-----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, UgRGHFefX7+OXGYp6ZUcF0M+nJdM42iPW0B6W4w2rq5z/UOqq6yB/tbN64DXEHQi NePIzfi3qur200u1Q7VLtQ== 0000950129-98-000632.txt : 19980218 0000950129-98-000632.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950129-98-000632 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NYSE 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: 98540883 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 12/31/97 1 ================================================================================ 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, 1997 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.)
1800 WEST LOOP SOUTH, HOUSTON, TEXAS 77027 (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 New York Stock Exchange Class B Warrants to acquire Common Stock 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. [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] As of January 31. 1998, the number of shares outstanding of Registrant's voting stock was 11,797,659 and the aggregate market value of the Registrant's voting stock held by non-affiliates was $418,266,021. DOCUMENTS INCORPORATED BY REFERENCE
PART OF 10-K WHERE INCORPORATED ------------------ Proxy Statement dated March 13, 1998 for the Annual Meeting of Stockholders to be held on April 22, 1998.............. III
================================================================================ 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 220 new home communities in 31 market areas in 11 states. Since its formation, the Company has delivered approximately 275,000 homes. In 1996, the Company was the fifth 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 primary strategy is to build quality homes, utilizing its Zero Defect Program, which the Company believes offers prospective home buyers 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 and design homes to maximize living space. 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 industry segments: home building and financial services. The revenues, operating profits or losses and identifiable assets attributable to the Company's industry segments are separately disclosed in the Consolidated Financial Statements. HOME BUILDING OPERATIONS The Company's primary industry segment is the on-site development of single-family residential communities. During 1997, the Company's product mix consisted of deliveries of approximately 33% affordable homes, 40% move-up homes and 27% retirement and active adult homes. The Company presently has 23 open retirement and active adult communities in Arizona, California, Florida, Nevada, New Jersey, Ohio, Texas and Virginia. The Company has also ten additional retirement and active adult communities which are scheduled to open by 2000. They include one new community in California, one in Colorado, five in Florida, one in Michigan and two in New Jersey. 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................. Bakersfield, Corona, Palm Springs and Sacramento 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/Baltimore and Washington, D.C. area Minnesota.................. Minneapolis/St. Paul Nevada..................... Las Vegas Ohio....................... Cleveland and Columbus New Jersey................. Dover/Jackson/Howell, Monroe/Hillsborough and Lumberton Texas...................... Dallas/Fort Worth, 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. 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. 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 1997 1996 1995 ------ ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Arizona........................................ $ 132,640 $ 137,606 $ 125,103 California..................................... 118,843 92,193 89,662 Colorado....................................... 238,288 206,231 171,733 Florida........................................ 369,051 335,166 349,526 Maryland/Virginia.............................. 66,651 72,914 69,944 Minnesota...................................... 61,503 64,129 55,746 Nevada......................................... 60,561 62,088 48,030 New Jersey..................................... 85,878 86,656 63,160 Ohio/Indiana(1)................................ 35,492 33,008 13,923 Texas.......................................... 109,408 88,947 88,379 ---------- ---------- ---------- $1,278,315 $1,178,938 $1,075,206 ========== ========== ==========
- --------------- (1) In 1997, the Company made the decision to discontinue 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 1997 1996 1995 ------ ------ ------ ------ Arizona..................................................... 899 832 1,015 California.................................................. 636 532 533 Colorado.................................................... 1,285 1,378 1,172 Florida..................................................... 2,597 2,173 2,081 Maryland/Virginia........................................... 355 353 400 Minnesota................................................... 386 294 322 Nevada...................................................... 301 371 335 New Jersey.................................................. 422 471 321 Ohio/Indiana(1)............................................. 111 178 118 Texas....................................................... 901 824 662 ----- ----- ----- 7,893 7,406 6,959 ===== ===== =====
DELIVERIES
YEARS ENDED DECEMBER 31, -------------------------- STATES 1997 1996 1995 ------ ------ ------ ------ Arizona..................................................... 850 948 893 California.................................................. 560 494 508 Colorado.................................................... 1,340 1,199 1,100 Florida..................................................... 2,304 2,126 2,241 Maryland/Virginia........................................... 351 366 369 Minnesota................................................... 319 306 290 Nevada...................................................... 327 356 306 New Jersey.................................................. 441 475 307 Ohio/Indiana (1)............................................ 163 156 66 Texas....................................................... 841 673 699 ----- ----- ----- 7,496 7,099 6,779 ===== ===== =====
BACKLOG(2)
YEARS ENDED DECEMBER 31, -------------------------- STATES 1997 1996 1995 ------ ------ ------ ------ Arizona..................................................... 318 269 385 California.................................................. 225 149 111 Colorado.................................................... 586 641 462 Florida..................................................... 1,326 1,033 986 Maryland/Virginia........................................... 104 100 113 Minnesota................................................... 174 107 119 Nevada...................................................... 108 134 119 New Jersey.................................................. 160 179 183 Ohio/Indiana (1)............................................ 32 84 62 Texas....................................................... 402 342 191 ----- ----- ----- 3,435 3,038 2,731 ===== ===== =====
4 5 - --------------- (1) In 1997, the Company made the decision to discontinue its Indiana operations. (2) Homes under contract for sale but not delivered at end of year. The Company anticipates that substantially all of its backlog units, net of cancellations, as of December 31, 1997 will be completed and delivered during 1998. 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 advertises primarily in magazines and local newspapers. Additionally, homes are marketed by means of model homes, pictorial brochures and on-site displays. 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. 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 treatment, 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. By the end of the first quarter of 1998, the Company will have 23 fully operational U.S. Home Custom Design Studios. Design studios provide customers a venue to purchase virtually all of the options and upgrades available for their new homes. Option and upgrade sales are handled by professional designers, providing an extra service to our customers and freeing sales consultants to concentrate on home sales. Selling prices are set in each area based on local market conditions and competitive factors. The Company's gross margins vary from area to area based on competitive factors in each market. The Company's product lines include both single-family detached and attached homes. During 1997, approximately 80% of the homes delivered were single-family detached compared to 83% in 1996 and 84% in 1995. The number of units and average sales prices of single-family homes delivered in 1997, 1996 and 1995 were as follows:
SINGLE-FAMILY DETACHED SINGLE-FAMILY ATTACHED ----------------------- ----------------------- NUMBER AVERAGE NUMBER AVERAGE OF UNITS SALES PRICE OF UNITS SALES PRICE -------- ----------- -------- ----------- 1997...................................... 5,960 $178,000 1,536 $141,200 1996...................................... 5,891 170,500 1,208 144,200 1995...................................... 5,708 162,800 1,071 136,400
In 1997, the national average sales prices of new single-family homes (both detached and attached) as reported on a preliminary basis by the U.S. Census Bureau was $175,700 compared with an average sales price of $170,500 for the Company. 5 6 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:
1997 1996 1995 ---- ---- ---- Affordable.................................................. 33% 28% 28% Move-up..................................................... 40% 49% 50% Retirement and active adult................................. 27% 23% 22%
The Company has set a goal to increase its annual deliveries to over 10,000 homes in the year 2000, of which one third will be retirement and active adult home deliveries. However, there can be no assurance such efforts will be successful. 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 81% of the homes delivered in 1997, and 83% delivered in 1996 and 82% delivered in 1995, 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. During 1997, 1996 and 1995 approximately 17% of the Company's homes delivered were financed under VA and FHA mortgage programs. 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 National Purchasing and Quality Control provides centralized management of quality standards, both with respect to the construction of homes and 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 and Quality Control. 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. 6 7 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. 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 1997, 62% of the Company's unit deliveries were from lots developed by the Company and 37% were from lots acquired by the exercise of rolling lot options as compared with 56% and 44% in 1996 and 57% and 43% in 1995, 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 respective 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 $5 million and any other material capital expenditures, borrowings (subject to certain exceptions) and other commitments by the Company in excess of $5 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 studies examine the demographics of an area, including population trends, income trends, employment trends, housing stock 7 8 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, 1997, the Company's land and finished lot inventories totaled $403.0 million, excluding option deposits. See Note 1 of Notes to Consolidated Financial Statements. Substantially all housing communities are zoned for their intended use and serviced by utilities. As of December 31, 1997, the Company had refundable and nonrefundable deposits totaling $33.4 million for options and contracts to purchase undeveloped land and finished lots for home building operations for a total purchase price of approximately $339.0 million. The Company has incurred pre-development costs of approximately $56.8 million relating to these properties. The following table sets forth as of December 31, 1997, 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, 1997(1) COST ------------------------------ OF LAND UNDER STATES OWNED OWNED OPTION TOTAL ------ -------- -------- ------- ------- Arizona...................................... $ 40,839 2,023 1,821 3,844 California................................... 34,841 799 1,485 2,284 Colorado..................................... 87,224 6,158 1,587 7,745 Florida...................................... 97,541 8,589 12,088 20,677 Maryland/Virginia............................ 35,854 2,419 1,004 3,423 Minnesota.................................... 15,196 1,267 114 1,381 Nevada....................................... 25,250 551 332 883 New Jersey................................... 17,628 674 191 865 Ohio......................................... 6,312 140 585 725 Texas........................................ 24,590 2,003 859 2,862 -------- ------- ------ ------ $385,275 24,623 20,066 44,689 ======== ======= ====== ======
- --------------- (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 $17.7 million (including $3.8 million relating to land under contract for sale). In view of the various stages of development of the land owned by the Company as of December 31, 1997 (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 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 1997, the Company's revenues from the sale of developed and undeveloped land amounted to $13.7 million, as compared to revenues of $10.9 million in 1996 and $16.1 million in 1995. 8 9 REORGANIZATION The Company and certain of its affiliates commenced proceedings (the "Cases") under Chapter 11 of Title 11 of the United States Code on April 15, 1991, in order to restructure their indebtedness and other liabilities. The Company's plan of reorganization (the "Plan") was confirmed in May 1993 by the United States Bankruptcy Court for the Southern District of New York and became effective in June 1993 (the "Effective Date"). On the Effective Date, the Company also completed a public offering of $200 million principal amount of 9.75% senior notes due 2003, the net proceeds from which were utilized to pay a portion of the claims of certain unsecured creditors of the Company under the Plan and to repay outstanding amounts under the Company's debtor-in-possession financing facility. The Plan effected a recapitalization of the Company and did not result in a reduction in the scope or other major restructuring of the Company's operations. During the pendency of the Cases, the Company continued its home building operations in the ordinary course in its housing markets and improved its market share in a majority of such markets. FINANCIAL SERVICES OPERATIONS The Company's second industry segment 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; Bakersfield, Palm Springs and Sacramento, California; Colorado Springs, Denver, and Fort Collins, Colorado; Washington, D.C.; Clearwater, Fort Myers, Orlando, and Sarasota, Florida; Minneapolis, Minnesota; Las Vegas, Nevada; Freehold, New Jersey; Cleveland, Ohio; and Dallas and Houston, 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 2 of Notes to Consolidated Financial Statements. The following table summarizes certain mortgage banking operating information (dollars in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Residential mortgage loans Number of loans originated....................... 4,761 3,786 3,367 Average amount of loan originated................ $ 138 $ 134 $ 128 Total amount of loans originated: Funded by Mortgage............................ $604,000 $466,000 $376,000 Brokered by Mortgage.......................... 54,000 43,000 57,000 -------- -------- -------- Total............................................ $658,000 $509,000 $433,000 ======== ======== ======== Company's homes delivered financed by Mortgage as a percentage of Company's homes delivered which were financed.................................... 76% 61% 57% Company's homes delivered financed by Mortgage as a percentage of Mortgage's total originations...... 97% 95% 95%
9 10 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. ADDITIONAL INFORMATION EMPLOYEES At December 31, 1997, the Company had 1,641 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 leases its executive offices, located at 1800 West Loop South, Houston, Texas 77027, pursuant to a lease scheduled to expire on February 28, 1999. The Company does 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 the 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 VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY The Company's executive officers during 1997 and their respective ages and positions are set forth below:
NAME AGE POSITION AND OFFICE ---- --- ------------------- Robert J. Strudler................... 55 Chairman and Co-Chief Executive Officer Isaac Heimbinder..................... 54 President, Co-Chief Executive Officer and Chief Operating Officer Craig M. Johnson..................... 44 Senior Vice President -- Community Development Gary L. Frueh........................ 57 Vice President -- Tax and Audit Frank E. Matthews, II................ 48 Vice President -- Human Resources Thomas A. Napoli..................... 56 Vice President -- Corporate Finance and Treasurer Chester P. Sadowski.................. 51 Vice President -- Controller and Chief Accounting Officer Richard G. Slaughter................. 53 Vice President -- Planning and Secretary Kelly F. Somoza...................... 44 Vice President -- Investor Relations
