e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ Annual
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
For the fiscal year ended November 30,
2009
or
o 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. 001-09195
KB HOME
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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95-3666267
(I.R.S. Employer
Identification No.)
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10990 Wilshire Boulevard, Los Angeles, California 90024
(Address of principal executive
offices)
Registrants telephone number, including area
code: (310) 231-4000
Securities Registered Pursuant to Section 12(b) of the
Act:
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Name of each exchange
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Title
of each class
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on which registered
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Common Stock (par value $1.00 per share)
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New York Stock Exchange
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Rights to Purchase Series A Participating Cumulative
Preferred Stock
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ
No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o
No þ
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 þ
No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o
No o
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
registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act.
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
The aggregate market value of voting stock held by
non-affiliates of the registrant on May 31, 2009 was
$1,321,039,890, including 11,762,882 shares held by the
registrants grantor stock ownership trust and excluding
27,047,379 shares held in treasury.
The number of shares outstanding of each of the
registrants classes of common stock on December 31,
2009 was as follows: Common Stock (par value $1.00 per share)
88,072,926 shares, including 11,222,651 shares held by
the registrants grantor stock ownership trust and
excluding 27,047,379 shares held in treasury.
Documents Incorporated by Reference
Portions of the registrants definitive Proxy Statement
for the 2010 Annual Meeting of Stockholders (incorporated into
Part III).
KB
HOME
FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2009
TABLE OF CONTENTS
General
KB Home is one of the nations largest homebuilders and has
been building quality homes for families for more than 50 years.
We construct and sell homes through our operating divisions
across the United States under the name KB Home. Unless the
context indicates otherwise, the terms the Company,
we, our and us used in this
report refer to KB Home, a Delaware corporation, and its
predecessors and subsidiaries.
Beginning in 1957 and continuing until 1986, our business was
conducted by various subsidiaries of Kaufman and Broad, Inc.
(KBI) and its predecessors. In 1986, KBI transferred
all of its homebuilding and mortgage banking operations to us.
Shortly after the transfer, we completed an initial public
offering of 8% of our common stock and began operating under the
name Kaufman and Broad Home Corporation. In 1989, we were
spun-off from KBI, which then changed its name to Broad Inc.,
and we became an independent company, operating primarily in
California and France. In 2001, we changed our name to KB Home.
Today, we operate a homebuilding and financial services business
serving homebuyers in markets nationwide.
Our homebuilding operations, which are divided into four
geographically defined segments for reporting purposes, offer a
variety of homes designed primarily for first-time, first
move-up and
active adult buyers, including attached and detached
single-family homes, townhomes and condominiums. We offer homes
in development communities, at urban in-fill locations and as
part of mixed-use projects. We use the term home to
refer to a single-family residence, whether it is a
single-family home or other type of residential property, and we
use the term community to refer to a single
development in which homes are constructed as part of an
integrated plan.
Through our homebuilding segments, we delivered 8,488 homes at
an average selling price of $207,100 during the year ended
November 30, 2009, compared to 12,438 homes delivered at an
average selling price of $236,400 during the year ended
November 30, 2008. Our homebuilding operations represent
most of our business, accounting for 99.5% of our total revenues
in 2009 and 99.6% of our total revenues in 2008.
Our financial services operations offer mortgage banking, title
and insurance services to our homebuyers. Mortgage banking
services are offered to our homebuyers indirectly through KB
Home Mortgage, LLC (KB Home Mortgage), a joint
venture between us and CWB Venture Management Corporation, a
subsidiary of Bank of America, N.A. Our financial services
operations accounted for .5% of our total revenues in 2009 and
.4% of our total revenues in 2008.
In 2009, we generated total revenues of $1.82 billion and a
net loss of $101.8 million, compared to total revenues of
$3.03 billion and a net loss of $976.1 million in
2008. Our financial results for 2009 and 2008 reflect
challenging operating conditions that have persisted in the
homebuilding industry to varying degrees since a general housing
market downturn began in 2006, as well as our strategic actions
in response to these conditions to align our operations with
diminished home sales activity and to maintain a strong balance
sheet.
Our principal executive offices are located at
10990 Wilshire Boulevard, Los Angeles, California 90024.
The telephone number of our corporate headquarters is
(310) 231-4000
and our website address is http://kbhome.com. Our
Spanish-language website is http://kbcasa.com. In addition,
location and community information is available at (888)
KB-HOMES.
1
Markets
Reflecting the wide geographic reach of our homebuilding
business, as of the date of this report, we operate in the 10
states and 30 major markets shown below. For reporting purposes,
we organize our homebuilding operations into four
segments West Coast, Southwest, Central and
Southeast.
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Segment
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State(s)
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Major Market(s)
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West Coast
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California
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Fresno, Los Angeles/Ventura, Orange County, Riverside,
Sacramento, San Bernardino, San Diego, San Jose/Oakland and
Stockton
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Southwest
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Arizona
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Phoenix and Tucson
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Nevada
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Las Vegas and Reno
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Central
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Colorado
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Denver
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Texas
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Austin, Dallas/Fort Worth, Houston and San Antonio
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Southeast
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Florida
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Daytona Beach, Fort Myers, Jacksonville, Lakeland, Orlando,
Sarasota and Tampa
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Maryland
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Washington, D.C.
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North Carolina
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Charlotte and Raleigh
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South Carolina
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Charleston and Columbia
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Virginia
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Washington, D.C.
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Segment Operating Information. The following
table presents specific operating information for our
homebuilding reporting segments for the years ended
November 30, 2009, 2008 and 2007:
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Years Ended November 30,
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2009
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2008
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2007
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West Coast:
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Homes delivered
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2,453
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2,972
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4,957
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Percentage of total homes delivered
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29
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%
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24
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%
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21
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%
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Average selling price
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$
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315,100
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$
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354,700
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$
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433,600
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Total revenues (in millions) (a)
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$
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812.2
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$
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1,055.1
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$
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2,203.3
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Southwest:
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Homes delivered
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1,202
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2,393
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4,855
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Percentage of total homes delivered
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14
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%
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19
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%
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20
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%
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Average selling price
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$
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172,000
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$
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229,200
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$
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258,500
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Total revenues (in millions) (a)
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$
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218.1
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$
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618.0
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$
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1,349.6
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Central:
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Homes delivered
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2,771
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3,348
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6,310
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Percentage of total homes delivered
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33
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%
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27
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%
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27
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%
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Average selling price
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$
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155,500
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$
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175,000
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$
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167,800
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Total revenues (in millions) (a)
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$
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434.4
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$
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594.3
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$
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1,077.3
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Southeast:
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Homes delivered
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2,062
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3,725
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7,621
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Percentage of total homes delivered
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24
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%
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30
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%
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32
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%
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Average selling price
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$
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168,600
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$
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201,800
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$
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229,400
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Total revenues (in millions) (a)
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$
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351.7
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$
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755.8
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$
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1,770.4
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Total:
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Homes delivered
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8,488
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12,438
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23,743
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Average selling price
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$
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207,100
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$
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236,400
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$
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261,600
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Total revenues (in millions) (a)
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$
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1,816.4
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$
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3,023.2
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$
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6,400.6
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(a) |
Total revenues include revenues from housing and land sales.
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Unconsolidated Joint Ventures. The above table
does not include homes delivered from unconsolidated joint
ventures in which we participate. These unconsolidated joint
ventures acquire and develop land and, in some cases, build and
deliver homes on developed land. Our unconsolidated joint
ventures delivered 141 homes in 2009, 262 homes in 2008 and 127
homes in 2007.
2
Strategy
Generally since mid-2006, many housing markets across the United
States, including those we serve, have experienced a severe and
extended downturn. To varying degrees, these markets have
suffered from a persistent oversupply of new, resale and
foreclosed homes available for sale, driving selling prices
steadily lower and intensifying competition among homebuilders,
individual home sellers, investors and lenders vying for buyers.
At the same time, housing demand has fallen sharply due to
general economic weakness, rising unemployment, declining
consumer confidence, reduced credit availability and tightened
mortgage lending standards. Although housing affordability has
improved recently due to lower selling prices, relatively low
interest rates and homebuyer tax credit incentives, the negative
supply and demand factors described above continue to constrain
overall home sales activity.
We believe that there may be further volatility in housing
markets in 2010 and that the homebuilding industry is likely to
experience a prolonged and uneven transition before a sustained
recovery takes hold. Based on this view, we intend to continue
to execute on strategic initiatives that have allowed us to
weather nearly four years of challenging market conditions,
stabilize and strengthen our financial condition, and position
our business to return to profitability and to capitalize on
potential future growth opportunities. These initiatives are
founded on the principles of our core operational business
model, KBnxt.
KBnxt Operational Business Model. Our KBnxt
operational business model, first implemented in 1997, seeks to
generate greater operating efficiencies and return on investment
through a disciplined, fact-based and process-driven approach to
homebuilding that is founded on a constant and systematic
assessment of consumer preferences and market opportunities. The
key principles of our KBnxt operational business model include:
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gaining a detailed understanding of consumer location and
product preferences through regular surveys;
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managing our working capital and reducing our operating risks by
acquiring developed and entitled land at reasonable prices in
markets with high growth potential, and disposing of land and
interests in land that no longer meet our strategic or
investment goals;
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using our knowledge of consumer preferences to design, construct
and deliver the products homebuyers desire;
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in general, commencing construction of a home only after a
purchase contract has been signed;
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building a backlog of net orders and reducing the time from
initial construction to final delivery of homes to customers;
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establishing an even flow of production of high-quality homes at
the lowest possible cost; and
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offering customers affordable base prices and the opportunity to
customize their homes through choice of location, floor plans
and interior design options.
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Our KBnxt operational business model is designed to help us
build and maintain a leading position in our existing markets;
opportunistically expand our business into attractive new
markets; exit investments that no longer meet our return
standards or marketing strategy; calibrate our product designs
to consumer preferences; and achieve lower costs and economies
of scale in acquiring and developing land, purchasing building
materials, subcontracting trade labor, and providing options to
customers.
Our expansion into a new market depends on our assessment of the
markets viability and our ability to develop sustainable
operations. Similar considerations apply to potential asset
acquisitions in our existing markets.
Strategic Objectives. Guided by the
disciplines of our KBnxt operational business model, our primary
strategic objectives include:
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Positioning our operations to maintain ownership or control over
a forecasted
three-to-four
year supply of developable land and a balanced geographic
footprint, while continuously evaluating potential
growth opportunities in or near our existing markets.
We believe this approach enables us to efficiently capitalize on
the different rates at which we expect housing markets to
stabilize. In addition, keeping our land inventory at what we
believe is a prudent and manageable level and in line with our
future sales expectations maximizes the use of our working
capital, enhances our liquidity and helps us maintain a strong
balance sheet to support strategic investments for long-term
growth.
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Providing the best value and choice in homes and options for our
core customers first-time, first
move-up and
active adult homebuyers. By promoting value and choice through
an affordable base price and product customization through
options, including many environmentally friendly options, we
believe we stand out from other homebuilders and sellers of
existing homes (including lender-owned homes acquired through
foreclosures and short sales), and generate higher revenues.
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To help achieve the above objective, enhancing the affordability
of our homes by redesigning and reengineering our products,
building smaller homes, reducing cycle times (i.e., the
time between the sale of a home and its delivery to a homebuyer)
and lowering our direct construction costs. By making our homes
more affordable for our value-conscious core homebuyers while
lowering our production costs, we believe we will be able to
compete effectively with sellers of existing homes (including
lender-owned homes acquired through foreclosures and short
sales), which we see as our primary competition, generate
revenues while maintaining margins, and drive sustainable profit
growth over the long term.
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As a complement to providing the best value and choice,
generating high levels of customer satisfaction and producing
high quality homes. We believe achieving high customer
satisfaction levels is key to our long-term performance, and
delivering quality homes is critical to achieving high customer
satisfaction.
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Restoring the profitability of our homebuilding operations by
continuing to align our cost structure (including overhead) with
the expected size and growth of our business, generating and
preserving free cash flow and maximizing the performance of our
invested capital.
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A tangible reflection of how we have implemented our strategic
objectives is the ongoing nationwide rollout of The Open
SeriesTM
product designs, which began in late 2008. In addition to
meeting homebuyer design sensibilities and affordability needs,
The Open Series product line has been value-engineered to
reduce production costs and cycle times, while adhering to our
quality standards and using materials and construction methods
that reflect our commitment to environmentally sustainable
homebuilding practices.
Value-engineering
encompasses measures such as simplifying the location and
installation of internal plumbing and electrical systems, using
prefabricated wall panels, flooring systems, roof trusses and
other building components, and employing cost-minimizing and
efficiency maximizing construction techniques. It also includes
working continuously with our trade partners and materials
suppliers to reduce direct construction costs. All of these
actions have allowed us to achieve faster returns and higher
gross margins from our inventory compared to our previous
product designs, supporting strong cash flow generation and
progress toward our profitability goal.
Marketing Strategy. Our marketing activity is
focused on differentiating the KB Home brand from resale homes
and from homes sold through foreclosures, short sales and by
other builders. We believe that our Built to
OrderTM
message and approach generate a high perceived value for our
products and our company among consumers and are unique among
large-production
homebuilders. Built to Order emphasizes that we partner with our
homebuyers to create a home built to their individual
preferences in home design, layout, square footage and homesite
location, and to personalize their homes interior with
features and amenities that meet their needs and interests.
Built to Order serves as the consumer face of core elements of
our KBnxt operational business model and ensures that our
marketing strategy and advertising campaigns are closely aligned
with our overall operational focus.
Our KB Home Studios are integral to the Built to Order
experience we provide. These showrooms allow our homebuyers to
select from thousands of product and design options that are
available for purchase as part of the original construction of
their homes. The coordinated efforts of our sales
representatives and KB Home Studio consultants are intended to
provide high levels of customer satisfaction and lead to
enhanced customer retention and referrals.
We further differentiate the KB Home brand with our My Home.
My
Earth.TM
environmental initiative, publicly launched in 2008. My Home.
My Earth. embodies our commitment to become a leading
environmentally friendly national company. We were the first
national homebuilder to commit to installing exclusively ENERGY
STARTM
appliances in all of our new homes, and in 2009, we committed to
build all new communities we open to ENERGY STAR guidelines. We
also offer our homebuyers an extensive line of high-value,
low-cost products through our KB Home Studios that can help
minimize the environmental impact of the homes they purchase.
During 2009, we continued to focus our marketing initiatives on
first-time, first
move-up and
active adult homebuyers. These historically have been our core
customers and it is among these groups that we see the greatest
4
potential for future home sales. In 2010, we plan to continue to
focus on this homebuyer demographic and to roll out new home
designs and environmental sustainability initiatives.
Sales Strategy. To ensure the consistency of
our message and adherence to our Built to Order approach, sales
of our homes are carried out by in-house teams of sales
representatives and other personnel who work personally with
each homebuyer to create a home that meets the homebuyers
preferences and budget.
Customer
Service and Quality Control
Customer satisfaction is a high priority for us. We are
committed to building and delivering quality homes. Our on-site
construction supervisors perform regular pre-closing quality
checks during the construction process to ensure our homes meet
our quality standards and our homebuyers expectations. We
have employees who are responsible for responding to
homebuyers post-closing needs, including warranty claims.
We believe prompt and courteous responses to homebuyers
needs throughout the homebuying process reduces post-closing
repair costs, enhances our reputation for quality and service,
and helps encourage repeat and referral business from homebuyers
and the real estate community. Our goal is for our customers to
be 100% satisfied with their new homes.
We provide a limited warranty on all of our homes. The specific
terms and conditions vary depending on the market where we do
business. We generally provide a structural warranty of
10 years, a warranty on electrical, heating, cooling,
plumbing and other building systems each varying from two to
five years based on geographic market and state law, and a
warranty of one year for other components of a home.
Local
Expertise
To maximize our KBnxt operational business models
effectiveness and help ensure its consistent execution, our
employees are continuously trained on KBnxt principles and
evaluated based on their achievement of relevant KBnxt
operational objectives. We also believe that our 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 that meet local demand, to
anticipate consumer tastes in specific markets, and to assess
local regulatory environments. Accordingly, we operate our
business through divisions with trained personnel who have local
market expertise. We have experienced management teams in each
of our divisions. Though we centralize certain functions (such
as marketing, advertising, legal, materials purchasing,
purchasing administration, product development, architecture and
accounting) to benefit from economies of scale, our local
management exercises considerable autonomy in identifying land
acquisition opportunities, developing product and sales
strategies, and controlling costs.
Community
Development and Land Inventory Management
Our community development process generally consists of four
phases: land acquisition, land development, home construction
and sale. Historically, the completion time of our community
development process has ranged from six to 24 months in our
West Coast segment to a somewhat shorter duration in our
other homebuilding segments. The length of the community
development process varies based on, among other things, the
extent of government approvals required, the overall size of the
community, necessary site preparation activities, weather
conditions and marketing results.
Although they vary significantly, our communities typically
consist of 50 to 250 lots ranging in size from 1,000 to
13,500 square feet. In our communities, we typically offer
from three to 15 home designs for homebuyers to choose
from. We also build an average of two to four model homes at
each community so that prospective buyers can preview various
home designs. Depending on the community, we may offer premium
lots containing more square footage, better views or location
benefits.
Land Acquisition and Land Development. We
continuously evaluate land acquisition opportunities, as they
arise, against our internal investment standards and marketing
strategy, balancing competing needs for financial strength and
land inventory for future growth. When we acquire and develop
land, we do so consistent with our KBnxt operational business
model, which focuses on land parcels containing fewer than 250
lots that are entitled for residential construction and either
physically developed to start home construction (referred to as
finished lots) or partially finished. Acquiring
finished or partially finished lots enables us to construct and
deliver homes shortly after the land is acquired with minimal
additional development expenditures. This is a more efficient
way to use our working capital and reduces the operating
5
risks associated with having to develop and/or entitle land,
such as unforeseen improvement costs and/or changes in market
conditions. However, depending on market conditions, we may
acquire undeveloped and/or unentitled land. We expect that the
overall balance of undeveloped, unentitled, entitled and
finished lots in our inventory will vary over time.
Consistent with our KBnxt operational business model, we target
geographic areas for potential land acquisitions and assess the
viability of our current inventory based on the results of
periodic surveys of both new and resale homebuyers in particular
markets. Local,
in-house
land acquisition specialists conduct site selection research and
analysis in targeted geographic areas to identify desirable land
or to evaluate whether an existing interest we hold is
consistent with our marketing strategy. We also use studies
performed by third-party marketing specialists. Some of the
factors we consider in evaluating land acquisition targets and
assessing current inventory are: consumer preferences; general
economic conditions; specific market conditions, with an
emphasis on the prices of comparable new and resale homes in the
market; expected sales rates; proximity to metropolitan areas
and employment centers; population and commercial growth
patterns; estimated costs of completing lot development; and
environmental matters.
We generally structure our land purchases and development
activities to minimize or to defer the timing of cash and
capital expenditures, which enhances returns associated with new
land investments. While we use a variety of techniques to
accomplish this, as further described below, we typically use
agreements that give us an option right to purchase land at a
future date, at a fixed price and for a small initial deposit
payment. Our decision to exercise a particular option right is
based on the results of due diligence and continued market
viability analysis we conduct after entering into an agreement.
In some cases, our decision to exercise an option may be
conditioned on the land seller obtaining necessary entitlements,
such as zoning rights and environmental approvals, and/or
physically developing the land by a pre-determined date to allow
us to build homes relatively quickly. Depending on the
circumstances, our initial deposit payment for an option right
may or may not be refundable to us if we do not purchase the
underlying land.
In addition to acquiring land under option agreements, we may
acquire land under agreements that condition our purchase
obligation on our satisfaction with the feasibility of
developing the land and selling homes on the land by a certain
future date, consistent with our investment standards. Our
option and other purchase agreements may also allow us to phase
our land purchases and/or lot development over a period of time
and/or upon the satisfaction of certain conditions. We may also
acquire land with seller financing that is non-recourse to us,
or by working in conjunction with third-party land developers.
Our land option contracts generally do not contain provisions
requiring our specific performance.
Under our KBnxt operational business model, we generally attempt
to minimize our land development costs by focusing on acquiring
finished or partially finished lots. Where we purchase
unentitled and unimproved land, we typically use option
agreements as described above and during the option period
perform technical, environmental, engineering and entitlement
feasibility studies, while we seek to obtain necessary
governmental approvals and permits. These activities are
sometimes done with the sellers assistance and/or at the
sellers cost. The use of option arrangements in this
context allows us to conduct these development-related
activities while minimizing our inventory levels and overall
financial commitments, including interest and other carrying
costs. It also improves our ability to estimate development
costs accurately prior to incurring them, an important element
in planning communities and pricing homes.
Before we commit to any land purchase or dispose of any interest
in land we hold, our senior corporate management carefully
evaluates each asset based on the results of our local
specialists due diligence and a set of strict financial
measures, including, but not limited to, gross margin analyses
and specific discounted,
after-tax
cash flow internal rate of return requirements. Potential land
acquisition or disposal transactions are subject to review and
approval by our corporate land committee, which is composed of
senior corporate and regional management. The stringent criteria
guiding our land acquisition and disposition decisions have
resulted in our maintaining inventory in areas that we believe
generally offer better returns for lower risk, and lower cash
and capital investment.
In recent years, in light of difficult market conditions, we
have sold some of our land and interests in land and have
abandoned a portion of our options to acquire land. Consistent
with our KBnxt operational business model, we determined that
these properties no longer met our strategic needs or our
internal investment standards. If market conditions remain
challenging, we may sell more of our land and interests in land,
and we may abandon or try to sell more of our options to acquire
land.
6
The following table presents the number of inventory lots we
owned, in various stages of development, or controlled under
option contracts in our homebuilding segments as of
November 30, 2009 and 2008. The table does not include
approximately 316 acres optioned as of November 30,
2009 and 2008 that had not yet been approved for subdivision
into lots.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
Homes/Lots in
|
|
Land Under
|
|
Lots Under
|
|
Owned or
|
|
|
Production
|
|
Development
|
|
Option
|
|
Under Option
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
West Coast
|
|
|
4,685
|
|
|
|
7,257
|
|
|
|
2,219
|
|
|
|
1,826
|
|
|
|
1,062
|
|
|
|
1,018
|
|
|
|
7,966
|
|
|
|
10,101
|
|
Southwest
|
|
|
3,511
|
|
|
|
4,853
|
|
|
|
1,677
|
|
|
|
1,784
|
|
|
|
3,593
|
|
|
|
3,551
|
|
|
|
8,781
|
|
|
|
10,188
|
|
Central
|
|
|
5,796
|
|
|
|
7,643
|
|
|
|
2,529
|
|
|
|
2,454
|
|
|
|
1,797
|
|
|
|
1,840
|
|
|
|
10,122
|
|
|
|
11,937
|
|
Southeast
|
|
|
3,868
|
|
|
|
5,326
|
|
|
|
4,078
|
|
|
|
4,369
|
|
|
|
2,650
|
|
|
|
5,102
|
|
|
|
10,596
|
|
|
|
14,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,860
|
|
|
|
25,079
|
|
|
|
10,503
|
|
|
|
10,433
|
|
|
|
9,102
|
|
|
|
11,511
|
|
|
|
37,465
|
|
|
|
47,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflecting our geographic diversity, as of November 30,
2009, 21% of the lots we owned or controlled were located in the
West Coast reporting segment, 24% were in the Southwest
reporting segment, 27% were in the Central reporting segment,
and 28% were in the Southeast reporting segment.
The following table presents the dollar value of inventory we
owned, in various stages of development, or controlled under
option contracts in our homebuilding segments as of
November 30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
|
Homes/Lots in
|
|
|
Land Under
|
|
|
Lots Under
|
|
|
Owned or
|
|
|
|
Production
|
|
|
Development
|
|
|
Option
|
|
|
Under Option
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
West Coast
|
|
$
|
530,030
|
|
|
$
|
854,522
|
|
|
$
|
80,229
|
|
|
$
|
52,339
|
|
|
$
|
29,390
|
|
|
$
|
68,600
|
|
|
$
|
639,649
|
|
|
$
|
975,461
|
|
Southwest
|
|
|
116,779
|
|
|
|
192,530
|
|
|
|
94,431
|
|
|
|
96,073
|
|
|
|
8,409
|
|
|
|
24,673
|
|
|
|
219,619
|
|
|
|
313,276
|
|
Central
|
|
|
240,825
|
|
|
|
300,454
|
|
|
|
41,405
|
|
|
|
38,688
|
|
|
|
42,077
|
|
|
|
53,358
|
|
|
|
324,307
|
|
|
|
392,500
|
|
Southeast
|
|
|
190,488
|
|
|
|
252,541
|
|
|
|
115,611
|
|
|
|
127,241
|
|
|
|
11,720
|
|
|
|
45,697
|
|
|
|
317,819
|
|
|
|
425,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,078,122
|
|
|
$
|
1,600,047
|
|
|
$
|
331,676
|
|
|
$
|
314,341
|
|
|
$
|
91,596
|
|
|
$
|
192,328
|
|
|
$
|
1,501,394
|
|
|
$
|
2,106,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Construction and Sale. Following the
purchase of land and, if necessary, the completion of the
entitlement process, we typically begin marketing homes for sale
and constructing model homes. The time required for construction
of our homes depends on the weather, time of year, local labor
supply, availability of materials and supplies and other
factors. To minimize the costs and risks of standing inventory,
we generally begin construction of a home only when we have
signed a purchase contract with a homebuyer. However,
cancellations of home purchase contracts prior to the delivery
of the underlying homes, or strategic considerations, may cause
us to have standing inventory of completed or partially
completed homes.
We act as the general contractor for the majority of our
communities and hire experienced subcontractors for all
production activities. Our contracts with our subcontractors
require that they comply with all laws applicable to their work,
including labor laws, meet performance standards and follow
local building codes and permits. Where practical, we use mass
production techniques and pre-fabricated, standardized
components and materials to streamline the on-site production
process. We have also developed programs for national and
regional purchasing of certain building materials, appliances
and other items to take advantage of economies of scale and to
reduce costs through improved pricing and, where available,
participation in manufacturers or suppliers rebate
programs. As part of our My Home. My Earth. environmental
initiative, we have integrated products, materials and
construction practices into our home building process to reduce
the environmental impact of our operations and the homes we
build. At all stages of production, our administrative and
on-site supervisory personnel coordinate the activities of
subcontractors and subject their work to quality and cost
controls. As part of our KBnxt operational business model, we
also emphasize
even-flow
production methods to enhance the quality of our homes and
minimize production costs.
7
Backlog
We sell our homes under standard purchase contracts, which
generally require a customer deposit at the time of signing. The
amount of the deposit required varies among markets and
communities. Homebuyers are also generally required to pay
additional deposits when they select options or upgrades for
their homes. Most of our home purchase contracts stipulate that
if a homebuyer cancels a contract with us, we have the right to
retain the homebuyers deposits. However, we generally
permit homebuyers to cancel their obligations and obtain refunds
of all or a portion of their deposits in the event mortgage
financing cannot be obtained within a period of time, as
specified in their contract.
Backlog consists of homes that are under contract
but have not yet been delivered. Ending backlog represents the
number of homes in backlog from the previous period plus the
number of net orders (new orders for homes less cancellations)
generated during the current period minus the number of homes
delivered during the current period. The backlog at any given
time will be affected by cancellations. The number of homes
delivered has historically increased from the first to the
fourth quarter in any year.
Our backlog at November 30, 2009, excluding backlog of
unconsolidated joint ventures, consisted of 2,126 homes, a
decrease of 6% from the 2,269 homes in backlog at year-end
2008. The decrease in our backlog levels in 2009 primarily
reflected our strategic decisions to reduce inventory and active
community counts to align our operations with reduced housing
market activity. Our backlog at November 30, 2009
represented potential future housing revenues of approximately
$422.5 million, a 19% decrease from potential future
housing revenues of $521.4 million at November 30, 2008,
reflecting the impact of the lower number of homes in backlog
and a lower average selling price. Our backlog ratio, defined as
homes delivered as a percentage of beginning backlog in the
quarter, was 82% for the quarters ended November 30, 2009
and 2008.
Our net orders increased slightly to 8,341 in 2009 from 8,274 in
2008. Our average cancellation rate based on net orders was 25%
in 2009, compared to an average of 41% in 2008. During the
fourth quarter of 2009, our net orders increased 12% from the
fourth quarter of 2008. The increase in our net orders primarily
reflected a reduction in our cancellation rate, which, as a
percentage of gross orders, was 31% in the fourth quarter of
2009, compared to 46% in the fourth quarter of 2008.
