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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1994
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)
INCORPORATED IN DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
95-3666267
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE NEW YORK STOCK EXCHANGE
PREFERRED STOCK
DEPOSITARY SHARES, EACH REPRESENTING ONE-FIFTH OF A NEW YORK STOCK EXCHANGE
SHARE OF SERIES B MANDATORY CONVERSION PREMIUM
DIVIDEND PREFERRED STOCK (PAR VALUE $1.00 PER SHARE)
10 3/8% SENIOR NOTES DUE 1999 NEW YORK STOCK EXCHANGE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILES PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
COMPANY ON JANUARY 31, 1995 WAS $376,616,612.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK ON JANUARY 31, 1995 WAS AS FOLLOWS:
Common Stock (par value $1.00 per share) 32,379,217 shares
DOCUMENTS INCORPORATED BY REFERENCE
1994 Annual Report to Shareholders (incorporated into Part II).
Notice of 1995 Annual Meeting of Stockholders and Proxy Statement
(incorporated into Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a builder of single-family homes with domestic operations
throughout the western United States, and international operations in France,
Canada and Mexico. The Company is the largest home builder in the western United
States and among the largest builders in greater metropolitan Paris, France. The
Company builds and markets innovatively designed homes, generally in
medium-sized developments close to major metropolitan areas, that cater
primarily to first-time home buyers. In France, the Company is also a developer
of commercial projects and high-density residential properties, such as
condominium and apartment complexes. The Company also provides mortgage banking
services to its domestic home buyers through its wholly owned subsidiary,
Kaufman and Broad Mortgage Company ("KBMC").
The Company's business originated in 1957 and was operated through various
subsidiaries of SunAmerica Inc. ("SunAmerica"), previously known as Kaufman and
Broad Inc. and Broad Inc., until 1986. At that time, SunAmerica transferred to
the Company all of the outstanding stock of the subsidiaries then conducting
SunAmerica's on-site housing businesses as well as the stock of KBMC. The
Company shortly thereafter completed an initial public offering of its common
stock, after which SunAmerica continued to own approximately 92.6% of the
Company's outstanding common stock. In 1989, SunAmerica distributed
substantially all of its holdings in the Company's common stock pro-rata to
holders of SunAmerica's common stock. Immediately prior to this distribution, a
wholly owned subsidiary of SunAmerica, Sun Life Insurance Company of America
("SLICA"), acquired warrants (the "Warrants") to purchase up to 7,500,000 shares
of the Company's special common stock in connection with the financing of a
portion of the special cash dividend paid to holders of the common stock at the
time of the distribution.
In 1992, pursuant to the exercise of certain registration rights held by
SLICA, the Company registered shares of special common stock issuable upon
exercise of the Warrants under the Securities Act of 1993, and subsequently
issued 5,123,000 shares in connection with a public offering. At the conclusion
of such offering, SLICA continued to retain the balance of Warrants to purchase
2,377,000 shares of special common stock. In November 1993, the Company
commenced a tender offer to purchase all of its 5,123,000 outstanding shares of
special common stock at a price of $19 per share. The offer concluded in
December 1993 with a total of 2,331,785 shares tendered. Shortly thereafter, the
Company purchased the remaining 2,377,000 Warrants held by SLICA, at a price
equal to the tender offer price per share less the $6.96 per Warrant exercise
price. As a result, SLICA no longer holds any Warrants, nor beneficially owns
any shares of the Company's special common stock. The remaining 2,791,215
outstanding shares of special common stock were exchanged by the Company at a
ratio of .95 shares of common stock for each share of special common stock on
various dates throughout 1994. There were no outstanding shares of special
common stock at November 30, 1994.
The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its
telephone number is (310) 231-4000. As used herein, the term "Company" refers to
Kaufman and Broad Home Corporation and its subsidiaries, unless the context
indicates otherwise.
MARKETS
The Company's two principal geographic markets are the western United
States (California, Nevada, Arizona, Colorado and Utah) and the greater
metropolitan area of Paris, France. To a lesser extent, the Company builds
single-family homes in Toronto, Canada. The Company delivered its first homes in
California in 1963, France in 1970, Toronto in 1971, Nevada in 1993, and Arizona
and Colorado in 1994. The Company expects to seek its first deliveries from its
Salt Lake City, Utah and Mexico City divisions in 1995.
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United States. The Company continued to expand its domestic housing
operations in 1994 as recently established divisions in Phoenix, Arizona and
Denver, Colorado delivered their first homes during the year. These expansion
efforts gained momentum as the Company initiated operations in Salt Lake City,
Utah in the second half of 1994 and acquired Oppel Jenkins, a regional builder
of single family homes primarily in Albuquerque, New Mexico in January 1995. The
Company's operations in California accounted for 88% of domestic home deliveries
in 1994, a percentage which is expected to decrease as the remaining domestic
divisions establish and solidify their market positions.
During the 1980s, the Company benefited from the relative strength and
growth of the California housing market. With new housing permits issued in the
state having declined in four of the last five years, the Company has maintained
a trend of increasing deliveries in California during the past four years. While
California housing permits increased approximately 8% in 1994, the Company
delivered 6,238 new homes in California, an increase of 9% over the prior year.
This increase was accomplished through further penetration of existing markets
and expansion into areas of the state which were particularly attractive to
first-time buyers.
In Southern California, the Company concentrates its home building activity
in Los Angeles, Kern, San Bernardino, Riverside, Orange and San Diego counties.
In Northern California, the Company's activities are concentrated in the San
Francisco Bay-San Jose, Monterey Bay, Sacramento, Central Valley and Fresno
regions.
To enhance its operating capabilities in regional submarkets, the Company
conducted its domestic home building business in 1994 through twelve divisional
offices and three satellite offices in California and one divisional office in
each of Nevada, Arizona, Colorado, and Utah. In January 1995, the Company began
operating in New Mexico with the acquisition of Oppel Jenkins.
Most of the communities developed by the Company consist of single-family
detached homes. Responding to the relative strength in the entry-level housing
market in the 1990s, the Company reduced the average size of its California
homes from 1,676 square feet in 1990 to 1,516 square feet in 1994. These homes
ranged in size from 892 to 2,531 square feet in 1994 and sold at an average
price of $165,900, well below the statewide new home average of $221,200, as a
result of the Company's emphasis on the entry-level market.
France. The Company delivered its first homes in France in 1970, and its
first commercial development project in 1987. In 1994, the Company's French
operations posted a slight pre-tax profit after having its first overall loss in
24 years in 1993. Beginning in 1986, the Company decided to concentrate its
French operations solely in the greater metropolitan Paris market. Despite the
current tenuous economic climate in France, the Company continues to believe
that the greater Paris metropolitan area, which is the principal population,
economic and government center of France, continues to offer long-term potential
for growth in both the Company's residential and commercial operations.
The French economy is large and diverse, continuing to rank among the top
ten world economies in gross national product. The nation's residential and
commercial real estate markets, particularly within the greater metropolitan
Paris region, experienced substantial growth through the second half of the
1980s, as a strong economy and approaching European market unification fueled
business expansion and individual home purchases. In the early 1990s, however,
the French economy experienced a significant recession reflecting low consumer
confidence, high unemployment and declines in both consumer and business
investments in real estate. In spite of the recent modest improvement in the
French economy, total housing units completed in the greater Paris region
continued to decline in 1994. The Company focused on providing product to the
entry-level buyer and as a result French deliveries increased in 1994, after
having decreased in each of the preceding four years.
In early 1994, as part of the Company's strategy to streamline operations
in the midst of the modestly improved but still relatively weak French economy,
the French home building operations were consolidated from two separate
divisions, one of which focused on entry-level home buyers with the second
concentrating on the upwardly mobile executive market. The consolidated division
focused primarily on single-family detached and attached homes in 1994, ranging
in size from 969 to 1,615 square feet with an average selling price of $182,300.
This operation will continue to provide homes for both of the market niches
previously serviced, with a greater emphasis on the entry-level market.
In 1987, the Company formed another French division which has been engaged,
directly and through joint ventures, in developing commercial office buildings
and a variety of high-density residential projects in Paris for sale to
institutional investors. Projects are generally pre-sold to investors prior to
construction, and in many cases prior to the purchase of the land, in order to
reduce market risks related to this business. Typically, the Company's policy is
to fix its
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construction costs at the time it sells a project to investors. In the late
1980s and early 1990s, the Company's commercial development activities became an
increasingly important segment of the French operations. More recently, however,
with the completion of large projects in prior years, the level of commercial
operations has declined as the market absorbed existing commercial properties.
The Company's involvement in its most significant commercial project is as
a member of a consortium, consisting of eight of France's largest financial
institutions and three development firms, that was selected in 1992 to acquire
and redevelop the former Paris headquarters of Esso, the French subsidiary of
the Exxon Corporation located in the prestigious La Defense quarter of
metropolitan Paris. The Company is both a minority partner in the joint venture
and the managing contractor for the redevelopment work for which it will receive
a contractor's fee. Development of this project has currently been postponed as
the consortium made the decision to await the recovery of the commercial market.
Canada. In addition to its principal markets in the western United States
and France, the Company operates a housing division in Toronto, Canada, which
has been slowly winding down over the past few years. When completed, the
Company does not intend to have any further operations in Canada.
Mexico. The Company determined that the projected growth in the Mexican
economy and a shortage of housing in that country's major metropolitan areas
would represent a unique opportunity for the Company, and on that basis
established a new housing operation in Mexico City in 1993. However, recent
economic events, particularly the series of sharp devaluations of the peso in
early fiscal 1995, have slowed an already complex regulatory process and
heightened market uncertainties for new home sales. As a result, the Company is
currently reassessing its Mexican operations, with the level and timing of
deliveries, if any, in 1995 remaining uncertain.
Unconsolidated Joint Ventures. The Company currently participates in the
development, construction and sale of residential properties and commercial
projects through a number of unconsolidated joint ventures. These include joint
ventures in the Paris, Los Angeles and Toronto metropolitan areas.
Selected Market Data. The following table sets forth, for each of the
Company's markets, unit deliveries, average selling price of homes and total
construction revenues for the years ended November 30, 1994, 1993 and 1992
(excluding the effect of unconsolidated joint ventures).
YEARS ENDED NOVEMBER 30,
---------------------------------
1994 1993 1992
--------- --------- ---------
United States:
Unit deliveries............................................. 7,072 5,952 3,944
Average selling price....................................... $ 159,900 $ 161,200 $ 164,100
Total construction revenues (in millions)(1)................ $ 1,149.2 $ 960.9 $ 650.0
France:
Unit deliveries............................................. 685 657 839
Average selling price(2).................................... $ 182,300 $ 187,800 $ 217,400
Total construction revenues (in millions)(1)(2)............. $ 143.4 $ 219.8 $ 375.0
Canada:
Unit deliveries............................................. 67 155 170
Average selling price(2).................................... $ 97,300 $ 88,300 $ 109,900
Total construction revenues (in millions)(1)(2)............. $ 15.0 $ 19.1 $ 27.5
Total:
Unit deliveries............................................. 7,824 6,764 4,953
Average selling price(2).................................... $ 161,300 $ 162,100 $ 171,300
Total construction revenues (in millions)(1)(2)............. $ 1,307.6 $ 1,199.8 $ 1,052.5
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(1) Total construction revenues include revenues from commercial and residential
development activities and land sales.
(2) Average selling prices and total construction revenues for France and Canada
have been translated into U.S. dollars using weighted average exchange rates
for each period.
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LOCAL EXPERTISE
Management believes that its business requires in-depth knowledge of local
markets in order to acquire land in desirable locations and on favorable terms,
to engage subcontractors, to plan communities keyed to local demand, to
anticipate customer tastes in specific markets and to assess the regulatory
environment. The Company's divisional structure is designed to utilize local
market expertise. The Company has experienced management teams in each of its
regional submarkets. Although the Company has increasingly centralized certain
functions, such as marketing, materials purchasing and product development,
during the last three years to benefit from economies of scale, local management
continues to exercise considerable autonomy in identifying land acquisition
opportunities, developing sales strategies, conducting production operations and
controlling costs.
In France, the Company has assembled a management team which is highly
experienced in the financing, development, construction and rehabilitation of
commercial and high-density residential projects, as well as single-family
housing. This expertise includes knowledge of local markets and the regulatory
environment.
INNOVATIVE DESIGN AND MARKETING STRATEGY
The Company believes that it has been and continues to be an innovator in
the design of entry-level homes for the first-time buyer. The Company's in-house
architectural services group has been successful in creating distinctive design
features that are not typically found in comparably priced homes. The Company is
typically able to offer as standard features vaulted ceilings, floor-to-ceiling
windows, fireplaces, wall-to-wall carpeting and front-yard landscaping. In
France, the Company created a village concept through the elimination of
front-yard walls and the extensive use of landscaping. It also introduced to the
French market the American concept of a master bedroom suite, as well as walk-in
closets, built-in kitchen cabinetry and two-car garages. The Company believes
that in each of its residential markets, its value engineering enables it to
offer appealing and well-designed homes without increasing construction costs.
In all of its residential markets, the sale of homes is carried out by the
Company's in-house sales force. The Company markets its homes principally
through the use of fully furnished and landscaped model homes which are
decorated to emphasize the distinctive design features. The Company also markets
its homes through various types of media, including newspaper advertisements,
highway signs and direct mail. In addition, the Company extends its marketing
programs beyond these traditional real estate avenues through the use of
television advertising, off-site telemarketing, and large-scale promotions.
Since 1985, the Company's California divisions have utilized an umbrella
marketing concept, The California Series(R). This concept seeks to increase
brand identification by incorporating certain common features in the marketing
programs of its different development communities and by using "California" in
the names of these communities. The Company has registered this trademark name
and features The California Series(R) designs in its sales brochures and other
promotional material.
COMMUNITY DEVELOPMENT
The community development process generally consists of three phases: land
acquisition; land development; and home construction and sale. The normal
development cycle for a community has in the past ranged from six to 20 months
in California and from 12 to 30 months in France. The development cycle varies
depending on the extent of government approvals required, the size of the
development, the site preparation necessary and marketing results.
The Company attempts to acquire finished lots within its pricing
parameters, where available, enabling it to deliver completed homes shortly
after acquisition. The total number of lots in the Company's domestic new home
communities vary significantly, but typically are comprised of 50 to 250 lots.
These domestic developments usually include three different home designs, and in
1994 offered average lot sizes of approximately 6,000 square feet. In France,
typical single-family developments are smaller, consisting of approximately 50
lots, with lot sizes of about 4,500 square feet.
Land Acquisition and Development. The Company utilizes an in-house staff
of land acquisition specialists at each division who carry out extensive site
selection research and analysis in order to identify properties in desirable
locations consistent with the Company's market strategy. In acquiring land, the
Company considers such factors as: current market
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conditions, with an emphasis on the prices of comparable homes in the particular
market; proximity to metropolitan areas; population, industrial and commercial
growth patterns; estimated costs of completed lot development; customer
preferences; and environmental matters. Senior corporate management controls the
commitment of the Company's resources for land acquisition and utilizes a series
of specific financial and budgetary controls in approving acquisition
opportunities identified by division land acquisition personnel.
