--------- --------- --------- ---------
Mortgage banking pretax income 7,857 5,559 4,721 3,039
--------- --------- --------- ---------
TOTAL PRETAX INCOME 38,920 23,649 26,222 16,705
Income taxes (13,600) (8,500) (9,000) (6,000)
--------- --------- --------- ---------
NET INCOME $ 25,320 $ 15,149 $ 17,222 $ 10,705
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ .65 $ .39 $ .44 $ .28
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ .62 $ .38 $ .42 $ .27
========= ========= ========= =========
BASIC AVERAGE SHARES OUTSTANDING 39,201 38,832 39,324 38,836
========= ========= ========= =========
DILUTED AVERAGE SHARES OUTSTANDING 40,862 39,709 41,141 39,729
========= ========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .150 $ .150 $ .075 $ .075
========= ========= ========= =========
See accompanying notes.
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
May 31, November 30,
1998 1997
----------- -----------
ASSETS
CONSTRUCTION:
Cash and cash equivalents $ 9,012 $ 66,343
Trade and other receivables 169,760 169,988
Inventories 1,049,788 790,243
Investments in unconsolidated joint ventures 5,706 6,338
Goodwill 50,469 31,283
Other assets 91,873 69,666
----------- -----------
1,376,608 1,133,861
----------- -----------
MORTGAGE BANKING:
Cash and cash equivalents 8,674 1,899
Receivables:
First mortgages and mortgage-backed securities 63,962 71,976
First mortgages held under commitment of
sale and other receivables 179,430 208,254
Other assets 2,781 3,001
----------- -----------
254,847 285,130
----------- -----------
TOTAL ASSETS $ 1,631,455 $ 1,418,991
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $ 179,816 $ 163,646
Accrued expenses and other liabilities 114,098 105,376
Mortgages and notes payable 688,283 496,869
----------- -----------
982,197 765,891
----------- -----------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,308 7,300
Notes payable 172,530 200,828
Collateralized mortgage obligations secured
by mortgage-backed securities 55,198 60,058
----------- -----------
237,036 268,186
----------- -----------
Minority interests in consolidated joint ventures 1,985 1,858
----------- -----------
Common stock 39,854 38,997
Paid-in capital 194,431 186,086
Retained earnings 179,393 159,960
Cumulative foreign currency translation adjustments (3,441) (1,987)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 410,237 383,056
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,631,455 $ 1,418,991
=========== ===========
See accompanying notes.
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KAUFMAN AND BROAD HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
Six Months Ended May 31,
-----------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,320 $ 15,149
Adjustments to reconcile net income to net
cash used by operating activities:
Equity in pretax income of unconsolidated
joint ventures (332) (61)
Minority interests in pretax income of
consolidated joint ventures 422 114
Amortization of discounts and issuance costs 967 938
Depreciation and amortization 7,241 5,883
Provision for deferred income taxes 2,367 (3,174)
Change in assets and liabilities,
net of effects from acquisitions:
Receivables 44,442 33,301
Inventories (93,322) (7,070)
Accounts payable, accrued expenses and
other liabilities (10,081) (45,380)
Other, net (9,015) (6,064)
--------- ---------
Net cash used by operating activities (31,991) (6,364)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (148,933) --
Investments in unconsolidated joint ventures 964 637
Net sales (originations) of mortgages held
for long-term investments 2,533 (1,105)
Payments received on first mortgages
and mortgage-backed securities 5,956 4,484
Other, net (9,656) (1,491)
--------- ---------
Net cash provided (used) by investing activities (149,136) 2,525
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from credit agreements and other
short-term borrowings 153,852 25,792
Payments on collateralized mortgage
obligations (5,661) (4,280)
Payments on mortgages, land contracts and
other loans (11,438) (3,466)
Payments on minority interests in consolidated joint
ventures (295) (377)
Payments of cash dividends (5,887) (5,824)
--------- ---------
Net cash provided by financing activities 130,571 11,845
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (50,556) 8,006
Cash and cash equivalents at beginning of period 68,242 9,781
========= =========
Cash and cash equivalents at end of period $ 17,686 $ 17,787
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid, net of amounts capitalized $ 21,464 $ 23,397
========= =========
Income taxes paid $ 9,857 $ 5,240
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $ 14,367 $ 1,924
========= =========
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, 1997 contained in the Company's 1997 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 May 31, 1998, the results of its consolidated operations for
the six months and three months ended May 31, 1998 and 1997, and its
consolidated cash flows for the six months ended May 31, 1998 and 1997. The
results of operations for the six months and three months ended May 31, 1998
are not necessarily indicative of the results to be expected for the full
year. The consolidated balance sheet at November 30, 1997 has been taken from
the audited financial statements as of that date.
2. Inventories
Inventories consist of the following (in thousands):
May 31, November 30,
1998 1997
---------- ----------
Homes, lots and improvements in production $ 723,600 $ 605,227
Land under development 326,188 185,016
========== ==========
Total inventories $1,049,788 $ 790,243
========== ==========
The impact of capitalizing interest costs on consolidated pretax income is as
follows (in thousands):
Six Months Ended May 31, Three Months Ended May 31,
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Interest incurred $ 26,990 $ 26,523 $ 14,637 $ 13,350
Interest expensed (14,799) (16,444) (7,662) (8,048)
-------- -------- -------- --------
Interest capitalized 12,191 10,079 6,975 5,302
Interest amortized (11,564) (10,500) (4,639) (4,758)
-------- -------- -------- --------
Net impact on pretax income $ 627 $ (421) $ 2,336 $ 544
======== ======== ======== ========
3. Earnings Per Share
During the quarter ended February 28, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"), which simplifies existing computational guidelines, revises disclosure
requirements and increases the comparability of earnings per share on an
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share (continued)
international basis. Basic earnings per share is calculated by dividing net
income by the average common shares outstanding for the period. Diluted
earnings per share is calculated by dividing net income by the average number
of shares outstanding including dilutive stock options using the treasury
stock method. All earnings per share amounts for all periods have been
presented and, where necessary, restated to conform to the SFAS No. 128
requirements. The following table presents the effects of dilutive common
stock options (in thousands):
Six Months Ended May 31, Three Months Ended May 31,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Basic average shares outstanding 39,201 38,832 39,324 38,836
Net effect of stock options
assumed to be
exercised 1,661 877 1,817 893
---------- ---------- ---------- ----------
Diluted average shares
outstanding 40,862 39,709 41,141 39,729
========== ========== ========== ==========
4. Shelf Registration
On December 5, 1997, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for up to $500 million
of the Company's debt and equity securities. This universal shelf
registration provides that securities may be offered from time to time in one
or more series and in the form of senior, senior subordinated or subordinated
debt, preferred stock, common stock, and/or warrants to purchase such
securities. The registration was declared effective on December 16, 1997, and
no securities have been issued thereunder.