8
The following table presents homes delivered, net orders and
cancellation rates (based on gross orders) by reporting segment
and with respect to our unconsolidated joint ventures for each
quarter during the years ended November 30, 2009 and 2008,
and our ending backlog at the end of each quarter within those
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
West Coast
|
|
Southwest
|
|
Central
|
|
Southeast
|
|
Total
|
|
Joint Ventures
|
Homes delivered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
351
|
|
|
|
267
|
|
|
|
447
|
|
|
|
380
|
|
|
|
1,445
|
|
|
|
23
|
|
Second
|
|
|
569
|
|
|
|
241
|
|
|
|
525
|
|
|
|
426
|
|
|
|
1,761
|
|
|
|
55
|
|
Third
|
|
|
669
|
|
|
|
314
|
|
|
|
783
|
|
|
|
474
|
|
|
|
2,240
|
|
|
|
37
|
|
Fourth
|
|
|
864
|
|
|
|
380
|
|
|
|
1,016
|
|
|
|
782
|
|
|
|
3,042
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,453
|
|
|
|
1,202
|
|
|
|
2,771
|
|
|
|
2,062
|
|
|
|
8,488
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
614
|
|
|
|
740
|
|
|
|
899
|
|
|
|
675
|
|
|
|
2,928
|
|
|
|
75
|
|
Second
|
|
|
603
|
|
|
|
534
|
|
|
|
863
|
|
|
|
810
|
|
|
|
2,810
|
|
|
|
74
|
|
Third
|
|
|
731
|
|
|
|
425
|
|
|
|
745
|
|
|
|
887
|
|
|
|
2,788
|
|
|
|
45
|
|
Fourth
|
|
|
1,024
|
|
|
|
694
|
|
|
|
841
|
|
|
|
1,353
|
|
|
|
3,912
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,972
|
|
|
|
2,393
|
|
|
|
3,348
|
|
|
|
3,725
|
|
|
|
12,438
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
459
|
|
|
|
222
|
|
|
|
622
|
|
|
|
524
|
|
|
|
1,827
|
|
|
|
28
|
|
Second
|
|
|
928
|
|
|
|
359
|
|
|
|
1,048
|
|
|
|
575
|
|
|
|
2,910
|
|
|
|
45
|
|
Third
|
|
|
591
|
|
|
|
355
|
|
|
|
808
|
|
|
|
404
|
|
|
|
2,158
|
|
|
|
17
|
|
Fourth
|
|
|
417
|
|
|
|
200
|
|
|
|
491
|
|
|
|
338
|
|
|
|
1,446
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,395
|
|
|
|
1,136
|
|
|
|
2,969
|
|
|
|
1,841
|
|
|
|
8,341
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
539
|
|
|
|
186
|
|
|
|
231
|
|
|
|
493
|
|
|
|
1,449
|
|
|
|
48
|
|
Second
|
|
|
977
|
|
|
|
760
|
|
|
|
964
|
|
|
|
1,499
|
|
|
|
4,200
|
|
|
|
131
|
|
Third
|
|
|
361
|
|
|
|
282
|
|
|
|
506
|
|
|
|
180
|
|
|
|
1,329
|
|
|
|
39
|
|
Fourth
|
|
|
375
|
|
|
|
207
|
|
|
|
353
|
|
|
|
361
|
|
|
|
1,296
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,252
|
|
|
|
1,435
|
|
|
|
2,054
|
|
|
|
2,533
|
|
|
|
8,274
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
26%
|
|
|
|
27%
|
|
|
|
29%
|
|
|
|
28%
|
|
|
|
28%
|
|
|
|
48%
|
|
Second
|
|
|
16%
|
|
|
|
18%
|
|
|
|
20%
|
|
|
|
26%
|
|
|
|
20%
|
|
|
|
31%
|
|
Third
|
|
|
23%
|
|
|
|
20%
|
|
|
|
28%
|
|
|
|
32%
|
|
|
|
27%
|
|
|
|
32%
|
|
Fourth
|
|
|
20%
|
|
|
|
24%
|
|
|
|
40%
|
|
|
|
30%
|
|
|
|
31%
|
|
|
|
16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21%
|
|
|
|
22%
|
|
|
|
28%
|
|
|
|
29%
|
|
|
|
25%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
41%
|
|
|
|
56%
|
|
|
|
70%
|
|
|
|
50%
|
|
|
|
53%
|
|
|
|
45%
|
|
Second
|
|
|
29%
|
|
|
|
21%
|
|
|
|
31%
|
|
|
|
26%
|
|
|
|
27%
|
|
|
|
24%
|
|
Third
|
|
|
48%
|
|
|
|
37%
|
|
|
|
43%
|
|
|
|
74%
|
|
|
|
51%
|
|
|
|
57%
|
|
Fourth
|
|
|
42%
|
|
|
|
40%
|
|
|
|
48%
|
|
|
|
50%
|
|
|
|
46%
|
|
|
|
71%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
38%
|
|
|
|
34%
|
|
|
|
45%
|
|
|
|
43%
|
|
|
|
41%
|
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending backlog homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
689
|
|
|
|
303
|
|
|
|
892
|
|
|
|
767
|
|
|
|
2,651
|
|
|
|
76
|
|
Second (a)
|
|
|
1,048
|
|
|
|
421
|
|
|
|
1,419
|
|
|
|
916
|
|
|
|
3,804
|
|
|
|
62
|
|
Third
|
|
|
970
|
|
|
|
462
|
|
|
|
1,444
|
|
|
|
846
|
|
|
|
3,722
|
|
|
|
42
|
|
Fourth
|
|
|
523
|
|
|
|
282
|
|
|
|
919
|
|
|
|
402
|
|
|
|
2,126
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
1,115
|
|
|
|
752
|
|
|
|
1,343
|
|
|
|
1,633
|
|
|
|
4,843
|
|
|
|
182
|
|
Second
|
|
|
1,489
|
|
|
|
978
|
|
|
|
1,444
|
|
|
|
2,322
|
|
|
|
6,233
|
|
|
|
239
|
|
Third
|
|
|
1,119
|
|
|
|
835
|
|
|
|
1,205
|
|
|
|
1,615
|
|
|
|
4,774
|
|
|
|
233
|
|
Fourth (a)
|
|
|
581
|
|
|
|
348
|
|
|
|
717
|
|
|
|
623
|
|
|
|
2,269
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
West Coast
|
|
Southwest
|
|
Central
|
|
Southeast
|
|
Total
|
|
Joint Ventures
|
Ending backlog value, in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
214,997
|
|
|
$
|
57,169
|
|
|
$
|
153,538
|
|
|
$
|
134,135
|
|
|
$
|
559,839
|
|
|
$
|
30,180
|
|
Second (a)
|
|
|
334,600
|
|
|
|
72,429
|
|
|
|
228,723
|
|
|
|
161,104
|
|
|
|
796,856
|
|
|
|
24,118
|
|
Third
|
|
|
293,329
|
|
|
|
75,439
|
|
|
|
218,430
|
|
|
|
146,896
|
|
|
|
734,094
|
|
|
|
15,456
|
|
Fourth
|
|
|
174,445
|
|
|
|
46,135
|
|
|
|
137,271
|
|
|
|
64,645
|
|
|
|
422,496
|
|
|
|
15,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
438,505
|
|
|
$
|
179,114
|
|
|
$
|
236,725
|
|
|
$
|
376,872
|
|
|
$
|
1,231,216
|
|
|
$
|
77,196
|
|
Second
|
|
|
516,073
|
|
|
|
222,279
|
|
|
|
260,404
|
|
|
|
467,141
|
|
|
|
1,465,897
|
|
|
|
101,748
|
|
Third
|
|
|
391,525
|
|
|
|
190,279
|
|
|
|
230,154
|
|
|
|
321,321
|
|
|
|
1,133,279
|
|
|
|
136,918
|
|
Fourth (a)
|
|
|
211,713
|
|
|
|
74,488
|
|
|
|
120,954
|
|
|
|
114,231
|
|
|
|
521,386
|
|
|
|
33,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ending backlog amounts have been adjusted to reflect the
consolidation of previously unconsolidated joint ventures during
the second quarter of 2009 and the fourth quarter of 2008. |
Land and
Raw Materials
We currently own or control enough land to meet our forecasted
production goals for approximately the next three to four years.
As discussed above, we have recently sold some of our land and
abandoned options to purchase land in order to balance our
holdings with current and forecasted market conditions and we
may sell additional land or land interests in 2010. In 2009, our
land sales generated $58.3 million of revenues and
$47.9 million of losses, including $10.5 million of
impairments. In 2008, our land sales generated
$82.9 million of revenues and $82.8 million of losses,
including $86.2 million of impairments. Our land option
contract abandonments resulted in pretax, noncash charges of
$47.3 million in 2009 and $40.9 million in 2008.
The principal raw materials used in the construction of our
homes are concrete and forest products. In addition, we use a
variety of other construction materials in the homebuilding
process, including sheetrock and plumbing and electrical items.
We attempt to enhance the efficiency of our operations by using
pre-made,
standardized materials that are commercially available on
competitive terms from a variety of sources. In addition, our
centralized or regionalized purchasing of certain building
materials, appliances and fixtures allows us to benefit from
large quantity purchase discounts and, in some cases,
manufacturer or supplier rebates. When possible, we arrange for
bulk purchases of these products at favorable prices from
manufacturers and suppliers.
Customer
Financing
Our homebuyers may obtain mortgage financing from any qualified
lender. KB Home Mortgage representatives on site at our
communities offer to arrange mortgage financing for prospective
homebuyers through the joint venture. We believe that the
ability of KB Home Mortgage to offer customers an extensive
variety of financing options on competitive terms as a part of
the on-site sales process helps to complete sales. KB Home
Mortgage originated loans for 84% of our customers who obtained
mortgage financing in 2009 and 80% in 2008.
Discontinued
Operations
In July 2007, we sold our 49% interest in our publicly traded
French subsidiary, Kaufman and Broad, S.A. (KBSA).
The disposition of the French operations enabled us to invest
additional resources in our domestic homebuilding
operations and we have since operated exclusively in the United
States. The sale generated total gross proceeds of
$807.2 million and a pretax gain of $706.7 million
($438.1 million net of income taxes). As a result of the
sale, the French operations are presented as discontinued
operations in our consolidated financial statements in 2007.
Employees
We employ 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 our communities from their conception
through the marketing and delivery of completed homes.
At December 31, 2009, we had approximately
1,400 full-time employees, compared to approximately 1,600
at December 31, 2008. None of our employees are represented
by a collective bargaining agreement.
10
Competition
and Other Factors
We believe our KBnxt operational business model, particularly
the aspects that involve gaining a deeper understanding of
customer interests and needs and offering a wide range of
choices to homebuyers, provides us with long-term competitive
advantages. The housing industry is highly competitive, and we
compete with numerous homebuilders ranging from regional and
national firms to small local builders primarily on the basis of
price, location, financing, design, reputation, quality and
amenities. In addition, we compete with housing alternatives
other than new homes, including resale homes, foreclosed and
short sale homes, and rental housing. In certain markets and at
times when housing demand is high, we also compete with other
builders to hire subcontractors.
During 2009, operating conditions in most U.S. housing
markets remained difficult, reflecting the impact of the housing
market downturn that began in 2006 and the weak economy as
discussed above under the heading Strategy. We
believe the heightened competition for homebuyers stemming from
these conditions will continue in 2010, if not intensify.
Financing
We do not generally finance the development of our communities
with project financing. By project financing, we
mean proceeds of loans specifically obtained for, or secured by,
particular communities. Instead, our operations have
historically been funded by results of operations, public debt
and equity financing, and borrowings under our unsecured
revolving credit facility with various banks (the Credit
Facility). In 2009, however, we did not borrow any funds
under the Credit Facility and we do not anticipate doing so in
2010.
Environmental
Matters
As part of our due diligence process for all land acquisitions,
we often use third-party environmental consultants to
investigate potential environmental risks and we require
disclosures and representations and warranties from land sellers
of environmental risks. Despite these precautions, there can be
no assurance that we will avoid material liabilities relating to
the existence or removal of toxic wastes, site restoration,
monitoring or other environmental matters affecting properties
currently or previously owned by us. No estimate of any
potential liabilities can be made although we may, from time to
time, purchase property that requires us to incur environmental
clean-up costs after appropriate due diligence, including, but
not limited to, using detailed investigations performed by
environmental consultants. In such instances, we take steps
prior to acquisition to gain reasonable assurance as to the
precise scope of work required and the costs associated with
removal, site restoration and/or monitoring. To the extent
contamination or other environmental issues have occurred in the
past, we will attempt to recover restoration costs from third
parties, such as the generators of hazardous waste, land sellers
or others in the prior chain of title and/or their insurers.
Based on these practices, we anticipate that it is unlikely that
environmental clean-up costs will have a material effect on our
future consolidated financial position or results of operations.
We have not been notified by any governmental agency of any
claim that any of the properties owned or formerly owned by us
are identified by the U.S. Environmental Protection Agency
(EPA) as being a Superfund clean-up site
requiring remediation, which could have a material effect on our
future consolidated financial position or results of operations.
Costs associated with the use of environmental consultants are
not material to our consolidated financial position or results
of operations.
Access to
Our Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (SEC). We make our public SEC filings
available, at no cost, through our website
http://kbhome.com,
as soon as reasonably practicable after the report is
electronically filed with, or furnished to, the SEC. We will
also provide these reports in electronic or paper format free of
charge upon request made to our investor relations department at
investorrelations@kbhome.com or at our principal executive
offices. Our SEC filings are also available to the public over
the Internet at the SECs website at http://sec.gov. The
public may also read and copy any document we file at the
SECs public reference room located at 100 F Street N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room.
11
Item 1A. RISK
FACTORS
The following important factors could adversely impact our
business. These factors could cause our actual results to differ
materially from the forward-looking and other statements (i) we
make in registration statements, periodic reports and other
filings with the SEC and from time to time in our news releases,
annual reports and other written reports or communications, and
(ii) made orally from time to time by our personnel and
representatives.
The homebuilding industry is experiencing a prolonged and
severe downturn that may continue for an indefinite period and
adversely affect our business and results of operations compared
to prior periods.
In recent years, many of our served markets and the U.S.
homebuilding industry as a whole have experienced a significant
and sustained decrease in demand for new homes and an oversupply
of new and existing homes available for sale, conditions that
generally began in 2006. In many markets, a rapid increase in
new and existing home prices in the years leading up to and
including 2006 reduced housing affordability relative to
consumer incomes and tempered buyer demand. At the same time,
investors and speculators reduced their purchasing activity and
instead stepped up their efforts to sell residential property
they had earlier acquired. These trends, which have been more
pronounced in markets that had experienced the greatest levels
of price appreciation, have resulted in overall fewer home
sales, greater cancellations of home purchase agreements by
buyers, higher inventories of unsold homes and the increased use
by homebuilders, speculators, investors and others of discounts,
incentives, price concessions and other marketing efforts to
close home sales since 2006, compared to the several years
leading up to and including 2006. These negative supply and
demand trends have been exacerbated since 2008 by increasing
sales of lender-owned homes, a severe downturn in general
economic conditions, rising unemployment, turmoil in credit and
consumer lending markets and tighter lending standards.
Reflecting the impact of this difficult environment, we, like
many other homebuilders, have experienced to varying degrees
since the housing market downturn began, declines in net orders,
decreases in the average selling price of new homes we have sold
and delivered and reduced margins relative to prior years, and
we have generated operating losses. Though we have seen some
improvement in net orders and margins in 2009, we can provide no
assurances that the homebuilding market or our business will
improve substantially in the near future. If economic conditions
and employment remain weak and mortgage foreclosures,
delinquencies and short sales continue rising in 2010, there
would likely be a corresponding adverse effect on our business
and our results of operations, including, but not limited to,
the number of homes delivered and the amount of revenues we
generate.
Further tightening of mortgage lending or mortgage
financing requirements or further turmoil in credit and mortgage
lending markets could adversely affect the availability of
credit for some potential purchasers of our homes and thereby
reduce our sales.
In recent years, the mortgage lending and mortgage finance
industries have experienced significant instability due to,
among other things, delinquencies, defaults and foreclosures on
home loans and a resulting decline in their market value,
particularly subprime and adjustable-rate loans. A number of
providers, purchasers and insurers of mortgage loans have gone
out of business or exited the market. In light of these
developments, lenders, investors, regulators and others have
questioned the adequacy of lending standards and other credit
requirements for several loan programs made available to
borrowers in recent years. This has led to reduced investor
demand for mortgage loans and mortgage-backed securities,
tightened credit requirements, reduced liquidity, increased
credit risk premiums and regulatory actions, including greater
government purchases or insurance of mortgage loans and
mortgage-backed securities. Deterioration in credit quality
among subprime, adjustable-rate and other nonconforming loans
has caused most lenders to stop offering such loan products.
Fewer loan products and providers and tighter loan
qualifications, in turn, make it more difficult for some
categories of borrowers to finance the purchase of our homes or
the purchase of existing homes from potential
move-up
buyers who wish to purchase one of our homes. In general, these
developments have resulted in reduced demand for our homes and
slowed any general improvement in the housing market.
Furthermore, they have resulted in reduced demand for mortgage
loans originated through our KB Home Mortgage joint venture and
a corresponding decline in origination-related fee income. These
reductions in demand have had a materially adverse effect on our
business and results of operations in 2009 that is expected to
continue in 2010.
Many of our homebuyers obtain financing for their home purchases
from KB Home Mortgage. Our partner, a Bank of America, N.A.
subsidiary, provides the loan products that the joint venture
offers to our homebuyers. If our partner refuses or is unable to
make loan products available to the joint venture to provide to
our homebuyers, our home sales and results of operations may be
adversely affected.
12
Our
strategies in responding to the adverse conditions in the
homebuilding industry have had limited success, and the
continued implementation of these and other strategies may not
be successful.
While we have been successful in generating positive operating
cash flow and reducing our inventories in recent years, we have
done so at significantly reduced gross profit levels and have
incurred significant asset impairment charges compared to prior
periods. Moreover, many of our strategic initiatives to generate
cash and reduce our inventories have involved lowering overhead
through workforce reductions, for which we incurred significant
costs, and reducing our active community counts through
strategic wind downs or market exits, curbs in development and
sales of land interests. These strategic steps have resulted in
our generating to varying degrees fewer net orders, homes
delivered and revenues compared to prior periods, and have
contributed to the net losses we have recognized in recent
years. Though we have seen some improvement in our net orders
for 2009, there can be no assurance that positive net order
trends will continue and, notwithstanding our sales strategies,
we have experienced volatility in cancellations of home purchase
contracts in recent years. We believe that the volatile
cancellation rates have largely reflected weak homebuyer
confidence based on sustained home price declines, increased
offerings of sales incentives in the marketplace for both new
and existing homes and generally poor economic and employment
conditions, all of which have prompted homebuyers to forgo or
delay home purchases. The more restrictive mortgage lending
environment and the inability of some buyers to sell their
existing homes have also led to lower demand for new homes and
cancellations. Many of these factors affecting new orders and
cancellation rates are beyond our control. It is uncertain how
long and to what degree these factors, and the reduced sales
levels and volatility in cancellations we have experienced, will
continue. To the extent that they do, we expect that they will
have a negative effect on our business and our results of
operations.
Our
business is cyclical and is significantly affected by changes in
general and local economic conditions.
Our business can be substantially affected by adverse changes in
general economic or business conditions that are outside of our
control, including changes in:
|
|
|
|
|
short- and long-term interest rates;
|
|
|
|
the availability of financing for homebuyers;
|
|
|
|
consumer confidence generally and the confidence of potential
homebuyers in particular;
|
|
|
|
U.S. and global financial system and credit market stability;
|
|
|
|
private and federal mortgage financing programs and federal and
state regulation of lending and appraisal practices;
|
|
|
|
federal and state income tax provisions, including provisions
for the deduction of mortgage interest payments;
|
|
|
|
housing demand from population growth and demographic changes,
among other factors;
|
|
|
|
the supply of available new or existing homes (including
lender-owned homes acquired through foreclosures and short
sales) and other housing alternatives, such as apartments and
other residential rental property;
|
|
|
|
employment levels and job and personal income growth; and
|
|
|
|
real estate taxes.
|
Adverse changes in these conditions may affect our business
nationally or may be more prevalent or concentrated in
particular regions or localities in which we operate. In recent
years, unfavorable changes in many of these factors negatively
affected all of our served markets, and we expect the widespread
nature of the downturn in the housing market to continue into
2010. A continued downturn in the economy and employment levels
would likely worsen the unfavorable trends the housing market
has experienced since 2006.
Weather conditions and natural disasters, such as earthquakes,
hurricanes, tornadoes, floods, droughts, fires and other
environmental conditions, can also impair our homebuilding
business on a local or regional basis. Civil unrest or acts of
terrorism can also have a negative effect on our business.
Fluctuating lumber prices and shortages, as well as shortages or
price fluctuations in other building materials or commodities,
can have an adverse effect on our business. Similarly, labor
shortages or disruptions among key trades, such as carpenters,
roofers, electricians and plumbers, can delay the delivery of
our homes and increase our costs.
The potential difficulties described above can cause demand and
prices for our homes to diminish or cause us to take longer and
incur more costs to build our homes. We may not be able to
recover these increased costs by raising prices
13
because of market conditions and because the price of each home
we sell is usually set several months before the home is
delivered, as our customers typically sign their home purchase
contracts before construction begins. The potential difficulties
described above could cause some homebuyers to cancel or refuse
to honor their home purchase contracts altogether. In fact,
reflecting the difficult conditions in our served markets, we
have experienced volatile home purchase contract cancellation
rates in recent years and we may experience similar volatility
in 2010.
Supply
shortages and other risks related to demand for building
materials
and/or
skilled labor could increase costs and delay
deliveries.
There is a high level of competition in the homebuilding
industry for skilled labor and building materials. Increased
costs or shortages in building materials or skilled labor could
cause increases in construction costs and construction delays.
We generally are unable to pass on increases in construction
costs to customers who have already entered into home purchase
contracts, as the purchase contracts generally fix the price of
the home at the time the contract is signed, and may be signed
well in advance of when construction commences. Further, we may
not be able to pass on increases in construction costs because
of market conditions. Sustained increases in construction costs
due, among other things, to pricing competition for materials
and skilled labor may, over time, decrease our margins.
Inflation
may adversely affect us by increasing costs that we may not be
able to recover, particularly if sales prices
decrease.
Inflation can have an adverse impact on our consolidated results
of operations because increasing costs for land, materials and
skilled labor may call for us to increase home sales prices to
maintain satisfactory margins. However, if the current
challenging and highly competitive conditions in the housing
market persist, we may need to decrease our selling prices in an
attempt to stimulate sales. Our lowering of selling prices, in
addition to impacting our margins, may also reduce the value of
our land inventory and make it more difficult for us to recover
the full cost of previously purchased land with selling prices
or, if we choose, in disposing of land assets. In addition,
depressed land values may cause us to forfeit deposits on land
option contracts if we cannot satisfactorily renegotiate the
purchase price of the optioned land. We may incur noncash
charges for inventory impairments if the value of our owned
inventory is reduced or for land option contract abandonments if
we choose not to exercise land option contracts.
Reduced
home sales may impair our ability to recoup development costs or
force us to absorb additional costs.
We incur many costs even before we begin to build homes in a
community. Depending on the stage of development, these include
costs of preparing land, finishing and entitling lots, and
installing roads, sewage and other utilities, as well as taxes
and other costs related to ownership of the land on which we
plan to build homes. If the rate at which we sell and deliver
homes slows or falls, which has occurred throughout the present
housing market downturn, we may incur additional costs and it
will take a longer period of time for us to recover our costs.
Also, we frequently acquire options to purchase land and make
deposits that may be forfeited if we do not exercise the options
within specified periods. Because of current market conditions,
we have strategically terminated some of these options,
resulting in the forfeiture of deposits and unrecoverable due
diligence and development costs.
The value of the land and housing inventory we own or
control may fall significantly and our profits may
decrease.
The value of the land and housing inventory we currently own or
control depends on market conditions, including estimates of
future demand for, and the revenues that can be generated from,
such inventory. The market value of our land inventory can vary
considerably because there is often a significant amount of time
between our initial acquisition or optioning of land and the
delivery of homes on that land. The downturn in the housing
market, which has significantly depressed home sales and selling
prices, has caused the fair value of certain of our owned or
controlled inventory to fall, in some cases well below the
estimated fair value at the time we acquired it. Because of our
assessments of fair value, we have been required to write down
the carrying value of certain of our inventory, including
inventory that we have previously written down, and take
corresponding noncash charges against our earnings to reflect
the impaired value. We have also abandoned our interests in
certain land inventory that no longer meets our internal
investment standards, which also required us to take noncash
charges. If the current downturn in the housing market
continues, we may need to take additional charges against our
earnings for inventory impairments or land option contract
abandonments, or both. Any such noncash charges would have an
adverse effect on our consolidated results of operations.
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Some homebuyers may cancel their home purchases because
the required deposits are small and generally refundable.
Our backlog information reflects the number of homes for which
we have entered into a purchase contract with a customer, but
not yet delivered the home. Our home purchase contracts
typically require only a small deposit, and in many states, the
deposit is fully refundable at any time prior to closing. If the
prices for new homes decline, competitors increase their use of
sales incentives, interest rates increase, the availability of
mortgage financing diminishes or there is continued weakness or
a further downturn in local or regional economies or the
national economy, homebuyers may terminate their existing home
purchase contracts with us in order to negotiate for a lower
price, explore other options or because they cannot, or become
reluctant to, complete the purchase. In recent years, we have
experienced elevated and volatile cancellation rates, in part
because of these reasons. Elevated and volatile cancellation
rates due to these conditions, or otherwise, could have an
adverse effect on our business and our results of operations.
Our long-term success depends on the availability of
improved lots and undeveloped land that meet our land investment
criteria.
The availability of finished and partially developed lots, and
undeveloped land for purchase that meet our internal investment
standards depends on a number of factors outside of our control,
including land availability in general, competition with other
homebuilders and land buyers for desirable property, inflation
in land prices, zoning, allowable housing density and other
regulatory requirements. Should suitable lots or land become
less available, the number of homes we may be able to build and
sell could be reduced, and the cost of attractive land could
increase, perhaps substantially, which could adversely impact
our results of operations including, but not limited to, our
margins, and our ability to maintain ownership or control of a
three-to-four year supply of developable land inventory.
Home
prices and sales activity in the particular markets and regions
in which we do business affect our results of operations because
our business is concentrated in these markets.
Home prices and sales activity in some of our key served markets
have declined from time to time for market-specific reasons,
including adverse weather, lack of affordability or economic
contraction due to, among other things, the failure or decline
of key industries and employers. If home prices or sales
activity decline in one or more of our key served markets,
particularly in Arizona, California, Florida, Nevada or Texas,
our costs may not decline at all or at the same rate and, as a
result, our overall results of operations may be adversely
affected.
Interest
rate increases or changes in federal lending programs or
regulation could lower demand for our homes.
Nearly all of our customers finance the purchase of their homes.
Prior to 2006, historically low interest rates and the increased
availability of specialized mortgage products, including
mortgage products requiring no or low down payments, and
interest-only and adjustable-rate mortgages, made homebuying
more affordable for a number of customers and more available to
customers with lower credit scores. Increases in interest rates
or decreases in the availability of mortgage financing or of
certain mortgage programs, as discussed above, may lead to fewer
mortgage loans being provided, higher down payment requirements
or monthly mortgage costs, or a combination of the foregoing,
and, as a result, reduce demand for our homes.
Increased interest rates can also hinder our ability to realize
our backlog because our home purchase contracts provide our
customers with a financing contingency. Financing contingencies
allow customers to cancel their home purchase contracts in the
event they cannot arrange for adequate financing.
As a result of the turbulence in the credit markets and mortgage
finance industry in 2008, the federal government has taken on a
significant role in supporting mortgage lending through its
conservatorship of the Federal National Mortgage Association
(also known as Fannie Mae) and the Federal Home Loan Mortgage
Corporation (also known as Freddie Mac), both of which purchase
home mortgages and mortgage-backed securities originated by
mortgage lenders, and its insurance of mortgages originated by
lenders through the Federal Housing Administration
(FHA) and the Veterans Administration
(VA). FHA-backing of mortgages has recently been
particularly important to the mortgage finance industry and to
our business. In 2009, 63% of our homebuyers that chose to
finance with KB Home Mortgage purchased a home using a
FHA-backed loan. In addition, the Federal Reserve has purchased
a sizeable amount of mortgage-backed securities in part to
stabilize mortgage interest rates and to support the market for
mortgage-backed securities. The availability and affordability
of mortgage loans, including the consumer interest rates for
such loans, could be adversely affected by a curtailment or
ceasing of the federal governments mortgage-related
programs or policies. The Federal Reserve, for example, has
announced that it expects to end its purchases of
mortgage-backed securities in early
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2010. The FHA recently reported that its cash reserves have
fallen below legal requirements due primarily to defaults on
mortgages it has insured and, as a result, it has and may
continue to impose stricter loan qualification standards, raise
minimum down payment requirements, impose higher mortgage
insurance premiums and other costs
and/or limit
the number of mortgages it insures. Due to growing federal
budget deficits, the U.S. Treasury may not be able to
continue supporting the mortgage-related activities of Fannie
Mae, Freddie Mac, the FHA and the VA at present levels.
Because the availability of Fannie Mae, Freddie Mac, FHA- and
VA-backed mortgage financing is an important factor in marketing
and selling many of our homes, any limitations or restrictions
in the availability of such government-backed financing could
reduce our home sales and adversely affect our results of
operations, including the income we earn from KB Home Mortgage.
Tax
law changes could make home ownership more expensive or less
attractive.
Significant expenses of owning a home, including mortgage
interest expense and real estate taxes, generally are deductible
expenses for the purpose of calculating an individuals
federal, and in some cases state, taxable income, subject to
various limitations, under current tax law and policy. If the
federal government or a state government changes income tax
laws, as some policy makers have discussed, by eliminating or
substantially reducing these income tax benefits, the after-tax
cost of owning a new home would increase substantially. This
could adversely impact demand for and/or sales prices of new
homes.
Moreover, in 2009, our home sales increased in part because of
federal and state tax credits made available to certain
qualifying homebuyers. These tax credits are expected to be
eliminated or curtailed in 2010,which could adversely affect our
net orders, cancellation rates and results of operations in 2010.
We are subject to substantial legal and regulatory
requirements regarding the development of land, the homebuilding
process and protection of the environment, which can cause us to
suffer delays and incur costs associated with compliance and
which can prohibit or restrict homebuilding activity in some
regions or areas.
Our homebuilding business is heavily regulated and subject to an
increasing amount of local, state and federal regulation
concerning zoning, resource protection and other environmental
impacts, building design, construction and similar matters.
These regulations often provide broad discretion to governmental
authorities that oversee these matters, which can result in
unanticipated delays or increases in the cost of a specified
project or a number of projects in particular markets. We may
also experience periodic delays in homebuilding projects due to
building moratoria and permitting requirements in any of the
areas in which we operate.
We are also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning the
environment, and in 2008 we entered into a consent decree with
the EPA and certain states concerning our storm water pollution
prevention practices. These laws and regulations, the enactment
or implementation of new environmental laws or regulations, and
the consent decree may cause delays in our construction and
delivery of new homes, may cause us to incur substantial
compliance and other costs, and can prohibit or severely
restrict homebuilding activity in certain regions or areas.
