SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended August 31, 2003.
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
KB HOME
| Delaware (State of incorporation) |
95-3666267 (IRS employer identification number) |
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal executive offices)
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 WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12 b-2 OF THE EXCHANGE ACT).
Yes [ X ] No [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF AUGUST 31, 2003.
Common stock, par value $1.00 per share, 46,351,940 shares outstanding, including 7,620,255 shares held by the Registrant’s Grantor Stock Ownership Trust and excluding 7,448,100 shares held in treasury.
KB HOME
FORM 10-Q
INDEX
| Page | ||||||
| Number(s) | ||||||
PART I. FINANCIAL INFORMATION |
||||||
Item 1. Financial Statements |
||||||
Consolidated Statements of Income -
Nine Months and Three Months Ended August 31, 2003 and 2002 |
3 | |||||
Consolidated Balance Sheets -
August 31, 2003 and November 30, 2002 |
4 | |||||
Consolidated Statements of Cash Flows -
Nine Months Ended August 31, 2003 and 2002 |
5 | |||||
Notes to Consolidated Financial Statements |
6-12 | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
13-22 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
23 | |||||
Item 4. Controls and Procedures |
23 | |||||
PART II. OTHER INFORMATION |
||||||
Item 5. Other Information |
23-24 | |||||
Item 6. Exhibits and Reports on Form 8-K |
24 | |||||
SIGNATURES |
25 | |||||
INDEX OF EXHIBITS |
26 | |||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KB HOME
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts - Unaudited)
| Nine Months Ended August 31, | Three Months Ended August 31, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Total revenues |
$ | 3,977,313 | $ | 3,348,288 | $ | 1,442,259 | $ | 1,292,969 | ||||||||||
Construction: |
||||||||||||||||||
Revenues |
$ | 3,920,387 | $ | 3,282,582 | $ | 1,418,075 | $ | 1,266,726 | ||||||||||
Construction and land costs |
(3,056,305 | ) | (2,603,508 | ) | (1,097,389 | ) | (995,908 | ) | ||||||||||
Selling, general and administrative expenses |
(517,753 | ) | (409,888 | ) | (183,340 | ) | (152,021 | ) | ||||||||||
Operating income |
346,329 | 269,186 | 137,346 | 118,797 | ||||||||||||||
Interest income |
2,041 | 3,411 | 568 | 828 | ||||||||||||||
Interest expense, net of amounts capitalized |
(18,398 | ) | (22,685 | ) | (2,400 | ) | (7,744 | ) | ||||||||||
Minority interests |
(12,690 | ) | (8,589 | ) | (3,995 | ) | (4,302 | ) | ||||||||||
Equity in pretax income of unconsolidated
joint ventures |
1,453 | 3,606 | 764 | 1,008 | ||||||||||||||
Construction pretax income |
318,735 | 244,929 | 132,283 | 108,587 | ||||||||||||||
Mortgage banking: |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Interest income |
11,089 | 17,139 | 3,026 | 5,990 | ||||||||||||||
Other |
45,837 | 48,567 | 21,158 | 20,253 | ||||||||||||||
| 56,926 | 65,706 | 24,184 | 26,243 | |||||||||||||||
Expenses: |
||||||||||||||||||
Interest |
(5,132 | ) | (8,512 | ) | (1,294 | ) | (2,955 | ) | ||||||||||
General and administrative |
(24,201 | ) | (17,605 | ) | (9,158 | ) | (6,683 | ) | ||||||||||
Mortgage banking pretax income |
27,593 | 39,589 | 13,732 | 16,605 | ||||||||||||||
Total pretax income |
346,328 | 284,518 | 146,015 | 125,192 | ||||||||||||||
Income taxes |
(114,300 | ) | (93,900 | ) | (48,200 | ) | (41,300 | ) | ||||||||||
Net income |
$ | 232,028 | $ | 190,618 | $ | 97,815 | $ | 83,892 | ||||||||||
Basic earnings per share |
$ | 5.87 | $ | 4.54 | $ | 2.51 | $ | 2.06 | ||||||||||
Diluted earnings per share |
$ | 5.51 | $ | 4.29 | $ | 2.33 | $ | 1.95 | ||||||||||
Basic average shares outstanding |
39,560 | 42,010 | 38,895 | 40,698 | ||||||||||||||
Diluted average shares outstanding |
42,135 | 44,480 | 41,946 | 43,070 | ||||||||||||||
Cash dividends per common share |
$ | .225 | $ | .225 | $ | .075 | $ | .075 | ||||||||||
See accompanying notes.
