-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHIRN3VVMEQAsBP9TS0Z+EEiPBpLqOCiHWJIrwDev+K7rxIlar7S83y8oGQgFaGw DBCNhkx72RgiPaS53+f6aw== 0000950129-99-000511.txt : 19990215 0000950129-99-000511.hdr.sgml : 19990215 ACCESSION NUMBER: 0000950129-99-000511 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S HOME CORP /DE/ CENTRAL INDEX KEY: 0000101640 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 210718930 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05899 FILM NUMBER: 99536855 BUSINESS ADDRESS: STREET 1: 1800 WEST LOOP SOUTH STREET 2: STE 1900 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138772311 MAIL ADDRESS: STREET 1: PO BOX 2863 CITY: HOUSTON STATE: TX ZIP: 77252 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES HOME & DEVELOPMENT CORP DATE OF NAME CHANGE: 19710713 10-K 1 U.S. HOME CORPORATION - DATED 12/31/1998 1 (CONFORMED COPY) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________ to_______________. COMMISSION FILE NUMBER 1-5899 U.S. HOME CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 21-0718930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10707 CLAY ROAD, HOUSTON, TEXAS 77041 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 877-2311 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED ------------------- ---------------------------- Common Stock, $.01 par value per share 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of January 31, 1999, the number of shares outstanding of Registrant's voting stock was 13,337,624 and the aggregate market value of the Registrant's voting stock held by non-affiliates was $445,514,386. DOCUMENTS INCORPORATED BY REFERENCE Part of 10-K Where Incorporated Proxy Statement dated March 12, 1999 for the ------------------ Annual Meeting of Stockholders to be held III on April 21, 1999. 2 PART I ITEM 1. BUSINESS GENERAL U.S. Home Corporation ("U.S. Home" or the "Company"), organized in 1954 and incorporated in the State of Delaware in 1959, is one of the largest single-family home builders in the United States based on homes delivered. The Company currently builds and sells homes in more than 230 new home communities in 33 market areas in 12 states. Since its formation, the Company has delivered over 283,000 homes. In 1997, the Company was the sixth largest single-family on-site home builder in the United States based on homes completed and delivered and has been among the ten largest single-family on-site home builders in the United States for more than 20 years. The Company conducts substantially all of its home building business through U.S. Home, the parent company. The Company offers a wide variety of moderately-priced homes that are designed to appeal to the affordable, move-up and retirement and active adult buyers. In each of its markets, the Company's strategy is to build quality homes offering prospective homebuyers a high level of new home value. The Company believes that many home purchasers compare homes on the basis of location, perceived quality and dollars of purchase price per square foot of living area. As a result, the Company attempts to purchase land and lots in popular growth corridors, maintain high quality standards, design homes to maximize living space and provide customers with opportunities to choose interior and exterior features to enhance their homes. In addition to building and selling single-family homes, the Company provides mortgage-banking services to its customers. The Company originates, processes and sells mortgages to third party investors. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. OPERATIONS The Company is engaged in two related industries: home building and financial services. Assets and results of operations of the Company's reportable segments are separately disclosed in the Consolidated Financial Statements. HOME BUILDING OPERATIONS The Company's primary business is the on-site development of single-family residential communities. During 1998, the Company's product mix consisted of deliveries of approximately 35% affordable homes, 39% move-up homes and 26% retirement and active adult homes. 2 3 MARKETS U.S. Home's building operations are currently conducted in the following market areas:
States Market Areas - ------------------ ----------------------------------------------------------------------------------- Arizona Phoenix and Tucson California Corona, Palm Springs, Sacramento and Temecula Colorado Colorado Springs, Denver and Fort Collins/Longmont/ Loveland Florida Bonita Springs, Clearwater/Palm Harbor/Tarpon Springs, Fort Myers, Hernando County, Naples, Orlando, Pasco County, Sarasota/Bradenton and Tampa Maryland/Virginia Annapolis and Washington, D.C. area Michigan Auburn Hills Minnesota Minneapolis/St. Paul Nevada Las Vegas New Jersey Dover/Jackson/Howell, Monroe/Hillsborough and Lumberton Ohio Cleveland and Columbus Texas Dallas/Fort Worth, Fredericksburg, Houston, McAllen/Harlingen/Brownsville and San Antonio
The Company seeks to maintain geographic diversity and thus reduce the potential risk of economic volatility in any given market. Set forth below are revenues for the Company from the sale of single-family homes by state for each of the last three fiscal years:
Years Ended December 31, ----------------------------------------------- States 1998 1997 1996 - ------------------ ---------- ---------- ---------- (Dollars in Thousands) Arizona $ 162,103 $ 132,640 $ 137,606 California 151,476 118,843 92,193 Colorado 263,019 238,288 206,231 Florida 399,492 369,051 335,166 Maryland/Virginia 74,275 66,651 72,914 Minnesota 81,544 61,503 64,129 Nevada 59,981 60,561 62,088 New Jersey 93,612 85,878 86,656 Ohio/Indiana (1) 26,256 35,492 33,008 Texas 133,577 109,408 88,947 ---------- ---------- ---------- $1,445,335 $1,278,315 $1,178,938 ========== ========== ==========
(1) In 1997, the Company discontinued its Indiana operations. 3 4 Set forth below are tables providing information (expressed in number of housing units) with respect to new orders taken, deliveries to purchasers and backlog of single-family homes by state for each of the last three fiscal years: NEW ORDERS TAKEN
Years Ended December 31, ---------------------------------------------- States 1998 1997 1996 - ------------------ --------- --------- -------- Arizona 1,287 899 832 California 873 636 532 Colorado 1,404 1,285 1,378 Florida 2,468 2,597 2,173 Maryland/Virginia 478 355 353 Minnesota 471 386 294 Nevada 306 301 371 New Jersey 427 422 471 Ohio/Indiana (3) 136 111 178 Texas 1,278 901 824 --------- --------- -------- 9,128 7,893 7,406 Joint venture activity (1) 67 - - --------- --------- -------- 9,195 7,893 7,406 ========= ========= ========
DELIVERIES
Years Ended December 31, --------------------------------------------- States 1998 1997 1996 - ------------------ --------- ------- ------ Arizona 1,012 850 948 California 677 560 494 Colorado 1,391 1,340 1,199 Florida 2,462 2,304 2,126 Maryland/Virginia 394 351 366 Minnesota 445 319 306 Nevada 307 327 356 New Jersey 449 441 475 Ohio/Indiana (3) 119 163 156 Texas 1,002 841 673 --------- ------- ------ 8,258 7,496 7,099 ========= ======= ======
BACKLOG (2) As Of December 31, ------------------------------------------- States 1998 1997 1996 - ------------------ ------- ------- ------ Arizona 593 318 269 California 421 225 149 Colorado 599 586 641 Florida 1,332 1,326 1,033 Maryland/Virginia 188 104 100 Minnesota 200 174 107 Nevada 107 108 134 New Jersey 138 160 179 Ohio/Indiana (3) 49 32 84 Texas 678 402 342 ------- ------- ------ 4,305 3,435 3,038 Joint venture activity (1) 67 - - ------- ------- ------ 4,372 3,435 3,038 ======= ======= ======
(1) Includes unit data for a 50% owned retirement community joint venture in Michigan of 35 new orders and 35 backlog and a 50% owned affordable home joint venture in Texas of 32 new orders and 32 backlog for the year ended December 31, 1998. (2) Homes under contract for sale but not delivered at end of year. 4 5 (3) In 1997, the Company discontinued its Indiana operations. The Company anticipates that substantially all of its backlog units, net of cancellations, as of December 31, 1998 will be completed and delivered during 1999. While operations in certain market areas are affected by seasonal factors which limit on-site building and sales activities, the Company's ability to build and deliver its backlog is not considered to be seriously affected by such factors. SALES AND MARKETING The Company employs sales consultants for the sale of single-family homes, although sales by independent real estate brokers are also encouraged. Specific sales training programs are provided which inform sales consultants about sales techniques and methods as well as information about their local market, realtors and products. The sales programs focus on the Company's Zero Defect Program as a marketing tool because the sales force is the first contact with the customer. The Zero Defect Program is a quality assurance program with major emphasis on construction (see Construction below). The Company markets homes in "model home parks" featuring one or more model homes, attractively furnished and decorated and staffed by the Company's sales consultants who provide information regarding floor plans, the various elevations available, decorating options, as well as assisting with mortgage financing information. The model may include a variety of options and upgrades which the customer may request at an additional cost, and which include items such as special floor and window treatments, custom cabinetry, pools, fireplaces and decks. The Company constantly studies both aesthetic design and architectural trends, as well as quality construction and engineering trends, in order to provide customers with high quality, design and value. The Company has received numerous awards in various markets for outstanding housing design. The Company's home building and marketing activities are conducted under the name of U.S. Home in each of its markets except in Minneapolis/St. Paul where the Company markets its homes under the name of Orrin Thompson Homes, and in Florida where homes are marketed under the name of Rutenberg Homes as well as U.S. Home. Joint venture activities are conducted under the name of Heritage for the retirement and active adult communities and NuHome Designs for the affordable communities. The Company provides customers, through its U.S. Home Custom Design Studios, the opportunity to purchase options and upgrades for their new homes. In 1998, the Company established U.S. Home Custom Design Studios in each of its markets. The Design Studios provide an extra service to its customers. The Company advertises primarily in magazines and local newspapers. Additionally, homes are marketed by means of model homes, pictorial brochures and on-site displays. The Company also maintains specific community information at its internet home page which can be reached at http://www.ushome.com. The Company's general marketing strategy seeks to generate one-third of housing sales through advertisements, one-third through customer referrals and one-third through realtor contacts. 5 6 The Company's product lines include both single-family detached and attached homes. During 1998, approximately 78% of the homes delivered were single-family detached compared to 80% in 1997 and 83% in 1996. The number of units and average sales prices of single-family homes delivered in 1998, 1997 and 1996 were as follows:
Single-Family Detached Single-Family Attached ---------------------- ---------------------- Number Average Number Average of Units Sales Price of Units Sales Price -------- ----------- -------- ----------- 1998 6,476 $182,600 1,782 $147,600 1997 5,960 178,000 1,536 141,200 1996 5,891 170,500 1,208 144,200
Selling prices are set in each area based on product features, local market conditions and competitive factors. In 1998, the national average sales price of new single-family homes (both detached and attached) as reported on a preliminary basis by the U.S. Census Bureau was $181,300 compared with an average sales price of $175,000 for the Company. Variations in the general product and customer mix may exist from year to year based on shifts in local market demand or product availability. The table below sets forth the mix of the Company's deliveries for the affordable, move-up and retirement and active adult home products during the last three years:
1998 1997 1996 ---- ---- ---- Affordable ..................................... 35% 33% 28% Move-up ........................................ 39% 40% 49% Retirement and active adult .................... 26% 27% 23%
The Company has set a goal to increase its annual deliveries to over 10,000 homes in the year 2000, of which one third would be retirement and active adult home deliveries. However, there can be no assurance such efforts will be successful. The Company presently has retirement, active adult and intergenerational communities open in Arizona, California, Colorado, Florida, Nevada, New Jersey, Ohio, Texas and Virginia and one joint venture community in Michigan. During the next three years, the Company plans to open 17 additional retirement, active adult and intergenerational communities. They include two new communities in California, one in Colorado, seven in Florida, one in Minnesota, three in New Jersey and two in Texas and one joint venture in North Carolina. Many purchasers finance a large portion of the purchase price of a home through conventional or government insured/guaranteed mortgages from lending institutions. The Company generally assists purchasers in obtaining mortgages. Approximately 84% of the homes delivered in 1998, 81% delivered in 1997 and 83% delivered in 1996, were purchased using mortgage financing. The Company takes steps to qualify certain of its homes under Veterans Administration ("VA") and Federal Housing Administration ("FHA") mortgage financing programs, which provide mortgage financing sources. Approximately 19% of the homes delivered in 1998 and 17% of the homes delivered in 1997 and 1996 were financed under VA and FHA mortgage programs. 6 7 CONSTRUCTION The Company's investment in direct employee labor costs, equipment and facilities is kept to a minimum because all construction of single-family homes is performed by independent subcontractors. At all stages of construction, however, on-site Company managers supervise and coordinate the activities of these subcontractors and subject their work to quality and cost control standards. The Company's Director of Construction and Quality Initiative Programs provides centralized management of quality standards and supervises the Company's Zero Defect Program with respect to the construction of homes. The Company's Director of National Purchasing provides centralized management for the purchase of certain major components used in the construction of homes. Company employees are rated and compensation incentives are affected by a measure of quality standards. The Company's commitment to quality and its use in the Company's sales efforts are best illustrated by its Zero Defect Program. Under the Zero Defect Program, the home buyer meets with the construction supervisor prior to the commencement of, and during, construction in order to ensure that the home buyer (i) is aware of all quality features of the house, including those which are not readily apparent in the finished house, (ii) agrees that the design features, including appliances, match those ordered and (iii) is satisfied with the finished product. The Company considers a completed house to have "zero defects" if, upon final inspection by the home buyer, only a few minor cosmetic items remain to be corrected. Construction subcontractors are selected on the basis of competitive bids and written agreements govern their relationship with the Company. All bids are based on detailed specifications and complete blueprints to ensure commitment to the Company's expectation for high quality workmanship. The Company purchases the majority of its construction material on a decentralized basis with a "just in time" delivery schedule to each individual job site. Materials are regularly purchased on a competitive bid basis to ensure both competitive pricing and high quality. In addition to local purchasing, the Company has entered into a number of national purchasing agreements in order to maximize purchasing power. Agreements with each vendor are negotiated on an annual basis by the Company's Director of National Purchasing. In order to minimize the risk associated with completed but unsold inventory, the Company generally does not commence construction of a single-family detached home prior to receipt of an executed purchase contract, a deposit from the customer and preliminary mortgage approval based on the purchaser's mortgage application. For single-family attached homes, construction does not generally commence until 50% of the units in a building have been sold. REGULATION The Company and its subcontractors must comply with various federal, state and local zoning, building, pollution, environmental, health, advertising and consumer credit statutes, ordinances, rules and regulations, as well as regulations relating to specific building materials to be used, building design and minimum elevations of properties. All of these regulations have increased the time and cost required to market the Company's products by extending the time between the initial acquisition of land and the commencement of construction. The Company's operations, like those of other home builders, have been periodically subject to moratoriums on development activities caused by insufficient water, sewage and energy-related facilities. 7 8 Moratoriums in local areas have not had a material adverse effect on the Company's overall activities because of the geographic diversification of the Company's operations. COMPETITION The single-family residential housing industry is highly competitive. U.S. Home competes in each of its markets, with respect to the location, design and price of its products, with numerous firms engaged in the on-site development of single-family residential housing, ranging from regional and national firms to small local companies. The Company is one of the largest on-site builders of single-family homes in the United States, ranking among the ten largest single-family on-site home builders in the United States for more than 20 years. However, because there are so many firms engaged in the single-family home building industry, the Company accounts for less than 1% of all new on-site single-family housing sales in the United States. RAW MATERIALS AND SUBCONTRACTORS The Company uses numerous suppliers of raw materials and services in its business and such materials and services have been and continue to be available. Where appropriate, the Company has adopted national programs for products to maximize price discounts through volume purchases. The Company also utilizes numerous independent subcontractors representing all building trades in connection with the construction of its homes. COMMUNITY DEVELOPMENT For a number of years, a significant portion of the Company's finished lot needs, primarily in its affordable and move-up communities, have been satisfied through rolling lot options, which enable the Company to initially pay a small fraction of total lot cost and then purchase the lots on a scheduled basis. For example, during 1998, 63% of the Company's unit deliveries were from lots developed by the Company and 36% were from lots acquired by the exercise of rolling lot options as compared with 62% and 37% in 1997 and 56% and 44% in 1996, respectively. See Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition and Liquidity, Housing. The Company's policy is that land cannot be purchased or sold without prior approval of the Company's Asset Management Committee. Asset Management Committee approval requires submission of data relating to sales forecasts, a timing schedule (e.g., estimated dates for the commencement of land development, housing construction, model opening and sales) and a projection of income and internal rate of return. All development expenditures are reviewed by the Senior Vice President-Community Development and the appropriate President of Operations prior to the commencement of development. In addition, the Company's by-laws require approval by the Company's Board of Directors of any acquisition of unimproved real property or acreage by the Company which is material to the Company in any single transaction involving an expenditure in excess of $10 million and any other material capital expenditures, borrowings (subject to certain exceptions) and other commitments by the Company in excess of $10 million per transaction (excluding transactions involving housing inventory). The Presidents of Operations and the Division Presidents are responsible for maintaining continuity of housing sales through awareness of trends in housing demand in each market area. Feasibility studies and market research studies are generally required before approval of the purchase of land. These 8 9 studies examine the demographics of an area, including population trends, income trends, employment trends, housing stock and housing demand. Products are matched to customer profile, determined in part by the market studies and the experience of the local manager in each market. Housing communities are generally built in or near major metropolitan areas and are normally located in growing markets for such areas. At December 31, 1998, the Company's land and finished lot inventories totaled $514.1 million, excluding option deposits. See Note 2 of Notes to Consolidated Financial Statements. Substantially all housing communities are zoned for their intended use and serviced by utilities. As of December 31, 1998, the Company had refundable and nonrefundable deposits totaling $41.2 million for options and contracts to purchase undeveloped land and finished lots for home building operations for a total purchase price of approximately $435.5 million. The Company has incurred pre-development costs of approximately $62.3 million relating to these properties. The following table sets forth as of December 31, 1998, by state, the cost of certain of the Company's land inventories and the estimated number of lots controlled through direct ownership and under option which are being used or that are anticipated to be used in the Company's home building operations (dollars in thousands):
Estimated Number of Housing Units That Could Be Constructed On Land Controlled Book as of December 31, 1998 (1) Cost ---------------------------------- of Land Under States Owned Owned Option Total - ------------------------------ -------- -------- -------- -------- Arizona ...................... $ 49,141 1,981 1,879 3,860 California ................... 53,471 1,579 2,930 4,509 Colorado ..................... 99,412 6,117 2,819 8,936 Florida ...................... 138,551 10,952 13,318 24,270 Maryland/Virginia ............ 47,499 2,286 1,166 3,452 Minnesota .................... 12,340 1,018 1,204 2,222 Nevada ....................... 25,990 628 98 726 New Jersey ................... 19,016 560 2,185 2,745 Ohio ......................... 13,890 417 278 695 Texas ........................ 36,497 2,509 1,307 3,816 -------- -------- -------- -------- $495,807 28,047 27,184 55,231 ======== ======== ======== ========