In addition, environmental laws may impose liability for the
costs of removal or remediation of hazardous or toxic substances
whether or not the developer or owner of the property knew of,
or was responsible for, the presence of those substances. The
presence of those substances on our properties may prevent us
from selling our homes and we may also be liable, under
applicable laws and regulations or lawsuits brought by private
parties, for hazardous or toxic substances on properties and
lots that we have sold in the past.
Further, a significant portion of our business is conducted in
California, one of the most highly regulated and litigious
states in the country. Therefore, our potential exposure to
losses and expenses due to new laws, regulations or litigation
may be greater than other homebuilders with a less significant
California presence.
The mortgage banking operations of KB Home Mortgage are heavily
regulated and subject to the rules and regulations promulgated
by a number of governmental and quasi-governmental agencies.
There are a number of federal and state statutes and regulations
which, among other things, prohibit discrimination, impose
various disclosure obligations, establish underwriting
guidelines that include obtaining inspections and appraisals,
require credit reports on prospective borrowers and fix maximum
loan amounts. A finding that KB Home Mortgage materially
violated any of the foregoing laws could have an adverse effect
on our results of operations to the extent it impacts the income
we earn from our equity interest in the joint venture.
We are subject to a consent order that we entered into with the
Federal Trade Commission in 1979 and related consent decrees
that were entered into in 1991 and 2005. Pursuant to the consent
order and the related consent decrees,
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we provide explicit warranties on the quality of our homes,
follow certain guidelines in advertising and provide certain
disclosures to prospective purchasers of our homes. A finding
that we have significantly violated the consent order and/or the
related consent decrees could result in substantial liabilities
or penalties and could limit our ability to sell homes in
certain markets.
Homebuilding and financial services are very competitive,
and competitive conditions could adversely affect our business
or our financial results.
The homebuilding industry is highly competitive. Homebuilders
compete not only for homebuyers, but also for desirable land,
financing, building materials, skilled management and trade
labor. We compete in each of our served markets with other
local, regional and national homebuilders, often within larger
subdivisions containing portions designed, planned and developed
by such homebuilders. These homebuilders may also have
long-standing relationships with local labor, materials
suppliers or land sellers, which may provide an advantage in
their respective regions or local markets. We also compete with
other housing alternatives, such as existing home sales
(including
lender-owned
homes acquired through foreclosure or short sales) and rental
housing. The competitive conditions in the homebuilding industry
can result in:
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our delivering fewer homes;
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our selling homes at lower prices;
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our offering or increasing sales incentives, discounts or price
concessions;
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our experiencing lower profit margins;
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declining new home sales or increasing cancellations by
homebuyers of their home purchase contracts with us;
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impairments in the value of our land inventory and other assets;
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difficulty in acquiring desirable land that meets our investment
return criteria, and in selling our interests in land that no
longer meet such criteria on favorable terms;
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difficulty in our acquiring raw materials and skilled management
and labor at acceptable prices; or
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delays in construction of our homes.
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These competitive conditions may adversely affect our business
and financial results by decreasing our revenues, increasing our
costs and/or diminishing growth in our local or regional
homebuilding business. In the current downturn in the
homebuilding industry, actions taken by our new home and housing
alternative competitors are reducing the effectiveness of our
efforts to achieve pricing stability, generate home sales, and
reduce our inventory levels.
Homebuilding
is subject to warranty and liability claims in the ordinary
course of business that can be significant.
In the ordinary course of our homebuilding business, we are
subject to home warranty and construction defect claims. We
record warranty and other liabilities for the homes we sell
based on historical experience in our served markets and our
judgment of the risks associated with the types of homes we
build. We have, and require the majority of our subcontractors
to have, general liability, property, errors and omissions,
workers compensation and other business insurance. These
insurance policies protect us against a portion of our risk of
loss from claims, subject to certain self-insured retentions,
deductibles and other coverage limits. Through our captive
insurance subsidiary, we record expenses and liabilities for
estimated costs required to cover our self-insured retention and
deductible amounts under these policies, and for any costs of
claims and lawsuits, based on an analysis of our historical
claims, which includes an estimate of claims incurred but not
yet reported. Because of the uncertainties inherent to these
matters, we cannot provide assurance that our insurance
coverage, our subcontractor arrangements and our liabilities
will be adequate to address all our warranty and construction
defect claims in the future, or that any potential inadequacies
will not have an adverse affect on our results of operations.
Additionally, the coverage offered by and the availability of
general liability insurance for construction defects are
currently limited and costly. There can be no assurance that
coverage will not be further restricted, increasing our risks,
and become more costly.
In 2009, we incurred additional warranty-related charges
associated with the repair of approximately 230 homes primarily
delivered in 2006 and 2007 and located in Florida and Louisiana
that were identified as containing or suspected of containing
allegedly defective drywall manufactured in China. We are
continuing to review whether there are additional homes
delivered in Florida, Louisiana or other locations that contain
or may contain this drywall material. Based on the results of
our review, we have not identified any homes outside of Florida
and Louisiana that contain this drywall material. Depending on
the outcome of our review and our actual claims experience, we
may incur additional
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warranty-related costs and further increase our warranty
liability in future periods. In addition, we have been named as
a defendant in one lawsuit relating to this drywall material,
and we may in the future be subject to other similar litigation
or claims that could cause us to incur significant costs.
Because
of the seasonal nature of our business, our quarterly operating
results fluctuate.
We have experienced seasonal fluctuations in our quarterly
operating results. We typically do not commence significant
construction on a home before a home purchase contract has been
signed with a homebuyer. Historically, a significant percentage
of our home purchase contracts are entered into in the spring
and summer months, and a corresponding significant percentage of
our homes delivered occur in the fall and winter months.
Construction of our homes typically requires approximately four
months and weather delays that often occur in late winter and
early spring may extend this period. As a result of these
combined factors, we historically have experienced uneven
quarterly results, with lower revenues and operating income
generally during the first and second quarters of the year.
During the present housing market downturn, however, we have
experienced lower sales in the spring and summer months and
correspondingly fewer homes delivered in the fall and winter
months as compared to earlier periods. With the current
difficult market conditions expected to continue into 2010, we
can make no assurances that our normal seasonal patterns will
occur in the near future.
Failure
to comply with the covenants and conditions imposed by the
agreements governing our indebtedness could restrict future
borrowing or cause our debt to become immediately due and
payable.
The Credit Facility and, to a lesser degree, the indenture
governing our outstanding senior notes impose restrictions on
our operations and activities. The restrictions in the Credit
Facility primarily relate to cash dividends, stock repurchases,
incurrence of indebtedness, creation of liens and asset
dispositions, defaults with respect to other debt obligations
and require maintenance of a maximum debt to equity (or
leverage) ratio, a minimum interest coverage ratio, and a
minimum level of tangible net worth. The indenture governing our
senior notes does not contain any financial maintenance
covenants, but does contain certain restrictive covenants that,
among other things, limit our ability to incur secured
indebtedness; engage in sale-leaseback transactions involving
property or assets above a specified value; or engage in
mergers, consolidations or sales of assets. If we fail to comply
with these restrictions or covenants, the holders of those debt
instruments or the banks, as applicable, could cause our debt to
become due and payable prior to maturity or could demand that we
compensate them for waiving instances of noncompliance. In
addition, a default under any series of our senior notes or the
Credit Facility could cause a default with respect to our other
notes or the Credit Facility, as the case may be, and result in
the acceleration of the maturity of all such defaulted
indebtedness and our inability to borrow under the Credit
Facility. Moreover, we may curtail our investment activities and
other uses of cash to maintain compliance with these
restrictions and covenants.
We
participate in certain unconsolidated joint ventures where we
may be adversely impacted by the failure of the unconsolidated
joint venture or the other partners in the unconsolidated joint
venture to fulfill their obligations.
We have investments in and commitments to certain unconsolidated
joint ventures with unrelated strategic partners to acquire and
develop land and, in some cases, build and deliver homes. To
finance these activities, our unconsolidated joint ventures
often obtain loans from third-party lenders that are secured by
the unconsolidated joint ventures assets. In certain
instances, we and the other partners in an unconsolidated joint
venture provide guarantees and indemnities to lenders with
respect to the unconsolidated joint ventures debt, which
may be triggered under certain conditions when the
unconsolidated joint venture fails to fulfill its obligations
under its loan agreements. Because we do not have a controlling
interest in these unconsolidated joint ventures, we depend
heavily on the other partners in each unconsolidated joint
venture to both (i) cooperate and make mutually acceptable
decisions regarding the conduct of the business and affairs of
the unconsolidated joint venture and (ii) ensure that they,
and the unconsolidated joint venture, fulfill their respective
obligations to us and to third parties. If the other partners in
our unconsolidated joint ventures do not provide such
cooperation or fulfill these obligations due to their financial
condition, strategic business interests (which may be contrary
to ours), or otherwise, we may be required to spend additional
resources (including payments under the guarantees we have
provided to the unconsolidated joint ventures lenders) and
suffer losses, each of which could be significant. Moreover, our
ability to recoup such expenditures and losses by exercising
remedies against such partners may be limited due to potential
legal defenses they may have, their respective financial
condition and other circumstances.
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The
downturn in the housing market and the continuation of the
disruptions in the credit markets could limit our ability to
access capital and increase our costs of capital or stockholder
dilution.
We have historically funded our homebuilding and financial
services operations with internally generated cash flows and
external sources of debt and equity financing. However, during
this downturn in the housing market, we have relied primarily on
the positive operating cash flow we have generated to meet our
working capital needs and repay outstanding indebtedness. While
we generated positive operating cash flow in 2009, principally
through the receipt of federal income tax refunds and from home
and land sales, the persistent weakness in the housing markets
and the disruption in the credit markets since 2008 have reduced
the availability and increased the costs to us of other sources
of liquidity.
Market conditions may significantly limit our ability to replace
or refinance indebtedness, particularly due to the lowering of
our senior debt ratings in 2009 by three rating agencies.
Pricing in the public debt markets has increased substantially,
and the terms of future issuances of indebtedness by us may be
more restrictive than the terms governing our current
indebtedness. Moreover, due to the deterioration in the credit
markets and the uncertainties that exist in the general economy
and for homebuilders in particular, we cannot be certain that we
would be able to replace existing financing or secure additional
sources of financing, if necessary, on terms satisfactory to us
or at all. In addition, the significant decline in our stock
price since 2006, the ongoing volatility in the stock markets
and the reduction in our stockholders equity relative to
our debt could also impede our access to the equity markets or
increase the amount of dilution our stockholders would
experience should we seek or need to raise capital through
issuance of equity.
While we believe we can meet our forecasted capital requirements
from our cash resources, expected future cash flow and the
sources of financing that we anticipate will be available to us,
we can provide no assurance that we will be able to do so,
particularly if current difficult housing or credit market or
economic conditions continue or deteriorate further. The effects
on our business, liquidity and financial results of these
conditions could be material and adverse to us.
Our
net operating loss carryforwards could be substantially limited
if we experience an ownership change as defined in the Internal
Revenue Code.
Since the end of our 2007 fiscal year, we have generated
significant net operating losses (NOLs), and we may
generate additional NOLs in 2010. Under federal tax laws, we can
use our NOLs (and certain related tax credits) to reduce our
future taxable income for up to 20 years, after which they
expire for such purposes. Until they expire, we can carry
forward our NOLs (and certain related tax credits) that we do
not use in any particular year to reduce our taxable income in
future years.
The benefits of our NOLs would be reduced or eliminated if we
experience an ownership change, as determined under
Internal Revenue Code Section 382 (Section 382). A
Section 382 ownership change occurs if a stockholder or a
group of stockholders who are deemed to own at least 5% of our
common stock increase their ownership by more than
50 percentage points over their lowest ownership percentage
within a rolling three-year period. If an ownership change
occurs, Section 382 would impose an annual limit on the
amount of NOLs we can use to reduce our taxable income equal to
the product of the total value of our outstanding equity
immediately prior to the ownership change (reduced by certain
items specified in Section 382) and the federal
long-term tax-exempt interest rate in effect for the month of
the ownership change. A number of special rules apply to
calculating this annual limit.
While the complexity of Section 382s provisions and
the limited knowledge any public company has about the ownership
of its publicly-traded stock make it difficult to determine
whether an ownership change has occurred, we currently believe
that an ownership change has not occurred. However, if an
ownership change were to occur, the annual limit
Section 382 may impose could result in a material amount of
our NOLs expiring unused. This would significantly impair the
value of our NOL asset and, as a result, have a negative impact
on our financial position and results of operations.
During 2009, our stockholders approved an amendment to our
restated certificate of incorporation that is designed to block
transfers of our common stock that could result in an ownership
change, and a rights agreement pursuant to which we have issued
certain stock purchase rights with terms designed to deter
transfers of our common stock that could result in an ownership
change. However, these measures cannot guarantee complete
protection against an ownership change and it remains possible
that one may occur.
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A decline in our tangible net worth and the resulting
increase in our leverage ratio may place burdens on our ability
to comply with the terms of our indebtedness, may restrict our
ability to operate and may prevent us from fulfilling our
obligations.
The amount of our debt could have important consequences. For
example, it could:
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limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements or other requirements;
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require us to dedicate a substantial portion of our cash flow
from operations to the payment of our debt and reduce our
ability to use our cash flow for other purposes;
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impact our flexibility in planning for, or reacting to, changes
in our business;
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place us at a competitive disadvantage because we have more debt
than some of our competitors; and
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make us more vulnerable in the event of continued weakness or a
further downturn in our business or in general economic
conditions.
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Our ability to meet our debt service and other obligations will
depend upon our future performance. Our business is
substantially affected by changes in economic cycles. Our
revenues, earnings and cash flows vary with the level of general
economic activity and competition in the markets in which we
operate. Our business could also be affected by financial,
political, regulatory and other factors, many of which are
beyond our control. A higher interest rate on our debt could
adversely affect our operating results.
Our business may not generate sufficient cash flow from
operations and external financing may not be available to us in
an amount sufficient to meet our debt service obligations,
fulfill the financial or operational obligations we may have
under certain unconsolidated joint venture transactions, or to
fund our other liquidity needs. Should we not generate
sufficient cash flow from operations or have external financing
available to us, we may need to refinance all or a portion of
our debt obligations on or before maturity, which we may not be
able to do on favorable terms or at all, or raise capital
through equity issuances that would dilute existing
stockholders interests.
Our ability to obtain external financing could be
adversely affected by a negative change in our credit rating by
a third party rating agency.
Our ability to access external sources of financing on favorable
terms is a key factor in our ability to fund our operations and
to grow our business. As of the date of this report, our credit
rating by both Fitch Ratings and Standard and Poors
Financial Services is BB-, with both maintaining a negative
outlook. On June 22, 2009, Moodys Investor Services
lowered our credit rating to B1 from Ba3 and also maintained a
negative outlook. Further downgrades of our credit rating by any
of these principal credit rating agencies may make it more
difficult and costly for us to access external financing.
We may have difficulty in continuing to obtain the
additional financing required to operate and develop our
business.
Our homebuilding operations require significant amounts of cash
and/or available credit. It is not possible to predict the
future terms or availability of additional capital. Moreover,
our outstanding senior notes and the Credit Facility contain
provisions that may restrict the amount and nature of debt we
may incur in the future. The Credit Facility limits our ability
to borrow additional funds by placing a maximum cap on our
leverage ratio. Under the most restrictive of these provisions,
at November 30, 2009, we would have been permitted to incur
up to $1.42 billion of consolidated total indebtedness, as
defined in the Credit Facility. This maximum amount exceeded our
actual consolidated total indebtedness at November 30, 2009
by $873.5 million. In addition, the Credit Facility limits
our ability to borrow senior indebtedness, as defined in the
Credit Facility, subject to a specified borrowing base. At
November 30, 2009, we would have been permitted to incur up
to $2.13 billion of senior indebtedness under the Credit
Facility. This maximum amount exceeded our actual total senior
indebtedness at November 30, 2009 by $474.7 million.
There can be no assurance that we can actually borrow up to
these maximum amounts of total consolidated indebtedness or
senior indebtedness at any time, as our ability to borrow
additional funds, and to raise additional capital through other
means, also depends on conditions in the capital markets and our
perceived credit worthiness, as discussed above. If conditions
in the capital markets change significantly, it could reduce our
ability to generate sales and may hinder our future growth and
results of operations. Potential federal and state regulations
limiting the investment activities of financial institutions
could also impact our ability to obtain additional financing on
a reasonable basis.
Our results of operations could be adversely affected if
we are unable to obtain performance bonds.
In the course of developing our communities, we are often
required to provide to various municipalities and other
government agencies performance bonds to secure the completion
of our projects. Our ability to obtain such bonds and
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the cost to do so depend on our credit rating, overall market
capitalization, available capital, past operational and
financial performance, management expertise and other factors,
including prevailing surety market conditions and the
underwriting practices and resources of performance bond
issuers. If we are unable to obtain performance bonds when
required or the cost to obtain them increases significantly, we
may be unable or significantly delayed in developing a community
or communities, and, as a result, our consolidated financial
position, results of operations, consolidated cash flows
and/or
liquidity could be adversely affected.
Item 1B. UNRESOLVED
STAFF COMMENTS
None.
Item 2. PROPERTIES
We lease our corporate headquarters in Los Angeles, California.
Our homebuilding division offices (except for our San Antonio,
Texas office) and our KB Home Studios are located in leased
space in the markets where we conduct business. We own the
premises for our San Antonio office.
We believe that such properties, including the equipment located
therein, are suitable and adequate to meet the needs of our
businesses.
Item 3. LEGAL
PROCEEDINGS
ERISA
Litigation
On March 16, 2007, plaintiffs Reba Bagley and Scott Silver
filed an action brought under Section 502 of the Employee
Retirement Income Security Act (ERISA),
29 U.S.C. § 1132, Bagley et al., v. KB
Home, et al., in the United States District Court for the
Central District of California. The action was brought against
us, our directors, certain of our current and former officers,
and the board of directors committee that oversees the KB Home
401(k) Savings Plan (the 401(k) Plan). After the
court allowed leave to file an amended complaint, plaintiffs
filed an amended complaint adding Tolan Beck and Rod Hughes as
additional plaintiffs and dismissing certain individuals as
defendants. All four plaintiffs claim to be former employees of
KB Home who participated in the 401(k) Plan. Plaintiffs allege
on behalf of themselves and on behalf of all others similarly
situated that all defendants breached fiduciary duties owed to
plaintiffs and purported class members under ERISA by failing to
disclose information to and providing misleading information to
participants in the 401(k) Plan about our alleged prior stock
option backdating practices and by failing to remove our stock
as an investment option under the 401(k) Plan. Plaintiffs allege
that this breach of fiduciary duties caused plaintiffs to earn
less on their 401(k) Plan accounts than they would have earned
but for defendants alleged breach of duties.
The parties to the litigation have reached a settlement in
principle, and the court was informed of this development on
December 1, 2009. A scheduled hearing on our motion for
summary judgment was taken off calendar, and we expect the final
settlement to be submitted to the court for approval during the
month of February 2010.
Other
Matters
On October 2, 2009, the staff of the SEC notified us that a
formal order of investigation had been issued regarding possible
accounting and disclosure issues. The staff has stated that its
investigation should not be construed as an indication by the
SEC that there has been any violation of the federal securities
laws. We are cooperating with the staff of the SEC in connection
with the investigation. We cannot predict the outcome of, or the
timeframe for, the conclusion of this matter.
In addition to those described in this report, we are involved
in litigation and government proceedings incidental to our
business. These proceedings are in various procedural stages
and, based on reports of counsel, we believe as of the date of
this report that provisions or accruals made for any potential
losses (to the extent estimable) are adequate and that any
liabilities or costs arising out of these proceedings are not
likely to have a materially adverse effect on our consolidated
financial position or results of operations. The outcome of any
of these proceedings, however, is inherently uncertain, and if
unfavorable outcomes were to occur, there is a possibility that
they would, individually or in the aggregate, have a materially
adverse effect on our consolidated financial position or results
of operations.
Item 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 2009 through the solicitation of proxies
or otherwise.
21
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following table presents certain information regarding our
executive officers as of January 21, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
at
|
|
Other Positions and Other
|
|
|
|
|
|
|
|
|
Present
|
|
KB
|
|
Business Experience within the
|
|
|
Name
|
|
Age
|
|
Present Position
|
|
Position
|
|
Home
|
|
Last Five Years (a)
|
|
From To
|
|
Jeffrey T. Mezger
|
|
|
54
|
|
|
President and Chief
Executive Officer (b)
|
|
|
2006
|
|
|
|
16
|
|
|
Executive Vice President and Chief Operating Officer
|
|
1999-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy C. Shiba
|
|
|
59
|
|
|
Executive Vice President, General Counsel and Secretary
|
|
|
2007
|
|
|
|
2
|
|
|
Senior Vice President, Chief Legal Officer and Secretary,
PolyOne Corporation (a global provider of specialized polymer
materials, services and solutions)
|
|
2006-2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, Chief Legal Officer and Secretary, PolyOne
Corporation
|
|
2001-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen W. Barnard
|
|
|
65
|
|
|
Senior Vice President, KBnxt Group
|
|
|
2006
|
|
|
|
11
|
|
|
Regional General Manager
|
|
2004-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William R. Hollinger
|
|
|
51
|
|
|
Senior Vice President and
|
|
|
2007
|
|
|
|
22
|
|
|
Senior Vice President and Controller
|
|
2001-2006
|
|
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy L. Marlett
|
|
|
46
|
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
15
|
|
|
Senior Vice President of Sales and Marketing
|
|
2005-2008
|
|
|
|
|
|
|
Sales, Marketing and
Communications
|
|
|
|
|
|
|
|
|
|
Senior Vice President of Marketing and Communications
|
|
2002-2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly K. Masuda
|
|
|
42
|
|
|
Senior Vice President and
Treasurer
|
|
|
2005
|
|
|
|
6
|
|
|
Senior Vice President, Capital Markets and Treasurer
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, Capital Markets and Treasurer
|
|
2003-2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas F. Norton
|
|
|
39
|
|
|
Senior Vice President, Human Resources
|
|
|
2009
|
|
|
|
1
|
|
|
Chief Human Resources Officer, BJs Restaurants, Inc. (an
owner and operator of national full service restaurants)
|
|
2006-2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President of Human Resources, American Golf
Corporation (a worldwide golf course management firm)
|
|
2003-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
All positions described were with us, unless otherwise indicated.
|
|
|
(b) |
Mr. Mezger has served as a director since 2006.
|
There is no family relationship between any of our executive
officers or between any of our executive officers and any of our
directors.
22
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
As of December 31, 2009, there were 923 holders of record
of our common stock. Our common stock is traded on the New York
Stock Exchange under the ticker symbol KBH. The
following table presents, for the periods indicated, the price
ranges of our common stock, and cash dividends declared and paid
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2009
|
|
Year Ended November 30, 2008
|
|
|
|
|
|
|
Dividends
|
|
Dividends
|
|
|
|
|
|
Dividends
|
|
Dividends
|
|
|
High
|
|
Low
|
|
Declared
|
|
Paid
|
|
High
|
|
Low
|
|
Declared
|
|
Paid
|
|
First Quarter
|
|
$
|
16.38
|
|
|
$
|
8.70
|
|
|
$
|
.0625
|
|
|
$
|
.0625
|
|
|
$
|
28.99
|
|
|
$
|
15.76
|
|
|
$
|
.25
|
|
|
$
|
.25
|
|
Second Quarter
|
|
|
19.61
|
|
|
|
7.85
|
|
|
|
.0625
|
|
|
|
.0625
|
|
|
|
28.93
|
|
|
|
19.62
|
|
|
|
.50
|
|
|
|
.25
|
|
Third Quarter
|
|
|
19.00
|
|
|
|
11.15
|
|
|
|
.0625
|
|
|
|
.0625
|
|
|
|
21.93
|
|
|
|
13.16
|
|
|
|
|
|
|
|
.25
|
|
Fourth Quarter
|
|
|
20.70
|
|
|
|
13.37
|
|
|
|
.0625
|
|
|
|
.0625
|
|
|
|
25.43
|
|
|
|
6.90
|
|
|
|
.0625
|
|
|
|
.0625
|
|
The declaration and payment of cash dividends on shares of our
common stock, whether at current levels or at all, are at the
discretion of our board of directors, and depend upon, among
other things, our expected future earnings, cash flows, capital
requirements, operational investment strategy, general financial
condition and compliance with covenants contained in our Credit
Facility, as well as general business conditions. In November
2008, our board of directors reduced the quarterly cash dividend
on our common stock to $.0625 per share from $.25 per share.
The description of our equity compensation plans required by
Item 201(d) of Regulation S-K is incorporated herein by
reference to Part III, Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters of this report.
We did not repurchase any of our equity securities during the
fourth quarter of 2009.
23
Stock
Performance Graph
The graph below compares the cumulative total return of KB Home
common stock, the S&P 500 Index, the
S&P Homebuilding Index and the Dow Jones Home
Construction Index for the last five year-end periods ended
November 30.
Comparison
of Five-Year Cumulative Total Return
Among KB Home, S&P 500 Index, S&P Homebuilding
Index and Dow Jones Home Construction Index
The above graph is based on the KB Home common stock and index
prices calculated as of the last trading day before
December 1 of the year-end periods presented. As of
November 30, 2009, the closing price of KB Home common
stock on the New York Stock Exchange was $13.55 per share.
On December 31, 2009, our common stock closed at $13.68 per
share. The performance of our common stock depicted in the
graphs above represents past performance only and is not
indicative of future performance. Total return assumes $100
invested at market close on November 30, 2004 in
KB Home common stock, the S&P 500 Index, the S&P
Homebuilding Index and the Dow Jones Home Construction Index
including reinvestment of dividends.
24
Item 6. SELECTED
FINANCIAL DATA
The data in this table should be read in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial
Statements and the Notes thereto. Both are included later in
this report.
KB
HOME
SELECTED FINANCIAL INFORMATION
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,816,415
|
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
|
$
|
8,123,313
|
|
Operating income (loss)
|
|
|
(236,520
|
)
|
|
|
(860,643
|
)
|
|
|
(1,358,335
|
)
|
|
|
570,316
|
|
|
|
1,188,935
|
|
Total assets
|
|
|
3,402,565
|
|
|
|
3,992,148
|
|
|
|
5,661,564
|
|
|
|
7,825,339
|
|
|
|
6,881,486
|
|
Mortgages and notes payable
|
|
|
1,820,370
|
|
|
|
1,941,537
|
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,435
|
|
|
$
|
10,767
|
|
|
$
|
15,935
|
|
|
$
|
20,240
|
|
|
$
|
31,368
|
|
Operating income
|
|
|
5,184
|
|
|
|
6,278
|
|
|
|
11,139
|
|
|
|
14,317
|
|
|
|
10,968
|
|
Total assets
|
|
|
33,424
|
|
|
|
52,152
|
|
|
|
44,392
|
|
|
|
44,024
|
|
|
|
29,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,394,375
|
|
|
$
|
1,102,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,824,850
|
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
Operating income (loss)
|
|
|
(231,336
|
)
|
|
|
(854,365
|
)
|
|
|
(1,347,196
|
)
|
|
|
584,633
|
|
|
|
1,199,903
|
|
Income (loss) from continuing operations
|
|
|
(101,784
|
)
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
|
|
754,534
|
|
Income from discontinued operations, net of income taxes (a)
|
|
|
|
|
|
|
|
|
|
|
485,356
|
|
|
|
89,404
|
|
|
|
69,178
|
|
Net income (loss)
|
|
|
(101,784
|
)
|
|
|
(976,131
|
)
|
|
|
(929,414
|
)
|
|
|
482,351
|
|
|
|
823,712
|
|
Total assets
|
|
|
3,435,989
|
|
|
|
4,044,300
|
|
|
|
5,705,956
|
|
|
|
9,263,738
|
|
|
|
8,014,317
|
|
Mortgages and notes payable
|
|
|
1,820,370
|
|
|
|
1,941,537
|
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
Stockholders equity
|
|
|
707,224
|
|
|
|
830,605
|
|
|
|
1,850,687
|
|
|
|
2,922,748
|
|
|
|
2,773,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
|
$
|
9.21
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
$
|
10.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
|
$
|
8.54
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
$
|
9.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
.25
|
|
|
$
|
.8125
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Discontinued operations consist only of our French operations,
which have been presented as discontinued operations for all
periods presented. Income from discontinued operations, net of
income taxes, in 2007 includes a gain of $438.1 million
realized on the sale of our French operations.
|
25
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
RESULTS
OF OPERATIONS
Overview. Revenues are generated from our
homebuilding operations and our financial services
operations. On July 10, 2007, we sold our 49% equity
interest in KBSA. Accordingly, our former French operations are
presented as discontinued operations in this report. The
following table presents a summary of our consolidated results
of operations for the years ended November 30, 2009, 2008
and 2007 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,816,415
|
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
Financial services
|
|
|
8,435
|
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,824,850
|
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
(330,383
|
)
|
|
$
|
(991,749
|
)
|
|
$
|
(1,494,606
|
)
|
Financial services
|
|
|
19,199
|
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(311,184
|
)
|
|
|
(967,931
|
)
|
|
|
(1,460,770
|
)
|
Income tax benefit (expense)
|
|
|
209,400
|
|
|
|
(8,200
|
)
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(101,784
|
)
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
47,252
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(101,784
|
)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
6.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended November 30, 2009, operating
conditions in the homebuilding industry remained challenging,
reflecting the housing markets prolonged and severe
downturn since 2006 and the weak U.S. economy. Among the
negative conditions impacting the homebuilding industry was a
persistent oversupply of homes available for sale (including an
increasing number of lender-owned homes acquired through
foreclosures and short sales), which pushed down home selling
prices and intensified competition. Housing markets were also
negatively impacted by rising unemployment, tightened mortgage
lending standards and weak consumer confidence, all of which
depressed demand for housing. These negative factors were offset
to varying degrees in some markets by continued improvement in
housing affordability, stemming from lower selling prices,
relatively low mortgage interest rates and government homebuyer
tax credit incentives.