3
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
| August 31, | November 30, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Construction: |
||||||||||
Cash and cash equivalents |
$ | 50,387 | $ | 309,434 | ||||||
Trade and other receivables |
369,088 | 403,957 | ||||||||
Inventories |
2,867,152 | 2,173,497 | ||||||||
Investments in unconsolidated joint ventures |
29,142 | 21,023 | ||||||||
Deferred income taxes |
158,329 | 178,022 | ||||||||
Goodwill |
215,520 | 194,614 | ||||||||
Other assets |
129,395 | 110,887 | ||||||||
| 3,819,013 | 3,391,434 | |||||||||
Mortgage banking: |
||||||||||
Cash and cash equivalents |
20,124 | 20,551 | ||||||||
Receivables: |
||||||||||
First mortgages and mortgage-backed securities |
9,135 | 21,020 | ||||||||
First mortgages held under commitments of sale and other
receivables |
255,050 | 578,549 | ||||||||
Other assets |
13,428 | 13,986 | ||||||||
| 297,737 | 634,106 | |||||||||
Total assets |
$ | 4,116,750 | $ | 4,025,540 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Construction: |
||||||||||
Accounts payable |
$ | 523,089 | $ | 487,237 | ||||||
Accrued expenses and other liabilities |
441,925 | 466,876 | ||||||||
Mortgages and notes payable |
1,442,171 | 1,167,053 | ||||||||
| 2,407,185 | 2,121,166 | |||||||||
Mortgage banking: |
||||||||||
Accounts payable and accrued expenses |
34,537 | 34,104 | ||||||||
Notes payable |
162,670 | 507,574 | ||||||||
Collateralized mortgage obligations secured by
mortgage-backed securities |
8,603 | 14,079 | ||||||||
| 205,810 | 555,757 | |||||||||
Minority interests in consolidated subsidiaries and joint ventures |
77,458 | 74,266 | ||||||||
Common stock |
53,800 | 53,422 | ||||||||
Paid-in capital |
523,624 | 508,448 | ||||||||
Retained earnings |
1,326,528 | 1,103,387 | ||||||||
Accumulated other comprehensive loss |
23,297 | 8,895 | ||||||||
Deferred compensation |
(7,879 | ) | (8,978 | ) | ||||||
Grantor stock ownership trust, at cost |
(165,620 | ) | (171,702 | ) | ||||||
Treasury stock, at cost |
(327,453 | ) | (219,121 | ) | ||||||
Total stockholders’ equity |
1,426,297 | 1,274,351 | ||||||||
Total liabilities and stockholders’ equity |
$ | 4,116,750 | $ | 4,025,540 | ||||||
See accompanying notes.