(1) The estimates set forth above have been prepared based on numerous assumptions made at the date hereof, many of which are beyond the control of the Company. Many of these assumptions, and hence the estimates, are subject to change and there can be no assurances that such lots will be used or as to when they will be used. This table does not include commercial property and other properties which the Company has no current plans to use, with an aggregate cost of $18.3 million (including $2.3 million relating to land under contract for sale). In view of the various stages of development of the land owned or controlled by the Company as of December 31, 1998 (i.e., finished, under development and development not started), any per lot cost derived by dividing the book cost by the estimated number of units would not be meaningful. Inventory risk is substantial for all home building companies. The market value of housing inventories, finished lots and raw land can 9 10 change significantly over the life of a community, reflecting dynamic market conditions. In addition, inventory carrying costs are significant, which can result in losses when trying to exit a poorly performing community or market. The Company seeks to reduce its risks associated with housing inventories, finished lots and raw land through (i) maintaining its geographic diversity and (ii) acquiring lots and land under option where possible, thereby enabling the Company to control land and lots with a smaller capital investment. In 1998, the Company's revenues from the sale of developed and undeveloped land amounted to $17.6 million, as compared to revenues of $13.7 million in 1997 and $10.9 million in 1996. FINANCIAL SERVICES OPERATIONS The Company's other business consists primarily of its mortgage banking activities. U.S. Home Mortgage Corporation ("Mortgage"), a wholly-owned subsidiary of the Company, commenced operations in 1971 and serves an important role in the Company's sale of its homes by arranging financing for customers. Mortgage is a Federal National Mortgage Association/Government National Mortgage Association/Federal Home Loan Mortgage Corporation approved seller-servicer, headquartered in Clearwater, Florida with branch or satellite offices in the metropolitan areas of Phoenix and Tucson, Arizona; Palm Springs and Sacramento, California; Colorado Springs, Denver and Fort Collins, Colorado; Washington, D.C.; Clearwater, Fort Myers, New Port Richey, Orlando and Sarasota, Florida; Minneapolis, Minnesota; Las Vegas, Nevada; Freehold, New Jersey; Cleveland, Ohio; and Dallas, Houston, McAllen and San Antonio, Texas. The Company offers a wide variety of conventional, FHA and VA financing programs through Mortgage, thereby providing prospective buyers the benefits of both conventional and government-assisted loan programs. As a mortgage banker, Mortgage originates and funds mortgage loans and sells the loans and the related servicing rights directly to investors. Loans and servicing rights are generally sold by Mortgage and funded by the investors within 30 days after home delivery. To limit its risk of interest rate fluctuations, Mortgage regularly enters into fixed price mandatory forward delivery contracts to sell mortgage-backed securities to securities dealers or fixed price forward delivery commitments to sell specific whole loans to investors on a mandatory or best efforts basis. Mortgage has a secured revolving line of credit to fund the mortgage loans on an interim basis until purchased by investors. See Note 3 of Notes to Consolidated Financial Statements. 10 11 The following table summarizes certain mortgage banking operating information (dollars in thousands):
Years Ended December 31, ---------------------------------- 1998 1997 1996 -------- -------- -------- Residential mortgage loans Number of loans originated ................ 6,050 4,761 3,786 Average amount of loan originated ......... $ 141 $ 138 $ 134 Total amount of loans originated: Funded by Mortgage ...................... $769,000 $604,000 $466,000 Brokered by Mortgage .................... 84,000 54,000 43,000 -------- -------- -------- Total ..................................... $853,000 $658,000 $509,000 ======== ======== ======== Company's homes delivered financed by Mortgage as a percentage of Company's homes delivered which were financed........ 83% 76% 61% Company's homes delivered financed by Mortgage as a percentage of Mortgage's total originations.............. 95% 97% 95%
While the Company continues to focus its attention primarily upon the expansion of Mortgage's operations within the Company's own customer base, Mortgage also offers its services to realtors, unaffiliated builders and refinance customers. Among the factors affecting Mortgage's operations are general economic conditions, federal, state and local regulatory constraints, consumer confidence and interest rate volatility. These factors, together with the number of homes delivered by the Company, affect the volume of loan originations which in turn impact the resulting volume of mortgage loans and mortgage servicing rights available for sale. OTHER In 1998, the Company purchased a 13.3% interest in GIG Desarrolladores Immitbilliories ("GIGDI"), the fourth largest homebuilder in Mexico, and created a structure for a series of ventures in Mexico and the United States to develop affordable housing. The first joint venture ("NuHome Designs") with GIGDI commenced operations in 1998 in Dallas, San Antonio and Houston, Texas offering affordable homes priced from the low $50,000s. It is expected NuHome Designs will have a total of eight communities open for sales by the third quarter of 1999. ADDITIONAL INFORMATION EMPLOYEES At December 31, 1998, the Company had 1,954 employees. None of the Company's employees are represented by a union. The Company considers its relations with its employees to be good. The Company's single-family housing and community development operations are conducted primarily through independent subcontractors, thereby limiting the number of direct employees required. ITEM 2. PROPERTIES The Company owns a 52,000 square foot office building located at 10707 Clay Road, Houston, Texas 77041, that serves as its executive offices. Prior to February 1999, the Company leased its executive offices. The Company does 11 12 not believe that its executive offices or its other facilities, consisting of sales and administrative offices located in or near each of the Company's areas of operations and generally held under leases with terms not exceeding five years, are material to its operations. The Company believes its properties are suitable and adequate for its operations. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising from the normal course of business, none of which, in the opinion of the Company, is expected to have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY The Company's executive officers during 1998 and their respective ages and positions are set forth below:
Name Age Position and Office - --------------------- --- ------------------------------------------- Robert J. Strudler 56 Chairman and Co-Chief Executive Officer Isaac Heimbinder 55 President, Co-Chief Executive Officer and Chief Operating Officer Gary L. Frueh 58 Senior Vice President - Tax and Audit Craig M. Johnson 45 Senior Vice President - Community Development Chester P. Sadowski 52 Senior Vice President - Controller and Chief Accounting Officer Frank E. Matthews, II 49 Vice President - Human Resources Thomas A. Napoli 57 Vice President - Corporate Finance and Treasurer Richard G. Slaughter 54 Vice President - Planning and Secretary Kelly F. Somoza 45 Vice President - Investor Relations
No family relationship exists among any of the executive officers of the Company. Each of the foregoing officers has been elected to serve in the office indicated until the first meeting of the Board of Directors following the next annual meeting of stockholders of U.S. Home and until his or her successor is elected and qualified. Mr. Strudler has served as Chairman and Co-Chief Executive Officer since April 26, 1995; prior thereto, he had been Chairman and Chief Executive Officer of the Company since May 12, 1986. Mr. Heimbinder has served as President, Co-Chief Executive Officer and Chief Operating Officer since April 26, 1995; prior thereto, he had been President and Chief Operating Officer of the Company since May 12, 1986. Mr. Frueh has served as Senior Vice President-Tax and Audit since June 11, 1998; prior thereto, he had been Vice President-Tax and Audit since February 5, 1992. 12 13 Mr. Johnson has served as Senior Vice President-Community Development since April 26, 1995; prior thereto, he had been Vice President-Community Development since June 11, 1992. Mr. Sadowski has served as Senior Vice President-Controller and Chief Accounting Officer since June 11, 1998; prior thereto, he had been Vice President-Controller and Chief Accounting Officer since December 17, 1987. Mr. Matthews has served as Vice President-Human Resources since April 23, 1997; prior thereto, he had been Director-Human Resources since February 15, 1991. Mr. Napoli has served as Vice President-Corporate Finance and Treasurer since February 13, 1997; prior thereto, he had been Vice President-Finance and Chief Financial Officer since April 21, 1989. Mr. Slaughter has served as Vice President-Planning and Secretary since December 18, 1986. Ms. Somoza has served as Vice President - Investor Relations since December 6, 1996; prior thereto, she had been a Vice President since June 11, 1992. Ms. Somoza is also the administrator of the Company's profit sharing and employees' savings programs. 13 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of February 4, 1999, there were approximately 1,895 holders of record of the Company's common stock, $.01 par value per share. The principal market on which the common stock is traded is the New York Stock Exchange. Information concerning the high and low sales prices for the Company's common stock for each calendar quarter during 1998 and 1997 is set forth below:
Calendar Year Ended Year Ended Quarter December 31, 1998 December 31, 1997 - ----------- -------------------- -------------------- High Low High Low --------- --------- --------- --------- First $ 46.50 $ 36.44 $ 29.75 $ 24.50 Second 47.88 36.81 27.75 23.00 Third 44.19 26.75 38.81 26.63 Fourth 36.19 25.56 39.38 32.94
No dividends were paid by the Company during 1998 or 1997. The Company's credit agreement (the most restrictive of the Company's borrowing agreements) limits the payment of cash dividends in any fiscal quarter to fifty percent of the Company's consolidated net income (as defined in the credit agreement) for the preceding fiscal quarter. 14 15 ITEM 6. SELECTED FINANCIAL DATA U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, ----------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Operating Revenues $ 1,497,649 $ 1,319,752 $ 1,211,450 $ 1,107,945 $ 995,311 Income Before Income Taxes and Extraordinary Loss 89,293 74,900 55,901 59,072 52,526 Income Taxes 25,564 27,713 11,713 22,152 19,697 ----------- ----------- ----------- ----------- ----------- Income Before Extraordinary Loss 63,729 47,187 44,188 36,920 32,829 Extraordinary Loss, Net of Income Tax Benefit 3,026 8,650 -- -- -- ----------- ----------- ----------- ----------- ----------- Net Income $ 60,703 $ 38,537 $ 44,188 $ 36,920 $ 32,829 =========== =========== =========== =========== =========== Basic Earnings Per Share: Income before extraordinary loss $ 4.99(1) $ 4.08 $ 3.88(2) $ 3.29 $ 3.21 Extraordinary loss $ (.24) $ (.75) $ -- $ -- $ -- Net Income $ 4.75(1) $ 3.33 $ 3.88(2) $ 3.29 $ 3.21 Diluted Earnings Per Share: Income before extraordinary loss $ 4.68(1) $ 3.50 $ 3.28(2) $ 2.78 $ 2.50 Extraordinary loss $ (.22) $ (.62) $ -- $ -- $ -- Net Income $ 4.46(1) $ 2.88 $ 3.28(2) $ 2.78 $ 2.50 Dividends Per Share $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA (at year end): Total Assets $ 1,352,976 $ 1,067,114 $ 947,411 $ 842,084 $ 753,203 =========== =========== =========== =========== =========== Revolving Credit Facilities - Corporate and Housing $ 130,000 $ 29,000 $ -- $ 24,000 $ 7,553 Financial Services 33,112 40,343 42,414 35,371 10,014 ----------- ----------- ----------- ----------- ----------- $ 163,112 $ 69,343 $ 42,414 $ 59,371 $ 17,567 =========== =========== =========== =========== =========== Long-Term Debt - Corporate and Housing $ 424,980 $ 395,918 $ 362,887 $ 300,599 $ 304,327 Financial Services -- -- -- -- 1,034 ----------- ----------- ----------- ----------- ----------- $ 424,980 $ 395,918 $ 362,887 $ 300,599 $ 305,361 =========== =========== =========== =========== ===========
(1) In 1998, basic earnings per share included $.59 per share and diluted earnings per share included $.54 per share due to the effect of a $7,474 tax benefit. (2) In 1996, basic earnings per share included $.04 per share and diluted earnings per share included $.03 per share due to the net effect of an $8,233, net of tax, provision for impairment of land inventories and an $8,691 tax benefit. 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS HOUSING The following table, which excludes the provision for impairment of land inventories recorded in 1996 (see Results of Operations Other - Impairment of Land Inventories below and Consolidated Statements of Operations), sets forth certain financial information for the Company's housing segment for the periods indicated (dollars in thousands, except average sales price):
Years Ended December 31, ------------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Revenues - Single-family homes $1,445,335 $1,278,315 $1,178,938 Land and other 18,737 15,785 12,268 ---------- ---------- ---------- Total $1,464,072 $1,294,100 $1,191,206 ========== ========== ========== Single-family homes - Gross margin amount $ 265,977 $ 229,980 $ 217,461 Gross margin percentage 18.4% 18.0% 18.4% Units delivered 8,258 7,496 7,099 Average sales price $ 175,000 $ 170,500 $ 166,100 New orders taken 9,195 7,893 7,406 Backlog at end of year: Aggregate sales amount $ 844,714 $ 608,974 $ 530,857 Units 4,372 3,435 3,038 Selling, general and administrative expenses as a percentage of housing revenues 9.6% 9.5% 9.5% Interest - Paid or accrued $ 46,597 $ 38,153 $ 33,484 Percentage capitalized 100.0% 100.0% 100.0% Previously capitalized interest included in interest expense $ 40,787 $ 33,789 $ 30,786 Percentage of housing revenues 2.8% 2.6% 2.6%
REVENUES AND SALES - Revenues from sales of single-family homes for 1998 increased 13% from 1997. The increase resulted from a 10% increase in the number of housing units delivered and a 3% increase in the average sales price. Revenues from sales of single-family homes for 1997 increased 8% from 1996, resulting primarily from a 5% increase in the number of housing units delivered and a 3% increase in the average sales price. The average sales price is impacted by product mix, geographical mix and changing prices on units delivered. The change in the average sales price in 1998 compared to 1997 and 1997 compared to 1996 reflects the proportionate increase in deliveries of affordable (lower priced) homes. New orders taken in 1998 increased 17% from 1997. New orders taken in 1997 increased 7% from 1996. The increases in new orders in 1998 and 1997 reflect the continued demand for new single-family homes which the Company believes was brought about by strong consumer confidence, opening of new home communities and stable mortgage interest rates. 16 17 GROSS MARGINS - The increase in the gross margin percentage for 1998 from 1997 was primarily due to the continuation of strong overall market conditions and gross margin improvements in certain of the Company's markets. There can be no assurance margins will continue to improve because they could be adversely affected by future events, including a change in the competitive housing environment and increases in construction labor and material costs. The decrease in the gross margin percentage in 1997 from 1996 was primarily due to a more competitive housing environment, resulting in the increased use of sales incentives, the cost of which the Company was not able to offset by increases in the average sales prices. BACKLOG - The backlog aggregate sales amount at December 31, 1998 increased 39% compared to December 31, 1997, and at December 31, 1997 increased 15% compared to December 31, 1996. The increases in the value of the backlog reflect the increases in the number of units under contract and increases in the average sales price. Substantially all of the Company's backlog units at December 31, 1998, net of cancellations, are expected to result in revenues in 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - As a percentage of housing revenues, selling, general and administrative expenses in 1998 increased when compared to 1997 and 1997 remained the same as compared to 1996. Actual selling, general and administrative expenses for 1998 increased $17.6 million compared to 1997. This increase was primarily due to increases in volume-related expenses ($5.8 million) resulting from increases in deliveries in 1998 when compared to 1997 and increased payroll costs and marketing center and other marketing expenses resulting from increased activities. Similarly, actual selling, general and administrative expenses for 1997 increased $9.9 million compared to 1996. This increase was primarily due to increased payroll cost and advertising and marketing center expenses resulting from increased activities. INTEREST - Interest paid or accrued for 1998 increased approximately 22% compared to 1997 and increased approximately 14% in 1997 compared to 1996. These increases were primarily due to increases in the average amount of outstanding debt which was primarily incurred in connection with the increases in single-family housing inventories resulting from increased activities. The Company capitalizes interest cost into housing inventories and charges the previously capitalized interest to interest expense when the related inventories are delivered. The amount of interest capitalized and previously capitalized interest expensed in any one year is a function of the amount of housing assets, land sales and the number of housing units delivered, average outstanding debt levels and average interest rates. Previously capitalized interest amounts charged to interest expense in 1998 increased 21% compared to 1997 and 1997 increased 10% compared to 1996. These increases were attributable to the increases in the number of housing units delivered and an increase in the average interest expense per housing unit delivered. 17 18 FINANCIAL SERVICES REVENUES - Revenues for the financial services segment for the periods indicated were as follows (dollars in thousands):
Years Ended December 31, ------------------------------- 1998 1997 1996 ------- ------- ------- U.S. Home Mortgage Corporation and Subsidiary $28,951 $21,648 $16,363 Other financial services subsidiaries 4,626 4,004 3,881 ------- ------- ------- $33,577 $25,652 $20,244 ======= ======= =======
U.S. Home Mortgage Corporation ("Mortgage") provides financing primarily to purchasers of homes sold by the Company's housing operations through origination of residential mortgage loans and engages in the sale of such mortgages and related servicing rights to unaffiliated investors. Mortgage's operations are affected, among other things, by general economic conditions, consumer confidence and interest rate volatility. These factors, together with the number of homes delivered by the Company, affect the volume of loan originations which in turn impact the resulting volume of mortgages and servicing rights for sale. The increase in Mortgage's revenues in 1998 from 1997 and in 1997 from 1996 was primarily due to increases in mortgage loan originations and income from the sales of mortgage loans and servicing rights. Mortgage's "capture rates" for providing financing to buyers of homes delivered by the Company improved to 83% in 1998 compared to 76% and 61% in 1997 and 1996, respectively. Since a certain percentage of buyers typically elect to use other sources of financing, the Company believes Mortgage's capture rate of 83% for 1998 is nearing the maximum capture rate. OTHER IMPAIRMENT OF LAND INVENTORIES - In 1996, in conjunction with the completion of the 1997 business plan, the Company completed its annual detailed evaluation of the intended use of its land inventories to insure that the primary and planned use reflected the appropriate economic value for the Company's intended use. It was determined during the evaluation that based on economic forecasts for 1997 the current best use of certain land inventories located primarily in Florida, Maryland and Texas had changed from the Company's previous intended use. Based on the change in intended use, the Company revised its cash flow estimates and determined the cash flow expected to be generated from the new intended use would be less than the cost of the land. Accordingly, the Company recorded a non-cash provision for impairment of approximately $13.0 million ($8.2 million, net of income taxes) to reduce the carrying value of the land to its current fair value, which amount has been included in "provision for impairment of land inventories" in the Consolidated Statements of Operations. The provision for impairment reduced basic and diluted earnings per common share in 1996 by $.72 per share and $.58 per share, respectively. 