5. Acquisitions
During the second quarter of 1998, the Company acquired three privately held
home builders with regional operations in certain key markets. On March 19,
1998, the Company acquired all of the issued and outstanding capital stock of
Houston-based Hallmark Residential Group ("Hallmark") for approximately $54
million, including the assumption of debt. Hallmark builds single family
homes in Houston, San Antonio and Austin, Texas under the trade names of
Dover Homes and Ideal Builders. The Company acquired substantially all of the
assets of Denver-based PrideMark Homebuilding Group ("PrideMark") on March
23, 1998 for approximately $65 million, including the assumption of trade
liabilities and debt. PrideMark builds single family homes in Denver,
Colorado. On April 9, 1998, the Company acquired all of the issued and
outstanding capital stock of Estes Homebuilding Co. ("Estes") for
approximately $48 million, including the assumption of debt. Estes builds
single family homes in Phoenix and Tucson, Arizona.
The acquisitions of Hallmark, PrideMark and Estes were financed by borrowings
under the Company's domestic unsecured revolving credit facility. These
acquisitions were accounted for under the purchase method with the results of
operations of the acquired entities included in the Company's consolidated
financial statements as of their respective dates of acquisition. The
purchase prices were allocated to the assets acquired and liabilities assumed
based upon their estimated fair market values at the date of acquisition. The
excess of the purchase prices over the fair value of net assets acquired
aggregated to $23.4 million and was allocated to goodwill. The Company is
amortizing goodwill related to the acquisitions on a straight line basis over
a period of ten years.
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisitions (continued)
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and Hallmark, PrideMark and
Estes as if these acquisitions had occurred as of December 1, 1996 with pro
forma adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt and certain other adjustments, together with
related income tax effects (in thousands,
except per share amounts):
Six Months Ended May 31,
--------------------------------
1998 1997
------------ ------------
Total revenues $ 1,038,293 $ 870,650
Total pretax income 36,713 18,247
Net income 23,813 11,647
Basic earnings per share .61 .30
Diluted earnings per share .58 .29
The 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 three acquisitions been consummated as of December 1,
1996, nor are they necessarily indicative of future operating results.
6. Subsequent Event
On July 7, 1998, the Company, together with KBHC Financing I, a Delaware
statutory business trust (the "KBHC Trust"), issued an aggregate of (a)
18,975,000 FELINE PRIDES, and (b)1,000,000 KBHC Trust capital securities,
with a $10 stated liquidation amount. The FELINE PRIDES consist of (a)
17,975,000 Income PRIDES with a stated amount per Income PRIDES of $10 (the
"Stated Amount"), which are units comprised of a trust preferred security and
a stock purchase contract under which the holders will purchase common stock
from the Company not later than August 16, 2001 and the Company will pay
certain unsecured contract adjustment payments and (b)1,000,000 Growth PRIDES
with a face amount per Growth PRIDES equal to the Stated Amount, which are
units consisting of a 1/100th beneficial interest in a zero-coupon U.S.
treasury security and a stock purchase contract under which the holders will
purchase common stock from the Company not later than August 16, 2001 and the
Company will pay certain unsecured contract adjustment payments.
The distribution rate on the Income PRIDES is 8.25% per annum, and the
distribution rate on the Growth PRIDES is .75% per annum. Under the stock
purchase contracts, investors will be required to purchase shares of common
stock of the Company for an effective price ranging between a minimum of
$31.75 per share and a maximum of $38.10 per share, and the Company will
issue approximately 5.0 million to 6.0 million common shares by August 16,
2001, depending upon the price of the Company's common stock upon settlement
of the purchase contracts (subject to adjustment under certain
circumstances). The capital securities associated with the Income PRIDES and
the U.S. treasury securities associated with the Growth PRIDES have been
pledged as collateral to secure the holders' obligations in respect of the
common stock purchase contracts. The capital securities issued by the KBHC
Trust are entitled to a distribution rate of 8% per annum of their $10 stated
liquidation amount.
The KBHC Trust utilized the proceeds from the issuance of the FELINE PRIDES
and capital securities to purchase an equivalent principal amount of the
Company's 8% Debentures due August 16, 2003 (the "8% Debentures"). The
interest rate on the 8% Debentures and the distribution rate on the capital
securities of the
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KAUFMAN AND BROAD HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Subsequent Event (continued)
KBHC Trust are to be reset, subject to certain limitations, effective August
16, 2001. The Company will record the present value of the contract
adjustment payments on the FELINE PRIDES, totaling $1.4 million, as a
liability and a reduction of stockholders' equity. The liability will be
reduced as the contract adjustment payments are made. The Company has the
right to defer the contract adjustment payments and the payment of interest
on the 8% Debentures, but any such election will subject the Company to
restrictions on the payment of dividends on and redemption of, its
outstanding shares of common stock, and on the payment of interest on, or
redemption of debt securities of the Company junior in rank to the 8%
Debentures, none of which are currently outstanding.