Although we delivered fewer homes and generated lower revenues
in 2009 compared to 2008, we succeeded in reducing our pretax
loss by 68% and generated higher net orders on a year-over-year
basis. We believe the improvements in our pretax loss and net
orders are largely the result of strategies we have put into
action over the past several quarters to achieve three primary
goals: generate cash and maintain a strong balance sheet;
restore the profitability of our homebuilding operations; and
position our business to capitalize on a housing market recovery
when it occurs. To advance these goals during 2009, we pursued
various initiatives to enhance our operational productivity and
rolled out nationwide redesigned and value-engineered products.
This included our The Open Series product line, which is
tailored to meet the affordability needs of our core first-time,
first move-up and active adult homebuyers. Largely through these
initiatives, we improved our housing gross margins and reduced
our pretax losses in each quarter of 2009, as measured against
the corresponding prior year periods, even though our average
selling prices decreased in each period.
26
Our total revenues of $1.82 billion for the year ended
November 30, 2009 decreased 40% from $3.03 billion in
2008, which had decreased 53% from $6.42 billion in 2007.
Revenues declined in 2009 and 2008 primarily due to decreases in
our housing revenues, reflecting fewer homes delivered and lower
average selling prices. The decreases in homes delivered in 2009
and 2008 were mainly due to our strategic reduction in the
number of active communities we operated each year to align our
business operations with the significantly reduced home sales
activity we have experienced relative to the peak levels of a
few years ago. Active communities are those that
deliver five or more homes in a particular reporting period.
Average selling prices declined in 2009 and 2008 due to the
challenging housing market conditions and the resulting intense
competition. In 2009, the lower average selling price was also
due to our rollout of new product, including The Open
Series, at lower price points compared to our previous
product.
Included in our total revenues were financial services revenues
of $8.4 million in 2009, $10.8 million in 2008 and
$15.9 million in 2007. Financial services revenues
decreased in both 2009 and 2008 mainly due to our delivering
fewer homes.
We generated a net loss of $101.8 million, or $1.33 per
diluted share, in 2009, largely due to pretax, noncash charges
of $206.7 million for inventory and joint venture
impairments and the abandonment of land option contracts we no
longer planned to pursue. These charges reflected the continued
weakness in housing market conditions, which depressed asset
values. The majority of these charges were associated with our
West Coast and Southeast reporting segments. The net loss in
2009 also included an income tax benefit of $209.4 million,
which was primarily associated with federal tax legislation
enacted in the fourth quarter of 2009. The new legislation
extended the permitted carryback period for offsetting certain
NOLs against earnings to up to five years, which allowed us to
carry back and offset our 2009 NOL against earnings from 2005
and 2004. As a result, we expect to receive a federal tax refund
of $190.7 million in the first quarter of 2010.
Reflecting reduced inventory impairment and land option contract
abandonment charges and the favorable impact of our strategies
to reduce direct construction costs and increase operational
efficiencies, our housing gross margin in 2009 increased to
positive 6.5% from negative 7.1% in 2008 and negative 5.7% in
2007. Our housing gross margin, excluding inventory impairment
and land option contract abandonment charges, increased to 15.5%
in 2009, compared to 10.6% in 2008 and 13.3% in 2007.
In 2008, we incurred a net loss of $976.1 million, or
$12.59 per diluted share, largely due to pretax, noncash charges
of $748.6 million for inventory and joint venture
impairments and the abandonment of land option contracts, and
$68.0 million for goodwill impairments. The bulk of the
inventory-related charges were associated with our West Coast,
Southwest and Southeast reporting segments. The goodwill
impairment charges in 2008 related to our Central and Southeast
reporting segments, and resulted in our having no remaining
goodwill at November 30, 2008. The net loss in 2008 also
reflected a $355.9 million valuation allowance charge taken
against net deferred tax assets to fully provide for the tax
benefits generated from our pretax loss for the year in
accordance with Accounting Standards Codification Topic
No. 740, Income Taxes
(ASC 740). In 2007, our continuing operations
generated an after-tax loss of $1.41 billion, or $18.33 per
diluted share, due to pretax, noncash charges of
$1.41 billion for inventory and joint venture impairments
and the abandonment of land option contracts, and
$107.9 million for goodwill impairments recognized during
the year. The majority of the inventory-related charges in 2007
related to our West Coast and Southwest reporting segments, and
the goodwill impairments related solely to our Southwest
reporting segment. Our 2007 loss from continuing operations also
reflected a noncash charge of $514.2 million to establish a
valuation allowance for our net deferred tax assets.
Overall, we posted a net loss of $929.4 million, or $12.04
per diluted share (including the discontinued operations) in
2007. Income from our French discontinued operations, net of
income taxes, totaled $485.4 million in 2007, including a
$438.1 million after-tax gain on the sale of these
operations.
Our backlog at November 30, 2009 was comprised of 2,126
homes, representing projected future housing revenues of
$422.5 million, compared to a backlog at November 30,
2008 of 2,269 homes, representing projected future housing
revenues of $521.4 million. The number of homes in backlog
decreased 6% year over year primarily due to the lower inventory
levels we maintained and the reduced number of active
communities we operated in 2009. The potential future housing
revenues in backlog declined 19% year over year, reflecting
fewer homes in backlog and lower average selling prices. Net
orders from our homebuilding operations increased to 8,341 in
2009 from 8,274 in 2008, largely due to a decrease in our
cancellation rate. As a percentage of gross orders, our
cancellation rate decreased to 25% in 2009, compared to 41% in
2008, with each of our homebuilding segments experiencing
year-over-year improvement.
27
Consistent with our goal of generating cash and maintaining a
strong balance sheet, we generated $349.9 million of cash
flow from operating activities during 2009 and ended the year
with $1.29 billion of cash and cash equivalents and
restricted cash. Restricted cash consists of an interest reserve
account established with the Credit Facilitys
administrative agent (the Interest Reserve Account),
as discussed further below under the heading Liquidity and
Capital Resources. Our debt balance at November 30,
2009 was $1.82 billion, down $121.2 million from
$1.94 billion at November 30, 2008, mainly due to the
redemption of public debt during the year, partly offset by the
issuance of new public debt and the addition of debt associated
with previously unconsolidated joint ventures that were
consolidated during 2009. We ended 2009 with no cash borrowings
outstanding under our Credit Facility. Effective
December 28, 2009, we voluntarily reduced the aggregate
commitment of the Credit Facility from $650.0 million to $200.0
million to lower costs associated with maintaining the Credit
Facility. At November 30, 2009, our ratio of debt to total
capital was 72.0%, compared to 70.0% at November 30, 2008.
Our ratio of net debt to total capital was 42.9% at
November 30, 2009 and 45.4% as of November 30, 2008.
Our inventory balance of $1.50 billion at November 30,
2009 was 29% lower than the $2.11 billion balance at
November 30, 2008. This decrease reflected our actions to
reduce inventory levels and limit land purchases to improve our
liquidity, as well as inventory impairment and land option
contract abandonment charges incurred during 2009. We ended 2009
with a geographically diverse land portfolio comprised of
approximately 37,500 lots owned or controlled, compared to
approximately 47,000 lots owned or controlled at the end of
2008. We believe our strong balance sheet and streamlined land
positions leave us well-positioned to capitalize on future
growth opportunities as they arise.
HOMEBUILDING
We have grouped our homebuilding activities into four reportable
segments, which we refer to as West Coast, Southwest, Central
and Southeast. As of November 30, 2009, our reportable
homebuilding segments consisted of ongoing operations located in
the following states: West Coast California;
Southwest Arizona and Nevada; Central
Colorado and Texas; and Southeast Florida, Maryland,
North Carolina, South Carolina and Virginia.
The following table presents a summary of certain financial and
operational data for our homebuilding operations (dollars in
thousands, except average selling price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
$
|
1,758,157
|
|
|
$
|
2,940,241
|
|
|
$
|
6,211,563
|
|
Land
|
|
|
58,258
|
|
|
|
82,928
|
|
|
|
189,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,816,415
|
|
|
|
3,023,169
|
|
|
|
6,400,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
(1,643,757
|
)
|
|
|
(3,149,083
|
)
|
|
|
(6,563,082
|
)
|
Land
|
|
|
(106,154
|
)
|
|
|
(165,732
|
)
|
|
|
(263,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,749,911
|
)
|
|
|
(3,314,815
|
)
|
|
|
(6,826,379
|
)
|
Selling, general and administrative expenses
|
|
|
(303,024
|
)
|
|
|
(501,027
|
)
|
|
|
(824,621
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
(67,970
|
)
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(2,052,935
|
)
|
|
|
(3,883,812
|
)
|
|
|
(7,758,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(236,520
|
)
|
|
$
|
(860,643
|
)
|
|
$
|
(1,358,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
8,488
|
|
|
|
12,438
|
|
|
|
23,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price
|
|
$
|
207,100
|
|
|
$
|
236,400
|
|
|
$
|
261,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin
|
|
|
6.5
|
%
|
|
|
(7.1
|
)%
|
|
|
(5.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses as a percentage of
housing revenues
|
|
|
17.2
|
%
|
|
|
17.0
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss as a percentage of homebuilding revenues
|
|
|
(13.0
|
)%
|
|
|
(28.5
|
)%
|
|
|
(21.2
|
)%
|
28
Revenues. Homebuilding revenues totaled
$1.82 billion in 2009, decreasing 40% from
$3.02 billion in 2008, which had decreased 53% from
$6.40 billion in 2007. The
year-over-year
decreases in both 2009 and 2008 primarily reflected declines in
housing revenues as a result of fewer homes delivered and lower
average selling prices.
Housing revenues decreased to $1.76 billion in 2009 from
$2.94 billion in 2008 and $6.21 billion in 2007. In
2009, housing revenues fell 40% from the previous year due to a
32% decrease in homes delivered and a 12% decline in the average
selling price. In 2008, housing revenues fell 53% from 2007 due
to a 48% decrease in homes delivered and a 10% decline in the
average selling price.
We delivered 8,488 homes in 2009, down from 12,438 homes in
2008, largely due to a 38%
year-over-year
reduction in the number of active communities we operated. Over
the past several quarters, we have strategically reduced the
number of active communities we operate to align our business
with the significantly reduced home sales activity we have
experienced relative to the peak levels of a few years ago. Each
of our reporting segments delivered fewer homes in 2009 compared
to 2008, with decreases ranging from 17% to 50%.
In 2008, we delivered 12,438 homes, down from 23,743 homes
delivered in 2007, with
year-over-year
decreases in each of our reporting segments. The lower delivery
volume in 2008 compared to 2007 was mainly due to a 38%
reduction in the number of active communities we operated and
lower demand for new homes.
The average selling price of our homes decreased to $207,100 in
2009 from $236,400 in 2008, reflecting lower average selling
prices in each of our geographic segments.
Year-over-year,
average selling prices declined 11% in our West Coast segment,
25% in our Southwest segment, 11% in our Central segment and 16%
in our Southeast segment. Selling price declines, which varied
depending on local market circumstances, occurred because of
difficult economic and job market conditions, intense
competition from homebuilders and sellers of existing homes
(including lender-owned homes acquired through foreclosures and
short sales), and our rollout of new product at price points
lower than those of our previous product to meet consumer demand
for more affordable homes.
Our 2008 average new home selling price decreased 10% from
$261,600 in 2007.
Year-over-year,
average selling prices declined 18% in our West Coast segment,
11% in our Southwest segment and 12% in our Southeast segment
due to the same pressures described above with respect to 2009
price decreases. The average selling price in our Central
segment increased 4% in 2008 from 2007, reflecting changes in
product mix.
Land sale revenues totaled $58.3 million in 2009,
$82.9 million in 2008 and $189.0 million in 2007.
Generally, land sale revenues fluctuate with our decisions to
maintain or decrease our land ownership positions in certain
markets based upon the volume of our holdings, our marketing
strategy, the strength and number of competing developers
entering particular markets at given points in time, the
availability of land in markets we serve, and prevailing market
conditions. Land sale revenues were more significant in 2007
compared to 2008 and 2009 because we sold a higher volume of
land that year, rather than hold it for future development, as
the housing market downturn intensified and the land no longer
fit our marketing strategy or met our investment standards.
Operating Loss. Our homebuilding operations
generated operating losses of $236.5 million in 2009,
$860.6 million in 2008 and $1.36 billion in 2007 due
to losses from both housing operations and land sales. Our
homebuilding operating loss as a percentage of homebuilding
revenues was negative 13.0% in 2009, negative 28.5% in 2008 and
negative 21.2% in 2007. The loss decreased on a percentage basis
in 2009 mainly due to the increase in our housing gross margin.
In 2008, the loss increased on a percentage basis due to a
decrease in our housing gross margin and an increase in our
selling, general and administrative expenses as a percentage of
housing revenues.
Within our housing operations, the 2009 operating loss was
primarily due to pretax, noncash charges of $157.6 million
for inventory impairments and land option contract abandonments.
The 2008 operating loss was largely due to pretax, noncash
charges of $520.5 million for inventory impairments and
land option contract abandonments and $68.0 million for
goodwill impairments, as well as lower margins stemming from
fiercely competitive market conditions and higher overhead costs
relative to the volume of homes delivered. Inventory impairment
charges in 2009 and 2008 were incurred as a result of persistent
increases in housing supply and decreases in demand, both of
which reduced achievable sales prices and, in turn, asset
values. In 2007, the operating loss within housing operations
was driven by pretax, noncash charges of $1.18 billion for
inventory impairments and land option contract abandonments and
$107.9 million for goodwill impairments. The
inventory-related charges in 2007 resulted from declining market
conditions, which depressed new home values and sales rates in
certain housing markets across the
29
country. In 2009, 2008 and 2007, poor market conditions also
depressed land values and led us to terminate our land option
contracts on several projects that no longer met our investment
standards.
Our housing gross margin improved to positive 6.5% in 2009 from
negative 7.1% in 2008. Our housing gross margin, excluding
inventory impairment and land option contract abandonment
charges, was 15.5% in 2009 and 10.6% in 2008. The year-over-year
improvement in our housing gross margin reflects the impact of
our delivering more of our value-engineered, affordable new
product, such as The Open Series, reducing direct
construction costs and increasing operating efficiencies,
consistent with the principles of our KBnxt operational business
model. Our margins were also favorably impacted by
inventory-related charges incurred in prior periods.
In 2008, the homebuilding operating loss was $860.6 million
compared to $1.36 billion in 2007. The operating loss in
2008 represented negative 28.5% of homebuilding revenues. In
2007, the operating loss as a percentage of homebuilding
revenues was negative 21.2%. The 2008 operating loss resulted
from a decrease in our housing gross margin, which fell to
negative 7.1% from negative 5.7% in 2007. Our housing gross
margin in 2008 was adversely impacted by pretax, noncash charges
for inventory impairments and land option contract abandonments,
lower average selling prices and our implementation of targeted
price reductions and sales incentives in response to competitive
conditions or to facilitate strategic exits from certain
projects or products. Our housing gross margin, excluding
inventory impairment and land option contract abandonment
charges, would have been 10.6% in 2008 and 13.3% in 2007.
In 2009, our land sales generated losses of $47.9 million,
including impairment charges of $10.5 million relating to
future land sales. Our land sales generated losses of
$82.8 million in 2008 and $74.3 million in 2007,
including impairment charges relating to future land sales of
$86.2 million in 2008 and $74.8 million in 2007.
We evaluate our land and housing inventory for recoverability in
accordance with Accounting Standards Codification Topic No. 360,
Property, Plant, and Equipment (ASC
360), whenever indicators of potential impairment exist.
Based on our evaluations, we recognized pretax, noncash charges
for inventory impairments of $120.8 million in 2009,
$565.9 million in 2008 and $1.11 billion in 2007.
The inventory impairment charges in all three years reflected
declining asset values due to difficult economic and housing
market conditions. Further deterioration in housing market
supply and demand factors, whether due to rising foreclosures,
heightened competition, poor economic or employment conditions,
tightened mortgage lending standards or restricted credit
availability, may lead to additional impairment charges or cause
us to reevaluate our strategy concerning certain assets that
could result in future charges associated with land sales or the
abandonment of land option contracts.
When we decide not to exercise certain land option contracts due
to market conditions
and/or
changes in our market strategy, we write off the costs,
including non-refundable deposits and pre-acquisition costs,
related to the abandoned projects. We recognized abandonment
charges associated with land option contracts of
$47.3 million in 2009, $40.9 million in 2008 and
$144.0 million in 2007. Inventory impairment and land
option contract abandonment charges are included in construction
and land costs in our consolidated statements of operations.
Selling, general and administrative expenses totaled
$303.0 million in 2009, down from $501.0 million in
2008, which had decreased from $824.6 million in 2007. The
year-over-year
decrease in each period was driven by actions we have taken to
streamline our organizational structure by consolidating certain
homebuilding operations, strategically exiting or winding down
activity in certain markets, and reducing our workforce to
adjust the size of our operations to the significantly reduced
home sales activity we have experienced during the present
housing market downturn. Most of the cost reductions in 2009
were related to lower salary and other payroll-related expenses
stemming from a 24% decrease in our personnel count from 2008.
As a percentage of housing revenues, to which these expenses are
most closely correlated, selling, general and administrative
expenses increased slightly to 17.2% in 2009 from 17.0% in 2008,
which had increased from 13.3% in 2007. The percentages
increased in 2009 and 2008 because our expense reductions have
been outpaced by the significant
year-over-year
declines in our housing revenues and the costs incurred to
implement these reductions.
Goodwill Impairment. We recorded goodwill in
connection with various acquisitions in prior years. Goodwill
represented the excess of the purchase price over the fair value
of net assets acquired. We tested goodwill for potential
impairment annually as of November 30 and between annual tests
if an event occurred or circumstances changed that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. During 2008 and 2007, we
30
determined that it was necessary to evaluate goodwill for
impairment between annual tests due to deteriorating conditions
in certain housing markets and the significant inventory
impairments we identified and recognized in those years.
Based on the results of our impairment evaluation performed in
the second quarter of 2008, we recorded an impairment charge of
$24.6 million in that quarter related to our Central
reporting segment, where we determined all of the goodwill
previously recorded was impaired. The annual goodwill impairment
test we performed as of November 30, 2008 resulted in an
impairment charge of $43.4 million in the fourth quarter of
2008 related to our Southeast reporting segment, where we
determined all of the goodwill previously recorded was impaired.
Based on the results of our impairment evaluation performed in
the third quarter of 2007, we recorded an impairment charge of
$107.9 million in that quarter related to our Southwest
reporting segment, where we determined all of the goodwill
previously recorded was impaired. The annual goodwill impairment
test we performed as of November 30, 2007 indicated no
additional impairment. The goodwill impairment charges in 2008
and 2007 were recorded at our corporate level because all
goodwill was carried at that level. As a result of those
impairment charges, we had no remaining goodwill at
November 30, 2008 or November 30, 2009.
Interest Income. Interest income, which is
generated from short-term investments and mortgages receivable,
totaled $7.5 million in 2009, $34.6 million in 2008
and $28.6 million in 2007. Generally, increases and
decreases in interest income are attributable to changes in the
interest-bearing average balances of short-term investments and
mortgages receivable, as well as fluctuations in interest rates.
Mortgages receivable are primarily related to land sales. The
year-over-year
decrease in interest income in 2009 compared to 2008 reflected a
decrease in the average balance of cash and cash equivalents we
maintained and lower interest rates.
Loss on Early Redemption/Interest Expense, Net of Amounts
Capitalized. In 2009, our loss on early
redemption of debt totaled $1.0 million. This amount
represented a $3.7 million loss associated with our early
redemption, in August, of $250.0 million in aggregate
principal amount of our $350.0 million of
63/8% senior
notes due 2011 (the $350 Million Senior Notes),
partly offset by a gain of $2.7 million associated with our
early extinguishment of mortgages and land contracts due to land
sellers and other loans. In 2008, our loss on early redemption
of debt of $10.4 million was comprised of $7.1 million
associated with our redemption of $300.0 million of our
73/4%
senior subordinated notes due 2010 (the $300 Million
Senior Subordinated Notes) and $3.3 million
associated with an amendment of the Credit Facility, which
reduced our aggregate commitment under the Credit Facility. In
2007, our loss on early redemption of debt of $13.0 million
was associated with the redemption of $250.0 million of our
91/2% senior
subordinated notes due in 2011 (the $250 Million Senior
Subordinated Notes), and the repayment of an unsecured
$400.0 million term loan due 2011 (the $400 Million
Term Loan).
Interest expense results principally from borrowings to finance
land purchases, housing inventory and other operating and
capital needs. Our interest expense, net of amounts capitalized,
totaled $50.8 million in 2009 and $2.6 million in
2008. In 2007, all of our interest was capitalized and,
consequently, we had no interest expense, net of amounts
capitalized. The percentage of interest capitalized was 57% in
2009 and 98% in 2008. These percentages decreased from the
corresponding year-earlier periods because, beginning in the
fourth quarter of 2008, the amount of inventory qualifying for
interest capitalization was below our debt level, reflecting the
inventory reduction strategy we have implemented over the past
several quarters, and our suspending land development in certain
communities. Gross interest incurred during 2009 decreased by
$36.8 million to $119.6 million, from
$156.4 million in 2008 due to our overall lower debt levels
in 2009. Gross interest incurred during 2008 decreased by
$43.2 million from $199.6 million incurred in 2007,
reflecting comparatively lower debt levels in 2008.
Equity in Loss of Unconsolidated Joint
Ventures. Our unconsolidated joint ventures
operate in various markets, typically where our consolidated
homebuilding operations are located. These unconsolidated joint
ventures posted combined revenues of $60.8 million in 2009,
$112.8 million in 2008 and $662.7 million in 2007. The
year-over-year
decrease in unconsolidated joint venture revenues in 2009 was
primarily due to a decline in the number of unconsolidated joint
ventures that delivered homes. The
year-over-year
decrease in unconsolidated joint venture revenues in 2008
primarily reflected fewer land sales by the unconsolidated joint
ventures than in 2007. Activities performed by our
unconsolidated joint ventures generally include buying,
developing and selling land, and, in some cases, constructing
and delivering homes. Our unconsolidated joint ventures
delivered 141 homes in 2009, 262 homes in 2008 and 127 homes in
2007. Our unconsolidated joint ventures generated combined
losses of $102.9 million in 2009, $383.6 million in
2008 and $51.6 million in 2007. Our equity in loss of
unconsolidated joint ventures of $49.6 million in 2009
included charges of
31
$38.5 million to recognize the impairment of certain
unconsolidated joint ventures primarily in our West Coast,
Southwest and Southeast reporting segments. In 2008 and 2007,
our equity in loss of unconsolidated joint ventures of
$152.8 million and $151.9, respectively, included similar
charges of $141.9 million and $156.4 million,
respectively, also mainly related to our West Coast, Southwest
and Southeast reporting segments.
Non-GAAP
Financial Measures
This report contains information about our housing gross margin,
excluding inventory impairment and land option contract
abandonment charges, and our ratio of net debt to total capital,
both of which are not calculated in accordance with generally
accepted accounting principles (GAAP). We believe
these non-GAAP financial measures are relevant and useful to
investors in understanding our operations and the leverage
employed in our operations, and may be helpful in comparing us
with other companies in the homebuilding industry to the extent
they provide similar information. However, because the housing
gross margin, excluding inventory impairment and land option
contract abandonment charges, and the ratio of net debt to total
capital are not calculated in accordance with GAAP, these
measures may not be completely comparable to other companies in
the homebuilding industry and thus, should not be considered in
isolation or as an alternative to operating performance measures
prescribed by GAAP. Rather, these non-GAAP financial measures
should be used to supplement their respective most directly
comparable GAAP measures in order to provide a greater
understanding of the factors and trends affecting our operations.
Housing Gross Margin, Excluding Inventory Impairment and Land
Option Contract Abandonment Charges. The
following table reconciles our housing gross margin to our
housing gross margin, excluding inventory impairment and land
option contract abandonment charges (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Housing revenues
|
|
$
|
1,758,157
|
|
|
$
|
2,940,241
|
|
|
$
|
6,211,563
|
|
Housing construction and land costs
|
|
|
(1,643,757
|
)
|
|
|
(3,149,083
|
)
|
|
|
(6,563,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin
|
|
|
114,400
|
|
|
|
(208,842
|
)
|
|
|
(351,519
|
)
|
Add: Inventory impairment and land option contract abandonment
charges
|
|
|
157,641
|
|
|
|
520,543
|
|
|
|
1,179,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin, excluding inventory impairment and land
option contract abandonment charges
|
|
$
|
272,041
|
|
|
$
|
311,701
|
|
|
$
|
827,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin as a percentage of housing revenues
|
|
|
6.5
|
%
|
|
|
(7.1
|
)%
|
|
|
(5.7
|
)%
|
Housing gross margin, excluding inventory impairment and land
option contract abandonment charges, as a percentage of housing
revenues
|
|
|
15.5
|
%
|
|
|
10.6
|
%
|
|
|
13.3
|
%
|
Housing gross margin, excluding inventory impairment and land
option contract abandonment charges, is a non-GAAP financial
measure, which we define as housing revenues less construction
and land costs before pretax, noncash inventory impairment and
land option contract abandonment charges associated with housing
operations recorded during the period. The most directly
comparable GAAP measure is housing gross margin. We believe
housing gross margin, excluding inventory impairment and land
option contract abandonment charges, is a relevant and useful
measure to investors in evaluating our performance as it
measures the gross profit we generated specifically on the homes
delivered during a given period and enhances the comparability
of housing gross margins between periods. This measure assists
us in making strategic decisions regarding product mix, product
pricing and construction pace. We also believe investors find
housing gross margin, excluding inventory impairment and land
option contract abandonment charges, relevant and useful because
it represents a profitability measure that may be compared to a
prior period without regard to variability of charges for
inventory impairments or land option contract abandonments.
32
Ratio of Net Debt to Total Capital. The
following table reconciles our ratio of debt to total capital to
our ratio of net debt to total capital (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Mortgages and notes payable
|
|
$
|
1,820,370
|
|
|
$
|
1,941,537
|
|
Stockholders equity
|
|
|
707,224
|
|
|
|
830,605
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
2,527,594
|
|
|
$
|
2,772,142
|
|
|
|
|
|
|
|
|
|
|
Ratio of debt to capital
|
|
|
72.0
|
%
|
|
|
70.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and notes payable
|
|
$
|
1,820,370
|
|
|
$
|
1,941,537
|
|
Less: Cash and cash equivalents and restricted cash
|
|
|
(1,289,007
|
)
|
|
|
(1,250,803
|
)
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
531,363
|
|
|
|
690,734
|
|
Stockholders equity
|
|
|
707,224
|
|
|
|
830,605
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
1,238,587
|
|
|
$
|
1,521,339
|
|
|
|
|
|
|
|
|
|
|
Ratio of net debt to total capital
|
|
|
42.9
|
%
|
|
|
45.4
|
%
|
|
|
|
|
|
|
|
|
|
The ratio of net debt to total capital is a non-GAAP financial
measure, which we calculate by dividing mortgages and notes
payable, net of homebuilding cash and cash equivalents and
restricted cash, by total capital (mortgages and notes payable,
net of homebuilding cash and cash equivalents and restricted
cash, plus stockholders equity). The most directly
comparable GAAP measure is the ratio of debt to capital. We
believe the ratio of net debt to total capital is a relevant and
useful measure to investors in understanding the leverage
employed in our operations and as an indicator of our ability to
obtain external financing.