The following table shows the number of lots owned by the Company in
various stages of development and under option contract in its principal markets
as of November 30, 1994. The following table does not include acreage which has
not yet been approved for subdivision into lots. This excluded acreage includes
926 acres owned in the United States and 223 acres owned in other areas.
TOTAL LOTS
HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR
PRODUCTION DEVELOPMENT OPTION UNDER OPTION
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United States................. 10,963 12,203 14,304 37,470
France........................ 836 83 241 1,160
Canada and other.............. 415 -- -- 415
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Total............... 12,214 12,286 14,545 39,045
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The Company has focused its domestic efforts on acquiring finished or
partially improved lots, usually under options which are exercised as the lots
are needed. The purchase of finished lots generally allows the Company to begin
delivery of finished homes within six months of the purchase of such lots and
reduces the risks of unforeseen improvement costs and volatile market
conditions. During the early 1990s, the Company made a number of advantageous
purchases of finished lots in California, as many builders were unable to
proceed with projects due to the tight restrictions on the availability of
capital imposed by financial institutions. Although such opportunities were not
as prevalent in the Company's domestic markets in 1994, the Company expects to
continue this strategy into the immediate future to the extent such
opportunities remain available.
While the Company has significantly reduced the proportion of unentitled
and unimproved land purchases, when all acquired property is considered, the
Company has and expects to continue to purchase raw land under options which
require little or no initial payments, or pursuant to purchase agreements in
which the Company's obligations are contingent upon the Company being satisfied
with the feasibility of developing and selling homes. During the option period
of its acquisition agreements, the Company performs technical, environmental,
engineering and entitlement feasibility studies and seeks to obtain necessary
government approvals. The use of option arrangements allows the Company to
evaluate and obtain regulatory approvals for a project, to reduce its financial
commitments, including interest and other carrying costs, and to minimize land
inventories. It also improves the Company's capacity to estimate costs
accurately, an important element in planning communities and pricing homes.
Generally, the Company purchases only amounts sufficient for its expected
production needs and does not purchase land for speculative investment.
In France, as a result of the continued uncertainty in the French real
estate market, the Company is employing a number of recession-conscious
strategies, including a greater emphasis on the entry-level market segment, the
consolidation of its two principal home building divisions and generally more
restrictive policies regarding new land acquisition.
Home Construction and Sale. Following the purchase of land and, if
necessary, the completion of the entitlement process, the Company typically
begins marketing the homes and constructing several model homes. The
construction of production homes is generally contingent upon customer orders to
minimize the costs and risks of standing inventory. However, due to persistent
increases in mortgage interest rates triggered by actions of the Federal Reserve
in 1994 and greater competition during the year, the Company experienced higher
levels of standing inventory than in previous years.
The Company acts as the general contractor for its communities and hires
subcontractors for all production. The use of subcontractors enables the Company
to reduce its investment in direct employee labor costs, equipment and
facilities. Where practical, the Company uses mass production techniques,
construction on contiguous lots, and prepackaged, standardized components and
materials to streamline the on-site production phase. During the early 1990s,
the Company developed a system of national purchasing of certain building
materials, appliances and other items to take advantage of
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economies of scale and to reduce costs. At all stages of production, the
Company's own administrative and on-site supervisory personnel coordinate the
activities of subcontractors and subject their work to quality and cost
controls.
The Company generally prices its homes only after it has entered into
contracts for the construction of such homes with subcontractors, an approach
which improves its ability to estimate costs accurately.
The Company provides customers with a warranty program operated by the
personnel in each of its divisions to give customers prompt and efficient
post-delivery service. The warranty program covers certain repairs which may be
necessary following new home construction. In the aggregate, the costs
associated with the Company's warranty program are not material to its
operations.
CYCLICALITY
The Company's business, and the housing industry in general, are cyclical.
The Company's operations and markets are affected by local and regional factors
such as local economies, demographic demand for housing, population growth,
property taxes and energy costs, and by national factors such as short and
long-term interest rates, federal mortgage financing programs, federal income
tax provisions and general economic trends. Net orders often vary on a seasonal
basis, with the lowest sales activity typically occurring in the winter months.
While it is difficult to determine the precise impact of higher mortgage
interest rates on sales activity, the Company believes that in 1994 the trends
in net orders and unit deliveries were adversely affected as the Federal Reserve
increased interest rates several times, resulting in mortgage interest rates
rising by more than two percentage points during the year.
BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts,
which generally require a customer deposit at the time of execution and an
additional payment upon mortgage approval. The Company generally permits
customers to cancel their obligations and obtain refunds of their deposits in
the event mortgage financing is unobtainable within a specified period of time.
Backlog consists of homes for which the Company has entered into a sales
contract but which it has not yet delivered. Ending backlog represents the
number of units in backlog from the previous period plus the number of net
orders (sales made less cancellations) taken during the current period minus
unit deliveries made during the current period. The backlog at any given time
will be affected by cancellations which most commonly result from the inability
of a prospective purchaser to obtain financing. Historically, the Company's
cancellation rates have increased during difficult economic periods. In
addition, as demonstrated by the table below, deliveries of new homes have
typically increased from the first to the fourth quarter in any year.
Accordingly, the Company usually experiences a relatively low backlog of orders
at year end.
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The following table sets forth net orders, unit deliveries and ending
backlog relating to sales of homes and homes under contract for each quarter
during the three-year period ended November 30, 1994.
NET UNIT ENDING
ORDERS DELIVERIES BACKLOG
------ ---------- -------
Fiscal 1994:
First Quarter.......................... 1,684 1,539 1,204
Second Quarter......................... 2,035 1,954 1,285
Third Quarter.......................... 2,078 2,082 1,281
Fourth Quarter......................... 1,984 2,249 1,016
Fiscal 1993:
First Quarter.......................... 1,387 1,067 1,451
Second Quarter......................... 1,752 1,558 1,645
Third Quarter.......................... 1,717 1,885 1,477
Fourth Quarter......................... 1,836 2,254 1,059
Fiscal 1992:
First Quarter.......................... 1,084 846 1,091
Second Quarter......................... 1,422 1,140 1,373
Third Quarter.......................... 1,468 1,309 1,532
Fourth Quarter......................... 1,257 1,658 1,131
LAND AND RAW MATERIALS
Management believes that the Company's current supply of land is sufficient
for its reasonably anticipated needs, and that it will be able to acquire land
on acceptable terms for future housing developments. The principal raw materials
used in the construction of homes are concrete and forest products. In addition,
the Company uses a variety of other construction materials, including sheetrock
and glass. The Company attempts to maintain efficient operations by utilizing
standardized materials which are commercially available on competitive terms
from a variety of sources. Since 1992, the Company has increasingly utilized
centralized purchasing of certain building materials, appliances and fixtures,
enabling it to benefit from large quantity purchase discounts for its domestic
operations. The Company makes bulk purchases of such products at favorable
prices from suppliers and instructs subcontractors to submit bids based on such
prices.
The principal materials used in the construction of French commercial
buildings are steel, concrete and glass.
LAND SALES
In the normal course of its business, the Company sells land which does not
meet its marketing needs. This property usually consists of land zoned for
multi-family or commercial use which is part of a larger parcel being developed
for single-family homes or land in areas where the Company may consider its
inventory to be greater than can be absorbed in a desirable amount of time.
CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY
At the Company's communities in the United States, on-site personnel
facilitate sales by offering to arrange financing for prospective customers
through KBMC. Management believes that the ability to offer customers financing
on firm, competitive terms as a part of the sales process is an important factor
in completing sales. The Company typically assists customers in arranging for
guaranteed maximum interest rates at the time of sale even though delivery may
take place in the future.
KBMC's business consists of providing the Company's domestic customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KBMC has its headquarters in Los Angeles and operates branch offices in Anaheim,
Dublin, Fremont, Fresno, Los
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Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas, San Diego and
Santa Rosa, California; Las Vegas, Nevada; Phoenix, Arizona; and Denver,
Colorado. Offices are also expected to be opened in Salt Lake City, Utah and
Albuquerque, New Mexico in 1995.
KBMC's principal sources of revenues are: (i) interest income earned on
mortgage loans during the period they are held by KBMC prior to their sale to
investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and
(iv) revenues from the sale of the rights to service loans.
KBMC is approved by the Government National Mortgage Association ("GNMA")
as a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated by
KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify
for inclusion in loan guarantee programs sponsored by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). KBMC arranges for fixed and adjustable rate, conventional, privately
insured mortgages, FHA-insured or VA-guaranteed mortgages, and mortgages funded
by revenue bond programs of states and municipalities. In fiscal 1994,
approximately 42% of the mortgages originated for the Company's customers were
FHA-insured or VA-guaranteed, 28% were conventional (most of which conformed to
FNMA and FHLMC guidelines), 17% were adjustable rate mortgages ("ARMs")
primarily provided through commitments from institutional investors and 13% were
funded by mortgage revenue bond programs. The percentages set forth above change
from year to year reflecting then-current fixed interest rates, introductory
rates for ARMs, housing prices and other economic conditions. In 1994, KBMC
originated loans for 80% of the Company's domestic home deliveries. Generally,
KBMC receives an origination fee of approximately 1% of the principal amount of
the loan.
KBMC is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KBMC has delegated underwriting authority from FNMA and FHLMC. As
a delegated underwriter, KBMC may underwrite and close mortgage loans under
programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.
KBMC, like other mortgage bankers, customarily sells nearly all of the
loans that it originates. Loans are sold either individually or in pools to
GNMA, FNMA or FHLMC or against forward commitments to institutional investors,
including banks and savings and loan associations.
In some cases, KBMC retains the rights to service the mortgages that it
originates. Servicing includes collecting and remitting loan payments,
accounting for principal and interest, making inspections of mortgaged premises
as required, monitoring delinquent mortgages and generally administering the
loans.
KBMC receives fees for servicing mortgage loans, generally ranging from
.20% per annum to .50% per annum on the declining principal balances of the
loans. KBMC sells the majority of such servicing rights on a regular basis.
The Company also assists its customers in France by arranging financing
through third party lenders, primarily major French banks with which the Company
has established relationships. In some cases, French customers qualify for
certain government-assisted, home financing programs. A second mortgage is
usually handled through a government agency. A home buyer in France may also
have a third mortgage provided through credit unions or other employee groups.
EMPLOYEES
The Company employs a trained staff of land acquisition specialists,
architects, planners, engineers, construction supervisors, marketing and sales
personnel and finance and accounting personnel, supplemented as necessary by
outside consultants, who guide the development of communities from their
conception through the marketing and sale of completed homes.
At January 31, 1995, the Company had approximately 1,330 full-time
employees in its operations, including approximately 150 in KBMC's operations.
COMPETITION AND OTHER FACTORS
The Company's business is highly competitive. It competes primarily on the
basis of price, location, financing, design, reputation, quality and amenities
with numerous housing producers ranging from regional and national firms to
8
10
small builders. Resales of housing provide additional competition. In certain
markets and at times when housing demand is high, the Company also competes with
other builders to hire subcontractors.
KBMC competes with other mortgage lenders, including mortgage bankers,
savings and loan associations and other financial institutions, in the
origination, sale and servicing of mortgage loans.
During 1994, the Company was faced with the additional challenge of six
interest rate hikes by the Federal Reserve, raising mortgage interest rates by
more than two percentage points. Further increases in interest rates could have
a negative impact on the Company's operations in that such increases adversely
affect the availability of home financing to, or qualification for such
financing by, the Company's customers. Conversely, significant reductions in
interest rates will likely have a generally positive effect on the Company's
operations.
The Company does not generally finance the development of its domestic
communities with proceeds of loans specifically obtained for, or secured by,
particular communities, i.e., project financing. Instead, the financing of the
Company's domestic operations has been primarily generated from results of
operations, public debt and equity financing and borrowings under its $500
million unsecured revolving credit facility with a consortium of domestic and
foreign banks. During 1994, this revolving credit facility was increased from
$350 million to its current $500 million capacity, with a $200 million sublimit
for the Company's mortgage banking operations. Financing of its French
operations has been primarily generated from results of operations and
borrowings from its aggregate $159 million unsecured committed credit lines from
a series of foreign banks. As a result of these diverse external sources of
financing, the Company was not adversely affected by the tight credit conditions
that much of the home building industry experienced during the recent recession,
both domestically and in France.
REGULATION AND ENVIRONMENTAL MATTERS
The housing industry is subject to extensive and complex regulations. The
Company and its subcontractors must comply with various federal, state and local
laws, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. The operations of the Company are affected by
environmental laws and regulations, including regulations pertaining to
availability of water, municipal sewage treatment capacity, land use, protection
of endangered species, population density and preservation of the natural
terrain and coastlines. These and other requirements could become more
restrictive in the future, resulting in additional time and expense to obtain
approvals for the development of communities.
The Company is also subject to regulations and restrictions by the
governments of France, Canada and Mexico concerning investments in business
operations in those countries by United States companies, none of which has to
date had a material adverse effect on the Company's consolidated operations. The
Company's foreign operations are subject to exchange rate fluctuations, which
affect the Company's financial statements and the reporting of profits and
payment of dividends from foreign subsidiaries, to restrictive foreign
government regulations which may be in effect from time to time and to the terms
of the Foreign Corrupt Practices Act with which it is the strict policy of the
Company to comply. The Company has engaged in the past in hedging transactions
to mitigate the effect of exchange rate fluctuations on its French subsidiaries'
profits. In addition, the Company has received dividends from its French and
Canadian operations without burdensome restrictions, although tax considerations
have limited the amount of such dividends.
KBMC is subject to numerous federal, state and local laws, ordinances,
rules and regulations concerning loans to purchasers of homes as well as Company
eligibility for participation in programs of the VA, FHA, GNMA, FNMA and FHLMC.
The Company entered into a consent order with the Federal Trade Commission
("FTC") in 1979 pursuant to which the Company agreed to provide explicit
warranties on the quality and workmanship of its new homes, follow certain
guidelines in advertising and provide certain disclosures to any prospective
purchaser who visits Company sales offices or model homes. In 1991, the Company
reached a monetary settlement with the FTC, covering alleged violations of the
Company's consent order. The FTC acknowledged that the Company did not admit any
of the allegations and did not impose any additional requirements on the
Company.
The Company currently has policies of using outside environmental
specialists to investigate land considered for acquisition for environmental
risks and requiring disclosure from land sellers of known environmental risks.