The proceeds from the issuance of FELINE PRIDES will be used for general
corporate purposes, including support of the Company's growth strategies and
potential future acquisitions. The immediate use of proceeds was to pay down
outstanding debt under the Company's $500 million domestic unsecured
revolving credit facility. The Company incurred costs of approximately $6.6
million in connection with the issuance of the FELINE PRIDES and the capital
securities.
7. Reclassifications
Certain amounts in the consolidated financial statements of prior years have
been reclassified to conform to the 1998 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 May 31, 1998 increased 29.5% to
$537.5 million from $415.0 million for the three months ended May 31, 1997.
For the six months ended May 31, 1998, total revenues increased 26.4% to
$963.7 million from $762.2 million in the year-earlier period. The increase
in total revenues for the three and six month periods of 1998 was due to
higher housing revenues and mortgage banking revenues. Net income for the
second quarter of 1998 rose to $17.2 million or $.42 diluted earnings per
share from $10.7 million or $.27 diluted earnings per share for the same
period a year ago. For the six months ended May 31, 1998, net income
increased to $25.3 million or $.62 diluted earnings per share from $15.1
million or $.38 diluted earnings per share for the six months ended May 31,
1997. The 55.6% increase in diluted earnings per share for the three months
ended May 31, 1998 was primarily driven by an increase in unit deliveries and
construction gross margin, as well as improved mortgage banking pretax
income. For the six months ended May 31, 1998, diluted earnings per share
increased 63.2% primarily as a result of higher unit deliveries and mortgage
banking pretax income. Included in the Company's operating results for the
three and six month periods of 1998 are the results of the three acquisitions
in the Houston, Denver and Phoenix/Tucson markets, which the Company
completed during the quarter ended May 31, 1998.
CONSTRUCTION
Revenues increased by $119.7 million, or 29.4%, to $526.7 million in the
second quarter of 1998 from $407.0 million in the second quarter of 1997 due
to an increase in housing revenues. Housing revenues for the period increased
by 31.1%, or $124.5 million, to $524.9 million from $400.4 million in the
year-earlier period as a result of a 38.3% increase in unit deliveries,
partly offset by a 5.2% decline in average sales price. Housing revenues in
the United States rose to $475.2 million on 3,062 unit deliveries in the
second quarter of 1998 from $369.8 million on 2,306 units in the
corresponding quarter of 1997 as a result of increased housing revenues from
both California and non-California domestic operations (Arizona, Colorado,
Nevada, New Mexico, Texas and Utah; collectively, "Other U.S."). California
housing revenues for the second quarter of 1998 rose 6.8% to $242.5 million
on 1,124 unit deliveries from $227.2 million on 1,095 unit deliveries in the
year-earlier period. California deliveries in the second quarter of 1998
increased 2.7% from the second quarter of 1997 despite a decline of 17.1% in
the average number of active communities. Revenues from Other U.S. housing
operations totaled $232.7 million in the second quarter compared to $142.6
million in the same quarter a year ago. Other U.S. deliveries increased 60.0%
to 1,938 units in the second quarter of 1998 from 1,211 units in the second
quarter of 1997, and included a total of 427 additional unit deliveries from
the Company's three recent acquisitions in Houston, Denver and
Phoenix/Tucson. Excluding these incremental deliveries, Other U.S. deliveries
were up 24.8% from the second quarter of 1997. Revenues from French housing
operations during the three months ended May 31, 1998 rose to $47.8 million
on 340 units from $28.4 million on 151 units in the year-earlier period. The
125.2% increase in unit deliveries from French operations during the second
quarter of 1998 was primarily due to the inclusion of operations of
Paris-based SMCI, acquired in the third quarter of 1997.
For the second quarter of 1998, the Company's overall average selling price
decreased 5.2% to $154,000 from $162,400 in the same quarter a year ago,
reflecting a decrease in the average selling price in both its domestic and
French operations. The Company's domestic average selling price declined 3.2%
to $155,200 in the second quarter of 1998 from $160,400 in the same period of
1997 as a result of a greater proportion of lower priced domestic unit
deliveries generated from the Company's Other U.S. operations. Other U.S.
deliveries comprised 63.3% of total U.S. deliveries in the second quarter of
1998 compared to 52.5% for the same quarter a year ago. For the three months
ended May 31, 1998, the average selling price in California increased 4.0% to
$215,800 from $207,500 for the same period a year ago and the average selling
price in Other U.S. operations increased 1.9% to $120,000 from $117,800.
These increases occurred as a result of selected increases in sales prices in
certain markets, a change in product mix favoring a greater number of higher
priced urban in-fill locations and first time move up sales, as well as
improvements in overall market conditions. In France, the average selling
price in the second quarter of 1998 fell 25.4% to $140,500 from $188,300 in
the year-earlier quarter primarily due the lower priced unit deliveries from
SMCI developments.
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Revenues from land sales totaled $1.8 million in the second quarter of 1998
compared to $4.5 million in the second quarter of 1997.
For the first six months of 1998, construction revenues totaled $944.0
million, increasing $197.3 million from $746.7 million for the same period a
year ago as a result of higher housing revenues. Housing revenues totaled
$939.1 million on 6,038 units in the first half of 1998 compared to $734.2
million on 4,573 units for the same period a year ago. Housing operations in
the United States produced revenues of $854.8 million on 5,425 units in the
first six months of 1998 and $683.7 million on 4,322 units in the comparable
period of 1997. During the first half of 1998, California housing revenues
increased 12.2% to $461.1 million from $411.0 million in the first half of
1997, reflecting a 6.8% rise in unit deliveries during the period. Housing
revenues from Other U.S. operations increased 44.4% to $393.7 million in the
first six months of 1998 from $272.7 million in the prior year's period as
unit deliveries in the region rose 25.5%. Deliveries in California increased
to 2,146 units for the first six months of 1998 from 2,009 for the first six
months of 1997, while deliveries from Other U.S. operations increased to
3,279 from 2,313 units during the same period. Included in Other U.S. results
for the six months ended May 31, 1998 were 427 incremental unit deliveries
related to the operations in Houston, Denver and Phoenix/Tucson acquired
during the second quarter of 1998. French housing revenues totaled $80.6
million on 600 units in the first half of 1998 and $45.9 million on 234 units
in the corresponding period of 1997.
