-----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, IUzh+3iasjKL9egXJ0mY1kkPMnlHiACvCPozoHpG+nrU20gXbZIK/YtHl3g5qK49 A/TFH+45UzKUwW7cc3+D2Q== 0000950148-97-000496.txt : 19970303 0000950148-97-000496.hdr.sgml : 19970303 ACCESSION NUMBER: 0000950148-97-000496 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970228 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAUFMAN & BROAD HOME CORP CENTRAL INDEX KEY: 0000795266 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 953666267 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09195 FILM NUMBER: 97546946 BUSINESS ADDRESS: STREET 1: 10990 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3102314000 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM --------------- TO ---------------. COMMISSION FILE NO. 1-9195 KAUFMAN AND BROAD HOME CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) INCORPORATED IN DELAWARE 95-3666267 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE 10 3/8% SENIOR NOTES DUE 1999 NEW YORK STOCK EXCHANGE 9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE 9 5/8% SENIOR SUBORDINATED NOTES DUE 2006 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. [ ] THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE COMPANY ON JANUARY 31, 1997 WAS $543,388,439. THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK ON JANUARY 31, 1997 WAS AS FOLLOWS: Common Stock (par value $1.00 per share) 38,818,951 shares DOCUMENTS INCORPORATED BY REFERENCE 1996 Annual Report to Stockholders (incorporated into Part II). Notice of 1997 Annual Meeting of Stockholders and Proxy Statement (incorporated into Part III). ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL The Company is a builder of single-family homes with domestic operations in seven western states, and international operations in France and Mexico. Domestically, the Company is the largest homebuilder west of the Mississippi River, delivering more single-family homes than any other builder in the region. Founded in 1957, the Company builds innovatively designed homes which cater primarily to first-time home buyers, generally in medium-sized developments close to major metropolitan areas. Internationally, the Company is among the largest builders in greater metropolitan Paris, France, based on the number of homes delivered. In France, the Company also builds commercial projects and high-density residential properties, such as condominium and apartment complexes. The Company provides mortgage banking services to domestic home buyers through its wholly owned subsidiary, Kaufman and Broad Mortgage Company ("KBMC"). The Company is a Delaware corporation and maintains its principal executive offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its telephone number is (310) 231-4000. As used herein, the term "Company" refers to Kaufman and Broad Home Corporation and its subsidiaries, unless the context indicates otherwise. MARKETS The Company's principal geographic markets are: California; other United States (Nevada, Arizona, Colorado, New Mexico, Utah and Texas); the greater metropolitan area of Paris, France; and Mexico City, Mexico. The Company delivered its first homes in California in 1963, France in 1970, Toronto in 1971, Nevada in 1993, Arizona and Colorado in 1994, New Mexico and Utah in 1995, and Texas and Mexico in 1996. In recent years, the Company has focused on expansion of its domestic operations outside of California where the new home market remains soft. The Company established a significant position in the San Antonio, Texas metropolitan area in 1996 through its acquisition of Rayco, Ltd. ("Rayco"), San Antonio's largest homebuilder. Additionally, in Texas the Company commenced start-up operations in Dallas during the year and began operations in Austin in early 1997. To enhance its operating capabilities in regional submarkets, the Company conducted its domestic homebuilding business in 1996 through nine divisional offices and three satellite offices in California, one divisional office in each of Nevada, Arizona, Colorado, New Mexico and Utah, and two divisional offices in Texas. Internationally, the Company operates its construction business through two divisional offices in France and one divisional office in Mexico. California. During the 1980s, the Company benefited from the relative strength and growth of the California housing market. However, in five of the last seven years, new housing permits issued in the state have declined. New housing permits issued in California increased approximately 9% in 1996 from 1995 but remain at historically low levels. In addition, the Company's strategy of emphasizing more selective investment in California to improve overall return on investment resulted in the Company's California deliveries decreasing nearly 5% from the previous year to 5,171 units in 1996. This decrease marked the second straight year that the Company's California deliveries fell below prior year levels after five previous years of increased deliveries. The Company's shift away from a market share focus resulted in its California market share decreasing to 7.3% in 1996 from the approximately 8% share it had maintained since 1993. Despite this decrease, however, the Company continues to have the largest market share in California, with its closest competitor having a market share totaling less than half that of the Company. In Southern California, the Company concentrates its home building activity in Los Angeles, Kern, San Bernardino, Riverside, Ventura, Orange and San Diego counties. In Northern California, the Company's activities are concentrated in the San Francisco Bay-Oakland-San Jose, Monterey Bay, Sacramento, Central Valley and Fresno regions. Most of the communities developed by the Company in California consist of single-family detached homes primarily designed for the entry-level housing market. These homes ranged in size from approximately 1,000 to 3,000 square feet in 1996 and sold at an average price of $192,900, well below the statewide new home average of $223,000, 1 3 as a result of the Company's emphasis on the entry-level market. Nevertheless, the Company's 1996 average selling price in California increased from the prior year reflecting a shift in mix to relatively higher-priced homes. Other United States. The greatly improved business conditions in other western states coupled with the diminished prospects for growth in California, the Company's largest market, resulting from its prolonged economic downturn, caused the Company to look for opportunities to expand its domestic operations outside the state since the early 1990's. The Company began to implement its expansion strategy in 1993 with the opening of its Nevada division and since that time has developed a track record of profitable growth outside of California. In 1996, the Company's other U.S. operations delivered 4,294 units, up nearly 139% from the prior year, primarily due to the Rayco acquisition. The Company's domestic operations outside of California accounted for approximately 45% of domestic home deliveries in 1996, compared to approximately 25% in 1995. The increase in the proportion of domestic deliveries outside of California in 1996 was primarily due to the Company's acquisition of Rayco, San Antonio, Texas' largest homebuilder, on March 1, 1996. The Company acquired the San Antonio business for a total purchase price of $104.5 million, including cash to pay off certain assumed debt. With the acquisition, the Company established a significant position in the San Antonio metropolitan area, where Rayco commanded a 42% share of the new home market in 1996. The acquisition was accounted for as a purchase, with the results of the San Antonio operations included in the Company's financial statements as of March 1, 1996, the date of acquisition. The communities developed by the Company's other U.S. divisions primarily consist of single-family detached entry-level homes. These homes ranged in size from approximately 900 to 2,500 square feet in 1996 and sold at an average price of $119,700. The average selling price of the Company's other U.S. homes decreased in 1996 from $136,300 in 1995 as a result of the inclusion of the newly acquired San Antonio operations which had an average selling price of $93,400 in 1996. Excluding the results of San Antonio, the Company's average selling price for other U.S. homes was $143,200 in 1996. France. The French residential and commercial real estate markets, particularly within the greater metropolitan Paris region, where the Company's operations are concentrated, experienced substantial growth through the second half of the 1980s, as a strong economy and approaching European market unification fueled business expansion and individual home purchases. In the early 1990s, however, the French economy experienced a significant recession reflecting low consumer confidence, high unemployment and declines in both consumer and business investments in real estate. The French economy improved modestly in 1996, and the Company continues to believe that the greater Paris metropolitan area, which is the principal population, economic and government center of France, continues to offer long-term growth potential for residential builders. In 1996, the Company's French operations were profitable with housing deliveries increasing approximately 31% to 749 units in 1996. The French home building operations focused primarily on single-family detached and attached homes in 1996, ranging in size from approximately 800 to 2,220 square feet with an average selling price of $206,600. The French commercial operations, which has been engaged in developing commercial office buildings in Paris for sale to institutional investors, has become a smaller segment of the French operations in recent years. With the completion of large projects in the early 1990's, the level of commercial operations has declined as the market absorbs existing commercial properties. French commercial activities are likely to remain at or below depressed 1996 levels as that market continues to absorb existing properties and vacancy rates remain high in a generally weak economic climate. Canada. In 1996, the Company received proceeds of $9.5 million from the sale of all of the issued and outstanding shares of its Canadian subsidiary. These proceeds were used to reduce the Company's debt. As the Company had been slowly winding down its operations in Canada over the past several years, the impact of the sale on the Company's financial position and results of operations was not significant. Mexico. In 1993, the Company determined that the then-projected growth in the Mexican economy and housing shortages in that country's major metropolitan areas would represent a unique opportunity for the Company and, on that basis, established a new housing operation in Mexico City. In 1996, the Company delivered its first homes from a community near Mexico City and generated 39 net orders during the year. Nevertheless, the new home market in Mexico remains seriously hampered by the decline in value of the peso in early 1995 and the resulting economic recession created thereby. During 1997, the Company expects to continue to closely monitor its level of activity in Mexico and the desirability of expanding its market presence there. 2 4 Unconsolidated Joint Ventures. The Company currently participates in the development, construction and sale of residential properties and commercial projects through a number of unconsolidated joint ventures. These include joint ventures in California, New Mexico and France. Selected Market Data. The following table sets forth, for each of the Company's principal markets, unit deliveries, average selling price of homes and total construction revenues for the years ended November 30, 1996, 1995 and 1994 (excluding the effect of unconsolidated joint ventures).
YEARS ENDED NOVEMBER 30, --------------------------------- 1996 1995 1994 --------- --------- --------- California: Unit deliveries............................................. 5,171 5,430 6,238 Average selling price....................................... $ 192,900 $ 176,800 $ 165,900 Total construction revenues (in millions)(1)................ $ 1,058.0 $ 971.1 $ 1,048.1 Other United States: Unit deliveries............................................. 4,294 1,800 834 Average selling price....................................... $ 119,700 $ 136,300 $ 114,900 Total construction revenues (in millions)(1)................ $ 516.9 $ 247.0 $ 101.1 France: Unit deliveries............................................. 749 574 685 Average selling price(2).................................... $ 206,600 $ 203,700 $ 182,300 Total construction revenues (in millions)(1)(2)............. $ 171.4 $ 138.6 $ 143.4 Other: Unit deliveries............................................. 35 53 67 Average selling price(2).................................... $ 212,500 $ 99,400 $ 97,300 Total construction revenues (in millions)(1)(2)............. $ 7.9 $ 10.2 $ 15.0 Total: Unit deliveries............................................. 10,249 7,857 7,824 Average selling price(2).................................... $ 163,300 $ 168,900 $ 161,300 Total construction revenues (in millions)(1)(2)............. $ 1,754.2 $ 1,366.9 $ 1,307.6
- ------------ (1) Total construction revenues include revenues from residential development and commercial activities and land sales. (2) Average selling prices and total construction revenues for France and Other (Canada and Mexico) have been translated into U.S. dollars using weighted average exchange rates for each period. LOCAL EXPERTISE Management believes that its business requires in-depth knowledge of local markets in order to acquire land in desirable locations and on favorable terms, to engage subcontractors, to plan communities keyed to local demand, to anticipate customer tastes in specific markets and to assess the regulatory environment. Accordingly, the Company's divisional structure is designed to utilize local market expertise. The Company has experienced management teams in each of its regional submarkets. Although the Company has centralized certain functions, such as marketing, materials purchasing and product development, to benefit from economies of scale, local management continues to exercise considerable autonomy in identifying land acquisition opportunities, developing sales strategies, conducting production operations and controlling costs. In France, the Company has assembled a French management team which is highly experienced in its single-family housing and commercial real estate businesses as well as the financing, development, construction and rehabilitation of high-density residential projects. This expertise includes knowledge of local markets and the regulatory environment. INNOVATIVE DESIGN AND MARKETING STRATEGY The Company believes that it has been and continues to be an innovator in the design of entry-level homes for the first-time buyer. The Company's in-house architectural services group, whose plans are protected by copyright, has been successful in creating distinctive design features that are not typically found in comparably priced homes. Most recently, in selected markets throughout the western United States, the Company has begun to develop the U Series(TM) - -- innovative new homes which offer buyers wide ranges of square footages and room counts along with a range of 3 5 personalization options. The U Series(TM) is designed to keep construction costs and base prices as low as possible while meeting customer desires and promoting increased customer choice. In France, the Company created a village concept through the elimination of front-yard walls and the extensive use of landscaping. It also introduced to the French market the American concept of a master bedroom suite, as well as walk-in closets, built-in kitchen cabinetry and two-car garages. The Company believes that in each of its residential markets, its value engineering enables it to offer appealing and well-designed homes without increasing construction costs. In all of its residential markets, the sale of homes is carried out by the Company's in-house sales force. The Company markets its homes principally through the use of fully furnished and landscaped model homes which are decorated to emphasize the distinctive design features. The Company also markets its homes through various types of media, including newspaper advertisements, highway signs and direct mail. In addition, the Company extends its marketing programs beyond these more traditional approaches through the use of television advertising, off-site telemarketing, large-scale promotions and the internet. Recently, the Company adopted a program in its domestic operations to encourage participation of outside real estate brokers in bringing prospective buyers to its communities. COMMUNITY DEVELOPMENT The community development process generally consists of three phases: land acquisition; land development; and home construction and sale. The normal development cycle for a community has historically ranged from six to 20 months in California and is typically of a somewhat shorter duration in the Company's other U.S. markets. In France, the development cycle has historically ranged from 12 to 30 months. Development cycles vary depending on the extent of the government approvals required, the size of the development, the site preparation necessary and marketing results. When feasible, the Company acquires finished lots within its pricing parameters, enabling it to deliver completed homes shortly after acquisition. The total number of lots in the Company's domestic new home communities vary significantly but typically are comprised of 50 to 250 lots. These domestic developments usually include three or more different home designs, and in 1996 generally offered lot sizes ranging from approximately 3,400 to 8,200 square feet. In prior years, the Company also acquired undeveloped and/or unentitled properties, often with total lots significantly in excess of 250 lots; however, the acquisition of such properties is not consistent with the Company's current land investment strategy. During 1996, the Company decided to substantially eliminate its prior practice of investing in such long term development projects in order to reduce the risks associated with such projects and to facilitate pursuit of its four key operating strategies for the year: geographic diversification, increased emphasis on return on investment, planned debt reduction and improved operating margins. In France, typical single-family developments consist of approximately 40 lots, with lot sizes generally ranging from 2,700 to 5,400 square feet. Land Acquisition and Development. The Company utilizes an in-house staff of land acquisition specialists at each division who carry out extensive site selection research and analysis in order to identify properties in desirable locations consistent with the Company's market strategy. In acquiring land, the Company considers such factors as: current market conditions, with an emphasis on the prices of comparable new and resale homes in the particular market; proximity to metropolitan areas; population, industrial and commercial growth patterns; estimated costs of completed lot development; customer preferences; and environmental matters. Senior corporate management controls the commitment of the Company's resources for land acquisition and utilizes a series of specific financial and budgetary controls, including after tax internal rate of return requirements, in approving acquisition opportunities identified by division land acquisition personnel. In 1995, the Company implemented stricter standards for assessing all proposed land purchases based, in part, upon specific discounted after tax cash flow internal rate of return requirements and the Company began evaluating its operating divisions based upon overall return on investment. Consistent with this change, the Company seeks to minimize, or defer the timing of, cash expenditures for new land purchases and development by acquiring lots under option, phasing the land purchase and lot development, relying upon non-recourse seller financing or working with third party land developers. In addition, the Company focuses on acquiring finished or partially improved lots, which allow the Company to begin delivery of finished homes within six months of the purchase of such lots and reduces the risks of unforeseen improvement costs and volatile market conditions. These techniques are intended to enhance returns associated with new land investments by minimizing the incremental capital required. In the second quarter of 1996, the Company decided to accelerate the disposition of certain real estate assets in order to facilitate pursuit of its four key operating strategies. Specifically, the disposition of these assets helped effectuate the 4 6 Company's strategies to improve overall return on investment, restore financial leverage to targeted levels, and position the Company for continued geographic expansion. In addition, the Company substantially eliminated its prior practice of investing in long term development projects in order to reduce the operating risk associated with such projects. The accelerated disposition of long term development assets caused certain assets, primarily inventories and investments in unconsolidated joint ventures in California and France, to be identified as being impaired and to be written down. Certain of the Company's California properties were impacted by the charge, while none of its non-California domestic properties were affected. The Company's non-California domestic properties were not affected since they were not held for long term development and were expected to be economically successful such that they were determined not to be impaired. The Company's focus on its key operating strategies also resulted in reductions in new land purchases and inventory investment in California during 1996 as a step toward improving the Company's overall return on equity over time. Cash flow available from reduced California investment was used to fund the Company's expansion into other western states, as well as to reduce the Company's overall leverage as measured by the ratio of debt to total capital. The following table shows the number of lots owned by the Company in various stages of development and under option contracts in its principal markets as of November 30, 1996 and 1995. The table does not include acreage which has not yet been approved for subdivision into lots. This excluded acreage consists of 1,118 acres owned in the United States in 1996 and 1,089 acres and 223 acres owned in the United States and other areas, respectively, in 1995.
TOTAL LOTS HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR PRODUCTION DEVELOPMENT OPTION UNDER OPTION --------------- --------------- -------------- --------------- 1996 1995 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ----- ------ ------ ------ California........... 6,545 9,698 7,960 11,331 7,689 10,338 22,194 31,367 Other United States............. 5,897 2,046 3,877 825 1,554 2,515 11,328 5,386 France............... 477 694 217 547 275 373 969 1,614 Other................ 75 153 90 158 -- -- 165 311 ------ ------ ------ ------ ----- ------ ------ ------ Total...... 12,994 12,591 12,144 12,861 9,518 13,226 34,656 38,678 ====== ====== ====== ====== ===== ====== ====== ======
While the Company has significantly reduced the proportion of unentitled and unimproved land purchases in its portfolio, when all acquired property is considered, the Company has and expects to continue to purchase raw land under options which require little or no initial payments, or pursuant to purchase agreements in which the Company's obligations are contingent upon the Company being satisfied with the feasibility of developing and selling homes. During the option period of its acquisition agreements, the Company performs technical, environmental, engineering and entitlement feasibility studies and seeks to obtain necessary government approvals. The use of such option arrangements allows the Company to evaluate and obtain regulatory approvals for a project, to reduce its financial commitments, including interest and other carrying costs, and to minimize land inventories. It also improves the Company's capacity to estimate costs accurately, an important element in planning communities and pricing homes. The Company only purchases amounts sufficient for its expected production needs and does not purchase land for speculative investment. In France, as a result of the continued uncertainty in the French real estate market, the Company is employing a number of recession-conscious strategies, including a greater emphasis on the entry-level market segment and generally more restrictive policies regarding new land acquisition. Home Construction and Sale. Following the purchase of land and, if necessary, the completion of the entitlement process, the Company typically begins marketing homes and constructing the model homes. The construction of production homes is generally contingent upon customer orders to minimize the costs and risks of standing inventory. As part of its debt reduction program in 1996, the Company focused on contracting for sales prior to construction ("pre- selling"), maintaining stringent control of production inventory and reducing unsold inventory in production. As a result, unsold inventory units at year end 1996 declined 44% versus prior year end, and the percentage of sold inventory in production at year end 1996 was 44%, up from 31% at prior year end. The pre-selling of homes also benefits home buyers, allowing them to personalize their homes by selecting from a wider range of options. The Company acts as the general contractor for its communities and hires subcontractors for all production activities. The use of subcontractors enables the Company to reduce its investment in direct labor costs, equipment and facilities. Where practical, the Company uses mass production techniques, construction on contiguous lots, and prepackaged, 5 7 standardized components and materials to streamline the on-site production phase. During the early 1990s, the Company developed systems for national and regional purchasing of certain building materials, appliances and other items to take advantage of economies of scale and to reduce costs. At all stages of production, the Company's own administrative and on-site supervisory personnel coordinate the activities of subcontractors and subject their work to quality and cost controls. The Company generally prices its homes only after it has entered into contracts for the construction of such homes with subcontractors, an approach which improves its ability to estimate costs accurately. The Company provides customers with a limited home warranty program administered by the personnel in each of its divisions. This arrangement is designed to give customers prompt and efficient post-delivery service. The warranty program covers certain repairs which may be necessary following new home construction and covers structural integrity for a period of ten years. In the aggregate, the costs associated with the Company's warranty program are not material to its operations. CYCLICALITY The Company's business, and the housing industry in general, are cyclical. The Company's operations and markets are affected by local and regional factors such as local economies, demographic demand for housing, population growth, property taxes and energy costs, and by national factors such as short and long-term interest rates, federal mortgage financing programs, federal income tax provisions and general economic trends. In addition, homebuilders are subject to various risks including availability and cost of land, conditions of supply and demand in local markets, weather conditions, and delays in construction schedules and the entitlement process. Net orders often vary on a seasonal basis, with the lowest sales activity typically occurring in the winter months. The Company's 1996 financial results were affected by various factors, including but not limited to, the continued low level of demand for new housing in California and weak economic conditions in France, offset by generally favorable economic conditions in the Company's other U.S. markets. BACKLOG Sales of the Company's homes are made pursuant to standard sales contracts which generally require a customer deposit at the time of execution and an additional payment upon mortgage approval. Subject to particular contract provisions, the Company generally permits customers to cancel their obligations and obtain refunds of their deposits in the event mortgage financing is unobtainable within a specified period of time. Backlog consists of homes for which the Company has entered into a sales contract but which it has not yet delivered. Ending backlog represents the number of units in backlog from the previous period plus the number of net orders (sales made less cancellations) taken during the current period minus unit deliveries made during the current period. The backlog at any given time will be affected by cancellations which most commonly result from the inability of a prospective purchaser to obtain financing. Historically, the Company's cancellation rates have increased during difficult economic periods. In addition, deliveries of new homes typically increase from the first to the fourth quarter in any year. Although the Company usually experiences a relatively low backlog of orders at year end, the Company's backlog at November 30, 1996 stood at 2,839 units, more than double the 1,412 units at year end 1995. This increase was due to the acquisition of the San Antonio operations, as well as the Company's new strategy to emphasize the pre-selling of homes. 6 8 The following table sets forth net orders, unit deliveries and ending backlog relating to sales of homes and homes under contract for each quarter during the three-year period ended November 30, 1996.