Despite these activities, there can be no assurance that the Company will avoid
material liabilities relating to the removal of toxic wastes, site restoration,
monitoring or other environmental matters affecting properties currently or
previously owned by
9
11
the Company. Costs associated with the use of environmental consultants are not
material to the Company's results of operations. No estimate of such potential
liabilities can be made although the Company may, from time to time, purchase
property which requires modest environmental clean-up costs after appropriate
due diligence. In such instances, the Company takes steps prior to acquisition
to assure itself as to the precise scope of work required and costs associated
with removal, site restoration and/or monitoring, using detailed investigations
by environmental consultants. To the extent such costs have occurred in the
past, the Company believes it may be able to recover such costs from third
parties, including, but not limited to, the generators of hazardous waste, land
sellers or others in the prior chain of title and/or insurers. Utilizing such
policies, the Company anticipates that it is not likely that environmental
clean-up costs will have a material effect on future results of operations or
the Company's financial position. The Company has not been notified by any
governmental agency of any claim that any of the properties owned or formerly
owned by the Company are identified by the Environmental Protection Agency as
being a "Superfund" clean-up site requiring clean-up costs, which could have a
material effect on future results of operations or the Company's financial
position.
ITEM 2. PROPERTIES
The Company's executive offices are in leased premises at 10990 Wilshire
Boulevard, Los Angeles, California. The Company's housing operations are
principally conducted from leased premises located in Anaheim, Bakersfield,
Dublin, Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale,
Pleasanton, Sacramento, Salinas, San Diego and Santa Rosa, California; Las
Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Salt Lake City, Utah; Paris,
France; Toronto, Canada; and Mexico City, Mexico. The Company began operating in
New Mexico in January 1995 with the acquisition of Oppel Jenkins.
The Company's mortgage banking subsidiaries lease executive offices in Los
Angeles, California and branch offices in Anaheim, Dublin, Fremont, Fresno, Los
Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas, San Diego and
Santa Rosa, California; Las Vegas, Nevada; Phoenix, Arizona; and Denver,
Colorado. Offices are also expected to be opened in Salt Lake City, Utah and
Albuquerque, New Mexico in 1995.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
ITEM 3. LEGAL PROCEEDINGS
In late August 1992, the Company and certain past and present officers of
the Company were named as defendants in two actions filed in the United States
District Court, Central District of California on behalf of certain shareholders
alleging violations of certain federal securities laws. In February 1993, the
actions were consolidated and maintained under the title of In Re Kaufman and
Broad Home Corporation Securities Litigation, Case No. 92-5049-WJR (Shx).
Although the Company and the individual defendants denied allegations and
vigorously defended the litigation, the defendants, in consultation with the
Company's primary directors and officers' liability insurer, considered that
continuing the litigation to trial would be protracted and expensive and
concluded that it was desirable to settle the litigation in order to limit
further expense, inconvenience and distraction. As a result, in 1994, the
defendants together with their insurer, executed a formal agreement to settle
the litigation; the Company's share of the settlement payment was $1,600,000.
Although final consummation of this settlement is conditioned upon approval by
the United States District Court, the Company expects the settlement to proceed
in due course. Under the terms of the settlement, the Company and the individual
defendants expressly denied any liability related to the plaintiffs'
allegations.
In August 1992, homeowners from the Company's California Meadows community
in Riverside County filed a lawsuit against the Company in Riverside County
Superior Court seeking compensatory and punitive damages and alleging, among
other things, defective construction, breach of warranty, negligence and fraud.
The owners of approximately 120 homes are currently involved in the litigation.
In February 1994 the Company filed cross-complaints against all relevant
subcontractors and certain other third parties. The Company believes that it has
acted fairly and responsibly toward all homeowners at that community. Based upon
its thorough investigation of the site, the Company believes that the
allegations in this lawsuit are substantially without merit and intends to
vigorously contest the claims.
10
12
The Company is involved in other litigation incidental to its business.
These cases are in various stages of development and, based on reports of
counsel, it is management's opinion that provisions made for potential losses
are adequate and any further liabilities and costs arising out of currently
pending litigation will not have a materially adverse effect upon the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1994 to a vote of
security holders, through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of the Company as of January 31, 1995:
YEAR
ASSUMED OTHER POSITIONS AND OTHER
PRESENT POSITION AT PRESENT BUSINESS EXPERIENCE WITHIN
NAME AGE JANUARY 31, 1995 POSITION THE LAST FIVE YEARS(1) FROM - TO
- ---------------------- --- ------------------------------ -------- ----------------------------------------- ---------------
Bruce Karatz 49 Chairman, President and 1993 President and Chief Executive Officer 1986 - 1993
Chief Executive Officer
Roger B. Menard 53 Executive Vice President 1993 Executive Vice President and President 1992 - 1993
and President of United of California Operations
States Operations President of Kaufman and Broad-South Bay, 1985 - 1992
Inc.
Guy Nafilyan 50 Executive Vice President 1992 President and Chief Executive Officer 1983 - Present
and President of European of Kaufman and Broad France
Operations Senior Vice President 1987 - 1992
Michael F. Henn 46 Senior Vice President and 1994 Executive Vice President, Chief Financial 1986 - 1994
Chief Financial Officer and Administrative Officer, The Vons
Companies, Inc.
Barton P. Pachino 35 Senior Vice President 1993 Vice President and Corporate Counsel 1991 - 1993
and General Counsel Associate Corporate Counsel 1987 - 1991
Albert Z. Praw 46 Senior Vice President, 1994 Partner in law firm of Sidley & Austin 1992 - 1994
Real Estate Senior Vice President, General 1989 - 1992
Counsel and Secretary
Michael L. Woodley 37 Senior Vice President, 1992 Vice President, Architecture 1989 - 1992
Architecture
Marc I. Chasman 31 Vice President 1993 Treasurer 1991 - 1993
and Treasurer Manager, Strategic Planning 1991
Manager, Corporate Finance 1990 - 1991
William R. Hollinger 36 Vice President 1992 Director of Accounting 1988 - 1992
and Controller
Alan Kaye 41 Vice President, 1991 Senior Vice President for 1988 - 1991
Human Resources and Human Resources and Corporate Services,
Organizational Planning Columbia Savings & Loan Association
- ---------------
(1) All positions described were with the Company, unless otherwise indicated.
11
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 1995, there were 2,342 holders of record of the Company's
common stock.
Information as to the Company's quarterly stock prices is included on the
inside back cover of the Company's 1994 Annual Report to Shareholders, which is
included as part of Exhibit 13 and is incorporated in this Annual Report on Form
10-K.
Information as to the principal markets on which the Company's common stock
is being traded and quarterly cash dividends is included on the inside back
cover of the Company's 1994 Annual Report to Shareholders, which is included as
part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The Five Year Summary of Kaufman and Broad Home Corporation and its
consolidated subsidiaries for the five-year period ended November 30, 1994 is
included on page 24 in the Company's 1994 Annual Report to Shareholders, which
is included as part of Exhibit 13 and is incorporated in this Annual Report on
Form 10-K. It should be read in conjunction with the consolidated financial
statements included in the Company's 1994 Annual Report to Shareholders which
are also included as part of Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Kaufman and Broad Home Corporation is included on pages 25 through
32 in the Company's 1994 Annual Report to Shareholders, which are included as
part of Exhibit 13 and are incorporated in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kaufman and Broad Home Corporation
are included on pages 33 through 45 in the Company's 1994 Annual Report to
Shareholders, which are included as part of Exhibit 13 and are incorporated in
this Annual Report on Form 10-K. Reference is made to the Index to Financial
Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Notice of 1995 Annual Meeting of Stockholders and Proxy Statement,
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
incorporated by reference in this Annual Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K, provides the information required under Part III
(Items 10, 11, 12 and 13) except for the information regarding the executive
officers of the Company, which is included in Part I on page 11 herein.
12
14
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Reference is made to the index set forth on page F-1 of this Annual
Report on Form 10-K.
EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
3.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
3.3 Certificate of Designation of Series A Participating Cumulative
Preferred Stock, filed as an exhibit to the Company's Registration
Statement No. 33-30140 on Form S-1, is incorporated by reference herein.
3.4 Certificate of Designation of Series B Mandatory Conversion Premium
Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.5 Amended Certificate of Designation of Series B Mandatory Conversion
Premium Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.6 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
4.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
4.3 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.4 Rights Agreement between the Company and Bank of America National Trust
and Savings Association, successor-by-merger to Security Pacific
National Bank, as Rights Agent, dated February 21, 1989, filed as an
exhibit to the Company's 1989 Annual Report on Form 10-K, is
incorporated by reference herein.
4.5 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
4.6 Specimen of 10 3/8% Senior Notes filed as an exhibit to the Company's
Current Report on Form 8-K, reporting certain exhibits in connection
with the Company's Registration Statement No. 33-50732 on Form S-3 filed
by the Company relating to the registration of 10 3/8% Senior Notes due
1999, is incorporated by reference herein.
4.7 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
13
15
EXHIBIT
NO. DESCRIPTION
------- -----------
4.8 Specimen of 9 3/8% Senior Subordinated Notes filed as an exhibit to the
Registration Statement No. 33-59516 on Form S-3 filed by the Company
relating to the registration of 9 3/8% Senior Subordinated Notes due
2003, is incorporated by reference herein.
10.1 Employment Contract of Bruce Karatz, dated January 4, 1988, filed as an
exhibit to the Company's 1987 Annual Report on Form 10-K, is
incorporated by reference herein.
10.2 1986 Stock Option Plan, filed as an exhibit to the Company's
Registration Statement No. 33-6471 on Form S-1, is incorporated by
reference herein.
10.3 1988 Employee Stock Plan, filed as an exhibit to the definitive Joint
Proxy Statement for the Company's 1989 Special Meeting of Shareholders,
is incorporated by reference herein.
10.4 Consent Order, Federal Trade Commission Docket No. C-2954, dated
February 12, 1979, filed as an exhibit to the Company's Registration
Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
10.5 SunAmerica Inc. Executive Deferred Compensation Plan, approved September
25, 1985, filed as an exhibit to SunAmerica Inc.'s 1985 Annual Report on
Form 10-K, is incorporated by reference herein.
10.6 Directors' Deferred Compensation Plan established effective July 27,
1989, filed as an exhibit to the Company's 1989 Annual Report on Form
10-K, is incorporated by reference herein.
10.7 Settlement with Federal Trade Commission of June 27, 1991, filed as an
exhibit to the Company's Current Report on Form 8-K, dated June 28,
1991, is incorporated by reference herein.
10.8 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
10.9 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
10.10 Employment Contract of Roger B. Menard, dated April 6, 1992, filed as an
exhibit to the Company's 1992 Annual Report on Form 10-K, is
incorporated by reference herein.
10.11 1993 Directors' Stock Plan, approved April 1, 1993, filed as an exhibit
to the definitive Proxy Statement for the Company's 1993 Annual Meeting
of Shareholders, is incorporated by reference herein.
10.12 Amendments to the Kaufman and Broad Home Corporation 1988 Employee Stock
Plan dated January 27, 1994, filed as an exhibit to the Company's 1994
Annual Report on Form 10-K.
10.13 Employment Agreement of Albert Z. Praw, dated February 20, 1994, filed
as an exhibit to the Company's 1994 Annual Report on Form 10-K.
10.14 Employment Agreement of Michael F. Henn, dated June 7, 1994, filed as an
exhibit to the Company's 1994 Annual Report on Form 10-K.
10.15 Third Amended and Restated Loan Agreement among the Company, Bank of
America National Trust and Savings Association, and the First National
Bank of Chicago, as managing agents, and the banks listed therein, dated
November 21, 1994, filed as an exhibit to the Company's 1994 Annual
Report on Form 10-K.
10.16 Letter dated February 16, 1995 amending Employment Contract of Bruce
Karatz, filed as an exhibit to the Company's 1994 Annual Report on Form
10-K.
10.17 Letter dated February 27, 1995 amending Employment Contract of Roger B.
Menard, filed as an exhibit to the Company's 1994 Annual Report on Form
10-K.
11 Statement of Computation of Per Share Earnings.
14
16
EXHIBIT
NO. DESCRIPTION
------- -----------
13 Pages 24 through 45 and the inside back cover of the Company's 1994
Annual Report to Shareholders.
22 Subsidiaries of the Company.
24 Consent of Independent Auditors.
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements and notes thereto.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1994.
15
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
By: MICHAEL F. HENN
------------------------------
Michael F. Henn
Senior Vice President
and Chief Financial Officer
Dated: February 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
BRUCE KARATZ Chairman, President February 27, 1995
------------------------------------ and Chief Executive
Bruce Karatz Officer
MICHAEL F. HENN Senior Vice President February 27, 1995
------------------------------------ and Chief Financial Officer
Michael F. Henn
ELI BROAD Founder-Chairman February 27, 1995
------------------------------------
Eli Broad
JANE EVANS Director February 27, 1995
------------------------------------
Jane Evans
DR. RAY R. IRANI Director February 27, 1995
------------------------------------
Dr. Ray R. Irani
ANTOINE JEANCOURT-GALIGNANI Director February 27, 1995
------------------------------------
Antoine Jeancourt-Galignani
JAMES A. JOHNSON Director February 27, 1995
------------------------------------
James A. Johnson
DAVID O. MAXWELL Director February 27, 1995
------------------------------------
David O. Maxwell
GUY NAFILYAN Director February 27, 1995
------------------------------------
Guy Nafilyan
LESTER POLLACK Director February 27, 1995
------------------------------------
Lester Pollack
SANFORD C. SIGOLOFF Director February 27, 1995
------------------------------------
Sanford C. Sigoloff
16
18
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon of
Ernst & Young LLP, dated January 5, 1995, all appearing on pages 33 through 45
in the 1994 Annual Report to Shareholders, are incorporated in this Annual
Report on Form 10-K between page F-1 and the List of Exhibits Filed. With the
exception of the aforementioned information and the information incorporated in
Items 5, 6 and 7, the 1994 Annual Report to Shareholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
Separate combined financial statements of the Company's unconsolidated
joint venture activities have been omitted because, if considered in the
aggregate, they would not constitute a significant subsidiary as defined by Rule
3-09 of Regulation S-X.
------------------------
PAGE NO. IN
ANNUAL REPORT
TO SHAREHOLDERS
-----------------
KAUFMAN AND BROAD HOME CORPORATION
Report of Independent Auditors............................................ 45
Consolidated Statements of Income for the years ended November 30, 1994,
1993 and 1992.......................................................... 33
Consolidated Balance Sheets as of November 30, 1994 and 1993.............. 34
Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1994, 1993 and 1992....................................... 35
Consolidated Statements of Cash Flows for the years ended November 30,
1994, 1993 and 1992.................................................... 36
Notes to Consolidated Financial Statements................................ 37 through 44
The following pages represent pages 24 through 45 and the inside back cover
of the 1994 Annual Report to Shareholders of Kaufman and Broad Home Corporation,
and include the Five Year Summary, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Consolidated Financial
Statements and related notes thereto, the Report of Independent Auditors,
Shareholder Information and Quarterly Stock Prices. These pages were filed with
the Securities and Exchange Commission as Exhibit 13 to this Annual Report on
Form 10-K.