The Company-wide average new home price decreased 3.2% to $155,500 in the
first six months of 1998 from $160,600 in the year-earlier period reflecting
a higher proportion of lower priced deliveries from operations outside of
California in the first half 1998 and a lower average selling price from the
Company's operations in France. For the first six months of 1998, the average
selling price in California increased 5.0% to $214,900 from $204,600, while
the average selling price in Other U.S. operations increased 1.9% to $120,100
from $117,900 for the first six months of 1997. These increases occurred as a
result of selected increases in sales prices in certain markets, as well as a
change in product mix favoring a greater number of higher priced urban
in-fill locations and first time move up sales. In France, the average
selling price for the six month period decreased 31.4% to $134,400 in 1998
from $196,000 in 1997 primarily due to the lower priced unit deliveries from
SMCI developments.
Company-wide revenues from land sales totaled $4.9 million for the first half
of 1998 compared to $10.3 million for the same period a year ago.
Operating income increased by $7.3 million to $27.9 million in the second
quarter of 1998 from $20.6 million in the second quarter of 1997 as a result
of higher gross profits, partially offset by increased selling, general and
administrative expenses. As a percentage of construction revenues, operating
income increased by .2 percentage points to 5.3% in the second quarter of
1998 compared to 5.1% in the second quarter of 1997. Gross profits increased
by $25.6 million, or 35.5%, to $97.7 million in the second quarter of 1998
from $72.1 million in the prior year's period due to both higher unit volume
and higher gross margin. During this same period, housing gross profits
increased by $26.7 million to $98.9 million from $72.2 million. Gross profits
as a percentage of construction revenues increased to 18.6% in the second
quarter from 17.7% in the year-earlier quarter, primarily due to an increase
in the Company's housing gross margin to 18.8% from 18.0%. The housing gross
margin increased .8 percentage points, mainly due to an increased proportion
of higher margin deliveries resulting from the Company's new operational
business model, "KB2000" entering the mix, as well as from price increases in
select fast selling, hard-to-replace communities, particularly in California.
These factors were partly offset by lower margin contribution from
sell-through of non-KB2000 units from older communities. During the second
quarter of 1998, land sales resulted in a loss of $1.2 million compared to a
loss of $.5 million generated in the second quarter of 1997.
Selling, general and administrative expenses increased by $18.3 million to
$69.8 million in the three months ended May 31, 1998 from $51.5 million in
the corresponding 1997 period, partly due to the inclusion of selling,
general and administrative expenses of Hallmark, PrideMark and Estes,
including goodwill amortization. As a percentage of housing revenues,
selling, general and administrative expenses increased .4 percentage points
to 13.3% in the second quarter of 1998 compared to 12.9% for the year-earlier
period, and decreased .5 percentage points from 13.8% for the first quarter
of 1998. The quarterly year-over-year increase in the selling, general and
administrative expense ratio was primarily due to: higher sales commissions;
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expenditures incurred in connection with extensive information systems
revisions in support of the KB2000 operational business model; and expenses
related to the acquisitions, including temporary duplicate overhead, as well
as sales incentives associated with the sell through of non-KB2000 product.
For the first six months of 1998, operating income increased by $10.8 million
to $43.1 million from $32.3 million in the corresponding period of 1997 as
higher gross profits were partially offset by increased selling, general and
administrative expenses. Gross profits increased by $38.0 million, or 28.8%,
to $170.2 million in 1998 from $132.2 million in 1997 with housing gross
profits increasing by $40.5 million to $171.0 million from $130.5 million
during this same period. Gross profits as a percentage of construction
revenues increased to 18.0% in the first half of 1998 from 17.7% in the
year-earlier period primarily due to an increase in the Company's housing
gross margin to 18.2% from 17.8%. Company-wide land sales generated a loss of
$.8 million for the first six months of 1998 compared to a profit of $1.3
million for the first six months of 1997.
Selling, general and administrative expenses increased by $27.2 million to
$127.0 million for the first six months of 1998 from $99.8 million for the
same period of 1997. As a percentage of housing revenues, selling, general
and administrative expenses decreased by .1 percentage point to 13.5% for the
first six months of 1998 from 13.6% in the corresponding period of 1997. This
improvement was due to the higher volume of deliveries, partially offset by
higher sales commissions, higher expenditures incurred in connection with
extensive information systems revisions in support of the KB2000 operational
business model and the expenses related to the acquisitions which occurred in
the second quarter of 1998.
Interest income totaled $1.3 million in the second quarter of 1998 compared
to $1.2 million in the second quarter of 1997. For the first six months,
interest income totaled $2.8 million in 1998 and $2.3 million in 1997.
Interest income for the second quarter and first half of 1998 reflected an
increase 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) decreased to $7.7 million in
the second quarter of 1998 from $8.0 million in the second quarter of 1997.
For the six months ended May 31, 1998, interest expense totaled $14.8 million
compared to $16.4 million for the same period of 1997. Gross interest
incurred in the three months and six months ended May 31, 1998 was higher
than that incurred in the corresponding year ago periods by $1.3 million and
$.5 million, respectively, reflecting an increase in average indebtedness in
1998, partially offset by a lower average interest rate as a result of more
favorable financing terms obtained by the Company due to the redemption of
its $100 million 10-3/8% senior notes and the issuance of $175 million of
7-3/4% senior notes in the fourth quarter of 1997. The impact of the higher
interest incurred in both periods of 1998 was more than offset by an increase
in the percentage of interest capitalized. The percentage of interest
capitalized during the three months ended May 31, 1998 and 1997 was 47.7% and
39.7%, respectively. For the six month period ended May 31, this percentage
was 45.2% in 1998 and 38.0% in 1997. The higher 1998 capitalization rates
reflected a higher proportion of land under development in 1998 compared to
1997.