10 11 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. 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. Frueh has served as Vice President -- Tax and Audit since February 5, 1992. 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. Sadowski has served as Vice President -- Controller and Chief Accounting Officer since December 17, 1987. 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. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of February 5, 1998, there were 2,056 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 1997 and 1996 is set forth below:
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 CALENDAR ------------------ ------------------ QUARTER HIGH LOW HIGH LOW -------- ------- ------- ------- ------- First........................................... $29.75 $24.50 $29.38 $23.25 Second.......................................... 27.75 23.00 26.13 22.75 Third........................................... 38.81 26.63 24.75 19.25 Fourth.......................................... 39.38 32.94 26.00 19.50
No dividends were paid by the Company during 1997 or 1996. The Company's credit agreement (the most restrictive of the Company's borrowing agreements) prohibits the Company from paying dividends on its capital stock, other than stock dividends. 12 13 ITEM 6. SELECTED FINANCIAL DATA U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- ---------- ---------- -------- -------- STATEMENT OF OPERATIONS DATA: Operating Revenues................... $1,319,752 $1,211,450 $1,107,945 $995,311 $812,077 Income Before Reorganization Items, Income Taxes and Extraordinary Loss............................... 74,900 55,901 59,072 52,526 44,640 Reorganization Items................. -- -- -- -- 6,915 Income Taxes......................... 27,713 11,713 22,152 19,697 (33,966) ---------- ---------- ---------- -------- -------- Income Before Extraordinary Loss..... 47,187 44,188 36,920 32,829 71,691 Extraordinary Loss, Net of Income Tax Benefit............................ 8,650 -- -- -- -- ---------- ---------- ---------- -------- -------- Net Income........................... $ 38,537 $ 44,188 $ 36,920 $ 32,829 $ 71,691 ========== ========== ========== ======== ======== Basic Earnings Per Common Share: Income before extraordinary loss... $ 4.08 $ 3.88(2) $ 3.29 $ 3.21 $ 8.20(3) Extraordinary loss................. $ (.75) $ -- $ -- $ -- $ -- Net Income......................... $ 3.33 $ 3.88(2) $ 3.29 $ 3.21 $ 8.20(3) Diluted Earnings Per Common Share: Income before extraordinary loss... $ 3.50 $ 3.28(2) $ 2.78 $ 2.50 $ 5.98(3) Extraordinary loss................. $ (.62) $ -- $ -- $ -- $ -- Net Income......................... $ 2.88 $ 3.28(2) $ 2.78 $ 2.50 $ 5.98(3) Dividends Per Common Share........... $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA (at year end): Total Assets......................... $1,067,529 $ 947,411 $ 842,084 $753,203 $682,637 ========== ========== ========== ======== ======== Revolving Credit Facilities -- Housing............................ $ 29,000 $ -- $ 24,000 $ 7,553 $ -- Financial Services................. 40,343 42,414 35,371 10,014 20,566 ---------- ---------- ---------- -------- -------- $ 69,343 $ 42,414 $ 59,371 $ 17,567 $ 20,566 ========== ========== ========== ======== ======== Long-Term Debt -- Housing............................ $ 395,918 $ 362,887 $ 300,599 $304,327 $311,937 Financial Services................. -- -- -- 1,034 1,102 ---------- ---------- ---------- -------- -------- $ 395,918 $ 362,887 $ 300,599 $305,361 $313,039 ========== ========== ========== ======== ========
- --------------- (1) As required by Statement of Financial Accounting Standards No. 128, which was effective for all periods ending after December 15, 1997, earnings per share for 1996, 1995, 1994 and 1993 have been restated. See Note 1 of Notes to Consolidated Financial Statements. (2) In 1996, basic earnings per common share included $.04 per share and diluted earnings per common 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. (3) In 1993, basic earnings per common share and diluted earnings per common share were $3.05 and $2.23, respectively, excluding $5.15 basic earnings per common share and $3.75 diluted earnings per common share, respectively, due to a $45,000 decrease in the deferred tax asset valuation allowance. 13 14 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, -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Revenues -- Single-family homes........................ $1,278,315 $1,178,938 $1,075,206 Land and other............................. 15,785 12,268 17,077 ---------- ---------- ---------- Total...................................... $1,294,100 $1,191,206 $1,092,283 ========== ========== ========== Single-family homes -- Gross margin amount........................ $ 229,980 $ 217,461 $ 199,629 Gross margin percentage.................... 18.0% 18.4% 18.6% Units delivered............................ 7,496 7,099 6,779 Average sales price........................ $ 170,500 $ 166,100 $ 158,600 New orders taken........................... 7,893 7,406 6,959 Backlog at end of year: Aggregate sales amount.................. $ 608,974 $ 530,857 $ 460,337 Units................................... 3,435 3,038 2,731 Selling, general and administrative expenses as a percentage of housing revenues........ 9.5% 9.5% 9.7% Interest -- Paid or accrued............................ $ 38,153 $ 33,484 $ 31,995 Percentage capitalized..................... 100.0% 100.0% 100.0% Previously capitalized interest included in interest expense........................ $ 33,789 $ 30,786 $ 27,555 Percentage of housing revenues............. 2.6% 2.6% 2.5%
REVENUES AND SALES -- Revenues from sales of single-family homes for 1997 increased 8% from 1996. The increase resulted from a 5% 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 1996 increased 10% from 1995, resulting primarily from a 5% increase in the number of housing units delivered and a 5% increase in the average sales price. The average sales price is impacted by product mix, geographical mix and changing prices on units delivered. New orders taken in 1997 increased 7% from 1996. New orders taken in 1996 increased 6% from 1995. The increases in new orders in 1997 and 1996 reflects 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. GROSS MARGINS -- The gross margin percentage for 1997 decreased from 1996 and the gross margin percentage for 1996 decreased from 1995. These decreases were 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. While 1997 gross margin percentage decreased compared to 1996, the gross margin percentages for the fourth quarter of 1997 (18.7%) increased compared to the gross margin 14 15 percentages for the third quarter of 1997 (18.1%) and the fourth quarter of 1996 (18.1%). 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. BACKLOG -- The backlog aggregate sales amount at December 31, 1997 increased 15% compared to December 31, 1996, and at December 31, 1996 increased 15% compared to December 31, 1995. 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, 1997, net of cancellations, are expected to result in revenues in 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- As a percentage of housing revenues, selling, general and administrative expenses in 1997 remained the same when compared to 1996 and 1996 declined as compared to 1995. Actual selling, general and administrative expenses for 1997 increased $9.9 million compared to 1996. This increase was primarily due to increased payroll costs and advertising and marketing center expenses resulting from increased activities. Similarly, actual selling, general and administrative expenses for 1996 increased $7.3 million compared to 1995. This increase was primarily due to increases in volume-related expenses ($4.1 million) resulting from the increase in deliveries in 1996 when compared to 1995 and increases in other selling, general and administrative expenses resulting from increased activities and earnings. INTEREST -- Interest paid or accrued for 1997 increased approximately 14% compared to 1996 and increased approximately 5% in 1996 compared to 1995. The increase in 1997 was primarily due to increased average borrowings under the Company's unsecured revolving credit agreement (the "Credit Facility") and the sale of the Company's 8.25% senior notes due 2004 (the "2004 Senior Notes") and 8.88% senior subordinated notes due 2007 (the "Senior Subordinated Notes") in August 1997, offset in part by the redemption and conversion of the Company's 4.875% convertible subordinated debentures due 2005 (the "Debentures") and the purchase of a portion of the Company's 9.75% senior notes due 2003 (the "2003 Senior Notes") in September 1997. The increase in 1996 was primarily due to the sale of the Company's 7.95% senior notes due 2001 (the "2001 Senior Notes") in February 1996, offset in part by a decrease in the average borrowings under the Company's Credit Facility. 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. Capitalized interest amounts charged to interest expense in 1997 were greater than 1996 and 1996 were greater than 1995 primarily due to the increase in the number of housing units delivered and higher average debt levels, offset in part by an increase in the amount of housing assets qualifying for interest capitalization. 15 16 FINANCIAL SERVICES REVENUES -- Revenues for the financial services segment for the periods indicated were as follows (dollars in thousands):
YEARS ENDED DECEMBER 31, ----------------------------- 1997 1996 1995 ------- ------- ------- U.S. Home Mortgage Corporation and Subsidiary.......... $21,648 $16,363 $12,477 Other financial services subsidiaries.................. 4,004 3,881 3,185 ------- ------- ------- $25,652 $20,244 $15,662 ======= ======= =======
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. Approximately 81%, 83% and 82% of the housing units delivered by the Company in 1997, 1996 and 1995, respectively, were purchased using mortgage financing. Of the total housing units financed, 76%, 61% and 57% in 1997, 1996 and 1995, respectively, were financed by Mortgage. The increase in Mortgage's revenues in 1997 from 1996 and in 1996 from 1995 was primarily due to an increase in mortgage loan originations and income from the sales of mortgage loans and servicing rights. OTHER IMPAIRMENT OF LAND INVENTORIES -- During the fourth quarter of 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. 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%, 1.0% and 1.1% for 1997, 1996 and 1995, respectively. Actual corporate overhead expenses for 1997 totaled $11.7 million compared with $11.7 million and $11.8 million, respectively, for 1996 and 1995. INCOME TAXES -- During the fourth quarter of 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 16 17 this examination allowed certain previously reserved deductions taken by the Company in its 1993 tax return. At the conclusion of this examination, the Company reduced its deferred tax liability and recognized an income tax benefit totaling $8.7 million related to the deductions allowed by the IRS. The Company appealed the IRS decision to disallow certain other deductions. These deductions remain reserved as a deferred tax liability as of December 31, 1997. The decrease in the deferred tax liability increased basic and diluted earnings per common share 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 Credit Facility. In 1997, the Company completed a refinancing of a substantial portion of its public debt. In August 1997, the Company sold $100 million principal amount of its 2004 Senior Notes and $125 million principal amount of its Senior Subordinated Notes for the purpose of raising funds to redeem its Debentures and purchase its 2003 Senior Notes. In September 1997, the Company redeemed $69.2 million principal amount of its Debentures and purchased $120.3 million principal amount of its 2003 Senior Notes (through a tender offer and subsequent open market purchase) for $198.8 million in the aggregate. Also in September 1997, $10.8 million principal amount of the Debentures was converted into 302,866 shares of the Company's common stock. See Note 2 of Notes to Consolidated Financial Statements. In January 1998, the Company sold $100 million principal amount of its 7.75% senior notes due 2005 ("2005 Senior Notes"). The net proceeds will be used to redeem the balance of the 2003 Senior Notes ($79.7 million) which are first callable in June 1998. Also in January and February 1998, the Company used a portion of the proceeds to purchase, in open market transactions, $26.7 million principal amount of the 2003 Senior Notes. The Company currently intends to redeem the balance of these notes, though it may purchase such notes in the open market or in privately negotiated transactions prior to such date. See Note 2 of Notes to Consolidated Financial Statements. Pending redemption or other purchases of the remaining 2003 Senior Notes, the Company intends to use the proceeds from the sale of the 2005 Senior Notes to reduce the Company's outstanding borrowings under the Credit Facility and for general corporate purpose, including land and other investments and joint ventures. The refinancing strengthens the Company's capital structure by extending a substantial portion of its public debt maturities, which were due in 2003 and 2005, to due dates of 2004, 2005 and 2007. 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 will continue to decrease since the 17 18 majority of the finished lots for these communities are developed on land owned by the Company. In 1997, 1996 and 1995, respectively, 37%, 44% and 43%, 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 increase in land inventories in 1997 from 1996 and 1996 from 1995 was 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 Company's Credit Facility. The Credit Facility (and previous credit facilities) have enabled the Company to meet peak operating needs. 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. In October 1997, the Credit Facility borrowing commitment was increased from $130 million to $180 million. See Note 2 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, 1997, 1996 and 1995 is summarized below (dollars in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Net cash provided (used by): Operating activities...................................... $(44,622) $(28,091) $(13,752) Investing activities...................................... (2,493) (3,684) (2,041) Financing activities...................................... 41,068 36,694 5,216 -------- -------- -------- Net increase (decrease) in cash............................. $ (6,047) $ 4,919 $(10,577) ======== ======== ========
Housing operations are, at any time, affected by a number of factors, including the number of housing units under construction and housing units delivered. Although housing construction and land asset activities increased in 1997 over 1996 and increased in 1996 over 1995, the amount of the increase in 1997 was less than the increase in 1996 and as a result 1997 activities used less cash than 1996 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 described above and the increase in the number of housing units delivered. Housing operating activities for 1996 used more cash than in 1995 primarily due to an increase in these activities offset in part by increased profitability and the timing of payments related to these activities. Cash flow from housing financing activities for 1997 provided cash reflecting the sale of the Company's 2004 Senior Notes and Senior Subordinated Notes and net borrowings under the Credit Facility, offset by the purchase of the Company's 2003 Senior Notes and Debentures and repurchase of common stock and Class B warrants. Cash flow from housing financing activities in 1996 provided cash reflecting the sale of the Company's 2001 Senior Notes, partially offset by the repayment of the amounts outstanding under the Credit Facility. 18 19 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 segment's 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 1997 provided more cash compared to 1996 primarily due to increased profitability, offset in part by an increase in residential mortgage loans receivable. Cash flow from financial services operating activities for 1996 provided less cash compared to 1995 primarily due to an increase in residential mortgage loan receivables. 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 2 of Notes to Consolidated Financial Statements, the short-term debt consists of a $65 million secured revolving line of credit (the "Mortgage Credit Facility") which matures on August 31, 1998. 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. 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. 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. 19 20 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 principal 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. 20 21 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, 1997 and 1996... Consolidated Statements of Operations -- For the Years Ended December 31, 1997, 1996 and 1995............................................. Consolidated Statements of Stockholders' Equity -- For the Years Ended December 31, 1997, 1996 and 1995............................................. Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1997, 1996 and 1995.......................... Notes to Consolidated Financial Statements..................