F-1
19
SELECTED FINANCIAL INFORMATION
YEARS ENDED NOVEMBER 30,
------------------------------------------------------------------
In thousands, except per share
amounts 1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ----------
Construction:
Revenues $1,307,570 $1,199,776 $1,052,525 $1,176,386 $1,315,259
Operating income 88,323 86,609 58,897 76,037 108,325
Total assets 1,167,136 983,442 987,104 916,002 1,067,758
Mortgages and notes payable 565,020 313,357 258,147 230,580 390,040
========== ========== ========== ========== ==========
Mortgage banking:
Revenues $ 28,701 $ 38,078 $ 41,643 $ 44,609 $ 51,005
Operating income 6,003 7,534 4,556 4,436 5,218
Total assets 287,324 355,936 444,656 457,021 476,372
Notes payable 125,000 138,500 143,700 84,000 61,573
Collateralized mortgage
obligations 96,731 144,143 222,948 300,894 348,724
========== ========== ========== ========== ==========
Consolidated:
Revenues $1,336,271 $1,237,854 $1,094,168 $1,220,995 $1,366,264
Operating income 94,326 94,143 63,453 80,473 113,543
Net income 46,550 39,921 28,198 26,520 39,943
Total assets 1,454,460 1,339,378 1,431,760 1,373,023 1,544,130
Mortgages and notes payable 690,020 451,857 401,847 314,580 451,613
Collateralized mortgage
obligations 96,731 144,143 222,948 300,894 348,724
Convertible subordinated notes 162,022 149,798 138,497
Shareholders' equity 404,747 444,340 318,433 258,106 234,351
========== ========== ========== ========== ==========
Earnings per share $ 1.16 $ .96 $ .78 $ .80 $ 1.25
Cash dividends per common
and special common share .30 .30 .30 .30 .30
========== ========== ========== ========== ==========
24
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Overview
Revenues are generated from the Company's housing operations in the western
United States, France and Canada; commercial development activities in France;
and domestic mortgage banking operations. Operating results in 1994 benefited
from the Company's continued expansion of its domestic housing operations,
including recently established divisions in Phoenix, Arizona and Denver,
Colorado, both of which delivered their first homes in 1994. These expansion
efforts gained momentum as the Company initiated operations in Salt Lake City,
Utah in the second half of 1994 and acquired Oppel Jenkins, a regional builder
of single-family homes in Albuquerque, New Mexico and El Paso, Texas in January
1995.
Total revenues increased to $1.34 billion in 1994, up 8% from $1.24
billion in 1993, which had increased 13% from revenues of $1.09 billion in
1992. The improvement in 1994 revenues reflected higher housing revenues,
partially offset by a decline in French commercial development revenues. In
1993, revenues rose, largely due to higher California housing revenues which
more than offset a decrease in revenues from French residential and commercial
development activities. Included in total revenues were mortgage banking
revenues of $28.7 million in 1994, $38.1 million in 1993 and $41.6 million in
1992.
Net income increased 17% in 1994 to $46.6 million from $39.9 million
in 1993, which had increased 42% from the prior year's $28.2 million. Net
income rose in 1994 due to increased housing volume in the United States and
improved results from French housing operations. In 1993, the increase in net
income reflected higher earnings from California residential operations,
partially offset by lower earnings from French commercial development
activities, as French operations posted their first overall loss in 24 years.
Earnings per share increased to $1.16 in 1994, reflecting higher net
income and a lower average number of shares outstanding. The Company's buyback
of special common stock and warrants in December 1993 and its exchange and
cancellation of the remaining shares of special common stock on various dates
throughout 1994 reduced the number of shares outstanding for the year. Earnings
per share rose to $.96 in 1993 from $.78 in 1992 on substantially higher
earnings, despite an increase in the average number of shares outstanding
resulting from the issuance of Series B convertible preferred shares.
Construction
Revenues. Construction revenues rose in 1994 to $1.31 billion from $1.20 billion
in 1993, which had increased from $1.05 billion in 1992. The improvement in
1994 primarily reflected higher domestic housing revenues, including revenues
from the Company's first deliveries in Arizona and Colorado, partially offset
by a reduction in French commercial revenues. In 1993, revenues increased
largely due to higher housing revenues in California and Nevada, while
commercial and residential revenues in France decreased from the prior year.
Housing revenues totaled $1.26 billion in 1994, $1.10 billion in 1993
and $849.2 million in 1992. California housing operations accounted for 82% of
these revenues in 1994 down from 85% in 1993, mainly due to the expansion into
Nevada, Arizona and Colorado which served to diversify the Company's domestic
housing business. Reflecting a weakened French housing market, the Company's
operations in California as a percent of housing revenues increased in 1993, up
from 76% in 1992. The Company's housing revenues increased in 1994 and 1993 on
higher unit volume, as average selling prices decreased slightly in both years.
Housing deliveries increased to a new Company-wide record of 7,824
units in 1994, surpassing the previous record of 6,764 units set in 1993.
Deliveries in the United States rose 19%, while deliveries in France rose 4%.
The improvement in domestic unit volume reflected the Company's continued
expansion in the western United States. In France, higher unit volume resulted
from increased market demand for the Company's entry-level products in a
modestly improved, but still relatively weak, French economy. Housing
deliveries increased in 1993 from 4,953 units in 1992, reflecting a 46%
increase in California deliveries and a 22% decline in French deliveries. The
Company's weak housing deliveries in France during 1993 reflected severely
constrained market conditions resulting from high interest rates, high
unemployment levels and low consumer confidence. The improvement in California
unit volume in 1993 underscored the Company's success in penetrating new
regional markets and expanding its market share among the state's first-time
home buyers.
The Company's average new home price decreased to $161,300 in 1994
from $162,100 in 1993, which had decreased from $171,300 in 1992. The average
selling price fell slightly in 1994, primarily due to a reduction in domestic
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RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA
Unit Deliveries United States France Canada Total
------------- --------- -------- --------
1994
First 1,417 110 12 1,539
Second 1,805 139 10 1,954
Third 1,888 176 18 2,082
Fourth 1,962 260 27 2,249
------------- --------- -------- --------
Total 7,072 685 67 7,824
============= ========= ======== ========
1993
First 952 111 4 1,067
Second 1,393 149 16 1,558
Third 1,677 135 73 1,885
Fourth 1,930 262 62 2,254
------------- --------- -------- --------
Total 5,952 657 155 6,764
============= ========= ======== ========
Net Orders United States France Canada Total
------------- --------- -------- --------
1994
First 1,504 171 9 1,684
Second 1,822 194 19 2,035
Third 1,924 137 17 2,078
Fourth 1,742 215 27 1,984
------------- --------- -------- --------
Total 6,992 717 72 7,781
============= ========= ======== ========
1993
First 1,255 121 11 1,387
Second 1,570 157 25 1,752
Third 1,570 128 19 1,717
Fourth 1,645 176 15 1,836
------------- --------- -------- --------
Total 6,040 582 70 6,692
============= ========= ======== ========
Ending
Backlog--Units United States France Canada Total
------------- --------- -------- --------
1994
First 994 198 12 1,204
Second 1,011 253 21 1,285
Third 1,047 214 20 1,281
Fourth 827 169 20 1,016
============= ========= ======== ========
1993
First 1,122 222 107 1,451
Second 1,299 230 116 1,645
Third 1,192 223 62 1,477
Fourth 907 137 15 1,059
============= ========= ======== ========
Ending
Backlog--Value United States France Canada Total
------------- --------- -------- --------
In Thousands
1994
First $147,749 $32,875 $ 948 $181,572
Second 151,345 45,113 2,079 198,537
Third 164,837 41,546 2,000 208,383
Fourth 131,454 30,075 2,060 163,589
============= ========= ======== ========
1993
First $184,131 $41,181 $13,161 $238,473
Second 203,991 46,976 16,588 267,555
Third 190,796 38,959 5,208 234,963
Fourth 141,167 23,974 1,155 166,296
============= ========= ======== ========
average selling price, as a greater proportion of the Company's deliveries
originated from lower-priced domestic markets outside of California. In 1993,
the decrease in average selling price was primarily due to the introduction of
a smaller, more affordable product line in California aimed at strengthening
the Company's position within the strongest segment of the state's housing
market -- the entry-level segment.
In California, the Company's average selling price improved in 1994,
primarily reflecting a change in mix toward higher-priced homes. Selling
prices in California rose to $165,900 in 1994 from $163,100 in 1993 and
$164,100 in 1992. The decrease in 1993 from 1992 reflected the liquidation of
higher-priced homes in response to a persistently weak market. Average selling
prices in France have decreased during the past two years, as the Company
continued to aggressively focus on entry-level product there. The Company's
average selling price in France decreased to $182,300 in 1994 from $187,800 in
1993, which had decreased from $217,400 in 1992.
Revenues from the development of commercial buildings, all of which
are located in metropolitan Paris, totaled $17.4 million in 1994, $94.2 million
in 1993 and $191.1 million in 1992. The decrease in revenues from the
development of commercial buildings reflects the completion of large projects
in prior years. With few opportunities to replace these large projects in the
current French real estate market, the Company expects consolidated commercial
revenues to remain at reduced levels in 1995.
Land sale revenues totaled $27.2 million in 1994, $8.0 million in 1993
and $12.2 million in 1992. Fluctuations in land sale revenues over the
three-year period reflected the availability of land within the Company's
housing divisions, as well as prevailing economies and market conditions. The
increase in land sale revenues in 1994 reflected greater opportunities
available to the Company to sell land as more developers returned to an
increasingly competitive market. In contrast, the reduction in land sale
revenues in 1993 reflected a substantial increase in the availability of land
throughout the Company's markets from third parties as large numbers of
developers and banks attempted to liquidate their inventories in a
less-competitive environment.
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Operating Income. Operating income increased slightly by $1.7 million
to $88.3 million in 1994 from $86.6 million in 1993. Operating income, net of
minority interests in pretax income of consolidated joint ventures, increased
by $11.0 million to $87.4 million in 1994 from $76.5 million in 1993. The
Company believes net operating income provides a more complete view of the
operating results given the significant decrease in minority interests in 1994.
This improvement reflected higher gross profits from housing and land sales,
partially offset by higher selling, general and administrative expenses. Gross
profits (excluding profits from land sales) improved by $22.6 million to $250.7
million from $228.1 million in 1993 mainly due to higher housing unit volume in
the United States, partially offset by a decline in commercial development
gross profits. As a percentage of related revenues, the Company's gross profit
margin (excluding profits from land sales) was 19.6% in 1994, up from 19.1% in
the prior year, on a higher residential gross margin and, to a lesser extent, a
higher commercial gross margin. The Company's housing gross margin increased to
19.0% in 1994 from 18.4% in the prior year, primarily reflecting gross margin
improvement in France. The French housing gross margin improved largely due to
a lower land-cost basis and a modest strengthening of the French economy.
Company-wide profits from land sales increased by $7.4 million to $8.5 million
in 1994 from $1.1 million in 1993.
Selling, general and administrative expenses increased by $28.4
million in 1994. As a percentage of construction revenues, selling, general and
administrative expenses increased to 13.1% from 11.9% in the prior year. As a
percentage of housing revenues, to which these expenses are more closely
correlated, selling, general and administrative expenses increased to 13.5% in
1994 from 13.0% in 1993. Selling, general and administrative expenses increased
as the Company expanded its operations in the western United States and entered
Mexico. In addition, higher marketing and advertising costs, and sales
incentives were required in the latter half of 1994 to maintain sales momentum
in the face of persistent mortgage rate increases triggered by actions of the
Federal Reserve. These actions caused the average thirty-year fixed rate
mortgage to increase by more than two percentage points during the year. In
France, the Company continued to reduce selling, general and administrative
expenses to a level commensurate with its current operations.
In 1993, operating income increased by $27.7 million to $86.6 million
from $58.9 million in 1992. This increase was largely due to higher gross
profits from California and Nevada housing sales, while gross profits from
French commercial activities and residential sales declined, and overall
selling, general and administrative expenses increased. French operations
generated $8.1 million in operating income in 1993; however, deductions for
interest expense, minority interests, and losses from unconsolidated joint
ventures produced a pretax loss. Gross profits (excluding profits from land
sales) rose by $44.7 million to $228.1 million in 1993 from $183.4 million in
1992, primarily on higher unit volume in California and Nevada, partially
offset by lower French residential unit volume and gross margins combined with
reduced profits from commercial development. As a percentage of related
revenues, the Company's gross profit margin (excluding profits from land sales)
was 19.1% in 1993, up from 17.6% a year earlier on a higher residential gross
margin and, to a lesser extent, a higher commercial gross margin. The increase
in the Company's housing gross margin to 18.4% in 1993 from 17.2% in 1992
reflected improved gross margins on California deliveries as well as a greater
proportion of higher-margin California deliveries in the Company's overall unit
deliveries. The French residential gross margin declined in 1993 from the
year-earlier level, reflecting the negative impact of that country's severe
recession. Company-wide profits from land sales decreased in 1993 to $1.1
million from $3.0 million in 1992.
Selling, general and administrative expenses increased by $15.0
million in 1993, reflecting the Company's ongoing extensive marketing
initiatives in California (including the increased use of television
advertising, large-scale promotions and offsite telemarketing) and the
expansion of its operations into new domestic markets and Mexico. This increase
was substantially offset by lower selling, general and administrative expenses
in France, where the Company reduced operating costs and staff in response to
the lower level of operating activity. As a percentage of construction
revenues, selling, general and administrative expenses decreased to 11.9% from
12.1% in the prior year. As a percentage of housing revenues, to which these
expenses are more closely correlated, selling, general and administrative
expenses decreased to 13.0% in 1993 from 15.0% in 1992.
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23
Interest Income and Expense. Interest income is generated from mortgages
receivable, principally from land sales, and from short-term investments.
Interest income amounted to $2.0 million in 1994, $3.5 million in 1993 and $4.4
million in 1992. These reductions reflect lower average balances of short-term
investments and mortgages receivable, and the fluctuation in interest rates.
Interest expense results principally from borrowings to finance land
purchases and housing inventory, as well as other operating and capital needs.
In 1994, interest expense, net of amounts capitalized, increased to $17.8
million from $16.8 million in 1993, reflecting higher average indebtedness and
a higher overall effective interest rate. The Company's average debt level
increased as inventory levels rose in conjunction with continued expansion. The
Company's buyback of special common stock and warrants in December 1993 also
contributed to a higher average indebtedness in 1994. The Company's effective
borrowing rate increased in 1994 as market interest rates rose throughout the
year in response to the actions of the Federal Reserve, impacting the Company's
various credit facilities. In 1993, interest expense, net of amounts
capitalized, decreased to $16.8 million from $17.6 million in the prior year,
reflecting lower average indebtedness partially offset by a higher overall
effective interest rate. The Company's average debt level dropped as a result
of the issuance of Series B convertible preferred shares in the second quarter
of 1993, producing net proceeds of $109.2 million, most of which was used to
repay outstanding debt. The Company's effective interest rate increased on the
issuance of $175 million in 9-3/8% ten-year senior subordinated notes in April
1993, the proceeds of which were used to redeem the Company's 8% convertible
subordinated notes in June 1993. In addition, the Company issued $100 million
in 10-3/8% seven-year senior notes in September 1992. This longer-term
financing instrument effectively replaced certain shorter-term borrowings
bearing lower interest rates under the Company's domestic revolving credit
facility, reducing the Company's sensitivity to short-term fluctuations in
interest rates.