Minority interests in pretax income of consolidated joint ventures totaled
$.2 million in the second quarter of 1998 and $.1 million in the second
quarter of 1997. For the first half of 1998, minority interests in pretax
income of consolidated joint ventures totaled $.4 million compared to $.1
million for the same period a year ago. Minority interests in pretax income
of consolidated joint ventures relate both to residential and commercial
activities in France. In the first half of 1998, minority interests related
only to residential activity. Minority interests are expected to remain at
relatively low levels reflecting the limited opportunities currently
available, and reasonably expected to be available, in the French commercial
market, as well as the Company's strategy to focus on its French residential
development business.
Equity in pretax income of unconsolidated joint ventures totaled $.1 million
in the second quarter of 1998 compared to the essentially break-even results
recorded in the second quarter of 1997. The Company's joint ventures recorded
combined revenues of $2.9 million in the current quarter compared to $6.2
million in the corresponding period of 1997. For the first half of 1998, the
Company's equity in pretax income of unconsolidated joint ventures totaled
$.3 million compared to $.1 million in the same period of 1997. Combined
revenues from these joint ventures totaled $ 7.5 million in the first half of
1998 and $8.7 million in the first half of 1997. All of the joint venture
revenues in the three months and six months ended May 31, 1998 and 1997 were
generated from residential properties.
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MORTGAGE BANKING
Interest income and interest expense each increased by $.6 million in the
second quarter of 1998 compared to the same quarter a year ago. For the first
six months of 1998, interest income from mortgage banking activities rose by
$.7 million and related interest expense increased by $.9 million from the
same period of 1997. Interest income for the three and six month periods
increased due to the higher balance of first mortgages held under commitment
of sale and other receivables outstanding during the 1998 periods. The
increase in interest expense resulted from the higher amount of notes payable
outstanding during the second quarter and first half of 1998 compared to the
same periods of 1997.
Other mortgage banking revenues increased by $2.2 million to $7.1 million in
the second quarter of 1998 from $4.9 million in the prior year's second
quarter. For the first half of 1998, other mortgage banking revenues totaled
$12.4 million, an increase of $3.5 million from $8.9 million in the first
half of 1997. These increases were primarily the result of higher gains on
the sale of mortgages and servicing rights due to a higher level of mortgage
originations resulting from a higher unit volume in the United States.
General and administrative expenses associated with mortgage banking
activities increased by $.6 million to $2.5 million in the second quarter of
1998 from $1.9 million for the same period a year ago. For the six month
period, these expenses were $4.7 million in 1998 and $3.8 million in 1997.
The increase in general and administrative expenses in 1998 was primarily due
to increased mortgage production volume.
INCOME TAXES
Income tax expense totaled $9.0 million and $6.0 million in the second
quarter of 1998 and 1997, respectively. For the first six months of 1998,
income tax expense totaled $13.6 million compared to $8.5 million in the same
period of 1997. The income tax amounts represented effective income tax rates
of approximately 35% and 36% in both periods of 1998 and 1997, 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. For the six months ended May 31, 1998, net cash used by operating,
investing and financing activities totaled $50.6 million compared to $8.0
million provided in the first six months of 1997.
The Company's operating activities for the first six months of 1998 used cash
of $32.0 million compared to $6.4 million used during the same period of
1997. For the six months ended May 31, 1998, the Company primarily used cash
to fund an investment of $93.3 million in inventories (excluding $14.4
million of inventories acquired through seller financing) and to pay down
$10.0 million in accounts payable, accrued expenses and other liabilities.
Excluding the acquisitions of Hallmark, PrideMark and Estes, inventories
increased, primarily in the Company's domestic operations, reflecting the
Company's continued growth throughout its U.S markets. The use of cash was
partially offset by six months' earnings of $25.3 million, a reduction in
receivables of $44.4 million and various noncash items deducted from net
income. The reduction in receivables mainly related to a lower balance of
mortgages held under commitment of sale due to lower mortgage origination
volume in the second quarter of 1998 compared to the fourth quarter of 1997.
Operating activities for the first six months of 1997 used cash to fund an
investment of $7.1 million in inventories (excluding $1.9 million of
inventories acquired through seller financing) and to pay down $45.4 million
in accounts payable, accrued expenses and other liabilities. The cash used
was partially offset by six months' earnings of $15.1 million, a reduction in
receivables of $33.3 million and various non cash items deducted from net
income. The reduction in receivables related primarily to a decrease in
mortgage origination volume in the second quarter of 1997 compared to the
fourth quarter of 1996.
Cash used by investing activities totaled $149.1 million in the first half of
1998 compared to $2.5 million provided in the year-earlier period. In the
first six months of 1998, $148.9 million of cash, net of cash acquired, was
used for the acquisitions of Hallmark, PrideMark and Estes completed in the
second quarter, and $9.7 million was used for other investing activities.
Among amounts partially offsetting these uses were $6.0
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million of proceeds received from mortgage-backed securities, which were
principally used to pay down the collateralized mortgage obligations for
which the mortgage-backed securities have served as collateral, and $2.5
million from the net sales of mortgages held for long-term investment. In the
first six months of 1997, cash was provided by $4.5 million in proceeds
received from mortgage-backed securities, partially offset by $1.5 million of
cash used for other investing activities.
Financing activities provided $130.6 million of cash in the first half of
1998 compared to $11.8 million provided in the first half of 1997. In the
first six months of 1998, cash was provided from net proceeds from borrowings
of $142.4 million. Partially offsetting the cash provided were cash dividend
payments of $5.9 million and payments on collateralized mortgage obligations
of $5.7 million. Financing activities in the first six months of 1997
resulted in net cash inflows due mainly to net proceeds from borrowings of
$22.3 million, partially offset by payments on collateralized mortgage
obligations of $4.3 million and cash dividend payments of $5.8 million.