NET UNIT ENDING ORDERS DELIVERIES BACKLOG* ------ ---------- -------- Fiscal 1996: First Quarter......................... 1,976 1,683 1,705 Second Quarter........................ 3,238 2,883 3,497 Third Quarter......................... 2,650 2,749 3,398 Fourth Quarter........................ 2,375 2,934 2,839 Fiscal 1995: First Quarter......................... 1,636 1,367 1,285 Second Quarter........................ 2,241 1,875 1,651 Third Quarter......................... 2,311 2,111 1,851 Fourth Quarter........................ 2,065 2,504 1,412 Fiscal 1994: First Quarter......................... 1,684 1,539 1,204 Second Quarter........................ 2,035 1,954 1,285 Third Quarter......................... 2,078 2,082 1,281 Fourth Quarter........................ 1,984 2,249 1,016
* Backlog amounts for 1996 have been adjusted to reflect the San Antonio acquisition and the disposition of the Canadian operations. Therefore, backlog amounts at November 30, 1995 combined with net order and delivery activity for 1996 will not equal ending backlog at November 30, 1996. LAND AND RAW MATERIALS Management believes that the Company's current supply of land is sufficient for its reasonably anticipated needs over the next couple of years, and that it will be able to acquire land on acceptable terms for future housing developments. The principal raw materials used in the construction of homes are concrete and forest products. In addition, the Company uses a variety of other construction materials, including sheetrock, plumbing and electrical items. The Company attempts to maintain efficient operations by utilizing standardized materials which are commercially available on competitive terms from a variety of sources. Since 1992, the Company has increasingly utilized centralized purchasing of certain building materials, appliances and fixtures, enabling it to benefit from large quantity purchase discounts for its domestic operations. The Company makes bulk purchases of such products at favorable prices from suppliers and instructs subcontractors to submit bids based on such prices. The principal materials used in the construction of French commercial buildings are steel, concrete and glass. LAND SALES In the normal course of its business, the Company sells land which either can be sold at an advantageous price due to market conditions or does not meet its marketing needs. This property may consist of land zoned for commercial use which is part of a larger parcel being developed for single-family homes or in areas where the Company may consider its inventory to be excessive. Generally, land sale revenues fluctuate based on the Company's decisions to maintain or decrease its land ownership position in certain markets, the strength and number of competing developers entering particular markets at given points in time, the availability of land in markets served by the Company's housing divisions, or prevailing market conditions. Land sale revenues totaled $68.2 million in 1996, $18.2 million in 1995 and $27.2 million in 1994. The higher level of land sales in 1996 was largely due to an aggressive asset sale program implemented by the Company during the year as part of its debt reduction strategy. Land sold in 1996 was primarily property previously held for long-term development which the Company disposed of in pursuit of its four key 1996 operating strategies. CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY On-site personnel at the Company's communities in the United States facilitate sales by offering to arrange financing for prospective customers through KBMC. Management believes that the ability to offer customers financing on firm, competitive terms as a part of the sales process is an important factor in completing sales. The Company typically assists 7 9 customers in arranging for guaranteed maximum interest rates at the time of sale even though delivery may take place in the future. KBMC's business consists of providing the Company's domestic customers with competitive financing and coordinating and expediting the loan origination transaction through the steps of loan application, loan approval and closing. KBMC has its headquarters in Los Angeles and operates branch offices in Anaheim, Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas, San Diego and San Ramon, California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City, Utah; and Austin, Dallas and San Antonio, Texas. KBMC's principal sources of revenues are: (i) interest income earned on mortgage loans during the period they are held by KBMC prior to their sale to investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and (iv) revenues from the sale of the rights to service loans. KBMC is approved by the Government National Mortgage Association ("GNMA") as a seller-servicer of Federal Housing Administration ("FHA") and Veterans Administration ("VA") loans. A portion of the conventional loans originated by KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify for inclusion in loan guarantee programs sponsored by Fannie Mae or the Federal Home Loan Mortgage Corporation ("FHLMC"). KBMC arranges for fixed and adjustable rate, conventional, privately insured mortgages, FHA-insured or VA-guaranteed mortgages, and mortgages funded by revenue bond programs of states and municipalities. In 1996, approximately 47% of the mortgages originated for the Company's customers were conventional (most of which conformed to Fannie Mae and FHLMC guidelines), 35% were FHA-insured or VA-guaranteed (a portion of which are adjustable rate loans), 11% were funded by mortgage revenue bond programs and 7% were adjustable rate mortgages ("ARMs") provided through commitments from institutional investors. The percentages set forth above change from year to year reflecting then-current fixed interest rates, introductory rates for ARMs, housing prices and other economic conditions. In 1996, KBMC originated loans for 71% of the Company's domestic home deliveries. Generally, KBMC receives an origination fee of approximately 1% of the principal amount of the loan. KBMC is a delegated underwriter under the FHA Direct Endorsement and VA Automatic programs in accordance with criteria established by such agencies. Additionally, KBMC has delegated underwriting authority from Fannie Mae and FHLMC. As a delegated underwriter, KBMC may underwrite and close mortgage loans under programs sponsored by these agencies without their prior approval, which expedites the loan origination process. KBMC, like other mortgage bankers, customarily sells nearly all of the loans that it originates. Loans are sold either individually or in pools to GNMA, Fannie Mae or FHLMC or against forward commitments to institutional investors, including banks and savings and loan associations. For a small percentage of loans, and to the extent required for loans being held for sale to investors, KBMC services the mortgages that it originates. Servicing includes collecting and remitting loan payments, accounting for principal and interest, making inspections of mortgaged premises as required, monitoring delinquent mortgages and generally administering the loans. KBMC receives fees for servicing mortgage loans, generally ranging from .20% per annum to .50% per annum on the declining principal balances of the loans. KBMC typically sells servicing rights on a regular basis for substantially all of the loans it originates. The Company also assists its customers in France by arranging financing through third party lenders, primarily major French banks with which the Company has established relationships. In some cases, French customers qualify for certain government-assisted, home financing programs. A second mortgage is usually handled through a government agency. A home buyer in France may also have a third mortgage provided through credit unions or other employee groups. EMPLOYEES The Company employs a trained staff of land acquisition specialists, architects, planners, engineers, construction supervisors, marketing and sales personnel and finance and accounting personnel, supplemented as necessary by outside consultants, who guide the development of communities from their conception through the marketing and sale of completed homes. 8 10 At January 31, 1997, the Company had approximately 1,730 full-time employees in its operations, including approximately 130 in KBMC's operations. COMPETITION AND OTHER FACTORS The Company's business is highly competitive. It competes with numerous housing producers ranging from regional and national firms to small local builders primarily on the basis of price, location, financing, design, reputation, quality and amenities. Resales of housing provide additional competition. In certain markets and at times when housing demand is high, the Company also competes with other builders to hire subcontractors. KBMC competes with other mortgage lenders, including mortgage bankers, savings and loan associations and other financial institutions, in the origination, sale and servicing of mortgage loans. Increases in interest rates typically have a negative impact on the Company's operations in that such increases adversely affect the availability of home financing to, or qualification for such financing by, the Company's customers. Conversely, significant reductions in interest rates typically have a positive effect on the Company's operations. The Company does not generally finance the development of its domestic communities with proceeds of loans specifically obtained for, or secured by, particular communities, i.e., project financing. Instead, financing of the Company's domestic operations has been primarily generated from results of operations, public debt and equity financing and borrowings under its $500 million unsecured revolving credit facility with a consortium of domestic and foreign banks. Financing of its French operations has been primarily generated from results of operations and borrowings from its aggregate $70 million unsecured committed credit lines from a series of foreign banks. As a result of these diverse external sources of financing, the Company was not adversely affected by the tight credit conditions that much of the homebuilding industry experienced during the recent recession, both domestically and in France. REGULATION AND ENVIRONMENTAL MATTERS The housing industry is subject to extensive and complex regulations. The Company and its subcontractors must comply with various federal, state and local laws, ordinances, rules and regulations concerning zoning, building design, construction and similar matters. The operations of the Company are affected by environmental laws and regulations, including regulations pertaining to availability of water, municipal sewage treatment capacity, land use, protection of endangered species, population density and preservation of the natural terrain and coastlines. These and other requirements could become more restrictive in the future, resulting in additional time and expense to obtain approvals for the development of communities. The Company is also subject to regulations and restrictions by the governments of France and Mexico concerning investments in business operations in those countries by United States companies, none of which has to date had a material adverse effect on the Company's consolidated operations. The Company's foreign operations are also subject to exchange rate fluctuations, which affect the Company's financial statements and the reporting of profits and payment of dividends from foreign subsidiaries, and to the terms of the Foreign Corrupt Practices Act with which it is the strict policy of the Company to comply. In addition, the Company periodically receives dividends from its French operations without burdensome restrictions, although tax considerations have limited the amount of such dividends. KBMC is subject to numerous federal, state and local laws, ordinances, rules and regulations concerning loans to purchasers of homes as well as Company eligibility for participation in programs of the VA, FHA, GNMA, Fannie Mae and FHLMC. The Company entered into a consent order with the Federal Trade Commission ("FTC") in 1979 pursuant to which the Company agreed to provide explicit warranties on the quality and workmanship of its new homes, follow certain guidelines in advertising and provide certain disclosures to any prospective purchaser who visits Company sales offices or model homes. In 1991, the Company reached a monetary settlement with the FTC, covering alleged violations of the Company's consent order. The FTC acknowledged that the Company did not admit any of the allegations and did not impose any additional requirements on the Company. The Company currently has a policy of using outside environmental specialists to investigate land considered for acquisition for environmental risks and requiring disclosure from land sellers of known environmental risks. Despite these 9 11 activities, there can be no assurance that the Company will avoid material liabilities relating to the removal of toxic wastes, site restoration, monitoring or other environmental matters affecting properties currently or previously owned by the Company. Costs associated with the use of environmental consultants are not material to the Company's results of operations. No estimate of such potential liabilities can be made although the Company may, from time to time, purchase property which requires modest environmental clean-up costs after appropriate due diligence. In such instances, the Company takes steps prior to acquisition to assure itself as to the precise scope of work required and costs associated with removal, site restoration and/or monitoring, using detailed investigations by environmental consultants. To the extent such contamination or other environmental issues have occurred in the past, the Company believes it may be able to recover restoration costs from third parties, including, but not limited to, the generators of hazardous waste, land sellers or others in the prior chain of title and/or insurers. Utilizing such policies, the Company anticipates that it is not likely that environmental clean-up costs will have a material effect on future results of operations or the Company's financial position. The Company has not been notified by any governmental agency of any claim that any of the properties owned or formerly owned by the Company are identified by the Environmental Protection Agency as being a "Superfund" clean- up site requiring clean-up costs, which could have a material effect on future results of operations or the Company's financial position. ITEM 2. PROPERTIES The Company's executive offices are in leased premises at 10990 Wilshire Boulevard, Los Angeles, California. The Company's housing operations are principally conducted from leased premises located in Anaheim, Bakersfield, Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale, Pleasanton, Sacramento, Salinas, San Diego and San Ramon, California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City, Utah; Dallas, Texas; Paris, France; and Mexico City, Mexico. The Company's mortgage banking subsidiaries lease executive offices in Los Angeles, California and branch offices in Anaheim, Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas, San Diego and San Ramon, California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City, Utah and Dallas, Texas. The Company's operations in San Antonio and Austin, Texas are conducted from premises which the Company owns. The Company believes that such properties, including the equipment located therein, are suitable and adequate to meet the requirements of its businesses. ITEM 3. LEGAL PROCEEDINGS In August 1992, homeowners from the Company's California Meadows community in Riverside County, California, filed a lawsuit against the Company in Superior Court seeking compensatory and punitive damages and alleging, among other things, defective construction, breach of warranty, negligence and fraud. The owners of approximately 115 homes were involved in the litigation which was consolidated under the title of Koetter et al. v. Kaufman and Broad Home Corporation et al., in Riverside County Superior Court. In February 1994, the Company filed cross-complaints against relevant subcontractors and certain other third parties. Although the Company and the other defendants (including subcontractors) believed that they had acted fairly and responsibly toward all homeowners in the community and denied the most serious allegations raised in the lawsuit, the Company, in consultation with outside legal counsel and its primary liability insurance carrier, determined that continuing the litigation to trial would be unjustifiably protracted and expensive and concluded that it was desirable to settle the litigation in order to limit further expense, risk, inconvenience and distraction. As a result, in fiscal year 1996, the Company and its primary insurer, together with the subcontractor defendants (and their insurers), executed formal agreements to settle the litigation. During the pendency of the litigation the Company made provisions for potential losses associated with the litigation and, accordingly, the settlement had no material adverse effect upon the Company's financial position or results of operations in 1996. Under the terms of the settlement, the Company and the individual defendants expressly denied any liability related to the plaintiffs' allegations. 10 12 The Company is involved in other litigation incidental to its business. These cases are in various stages of development and, based on reports of counsel, it is management's opinion that provisions made for potential losses are adequate and any further liabilities and costs arising out of currently pending litigation will not have a materially adverse effect upon the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1996 to a vote of security holders, through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE COMPANY The following sets forth certain information regarding the executive officers of the Company as of January 31, 1997:
YEAR ASSUMED OTHER POSITIONS AND OTHER PRESENT POSITION AT PRESENT BUSINESS EXPERIENCE WITHIN NAME AGE JANUARY 31, 1997 POSITION THE LAST FIVE YEARS(1) FROM - TO - ---------------------- --- ------------------------------ -------- ------------------------------------- --------------- Bruce Karatz 51 Chairman, President and 1993 President and Chief Executive Officer 1986-1993 Chief Executive Officer Guy Nafilyan 52 Executive Vice President 1992 President and Chief Executive Officer 1983 - Present and President of European of Kaufman and Broad France Operations Senior Vice President 1987-1992 Glen Barnard 52 Senior Vice President, 1996 President of Kaufman and Broad of 1995 - Present Regional General Manager and Colorado, Inc. President of Kaufman and Chairman, American Lives, Inc. 1991-1995 Broad of Colorado, Inc. Michael F. Henn 48 Senior Vice President and 1994 Executive Vice President, Chief 1986-1994 Chief Financial Officer Financial and Administrative Officer, The Vons Companies, Inc. Lisa G. Kalmbach 39 Senior Vice President, 1996 President of Kaufman and 1992 - Present Regional General Manager, Broad - South Bay, Inc. President of Kaufman and Vice President, Sales and Marketing, 1988-1992 Broad - South Bay, Inc. and Kaufman and Broad - South Bay, Inc. Acting President of Kaufman and Broad of Northern California, Inc. Barton P. Pachino 37 Senior Vice President 1993 Vice President and Corporate Counsel 1991-1993 and General Counsel Albert Z. Praw 48 Senior Vice President, 1996 Senior Vice President, Real Estate 1994-1996 Regional General Manager Partner in law firm of Sidley & 1992-1994 Austin Senior Vice President, General 1989-1992 Counsel and Secretary Gary A. Ray 38 Senior Vice President, 1996 Vice President, Training and 1994-1996 Human Resources Development PepsiCo Restaurants International Regional Vice President of Human 1992-1994 Resoures - South Pacific Region, PepsiCo Restaurants International Michael L. Woodley 39 Senior Vice President, 1992 Vice President, Architecture 1989-1992 Architecture William R. Hollinger 38 Vice President 1992 Director of Accounting 1988-1992 and Controller Dennis Welsch 39 Vice President 1995 Vice President and Controller 1995 and Treasurer of Kaufman and Broad - South Bay, Inc. Controller of Kaufman and Broad - 1993-1994 South Bay, Inc. Vice President, Treasurer A-M Homes 1986-1993
- --------------- (1) All positions described were with the Company, unless otherwise indicated. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of January 31, 1997, there were 2,078 holders of record of the Company's common stock. Information as to the Company's quarterly stock prices is included on the inside back cover of the Company's 1996 Annual Report to Stockholders, which is included as part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K. Information as to the principal markets on which the Company's common stock is being traded and quarterly cash dividends is included on the inside back cover of the Company's 1996 Annual Report to Stockholders, which is included as part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The Five Year Summary of Kaufman and Broad Home Corporation and its consolidated subsidiaries for the five-year period ended November 30, 1996 is included on page 26 in the Company's 1996 Annual Report to Stockholders, which is included as part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K. It should be read in conjunction with the consolidated financial statements included in the Company's 1996 Annual Report to Stockholders which are also included as part of Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations of Kaufman and Broad Home Corporation is included on pages 27 through 35 in the Company's 1996 Annual Report to Stockholders, which are included as part of Exhibit 13 and are incorporated in this Annual Report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of Kaufman and Broad Home Corporation are included on pages 36 through 49 in the Company's 1996 Annual Report to Stockholders, which are included as part of Exhibit 13 and are incorporated in this Annual Report on Form 10-K. Reference is made to the Index to Financial Statements on page F-1 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Notice of 1997 Annual Meeting of Stockholders and Proxy Statement, filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, incorporated by reference in this Annual Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K, provides the information required under Part III (Items 10, 11, 12 and 13) except for the information regarding the executive officers of the Company, which is included in Part I on page 11 herein. 12 14 PART IV ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS Reference is made to the index set forth on page F-1 of this Annual Report on Form 10-K. EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ------------------------------------------------------------------------ 3.1 Amended Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 3.2 Amendment to Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 3.3 Certificate of Designation of Series A Participating Cumulative Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 3.4 Certificate of Designation of Series B Mandatory Conversion Premium Dividend Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 3.5 Amended Certificate of Designation of Series B Mandatory Conversion Premium Dividend Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 3.6 By-Laws, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 4.1 Amended Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 4.2 Amendment to Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 4.3 By-Laws, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 4.4 Rights Agreement between the Company and Bank of America National Trust and Savings Association, successor-by-merger to Security Pacific National Bank, as Rights Agent, dated February 21, 1989, filed as an exhibit to the Company's 1989 Annual Report on Form 10-K, is incorporated by reference herein. 4.5 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the Company's Registration Statement No. 33-50732 on Form S-3, is incorporated by reference herein. 4.6 Specimen of 10 3/8% Senior Notes filed as an exhibit to the Company's Current Report on Form 8-K, reporting certain exhibits in connection with the Company's Registration Statement No. 33-50732 on Form S-3 filed by the Company relating to the registration of 10 3/8% Senior Notes due 1999, is incorporated by reference herein. 4.7 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between the Company and First National Bank of Boston, dated May 1, 1993, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein.
13 15
EXHIBIT NO. DESCRIPTION ------- ------------------------------------------------------------------------ 4.8 Specimen of 9 3/8% Senior Subordinated Notes filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3 filed by the Company relating to the registration of 9 3/8% Senior Subordinated Notes due 2003, is incorporated by reference herein. 4.9 Indenture relating to 9 5/8% Senior Subordinated Notes due 2006 between the Company and SunTrust Bank, Atlanta, dated November 19, 1996, filed as an exhibit to the Company's Registration Statement No. 333-14977 on Form S-3, is incorporated by reference herein. 4.10 Specimen of 9 5/8% Senior Subordinated Notes filed as an exhibit to the Company's Registration Statement No. 333-14977 on Form S-3 filed by the Company relating to the registration of 9 5/8% Senior Subordinated Notes due 2006, is incorporated by reference herein. 10.1 1986 Stock Option Plan, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 10.2 1988 Employee Stock Plan, filed as an exhibit to the definitive Joint Proxy Statement for the Company's 1989 Special Meeting of Shareholders, is incorporated by reference herein. 10.3 Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 10.4 SunAmerica Inc. Executive Deferred Compensation Plan, approved September 25, 1985, filed as an exhibit to SunAmerica Inc.'s 1985 Annual Report on Form 10-K, is incorporated by reference herein. 10.5 Directors' Deferred Compensation Plan established effective July 27, 1989, filed as an exhibit to the Company's 1989 Annual Report on Form 10-K, is incorporated by reference herein. 10.6 Settlement with Federal Trade Commission of June 27, 1991, filed as an exhibit to the Company's Current Report on Form 8-K, dated June 28, 1991, is incorporated by reference herein. 10.7 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the Company's Registration Statement No. 33-50732 on Form S-3, is incorporated by reference herein. 10.8 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between the Company and First National Bank of Boston, dated May 1, 1993, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 10.9 Indenture relating to 9 5/8% Senior Subordinated Notes due 2006 between the Company and SunTrust Bank, Atlanta, dated November 19, 1996, filed as an exhibit to the Company's Registration Statement No. 333-14977 on Form S-3, is incorporated by reference herein. 10.10 Amendments to the Kaufman and Broad Home Corporation 1988 Employee Stock Plan dated January 27, 1994, filed as an exhibit to the Company's 1994 Annual Report on Form 10-K, are incorporated by reference herein. 10.11 Employment Agreement of Michael F. Henn, dated June 7, 1994, filed as an exhibit to the Company's 1994 Annual Report on Form 10-K, is incorporated by reference herein. 10.12 Fourth Amended and Restated Loan Agreement among the Company, Bank of America National Trust and Savings Association ("Bank of America"), as Administrative Agent, the First National Bank of Chicago ("Bank of Chicago"), as Documentation Agent, Bank of America and Bank of Chicago as Co-Syndication Agents and Bank of America, Bank of Chicago, Credit Lyonnais Los Angeles Branch and NationsBank of Texas, N.A., as managing agents, and the banks listed therein, dated February 28, 1996, filed as an exhibit to the Company's Current Report on Form 8-K, is incorporated by reference herein.
14 16
EXHIBIT NO. DESCRIPTION ------- ------------------------------------------------------------------------ 10.13 Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior Management, approved by Stockholders on March 23, 1995, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.14 Form of Stock Option Agreement under Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.15 Employment Contract of Bruce Karatz, dated December 1, 1995, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.16 Kaufman and Broad Home Corporation Directors' Legacy Program, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.17 Kaufman and Broad Home Corporation Non-Employee Directors Stock Unit Plan. 10.18 Employment Agreement of Glen Barnard, dated October 5, 1996. 10.19 Employment Agreement of Lisa G. Kalmbach, dated October 5, 1996. 10.20 Employment Agreement of Albert Z. Praw, dated October 5, 1996. 10.21 Kaufman and Broad Home Corporation Unit Performance Program. 11 Statement of Computation of Per Share Earnings (Loss). 13 Pages 26 through 49 and the inside back cover of the Company's 1996 Annual Report to Stockholders. 22 Subsidiaries of the Company. 24 Consent of Independent Auditors. 27 Financial Data Schedule.
FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements and notes thereto. REPORTS ON FORM 8-K On October 29, 1996, the Company filed a Current Report on Form 8-K (Item 5) reporting its filing of a universal shelf registration statement with the Securities and Exchange Commission for up to $300 million of the Company's debt and equity securities. On November 18, 1996, the Company filed a Current Report on Form 8-K (Item 7) which included an exhibit related to the issuance of its 9 5/8% Senior Subordinated Notes due 2006 pursuant to Registration Statement Nos. 333-14977 and 33-50732. On November 19, 1996, the Company filed a Current Report on Form 8-K (Item 7) which included exhibits related to the issuance of its 9 5/8% Senior Subordinated Notes due 2006 pursuant to Registration Statement Nos. 333-14977 and 33-50732. 15 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KAUFMAN AND BROAD HOME CORPORATION By: MICHAEL F. HENN ------------------------------------ Michael F. Henn Senior Vice President and Chief Financial Officer Dated: February 25, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ------------------ BRUCE KARATZ Chairman, President February 25, 1997 - --------------------------------------------- and Chief Executive Bruce Karatz Officer MICHAEL F. HENN Senior Vice President February 25, 1997 - --------------------------------------------- and Chief Financial Officer Michael F. Henn RONALD W. BURKLE Director February 25, 1997 - --------------------------------------------- Ronald W. Burkle JANE EVANS Director February 25, 1997 - --------------------------------------------- Jane Evans DR. RAY R. IRANI Director February 25, 1997 - --------------------------------------------- Dr. Ray R. Irani ANTOINE JEANCOURT-GALIGNANI Director February 25, 1997 - --------------------------------------------- Antoine Jeancourt-Galignani JAMES A. JOHNSON Director February 25, 1997 - --------------------------------------------- James A. Johnson GUY NAFILYAN Director; Executive Vice February 25, 1997 - --------------------------------------------- President, European Guy Nafilyan Operations LUIS G. NOGALES Director February 25, 1997 - --------------------------------------------- Luis G. Nogales CHARLES R. RINEHART Director February 25, 1997 - --------------------------------------------- Charles R. Rinehart SANFORD C. SIGOLOFF Director February 25, 1997 - --------------------------------------------- Sanford C. Sigoloff
16 18 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS The consolidated financial statements, together with the report thereon of Ernst & Young LLP, dated January 3, 1997, all appearing on pages 36 through 49 in the 1996 Annual Report to Stockholders, are incorporated in this Annual Report on Form 10-K between page F-1 and the List of Exhibits Filed. With the exception of the aforementioned information and the information incorporated in Items 5, 6 and 7, the 1996 Annual Report to Stockholders is not to be deemed filed as part of this Annual Report on Form 10-K. Separate combined financial statements of the Company's unconsolidated joint venture activities have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary as defined by Rule 3-09 of Regulation S-X. ------------------------
PAGE NO. IN ANNUAL REPORT TO STOCKHOLDERS ----------------- KAUFMAN AND BROAD HOME CORPORATION Report of Independent Auditors............................................ 49 Consolidated Statements of Income for the years ended November 30, 1996, 1995 and 1994.......................................................... 36 Consolidated Balance Sheets as of November 30, 1996 and 1995.............. 37 Consolidated Statements of Stockholders' Equity for the years ended November 30, 1996, 1995 and 1994....................................... 38 Consolidated Statements of Cash Flows for the years ended November 30, 1996, 1995 and 1994.................................................... 39 Notes to Consolidated Financial Statements................................ 40 through 48
The following pages represent pages 26 through 49 and the inside back cover of the 1996 Annual Report to Stockholders of Kaufman and Broad Home Corporation, and include the Five Year Summary, Management's Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and related notes thereto, the Report of Independent Auditors, Stockholder Information and Quarterly Stock Prices. These pages were filed with the Securities and Exchange Commission as Exhibit 13 to this Annual Report on Form 10-K. F-1 19 26 SELECTED FINANCIAL INFORMATION
Years Ended November 30, -------------------------------------------------------------------- In thousands, except per share amounts 1996 1995 1994 1993 1992 -------------------------------------------------------------------- CONSTRUCTION: Revenues $1,754,147 $1,366,866 $1,307,570 $1,199,776 $1,052,525 Operating income before non-cash charge for impairment of long-lived assets 98,679 65,531 88,323 86,609 58,897 Operating income (loss)* (72,078) 65,531 88,323 86,609 58,897 Total assets 1,000,159 1,269,208 1,167,136 983,442 987,104 Mortgages and notes payable 442,629 639,575 565,020 313,357 258,147 ========== ========== ========== ========== ========== MORTGAGE BANKING: Revenues $ 32,894 $ 29,660 $ 28,701 $ 38,078 $ 41,643 Operating income 12,740 9,348 6,003 7,534 4,556 Total assets 243,335 304,971 287,324 355,936 444,656 Notes payable 134,956 151,000 125,000 138,500 143,700 Collateralized mortgage obligations 68,381 84,764 96,731 144,143 222,948 ========== ========== ========== ========== ========== CONSOLIDATED: Revenues $1,787,041 $1,396,526 $1,336,271 $1,237,854 $1,094,168 Operating income before non-cash charge for impairment of long-lived assets 111,419 74,879 94,326 94,143 63,453 Operating income (loss)* (59,338) 74,879 94,326 94,143 63,453 Net income (loss)* (61,244) 29,059 46,550 39,921 28,198 Total assets 1,243,494 1,574,179 1,454,460 1,339,378 1,431,760 Mortgages and notes payable 577,585 790,575 690,020 451,857 401,847 Collateralized mortgage obligations 68,381 84,764 96,731 144,143 222,948 Convertible subordinated notes 162,022 Stockholders' equity* 340,350 415,478 404,747 444,340 318,433 ========== ========== ========== ========== ========== EARNINGS (LOSS) PER SHARE* $ (1.54) $ .73 $ 1.16 $ .96 $ .78 CASH DIVIDENDS PER COMMON SHARE .30 .30 .30 .30 .30 ========== ========== ========== ========== ==========
*Reflects a $170.8 million pretax non-cash charge for impairment of long-lived assets recorded in the second quarter of 1996. Kaufman and Broad Home Corporation 1996 Annual Report 20 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW Revenues are primarily generated from the Company's housing operations in the western United States, France and Mexico; commercial development activities in France; and domestic mortgage banking operations. The Company's performance in 1996 reflected progress made during the year in achieving four key operating strategies: expansion in domestic markets outside of California; improvement in return on investment; aggressive inventory and debt reduction; and improvement in operating margin. On March 1, 1996, the Company took its most significant step to date in expanding beyond California with the acquisition of Rayco, Ltd., San Antonio's largest homebuilder. With this acquisition the Company established a significant position in the San Antonio metropolitan area, where Rayco commanded a 42% share of the new home market in 1996. The acquisition was accounted for as a purchase, with the results of the San Antonio operations included in the Company's financial statements as of March 1, 1996, the date of acquisition. Internationally, the Company's start-up housing operation in Mexico delivered its first homes during 1996. Total Company revenues increased to $1.79 billion in 1996, up 28.0% from $1.40 billion in 1995, which had increased 4.5% from revenues of $1.34 billion in 1994. The increase in 1996 was due in large measure to the acquisition of the San Antonio homebuilding operations, as well as the continued maturation of the Company's non-California domestic businesses and higher land sale revenues. In 1995, revenues rose due to higher housing revenues, partially offset by a decline in revenues from land sales. Included in total revenues were mortgage banking revenues of $32.9 million in 1996, $29.7 million in 1995 and $28.7 million in 1994. The Company recorded a $170.8 million non-cash charge for impairment of long-lived assets in the second quarter, resulting in a net loss of $61.2 million or $1.54 per share in 1996. Excluding the non-cash charge, net income increased to $48.0 million or $1.20 per share in 1996 from $29.1 million or $.73 per share in 1995. Net income in 1995 was lower than the $46.6 million or $1.16 per share recorded in 1994. Excluding the non-cash charge, net income increased in 1996 due to improved unit deliveries (including three quarters of San Antonio operations), continued progress in implementing the Company's key initiatives to improve gross margins and contain costs, and an increase in pretax income from mortgage banking operations. Mortgage banking pretax income improved primarily due to increased loan volume, improved income from sales of servicing rights stemming from an improved mix of fixed rate to variable loans, and strong cost controls. In 1995, net income fell due to lower earnings from housing operations, as a decline in earnings from California operations, primarily stemming from continued weakness in the state's housing markets, was only partially offset by an increase in earnings from domestic operations outside the state. CONSTRUCTION REVENUES Construction revenues increased in 1996 to $1.75 billion from $1.37 billion in 1995, which had increased from $1.31 billion in 1994. The increase in 1996 was primarily due to the inclusion of $189.3 million in revenues from San Antonio operations, continued growth within the Company's non-California domestic operations and increased land sale revenues. In 1995, the increase in revenues primarily reflected higher domestic housing revenues, as a decline in California housing revenues was more than offset by increased housing revenues from other U.S. operations (including the Company's first deliveries in New Mexico and Utah). Housing revenues totaled $1.67 billion in 1996, $1.33 billion in 1995 and $1.26 billion in 1994. Excluding revenues from the San Antonio operations, housing revenues totaled $1.48 billion in 1996, up 11.8% from 1995 as a result of a 4.6% increase in unit volume and a 6.9% higher average selling price. In 1995, housing revenues rose due to a 4.7% increase in the Company's average selling price and a modest increase in unit volume. California housing operations generated 59.6% of Company-wide housing revenues in 1996, down from 72.3% in 1995, reflecting both the Company's new San Antonio operations and further diversification of its domestic operations beyond California. Housing revenues from California operations were $997.3 million in 1996, up from $959.8 million in 1995. Including three quarters of revenues from operations in San Antonio, the Company's other U.S. housing revenues more than doubled to $513.9 million in 1996 from $245.4 million in 1995. Excluding San Antonio results, other U.S. housing revenues totaled $324.7 million in 1996, up 32.3% from the prior year. In 1995, the Company's California-generated revenues as a percentage of total housing revenues decreased from 82.0% in 1994 due to the Company's expansion into New Mexico and Utah, the maturation of the Nevada, Arizona and Colorado divisions and stagnant economic conditions in California. Housing deliveries increased by 30.4% to 10,249 units in 1996, exceeding the previous Company-wide record of 7,857 units set in 1995. Excluding 2,027 San Antonio deliveries, Company-wide deliveries in 1996 increased 4.6% from the prior year, reflecting increases in the U.S. and French markets of 2.9% and 30.5%, respectively. The modest increase in domestic deliveries, excluding San Antonio operations, was driven by a 25.9% rise in non-California deliveries, to 2,267 units in 1996 from 1,800 units in 1995, substantially offset by a decline in deliveries from California's still weak housing market. 21 28 RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA
Other United California States France Other Total ------------------------------------------------------------------- UNIT DELIVERIES 1996 First 1,095 487 96 5 1,683 Second 1,453 1,265 160 5 2,883 Third 1,259 1,307 180 3 2,749 Fourth 1,364 1,235 313 22 2,934 -------- -------- ------- ------ -------- Total 5,171 4,294 749 35 10,249 ======== ======== ======= ====== ======== 1995 First 972 293 102 1,367 Second 1,295 446 110 24 1,875 Third 1,454 511 133 13 2,111 Fourth 1,709 550 229 16 2,504 -------- -------- ------- ------ -------- Total 5,430 1,800 574 53 7,857 ======== ======== ======= ====== ======== NET ORDERS 1996 First 1,292 540 123 21 1,976 Second 1,577 1,399 241 21 3,238 Third 1,395 1,144 104 7 2,650 Fourth 1,135 968 267 5 2,375 -------- -------- ------- ------ -------- Total 5,399 4,051 735 54 10,239 ======== ======== ======= ====== ======== 1995 First 1,101 374 152 9 1,636 Second 1,397 698 134 12 2,241 Third 1,588 572 138 13 2,311 Fourth 1,342 503 210 10 2,065 -------- -------- ------- ------ -------- Total 5,428 2,147 634 44 8,253 ======== ======== ======= ====== ======== ENDING BACKLOG-UNITS 1996 First 823 599 256 27 1,705 Second 947 2,186 337 27 3,497 Third 1,083 2,023 261 31 3,398 Fourth 854 1,756 215 14 2,839 ======== ======== ======= ====== ======== 1995 First 757 280 219 29 1,285 Second 859 532 243 17 1,651 Third 993 593 248 17 1,851 Fourth 626 546 229 11 1,412 ======== ======== ======= ====== ======== ENDING BACKLOG-VALUE In thousands 1996 First $153,074 $ 86,880 $51,820 $4,948 $296,722 Second 182,718 236,970 72,215 5,265 497,168 Third 225,486 229,348 55,236 7,595 517,665 Fourth 180,513 196,195 47,603 3,584 427,895 ======== ======== ======= ====== ======== 1995 First $125,870 $38,971 $44,820 $2,958 $212,619 Second 149,796 75,455 48,658 1,666 275,575 Third 191,182 86,096 54,560 1,683 333,521 Fourth 114,207 78,436 50,044 1,122 243,809 ======== ======== ======= ====== ========
California deliveries decreased 4.8% to 5,171 units in 1996 from 5,430 units in 1995. Housing deliveries increased in 1995 from 7,824 units in 1994, as a 2.2% increase in U.S. deliveries more than offset a 16.2% decline in French deliveries during the period. The improvement in domestic unit volume in 1995 reflected continued domestic expansion outside of California, partially offset by a decline in California deliveries. In France, unit volume remained depressed in 1995, largely as a result of that country's adverse economic climate and more specifically as a result of the deferral of home purchases by many buyers anticipating new government incentive programs which did not take effect until October 1995. The Company-wide average new home price decreased 3.3% to $163,300 in 1996, reflecting the impact of the recently acquired San Antonio operations, which had an average selling price of $93,400 in 1996. Excluding San Antonio, the Company-wide average selling price increased 6.9% to $180,500 in 1996 from $168,900 in 1995, which had increased 4.7% from $161,300 in 1994. These year-over-year increases reflected higher average selling prices in the United States and France, resulting from shifts in product mix to higher priced, urban in-fill locations and increases in move-up sales. In California, the Company's average selling price rose 9.1% to $192,900 in 1996 from $176,800 in 1995. The 1995 figure increased 6.6% from $165,900 in 1994. The increases in both years reflected a shift in mix toward higher-priced homes. Excluding San Antonio, the Company's average selling price in other U.S. markets was $143,200 in 1996, $136,300 in 1995 and $114,900 in 1994. The increase from 1995 to 1996 reflected greater development in higher priced, urban in-fill locations and larger numbers of move-up sales. The increase in 1995 from 1994 resulted from the Company's entry into new markets with higher average prices. The Company's average selling price in France increased in each of the past two years as a result of changes in product mix. It rose to $206,600 in 1996 from $203,700 in 1995, up from $182,300 in 1994. Revenues from the development of commercial buildings, all of which are located in metropolitan Paris, totaled $12.2 million in 1996, $20.5 million in 1995 and $17.4 million in 1994. These revenues declined in 1996 on reduced commercial development activities in France. In 1995, commercial development revenues increased modestly compared to 1994, although the French commercial markets were characterized by persistently high vacancy rates and poor operating conditions. Land sale revenues totaled $68.2 million in 1996, $18.2 million in 1995 and $27.2 million in 1994. The higher level of land sales in 1996 was largely due to an aggressive asset sale program implemented by the Company during the year as part of its debt reduction strategy. Land sold in 1996 was primarily prop- Kaufman and Broad Home Corporation 1996 Annual Report 22 29 erty previously held for long-term development which the Company disposed of in order to redeploy the invested capital at potentially higher returns. Generally, land sale revenues fluctuate based on the Company's decision to maintain or decrease its land ownership positions in certain markets, the strength and number of competing developers entering particular markets at given points in time, the availability of land in markets served by the Company's housing divisions, or prevailing market conditions. OPERATING INCOME Excluding the $170.8 million non-cash charge for impairment of long-lived assets recorded in the second quarter, operating income increased by $33.2 million or 50.6% to $98.7 million in 1996 from $65.5 million in 1995. This increase was primarily due to higher gross profits on housing sales, reflecting both higher unit volume and an improvement in margins, mainly due to the addition of the acquired San Antonio operations. When the non-cash charge is included, operating income decreased by $137.6 million, for an operating loss of $72.1 million in 1996. Gross profits in 1996 (excluding profits from land sales) increased by $74.3 million to $316.5 million from $242.2 million in 1995. As a percentage of related revenues, the Company's gross profit margin (excluding profits from land sales) was 18.8% in 1996, up from 18.0% in the prior year. The Company's housing gross margin increased to 18.7% in 1996 from 17.9% in the prior year, primarily reflecting the addition of San Antonio operations and continued growth in the Company's higher margin operations in other non-California markets. During each quarter of 1996, the Company's housing gross margin was better than or equal to that of the comparable quarter a year earlier, in part due to the favorable impact of the Company's key strategies, implemented during the course of 1995 and into 1996, to enhance profitability. Despite the increase in land sale revenues in 1996, Company-wide profits from land sales decreased by $2.7 million to $2.6 million in 1996 from $5.3 million in 1995. This decrease resulted from the Company's accelerated disposition of certain real estate assets, many of which were written down to fair value, in 1996 in order to redeploy capital to improve overall return on investment. Selling, general and administrative expenses increased by $38.5 million in 1996. This increase was primarily due to the inclusion of the San Antonio operations, which added $25.9 million of selling, general and administrative expenses (including the amortization of goodwill), as well as higher marketing expenses generated by increased unit volume from the Company's remaining operations. As a percentage of housing revenues, to which these expenses are most closely correlated, selling, general and administrative expenses declined .5 percentage points to 13.2% in 1996 from 13.7% in 1995. This improvement reflected higher unit volume, primarily as a result of the acquisition of San Antonio operations, and more favorable ratios for sales incentives, advertising expenses and general and administrative expenses, partially offset by increased sales commissions associated with a higher proportion of third party broker commissions. The Company intends to continue its cost-cutting initiatives in 1997 and believes that further improvement in the selling, general and administrative expense ratio can be achieved in 1997 if volume equals or exceeds 1996 levels. In 1995, operating income decreased by $22.8 million to $65.5 million from $88.3 million in 1994. This decline reflected lower gross profits from commercial activities and land sales as well as an increase in selling, general and administrative expenses. Housing gross profits in 1995 were essentially flat compared to 1994 on slightly higher unit volume offset by a lower housing gross margin. Gross profits (excluding profits from land sales) decreased by $8.5 million to $242.2 million in 1995 from $250.7 million in 1994, largely due to lower gross profits from French commercial operations resulting from a lower commercial gross profit margin. As a percentage of related revenues, the Company's gross profit margin (excluding profits from land sales) was 18.0% in 1995, down from 19.6% in the prior year, primarily reflecting a lower gross margin in California. The lower gross margin from California operations stemmed from severe and prolonged winter rain storms in early 1995 which reduced sales volumes and slowed production, and from the large sales incentives required throughout 1995 to stimulate buying activity in a generally stagnant market. Rising mortgage rates in early 1995 also depressed Company performance. Despite these obstacles, the Company's California housing gross margin showed steady improvement from the first through the fourth quarters of 1995 as a rising proportion of deliveries was generated from more recently opened higher-margin communities. Company-wide profits from land sales decreased to $5.3 million in 1995 from $8.5 million in 1994 with profit margins from these sales down slightly. Selling, general and administrative expenses increased by $11.0 million in 1995. As a percentage of housing revenues, these expenses increased to 13.7% in 1995 from 13.5% in 1994. Selling, general and administrative expenses rose in 1995 mainly due to the continued expansion of the Company's domestic operations outside of California and increased financing incentives and sales commissions. These increases were partially offset by ongoing cost reduction programs which contributed to an improving expense ratio in each of the last three quarters of 1995. In the first quarter of 1995, selling, general and administrative expenses were 14.6% of housing revenues, gradually declining to 13.3% by the fourth quarter. 23 30 In the second quarter of 1996, the Company decided to accelerate the disposition of certain real estate assets in order to facilitate pursuit of its four key operating strategies, including geographic diversification, increased emphasis on return on investment, planned debt reduction and improved operating margins. The disposition of these assets helped effectuate the Company's strategies to improve overall return on investment, restore financial leverage to targeted levels, and position the Company for continued geographic expansion. In addition, the Company substantially eliminated its prior practice of investing in long term development projects in order to reduce the operating risk associated with such projects. The accelerated disposition of long term development assets caused certain assets, primarily inventories and investments in unconsolidated joint ventures in California and France, to be identified as being impaired and to be written down. Certain of the Company's California properties were impacted by the charge, while none of its non-California domestic properties were affected. The Company's non-California domestic properties were not affected since they were not held for long term development and were expected to be economically successful such that they were determined not to be impaired. The evaluation of impaired assets considered the depressed nature of the real estate business in certain of the Company's California and French markets, reduced demand from prospective home buyers, availability of ready buyers for the Company's properties, future costs of development and holding costs during development. Based on this evaluation, the Company recorded a non-cash write-down in the second quarter of 1996 of $170.8 million ($109.3 million, net of income taxes) to state these impaired assets at their fair values. The fair values established were based on various methods, including discounted cash flow projections, appraisals and evaluations of comparable market prices, as appropriate. As the inventories affected by the charge primarily consisted of land which was not under active development, the Company does not anticipate that the charge will have a material effect on its gross margins. The write-down for impairment of long-lived assets was calculated in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121"), which the Company decided to adopt in the second quarter of 1996; however, the write-down was not necessitated by implementation of this standard. Had the Company not adopted SFAS No. 121, a substantial write-down would have nonetheless been recorded. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and requires impairment losses to be recorded on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Under the new standard, when an impairment write-down is required, the related assets are adjusted to their estimated fair value. Fair value for purposes of SFAS No. 121 is deemed to be the amount a willing buyer would pay a willing seller for such property in a current transaction, that is, other than in a forced or liquidation sale. For homebuilders, this is a change from the previous accounting standard which required homebuilders to carry real estate assets at the lower of cost or net realizable value. INTEREST INCOME AND EXPENSE Interest income, which is generated from mortgages receivable, principally from land sales, and from short-term investments, amounted to $2.7 million in 1996, $2.1 million in 1995 and $2.0 million in 1994. Interest income during the three-year period reflected little change in the interest bearing average balances of short-term investments and mortgages receivable. Interest expense results principally from borrowings to finance land purchases, housing inventory, and other operating and capital needs. In 1996, interest expense, net of amounts capitalized, increased to $36.7 million from $27.5 million in 1995, reflecting a lower percentage of interest capitalized. The lower capitalization rate during 1996 reflected a higher proportion of land in production in 1996 compared to 1995 and the non-capitalization of interest on borrowings associated with the San Antonio acquisition. In 1995, interest expense, net of amounts capitalized, increased to $27.5 million from $17.8 million in the prior year, reflecting higher average indebtedness, a higher overall effective borrowing rate and a lower percentage of interest capitalized. The Company's average debt level increased in 1995 as inventory levels grew due to continued expansion. MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES The Company conducts a portion of both its residential and commercial development activities through majority-owned partnerships, primarily in France, which are fully consolidated in the accompanying financial statements. As a result, operating income has been reduced by minority interests in the pretax income of these partnerships of $.2 million in 1996, $.6 million in 1995 and $.9 million in 1994. Minority interests decreased in both years on declining profit contributions from the Company's consolidated commercial development projects. Minority interests are expected to remain at low levels in 1997, reflecting the limited opportunities currently available in the French commercial market. KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report 24 31 EQUITY IN PRETAX INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES The Company's unconsolidated joint venture activities, located in California, New Mexico and France, posted combined revenues of $6.7 million in 1996, $33.9 million in 1995 and $82.7 million in 1994. Of these amounts, revenues from commercial activities in France accounted for $.1 million in 1996, $5.9 million in 1995 and $34.0 million in 1994. These unconsolidated joint ventures generated combined pretax losses of $14.8 million in 1996, $20.5 million in 1995 and $35.7 million in 1994. The losses primarily consisted of selling, general, administrative and interest expenses from a single French multi-family residential project, as well as reserves taken in 1996 and 1995 on a French commercial development project. The Company's share of pretax losses from these joint ventures totaled $2.1 million in 1996, $3.5 million in 1995, and $3.7 million in 1994. The Company's share of pretax losses declined in 1996 and 1995 due to lower activity from the unconsolidated joint ventures and the effects of reserves taken in previous years. As a result of the non-cash charge taken in 1996 to reflect the impairment in unconsolidated joint ventures, the Company does not anticipate incurring significant additional losses from these joint ventures. MORTGAGE BANKING INTEREST INCOME AND EXPENSE The Company's mortgage banking operations principally consist of providing financing to purchasers of homes sold by the Company's domestic housing operations through the origination of residential mortgages. Mortgage banking operations also realize revenues from the sale of such mortgages and related servicing rights to outside financial institutions. Prior to 1989, substantially all such mortgages were pledged for collateralized mortgage obligations. Accordingly, interest income is earned primarily from mortgage-backed securities held for long-term investment as collateral, while interest expense results mainly from the associated collateralized mortgage obligations. Interest income decreased to $14.6 million in 1996 from $15.6 million in 1995, and $17.0 million in 1994, while interest expense also declined to $13.5 million in 1996 from $14.8 million in 1995, and $17.2 million in 1994. These amounts decreased primarily due to the declining balances of outstanding mortgage-backed securities and related collateralized mortgage obligations, stemming from both regularly scheduled, monthly principal amortization and the prepayment of mortgage collateral. These balances, and the related interest income and expense, will continue to decline as the Company's practice of participating in collateralized mortgage financings was discontinued in 1988 due to market conditions and tax law changes. Combined interest income and expense resulted in net interest income of $1.1 million in 1996 and $.8 million in 1995 and net interest expense of $.2 million in 1994. These differences reflect variations in mortgage production mix; movements in short-term versus long-term interest rates; and the amount, timing and rates of return on interim reinvestments of monthly principal amortization and prepayments. OTHER MORTGAGE BANKING REVENUES Other mortgage banking revenues, which principally consist of gains on sales of mortgages and servicing rights and, to a lesser extent, mortgage servicing fees, totaled $18.3 million in 1996, $14.1 million in 1995 and $11.7 million in 1994. The increases in these revenues in 1996 and 1995 reflected higher gains on the sales of mortgages and servicing rights due to a higher volume of mortgage originations -- resulting from higher housing unit volume in the United States -- and a more favorable mix of fixed to variable rate loans. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for mortgage banking operations amounted to $6.7 million in 1996 and $5.5 million in 1995 and 1994. The increase in general and administrative expenses in 1996 resulted from higher mortgage production levels due to a significant increase in domestic unit deliveries, partially offset by cost reduction programs. Despite increased mortgage production volume in 1995, general and administrative expenses remained flat compared to 1994 levels due to the Company's successful cost containment efforts which extended to its lending operations. INCOME TAXES The Company's income tax benefit totaled $34.5 million in 1996, and its income tax expense totaled $16.4 million in 1995 and $27.3 million in 1994. These amounts represented effective income tax rates of approximately 36.0% in 1996 and 1995 and 37.0% in 1994. The tax benefit in 1996 reflected the pretax loss reported by the Company as a result of the non-cash charge for impairment of long-lived assets recorded in the second quarter of 1996. The Company's effective tax rate declined in 1995 compared to 1994 as a result of greater utilization of affordable housing investment credits. The pretax income/loss for financial reporting purposes and taxable income/loss for income tax purposes historically have differed primarily due to the impact of state income taxes, foreign tax rate differences, intercompany dividends and the use of affordable housing credits. LIQUIDITY AND CAPITAL RESOURCES The Company assesses its liquidity in terms of its ability to generate cash to fund its operating and investing activities. Typically, the Company has funded its construction and mortgage banking activities with internally generated cash flows and external sources of debt and equity financing. In 1996, operating, invest- 25 32 ing and financing activities used net cash of $33.6 million; in 1995, these activities used net cash of $11.4 million. Operating activities in 1996 provided $330.8 million, while 1995 operating activities used $52.9 million. The Company's sources of operating cash in 1996 included a reduction in inventories totaling $232.9 million (excluding $17.0 million of inventories acquired through seller financing and $73.9 million in acquired San Antonio inventories), a reduction in receivables of $36.6 million and various non-cash items. These non-cash items included the $170.8 million non-cash charge for impairment of long-lived assets, which more than offset the Company's net loss of $61.2 million (which included the non-cash charge for impairment of long-lived assets) recorded for 1996. Uses of cash in 1996 included a $41.2 million change in deferred taxes and a $21.9 million decrease in accounts payable, accrued expenses and other liabilities. The decrease in inventories in 1996 (excluding San Antonio inventories acquired and the non-cash charge for impairment of long-lived assets), occurred primarily in California as the Company continued to execute a debt reduction strategy that included an aggressive asset sale program. In 1995, the use of operating cash included net investments of $80.3 million in inventories (excluding $36.1 million of inventories acquired through seller financing), an increase of $14.7 million in receivables and $18.8 million of other operating uses. The use of cash was partially offset by earnings of $29.1 million, various non-cash items deducted from net income and a $26.7 million increase in accounts payable, accrued expenses and other liabilities. In 1995, inventories increased, primarily in the United States, rising to $901.4 million at November 30, 1995 from $807.5 million at year-end 1994, as the Company continued its domestic expansion. Cash used by investing activities totaled $73.9 million in 1996 compared to $10.0 million provided in 1995. In 1996, $80.6 million of cash was used for the March 1, 1996 San Antonio acquisition for a total purchase price of $104.5 million, which included cash to pay off debt assumed in the purchase. In addition, cash of $7.6 million was used for investments in unconsolidated joint ventures and $2.8 million was used for other investing activities. Partially offsetting these uses was $18.1 million in proceeds received from mortgage-backed securities which were principally used to pay down the collateralized mortgage obligations for which the mortgage-backed securities had served as collateral. In 1995, cash provided by investing activities was primarily from $13.8 million in proceeds from mortgage-backed securities paid off during the year within the mortgage banking operations. These proceeds were used largely to pay down the collateralized mortgage obligations for which the mortgage-backed securities had served as collateral. Financing activities in 1996 used $290.5 million of cash compared to $31.5 million provided in 1995. In 1996, cash was used for net payments on borrowings of $379.2 million, reflecting the Company's aggressive debt reduction strategy. Uses of cash in 1996 also included payments on collateralized mortgage obligations of $17.3 million, the funds for which were provided by receipts on mortgage-backed securities, and $16.1 million of cash dividend payments. The mandatory conversion of all of the Company's series B convertible preferred shares into shares of common stock was completed on April 1, 1996 and has reduced cash flow required for future dividends by approximately $2.0 million per quarter. Partially offsetting these uses of cash were proceeds of $124.4 million from the issuance of 9 5/8% senior subordinated notes in the fourth quarter. The Company's debt-to-capital ratio improved to 56.5% in 1996 from 60.6% in 1995 despite substantial additional borrowings related to the San Antonio acquisition, and the non-cash charge for impairment of long-lived assets. Financing activities in 1995 provided $64.3 million in net proceeds from borrowings, partially offset by payments on collateralized mortgage obligations of $13.3 million, the funds for which were provided by receipts on mortgage-backed securities, and $19.6 million of cash dividend payments. The Company's debt-to-capital ratio increased to 60.6% in 1995 from 58.3% in 1994 reflecting additional financing required for the higher level of inventories resulting from domestic expansion. In connection with the San Antonio acquisition, the Company amended the terms under its domestic unsecured revolving credit agreement with various banks. The amended revolving credit agreement, dated February 28, 1996, increased the Company's initial borrowing capacity from $500 million to $630 million. The additional $130 million of financing obtained by the Company included a term loan facility used to finance the acquisition and to refinance portions of the existing indebtedness of the acquired company. During 1996, the Company repaid $301.4 million of debt (including $104.5 million of borrowings related to the San Antonio acquisition). This significant progress in the Company's aggressive debt reduction program lowered the Company's total debt to $442.6 million at November 30, 1996, $196.9 million or 30.8% less than the balance at November 30, 1995, despite borrowings of $104.5 million to acquire the San Antonio operations. Key elements of the Company's debt reduction program included an increased emphasis on contracting for sales prior to construction, stringent control of production inventory, a focus on reducing unsold inventory in production, and an aggressive land asset sale program. The debt reduction program restored the Company's financial leverage (as measured by a debt to total capital ratio) to 56.5% as of November 30, 1996, well within the Company's targeted range of 50% to 60%. The Company's ratio of debt to total capital was 60.6% at the 1995 year end. Kaufman and Broad Home Corporation 1996 Annual Report 26 33 In 1996, the Company also sold its Canadian operations. Proceeds of $9.5 million received from the sale of all of the issued and outstanding shares of the Canadian subsidiary were used to reduce the Company's debt. As the Company had been slowly winding down its operations in Canada over the past several years, the impact of the sale on the Company's financial position and results of operations was not significant. External sources of financing for the Company's construction activities include its domestic unsecured revolving credit facility, other domestic and foreign bank lines, third-party secured financings, and the public debt and equity markets. Substantial unused lines of credit remain available for the Company's future use, if required, principally through a domestic unsecured revolving credit facility. This facility provides for a $500 million commitment through December 31, 1997. As of November 30, 1996, $466.8 million was available under the revolving credit facility for the Company's future use. In addition, under the Company's French unsecured financing agreements, $63.2 million was available in the aggregate at November 30, 1996. Depending upon available terms, the Company also finances certain land acquisitions with borrowings from land sellers and other third parties. At November 30, 1996, the Company had outstanding seller-financed notes payable of $7.2 million secured primarily by the underlying property which had a carrying value of $7.5 million. On October 29, 1996, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for up to $300 million of the Company's debt and equity securities. The Company's previously outstanding shelf registration for debt securities in the amount of $100 million was subsumed within the universal shelf registration. This universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities. On November 14, 1996, the Company utilized this universal shelf registration to issue $125 million of 9 5/8% senior subordinated notes at 99.525%. The notes are due November 15, 2006 with interest payable semi-annually. The net proceeds of the sale of these notes were used to reduce outstanding indebtedness to banks under the Company's domestic unsecured revolving credit agreement. With the issuance of the senior subordinated notes, the Company extended the overall maturity of its financing structure, while providing additional availability under its domestic revolving credit facility. A total of $175 million remains available under the universal shelf registration which the Company may offer for sale from time to time in the future. The Company uses capital resources primarily for land purchases, land development and housing construction. The Company typically manages its investments in land by purchasing property under options and other types of conditional contracts whenever possible, and similarly controls its investment in housing inventories by carefully managing the timing of the production process. The Company's inventories are geographically diverse and primarily located in desirable areas within targeted growth markets principally oriented toward entry-level purchasers. In 1996, the Company continued its expansion of domestic operations outside of California, but remained selective with regard to new investment in California, where many new home markets remain weak. The principal sources of liquidity for the Company's mortgage banking operations are internally generated funds from the sales of mortgages and related servicing rights. Mortgages originated by the mortgage banking operations are generally sold in the secondary market within 60 days of origination. External sources of financing for these operations include a $120 million asset-backed commercial paper facility and a mortgage loan purchase and interim servicing agreement, which provides up to $100 million for mortgage banking operations. The Company's mortgage banking subsidiary entered into the mortgage loan purchase and interim servicing agreement on August 28, 1996. This agreement expires on August 27, 1997. At November 30, 1996, the mortgage banking operations had a combined $85.0 million available for future use under the commercial paper facility and mortgage loan purchase and interim servicing agreement. Debt service on the Company's collateralized mortgage obligations is funded by receipts from mortgage-backed securities. Such funds are expected to be adequate to meet future debt-payment schedules for the collateralized mortgage obligations and therefore these securities have virtually no impact on the capital resources and liquidity of the mortgage banking operations. The Company believes it has adequate resources and sufficient credit line facilities to satisfy its current and reasonably anticipated future requirements for funds to acquire capital assets and land, to construct homes, to fund its mortgage banking operations, and to meet other needs of its business, both on a short and long-term basis. OUTLOOK At November 30, 1996, the Company had outstanding sales contracts of 2,839 units in residential backlog, representing aggregate future revenues of approximately $427.9 million. Excluding the effects of the San Antonio acquisition, unit and dollar backlog as of November 30, 1996 totaled 1,635 and $314.7 million, respectively. The 1996 year-end backlog increased from 1,412 units, representing aggregate future revenues of $243.8 million, at year-end 1995. Substantially all homes 27 34 included in year-end 1996 backlog are expected to be delivered during 1997; however, cancellations could occur, particularly if market conditions deteriorate or interest rates rise, thereby decreasing backlog and related future revenues. For the first two months of the 1997 fiscal year, Company-wide net orders increased 36.8% from the same period a year ago. Excluding San Antonio, net orders increased 1.0% during the same two-month period. In the United States, the Company's residential backlog at November 30, 1996 totaled 2,610 units. Excluding San Antonio, domestic backlog at year-end 1996 totaled 1,406 units, up 20.0% from 1,172 units at year-end 1995, reflecting higher backlog from both California and non-California operations. In California, backlog increased to 854 units at November 30, 1996 compared to 626 units a year earlier, while non-California residential unit backlog (excluding San Antonio) rose slightly to 552 units at November 30, 1996 from 546 units at November 30, 1995. When compared to the fourth quarter of 1995, net orders in California decreased 15.4% to 1,135 from 1,342, during the fourth quarter of 1996. California order rates have demonstrated continued softness during the first two months of the 1997 fiscal year, with net orders down 18.1% compared to the same period of fiscal 1996. Net orders from non-California U.S. operations increased to 968 units in the fourth quarter of 1996 from 503 units in the fourth quarter of 1995. Excluding the San Antonio operations, net orders from non-California U.S. operations totaled 479 units in the fourth quarter of 1996, a slight decrease from the prior year's period. Non-California U.S. net orders (including San Antonio) for the first two months of fiscal 1997 increased 180.3% compared to the same period of fiscal 1996. Excluding San Antonio, domestic net orders from non-California operations increased 45.6% during the two-month period. In France, the residential backlog at November 30, 1996 totaled 215 units, down 6.1% from 229 units at year-end 1995. Net orders in the fourth quarter of 1996 were up 27.1% compared to the year-earlier period at 267 versus 210 units. For the year, French net orders increased 15.9% to 735 units from 634 units in 1995. In the first two months of 1997, net orders in France improved 18.6% compared to the same period a year ago. Given the decreased level of the Company's commercial development activities, the value of the backlog associated with these operations declined to approximately $8.9 million at November 30, 1996 from $10.8 million at year-end 1995. As a result of continued geographic expansion, 54.6% of the Company's domestic deliveries were in California in 1996, compared to 75.1% in 1995. Adverse economic conditions for new housing have persisted in California for several years. As a result, the Company has diversified its risks through geographic expansion into other western states during the 1990's. The Company expects to continue to be selective in its investment in land in California while focusing on improving gross margins, reducing overhead expenses and maximizing rates of return. While the Company is cautiously optimistic, based on current economic trends and forecasts, that market conditions for housing in California have begun to improve in certain markets, the timing and depth of sustained recoveries in the state's new home markets remain uncertain. The Company's domestic operations outside of California continued their profitable expansion during 1996. The San Antonio acquisition, along with growth in other non-California operations, resulted in a 138.6% increase in non-California domestic deliveries in 1996 from 1995. Each of the Company's non-California domestic divisions was profitable in 1996. The Company expects to continue to seek opportunities for non-California domestic expansion in the future through either de novo entry or the acquisition of existing businesses, or both. The French housing market improved modestly in 1996 from the prior year, which was marked by recession, high unemployment and the economic uncertainty created by an election year. If France's economic climate improves, the Company anticipates further modest improvement in deliveries from its French housing operations in 1997. French commercial activities, however, are likely to remain at or below depressed 1996 levels as that market continues to absorb existing properties and vacancy rates remain high in a generally weak economic climate. In Mexico, the Company delivered the first homes from its community near Mexico City in 1996, generating 39 net orders during the year. Nevertheless, the new home market in Mexico remains seriously hampered by the decline in the value of the peso and the economic recession created by its devaluation. The Mexican recession has slowed an already complex regulatory process and heightened consumer concerns about new home purchases. Despite these troubled conditions, demand for housing in Mexico remains substantial. The Company continues to monitor the unsettled economic environment and remains cautious regarding its Mexico operations. During 1997, the Company expects to continue to closely monitor its level of activity in Mexico and the desirability of expanding its market presence there. The Company continues to benefit in all of its operations from the strength of its capital position, which has allowed it to finance expansion, re-engineer product lines and diversify into stronger new home building markets. The Company's capital position has also helped enable it to maintain overall profitability during troubled economic times in California, where the lingering effects of a severe recession continue to inhibit demand for affordable new housing. The Company believes it remains well-positioned to benefit if the California home Kaufman and Broad Home Corporation 1996 Annual Report 28 35 building industry improves, and has established strategies to help maximize future performance even under continued challenging market conditions. The Company achieved measurable progress in 1996 with regard to its four key operating strategies. In each quarter of 1996 (excluding the non-cash charge for impairment of long-lived assets), the Company produced year-over-year improvement in unit deliveries, total revenues, selling, general and administrative expense ratio, pretax income and earnings per share. Additionally, in each quarter of 1996, the Company's gross margin was better than or equal to that of the comparable quarter a year earlier. Looking forward, the Company expects to focus on two additional strategic initiatives in the new year -- acceleration of the Company's growth and a substantial revision of its operational business model. The Company is targeting faster growth in two ways: a faster pace of expansion in certain existing markets, and new market entries. The Company has identified several of its existing domestic markets as candidates for accelerated growth programs due to their strength, size and ability to generate returns which meet or exceed Company objectives. As for new market entries, the Company recently entered the Austin, Texas market and expects to actively consider other western U.S. markets for expansion during the next few years, either through acquisition of existing homebuilders or establishment of start-up operations. The Company's second strategic goal involves the revision of its operational business model through a Company-wide integration of many of the basic operating characteristics of the business model used in its San Antonio operations. This business model emphasizes efficiencies generated from a more process-driven, systematic approach to homebuilding and also focuses on gaining a deeper understanding of customer interests and needs. This new model includes specific initiatives related to many aspects of the Company's business, including land purchase strategy, product design, production scheduling, inventory control and pricing. In addition, the model provides for a pro-active partnership with local real estate brokers in all communities and an integrated mortgage loan function which supports the homebuilding operations. The Company believes that the successful revision of its business model will result in further improvement in its operating margin over time. The Company maintains a cautious outlook for the first half of 1997 compared to year-earlier results due to exceptionally strong net orders in early 1996, recent heavy rains in Northern California and the Company's determination to reduce its reliance on incentives to stimulate sales. Nonetheless, the Company currently anticipates higher overall delivery volumes for full-year 1997 compared to 1996. Assuming stable or improving business conditions, interest rates and consumer confidence in its major markets, the Company believes the anticipated increase in delivery volumes, maintenance of its four key 1996 operational strategies and initial implementation of its two new strategic initiatives should result in improved operating income and earnings per share in 1997 compared to 1996. Additionally, the Company believes that the integration of its new operational business model, combined with its accelerated growth strategy will provide long-term benefits to its operations and improve returns in 1997 and beyond. IMPACT OF INFLATION The Company's business is significantly affected by general economic conditions, particularly by the impact of inflation and the generally associated adverse effect on interest rates. Although inflation rates have been low in recent years, rising inflation would likely have a long-term impact on the Company's revenues and earning power by reducing demand for homes as a result of correspondingly higher interest rates. In periods of high inflation, the rising costs of land, construction, labor, interest and administrative expenses have often been recoverable through increased selling prices, although this has not always been possible because of high mortgage interest rates and competitive factors in the marketplace. In recent years, however, inflation has had no significant adverse impact on the Company, as cost increases have not exceeded the average rate of inflation. * * * Except for the historical information contained herein, certain of the matters discussed in this report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which involve certain risks and uncertainties, including but not limited to, changes in general economic conditions, materials prices, labor costs, interest rates, consumer confidence, competition, environmental factors, and government regulations affecting the Company's operations. 29 36 CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 30, ------------------------------------------------- In thousands, except per share amounts 1996 1995 1994 ------------------------------------------------- TOTAL REVENUES $ 1,787,041 $ 1,396,526 $ 1,336,271 =========== =========== =========== CONSTRUCTION: Revenues $ 1,754,147 $ 1,366,866 $ 1,307,570 Construction and land costs (1,435,081) (1,119,405) (1,048,323) Selling, general and administrative expenses (220,387) (181,930) (170,924) Non-cash charge for impairment of long-lived assets (170,757) ----------- ----------- ----------- Operating income (loss) (72,078) 65,531 88,323 Interest income 2,666 2,140 2,026 Interest expense, net of amounts capitalized (36,691) (27,501) (17,849) Minority interests in pretax income of consolidated joint ventures (233) (584) (917) Equity in pretax loss of unconsolidated joint ventures (2,148) (3,475) (3,736) ----------- ----------- ----------- Construction pretax income (loss) (108,484) 36,111 67,847 ----------- ----------- ----------- MORTGAGE BANKING: Revenues: Interest income 14,594 15,555 16,978 Other 18,300 14,105 11,723 ----------- ----------- ----------- 32,894 29,660 28,701 Expenses: Interest (13,462) (14,821) (17,151) General and administrative (6,692) (5,491) (5,547) ----------- ----------- ----------- Mortgage banking pretax income 12,740 9,348 6,003 ----------- ----------- ----------- Total pretax income (loss) (95,744) 45,459 73,850 Income taxes 34,500 (16,400) (27,300) ----------- ----------- ----------- NET INCOME (LOSS) $ (61,244) $ 29,059 $ 46,550 =========== =========== =========== EARNINGS (LOSS) PER SHARE $ (1.54) $ .73 $ 1.16 =========== =========== ===========