21 22 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 financial position of U.S. Home Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Houston, Texas February 6, 1998 22 23 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
1997 1996 ---------- -------- HOUSING: Cash (including restricted funds of $1,655 and $1,578).... $ 6,270 $ 8,786 Receivables, net.......................................... 42,595 28,028 Single-Family Housing Inventories......................... 789,236 709,344 Option Deposits on Real Estate............................ 90,155 70,688 Other Assets.............................................. 54,006 49,036 ---------- -------- 982,262 865,882 ---------- -------- FINANCIAL SERVICES: Cash (including restricted funds of $3,641 and $3,533).... 5,492 4,463 Residential Mortgage Loans................................ 69,209 63,656 Other Assets.............................................. 10,151 13,410 ---------- -------- 84,852 81,529 ---------- -------- $1,067,114 $947,411 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY HOUSING: Accounts Payable.......................................... $ 92,160 $ 96,594 Accrued Expenses and Other Current Liabilities............ 68,848 50,972 Revolving Credit Facility................................. 29,000 -- Long-Term Debt............................................ 395,918 362,887 ---------- -------- 585,926 510,453 ---------- -------- FINANCIAL SERVICES: Accrued Expenses and Other Current Liabilities............ 21,067 20,854 Revolving Credit Facility................................. 40,343 42,414 ---------- -------- 61,410 63,268 ---------- -------- Total Liabilities................................. 647,336 573,721 ---------- -------- STOCKHOLDERS' EQUITY: Convertible Preferred Stock, $25 per share redemption value, none outstanding at December 31, 1997 and 117,863 shares outstanding at December 31, 1996........ -- 2,947 Common Stock, 11,762,518 and 11,453,290 shares outstanding at December 31, 1997 and 1996.......................... 119 114 Capital in Excess of Par Value............................ 368,277 353,830 Retained Earnings......................................... 57,358 18,821 Unearned Compensation on Restricted Stock................. (1,770) (2,022) ---------- -------- 423,984 373,690 ---------- -------- Less Treasury Stock, at cost, 157,743 shares of common stock at December 31, 1997............................. (4,206) -- ---------- -------- Total Stockholders' Equity........................ 419,778 373,690 ---------- -------- $1,067,114 $947,411 ========== ========
The accompanying notes are an integral part of these balance sheets. 23 24 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 ---------- ---------- ---------- HOUSING: Operating Revenues................................... $1,294,100 $1,191,206 $1,092,283 ---------- ---------- ---------- Operating Costs and Expenses -- Cost of products sold............................. 1,059,571 971,896 891,163 Selling, general and administrative............... 123,300 113,352 106,036 Interest.......................................... 33,789 30,786 27,555 ---------- ---------- ---------- 1,216,660 1,116,034 1,024,754 ---------- ---------- ---------- 77,440 75,172 67,529 Provision for Impairment of Land Inventories......... -- 12,965 -- ---------- ---------- ---------- Housing Operating Income............................. 77,440 62,207 67,529 ---------- ---------- ---------- FINANCIAL SERVICES: Operating Revenues................................... 25,652 20,244 15,662 General, Administrative and Other Expenses........... 16,485 14,850 12,329 ---------- ---------- ---------- Financial Services Operating Income.................. 9,167 5,394 3,333 ---------- ---------- ---------- CORPORATE GENERAL AND ADMINISTRATIVE................... 11,707 11,700 11,790 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS...... 74,900 55,901 59,072 ---------- ---------- ---------- PROVISION FOR INCOME TAXES -- Federal and State Income Taxes....................... 27,713 20,404 22,152 Tax Benefit.......................................... -- (8,691) -- ---------- ---------- ---------- 27,713 11,713 22,152 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY LOSS....................... 47,187 44,188 36,920 EXTRAORDINARY LOSS FROM EARLY RETIREMENT OF DEBT, NET OF INCOME TAX BENEFIT OF $5,080...................... 8,650 -- -- ---------- ---------- ---------- NET INCOME............................................. $ 38,537 $ 44,188 $ 36,920 ========== ========== ========== BASIC EARNINGS PER COMMON SHARE: Income Before Extraordinary Loss..................... $ 4.08 $ 3.88 $ 3.29 Extraordinary Loss................................... $ (.75) $ - $ - Net Income........................................... $ 3.33 $ 3.88 $ 3.29 DILUTED EARNINGS PER COMMON SHARE: Income Before Extraordinary Loss..................... $ 3.50 $ 3.28 $ 2.78 Extraordinary Loss................................... $ (.62) $ - $ - Net Income........................................... $ 2.88 $ 3.28 $ 2.78
The accompanying notes are an integral part of these statements. 24 25 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
CAPITAL IN UNEARNED CONVERTIBLE EXCESS OF COMPENSATION COMMON PREFERRED PAR ON RESTRICTED RETAINED TREASURY STOCK STOCK VALUE STOCK EARNINGS STOCK ------ ----------- ---------- ------------- -------- -------- BALANCE AT DECEMBER 31, 1994.................... $109 $12,969 $340,673 $ -- $(62,287) $ -- Conversion of convertible redeemable preferred stock to common stock (198,536 shares)........ 2 (4,963) 4,961 -- -- -- Issuance of common stock under restricted stock plan (144,547 shares)......................... 1 -- 2,599 (2,600) -- -- Other........................................... -- (25) 344 289 -- -- Net income for the year......................... -- -- -- -- 36,920 -- ---- ------- -------- ------- -------- ------- 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) ==== ======= ======== ======= ======== =======
The accompanying notes are an integral part of these statements. 25 26 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
1997 1996 1995 --------- -------- -------- Cash Flows From Operating Activities: Net income................................................ $ 38,537 $ 44,188 $ 36,920 Adjustments to reconcile net income to net cash provided (used) by operating activities -- Extraordinary loss..................................... 8,650 -- -- Provision for impairment of land inventories........... -- 12,965 -- Provision for deferred income taxes.................... 2,151 635 19,886 Tax benefit............................................ -- (8,691) -- Other, net (principally depreciation and amortization)........................................ 9,044 8,680 4,579 Changes in assets and liabilities -- Increase in receivables.............................. (20,229) (15,291) (24,456) Increase in inventories.............................. (68,691) (91,111) (46,913) Increase in other assets............................. (28,648) (14,608) (9,241) Increase (decrease) in accounts payable and accrued liabilities....................................... 17,618 23,524 (4,963) --------- -------- -------- Net cash used by operating activities..................... (41,568) (39,709) (24,188) --------- -------- -------- Cash Flows From Investing Activities: Purchase of property, plant and equipment, net of disposals.............................................. (3,056) (2,657) (2,526) Decrease (increase) in restricted cash.................... (185) (773) 327 Principal collections on investments in mortgage loans.... 4,136 1,989 1,687 Other..................................................... 4 (677) (661) --------- -------- -------- Net cash provided (used) by investing activities.......... 899 (2,118) (1,173) --------- -------- -------- Cash Flows From Financing Activities: Proceeds from revolving credit facilities, net of repayments............................................. 26,929 (16,957) 41,804 Net proceeds from sale of senior and senior subordinated notes.................................................. 220,937 73,406 -- Purchase of senior notes and convertible subordinated debentures............................................. (198,831) -- -- Repayment of notes and mortgages payable.................. (6,128) (12,712) (12,265) Repurchase of common stock and Class B Warrants........... (4,266) -- -- Other..................................................... 356 -- -- --------- -------- -------- Net cash provided by financing activities................. 38,997 43,737 29,539 --------- -------- -------- Net Increase (Decrease) In Cash............................. (1,672) 1,910 4,178 Cash At Beginning Of Year................................... 8,138 6,228 2,050 --------- -------- -------- Cash At End Of Year......................................... $ 6,466 $ 8,138 $ 6,228 ========= ======== ======== Supplemental Disclosure: Interest paid, before amount capitalized -- Housing................................................ $ 32,063 $ 31,508 $ 31,761 Financial Services..................................... 1,426 1,472 645 --------- -------- -------- $ 33,489 $ 32,980 $ 32,406 ========= ======== ======== Income taxes paid......................................... $ 21,490 $ 16,069 $ 2,159 ========= ======== ========
The accompanying notes are an integral part of these statements. 26 27 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SIGNIFICANT ACCOUNTING POLICIES GENERAL Nature of 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 220 new home communities in 31 market areas in 11 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. 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. Principles of Consolidation and 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. 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. The Company is engaged in two related industry segments, the on-site development of single-family residential communities and financial services. Identifiable assets and the results of operations of the Company's segments are reported in the consolidated balance sheets and consolidated statements of operations. Capital expenditures, depreciation and amortization expense for the years ended December 31, 1997, 1996 and 1995 were insignificant. New Pronouncements The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"), in February 1997 with an effective date for both interim and annual periods ending after December 15, 1997. SFAS No. 128 simplifies the standards for computing earnings per share and replaces the presentation of primary earnings per share and fully diluted earnings per share with a presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and is determined by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock and is computed similarly to fully diluted earnings per share. The adoption of SFAS No. 128 resulted in a restatement of earnings per share for all periods presented in the accompanying consolidated financial statements. See Note 6. In June 1997, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive income ("SFAS No. 130") with an effective date for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for the reporting of comprehensive income in a company's financial statements. Comprehensive income includes all changes in a 27 28 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) company's equity during the period that result from transactions and other economic events other than transactions with its stockholders. In the fourth quarter of 1997, the Company elected to early adopt SFAS No. 130 retroactive to January 1, 1997. The adoption of SFAS No. 130 did not affect the financial reporting in the accompanying consolidated financial statements because the Company does not have any comprehensive income other than net income. 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 the 9.75% and 8.25% senior notes and the 8.88% senior subordinated notes are currently trading at a nominal premium and the 7.95% senior notes are currently trading at par; however, the actual amount of the premium 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, 1997, 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 8. 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 8. 28 29 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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:
1997 1996 -------- -------- Housing completed and under construction.................... $302,258 $280,390 Models...................................................... 83,943 74,167 Finished lots............................................... 138,747 147,893 Land under development...................................... 75,959 59,840 Land held for development or sale........................... 188,329 147,054 -------- -------- $789,236 $709,344 ======== ========
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 1997, 1996 (other than the $12,965 provision for impairment of land inventories discussed below)and 1995 were not significant. Total land and housing reserves were $35,839, $40,236 and $36,370 at December 31, 1997, 1996 and 1995, respectively. During the fourth quarter of 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 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 1997, the Company purchased land in a single transaction of which $13,151 was seller financed. During 1995, the Company completed exchanges of land assets with third parties totaling approximately $14,832, in which the Company received land suitable for single-family detached homes. These transactions were treated as non-cash transactions for purposes of the consolidated statements of cash flows. 29 30 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 1997, 1996 and 1995 follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- Capitalized at beginning of year.................... $ 58,566 $ 59,898 $ 56,082 Capitalized......................................... 38,153 33,484 31,995 Previously capitalized interest included in interest expense........................................... (33,789) (30,786) (27,555) Included in provision for impaired land inventories and other......................................... 20 (4,030) (624) -------- -------- -------- Capitalized at end of year.......................... $ 62,950 $ 58,566 $ 59,898 ======== ======== ========
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, 1997, 1996 and 1995, revenues included net losses from the sale of loans of $573, $976 and $512, respectively, and net gains from the sale of servicing of $9,691, $7,294 and $5,467, respectively. Interest Expense Interest expense relating to financial services for the years ended December 31, 1997, 1996 and 1995 was $1,417, $1,507 and $692, respectively, and is included in "general, administrative and other expenses" in the accompanying consolidated statements of operations. Residential Mortgage Loans Residential mortgage loans held for sale ($45,273 at December 31, 1997) are included in the accompanying consolidated balance sheets at the lower of cost or market on an aggregate basis. The Company estimates the fair value of residential mortgage loans held at December 31, 1997 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. 30 31 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT Housing Revolving credit facilities, senior, senior subordinated and convertible subordinated debt and notes payable consist of the following:
DECEMBER 31, -------------------- 1997 1996 -------- -------- Revolving credit facility................................... $ 29,000 $ -- -------- -------- 7.95% Senior notes due 2001................................. 75,000 75,000 9.75% Senior notes due 2003................................. 79,703 200,000 8.25% Senior notes due 2004................................. 100,000 -- 8.88% Senior subordinated notes due 2007.................... 125,000 -- 4.875% Convertible subordinated debentures due 2005......... -- 80,000 Notes and mortgage notes payable............................ 16,215 7,887 -------- -------- 395,918 362,887 -------- -------- $424,918 $362,887 ======== ========