During the second quarter of 1998, the Company acquired three privately held
home builders with regional operations in certain key markets. On March
19,1998, the Company acquired all of the issued and outstanding capital stock
of Houston-based Hallmark for approximately $54 million, including the
assumption of debt. Hallmark builds single family homes in Houston, San
Antonio and Austin, Texas under the trade names of Dover Homes and Ideal
Builders. The acquisition of Hallmark marks the Company's entry into the
Houston market and will form the core of those operations, while
strengthening the Company's position in San Antonio and Austin. The Company
acquired substantially all of the assets of Denver-based PrideMark on March
23,1998 for approximately $65 million, including the assumption of trade
liabilities and debt. PrideMark builds single family homes in Denver,
Colorado, and its acquisition significantly increased the Company's already
substantial market presence in Denver. On April 9, 1998, the Company acquired
all of the issued and outstanding capital stock of Estes for approximately
$48 million, including the assumption of debt. Estes builds single family
homes in Phoenix and Tucson, Arizona. Estes provided the Company's entry into
Tucson and significantly increased the Company's already substantial market
presence in Phoenix. The acquisitions of Hallmark, PrideMark and Estes were
accounted for under the purchase method and the results of their operations
were included in the Company's consolidated financial statements from the
respective dates of acquisition. These acquisitions were financed by the
Company's domestic unsecured revolving credit facility.
As of May 31, 1998, borrowings of $181.0 million were outstanding under the
Company's $500 million domestic unsecured revolving credit facility. The
Company's French unsecured financing agreements totaling $63.0 million had in
the aggregate $36.1 million available at May 31, 1998. In addition, the
Company's mortgage banking operations had $77.5 million available under its
$250 million secured revolving mortgage warehouse facility at quarter-end.
The Company's financial leverage, as measured by the ratio of debt to total
capital, was 62.7% at the end of the 1998 second quarter compared to 59.1% at
the end of the 1997 second quarter.
On December 5, 1997, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for up to $500 million
of the Company's debt and equity securities. The universal shelf registration
provides that securities may be offered from time to time in one or more
series and in the form of senior, senior subordinated or subordinated debt,
preferred stock, common stock, and/or warrants to purchase such securities.
The registration was declared effective on December 16, 1997 and no
securities have been issued thereunder.
On July 7, 1998, the Company, together with the KBHC Trust, issued an
aggregate of (a) 18,975,000 FELINE PRIDES, and (b)1,000,000 KBHC Trust
capital securities, with a $10 stated liquidation amount. The FELINE PRIDES
consist of (a) 17,975,000 Income PRIDES with a stated amount per Income
PRIDES of $10 (the "Stated Amount"), which are units comprised of a trust
preferred security and a stock purchase contract under which the holders will
purchase common stock from the Company not later than August 16, 2001 and the
Company will pay certain unsecured contract adjustment payments and
(b)1,000,000 Growth PRIDES with a face amount per Growth PRIDES equal to the
Stated Amount, which are units consisting of a 1/100th beneficial interest in
a zero-coupon U.S. treasury security and a stock purchase contract under
which the holders will purchase common stock from the Company not later than
August 16, 2001 and the Company will pay certain unsecured contract
adjustment payments.
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The distribution rate on the Income PRIDES is 8.25% per annum, and the
distribution rate on the Growth PRIDES is .75% per annum. Under the stock
purchase contracts, investors will be required to purchase shares of common
stock of the Company for an effective price ranging between a minimum of
$31.75 per share and a maximum of $38.10 per share, and the Company will
issue approximately 5.0 million to 6.0 million common shares by August 16,
2001, depending upon the price of the Company's common stock upon settlement
of the purchase contracts (subject to adjustment under certain
circumstances). The capital securities associated with the Income PRIDES and
the U.S. treasury securities associated with the Growth PRIDES have been
pledged as collateral to secure the holders' obligations in respect of the
common stock purchase contracts. The capital securities issued by the KBHC
Trust are entitled to a distribution rate of 8% per annum of their $10 stated
liquidation amount.
The proceeds from the issuance of FELINE PRIDES will be used for general
corporate purposes, including support of the Company's growth strategies and
potential future acquisitions. The immediate use of proceeds was to pay down
outstanding debt under the Company's $500 million domestic unsecured
revolving credit facility. If the offering had been completed during the
second quarter, the Company's pro forma ratio of debt to total capital as of
May 31, 1998 would have been below the Company's targeted range of 50% to
60%.
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 May 31, 1998 consisted of 7,581
units, representing aggregate future revenues of approximately $1.1 billion,
up 71.6% and 67.8%, respectively, from 4,417 units, representing aggregate
future revenues of approximately $667.5 million, a year ago. The backlog
units and value at May 31, 1998 were the highest of any quarter-end backlog
in the Company's history. Company-wide net orders for the second quarter of
1998 totaled 4,861, up 43.1% compared to the second quarter of 1997,
including a total of 539 net orders generated from the three newly acquired
companies. Excluding the net orders related to the acquired companies,
Company-wide net orders rose 27.3% in the second quarter of 1998 compared to
the same quarter a year ago.
The Company's domestic operations accounted for approximately $983.0 million
of backlog value on 6,638 units at May 31, 1998, up from $596.7 million on
4,050 units at May 31, 1997, reflecting higher backlogs from both California
and Other U.S. operations. Backlog in California increased to approximately
$394.1 million on 1,830 units at May 31, 1998 from $288.7 million on 1,398
units at May 31, 1997 due primarily to the Company's strategy of emphasizing
pre-sales. Nonetheless, net orders in California declined 5.8% in the second
quarter of 1998 due to a 17.1% decline in the average number of active
communities in the state compared to a year ago, partially offset by faster
sales rates. Other U.S. operations demonstrated significant year-over-year
growth in backlog levels with the backlog value at May 31, 1998 increasing to
approximately $588.8 million on 4,808 units from $308.0 million on 2,652
units at May 31, 1997, reflecting a 72.9% increase in Other U.S. net orders.