See accompanying notes. Kaufman and Broad Home Corporation 1996 Annual Report 30 37 CONSOLIDATED BALANCE SHEETS
November 30, ------------------------- In thousands, except shares 1996 1995 ------------------------- ASSETS CONSTRUCTION: Cash and cash equivalents $ 4,723 $ 24,793 Trade and other receivables 107,037 111,620 Inventories 780,302 1,059,179 Investments in unconsolidated joint ventures 8,312 21,154 Goodwill 39,356 13,884 Other assets 60,429 38,578 ---------- ---------- 1,000,159 1,269,208 ---------- ---------- MORTGAGE BANKING: Cash and cash equivalents 5,058 18,589 Receivables: First mortgages and mortgage-backed securities 81,536 97,672 First mortgages held under commitment of sale and other receivables 153,459 181,764 Other assets 3,282 6,946 ---------- ---------- 243,335 304,971 ---------- ---------- TOTAL ASSETS $1,243,494 $1,574,179 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CONSTRUCTION: Accounts payable $ 151,791 $ 156,097 Accrued expenses and other liabilities 96,986 90,237 Mortgages and notes payable 442,629 639,575 ---------- ---------- 691,406 885,909 ---------- ---------- MORTGAGE BANKING: Accounts payable and accrued expenses 7,481 9,661 Notes payable 134,956 151,000 Collateralized mortgage obligations secured by mortgage-backed securities 68,381 84,764 ---------- ---------- 210,818 245,425 ---------- ---------- Deferred income taxes 24,448 ---------- ---------- Minority interests in consolidated joint ventures 920 2,919 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock--$1.00 par value; authorized, 10,000,000 shares: Series A participating cumulative preferred stock; none outstanding Series B convertible preferred stock; none and 1,300,000 shares outstanding at November 30, 1996 and 1995, respectively 1,300 Common stock--$1.00 par value; authorized, 100,000,000 shares; 38,827,586 and 32,346,736 shares outstanding at November 30, 1996 and 1995, respectively 38,828 32,347 Paid-in capital 183,801 188,839 Retained earnings 113,398 190,749 Cumulative foreign currency translation adjustments 4,323 2,243 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 340,350 415,478 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,243,494 $1,574,179 ========== ==========
See accompanying notes. 31 38 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended November 30, 1996, 1995 and 1994 --------------------------------------------------------------------------------------- Series B Convertible Special Foreign Total Preferred Common Common Paid-in Retained Currency Stockholders' In thousands Stock Stock Stock Capital Earnings Translation Equity --------------------------------------------------------------------------------------- Balance at November 30, 1993 $ 1,300 $ 29,601 $ 5,123 $ 258,770 $ 154,338 $(4,792) $ 444,340 Net income 46,550 46,550 Dividends on Series B convertible preferred stock (9,880) (9,880) Dividends on common and special common stock (9,726) (9,726) Exercise of employee stock options 125 1,406 1,531 Purchase of special common stock and warrants (2,332) (71,345) (73,677) Exchange of special common stock for common stock 2,652 (2,791) 139 Foreign currency translation adjustments 5,609 5,609 ------- -------- ------- --------- --------- ------- --------- Balance at November 30, 1994 1,300 32,378 188,970 181,282 817 404,747 ------- -------- ------- --------- --------- ------- --------- Net income 29,059 29,059 Dividends on Series B convertible preferred stock (9,880) (9,880) Dividends on common stock (9,712) (9,712) Exercise of employee stock options 17 103 120 Cancellation of restricted stock (48) (234) (282) Foreign currency translation adjustments 1,426 1,426 ------- -------- ------- --------- --------- ------- --------- Balance at November 30, 1995 1,300 32,347 188,839 190,749 2,243 415,478 ------- -------- ------- --------- --------- ------- --------- Net income (loss) (61,244) (61,244) Dividends on Series B convertible preferred stock (4,940) (4,940) Dividends on common stock (11,167) (11,167) Conversion of Series B convertible preferred stock (1,300) 6,500 (5,200) Exercise of employee stock options 37 390 427 Cancellation of restricted stock (56) (228) (284) Foreign currency translation adjustments 2,080 2,080 ------- -------- ------- --------- --------- ------- --------- Balance at November 30, 1996 $ $ 38,828 $ $ 183,801 $ 113,398 $ 4,323 $ 340,350 ======= ======== ======= ========= ========= ======= =========
See accompanying notes. KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report 32 39 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, ------------------------------------- In thousands 1996 1995 1994 --------- ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (61,244) $ 29,059 $ 46,550 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Equity in pretax loss of unconsolidated joint ventures 2,148 3,475 3,736 Minority interests in pretax income of consolidated joint ventures 233 584 917 Amortization of discounts and issuance costs 1,510 1,765 2,276 Depreciation and amortization 10,819 6,274 3,408 Provision for deferred income taxes (41,208) (6,925) 4,498 Non-cash charge for impairment of long-lived assets 170,757 Change in assets and liabilities, net of effects from purchase of Rayco: Receivables 36,572 (14,664) (13,836) Inventories 232,871 (80,317) (137,594) Accounts payable, accrued expenses and other liabilities (21,918) 26,680 (26,314) Other, net 244 (18,801) 5,279 --------- -------- --------- Net cash provided (used) by operating activities 330,784 (52,870) (111,080) --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Rayco, net of cash acquired (80,556) Investments in unconsolidated joint ventures (7,644) 685 (5,329) Net originations of mortgages held for long-term investment (996) (253) (442) Payments received on first mortgages and mortgage-backed securities 18,069 13,786 49,687 Other, net (2,799) (4,252) (6,447) --------- -------- --------- Net cash provided (used) by investing activities (73,926) 9,966 37,469 --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on) credit agreements and other short-term borrowings (325,323) 92,358 215,476 Proceeds from issuance of senior subordinated notes 124,406 Payments on collateralized mortgage obligations (17,309) (13,296) (49,259) Payments on mortgages, land contracts and other loans (53,894) (28,055) (4,460) Payments from (to) minority interests in consolidated joint ventures (2,232) 63 (15,177) Purchase of special common stock and warrants (73,677) Payments of cash dividends (16,107) (19,592) (19,606) --------- -------- --------- Net cash provided (used) for financing activities (290,459) 31,478 53,297 --------- -------- --------- Net decrease in cash and cash equivalents (33,601) (11,426) (20,314) Cash and cash equivalents at beginning of year 43,382 54,808 75,122 --------- -------- --------- Cash and cash equivalents at end of year $ 9,781 $ 43,382 $ 54,808 ========= ======== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid, net of amounts capitalized $ 52,063 $ 42,032 $ 36,034 Income taxes paid 5,093 17,275 45,270 ========= ======== ========= SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: Cost of inventories acquired through seller financing $ 16,977 $ 36,149 $ 27,054 ========= ======== =========
See accompanying notes. 33 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS Kaufman and Broad Home Corporation (the Company) is a regional builder of single-family homes with domestic operations throughout the western United States, and international operations in France and Mexico. In France, the Company is also a developer of commercial and high-density residential projects. Through its mortgage banking subsidiary, Kaufman and Broad Mortgage Company, the Company provides mortgage banking services to its domestic home buyers. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all significant majority-owned or controlled subsidiaries and joint ventures. All significant intercompany transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method. USE OF ESTIMATES The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgements of management. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments and other short-term investments purchased with a maturity of three months or less to be cash equivalents. CONSTRUCTION OPERATIONS The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121") in the second quarter of 1996. Prior to the adoption of SFAS No. 121, inventories were stated at the lower of cost or estimated net realizable value for each parcel or subdivision. Under the new standard, inventories to be held and used are stated at cost unless a subdivision is determined to be impaired, in which case the impaired inventories are written down to fair value. Write-downs of impaired inventories are recorded as adjustments to the cost basis of the respective inventory. Housing and other real estate sales are recognized when all conditions precedent to closing have been fulfilled. In France, sales of apartments, condominiums and commercial buildings to investors are recognized using the percentage of completion method which is generally based on costs incurred as a percentage of estimated total costs of individual projects. Revenues recognized in excess of amounts billed are classified as receivables. Amounts received from investors in excess of revenues recognized, if any, are classified as other liabilities. Construction and land costs are comprised of direct and allocated costs, including estimated future costs for warranties and amenities. Land, land improvements and other common costs are generally allocated equally to units within a parcel or subdivision. Land and land development costs generally include related interest and property taxes incurred until development is substantially completed or deliveries have begun within a subdivision. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized by the Company over periods ranging from five to seven years using the straight-line method. Accumulated amortization was $8,836,000 and $2,178,000 at November 30, 1996 and 1995, respectively. In the event that facts and circumstances indicate that the carrying value of goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the goodwill would be compared to its carrying amount to determine if a write-down to fair value or discounted cash flow is required. CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS In the second quarter of 1996, the Company decided to accelerate the disposition of certain real estate assets in order to facilitate pursuit of its four key operating strategies, including geographic diversification, increased emphasis on return on investment, planned debt reduction and improved operating margins. The disposition of these assets helped effectuate the Company's strategies to improve overall return on investment, restore financial leverage to targeted levels, and position the Company for continued geographic expansion. In addition, the Company substantially eliminated its prior practice of investing in long term development projects in order to reduce the operating risk associated with such projects. The accelerated disposition of long term development assets caused certain assets, primarily inventories and investments in unconsolidated joint ventures in California and France, to be identified as being impaired and to be written down. Certain of the Company's California properties were impacted by the charge, while none of its non-California domestic properties were affected. The Company's non-California domestic properties were not affected since they were not held for long term development and were expected to be economically successful such that they were determined not to be impaired. The evaluation of impaired assets considered the depressed nature of the real estate business in certain of the Company's California and French markets, reduced demand from prospective home buyers, availability of ready buyers for the Company's properties, future costs of development KAUFMAN AND BROAD HOME CORPORATION 1996 ANNUAL REPORT 34 41 and holding costs during development. Based on this evaluation, the Company recorded a non-cash write-down of $170,757,000 ($109,257,000, net of income taxes) to state these impaired assets at their fair values. The fair values established were based on various methods, including discounted cash flow projections, appraisals and evaluations of comparable market prices, as appropriate. As the inventories affected by the charge primarily consisted of land which was not under active development, the Company does not anticipate that the charge will have a material effect on its gross margins. The write-down for impairment of long-lived assets was calculated in accordance with the requirements of SFAS No. 121 but was not necessitated by implementation of this standard. Had the Company not adopted SFAS No. 121, a substantial write-down would have nonetheless been recorded. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable, and requires impairment losses to be recorded on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Under the new standard, when an impairment write-down is required, the related assets are adjusted to their estimated fair value. Fair value for purposes of SFAS No. 121 is deemed to be the amount a willing buyer would pay a willing seller for such property in a current transaction, that is, other than in a forced or liquidation sale. For homebuilders, this is a change from the previous accounting standard which required homebuilders to carry real estate assets at the lower of cost or net realizable value. Fair value differs from net realizable value in that, among other things, fair value assumes a cash sale under current market conditions, considers a potential purchaser's requirement for future profit and discounts the timing of estimated future cash receipts. In contrast, net realizable value is the price obtainable in the future based on the current intended use of the land, net of disposal and holding costs, without provision for future profits or discounting future cash flow to present value. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain since it requires estimates of current market yields as well as future events and conditions. Such future events and conditions include economic and market conditions, as well as the availability of suitable financing to fund development and construction activities. The realization of the estimates applied to the Company's real estate projects is dependent upon future uncertain events and conditions and, accordingly, the actual timing and amounts realized by the Company may be materially different from the estimated fair values as described herein. MORTGAGE BANKING OPERATIONS Principal and interest payments received on mortgage-backed securities are invested in short-term securities maturing on the next debt service date of the collateralized mortgage obligations for which the securities are held as collateral. Such payments are restricted to the payment of the debt service on the collateralized mortgage obligations. First mortgages and mortgage-backed securities consist of securities held for long-term investment and are valued at amortized cost. First mortgages held under commitment of sale are valued at the lower of aggregate cost or market. Market is principally based on public market quotations or outstanding commitments obtained from investors to purchase first mortgages receivable. INCOME TAXES Income taxes are provided for at rates applicable in the countries in which the income is earned. Provision is made currently for United States federal income taxes on earnings of foreign subsidiaries which are not expected to be reinvested indefinitely. EARNINGS PER SHARE The computation of earnings per share is based on the weighted average number of common shares, special common shares, equivalent Series B Convertible Preferred Shares and common share equivalents outstanding during each year. All of the Series B Convertible Preferred Shares were converted into shares of the Company's common stock on April 1, 1996, the mandatory conversion date. Prior to their conversion, the Series B Convertible Preferred Shares were considered common stock due to their being subject to mandatory conversion into common stock, and the related dividends were not deducted from net income for purposes of calculating earnings per share. Common share equivalents include dilutive stock options and warrants using the treasury stock method. Earnings per share were based on the weighted average number of common shares, special common shares, equivalent Series B Convertible Preferred Shares and common share equivalents outstanding of 39,763,000 in 1996, 39,757,000 in 1995 and 40,026,000 in 1994. If, for purposes of calculating earnings per share, the Series B Convertible Preferred Shares were excluded from the weighted average shares outstanding and the related dividends deducted from net income, the computation would have resulted in a loss per share of $1.76 in 1996 and earnings per share of $.58 in 1995 and $1.09 in 1994. RECLASSIFICATIONS Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to the 1996 presentation. 35 42 Note 2. ACQUISITION On March 1, 1996, the Company acquired San Antonio, Texas-based Rayco, Ltd. and affiliates ("Rayco") for a total purchase price of approximately $104,500,000, including cash to pay off certain assumed debt. The acquisition was financed through borrowings under the Company's amended revolving credit agreement dated February 28, 1996. Rayco is San Antonio's largest homebuilder and sells a wide variety of homes, primarily to first-time buyers. The total purchase price was based on the net assets of the entities purchased and the assumption of certain debt. The acquisition was accounted for as a purchase with the results of operations of the acquired entities included in the Company's consolidated financial statements as of the date of acquisition. The purchase price was allocated based on estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of net assets acquired was $32,274,000 and is being amortized on a straight-line basis over a period of seven years. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and Rayco as if the acquisition had occurred as of December 1, 1994, with pro forma adjustments to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects. The pro forma results for the year ended November 30, 1996 below are presented both before and after the $170,757,000 non-cash charge for impairment of long-lived assets.
Years Ended November 30, 1996 ---------------------------- After Before Non-cash Non-cash In thousands, except per share amounts Charge Charge 1995 ---------------------------------------------- Total revenues $1,850,329 $1,850,329 $1,634,574 Total pretax income (loss) (92,740) 78,017 57,625 Net income (loss) (59,440) 49,817 36,825 Earnings (loss) per share (1.49) 1.25 .93 ========== ========== ==========
This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the Rayco acquisition been consummated as of December 1, 1994, nor are they necessarily indicative of future operating results. Note 3. RECEIVABLES CONSTRUCTION Trade receivables amounted to $28,368,000 and $48,699,000 at November 30, 1996 and 1995, respectively. Included in these amounts are unbilled receivables due from investors on French apartment, condominium and commercial building sales accounted for using the percentage of completion method, totaling $6,444,000 at November 30, 1996 and $8,478,000 at November 30, 1995. The investors are contractually obligated to remit payments against their unbilled balances. Other receivables of $78,669,000 at November 30, 1996 and $62,921,000 at November 30, 1995 included mortgages receivable, escrow deposits and amounts due from municipalities and utility companies. At November 30, 1996 and 1995, receivables were net of allowances for doubtful accounts of $3,773,000 and $3,034,000, respectively. MORTGAGE BANKING First mortgages and mortgage-backed securities consisted of loans of $8,184,000 at November 30, 1996 and $7,187,000 at November 30, 1995 and mortgage-backed securities of $73,352,000 and $90,485,000 at November 30, 1996 and 1995, respectively. The mortgage-backed securities serve as collateral for related collateralized mortgage obligations. The property covered by the mortgages underlying the mortgage-backed securities are single-family residences. Issuers of the mortgage-backed securities are the Government National Mortgage Association and Federal National Mortgage Association. The first mortgages and mortgage-backed securities bore interest at an average rate of 8 1/2% and 8 3/5% at November 30, 1996 and 1995, respectively (with rates ranging from 7% to 12% in 1996 and 7% to 13% in 1995). Mortgages were net of discounts of $2,490,000 at November 30, 1996 and $4,353,000 at November 30, 1995. These discounts, which primarily represent loan origination discount points and acquisition price discounts, are deferred as an adjustment to the carrying value of the related first mortgages and mortgage-backed securities and amortized into interest income using the interest method. The Company's mortgage-backed securities held for long-term investment have been classified as held-to-maturity and are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. The total gross unrealized gains and gross unrealized losses on the mortgage-backed securities were $4,391,000 and $0, respectively at November 30, 1996 and $6,175,000 and $0, respectively at November 30, 1995. KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report 36 43 First mortgages held under commitment of sale and other receivables consisted of first mortgages held under commitment of sale of $147,619,000 at November 30, 1996 and $173,487,000 at November 30, 1995 and other receivables of $5,840,000 and $8,277,000 at November 30, 1996 and 1995, respectively. The first mortgages held under commitment of sale bore interest at an average rate of 7 3/4% and 7 2/5% at November 30, 1996 and 1995, respectively. The balance in first mortgages held under commitment of sale and other receivables fluctuates significantly during the year and typically reaches its highest level at quarter-ends, corresponding with the Company's home and mortgage delivery activity. Note 4. INVENTORIES Inventories consist of the following: November 30, -------------------------- In thousands 1996 1995 -------------------------- Homes, lots and improvements in production $646,069 $ 803,926 Land under development 134,233 255,253 -------- ---------- Total inventories $780,302 $1,059,179 ======== ========== Land under development primarily consists of parcels on which 50% or less of estimated development costs have been incurred. The impact of capitalizing interest costs on consolidated pretax income is as follows:
Years Ended November 30, ------------------------------------- In thousands 1996 1995 1994 ------------------------------------- Interest incurred $ 63,628 $ 64,629 $ 45,410 Interest expensed (36,691) (27,501) (17,849) -------- -------- -------- Interest capitalized 26,937 37,128 27,561 Interest amortized (24,893) (18,508) (16,156) -------- -------- -------- Net impact on consolidated pretax income $ 2,044 $ 18,620 $ 11,405 ======== ======== ========
Note 5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES The Company participates in a number of joint ventures in which it has less than a controlling interest. These joint ventures are based primarily in New Mexico and France and are engaged in the development, construction and sale of residential properties and commercial projects. Combined condensed financial information concerning the Company's unconsolidated joint venture activities follows:
November 30, ---------------------- In thousands 1996 1995 ---------------------- Cash $ 5,449 $ 2,426 Receivables 6,112 9,407 Inventories 121,802 874,624 Other assets 168 5,854 -------- -------- Total assets $133,531 $892,311 ======== ======== Mortgages and notes payable $116,477 $630,006 Other liabilities 8,583 98,539 Equity of: The Company 8,312 21,154 Others 159 142,612 -------- -------- Total liabilities and equity $133,531 $892,311 ======== ========
The joint ventures finance land and inventory investments primarily through a variety of borrowing arrangements. The Company typically does not guarantee these financing arrangements.
