KB HOME 10-K Summary: Fiscal Year Ended November 30, 1999
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended November 30, 1999, for Kaufman and Broad Home Corporation (KB HOME). The Company is a leading builder of single-family homes with domestic operations in six western U.S. states and international operations in France. In 1999, KB HOME became the largest homebuilder in the United States by unit deliveries. The Company also operates a mortgage banking subsidiary, Kaufman and Broad Mortgage Company (KBMC).
Key Financial Metrics
| Metric | 1999 | 1998 |
|---|---|---|
| Total Revenues | $3,836.3 million | $2,449.4 million |
| Net Income | $147.5 million | $95.3 million |
| Diluted EPS | $3.08 | $2.32 |
| Operating Income | $276.6 million | $170.1 million |
| Unit Deliveries | 22,422 | 15,213 |
| Average Selling Price | $166,500 | $156,400 |
| Ending Backlog (Units) | 8,558 | 6,943 |
| Ending Backlog (Value) | $1.38 billion | $1.00 billion |
| Total Assets | $2,664.2 million | $1,860.2 million |
| Total Debt (Mortgages & Notes Payable) | $1,191.1 million | $769.3 million |
| Stockholders' Equity | $676.6 million | $474.5 million |
| Debt-to-Capital Ratio | 48.4% | 43.4% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 56.6% to a record $3.84 billion, driven by a 47.4% increase in unit deliveries and a 6.5% rise in average selling prices.
- Profitability: Net income rose 54.8% to $147.5 million. Housing gross profit margin improved to 19.3% from 19.2% in 1998.
- Acquisitions: Significant growth was fueled by the January 1999 acquisition of Lewis Homes (California/Nevada) and the acquisition of the remaining interest in General Homes (Texas). The Company also acquired Park, a French condominium builder, in late 1999.
- Unusual Item: Results included a pretax secondary marketing trading loss of $18.2 million ($11.8 million after-tax) due to unauthorized trading by an employee at the mortgage banking subsidiary. Excluding this loss, diluted EPS would have been $3.33.
- Backlog: Ending backlog reached a record 8,558 units ($1.38 billion), up 23% from the prior year, reflecting strong order rates and acquisitions.
Guidance, Outlook, and Risks
- Outlook: Management expects to establish record earnings in fiscal 2000, driven by high backlog levels and continued implementation of the "KBnxt" (formerly KB2000) operational model.
- Strategy: The Company plans to expand existing operations to optimal market volumes and pursue acquisitions. It is also reviewing assets to monetize non-strategic positions to reduce debt or repurchase stock.
- Capital Markets: In February 2000, the Company's French subsidiary (KBSA) completed an IPO raising approximately $120 million. Proceeds will fund growth and a $85 million dividend to the parent company for debt reduction and share repurchases.
- Risks: Key risks include rising mortgage interest rates (which have increased since the start of fiscal 1999), general economic conditions, consumer confidence, and the availability/cost of land. The Company notes that net orders in the first two months of fiscal 2000 decreased slightly, partly due to higher interest rates.
- Year 2000: The Company successfully completed its Year 2000 compliance efforts with no material adverse impact.
Investor Verification Checklist
- Trading Loss Impact: Verify the specific accounting treatment and ongoing legal or reputational fallout from the $18.2 million unauthorized mortgage trading loss.
- Interest Rate Sensitivity: Assess the impact of rising Federal Reserve rates on future order cancellations and backlog conversion, given the Company's reliance on entry-level buyers.
- Acquisition Integration: Monitor the integration progress and financial performance of the Lewis Homes and Park acquisitions to ensure projected synergies are realized.
- Debt Maturity Profile: Review the schedule of debt maturities, particularly the $200 million term loan due in 2001 and the $175 million senior notes due in 2003 and 2004.
- Asset Monetization: Track the progress of the asset review program to sell non-strategic divisions and the resulting cash flow impact on debt reduction.