Even excluding 539 aggregate net orders attributable to the three recently
acquired companies, Other U.S. net orders in the second quarter of 1998
increased 40.9% from the same period a year ago.
In France, the value of residential backlog at May 31, 1998 was approximately
$125.4 million on 902 units, up from $66.6 million on 351 units a year
earlier. The Company's net orders in France increased by 137.4% to 546 units
in the second quarter of 1998 from 230 units for the same period a year ago,
primarily due to the acquisition of Paris-based SMCI in the third quarter of
1997. Backlog associated with consolidated commercial development activities
was valued at approximately $4.2 million at May 31, 1998 compared to $6.1
million at May 31, 1997, reflecting a reduced level of activity.
In Mexico, the value of residential backlog at May 31, 1998 was approximately
$11.5 million on 41 units compared to $4.2 million on 16 units at May 31,
1997. Operations in Mexico generated 17 net orders in the second quarter of
1998, an increase from the 9 net orders generated in the same period a year
ago. Mexico's
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economy has shown signs of recovering from the country's deep recession
brought about by the devaluation of the peso. Consequently, the Company is
considering additional investment opportunities in Mexico.
Substantially all of the homes included in residential backlog are expected
to be delivered in 1998; however, cancellations could occur, particularly if
market conditions deteriorate or mortgage interest rates increase, thereby
decreasing backlog and related future revenues.
Company-wide net orders for the first six weeks of the Company's 1998 third
quarter increased 24.3% from the net orders for the comparable period of
1997. Excluding net orders from Hallmark, PrideMark and Estes, Company-wide
net orders increased 10.3%. During this same period, domestic net orders were
up 18.5%, reflecting a 77.3% increase in net orders from Other U.S.
operations, partially offset by a 35.9% decrease in California net orders,
primarily attributable to fewer active communities. The Company expects
California net order comparisons to improve in the remainder of 1998 as a
greater number of communities are expected to be open. However, mortgage rate
increases continuing rate volatility, an appreciable decline in consumer
confidence and/or other factors could mitigate the effects of the Company's
anticipated community openings. In France, net orders for the first six weeks
of the Company's 1998 third quarter increased 141.6%.
In the remainder of 1998, the Company plans to continue to focus on the two
primary strategic initiatives it established for 1997: further implementation
of its KB2000 operational business model and acceleration of the Company's
growth. In addition, the Company also intends to concentrate on two
complementary strategies in 1998 consisting of establishing optimum dominant
local market presence and increasing its focus on acquisitions.
The Company continued to concentrate on its KB2000 operational business model
in the first half of 1998 and intends to further the Company-wide
implementation of KB2000 during the remainder of the year. Through its
intense focus on the KB2000 strategy, the Company seeks to achieve a leading
market presence in each of its key markets. As anticipated, implementation of
the KB2000 principles such as emphasizing pre-selling of homes over
speculative starts, resulted in higher backlog levels at the end of the
second quarter of 1998 compared to year ago levels, as well as an increase in
the percentage of sold inventory in production at May 31, 1998 to 77% from
71% at May 31, 1997. In addition, the Company's backlog ratio rose to 179.8%
at the end of the 1998 second quarter from 141.4% at the end of the year ago
quarter (backlog ratio is defined as the ratio of beginning backlog to actual
deliveries in the succeeding quarter).
In order to leverage the benefits of the KB2000 operational business model,
the Company is implementing a strategy designed to achieve a dominant market
position in its major markets. The Company's use of the term "dominant" is
not intended to imply that the Company will become the largest builder in a
market in terms of unit deliveries or revenues, nor does the Company desire
to control the pricing of homes in any market; rather the Company's goal is
to achieve an optimum market position that will enable its local business
unit to maximize the benefits of its KB2000 operational business model,
including lower land acquisition costs, improved terms with suppliers and
subcontractors, the offering of maximum choice and the best value to
customers and retention of the best management talent. The Company believes
that by operating at large, optimal volume levels, it can better execute its
KB2000 operational business model and use economies of scale to increase
profits in fewer but larger markets. The Company's strategy involves entering
new markets at high volume levels, principally through acquisitions, as well
as rapidly growing existing operations to optimal market volume levels.
The Company intends to increase the overall growth of its deliveries in
future years through growth in its existing markets as well as entry into new
markets. In the aggregate, growth in existing markets will be driven by the
Company's ability to increase the average number of active communities in its
major markets through the successful implementation of its KB2000 operational
business model. In addition, the Company's ongoing acquisition strategy is
expected to supplement growth in both existing and new markets. The Company's
current goals are to achieve 15,000 deliveries in fiscal 1998 and 18,000 in
fiscal 1999. Both of these unit delivery goals could be materially affected
by various risk factors such as changes in general economic conditions either
nationally or in the regions in which the Company operates or may commence
operations, job growth and employment levels, home mortgage interest rates or
consumer confidence, among other things.
The Company will actively consider additional strategic acquisitions in the
second half of 1998 to enter new markets and/or rapidly increase volume in
existing markets. Consideration for such acquisitions may be paid
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in cash, notes or common stock of the Company or any combination thereof. The
acquisitions of Hallmark, PrideMark and Estes, which are expected to produce
incremental unit deliveries and revenues in 1998 of approximately 1,500 and
$175.0 million, respectively, were executed in accordance with the Company's
acquisition strategy. Under its strategy, the Company seeks to acquire home
builders which possess a number of the following characteristics: a business
model similar to KB2000, access or control of to land to support growth, a
strong management team and are positioned to be accretive to earnings in the
first full year following acquisition. The Company believes this acquisition
strategy will enable it to identify and pursue appropriate targets for
expanding its operations in the remainder of 1998 and beyond in a focused and
disciplined manner; however, this strategy can be impacted by several
factors, including, among other things, the general availability of
applicable acquisition candidates, pricing for such transactions, competition
among other national or regional builders for such target companies, changes
in general and economic conditions nationally and in target markets and
capital or credit market conditions.