HOMEBUILDING
SEGMENTS
The following table presents financial information related to
our homebuilding reporting segments for the years indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
West Coast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
812,207
|
|
|
$
|
1,055,021
|
|
|
$
|
2,203,303
|
|
Construction and land costs
|
|
|
(792,182
|
)
|
|
|
(1,202,054
|
)
|
|
|
(2,635,415
|
)
|
Selling, general and administrative expenses
|
|
|
(79,659
|
)
|
|
|
(120,446
|
)
|
|
|
(213,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(59,634
|
)
|
|
|
(267,479
|
)
|
|
|
(645,245
|
)
|
Other, net
|
|
|
(28,808
|
)
|
|
|
(30,568
|
)
|
|
|
(20,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(88,442
|
)
|
|
$
|
(298,047
|
)
|
|
$
|
(665,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
218,096
|
|
|
$
|
618,014
|
|
|
$
|
1,349,570
|
|
Construction and land costs
|
|
|
(210,268
|
)
|
|
|
(722,643
|
)
|
|
|
(1,492,933
|
)
|
Selling, general and administrative expenses
|
|
|
(35,485
|
)
|
|
|
(69,865
|
)
|
|
|
(124,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(27,657
|
)
|
|
|
(174,494
|
)
|
|
|
(267,825
|
)
|
Other, net
|
|
|
(20,915
|
)
|
|
|
(37,700
|
)
|
|
|
(19,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(48,572
|
)
|
|
$
|
(212,194
|
)
|
|
$
|
(287,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Central:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
434,400
|
|
|
$
|
594,317
|
|
|
$
|
1,077,304
|
|
Construction and land costs
|
|
|
(391,274
|
)
|
|
|
(570,512
|
)
|
|
|
(970,912
|
)
|
Selling, general and administrative expenses
|
|
|
(62,645
|
)
|
|
|
(96,306
|
)
|
|
|
(163,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(19,519
|
)
|
|
|
(72,501
|
)
|
|
|
(57,297
|
)
|
Other, net
|
|
|
(9,863
|
)
|
|
|
(10,288
|
)
|
|
|
(6,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(29,382
|
)
|
|
$
|
(82,789
|
)
|
|
$
|
(64,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
351,712
|
|
|
$
|
755,817
|
|
|
$
|
1,770,414
|
|
Construction and land costs
|
|
|
(346,728
|
)
|
|
|
(808,354
|
)
|
|
|
(1,718,548
|
)
|
Selling, general and administrative expenses
|
|
|
(40,092
|
)
|
|
|
(125,798
|
)
|
|
|
(213,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(35,108
|
)
|
|
|
(178,335
|
)
|
|
|
(161,670
|
)
|
Other, net
|
|
|
(43,306
|
)
|
|
|
(80,233
|
)
|
|
|
(68,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(78,414
|
)
|
|
$
|
(258,568
|
)
|
|
$
|
(230,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information concerning our housing
revenues, homes delivered and average selling price by
homebuilding reporting segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
|
Housing
|
|
|
Housing
|
|
|
Homes
|
|
|
Homes
|
|
|
Selling
|
|
Years Ended November 30,
|
|
Revenues
|
|
|
Revenues
|
|
|
Delivered
|
|
|
Delivered
|
|
|
Price
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
772,886
|
|
|
|
44%
|
|
|
|
2,453
|
|
|
|
29%
|
|
|
$
|
315,100
|
|
Southwest
|
|
|
206,747
|
|
|
|
12
|
|
|
|
1,202
|
|
|
|
14
|
|
|
|
172,000
|
|
Central
|
|
|
430,799
|
|
|
|
24
|
|
|
|
2,771
|
|
|
|
33
|
|
|
|
155,500
|
|
Southeast
|
|
|
347,725
|
|
|
|
20
|
|
|
|
2,062
|
|
|
|
24
|
|
|
|
168,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,758,157
|
|
|
|
100%
|
|
|
|
8,488
|
|
|
|
100%
|
|
|
$
|
207,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
1,054,256
|
|
|
|
36%
|
|
|
|
2,972
|
|
|
|
24%
|
|
|
$
|
354,700
|
|
Southwest
|
|
|
548,544
|
|
|
|
19
|
|
|
|
2,393
|
|
|
|
19
|
|
|
|
229,200
|
|
Central
|
|
|
585,826
|
|
|
|
20
|
|
|
|
3,348
|
|
|
|
27
|
|
|
|
175,000
|
|
Southeast
|
|
|
751,615
|
|
|
|
25
|
|
|
|
3,725
|
|
|
|
30
|
|
|
|
201,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,940,241
|
|
|
|
100%
|
|
|
|
12,438
|
|
|
|
100%
|
|
|
$
|
236,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
2,149,547
|
|
|
|
35%
|
|
|
|
4,957
|
|
|
|
21%
|
|
|
$
|
433,600
|
|
Southwest
|
|
|
1,254,932
|
|
|
|
20
|
|
|
|
4,855
|
|
|
|
20
|
|
|
|
258,500
|
|
Central
|
|
|
1,058,985
|
|
|
|
17
|
|
|
|
6,310
|
|
|
|
27
|
|
|
|
167,800
|
|
Southeast
|
|
|
1,748,099
|
|
|
|
28
|
|
|
|
7,621
|
|
|
|
32
|
|
|
|
229,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,211,563
|
|
|
|
100%
|
|
|
|
23,743
|
|
|
|
100%
|
|
|
$
|
261,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast Our West Coast segment generated
total revenues of $812.2 million in 2009, down 23% from
$1.06 billion in 2008 due to lower housing and land sale
revenues. Housing revenues decreased to $772.9 million in
2009 from $1.05 billion in 2008 due to a 17% decrease in
homes delivered and an 11% decline in the average selling
price. We delivered 2,453 homes in 2009, down from 2,972 in
2008, primarily due to a 26% reduction in the number of active
communities we operated. The average selling price decreased to
$315,100 in 2009 from $354,700 in 2008, due to downward pricing
pressures resulting from intense competition and our rollout of
new product at lower price points compared to those of our
previous product. Land sale revenues totaled $39.3 million in
2009 and $.8 million in 2008.
34
This segment generated pretax losses of $88.4 million in
2009 and $298.0 million in 2008. The pretax loss decreased
in 2009 compared to 2008, largely due to a reduction in total
charges for inventory impairments and land option contract
abandonments. These charges decreased to $77.6 million in
2009 from $246.5 million in 2008, and, as a percentage of
total revenues were 10% in 2009 and 23% in 2008. The gross
margin improved to positive 2.5% in 2009 from negative 13.9% in
2008 due to lower inventory impairment and land option contract
abandonment charges, reduced direct construction costs, and
improved operating efficiencies. Selling, general and
administrative expenses decreased by $40.7 million, or 34%,
to $79.7 million in 2009 from $120.4 million in 2008
as a result of operational consolidations, workforce reductions
and other cost-saving initiatives. Other, net expenses included
unconsolidated joint venture impairments of $7.2 million in
2009 and $43.1 million in 2008.
In 2008, revenues from this segment decreased 52% to
$1.06 billion from $2.20 billion in 2007 due to lower
housing and land sale revenues. Housing revenues decreased to
$1.05 billion in 2008 from $2.15 billion in 2007 due
to a 40% decrease in homes delivered and an 18% decrease in the
average selling price. We delivered 2,972 homes at an average
selling price of $354,700 in 2008 and 4,957 homes at an average
selling price of $433,600 in 2007. The
year-over-year
decrease in the number of homes delivered was largely due to a
34% decrease in the number of active communities we operated in
the segment. The lower average selling price in 2008 resulted
from the same downward pricing pressures described above for
2009. Revenues from land sales totaled $.8 million in 2008
and $53.8 million in 2007.
This segment posted pretax losses of $298.0 million in 2008
and $665.8 million in 2007. Pretax results improved in 2008
compared to 2007 due to lower inventory impairment and land
option contract abandonment charges and lower selling, general
and administrative expenses. Inventory impairment and land
option contract abandonment charges totaled $246.5 million
in 2008 and $659.4 million in 2007. As a percentage of
revenues, these charges were 23% in 2008 and 30% in 2007. The
gross margin was negative 13.9% in 2008 compared to negative
19.6% in 2007, reflecting a decrease in inventory-related
charges as a percentage of revenues, partly offset by lower
average selling prices and greater use of targeted sales price
reductions and incentives. Selling, general and administrative
expenses decreased by $92.7 million, or 43%, to
$120.4 million in 2008 from $213.1 million in 2007 due
to our actions to align overhead with the reduced volume of
homes delivered and our future sales expectations. Included in
other, net expenses were unconsolidated joint venture
impairments of $43.1 million in 2008 and $57.0 million
in 2007.
Southwest Total revenues from our Southwest
segment decreased 65% to $218.1 million in 2009 from
$618.0 million in 2008, mainly due to lower housing
revenues. Housing revenues declined 62% to $206.7 million
in 2009 from $548.5 million in 2008 due to a 50% decrease
in the number of homes delivered and a 25% decrease in the
average selling price. We delivered 1,202 homes at an average
selling price of $172,000 in 2009, and 2,393 homes at an average
selling price of $229,200 in 2008. The
year-over-year
decrease in the number of homes delivered was largely due to a
47% decrease in the number of active communities we operated.
The lower average selling price in 2009 reflected intense
pricing pressure stemming from an oversupply of new and resale
homes in the segments served markets, rising foreclosures
and lower demand, as well as our rollout of new product at lower
price points compared to those of our previous product. Revenues
from land sales totaled $11.4 million in 2009 compared to
$69.5 million in 2008.
Pretax losses from this segment totaled $48.6 million in
2009 and $212.2 million in 2008. The 2009 pretax loss
decreased from the prior year, principally due to lower charges
for inventory impairments and land option contract abandonments.
These charges decreased to $28.8 million in 2009 from
$160.8 million in 2008, and represented 13% of total
revenues in 2009 compared to 26% in 2008. The gross margin
improved to positive 3.6% in 2009 from negative 16.9% in 2008,
mainly due to reduced inventory impairment charges. Selling,
general and administrative expenses decreased by
$34.4 million, or 49%, to $35.5 million in 2009 from
$69.9 million in 2008, due primarily to overhead reductions
and other cost-saving initiatives. Included in other, net
expenses were unconsolidated joint venture impairments of
$5.4 million in 2009 and $30.4 million in 2008.
In 2008, total revenues from this segment declined 54% to
$618.0 million from $1.35 billion in 2007, reflecting
decreases in housing and land sale revenues. Housing revenues
fell 56% to $548.5 million in 2008 from $1.25 billion
in 2007 due to a 51% decrease in the number of homes delivered
and an 11% decrease in the average selling price. We delivered
2,393 homes in this segment in 2008 compared with 4,855 homes in
2007, largely due to a 32% reduction in the number of active
communities we operated. Our average selling price of $229,200
in 2008 decreased from $258,500
35
in 2007, reflecting the same downward pricing pressures
described above for 2009. Revenues from land sales totaled
$69.5 million in 2008 compared to $94.6 million in
2007.
This segment posted pretax losses of $212.2 million in 2008
and $287.3 million in 2007. The decrease in the pretax loss
in 2008 reflected a decrease in inventory-related charges and
lower selling, general and administrative expenses. Inventory
impairment and land option contract abandonment charges totaled
$160.8 million in 2008 compared with $354.4 million in
2007. These charges represented 26% of revenues in both 2008 and
2007. The gross margin was negative 16.9% in 2008 compared to
negative 10.6% in 2007 primarily due to the decline in average
selling prices. Selling, general and administrative expenses
decreased by $54.6 million, or 44%, to $69.9 million
in 2008 from $124.5 million in 2007, largely as a result of
cost reduction initiatives. Included in other, net expenses were
unconsolidated joint venture impairments of $30.4 million
in 2008 and $31.0 million in 2007.
Central Total revenues from our Central
segment decreased 27% to $434.4 million in 2009 from
$594.3 million in 2008, due to lower housing and land sale
revenues. Housing revenues declined 26% to $430.8 million
in 2009 from $585.8 million in 2008, mainly due to a 17%
decrease in homes delivered and an 11% decline in the average
selling price. Homes delivered decreased to 2,771 in 2009 from
3,348 homes in 2008, partly due to a 30%
year-over-year
reduction in the number of active communities we operated. The
average selling price declined to $155,500 in 2009 from $175,000
in 2008, reflecting downward pricing pressure due to highly
competitive conditions, and our rollout of lower-priced product.
Land sale revenues totaled $3.6 million in 2009 and
$8.5 million in 2008.
Pretax losses from this segment totaled $29.4 million in
2009 and $82.8 million in 2008. The loss decreased in 2009
compared to 2008 largely due to lower inventory impairment
charges. These charges decreased to $23.9 million in 2009
compared to $51.5 million in 2008. As a percentage of total
revenues, inventory impairment charges were 5% in 2009 and 9% in
2008. The gross margin improved to 9.9% in 2009 from 4.0% in
2008, mainly due to lower inventory impairment charges and lower
direct construction costs. Selling, general and administrative
expenses decreased by $33.7 million, or 35%, to
$62.6 million in 2009 from $96.3 million in 2008, as a
result of the steps we have taken to align our overhead costs
with the reduced level of housing activity. Other, net expenses
included no unconsolidated joint venture impairment charges in
2009 and $2.6 million of such charges in 2008.
In 2008, this segment generated total revenues of
$594.3 million, down 45% from $1.08 billion in 2007,
reflecting lower revenues from housing and land sales. Housing
revenues decreased 45% to $585.8 million in 2008 from
$1.06 billion in 2007, due to a 47% decrease in the number
of homes we delivered, partly offset by a 4% increase in our
average selling price. In 2008, we delivered 3,348 homes at an
average price of $175,000 compared to 6,310 homes delivered at
an average price of $167,800 in 2007. The decrease in homes
delivered reflected a 38% reduction in the number of active
communities we operated. The increase in the average selling
price was due to a change in product mix. Land sale revenues
totaled $8.5 million in 2008 and $18.3 million in 2007.
This segment posted pretax losses of $82.8 million in 2008
and $64.2 million in 2007. The loss increased in 2008
principally due to higher inventory-related charges driven by
deteriorating market conditions. These charges totaled
$51.5 million in 2008 compared to $34.4 million in
2007. As a percentage of revenues, inventory impairments and
land option contract abandonment charges were 9% in 2008 and 3%
in 2007. The gross margin decreased to 4.0% in 2008 from 9.9% in
2007 primarily as a result of an increase in inventory-related
charges as a percentage of revenues, partly offset by a higher
average selling price. Selling, general and administrative
expenses decreased by $67.4 million, or 41%, to
$96.3 million in 2008 from $163.7 million in 2007,
reflecting our efforts to calibrate our operations with reduced
housing market activity. Included in other, net expenses were
unconsolidated joint venture impairments of $2.6 million in
2008 and $4.5 million in 2007.
Southeast Our Southeast segment generated
total revenues of $351.7 million in 2009, down 53% from
$755.8 million in 2008, primarily due to a decrease in
housing revenues. In 2009, housing revenues declined 54% to
$347.7 million from $751.6 million in 2008 as a result
of a 45% decrease in homes delivered and a 16% decline in the
average selling price. We delivered 2,062 homes in 2009 compared
to 3,725 homes in 2008, reflecting a 48% reduction in the number
of active communities we operated. The average selling price
fell to $168,600 in 2009 from $201,800 in 2008, due to downward
pricing pressure from highly competitive conditions and our
rollout of new product at lower price points compared to those
of our previous product. Revenues from land sales totaled
$4.0 million in 2009 and $4.2 million in 2008.
36
This segment posted pretax losses of $78.4 million in 2009
and $258.6 million in 2008. The
year-over-year
decrease in the pretax loss primarily reflected the lower total
charges for inventory impairments and land option contract
abandonments, which decreased to $37.8 million in 2009 from
$148.0 million in 2008. As a percentage of total revenues,
inventory impairments and land option contract abandonment
charges were 11% in 2009 and 20% in 2008. The gross margin
improved to positive 1.4% in 2009 from negative 7.0% in 2008,
mainly due to the lower level of inventory impairment and land
option contract abandonment charges. Selling, general and
administrative expenses decreased by $85.7 million, or 68%,
to $40.1 million in 2009 from $125.8 million in 2008
as a result of our actions to reduce overhead to align with
reduced home sales activity. Included in other, net expenses
were unconsolidated joint venture impairments of
$25.9 million in 2009 and $65.7 million in 2008.
In 2008, our Southeast segment generated total revenues of
$755.8 million, down from $1.77 billion in 2007 due to
lower housing and land sale revenues. Housing revenues decreased
57% to $751.6 million in 2008 from $1.75 billion in
2007 as a result of a 51% decrease in homes delivered and a 12%
decline in the average selling price. Homes delivered fell to
3,725 in 2008 from 7,621 in 2007, while the average selling
price decreased to $201,800 in 2008 from $229,400 in 2007. The
decrease in homes delivered was principally due to a 44%
reduction in the number of active communities we operated. The
lower average selling price mainly reflected highly competitive
conditions and rising foreclosures as well as our introduction
of new product at lower price points. Revenues from land sales
totaled $4.2 million in 2008 and $22.3 million in 2007.
Our Southeast segment posted pretax losses of
$258.6 million in 2008 and $230.4 million in 2007. The
increased loss was principally due to a decline in the gross
margin, partly offset by a decrease in selling, general and
administrative expenses. The gross margin decreased to negative
7.0% in 2008 from positive 2.9% in 2007, reflecting the impact
of lower average selling prices. Inventory impairment and land
option contract abandonment charges totaled $148.0 million
in 2008 compared to $205.8 million in 2007. As a percentage
of revenues, inventory impairments and land option contract
abandonment charges were 20% in 2008 and 12% in 2007. Selling,
general and administrative expenses decreased by
$87.7 million, or 41%, to $125.8 million in 2008 from
$213.5 million in 2007, reflecting our actions to reduce
costs in line with the reduced volume of homes delivered and our
future sales expectations. Included in other, net expenses were
unconsolidated joint venture impairments of $65.7 million
in 2008 and $63.8 million in 2007.
FINANCIAL
SERVICES SEGMENT
Our financial services segment provides title and insurance
services to our homebuyers, and provided escrow coordination
services until 2007, when we terminated that portion of our
business. This segment also provides mortgage banking services
to our homebuyers indirectly through KB Home Mortgage. We and a
subsidiary of Bank of America, N.A. each have a 50% ownership
interest in KB Home Mortgage. KB Home Mortgage is operated by
our joint venture partner and is accounted for as an
unconsolidated joint venture in the financial services reporting
segment of our consolidated financial statements.
The following table presents a summary of selected financial and
operational data for our financial services segment (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
8,435
|
|
|
$
|
10,767
|
|
|
$
|
15,935
|
|
Expenses
|
|
|
(3,251
|
)
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
14,015
|
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
19,199
|
|
|
$
|
23,818
|
|
|
$
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
7,170
|
|
|
|
10,141
|
|
|
|
16,869
|
|
Principal
|
|
$
|
1,317,904
|
|
|
$
|
2,073,382
|
|
|
$
|
3,934,336
|
|
Percentage of homebuyers using KB Home Mortgage
|
|
|
84
|
%
|
|
|
80
|
%
|
|
|
72
|
%
|
Loans sold to third parties (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
6,967
|
|
|
|
11,289
|
|
|
|
16,909
|
|
Principal
|
|
$
|
1,275,688
|
|
|
$
|
2,328,702
|
|
|
$
|
3,969,827
|
|
|
|
(a) |
Loan originations and sales occur within KB Home Mortgage.
|
37
Revenues. In 2009, 2008 and 2007, our
financial services operations generated revenues primarily from
the following sources: interest income, title services, and
insurance commissions. In 2007, financial services revenues also
included escrow coordination fees. Financial services revenues
totaled $8.4 million in 2009, $10.8 million in 2008
and $15.9 million in 2007. The
year-over-year
decreases in financial services revenues in 2009 and 2008
resulted primarily from lower revenues from title and insurance
services, reflecting fewer homes delivered from our homebuilding
operations.
Financial services revenues included a nominal amount of
interest income in 2009 and $.2 million of interest income
in 2008 and 2007, which was earned primarily from money market
deposits. Financial services revenues also included revenues
from title services and insurance commissions of
$8.4 million in 2009, $10.6 million in 2008 and
$15.1 million in 2007, and escrow coordination fees of
$.6 million in 2007.
Expenses. General and administrative expenses
totaled $3.2 million in 2009, $4.5 million in 2008 and
$4.8 million in 2007. The
year-over-year
decrease in general and administrative expenses in 2009 was
primarily due to actions we have taken to reduce overhead to
align with our lower level of revenues. The
year-over-year
decrease in general and administrative expenses in 2008 was
primarily due to the termination of our escrow coordination
business in the second quarter of 2007.
Equity in Income of Unconsolidated Joint
Venture. The equity in income of unconsolidated
joint venture of $14.0 million in 2009, $17.5 million
in 2008 and $22.7 million in 2007 relates to our 50%
interest in the KB Home Mortgage joint venture. The
year-over-year
decreases in unconsolidated joint venture income in 2009 and
2008 were largely due to declines in the number of loans
originated by KB Home Mortgage, reflecting the lower volume of
homes we delivered, as well as a decrease in average loan size
due to the generally lower average selling prices of our homes
in each period. KB Home Mortgage originated 7,170 loans in 2009,
10,141 loans in 2008 and 16,869 loans in 2007. The percentage of
our homebuyers using KB Home Mortgage as a loan originator was
84% in 2009, 80% in 2008 and 72% in 2007.
The equity in income of unconsolidated joint venture in 2008 was
affected by KB Home Mortgages adoption of Topic 5DD
(formerly Staff Accounting Bulletin No. 109,
Written Loan Commitments Recorded at Fair Value Through
Earnings) and the provisions as required by Accounting
Standards Codification Topic No. 825, Financial
Instruments (ASC 825). Topic 5DD
expresses the current view of the SEC that, consistent with the
guidance in Accounting Standards Codification Topic
No. 860, Transfers and Servicing and ASC 825,
the expected net future cash flows related to the associated
servicing of loans should be included in the measurement of the
fair value of all written loan commitments that are accounted
for at fair value through earnings. ASC 825 permits
entities to choose to measure various financial instruments and
certain other items at fair value on a
contract-by-contract
basis. Under ASC 825, KB Home Mortgage elected the fair
value option for residential mortgage loans held for sale that
were originated subsequent to February 29, 2008. As a
result of KB Home Mortgages adoption of Topic 5DD and
ASC 825, our equity in income of unconsolidated joint
venture of the financial services segment increased by
$1.7 million in 2008.
INCOME
TAXES
We recognized an income tax benefit of $209.4 million in
2009, an income tax expense of $8.2 million in 2008, and an
income tax benefit from continuing operations of
$46.0 million in 2007. These amounts represent effective
tax rates of approximately 67.3% for 2009, .8% for 2008 and 3.0%
for 2007. The difference in our effective tax rate for 2009
compared to 2008 resulted primarily from the recognition of a
$190.7 million federal income tax benefit based on the
carryback and offset of our 2009 NOL against our earnings for
2005 and 2004, and the reversal of a $16.3 million
liability for unrecognized federal and state tax benefits due to
the status of federal and state tax audits. The change in our
effective tax rate in 2008 from 2007 was primarily due to the
disallowance of tax benefits related to our 2008 loss as a
result of a full valuation allowance.
On November 6, 2009, the Worker, Homeownership, and
Business Assistance Act of 2009 was enacted into law and amended
Section 172 of the Internal Revenue Code to extend the permitted
carryback period for offsetting certain NOLs against earnings to
up to five years. Due to this recently enacted federal tax
legislation, we were able to carry back and offset our 2009 NOL
against earnings we generated in 2005 and 2004. As a result, we
filed an application for a federal tax refund of
$190.7 million and reflected this amount as a receivable in
our consolidated balance sheet as of November 30, 2009. We
expect to receive the cash proceeds from the refund in the first
quarter of 2010.
38
Since 2007, due to the prolonged housing market downturn, the
asset impairment and land option contract abandonment charges we
have incurred and the NOLs we have posted, we have generated
substantial deferred tax assets and established a corresponding
valuation allowance against certain of those deferred tax
assets. In accordance with ASC 740, we evaluate our
deferred tax assets quarterly to determine if valuation
allowances are required. ASC 740 requires that companies
assess whether valuation allowances should be established based
on the consideration of all available evidence using a
more likely than not standard. During the first nine
months of 2009, we recognized a net increase of
$67.5 million in the valuation allowance. This increase
reflected the net impact of an $89.9 million valuation
allowance recorded during the first nine months of 2009, partly
offset by a reduction of deferred tax assets due to the
forfeiture of certain equity-based awards. In the fourth quarter
of 2009, we recognized a decrease in the valuation allowance of
$196.3 million primarily due to the benefit derived from
the carryback and offset of our 2009 NOL against earnings we
generated in 2005 and 2004. As a result, the net decrease in the
valuation allowance for the year ended November 30, 2009
totaled $128.8 million. The decrease in the valuation
allowance was reflected as a noncash income tax benefit of
$130.7 million and a noncash charge of $1.9 million to
accumulated other comprehensive loss. During 2008, we recorded a
valuation allowance of $355.9 million against our net
deferred tax assets. The valuation allowance was reflected as a
noncash charge of $358.2 million to income tax expense and
a noncash benefit of $2.3 million to accumulated other
comprehensive loss (as a result of an adjustment made in
accordance with the adoption of provisions of Accounting
Standards Codification Topic No. 715,
Compensation Retirement Benefits
(ASC 715)). For 2007, we recorded a valuation
allowance totaling approximately $522.9 million against our
net deferred tax assets. The valuation allowance was reflected
as a noncash charge of $514.2 million to income tax expense
and $8.7 million to accumulated other comprehensive loss.
The majority of the tax benefits associated with our net
deferred tax assets can be carried forward for 20 years and
applied to offset future taxable income.
Our net deferred tax assets totaled $1.1 million at both
November 30, 2009 and 2008. Our deferred tax asset
valuation allowance decreased to $750.0 million at
November 30, 2009 from $878.8 million at
November 30, 2008. The deferred tax assets for which we did
not establish a valuation allowance relate to amounts that can
be realized through future reversals of existing taxable
temporary differences or through carrybacks to the 2007 and
2006 years. To the extent we generate sufficient taxable
income in the future to fully utilize the tax benefits of the
related deferred tax assets, we expect our effective tax rate to
decrease as the valuation allowance is reversed.
The benefits of our net operating losses, built-in losses and
tax credits would be reduced or potentially eliminated if we
experienced an ownership change under
Section 382. Based on our analysis performed as of
November 30, 2009, we do not believe we have experienced an
ownership change as defined by Section 382, and, therefore,
the net operating losses, built-in losses and tax credits we
have generated should not be subject to a Section 382
limitation as of this reporting date.
DISCONTINUED
OPERATIONS
Discontinued operations consist solely of our former French
operations, which were sold on July 10, 2007. We sold our 49%
equity interest in KBSA for total gross proceeds of
$807.2 million and we recognized a pretax gain of
$706.7 million ($438.1 million, net of income taxes)
in the third quarter of 2007 related to the transaction. The
sale was made pursuant to a share purchase agreement (the
Share Purchase Agreement), among us, Financière
Gaillon 8 SAS (the Purchaser), an affiliate of PAI
partners, a European private equity firm, and three of our
wholly owned subsidiaries: Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, and Kaufman and
Broad International, Inc. (collectively, the Selling
Subsidiaries). Under the Share Purchase Agreement, the
Purchaser agreed to acquire our 49% equity interest
(representing 10,921,954 shares held collectively by the
Selling Subsidiaries) at a price of 55.00 euros per share. The
purchase price consisted of 50.17 euros per share paid by the
Purchaser in cash, and a cash dividend of 4.83 euros per share
paid by KBSA.
In 2007, income from discontinued operations, net of income
taxes, totaled $485.4 million, or $6.29 per diluted share,
including the gain realized on the sale of these operations.
39
LIQUIDITY
AND CAPITAL RESOURCES
Overview. Historically, we have funded our
homebuilding and financial services operations with internally
generated cash flows and external sources of debt and equity
financing.
In light of the prolonged downturn in the housing market and in
order to be well-positioned for future growth opportunities, we
remain focused on generating and preserving cash. During the
year ended November 30, 2009, we generated positive
operating cash flows of $349.9 million and ended the year
with $1.29 billion of cash and cash equivalents and
restricted cash, and no cash borrowings under the Credit
Facility. We also had no cash borrowings outstanding under the
Credit Facility at November 30, 2008.
Capital Resources. At November 30, 2009,
we had $1.82 billion of mortgages and notes payable
outstanding compared to $1.94 billion outstanding at
November 30, 2008. The decrease in our debt balance was
mainly due to the maturity and repayment of $200.0 million
in aggregate principal amount of our
85/8%
senior subordinated notes (the $200 Million Senior
Subordinated Notes) on December 15, 2008 and the
purchase of $250.0 million in aggregate principal amount of
the $350 Million Senior Notes. The impact of these
transactions on our overall debt balance was partially offset by
our issuance of $265.0 million in aggregate principal amount of
9.1% senior notes due 2017 (the $265 Million Senior
Notes) and the addition of debt associated with previously
unconsolidated joint ventures that were consolidated during 2009.
On July 30, 2009, pursuant to the automatically effective
universal shelf registration statement we filed with the SEC on
October 17, 2008 (the 2008 Shelf Registration), we
issued the $265 Million Senior Notes, which are due on
September 15, 2017, with interest payable semiannually,
represent senior unsecured obligations and rank equally in right
of payment with all of our existing and future senior
indebtedness. The $265 Million Senior Notes may be redeemed in
whole at any time or from time to time in part, at a price equal
to the greater of (a) 100% of their principal amount and
(b) the sum of the present values of the remaining
scheduled payments of principal and interest discounted to the
date of redemption at a defined rate, plus, in each case accrued
and unpaid interest to the applicable redemption date. The notes
are unconditionally guaranteed jointly and severally by certain
of our subsidiaries (the Guarantor Subsidiaries) on
a senior unsecured basis. We used substantially all of the net
proceeds from the issuance of the $265 Million Senior Notes to
purchase, pursuant to a simultaneous tender offer,
$250.0 million in aggregate principal amount of the
$350 Million Senior Notes for total consideration of
$252.5 million. The two transactions effectively extended
the maturity of $250.0 million of our senior debt by six
years, enhancing the maturity schedule of our outstanding public
debt. Our next scheduled public debt maturity is in 2011, when
the remaining $100.0 million of our $350 Million
Senior Notes mature. After this, there are no scheduled
maturities of our outstanding public debt until 2014, when
$250.0 million of our
53/4% senior
notes (the $250 Million Senior Notes) become
due.
In managing our investments in unconsolidated joint ventures, we
expect that in some cases, we may purchase our partners
interests and consolidate certain of the joint ventures, as
occurred in 2009 and 2008. The consolidation of unconsolidated
joint ventures, should any occur, could result in an increase in
the amount of mortgages and notes payable on our consolidated
balance sheets. As of November 30, 2009, the consolidation
of debt from previously unconsolidated joint ventures did not
have a material impact on our consolidated financial position.
We do not believe any expected future consolidations would have
a material effect on our consolidated financial position, our
results of operations, our liquidity, or our ability to comply
with the terms governing the Credit Facility or public debt.
Our financial leverage, as measured by the ratio of debt to
total capital, was 72.0% at November 30, 2009, compared to
70.0% at November 30, 2008. The increase in our leverage
primarily reflected the decrease in our stockholders
equity as a result of losses and impairment charges incurred in
2009. Our ratio of net debt to total capital at
November 30, 2009 was 42.9%, compared to 45.4% at
November 30, 2008.
Under the terms of the Credit Facility, we are required, among
other things, to maintain a minimum consolidated tangible net
worth and certain financial statement ratios, and are subject to
limitations on acquisitions, inventories and indebtedness.
Specifically, the Credit Facility requires us to maintain a
minimum consolidated tangible net worth of $1.00 billion,
reduced by the cumulative deferred tax valuation allowances not
to exceed $721.8 million (Permissible Deferred Tax
Valuation Allowances). The minimum consolidated tangible
net worth requirement is increased by the amount of the proceeds
from any issuance of capital stock and 50% of our cumulative
consolidated net income, before the effect of deferred tax
valuation allowances, for each quarter after May 31, 2008
where we have cumulative consolidated
40
net income. There is no decrease when we have cumulative
consolidated net losses. At November 30, 2009, our
applicable minimum consolidated tangible net worth requirement
was $278.2 million.