18 19 CORPORATE GENERAL AND ADMINISTRATIVE - Corporate general and administrative includes the operations of the Company's corporate office. As a percentage of total revenues, such expenses were .9%, .9% and 1.0% for 1998, 1997 and 1996, respectively. Actual corporate overhead expenses for 1998 totaled $13.1 million compared with $11.7 million for both 1997 and 1996. INCOME TAXES - In 1996, the Internal Revenue Service (the "IRS") completed an examination of the Company's federal income tax returns for the years ended December 31, 1993 and 1992. The results of this examination allowed certain previously reserved deductions taken by the Company in its 1993 tax return but disallowed certain other deductions taken in that tax return. In 1998, the Company was informed that its appeal of the IRS decision to disallow these other deductions had been resolved in favor of the Company. As a result of this favorable ruling in 1998 and the deductions allowed in 1996, the Company reduced its deferred tax liability and recognized income tax benefits totaling $7.5 million in 1998 and $8.7 million in 1996. The decreases in the deferred tax liability increased basic and diluted earnings per share in 1998 by $.59 per share and $.54 per share, respectively, and in 1996 by $.76 per share and $.61 per share, respectively. FINANCIAL CONDITION AND LIQUIDITY HOUSING The Company is significantly affected by the cyclical nature of the homebuilding industry, which is sensitive to fluctuations in economic activity and interest rates and the level of consumer confidence. Sale of new homes are also affected by market conditions for rental properties and by the condition of the resale market for used homes, including foreclosed homes. For example, an oversupply of resale units depresses prices and reduces the margins available on sales of new homes. The sale of new homes and profitability from sales are heavily influenced by the level and expected direction of interest rates. Increases in interest rates tend to have a depressing effect on the market for new homes in view of increased monthly mortgage costs to potential home buyers. The Company's most significant needs for capital resources are land and finished lot purchases, land development and housing construction. The Company's ability to generate cash adequate to meet these needs is principally achieved from the sale of homes and the margins thereon, the utilization of Company-owned lots and borrowings under its financing facilities, including the unsecured revolving credit agreement (the "Credit Facility"). Access to quality land and lot locations is an integral part of the Company's success. Typically, in order to secure the rights to quality locations and provide sufficient lead time for development, the Company must acquire land rights well in advance of when orders for housing units are expected to occur. Primarily in its affordable and move-up home communities, the Company attempts to minimize its exposure to the cyclical nature of the housing market and its use of working capital by employing rolling lot options, which enable the Company to initially pay a small portion of the total lot cost and then purchase the lots on a scheduled basis. However, with the increase in the number of retirement and active adult communities, the use of rolling lot options as a percentage of the Company's total finished lot needs has and is expected to continue to decrease since the majority of 19 20 the finished lots for these communities are developed on land owned by the Company. In 1998, 1997 and 1996, respectively, 36%, 37% and 44%, of the units delivered have been on lots acquired under rolling lot option agreements. The retirement and active adult communities are generally long-term projects and require greater investments by the Company than are required for its affordable and move-up home communities. These communities generally include more units than the affordable and move-up communities and generally have more extensive amenities, including golf courses and club houses, which require substantial capital investment. The increases in land inventories in 1998 from 1997 and in 1997 from 1996 were primarily the result of increased activities, including an increase in the Company's retirement and active adult communities' activities. The Company has financed, and expects to continue to finance, its working capital needs from operations and borrowings, including those made under the Credit Facility. The Credit Facility (and previous credit facilities) have enabled the Company to meet peak operating needs. In September 1998, the Credit Facility borrowing commitment was increased from $180 million to $300 million and in August 1997, the Company entered into an interest rate swap agreement which has effectively fixed the interest rate on $50 million of its Credit Facility borrowings until August 2000. See Note 3 of Notes to Consolidated Financial Statements. In 1998, the Company sold $100 million principal amount of its 7.75% senior notes due 2005 ("2005 Senior Notes") for the purpose of raising funds to redeem the balance of the Company's 9.75% senior notes due 2003 ("the 2003 Senior Notes") which were first callable in June 1998. In 1998, the Company redeemed $43.1 million principal amount of the 2003 Senior Notes and purchased in open market transactions $36.6 million principal amount of the 2003 Senior Notes. See Note 3 of Notes to Consolidated Financial Statements. The Company's Class B warrants expired in 1998. Prior to their expiration, 1,837,941 warrants were exercised in 1998 for total proceeds of $36.8 million. See Note 5 of Notes to Consolidated Financial Statements. Also, certain of the properties owned or under option by the Company may be located within community development districts ("Districts") formed by municipalities to construct and finance certain infrastructure/improvements on property in the Districts' area. The Districts utilize ad valorem and assessment revenue bonds to fund improvements and repay the bonds by annual tax assessments on District property based on the property's relative value to other District property. The Company provides no credit support for and is not liable for the debt of the Districts, except to the extent of actual assessments made by the Districts. The Company may utilize Districts to a greater extent in the future. However, there can be no assurance that it will do so. The net cash provided or used by the operating, investing and financing activities of the housing operations for the years ended December 31, 1998, 1997 and 1996 is summarized below (dollars in thousands):
Years Ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- Net cash provided (used): Operating activities ................. $(136,419) $ (44,622) $ (28,091) Investing activities ................. (11,187) (2,493) (3,684) Financing activities ................. 143,669 41,068 36,694 --------- --------- --------- Net increase (decrease) in cash ........ $ (3,937) $ (6,047) $ 4,919 ========= ========= =========
20 21 Housing operations are, at any time, affected by a number of factors, including the number of housing units under construction and housing units delivered. Housing operating activities for 1998 used more cash than 1997 primarily due to an increase in construction and land asset activities, offset in part by increased profitability and the timing of payments related to these activities. Housing operating activities for 1997 used more cash than 1996 primarily due to an increase in housing proceeds receivables and the timing of payments related to construction and land asset activities, offset in part by the decrease in construction and land asset activities and the increase in the number of housing units delivered. Cash flow from housing financing activities for 1998 provided cash reflecting the sale of the Company's 2005 Senior Notes, proceeds received upon the exercise of the Company's Class B warrants and net borrowings under the Credit Facility, offset by the redemption and purchases of the Company's 2003 Senior Notes and the repurchase of shares of common stock. Cash flow from housing financing activities for 1997 provided cash reflecting the sale of the Company's 8.25% senior notes due 2004 and 8.88% senior subordinated notes due 2007 and net borrowings under the Credit Facility, offset by the purchase of the Company's 2003 Senior Notes and 4.875% convertible subordinated debentures due 2005 and the repurchase of shares of common stock and Class B warrants. The Company believes that cash flow from operations and amounts available under the Credit Facility will be sufficient to meet its current working capital obligations and other needs. However, should the Company require capital in excess of that which is currently available, there can be no assurance that it will be available. FINANCIAL SERVICES Mortgage's activities represent a substantial portion of the financial services activities. As loan originations by Mortgage are primarily from homes sold by the Company's home building operations, Mortgage's financial condition and liquidity are to a significant extent dependent upon the financial condition of the Company. Financial services operating activities are affected primarily by the volume of Mortgage's loan originations and the timing of the sale of mortgage loans and related servicing rights to third party investors. Loans and servicing rights are generally sold to investors within 30 days after homes are delivered. Cash flow from financial services operating activities for 1998 provided more cash compared to 1997 primarily due to increased profitability and the timing of payments related to Mortgage's origination activities. Cash flow from financial services operating activities for 1997 provided more cash compared to 1996 primarily due to increased profitability, offset in part by an increase in residential mortgage loans receivable. The Company finances its financial services operations primarily from short-term debt which is repaid with internally generated funds, such as from the origination and sale of residential mortgage loans and related servicing rights. As more fully discussed in Note 3 of Notes to Consolidated Financial Statements, the short-term debt consists of an $80 million secured revolving line of credit (the "Mortgage Credit Facility") which matures on August 31, 1999. While the Mortgage Credit Facility contains numerous covenants, including a debt to tangible net worth ratio and a minimum tangible net worth requirement, these covenants are not anticipated to significantly limit Mortgage's operations. 21 22 The Company has no obligation to provide funding to its financial services operations, nor does it guarantee any of its financial services subsidiaries' debt. The Company believes that internally generated funds and the Mortgage Credit Facility will be sufficient to provide for Mortgage's working capital needs. OTHER IMPACT OF INFLATION - Inflation not only affects interest rates on funds borrowed by the Company, but also affects the affordability of permanent mortgage financing available to prospective customers. Increased construction costs associated with rising interest rates, as well as increased material costs, compress gross margins in the short-term, but may be recovered in the long-term through increases in sales prices, although such increases may reduce sales volume. In recent years, inflation has not had a significant adverse effect on the Company. 22 23 YEAR 2000 ISSUE - Many computer systems in use today were designed and developed using two digits, rather than four, to specify the year. As a result, such systems will recognize the year 2000 as the year 1900. This could cause many computer applications to fail completely or create erroneous results unless corrective measures are taken. The Company's year 2000 remediation program has been in place since 1995 and the costs of the program, which have not been significant, have been expensed as incurred. The Company does not expect the remaining costs of the program to have a material effect on the Company's results of operations. A committee has been appointed to oversee the Company's year 2000 efforts and to keep Company management and the Company's Board of Directors informed of these efforts. The Company utilizes proprietary integrated computer systems that provide its administrative and operating groups the financial and operating information needed to support current operations and future growth. The Company implemented a program in 1995 to identify and remediate the computer systems that would be affected by the year 2000 issue and, in 1998, expanded the program to include other operating systems and equipment affected by the two digit date field. All of the Company's major computer systems, including its mortgage banking operations' systems, are year 2000 compliant. The Company believes the remaining computer systems and the other operating systems and equipment will be compliant by the end of 1999. The Company is currently evaluating all major supplier/contractor relationships and believes there are no significant risks associated with year 2000 issues impacting its operations. The Company is also assessing the year 2000 issues with other third-parties on which it relies, including banking institutions, title companies and government agencies and has been informed by its primary banking institution, its primary title company and two major government agencies (Government National Mortgage Association and Federal National Mortgage Association) that they are year 2000 compliant. While other third-parties have informed the Company they are year 2000 compliant and others have stated they will be compliant by the end of 1999, there can be no assurance that the systems of third-parties on which the Company relies will be compliant in a timely manner. Since the Company has not completed its assessment of significant third parties on whom it relies, it does not currently have adequate information to assess the risk of these entities not being able to provide goods and services to the Company. As information is received and evaluated, the Company will determine whether contingency plans are necessary. Should one or more of the significant third-parties fail to achieve year 2000 compliance, the Company's business and its results of operations could be adversely affected. CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS - The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is including this disclosure in order to do so. Certain statements contained herein, in the Company's press releases, oral communications and other filings with the Securities and Exchange Commission that are not historical facts are, or may be considered to be, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Given the risks, uncertainties and contingencies of the Company's business, the actual results may differ materially from those expressed or implied by such forward-looking statements. Further, certain forward-looking statements are based on assumptions concerning future events which may not prove to be accurate. Forward-looking statements by the Company regarding results of operations and, ultimately, financial condition, are subject to numerous risk and assumptions, including the following: o General economic and business conditions, the level and direction of interest rates and the level of consumer confidence have significant impact on the willingness and ability of purchasers to enter into contracts for homes and to consummate purchases of such homes under contract (backlog), as well as on the performance of Mortgage, the Company's mortgage banking subsidiary. o The development of many of the Company's communities, particularly its retirement and active adult communities, result from a lengthy, complex series of events involving land purchase, regulatory compliance, capital availability, marketing and sales, any of which can materially affect the financial results for a community. o The Company is in a highly competitive and fragmented industry, which places constant pressure on price (including the ability of the Company to respond to increases in prices from its suppliers), quality and marketing and particularly challenges the Company upon any entry into new geographic markets. o The Company faces numerous regulatory hurdles in its development efforts, such as laws and regulations regarding zoning, environmental protection, building design and construction, density and rate of development. o The Company's access to capital sufficient to fund its development activities is affected by the Company's financial leverage and by the willingness of the capital markets and banks to absorb equity or debt of the Company. o The Company may encounter other contingencies, including labor shortages, work stoppages, product liability, litigation, natural risks such as floods or hurricanes and other factors over which the Company has little or no control. 23 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to interest rate risk on its variable rate Credit Facility. The Company hedges its exposure to changes in interest rates on its variable rate debt under the Credit Facility by entering into interest rate swap agreements to lock in a fixed rate for a portion of this debt. The Company's publicly held debt and notes and mortgages payable are at fixed interest rates. In connection with Mortgage's operations, mortgage loans held for sale and the associated Mortgage Credit Facility are subject to interest rate risk. The Company uses forward contracts and forward commitments to manage this interest rate risk; however, all of Mortgage's obligations are short-term in duration and repriced frequently. Accordingly, the Company does not believe that the risks associated with Mortgage's financing activities are material. The following table sets forth as of December 31, 1998, the Company's long-term debt obligations, principal cash flow by scheduled maturity, weighted average interest rates and estimated fair value. In addition, the table includes the notional amount and interest rates of the Company's interest rate swap which expires in August 2000.
Estimated Fair Value Amount by Scheduled Maturity for Year Ended December 31, 1998 at ------------------------------------------------------------------------------------ December 31, 1999 2000 2001 2002 2003 Thereafter Total 1998 ------------------------------------------------------------------------------------ ----------- (Dollars in Thousands) Fixed Rate Debt - Amount $ 5,369 $ 1,879 $79,315 $13,005 $ -- $325,639 $424,207 $ (1) Average interest rate 7.71% 7.68% 7.98% 7.96% -- 8.31% 8.23% Interest Rate Swap - Variable to fixed $50,000 $50,000 $ -- $ -- $ -- $ -- $ 50,000 $(1,057) Average pay rate 6.29% 6.29% -- -- -- -- 6.29% Average receive rate 90 day LIBOR
(1) The fair value of the Company's senior and senior subordinated notes cannot be determined as none of these instruments are actively traded on the open market. The Company has been informed that two of the Company's senior note issues are trading at a nominal premium to their face amount and one of the Company's senior note issues and the Company's senior subordinated notes are currently trading at a nominal discount to their face amount; however, the amount of the premium or discount can not be determined because of the limited activity. 24 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA U.S. HOME CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Operations - For the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity - For the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 25 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To U.S. Home Corporation: We have audited the accompanying consolidated balance sheets of U.S. Home Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Home Corporation and subsidiaries as of December 31, 1998 and 1997, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas February 3, 1999 26 27 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS 1998 1997 ----------- ------------ HOUSING: Cash (including restricted funds of $3,626 and $1,655) $ 8,172 $ 4,211 Receivables, net 60,510 42,595 Single-Family Housing Inventories 986,878 789,236 Option Deposits on Real Estate 103,451 90,155 Other Assets 59,636 33,107 ----------- ----------- 1,218,647 959,304 ----------- ----------- FINANCIAL SERVICES: Cash (including restricted funds of $3,524 and $3,641) 5,660 5,492 Residential Mortgage Loans 82,479 69,209 Other Assets 8,987 10,151 ----------- ----------- 97,126 84,852 ----------- ----------- CORPORATE: Cash and Other Assets 37,203 22,958 ----------- ----------- $ 1,352,976 $ 1,067,114 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CORPORATE AND HOUSING: Accounts Payable $ 129,200 $ 92,160 Accrued Expenses and Other Current Liabilities 89,156 68,848 Revolving Credit Facility 130,000 29,000 Long-Term Debt 424,980 395,918 ----------- ----------- 773,336 585,926 ----------- ----------- FINANCIAL SERVICES: Accrued Expenses and Other Current Liabilities 32,287 21,067 Revolving Credit Facility 33,112 40,343 ----------- ----------- 65,399 61,410 ----------- ----------- Total Liabilities 838,735 647,336 ----------- ----------- STOCKHOLDERS' EQUITY: Common Stock, 13,501,630 and 11,762,518 shares outstanding at December 31, 1998 and 1997 137 119 Capital in Excess of Par Value 402,754 368,277 Retained Earnings 118,061 57,358 Unearned Compensation on Restricted Stock (1,475) (1,770) ----------- ----------- 519,477 423,984 ----------- ----------- Less Treasury Stock, at cost, 175,000 and 157,743 shares of common stock at December 31, 1998 and 1997 (5,236) (4,206) ----------- ----------- Total Stockholders' Equity 514,241 419,778 ----------- ----------- $ 1,352,976 $ 1,067,114 =========== ===========
The accompanying notes are an integral part of these balance sheets. 27 28 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997 1996 ----------- ----------- ----------- HOUSING: Operating Revenues $ 1,464,072 $ 1,294,100 $ 1,191,206 ----------- ----------- ----------- Operating Costs and Expenses - Cost of products sold 1,192,791 1,059,571 971,896 Selling, general and administrative 140,904 123,300 113,352 Interest 40,787 33,789 30,786 ----------- ----------- ----------- 1,374,482 1,216,660 1,116,034 ----------- ----------- ----------- 89,590 77,440 75,172 Provision for Impairment of Land Inventories -- -- 12,965 ----------- ----------- ----------- Housing Operating Income 89,590 77,440 62,207 ----------- ----------- ----------- FINANCIAL SERVICES: Operating Revenues 33,577 25,652 20,244 General, Administrative and Other Expenses 20,824 16,485 14,850 ----------- ----------- ----------- Financial Services Operating Income 12,753 9,167 5,394 ----------- ----------- ----------- CORPORATE GENERAL AND ADMINISTRATIVE 13,050 11,707 11,700 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 89,293 74,900 55,901 ----------- ----------- ----------- PROVISION FOR INCOME TAXES: Federal and State Income Taxes 33,038 27,713 20,404 Tax Benefit (7,474) -- (8,691) ----------- ----------- ----------- 25,564 27,713 11,713 ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS 63,729 47,187 44,188 EXTRAORDINARY LOSS FROM EARLY RETIREMENT OF DEBT, NET OF INCOME TAX BENEFIT 3,026 8,650 -- ----------- ----------- ----------- NET INCOME $ 60,703 $ 38,537 $ 44,188 =========== =========== =========== BASIC EARNINGS PER SHARE: Income Before Extraordinary Loss $ 4.99 $ 4.08 $ 3.88 Extraordinary Loss $ (.24) $ (.75) $ -- Net Income $ 4.75 $ 3.33 $ 3.88 DILUTED EARNINGS PER SHARE: Income Before Extraordinary Loss $ 4.68 $ 3.50 $ 3.28 Extraordinary Loss $ (.22) $ (.62) $ -- Net Income $ 4.46 $ 2.88 $ 3.28
The accompanying notes are an integral part of these statements. 28 29 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Unearned Convertible Capital in Compensation Common Preferred Excess of on Restricted Retained Treasury Stock Stock Par Value Stock Earnings Stock --------- ---------- ----------- --------------- --------- --------- BALANCE AT DECEMBER 31, 1995 $ 112 $ 7,981 $ 348,577 $ (2,311) $ (25,367) $ -- Conversion of convertible redeemable preferred stock to common stock (201,391 shares) 2 (5,034) 5,032 -- -- -- Other -- -- 221 289 -- -- Net income for the year -- -- -- -- 44,188 -- --------- --------- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1996 114 2,947 353,830 (2,022) 18,821 -- Conversion of convertible redeemable preferred stock to common stock (106,501 shares) 1 (2,663) 2,662 -- -- -- Redemption of convertible redeemable preferred stock (11,352 shares) -- (284) -- -- -- -- Conversion of 4.875% convertible subordinated debentures to common stock (302,866 shares) 3 -- 10,659 -- -- -- Purchase of common stock (157,743 shares) -- -- -- -- -- (4,206) Other 1 -- 1,126 252 -- -- Net income for year -- -- -- -- 38,537 -- --------- --------- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1997 119 -- 368,277 (1,770) 57,358 (4,206) Stock issued on exercise of Class B warrants (1,837,941 shares) 18 -- 34,170 -- -- 2,571 Stock issued under stock plans (48,051 shares) -- -- 387 -- -- 862 Purchase of common stock (175,000 shares) -- -- -- -- -- (5,236) Other -- -- (80) 295 -- 773 Net income for year -- -- -- -- 60,703 -- --------- --------- --------- --------- --------- --------- Balance at December 31, 1998 $ 137 $ -- $ 402,754 $ (1,475) $ 118,061 $ (5,236) ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 29 30 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1998 1997 1996 --------- --------- --------- Cash Flows From Operating Activities: Net income $ 60,703 $ 38,537 $ 44,188 Adjustments to reconcile net income to net cash provided (used) by operating activities - Extraordinary loss 3,026 8,650 -- Provision for impairment of land inventories -- -- 12,965 Provision for deferred income taxes 4,457 2,151 635 Tax benefit (7,474) -- (8,691) Other, net (principally depreciation and amortization) 12,556 10,205 9,431 Changes in assets and liabilities - Increase in receivables (32,974) (20,229) (15,291) Increase in inventories (186,884) (68,691) (91,111) Increase in other assets (54,275) (29,809) (15,359) Increase in accounts payable and accrued liabilities 74,536 17,618 23,524 --------- --------- --------- Net cash used by operating activities (126,329) (41,568) (39,709) --------- --------- --------- Cash Flows From Investing Activities: Purchase of property, plant and equipment, net of disposals (9,989) (3,056) (2,657) Increase in restricted cash (1,854) (185) (773) Principal collections on investments in mortgage loans 3,882 4,136 1,989 Other (1,329) (106) (691) --------- --------- --------- Net cash provided (used) by investing (9,290) 789 (2,132) --------- --------- --------- activities Cash Flows From Financing Activities: Proceeds from revolving credit facilities, net of repayments 93,769 26,929 (16,957) Net proceeds from sale of senior and senior subordinated notes 98,237 220,937 73,406 Proceeds from exercise of Class B warrants 36,759 110 14 Purchase of senior notes and convertible subordinated debentures (82,980) (198,831) -- Repayment of notes and mortgages payable (4,675) (6,128) (12,712) Repurchase of common stock and Class B Warrants (5,236) (4,266) -- Other 564 356 -- --------- --------- --------- Net cash provided by financing activities 136,438 39,107 43,751 --------- --------- --------- Net Increase (Decrease) In Cash 819 (1,672) 1,910 Cash At Beginning Of Year 6,466 8,138 6,228 --------- --------- --------- Cash At End Of Year $ 7,285 $ 6,466 $ 8,138 ========= ========= ========= Supplemental Disclosure: Interest paid, before amount capitalized - Housing $ 42,066 $ 32,063 $ 31,508 Financial Services 1,682 1,426 1,472 --------- --------- --------- $ 43,748 $ 33,489 $ 32,980 ========= ========= ========= Income taxes paid $ 20,945 $ 21,490 $ 16,069 ========= ========= =========