The Company has an unsecured revolving credit agreement (the "Credit Facility") with a group of banks. In October 1997, the maximum amount which the Company may borrow under the Credit Facility was increased from $130,000 to $180,000, of which up to $20,000 may be used for letter of credit obligations, subject to a borrowing base limitation. 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, 1997, $140,119 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 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 August 1997, the Company completed the sale of $100,000 principal amount of its 8.25% senior notes due 2004 (the "2004 Senior Notes") and $125,000 principal amount of its 8.88% senior subordinated notes due 2007 (the "Senior Subordinated Notes") for the purpose of raising funds to redeem its 4.875% convertible subordinated debentures due 2005 (the "Debentures") and purchase its 9.75% senior notes due 2003 (the "2003 Senior Notes"). Interest on the 2004 Senior Notes and Senior Subordinated Notes is payable semi-annually, commencing on February 15, 1998. On or after August 15, 2002, the 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 2004 Senior Notes and Senior Subordinated Notes contain numerous covenants, including a minimum tangible net worth requirement and a limitation on the incurrence of additional debt. In September 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 September 1997, the Company redeemed $69,248 principal amount of the Debentures, and $10,752 principal amount of the Debentures were converted, prior to the redemption date, into 302,866 shares of the Company's common stock. The early 31 32 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) retirement of the 2003 Senior Notes and redemption of the Debentures resulted in an extraordinary loss of $8,650, net of income tax benefit of $5,080. The 7.95% senior notes are due March 1, 2001 and interest is payable semi-annually. The indenture relating to the 7.95% senior notes contains numerous covenants, including a minimum tangible net worth requirement and a limitation on the incurrence of additional debt. The 2003 Senior Notes are due June 15, 2003 and interest is payable semi-annually. On or after June 15, 1998, the 2003 Senior Notes may be redeemed at the option of the Company, in whole or in part, at prices ranging from 103.656% (during the 12-month period beginning June 15, 1998) to 100% (on and after June 15, 2001) of the principal amount thereof, together with accrued and unpaid interest. In connection with the purchase of the 2003 Senior Notes pursuant to the tender offer described above, the indenture for the 2003 Senior Notes was amended to eliminate certain restrictive covenants, including the limitation on the incurrence of additional debt, as well as certain events of default. In January 1998, the Company completed the sale of $100,000 principal amount of its 7.75% senior notes due January 15, 2005. Interest is payable semi-annually commencing on July 15, 1998. The net proceeds from the sale will be used to redeem the balance of its 2003 Senior Notes which are first callable in June 1998. Also in January and February 1998, the Company used a portion of the proceeds to purchase in open market transactions $26,720 principal amount of the 2003 Senior Notes. The Company currently intends to redeem the balance of these notes, though it may purchase such notes in the open market or in privately negotiated transactions prior to such date. Pending redemption or other purchases of the remaining 2003 Senior Notes, the Company intends to use the proceeds from the sale of the 7.75% senior notes to reduce the Company's outstanding borrowings under the Credit Facility and for general corporate purpose, including land and other investments and joint ventures. 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 $56,230 at December 31, 1997. 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 indebtedness and contains a restriction relating to the Company's repurchase of its capital stock prior to the termination of the Credit Facility. At December 31, 1997, $26,618 was available 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 1997, 1996 and 1995 were $81,000, $64,000 and $67,000, respectively. The average amounts of debt outstanding from banks and other financial institutions during 1997, 1996 and 1995 were $31,100, $15,800 and $42,400, respectively, and the weighted average interest rates, without giving effect to commitment fees, were 7.8%, 8.4% and 9.7%, 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, 1997, housing long-term debt matures (with the 2003 Senior Notes included in 1998 maturities) as follows: $80,905 in 1998, $789 in 1999, $326 in 2000, $75,146 in 2001, $13,297 in 2002, and $224,455 thereafter. 32 33 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 $65,000 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 1997 under substantially the same terms and conditions as the previous agreement, matures on August 31, 1998 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 1997, 1996 and 1995 were $46,900, $42,400 and $35,400, respectively. The average amounts of short-term debt outstanding from banks and other financial institutions during 1997, 1996 and 1995 were $20,500, $22,300 and $8,500, respectively, and the weighted average interest rates, without giving effect to commitment fees, were 6.7%, 6.6% and 7.0%, respectively. Computations of such rates were made based upon the weighted average of outstanding loan balances during the respective years. (3) 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, ----------------------------- 1997 1996 1995 ------- ------- ------- Current -- Federal.............................................. $21,547 $16,943 $ 1,136 State................................................ 4,015 2,826 1,130 ------- ------- ------- 25,562 19,769 2,266 ------- ------- ------- Deferred -- Federal.............................................. 1,762 (8,147) 18,653 State................................................ 389 91 1,233 ------- ------- ------- 2,151 (8,056) 19,886 ------- ------- ------- Total provision........................................ $27,713 $11,713 $22,152 ======= ======= =======
Deferred income taxes are determined based upon the difference between the financial reporting and tax basis of assets and liabilities. At December 31, 1997, the Company has recorded a net deferred tax asset of $500 which is comprised of deferred tax assets of $32,800 (including $15,100 relating to housing reserves which were expensed for financial reporting purposes but deferred for federal income tax purposes) and deferred tax liabilities of $32,300 (including $13,700 relating to interest expense capitalized for financial reporting purposes but expensed for federal income tax purposes and an amount related to certain deductions taken in the Company's 1993 federal income tax return). At December 31, 1996, deferred tax assets and deferred tax liability were $36,200 and $33,400, respectively, and were primarily attributable to the same items noted above. During the fourth quarter of 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. At the conclusion of this examination, the Company reduced its deferred tax liability and recognized an income tax benefit totaling $8,691 related to the deductions allowed by the IRS. The Company appealed the IRS decision to disallow certain other deductions. These deductions remain reserved as a deferred tax liability 33 34 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) as of December 31, 1997. The decrease in the deferred tax liability increased basic and diluted earnings per common share 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, ------------------------ 1997 1996 1995 ----- ------ ----- 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.............................................. -- (15.5) -- Other, net............................................... (2.0) (2.5) (1.5) ----- ------ ----- Effective rate............................................. 37.0% 21.0% 37.5% ===== ====== =====
(4) STOCKHOLDERS' EQUITY As of December 31, 1997, the Company's capital structure consisted of the following: Common Stock -- Authorized 50,000,000 shares, par value $.01 per share, issued 11,920,261 shares and outstanding 11,762,518 shares. Shares reserved for issuance -- Stock plans................................................. 2,073,689 Class B warrants............................................ 1,886,321 --------- 3,960,010 =========
During April 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 Board of Directors authorized an odd-lot repurchase program for holders of less than 100 shares of the Company's common stock. Through December 31, 1997, the Company had 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 $4,241. 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. 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. 34 35 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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. Class B Warrants -- In connection with the Plan of Reorganization, pre-Effective Date stockholders received Class B warrants to acquire an aggregate of 1,904,757 shares of common stock for $20 per share, of which 10,336 warrants had been exercised and 8,100 warrants had been repurchased at December 31, 1997. The warrants expire in June 1998. 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 antidilution 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 (other than the 2003 Senior Notes) 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 Class B warrants and options to acquire common stock issued pursuant to stock options and stock payment plans. (5) 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", which is subject to stockholder approval which will be sought at the 1998 annual meeting of stockholders 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. 35 36 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Options granted under the Employee Plans will be exercisable at not less than the closing price of the 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 common stock for the ten consecutive trading days prior to the date of grant. However, under the 1998 Director Plan, that so long as the Class B warrants are outstanding, and under the Employee and 1993 Director Plans, the grant price will not be less than 95% of the average closing price of the common stock for the 20 consecutive trading days prior to the date of grant. The options are exercisable as specified in the stock option agreements relating to the options and may not be exercised later than ten years from the date of grant and, with respect to the 1998 Director Plan, no options may be exercised prior to stockholder approval. 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 1997, 1996 and 1995 would have been reduced to the following proforma amounts:
1997 1996 1995 ------- ------- ------- Net income -- As reported: Income before extraordinary loss....................... $47,187 $44,188 $36,920 Extraordinary loss..................................... $ 8,650 $ -- $ -- Net income............................................. $38,537 $44,188 $36,920 Proforma: Income before extraordinary loss....................... $46,420 $43,180 $36,434 Extraordinary loss..................................... $ 8,650 $ -- $ -- Net income............................................. $37,770 $43,180 $36,434 Basic earnings per share -- As reported: Income before extraordinary loss....................... $ 4.08 $ 3.88 $ 3.29 Extraordinary loss..................................... $ (.75) $ -- $ -- Net income............................................. $ 3.33 $ 3.88 $ 3.29 Proforma: Income before extraordinary loss....................... $ 4.01 $ 3.85 $ 3.25 Extraordinary loss..................................... $ (.75) $ -- $ -- Net income............................................. $ 3.26 $ 3.85 $ 3.25 Diluted earnings per share -- As reported: Income before extraordinary loss....................... $ 3.50 $ 3.28 $ 2.78 Extraordinary loss..................................... $ (.62) $ -- $ -- Net income............................................. $ 2.88 $ 3.28 $ 2.78 Proforma: Income before extraordinary loss....................... $ 3.44 $ 3.26 $ 2.74 Extraordinary loss..................................... $ (.62) $ -- $ -- Net income............................................. $ 2.82 $ 3.26 $ 2.74
Because the SFAS No. 123 method of accounting was not applied to options granted prior to January 1, 1995, the resulting proforma compensation cost may not be representative of that to be expected in future years. 36 37 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the status of the stock option plans at December 31, 1997, 1996 and 1995 and changes during the years then ended is presented below:
1997 1996 1995 --------------------- ------------------- ------------------- WTD WTD WTD AVG AVG AVG EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- ------- -------- ------- -------- Options outstanding at beginning of year.... 639,500 $22.89 531,169 $22.65 403,500 $21.87 Options granted: Employee Plans....... 497,000 $28.28 102,000 $24.13 122,000 $25.70 Director Plans....... 9,000 $24.35 9,000 $23.74 9,000 $16.82 Options exercised: Employee Plans....... (23,108) $18.79 -- $ -- -- $ -- Director Plans....... (9,000) $22.67 -- $ -- -- $ -- Options forfeited: Employee Plans....... (3,000) $24.36 (2,669) $24.09 (3,331) $24.57 Director Plans....... -- $ -- -- $ -- -- $ -- --------- ------- ------- Options outstanding at end of year.......... 1,110,392 $25.40 639,500 $22.89 531,169 $22.65 --------- ------- ------- Options exercisable at end of year.......... 578,069 $22.95 551,179 $23.12 365,537 $23.32 --------- ------- ------- Weighted average fair value per share of option granted -- Employee Plans....... $ 8.49 $ 8.39 $ 7.87 Director Plans....... $ 9.64 $ 9.97 $ 7.96
Options outstanding at December 31, 1997 had exercise prices ranging from $15.13 to $36.25 per share and a weighted average remaining contractual life of 7.9 years. Options exercisable at December 31, 1997 had a weighted average remaining contractual life of 7.9 years. The fair value of each option granted in 1997, 1996 and 1995 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest of 6.1% for 1997, 6.6% for 1996 and 5.9% for 1995; expected lives of 5.5 years in 1997, 7.1 years for 1996 and 6.1 years for 1995; and expected volatility of 25.0% for all three years. 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 closing price of the common stock for a ten consecutive trading day period as defined in the Payment Plan, but in no event will the average closing price be less than 95% of the average closing price of the common stock for the 20 consecutive trading day period as defined in the Payment Plan. The Payment Plan, as extended (which extension is subject to stockholder approval), has a 15-year term and commenced on January 1, 1994. In 1997, 37 38 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18,559 shares were issued to corporate officers and key employees at prices ranging from $16.74 to $28.21, in 1996, 7,905 shares were issued to officers and key employees at prices ranging from $25.05 to $27.93 per share and in 1995, 21,731 shares were issued to officers and key employees at prices ranging from $16.74 to $17.99 per share. As of December 31, 1997, 201,805 shares were available for issuance under the Payment Plan. Restricted Stock Plan The Company has a restricted stock plan (the "Restricted Plan") for officers and other key employees. Under the Restricted Plan, a maximum of 250,000 shares of the Company's common stock may be granted as restricted stock. Shares granted under the Restricted Plan will be granted at the average closing price of the common stock for a ten consecutive trading day period as defined in the Restricted Plan. Participants in the Restricted Plan may not dispose of any of the stock granted for five years from date of grant. Restrictions lapse at the rate of 20% of the stock granted per year, commencing with the end of the fifth year. As defined in the Restricted Plan, as amended, the lapsing of the restrictions may be accelerated if certain stipulated improvements in the Company's return on assets or return on sales 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 term of Restricted Plan. Non-Employee Director Stock Plan In 1997, the Company adopted a stock plan for non-employee directors (the "Director Stock Plan"), effective in 1997, but is subject to stockholder approval which will be sought at the 1998 annual meeting of stockholders. Under the Director Stock Plan, a maximum of 100,000 shares of the Company's common stock may be granted to nonemployee 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; provided, that so long as the Class B warrants are outstanding the grant price will not be less than 95% of the average closing price of the common stock for the 20 consecutive trading days prior to the date of grant. 38 39 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) EARNINGS PER SHARE Basic earnings per common share includes the weighted average number of common shares outstanding for the periods. Diluted earnings per common share includes (i) the dilutive effect of the Class B warrants and the convertible redeemable preferred stock through its redemption and conversion in March 1997, (ii) the assumed exercise of stock options and (iii) the assumed conversion of the Debentures through their redemption and conversion in September 1997. The following table summarizes the basic earnings per common share and diluted earnings per common share computations for 1997, 1996 and 1995:
1997 1996 1995 ----------- ----------- ----------- Basic earnings per common share: Income before extraordinary loss.......... $ 47,187 $ 44,188 $ 36,920 Extraordinary loss........................ 8,650 -- -- ----------- ----------- ----------- Net income................................ $ 38,537 $ 44,188 $ 36,920 =========== =========== =========== Weighted average number of common shares................................. 11,573,094 11,383,720 11,220,178 =========== =========== =========== Earnings per common share -- Income before extraordinary loss....... $ 4.08 $ 3.88 $ 3.29 Extraordinary loss..................... $ (.75) $ -- $ -- Net income............................. $ 3.33 $ 3.88 $ 3.29 Diluted earnings per common share: Income before interest applicable to convertible subordinated debentures and extraordinary loss..................... $ 47,187 $ 44,188 $ 36,920 Interest applicable to convertible subordinated debentures, net of income taxes.................................. 1,818 2,480 2,006 ----------- ----------- ----------- Income before extraordinary loss, assuming dilution............................... 49,005 46,668 38,926 Extraordinary loss........................ 8,650 -- -- ----------- ----------- ----------- Net income, assuming dilution............. $ 40,355 $ 46,668 $ 38,926 =========== =========== =========== Weighted average number of common shares................................. 11,573,094 11,383,720 11,220,178 Incremental shares from assumed conversions -- Convertible preferred stock............ 19,070 185,247 353,240 Contingent common shares............... 29,253 16,888 3,411 Stock options.......................... 208,514 47,372 30,151 Class B warrants....................... 650,259 325,212 166,119 Convertible subordinated debentures.... 1,555,856 2,253,521 2,253,521 ----------- ----------- ----------- Adjusted weighted average number of common shares................................. 14,036,046 14,211,960 14,026,620 =========== =========== =========== Earnings per common share -- Income before extraordinary loss....... $ 3.50 $ 3.28 $ 2.78 Extraordinary loss..................... $ (.62) $ -- $ -- Net income............................. $ 2.88 $ 3.28 $ 2.78