The aggregate commitment under the Credit Facility, in
accordance with its terms, was permanently reduced from
$800.0 million to $650.0 million in the second quarter
of 2009 because our consolidated tangible net worth was below
$800.0 million at February 28, 2009. As of
November 30, 2009, we had no cash borrowings outstanding
and $175.0 million in letters of credit outstanding under
the Credit Facility. Accordingly, we had $475.0 million
available for future borrowings under the Credit Facility at
November 30, 2009.
On December 28, 2009, we voluntarily reduced the aggregate
commitment under the Credit Facility to $200.0 million to
reduce costs associated with maintaining the Credit Facility.
Other financial statement ratios required under the Credit
Facility consist of maintaining at the end of each fiscal
quarter a Coverage Ratio greater than 1.00 to 1.00 and a
Leverage Ratio less than 2.00 to 1.00, 1.25 to 1.00, or 1.00 to
1.00, depending on our Coverage Ratio. The Coverage Ratio is the
ratio of our consolidated adjusted EBITDA to consolidated
interest expense (as defined under the Credit Facility) over the
previous 12 months. The Leverage Ratio is the ratio of our
consolidated total indebtedness (as defined under the Credit
Facility) to the sum of consolidated tangible net worth and
Permissible Deferred Tax Valuation Allowances (Adjusted
Consolidated Tangible Net Worth).
If our Coverage Ratio is less than 1.00 to 1.00, we will not be
in default under the Credit Facility provided that our Leverage
Ratio is less than 1.00 to 1.00 and we establish with the Credit
Facilitys administrative agent an Interest Reserve Account
equal to the amount of interest we incurred on a consolidated
basis during the most recent completed quarter, multiplied by
the number of quarters remaining until the Credit Facility
maturity date of November 2010, not to exceed a maximum of four.
We may withdraw all amounts deposited in the Interest Reserve
Account when our Coverage Ratio at the end of a fiscal quarter
is greater than or equal to 1.00 to 1.00, provided that there is
no default under the Credit Facility at the time the amounts are
withdrawn. An Interest Reserve Account is not required when our
actual Coverage Ratio is greater than or equal to 1.00 to 1.00.
The covenants under the Credit Facility represent the most
restrictive covenants we have with respect to our mortgages and
notes payable.
The following table presents certain key financial metrics we
are required to maintain under our Credit Facility at
November 30, 2009 and our actual ratios:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2009
|
|
|
Covenant
|
|
|
Financial Covenant
|
|
Requirement
|
|
Actual
|
|
Minimum consolidated tangible net worth
|
|
$
|
278.2 million
|
|
|
$
|
700.9 million
|
|
Coverage Ratio
|
|
|
(a)
|
|
|
|
(a)
|
|
Leverage Ratio (b)
|
|
|
≤1.00
|
|
|
|
.39
|
|
Investment in subsidiaries and joint ventures as a percentage of
Adjusted Consolidated Tangible Net Worth
|
|
|
<35
|
%
|
|
|
11
|
%
|
Borrowing base in excess of senior indebtedness (as defined)
|
|
|
Greater than zero
|
|
|
$
|
474.7 million
|
|
|
|
|
(a) |
|
Our Coverage Ratio of .77 was less than 1.00 to 1.00 as of
November 30, 2009. With our Leverage Ratio as of
August 31, 2009 below 1.00 to 1.00, we maintained an
Interest Reserve Account through the fourth quarter of 2009 to
remain in compliance with the terms of the Credit Facility. The
Interest Reserve Account had a balance of $114.3 million at
November 30, 2009. With our Leverage Ratio as of
November 30, 2009 below 1.00 to 1.00, we will continue to
maintain the Interest Reserve Account in the first quarter of
2010, but the balance is expected to decrease to $90.2 million
by the end of that period, reflecting a decrease in the
applicable multiplier from four to three based on the number of
fiscal quarters remaining until the Credit Facility matures in
November 2010. |
|
(b) |
|
The Leverage Ratio requirement varies based on our Coverage
Ratio. If our Coverage Ratio is greater than or equal to 1.50 to
1.00, the Leverage Ratio requirement is less than 2.00 to 1.00.
If our Coverage Ratio is between 1.00 and 1.50 to 1.00, the
Leverage Ratio requirement is less than 1.25 to 1.00. If our
Coverage Ratio is less than 1.00 to 1.00, the Leverage Ratio
requirement is less than or equal to 1.00 to 1.00. |
41
The following table presents the same financial metrics and
actual ratios at November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
Covenant
|
|
|
Financial Covenant
|
|
Requirement
|
|
Actual
|
|
Minimum consolidated tangible net worth
|
|
$
|
278.2 million
|
|
|
$
|
827.9 million
|
|
Coverage Ratio
|
|
|
(a)
|
|
|
|
(a)
|
|
Leverage Ratio
|
|
|
≤1.00
|
|
|
|
.47
|
|
Investment in subsidiaries and joint ventures as a percentage of
Adjusted Consolidated Tangible Net Worth
|
|
|
<35
|
%
|
|
|
15
|
%
|
Borrowing base in excess of senior indebtedness (as defined)
|
|
|
Greater than zero
|
|
|
$
|
825.0 million
|
|
|
|
|
(a) |
|
Our Coverage Ratio of negative .27 was less than 1.00 to 1.00 as
of November 30, 2008. With our Leverage Ratio as of
August 31, 2008 below 1.00 to 1.00, we established the
Interest Reserve Account with a balance of $115.4 million
in the fourth quarter of 2008 to remain in compliance with the
terms of the Credit Facility. The Interest Reserve Account had a
balance of $115.4 million at November 30, 2008. |
If our Coverage Ratio is less than 2.00 to 1.00, we are
restricted from optional payment or prepayment of principal,
interest or any other amount for subordinated obligations before
their maturity; payments to retire, redeem, purchase or acquire
for value shares of capital stock from or with non-employees;
and investments in a holder of 5% or more of our capital stock
if the purpose of the investment is to avoid default. These
restrictions do not apply if (a) our unrestricted cash
equals or exceeds the aggregate commitment; (b) there are
no outstanding borrowings against the Credit Facility; and
(c) there is no default under the Credit Facility.
Other covenants contained in the Credit Facility provide that
(a) transactions with employees for exchanges of capital
stock, such as payments for incentive and employee benefit plans
or cashless exercises of stock options, cannot exceed
$5.0 million in any fiscal year; (b) our unimproved
land book value cannot exceed consolidated tangible net worth;
(c) investments in subsidiaries and joint ventures (as
defined in the Credit Facility) cannot exceed 35% of Adjusted
Consolidated Tangible Net Worth; (d) speculative home
deliveries within a given quarter cannot exceed 40% of the
previous 12 months total deliveries; and (e) the
borrowing base (as defined in the Credit Facility) cannot be
lower than total senior indebtedness (as defined in the Credit
Facility).
The indenture governing our senior notes does not contain any
financial maintenance covenants. Subject to specified
exceptions, the senior notes indenture contains certain
restrictive covenants that, among other things, limit our
ability to incur secured indebtedness; engage in sale-leaseback
transactions involving property or assets above a certain
specified value; or engage in mergers, consolidations, or sales
of assets.
As of November 30, 2009, we were in compliance with the
applicable terms of all of our covenants under the Credit
Facility, senior notes indenture, and mortgages and land
contracts due to land sellers and other loans. Our ability to
continue to borrow funds depends in part on our ability to
remain in such compliance. Our inability to do so could make it
more difficult and expensive to maintain our current level of
external debt financing or to obtain additional financing.
As further discussed below under the heading Off-Balance
Sheet Arrangements, our unconsolidated joint ventures are
subject to various financial and non-financial covenants in
conjunction with their debt, primarily related to fair value of
collateral and minimum land purchase or sale requirements within
a specified period. In a few instances, the financial covenants
are based on our financial position. The inability of an
unconsolidated joint venture to comply with its debt covenants
could result in a default and cause lenders to seek to enforce
guarantees, if applicable, provided by us
and/or our
corresponding unconsolidated joint venture partner(s).
During the quarter ended February 28, 2009, our board of
directors declared a cash dividend of $.0625 per share of common
stock, which was paid on February 19, 2009 to stockholders
of record on February 5, 2009. During the quarter ended
May 31, 2009, our board of directors declared a cash
dividend of $.0625 per share of common stock, which was paid on
May 21, 2009 to stockholders of record on May 7, 2009.
During the quarter ended August 31, 2009, our board of
directors declared a cash dividend of $.0625 per share of common
stock, which was paid on August 20, 2009 to stockholders of
record August 6, 2009. During the quarter ended
November 30, 2009, our board of directors declared a
42
cash dividend of $.0625 per share of common stock, which was
paid on November 19, 2009 to shareholders of record on
November 5, 2009. During 2009, we have declared and paid
total cash dividends of $.25 per share of common stock.
Depending on available terms, we also finance certain land
acquisitions with purchase-money financing from land sellers or
with other forms of financing from third parties. At
November 30, 2009, we had outstanding notes payable in
connection with such financing of $164.0 million, secured
primarily by the underlying property, which had a carrying value
of $189.9 million.
Consolidated Cash Flows. Operating, investing
and financing activities provided net cash of $36.4 million
in 2009 and $539.6 million in 2007. These activities used
net cash of $202.2 million in 2008.
Operating Activities. Over the past three
years, we have generated substantial net cash flows from
operating activities, largely due to strategic reductions in our
inventories as we took actions to align our business with
reduced housing market activity and improve our liquidity. These
actions have included exiting or winding down operations in
certain markets, selling non-strategic land positions and
remaining conservative in our land acquisition and development
activities. There is no assurance that we will generate similar
cash flow from operating activities in 2010. While we intend to
continue to prudently manage our inventory balances, in
connection with our goal of restoring our homebuilding
operations to profitability, we plan to pursue land acquisitions
to facilitate growth in our community count and, depending on
future housing market conditions and the availability of
attractive opportunities, we may use a portion of our cash
balance to increase our inventory levels.
Operating activities provided net cash flows of
$349.9 million in 2009 and $341.3 million in 2008. Our
sources of operating cash in 2009 included a net decrease in
inventories of $433.1 million (excluding inventory
impairments and land option contract abandonments,
$16.2 million of inventories acquired through seller
financing, a decrease of $45.3 million in consolidated
inventories not owned, and an increase of $97.6 million in
inventories in connection with the consolidation of certain
previously unconsolidated joint ventures), other operating
sources of $8.3 million and various noncash items added to
the net loss. The cash provided in 2009 was partly offset by a
decrease in accounts payable, accrued expenses and other
liabilities of $252.6 million and a net loss of
$101.8 million.
In 2008, operating cash was provided by a net decrease in
inventories of $545.9 million (excluding inventory
impairments and land option contract abandonments,
$90.0 million of inventories acquired through seller
financing and a decrease of $143.1 million in consolidated
inventories not owned), other operating sources of
$32.6 million and various noncash items added to the net
loss. Partially offsetting the cash provided in 2008 was a net
loss of $976.1 million, a decrease in accounts payable,
accrued expenses and other liabilities of $282.8 million
and an increase in receivables of $60.6 million.
In 2007, operating cash provided by our continuing operations
included a net decrease in inventories of $779.9 million
(excluding inventory impairments and land option contract
abandonments, $4.1 million of inventories acquired through
seller financing and a decrease of $409.5 million in
consolidated inventories not owned), other operating sources of
$13.4 million and various noncash items added to the loss
from continuing operations. Partially offsetting the cash
provided in 2007 was a net loss of $929.4 million, a
decrease in accounts payable, accrued expenses and other
liabilities of $340.6 million and an increase in
receivables of $71.4 million. Our French discontinued
operations provided net cash from operating activities of
$297.4 million in 2007.
Investing Activities. Investing activities
used net cash of $21.3 million in 2009 and
$52.5 million in 2008. In 2009, $19.9 million of cash
was used for investments in unconsolidated joint ventures and
$1.4 million of cash was used for net purchases of property
and equipment. In 2008, $59.6 million of cash was used for
investments in unconsolidated joint ventures. The cash used in
2008 was partially offset by $7.1 million provided from net
sales of property and equipment.
In 2007, continuing operations provided cash of
$739.8 million from the sale of our French discontinued
operations, net of cash divested, and $.6 million was
provided from net sales of property and equipment. Partially
offsetting the cash provided in the period was
$85.2 million of cash used for investments in
unconsolidated joint ventures. Our French discontinued
operations used net cash of $12.1 million for investing
activities in 2007.
Financing Activities. Net cash used for
financing activities totaled $292.2 million in 2009 and
$491.0 million in 2008. In 2009, cash was used for the
repayment of $250.0 million in aggregate principal amount
of the $350 Million Senior Notes and the $200 Million
Senior Subordinated Notes, payments of $79.0 million on
mortgages, land contracts
43
and other loans, dividend payments of $19.1 million,
payment of senior notes issuance costs of $4.3 million, and
repurchases of common stock of $.6 million in connection
with the satisfaction of employee withholding taxes on vested
restricted stock. These uses of cash in 2009 were partly offset
by $259.7 million of cash provided from the issuance of the
$265 Million Senior Notes, $3.1 million of cash provided
from the issuance of common stock under employee stock plans and
$1.1 million of cash provided from a reduction in the
balance of the Interest Reserve Account (which is restricted
cash).
In 2008, cash was used for the early redemption of the $300
Million Senior Subordinated Notes, to establish the Interest
Reserve Account with a balance of $115.4 million as
required under the terms of the Credit Facility, dividend
payments of $63.0 million, net payments on short-term
borrowings of $12.8 million and repurchases of common stock
of $1.0 million in connection with the satisfaction of
employee withholding taxes on vested restricted stock. These
uses of cash in 2008 were partly offset by $7.0 million
provided from the issuance of common stock under our employee
stock plans.
In 2007, our continuing operations used cash for the repayment
of the $400 Million Term Loan, which was scheduled to mature on
April 11, 2011, the early redemption of the $250 Million
Senior Subordinated Notes, net payments on short-term borrowings
of $114.1 million, dividend payments of $77.2 million,
and repurchases of common stock of $6.9 million in
connection with the satisfaction of employee withholding taxes
on vested restricted stock. These uses of cash were partly
offset by $12.3 million of cash provided from the issuance
of common stock under our employee stock plans and
$.9 million of excess tax benefit associated with the
exercise of stock options. Our French discontinued operations
used net cash of $306.5 million for financing activities in
2007.
Shelf Registration Statement. On
October 17, 2008, we filed the 2008 Shelf Registration with
the SEC, registering debt and equity securities that we may
issue from time to time in amounts to be determined. Our
previously effective shelf registration filed with the SEC on
November 12, 2004 (the 2004 Shelf Registration)
was subsumed within the 2008 Shelf Registration. On
July 30, 2009, we issued the $265 Million Senior Notes
under the 2008 Shelf Registration. We have not issued any other
securities under the 2008 Shelf Registration.
Share Repurchase Program. At
November 30, 2009, we were authorized to repurchase four
million shares of our common stock under a board-approved share
repurchase program. We did not repurchase any shares of our
common stock under this program in 2009.
In the present environment, we are carefully managing our use of
cash for investments internal to our business, investments to
grow our business and potential additional debt reductions.
Based on our current capital position, we believe we have
adequate resources and sufficient access to external financing
sources to satisfy our current and reasonably anticipated future
requirements for funds to acquire capital assets and land,
consistent with our marketing strategies and investment
standards, to construct homes, to finance our financial services
operations, and to meet any other needs in the ordinary course
of our business, both on a short- and long-term basis. Although
we anticipate that our asset acquisition and development
activities will remain limited in the near term until markets
stabilize, we are analyzing potential asset acquisitions and
will use our present financial strength to acquire assets in
good, long-term markets when the prices, timing and strategic
fit are compelling.
OFF-BALANCE
SHEET ARRANGEMENTS
We participate in unconsolidated joint ventures that conduct
land acquisition, development
and/or other
homebuilding activities in various markets, typically where our
homebuilding operations are located. Our partners in these
unconsolidated joint ventures are unrelated homebuilders, land
developers and other real estate entities, or commercial
enterprises. Through these unconsolidated joint ventures, we
seek to reduce and share market and development risks and to
reduce our investment in land inventory, while potentially
increasing the number of homesites we control or will own. In
some instances, participating in unconsolidated joint ventures
enables us to acquire and develop land that we might not
otherwise have access to due to a projects size, financing
needs, duration of development or other circumstances. While we
view our participation in unconsolidated joint ventures as
beneficial to our homebuilding activities, we do not view such
participation as essential.
We and/or
our unconsolidated joint venture partners typically obtain
options or enter into other arrangements to have the right to
purchase portions of the land held by the unconsolidated joint
ventures. The prices for these land options or other
arrangements are generally negotiated prices that approximate
fair value. When an unconsolidated joint venture
44
sells land to our homebuilding operations, we defer recognition
of our share of such unconsolidated joint venture earnings until
a home sale is closed and title passes to a homebuyer, at which
time we account for those earnings as a reduction of the cost of
purchasing the land from the unconsolidated joint venture.
We and our unconsolidated joint venture partners make initial or
ongoing capital contributions to these unconsolidated joint
ventures, typically on a pro rata basis. The obligations to
make capital contributions are governed by each unconsolidated
joint ventures respective operating agreement and related
documents. We also share in the profits and losses of these
unconsolidated joint ventures generally in accordance with our
respective equity interests. These unconsolidated joint ventures
had total assets of $921.5 million at November 30, 2009 and
$1.26 billion at November 30, 2008. Our investment in
unconsolidated joint ventures totaled $119.7 million at November
30, 2009 and $177.6 million at November 30, 2008. During 2009
and 2008, we reduced our investments in unconsolidated joint
ventures as part of the overall management of our inventory and
the strategic positioning of our business operations, resulting
in our winding down, consolidating or dissolving certain
unconsolidated joint ventures. In addition, in light of
surrounding circumstances concerning one of our unconsolidated
joint ventures, we believe it is unlikely we will purchase and
develop land from the joint venture as originally intended, and,
as a result, reclassified $50.6 million of a liability
associated with the previously anticipated land purchase and
development against the investment in this unconsolidated joint
venture in 2009. We expect our investments in unconsolidated
joint ventures will continue to decrease over time and are
reviewing each investment to ensure it fits into our current
overall strategic plans and business objectives.
The unconsolidated joint ventures finance land and inventory
investments through a variety of arrangements. To finance their
respective land acquisition and development activities, many of
our unconsolidated joint ventures have obtained loans from
third-party lenders that are secured by the underlying property
and related project assets. The unconsolidated joint ventures
had outstanding debt, substantially all of which was secured, of
approximately $514.2 million at November 30, 2009 and
$871.3 million at November 30, 2008. The
unconsolidated joint ventures are subject to various financial
and non-financial covenants in conjunction with their debt,
primarily related to fair value of collateral and minimum land
purchase or sale requirements within a specified period. In a
few instances, the financial covenants are based on our
financial position. The inability of an unconsolidated joint
venture to comply with its debt covenants could result in a
default and cause lenders to seek to enforce guarantees, if
applicable, as described below.
In certain instances, we
and/or our
partner(s) in an unconsolidated joint venture provide guarantees
and indemnities to the unconsolidated joint ventures
lenders that may include one or more of the following:
(a) a completion guaranty; (b) a loan-to-value
maintenance guaranty;
and/or
(c) a carve-out guaranty. A completion guaranty refers to
the physical completion of improvements for a project
and/or the
obligation to contribute equity to an unconsolidated joint
venture to enable it to fund its completion obligations. A
loan-to-value maintenance guaranty refers to the payment of
funds to maintain the applicable loan balance at or below a
specific percentage of the value of an unconsolidated joint
ventures secured collateral (generally land and
improvements). A carve-out guaranty refers to the payment of
(i) losses a lender suffers due to certain bad acts or
omissions by an unconsolidated joint venture or its partners,
such as fraud or misappropriation, or due to environmental
liabilities arising with respect to the relevant project, or
(ii) outstanding principal and interest and certain other
amounts owed to lenders upon the filing by an unconsolidated
joint venture of a voluntary bankruptcy petition or the filing
of an involuntary bankruptcy petition by creditors of the
unconsolidated joint venture in which an unconsolidated joint
venture or its partners collude or which the unconsolidated
joint venture fails to contest.
In most cases, our maximum potential responsibility under these
guarantees and indemnities is limited to either a specified
maximum dollar amount or an amount equal to our pro rata
interest in the relevant unconsolidated joint venture. In a few
cases, we have entered into agreements with our unconsolidated
joint venture partners to be reimbursed or indemnified with
respect to the guarantees we have provided to an unconsolidated
joint ventures lenders for any amounts we may pay pursuant
to such guarantees above our pro rata interest in the
unconsolidated joint venture. If our unconsolidated joint
venture partners are unable to fulfill their reimbursement or
indemnity obligations, or otherwise fail to do so, we could
incur more than our allocable share under the relevant guaranty.
Should there be indications that advances (if made) will not be
voluntarily repaid by an unconsolidated joint venture partner
under any such
45
reimbursement arrangements, we vigorously pursue all rights and
remedies available to us under the applicable agreements, at law
or in equity to enforce our rights.
Our potential responsibility under our completion guarantees, if
triggered, is highly dependent on the facts of a particular
case. In any event, we believe our actual responsibility under
these guarantees is limited to the amount, if any, by which an
unconsolidated joint ventures outstanding borrowings
exceed the value of its assets, but may be substantially less
than this amount.
At November 30, 2009, our potential responsibility under
our loan-to-value maintenance guarantees totaled approximately
$3.8 million, if any liability were determined to be due
thereunder. This amount represents our maximum responsibility
under such loan-to-value maintenance guarantees assuming the
underlying collateral has no value and without regard to
defenses that could be available to us against any attempted
enforcement of such guarantees.
Notwithstanding our potential unconsolidated joint venture
guaranty and indemnity responsibilities and resolutions we have
reached in certain instances with unconsolidated joint venture
lenders with respect to those potential responsibilities, at
this time we do not believe, except as described below, that our
existing exposure under our outstanding completion,
loan-to-value and carve-out guarantees and indemnities related
to unconsolidated joint venture debt is material to our
consolidated financial position or results of operations.
The lenders for two of our unconsolidated joint ventures have
filed lawsuits against some of the unconsolidated joint
ventures members, and certain of those members
parent companies, seeking to recover damages under completion
guarantees, among other claims. We and the other parent
companies, together with the members, are defending the lawsuits
in which they have been named and are currently exploring
resolutions with the lenders, but there is no assurance that the
parties involved will reach satisfactory resolutions. Related to
these lawsuits, an arbitration proceeding has commenced among
the members (including us) of one of these unconsolidated joint
ventures concerning the members respective obligations in
regards to the unconsolidated joint venture. We have not
concluded whether any potential outcome of these proceedings is
likely, individually or in the aggregate, to be material to our
consolidated financial position or results of operations.
In addition to the above-described guarantees and indemnities,
we have also provided a several guaranty to the lenders of one
of our unconsolidated joint ventures. By its terms, the guaranty
purports to guarantee the repayment of principal and interest
and certain other amounts owed to the unconsolidated joint
ventures lenders when an involuntary bankruptcy proceeding
is filed against the unconsolidated joint venture that is not
dismissed within 60 days or for which an order approving
relief under bankruptcy law is entered, even if the
unconsolidated joint venture or its partners do not collude in
the filing and the unconsolidated joint venture contests the
filing. Our potential responsibility under this several guaranty
fluctuates with the unconsolidated joint ventures debt and
with our and our partners respective land purchases from
the unconsolidated joint venture. At November 30, 2009,
this unconsolidated joint venture had total outstanding
indebtedness of approximately $372.9 million and, if this
guaranty were then enforced, our maximum potential
responsibility under the guaranty would have been approximately
$182.7 million, which amount does not account for any
offsets or defenses that could be available to us.
Certain of our other unconsolidated joint ventures operating in
difficult market conditions are in default of their debt
agreements with their lenders or are at risk of defaulting. In
addition, certain of our unconsolidated joint venture partners
have curtailed funding of their allocable joint venture
obligations. We are carefully managing our investments in these
particular unconsolidated joint ventures and are working with
the relevant lenders and unconsolidated joint venture partners
to reach satisfactory resolutions. In some instances, we may
decide to purchase our partners interests and consolidate
the joint venture, which could result in an increase in the
amount of mortgages and notes payable on our consolidated
balance sheets. However, such purchases may not resolve a
claimed default by the joint venture under its debt agreements.
Based on the terms and amounts of the debt involved for these
particular unconsolidated joint ventures and the terms of the
applicable joint venture operating agreements, we do not believe
that our exposure related to any defaults by or with respect to
these particular unconsolidated joint ventures is material to
our consolidated financial position, results of operations or
liquidity.
In the ordinary course of our business, we enter into land
option contracts (or similar agreements) in order to procure
land for the construction of homes. The use of such land option
and other contracts generally allows us to reduce the risks
associated with direct land ownership and development, reduces
our capital and financial commitments, including
46
interest and other carrying costs, and minimizes the amount of
our land inventories on our consolidated balance sheets. Under
such land option contracts, we will pay a specified option
deposit or earnest money deposit in consideration for the right
to purchase land in the future, usually at a predetermined
price. Under the requirements of Accounting Standards
Codification Topic No. 810, Consolidation
(ASC 810), certain of our land option contracts
may create a variable interest for us, with the land seller
being identified as a variable interest entity (VIE).
In compliance with ASC 810, we analyze our land option
contracts and other contractual arrangements when they are
entered into or upon a reconsideration event. As a result of our
analyses, we have consolidated certain VIEs from which we are
purchasing land under option contracts. Although we do not have
legal title to the optioned land, ASC 810 requires us to
consolidate the VIE if we are determined to be the primary
beneficiary. In determining whether we are the primary
beneficiary, we consider, among other things, the size of our
deposit relative to the contract price, the risk of obtaining
land entitlement approval, the risk associated with land
development required under the land option contract, and the
risk of changes in the market value of the optioned land during
the contract period. The consolidation of VIEs in which we
determined we were the primary beneficiary increased
inventories, with a corresponding increase to accrued expenses
and other liabilities, on our consolidated balance sheets by
$21.0 million at November 30, 2009 and
$15.5 million at November 30, 2008. The liabilities
related to our consolidation of VIEs from which we are
purchasing land under option and other contracts represent the
difference between the purchase price of land not yet purchased
and our cash deposits. Our cash deposits related to these land
option and other contracts totaled $4.1 million at
November 30, 2009 and $3.4 million at
November 30, 2008. Creditors, if any, of these VIEs have no
recourse against us. As of November 30, 2009, we had cash
deposits totaling $.8 million associated with land option
and other contracts that we determined to be unconsolidated
VIEs, having an aggregate purchase price of $20.5 million.
As of November 30, 2009, we also had cash deposits totaling
$4.7 million associated with land option and other
contracts that were not VIEs, having an aggregate purchase price
of $404.6 million.
We also evaluate land option contracts for financing
arrangements in accordance with Accounting Standards
Codification Topic No. 470, Debt
(ASC 470). As a result of our evaluations, we
increased our inventories, with a corresponding increase to
accrued expenses and other liabilities, on our consolidated
balance sheets by $36.1 million at November 30, 2009
and $81.5 million at November 30, 2008.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table presents our future cash requirements under
contractual obligations as of November 30, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
Thereafter
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,820,370
|
|
|
$
|
18,474
|
|
|
$
|
245,294
|
|
|
$
|
249,358
|
|
|
$
|
1,307,244
|
|
Interest
|
|
|
644,431
|
|
|
|
112,365
|
|
|
|
216,496
|
|
|
|
200,001
|
|
|
|
115,569
|
|
Operating lease obligations
|
|
|
40,150
|
|
|
|
11,657
|
|
|
|
17,950
|
|
|
|
9,033
|
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
2,504,951
|
|
|
$
|
142,496
|
|
|
$
|
479,740
|
|
|
$
|
458,392
|
|
|
$
|
1,424,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total contractual obligations exclude our accrual for uncertain
tax positions recorded for financial reporting purposes as of
November 30, 2009 because we are unable to make a
reasonable estimate of cash settlements with the respective
taxing authorities for all periods presented. We anticipate
potential cash settlement requirements for 2010 to range from
$3.0 million to $4.0 million. |
We are often required to obtain performance bonds and letters of
credit in support of our obligations to various municipalities
and other government agencies in connection with community
improvements such as roads, sewers and water, and to certain
unconsolidated joint ventures. At November 30, 2009, we had
$539.7 million of performance bonds and $175.0 million
of letters of credit outstanding. At November 30, 2008, we
had $761.1 million of performance bonds and
$211.8 million of letters of credit outstanding. In the
event any such performance bonds or letters of credit are
called, we would be obligated to reimburse the issuer of the
performance bond or letter of credit. At this time, we do not
believe that a material amount of any currently outstanding
performance bonds or letters of credit will be called.
Performance
47
bonds do not have stated expiration dates. Rather, we are
released from the performance bonds as the contractual
performance is completed. The expiration dates of letters of
credit issued in connection with community improvements and
certain unconsolidated joint ventures coincide with the expected
completion dates of the related projects or obligations. If the
obligations related to a project are ongoing, the relevant
letters of credit are typically extended on a year-to-year basis.
CRITICAL
ACCOUNTING POLICIES
Discussed below are accounting policies that we believe are
critical because of the significance of the activity to which
they relate or because they require the use of significant
judgment in their application.
Homebuilding Revenue Recognition. As discussed
in Note 1. Summary of Significant Accounting Policies in
the Notes to Consolidated Financial Statements in this report,
revenues from housing and other real estate sales are recognized
in accordance with ASC 360 when sales are closed and title
passes to the buyer. Sales are closed when all of the following
conditions are met: a sale is consummated, a significant down
payment is received, the earnings process is complete and the
collection of any remaining receivables is reasonably assured.
Inventories and Cost of Sales. As discussed in
Note 1. Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements in this report,
housing and land inventories are stated at cost, unless the
carrying amount is determined not to be recoverable, in which
case the inventories are written down to fair value in
accordance with ASC 360. Fair value is determined based on
estimated future cash flows discounted for inherent risks
associated with the real estate assets, or other valuation
techniques. Due to uncertainties in the estimation process, it
is possible that actual results could differ from those
estimates. Our inventories typically do not consist of completed
projects. However, order cancellations or strategic
considerations may result in our having a relatively small
amount of inventory of constructed or partially constructed
unsold homes.