The accompanying notes are an integral part of these statements. 30 31 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) BASIS OF PRESENTATION AND SEGMENT INFORMATION BASIS OF PRESENTATION - The accompanying consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries after elimination of all significant intercompany balances and transactions. SEGMENT INFORMATION - Effective December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes new standards for segment reporting which are based on the way management organizes segments within a company for making operating decisions and assessing performance. The Company's financial reporting segments consist of home building, financial services and corporate. The Company's home building operations comprise the most substantial part of its business, with approximately 98% of consolidated revenues in 1998, 1997 and 1996 contributed by the home building operations. The Company is one of the largest single-family home builders in the United States based on homes delivered. The Company currently builds and sells homes in more than 230 new home communities in 33 market areas in 12 states. The Company offers a wide variety of moderately-priced homes that are designed to appeal to the affordable, move-up and retirement and active adult buyers. The Company's financial services operations provide mortgage banking services to the home building operations' customers. The Company originates, processes and sells mortgages to third-party investors. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. Corporate primarily includes the operations of the Company's corporate office whose primary purpose is to provide financing, cash management, risk management, capital allocations, management reporting and general administration of the home building and financial services segments. The accounting policies of the reportable segments are described in Note 2. Assets, operating revenues and operating income of the Company's reportable segments are included in the consolidated balance sheets and consolidated statements of operations. Expenditures for long-lived assets and depreciation and amortization expenses for the years ended December 31, 1998, 1997 and 1996 were insignificant. 31 32 (2) SIGNIFICANT ACCOUNTING POLICIES GENERAL USE OF ESTIMATES - The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Management's estimates and assumptions are reflective of, among other things, prevailing and expected market conditions, current operating strategies and the availability of capital which are all subject to change. Changes to the aforementioned or other conditions could in turn cause changes to such estimates and assumptions and, as a result, actual results could differ from the original estimates. CASH EQUIVALENTS - The Company considers all short-term investments with an initial maturity of less than 90 days to be cash equivalents. FINANCIAL INSTRUMENTS - The Company believes that fair value approximates recorded values for such financial instruments as cash and cash equivalents, trade receivables and payables, short-term debt and option deposits because of the typically liquid, short-term nature, market rate terms and lack of specific concentration of these instruments. The fair value of the senior and senior subordinated notes cannot be determined as none of these instruments are actively traded on the open market. The Company has been informed that two of the senior notes issues are currently trading at a nominal premium and one senior note issue and the senior subordinated notes are currently trading at a nominal discount; however, the amount of the premium or discount cannot be determined because of the limited activity. The fair value of the Company's residential mortgage loans approximate their carrying value as such loans are packaged and sold to investors generally within 30 days after home delivery. Additionally, a significant portion of the Company's interest rate risk associated with and generated by these loans is mitigated by the use of forward delivery contracts and commitments. See Hedging Contracts below. HEDGING CONTRACTS - From time to time, the Company may utilize interest rate swap agreements to manage interest costs and hedge against risks associated with changing interest rates. The Company designates interest rate swaps as hedges of specific debt instruments and recognizes interest rate differentials as adjustments to interest paid or accrued as the differentials occur. Counterparties to these agreements are major financial institutions. The Company believes that the likelihood of credit loss from counterparty non-performance is remote. At December 31, 1998, the Company had an interest rate swap agreement outstanding with a notional amount of $50,000 which will mature in 2000 and effectively fixed the interest rate on a portion of its revolving credit facility borrowings. See Note 9. 32 33 The Company manages its interest rate market risk on the inventory loans held for sale and its estimated future commitments to originate and close mortgage loans at fixed prices ("Loan Quotes") through hedging techniques by regularly entering into either fixed price mandatory forward delivery contracts ("Forward Contracts") to sell mortgage-backed securities to security dealers or fixed price forward delivery commitments ("Forward Commitments") to sell specific whole loans to investors on a mandatory or best efforts basis ("Forward Contracts" and "Forward Commitments", collectively "Hedging Contracts"). The Company records the inventory of residential mortgage loans at the lower of cost or market on an aggregate basis after considering any market value changes in the inventory loans, Loan Quotes and Hedging Contracts. See Note 9. HOUSING SALES AND PROFIT RECOGNITION - Profit is recognized from the sale of real estate at time of closing, i.e., when sufficient down payment has been made; any financing has been arranged; title, possession and other attributes of ownership have been transferred to the buyer; and the Company is not obligated to perform additional significant activities after the sale. INVENTORIES AND VALUATION - The components of single-family housing inventories are as follows:
1998 1997 -------- -------- Housing completed and under construction $382,080 $302,258 Models 90,676 83,943 Finished lots 132,567 138,747 Land under development 133,791 75,959 Land held for development or sale 247,764 188,329 -------- -------- $986,878 $789,236 ======== ========
The cost of acquiring and developing land and constructing certain amenities are allocated to the related parcels. Housing inventories are recorded using the specific identification method. The Company measures any impairments on land under development and to be developed at the lower of cost or fair value and carries land substantially completed and ready for its intended use, land held for sale and housing inventories at the lower of cost or fair value less cost to sell. Fair value is the amount at which a property could be bought or sold in a current transaction between willing parties. The Company monitors the valuation of its land and housing inventories on a continuous basis with a detailed review each year in conjunction with the completion of the following year's business plan. Provisions to reduce land and housing inventories to the lower of cost or fair value in 1998, 1997, and 1996 (other than the $12,965 provision for impairment of land inventories discussed below) were not significant. Total land and housing reserves were $23,894, $35,839 and $40,236 at December 31, 1998, 1997 and 1996, respectively. During 1996, in conjunction with the completion of the 1997 business plan, the Company completed its annual detailed evaluation of the intended use of its land inventories to insure that the primary and planned use reflected the appropriate economic value for the Company's intended use. It was determined during the evaluation that based on economic forecasts, the current best use of certain land inventories located primarily in Florida, Maryland and Texas had changed from the 33 34 Company's previous intended use. Based on the change in intended use, the Company determined the cash flow expected to be generated from the new intended use would be less than the cost of the land. Accordingly, the Company recorded a non-cash provision for impairment of $12,965 ($8,233, net of income taxes) to reduce the carrying value of the land to its current fair value, which amount has been included in "provision for impairment of land inventories" in the accompanying consolidated statements of operations. The provision for impairment reduced basic and diluted earnings per common share by $.72 per share and $.58 per share, respectively. During 1998 and 1997, the Company purchased land in several transactions of which $13,667 and $14,456, respectively, were seller financed. These transaction were treated as non-cash transactions for purposes of the consolidated statements of cash flows. INTEREST CAPITALIZATION - Interest is capitalized on land, finished building lots and single-family residential housing construction costs during the development and construction period. Interest is capitalized to eligible assets using an allocation method based on the Company's actual interest costs. A summary of interest for 1998, 1997 and 1996 follows:
Years Ended December 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Capitalized at beginning of year $ 62,950 $ 58,566 $ 59,898 Capitalized 46,597 38,153 33,484 Previously capitalized interest included in interest expense (40,787) (33,789) (30,786) Included in provision for impaired land inventories and other (10) 20 (4,030) -------- -------- -------- Capitalized at end of year $ 68,750 $ 62,950 $ 58,566 ======== ======== ========
FINANCIAL SERVICES REVENUE RECOGNITION - The sale of loans and loan servicing rights is recognized when the closed loans are sold and delivered to an investor. During the years ended December 31, 1998, 1997 and 1996, revenues included net losses from the sale of loans of $525, $573 and $976, respectively, and net gains from the sale of servicing of $14,122, $9,691 and $7,294, respectively. INTEREST INCOME - Interest income relating to financial services for the years ended December 31, 1998, 1997 and 1996 was $5,442, $4,785 and $4,412, respectively, and is included in "Financial Services-operating revenues" in the accompanying consolidated statements of operations. INTEREST EXPENSE - Interest expense relating to financial services for the years ended December 31, 1998, 1997 and 1996 was $1,691, $1,417 and $1,507, respectively, and is included in "Financial Services - general, administrative and other expenses" in the accompanying consolidated statements of operations. RESIDENTIAL MORTGAGE LOANS - Residential mortgage loans held for sale ($38,498 at December 31, 1998) are included in the accompanying consolidated balance sheets at the 34 35 lower of cost or market on an aggregate basis. The Company estimates the fair value of residential mortgage loans held at December 31, 1998 approximated recorded value based on quoted market prices for similar loans sold either on a whole loan basis or pooled and sold as collateral for mortgage-backed securities. CORPORATE INVESTMENT - In April 1998, the Company purchased a 13.3% interest in a Mexican home building company for $13,092 which amount is included in "Corporate Assets" in the accompanying consolidated balance sheets. The Company accounts for its investment using the cost method of accounting. As part of this agreement, the Company and the Mexican company agreed to form a joint venture to, among other things, develop, construct and sell affordable housing communities initially in Texas. (3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT HOUSING - The housing revolving credit facility and long-term debt consist of the following:
December 31, --------------------- 1998 1997 -------- -------- Revolving credit facility $130,000 $ 29,000 -------- -------- 7.95% Senior notes due 2001 75,000 75,000 9.75% Senior notes due 2003 -- 79,703 8.25% Senior notes due 2004 100,000 100,000 7.75% Senior Notes due 2005 99,773 -- 8.88% Senior subordinated notes due 2007 125,000 125,000 Notes and mortgage notes payable 25,207 16,215 -------- -------- 424,980 395,918 -------- -------- $554,980 $424,918 ======== ========
The Company has an unsecured revolving credit agreement (the "Credit Facility") with a group of banks. In 1998, the maximum amount which the Company may borrow under the Credit Facility was increased from $180,000 to $300,000, of which up to $35,000 may be used for letter of credit obligations, subject to a borrowing base limitation. Upon approval of the agent bank, the borrowings under the Credit Facility may be increased, in multiples of $10,000, to a maximum of $350,000, either by having additional banks (which have been approved by the Company) become lenders or by having one or more of the existing banks, with the approval of the Company, increase the amount of their commitment. The amount available for borrowing under the Credit Facility is based on housing inventories, land, finished lots and closing proceeds receivables less outstanding senior debt borrowings (as defined), including amounts outstanding under the Credit Facility; as the amount invested in these categories changes, the amount of available borrowings will increase or decrease. At December 31, 1998, $158,390 of the Credit Facility commitment was available for borrowing. Borrowings bear interest at a premium over the London Interbank Offered Rate ("LIBOR") or the base rate announced by the agent bank. The Credit Facility, as amended, expires on May 31, 2001, but may be extended annually beginning in 1999 for successive one-year periods with the consent of the banks and contains numerous real estate and financial covenants, including 35 36 restrictions on the incurrence of additional debt, creation of liens and the levels of land and housing inventories maintained by the Company and a prohibition on the payment of dividends, other than stock dividends. In 1998, the Company completed the sale of $100,000 principal amount of its 7.75% senior notes due 2005 (the "2005 Senior Notes") for the purpose of raising proceeds to redeem the balance of its 9.75% senior notes due 2003 (the "2003 Senior Notes") which were first callable in June 1998. The 2005 Senior Notes were issued at original issue discount of $263, which is being amortized over the term of the notes. Interest is payable semi-annually commencing on July 15, 1998. On or after January 15, 2003, the 2005 Senior Notes may be redeemed at the option of the Company, in whole or in part, at prices ranging from 101.29% during the 12 month period beginning January 15, 2003 to 100% (on or after January 15, 2004) of the principal amount thereof, together with accrued and unpaid interest. In 1998, the Company redeemed $43,109 principal amount of the 2003 Senior Notes and purchased in open market transactions $36,594 principal amount of the 2003 Senior Notes. The early retirement of the 2003 Senior Notes resulted in an extraordinary loss in 1998 of $3,026, net of income tax benefit of $1,777. In 1997, the Company purchased $110,480 principal amount of the 2003 Senior Notes pursuant to a tender offer and, subsequent to the expiration of the tender offer, purchased in an open market transaction $9,817 principal amount of the 2003 Senior Notes. Also in 1997, the Company redeemed $69,248 principal amount of its 4.875% convertible subordinated debentures ("the Debentures"), and $10,752 principal amount of the Debentures were converted, prior to the redemption date in 1997, into 302,866 shares of the Company's common stock. The early retirement of the 2003 Senior Notes and redemption of the Debentures resulted in an extraordinary loss in 1997 of $8,650, net of income tax benefit of $5,080. The 7.95% senior notes are due March 1, 2001, the 8.25% senior notes are due August 15, 2004 and the 8.88% senior subordinated notes are due August 15, 2007. Interest is payable semi-annually. On or after August 15, 2002, the 8.88% senior subordinated notes may be redeemed at the option of the Company, in whole or in part, at prices ranging from 104.44% (during the 12 month period beginning August 15, 2002) to 100% (on or after August 15, 2005) of the principal amount thereof, together with accrued and unpaid interest. The indentures relating to these notes and the 2005 Senior Notes contain numerous covenants, including a minimum tangible net worth requirement and a limitation on the incurrence of additional debt. Housing notes and mortgage notes payable are primarily for the acquisition and development of land, with interest rates ranging from 8.0% to 10.0%. Assets pledged as collateral under these agreements totaled approximately $48,826 at December 31, 1998. Upon a change of control of the Company, holders of the senior notes and the senior subordinated notes will have the right to require the Company to redeem the notes at a price of 101% of the principal amount of the notes, together with accrued and unpaid interest. There can be no assurance that sufficient funds will be available to make the required repurchases if a change of control occurs. In addition, the Credit Facility prohibits the Company's repurchase of any of its subordinated 36 37 indebtedness and contains a limitation on the Company's repurchase of its capital stock.. At December 31, 1998, $62,086 was available under the Credit Facility for the repurchase of capital stock. Moreover, the occurrence of a change of control will trigger an event of default under the Credit Facility. The maximum amounts of borrowings from banks and other financial institutions outstanding at any time during 1998, 1997 and 1996 were $185,000, $81,000 and $64,000, respectively. The average amounts of debt outstanding from banks and other financial institutions during 1998, 1997 and 1996 were $95,100, $31,100 and $15,800, respectively, and the weighted average interest rates, without giving effect to commitment fees, were 7.8%, 7.8% and 8.4%, respectively. Computations of the weighted average interest rates were based upon the weighted average of outstanding loan balances during the respective years. At December 31, 1998, housing long-term debt matures as follows: $5,369 in 1999, $1,879 in 2000, $79,315 in 2001, $13,005 in 2002 and $325,412 in 2004 and thereafter. FINANCIAL SERVICES - Financial services revolving credit facility consists of an agreement with a financial institution whereby the Company's mortgage banking subsidiary, U.S. Home Mortgage Corporation ("Mortgage"), may borrow up to $80,000 under a revolving line of credit (the "Mortgage Credit Facility") secured by residential mortgage loans and mortgage notes receivables. The Mortgage Credit Facility is not guaranteed by the Company, was renewed in August 1998 under substantially the same terms and conditions as the previous agreement, matures on August 31, 1999 and bears interest at a premium over the LIBOR rate. The maximum amounts of financial services borrowings from banks and other financial institutions outstanding at any time during 1998, 1997 and 1996 were $44,300, $46,900 and $42,400, respectively. The average amounts of short-term debt outstanding from banks and other financial institutions during 1998, 1997 and 1996 were $25,200, $20,500 and $22,300, respectively, and the weighted average interest rates, without giving effect to commitment fees, were 6.5%, 6.7% and 6.6%, respectively. Computations of such rates were made based upon the weighted average of outstanding loan balances during the respective years. 37 38 (4) INCOME TAXES The Company and its subsidiaries file consolidated federal income tax returns. The components of the provision for income taxes consisted of the following:
Years Ended December 31, ----------------------------------- 1998 1997 1996 -------- -------- -------- Current - Federal $ 18,043 $ 21,547 $ 16,943 State 3,064 4,015 2,826 -------- -------- -------- 21,107 25,562 19,769 -------- -------- -------- Deferred - Federal 2,271 1,762 (8,147) State 2,186 389 91 -------- -------- -------- 4,457 2,151 (8,056) -------- -------- -------- Total provision $ 25,564 $ 27,713 $ 11,713 ======== ======== ========
Deferred income taxes are determined based upon the difference between the financial reporting and tax basis of assets and liabilities. At December 31, 1998, the Company has recorded a net deferred tax liability of $5,700 which is comprised of deferred tax assets of $24,600 (including $9,800 relating to housing reserves which were expensed for financial reporting purposes but deferred for federal income tax purposes) and deferred tax liabilities of $30,300 (including $20,000 relating to interest expense capitalized for financial reporting purposes but expensed for federal income tax purposes). At December 31, 1997, deferred tax assets and deferred tax liability were $32,800 and $32,300, respectively, and were primarily attributable to the same items noted above. During 1996, the Internal Revenue Service (the "IRS") completed an examination of the Company's federal income tax returns for the years ended December 31, 1993 and 1992. The results of this examination allowed certain previously reserved deductions taken by the Company in its 1993 tax return but disallowed certain other deductions taken in that tax return. In 1998, the Company was informed that its appeal of the IRS decision to disallow these other deductions had been resolved in favor of the Company. As a result of this favorable ruling in 1998 and the deductions allowed in 1996, the Company reduced its deferred tax liability and recognized income tax benefits totaling $7,474 in 1998 and $8,691 in 1996. The decreases in the deferred tax liability increased basic and diluted earnings per share in 1998 by $.59 per share and $.54 per share, respectively, and in 1996 by $.76 per share and $.61 per share, respectively. The following table reconciles the statutory federal income tax rate to the effective income tax rate for:
Years Ended December 31, -------------------------------- 1998 1997 1996 ------ ------ ------ Tax provision at statutory rate 35.0% 35.0% 35.0% Increases (decreases) in taxes resulting from - State and local income taxes, net of federal income tax provision 4.0 4.0 4.0 Tax benefit (8.4) -- (15.5) Other, net (2.0) (2.0) (2.5) ------ ------ ------ Effective rate 28.6% 37.0% 21.0% ====== ====== ======