For the year ended December 31, 1997, diluted earnings per common share were based on 14,036,046 common shares (the "shares") which included the dilutive effect of the weighted average number of shares potentially issuable (i) for the conversion of the Debentures through their redemption on September 10, 1997 (1,555,856 shares) and (ii) for the exercise of the Class B warrants (650,259 shares). Diluted earnings per 39 40 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) common share in subsequent periods compared to 1997 will be impacted by the redemption of the Debentures, which eliminated 1,950,655 shares, net of 302,866 shares issued upon conversion, from dilution and by the potential dilutive effect of up to 1,236,062 additional shares issuable upon exercise of the Class B warrants which expire in June 1998. (7) PROFIT SHARING The Company has a qualified profit sharing plan for the benefit of its employees which may be terminated at any time at the option of the Company. The annual contributions may be made in such amount as the Board of Directors of the Company determines, limited to 15% of the total compensation (as defined in the profit sharing plan) of all participating employees. The aggregate amounts accrued for contribution to the profit sharing plan for distribution to employees were $1,200 in 1997, $1,051 in 1996 and $991 in 1995. (8) 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, 1997, the Company had refundable and nonrefundable deposits totaling $33,343 for options and contracts to purchase undeveloped land and finished lots having a total purchase price of approximately $339,000. The Company had incurred pre-development costs of $56,812 relating to these properties. These options expire at various dates through 2006. At December 31, 1997, 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, 1997 was $502. 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, 1997. While the outstanding balance of the Credit Facility may fluctuate (average balance of approximately $36,200 for the fourth quarter of 1997), the Company anticipates that the average balance of the borrowings during the remaining term of the agreement will generally be in excess of the national amount. 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, 1997, Mortgage, in connection with managing the interest rate market risk on its inventory loans held for sale of $45,455 and Loan Quotes of $22,443, had outstanding $41,345 (face amount of $42,000 and estimated fair value of $41,539) of Forward Contracts and $22,882 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, 1997, the estimated fair value of the inventory loans and Loan Quotes hedged by Forward Contracts and not covered by the Forward Commitments was $44,130. 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 40 41 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. (9) UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION Summarized quarterly financial information for the years ended December 31, 1997 and 1996 is as follows:
THREE MONTHS ENDED ------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 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 Common Share: Income before extraordinary loss........................... $ .88 $ .96 $ 1.13 $ 1.11 Extraordinary loss................ $ -- $ -- $ (.75) $ -- Net income........................ $ .88 $ .96 $ .38 $ 1.11 Diluted Earnings Per Common Share: Income before extraordinary loss........................... $ .75 $ .82 $ .94 $ 1.00 Extraordinary loss................ $ -- $ -- $ (.60) $ -- Net income........................ $ .75 $ .82 $ .34 $ 1.00
THREE MONTHS ENDED ------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1996 1996 1996 1996 --------- --------- ------------- ------------ Housing -- Operating revenues............. $267,907 $ 288,428 $312,275 $322,596 Cost of products sold.......... $218,350 $ 235,563 $253,756 $264,227 Operating income............... $ 16,276 $ 17,348 $ 20,644 $ 7,939 Financial Services -- Operating revenues............. $ 4,855 $ 4,808 $ 5,397 $ 5,184 Operating income............... $ 1,154 $ 1,471 $ 1,427 $ 1,342 Corporate General and Administrative................. $ 2,754 $ 2,993 $ 2,945 $ 3,008 Net Income....................... $ 9,319 $ 10,050 $ 12,145 $ 12,674 Basic Earnings Per Common Share.......................... $ .83 $ .88 $ 1.06 $ 1.11 Diluted Earnings Per Common Share.......................... $ .69 $ .75 $ .91 $ .94
41 42 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) RECEIVABLES The Company had housing and financial services receivables of approximately $3,679 in 1997 and $1,973 in 1996 that were due after one year. The 1997 balance due after one year included notes and mortgage notes receivable of $372 with interest rates ranging from 8.0% to 10.0%. A majority of the balance matures within six years. (11) ACCRUED EXPENSES At December 31, 1997 and 1996, accrued expenses and other current liabilities consisted of the following:
1997 1996 ------- ------- Housing -- Customer deposits......................................... $28,541 $18,762 Salaries and other compensation........................... 15,985 13,633 Interest.................................................. 10,113 4,023 Taxes, other than income taxes............................ 5,052 3,739 Income taxes.............................................. 3,055 1,910 Other..................................................... 6,102 8,905 ------- ------- $68,848 $50,972 ======= ======= Financial Services -- Accounts payable.......................................... $14,299 $14,621 Other..................................................... 6,767 6,233 ------- ------- $21,066 $20,854 ======= =======
42 43 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 Directors Section, pages 2 through 4, of the Company's Proxy Statement, dated March 13, 1998, for the Annual Meeting of Stockholders to be held on April 22, 1998, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934 (the "1998 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information is incorporated by reference from the Executive Compensation Section, pages 6 through 9 of the 1998 Proxy Statement (see Part I-Item 4, Executive Officers of the Company). ITEM 12. COMMON STOCK 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 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 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
2.1 -- First Amended Consolidated Plan of Reorganization of U.S. Home Corporation and certain of its affiliates dated April 1, 1993. Incorporated by reference from exhibit 2.1 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.2 -- Modification to "USH Debtors' First Amended Consolidated Plan of Reorganization." Incorporated by reference from exhibit 2.2 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.3 -- First Amended Joint Plan of Reorganization of certain affiliates of U.S. Home Corporation dated April 1, 1993. Incorporated by reference from exhibit 2.3 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.4 -- Findings of Fact, Conclusions of Law and Order Confirming the First Amended Consolidated Plan of Reorganization of U.S. Home Corporation and certain of its affiliates. Incorporated by reference from exhibit 28.1 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993.
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2.5 -- Findings of Fact, Conclusions of Law and Order Confirming the First Amended Joint Plan of Reorganization of certain affiliates of U.S. Home Corporation. Incorporated by reference from exhibit 28.2 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 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 17, 1996. Incorporated by reference from exhibit 3.1 (ii) to U.S. Home Corporation's Current Report on Form 8-K filed November 8, 1996. 10.1 -- Amended and Restated Credit Agreement, dated as of May 28, 1997, 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 June 30, 1997. 10.1(i) -- Consent and First Amendment to Amended and Restated Credit Agreement, dated as of August 22, 1997, between U.S. Home Corporation and The First National Bank of Chicago, as Agent. Incorporated by reference to exhibit 10 to U.S. Home Corporation's Current Report on Form 8-K dated August 25, 1997. 10.1(ii) -- Commitments and Acceptances, each dated October 8, 1997, among U.S. Home Corporation, as borrower, The First National Bank of Chicago, as Agent, and each of AmSouth Bank, Credit Lyonnais New York Branch, The First National Bank of Chicago, Comerica Bank and Guaranty Federal Bank, F.S.B., each as an Accepting Lender relating to the Amended and Restated Credit Agreement with First National Bank of Chicago, as Agent. Incorporated by reference from exhibit 10.7 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 10.1(iii) -- Consent and Second Amendment to Amended and Restated Credit Agreement, dated as of January 15, 1998 between U.S. Home Corporation and The First National Bank of Chicago, as Agent. Incorporated by reference to exhibit 10 to U.S. Home Corporation's Current Report on Form 8-K dated January 15, 1998.
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10.2 -- Trust Indenture, dated as of June 21, 1993, by and between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as trustee, relating to U.S. Home Corporation's 9.75% Senior Notes due 2003. Incorporated by reference from exhibit 10.2 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.2(i) -- Supplemental Indenture, dated as of September 23, 1997 between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as trustee, with respect to the indenture relating to the 9.75% Senior Notes due 2003. Incorporated by reference from exhibit 10.5 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1997. 10.3 -- 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. 10.3(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. 10.4 -- 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. 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. 10.4(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. 10.5 -- 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. 10.5(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. 10.6 -- Officers' Certificate establishing the form and terms of the 7.75% Senior Notes due 2005. 10.7 -- 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. 10.8 -- Warrant Agreement, dated as of June 21, 1993, between U.S. Home Corporation and First Chicago Trust Company of New York (as successor to The First National Bank of Boston) relating to U.S. Home Corporation's Class B Warrants. Incorporated by reference from exhibit 10.3 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.9 -- 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.
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10.10 -- 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. 10.11 -- 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. 10.12 -- 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. 10.13 -- U.S. Home Corporation's Amended and Restated Employee Stock Payment Plan. Incorporated by reference from exhibit 10.11 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.14 -- U.S. Home Corporation's Corporate Officers and President of Operations Restricted Stock 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, 1994. 10.15 -- Non-Employee Director Stock Plan. 10.16 -- U.S. Home Corporation's 1998 Non-Employee Directors' Stock Option Plan. 10.17 -- U.S. Home Corporation's Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1998 to December 31, 1998. 10.18 -- U.S. Home Corporation's Key Employees' Severance Plan. Incorporated by reference from exhibit 10.14 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.19 -- 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. 10.20 -- 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. 10.20(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. 10.21 -- 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. 10.21(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. 10.22 -- 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).
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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 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. 10.24 -- 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. 10.25 -- 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. 10.26 -- 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. 10.26(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. 10.26(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. Incorporated by reference from exhibit 10.22(ii) to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.26(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. 10.26(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. 10.26(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. 10.27 -- 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).
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10.28 -- 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 1997. 48 49 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 13, 1998 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 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) 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 13, 1998 - ----------------------------------------------------- Executive Officer (principal Robert J Strudler executive officer) /s/ ISAAC HEIMBINDER Director, President, Co-Chief February 13, 1998 - ----------------------------------------------------- Executive Officer and Chief Isaac Heimbinder Operating Officer /s/ GLEN ADAMS Director February 13, 1998 - ----------------------------------------------------- Glen Adams /s/ STEVEN L. GERARD Director February 13, 1998 - ----------------------------------------------------- Steven L. Gerard /s/ KENNETH J. HANAU, JR. Director February 13, 1998 - ----------------------------------------------------- Kenneth J. Hanau, Jr. /s/ MALCOLM T. HOPKINS Director February 13, 1998 - ----------------------------------------------------- Malcolm T. Hopkins /s/ CHARLES A. MCKEE Director February 13, 1998 - ----------------------------------------------------- Charles A. McKee
49 50
SIGNATURE TITLE DATE - ------------------------------------------------------ ------------------------------------ ---------------------- /s/ GEORGE A. POOLE, JR. Director February 13, 1998 - ------------------------------------------------------ George A. Poole, Jr. /s/ HERVE RIPAULT Director February 13, 1998 - ------------------------------------------------------ Herve Ripault /s/ JAMES W. SIGHT Director February 13, 1998 - ------------------------------------------------------ James W. Sight
50 51 INDEX TO EXHIBITS
EXHIBIT NUMBER ------- 10.6 -- Officers' Certificate establishing the form and terms of the 7.75% Senior Notes due 2005 10.15 -- Non-Employee Directors Stock Plan 10.16 -- U.S. Home Corporation's 1998 Non-Employee Directors' Stock Option Plan 10.17 -- U.S. Home Corporation's Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1998 to December 31, 1998 21 -- Subsidiaries of U.S. Home Corporation 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule
EX-10.6 2 OFFICERS' CERTIFICATE OF SENIOR NOTES, DUE 2005 1 EXHIBIT 10.6 U.S. HOME CORPORATION OFFICERS' CERTIFICATE - SENIOR NOTES Pursuant to Sections 2.01 and 3.01 of the Indenture, dated August 28, 1997 (the "Indenture"), with respect to the 7 3/4% Senior Notes due 2005, between U.S. Home Corporation, a Delaware corporation (the "Company"), and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"), each of the undersigned, Robert J. Strudler and Thomas A. Napoli, Chairman of the Board and Co-Chief Executive Officer, and Vice President-Corporate Finance and Treasurer of the Company, respectively, hereby certify on behalf of the Company as follows: 1. Capitalized terms used but not defined herein have the meanings set forth in the Indenture. 2. The establishment of 7 3/4% Senior Notes due 2005 as a series of Securities of the Company (the "Senior Notes") has been approved and authorized in accordance with the provisions of the Indenture pursuant to resolutions of the Board of Directors of the Company (a copy of which, certified by an Assistant Secretary or the Secretary of the Company, is delivered herewith) duly adopted on January 15, 1998, and resolutions of the Pricing Committee of the Board of Directors of the Company (a copy of which, certified by the Assistant Secretary or the Secretary of the Company, is delivered herewith) duly adopted on January 15, 1998. Pursuant to such resolutions and this Officers' Certificate, the terms set forth below for the Senior Notes to be issued under the Indenture are authorized and approved. The form of Senior Note attached hereto as Exhibit A has been approved and authorized in accordance with the provisions of the Indenture. 3. That he has read and is familiar with the provisions of Articles 2 and 3 of the Indenture relating to the establishment of a series of Securities thereunder and the establishment of forms of Securities representing a series of Securities thereunder and, in each case, the definitions therein relating thereto; that he is generally familiar with the other provisions of the Indenture and with the affairs of the Company and its acts and proceedings and that the statements and opinions made by him in this Officers' Certificate are based upon such familiarity; and that, in his opinion, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not the conditions and covenants referred to above have been complied with; and in his opinion, such conditions and covenants have been complied with. 2 4. The terms of the series of Securities established pursuant to this Officers' Certificate shall be as follows: (a) TITLE. The title of the series of Securities established hereby is the "7 3/4% Senior Notes due 2005." (b) AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Senior Notes which may be authenticated and delivered under the Indenture (except for Senior Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Senior Notes pursuant to Section 3.04, 3.05, 3.06, 4.07 or 13.05 of the Indenture and except for any Senior Notes which, pursuant to Section 3.03 of the Indenture, are deemed never to have been authorized and delivered thereunder) is $100,000,000. (c) PERSONS TO WHOM INTEREST PAYABLE. Interest on the Senior Notes shall be payable to the Person in whose name a Senior Note is registered at the close of business (whether or not a Business Day) on the Regular Record Date for such interest payment, except that default interest shall be payable in the manner provided in Section 3.07 of the Indenture. (d) STATED MATURITY. The date on which the principal of the Senior Notes shall be payable, unless accelerated pursuant to the Indenture, is January 15, 2005. (e) RATE OF INTEREST; INTEREST PAYMENT DATES; REGULAR RECORD DATES. (i) RATE OF INTEREST. The principal amount of each of the Senior Notes shall bear simple interest at the rate of 7 3/4% per annum. The date from which interest shall accrue for each of the Senior Notes shall be January 21, 1998. Interest shall be calculated on the basis of actual days elapsed over a 365- or 366-day year. (ii) INTEREST PAYMENT DATES. Interest on the Senior Notes shall be payable semi-annually on January 15 and July 15 of each year, commencing on July 15, 1998. If any Interest Payment Date or the Maturity of the Senior Notes falls on a day that is not a Business Day, the 3 payment due on such Interest Payment Date or at Maturity will be made on the following day that is a Business Day as if it were made on the date such payment was due and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date or Maturity, as the case may be. (iii) REGULAR RECORD DATES. The Regular Record Dates for interest payable on each January 15 and July 15 will be the immediately preceding January 1 and July 1 (whether or not a Business Day), respectively. (f) PLACE OF PAYMENT; REGISTRATION OF TRANSFER AND EXCHANGE; NOTICES TO THE COMPANY. (i) PLACE OF PAYMENT. Payment of the principal of and interest on the Senior Notes will be made at the Corporate Trust Office of the Trustee in New York, New York, and at any other office or agency designated by the Company for such purpose; provided, however, that at the option of the Company, payment of interest due (other than at Maturity) may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. (ii) REGISTRATION OF EXCHANGE AND TRANSFER. The Senior Notes may be presented for exchange and registration of transfer at the Corporate Trust Office of the Trustee in New York, New York, or at the office of any Registrar hereafter designated by the Company for such purpose. (iii) NOTICES TO COMPANY. Notices and demands to or upon the Company in respect of the Senior Notes and the Indenture may be served at U.S. Home Corporation, 1800 West Loop South, Houston, Texas 77027, Attention: President. 4 (g) OPTIONAL REDEMPTION. The Company may redeem all or any portion of the Senior Notes at any time and from time to time on and after January 15, 2003 at the following redemption prices (expressed in percentages of the principal amount) together, in each case, with accrued interest to the date of redemption: If redeemed during the twelve month period beginning January 15,