We rely on certain estimates to determine our construction and
land costs and resulting gross margins associated with revenues
recognized. 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 on a relative fair value
basis to homes within a parcel or community. Land and land
development costs include related interest and real estate taxes.
In determining a portion of the construction and land costs for
each period, we rely on project budgets that are based on a
variety of assumptions, including future construction schedules
and costs to be incurred. It is possible that actual results
could differ from budgeted amounts for various reasons,
including construction delays, labor or materials shortages,
increases in costs that have not yet been committed, changes in
governmental requirements, unforeseen environmental hazard
discoveries or other unanticipated issues encountered during
construction. While the actual results for a particular
construction project are accurately reported over time,
variances between the budgeted and actual costs of a project
could result in the understatement or overstatement of
construction and land costs and homebuilding gross margins in a
specific reporting period. To reduce the potential for such
distortion, we have set forth procedures that collectively
comprise a critical accounting policy. These
procedures, which we have applied on a consistent basis, include
updating, assessing and revising project budgets on a monthly
basis, obtaining commitments from subcontractors and vendors for
future costs to be incurred, reviewing the adequacy of warranty
accruals and historical warranty claims experience, and
utilizing the most current information available to estimate
construction and land costs to be charged to expense. The
variances between budgeted and actual costs have historically
not had a material impact on our consolidated results of
operations. We believe that our policies provide for reasonably
dependable estimates to be used in the calculation and reporting
of construction and land costs.
Inventory Impairments and Land Option Contract
Abandonments. As discussed in Note 6.
Inventory Impairments and Land Option Contract Abandonments in
the Notes to Consolidated Financial Statements in this report,
each land parcel or community in our owned inventory is assessed
to determine if indicators of potential impairment exist.
Impairment indicators are assessed separately for each land
parcel or community on a quarterly basis and include, but are
not limited to: significant decreases in sales rates, average
selling prices, volume of homes delivered, gross margins on
homes delivered or projected margins on homes in backlog or
future housing sales; significant increases in budgeted land
development and construction costs or cancellation rates; or
projected losses on expected future land sales. If indicators of
potential impairment exist for a land parcel or community, the
identified inventory is evaluated for recoverability in
accordance with ASC 360. When an indicator of potential
impairment is identified, we test the asset for recoverability
by comparing the carrying amount of the asset to the
48
undiscounted future net cash flows expected to be generated by
the asset. The undiscounted future net cash flows are impacted
by trends and factors known to us at the time they are
calculated and our expectations related to: market supply and
demand, including estimates concerning average selling prices;
sales and cancellation rates; and anticipated land development,
construction and overhead costs to be incurred. These estimates,
trends and expectations are specific to each land parcel or
community and may vary among land parcels or communities.
A real estate asset is considered impaired when its carrying
amount is greater than the undiscounted future net cash flows
the asset is expected to generate. Impaired real estate assets
are written down to fair value, which is primarily based on the
estimated future cash flows discounted for inherent risk
associated with each asset. These discounted cash flows are
impacted by: the risk-free rate of return; expected risk premium
based on estimated land development, construction and delivery
timelines; market risk from potential future price erosion; cost
uncertainty due to development or construction cost increases;
and other risks specific to the asset or conditions in the
market in which the asset is located at the time the assessment
is made. These factors are specific to each community and may
vary among land parcels or communities.
Based on the results of our evaluations, we recognized pretax,
noncash inventory impairment charges of $120.8 million in
2009 corresponding to 61 communities or land parcels with a
post-impairment fair value of $129.0 million. In 2008, we
recognized pretax, noncash inventory impairment charges of
$565.9 million corresponding to 222 communities or land
parcels with a post-impairment fair value of $1.01 billion.
As of November 30, 2009, the aggregate carrying value of
inventory impacted by pretax, noncash impairment charges was
$603.9 million, representing 128 communities and
various other land parcels. As of November 30, 2008, the
aggregate carrying value of inventory impacted by pretax,
noncash impairment charges was $1.01 billion, representing
163 communities and various other land parcels.
Our optioned inventory is assessed to determine whether it
continues to meet our internal investment standards and
marketing strategy. Assessments are made separately for each
optioned parcel on a quarterly basis and are affected by, among
other factors: current
and/or
anticipated sales rates, average selling prices and home
delivery volume; estimated land development and construction
costs; and projected profitability on expected future housing or
land sales. When a decision is made not to exercise certain land
option contracts due to market conditions
and/or
changes in marketing strategy, we write off the costs, including
non-refundable deposits and pre-acquisition costs, related to
the abandoned projects. Based on the results of our assessments,
we recognized land option contract abandonment charges of
$47.3 million in 2009 corresponding to 1,362 lots. In
2008, we recognized land option contract abandonment charges of
$40.9 million corresponding to 2,855 lots.
The value of the land and housing inventory we currently own or
control depends on market conditions, including estimates of
future demand for, and the revenues that can be generated from,
such inventory. We have analyzed trends and other information
related to each of the markets where we do business and have
incorporated this information as well as our current outlook
into the assumptions we use in our impairment analyses. Due to
the judgment and assumptions applied in the estimation process
with respect to impairments and land option contract
abandonments, it is possible that actual results could differ
substantially from those estimated.
We believe the carrying value of our remaining inventory is
currently recoverable. In addition to the factors and trends
incorporated in our impairment analyses, we consider, as
applicable, the specific regulatory environment, competition
from other homebuilders, the impact of the resale and
foreclosure markets, and the local economic conditions where an
asset is located in assessing the recoverability of each asset
remaining in our inventory. However, if conditions in the
housing market worsen in the future beyond our current
expectations, if future changes in our marketing strategy
significantly affect any key assumptions used in our fair value
calculations, or if there are material changes in the other
items we consider in assessing recoverability, we may need to
take additional charges in future periods for inventory
impairments or land option contract abandonments, or both,
related to existing assets. Any such noncash charges would have
an adverse effect on our consolidated financial position and
results of operations and may be material.
Warranty Costs. As discussed in Note 14.
Commitments and Contingencies in the Notes to Consolidated
Financial Statements in this report, we provide a limited
warranty on all of our homes. The specific terms and conditions
of warranties vary depending upon the market in which we do
business. We generally provide a structural warranty of
10 years, a warranty on electrical, heating, cooling,
plumbing and other building systems each varying from two to
five
49
years based on geographic market and state law, and a warranty
of one year for other components of the home. We estimate the
costs that may be incurred under each limited warranty and
record a liability in the amount of such costs at the time the
revenue associated with the sale of each home is recognized. Our
expense associated with these warranties totaled
$15.1 million in 2009, $25.3 million in 2008 and
$60.6 million in 2007.
Factors that affect our warranty liability include the number of
homes delivered, historical and anticipated rates of warranty
claims, and cost per claim. Our primary assumption in estimating
the amounts we accrue for warranty costs is that historical
claims experience is a strong indicator of future claims
experience. We periodically assess the adequacy of our recorded
warranty liabilities, which are included in accrued expenses and
other liabilities in the consolidated balance sheets, and adjust
the amounts as necessary based on our assessment. While we
believe the warranty accrual reflected in the consolidated
balance sheets to be adequate, unanticipated changes in the
legal environment, local weather, land or environmental
conditions, quality of materials or methods used in the
construction of homes, or customer service practices could have
a significant impact on our actual warranty costs in the future
and such amounts could differ from our current estimates.
Insurance. As discussed in Note 14.
Commitments and Contingencies in the Notes to Consolidated
Financial Statements in this report, we have, and require the
majority of our subcontractors to have, general liability
insurance (including bodily injury and construction defect
coverage), auto, and workers compensation insurance. These
insurance policies protect us against a portion of our risk of
loss from claims related to our homebuilding activities, subject
to certain self-insured retentions, deductibles and other
coverage limits. In Arizona, California, Colorado and Nevada,
our general liability insurance takes the form of a
wrap-up
policy, where eligible subcontractors are enrolled as insureds
on each project. We self-insure a portion of our overall risk
through the use of a captive insurance subsidiary. We record
expenses and liabilities based on the estimated costs required
to cover our self-insured retention and deductible amounts under
our insurance policies, and on the estimated costs of potential
claims and claim adjustment expenses above our coverage limits
or that are not covered by our policies. These estimated costs
are based on an analysis of our historical claims and include an
estimate of construction defect claims incurred but not yet
reported. Our expense associated with self-insurance totaled
$9.8 million in 2009, $10.1 million in 2008 and
$18.3 million in 2007.
We engage a third-party actuary that uses our historical claim
and expense data, as well as industry data, to estimate our
unpaid claims, claim adjustment expenses and incurred but not
reported claims liabilities for the risks that we are assuming
under the self-insured portion of our general liability
insurance. Projection of losses related to these liabilities
requires actuarial assumptions that are subject to variability
due to uncertainties such as trends in construction defect
claims relative to our markets and the types of product we
build, claim settlement patterns, insurance industry practices
and legal interpretations, among others. Because of the degree
of judgment required and the potential for variability in the
underlying assumptions used in determining these estimated
liability amounts, actual future costs could differ from our
currently estimated amounts.
Stock-Based Compensation. As discussed in
Note 1. Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements in this report,
effective December 1, 2005, we adopted the fair value
recognition provisions of Accounting Standards Codification
Topic No. 718, CompensationStock Compensation
(ASC 718), which requires that companies measure and
recognize compensation expense at an amount equal to the fair
value of
share-based
payments granted under compensation arrangements. We provide
some compensation benefits to our employees in the form of stock
options, restricted stock, phantom shares and stock appreciation
rights (SARs). Determining the fair value of
share-based awards requires judgment to identify the appropriate
valuation model and develop the assumptions, including the
expected term of the stock options or SARs, expected stock-price
volatility and dividend yield, to be used in the calculation.
Judgment is also required in estimating the percentage of
share-based awards that are expected to be forfeited. We
estimated the fair value of stock options and SARs granted using
the Black-Scholes option-pricing model with assumptions based
primarily on historical data. In addition, we estimated the fair
value of certain restricted common stock that is subject to a
market condition (Performance Shares) using a Monte
Carlo simulation model. If actual results differ significantly
from these estimates, stock-based compensation expense and our
consolidated results of operations could be materially impacted.
Goodwill. As disclosed in Note 1. Summary
of Significant Accounting Policies in the Notes to Consolidated
Financial Statements in this report, we recorded goodwill in
connection with various acquisitions in prior years. Goodwill
represented the excess of the purchase price over the fair value
of net assets acquired. In accordance with
50
Accounting Standards Codification Topic No. 350,
Intangibles Goodwill and Other
(ASC 350), we tested goodwill for potential
impairment annually as of November 30 and between annual tests
if an event occurred or circumstances changed that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. We evaluated goodwill for impairment using
the two-step process prescribed in ASC 350. The first step was
to identify potential impairment by comparing the fair value of
a reporting unit to the book value, including goodwill. If the
fair value of a reporting unit exceeded the book value, goodwill
was not considered impaired. If the book value exceeded the fair
value, the second step of the process was performed to measure
the amount of impairment. In accordance with ASC 350, we
determined that our reporting units were the same as our
reporting segments. Accordingly, we had four homebuilding
reporting units (West Coast, Southwest, Central and Southeast)
and one financial services reporting unit.
The process of evaluating goodwill for impairment involved the
determination of the fair value of our reporting units. Inherent
in such fair value determinations were certain judgments and
estimates relating to future cash flows, including our
interpretation of current economic indicators and market
valuations, and assumptions about our strategic plans with
regard to our operations.
In performing our impairment analysis, we developed a range of
fair values for our homebuilding and financial services
reporting units using a discounted cash flow methodology and a
market multiple methodology. For the financial services
reporting unit, we also used a comparable transaction
methodology.
The discounted cash flow methodology established fair value by
estimating the present value of the projected future cash flows
to be generated from the reporting unit. The discount rate
applied to the projected future cash flows to arrive at the
present value was intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future
cash flows. The discounted cash flow methodology used our
projections of financial performance for a five-year period. The
most significant assumptions used in the discounted cash flow
methodology were the discount rate, the terminal value and
expected future revenues, gross margins and operating margins,
which varied among reporting units.
The market multiple methodology established fair value by
comparing us to other publicly traded companies that were
similar to us from an operational and economic standpoint. The
market multiple methodology compared us to those companies on
the basis of risk characteristics in order to determine our risk
profile relative to those companies as a group. This analysis
generally focused on quantitative considerations, which included
financial performance and other quantifiable data, and
qualitative considerations, which included any factors which
were expected to impact future financial performance. The most
significant assumptions affecting the market multiple
methodology were the market multiples and control premium. The
market multiples we used were: a) price to net book value
and b) enterprise value to revenue (for each of the
homebuilding reporting units). A control premium represents the
value an investor would pay above minority interest transaction
prices in order to obtain a controlling interest in the
respective company. The comparable transaction methodology
established fair value similar to the market multiple
methodology, and utilized recent transactions within the
industry as the market multiple. However, no control premium was
applied when using the comparable transaction methodology
because those transactions represented control transactions.
Based on the results of our impairment evaluation performed in
the second quarter of 2008, we recorded an impairment charge of
$24.6 million in that quarter related to our Central
reporting segment, where we determined all of the goodwill
previously recorded was impaired. The annual goodwill impairment
test we performed as of November 30, 2008 resulted in an
impairment charge of $43.4 million in the fourth quarter of
2008 related to our Southeast reporting segment, where we
determined all of the goodwill previously recorded was impaired.
Based on the results of our impairment evaluation performed in
the third quarter of 2007, we recorded an impairment charge of
$107.9 million in that quarter related to our Southwest
reporting segment, where we determined all of the goodwill
previously recorded was impaired. The annual goodwill impairment
test we performed as of November 30, 2007 indicated no
additional impairment. The goodwill impairment charges in 2008
and 2007 were recorded at our corporate level because all
goodwill was carried at that level. As a result of those
impairment charges, we had no remaining goodwill at
November 30, 2008 or November 30, 2009.
Income Taxes. As discussed in Note 1.
Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements in this report, we account for
income taxes in accordance with ASC 740. The provision for,
or benefit from, income taxes is calculated using the asset and
liability method, under which deferred tax assets and
liabilities are recorded based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are
evaluated on a quarterly
51
basis to determine whether a valuation allowance is required. In
accordance with ASC 740, we assess whether a valuation
allowance should be established based on our determination of
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets depends primarily on the
generation of future taxable income during the periods in which
those temporary differences become deductible. Judgment is
required in determining the future tax consequences of events
that have been recognized in our consolidated financial
statements
and/or tax
returns. Differences between anticipated and actual outcomes of
these future tax consequences could have a material impact on
our consolidated financial position or results of operations.
As discussed in Note 16. Income Taxes in the Notes to
Consolidated Financial Statements in this report, in July 2006,
the Financial Accounting Standards Board (FASB)
issued guidance that prescribes a recognition threshold and
measurement attributes for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. We adopted this guidance effective
December 1, 2007. The cumulative effect of the adoption was
recorded in 2008 as a $2.5 million reduction to beginning
retained earnings. In accordance with this guidance, we
recognized, in our consolidated financial statements, the impact
of a tax position if a tax returns position or future tax
position is more likely than not to prevail (defined
as a likelihood of more than 50% of being sustained upon audit,
based on the technical merits of the tax position).
We recognize accrued interest and penalties related to
unrecognized tax benefits in our consolidated financial
statements as a component of the income tax provision consistent
with our historical accounting policy. Our liability for
unrecognized tax benefits, combined with accrued interest and
penalties, is reflected as a component of accrued expenses and
other liabilities in our consolidated balance sheets.
Prior to December 1, 2007, we applied Accounting Standards
Codification Topic No. 450, Contingencies
(ASC 450), to assess and provide for potential
income tax exposures. In accordance with ASC 450, we
maintained accruals for tax contingencies based on reasonable
estimates of the tax liabilities, interest, and penalties (if
any) that may result from such audits. The guidance
substantially changes the applicable accounting model and is
likely to cause greater volatility in our consolidated
statements of operations and effective tax rates as more items
are specifically recognized
and/or
derecognized within income tax expense.
RECENT
ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB revised the authoritative guidance
for business combinations, which establishes principles and
requirements for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The revised guidance
also provides disclosure requirements to enable users of the
financial statements to evaluate the nature and financial
effects of the business combination. The revised guidance is
effective for fiscal years beginning after December 15,
2008 and is to be applied prospectively. We believe the adoption
of this guidance will not have a material impact on our
consolidated financial position or results of operations.
In December 2007, the FASB issued authoritative guidance that
establishes accounting and reporting standards pertaining to
ownership interests in subsidiaries held by parties other than
the parent, the amount of net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of any retained
noncontrolling equity investment when a subsidiary is
deconsolidated. The guidance also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. The guidance is effective for fiscal years beginning on
or after December 15, 2008. We believe the adoption of this
guidance will not have a material impact on our consolidated
financial position or results of operations.
In June 2008, the FASB issued authoritative guidance that
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. The guidance is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years,
and requires retrospective application. We believe the adoption
of this guidance will not have a material impact on our
consolidated financial position or results of operations.
In June 2009, the FASB revised the authoritative guidance for
determining the primary beneficiary of a VIE. In December 2009,
the FASB issued Accounting Standards Update No.
2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities (ASU
2009-17), which provides amendments to ASC 810 to reflect
the revised guidance. The amendments in ASU
2009-17
replace the quantitative-based risks and rewards
52
calculation for determining which reporting entity, if any, has
a controlling financial interest in a VIE with an approach
focused on identifying which reporting entity has the power to
direct the activities of a VIE that most significantly impact
the entitys economic performance and (1) the
obligation to absorb losses of the entity or (2) the right
to receive benefits from the entity. The amendments in ASU
2009-17 also
require additional disclosures about a reporting entitys
involvement with VIEs. ASU 2009-17 is effective for fiscal years
beginning after November 15, 2009, for interim periods
within that first annual reporting period and for interim and
annual reporting periods thereafter. We believe the adoption of
this guidance will not have a material impact on our
consolidated financial position or results of operations.
OUTLOOK
Our backlog at November 30, 2009 totaled 2,126 net
orders, representing potential future housing revenues of
approximately $422.5 million. By comparison, at
November 30, 2008, our backlog totaled 2,269 net
orders, representing projected future housing revenues of
approximately $521.4 million. The 6% year-over-year
decrease in the number of net orders in backlog primarily
reflects the impact of our strategic reductions in our inventory
and active community count to better align our operations with
reduced overall housing market activity, as well as reduced
demand in some markets. In 2009, our average active community
count was 38% lower than in 2008. The 19% year-over-year decline
in the projected future housing revenues in backlog reflects the
impact of fewer net orders in backlog and lower average selling
prices, stemming primarily from intense price competition and
our rollout of new product at lower price points compared to
those of our previous product. While our backlog at
November 30, 2009 declined from the previous year, the
percentage decrease in our net orders in backlog was the lowest
we have experienced in more than three years.
Net orders generated by our homebuilding operations increased
12% to 1,446 in the fourth quarter of 2009 from the
1,296 net orders generated in the corresponding quarter of
2008, even though we operated from 34% fewer active communities
in the fourth quarter of 2009. The increase in our net orders
reflected improvement in our cancellation rate and the success
of our new products, including The Open Series product
line, in attracting buyers. Our fourth quarter cancellation rate
decreased to 31% in 2009, compared to 46% in 2008.
Throughout 2009, the homebuilding industry faced continued
challenging operating conditions in most housing markets due to
an increased supply of homes available for sale and restrained
demand. The primary factors driving these conditions during the
year included mounting sales of lender-owned homes acquired
through mortgage foreclosures and short sales, exacerbated by
increasing mortgage delinquencies; a poor economic and
employment environment; tightened credit standards and reduced
credit availability; and relatively weak consumer confidence.
Entering 2010, indications are that some of these negative
trends may be slowing, but it remains highly uncertain when and
to what extent housing markets or the broader economy will
experience a meaningful, sustained recovery.
Moreover, there are several obstacles to a recovery that may
arise in 2010, which alone or in combination could further
increase the supply of homes available for sale
and/or
constrain demand. These obstacles include additional
lender-owned inventory entering the market as a result of more
foreclosure activity stemming from the lifting of voluntary
lender foreclosure moratoriums, voluntary or involuntary
homeowner defaults
and/or
increases in mortgage interest rates. Potential risks on the
demand side include continued weakness or further deterioration
in the overall economy, employment levels
and/or
consumer confidence, as well as the reduced availability of
affordable mortgage credit and the pulling back of government
support for housing. For example, the Federal Reserve has
already announced plans to cease its program to purchase
mortgage-backed securities, the FHA has announced it will
increase the costs and standards applicable to the mortgage
loans it insures, and federal home purchase tax credits are
scheduled to expire in spring 2010.
In order to weather the persistent housing market downturn of
the last four years and to position ourselves for a potential
recovery, we have focused on the following three primary goals:
generating cash and maintaining a strong balance sheet;
restoring the profitability of our homebuilding operations; and
positioning our business to capitalize on a recovery when it
occurs. These goals have driven our strategic choices to
redesign our product line, to institute disciplined
market-by-market
pricing, to reduce our overhead and improve our operating
efficiencies, and to reduce our inventory and the number of
active communities we operate, while selectively resuming
operations in certain markets.
We believe we made substantial progress in 2009 towards
achieving each of our primary goals. We ended 2009 with a cash
balance of $1.29 billion (including $114.3 million of
restricted cash), no cash borrowings under the Credit Facility
and an overall debt level lower than that at the end of 2008. We
also believe the operational adjustments we have
53
implemented since 2006 have resulted in our organizational
infrastructure being appropriately sized and strategically
positioned in markets that we believe have strong long-term
growth prospects.
Entering 2010, restoring the profitability of our homebuilding
operations remains our highest priority. We believe we also made
substantial progress in 2009 toward achieving this goal as we
narrowed our pretax loss in each quarter of the year relative to
the corresponding 2008 periods even as we generated lower
revenues. This performance came primarily from improvements in
our gross margin and reflected reductions in our selling,
general and administrative expenses, and fewer and lower
magnitude asset impairment and abandonment charges. We believe
progress in these areas will continue.
While we intend to maintain a disciplined focus on controlling
our operational costs in the current fiscal year, we believe
accomplishing our goal of restoring our homebuilding operations
to profitability will require greater growth in our top line
revenues produced from our new product, a higher number of
active communities and a larger inventory base, which, as of
November 30, 2009, consisted of 37,500 lots owned and
controlled. Accordingly, in 2010, we plan to implement a land
acquisition strategy aligned with the principles of our KBnxt
operational business model, emphasizing ownership or control of
well-priced land parcels within our existing served markets or
in nearby submarkets.
The main objective of our strategy is to acquire primarily
finished lots that meet our internal investment standards so
that we can continue to maintain a three to four year supply of
developable land. By growing our land pipeline with positions
complementary to our existing land portfolio and making our new
product available at more locations, we believe we can
effectively and efficiently grow our active community count,
homes delivered and revenues, and improve our overall results of
operations. We believe we have the financial and operational
resources to seize acquisition opportunities as they arise and
are confident that the number of attractive opportunities will
increase as housing markets improve over time.
We believe the transformations we have made within our business
in 2008 and 2009, including redesigning our product line,
reducing our overhead, improving our operating efficiencies and
reducing our inventory, have provided us with a sound balance
sheet and significant liquidity as we transition into 2010 and
further refine and execute on our strategic initiatives. We
believe these transformations have also given us a solid
foundation for achieving profitability as housing markets
stabilize and eventually rebound, though we do not expect to be
profitable until the latter part of 2010.
We historically experience a reduction in our community count in
the first quarter of a year from the fourth quarter of the
previous year, and that pattern will follow for 2010. Over the
course of the year, we intend to continue to push the pace of
our community openings, and steadily expand the number of
communities featuring The Open Series. From the
standpoint of homes delivered, based on our community count, we
expect to deliver between 8,000 and 9,000 homes in 2010. If
market conditions strengthen, we will have a greater opportunity
to increase our community count to further position KB Home for
solid growth in the future.
Nevertheless, our overall outlook remains cautious. Our ability
to generate positive results from our strategic initiatives and
planned land acquisition activities remains limited by current
negative supply and demand market dynamics, which are unlikely
to abate soon. We believe a meaningful improvement in housing
market conditions will require a sustained decrease in unsold
homes, price stabilization, reduced mortgage delinquency and
foreclosure rates, and the restoration of both consumer and
credit market confidence that support a decision to buy a home.
We cannot predict when these events will occur. Moreover, if
market conditions decline further, we may need to take
additional noncash charges for inventory and joint venture
impairments and land option contract abandonments, and we may
decide that we need to curtail, slow or even abandon our land
acquisition plans. Our 2010 results could also be adversely
affected if general economic conditions decline, if job losses
accelerate or weak employment levels persist, if mortgage
delinquencies, short sales and foreclosures increase, if
consumer mortgage lending becomes less available or more
expensive, or if consumer confidence weakens, any or all of
which could further delay a recovery in housing markets or
result in further deterioration in operating conditions. Despite
these difficulties and risks, we believe we are well-positioned,
financially and operationally, to achieve our goals and to grow
our business when the housing market stabilizes and longer term
demographic, economic and population growth trends once again
drive demand for homeownership.
FORWARD-LOOKING
STATEMENTS
Investors are cautioned that certain statements contained in
this document, as well as some statements by us in periodic
press releases and other public disclosures and some oral
statements by us to securities analysts and stockholders during
54
presentations, are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995 (the Act). Statements that are predictive in
nature, that depend upon or refer to future events or
conditions, or that include words such as expects,
anticipates, intends, plans,
believes, estimates, hopes,
and similar expressions constitute forward-looking statements.
In addition, any statements concerning future financial or
operating performance (including future revenues, homes
delivered, net orders, selling prices, expenses, expense ratios,
margins, earnings or earnings per share, or growth or growth
rates), future market conditions, future interest rates, and
other economic conditions, ongoing business strategies or
prospects, future dividends and changes in dividend levels, the
value of backlog (including amounts that we expect to realize
upon delivery of homes included in backlog and the timing of
those deliveries), potential future acquisitions and the impact
of completed acquisitions, future share repurchases and possible
future actions, which may be provided by us, are also
forward-looking statements as defined by the Act.
Forward-looking statements are based on current expectations and
projections about future events and are subject to risks,
uncertainties, and assumptions about our operations, economic
and market factors, and the homebuilding industry, among other
things. These statements are not guarantees of future
performance, and we have no specific policy or intention to
update these statements.
Actual events and results may differ materially from those
expressed or forecasted in the forward-looking statements due to
a number of factors. The most important risk factors that could
cause our actual performance and future events and actions to
differ materially from such forward-looking statements include,
but are not limited to: general economic and business
conditions; adverse market conditions that could result in
additional asset impairments or abandonment charges and
operating losses, including an oversupply of unsold homes and
declining home prices, among other things; conditions in the
capital and credit markets (including consumer mortgage lending
standards, the availability of consumer mortgage financing and
mortgage foreclosure rates); material prices and availability;
labor costs and availability; changes in interest rates;
inflation; our debt level; weak or declining consumer
confidence; increases in competition; weather conditions,
significant natural disasters and other environmental factors;
government actions and regulations directed at or affecting the
housing market, the credit market, the homebuilding industry,
the consumer mortgage lending industry, construction activities
or consumer mortgage lending; the availability and cost of land
in desirable areas; legal or regulatory proceedings or claims;
warranty claims and related costs; the ability and/or
willingness of participants in our unconsolidated joint ventures
to fulfill their obligations; our ability to access capital; our
ability to use the net deferred tax assets we have generated;
our ability to successfully implement our current and planned
product, geographic and market repositioning (including, but not
limited to, our plans to resume operations in the Washington,
D.C. metro market), land acquisition, and cost reduction
strategies; and consumer interest in our new product designs,
including The Open Series; and our ability to obtain
performance bonds at a reasonable cost.
55
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We enter into debt obligations primarily to support general
corporate purposes, including the homebuilding and financial
services operations of our subsidiaries. We are subject to
interest rate risk on our senior notes. For this fixed rate
debt, changes in interest rates generally affect the fair value
of the debt instruments, but not our earnings or cash flows.
Under our current policies, we do not use interest rate
derivative instruments to manage our exposure to changes in
interest rates.
The following tables present principal cash flows by scheduled
maturity, weighted average interest rates and the estimated fair
value of our long-term debt obligations as of November 30,
2009 and November 30, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
As of November 30, 2009 for the Years Ended November
30,
|
|
November 30,
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
2009
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
|
|
|
$
|
99,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249,358
|
|
|
$
|
1,307,244
|
|
|
$
|
1,656,402
|
|
|
$
|
1,587,201
|
|
Weighted Average Interest Rate
|
|
|
|
%
|
|
|
6.4
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
5.8
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
As of November 30, 2008 for the Years Ended November
30,
|
|
November 30,
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
2008
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
200,000
|
(a)
|
|
$
|
|
|
|
$
|
348,908
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,296,261
|
|
|
$
|
1,845,169
|
|
|
$
|
1,270,979
|
|
Weighted Average Interest Rate
|
|
|
8.6
|
%
|
|
|
|
%
|
|
|
6.4
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
(a) The fixed rate debt matured and
was redeemed by us on December 15, 2008.
56
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
KB
HOME
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
99
|
|
Separate combined financial statements of our 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.