Years Ended November 30, ----------------------------------- In thousands 1996 1995 1994 ----------------------------------- Revenues $ 6,678 $ 33,917 $ 82,734 Cost of sales (8,232) (49,289) (102,981) Other expenses, net (13,207) (5,108) (15,434) -------- -------- -------- Total pretax loss $(14,761) $(20,480) $(35,681) ======== ======== ======== The Company's share of pretax loss $ (2,148) $ (3,475) $ (3,736) ======== ======== ========
The Company's share of pretax loss includes management fees earned from the unconsolidated joint ventures. Note 6. MORTGAGES AND NOTES PAYABLE CONSTRUCTION Mortgages and notes payable consist of the following (interest rates are as of November 30):
November 30, ----------------------- In thousands 1996 1995 ----------------------- Unsecured domestic borrowings with banks under a revolving credit agreement (7% to 7 1/10% in 1995) $250,000 Other unsecured domestic borrowings with banks due within one year (6 5/8% in 1996 and 6 3/5% to 6 7/8% in 1995) $ 30,400 13,000 Unsecured French borrowings (4 1/10% to 4 1/2% in 1996 and 6 3/8% to 7 1/5% in 1995) 6,617 59,011 Mortgages and land contracts due to land sellers and other loans (7% to 30 7/10% in 1996 and 6 3/5% to 59 2/5% in 1995) 7,243 43,715 Senior notes due 1999 at 10 3/8% 100,000 100,000 Senior subordinated notes due 2003 at 9 3/8% 173,961 173,849 Senior subordinated notes due 2006 at 9 5/8% 124,408 -------- -------- Total mortgages and notes payable $442,629 $639,575 ======== ========
37 44 In connection with the acquisition of Rayco, the Company amended the terms under its domestic unsecured revolving credit agreement with various banks. The amended revolving credit agreement, dated February 28, 1996, increased the Company's initial borrowing capacity from $500,000,000 to $630,000,000. The additional $130,000,000 of financing obtained included a term loan facility used to finance the acquisition and to refinance portions of the existing indebtedness of Rayco. The Company repaid the term loan in its entirety prior to November 30, 1996. Under the amended revolving credit agreement, $500,000,000 remained committed and $466,800,000 was available for the Company's future use at November 30, 1996. The agreement, scheduled to expire on December 31, 1997, provides for interest on borrowings at either the applicable bank reference rate or the London Interbank Offered Rate plus an applicable spread and an annual commitment fee based on the unused portion of the commitment. Under the terms of the amended revolving credit agreement, the Company is required, among other things, to maintain certain financial statement ratios and a minimum net worth and is subject to limitations on acquisitions, inventories, indebtedness, dividend payments and repurchases of stock. Under the conditions of the agreement, retained earnings of $9,917,000 were available for payment of cash dividends or stock repurchases at November 30, 1996. The Company's French subsidiaries have lines of credit with various banks which totaled $69,807,000 at November 30, 1996 and have various committed expiration dates through September 1998. These lines of credit provide for interest on borrowings at either the French Federal Funds Rate or the Paris Interbank Offered Rate plus an applicable spread. The weighted average interest rate on aggregate unsecured borrowings, excluding the senior and senior subordinated notes, was 6 2/10% and 6 9/10% at November 30, 1996 and 1995, respectively. On August 11, 1992, the Company filed a registration statement with the Securities and Exchange Commission under which the Company could offer for sale from time to time up to $200,000,000 of unsecured debt securities. On September 8, 1992, the Company, pursuant to this registration statement, issued $100,000,000 of 10 3/8% senior notes, due September 1, 1999, with interest payable semi-annually. The Company may redeem, in whole or in part, at any time on or after September 1, 1997, 100% of the principal amount of the notes. On April 26, 1993, the Company issued $175,000,000 principal amount of 9 3/8% senior subordinated notes at 99.202%. The notes are due May 1, 2003 with interest payable semi-annually. The notes represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The Company may redeem the notes, in whole or in part, at any time on or after May 1, 2000 at 100% of their principal amount. On October 29, 1996, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for up to $300,000,000 of the Company's debt and equity securities. The Company's previously outstanding shelf registration for debt securities in the amount of $100,000,000 was subsumed within the universal shelf registration. The universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities. On November 14, 1996, the Company utilized this universal shelf registration to issue $125,000,000 of 9 5/8% senior subordinated notes at 99.525%. The notes, which are due November 15, 2006 with interest payable semi-annually, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at 104.8125% of their principal amount beginning November 15, 2001, and thereafter at prices declining annually to 100% on and after November 15, 2004. The 10 3/8% senior notes and 9 3/8% and 9 5/8% senior subordinated notes contain certain restrictive covenants that, among other things, limit the ability of the Company to incur additional indebtedness, pay dividends, make certain investments, create certain liens, engage in mergers, consolidations, or sales of assets, or engage in certain transactions with officers, directors and employees. Principal payments on senior and senior subordinated notes, mortgages, land contracts and other loans are due as follows: 1997, $5,271,000; 1998, $1,692,000; 1999, $100,156,000; 2000, $108,000; 2001, $16,000; and thereafter, $298,369,000. Assets (primarily inventories) having a carrying value of approximately $7,530,000 are pledged to collateralize mortgages, land contracts and other secured loans. Kaufman and Broad Home Corporation 1996 Annual Report 38 45 MORTGAGE BANKING Notes payable include the following (interest rates are as of November 30):
November 30, ---------------------- In thousands 1996 1995 ---------------------- Advances under asset-backed commercial paper facility (5 7/10% in 1996 and 5 9/10% in 1995) $ 74,000 $111,000 Advances under mortgage loan purchase and interim servicing agreement (6 1/5% in 1996) 60,956 Notes payable secured by trust deed notes (7 1/8% in 1995) 40,000 -------- -------- Total notes payable $134,956 $151,000 ======== ========
First mortgages receivable are financed through a $120,000,000 asset-backed commercial paper facility (the Commercial Paper Facility) and a $100,000,000 Mortgage Loan Purchase and Interim Servicing Agreement (the Mortgage Loan Purchase Facility). Prior to entering into the Mortgage Loan Purchase Facility on August 28, 1996, the Company's mortgage banking subsidiary also obtained financing under the Company's revolving credit agreement. The Commercial Paper Facility expires on September 15, 1997 and provides for an annual commitment fee based on the unused portion of the commitment. Interest rates charged under the Commercial Paper Facility reflect those available in commercial paper markets plus an applicable spread on amounts borrowed. The Mortgage Loan Purchase Facility, which expires on August 27, 1997, provides for a commitment fee based upon the unused portion of the commitment and interest on the amount outstanding based upon either the Federal Funds Rate or the Eurodollar Rate plus an applicable spread on the amounts borrowed. There are no compensating balance requirements under either the Commercial Paper facility or the Mortgage Loan Purchase and Interim Servicing Agreement. These facilities are collateralized by first mortgages held under commitment of sale and are repayable from proceeds on the sales of first mortgages. The terms of these facilities include financial covenants which, among other things, require the maintenance of certain financial statement ratios and a minimum tangible net worth. Collateralized mortgage obligations represent bonds issued to third parties which are collateralized by mortgage-backed securities with substantially the same terms. At November 30, 1996, the collateralized mortgage obligations bore interest at rates ranging from 8% to 12 1/4% with stated principal maturities ranging from 3 to 30 years. Actual maturities are dependent on the rate at which the underlying mortgage-backed securities are repaid. No collateralized mortgage obligations have been issued since 1988. Note 7. FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments has been determined based on available market information and appropriate valuation methodologies. However, judgement is necessarily required in interpreting market data to develop the estimates of fair value. In that regard, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying values and fair values of the Company's financial instruments, except for those financial instruments for which the carrying values approximate fair values, are summarized as follows:
November 30, ----------------------------------------------------- 1996 1995 ----------------------- ----------------------- Carrying Fair Carrying Fair In thousands Value Value Value Value ----------------------------------------------------- Construction: Financial liabilities 10 3/8% Senior notes $100,000 $102,800 $100,000 $101,875 9 3/8% Senior subordinated notes 173,961 177,415 173,849 171,063 9 5/8% Senior subordinated notes 124,408 125,375 Mortgage banking: Financial assets Mortgage-backed securities 73,352 77,743 90,485 96,660 Financial liabilities Collateralized mortgage obligations secured by mortgage-backed securities 68,381 77,979 84,764 97,597 ======== ======== ======== ========
The Company used the following methods and assumptions in estimating fair values: Cash and cash equivalents; first mortgages held under commitment of sale and other receivables; borrowings under the amended domestic revolving credit agreement, French lines of credit, Commercial Paper Facility and Mortgage Loan Purchase Facility: The carrying amounts reported approximate fair values. Senior notes and senior subordinated notes: The fair values of the Company's senior notes and senior subordinated notes are estimated based on quoted market prices. 39 46 Mortgage-backed securities and collateralized mortgage obligations secured by mortgage-backed securities: The fair values of these financial instruments were based on quoted market prices for the same or similar issues. Note 8. COMMITMENTS AND CONTINGENCIES Commitments and contingencies include the usual obligations of housing producers for the completion of contracts and those incurred in the ordinary course of business. The Company is also involved in litigation incidental to its business, the disposition of which should have no material effect on the Company's financial position or results of operations. Note 9. STOCKHOLDERS' EQUITY PREFERRED STOCK On January 11, 1989, the Company adopted a Stockholder Rights Plan and declared a dividend distribution of one preferred share purchase right for each outstanding share of common stock. Under certain circumstances, each right entitles the holder to purchase 1/100th of a share of a new Series A Participating Cumulative Preferred Stock at a price of $30.00, subject to certain antidilution provisions. The rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that a person or group has acquired 20% or more of the aggregate votes entitled from all shares of common stock or (ii) 10 days following the commencement of a tender offer for 20% or more of the aggregate votes entitled from all shares of common stock. In the event the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company's assets or earning power is sold, each right will entitle its holder to receive, upon exercise, common stock of the acquiring company having a market value of twice the exercisable price of the right. At the option of the Company, the rights are redeemable prior to becoming exercisable at $.01 per right. Unless previously redeemed, the rights will expire on March 7, 1999. Until a right is exercised, the holder will have no rights as a stockholder of the Company, including the right to vote or receive dividends. In 1993, the Company issued 6,500,000 depository shares, each representing a one-fifth ownership interest in a share of Series B Mandatory Conversion Premium Dividend Preferred Stock (the Series B Convertible Preferred Shares). Dividends were cumulative and payable quarterly in arrears at an annual dividend rate of $1.52 per depository share. On the mandatory conversion date of April 1, 1996, each of the Company's 6,500,000 depository shares was converted into one share of the Company's common stock. SPECIAL COMMON STOCK In connection with its restructuring in 1989, the Company issued warrants (the Warrants) to certain subsidiaries of SunAmerica Inc., the Company's former parent. The Warrants gave the holder the right to purchase, at any time prior to March 1, 1999, up to 7,500,000 shares of special common stock at an exercise price of $6.96 per share. The rights of the special common stock were generally identical to the rights of the common stock except that the holder of special common stock was entitled to one-tenth of a vote per share on all matters to be voted on by stockholders. In 1992, the Company issued in a public offering 5,123,000 shares of the special common stock in connection with the exercise of the Warrants. On November 8, 1993, the Company commenced a tender offer to purchase all of the outstanding shares of its special common stock at a price of $19 per share. The offer expired on December 7, 1993 with 2,331,785 shares of special common stock tendered. In addition, on December 23, 1993, the Company purchased the remaining 2,377,000 Warrants at a price equal to the tender offer price per share less the $6.96 per Warrant exercise price. The total consideration paid for these transactions was $73,677,000, including related costs. The remaining 2,791,215 outstanding shares of special common stock were exchanged by the Company at a ratio of .95 shares of common stock for each share of special common stock on various dates throughout 1994. Note 10. EMPLOYEE BENEFIT AND STOCK PLANS Benefits are provided to most employees under the Company's 401(k) Savings Plan under which contributions by employees are partially matched by the Company. The aggregate cost of this plan to the Company was $1,867,000 in 1996, $1,795,000 in 1995 and $1,734,000 in 1994. The Kaufman and Broad Home Corporation 1988 Employee Stock Plan (the 1988 Plan) provides that stock options, associated limited stock appreciation rights, restricted shares of common stock and stock units may be awarded to eligible individuals for periods of up to 15 years. The 1988 Plan is the Company's primary existing employee stock plan. The Company also has the Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior Management (the Incentive Plan) in which certain key executives of the Company participate. The Incentive Plan provides for the same awards as may be made under the 1988 Plan, but requires that such awards be subject to certain conditions which are designed to assure that annual compensation paid in excess of $1,000,000 to participating executives is tax deductible for the Company. KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report 40 47 Stock option transactions are summarized as follows:
Years Ended November 30, ------------------------------------------------------------ 1996 1995 1994 ------------------------------------------------------------ Options outstanding at beginning of year 2,406,718 2,044,718 2,191,268 Granted 665,000 512,000 52,000 Exercised (37,100) (17,000) (125,000) Cancelled (204,350) (133,000) (73,550) -------------- -------------- -------------- Options outstanding at end of year 2,830,268 2,406,718 2,044,718 -------------- -------------- -------------- Options exercisable at end of year 1,732,468 1,646,768 1,614,068 Options available for grant at end of year 1,863,431 2,268,581 954,100 Price range of options exercised $3.50 - $16.13 $3.50 - $12.38 $3.50 - $16.13 Price range of options outstanding $3.50 - $19.06 $3.50 - $22.94 $3.50 - $22.94 ============== ============== ==============
The Company records proceeds from the exercise of stock options as additions to common stock and paid-in capital. The tax benefit, if any, is recorded as additional paid-in capital. In 1991, the Board of Directors approved the issuance of restricted stock awards under the 1988 Plan of up to an aggregate 600,000 shares of common stock to certain officers and key employees. Restrictions lapse each year through May 10, 2005 on specified portions of the shares awarded to each participant so long as the participant has remained in the continuous employ of the Company. Restricted shares outstanding at the end of the year totaled 255,001 in 1996, 345,834 in 1995 and 421,667 in 1994. In June 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Statement allows companies to measure compensation cost in connection with employee stock compensation plans using a fair value based method or to continue to use an intrinsic value based method, which generally does not result in compensation cost. The Company currently plans to continue using the intrinsic value based method. Note 11. INCOME TAXES The components of pretax income (loss) are as follows:
Years Ended November 30, ---------------------------- In thousands 1996 1995 1994 ---------------------------- Domestic $(51,399) $45,393 $72,352 Foreign (44,345) 66 1,498 -------- ------- ------- Total pretax income (loss) $(95,744) $45,459 $73,850 ======== ======= =======
The components of income taxes are as follows:
In thousands Total Federal State Foreign ----------------------------------------- 1996 Currently payable $ 5,659 $ 17,013 $(7,003) $ (4,351) Deferred (40,159) (28,754) (11,405) -------- -------- ------- -------- Total $(34,500) $(11,741) $(7,003) $(15,756) ======== ======== ======= ======== 1995 Currently payable $ 22,569 $ 16,700 $ 2,634 $ 3,235 Deferred (6,169) (3,729) (2,440) -------- -------- ------- -------- Total $ 16,400 $ 12,971 $ 2,634 $ 795 ======== ======== ======= ======== 1994 Currently payable $ 30,835 $ 24,931 $ 5,000 $ 904 Deferred (3,535) (3,603) 68 -------- -------- ------- -------- Total $ 27,300 $ 21,328 $ 5,000 $ 972 ======== ======== ======= ========
Deferred income taxes result from temporary differences in the financial and tax bases of assets and liabilities. Significant components of the Company's deferred tax liabilities and assets are as follows:
November 30, ------------------------ In thousands 1996 1995 ------------------------ Deferred tax liabilities: Installment sales $ 831 $ 4,840 Bad debt and other reserves 463 1,758 Depreciation and amortization 5,465 Capitalized expenses 18,311 23,479 Partnerships and joint ventures 3,718 4,511 Computer equipment leases 439 6,573 Repatriation of foreign subsidiaries 13,481 25,961 Other 4,725 3,579 -------- ------- Total deferred tax liabilities 41,968 76,166 -------- ------- Deferred tax assets: Warranty, legal and other accruals 10,943 9,194 Depreciation and amortization 2,542 1,281 Capitalized expenses 7,576 8,383 Non-cash charge for impairment of long-lived assets 17,096 Foreign tax credits 13,254 25,563 Net operating losses 1,557 943 Other 5,760 6,354 -------- ------- Total deferred tax assets 58,728 51,718 -------- ------- Net deferred tax liabilities (assets) $(16,760) $24,448 ======== =======
41 48 Net operating loss carryforwards expire in 1999, 2000 and 2001. The Company expects that the entire deferred tax benefit of the tax loss carryforwards will be recognized in future periods. Income taxes computed at the statutory United States federal income tax rate and income tax expense provided in the financial statements differ as follows:
Years Ended November 30, ---------------------------------------- In thousands 1996 1995 1994 ---------------------------------------- Amount computed at statutory rate $(33,510) $ 15,911 $ 25,848 Increase (decrease) resulting from: California franchise taxes, net of federal income tax benefit (4,552) 1,712 3,250 Differences in foreign tax rates (167) 2,042 550 Intercompany dividends 1,170 391 Affordable housing credits (2,024) (2,387) (1,179) Other, net 4,583 (878) (1,560) -------- -------- -------- Total $(34,500) $ 16,400 $ 27,300 ======== ======== ========
The Company has commitments to invest $6,458,000 over three years in affordable housing partnerships which are scheduled to provide tax credits. The Company had foreign tax credit carryforwards at November 30, 1996 of $4,165,000 for United States federal income tax purposes which expire in 1997 through 2001. The undistributed earnings of foreign subsidiaries, which the Company plans to invest indefinitely and for which no United States federal income taxes have been provided, totaled $14,769,000 at November 30, 1996. If these earnings were currently distributed, the resulting withholding taxes payable would be $737,000. Note 12. GEOGRAPHICAL AND SEGMENT INFORMATION Geographical and segment information follows:
Operating Income Identifiable In thousands Revenues (Loss) Assets --------------------------------------------- 1996 Construction: California $ 1,057,980 $ 65,308 $ 620,823 Other United States 516,921 33,251 234,959 France 171,371 4,177 130,335 Other 7,875 (4,057) 14,042 Non-cash charge for impairment of long-lived assets* (170,757) ----------- -------- ---------- Total construction 1,754,147 (72,078) 1,000,159 Mortgage banking 32,894 12,740 243,335 ----------- -------- ---------- Total $ 1,787,041 $(59,338) $1,243,494 =========== ======== ========== 1995 Construction: California $ 971,132 $ 51,428 $ 852,753 Other United States 246,958 12,308 139,875 France 138,616 4,700 235,031 Other 10,160 (2,905) 41,549 ----------- -------- ---------- Total construction 1,366,866 65,531 1,269,208 Mortgage banking 29,660 9,348 304,971 ----------- -------- ---------- Total $ 1,396,526 $ 74,879 $1,574,179 =========== ======== ========== 1994 Construction: California $ 1,048,050 $ 81,149 $ 836,783 Other United States 101,129 4,145 69,448 France 143,422 5,019 210,686 Other 14,969 (1,990) 50,219 ----------- -------- ---------- Total construction 1,307,570 88,323 1,167,136 Mortgage banking 28,701 6,003 287,324 ----------- -------- ---------- Total $ 1,336,271 $ 94,326 $1,454,460 =========== ======== ==========
*The $170.8 million pretax non-cash charge for impairment of long-lived assets was recorded in the geographic regions as follows: California $112.1 million; France $43.5 million; and Other $15.2 million. Note 13. QUARTERLY RESULTS (UNAUDITED) Quarterly results for the years ended November 30, 1996 and 1995 follow:
In thousands, except per share amounts First Second Third Fourth ------------------------------------------------------- 1996 Revenues $302,475 $ 482,350 $481,373 $520,843 Operating income (loss)* 14,067 (142,380) 29,152 39,823 Pretax income (loss)* 6,386 (153,882) 20,667 31,085 Net income (loss)* 4,086 (98,482) 13,267 19,885 Earnings (loss) per share* .10 (2.47) .33 .50 ======== ========= ======== ======== 1995 Revenues $229,832 $ 315,493 $372,314 $478,887 Operating income 5,922 13,102 19,269 36,586 Pretax income 685 6,091 10,863 27,820 Net income 435 3,841 6,863 17,920 Earnings per share .01 .10 .17 .45 ======== ========= ======== ========
*Reflects a $170.8 million pretax non-cash charge for impairment of long-lived assets recorded in the second quarter. KAUFMAN AND BROAD HOME CORPORATION 1996 Annual Report 42 49 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Kaufman and Broad Home Corporation We have audited the accompanying consolidated balance sheets of Kaufman and Broad Home Corporation as of November 30, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kaufman and Broad Home Corporation at November 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP - --------------------- Los Angeles, California January 3, 1997 REPORT ON FINANCIAL STATEMENTS The accompanying consolidated financial statements are the responsibility of management. The statements have been prepared in conformity with generally accepted accounting principles. Estimates and judgments of management based on its current knowledge of anticipated transactions and events are made to prepare the financial statements as required by generally accepted accounting principles. Management relies on internal accounting controls, among other things, to produce records suitable for the preparation of financial statements. The responsibility of our external auditors for the financial statements is limited to their expressed opinion on the fairness of the consolidated financial statements taken as a whole. Their examination is performed in accordance with generally accepted auditing standards which include tests of our accounting records and internal accounting controls and evaluation of estimates and judgements used to prepare the financial statements. The Company employs a staff of internal auditors whose work includes evaluating and testing internal accounting controls. An audit committee of outside members of the Board of Directors periodically meets with management, the external auditors and the internal auditors to evaluate the scope of auditing activities and review results. Both the external and internal auditors have the unrestricted opportunity to communicate privately with the audit committee. /s/ Michael F. Henn - ------------------- Michael F. Henn Senior Vice President and Chief Financial Officer January 3, 1997 43 STOCKHOLDER INFORMATION
Common Stock ------------------ Stock Prices High Low ------------------ 1996 First Quarter $16 7/8 $12 3/4 Second Quarter 16 3/8 13 3/8 Third Quarter 15 11 1/4 Fourth Quarter 13 5/8 11 3/4 1995 First Quarter $14 3/4 $12 1/8 Second Quarter 15 7/8 11 1/8 Third Quarter 16 13 1/8 Fourth Quarter 13 3/8 10 7/8 ======= =======
DIVIDEND DATA Kaufman and Broad Home Corporation paid a quarterly cash dividend of $.075 per common share in 1996 and 1995. ANNUAL STOCKHOLDERS' MEETING The annual stockholders' meeting will be held at the Company's offices at 10990 Wilshire Boulevard, Seventh Floor, in Los Angeles, California, at 9:00 a.m. on Thursday, April 3, 1997. STOCK EXCHANGE LISTINGS The Company's common stock (ticker symbol: KBH) is listed on the New York Stock Exchange and is also traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia Exchanges. TRANSFER AGENT ChaseMellon Shareholder Services, LLC Los Angeles, California INDEPENDENT AUDITORS Ernst & Young LLP Los Angeles, California FORM 10-K The Company's Report on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge by writing to Investor Relations, Kaufman and Broad Home Corporation or by calling 1-888-KBH-NYSE toll free. COMPANY INFORMATION News and earnings releases may be obtained at no charge by facsimile. Call 1-888-KBH-NYSE toll free. Company information can also be obtained on-line through Company News On Call, a service provided by PR Newswire, at http://www.prnewswire.com HEADQUARTERS Kaufman and Broad Home Corporation 10990 Wilshire Boulevard Los Angeles, California 90024 (310) 231-4000 (310) 231-4222 Fax DESIGN: Louey/Rubino Design Group Inc., Santa Monica, CA - NYC - Jakarta, Indonesia ILLUSTRATION: Brant Day PHOTOGRAPHY: Stanley Klimek PRINTING: Lithographix 44 LIST OF EXHIBITS FILED
SEQUENTIAL EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ------ ------------------------------------------------------------------ --------------- 10.17 Kaufman and Broad Home Corporation Non-Employee Directors Stock Unit Plan......................................................... 10.18 Employment Agreement of Glen Barnard, dated October 5, 1996....... 10.19 Employment Agreement of Lisa G. Kalmbach, dated October 5, 1996... 10.20 Employment Agreement of Albert Z. Praw, dated October 5, 1996..... 10.21 Kaufman and Broad Home Corporation Unit Performance Program....... 11 Statement of Computation of Per Share Earnings (Loss)............. 13 Pages 26 through 49 and the inside back cover of the Company's 1996 Annual Report to Stockholders................................ 22 Subsidiaries of the Company....................................... 24 Consent of Independent Auditors................................... 27 Financial Data Schedule...........................................