38 39 (5) STOCKHOLDERS' EQUITY As of December 31, 1998, the Company's capital structure consisted of the following: Common Stock - Authorized 50,000,000 shares, par value $.01 per share, issued 13,676,630 shares and outstanding 13,501,630 shares. At December 31, 1998, the Company had 2,145,638 shares of common stock reserved for issuance under the stock plans. In 1997, the Company's Board of Directors authorized the repurchase of up to 750,000 shares of outstanding common stock or Class B warrants, in the aggregate, from time to time in the open market and/or in private transactions. In addition, the Company's Board of Directors authorized an odd-lot repurchase program for holders of less than 100 shares of the Company's common stock. In 1998, the Company repurchased 175,000 shares of common stock for an aggregate purchase price of $5,236. In 1997, the Company repurchased 157,743 shares of common stock (including 57,343 shares in the odd-lot program) and 8,100 Class B warrants for an aggregate purchase price of $4,266. The cost of the repurchased shares has been included in "Treasury Stock" and the cost of the repurchased warrants has been deducted from "Capital in Excess of Par Value" in the accompanying consolidated balance sheets. During 1998, 157,743 shares of treasury stock were issued primarily for the exercise of stock options and Class B warrants. When the treasury shares were reissued, any excess of the average acquisition cost of the shares over the proceeds from re-issuance was charged to "Capital in Excess of Par Value" in the accompanying consolidated balance sheets. Preferred Stock - Authorized 10,000,000 shares, par value $.10 per share, including 84,343 convertible redeemable preferred shares, 500,000 Series A junior non-cumulative preferred shares and 9,415,657 shares undesignated as to series. (a) Convertible redeemable preferred stock - $25 per share liquidation preference and redemption value, none outstanding. As of March 10, 1997, all of the Company's outstanding convertible redeemable preferred stock had been converted into the Company's common stock or redeemed. (b) Series A junior non-cumulative preferred stock - Authorized 500,000 shares, par value $.10 per share. The shares are authorized for issuance pursuant to certain rights that trade with the Company's common stock. There are no shares of the Series A junior non-cumulative preferred stock outstanding; however, all of the shares have been reserved for issuance upon the exercise of the stock purchase rights as discussed in "Stockholder Rights Plan" below. (c) Undesignated as to series - None outstanding. Shares may be issued in one or more classes or series with preferences, limitations and relative rights as determined by the Company's Board of Directors at the time of issuance. Any shares issued will rank, as to dividends and liquidation preference, junior to the convertible redeemable preferred stock, if any shares are outstanding. 39 40 Class B Warrants - The Company had issued Class B warrants which allowed the holder to acquire an aggregate of 1,904,757 shares of common stock for $20 per share. Prior to their expiration in 1998, 1,848,277 warrants had been exercised, of which 1,837,941 warrants were exercised in 1998, and 8,100 warrants had been repurchased. Stockholder Rights Plan - On November 7, 1996, the Company adopted a rights plan and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company's common stock and each outstanding share of the Company's outstanding convertible redeemable preferred stock held of record on December 4, 1996. Under certain circumstances, each right entitles the holder to purchase 1/100th of a share of the Company's Series A junior non-cumulative preferred stock ("Series A Preferred Stock") at a price of $80 ("Purchase Price"), subject to certain anti-dilution provisions. The rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that (a) a person or group has acquired, or has the right to acquire, 15% or more of the outstanding shares of the Company's common stock or (b) an institutional stockholder has acquired or has the right to acquire 20% or more of the outstanding shares of common stock, or (ii) 10 business days following the commencement of, or announcement of an intention to make, a tender offer for 15% or more of the then outstanding shares of common stock. In such event, each holder of a right (other than the acquiring person) shall have the right to receive, upon exercise, the number of shares of common stock or of 1/100th of a share of Series A Preferred Stock having a value of equal to two times the Purchase Price. In the event of any merger, consolidation or other transaction in which the Company's common stock is exchanged, each holder of a right, upon exercise, will be entitled to receive common stock of the acquiring company equal to two times the Purchase Price. Unless and until the rights become exercisable, they will be transferred with the Company's common stock. At the option of the Company, the rights are redeemable prior to becoming exercisable at $.01 per right. Unless earlier redeemed or exchanged by the Company, the rights will expire on November 7, 2006. Until a right is exercised, the holder will have no rights as a stockholder of the Company, including the right to vote or receive dividends. The Credit Facility and each of the senior and senior subordinated note indentures contain restrictions on the (i) payment of dividends on the Company's common stock and (ii) purchase, redemption, retirement or other acquisition of the Company's common stock, other than upon exercise into the Company's common stock of options to acquire common stock issued pursuant to stock options and stock payment plans. Under the terms of the Credit Facility, the most restrictive of the Company's borrowing agreements, payment of cash dividends in any fiscal quarter is limited to fifty percent of the Company's consolidated net income (as defined in the credit agreement) for the preceding fiscal quarter. 40 41 (6) STOCK PLANS STOCK OPTION PLANS - The Company has three stock option plans for key employees (the "1997 Employee Plan", the "1996 Employee Plan" and the "1993 Employee Plan", collectively the "Employee Plans") to purchase a maximum of 1,500,000 shares (500,000 shares for each plan) of the Company's common stock. Under all three plans, the Company may grant incentive and non-qualified stock options. The Company also has two stock option plans whereby options may be granted to non-employee directors (the "1998 Director Plan", and the "1993 Director Plan", collectively the "Director Plans") to purchase a maximum of 200,000 shares of the Company's common stock (100,000 shares for each plan). Options under the Director Plans are granted annually in a fixed amount. Options granted under the Employee Plans will be exercisable at not less than the closing price of the Company's common stock on date of grant. Options granted under the Director Plans will be exercisable at not less than the average closing price of the Company's common stock for the ten consecutive trading days prior to the date of grant. The options are exercisable as specified in the stock option agreements relating to them and may not be exercised later than ten years from the date of grant. As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), the Company accounts for its stock option plans under the accounting rules prescribed by Accounting Principles Board Opinion No. 25, under which no compensation costs are recognized as an expense. Had compensation costs for the stock options been determined using the fair value method of accounting as recommended by SFAS No. 123, net income and earnings per share for 1998, 1997 and 1996 would have been reduced to the following proforma amounts: 41 42
Net income - 1998 1997 1996 ------- ------- ------- As reported: Income before extraordinary loss $63,729 $47,187 $44,188 Extraordinary loss $ 3,026 $ 8,650 $ -- Net income $60,703 $38,537 $44,188 Proforma: Income before extraordinary loss $62,629 $46,420 $43,180 Extraordinary loss $ 3,026 $ 8,650 $ -- Net income $59,603 $37,770 $43,180 Basic earnings per share - As reported: Income before extraordinary loss $ 4.99 $ 4.08 $ 3.88 Extraordinary loss $ (.24) $ (.75) $ -- Net income $ 4.75 $ 3.33 $ 3.88 Proforma: Income before extraordinary loss $ 4.90 $ 4.01 $ 3.85 Extraordinary loss $ (.24) $ (.75) $ -- Net income $ 4.66 $ 3.26 $ 3.85 Diluted earnings per share - As reported: Income before extraordinary loss $ 4.68 $ 3.50 $ 3.28 Extraordinary loss $ (.22) $ (.62) $ -- Net income $ 4.46 $ 2.88 $ 3.28 Proforma: Income before extraordinary loss $ 4.60 $ 3.44 $ 3.26 Extraordinary loss $ (.22) $ (.62) $ -- Net income $ 4.38 $ 2.82 $ 3.26
42 43 A summary of the status of the stock option plans at December 31, 1998, 1997 and 1996 and changes during the years then ended is presented below:
1998 1997 1996 ----------------------- ----------------------- ----------------------- Wtd Avg Wtd Avg Wtd Avg Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Options outstanding at beginning of year 1,110,392 $ 25.40 639,500 $ 22.89 531,169 $ 22.65 Options granted: Employee Plans 220,000 $ 34.46 497,000 $ 28.28 102,000 $ 24.13 Director Plans 8,000 $ 45.22 9,000 $ 24.35 9,000 $ 23.74 Options exercised: Employee Plans (25,700) $ 21.91 (23,108) $ 18.79 -- $ -- Director Plans -- $ -- (9,000) $ 22.67 -- $ -- Options forfeited: Employee Plans (2,000) $ 26.13 (3,000) $ 24.36 (2,669) $ 24.09 Director Plans -- $ -- -- $ -- -- $ -- --------- --------- ------- Options outstanding at end of year 1,310,692 $ 27.11 1,110,392 $ 25.40 639,500 $ 22.89 ========= ========= ======= Options exercisable at end of year 647,367 $ 24.69 578,069 $ 22.95 551,179 $ 23.12 ========= ========= ======= Weighted average fair value per share of option granted - Employee Plans $ 14.39 $ 8.49 $ 8.39 Director Plans $ 19.06 $ 9.64 $ 9.97
Options outstanding at December 31, 1998 had exercise prices ranging from $15.13 to $47.56 per share and a weighted average remaining contractual life of 7.4 years. Options exercisable at December 31, 1998 had a weighted average remaining contractual life of 6.9 years. At December 31, 1998, 331,500 shares of common stock were available for granting of options, including 103,500 shares of common stock to non-employee directors. The fair value of each option granted in 1998, 1997 and 1996 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest of 5.4% for 1998, 6.1% for 1997 and 6.6% for 1996; expected lives of 8.1 years in 1998, 5.5 years for 1997 and 7.1 years for 1996; and expected volatility of 31.2% for 1998 and 25.0% for both 1997 and 1996. STOCK PAYMENT PLAN - The Company's employee stock payment plan (the "Payment Plan") provides that up to 25% of a key employee's annual incentive pay (compensation other than base salary), which is charged to expense when earned, may be payable in shares of the Company's common stock as determined by the Company's Board of Directors, of which up to 50% of the shares payable will vest to the employee not later than two years after the end of the incentive compensation year and will expire in the event the employee is not employed by the Company on the vesting date. Shares to be issued under the Payment Plan will be valued at the average 43 44 closing price of the common stock for a ten consecutive trading day period as defined in the Payment Plan. The Payment Plan, as amended, has a 15-year term and commenced on January 1, 1994. In 1998, 9,095 shares were issued to corporate officers and key employees at prices ranging from $25.05 to $45.09, in 1997, 18,559 shares were issued to officers and key employees at prices ranging from $16.74 to $28.21 per share and in 1996, 7,905 shares were issued to officers and key employees at prices ranging from $25.05 to $27.93 per share. As of December 31, 1998, 192,710 shares were available for issuance under the Payment Plan. RESTRICTED STOCK PLANS - The Company has two restricted stock plans for officers and other key employees (the "1994 Restricted Plan" and the "1998 Restricted Plan", collectively the "Restricted Plans") under, which, a maximum of 370,000 shares (250,000 shares for the 1994 Restricted Plan and 120,000 shares for the 1998 Restricted Plan, which is subject to stockholder approval which will be sought at the 1999 annual meeting of the Company's stockholders) of the Company's common stock may be granted as restricted stock. Participants in the 1994 Restricted Plan may not dispose of any of the stock granted for five years from date of grant and restrictions lapse at the rate of 20% of the stock granted per year, commencing with the end of the fifth year. Shares granted under the 1998 Restricted Plan will be granted at not less than the closing price of the common stock at date of grant. Participants in the 1998 Restricted Plan may not dispose of any of the stock grant until 2003 and restrictions lapse at the rate of 30% of the stock granted in 2003 and 10% per year thereafter. As defined in the Restricted Plans, the lapsing of the restrictions may be accelerated if certain stipulated improvements in the Company's financial performance over the base years are achieved or if a change in control occurs. In 1997 and 1995, a total of 146,008 restricted shares of the Company's common stock were issued to officers and other key employees. The market value of the shares issued has been charged to stockholders' equity as Unearned Compensation on Restricted Stock and is being amortized to expense over the terms of Restricted Plans. As of December 31, 1998, 223,992 shares were available for issuance under the Restricted Plans. NON-EMPLOYEE DIRECTOR STOCK PLAN - In 1997, the Company adopted a stock plan for non-employee directors (the "Director Stock Plan"). Under the Director Stock Plan, a maximum of 100,000 shares of the Company's common stock may be granted to non-employee directors as compensation for services as a director. Shares granted under the Director Stock Plan will be granted annually in an amount equal to each directors' base retainer at the closing price of the common stock on date of grant. In 1998, 13,256 shares were issued to non-employee directors at prices ranging from $24.62 to $47.27 per share. As of December 31, 1998, 86,744 shares were available for issuance under the Directors' Stock Plan. 44 45 (7) EARNINGS PER SHARE Basic earnings per share includes the weighted average number of common shares outstanding for the periods. Diluted earnings per share includes (i) the assumed exercise of stock options, (ii) the dilutive effect of the Class B warrants through their exercise and expiration in June 1998 and the convertible redeemable preferred stock through its redemption and conversion in March 1997, and (iii) the assumed conversion of the Debentures through their redemption and conversion in September 1997. The following table summarizes the basic earnings per share and diluted earnings per share computations for 1998, 1997 and 1996:
1998 1997 1996 ------------ ------------ ------------ Basic earnings per share: Income before extraordinary loss $ 63,729 $ 47,187 $ 44,188 Extraordinary loss 3,026 8,650 -- ------------ ------------ ------------ Net income $ 60,703 $ 38,537 $ 44,188 ============ ============ ============ Weighted average number of shares 12,782,881 11,573,094 11,383,720 ============ ============ ============ Earnings per share - Income before extraordinary loss $ 4.99 $ 4.08 $ 3.88 Extraordinary loss $ (.24) $ (.75) $ -- Net income $ 4.75 $ 3.33 $ 3.88 Diluted earnings per share: Income before interest applicable to convertible subordinated debentures and extraordinary loss $ 63,729 $ 47,187 $ 44,188 Interest applicable to convertible subordinated debentures, net of income taxes -- 1,818 2,480 ------------ ------------ ------------ Income before extraordinary loss, assuming dilution 63,729 49,005 46,668 Extraordinary loss 3,026 8,650 -- ------------ ------------ ------------ Net income, assuming dilution $ 60,703 $ 40,355 $ 46,668 ============ ============ ============ Weighted average number of common shares 12,782,881 11,573,094 11,383,720 Incremental shares from assumed conversions - Convertible preferred stock -- 19,070 185,247 Contingent common shares 61,508 29,253 16,888 Stock options 355,280 208,514 47,372 Class B warrants 404,415 650,259 325,212 Convertible subordinated debentures -- 1,555,856 2,253,521 ------------ ------------ ------------ Adjusted weighted average number of common shares 13,604,084 14,036,046 14,211,960 ============ ============ ============ Earnings per share - Income before extraordinary loss $ 4.68 $ 3.50 $ 3.28 Extraordinary loss $ (.22) $ (.62) $ -- Net income $ 4.46 $ 2.88 $ 3.28
(8) PROFIT SHARING The Company has a qualified profit sharing and 401(k) savings plan for the benefit of its employees which may be terminated at any time at the option of the Company. The annual contributions to the profit sharing portion of the plan may be made in such amounts as the Board of Directors of the Company determines. The Company matches portions of 45 46 employees' voluntary contributions to the 401(k) savings portion of the plan. The Company provided for profit sharing and matching 401(k) contributions of $1,576 in 1998, $1,484 in 1997 and $1,313 in 1996. (9) COMMITMENTS AND CONTINGENCIES HOUSING - The Company is significantly affected by the cyclical nature of the home building industry, which is sensitive to fluctuations in economic activity, interest rates and the level of consumer confidence. The sale of new homes and profitability from sales are heavily influenced by the level and expected direction of interest rates. Increases in interest rates tend to have a depressing effect on the market for new homes in view of increased monthly mortgage costs to potential home-buyers. As of December 31, 1998, the Company had refundable and nonrefundable deposits totaling $41,197 for options and contracts to purchase undeveloped land and finished lots having a total purchase price of approximately $435,476. The Company had incurred pre-development costs of $62,254 relating to these properties. These options expire at various dates through 2006. At December 31, 1998, the Company, in connection with managing interest costs, had an interest rate swap agreement outstanding with a notional amount of $50,000. The fair value of the agreement at December 31, 1998 was $1,057. The fair value is based on the estimated termination value and represents the amount the Company would have to pay to terminate the agreement at December 31, 1998. The Company is involved from time to time in litigation arising from the normal course of business, none of which, in the opinion of the Company, are expected to have a material adverse effect on the financial position or results of operations of the Company. FINANCIAL SERVICES - At December 31, 1998, Mortgage, in connection with managing the interest rate market risk on its inventory loans held for sale of $38,498 and Loan Quotes of $24,270, had outstanding $43,425 (face amount of $ 44,000 and estimated fair value of $43,502) of Forward Contracts and $11,609 of Forward Commitments which expire over the next three months, when the inventory loans are expected to be sold and Loan Quotes are expected to close. At December 31, 1998, the estimated fair value of the inventory loans and Loan Quotes hedged by Forward Contracts and not covered by the Forward Commitments was $49,150. Mortgage reduces its risk of nonperformance under the Hedging Contracts by entering into those contracts with reputable security dealers and investors and evaluating their financial condition. However, there is a risk if certain of the Loan Quotes do not close or are renegotiated in a declining interest rate market and close at lower prices. Mortgage reduces this risk by collecting commitment fees on certain of the Loan Quotes along with entering into Forward Commitments to deliver loans to investors on a best efforts basis and adjusting, from time to time, the estimate of loan closings covered by Forward Contracts. 46 47 (10) UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION Summarized quarterly financial information for the years ended December 31, 1998 and 1997 is as follows:
Three Months Ended ----------------------------------------------------------- Mar 31, June 30, Sept 30, Dec 31, 1998 1998 1998 1998 -------- -------- -------- -------- Housing - Operating revenues $327,443 $359,383 $373,158 $404,088 Cost of products sold $264,845 $293,279 $304,344 $330,323 Operating income $ 20,117 $ 21,392 $ 22,180 $ 25,901 Financial Services - Operating revenues $ 7,102 $ 8,124 $ 8,818 $ 9,533 Operating income $ 2,400 $ 3,076 $ 3,571 $ 3,706 Corporate General and Administrative $ 3,334 $ 3,141 $ 3,390 $ 3,185 Income before Extraordinary Loss $ 19,559 $ 13,436 $ 14,088 $ 16,646 Extraordinary Loss $ 1,530 $ 1,496 $ - $ - Net Income $ 18,029 $ 11,940 $ 14,088 $ 16,646 Basic Earnings Per Share: Income before extraordinary loss $ 1.66 $ 1.11 $ 1.03 $ 1.23 Extraordinary loss $ (.13) $ (.12) $ - $ - Net income $ 1.53 $ .99 $ 1.03 $ 1.23 Diluted Earnings Per Share: Income before extraordinary loss $ 1.49 $ 1.01 $ 1.00 $ 1.20 Extraordinary loss $ (.12) $ (.11) $ - $ - Net income $ 1.37 $ .90 $ 1.00 $ 1.20
Three Months Ended ----------------------------------------------------------- Mar 31, June 30, Sept 30, Dec 31, 1997 1997 1997 1997 -------- -------- -------- -------- Housing - Operating revenues $310,648 $334,011 $330,379 $319,062 Cost of products sold $255,580 $275,641 $269,314 $259,036 Operating income $ 17,501 $ 18,265 $ 20,798 $ 20,876 Financial Services - Operating revenues $ 5,385 $ 6,530 $ 6,888 $ 6,849 Operating income $ 1,510 $ 2,340 $ 2,433 $ 2,884 Corporate General and Administrative $ 2,911 $ 3,092 $ 2,553 $ 3,151 Income before Extraordinary Loss $ 10,143 $ 11,033 $ 13,028 $ 12,983 Extraordinary Loss $ - $ - $ 8,650 $ - Net Income $ 10,143 $ 11,033 $ 4,378 $ 12,983 Basic Earnings Per Share: Income before extraordinary loss $ .88 $ .96 $ 1.13 $ 1.11 Extraordinary loss $ - $ - $ (.75) $ - Net income $ .88 $ .96 $ .38 $ 1.11 Diluted Earnings Per Share: Income before extraordinary loss $ .75 $ .82 $ .94 $ 1.00 Extraordinary loss $ - $ - $ (.60) $ - Net income $ .75 $ .82 $ .34 $ 1.00
47 48 (11) RECEIVABLES The Company had housing and financial services receivables of approximately $7,022 in 1998 and $3,679 in 1997 that were due after one year. The 1998 balance due after one year included notes and mortgage notes receivable of $3,034 with interest rates ranging from 5% to 12.5%. A majority of the balance matures within 5 years. (12) ACCRUED EXPENSES At December 31, 1998 and 1997, accrued expenses and other current liabilities consisted of the following:
1998 1997 ------- ------- Corporate and Housing - Customer deposits $38,711 $28,541 Salaries and other compensation 16,515 15,985 Interest 14,644 10,113 Income taxes 5,895 3,055 Taxes, other than income taxes 4,318 5,052 Other 9,073 6,102 ------- ------- $89,156 $68,848 ======= ======= Financial Services - Accounts payable $24,441 $14,299 Other 7,846 6,768 ------- ------- $32,287 $21,067 ======= =======