Minority Interests in Pretax Income of Consolidated Joint Ventures. The Company
conducts a portion of both its residential and commercial development
activities through majority-owned partnerships, primarily in France, which are
fully consolidated in the accompanying financial statements. As a result,
operating income has been reduced by minority interests in the pretax income of
these partnerships of $.9 million in 1994, $10.2 million in 1993 and $11.7
million in 1992. Minority interests decreased in each year on declining profit
contributions from the Company's consolidated commercial development projects.
Minority interests are expected to remain low in 1995, consistent with the
Company's reduced level of commercial development activities.
Equity in Pretax Income (Loss) of Unconsolidated Joint Ventures. The Company's
unconsolidated joint-venture activities, located in the Paris, Los Angeles and
Toronto metropolitan areas, posted combined revenues of $82.7 million in 1994,
$6.4 million in 1993 and $99.6 million in 1992. Revenues from unconsolidated
commercial joint ventures in France were $34.0 million in 1994, $2.6 million in
1993 and $90.2 million in 1992. Overall, the Company's share of pretax losses
from unconsolidated joint ventures totaled $3.7 million in 1994 and $6.3
million in 1993; its share of pretax income from these activities totaled $6.9
million in 1992. The losses in 1994 primarily reflected the results of a French
multi-family residential project, where revenues failed to offset the costs of
the venture, which included selling, general, administrative and interest
expenses. Losses in 1993 resulted from substantially lower profit contributions
from two large commercial projects completed during the year, as well as
selling, general, administrative and interest expenses incurred on a third
large project under construction prior to the recognition of related revenues.
Mortgage Banking
Interest Income and Expense. The Company's mortgage banking operations
principally consist of providing financing to purchasers of homes sold by the
Company's domestic housing operations through the origination of residential
mortgages. The mortgage banking operations also realize revenues from the sale
of such mortgages and related servicing rights to outside financial
institutions. Prior to 1989, substantially all such mortgages were pledged for
collateralized mortgage obligations. Accordingly, interest income is earned
primarily from mortgage-backed securities held for long-term investment as
collateral, while interest expense results mainly from the associated
collateralized mortgage obligations.
Interest income decreased to $17.0 million in 1994 from $24.2 million
in 1993, and $32.5 million in 1992, while interest expense decreased to $17.2
million in 1994 from $25.1
28
24
million in 1993, and $32.8 million in 1992. These amounts decreased primarily
due to the declining balances of outstanding mortgage-backed securities and
related collateralized mortgage obligations, a result of both regularly
scheduled, monthly principal amortization and prepayment activity of mortgage
collateral. These balances, and the related interest income and expense, will
continue to decline in the future, as the Company's practice of participating
in collateralized mortgage financings was discontinued in 1988 due to market
conditions and tax law changes. Combined interest income and expense resulted
in net interest expense of $.2 million in 1994, $.9 million in 1993 and $.3
million in 1992. These differences reflect variations in mortgage production
mix; movements in short-term versus long-term interest rates; and the amount,
timing and rates of return on interim reinvestments of monthly principal
amortization and prepayments.
Other Mortgage Banking Revenues. Other mortgage banking revenues, principally
gains on sales of mortgages and servicing rights and, to a lesser extent,
mortgage servicing fees, totaled $11.7 million in 1994, $13.9 million in 1993
and $9.1 million in 1992. The slight reduction in these revenues in 1994
reflected lower gains on the sale of mortgages and servicing rights. In 1993,
the improvement in other mortgage banking revenues primarily reflected higher
gains on the sales of both servicing rights and mortgages due to higher
mortgage origination volume.
General and Administrative Expenses. General and administrative expenses
amounted to $5.5 million in 1994, $5.4 million in 1993 and $4.3 million in
1992. General and administrative expenses increased in 1994 and 1993 largely
due to higher mortgage production levels, which rose in line with domestic unit
deliveries, and the opening of new branch offices in California, Nevada,
Arizona and Colorado.
Income Taxes
The Company's income tax expense totaled $27.3 million in 1994, $24.4 million
in 1993 and $17.3 million in 1992. These amounts represented effective income
tax rates of approximately 37% in 1994, and 38% in 1993 and 1992. The effective
tax rate declined in 1994 as a result of a greater utilization of low income
housing investment credits. The Company's effective tax rate remained unchanged
in 1993 as a result of low income housing investment credits, despite adverse
tax law changes. Pretax income for financial reporting purposes and taxable
income for income tax purposes have historically differed, primarily due to the
impact of state income taxes, foreign tax rate differences, intercompany
dividends and the use of low income housing investment credits.
In 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The impact of the
adoption on the Company's financial position and results of operations was not
significant.
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
cash flows and external sources of debt and equity financing. In 1994,
operating, investing and financing activities used net cash of $20.3 million;
in 1993, these activities provided net cash of $9.2 million.
Operating activities in 1994 used $111.1 million, while 1993 operating
activities provided $56.9 million. The Company used cash in 1994 to fund a net
investment of $137.6 million in inventories (excluding $27.1 million of
inventories acquired through seller financing) and to pay down $26.3 million in
accounts payable, accrued expenses and other liabilities. The use of cash was
partially offset by earnings of $46.6 million and various noncash items
deducted from net income. Inventories increased primarily in the United States,
where they rose to $807.5 million at November 30, 1994 from $633.0 million at
year-end 1993, as the Company continued its expansion and sales rates slowed in
the latter half of 1994.
The 1993 sources of operating cash were the year's earnings of $39.9
million; a $63.9 million reduction in receivables; a $15.7 million increase in
accounts payable, accrued expenses and other liabilities; and various noncash
items deducted from net income, including depreciation and amortization, and
minority interests in pretax income of consolidated joint ventures. These cash
sources were partially offset by a $42.1 million reduction in deferred tax
liabilities and a net investment of $44.2 million in inventories (excluding
$8.9 million of inventories acquired through seller financing). Inventories
increased principally in the United States, rising to $633.0 million at
November 30, 1993 from $522.4 million at year-end 1992, as
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25
the Company marketed homes from nearly twice the number of active communities
at the end of 1993 compared to the prior year-end. Receivables declined on
lower receivables from investors in commercial development projects due to
reduced commercial development activities.
Cash provided by investing activities totaled $37.5 million in 1994
and $78.8 million in 1993, primarily from $49.7 million and $84.0 million,
respectively, in proceeds from mortgage-backed securities paid off during the
year within the mortgage banking operations. These proceeds were used largely
to pay down the collateralized mortgage obligations for which the
mortgage-backed securities had served as collateral.
Financing activities in 1994 and 1993 resulted in a net cash inflow of
$53.3 million and a net cash outlay of $126.5 million, respectively. In 1994,
cash was provided by $211.0 million in net proceeds from borrowings, partially
offset by the purchase of the Company's special common stock and warrants for
$73.7 million; payments on collateralized mortgage obligations of $49.3
million, the funds for which were provided by receipts on mortgage-backed
securities; and $19.6 million of cash dividend payments. The purchase of
special common stock and warrants was largely responsible for the Company's
debt-to-capital ratio increasing to 58% in 1994 from 41% in 1993.
Financing activities in 1993 used cash for the redemption of the
Company's convertible subordinated notes of $168.8 million; payments on
collateralized mortgage obligations of $81.4 million; net payments of $132.5
million under other borrowings; and dividend payments of $15.3 million. These
outflows were partially offset by $109.2 million in proceeds from the issuance
of Series B convertible preferred shares and $173.6 million from the issuance
of 9-3/8% senior subordinated notes. In 1993, the Company improved its
debt-to-capital ratio to 41% from 57% in 1992 reflecting an increase in equity
from 1993 earnings and the issuance of the Series B convertible preferred
shares.
External sources of financing for the Company's construction
activities include its domestic unsecured revolving credit facility, other
domestic and foreign bank lines, third-party secured financings, and the public
debt and equity markets. Substantial unused lines of credit remain available
for the Company's future use, if required, and are centered mainly in its
domestic unsecured revolving credit facility. Terms under this facility
originally provided for a $350 million commitment and a 1995 expiration. On
November 21, 1994, the revolving credit facility was amended, increasing the
available credit to $500 million with a $200 million sublimit for the Company's
mortgage banking operations and extending the terms of this facility through
December 31, 1997. As of November 30, 1994, there was $268.9 million available
under the revolving credit facility for the Company's future use. In addition,
under the Company's French unsecured financing agreements $113.2 million was
available in the aggregate at November 30, 1994. Depending upon available
terms, the Company also finances certain land acquisitions with borrowings from
land sellers and other third parties. At November 30, 1994, the Company had
outstanding seller-financed notes payable of $35.6 million secured primarily by
the underlying property which had a carrying value of $64.8 million.
The Company uses capital resources primarily for land purchases, land
development and housing construction. The Company typically manages its
investments in land by purchasing property under options and other types of
conditional contracts whenever possible, and similarly controls its investment
in housing inventories by carefully managing the timing of the production
process. The Company's inventories are geographically diverse and primarily
located in desirable areas within targeted growth markets principally oriented
toward entry-level purchasers. Reflecting its expanding operations in the
United States, the Company increased its investment in domestic inventories by
28% during 1994.
On November 8, 1993, in order to simplify its capital structure, the
Company commenced a tender offer to purchase all of the 5.1 million outstanding
shares of its special common stock at a price of $19 per share. The offer
expired on December 7, 1993 with 2.3 million shares tendered. In addition, on
December 23, 1993, the Company purchased the remaining 2.4 million warrants to
purchase shares of special common stock at a price equal to the tender offer
price per share less the $6.96 per warrant exercise price. The total
consideration paid for these transactions was $73.7 million, including related
costs. Subsequent to the expiration of the tender offer, the remaining 2.8
million outstanding shares of special common stock were exchanged by the
Company at a ratio of .95 shares of common stock for each share of special
common stock on various dates in 1994. There were no outstanding shares of
special common stock at November 30, 1994.
The principal sources of liquidity for the Company's mortgage banking
operations are internally generated funds from the sales of mortgages and
related servicing rights. Mortgages originated by the mortgage banking
operations are generally sold in the secondary market within 60 days of
origination.
30
26
External sources of financing for these operations include a $200 million
sublimit under the Company's amended revolving credit facility and a $120
million asset-backed commercial paper facility. The $200 million sublimit on
the amended revolving credit facility is available to fund mortgage banking
operations only to the extent that borrowings under the agreement for
construction operations do not exceed $300 million.
Debt service on the Company's collateralized mortgage obligations is
funded by receipts from mortgage-backed securities. Such funds are expected to
be adequate to meet future debt-payment schedules for the collateralized
mortgage obligations and therefore these securities have virtually no impact on
the capital resources and liquidity of the mortgage banking operations.
The Company 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 other needs of its
business, both on a short and long-term basis.
Outlook
The Company expects in 1995 to continue its expansion within current markets of
its worldwide operations, intending to capitalize on the Company's strong
financial position and excellent growth prospects in selected housing markets,
particularly in anticipation of gradually improving economic conditions in both
California and France. Domestic operations should benefit further from the
maturation of recently established divisions. Provided French economic
conditions continue to improve, the Company's French housing operations, which
returned to profitability in 1994, are anticipated to generate higher earnings
in 1995. Although the Company previously expected to begin delivering houses in
its start-up operations in Mexico in 1994, it is now seeking its first sales
orders and deliveries in 1995.
Domestic operating results in 1994 included the Company's first
housing deliveries from new divisions in Phoenix, Arizona and Denver, Colorado.
In 1995, the Company is expected to benefit from the maturation of these
divisions, as well as the recently established home building operations in Salt
Lake City, Utah and the January 1995 purchase of a regional single-family home
builder with operations in Albuquerque, New Mexico and El Paso, Texas. Overall,
the Company believes domestic operating results will continue to improve in
1995 as its new divisions develop market positions and existing divisions
further penetrate their markets.
The Company will also face several significant challenges within its
domestic operations in 1995, particularly in the first half of the year. These
include, among other market conditions, a still relatively weak housing
recovery in California, the location of 80% of the Company's deliveries in
1994; higher mortgage interest rates, which have made it more difficult to
qualify new home buyers for loans, particularly in the entry-level market
segment; and the negative effects of severe and prolonged winter rain storms in
California in early 1995, which have reduced sales volumes and slowed
production.
Responding to these challenges, the Company is implementing a series
of initiatives intended to improve gross margins and reduce overhead expenses
over time. These gross margin initiatives include simplifying house designs to
lower construction costs, efforts to even out quarterly production cycles, and
emphasizing the sale of higher-margin amenities. In addition, the Company began
implementing an extensive program intended to reduce its overhead cost
structure and staffing levels in the final months of calendar 1994. As a
result, domestic staff levels were cut by approximately 10% and divisional
overhead expenses will be reduced and more closely tied to expected sales
volumes. The impact of these gross margin initiatives and overhead adjustments
are expected to be gradually realized beginning in the second quarter of 1995
and to progressively benefit operating income and margins over the remainder of
1995 and into 1996. While there can be no assurance as to the successful
implementation of these initiatives, the Company anticipates that achievement
of greater operating efficiencies, coupled with continuing improvement in
California's economy and continued development of markets in other western
states, will produce improvement in its financial results over time.
In 1994, modest growth and recovery in the French economy and strong
market demand for the Company's expanded entry-level product line generally
offset obstacles created by continued high unemployment levels and interest
rates. The Company believes that continued improvement in French sales volumes
and higher profits from its repositioned residential operations can be
achieved. French commercial activities will likely remain at reduced levels as
the market continues to absorb existing properties. Notwithstanding the
Company's 1994
31
27
French improvement and a more favorable view of 1995, generally weak economic
conditions may persist in France and the Company remains cautious in its
business outlook.
In Mexico, the Company was unable to deliver homes in 1994. The
Company's start-up operation continues with the entitlement process for its
first community of homes. Moreover, recent economic events, particularly the
series of sharp devaluations of the peso in early fiscal 1995, have slowed an
already complex regulatory process and heightened market uncertainties for new
home sales. These events have caused the Company to reassess its plans for its
Mexican operations. Although the Company believes that demand for housing in
Mexico is substantial and that market opportunities remain attractive, the
Company cannot accurately predict at this time the timing and amount of sales
or deliveries, if any, in 1995.
At November 30, 1994, the Company had outstanding sales contracts of
1,016 units in residential backlog, representing aggregate future revenues of
approximately $163.6 million. The number of units in backlog decreased slightly
from 1,059 units at fiscal year-end 1993. Substantially all homes included in
the backlog are expected to be delivered during 1995. However, cancellations
could occur, particularly if market conditions deteriorate or interest rates
continue to rise, thereby decreasing backlog and related future revenues.
In the United States, the Company's residential backlog at November
30, 1994 totaled 827 units, down 9% from 907 units at year-end 1993. This
decrease was primarily attributable to California, where residential unit
backlog was down 18% to 628 units at November 30, 1994 from 770 units at
November 30, 1993. Higher interest rates, weak selling conditions in selected
California markets, and greater competition all contributed to the decline.