EX-10.17 2 EXHIBIT 10.17 1 EXHIBIT 10.17 KAUFMAN AND BROAD HOME CORPORATION NON-EMPLOYEE DIRECTORS STOCK UNIT PLAN 1. PURPOSE OF THE PLAN. The purpose of the Kaufman and Broad Home Corporation Non-Employee Directors Stock Unit Plan ("Plan") is to grant Awards of Stock Units to non-employee Directors of Kaufman and Broad Home Corporation (the "Company") in order to align their compensation with the equity interests of the Company's stockholders. The Plan provides for compensation through (i) annual grants of Stock Units to Directors and (ii) the payment of Directors' Annual Retainer and Meeting Fees in cash or Stock Units. The effective date of the Plan is September 26, 1996. 2. DEFINITIONS. "ANNUAL MEETING" shall mean an annual meeting of stockholders of the Company. "ANNUAL RETAINER" shall mean the retainer fee, established by the Board, paid to a Director for (i) services as a Director on the Board for a Director Year and (ii) for services as Chairman of a committee of the Board of Directors for a Director Year. "AWARD" shall mean an award of Stock Units pursuant to the Plan. "BOARD" shall mean the Board of Directors of the Company. "CHANGE IN CONTROL" of the Company shall have occurred if either: (1) individuals who, as of the effective date of this Plan, constitute the Board of the Company (as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Directors constituting the Board, provided that any person becoming a Director subsequent to the effective date of this Plan whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters (3/4) of the then Directors who are members of the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is (A) in connection with the acquisition by a third person, including a "group" as such term is used in Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, of 20% or more of the combined voting securities ordinarily having the right to vote for the election of Directors of the Company (unless such acquisition of beneficial ownership was approved by a majority of the Board who are members of the Incumbent Board), or (B) in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board, or (2) the Board (a majority of which shall consist of Directors who are members of the Incumbent Board) has determined that a Change of Ownership, for purposes of 1 2 this Plan, shall have occurred. If any of the events enumerated in clauses (1) or (2) occur, the Board shall determine the effective date of the Change of Ownership resulting therefrom, for purposes of the Plan. "COMMITTEE" shall mean the Nominating and Corporate Governance Committee of the Board or such other committee as may be designated by the Board. "COMPANY" shall mean Kaufman and Broad Home Corporation. "DIRECTOR" shall mean a non-employee director of the Company. "DIRECTOR YEAR" shall mean the fiscal year commencing on the date of the Company's Annual Meeting and ending on the date immediately preceding the next Annual Meeting. "DIVIDEND EQUIVALENT PAYMENTS" shall mean the payment described in Section 7 hereof, to a holder of Stock Units with respect to certain dividend paid on outstanding shares of Stock. "EFFECTIVE DATE" shall mean September 26, 1996. "FAIR MARKET VALUE" of the Stock on a particular date shall equal the average of the reported closing prices for the Stock on the New York Stock Exchange for the ten (10) consecutive trading days immediately preceding such date. "FEES" shall mean the sum, for any Director Year, of the Annual Retainer and the meeting Fees and Per Diem Fees, if any. "MEETING FEES" shall mean the fees, established by the Board, paid to a Director for attending a meeting of the Board or a committee of the Board. This term shall include all fees paid to a Director for extraordinary or special Board and/or committee meetings. "PER DIEM FEES" shall mean a fee, established by the Board, authorized by the Chief Executive Officer of the Company, in his or her sole discretion, to a Director who is asked to work on Board issues for a significant part of the day outside of normal Board or committee meetings. "PRIOR PLANS" shall mean the Kaufman and Broad Home Corporation Directors Restricted Stock Plan and the Kaufman and Broad Home Corporation 1993 Director Stock Plan. "RESTRICTED STOCK" shall mean Restricted Stock (as defined in the Kaufman and Broad Home Corporation Directors Restricted Stock Plan) of the Company. 2 3 "RULE 16B-3" shall mean Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. "STOCK" shall mean shares of Common Stock, par value $1.00 per share, of the Company. "STOCK UNIT" shall mean a right to (i) receive a share of Common Stock or (ii) receive a cash payment, in accordance with the conditions set forth herein, of the Fair Market Value of a share of Stock. "TERMINATION DATE" shall mean the date a Director's service on the Board terminates for any reason. 3. SOURCE OF SHARES DELIVERED UNDER AWARDS. Any Stock delivered pursuant to an Award shall consist of shares of stock acquired by the Company on the open market. 4. ANNUAL STOCK UNIT AWARDS. (a) On the Effective Date, each Director shall receive a one-time Award of 700 Stock Units. (b) On the date of each Annual Meeting, commencing with the 1997 Annual Meeting, each person who has served as a Director for at least 90 days preceding such Annual Meeting shall receive an Award of Stock Units. The initial annual Award to each Director shall be 1200 Stock Units; provided, that such amount shall be subject to adjustment from time to time in the discretion of the Committee; provided, further, that any such adjustment shall be subject to the approval of the Board. 5. FEES. Each Director shall be entitled to receive Fees with respect to each Director Year in accordance with the provisions of this Section 5. Each Director shall be given an opportunity by the Company on an annual basis to elect ("Annual Election") to receive his or her Annual Retainer and Meeting Fees: (i) in cash, (ii) in Stock Units, or (iii) in a combination of cash and Stock Units. (a) The Annual Election must be in writing and shall be delivered to the Secretary of the Company no later than the tenth day preceding the date of the Annual Meeting. (The Annual Election shall be irrevocable after the tenth day preceding the date of the Annual Meeting.) The Annual Election shall specify the Annual Retainer and/or meeting Fees that such Director elects to receive in cash, or Stock Units, or to defer. (b) If a Director elects to receive Fees in cash, cash payment for the Annual Retainer shall be paid as soon as practicable after the beginning of a Director Year, and cash payment for Meeting Fees shall be paid as soon as practicable after each meeting. If a Director elects to receive Stock Units in lieu of the Annual Retainer, the Director shall receive Stock Units (including fractional Stock Units) with respect to Stock having a Fair 3 4 Market Value (on the date of the Company's Annual Meeting) equal to 110% of the Annual Retainer. If a Director elects to receive Stock Units in lieu of the Meeting Fees, the Director shall receive Stock Units (including fractional Stock Units) at the Annual Meeting at the end of the Director Year for which the election was made having a Fair Market Value (determined as of such following Annual Meeting) equal to 110% of the Meeting Fees earned during such Director Year. (c) If a Director elects to defer all or a portion of the Fees, such deferred Fees shall be credited to the deferred account established for each Director in accord with the Kaufman and Broad Home Corporation Directors Deferred Compensation Plan. (d) Any person who becomes a Director following an Annual Meeting, whether by appointment or election as a Director (or by change in status from a full-time employee), shall receive an Annual Retainer prorated for the balance of that Director Year. In the event a Director voluntarily resigns from the Board during a Director Year, (i) the Director shall return to the Company any cash payment covering the prorated portion of the Annual Retainer for the balance of that Director Year, (ii) any Stock Units awarded, and (iii) any Fees credited to the Deferred Account, in respect of the prorated portion of the Annual Retainer for the balance of that Director Year shall be forfeited. No return of any portion of the Annual Retainer shall be required in the event a Director leaves the Board as the result of retirement, incapacity or death. 6. CONVERSION OF PRIOR AWARDS. As of the Effective Date, all Shares of Restricted Stock outstanding under the Kaufman and Broad Home Corporation Directors Restricted Stock Plan which are held by Directors shall be canceled. Each Director who, immediately prior to the Effective Date, holds Restricted Stock which shall be canceled in accordance with the immediately preceding sentence, shall receive, in consideration for such cancellation, an Award of Stock Units equal to the sum of number of such Director's shares of canceled Restricted Stock. 7. DIVIDEND EQUIVALENT PAYMENTS. Effective as of each dividend payment date for outstanding shares of Stock, a current cash payment shall be made on each outstanding Stock Unit to the holder thereof in an amount equal to dividend paid on an outstanding share of Stock. 8. TIME OF PAYMENT. Unless otherwise provided herein, all payments in respect of a Director's Stock Units and in settlement of a Director's Deferred Account shall be made as soon as practicable after the earlier of: (i) the occurrence of a Change in Control and (ii) the Termination Date. 9. FORM OF PAYMENT. Payment in respect of Stock Units shall be made in Stock or in cash, in accord with the previous annual elections made by the Director. The Company shall not issue fractions of a share. Whenever under the terms of the Plan a fractional share would otherwise be required to be issued, the Director shall be paid in cash for such fractional share. 4 5 10. STATEMENT OF ACCOUNT. Each Director shall receive an annual statement showing the number of Stock Units that have been awarded to the Director under the plan. 11. CHANGE IN CAPITAL STRUCTURE. In the event of any change in the Stock by reason of any stock dividend, split, combination of shares, exchange of shares warrants or rights offering to purchase Stock at a price below its fair market value, reclassification, recapitalization, merger, consolidation or other change in capitalization, appropriate adjustment shall be made by the Committee in the number and kind of shares subject to the Plan and any other relevant provisions of the Plan, whose determination shall be binding and conclusive on all persons. 12. NONTRANSFERABILITY. Stock Units shall not be transferable by a Director except by will or the laws of descent and distribution. Notwithstanding the above, Stock Units shall be transferable to the extent the Company concludes that nontransferability is not then required in order for the Plan to continue to comply with Rule 16b-3. 13. RIGHTS. Except to the extent otherwise set forth herein, Directors shall not have any of the rights of a stockholder with respect to the Stock Units. 14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have full power, discretion and authority to interpret and administer the Plan, except that the Committee shall have no power to (a) determine the eligibility for Awards or the number of Stock Units or timing or value of Awards to be granted to any Director, or (b) take any action specifically delegated to the Board under the plan. With respect to any determination contemplated in subsection (a) of the preceding sentence, the Committee shall make recommendations to the Board, but any final determination with respect to such recommendation shall be subject to the approval of the full Board. 15. AMENDMENT OR TERMINATION OF THE PLAN. The Board may, at any time, amend or terminate the plan; but no amendment or termination shall, without the written consent of a Director, reduce the Director's rights under previously granted Awards or with respect to any Fees previously earned. No amendment which requires stockholder approval in order for the Plan to continue to comply with Rule 16b-3 shall be effective unless the same shall be approved by the requisite vote of the stockholders of the Company. To the extent then required in order for the plan to continue to comply with Rule 16b-3, the Plan may not be amended more than once every six months other than to comply with the changes in the Internal Revenue Code of 1986, as amended, or ERISA or rules thereunder. 16. NO RIGHT TO RENOMINATION. Nothing in the plan or in any Award shall confer upon any Director the right to be nominated for reelection to the Board. 5 6 17. PAYMENTS UPON DEATH. In the event of a Director's death, payments with respect to any Stock Units shall be made in a single lump sum payment to the beneficiary designated by the Director, or in the absence of an executed beneficiary form, to the person legally entitled thereto, as designated under his or her will, or to such heirs as determined under the laws of intestacy for the state of his or her domicile. 18. GOVERNING LAW. The plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of California. 6 EX-10.18 3 EXHIBIT 10.18 1 EXHIBIT 10.18 October 5, 1996 Glen Barnard 4500 South Downing Englewood, CO 80110 Dear Glen: Sincere congratulations on your recent promotion to Senior Vice President, Regional General Manager. I am extremely excited about the future of our Company with this new structure. With your talent, skills and energy I am confident that we will not only meet, but exceed our future goals! In light of your promotion, I am pleased to confirm the following changes in your compensation which will became effective September 1, 1996. Title/Position: Senior Vice President, Regional General Manager Central Region President, Colorado Division Base Salary: $250,000 Auto Allowance: $500 per month and gasoline credit card for business use. Auto Insurance: Up to $1,000 reimbursement per year for your primary business vehicle. Fiscal Year 1997 Incentive Compensation: For fiscal year 1997, subject to the provisions below, you will be eligible to receive 30% of Kaufman and Broad of Colorado, Inc.'s, incentive compensation pool. The Division's pool will be generated by 7.5% of pre-tax profits (including KBMC pre-tax) for fiscal year ending November 30, 1997. In addition, an "ROI Modifier" will be applied to the incentive pool based on the division's ROI pre-tax performance. As you know, a Customer Satisfaction rating will also effect the incentive compensation pool. In addition, you will be eligible to receive 5% of your Region's incentive compensation pool. The Region's pool will be generated based on 7.5% of the total pretax of all divisions within the region including KBMC pre-tax. Kaufman and Broad of Colorado, 2 Inc.'s pre-tax will be excluded from the Region's incentive pool. An "ROI Modifier" will be applied to the incentive compensation pool based on each Division's ROI pre-tax performance. The incentive award(s) described above shall only be earned in a lump sum after your continuous employment with the Company through the expected payment date in January, 1998. Earning of this incentive award is contingent upon such continuous employment with the Company through the January, 1998 payment date. If you leave the Company or if your employment is terminated for any reason before such date, you will not have earned any portion of the incentive award. Restricted Stock: Should your TOTAL cash compensation (1997 base and earned incentive) exceed $750,000, any amounts over $750,000 will be received in the form of restricted stock. The stock will (cliff vest) two years from the award date. If additional incentive compensation is earned via the ROI modifier, the amount earned over target performance will also be paid in the form of restricted stock. The stock will (cliff vest) two years from the award date. Stock Options: You have been granted 25,000 shares of stock options as of September 26, 1997 at a price of $13.13. These options will vest over a three year period, and become fully vested on September 26, 2000. Benefits Program: You will continue to be covered under the Comprehensive Executive Benefits Program. If you have any questions regarding any of these benefits please contact Kathy Knoblauch in Human Resources. Executive Commitment: a. During the performance of your duties on behalf of the Company, you will receive and be entrusted with certain confidential and/or secret information of a proprietary nature. You agree not to disclose or use, during your employment or anytime thereafter, any such information which is not otherwise publicly available. b. Accordingly, you will not make any public statements concerning Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries regarding your employment, unless previously approved by the Company. c. You agree that in the event of your termination, you will not for a period of one year thereafter employ nor seek to employ any person employed by Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries. d. You agree that during the term of your employment you will not engage, as owner, part owner, stockholder (other than passive), director, joint venturer, or otherwise, in any business competitive with Kaufman and Broad Home Corporation or any of 3 their affiliates or subsidiaries. Nothing in this paragraph d. shall prevent you from obtaining normal employment (after the termination of your employment with the Company), in general industry, or housing industry as long as you comply with the provisions of this letter. Employment at Will; Termination: Nothing in this letter shall be construed as an employment contract obligating the Company (expressly or implicitly) to employ you for any specified period of time. Either party has the right to terminate the employment relationship at any time with or without cause. Limitation: The compensation described in the preceding paragraphs represents our entire obligation to you during the term of your employment. Kaufman and Broad shall have no obligation to pay any compensation (in any form or any kind) to you in excess of the above described compensation unless our Human Resources Department has verified such increased compensation and processed a personnel change notice reflecting such increase. Entire Agreement: This letter together with the documents referenced herein contain all of the agreements and understandings regarding your employment and the obligations of Kaufman and Broad in connection with employment. Kaufman and Broad has not made, nor are you relying upon any oral or written promises or statements made by Kaufman and Broad or any agent of Kaufman and Broad except as expressly set forth herein. This letter supersedes any and all prior agreements and understandings between you and Kaufman and Broad and alone expresses the agreement of the parties. This letter containing all of the agreements and understandings regarding your employment cannot be amended other than in writing by Kaufman and Broad. Glen, again I am delighted to have you on the Executive Committee team in a heightened leadership role. I look forward to working more closely with you and to the success we can all achieve! Best regards, Bruce Karatz Chairman, President & CEO Agreed to and Acknowledged by: /s/ GLEN BARNARD 10/10/96 - --------------------------------------- Glen Barnard Date EX-10.19 4 EXHIBIT 10.19 1 EXHIBIT 10.19 October 5, 1996 Lisa Kalmbach 5295 Harbord Dr. Oakland, CA 94618 Dear Lisa: Sincere congratulations on your recent promotion to Senior Vice President, Regional General Manager. I am extremely excited about the future of our Company with this new structure. With your talent, skills and energy I am confident that we will not only meet, but exceed our future goals! In light of your promotion, I am pleased to confirm the following changes in your compensation which will became effective September 1, 1996. Title/Position: Senior Vice President, Regional General Manager North Region President, South Bay Division Base Salary: $250,000 Auto Allowance: $500 per month and gasoline credit card for business use. Auto Insurance: Up to $1,000 reimbursement per year for your primary business vehicle. Fiscal Year 1997 Incentive Compensation: For fiscal year 1997, subject to the provisions below, you will be eligible to receive 25% of Kaufman and Broad of South Bay, Inc.'s, incentive compensation pool. The Division's pool will be generated by 7.5% of pre-tax profits (including KBMC pre-tax) for fiscal year ending November 30, 1997. In addition, an "ROI Modifier" will be applied to the incentive pool based on the division's ROI pre-tax performance. As you know, a Customer Satisfaction rating will also effect the incentive compensation pool. In addition, you will be eligible to receive 5% of your Region's incentive compensation pool. The Region's pool will be generated based on 7.5% of the total pretax of all divisions within the region including KBMC pre-tax. Kaufman and Broad of South Bay, Inc.'s pre-tax will be excluded from the Region's incentive pool. An "ROI Modifier" will 2 be applied to the incentive compensation pool based on each Division's ROI pre-tax performance. The incentive award(s) described above shall only be earned in a lump sum after your continuous employment with the Company through the expected payment date in January, 1998. Earning of this incentive award is contingent upon such continuous employment with the Company through the January, 1998 payment date. If you leave the Company or if your employment is terminated for any reason before such date, you will not have earned any portion of the incentive award. Restricted Stock: Should your TOTAL cash compensation (1997 base and earned incentive) exceed $750,000, any amounts over $750,000 will be received in the form of restricted stock. The stock will (cliff vest) two years from the award date. If additional incentive compensation is earned via the ROI modifier, the amount earned over target performance will also be paid in the form of restricted stock. The stock will (cliff vest) two years from the award date. Stock Options: You have been granted 25,000 shares of stock options as of September 26, 1997 at a price of $13.13. These options will vest over a three year period, and become fully vested on September 26, 2000. Benefits Program: You will continue to be covered under the Comprehensive Executive Benefits Program. If you have any questions regarding any of these benefits please contact Kathy Knoblauch in Human Resources. Executive Commitment: a. During the performance of your duties on behalf of the Company, you will receive and be entrusted with certain confidential and/or secret information of a proprietary nature. You agree not to disclose or use, during your employment or anytime thereafter, any such information which is not otherwise publicly available. b. Accordingly, you will not make any public statements concerning Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries regarding your employment, unless previously approved by the Company. c. You agree that in the event of your termination, you will not for a period of one year thereafter employ nor seek to employ any person employed by Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries. d. You agree that during the term of your employment you will not engage, as owner, part owner, stockholder (other than passive), director, joint venturer, or otherwise, in any business competitive with Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries. Nothing in this paragraph d. shall prevent you from 3 obtaining normal employment (after the termination of your employment with the Company), in general industry, or housing industry as long as you comply with the provisions of this letter. Employment at Will; Termination: Nothing in this letter shall be construed as an employment contract obligating the Company (expressly or implicitly) to employ you for any specified period of time. Either party has the right to terminate the employment relationship at any time with or without cause. Limitation: The compensation described in the preceding paragraphs represents our entire obligation to you during the term of your employment. Kaufman and Broad shall have no obligation to pay any compensation (in any form or any kind) to you in excess of the above described compensation unless our Human Resources Department has verified such increased compensation and processed a personnel change notice reflecting such increase. Entire Agreement: This letter together with the documents referenced herein contain all of the agreements and understandings regarding your employment and the obligations of Kaufman and Broad in connection with employment. Kaufman and Broad has not made, nor are you relying upon any oral or written promises or statements made by Kaufman and Broad or any agent of Kaufman and Broad except as expressly set forth herein. This letter supersedes any and all prior agreements and understandings between you and Kaufman and Broad and alone expresses the agreement of the parties. This letter containing all of the agreements and understandings regarding your employment cannot be amended other than in writing by Kaufman and Broad. Lisa, again I am delighted to have you on the Executive Committee team in a heightened leadership role. I look forward to working more closely with you and to the success we can all achieve! Best regards, Bruce Karatz Chairman, President & CEO Agreed to and Acknowledged by: /s/ LISA KALMBACH 10/6/96 - --------------------------------------- Lisa Kalmbach Date EX-10.20 5 EXHIBIT 10.20 1 Exhibit 10.20 [KAUFMAN & BROAD LETTERHEAD] BRUCE KARATZ Chairman and Chief Executive Officer October 5, 1996 Albert Praw 3350 Scadlock Lane Sherman Oaks, CA 91403 Dear Albert: Sincere congratulations on your recent promotion to Senior Vice President, Regional General Manager. I am extremely excited about the future of our Company with this new structure. With your talent, skills and energy I am confident that we will not only meet, but exceed our future goals! In light of your promotion, I am pleased to confirm the following changes in your compensation which will become effective December 1, 1996. Title/Position: Senior Vice President, Regional General Manager South Region Base Salary: $250,000 Auto Allowance: $500 per month and gasoline credit card for business use. Auto Insurance: Up to $1,000 reimbursement per year for your primary business vehicle. Fiscal Year 1997 Incentive Compensation: For fiscal year 1997 (ending November 30, 1997), subject to the provisions below, you will be eligible for a Discretionary Incentive Award based on profits and the degree of success achieved in meeting specific mutually agreed upon goals. At achievement of business plan and with expected performance by you, your discretionary award will range from 0 to 60% of your base salary. Your individual performance shall be judged at the sole discretion of company management. In addition, you will be eligible to receive 5% of your Region's incentive compensation pool. The Region's pool (excluding Multi-Housing) will be generated based on 7.5% of the total pretax of all divisions within the region including KBMC pre-tax. The Multi-Housing contribution will be based on 8% of that division's pre-tax. In addition, an "ROI Modifier" will be applied to the incentive pool 2 based on the divisions' ROI pre-tax performance. As you know, a Customer Satisfaction rating will also effect the incentive compensation pool. The incentive award(s) described above shall only be earned in a lump sum after your continuous employment with the Company through the expected payment date in January, 1998. Earning of this incentive award is contingent upon such continuous employment with the Company through the January, 1998 payment date. If you leave the Company or if your employment is terminated for any reason before such date, you will not have earned any portion of the incentive award. Restricted Stock: Should your total cash compensation (1997 base and earned incentive) exceed $750,000, any amounts over $750,000 will be received in the form of restricted stock. The stock will (cliff vest) two years from the award date. If additional incentive compensation is earned via the ROI modifier, the amount earned over target performance will also be paid in the form of restricted stock. The stock will (cliff vest) two years from the award date. Stock Options: Additionally, you have been granted 25,000 shares of stock options as of September 26, 1997 at a price of $13.13. These options will vest over a three year period, and become fully vested on September 26, 2000. Benefits Program: You will continue to be covered under the Comprehensive Executive Benefits Program. If you have any questions regarding any of these benefits please contact Kathy Knoblauch in Human Resources. Executive Commitment: a. During the performance of your duties on behalf of the Company, you will receive and be entrusted with certain confidential and/or secret information of a proprietary nature. You agree not to disclose or use, during your employment or anytime thereafter, any such information which is not otherwise publicly available. b. Accordingly, you will not make any public statements concerning Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries regarding your employment, unless previously approved by the Company. c. You agree that in the event of your termination, you will not for a period of one year thereafter employ nor seek to employ any person employed by Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries. d. You agree that during the term of your employment you will not engage, as owner, part owner, stockholder (other than passive), director, joint venturer, or otherwise, in any business competitive with Kaufman and Broad Home Corporation or any of their affiliates or subsidiaries. Nothing in this paragraph d. shall prevent you from 3 obtaining normal employment (after the termination of your employment with the Company), in general industry, or housing industry as long as you comply with the provisions of this letter. Employment at Will; Termination: Nothing in this letter shall be construed as an employment contract obligating the Company (expressly or implicity) to employ you for any specified period of time. Either party has the right to terminate the employment relationship at any time with or without cause. Limitation: The compensation described in the preceding paragraphs represents our entire obligation to you during the term of your employment. Kaufman and Broad shall have no obligation to pay any compensation (in any form or any kind) to you in excess of the above described compensation unless our Human Resources Department has verified such increased compensation and processed a personnel change notice reflecting such increase. Entire Agreement: This letter together with the documents referenced herein contain all of the agreements and understandings regarding your employment and the obligations of Kaufman and Broad in connection with employment. Kaufman and Broad has not made, nor are you relying upon any oral or written promises or statements made by Kaufman and Broad or any agent of Kaufman or Broad except as expressly set forth herein. This letter supersedes any and all prior agreements and understandings between you and Kaufman and Broad and alone expresses the agreement of the parties. This letter containing all of the agreements and understandings regarding your employment cannot be amended other than in writing by Kaufman and Broad. Albert, again I am delighted to have you on the Executive Committee team in a heightened leadership role. I look forward to working more closely with you and to the success we can all achieve! Best regards, /s/ BRUCE KARATZ Bruce Karatz Chairman, President & CEO Agreed to and Acknowledged by: /s/ ALBERT PRAW - ------------------------------ Albert Praw Date EX-10.21 6 EXHIBIT 10.21 1 EXHIBIT 10.21 KAUFMAN AND BROAD HOME CORPORATION UNIT PERFORMANCE PROGRAM SECTION 1. PURPOSE. The purposes of the Kaufman and Broad Home Corporation Unit Performance Program (the "Program") are to promote the achievement of sustained long term growth in the shareholder value of the Company by providing tangible, performance-driven compensation to Company executives for achieving success against key performance measures, and to establish financial incentives to enhance the retention of key executives. SECTION 2. DEFINITIONS. As used in the Program, the following terms shall have the meanings set forth below: "ACTUAL PERFORMANCE" shall mean the actual performance by the Company with respect to the Performance Measures in effect for a Performance Period. "AFFILIATE" shall mean (i) any entity that, directly or indirectly, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee. "AWARD" shall mean an award of Performance Units to a Participant at the beginning of a Performance Period. "AWARD AGREEMENT" shall mean any written agreement, contract, letter or other instrument or document evidencing an Award, which may, but need not, be executed or acknowledged by a Participant. "AWARD PAYOUT" shall mean the total payment, if any, made to a Participant in cash or in Shares, as shall be determined by the Committee prior to the payment date, upon the vesting of Performance Units at the conclusion of a Performance Period. The Award Payout shall be the product of (i) the number of Performance Units that comprise the Award multiplied by (ii) the Unit Payout Factor multiplied by (iii) the stated dollar value of each Performance Unit. "BOARD" shall mean the Board of Directors of the Company. 