48 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to the directors of the Company is incorporated by reference from the Nominees for Director Section, pages 2 through 4, of the Company's Proxy Statement, dated March 12, 1999, for the Annual Meeting of Stockholders to be held on April 21, 1999, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934 (the "1999 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information is incorporated by reference from the Executive Compensation Section, pages 6 through 9 of the 1999 Proxy Statement (see Part I-Item 4, Executive Officers of the Company). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information relating to the security ownership of certain beneficial owners and management is incorporated by reference from the Security Ownership of Management and Certain Beneficial Owners Section, pages 16 and 17 of the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 49 50 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. The following financial statements and financial statement schedules are filed as part of this Report: See Index to Financial Statements - Item 8. (a) 3. Exhibits 3.1 -- Restated Certificate of Incorporation of U.S. Home Corporation effective on June 21, 1993. Incorporated by reference from exhibit 3.1 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 3.1(I) -- Certificate of Amendment of Restated Certificate of Incorporation as filed with the State of Delaware on May 13, 1994. Incorporated by reference from exhibit 3.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 1994. 3.1(ii) -- Certificate of Retirement, dated as of September 11, 1995. Incorporated by reference from exhibit 3.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 3.1(iii) -- Certificate of Retirement, dated as of July 31, 1996. Incorporated by reference from exhibit 3.2 to U.S. Home Corporation's Quarterly Report on 10-Q for the period ended September 30, 1996. 3.1(iv) -- Certificate of Retirement, dated as of June 16, 1997. Incorporated by reference from exhibit 3.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 3.2 -- Certificate of Designation, Preferences and Rights of Series A Junior Non-Cumulative Preferred Stock as filed with the State of Delaware on December 2, 1996. 3.3 -- Amended and Restated By-Laws of U.S. Home Corporation, dated as of October 15, 1998. Incorporated by reference from exhibit 3.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1998. 10.1 -- Second Amended and Restated Credit Agreement, dated as of September 11, 1998, between U.S. Home Corporation and The First National Bank of Chicago, as Agent. Incorporated by reference from exhibit 10.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for period ended September 30, 1998. 50 51 10.2 -- Senior Indenture, dated as of February 16, 1996, by and between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as Trustee, relating to U.S. Home Corporation's 7.95% Senior Notes due 2001. Incorporated by reference from exhibit 4.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended March 31, 1996. 10.2(i) -- Officers' Certificate, dated February 16, 1996, establishing the form and terms of the $75 million aggregate principal amount of 7.95% Senior Notes due 2001. Incorporated by reference from exhibit 4.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended March 31, 1996. 10.3 -- Senior Indenture, dated as of August 28, 1997, by and between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as trustee, relating to U.S. Home Corporation's 8.25% Senior Notes due 2004 and 7.75% Senior Notes due 2005. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 10.3(i) -- Officer's Certificate establishing the form and terms of the 8.25% Senior Notes due 2004. Incorporated by reference from exhibit 4.2 to U.S. Home Corporation's Current Report on Form 8-K dated January 15, 1998. 10.4 -- Senior Subordinated Indenture, dated as of August 28, 1997, by and between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as trustee, relating to U.S. Home Corporation's 8.88% Senior Subordinated Notes due 2007. Incorporated by reference from exhibit 10.3 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 10.4(i) -- Officer's Certificate establishing the form and terms of the 8.88% Senior Subordinated Notes due 2007. Incorporated by reference from exhibit 4.3 to U.S. Home Corporation's Current Report on Form 8-K dated January 15, 1998. 10.5 -- Officers' Certificate establishing the form and terms of the 7.75% Senior Notes due 2005. Incorporated by reference from exhibit 10.6 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 10.6 -- Rights Agreement, dated as of November 7, 1996, between U.S. Home Corporation and First Chicago Trust Company of New York, and exhibits thereto. Incorporated by reference from exhibit 4 to U.S. Home Corporation's Current Report on Form 8-K/A Amendment No. 1 filed November 18, 1996. 51 52 10.7 -- U.S. Home Corporation 1997 Employees' Stock Option Plan. Incorporated by reference from exhibit 10.7 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.8 -- U.S. Home Corporation Amended and Restated 1996 Employees' Stock Option Plan. Incorporated by reference from exhibit 10.8 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.9 -- U.S. Home Corporation's Amended and Restated 1993 Employees' Stock Option Plan. Incorporated by reference from exhibit 10.9 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.10 -- U.S. Home Corporation's Amended and Restated Non-Employee Directors' Stock Option Plan. Incorporated by reference from exhibit 10.10 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.11 -- U.S. Home Corporation's Second Amended and Restated Employee Stock Payment Plan. Incorporated by reference from exhibit 10.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.12 -- U.S. Home Corporation's Second Amended and Restated Corporate Officers and President of Operations Restricted Stock Plan. 10.13 -- U.S. Home Corporation's 1998 Key Employee Restricted Stock Plan. 10.14 -- Non-Employee Director Stock Plan. Incorporated by reference from exhibit 10.15 to U.S. Home Corporation's Form 10-K for the year ended December 31, 1997. 10.15 -- U.S. Home Corporation's 1998 Non-Employee Directors' Stock Option Plan. Incorporated by reference from exhibit 10.16 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 10.16 -- U.S. Home Corporation's Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1999 to December 31, 1999. 10.17 -- U.S. Home Corporation's Amended and Restated Key Employees' Severance Plan. 10.18 -- U.S. Home Corporation's Amended and Restated Retirement Plan for Non-Employee Directors. Incorporated by reference from exhibit 10.6 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 52 53 10.19 -- Corrected copy of Amended and Restated Employment and Consulting Agreement, dated as of October 17, 1995, between U.S. Home Corporation and Robert J. Strudler. Incorporated by reference from exhibit 10.3 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 10.19(i) -- First Amendment to Amended and Restated Employment and Consulting Agreement, dated as of February 11, 1997, between U.S. Home Corporation and Robert J. Strudler. Incorporated by reference from exhibit 10.16(i) to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.20 -- Corrected copy of Amended and Restated Employment and Consulting Agreement, dated as of October 17, 1995, between U.S. Home Corporation and Isaac Heimbinder. Incorporated by reference from exhibit 10.4 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 10.20(i) -- First Amendment to Amended and Restated Employment and Consulting Agreement, dated as of February 11, 1997, between U.S. Home Corporation and Isaac Heimbinder. Incorporated by reference from exhibit 10.17(i) to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.21 -- Registration Rights Agreement, dated as of June 21, 1993, between U.S. Home Corporation and Loomis, Sayles & Company Incorporated, on behalf of certain holders of the common stock of U.S. Home Corporation. Incorporated by reference from exhibit 10.10 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.22 -- Trust Agreement, dated December 18, 1986, between U.S. Home Corporation, as Grantor, and Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Isaac Heimbinder. Incorporated by reference from exhibit 10.25 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1986. 10.23 -- Trust Agreement, dated December 18, 1986, between U.S. Home Corporation, as Grantor, and Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Robert J. Strudler. Incorporated by reference from exhibit 10.26 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1986. 53 54 10.24 -- Letter, dated as of March 20, 1990, between U.S. Home Corporation and William E. Reichard, as Successor Trustee, with respect to Trust Agreements dated December 18, 1986 between U.S. Home Corporation, as Grantor, Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Robert J. Strudler and Isaac Heimbinder. Incorporated by reference from exhibit 10.19 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1992. 10.25 -- First Amended and Restated Warehousing Credit and Security Agreement (single-family mortgage loans), dated as of August 31, 1995, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1995. 10.25(i) -- First Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single-family mortgage loans), dated as of December 27, 1995, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.19(i) to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. 10.25(ii)-- Second Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single-family mortgage loans), dated as of August 30, 1996, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1996. 10.25(iii)-- Third Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single-family mortgage loans), dated as of January 2, 1997, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.22 (iii) to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.25(iv)-- Fourth Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of June 25, 1997 between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 1997. 54 55 10.25(v) -- Fifth Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of August 28, 1997 between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 10.25(vi)-- Sixth Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of March 30, 1998 between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended March 31, 1998. 10.25(vii)-- Seventh Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of August 14, 1998 between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1998. 10.26 -- U.S. Home Corporation's Amortizing Incentive Plan. Incorporated by reference from exhibit 4.2 to Registration Statement on Form S-8 of U.S. Home Corporation (Registration No. 33-64712). 10.27 -- Form of Indemnification Agreement for directors and executive officers. Incorporated by reference from exhibit 10.15 to Amendment No. 2 to Registration Statement on Form S-1 of U.S. Home Corporation (Registration No. 33-60638). 21 -- Subsidiaries of U.S. Home Corporation 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule (b) Report on Form 8-K No Current Report on Form 8-K was filed by the Company during October, November or December 1998. 55 56 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. Date: February 11, 1999 U.S. HOME CORPORATION By: /s/Isaac Heimbinder ------------------------------ Isaac Heimbinder President, Co-Chief Executive Officer and Chief Operating Officer By: /s/Chester P. Sadowski ------------------------------- Chester P. Sadowski Senior Vice President- Controller and Chief Accounting Officer (principal accounting officer) By: /s/Thomas A. Napoli ------------------------------- Thomas A. Napoli Vice President-Corporate Finance and Treasurer (principal financial officer) 56 57 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - ------------------------ ----------------------- ------------------ /s/Robert J. Strudler Director, Chairman and Co-Chief February 11, 1999 - ------------------------ Executive Officer (principal executive Robert J. Strudler officer) /s/Isaac Heimbinder Director, President, February 11, 1999 - ------------------------ Co-Chief Executive Officer and Chief Isaac Heimbinder Operating Officer /s/Glen Adams Director February 11, 1999 - ------------------------ Glen Adams /s/Steven L. Gerard Director February 11, 1999 - ------------------------ Steven L. Gerard /s/Kenneth J. Hanau, Jr. Director February 11, 1999 - ------------------------ Kenneth J. Hanau, Jr. /s/Malcolm T. Hopkins Director February 11, 1999 - ------------------------ Malcolm T. Hopkins /s/Charles A. McKee Director February 11, 1999 - ------------------------ Charles A. McKee /s/George A. Poole, Jr. Director February 11, 1999 - ------------------------ George A. Poole, Jr. /s/Herve Ripault Director February 11, 1999 - ------------------------ Herve Ripault /s/James W. Sight Director February 11, 1999 - ------------------------ James W. Sight
57 58 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.12 U.S. Home Corporation's Second Amended and Restated Corporate Officers and President of Operations Restricted Stock Plan 10.13 U.S. Home Corporation's 1998 Key Employees Restricted Stock Plan 10.16 U.S. Home Corporation's Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1999 to December 31, 1999 10.17 U.S. Home Corporation's Amended and Restated Key Employees' Severance Plan 21 Subsidiaries of U.S. Home Corporation 23 Consent of Independent Public Accountants 27 Financial Data Schedule
EX-10.12 2 2ND AMENDMENT OF RESTRICTED STOCK PLAN 1 EXHIBIT 10.12 U.S. HOME CORPORATION SECOND AMENDED AND RESTATED CORPORATE OFFICERS AND PRESIDENTS OF OPERATIONS RESTRICTED STOCK PLAN 1. PURPOSE. The purpose of the U.S. Home Corporation Amended and Restated Corporate Officers and Presidents of Operations Restricted Stock Plan (the "Plan") is to create incentives for the corporate officers and presidents of operations of U.S. Home Corporation (the "Company") to provide services to the Company over a long period of time and to enhance the level of performance of the Company by awarding such employees shares of Stock (as defined herein) subject to certain vesting requirements. 2. ADMINISTRATION. (a) A committee (the "Committee"), which shall initially be the Compensation and Stock Option Committee of the board of directors of the Company (the "Board"), and which will be comprised of at least three members of the Board, all of whom are "disinterested persons" (as defined below), will (i) administer the Plan, (ii) establish, subject to the provisions of the Plan, such rules and regulations as it may deem appropriate for the proper administration of the Plan and (iii) make such determinations under, and such interpretations of, and take such steps in connection with, the Plan or the Stock issued thereunder as it may deem necessary or advisable. The members of the Committee may be appointed from time to time by the Board and serve at the pleasure of the Board. The Committee will hereinafter be referred to as the "Administrator." (b) For the purposes of this Section 2, a "disinterested person" is a person who, on a given date, is disinterested within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3. STOCK. The stock which is the subject of the Plan will be the shares of common stock of the Company, $.01 par value per share (the "Stock"), whether authorized and unissued or treasury stock. The total number of shares of Stock which may be issued under the Plan will not exceed, in the aggregate, 250,000. 4. AWARD OF STOCK. (a) All of the corporate officers and presidents of operations of the Company listed on Schedule A attached hereto (each an "Employee" and collectively, "Employees"), shall be eligible to receive Stock in accordance with the terms hereof. 2 (b) In consideration of future services to be provided by each Employee to the Company, each Employee shall be awarded, on a one-time basis, the number of shares of Stock, subject to the restrictions contained herein, determined by dividing $200,000 by the average closing price of the Stock on the New York Stock Exchange (the "NYSE") for the 10 consecutive trading days immediately following the date on which the Company releases its financial results for the fiscal year ending December 31, 1994; provided that no fractional shares of Stock shall be issued under the Plan. (c) The closing price of the Stock, as of any particular day, will be as reported in The Wall Street Journal; provided, however, that if the Stock is not listed on the NYSE on any applicable day, the closing price for such day will be not less than the fair market value of the Stock on such day, as determined by the Administrator based on such empirical evidence as it deems to be appropriate under the circumstances. (d) The Administrator shall have the right pursuant to the terms hereof to award Stock to any individual who becomes a corporate officer or president of operations of the Company after the effective date of the Plan and prior to the initial Vesting Date (as defined herein). The Administrator shall make such award substantially in accordance with the terms of the Plan, including the vesting requirements contained in Section 5 hereof, but shall be permitted to award a smaller number of shares of Stock based on the date on which the individual commences employment as a corporate officer or president of operations of the Company. 5. VESTING. (a) On each Vesting Date, unless all shares of Stock awarded to each Employee shall have previously vested with each Employee and subject to the forfeiture provisions contained herein, a percentage of the shares of Stock awarded hereunder to each Employee shall vest with each Employee such that the cumulative percentage of total shares of Stock vested with each Employee shall be the greatest of the applicable percentages set forth below: (i) (A) 20% as of the Vesting Date in the year 2000; (B) 40% as of the Vesting Date in the year 2001; (C) 60% as of the Vesting Date in the year 2002; (D) 80% as of the Vesting Date in the year 2003; (E) 100% as of the Vesting Date in the year 2004; (ii) If, on a Vesting Date, the Return on Assets Improvement (as defined herein) is: (A) greater than 1.05 and less than or equal to 1.10, then 40%; (B) greater than 1.10 and less than or equal to 1.15, then 60%; (C) greater than 1.15 and less than or equal to 1.20, then 80%; (D) greater than 1.20, then 100%; (iii) If the Company achieves its Closing Goal (as defined herein) and the Return on Sales Improvement (as defined herein) is: 3 (A) equal to or greater than 1.00 and less than 1.05, then 75%; (B) greater than 1.05, then 100%; provided, however, that no Employee shall be required to forfeit any shares of Stock previously vested hereunder. For the purposes hereof: "Return on Assets Improvement" means (x) the sum of the Return on Assets for the two fiscal years of the Company immediately prior to the applicable Vesting Date divided by two, and the result divided by (y) the Return on Assets for the fiscal year ended December 31, 1994, rounded to the nearer hundredth. "Return on Assets" means (x) the amount contained in the Company's "income (loss) before income tax" line-item for the applicable year of the Company as reported in the consolidated statements of operations set forth in the audited financial statements for the Company for such fiscal year, divided by (y) the Average Total Assets for such year. "Average Total Assets" means an amount equal to (x) (1) total housing assets at the beginning of the applicable fiscal year of the Company (as reported in the consolidated balance sheet set forth in the audited financial statements for the Company for the prior year), plus (2) total housing assets at the end of such fiscal year (as reported in the consolidated balance sheet set forth in the audited financial statements for the Company for such fiscal year), divided by (y) two. "Closing Goal" means closing 10,000 housing units for a fiscal year ending on or before December 31, 2000; provided, however, that the Closing Goal shall be adjusted upward by the Administrator to account for an increase in the number of closings that are the result of a Significant Acquisition. "Significant Acquisition" means the acquisition of a home building company whose operating revenue for the 12 months preceding the month in which the acquisition is closed was equal to or greater than 25% of the Company's operating revenue for such 12-month period. "Return on Sales Improvement" means (x) the Return on Sales for the fiscal year in which the Closing Goal is achieved, divided by (y) the Return on Sales for the fiscal year ended December 31, 1997, adjusted for any Significant Acquisition, rounded to the nearer hundredth. "Return on Sales" means (x) the amount contained in the Company's "income (loss) before income tax" line-item for the applicable year of the Company as reported in the consolidated statements of operations set forth in the audited financial statements for the Company for such fiscal year, divided by (y) the amount contained in the Company's "housing operating revenues" line-item for the applicable year of the Company as reported in the consolidated statements of operations set forth in the audited financial statements for the Company for such fiscal year. If a Significant Acquisition occurs, the income and revenues of the Significant Acquisition during the 12-month period preceding the acquisition shall be combined 4 with the income and revenues of the Company for the fiscal year ended December 31, 1997 to determine the adjusted Return on Sales for the fiscal year ended December 31, 1997. (b) In the event an Employee is not employed by the Company on or prior to December 31 of any year which is immediately prior to any Vesting Date, due to voluntary termination of employment by the Employee or termination for Cause (as defined herein), all of the shares of Stock remaining to be vested with such Employee hereunder and all rights arising from such shares of Stock shall be forfeited by such Employee and returned to the Company. (c) For purposes of the Plan, a voluntary termination by an Employee will not be deemed to occur in the event such Employee is Constructively Terminated (as defined herein). (d) In the event an Employee is terminated without Cause prior to January 1, 2000, 20% of the shares of Stock awarded hereunder shall immediately vest with such Employee and the remaining shares of Stock to be vested hereunder and all rights arising from such shares of Stock shall be forfeited by such Employee and returned to the Company. (e) In the event there is a Change of Control (as defined herein), all shares of Stock remaining to be vested with such Employee hereunder shall immediately vest with such Employee. The Company shall immediately cause the issuance to such Employee of appropriate stock certificates representing such shares of Stock in such Employee's name in accordance with Section 6 hereof. (f) In the event an Employee dies, is Permanently Disabled (as defined herein), or retires (after not less than 20 years of employment by the Company), the Administrator shall have the authority, in its sole discretion, to vest such Employee (or such Employee's estate, if applicable) in as many shares of Stock as the Administrator shall deem appropriate, based upon such Employee's prior job performance. (g) For purposes of the Plan: (i) "Base Salary" shall mean an amount equal to an Employee's maximum annual base salary in effect at any time after the effective date of the Plan, excluding any incentive compensation or bonus payable or paid to an Employee. (ii) "Cause" means (1) an Employee's continuing willful failure to perform his duties with respect to the Company (other than as a result of total or partial incapacity due to physical or mental illness), (2) gross negligence or malfeasance by an Employee in the performance of his duties with respect to the Company, (3) an act or acts on an Employee's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by such Employee at the expense of the Company or (4) any other circumstances set forth in an employment agreement between the Company and such Employee which would constitute grounds for the Company to terminate the employment of such Employee for cause (as defined in the applicable employment agreement). 