4
KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands - Unaudited)
| Nine Months Ended August 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net income |
$ | 232,028 | $ | 190,618 | |||||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
|||||||||||
Equity in pretax income of unconsolidated joint ventures |
(1,453 | ) | (3,606 | ) | |||||||
Minority interests |
12,690 | 8,589 | |||||||||
Amortization of discounts and issuance costs |
1,778 | 1,742 | |||||||||
Depreciation and amortization |
15,942 | 12,321 | |||||||||
Provision for deferred income taxes |
19,693 | (1,083 | ) | ||||||||
Change in: |
|||||||||||
Receivables |
358,377 | 264,416 | |||||||||
Inventories |
(532,139 | ) | (212,769 | ) | |||||||
Accounts payable, accrued expenses and other liabilities |
(1,429 | ) | 444 | ||||||||
Other, net |
9,765 | (35,767 | ) | ||||||||
Net cash provided by operating activities |
115,252 | 224,905 | |||||||||
Cash flows from investing activities: |
|||||||||||
Acquisitions, net of cash acquired |
(72,752 | ) | — | ||||||||
Investments in unconsolidated joint ventures |
(6,666 | ) | 3,515 | ||||||||
Net sales of mortgages held for long-term investment |
5,593 | 1,884 | |||||||||
Payments received on first mortgages and mortgage-backed securities |
6,292 | 6,182 | |||||||||
Purchases of property and equipment, net |
(11,166 | ) | (5,852 | ) | |||||||
Net cash provided (used) by investing activities |
(78,699 | ) | 5,729 | ||||||||
Cash flows from financing activities: |
|||||||||||
Net payments on credit agreements and other short-term
borrowings |
(273,428 | ) | (309,752 | ) | |||||||
Proceeds from issuance of senior subordinated notes |
295,332 | 198,412 | |||||||||
Proceeds from issuance of senior notes |
— | 144,302 | |||||||||
Redemption of senior subordinated notes |
(129,016 | ) | (175,000 | ) | |||||||
Payments on collateralized mortgage obligations |
(5,476 | ) | (5,914 | ) | |||||||
Payments on mortgages, land contracts and other loans |
(78,299 | ) | (77,769 | ) | |||||||
Issuance of common stock under employee stock plans |
21,636 | 41,425 | |||||||||
Payments to minority interests |
(9,557 | ) | (6,641 | ) | |||||||
Payments of cash dividends |
(8,887 | ) | (9,367 | ) | |||||||
Repurchases of common stock |
(108,332 | ) | (190,784 | ) | |||||||
Net cash used by financing activities |
(296,027 | ) | (391,088 | ) | |||||||
Net decrease in cash and cash equivalents |
(259,474 | ) | (160,454 | ) | |||||||
Cash and cash equivalents at beginning of period |
329,985 | 281,333 | |||||||||
Cash and cash equivalents at end of period |
$ | 70,511 | $ | 120,879 | |||||||
Supplemental disclosures of cash flow information: |
|||||||||||
Interest paid, net of amounts capitalized |
$ | 32,871 | $ | 30,853 | |||||||
Income taxes paid |
$ | 71,998 | $ | 77,395 | |||||||
Supplemental disclosures of noncash activities: |
|||||||||||
Cost of inventories acquired through seller financing |
$ | 26,147 | $ | 102,354 | |||||||
See accompanying notes.
5
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Basis of Presentation | |
| The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended November 30, 2002 contained in the Company’s 2002 Annual Report to Stockholders. | ||
| In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of August 31, 2003, the results of its consolidated operations for the nine months and three months ended August 31, 2003 and 2002, and its consolidated cash flows for the nine months ended August 31, 2003 and 2002. The results of operations for the nine months and three months ended August 31, 2003 are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet at November 30, 2002 has been taken from the audited financial statements as of that date. | ||
| 2. | Inventories | |
| Inventories consist of the following (in thousands): |
| August 31, | November 30, | ||||||||
| 2003 | 2002 | ||||||||
Homes, lots and improvements in production |
$ | 2,442,118 | $ | 1,776,430 | |||||
Land under development |
425,034 | 397,067 | |||||||
Total inventories |
$ | 2,867,152 | $ | 2,173,497 | |||||
| The impact of capitalizing interest costs on consolidated pretax income is as follows (in thousands): |
| Nine Months Ended August 31, | Three Months Ended August 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Interest incurred |
$ | 89,674 | $ | 74,007 | $ | 28,540 | $ | 26,143 | |||||||||
Interest expensed |
(18,398 | ) | (22,685 | ||||||||||||||