2 "CHANGE OF OWNERSHIP" shall be deemed to have occurred if either (1) individuals who, as of the effective date of this Program, constitute the Board of Directors of the Company (as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the directors constituting the Board, provided that any person becoming a director subsequent to the effective date of this Program whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters (3/4) of the then directors who are members of the Incumbent Board [other than an election or nomination of an individual whose initial assumption of office is (A) in connection with the acquisition by a third person, including a "group" as such term is used in Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, of 20% or more of the combined voting securities ordinarily having the right to vote for the election of directors of the Company (unless such acquisition of beneficial ownership was approved by a majority of the Board who are members of the Incumbent Board), or (B) in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act] shall be, for purposes of this Program, considered as though such person were a member of the Incumbent Board, or (2) the Board (a majority of which shall consist of directors who are members of the Incumbent Board) has determined that a Change of Ownership, for purposes of this Program, shall have occurred. If any of the events enumerated in clauses (1) or (2) occur, the Board shall determine the effective date of the Change of Ownership resulting therefrom, for purposes of the Program. "COMMITTEE" shall mean a committee of the Board designated by the Board to administer the Program. Until otherwise determined by the Board, the Personnel, Compensation and Stock Plan Committee of the Board of Directors shall be the Committee under the Program. "COMPANY" shall mean, collectively, Kaufman and Broad Home Corporation and its Affiliates, together with any successor thereto, unless the context indicates otherwise. "EMPLOYEE" shall mean an employee of the Company. "EPS" shall mean the earnings per share of the Company for a Fiscal Year determined in accordance with GAAP. "FISCAL YEAR" shall mean any one-year period between December 1 and November 30, or such other one-year period as may be designated from time to time as the Company's fiscal year. 3 "MAXIMUM PERFORMANCE" shall mean, as to any Performance Measure, the level of Actual Performance for any given Performance Period at which a Maximum Unit Payout Factor is achieved. "MAXIMUM UNIT PAYOUT FACTOR" shall mean the maximum Unit Payout Factor (expressed as a percentage of the Target Unit Payout Factor) which shall be applied in the calculation of an Award Payout upon achievement of Maximum Performance for the applicable Performance Measure. "MINIMUM PERFORMANCE" shall mean, as to any Performance Measure, the level of Actual Performance for any given Performance Period at which a Minimum Unit Payout Factor is earned. "MINIMUM UNIT PAYOUT FACTOR" shall mean the minimum Unit Payout Factor (expressed as a percentage of the Target Unit Payout Factor) which shall be applied in the calculation of an Award Payout upon achievement of Minimum Performance for the applicable Performance Period. "OTHER PLAN" shall have the meaning ascribed to such term in Section 6(a) hereof. "PARTICIPANT" shall mean any employee of the Company who shall have been granted an Award by the Committee with respect to a given Performance Period. "PAYOUT THRESHOLDS" shall mean, collectively, the Minimum, Maximum, and Target Unit Payout Factors established for an Award. "PERFORMANCE MEASURE" shall mean each measure of Company performance, and the relative weighting ascribed to such measure, which the Committee, in its sole discretion, shall designate from time-to-time for the purpose of determining Award Payouts which may be earned under the Program for any Performance Period; such performance measures shall be ROI and EPS, until such time as the Committee designates new measures. "PERFORMANCE PERIOD" shall mean the number of Fiscal Years, or such other period of time as may be established by the Committee, that a Performance Unit shall remain outstanding. Each Performance Unit which has remained outstanding for the entire Performance Period shall vest at the conclusion thereof. For purposes of the Program, a Performance Period shall be three (3) Fiscal Years, unless otherwise determined by the Committee. 4 "PERFORMANCE THRESHOLDS" shall mean, collectively, the Minimum, Maximum, and Target Performance values established by the Committee for an Award. "PERFORMANCE UNIT" shall mean the individual unit(s) which shall comprise an Award, each of which shall vest at the end of the Performance Period for which it was awarded and, upon such vesting, shall entitle the Participant to whom it was granted an Award Payout, calculated in accordance with the Program and the terms of the Participant's Award Agreement. "PERSON" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "PROGRAM" shall mean this Kaufman and Broad Home Corporation Unit Performance Program. "ROI" shall mean the return on investment of the Company or a specified operational unit or units of the Company. Return on investment shall be calculated in accord with the following general formula for a Performance Period, using such methodology as approved by the Committee not later than one hundred and twenty (120) calendar days after the beginning of such Performance Period. Adjusted Earnings Before Interest and Taxes ROI = ------------------------------------------- Average Adjusted Capital Employed "SHARE" shall mean a share of the Common Stock of the Company, a Common Stock equivalent, or such other security of the Company as may be designated by the Committee from time to time. "TARGET PERFORMANCE" shall mean, as to any Performance Measure, the level of Actual Performance for any given Performance Period at which the Target Unit Payout Factor is earned. "TARGET UNIT PAYOUT FACTOR" shall be equal to 1.0. "UNIT PAYOUT FACTOR" shall mean, as to each Performance Measure, the ratio which reflects the comparison of Actual Performance to the Performance Thresholds. Where Actual Performance is less than Minimum Performance, the Unit Payout Factor shall be zero. With respect to Actual Performance which meets or exceeds Maximum Performance, the Unit Payout Factor shall be deemed to be equal to the Maximum Unit Payout Factor. For Actual Performance which falls between Minimum Performance and 5 Maximum Performance, the value of the Unit Payout Factor will be interpolated as between the Performance Thresholds. In the event more than one Performance Measure is in effect for a Performance Period, the weighted average of the individual Unit Payout Factor for each Performance Measure will be deemed the Unit Payout Factor to be used in calculating Award Payouts with respect to that Performance Period. SECTION 3. ADMINISTRATION. (a) Authority of Committee. Subject to the provisions of Section 8(d) and applicable law, the Program shall be administered by the Committee, which shall have the sole authority to: (i) designate Participants; (ii) determine the Performance Period, Performance Measures, Performance Thresholds, Payout Thresholds, calculation methodology and such other items associated with Performance Units granted for a Performance Period; (iii) determine the number of Performance Units which shall comprise each Award; (iv) determine the terms and conditions of each Performance Unit; (v) set the dollar value of each Performance Unit; (vi) establish, interpret and administer the Program, any Award Agreement or any other instrument or agreement relating to the Program; (vii) amend, alter, suspend, or terminate the Program, and to take any such action not required by applicable law to be taken by the Board; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Program; and (ix) make any other determinations and take any other actions that the Committee deems necessary or desirable for the administration of the Program. SECTION 4. ELIGIBILITY. Any Employee shall be eligible to be designated a Participant by the Committee. SECTION 5. AWARD TERMS AND CONDITIONS. (a) Establishment by Committee. The Committee shall determine, in its sole discretion, not later than one hundred twenty (120) calendar days following the beginning of each Performance Period: (i) the Employees who shall be Participants in the Program for such Performance Period; (ii) the number of Performance Units which shall comprise each Participant's Award; (iii) the Performance Thresholds and Payout Thresholds for each Performance Unit; (iv) the Performance Measures, if other than EPS and ROI; (v) the calculation methodology for each of the Performance Measures and related calculation methodologies; (vi) the dollar value of each Performance Unit; (vii) the Performance Period, if other than three (3) Fiscal Years; (viii) the calculation methodology that shall be used to determine the number of Shares to be issued to a Participant in the event an Award Payout is to be made in Shares; and (ix) any other rules, parameters or other factors which the Committee deems pertinent to the issuance of Awards. 6 (b) Award Agreements. The terms and conditions as determined in Section 5(a) shall be set forth in an Award Agreement distributed to each Participant not later than one hundred and fifty (150) days after the commencement of the applicable Performance Period. (c) Award Payout. An Award Payout shall be made by the Company no later than one hundred and fifty (150) calendar days after the vesting of Performance Units subject to an Award. SECTION 6. AWARD PAYOUT IN SHARES. (a) Program Shares. To the extent Shares are issued in an Award Payout, such Shares (i) may be acquired by the Company on the open market or otherwise or (ii) may be issued under and subject to the terms of the Company's 1988 Employee Stock Plan, the Company's Performance-Based Incentive Plan for Senior Management, or such other employee stock plan as may be designated by the Committee from time to time (each, an "Other Plan"). In the event there shall be Shares issued in an Award Payout and there is a conflict between the terms of this Program and the terms of the Other Plan under which such Shares are to be issued, the terms of such Other Plan shall prevail. (b) Sources of Shares Deliverable. Any Shares delivered pursuant to an Award Payout may consist, in whole or in part, of authorized and unissued Shares or of Shares acquired by the Company on the open market or otherwise. SECTION 7. CERTAIN EVENTS. (a) Change of Ownership. In the event there shall be a Change of Ownership of the Company, on the effective date of such Change of Ownership (i) all outstanding Performance Units shall vest, (ii) the Target Unit Payout Factor will be used in the calculation of each Award Payout, and (iii) all Award Payouts shall be paid in cash immediately prior to such Change of Ownership, or promptly following the determination of a Change of Ownership. (b) Retirement or Permanent Disability. In the event a Participant shall retire at or after age 55 or shall become permanently disabled, each outstanding, unvested Performance Unit held by such Participant shall immediately vest as of the date of such retirement or determination of permanent disability and an Award Payout calculated using the Target Unit Payout Factor shall be made to the Participant as soon as reasonably practicable; provided, however, that the amount of any such Award Payout shall be prorated based on the number of months each Performance Unit was outstanding prior to 7 the date of the Participant's retirement or determination of permanent disability, with any partial month being treated as a full month. (c) Death. In the event of a Participant's death, each outstanding, unvested Performance Unit held by such Participant shall immediately vest as of the date of death and an Award Payout calculated using the Target Unit Payout Factor shall be made to the Participant's designated beneficiary or estate, as the case may be, as soon as reasonably practicable; provided, however, that the amount of any such Award Payout shall be prorated based on the number of months each Performance Unit was outstanding prior to the date of the Participant's death, with any partial month being treated as a full month. (d) Termination of Employment. If a Participant's employment with the Company shall terminate for any reason other than those set forth in the preceding subsections of this Section 7, all outstanding, unvested Awards held by such Participant shall be immediately forfeited to the Company, no Award Payout shall be paid or payable with respect to such Awards, and such Participant shall have no other rights under the Program or any Award Agreement. SECTION 8. AMENDMENT AND TERMINATION. (a) Amendments to the Program. Subject to the provisions of Sections 3(a) and 8(d) hereof, the Committee may amend, alter, suspend, discontinue, or terminate the Program or any portion thereof at any time. (b) Amendments to Performance Units and Awards. Subject to the provisions of Sections 3(a) and 8(d) hereof, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Performance Unit or Award theretofore granted, prospectively or retroactively. (c) Adjustment of Performance Units Upon the Occurrence of Certain Unusual or Nonrecurring Events. Subject to the provisions of Sections 3(a) and 8(d) hereof, the Committee may make adjustments in the terms and conditions of, and the criteria included in, Performance Units in recognition of unusual or nonrecurring events affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate. (d) No Adverse Change. Notwithstanding anything to the contrary contained in this Program, subsequent to the issuance of an Award Agreement in accordance with Section 5(b), the Committee may not amend or change any material term or provision of such Award Agreement, the Award issued under an Award Agreement 8 or the Program, in a manner adverse to a Participant without the written consent of such Participant. SECTION 9. GENERAL PROVISIONS. (a) Nontransferability. No Performance Unit shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except to a trust or other estate planning entity formed for the benefit of the Participant and/or Participant's heirs, by will or the laws of descent and distribution or as otherwise provided in the Award Agreement. (b) No Rights to an Award. Except as may be provided in a Participant's employment agreement, no Participant or other Person shall have any claim to be granted an Award, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of an Award need not be the same with respect to each Participant. (c) Share Certificates. All certificates for Shares delivered under the Program pursuant to an Award Payout shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Program or the rules, regulations, and other requirements of the applicable United States law, any stock exchange upon which such Shares or other securities are then listed, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (d) Delegation. Subject to the terms of the Program and applicable law, the Committee may delegate to one or more officers or managers of the Company, or to a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend, or terminate an Award held by a Participant. (e) Withholding. A Participant may be required to pay to the Company, and the Company shall have the right and is hereby authorized to withhold from any Award Payout or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, or other property) of any applicable withholding taxes in respect of such Award Payout and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Committee may provide for additional cash payments to holders of Performance Units to defray or offset any tax arising from such Award Payout. 9 (f) No Limit on Other Compensation Arrangements. Nothing contained in the Program shall prevent the Company from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of bonuses, options, restricted stock, Shares and other types of awards, and such arrangements may be either generally applicable or applicable only in specific cases. (g) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or any Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Program, unless otherwise expressly provided in the Program or in any Award Agreement. (h) No Rights as Stockholder. Subject to the provisions of the applicable Award Agreement, no Participant or holder or beneficiary of any Performance Unit shall have any rights as a stockholder with respect to any Shares to be distributed under the Program until he or she has become the holder of such Shares. (i) Governing Law. The validity, construction, and effect of the Program and any rules and regulations relating to the Program and any Award Agreement shall be determined in accordance with the laws of the State of California, except to the extent that the General Corporation Law of the State of Delaware shall be applicable to the Company. (j) Severability. If any provision of the Program, any Award Agreement or any Performance Unit is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person, or would disqualify the Program or any Performance Unit under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Program or the Performance Unit, such provision shall be stricken as to such jurisdiction, Person or Performance Unit and the remainder of the Program and any such Performance Unit shall remain in full force and effect. (k) Arbitration. All claims, disputes and other matters in question arising out of or relating to an Award Agreement, the Program or a breach thereof, shall be decided by arbitration in accordance with rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. Notice of the demand for arbitration shall be filed in writing with the other party to the dispute or claim. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 10 (l) Other Laws. No Performance Unit granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of United States securities laws and any other laws to which such offer, if made, would be subject. (m) No Trust or Fund Created. Neither the Program nor any Performance Unit shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to a Performance Unit, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (n) Headings. Headings are given to the Sections and subsections of the Program solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Program or any provision thereof. (o) Effective Date. The Program shall be effective as of December 1, 1995. EX-11 7 EXHIBIT 11 1 EXHIBIT 11 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
YEARS ENDED NOVEMBER 30, ---------------------------------------- 1996 1995 1994 ------------ ----------- ----------- PRIMARY: Net income (loss)...................................... $(61,244,000) $29,059,000 $46,550,000 =========== ========== ========== Weighted average common shares outstanding............. 36,693,000 32,386,000 32,449,000 Weighted average Series B convertible preferred shares(1)............................................ 2,167,000 6,500,000 6,500,000 Common share equivalents: Stock options........................................ 903,000 871,000 1,077,000 ------------ ----------- ----------- 39,763,000 39,757,000 40,026,000 =========== ========== ========== PRIMARY EARNINGS (LOSS) PER SHARE(3)................... $ (1.54) $ .73 $ 1.16 =========== ========== ========== FULLY DILUTED: Net income (loss)...................................... $(61,244,000) $29,059,000 $46,550,000 =========== ========== ========== Weighted average common shares outstanding............. 36,693,000 32,386,000 32,449,000 Weighted average Series B convertible preferred shares(1)............................................ 2,167,000 6,500,000 6,500,000 Common share equivalents: Stock options........................................ 903,000 871,000 1,077,000 ------------ ----------- ----------- 39,763,000 39,757,000 40,026,000 =========== ========== ========== FULLY DILUTED EARNINGS (LOSS) PER SHARE(2)(3).......... $ (1.54) $ .73 $ 1.16 =========== ========== ==========
- ------------ (1) Each of the 1,300,000 Series B convertible preferred shares were convertible into five shares of common stock. On the mandatory conversion date of April 1, 1996, each of the Company's 6,500,000 depositary shares, each representing 1/5 of a Series B convertible preferred share, was converted into one share of the Company's common stock. The 6,500,000 equivalent shares of common stock are weighted for the period outstanding. (2) Fully diluted earnings per share is not disclosed in the Company's consolidated financial statements since the maximum dilutive effect is not material. (3) If, for purposes of calculating primary and fully diluted earnings per share, the Series B convertible preferred shares were excluded from the weighted average shares outstanding and the related dividends deducted from net income, the computations would have resulted in both a primary and fully diluted loss per share of $1.76 in 1996 and both primary and fully diluted earnings per share of $.58 in 1995 and $1.09 in 1994. EX-13 8 EXHIBIT 13 1 EXHIBIT 13 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES PAGES 26 THROUGH 49 AND THE INSIDE BACK COVER OF THE COMPANY'S 1996 ANNUAL REPORT TO STOCKHOLDERS This exhibit is incorporated in this Annual Report on Form 10-K between page F-1 and the List of Exhibits Filed. EX-22 9 EXHIBIT 22 1 EXHIBIT 22 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE COMPANY The following subsidiaries of the Company were included in the November 30, 1996 consolidated financial statements:
PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY NAME OF COMPANY OF THE COMPANY ------------------------ Arizona Corporations Kaufman and Broad of Arizona, Inc. .................. 100 Kaufman and Broad Home Sales of Arizona, Inc. ....... 100 California Corporations Affordable Multi-Family, Inc. ....................... 100 BKJ Construction Company, Inc. ...................... 100 Cable Associates, Inc. .............................. 100 Custom Decor, Inc. .................................. 100 First Northern Builders Servicing, Inc. ............. 100 Fullerton Affordable Housing, Inc. .................. 100 KBASW Mortgage Acceptance Corporation................ 100 KBI/Mortgage Acceptance Corporation.................. 100 KBMH Property Management, Inc........................ 100 KBMH Capital, Inc.................................... 100 KBRAC IV Mortgage Acceptance Corporation............. 100 K&B Multi-Housing Advisors, Inc. .................... 100 KBMH Construction, Inc. ............................. 100 Kaufman and Broad Architecture, Inc.................. 100 Kaufman and Broad -- Central Valley, Inc. ........... 100 Kaufman and Broad Coastal, Inc. ..................... 100 Kaufman and Broad Communities, Inc. ................. 100 Kaufman and Broad of Dallas, Inc..................... 100 Kaufman and Broad Development Group.................. 100 Kaufman and Broad Embarcadero, Inc. ................. 100 Kaufman and Broad Holdings, Inc. .................... 100 Kaufman and Broad Home Sales, Inc. .................. 100 Kaufman and Broad Insurance Agency, Inc. ............ 100 Kaufman and Broad International, Inc. ............... 100 Kaufman and Broad Land Company....................... 100 Kaufman and Broad Land Development Venture, Inc. .... 100 Kaufman and Broad -- Monterey Bay, Inc............... 100 Kaufman and Broad -- Moreno/Perris Valleys, Inc. .... 100 Kaufman and Broad Multi-Family, Inc. ................ 100 Kaufman and Broad Multi-Housing Group, Inc........... 100 Kaufman and Broad of Northern California, Inc. ...... 100 Kaufman and Broad North Stockton, Inc. .............. 100 Kaufman and Broad Properties......................... 100
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PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY NAME OF COMPANY OF THE COMPANY ------------------------ Kaufman and Broad of San Diego, Inc. ................ 100 Kaufman and Broad -- South Bay, Inc. ................ 100 Kaufman and Broad of Southern California, Inc. ...... 100 Kaufman and Broad of Utah, Inc....................... 100 Kent Land Company.................................... 100 Kingsbay Escrow Company.............................. 100 Multi-Housing Investments, Inc. ..................... 100 Colorado Corporation Kaufman and Broad of Colorado, Inc. ................. 100 Delaware Corporations International Mortgage Acceptance Corporation........ 100 Kaufman and Broad Development Company................ 100 Kaufman and Broad Limited............................ 100 Illinois Corporations Kaufman and Broad of Illinois, Inc. ................. 100 Kaufman and Broad Mortgage Company................... 100 Massachusetts Corporation Kaufman and Broad Homes, Inc. ....................... 100 Michigan Corporation Keywick, Inc. ....................................... 100 Minnesota Corporation Kaufman and Broad Custom Homes, Inc. ................ 100 Nevada Corporation Kaufman and Broad of Nevada, Inc. ................... 100 New Mexico Corporations Kaufman and Broad of New Mexico, Inc. ............... 100 New York Corporation Kaufman and Broad Homes of Long Island, Inc. ........ 100 Texas Corporations and Partnerships Kaufman and Broad of Texas, Ltd. .................... 100 KBSA, Inc. .......................................... 100 San Antonio Title Co. ............................... 100 Satex Properties, Inc. .............................. 100 Texas Homestead Mortgage Company..................... 100 Oppel Jenkins Development, Inc. ..................... 100 Oppel Jenkins of El Paso, Inc. ...................... 100 Canadian Corporations Margreen Investments, Inc. .......................... 100 3238865 Canada Inc................................... 100
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PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY NAME OF COMPANY OF THE COMPANY ------------------------ French Corporations Bati Service Development S.A.R.L. ................... 100 Bati Service Promotion S.A. ......................... 100 Kaufman and Broad Developpement S.A. ................ 99.4 Kaufman and Broad France S.A......................... 100 Kaufman and Broad Investissements S.A.R.L............ 100 Kaufman and Broad Maisons Individuelles S.A.......... 99.94 Kaufman and Broad Rehabilitation S.A.R.L............. 99.94 Kaufman and Broad Renovation S.A..................... 99.4 Kaufman and Broad Residences S.A.R.L................. 100 German Corporation Kaufman and Broad GmbH............................... 100 Mexican Corporations Kaufman y Broad de Mexico............................ 100 Kaufman y Broad Asesoria Administrativa.............. 100
EX-24 10 EXHIBIT 24 1 EXHIBIT 24 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSENT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Kaufman and Broad Home Corporation We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1986 Stock Option Plan (No. 33-11692), the 1988 Employee Stock Plan (No. 33-28624) and the Registration Statement on Form S-3 (No. 333-14977), as amended, of Kaufman and Broad Home Corporation of our report dated January 3, 1997 with respect to the consolidated financial statements of Kaufman and Broad Home Corporation included in the Annual Report (Form 10-K) for the year ended November 30, 1996. ERNST & YOUNG LLP Los Angeles, California February 25, 1997 EX-27 11 FINANCIAL DATA SCHEDULE
5 1,000 YEAR NOV-30-1996 DEC-01-1995 NOV-30-1996 9,781 81,536 260,496 0 780,302 0 0 0 1,243,494 0 466,750 0 0 38,828 301,522 1,243,494 1,754,147 1,787,041 1,435,081 1,448,543 397,836 0 36,691 (95,744) 34,500 (61,244) 0 0 0 (61,244) (1.54) 0 Marketable securities are comprised of first mortgages and mortgage-backed securities which are held for long-term investment. The mortgage-backed securities serve as collateral for related collateralized mortgage obligations. Bonds are comprised of senior and senior subordinated notes and collateralized mortgage obligations. Total Costs include interest expense on the collateralized mortgage obligations, as the associated interest income generated from the mortgage-backed securities is included in Total Revenues. Other Expenses are comprised of selling, general and administrative expenses and a non-cash charge for impairment of long-lived assets. Fully diluted earnings per share is not disclosed in the Company's consolidated financial statements since the maximum dilutive effect is not material.
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