5 (iii) "Change of Control" shall mean any of the following: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Exchange Act, disclosing that any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Stock, (ii) any transaction or a series of related transactions (as a result of a tender offer, merger, consolidation or otherwise whether or not the Company is the continuing or surviving entity) that results in, or that is in connection with, any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), acquiring beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Stock) or of any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) that possesses beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company; (iii) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) in one transaction or a series of related transactions; provided, that a transaction where the holders of all classes of the then outstanding equity of the Company immediately prior to such transaction own, directly or indirectly, fifty percent (50%) or more of the aggregate voting power of all classes of equity of such person or group immediately after such transaction will not be a Change of Control under this clause (iii); (iv) the liquidation or dissolution of the Company; provided, that a liquidation or dissolution of the Company which is part of a transaction or series of related transactions that does not constitute a Change of Control under the "provided" clause of clause (iii) above will not constitute a Change of Control under this clause (iv); or (v) a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. (iv) "Constructively Terminated" means (1) a reduction in an amount equal to or greater than 15 percent of an Employee's Base Salary, (2) a material reduction in an Employee's job function, duties or responsibilities or (3) a required relocation of an Employee of more than 50 miles from such Employee's current job location; provided, however, that the employment with the Company or its divisions or subsidiaries of a President of Operations will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President with the Company or its divisions or subsidiaries and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of an Employee will not be deemed Constructively Terminated unless such 6 Employee actually terminates his or her employment with the Company within 60 days after the occurrence of an event specified in clause (1), (2) or (3) above. (v) "Permanently Disabled" means physical or mental incapacity of such nature that an Employee is unable to engage in or perform the principal duties of his customary employment or occupation on a continuing or sustained basis. All determinations as to the date and extent of disability of any Employee shall be made by the Administrator upon the basis of such evidence as it deems necessary or desirable. (vi) "Vesting Date" means the date each year, commencing in 2000, on which the Company releases its financial results for the previous fiscal year. 6. STOCK CERTIFICATES. (a) Each Employee shall receive a stock certificate reflecting the number of shares of Stock awarded hereunder. Such certificate shall be registered in the name of such Employee and shall bear the following legend: "The securities (the "Shares") represented by this stock certificate are restricted by the terms of the U.S. Home Corporation Corporate Officers and Presidents of Operations Restricted Stock Plan ("Restricted Stock Plan"), effective as of January 1, 1995, which contains provisions affecting the rights and obligations of the holder of the Shares and restrictions on the transfer of the Shares. Any transfer of the Shares represented by this stock certificate in violation of the Restricted Stock Plan is null and void." (b) The Administrator may, in its sole discretion, require that the stock certificates evidencing the shares of Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of receiving the shares of Stock, the Employee shall have delivered a stock power, endorsed in blank, relating to the shares of Stock. If and to the extent any shares of Stock vest with an Employee in accordance with terms hereof, stock certificates for the appropriate number of unrestricted shares of Stock shall be delivered promptly to the Employee. Shares of Common Stock will not be released to an Employee unless and until the amount of federal, state or local taxes required to be withheld has been paid or satisfied. Tax withholding liabilities may be satisfied by the Employee relinquishing shares of Common Stock vested pursuant to the Plan, valued at the market price of the Common Stock on the date such shares of Common Stock are released to the Employee. 7. TERM AND EFFECTIVE DATE. The Plan will become effective upon (i) approval by the Board and (ii) approval by the affirmative vote of a majority of the shares of voting capital stock of the Company present or represented and entitled to vote at the 1995 annual meeting of the Company's stockholders. Subject to Section 15 hereof, the Plan shall terminate upon issuance and vesting of the Stock issuable pursuant to the Plan. 7 8. TRANSFERABILITY. Employees shall not be permitted to sell, transfer, pledge, assign or otherwise encumber shares of Stock awarded hereunder prior to the vesting of such shares of Stock. Upon vesting of such shares of Stock, an Employee will only transfer such shares of Stock in compliance with applicable federal and state securities laws. Employees who are affiliates of the Company may generally dispose of their shares in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended. 9. RIGHTS AS A STOCKHOLDER. Except as provided in Section 8 hereof or this Section 9, Employees shall have, with respect to any shares of Stock remaining to be vested hereunder, all of the rights of stockholders of the Company, including the right to vote such shares of Stock and to receive any cash dividends. Stock dividends, if any, issued with respect to such shares of Stock shall be subject to the same restrictions and other terms and conditions hereunder that apply to such shares of Stock. 10. INVESTMENT PURPOSE. At the time of issuance of any shares of Stock, the Administrator may, if it will deem it necessary or desirable for any reason, require an Employee to represent in writing to the Company that (a) it is such Employee's then intention to acquire the Stock for investment purposes and not with a view to the distribution thereof and/or (b) upon acquisition of the Stock, the Employee will not beneficially own in excess of 4.9 percent of the value of the equity securities (as defined in Rule 3a11-1 under the Exchange Act) of the Company; provided that for purposes of this Section 10(b), all outstanding options and convertible securities to acquire Stock shall be deemed to be exercised or converted; provided, further, that this Section 10(b) shall be inoperative after June 21, 1995. 11. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained herein will restrict the right of the Company to terminate the employment of any Employee at any time. 12. FINALITY OF DETERMINATIONS. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Administrator will be final and be binding and conclusive for all purposes. 8 13. SUBSIDIARY AND PARENT CORPORATIONS. Unless the context requires otherwise, references under the Plan to the Company will be deemed to include any subsidiary corporations and parent corporations of the Company, as those terms are defined in Section 424 of the Internal Revenue Code of 1986, as amended. 14. GOVERNING LAW. The Plan will be governed by the laws of the State of Delaware. 15. AMENDMENT AND TERMINATION. The Administrator may at any time terminate, amend or modify the Plan in any respect it deems suitable; provided, however, that, solely with respect to persons subject to Section 16 of the Exchange Act, no such action of the Administrator, without the approval of the stockholders of the Company, may (i) materially increase the benefits accruing to employees eligible to receive Stock under the Plan, (ii) materially increase the total amount of Stock which may be awarded under the Plan or (iii) materially modify the requirements for participation in the Plan; provided, further, that no amendment, modification or termination of the Plan may in any manner affect any Stock (whether vested or not) theretofore awarded under the Plan without the consent of the Employee to whom Stock has been awarded. 16. OVERRIDE. (a) With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. (b) All transactions pursuant to terms of the Plan, including, without limitation, awards and vesting of Stock, shall only be effective at such time as counsel to the Company shall have determined that such transaction will not violate federal or state securities or other laws. The Administrator may, in its sole discretion, defer the effectiveness of such transaction to pursue whatever actions may be required to ensure compliance with such federal or state securities or other laws. EX-10.13 3 1998 KEY EMPLOYEES RESTRICTED STOCK PLAN 1 EXHIBIT 10.13 U.S. HOME CORPORATION 1998 KEY EMPLOYEES RESTRICTED STOCK PLAN 1. PURPOSE. The purpose of the U.S. Home Corporation Key Employees Restricted Stock Plan (the "Plan") is to create incentives for the corporate officers, presidents of operations and division presidents of U.S. Home Corporation (the "Company") to provide services to the Company over a long period of time and to enhance the level of performance of the Company by awarding such employees shares of Stock (as defined herein) subject to certain vesting requirements. 2. ADMINISTRATION. (a) A committee (the "Committee"), which shall initially be the Compensation and Stock Option Committee of the board of directors of the Company (the "Board"), and which will be comprised of at least three members of the Board, all of whom are "disinterested persons" (as defined below), will (i) administer the Plan, (ii) establish, subject to the provisions of the Plan, such rules and regulations as it may deem appropriate for the proper administration of the Plan and (iii) make such determinations under, and such interpretations of, and take such steps in connection with, the Plan or the Stock issued thereunder as it may deem necessary or advisable. The members of the Committee may be appointed from time to time by the Board and serve at the pleasure of the Board. The Committee will hereinafter be referred to as the "Administrator." (b) For the purposes of this Section 2, a "disinterested person" is a person who, on a given date, is disinterested within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3. STOCK. The stock which is the subject of the Plan will be the shares of common stock of the Company, $.01 par value per share (the "Stock"), whether authorized and unissued or treasury stock. The total number of shares of Stock which may be issued under the Plan will not exceed, in the aggregate, 120,000. 4. AWARD OF STOCK. (a) All of the corporate officers, presidents of operations and division presidents of the Company listed on Schedule A attached hereto (each an "Employee" and collectively, "Employees"), shall be eligible to receive Stock in accordance with the terms hereof. 2 (b) In consideration of future services to be provided by each Employee to the Company, each corporate officer and president of operations shall be awarded 5,000 shares of Stock and each division president will be awarded 1,000 shares of stock. (c) The Administrator shall have the right pursuant to the terms hereof to award Stock to any individual who becomes a corporate officer, president of operations or division president of the Company after the effective date of the Plan. The Administrator shall make such award substantially in accordance with the terms of the Plan, including the vesting requirements contained in Section 5 hereof, but shall be permitted to award a smaller number of shares of Stock based on the date on which the individual commences employment as a corporate officer, president of operations or division president of the Company. 5. VESTING. (a) On each Vesting Date, unless all shares of Stock awarded to each Employee shall have previously vested with each Employee and subject to the forfeiture provisions contained herein, a percentage of the shares of Stock awarded hereunder to each Employee shall vest with each Employee such that the cumulative percentage of total shares of Stock vested with each Employee shall be the greatest of the applicable percentages set forth below: (i) (A) 30% as of the Vesting Date in the year 2003; (B) 40% as of the Vesting Date in the year 2004; (C) 50% as of the Vesting Date in the year 2005; (D) 60% as of the Vesting Date in the year 2006; (E) 70% as of the Vesting Date in the year 2007; (F) 80% as of the Vesting Date in the year 2008; (G) 90% as of the Vesting Date in the year 2009; (H) 100% as of the Vesting Date in the year 2010; (ii) If, the Earnings per Share (as defined herein) for a fiscal year ending on or before December 31, 2001 is: (A) greater than $6.74 and less than or equal to $6.99, then 25%; (B) greater than $6.99 and less than or equal to $7.49, then 50%; (C) greater than $7.49, then 100% provided, however, that no Employee shall be required to forfeit any shares of Stock previously vested hereunder. For purposes hereof, "Earnings per Share" means the "Diluted Earnings Per Common Share" based upon the audited financial statements of the Company for such year as reported in the Company's annual report or other SEC filings excluding extraordinary gains or losses and prior to giving effect to accelerated vesting of restricted stock issued under the terms of this Plan; provided, however, that gains or losses from the sale or disposition of any asset, other than land, with a book cost in excess of ten million dollars ($10,000,000) may be excluded at the discretion of the Administrator. 3 The Earnings per Share amounts set forth in Sections 5(a)(ii) will be appropriately adjusted for any increase or decrease in the number of outstanding shares of Stock resulting from payment of a stock dividend on the Stock, a subdivision or combination of the Stock, or a reclassification of the Stock, and in the event of a consolidation or merger. (b) In the event an Employee is not employed by the Company on or prior to December 31 of any year which is immediately prior to any Vesting Date, due to voluntary termination of employment by the Employee or termination for Cause (as defined herein), all of the shares of Stock remaining to be vested with such Employee hereunder and all rights arising from such shares of Stock shall be forfeited by such Employee and returned to the Company. (c) For purposes of the Plan, a voluntary termination by an Employee will not be deemed to occur in the event such Employee is Constructively Terminated (as defined herein). (d) In the event an Employee is terminated without Cause prior to January 1, 2003, 20% of the shares of Stock awarded hereunder shall immediately vest with such Employee and the remaining shares of Stock to be vested hereunder and all rights arising from such shares of Stock shall be forfeited by such Employee and returned to the Company. (e) In the event there is a Change of Control (as defined herein), all shares of Stock remaining to be vested with such Employee hereunder shall immediately vest with such Employee. The Company shall immediately cause the issuance to such Employee of appropriate stock certificates representing such shares of Stock in such Employee's name in accordance with Section 6 hereof. (f) In the event an Employee dies, is Permanently Disabled (as defined herein), or retires after age 60 with not less than 20 years of employment by the Company, the Administrator shall have the authority, in its sole discretion, to vest such Employee (or such Employee's estate, if applicable) in as many shares of Stock as the Administrator shall deem appropriate, based upon such Employee's prior job performance. (g) For purposes of the Plan: (i) "Base Salary" shall mean an amount equal to an Employee's maximum annual base salary in effect at any time after the effective date of the Plan, excluding any incentive compensation or bonus payable or paid to an Employee. (ii) "Cause" means (1) an Employee's continuing willful failure to perform his duties with respect to the Company (other than as a result of total or partial incapacity due to physical or mental illness), (2) gross negligence or malfeasance by an Employee in the performance of his duties with respect to the Company, (3) an act or acts on an Employee's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by such Employee at the expense of the Company or (4) any other circumstances set forth in an employment agreement between the Company and such Employee which would constitute 4 grounds for the Company to terminate the employment of such Employee for cause (as defined in the applicable employment agreement). (iii) "Change of Control" shall mean any of the following: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the common stock, $.01 par value per share (the "Common Stock"), of the Company); (ii) any transaction or a series of related transactions (as a result of a tender offer, merger, consolidation or otherwise whether or not the Company is the continuing or surviving entity) that results in, or that is in connection with, any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), acquiring beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Common Stock) or of any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) that possesses beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company; (iii) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) in one transaction or a series of related transactions; provided, that a transaction where the holders of all classes of the then outstanding equity of the Company immediately prior to such transaction own, directly or indirectly, fifty percent (50%) or more of the aggregate voting power of all classes of equity of such person or group immediately after such transaction will not be a Change of Control under this clause (iii); (iv) the liquidation or dissolution of the Company; provided, that a liquidation or dissolution of the Company which is part of a transaction or series of related transactions that does not constitute a Change of Control under the "provided" clause of clause (iii) above will not constitute a Change of Control under this clause (iv); or (v) a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. (iv) If the Employee is a Corporate Officer or President of Operations, "Constructively Terminated" means (1) a reduction in an amount equal to or greater than 15 percent of an Employee's Base Salary, (2) a material reduction in an Employee's job function, duties or responsibilities or (3) a required relocation of an Employee of more than 50 miles from such Employee's current job location; provided, however, that the employment with 5 the Company or its divisions or subsidiaries of a President of Operations will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President with the Company or its divisions or subsidiaries and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of an Employee will not be deemed Constructively Terminated unless such Employee actually terminates his or her employment with the Company within 60 days after the occurrence of an event specified in clause (1), (2) or (3) above. (v) If the Employee is a Division President, "Constructively Terminated" means a reduction in an amount equal to or greater than 15 percent of an Employee's Base Salary; provided that the employment of an Employee will not be deemed Constructively Terminated unless such Employee actually terminates his or her employment with the Company within 60 days after the reduction in Base Salary. (vi) "Permanently Disabled" means physical or mental incapacity of such nature that an Employee is unable to engage in or perform the principal duties of his customary employment or occupation on a continuing or sustained basis. All determinations as to the date and extent of disability of any Employee shall be made by the Administrator upon the basis of such evidence as it deems necessary or desirable. (vii) "Vesting Date" means the date each year, commencing in 2000 and through 2010, on which the Company releases its financial results for the previous fiscal year. 6. STOCK CERTIFICATES. (a) Each Employee shall receive a stock certificate reflecting the number of shares of Stock awarded hereunder. Such certificate shall be registered in the name of such Employee and shall bear the following legend: "The securities (the "Shares") represented by this stock certificate are restricted by the terms of the U.S. Home Corporation 1998 Key Employees Restricted Stock Plan ("Restricted Stock Plan"), effective as of ____________, 1998, which contains provisions affecting the rights and obligations of the holder of the Shares and restrictions on the transfer of the Shares. Any transfer of the Shares represented by this stock certificate in violation of the Restricted Stock Plan is null and void." (b) The Administrator may, in its sole discretion, require that the stock certificates evidencing the shares of Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of receiving the shares of Stock, the Employee shall have delivered a stock power, endorsed in blank, relating to the shares of Stock. If and to the extent any shares of Stock vest with an Employee in accordance with terms hereof, stock certificates for the appropriate number of unrestricted shares of Stock shall be 6 delivered promptly to the Employee. Shares of Common Stock will not be released to an Employee unless and until the amount of federal, state or local taxes required to be withheld has been paid or satisfied. Tax withholding liabilities may be satisfied by the Employee relinquishing shares of Common Stock vested pursuant to the Plan, valued at the market price of the Common Stock on the date such shares of Common Stock are released to the Employee. 7. TERM AND EFFECTIVE DATE. The Plan will become effective upon (i) approval by the Board and (ii) approval by the affirmative vote of a majority of the shares of voting capital stock of the Company present or represented and entitled to vote at the 1999 annual meeting of the Company's stockholders. Subject to Section 15 hereof, the Plan shall terminate upon issuance and vesting all of the Stock issuable pursuant to the Plan. 8. TRANSFERABILITY. Employees shall not be permitted to sell, transfer, pledge, assign or otherwise encumber shares of Stock awarded hereunder prior to the vesting of such shares of Stock. Upon vesting of such shares of Stock, an Employee will only transfer such shares of Stock in compliance with applicable federal and state securities laws. Employees who are affiliates of the Company may generally dispose of their shares in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended. 9. RIGHTS AS A STOCKHOLDER. Except as provided in Section 8 hereof or this Section 9, Employees shall have, with respect to any shares of Stock remaining to be vested hereunder, all of the rights of stockholders of the Company, including the right to vote such shares of Stock and to receive any cash dividends. Stock dividends, if any, issued with respect to such shares of Stock shall be subject to the same restrictions and other terms and conditions hereunder that apply to such shares of Stock. 10. INVESTMENT PURPOSE. At the time of issuance of any shares of Stock, the Administrator may, if it will deem it necessary or desirable for any reason, require an Employee to represent in writing to the Company that it is such Employee's then intention to acquire the Stock for investment purposes and not with a view to the distribution thereof. 11. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained herein will restrict the right of the Company to terminate the employment of any Employee at any time. 7 12. FINALITY OF DETERMINATIONS. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Administrator will be final and be binding and conclusive for all purposes. 