California net sales in the fourth quarter of 1994 decreased 3% to 1,494 units
from 1,543 units in the year-earlier quarter. Furthermore, poor weather
conditions throughout the state in early 1995 have also affected California
sales rates. Net sales declined 8% in the first two months of fiscal 1995
compared to the same period of 1994.
In France, the residential backlog at November 30, 1994 totaled 169
orders, up 23% from 137 orders at fiscal year-end 1993. Net sales in the fourth
quarter of 1994 increased 22% to 215 units from 176 units in the year-earlier
quarter. For the year, net sales increased 23% to 717 units from 582 units in
1993. This trend has continued into fiscal 1995, with net sales up 15% in the
first two months of 1995 compared to the same period a year ago. Given the
decreased level of its commercial development activities, the Company's backlog
associated with these operations declined to a value of approximately $31.1
million at November 30, 1994.
Based upon the backlog declines and severe weather in California, the
Company currently anticipates reduced delivery volumes in the first quarter of
1995. In view of the current adverse interest rate environment, the soft sales
in the latter half of 1994 and early 1995, and the delayed benefit of the gross
margin and overhead initiatives, operating income and earnings per share are
likely to decline materially in the first quarter of 1995. Nevertheless, the
Company remains optimistic that the second half of the year will yield
improving sales volumes and operating results through domestic expansion
efforts within its current housing markets and the anticipated impact of its
gross margin and overhead initiatives.
The Company continues to benefit in all of its operations from the
strength of its capital position, which has allowed it to finance expansion,
re-engineer product lines, and diversify into strong new home building markets.
While successfully adapting its popular line of well-designed,
competitively-priced homes across a growing geographic area, the Company has
maintained a capital advantage which has enabled it to establish and expand
strong market positions. The Company believes it is particularly well
positioned to capitalize on any sustained improvement in the economies of
California and France, where recent severe recessions have inhibited demand for
affordable new housing.
Impact of Inflation
The Company's business is significantly affected by general economic
conditions, particularly by the impact of inflation and the generally
associated adverse effect on interest rates. Although inflation rates have been
low in recent years, rising inflation would likely have a long-term impact on
the Company's revenues and earning power by reducing demand for homes as a
result of correspondingly higher interest rates. In periods of high inflation,
the rising costs of land, construction, labor, interest and administrative
expenses have often been recoverable through increased selling prices, although
this has not always been possible because of high mortgage interest rates and
competitive factors in the marketplace. In recent years, however, inflation has
had no significant adverse impact on the Company, as cost increases have not
exceeded the average rate of inflation.
32
28
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED NOVEMBER 30,
---------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
Total revenues $1,336,271,000 $1,237,854,000 $1,094,168,000
============== ============== ==============
Construction:
Revenues $1,307,570,000 $1,199,776,000 $1,052,525,000
Construction and land costs (1,048,323,000) (970,595,000) (866,070,000)
Selling, general and administrative expenses (170,924,000) (142,572,000) (127,558,000)
-------------- -------------- --------------
Operating income 88,323,000 86,609,000 58,897,000
Interest income 2,026,000 3,477,000 4,440,000
Interest expense, net of amounts capitalized (17,849,000) (16,840,000) (17,589,000)
Minority interests in pretax income of consolidated
joint ventures (917,000) (10,156,000) (11,746,000)
Equity in pretax income (loss) of unconsolidated
joint ventures (3,736,000) (6,303,000) 6,940,000
-------------- -------------- --------------
Construction pretax income 67,847,000 56,787,000 40,942,000
-------------- -------------- --------------
Mortgage banking:
Revenues:
Interest income 16,978,000 24,188,000 32,510,000
Other 11,723,000 13,890,000 9,133,000
-------------- -------------- --------------
28,701,000 38,078,000 41,643,000
Expenses:
Interest (17,151,000) (25,147,000) (32,775,000)
General and administrative (5,547,000) (5,397,000) (4,312,000)
-------------- -------------- --------------
Mortgage banking pretax income 6,003,000 7,534,000 4,556,000
-------------- -------------- --------------
Total pretax income 73,850,000 64,321,000 45,498,000
Income taxes (27,300,000) (24,400,000) (17,300,000)
-------------- -------------- --------------
Net income $ 46,550,000 $ 39,921,000 $ 28,198,000
============== ============== ==============
Earnings per share $1.16 $.96 $.78
============== ============== ==============
See accompanying notes.
33
29
CONSOLIDATED BALANCE SHEETS
November 30,
------------------------------
Assets 1994 1993
-------------- --------------
Construction:
Cash and cash equivalents $ 49,497,000 $ 72,804,000
Trade and other receivables 114,921,000 80,294,000
Inventories 942,713,000 778,065,000
Investments in unconsolidated joint ventures 25,314,000 23,721,000
Other assets 34,691,000 28,558,000
-------------- --------------
1,167,136,000 983,442,000
-------------- --------------
Mortgage banking:
Cash and cash equivalents 5,311,000 2,318,000
Receivables
First mortgages and mortgage-backed securities 110,223,000 158,485,000
First mortgages held under commitment of sale and other receivables 164,365,000 185,723,000
Other assets 7,425,000 9,410,000
-------------- --------------
287,324,000 355,936,000
-------------- --------------
Total assets $1,454,460,000 $1,339,378,000
============== ==============
Liabilities and Shareholders' Equity
Construction:
Accounts payable $ 146,179,000 $ 137,707,000
Accrued expenses and other liabilities 72,845,000 95,782,000
Mortgages and notes payable 565,020,000 313,357,000
-------------- --------------
784,044,000 546,846,000
-------------- --------------
Mortgage banking:
Accounts payable and accrued expenses 10,293,000 22,142,000
Notes payable 125,000,000 138,500,000
Collateralized mortgage obligations secured by mortgage-backed securities 96,731,000 144,143,000
-------------- --------------
232,024,000 304,785,000
-------------- --------------
Deferred income taxes 31,373,000 26,875,000
-------------- --------------
Minority interests in consolidated joint ventures 2,272,000 16,532,000
-------------- --------------
Shareholders' equity:
Preferred stock--$1.00 par value; authorized, 10,000,000 shares:
Series A participating cumulative preferred stock; none outstanding
Series B convertible preferred stock; 1,300,000 shares outstanding 1,300,000 1,300,000
Common stock--$1.00 par value; authorized, 100,000,000 shares; 32,378,217
and 29,600,515 shares outstanding at November 30, 1994 and 1993,
respectively 32,378,000 29,601,000
Special common stock -- $1.00 par value; authorized, 25,000,000 shares;
5,123,000 shares outstanding at November 30, 1993 5,123,000
Paid-in capital 188,970,000 258,770,000
Retained earnings 181,282,000 154,338,000
Cumulative foreign currency translation adjustments 817,000 (4,792,000)
-------------- --------------
Total shareholders' equity 404,747,000 444,340,000
-------------- --------------
Total liabilities and shareholders' equity $1,454,460,000 $1,339,378,000
============== ==============
See accompanying notes.
34
30
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended November 30, 1994, 1993 and 1992
--------------------------------------------------------------------------------------------
Series B
Convertible Special Foreign Total
Preferred Common Common Paid-in Retained Currency Shareholders'
Stock Stock Stock Capital Earnings Translation Equity
----------- ----------- ---------- ------------ ------------ ----------- ------------
Balance at November 30, 1991 $28,765,000 $114,856,000 $111,529,000 $2,956,000 $258,106,000
Net income 28,198,000 28,198,000
Dividends on common
and special common stock (9,966,000) (9,966,000)
Exercise of employee stock options 723,000 5,147,000 5,870,000
Issuance of special common stock
through the exercise of warrants $5,123,000 30,533,000 35,656,000
Foreign currency translation
adjustments 569,000 569,000
---------- ----------- ---------- ------------ ------------ ---------- ------------
Balance at November 30, 1992 29,488,000 5,123,000 150,536,000 129,761,000 3,525,000 318,433,000
---------- ----------- ---------- ------------ ------------ ---------- ------------
Net income 39,921,000 39,921,000
Dividends on Series B convertible
preferred stock (4,940,000) (4,940,000)
Dividends on common and
special common stock (10,404,000) (10,404,000)
Issuance of Series B
convertible preferred stock $1,300,000 107,870,000 109,170,000
Exercise of employee stock options 223,000 1,669,000 1,892,000
Cancellation of restricted stock (110,000) (1,305,000) (1,415,000)
Foreign currency translation
adjustments (8,317,000) (8,317,000)
---------- ----------- ---------- ------------ ------------ ---------- ------------
Balance at November 30, 1993 1,300,000 29,601,000 5,123,000 258,770,000 154,338,000 (4,792,000) 444,340,000
---------- ----------- ---------- ------------ ------------ ---------- ------------
Net income 46,550,000 46,550,000
Dividends on Series B
convertible preferred stock (9,880,000) (9,880,000)
Dividends on common and
special common stock (9,726,000) (9,726,000)
Exercise of employee stock options 125,000 1,406,000 1,531,000
Purchase of special common
stock and warrants (2,332,000) (71,345,000) (73,677,000)
Exchange of special common
stock for common stock 2,652,000 (2,791,000) 139,000
Foreign currency translation
adjustments 5,609,000 5,609,000
---------- ----------- ---------- ------------ ------------ ---------- ------------
Balance at November 30, 1994 $1,300,000 $32,378,000 $ $188,970,000 $181,282,000 $ 817,000 $404,747,000
========== =========== ========== ============ ============ ========== ============
See accompanying notes.
35
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30,
---------------------------------------------------
1994 1993 1992
------------- ------------- ------------
Cash flows from operating activities:
Net income $ 46,550,000 $ 39,921,000 $28,198,000
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Equity in pretax (income) loss of unconsolidated joint ventures 3,736,000 6,303,000 (6,940,000)
Minority interests in pretax income of consolidated joint ventures 917,000 10,156,000 11,746,000
Amortization of discounts and issuance costs 2,276,000 9,680,000 15,221,000
Depreciation and amortization 3,408,000 2,617,000 3,449,000
Provision for deferred income taxes 4,498,000 (42,057,000) 11,845,000
Change in:
Receivables (13,836,000) 63,874,000 (56,694,000)
Inventories (137,594,000) (44,151,000) (41,215,000)
Accounts payable, accrued expenses and other liabilities (26,314,000) 15,684,000 (103,000)
Other, net 5,279,000 (5,099,000) 10,223,000
------------- ------------- ------------
Net cash provided (used) by operating activities (111,080,000) 56,928,000 (24,270,000)
------------- ------------- ------------
Cash flows from investing activities:
Investments in unconsolidated joint ventures (5,329,000) (1,233,000) (872,000)
Net originations of mortgages held for long-term investment (442,000) (1,538,000) (969,000)
Payments received on first mortgages and mortgage-backed securities 49,687,000 84,015,000 86,679,000
Other, net (6,447,000) (2,499,000) (1,403,000)
------------- ------------- ------------
Net cash provided by investing activities 37,469,000 78,745,000 83,435,000
------------- ------------- ------------
Cash flows from financing activities:
Net proceeds from (payments on) credit agreements and other
short-term borrowings 215,476,000 (51,114,000) (27,360,000)
Proceeds from issuance of senior notes 100,000,000
Proceeds from issuance of senior subordinated notes 173,603,000
Payments on collateralized mortgage obligations (49,259,000) (81,363,000) (80,969,000)
Payments on mortgages, land contracts and other loans (4,460,000) (81,429,000) (14,831,000)
Redemption of convertible subordinated notes (168,760,000)
Payments to minority interests in consolidated joint ventures (15,177,000) (11,254,000) (46,623,000)
Proceeds from issuance of Series B convertible preferred stock 109,170,000
Proceeds from exercise of warrants 35,656,000
Purchase of special common stock and warrants (73,677,000)
Payments of cash dividends (19,606,000) (15,344,000) (9,966,000)
------------- ------------- ------------
Net cash provided (used) for financing activities 53,297,000 (126,491,000) (44,093,000)
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (20,314,000) 9,182,000 15,072,000
Cash and cash equivalents at beginning of year 75,122,000 65,940,000 50,868,000
------------- ------------- ------------
Cash and cash equivalents at end of year $ 54,808,000 $ 75,122,000 $ 65,940,000
============= ============= ============
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized $ 36,034,000 $ 39,319,000 $ 35,096,000
Income taxes paid 45,270,000 23,230,000 17,252,000
============= ============= ============
Supplemental disclosures of noncash activities:
Cost of inventories acquired through seller financing $ 27,054,000 $ 8,900,000 $ 29,458,000
============= ============= ============
See accompanying notes.
36
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Operations. Kaufman and Broad Home Corporation (the Company) is a regional
builder of single-family homes with domestic operations throughout the western
United States, and international operations in France, Canada and Mexico. In
France, the Company is also a developer of commercial and high-density
residential projects. Through its mortgage banking subsidiary, Kaufman and
Broad Mortgage Company, the Company provides mortgage banking services to its
domestic home buyers.
Basis of Presentation. The consolidated financial statements include the
accounts of the Company and all significant majority-owned or controlled
subsidiaries and joint ventures. All significant intercompany transactions have
been eliminated. Investments in unconsolidated joint ventures in which the
Company has less than a controlling interest are accounted for using the equity
method.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments and other short-term investments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are stated at
cost which approximates fair value.
Construction Operations. Inventories are stated at the lower of cost or
estimated net realizable value for each parcel or subdivision. Estimated net
realizable value is based upon the net sales proceeds anticipated in the normal
course of business, less estimated costs to complete or improve the property to
the condition used in determining the estimated selling price.
Housing and other real estate sales are recognized when all conditions
precedent to closing have been fulfilled. In France, sales of apartments,
condominiums and commercial buildings to investors are recognized using the
percentage of completion method which is generally based on costs incurred as a
percentage of estimated total costs of individual projects. Revenues recognized
in excess of amounts billed are classified as receivables. Amounts received
from investors in excess of revenues recognized, if any, are classified as
other liabilities.
Construction and land costs are comprised of direct and allocated
costs including estimated future costs for warranties and amenities. Land,
land improvements and other common costs are generally allocated equally to
units within a parcel or subdivision. Land and land development costs generally
include related interest and property taxes incurred until development is
substantially completed or deliveries have begun within a subdivision.
Mortgage Banking Operations. Principal and interest payments received on
mortgage-backed securities are invested in short-term securities maturing on
the next debt service date of the collateralized mortgage obligations for which
the securities are held as collateral. Such payments are restricted to the
payment of the debt service on the collateralized mortgage obligations.
First mortgages and mortgage-backed securities consist of securities
held for long-term investment and are valued at amortized cost. First
mortgages held under commitment of sale are valued at the lower of aggregate
cost or market. Market is principally based on public market quotations or
outstanding commitments obtained from investors to purchase first mortgages
receivable.
The provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" are
effective for fiscal years beginning after December 15, 1993. The Company will
adopt the provisions of this pronouncement effective December 1, 1994. The
impact of the adoption on the Company's financial position and results of
operations is not anticipated to be significant.