Year Percentage ---- ---------- 2003 101.29% 2004 and thereafter 100.00%
of the principal amount thereof. (h) MANDATORY REDEMPTION/SINKING FUND. The Company shall not be obligated to make any mandatory sinking fund payment or redemption of the Senior Notes. (i) DENOMINATIONS. The Senior Notes shall be issuable in denominations of $1,000 and any integral multiple thereof. (j) ACCELERATION. The principal amount of the Senior Notes shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 8.02 of the Indenture. (k) DEFEASANCE. The Senior Notes shall be defeasible as provided in Article 11 of the Indenture. (l) GLOBAL SECURITIES; DEPOSITORY. The Senior Notes shall be issued in the form of one or more Global Securities and the Depository for the Global Securities shall be The Depository Trust Company, a New York corporation, and the Global Securities shall be registered in the name of Cede & Co., the nominee of the Depository. (m) REGISTRAR; PAYING AGENT. The Company hereby appoints the Trustee as the initial Registrar and Paying Agent with respect to the Senior Notes. The books of the Registrar for the Senior Notes will be initially maintained at the Corporate Trust Office of the Trustee. (n) EVENTS OF DEFAULT. Section 8.01(a)(iii) of the Indenture shall not be applicable to the Senior Notes. 5 IN WITNESS WHEREOF, we have executed this Officers' Certificate on behalf of the Company this 21st day of January, 1998. U.S. HOME CORPORATION By: /s/ Robert J. Strudler ---------------------------------------- Robert J. Strudler Chairman of the Board and Co-Chief Executive Officer By: /s/ Thomas A. Napoli ---------------------------------------- Thomas A. Napoli Vice President-Corporate Finance and Treasurer 6 EXHIBIT A (FACE OF SECURITY) THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. EVERY SECURITY DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS GLOBAL SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED ABOVE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS TO BE MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CUSIP 911920AG1 Cert. No. $ ------------- U.S. HOME CORPORATION ------------- Promises to pay to ____________________ or registered assigns the principal sum of ____________________________________________________ on January 15, 2005. 7 7 3/4% SENIOR NOTE DUE 2005 Interest Payment Dates: January 15 and July 15 Regular Record Dates: January 1 and July 1 Dated: January 21, 1998 U.S. HOME CORPORATION By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: [Corporate Seal] This Security is one of the Securities of the series designated herein referred to in the within mentioned Indenture. IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: --------------------------------- Authorized Signatory 8 (REVERSE OF SECURITY) U.S. HOME CORPORATION 7 3/4% SENIOR NOTE DUE 2005 1. INTEREST. U.S. Home Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security, which is one of the Securities of the series designated under the Indenture as the "7 3/4% Senior Notes due 2005" (the "Senior Notes"), at the rate per annum shown above. The Company will pay interest semi-annually on January 15 and July 15 of each year (each, an "Interest Payment Date"), commencing July 15, 1998. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from January 21, 1998. Interest will be computed on the basis of actual days elapsed over a 365- or 366-day year. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes (except defaulted interest, which shall be payable in the manner provided in Section 3.07 of the Indenture) to the Persons who are Holders of Securities at the close of business on the January 1 or July 1 next preceding the Interest Payment Date (the "Regular Record Date"). Holders must surrender Senior Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by its check payable in such money. It may mail, or cause to be mailed, an interest check to a Holder's address set forth on the Security Register. 3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to any Holder. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-Registrar. 4. INDENTURE. The Company issued the Senior Notes under an Indenture, dated August 28, 1997 (the "Indenture"), between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture, those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date of the Indenture and as may be amended from time to time (the "TIA") , and those incorporated by reference into the Indenture pursuant to an Officers' Certificate of the Company, dated January 21, 1998 (the "Officers' Certificate") delivered pursuant to Sections 2.01 and 3.01 of the Indenture. The Senior Notes are subject to and governed by all such terms, and Holders are referred to the Indenture, the Officers' Certificate and the TIA for a statement of them. Capitalized terms used in this Senior Note and not otherwise defined herein shall have the meanings set forth in the Indenture and the Officers' Certificate. The Senior Notes are general unsecured obligations of the Company limited to the aggregate principal amount of $100,000,000. 9 5. OPTIONAL REDEMPTION. The Company may redeem all or any portion of the Senior Notes at any time and from time to time on and after January 15, 2003 at the following redemption prices (expressed in percentages of the principal amount) together, in each case, with accrued interest to the date of redemption: If redeemed during the twelve month period beginning January 15,
Year Percentage ---- ---------- 2003 101.29% 2004 and thereafter 100.00%
of the principal amount thereof. 6. MANDATORY REDEMPTION/SINKING FUND. The Company shall not be obligated to make any mandatory sinking fund payment or redemption of the Senior Notes. 7. MANDATORY REPURCHASE OBLIGATION. Within 30 days after the occurrence of any Change of Control, the Company will offer to purchase all Outstanding Senior Notes at a purchase price equal to 101 percent of the aggregate principal amount thereof, plus accrued and unpaid interest to the Change of Control Payment Date. Within 30 days after the date on which the aggregate amount of Excess Proceeds (from an Asset Sale) equals at any time $10,000,000 or more, the Company will offer to purchase the maximum principal amount of Senior Notes that may be purchased out of the Excess Proceeds at a purchase price equal to 100 percent of the principal amount thereof, plus accrued and unpaid interest to the Asset Sale Offer Date. Within 30 days after the end of any two consecutive fiscal quarters during which the Consolidated Tangible Net Worth of the Company is at any time and from time to time less than $115,000,000, the Company will offer to purchase 10 percent of the original Outstanding principal amount of the Senior Notes at a purchase price equal to 100 percent of the original principal amount thereof, plus accrued and unpaid interest to the Net Worth Offer Date. A Change of Control Offer or a Net Worth Offer will remain open for the period specified in the Indenture. Promptly after the termination of a Change of Control Offer or a Net Worth Offer, subject to the terms of the Indenture, the Company will purchase and mail, or cause to be mailed, or deliver, or cause to be delivered, payment for all Senior Notes tendered and accepted pursuant to such Offer. A Holder may tender in response to a Change of Control Offer or a Net Worth Offer all or any portion of its Senior Notes at its discretion by 10 completing the form entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing on the reverse of this Senior Note. Any portion of Senior Notes tendered must be in an integral multiple of $1,000. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are issuable in registered form, without coupons, in denominations of $1,000 and any amount in excess thereof which is an integral multiple of $1,000. As provided in the Indenture and subject to certain limitations therein set forth, Senior Notes are exchangeable for a like aggregate principal amount of Senior Notes of any authorized denomination, as requested by the Holder surrendering the same, upon surrender of the Senior Note to be exchanged at any office or agency where Senior Notes may be presented for registration of transfer. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Senior Notes is registrable in the Security Register upon surrender of a Senior Note for registration of transfer at the Corporate Trust Office of the Trustee in New York, New York, or at the office of any Registrar hereafter designated by the Company for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar, duly executed by the Holder hereof or his attorney, duly authorized in writing, and thereupon one or more new Senior Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made by the Company, the Trustee or the Registrar for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection therewith (other than exchanges pursuant to Section 3.04, 4.07 or 13.05 of the Indenture, not involving any transfer). 9. PERSON DEEMED OWNER. The Holder of a Senior Note may be treated as the owner of it for all purposes. 10. AMENDMENT, WAIVER. The Indenture permits, in certain circumstances therein specified, the amendment thereof without the consent of the Holders. The Indenture also permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations under the Indenture of the Company and the rights of Holders at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Senior Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Senior Notes at the time Outstanding, on behalf of the Holders of all the Senior Notes, to waive compliance by the Company with certain provisions of the Indenture. Any such consent or waiver by the Holders shall be binding upon the Holder of this Senior Note and upon all future Holders of this Senior Note and of any Senior Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Senior Note. 11 11. SUCCESSOR CORPORATION. When a successor corporation assumes all the obligations of its predecessor under the Senior Notes and the Indenture, the predecessor corporation will be released from those obligations. 12. DEFAULTS AND REMEDIES. The following are Events of Default: (i) failure by the Company to pay interest on any Senior Note when the same becomes due and payable and the continuance of such failure for 30 days; (ii) failure by the Company to pay the principal of any Senior Note when the same becomes due and payable at Maturity, upon acceleration or otherwise; (iii) failure by the Company to comply with any of its agreements or covenants in, or provisions of, the Senior Notes or the Indenture (other than an agreement or covenant a default in whose performance or whose breach is elsewhere in Section 8.01 of the Indenture or which has expressly been included in the Indenture solely for the benefit of a series of Securities other than the Senior Notes) and such failure continues for 60 days after notice; (iv) acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any of its Subsidiaries that has an outstanding principal amount of $10,000,000 or more in the aggregate; provided that, in the event any such acceleration is withdrawn or otherwise rescinded within a period of five days after such acceleration by the holders of such Indebtedness, any Event of Default pursuant to this clause (iv) will be deemed to be cured and any acceleration under the Indenture will be deemed withdrawn or rescinded; (v) failure by the Company or any of its Subsidiaries to make any principal or interest payment in respect of Indebtedness (other than Non-Recourse Indebtedness) of the Company or any of its Subsidiaries with an outstanding aggregate amount of $10,000,000 or more within five days of such principal or interest payment becoming due and payable (after giving effect to any applicable grace period set forth in the documents governing such Indebtedness); (vi) a final judgment or judgments that exceed $10,000,000 or more in the aggregate, for the payment of money, having been entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments is not satisfied, stayed, annulled or rescinded within 60 days of being entered; or (vii) certain events of bankruptcy, insolvency or reorganization, involving the Company or a Material Subsidiary. If an Event of Default with respect to the Senior Notes at the time Outstanding (other than certain Events of Default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a Material Subsidiary) occurs and is continuing, the Trustee (after receiving indemnities from the Holders to its satisfaction) by notice to the Company, or the Holders of at least 25 percent in aggregate principal amount of the Outstanding Senior Notes by notice to the Company and the Trustee, may declare all Outstanding Senior Notes to be due and payable immediately. Upon such declaration, the amounts due and payable on the Senior Notes as determined in Section 8.02(b) of the Indenture, will be due and payable immediately. If an Event of Default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a Material Subsidiary occurs, such an 12 amount will ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee and the Company or any Holder. The Holders of a majority in aggregate principal amount of the Outstanding Senior Notes by written notice to the Trustee and the Company may waive such Event of Default, rescind an acceleration and its consequences (except an acceleration due to nonpayment of principal or interest on the Senior Notes) if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived. Subject to Sections 8.07 and 13.02 of the Indenture, the Holders of a majority in aggregate principal amount of the Outstanding Senior Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences (including waivers obtained in connection with a tender offer or exchange offer for Senior Notes), except a continuing Default or Event of Default in the payment of the principal of or interest on any Senior Note. Upon any such waiver, such Default will cease to exist, and any Event of Default arising therefrom will be deemed to have been cured for every purpose of the Indenture, but no such waiver will extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 13. TRUSTEE DEALINGS WITH COMPANY. IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of the Senior Notes and may otherwise deal with the Company or any of its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 9.10 and 9.11 of the Indenture. 14. NO RECOURSE AGAINST OTHERS. A director, officer or employee of the Company, as such, shall have no liability for any obligations of the Company under the Senior Notes or the Indenture. Each Holder, by accepting a Senior Note, waives and releases all such liability. 13 15. AUTHENTICATION. This Senior Note shall not be valid until the Trustee signs the certificate of authentication on the other side of this Senior Note. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Request may be made to: U.S. Home Corporation 1800 West Loop South Houston, Texas 77027 Attention: President 14 ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto Please insert Social Security or Employer Identification Number of Assignee - ------------------------------------------- - - - ------------------------------------------- - -------------------------------------------------------------------------------- Please Print or Typewrite Name and Address including Postal Zip Code of Assignee - -------------------------------------------------------------------------------- the within Senior Note and all rights thereunder, hereby irrevocably constituting and appointing _________________________________________________________________ attorney to Transfer said Senior Note on the books of the Company, with full power of substitution in the premises. Dated: Signature ----------------------------- ------------------------- NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within note in every particular, without alteration or enlargement or any change whatever. 