13. SUBSIDIARY AND PARENT CORPORATIONS. Unless the context requires otherwise, references under the Plan to the Company will be deemed to include any subsidiary corporations and parent corporations of the Company, as those terms are defined in Section 424 of the Internal Revenue Code of 1986, as amended. 14. GOVERNING LAW. The Plan will be governed by the laws of the State of Delaware. 15. AMENDMENT AND TERMINATION. The Board may at any time terminate, amend or modify the Plan in any respect it deems suitable, including the amendment or modification of the vesting provisions in Section 2 hereof, without the approval of the stockholders of the Company, except to the extent that such stockholder approval is required under applicable law or the Board determines that such approval is necessary or desirable in order to ensure that the stock granted hereunder qualifies under any applicable section of the Internal Revenue Code or the Exchange Act; provided, however, that no amendment, modification or termination of the Plan may (A) adversely affect any unvested shares theretofore issued under the Plan without the consent of the Employee to whom such shares were issued or (B) modify the allocation of shares issued to the employees designated by the Administrator. 8 16. OVERRIDE. (a) With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. (b) All transactions pursuant to terms of the Plan, including, without limitation, awards and vesting of Stock, shall only be effective at such time as counsel to the Company shall have determined that such transaction will not violate federal or state securities or other laws. The Administrator may, in its sole discretion, defer the effectiveness of such transaction to pursue whatever actions may be required to ensure compliance with such federal or state securities or other laws. EX-10.16 4 CORPORATE OFFICERS INCENTIVE COMPENSATION PROGRAM 1 EXHIBIT 10.16 (1/4/99) U.S. HOME CORPORATION CORPORATE OFFICERS'(1) INCENTIVE COMPENSATION PROGRAM FOR THE INCENTIVE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 1999 Set forth below is an outline of the Corporate Officers' Incentive Compensation Program for the incentive period January 1, 1999 to December 31, 1999 ("Incentive 1999"). Corporate Officers who are employed by the Corporation as of January 1, 1999 will be eligible to participate in the Corporate Officers' Incentive Compensation Program for the period commencing January 1, 1999 and ending December 31, 1999. Effective January 1, 1999, base salaries are established as set forth in Exhibit A hereto. Under this Program, an incentive compensation pool equal to the lesser of $950,000 or 2% of the pre-tax profits of the Corporation earned in fiscal 1999, shall be established to be distributed to the Corporate Officers at the sole discretion and upon approval of a majority of the non-management members of the Compensation Committee and of the Board of Directors of the Corporation based on its evaluation of the following factors: 1. The Board of Directors shall review the profit and loss of the Company for the fiscal year ended December 31, 1999 as compared to the projected profit and loss for the period January 1, 1999 through December 31, 1999 as set forth in the 1999 Business Plan as presented to the Board of Directors. 2. The Board of Directors shall review the cash flow of the Company as compared to the projected cash flow for the period January 1, 1999 through December 31, 1999 as set forth in the 1999 Business Plan as presented to the Board of Directors. 3. The Board of Directors shall review the overall performance of the Company in comparison to competitive industry performance taking into consideration, an analysis of rates of growth, return on equity and return on sales. 4. The Board of Directors shall review incentive bonus payments by competitors in relation to proposed payments to said officers to insure that they are designed to retain and motivate executives. 5. All other actions by said Officers to maximize the value of shareholders' equity. - --------------- (1) Excludes Chairman and President who are subject to Employment and Consulting Agreements which govern payment of bonus (see Exhibit A). 2 Corporate Officers' Incentive Compensation Program Page 2 of 3 pages Upon the recommendation of the Chairman and President of the Company, the Board of Directors shall determine, in its sole discretion, the amount each respective Officer shall receive from the said incentive compensation pool, provided that the maximum incentive compensation payable to any Senior Vice President and any Vice President shall not exceed the percentage of their respective base compensation set forth in Schedule I hereto. To be entitled to receive a bonus, a Corporate Officer must remain in the employ of the Company for the entire fiscal year. Notwithstanding the foregoing, the Corporation shall have the right to terminate employment of any Corporate Officer covered under this Program at will, without notice, and without cause, at any time. The total bonus earned pursuant to the incentive program set forth herein shall be paid upon approval of the Board of Directors of the Company as follows: A. 75% of the aggregate incentive bonus earned by the Corporate Officer shall be paid in cash within 30 days following receipt of 1999 audited financial statements. B. The balance of the aggregate incentive bonus earned by the Corporate Officer shall be paid as follows: 1. If the respective Corporate Officer shall own of record or beneficially, as of the last trading day of December, 1999, shares of common stock of the Corporation which shall have a market value on such date equal to or in excess of his/her base salary as of such date, the balance of such incentive bonus shall be paid in cash within 30 days following receipt of the 1999 audited financial statements. 2. If the respective Corporate Officer shall not own of record beneficially, as of the last trading day of December, 1999, shares of common stock of the Corporation which shall have a market value on such date(1) equal to or in excess of his/her base salary as of such date, the balance of such incentive bonus shall be paid in shares of stock as set forth below: 25% of the aggregate incentive bonus earned by the Corporate Officer shall be paid in shares of U.S. Home Corporation's common stock, with each share valued at the closing price of said shares on the New York Stock Exchange, as of the last trading day of December, 1999. Said shares shall be held in escrow by the Company to be delivered to the respective Corporate Officers as follows: i) 1/2 of such shares shall be delivered to the Corporate Officer within thirty (30) days following receipt of the 1999 audited financial statements. - --------------- (1) Shares earned as part of prior year bonus but not delivered shall be included. Restricted shares not vested as of such date shall not be included. 3 Corporate Officers' Incentive Compensation Program Page 3 of 3 pages ii) 1/2 of such shares shall be delivered to the Corporate Officer on or prior to January 31, 2002. However, in order to receive such shares, the Corporate Officer must remain in the employ of the Corporation as of December 31, 2001. Notwithstanding the foregoing, in the event that said Corporate Officer's employment with the Corporation is terminated by the Corporation other than for "Cause", all remaining shares not previously delivered to the Corporate Officer shall be delivered to said Corporate Officer within thirty (30) days following termination. For purposes of this Program, the term "Cause" shall mean (i) the Officer's continuing, willful failure to perform his/her duties required of his/her position (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by the Officer in the performance of his/her duties hereunder, (iii) an act or acts on the Officer's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Officer at the expense of the Company, or (iv) breach of the provisions of Exhibit B hereto pertaining to confidentiality and competitive activities, but shall not mean (A) the refusal to relocate to another city more than 50 miles from the Officer's present place of business, nor (B) a refusal to perform the duties required of his/her position as a result of either a material change in the scope of his/her job responsibilities or a reduction in base compensation. The transfer of said shares by such Corporate Officer shall be required to conform to all applicable laws and regulations pertaining thereto. Upon a Change in Control (as defined in the Key Employee Severance Pay Plan) and the Corporate Officer's involuntary termination, other than for cause, prior to the end of the Incentive Year, in addition to any amounts payable under any other compensation plan, the Corporate Officer will be paid an amount equal to the maximum incentive compensation which could be earned pro-rated for the number of full months employed during the Incentive Year. EX-10.17 5 AMENDED AND RESTATED EMPLOYEES' SEVERANCE PLAN 1 EXHIBIT 10.17 U.S. HOME CORPORATION AMENDED AND RESTATED KEY EMPLOYEES' SEVERANCE PAY PLAN 1. Purpose U.S. Home Corporation (the "Company") Key Employees' Severance Pay Plan (the "Plan") is intended to encourage continuity of employment by key employees by providing them with an incentive to remain in the employ of the Company or its subsidiaries despite a potential for a change of control of the Company. 2. Eligibility The corporate officers, other than the Chairman and Co-Chief Executive Officer and President, Co-Chief Executive Officer and Chief Operating Officer, and the presidents of operations of the Company shall be eligible for, and shall participate in, benefits provided under the Plan (each an "Eligible Employee"). Such individuals as of the Effective Date (as defined below) are set forth on Schedule A attached hereto. 3. Benefits (A) An Eligible Employee whose employment with the Company or a subsidiary of the Company is terminated, whether voluntarily or involuntarily other than for Cause (as defined below), within one (1) year after the occurrence of a Change of Control (as defined below) shall be entitled to receive an amount equal to the greater of (x) the salary and bonus received by the Eligible Employee for the preceding incentive year or (y) one (1) month of such Eligible Employee's Base Salary (as defined below) for each full year during which such Eligible Employee was employed by the Company or its subsidiaries. (B) An Eligible Employee whose employment with the Company or a subsidiary of the Company is terminated by the Company other than for Cause (as defined below) or whose employment is Constructively Terminated (as defined below) within two (2) years, but more than one (1) year, after the occurrence of a Change of Control (as defined below) shall be entitled to receive an amount equal to the greater of (x) twelve (12) months of such Eligible Employee's Base Salary (as defined below) or (y) one (1) month of such Eligible Employee's Base Salary (as defined below) for each full year during which such Eligible Employee was employed by the Company or its subsidiaries. 2 (C) In addition to those benefits under Paragraphs (A) and (B) above, such Eligible Employee shall also continue to participate in each of the Company's employee benefit plans, policies or arrangements, which provide insurance, including, without limitation, life insurance and long-term disability insurance, and medical benefits (the "Company Insurance Plans"), on the same basis as the Company's other executive officers for one year after the date of termination of employment (together with the benefits under Paragraphs (A) and (B), the "Termination Benefits"). 4. Payment of Benefits The Termination Benefits payable pursuant to Section 3(A) or Section 3(B) hereunder shall be paid to an Eligible Employee in a single lump sum in cash as soon as practicable (but in no event later than thirty (30) days) after such Eligible Employee's employment is terminated pursuant to Section 3 hereunder. If continued coverage under any of the Company Insurance Plans is not possible under the terms of any insurance policy or applicable law following the date of termination of employment, the Company shall provide the Eligible Employee with coverage equivalent to that provided to the Company's other executive officers under a policy or arrangement reasonably acceptable to the Eligible Employee. If an Eligible Employee dies after becoming entitled to the Termination Benefits payable pursuant to Section 3(A) or Section 3(B) hereunder but before payment thereof is made to such Eligible Employee, such Termination Benefits shall be paid to the Eligible Employee's estate in a single lump sum in cash as soon as practicable after such Eligible Employee's death. If an Eligible Employee dies within one year after becoming entitled to the Termination Benefits pursuant to Section 3(C) hereunder, such Termination Benefits shall continue to be provided for one year after the date of termination of the Eligible Employee to the Eligible Employee's spouse and dependents on the same basis as provided to the Company's other executive officers. The Company may deduct from any Termination Benefit any federal, state or local taxes required by law to be withheld. 5. Definitions (a) "Base Salary" shall mean an amount equal to an Eligible Employee's maximum annual base salary in effect at any time after the Effective Date (as defined below), excluding any discretionary compensation or bonus payable or paid to an Eligible Employee. (b) "Change of Control" shall mean any of the following: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the 3 case of rights to acquire the common stock, $.01 par value per share (the "Common Stock"), of the Company); (ii) any transaction or a series of related transactions (as a result of a tender offer, merger, consolidation or otherwise whether or not the Company is the continuing or surviving entity) that results in, or that is in connection with, any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), acquiring beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Common Stock) or of any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) that possesses beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company; (iii) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) in one transaction or a series of related transactions; provided, that a transaction where the holders of all classes of the then outstanding equity of the Company immediately prior to such transaction own, directly or indirectly, fifty percent (50%) or more of the aggregate voting power of all classes of equity of such person or group immediately after such transaction will not be a Change of Control under this clause (iii); (iv) the liquidation or dissolution of the Company; provided, that a liquidation or dissolution of the Company which is part of a transaction or series of related transactions that does not constitute a Change of Control under the "provided" clause of clause (iii) above will not constitute a Change of Control under this clause (iv); or (v) a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. (c) "Constructively Terminated" shall mean (i) a reduction in an amount equal to or greater than fifteen percent (15%) of an Eligible Employee's Base Salary, (ii) a material reduction in an Eligible Employee's job function, duties or responsibilities or (iii) a required relocation of an Eligible Employee of more than fifty (50) miles from such Eligible Employee's current job location; provided, however, that the employment with the Company or its subsidiaries of a President of Operations who is an Eligible Employee will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President with the Company or its subsidiaries and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of an Eligible Employee will not be 4 deemed Constructively Terminated unless such Eligible Employee actually terminates his or her employment with the Company within sixty (60) days after the occurrence of an event specified in clause (i), (ii) or (iii) above. (d) "Cause" shall mean (i) an Eligible Employee's continuing willful failure to perform his or her duties (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by an Eligible Employee in the performance of his or her duties, (iii) an act or acts on the part of an Eligible Employee constituting a felony under the laws of the United States of America, or any state thereof that results or was intended to result directly or indirectly in gain or personal enrichment by such Eligible Employee at the expense of the Company or its subsidiaries or (iv) breach of any of the provisions set forth on Schedule B attached hereto pertaining to confidentiality and competitive activities. 6. Miscellaneous (a) The Plan shall be effective as of December 6, 1996 (the "Effective Date"). (b) The Company reserves the right to modify or amend, in whole or in part, the Plan; provided, however, that no such modification or amendment shall be made within two (2) years following the occurrence of a Change of Control. (c) The compensation committee of the Board of Directors of the Company (the "Compensation Committee") shall respond to claims for benefits under the Plan within thirty (30) days of their receipt and, if a claim is wholly or partially denied, the Compensation Committee shall provide the Eligible Employee with a written explanation of the denial which shall state the specific reason or reasons the claim was denied; the exact references to the Plan provisions that dealt with the claim; a description of any additional material or information necessary for him or her to revise and perfect the claim; an explanation as to why such material or information is necessary; and an explanation of the Plan's claims procedure. Within forty-five (45) days after an Eligible Employee receives a denial of his or her claim, such Eligible Employee may appeal his or her claim denial to the Compensation Committee. The Eligible Employee or such Eligible Employee's authorized representative may make a written request for a review of the denial and to review applicable documents and may submit comments and issues in writing. The Compensation Committee shall decide an appeal within fifteen (15) days after receiving the request for review. The Compensation Committee's decision on the review shall be in writing, and shall include specific reasons for the decision and references to the Plan provision upon which it was based. (d) The Company shall reimburse an Eligible Employee (or such Eligible Employee's estate, as applicable) for any and all costs (including, but not limited to, legal fees) incurred by such Eligible Employee (or such Eligible Employee's estate, as applicable) in successfully appealing (whether pursuant to paragraph 6(c) above, in a court of competent jurisdiction or otherwise) a claim for benefits 5 under the Plan which was denied. Such Eligible Employee's benefits under the Plan shall be paid to him or her (or to his or her estate, as applicable) as soon as practicable (but not later than ten (10) days) after such successful appeal, together with interest on such amount from his or her date of termination of employment to the date of payment at the average prime or base lending rate of interest published or publicly announced by the financial institution then providing financing to the Company under the Company's credit facility (whether or not such rate is actually charged by such financial institution) in effect on such termination date. (e) The establishment of the Plan shall not be construed as conferring any legal rights upon any Eligible Employee or other person for a continuation of employment, nor will it interfere with the rights of the Company or any of its subsidiaries to discharge any Eligible Employee and to treat such Eligible Employee without regard to the effect which such treatment might have upon such Eligible Employee as an Eligible Employee under the Plan. (f) In the event that the Company finds that an Eligible Employee is unable to care for his or her affairs because of illness or accident, the Compensation Committee may direct that any payment due such Eligible Employee, unless claim has been made therefor by a duly appointed legal representative, be paid to such Eligible Employee's spouse, child, parent or other blood relative, or to a person with whom such Eligible Employee resides, and any such payment so made will be a complete discharge of the liabilities under the Plan therefor. (g) The Plan shall be construed, regulated and administered under the internal laws of the State of Delaware without regard to principles of conflicts of laws. (h) The Company shall request and use its best efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or any of its subsidiaries expressly to assume and agree to perform the obligations under the Plan in the same manner and to the same extent that the Company would be required to perform such obligations if no such succession had taken place. 6 SCHEDULE B All capitalized terms used but not defined herein have the meaning ascribed thereto in the U.S. Home Corporation Key Employees' Severance Plan. A. Confidentiality. The Eligible Employee has and will acquire confidential information with respect to the business of the Company and its subsidiaries. The Eligible Employee will not, without the written consent of the Company as authorized by the Board of Directors of the Company, at any time, willfully disclose any such confidential information to any unauthorized third party with an intent that such disclosure will result in financial benefit to the Eligible Employee or to any person other than the Company and its subsidiaries. For this purpose, information will be considered confidential only if such information is uniquely proprietary to the Company or any of its subsidiaries and has not been made publicly available prior to its disclosure by the Eligible Employee. B. Competitive Activity. Until the end of his or her employment, the Eligible Employee will devote full business time to the business of the Company or its subsidiaries and will not, without the written consent of the Board of Directors of the Company, directly or indirectly, knowingly engage or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business which is in competition with any line of business being actively conducted by the Company or its subsidiaries during his or her employment period. Nothing herein, however, will prohibit the Eligible Employee from acquiring or holding not more than one percent (1%) of any class of publicly-traded securities of any such business. 33 EX-21 6 SUBSIDIARIES OF U.S. HOME CORPORATION 1 EXHIBIT 21 Subsidiaries of the Company The following table sets forth the names of U.S. Home's subsidiaries and the state in which incorporated. All subsidiaries are directly or indirectly wholly-owned by U.S. Home. Certain insignificant subsidiaries are omitted.
Jurisdiction of Incorporation --------------- Fidelity Guaranty and Acceptance Corporation Delaware USH Holding, Inc. Delaware U.S. Home Acceptance Corporation Delaware U.S. Home Insurors, Inc. Florida U.S.H. Indemnity Company, Ltd. Bermuda San Felipe Indemnity Company, Ltd. Bermuda U.S. Home Mortgage Corporation Florida USH Funding Corp. Texas USH Millennium Ventures Corp. Florida
35 EX-23 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 3, 1999 included in this Form 10-K, into the Company's previously filed Registration Statements No. 33-64712, 33-52993, 333-02775, 333-25759 and 333-50819. ARTHUR ANDERSEN LLP Houston, Texas February 11, 1999 37 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 DEC-31-1998 14,435 0 142,989 0 986,878 0 0 0 1,352,976 0 424,980 0 0 137 514,104 1,352,976 0 1,497,649 1,192,791 1,365,878 0 0 42,478 89,293 25,564 63,729 0 3,026 0 60,703 4.75 4.46
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