Income Taxes. In 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
impact of the adoption on the Company's financial position and results of
operations was not significant.
Income taxes are provided for at rates applicable in the countries in
which the income is earned. Provision is made currently for United States
federal income taxes on earnings of foreign subsidiaries which are not expected
to be reinvested indefinitely.
Earnings Per Share. The computation of earnings per share is based on the
weighted average number of common shares, special common shares, equivalent
Series B Convertible Preferred Shares and common share equivalents outstanding
during each year. The Series B Convertible Preferred Shares are considered
common stock due to their mandatory conversion into common stock, and the
related dividends are not deducted from net income for purposes of calculating
earnings per share. Common share equivalents include dilutive stock options and
warrants using the treasury stock method. Earnings per share were based on the
weighted average number of common shares, special common shares, equivalent
Series B Convertible Preferred Shares and common share equivalents outstanding
of 40,026,000 in 1994, 41,547,000 in 1993 and 36,372,000 in 1992.
37
33
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 earnings per share of $1.09 in 1994 and $.93 in 1993.
Reclassifications. Certain amounts in the consolidated financial statements of
prior years have been reclassified to conform to the 1994 presentation.
Note 2. Receivables
Construction. Trade receivables amounted to $43,057,000 and $41,322,000 at
November 30, 1994 and 1993, respectively. Included in these amounts are
unbilled receivables due from investors on French apartment, condominium and
commercial building sales accounted for using the percentage of completion
method, totaling $14,267,000 at November 30, 1994 and $17,485,000 at November
30, 1993. The investors are contractually obligated to remit payments against
their unbilled balances. Other receivables of $71,864,000 at November 30, 1994
and $38,972,000 at November 30, 1993 included mortgages receivable, escrow
deposits and amounts due from municipalities and utility companies.
At November 30, 1994 and 1993, receivables were net of allowances for
doubtful accounts of $3,269,000 and $2,139,000, respectively.
Mortgage Banking. First mortgages and mortgage-backed securities consisted of
loans held for long-term investment of $6,934,000 at November 30, 1994 and
$6,492,000 at November 30, 1993 and mortgage-backed securities held for
long-term investment of $103,289,000 and $151,993,000 at November 30, 1994 and
1993, respectively. The mortgage-backed securities serve as collateral for
related collateralized mortgage obligations. The property covered by the
mortgages underlying the mortgage-backed securities are single-family
residences. Issuers of the mortgage-backed securities are the Government
National Mortgage Association and Federal National Mortgage Association. The
first mortgages and mortgage-backed securities bore interest at an average rate
of 8-7/8% at November 30, 1994 and 1993 (with rates ranging from 7% to 13% for
both years).
Mortgages were net of discounts of $6,243,000 at November 30, 1994 and
$8,133,000 at November 30, 1993. These discounts, which primarily represent
loan origination discount points and acquisition price discounts, are deferred
as an adjustment to the carrying value of the related first mortgages and
mortgage-backed securities and amortized into interest income using the
interest method.
The fair market values of the first mortgages and mortgage-backed
securities at November 30, 1994 and 1993 were $111,083,000 and $170,838,000,
respectively. These values were based on quoted market prices for the same or
similar issues. The fair market values of the first mortgages held under
commitment of sale approximated their recorded values at November 30, 1994 and
1993.
Note 3. Inventories
Inventories consist of the following:
November 30,
--------------------------------
1994 1993
------------ ------------
Homes, lots and improvements in production $712,563,000 $577,582,000
Land under development 230,150,000 200,483,000
------------ ------------
Total inventories $942,713,000 $778,065,000
============ ============
Land under development primarily consists of parcels on which 50% or
less of estimated development costs have been incurred.
The impact of capitalizing interest costs on consolidated pretax
income is as follows:
Years ended November 30,
---------------------------------
In thousands 1994 1993 1992
------- ------- -------
Interest capitalized $27,561 $24,432 $23,419
Previously capitalized interest amortized to cost of sales (16,156) (17,617) (19,094)
------- ------- -------
Net impact on consolidated pretax income $11,405 $ 6,815 $ 4,325
======= ======= =======
38
34
Note 4. Investments In Unconsolidated Joint Ventures
The Company participates in a number of joint ventures in which it has less
than a controlling interest. These joint ventures are based primarily in France
and Canada and are engaged in the development, construction and sale of
residential properties and commercial projects. Combined condensed financial
information concerning the Company's unconsolidated joint venture activities
follows:
November 30,
------------------------------
1994 1993
------------ ------------
Cash $ 5,530,000 $ 10,261,000
Receivables 16,987,000 16,906,000
Inventories 856,239,000 743,827,000
Other assets 5,955,000 6,319,000
------------ ------------
Total assets $884,711,000 $777,313,000
============ ============
Mortgages and notes payable $631,353,000 $578,211,000
Other liabilities 142,619,000 105,904,000
Equity of:
The Company 25,314,000 23,721,000
Others 85,425,000 69,477,000
------------ ------------
Total liabilities and equity $884,711,000 $777,313,000
============ ============
The joint ventures finance land and inventory investments primarily
through a variety of borrowing arrangements. The Company typically does not
guarantee these financing arrangements.
Years ended November 30,
-------------------------------------------
In thousands 1994 1993 1992
---------- --------- --------
Revenues $ 82,734 $ 6,404 $ 99,630
Cost of sales (102,981) (16,160) (103,183)
Other expenses, net (15,434) (20,992) (12,567)
---------- -------- ---------
Total pretax loss $ (35,681) $(30,748) $ (16,120)
========== ======== =========
The Company's share of pretax income (loss) $ (3,736) $(6,303) $ 6,940
========= ======= =========
The Company's share of pretax income (loss) includes management fees
earned from the unconsolidated joint ventures.
Note 5. Mortgages and Notes Payable
Construction. Mortgages and notes payable consist of the following (interest
rates are as of November 30):
NOVEMBER 30,
---------------------------
1994 1993
------------ -----------
Unsecured domestic borrowings
with banks under a revolving credit
agreement (6-4/5% in 1994) $100,000,000
Other unsecured domestic borrowings
with banks due within one year
(6-1/8% to 6-5/8% in 1994) 110,100,000
Unsecured French borrowings
(6% to 7% in 1994 and 7-1/2% to
8-3/8% in 1993) 45,553,000 $26,677,000
Mortgages and land contracts due
to land sellers and other loans
(6% to 26-3/10% in 1994 and 6%
to 12% in 1993) 35,621,000 13,027,000
Senior notes due 1999 at 10-3/8% 100,000,000 100,000,000
Senior subordinated notes due 2003 at 9-3/8% 173,746,000 173,653,000
------------ ------------
Total mortgages and notes payable $565,020,000 $313,357,000
============ ============
Terms under the domestic unsecured revolving credit agreement with
various banks dated December 24, 1992 and scheduled to expire in 1995 provided
for a $350,000,000 commitment. On November 21, 1994, the agreement was amended,
increasing the revolving credit facility to $500,000,000 with a $200,000,000
sublimit for the Company's mortgage banking operations. This facility has a
three-year term expiring on December 31, 1997. As of November 30, 1994, the
entire amount of the revolving credit facility was committed and $268,900,000
was available for the Company's future use. The agreement provides for interest
on borrowings at either the applicable bank reference rate or the London
Interbank Offered Rate plus 1-1/5% and an annual commitment fee of 3/10% of the
unused portion of the commitment. The fair market value of borrowings under the
revolving credit facility approximated their recorded values at November 30,
1994 as their respective interest rates approximated currently available rates.
Under the terms of the revolving credit agreement, the Company is
required, among other things, to maintain certain financial statement ratios
and a minimum net worth and is subject to limitations on acquisitions,
inventories, indebtedness, dividend payments and repurchases of stock. Under
the conditions of the agreement, retained earnings of $79,748,000
39
35
were available for payment of cash dividends or stock repurchases at November
30, 1994.
The Company's French subsidiaries have lines of credit with various
banks which totaled $158,713,000 at November 30, 1994, of which $158,686,000
has various committed expiration dates through November 1996. These lines of
credit provide for interest on borrowings at either the French Federal Funds
Rate plus 3/4% to 1-1/2% or the Paris Interbank Offered Rate plus 1-3/8%. The
fair market values of borrowings under the French lines of credit approximated
their recorded values at November 30, 1994 and 1993 as their respective
interest rates approximated currently available rates.
The weighted average interest rate on aggregate unsecured borrowings,
excluding the senior and senior subordinated notes, was 6-1/2% and 7-5/8% at
November 30, 1994 and 1993, respectively.
On August 11, 1992, the Company filed a registration statement with
the Securities and Exchange Commission under which the Company could offer for
sale from time to time up to $200,000,000 of unsecured debt securities. On
September 8, 1992, the Company, pursuant to this registration statement, issued
$100,000,000 of 10-3/8% senior notes, due September 1, 1999, with interest
payable semi-annually. The Company may redeem, in whole or in part, at any time
on or after September 1, 1997, 100% of the principal amount of the notes. The
senior notes were valued at $99,000,000 and $107,750,000 at November 30, 1994
and 1993, respectively, based on quoted market prices.
On April 26, 1993, the Company issued $175,000,000 principal amount of
9-3/8% senior subordinated notes at 99.202%. The notes are due May 1, 2003 with
interest payable semi-annually. The notes represent unsecured obligations of
the Company and are subordinated to all existing and future senior indebtedness
of the Company. The Company may redeem the notes, in whole or in part, at any
time on or after May 1, 2000 at 100% of their principal amount. As of November
30, 1994 and 1993, the senior subordinated notes were valued at $155,094,000
and $182,875,000, respectively, based on quoted market prices.
The 10-3/8% senior notes and 9-3/8% senior subordinated notes contain
certain restrictive covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, make certain
investments, create certain liens, engage in mergers, consolidations, or sales
of assets, or engage in certain transactions with officers, directors and
employees.
Principal payments on senior and senior subordinated notes, mortgages,
land contracts and other loans are due as follows: 1995, $28,212,000; 1996,
$608,000; 1997, $658,000; 1998, $712,000; 1999, $100,770,000; and thereafter,
$178,407,000.
Assets (primarily inventories) having a carrying value of
approximately $64,800,000 are pledged to collateralize mortgages, land
contracts and other secured loans.
Mortgage Banking. Notes payable include the following (interest rates are as of
November 30):
November 30,
-----------------------------
1994 1993
------------ ------------
Notes payable secured by trust deed notes (6-4/5% in 1994 and
6-1/4% in 1993) $ 21,000,000 $ 18,500,000
Advances under asset-backed commercial paper facility
(5-3/4% in 1994 and 3-1/8% in 1993) 104,000,000 120,000,000
------------ ------------
Total notes payable $125,000,000 $138,500,000
============ ============
First mortgages receivable have historically been financed through a
$230,000,000 collateralized revolving warehouse credit facility and a
$120,000,000 asset-backed commercial paper facility (the Commercial Paper
Facility). On November 21, 1994, the collateralized revolving warehouse credit
facility was replaced with the amended revolving credit agreement which
contains a $200,000,000 sublimit (the Revolving Warehouse Facility) for
financing the mortgage banking operations. This Revolving Warehouse Facility
provides for interest on borrowings at either the federal funds rate plus
1-1/10% or at the applicable bank reference rate and an annual commitment fee
of 3/10% of the unused portion of the commitment.
The Commercial Paper Facility expires on September 15, 1996 and
provides for an annual commitment fee of 3/8% on the unused portion of the
commitment. Interest rates charged under the Commercial Paper Facility reflect
those available in commercial paper markets plus 5/8% on amounts borrowed.
40
36
There are no compensating balance requirements under either facility.
These facilities are collateralized by first mortgages held under commitment of
sale and are repayable from proceeds on the sales of first mortgages.
The terms of these facilities include financial covenants which, among
other things, require the maintenance of certain financial statement ratios and
a minimum tangible net worth and limit indebtedness of the mortgage banking
operations (excluding indebtedness to the Company) to a maximum of
$320,000,000. This maximum may be further limited as the $200,000,000 sublimit
on the Revolving Warehouse Facility is available to fund mortgage banking
operations only to the extent that borrowings under the amended revolving
credit agreement for construction operations do not exceed $300,000,000.
Collateralized mortgage obligations represent bonds issued to third
parties which are collateralized by mortgage-backed securities with
substantially the same terms. At November 30, 1994, the collateralized mortgage
obligations bore interest at rates ranging from 8% to 12-1/4% with stated
principal maturities ranging from 3 to 30 years. Actual maturities are
dependent on the rate at which the underlying mortgage-backed securities are
repaid. No collateralized mortgage obligations have been issued since 1988.
The fair market values of borrowings under the Revolving Warehouse
Facility and the Commercial Paper Facility approximated their recorded values
at November 30, 1994 and 1993 as their respective interest rates approximated
currently available rates. The collateralized mortgage obligations were valued
at $97,395,000 and $162,140,000 at November 30, 1994 and 1993, respectively,
based on quoted market prices for the same or similar issues.
Note 6. Commitments and Contingencies
Commitments and contingencies include the usual obligations of housing
producers for the completion of contracts and those incurred in the ordinary
course of business. The Company is also involved in litigation incidental to
its business, the disposition of which should have no material effect on the
Company's financial position or results of operations.
Note 7. Shareholders' Equity
Preferred Stock. On January 11, 1989, the Company adopted a Shareholder Rights
Plan and declared a dividend distribution of one preferred share purchase right
for each outstanding share of common stock. Under certain circumstances, each
right entitles the holder to purchase 1/100th of a share of a new Series A
Participating Cumulative Preferred Stock at a price of $30.00, subject to
certain antidilution provisions. The rights are not exercisable until the
earlier to occur of (i) 10 days following a public announcement that a person
or group has acquired 20% or more of the aggregate votes entitled from all
shares of common stock and special common stock or (ii) 10 days following the
commencement of a tender offer for 20% or more of the aggregate votes entitled
from all shares of common stock and special common stock. In the event the
Company is acquired in a merger or other business combination transaction, or
50% or more of the Company's assets or earning power is sold, each right will
entitle its holder to receive, upon exercise, common stock of the acquiring
company having a market value of twice the exercisable price of the right. At
the option of the Company, the rights are redeemable prior to becoming
exercisable at $.01 per right. Unless previously redeemed, the rights will
expire on March 7, 1999. Until a right is exercised, the holder will have no
rights as a shareholder of the Company, including the right to vote or receive
dividends.
In 1993, the Company issued 6,500,000 depositary shares, each
representing a one-fifth ownership interest in a share of Series B Mandatory
Conversion Premium Dividend Preferred Stock (the Series B Convertible Preferred
Shares). Dividends are cumulative and payable quarterly in arrears at an annual
dividend rate of $1.52 per depositary share. On the mandatory conversion date
of April 1, 1996, each of the outstanding depositary shares will convert, upon
the automatic conversion of the Series B Convertible Preferred Shares, into one
share of the Company's common stock, subject to adjustment in certain events.