15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 6.11, 6.16 or 6.20 of the Indenture, check the box below: Section 6.11 (Excess Proceeds Offer) Section 6.16 (Change of Control Offer) Section 6.20 (Net Worth Offer) If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 6.11, 6.16 or 6.20 of the Indenture, as applicable, state the principal amount you elect to have purchased: $_________. Note: The amount you elect to have purchased must be an integral multiple of $1,000. Date: Your signature: --------------- ---------------------------------- (Sign exactly as your name appears on the Senior Note) Signature Guarantee: --------------------------------------------- EX-10.15 3 NON-EMPLOYEE DIRECTORS STOCK PLAN 1 EXHIBIT 10.15 U.S. HOME CORPORATION NON-EMPLOYEE DIRECTOR STOCK PLAN 1. NAME OF PLAN. This plan shall be known as the "U.S. Home Corporation Non-Employee Director Stock Plan" and is hereinafter referred to as the "Plan." 2. PURPOSES OF PLAN. The purposes of the Plan are to enable U.S. Home Corporation, a Delaware corporation (the "Company"), to attract and retain qualified persons to serve as Directors of the Company ("Directors"), to enhance the equity interest of Directors in the Company, to solidify the common interests of its Directors and stockholders, and to encourage the highest level of Director performance by providing such Directors with a proprietary interest in the Company's performance and progress, by awarding them annually shares of the Company's common stock, par value $0.01 per share (the "Stock"). 3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of April 23, 1997, provided that it is approved by the Company's stockholders at the annual meeting thereof (each such meeting, an "Annual Meeting") in 1998. The Plan shall remain in effect until terminated by action of the Board of Directors of the Company (the "Board"), or until no shares of Stock remain available under the Plan, if earlier. 4. ELIGIBLE PARTICIPANTS. Each Director shall be a participant ("Participant") in the Plan during such period as such individual remains a Director and is not an employee of the Company or any of its subsidiaries. 5. RECEIPT OF STOCK. (a) Upon stockholder approval of the Plan at the Annual Meeting held in 1998, Participants (i) who were elected as Directors at the 1997 Annual Meeting will be issued a number of shares (rounded to the nearer whole share) of Stock equal to $26,000, divided by the closing price of the Stock on the New York Stock Exchange on the date of the 1997 Annual Meeting, and (ii) who are elected as Directors at the 1998 Annual Meeting will be issued a number of shares (rounded to the nearer whole share) of Stock equal to $26,000, divided by the closing price of the Stock on the New York Stock Exchange on the date of the 1998 Annual Meeting. (b) On the date of election as a Director at each subsequent Annual Meeting (or special meeting in lieu of an Annual Meeting), each Participant shall receive as compensation for services as a Director for the succeeding year the number of shares (rounded to the nearer whole share) of Stock equal to the annual cash retainer payable to each Director for such year, divided by the closing price of the Stock on the New York Stock Exchange on the date of such election; provided, that so long as the Company's Class B Warrants are outstanding, the closing price for the foregoing calculation shall not be less than 95% of the Current Market Price (as defined in the Warrant Agreement relating to such Class B Warrants). If the Stock is not traded on such Exchange at the 1 2 time of issuance, the Committee (as defined in Section 11) shall determine the value of the Stock in good faith. (c) Participants elected or appointed other than at an Annual Meeting (or special meeting in lieu of an Annual Meeting) will be issued a pro rata number of shares of Stock based upon the number of months to be served in the year between Annual Meetings. After approval of the Plan by the Company's stockholders, Participants who voluntarily resign or become employed by the Company prior to the April 15th immediately following the issuance of such shares will forfeit their shares of Stock. Participants ceasing to be a Director for any other reason, including the death or disability of such Participant, will forfeit a pro rata number of shares of stock based upon the number of months served in the year between Annual Meetings. If the Annual Meeting (or special meeting in lieu of an Annual Meeting) at which the shares are issued is held earlier than April 15th, then the director must serve until April 15th of the following year. (d) Other than shares issued pursuant to Section 5(a)(i), Participants may not transfer, sell, pledge, assign, encumber or otherwise dispose of shares issued pursuant to this Plan until the April 15th which immediately follows the issuance of such shares, or the date on which Participants cease to be Directors, if earlier; provided, that, if the Annual Meeting (or special meeting in lieu of an Annual Meeting) is held earlier than April 15th, then shares issued at such meeting pursuant to this Plan will be so restricted until April 15th of the following year; and provided further, that a Participant may transfer shares to his or her spouse or issue or any trust for the benefit of such Participant, his or her spouse or issue, so long as such transferee shall take and hold such shares subject to all obligations and restrictions of this Plan, including, but not limited to, the forfeiture provisions of paragraph (c) above and the absolute transfer restriction set forth in the preceding provisions of this paragraph. 6. DELIVERY OF STOCK. The shares of Stock shall be delivered as soon as practicable after the date of such Participant's election or appointment. 7. STOCK CERTIFICATES; VOTING AND OTHER RIGHTS. The certificates for shares delivered to a Director pursuant to Section 6 shall be issued in the name of the Director, and the Director shall be entitled to all rights of a stockholder with respect to Stock for all such shares issued in his or her name, including the right to vote the shares, and the Director shall receive all dividends and other distributions paid or made with respect thereto. The certificates representing the shares issued hereunder shall bear a legend indicating that such shares are subject to forfeiture and restrictions on transfer pursuant to Section 5, and the Company's transfer agent shall be given stop transfer instructions to the same effect. 8. GENERAL RESTRICTIONS. Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for shares of Stock under the Plan prior to fulfillment of all of the following conditions: (i) Listing or approval for listing upon official notice of issuance of such shares on the New York Stock Exchange, or such other securities exchange as may at the time be the primary market for the Stock; 2 3 (ii) Any registration or other qualification of such shares under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) Obtaining any other consent, approval or permit from any state or federal governmental agency which the Committee shall, in its absolute discretion upon the advice of counsel, determine to be necessary or advisable. 9. STOCK AVAILABLE. Subject to Section 10, the maximum number of shares of Stock which may be issued pursuant to the Plan is 100,000. Shares of Stock issuable under the Plan may be taken from authorized but unissued or treasury shares of the Company or purchased in the open market. 10. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. In the event that there is any change in the Stock by reason of any stock dividend, stock split, combination of shares, exchange of shares, reclassification, recapitalization, merger, consolidation, change of control, spin-off or other change in capitalization of the Company, appropriate adjustment shall be made in the restrictions on transfer, legend requirements, number and kind of shares or other property subject to the Plan, and any other relevant provisions of the Plan by the Committee, whose determination shall be binding and conclusive on all persons. 11. ADMINISTRATION; AMENDMENT. (a) The Plan shall be administered by the Nominating Committee of the Board (the "Committee"), which shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all such determinations in connection with the Plan as it may deem necessary or desirable. Any such action or determination shall be final and binding. (b) The Board may at any time terminate, amend or modify the Plan in any respect it deems suitable 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; provided, that the Board shall not amend or modify the Plan without stockholder approval to (i) increase the maximum number of shares that may be issued pursuant to the Plan or (ii) change the provisions of Section 5 hereof with respect to the pricing of the Stock in order to make it more favorable to Participants. 12. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for election by the Company's stockholders or to limit any right to remove any Director. (b) The Company shall have the right to require, prior to the issuance or delivery of any shares of Stock pursuant to the Plan, that a Director make arrangements satisfactory to the Committee for the 3 4 withholding of any taxes required by law to be withheld with respect to the issuance or delivery of such shares, including, without limitation, by the withholding of shares that would otherwise be so issued or delivered, by withholding from any other payment due to the Director, or by a cash payment to the Company by the Director. 13. GOVERNING LAW. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. 14. OVERRIDE. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934, as amended, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 thereunder or any successor provision. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 4 5 EX-10.16 4 1998 NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN 1 EXHIBIT 10.16 U.S. HOME CORPORATION 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1. PURPOSES. The purposes of the U.S. Home Corporation 1998 Non-Employee Directors' Stock Option Plan (the "Plan") are to attract and retain qualified and competent persons for service as members of the board of directors (the "Board") of U.S. Home Corporation (the "Company") by providing a means whereby such persons acquire an equity interest in the Company and to secure for the Company and its stockholders the benefit of the incentives inherent in such equity ownership by persons whose advice and counsel are important to the Company's future growth and continued success. The Plan is intended to supplement and provide continuity to the Amended and Restated Non-Employee Stock Option Plan (the "1993 Plan"). 2. ADMINISTRATION. (a) The Board shall (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 options issued thereunder as it may deem necessary or advisable. (b) The Board may from time to time appoint a Committee (the "Committee"), which shall initially be the Nominating Committee of the Board, which shall be comprised of at least three members of the Board, all of whom are to be non-employee directors (within the meaning of Rule 16b-3 promulgated under the Securities Act of 1934, as amended (the "Exchange Act")) and may delegate to the Committee full power and authority to take any and all action required or permitted to be taken by the Board under the Plan, whether or not the power and the authority of the Committee is hereinafter fully set forth. The Board or the Committee, as applicable, shall hereinafter be referred to as the "Administrator." 3. STOCK. The stock (the "Stock") to be made the subject of an option under the Plan shall be the shares of common stock of the Company, $.01 par value per share, whether authorized and unissued or treasury stock. The total amount of Stock for which options may be granted under the Plan shall not exceed, in the aggregate, 100,000 shares, subject to adjustment in accordance with the provisions of Section 12 hereof. Any shares of Stock which were the subject of unexercised portions of any terminated or expired options may again be subject to the grant of options under the Plan during the remaining term of the Plan. 5 2 4. AWARD OF OPTIONS. (a) Options shall be granted only to non-employee directors of the Board. No individual who is, at the time of grant, an employee of the Company shall be eligible to receive options under the Plan. (b) All options granted under the Plan shall be non-qualified options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC"). (c) Any and all options granted under this Plan shall be granted not later than 10 years from February 11, 1998, the date the Plan was adopted by the Board. (d) All options granted under the Plan shall be evidenced by a written agreement substantially in the form of Exhibit A annexed hereto (each an "Option Agreement"). (e) Options shall be granted under the Plan only when awards are no longer available under the 1993 Plan. 5. NUMBER OF SHARES TO BE GRANTED. Each person who becomes a non-employee director of the Company after the adoption of the Plan by the Board shall be granted an option for 5,000 shares of Stock at the time such person first becomes a non-employee director of the Company (a "New Director Stock Option Grant"). On the date of each annual meeting or special meeting in lieu of annual meeting of the stockholders of the Company, each person who continues to serve as a non-employee director of the Company immediately after such meeting shall be granted an option for 1,000 additional shares of Stock (an "Annual Stock Option Grant"); provided, that he or she has served as a non-employee director for at least six months prior to such meeting. The options shall be deemed automatically granted at the times, in the amounts and at the option prices set forth herein without any further action on the part of the Administrator, and the proper officers of the Company are authorized, empowered and directed to execute and deliver an Option Agreement to reflect each such grant at the times, in the amounts and at the option prices determined in accordance with the Plan. 6. PRICE. (a) In the case of a New Director Stock Option Grant, the exercise price of such Option shall be the average closing price of the Stock on the New York Stock Exchange ("NYSE") for the 10 consecutive trading days prior to the date of the New Director Stock Option Grant. Notwithstanding the foregoing, so long as the Company's Class B Warrants are outstanding, the exercise price of such option will in no event be less than 95% of the average closing price of the Stock on the NYSE for the 20 consecutive trading days immediately prior to the date of the New Director Stock Option Grant. 6 3 (b) In the case of an Annual Stock Option Grant, the exercise price of such Option shall be the average closing price of the Stock on the NYSE for the 10 consecutive trading days prior to the date of the Annual Stock Option Grant. Notwithstanding the foregoing, so long as the Company's Class B Warrants are outstanding, the exercise price of such option will in no event be less than 95% of the average closing price of the Stock on the NYSE for the 20 consecutive trading days immediately prior to the date of the Annual Stock Option Grant. (c) The closing price of the Stock, as of any particular day, shall be as reported in The Wall Street Journal; provided, however, that if the Stock is not listed on the NYSE on the dates the option exercise price is to be determined, the option exercise price shall be not less than the fair market value of the shares of Stock covered by the option at the time that the option is granted, as determined by the Administrator based on such empirical evidence as it deems to be necessary under the circumstances. 7. TERM. Subject to Sections 9, 10 and 21 hereof, an option may be exercised by the holder thereof (a "Holder") in whole at any time or in part from time to time commencing with the date of grant, but no option may be exercised in any amount later than 10 years from the date such option was granted. 8. TRANSFERABILITY. No option may be transferable by a Holder other than by will or the laws of descent and distribution. During the lifetime of a Holder, the option may be exercisable only by such Holder. A Holder who acquires Stock hereunder may only transfer such Stock in compliance with applicable federal and state securities laws. 9. TERMINATION OF DIRECTORSHIP. If, on or after the date an option is granted under the Plan, a Holder (i) resigns as a director of the Company or (ii) is removed as a director of the Company by the stockholders of the Company, with or without cause, the Holder shall have the right, not later than the earlier of (A) three months after such resignation or removal or (B) the termination date of the option as set forth in the Option Agreement, to exercise such option, to the extent the right to exercise such option shall have accrued at the date of such resignation or removal, except to the extent that such option theretofore shall have been exercised. 10. RETIREMENT, DEATH OR DISABILITY. If a Holder retires at the age of 65 or above, dies, or becomes disabled (within the meaning of Section 22(e) (3) of the IRC) while a director of the Company, the Holder, the personal representative of the Holder or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, or the disabled Holder, shall have the right, not later than the earlier of (i) three years from 7 4 the date of the Holder's retirement, death or disability or (ii) the termination date of the option as set forth in the Option Agreement, to exercise such option to the extent the right to exercise such option shall have accrued at the date of such retirement, death or disability, except to the extent such option theretofore shall have been exercised. 11. PAYMENT FOR STOCK. (a) The purchase price of Stock issued upon exercise of options granted hereunder shall be paid in full on the date of purchase. Payment shall be made either in cash or such other consideration as the Administrator deems appropriate, including, without limitation, Stock already owned by the Holder or Stock to be acquired by the Holder upon exercise of the option having a total fair market value, as determined by the Administrator, equal to the purchase price, or a combination of cash and Stock having a total fair market value, as so determined, equal to the purchase price. (b) Stock shall not be issued upon the exercise of options unless and until the aggregate amount of federal, state or local taxes of any kind required by law to be withheld, if any, with respect to the exercise of such options have been paid or satisfied or provision for their payment and satisfaction has been made upon such terms as the Administrator may prescribe, including, without limitation, payment of any such taxes by exchanging shares of Stock previously owned by the Holder or acquired upon the exercise of an option. 