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 either
nationally or in regions where the Company operates or may commence
operations, employment growth or unemployment rates, lumber or other
homebuilding material prices, labor costs, home mortgage interest rates,
competition, currency exchange rates as they affect the Company's operations
in France and Mexico, consumer confidence, and government regulation or
restrictions on real estate development, costs and effects of unanticipated
legal or administrative proceeding and capital or credit market conditions
affecting the Company's cost of capital; the availability and cost of land in
desirable areas, and conditions in the overall homebuilding market in the
Company's geographic markets (including the historic cyclicality of the
industry); as well as seasonality, competition, population growth, property
taxes, and unanticipated delays in the Company's operations. See the
Company's Annual Report on Form 10-K for the year ended November 30, 1997 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
On April 2, 1998, at the Company's 1998 Annual Meeting of Stockholders, the
following matters were submitted for stockholder vote:
Election of Directors.
Messrs. Ronald W. Burkle, Ray R. Irani, Guy Nafilyan, and Luis G. Nogales
were re-elected as directors until the 2001 Annual Meeting of Stockholders
with 99% of the votes cast voting in favor. Mr. Burkle received 36,083,022
affirmative votes with 257,954 votes withheld; Dr. Irani received 36,075,026
affirmative votes with 265,950 votes withheld; Mr. Nogales received
36,082,379 affirmative votes with 258,597 votes withheld; and Mr. Nafilyan
received 36,083,463 affirmative votes with 257,513 votes withheld.
Messrs. James A. Johnson and Sanford C. Sigoloff and Ms. Jane Evans continue
as directors and, if nominated, will next stand for re-election at the 1999
Annual Meeting of Stockholders; Messrs. Steve Bartlett, Bruce Karatz and
Charles R. Rinehart also continue as directors and, if nominated, will next
stand for re-election at the 2000 Annual Meeting of Stockholders.
1998 Stock Incentive Plan.
The Kaufman and Broad Home Corporation 1998 Stock Incentive Plan was
approved, with 69.7% of the votes cast, or 25,318,969 shares, voted in favor
of the plan, 10,767,940 shares voting against and 254,067 shares abstaining.
ITEM 5. OTHER INFORMATION
Geographical 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 six months ended May 31, 1998 and 1997, together with
backlog data in terms of units and value by geographical market as of May 31,
1998 and 1997.
Three Months Ended May 31,
---------------------------------------------------------
Deliveries Net Orders
--------------------------- ---------------------------
Market 1998 1997 1998 1997
------------ ------------ ------------ ------------
California 1,124 1,095 1,391 1,476
Other U.S. 1,938 1,211 2,907 1,681
France 340 151 546 230
Other 7 8 17 9
============ ============ ============ ============
Total 3,409 2,465 4,861 3,396
============ ============ ============ ============
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Six Months Ended May 31,
-------------------------------------------------------
Backlog - Value
Deliveries Net Orders Backlog - Units In Thousands
------------------------- ------------------------- ------------------------- ------------------------
Market 1998 1997 1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
California 2,146 2,009 2,660 2,553 1,830 1,398 $ 394,144 $288,719
Other U.S. 3,279 2,313 4,969 3,209 4,808* 2,652 588,820* 307,977
France 600 234 916 370 902 351 125,408 66,582
Other 13 17 32 19 41 16 11,521 4,224
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total 6,038 4,573 8,577 6,151 7,581* 4,417 $1,119,893* $667,502
========== ========== ========== ========== ========== ========== ========== ========
* Backlog amounts for 1998 have been adjusted to reflect the acquisitions of
Hallmark, PrideMark and Estes. Therefore, backlog amounts at November 30,
1997 combined with net order and delivery activity for the first six
months of 1998 will not equal ending backlog at May 31, 1998.
Stockholder Proposals for 1999 Annual Meeting
In accordance with new Rule 14a-4(c)(1) under the Securities Exchange Act of
1934, management proxies for the Company's 1999 Annual Meeting of
Stockholders will use their discretionary voting authority with respect to
any proposal presented at the meeting by a stockholder who does not provide
the Company with written notice of such proposal prior to February 13, 1999.
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 1997 Annual Report on Form 10-K, is
incorporated by reference herein.
27.1 Financial Data Schedule as of May 31, 1998.
27.2 Financial Data Schedules as of February 28, 1997, May 31, 1997,
August 31, 1997, and November 30, 1997.
27.3 Financial Data Schedules as of February 29, 1996, May 31, 1996,
August 31, 1996 and November 30, 1996.
27.4 Financial Data Schedule as of November 30, 1995.
Report on Form 8-K
On June 24, 1998, the Company filed a Current Report on Form 8-K (Item 5),
which included its June 23, 1998 press release announcing results for the
1998 second quarter, as well as its consolidated statements of income for the
three months and six months ended May 31, 1998 and 1997 and consolidated
balance sheets as of May 31, 1998 and 1997 and November 30, 1997. The Form
8-K also included supplemental information for the three months and six
months ended May 31, 1998 and 1997.
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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
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Registrant
Dated July 15, 1998 /s/ BRUCE KARATZ
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Bruce Karatz
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Dated July 15, 1998 /s/ MICHAEL F. HENN
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Michael F. Henn
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
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21
Page of
Sequentially
INDEX OF EXHIBITS Numbered Pages
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27.1 Financial Data Schedule as of May 31, 1998 22
27.2 Financial Data Schedules as of February 28, 1997,
May 31, 1997, August 31, 1997, and November 30, 1997 23
27.3 Financial Data Schedules as of February 29, 1996,
May 31, 1996, August 31, 1996 and November 30, 1996 24
27.4 Financial Data Schedule as of November 30, 1995 25