The Company may call any or all of the outstanding depositary shares prior to
the mandatory conversion date at a call price initially equal to $27.12,
declining to $23.66 by February 1, 1996, and equal to $23.46 thereafter,
payable in shares of common stock having a market price equal to the applicable
call price, plus an amount in cash equal to all accrued and unpaid dividends.
The depositary shares are not convertible into common stock at the holders'
option. The depositary shares were issued at $17.375 per share and have a
liquidation preference price per depositary share equal to the issuance price.
41
37
Special Common Stock. In connection with its restructuring in 1989, the Company
issued warrants (the Warrants) to certain subsidiaries of SunAmerica Inc., the
Company's former parent. The Warrants give the holder the right to purchase,
at any time prior to March 1, 1999, up to 7,500,000 shares of special common
stock at an exercise price of $6.96 per share. The rights of the special
common stock are generally identical to the rights of the common stock except
that the holder of special common stock is entitled to one-tenth of a vote per
share on all matters to be voted on by shareholders.
In 1992, the Company issued in a public offering 5,123,000 shares of
the special common stock in connection with the exercise of the Warrants. On
November 8, 1993, the Company commenced a tender offer to purchase all of the
outstanding shares of its special common stock at a price of $19 per share.
The offer expired on December 7, 1993 with 2,331,785 shares of special common
stock tendered. In addition, on December 23, 1993, the Company purchased the
remaining 2,377,000 Warrants at a price equal to the tender offer price per
share less the $6.96 per Warrant exercise price. The total consideration paid
for these transactions was $73,677,000, including related costs.
The remaining 2,791,215 outstanding shares of special common stock were
exchanged by the Company at a ratio of .95 shares of common stock for each
share of special common stock on various dates throughout 1994. There were no
outstanding shares of special common stock at November 30, 1994.
Note 8. Employee Benefit and Stock Plans
Benefits are provided to most employees under the Company's 401(k) Savings Plan
under which contributions by employees are partially matched by the Company.
The aggregate cost of this plan to the Company was $1,734,000 in 1994,
$1,135,000 in 1993 and $819,000 in 1992.
On July 25, 1988, the Company's Board of Directors adopted the
Kaufman and Broad Home Corporation 1988 Employee Stock Plan (the 1988 Plan)
under which options to purchase 2,000,000 shares of common stock were granted
and 1,000,000 shares were reserved for future grants. On April 1, 1993, the
shareholders approved for future issuance an additional 1,700,000 shares of
common stock. Under the 1988 Plan, stock options, associated limited stock
appreciation rights, restricted shares of the Company's common stock and stock
units may be awarded to eligible individuals for periods of up to 15 years.
The 1988 Plan replaced all existing employee stock plans.
Stock option transactions are summarized as follows:
Years ended November 30,
---------------------------------------------------
1994 1993 1992
------------ ------------ ------------
Options outstanding at beginning of year 2,191,268 2,154,568 2,646,750
Granted 52,000 331,000 272,500
Exercised (125,000) (223,000) (723,000)
Cancelled (73,550) (71,300) (41,682)
------------ ------------ ------------
Options outstanding at end of year 2,044,718 2,191,268 2,154,568
============ ============ ============
Options exercisable at end of year 1,614,068 1,604,418 1,352,718
Options available for grant at end of year 954,100 1,443,600 3,500
Price range of options exercised $3.50-$16.13 $3.50-$16.13 $3.50-$17.50
Price range of options outstanding $3.50-$22.94 $3.50-$19.06 $3.50-$17.50
============ ============ ============
The Company records proceeds from the exercise of stock options as
additions to common stock and paid-in capital. The tax benefit, if any, is
recorded as additional paid-in capital.
In 1991, the Board of Directors approved the issuance of restricted
stock awards under the 1988 Plan of up to an aggregate 600,000 shares of common
stock to certain officers and key employees. Restrictions lapse each year
through May 10, 2005 on specified portions of the shares awarded to each
participant so long as the participant has remained in the continuous employ of
the Company. Restricted stock awards issued in 1991 totaled 575,000 shares with
110,000 of these shares being cancelled in 1993.
42
38
Effective December 1, 1993, the Board of Directors approved the
establishment of a stock performance plan to benefit certain officers and key
employees of the Company who directly contribute to financial results. Under
the plan, 510,000 shares of common stock are reserved for future issuance based
upon the attainment of certain financial goals over a three-year period ending
November 30, 1996. Any compensation earned during the performance period will
be paid one-third in cash or common stock at the end of the third year with the
remaining two-thirds payable in common stock at the end of the fourth year. The
cost of the stock performance plan will be charged to compensation expense over
the four-year period based upon the market value of the common stock and
achievement of financial goals over the performance period.
Note 9. Income Taxes
The components of pretax income are as follows:
Years ended November 30,
-----------------------------------------
In thousands 1994 1993 1992
------- ------- -------
Domestic $72,352 $72,295 $35,973
Foreign 1,498 (7,974) 9,525
------- ------- -------
Total pretax income $73,850 $64,321 $45,498
======= ======= =======
The components of the provisions for income taxes are as follows:
In thousands Total Federal State Foreign
-------- ------- ------ --------
1994 -- Liability Method
Currently payable $ 30,835 $24,931 $5,000 $ 904
Deferred (3,535) (3,603) 68
-------- ------- ------ --------
Total income tax expense $ 27,300 $21,328 $5,000 $ 972
======== ======= ====== ========
1993 -- Liability Method
Currently payable $ 45,078 $22,789 $4,084 $ 18,205
Deferred (20,678) 171 (20,849)
-------- ------- ------ --------
Total income tax expense $ 24,400 $22,960 $4,084 $ (2,644)
======== ======= ====== ========
1992 -- Deferred Method
Currently payable $ 9,512 $ 7,159 $2,200 $ 153
Deferred 7,788 3,484 4,304
-------- ------- ------ --------
Total income tax expense $ 17,300 $10,643 $2,200 $ 4,457
======== ======= ====== ========
Deferred income taxes result from temporary differences in the
financial and tax bases of assets and liabilities. Significant components of
the Company's deferred tax liabilities and assets are as follows:
November 30,
------------------------
In thousands 1994 1993
-------- --------
Deferred tax liabilities:
Installment sales $ 2,678 $ 2,759
Bad debt and other reserves 4,046 1,111
Depreciation and amortization 6,273 7,480
Capitalized expenses 22,460 18,015
Partnerships and joint ventures 4,041 3,375
Computer equipment leases 10,040 10,853
Repatriation of foreign subsidiaries 30,638 30,931
Other 4,643 5,732
-------- --------
Total deferred tax liabilities 84,819 80,256
-------- --------
Deferred tax assets:
Installment sales 127 1,346
Warranty, legal and other accruals 6,772 5,009
Capitalized expenses 6,723 5,316
Low income housing credits 2,111 2,111
Foreign tax credits 43,345 42,915
Other 7,570 8,668
Valuation allowance (13,202) (11,984)
-------- --------
Total deferred tax assets 53,446 53,381
-------- --------
Net deferred tax liabilities $ 31,373 $ 26,875
======== ========
The components of deferred income tax expense are as follows:
Year ended
November 30,
------------
In thousands 1992
------------
Installment sales treatment of commercial building sales and land sales $10,247
Capitalized expenses (1,940)
Accelerated depreciation 1,666
Deferred income and expenses (7,250)
Intercompany dividends 5,595
Other, net (530)
-------
Total deferred income tax expense $ 7,788
=======
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39
Income taxes computed at the statutory United States federal income
tax rate and income tax expense provided in the financial statements differ as
follows:
Years ended November 30,
------------------------------------
In thousands 1994 1993 1992
------- ------- -------
Amount computed at statutory rate $25,848 $22,461 $15,469
Increase (decrease) resulting from:
California franchise taxes, net of
federal income tax benefit 3,250 2,658 1,452
Differences in foreign tax rates 550 430 828
Intercompany dividends 391 139 672
Low income housing credits (1,179) (1,005) (1,096)
Other, net (1,560) (283) (25)
------- ------- -------
Total income tax expense $27,300 $24,400 $17,300
======= ======= =======
The Company has commitments to invest $14,500,000 over four years
in low income housing partnerships which are scheduled to provide tax credits.
The Company had foreign tax credit carryforwards at November 30,
1994 of $5,463,000 for United States federal income tax purposes which expire
in 1995 through 1998.
The undistributed earnings of foreign subsidiaries, which the
Company plans to invest indefinitely and for which no United States federal
income taxes have been provided, totaled $46,112,000 at November 30, 1994. If
these earnings were currently distributed, the resulting withholding taxes
payable would be $3,253,000.
Note 10. Geographical Information
Geographical information follows:
Operating Identifiable
In thousands Revenues Income Assets
---------- --------- ------------
1994
United States $1,177,880 $91,297 $1,193,555
France 143,422 5,019 210,686
Other 14,969 (1,990) 50,219
---------- ------- ----------
Total $1,336,271 $94,326 $1,454,460
========== ======= ==========
1993
United States $999,262 $86,484 $1,092,823
France 219,802 8,082 210,328
Other 18,790 (423) 36,227
---------- ------- ----------
Total $1,237,854 $94,143 $1,339,378
========== ======= ==========
1992
United States $ 691,696 $48,164 $1,054,961
France 374,962 12,304 323,047
Other 27,510 2,985 53,752
---------- ------- ----------
Total $1,094,168 $63,453 $1,431,760
========== ======= ==========
A director of the Company served between 1981 and 1993 as chairman and
chief executive officer of a French bank, which in 1989 formed a joint venture
controlled by the Company. The joint venture acquired and subsequently sold, to
a group of international investors, a commercial building in Paris, France,
under a five-year redevelopment agreement, with the bank financing the
acquisition and redevelopment of the property. The project, completed in 1993,
generated commercial revenues of $63,141,000 in 1993 and $68,338,000 in 1992,
representing 5% and 6% of total revenues, respectively.
Note 11. Quarterly Results (unaudited)
Quarterly results for the years ended November 30, 1994 and 1993 follow:
In thousands, except per share amounts First Second Third Fourth
-------- -------- -------- --------
1994
Revenues $256,879 $326,021 $348,850 $404,521
Operating income 17,819 23,005 22,954 30,548
Pretax income 14,054 17,847 17,084 24,865
Net income 8,854 11,247 10,784 15,665
Earnings per share .22 .28 .27 .39
======== ======== ======== ========
1993
Revenues $224,895 $320,030 $319,881 $373,048
Operating income 13,858 25,175 25,782 29,328
Pretax income 7,069 14,603 18,456 24,193
Net income 4,369 9,103 11,456 14,993
Earnings per share .12 .22 .26 .34
======== ======== ======== ========
Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
Note 12. Acquisition of Business
Effective January 3, 1995, the Company acquired substantially all of the assets
and liabilities of Oppel Jenkins and its affiliated businesses. The
acquisition will be accounted for as a purchase and the results of Oppel
Jenkins' operations will be included in the Company's consolidated financial
statements from the date of acquisition. The cost of the acquisition will be
allocated based on the estimated fair market value of the assets acquired and
liabilities assumed. Any excess of the purchase price over the net assets will
be allocated to goodwill. Oppel Jenkins is a regional builder of single family
homes in Albuquerque, New Mexico and El Paso, Texas.
44
40
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of
Kaufman and Broad Home Corporation
We have audited the accompanying consolidated balance sheets of Kaufman and
Broad Home Corporation as of November 30, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended November 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kaufman and Broad Home Corporation at November 30, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 30, 1994, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
January 5, 1995
REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles. Estimates and judgments of management based on
its current knowledge of anticipated transactions and events are made to
prepare the financial statements as required by generally accepted accounting
principles. Management relies on internal accounting controls, among other
things, to produce records suitable for the preparation of financial
statements.
The responsibility of our external auditors for the financial
statements is limited to their expressed opinion on the fairness of the
consolidated financial statements taken as a whole. Their examination is
performed in accordance with generally accepted auditing standards which
include tests of our accounting records and internal accounting controls and
evaluation of estimates and judgments used to prepare the financial statements.
The Company employs a staff of internal auditors whose work includes evaluating
and testing internal accounting controls.
An audit committee of outside members of the Board of Directors
periodically meets with management, the external auditors and the internal
auditors to evaluate the scope of auditing activities and review results. Both
the external and internal auditors have the unrestricted opportunity to
communicate privately with the audit committee.
Michael F. Henn
Senior Vice President and
Chief Financial Officer
January 5, 1995
45
41
STOCKHOLDER INFORMATION
Special
Common Stock Common Stock
------------------------- -------------------------
Stock Prices High Low High Low
------- ------- ------- -------
1994
First Quarter $25-1/2 $20 $22-1/4 $18-1/2
Second Quarter 24-5/8 16-1/4 21-3/4 14
Third Quarter 16-1/4 13 * *
Fourth Quarter 16-1/2 12-1/4
1993
First Quarter $18-7/8 $15-1/4 $16-3/4 $13-1/4
Second Quarter 21 16-1/4 18-1/4 14
Third Quarter 22-1/4 17-1/8 19-3/4 14-7/8
Fourth Quarter 21 17-3/4 19 16-1/4
* Following the suspension of trading on the New York Stock Exchange on May 31,
1994, the special common stock was de-listed by the New York Stock Exchange
and de-registered by the Securities and Exchange Commission on August 9,
1994. Subsequently, the Company completed the exchange for all remaining
outstanding shares.
Dividend Data
Kaufman and Broad Home Corporation paid a quarterly cash dividend of $.075 per
common share in 1994 and 1993.
Annual Shareholders' Meeting
The annual shareholders' meeting will be held in the Marquis Room at the
Westwood Marquis Hotel in Los Angeles, California, at 9:00 a.m. on Thursday,
March 23, 1995.
Stock Exchange Listings
The common stock (ticker symbol: KBH) is listed on the New York Stock Exchange
and traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia
Exchanges.
Transfer Agent
Chemical Trust Company of California
Los Angeles, California
Form 10-K
The Company's Form 10-K filed with the Securities and Exchange Commission may
be obtained without charge by writing to the Investor Relations Department,
Kaufman and Broad Home Corporation.
Headquarters
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
Fax (310) 231-4222
42
LIST OF EXHIBITS FILED
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
10.12 Amendments to the Kaufman and Broad Home Corporation 1988 Employee
Stock Plan dated January 27, 1994.................................
10.13 Employment Agreement of Albert Z. Praw, dated February 20, 1994...
10.14 Employment Agreement of Michael F. Henn, dated June 7, 1994.......
10.15 Third Amended and Restated Loan Agreement among the Company, Bank
of America National Trust and Savings Association, and the First
National Bank of Chicago, as managing agents, and the banks listed
therein, dated November 21, 1994..................................
10.16 Letter dated February 16, 1995 amending Employment Contract of
Bruce Karatz......................................................
10.17 Letter dated February 27, 1995 amending Employment Contract of
Roger B. Menard...................................................
11 Statement of Computation of Per Share Earnings....................
13 Pages 24 through 45 and the inside back cover of the Company's
1994 Annual Report to Shareholders................................
22 Subsidiaries of the Company.......................................
24 Consent of Independent Auditors...................................
27 Financial Data Schedule...........................................