12. STOCK ADJUSTMENTS. (a) The total amount of Stock for which options shall be granted under the Plan and option terms (both as to the number of shares of Stock and the price of the option) shall 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 accordance with the provisions contained in the following paragraph) in the event of a consolidation or a merger in which the Company will be the surviving corporation. (b) After any merger of one or more corporations into the Company in which the Company shall be the surviving corporation, or after any consolidation of the Company and one or more other corporations, each Holder shall, at no additional cost, be entitled, upon any exercise of his option, to receive, in lieu of the number of shares of Stock as to which such option shall then be so exercised, the number and class of shares of stock or other securities to which such Holder would have been entitled pursuant to the terms of the applicable agreement of merger or consolidation if at the time of such merger or consolidation such Holder had been a Holder of record of a number of shares of Stock equal to the number of shares for which such option may then be so exercised. Comparable rights shall accrue to each Holder in the event of successive mergers or consolidations of the character described above. 8 5 (c) In the event of any sale of all or substantially of the assets of the Company, or any merger of the Company into another corporation, or any dissolution or liquidation of the Company or, in the discretion of the Board, any consolidation or other reorganization in which it is impossible or impracticable to continue in effect any options, all options granted under the Plan and not previously exercised shall terminate unless exercised at least one business day before the scheduled closing of such event; provided, that any such exercise or termination shall be conditioned on the closing of such transaction; and provided further, that the Board may, in its discretion, require instead that all options granted under the Plan and not previously exercised shall be assumed by such other corporation on the basis provided in the preceding paragraph to the extent possible or practical. (d) The adjustments described in this Section 12 and the manner of application of the foregoing provisions shall be determined by the Board in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an option. 13. RIGHTS AS A STOCKHOLDER. A Holder or a transferee of an option shall have no rights as a stockholder with respect to any share of Stock covered by such Holder's option until such Holder has become the holder of record of such share of Stock, and, except for stock dividends as provided in Section 12 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such share for which the record date is prior to the date on which he or she shall become the holder of record thereof. 14. AMENDMENT AND TERMINATION. The Board may at any time terminate, amend or modify the Plan in any respect it deems suitable without the approval of the stockholders of the Company; provided however, that no such action of the Board, without the approval of the stockholders of the Company, may (i) increase the total amount of Stock on which options may be granted under the Plan, (ii) change the manner of determining the option price, (iii) change the class of individuals eligible to receive options, (iv) change the number of options which may be granted to each director or (v) change the times when such options are granted; provided, further, that no amendment, modification or termination of the Plan may in any manner affect any option theretofore granted under the Plan without the consent of the then Holder. Notwithstanding the foregoing, the Plan may not be amended more than once in any six-month period except to comply with changes in the IRC, the Employee Retirement Income Security Act of 1974, as amended ("ERI "), or any rules or regulations promulgated under either the IRC or ERISA. 9 6 15. INVESTMENT PURPOSE. At the time of exercise of any option, the Company may, if it shall deem it necessary or desirable for any reason, require the Holder to (i) in the absence of an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), represent in writing to the Company that it is such Holder's then intention to acquire the Stock for investment and not with a view to the distribution thereof or (ii) postpone the date of exercise until such time as the Company has available for delivery to the Holder a prospectus meeting the requirements of all applicable securities laws. 16. RIGHT TO REMOVE DIRECTOR. Nothing contained herein or in any Option Agreement shall restrict the right of the stockholders of the Company to remove any Holder as director at any time, with or without cause, or shall constitute or be evidence of any agreement or understanding, express or implied, that the Company shall retain a director for any period of time, or at any particular rate of compensation. 17. FINALITY OF DETERMINATIONS. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Administrator shall be final and be binding and conclusive for all purposes. 18. INDEMNIFICATION OF DIRECTORS. Each director of the Company, solely in his or her capacity as a director, shall be indemnified by the Company against all costs and expenses reasonably incurred by such director in connection with any action, suit or proceeding to which he or she or any of the other directors may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any option granted thereunder, and against all amounts paid in settlement thereof (provided such settlement shall be approved by independent legal counsel) or paid in satisfaction of a judgment in any such action, suit or proceeding, to the extent permitted by Delaware law. Upon the institution of any such action, suit or proceeding, a director of the Company shall notify the Company in writing, giving the Company an opportunity, at its own expense, to handle and defend the same before such director undertakes to handle it on his or her own behalf. 19. FEDERAL INCOME TAX CONSEQUENCES. Under the present provisions of the IRC, the federal income tax consequences of participating in the Plan may be summarized as follows: This summary is of general application only and its application to any individual will depend on that individual's circumstances. The summary does not address the effect of state and local income tax laws. The Plan is not subject to the provisions of Section 401 (a) of the IRC or ERISA. 10 7 The recipient of an option shall not recognize income upon the grant of the option, but, upon exercise, generally shall recognize ordinary income in an amount equal to the difference between the fair market value of the Stock acquired on the exercise date and the option price. The Company generally shall be entitled to a tax deduction at the same time and in the same amount as the income recognized. If an option is exercised within six months of the date of grant and the Holder is restricted from selling the Stock acquired upon exercise because of the restrictions of Section 16(b) of the Exchange Act, unless the Holder elects under Section 83(b) of the IRC to be taxed immediately, he or she shall recognize ordinary income (and the Company shall be entitled to a deduction) at the end of the restricted period imposed by Section 16(b) in an amount equal to the difference between the fair market value of the Stock at that time and the option price. If the Holder pays the option price entirely in cash for tax purposes, his or her basis in the shares of Stock received shall be equal to their fair market value on the exercise date (or the date on which the Section 16(b) period expires, if applicable), and the holding period for tax purposes shall begin on the day following the exercise date. 20. GOVERNING LAW. The Plan shall be governed by the laws of the State of Delaware. 21. EFFECTIVE DATE. The Plan shall become effective upon the date of its adoption by the Board. However, if the Plan is not approved by the stockholders, the Plan shall be null and void. 22. OVERRIDE. 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. 11 8 EXHIBIT A U.S. HOME CORPORATION 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN STOCK OPTION AGREEMENT OPTION AGREEMENT, dated as of , 199 between U.S. HOME CORPORATION, a Delaware corporation (the "Company"), and (the "Holder"). 1. PURPOSE. The purpose of this Stock Option Agreement (this "Agreement") is to set forth the terms and conditions of the stock option granted to the Holder under the 1998 Non-Employee Directors' Stock Option Plan (the "Plan"). The terms and conditions (including defined terms) of the Plan are expressly incorporated herein and made a part hereof with the same force and effect as if fully set forth herein. The acceptance by the Holder of the Option (as hereinafter defined) granted hereby shall constitute acceptance of and agreement with all of the terms and conditions contained in this Agreement and the Plan. 2. GRANT OF OPTION. The Company hereby grants to the Holder an option (the "Option") to purchase all or any part of an aggregate of [5,000] [1,000] shares of the Company's common stock, $.01 par value per share (the "Stock"), at a price of $ * per share (the "Exercise Price"), subject to adjustment as herein provided. Such Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC"). 3. TERM. Subject to Sections 4, 5 and 13 hereof, the Option shall be exercisable in whole or in part at any time on or after the date hereof; provided, however, that the Option shall expire on the date 10 years from the date hereof. Any exercise shall be accompanied by a written notice to the Company in substantially the form attached hereto as Schedule 1. - --------------- *To be determined pursuant to Section 6 of the Stock Option Plan. 1 9 4. TERMINATION OF DIRECTORSHIP. If, on or after the date the Option is granted, the Holder (i) resigns as a director of the Company or (ii) is removed as a director of the Company by the stockholders of the Company, with or without cause, the Holder shall have the right, not later than the earlier of (A) three months after such resignation or removal or (B) the termination date of the Option set forth herein, to exercise the Option, to the extent the right to exercise the Option shall have accrued at the date of such resignation or removal, except to the extent that the Option theretofore shall have been exercised. 5. RETIREMENT, DEATH OR DISABILITY. If the Holder retires at the age of 65 or above, dies, or becomes disabled (within the meaning of Section 22(e)(3) of the IRC) while a director of the Company, the Holder, the personal representative of the Holder or the person or persons to whom the Option shall have been transferred by will or by the laws of descent and distribution, or the disabled Holder, will have the right, not later than the earlier of (i) three years from the date of the Holder's retirement, death or disability or (ii) the termination date of the Option set forth herein, to exercise the Option to the extent the right to exercise the Option shall have accrued at the date of such retirement, death or disability, except to the extent the Option theretofore shall have been exercised. 6. TRANSFERABILITY. The Option shall not be transferable by the Holder other than by will or the laws of descent and distribution. During the lifetime of the Holder, the Option shall be exercisable only by such Holder. If the Holder acquires Stock hereunder, the Holder shall only transfer such Stock in compliance with applicable federal and state securities laws. 7. PAYMENT OF EXERCISE PRICE. Payment for shares of Stock issued upon exercise of the Option shall be paid in full on the date of purchase. Payment shall be made either in cash or in such other consideration as the Administrator (as defined in the Plan) seems appropriate. Notwithstanding the foregoing, shares of Stock shall not be issued upon exercise of the Option unless and until the aggregate amount of Federal, state and local taxes of any kind required to be withheld, if any, with respect to such exercise have been paid or satisfied or provision for their payment and satisfaction has been made upon such terms as the Administrator may prescribe. 8. ADJUSTMENT TO OPTION. The number of shares of Stock subject to the Option and the Exercise Price shall be adjusted, as necessary, in accordance with the provisions of Section 12 of the Plan. 2 10 9. NO RIGHTS AS STOCKHOLDER. The Holder shall have no rights as a stockholder with respect to any Stock covered by the Option until such person has become the holder of record of such Stock, and, except for stock dividends as provided in Section 12 of the Plan, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such Stock for which the record date is prior to the date on which he or she shall become the holder of record thereof. 10. RIGHT TO REMOVE DIRECTOR. Nothing contained herein or in any Option Agreement shall restrict the right of the stockholders of the Company to remove any Holder as director at any time, with or without cause, or shall constitute or be evidence of any agreement or understanding, express or implied, that the Company shall retain a director for any period of time, or at any particular rate of compensation. 11. REPRESENTATIONS. At the time of any exercise of the Option, the Company may, if it shall deem it necessary or desirable for any reason, require the Holder to (i) in the absence of an effective registration statement under the Securities Act of 1933, as amended, represent in writing to the Company that it is his then intention to acquire the Stock for investment and not with a view to the distribution thereof or (ii) postpone the date of exercise until such time as the Company has available for delivery to the Holder a prospectus meeting the requirements of all applicable federal or state securities laws. 12. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware. 3 11 13. STOCKHOLDER APPROVAL. Any Option granted under the Agreement shall not be exercisable unless or until the Plan shall have been approved by the stockholders of the Company in accordance with the provisions of Section 21 of the Plan. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. U.S. HOME CORPORATION By: ------------------------ Name: ---------------------- Title: --------------------- Holder --------------------------- Signature Name: ---------------------- Address: ------------------- --------------------------- 4 12 SCHEDULE 1 U.S. Home Corporation 1800 West Loop South Houston, Texas 77252 Attention: Secretary Re: Notice of Exercise of Stock Option Dear Sir: I am the holder of the below-described option to acquire shares of common stock, $.01 par value per share (the "Common Stock"), of U.S. Home Corporation (the "Company") granted under the U.S. Home Corporation 1998 Non-Employee Directors' Stock Option Plan:
Number of Shares Exercise Price DATE OF OPTION Subject to Option per Share -------------- ----------------- --------------
I hereby exercise my option to purchase shares of Common Stock and tender the purchase price therefor, reserving my right to purchase any remaining shares of Common Stock subject to the option in accordance with its terms. Dated: Very truly yours, ------------------------------ Signature Name: ------------------------ Address: --------------------- ------------------------------ EX-10.17 5 U.S. HOME CORP INCENTIVE PROGRAM 1/1/98 - 12/31/98 1 EXHIBIT 10.17 (10/24/97) U.S. HOME CORPORATION CORPORATE OFFICERS'(1) INCENTIVE COMPENSATION PROGRAM FOR THE INCENTIVE PERIOD JANUARY 1, 1998 TO DECEMBER 31, 1998 Set forth below is an outline of the Corporate Officers' Incentive Compensation Program for the incentive period January 1, 1998 to December 31, 1998 ("Incentive 1998"). Corporate Officers who are employed by the Corporation as of January 1, 1998 will be eligible to participate in the Corporate Officers' Incentive Compensation Program for the period commencing January 1, 1998 and ending December 31, 1998. Effective January 1, 1998, base salaries are established as set forth in Exhibit A hereto. Under this Program, an incentive compensation pool equal to the lessor of $850,000 or 2% of the pre-tax profits of the Corporation earned in fiscal 1998, 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, 1998 as compared to the projected profit and loss for the period January 1, 1998 through December 31, 1998 as set forth in the 1998 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, 1998 through December 31, 1998 as set forth in the 1998 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 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 1998 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, 1998, 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 1998 audited financial statements. 2. If the respective Corporate Officer shall not own of record beneficially, as of the last trading day of December, 1998, 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, 1998, but in no event will such price of such said shares be less than 95% of the Current Market Price (as defined in the Warrant Agreement, dated as of June 21, 1994, as amended, between the Company and The First National Bank of Chicago, as Warrant Agent). Said shares shall be held in escrow by the Company to be delivered to the respective Corporate Officers as follows: - -------------- (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 i) 1/2 of such shares shall be delivered to the Corporate Officer within thirty (30) days following receipt of the 1998 audited financial statements. ii) 1/2 of such shares shall be delivered to the Corporate Officer on or prior to January 31, 2001. However, in order to receive such shares, the Corporate Officer must remain in the employ of the Corporation as of December 31, 2000. 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. 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 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 II Corporation Delaware
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 6, 1998 included in this Form 10-K, into the Company's previously filed Registration Statements No. 33-64712, 33-52993, 333-02775, 333-25759 and 333-43009. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Houston, Texas February 13, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 11,762 0 111,804 0 789,236 0 0 0 1,067,114 0 395,918 0 0 119 419,659 1,067,114 0 1,319,752 1,059,571 1,209,646 0 0 35,206 74,900 27,713 47,187 0 8,650 0 38,537 3.33 2.88
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