57
KB
HOME
(In Thousands, Except Per Share
Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total revenues
|
|
$
|
1,824,850
|
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,816,415
|
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
Construction and land costs
|
|
|
(1,749,911
|
)
|
|
|
(3,314,815
|
)
|
|
|
(6,826,379
|
)
|
Selling, general and administrative expenses
|
|
|
(303,024
|
)
|
|
|
(501,027
|
)
|
|
|
(824,621
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
(67,970
|
)
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(236,520
|
)
|
|
|
(860,643
|
)
|
|
|
(1,358,335
|
)
|
Interest income
|
|
|
7,515
|
|
|
|
34,610
|
|
|
|
28,636
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
(51,763
|
)
|
|
|
(12,966
|
)
|
|
|
(12,990
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
(49,615
|
)
|
|
|
(152,750
|
)
|
|
|
(151,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(330,383
|
)
|
|
|
(991,749
|
)
|
|
|
(1,494,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
8,435
|
|
|
|
10,767
|
|
|
|
15,935
|
|
Expenses
|
|
|
(3,251
|
)
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
14,015
|
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
19,199
|
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(311,184
|
)
|
|
|
(967,931
|
)
|
|
|
(1,460,770
|
)
|
Income tax benefit (expense)
|
|
|
209,400
|
|
|
|
(8,200
|
)
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(101,784
|
)
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
47,252
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(101,784
|
)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
6.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(1.33
|
)
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
58
KB
HOME
(In Thousands, Except Shares)
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,174,715
|
|
|
$
|
1,135,399
|
|
Restricted cash
|
|
|
114,292
|
|
|
|
115,404
|
|
Receivables
|
|
|
337,930
|
|
|
|
357,719
|
|
Inventories
|
|
|
1,501,394
|
|
|
|
2,106,716
|
|
Investments in unconsolidated joint ventures
|
|
|
119,668
|
|
|
|
177,649
|
|
Other assets
|
|
|
154,566
|
|
|
|
99,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,402,565
|
|
|
|
3,992,148
|
|
Financial services
|
|
|
33,424
|
|
|
|
52,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,435,989
|
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
340,977
|
|
|
$
|
541,294
|
|
Accrued expenses and other liabilities
|
|
|
560,368
|
|
|
|
721,397
|
|
Mortgages and notes payable
|
|
|
1,820,370
|
|
|
|
1,941,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,721,715
|
|
|
|
3,204,228
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
7,050
|
|
|
|
9,467
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $1.00 par value; authorized,
10,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock $1.00 par value; authorized,
290,000,000 shares at November 30, 2009 and 2008; and
115,120,305 shares issued at November 30, 2009 and 2008
|
|
|
115,120
|
|
|
|
115,120
|
|
Paid-in capital
|
|
|
860,772
|
|
|
|
865,123
|
|
Retained earnings
|
|
|
806,443
|
|
|
|
927,324
|
|
Accumulated other comprehensive loss
|
|
|
(22,244
|
)
|
|
|
(17,402
|
)
|
Grantor stock ownership trust, at cost: 11,228,951 and
11,901,382 shares at November 30, 2009 and 2008,
respectively
|
|
|
(122,017
|
)
|
|
|
(129,326
|
)
|
Treasury stock, at cost: 27,047,379 and 25,512,386 shares
at November 30, 2009 and 2008, respectively
|
|
|
(930,850
|
)
|
|
|
(930,234
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
707,224
|
|
|
|
830,605
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,435,989
|
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
59
KB
HOME
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30, 2009, 2008 and 2007
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Grantor
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Stock
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Ownership
|
|
|
Treasury
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
Ownership
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Trust
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Trust
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at November 30, 2006
|
|
|
114,649
|
|
|
|
(12,345
|
)
|
|
|
(25,274
|
)
|
|
$
|
114,649
|
|
|
$
|
825,958
|
|
|
$
|
2,975,465
|
|
|
$
|
63,197
|
|
|
$
|
(134,150
|
)
|
|
$
|
(922,371
|
)
|
|
$
|
2,922,748
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929,414
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,197
|
)
|
|
|
|
|
|
|
|
|
|
|
(63,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(992,611
|
)
|
Postretirement benefits adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
Exercise of employee stock options
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
327
|
|
|
|
9,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,045
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,354
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
1,542
|
|
|
|
|
|
|
|
3,147
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,896
|
)
|
|
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2007
|
|
|
114,976
|
|
|
|
(12,203
|
)
|
|
|
(25,451
|
)
|
|
|
114,976
|
|
|
|
851,628
|
|
|
|
1,968,881
|
|
|
|
(22,923
|
)
|
|
|
(132,608
|
)
|
|
|
(929,267
|
)
|
|
|
1,850,687
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(976,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(976,131
|
)
|
Postretirement benefits adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(970,610
|
)
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
Adoption of new income tax accounting guidance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,459
|
)
|
Exercise of employee stock options
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,587
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,946
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,018
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
|
3,282
|
|
|
|
|
|
|
|
5,370
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967
|
)
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2008
|
|
|
115,120
|
|
|
|
(11,901
|
)
|
|
|
(25,512
|
)
|
|
|
115,120
|
|
|
|
865,123
|
|
|
|
927,324
|
|
|
|
(17,402
|
)
|
|
|
(129,326
|
)
|
|
|
(930,234
|
)
|
|
|
830,605
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,784
|
)
|
Postretirement benefits adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,842
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,626
|
)
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,097
|
)
|
Exercise of employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,093
|
)
|
Restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,846
|
)
|
|
|
|
|
|
|
|
|
|
|
4,846
|
|
|
|
|
|
|
|
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,587
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
2,463
|
|
|
|
|
|
|
|
3,074
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(1,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(616
|
)
|
|
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2009
|
|
|
115,120
|
|
|
|
(11,229
|
)
|
|
|
(27,047
|
)
|
|
$
|
115,120
|
|
|
$
|
860,772
|
|
|
$
|
806,443
|
|
|
$
|
(22,244
|
)
|
|
$
|
(122,017
|
)
|
|
$
|
(930,850
|
)
|
|
$
|
707,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
KB
HOME
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(101,784
|
)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(47,252
|
)
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(438,104
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
|
|
|
35,600
|
|
|
|
135,210
|
|
|
|
129,220
|
|
Distributions of earnings from unconsolidated joint ventures
|
|
|
7,662
|
|
|
|
22,183
|
|
|
|
42,356
|
|
Amortization of discounts and issuance costs
|
|
|
1,586
|
|
|
|
2,062
|
|
|
|
2,478
|
|
Depreciation and amortization
|
|
|
5,235
|
|
|
|
9,317
|
|
|
|
17,274
|
|
Loss on early redemption of debt
|
|
|
976
|
|
|
|
10,388
|
|
|
|
12,990
|
|
Provision for deferred income taxes
|
|
|
|
|
|
|
221,306
|
|
|
|
208,348
|
|
Tax benefit from stock-based compensation
|
|
|
4,093
|
|
|
|
2,097
|
|
|
|
(882
|
)
|
Stock-based compensation expense
|
|
|
3,977
|
|
|
|
5,018
|
|
|
|
9,354
|
|
Inventory impairments and land option contract abandonments
|
|
|
168,149
|
|
|
|
606,791
|
|
|
|
1,253,982
|
|
Goodwill impairment
|
|
|
|
|
|
|
67,970
|
|
|
|
107,926
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
35,667
|
|
|
|
(60,565
|
)
|
|
|
(71,406
|
)
|
Inventories
|
|
|
433,075
|
|
|
|
545,850
|
|
|
|
779,875
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(252,620
|
)
|
|
|
(282,781
|
)
|
|
|
(340,630
|
)
|
Other, net
|
|
|
8,296
|
|
|
|
32,607
|
|
|
|
13,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
349,912
|
|
|
|
341,322
|
|
|
|
749,502
|
|
Net cash provided by operating activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
349,912
|
|
|
|
341,322
|
|
|
|
1,046,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
|
|
|
|
|
|
|
|
739,764
|
|
Investments in unconsolidated joint ventures
|
|
|
(19,922
|
)
|
|
|
(59,625
|
)
|
|
|
(85,188
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
(1,375
|
)
|
|
|
7,073
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
(21,297
|
)
|
|
|
(52,552
|
)
|
|
|
655,261
|
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
(21,297
|
)
|
|
|
(52,552
|
)
|
|
|
643,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
1,112
|
|
|
|
(115,404
|
)
|
|
|
|
|
Redemption of term loan
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
Proceeds from issuance of senior notes
|
|
|
259,737
|
|
|
|
|
|
|
|
|
|
Payment of senior notes issuance costs
|
|
|
(4,294
|
)
|
|
|
|
|
|
|
|
|
Repayment of senior and senior subordinated notes
|
|
|
(453,105
|
)
|
|
|
(305,814
|
)
|
|
|
(258,968
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
(78,983
|
)
|
|
|
(12,800
|
)
|
|
|
(114,119
|
)
|
Issuance of common stock under employee stock plans
|
|
|
3,074
|
|
|
|
6,958
|
|
|
|
12,310
|
|
Excess tax benefit associated with exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
882
|
|
Payments of cash dividends
|
|
|
(19,097
|
)
|
|
|
(62,967
|
)
|
|
|
(77,170
|
)
|
Repurchases of common stock
|
|
|
(616
|
)
|
|
|
(967
|
)
|
|
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities continuing
operations
|
|
|
(292,172
|
)
|
|
|
(490,994
|
)
|
|
|
(843,961
|
)
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(292,172
|
)
|
|
|
(490,994
|
)
|
|
|
(1,150,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
36,443
|
|
|
|
(202,224
|
)
|
|
|
539,560
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,141,518
|
|
|
|
1,343,742
|
|
|
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,177,961
|
|
|
$
|
1,141,518
|
|
|
$
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
61
KB
HOME
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
Operations. KB Home is a builder of
single-family homes, townhomes and condominiums. As of
November 30, 2009, the Company has ongoing operations in
Arizona, California, Colorado, Florida, Maryland, Nevada, North
Carolina, South Carolina, Texas and Virginia. The Company also
offers mortgage banking services through KB Home Mortgage, a
joint venture with a subsidiary of Bank of America N.A. KB Home
Mortgage is accounted for as an unconsolidated joint venture
within the Companys financial services reporting segment.
The Company provides title and insurance services through its
financial services subsidiary, KB Home Mortgage Company
(KBHMC).
Basis of Presentation. The consolidated
financial statements include the accounts of the Company and all
significant subsidiaries and joint ventures in which a
controlling interest is held, as well as certain VIEs required
to be consolidated pursuant to ASC 810. All 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.
In July 2007, the Company sold its 49% equity interest in its
publicly traded French subsidiary, KBSA. Therefore, for the year
ended November 30, 2007, the French operations have been
presented as discontinued operations in the consolidated
financial statements.
Use of Estimates. The consolidated financial
statements have been prepared in conformity with GAAP and,
therefore, include amounts based on informed estimates and
judgments of management. Actual results could differ from these
estimates.
Cash and Cash Equivalents, and Restricted
Cash. The Company considers all highly liquid
debt instruments and other short-term investments, purchased
with an original maturity of three months or less, to be cash
equivalents. The Companys cash equivalents totaled
$1.07 billion at November 30, 2009 and
$1.05 billion at November 30, 2008. The majority of
the Companys cash and cash equivalents were invested in
money market accounts and U.S. government securities. Restricted
cash of $114.3 million at November 30, 2009 and $115.4 million
at November 30, 2008 consisted solely of cash maintained in
an Interest Reserve Account with the administrative agent of the
Credit Facility. The Company may withdraw the amounts deposited
in the Interest Reserve Account when its Coverage Ratio at the
end of a fiscal quarter is greater than or equal to 1.00 to 1.00
or if the amounts it is required to maintain in the Interest
Reserve Account are reduced under the terms of the Credit
Facility, provided there is no default under the Credit Facility
at the time amounts are withdrawn.
Property and Equipment, Operating Properties and
Depreciation. Property and equipment are recorded
at cost and are depreciated over their estimated useful lives,
which generally range from two to 10 years, using the
straight-line method. Operating properties are recorded at cost
and are depreciated over their estimated useful lives of
39 years, using the
straight-line
method. Repair and maintenance costs are charged to earnings as
incurred. Property and equipment are included in other assets on
the consolidated balance sheets and totaled $12.5 million,
net of accumulated depreciation of $30.0 million, at
November 30, 2009, and $16.3 million, net of
accumulated depreciation of $36.9 million, at
November 30, 2008. Depreciation expense totaled
$5.2 million in 2009, $9.4 million in 2008 and
$17.3 million in 2007.
Goodwill. The Company recorded goodwill in
connection with various acquisitions in prior years. Goodwill
represented the excess of the purchase price over the fair value
of net assets acquired. In accordance with ASC 350, the Company
tested goodwill for potential impairment annually as of November
30 and between annual tests if an event occurred or
circumstances changed that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
Company evaluated goodwill for impairment using the two-step
process prescribed in ASC 350. The first step was to identify
potential impairment by comparing the fair value of a reporting
unit to the book value, including goodwill. If the fair value of
a reporting unit exceeded the book value, goodwill was not
considered impaired. If the book value exceeded the fair value,
the second step of the process was performed to measure the
amount of impairment. In accordance with ASC 350, the Company
determined that its reporting units were the same as its
reporting segments. Accordingly, the Company had four
homebuilding reporting units (West Coast, Southwest, Central and
Southeast) and one financial services reporting unit.
62
Homebuilding Operations. Revenues from housing
and other real estate sales are recognized in accordance with
ASC 360 when sales are closed and title passes to the
buyer. Sales are closed when all of the following conditions are
met: a sale is consummated, a significant down payment is
received, the earnings process is complete and the collection of
any remaining receivables is reasonably assured.
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 on a relative fair value basis to homes
within a parcel or community. Land and land development costs
include related interest and real estate taxes.
Housing and land inventories are stated at cost, unless the
carrying amount is determined not to be recoverable, in which
case the inventories are written down to fair value in
accordance with ASC 360. ASC 360 requires that real
estate assets be tested for recoverability whenever events or
changes in circumstances indicate that their carrying amounts
may not be recoverable. Recoverability of assets is measured by
comparing the carrying amount of an asset to the undiscounted
future net cash flows expected to be generated by the asset.
These evaluations for impairment are significantly impacted by
estimates of the amounts and timing of revenues, costs and
expenses, and other factors. If real estate assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the assets
exceeds the fair value of the assets. Fair value is determined
based on estimated future cash flows discounted for inherent
risks associated with the real estate assets, or other valuation
techniques.
Financial Services Operations. Revenues from
the Companys financial services segment are generated
primarily from interest income, title services, and insurance
commissions. Interest income is accrued as earned. Title
services revenues are recognized as closing services are
rendered and title insurance policies are issued, both of which
generally occur simultaneously at the time each home is closed.
Insurance commissions are recognized when policies are issued.
The financial services segment also generated revenues from
escrow coordination services until the escrow coordination
business was terminated in 2007. Escrow coordination fees were
recognized at the time the home was closed.
Warranty Costs. The Company provides a limited
warranty on all of its homes. The Company estimates the costs
that may be incurred under each limited warranty and records a
liability in the amount of such costs at the time the revenue
associated with the sale of each home is recognized. Factors
that affect the Companys warranty liability include the
number of homes delivered, historical and anticipated rates of
warranty claims, and cost per claim. The Companys primary
assumption in estimating the amounts it accrues for warranty
costs is that historical claims experience is a strong indicator
of future claims experience. The Company periodically assesses
the adequacy of its recorded warranty liabilities and adjusts
the amounts as necessary based on its assessment.
Insurance. The Company self-insures a portion
of its overall risk through the use of a captive insurance
subsidiary. The Company records expenses and liabilities based
on the estimated costs required to cover its self-insured
retention and deductible amounts under its insurance policies,
and on the estimated costs of potential claims and claim
adjustment expenses above its coverage limits or that are not
covered by its policies. These estimated costs are based on an
analysis of the Companys historical claims and include an
estimate of construction defect claims incurred but not yet
reported.
The Company engages a third-party actuary that uses the
Companys historical claim and expense data, as well as
industry data, to estimate its unpaid claims, claim adjustment
expenses and incurred but not reported claims liabilities for
the risks that the Company is assuming under the self-insured
portion of its general liability insurance. Projection of losses
related to these liabilities requires actuarial assumptions that
are subject to variability due to uncertainties such as trends
in construction defect claims relative to the Companys
markets and the types of product it builds, claim settlement
patterns, insurance industry practices and legal
interpretations, among others. Because of the degree of judgment
required and the potential for variability in the underlying
assumptions used in determining these estimated liability
amounts, actual future costs could differ from the
Companys currently estimated amounts.
Advertising Costs. The Company expenses
advertising costs as incurred. The Company incurred advertising
costs of $16.5 million in 2009, $34.6 million in 2008
and $68.0 million in 2007.
Stock-Based Compensation. With the approval of
the management development and compensation committee,
consisting entirely of independent members of the Companys
board of directors, the Company provides some compensation
benefits to its employees in the form of stock options,
restricted stock, phantom shares and SARs.
Effective December 1, 2005, the Company adopted the fair
value recognition provisions of ASC 718, which requires that
companies measure and recognize compensation expense at an
amount equal to the fair value of share-based payments granted
under compensation arrangements. The Company adopted ASC 718
using the modified prospective transition
63
method. Under that transition method, the provisions apply to
all awards granted or modified after the date of adoption. In
addition, compensation expense must be recognized for any
unvested stock option awards outstanding as of the date of
adoption on a straight-line basis over the remaining vesting
period. The fair value of stock options and SARs granted is
estimated using the Black-Scholes option-pricing model. ASC 718
also requires the tax benefit resulting from tax deductions in
excess of the compensation expense recognized for those options
to be reported in the statement of cash flows as an operating
cash outflow and a financing cash inflow.
Income Taxes. Income taxes are accounted for
in accordance with ASC 740. The provision for, or benefit from,
income taxes is calculated using the asset and liability method,
under which deferred tax assets and liabilities are recorded
based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. Deferred tax assets are evaluated on a quarterly basis
to determine whether a valuation allowance is required. In
accordance with ASC 740, the Company assesses whether a
valuation allowance should be established based on its
determination of whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets depends
primarily on the generation of future taxable income during the
periods in which those temporary differences become deductible.
Judgment is required in determining the future tax consequences
of events that have been recognized in the Companys
consolidated financial statements and/or tax returns.
Differences between anticipated and actual outcomes of these
future tax consequences could have a material impact on the
Companys consolidated financial position or results of
operations.
Accumulated Other Comprehensive Loss. The
accumulated balances of other comprehensive loss in the
consolidated balance sheets as of November 30, 2009 and
2008 are comprised solely of adjustments recorded directly to
accumulated other comprehensive loss in accordance with ASC 715.
ASC 715 requires an employer to recognize the funded status of
defined postretirement benefit plans as an asset or liability on
the balance sheet and requires any unrecognized prior service
costs and actuarial gains/losses to be recognized in accumulated
other comprehensive income (loss).
Earnings (Loss) Per Share. Basic earnings
(loss) per share is calculated by dividing net income (loss) by
the average number of common shares outstanding for the period.
Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the average number of common shares outstanding
including all potentially dilutive shares issuable under
outstanding stock options. All outstanding stock options were
excluded from the diluted earnings (loss) per share calculations
for the years ended November 30, 2009, 2008 and 2007
because the effect of their inclusion would be antidilutive, or
would decrease the reported loss per share.
Recent Accounting Pronouncements. In December
2007, the FASB revised the authoritative guidance for business
combinations, which establishes principles and requirements for
recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest
in the acquiree. The revised guidance also provides disclosure
requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business
combination. The revised guidance is effective for fiscal years
beginning after December 15, 2008 and is to be applied
prospectively. The Company believes the adoption of this
guidance will not have a material impact on its consolidated
financial position or results of operations.
In December 2007, the FASB issued authoritative guidance that
establishes accounting and reporting standards pertaining to
ownership interests in subsidiaries held by parties other than
the parent, the amount of net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of any retained
noncontrolling equity investment when a subsidiary is
deconsolidated. The guidance also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. The guidance is effective for fiscal years beginning on
or after December 15, 2008. The Company believes the
adoption of this guidance will not have a material impact on its
consolidated financial position or results of operations.
In June 2008, the FASB issued authoritative guidance that
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. The guidance is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years,
and requires retrospective application. The Company believes the
adoption of this guidance will not have a material impact on its
consolidated financial position or results of operations.
In June 2009, the FASB revised the authoritative guidance for
determining the primary beneficiary of a VIE. In December 2009,
the FASB issued ASU 2009-17, which provides amendments to ASC
810 to reflect the revised guidance.
64
The amendments in ASU
2009-17
replace the quantitative-based risks and rewards calculation for
determining which reporting entity, if any, has a controlling
financial interest in a VIE with an approach focused on
identifying which reporting entity has the power to direct the
activities of a VIE that most significantly impact the
entitys economic performance and (1) the obligation
to absorb losses of the entity or (2) the right to receive
benefits from the entity. The amendments in ASU
2009-17 also
require additional disclosures about a reporting entitys
involvement with VIEs. ASU 2009-17 is effective for fiscal years
beginning after November 15, 2009, for interim periods
within that first annual reporting period and for interim and
annual reporting periods thereafter. The Company believes the
adoption of this guidance will not have a material impact on its
consolidated financial position or results of operations.
Reclassifications. Certain amounts in the
consolidated financial statements of prior years have been
reclassified to conform to the 2009 presentation.
|
|
Note 2.
|
Segment
Information
|
As of November 30, 2009, the Company has identified five
reporting segments, comprised of four homebuilding reporting
segments and one financial services reporting segment, within
its consolidated operations in accordance with Accounting
Standards Codification Topic No. 280, Segment
Reporting. As of November 30, 2009, the
Companys homebuilding reporting segments conducted ongoing
operations in the following states:
West Coast: California
Southwest: Arizona and Nevada
Central: Colorado and Texas
Southeast: Florida, Maryland, North Carolina, South Carolina and
Virginia.
The Companys homebuilding reporting segments are engaged
in the acquisition and development of land primarily for
residential purposes and offer a wide variety of homes that are
designed to appeal to first-time, first move-up and active adult
buyers.
The Companys homebuilding reporting segments were
identified based primarily on similarities in economic and
geographic characteristics, as well as similar product type,
regulatory environments, methods used to sell and construct
homes and land acquisition characteristics. The Company
evaluates segment performance primarily based on segment pretax
income.
The Companys financial services reporting segment provides
title and insurance services to the Companys homebuyers,
and provided escrow coordination services until 2007, when the
Company terminated that portion of its business. This segment
also provides mortgage banking services to the Companys
homebuyers indirectly through KB Home Mortgage, a joint venture
with a subsidiary of Bank of America N.A. The Companys
financial services reporting segment conducts operations in the
same markets as the Companys homebuilding reporting
segments.
The Companys reporting segments follow the same accounting
policies used for its consolidated financial statements as
described in Note 1. Summary of Significant Accounting
Policies. Operational results of each segment are not
necessarily indicative of the results that would have occurred
had the segment been an independent, stand-alone entity during
the periods presented.
The following tables present financial information relating to
the Companys reporting segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
812,207
|
|
|
$
|
1,055,021
|
|
|
$
|
2,203,303
|
|
Southwest
|
|
|
218,096
|
|
|
|
618,014
|
|
|
|
1,349,570
|
|
Central
|
|
|
434,400
|
|
|
|
594,317
|
|
|
|
1,077,304
|
|
Southeast
|
|
|
351,712
|
|
|
|
755,817
|
|
|
|
1,770,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
|
1,816,415
|
|
|
|
3,023,169
|
|
|
|
6,400,591
|
|
Financial services
|
|
|
8,435
|
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,824,850
|
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(88,442
|
)
|
|
$
|
(298,047
|
)
|
|
$
|
(665,845
|
)
|
Southwest
|
|
|
(48,572
|
)
|
|
|
(212,194
|
)
|
|
|
(287,339
|
)
|
Central
|
|
|
(29,382
|
)
|
|
|
(82,789
|
)
|
|
|
(64,210
|
)
|
Southeast
|
|
|
(78,414
|
)
|
|
|
(258,568
|
)
|
|
|
(230,420
|
)
|
Corporate and other (a)
|
|
|
(85,573
|
)
|
|
|
(140,151
|
)
|
|
|
(246,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding loss from continuing operations before income
taxes
|
|
|
(330,383
|
)
|
|
|
(991,749
|
)
|
|
|
(1,494,606
|
)
|
Financial services
|
|
|
19,199
|
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from continuing operations before income taxes
|
|
$
|
(311,184
|
)
|
|
$
|
(967,931
|
)
|
|
$
|
(1,460,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and other includes corporate general and
administrative expenses and goodwill impairment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Equity in income (loss) of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(7,761
|
)
|
|
$
|
(45,180
|
)
|
|
$
|
(64,886
|
)
|
Southwest
|
|
|
(15,509
|
)
|
|
|
(35,633
|
)
|
|
|
(15,734
|
)
|
Central
|
|
|
506
|
|
|
|
(4,515
|
)
|
|
|
(6,916
|
)
|
Southeast
|
|
|
(26,851
|
)
|
|
|
(67,422
|
)
|
|
|
(64,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(49,615
|
)
|
|
$
|
(152,750
|
)
|
|
$
|
(151,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
44,895
|
|
|
$
|
229,059
|
|
|
$
|
631,399
|
|
Southwest
|
|
|
28,833
|
|
|
|
160,574
|
|
|
|
337,889
|
|
Central
|
|
|
23,891
|
|
|
|
51,518
|
|
|
|
24,662
|
|
Southeast
|
|
|
23,229
|
|
|
|
124,726
|
|
|
|
116,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
120,848
|
|
|
$
|
565,877
|
|
|
$
|
1,109,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory abandonments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
32,679
|
|
|
$
|
17,475
|
|
|
$
|
28,011
|
|
Southwest
|
|
|
|
|
|
|
187
|
|
|
|
16,479
|
|
Central
|
|
|
|
|
|
|
|
|
|
|
9,783
|
|
Southeast
|
|
|
14,622
|
|
|
|
23,252
|
|
|
|
89,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47,301
|
|
|
$
|
40,914
|
|
|
$
|
144,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
7,190
|
|
|
$
|
43,116
|
|
|
$
|
57,030
|
|
Southwest
|
|
|
5,426
|
|
|
|
30,434
|
|
|
|
31,049
|
|
Central
|
|
|
|
|
|
|
2,629
|
|
|
|
4,483
|
|
Southeast
|
|
|
25,915
|
|
|
|
65,671
|
|
|
|
63,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,531
|
|
|
$
|
141,850
|
|
|
$
|
156,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
838,510
|
|
|
$
|
1,086,503
|
|
Southwest
|
|
|
346,035
|
|
|
|
497,034
|
|
Central
|
|
|
357,688
|
|
|
|
443,168
|
|
Southeast
|
|
|
361,551
|
|
|
|
453,771
|
|
Corporate and other
|
|
|
1,498,781
|
|
|
|
1,511,672
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding assets
|
|
|
3,402,565
|
|
|
|
3,992,148
|
|
Financial services
|
|
|
33,424
|
|
|
|
52,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,435,989
|
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
54,795
|
|
|
$
|
55,856
|
|
Southwest
|
|
|
56,779
|
|
|
|
113,564
|
|
Central
|
|
|
|
|
|
|
3,339
|
|
Southeast
|
|
|
8,094
|
|
|
|
4,890
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,668
|
|
|
$
|
177,649
|
|
|
|
|
|
|
|
|
|
|
Note 3. Financial
Services
The following tables present financial information relating to
the Companys financial services reporting segment (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
31
|
|
|
$
|
209
|
|
|
$
|
158
|
|
Title services
|
|
|
1,184
|
|
|
|
2,369
|
|
|
|
5,977
|
|
Insurance commissions
|
|
|
7,220
|
|
|
|
8,189
|
|
|
|
9,193
|
|
Escrow coordination fees
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,435
|
|
|
|
10,767
|
|
|
|
15,935
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(3,251
|
)
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,184
|
|
|
|
6,278
|
|
|
|
11,139
|
|
Equity in income of unconsolidated joint venture
|
|
|
14,015
|
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
19,199
|
|
|
$
|
23,818
|
|
|
$
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,246
|
|
|
$
|
6,119
|
|
Receivables
|
|
|
1,395
|
|
|
|
1,240
|
|
Investment in unconsolidated joint venture
|
|
|
28,748
|
|
|
|
44,733
|
|
Other assets
|
|
|
35
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,424
|
|
|
$
|
52,152
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
7,050
|
|
|
$
|
9,467
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
7,050
|
|
|
$
|
9,467
|
|
|
|
|
|
|
|
|
|
|
Although KBHMC ceased originating and selling mortgage loans on
September 1, 2005, it may be required to repurchase an
individual loan that it funded on or before August 31, 2005
and sold to an investor if the representations or warranties
that it made in connection with the sale of the loan are
breached, in the event of an early payment default, or if the
loan does not comply with the underwriting standards or other
requirements of the ultimate investor.
67
Mortgages and notes receivable totaled $70.7 million at
November 30, 2009 and $53.5 million at
November 30, 2008. Mortgages and notes receivable are
primarily related to land sales. Interest rates on mortgages and
notes receivable ranged from 3.5% to 8% at November 30,
2009. The interest rate on mortgages and notes receivable at
November 30, 2008 ranged from 5% to 8%. Principal amounts
of mortgages and notes receivable at November 30, 2009 are
due during the following years: 2010
$30.0 million; 2011 $.2 million; and
2012 $40.5 million. Federal and state income
taxes receivable totaled $191.5 million at
November 30, 2009 and $211.3 million at
November 30, 2008. Other receivables of $75.7 million
at November 30, 2009 and $92.9 million at
November 30, 2008 included amounts due from municipalities
and utility companies, and escrow deposits. Other receivables
were net of allowances for doubtful accounts of
$60.5 million in 2009 and $72.5 million in 2008.
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Homes, lots and improvements in production
|
|
$
|
1,091,851
|
|
|
$
|
1,649,838
|
|
Land under development
|
|
|
409,543
|
|
|
|
456,878
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,501,394
|
|
|
$
|
2,106,716
|
|
|
|
|
|
|
|
|
|
|
Inventories include land and land development costs, direct
construction costs, capitalized interest and real estate taxes.
Land under development primarily consists of parcels on which
50% or less of estimated development costs have been incurred.
Interest is capitalized to inventories while the related
communities are being actively developed and until homes are
completed. Capitalized interest is amortized in construction and
land costs as the related inventories are delivered to
homebuyers. The Companys interest costs are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Capitalized interest at beginning of year
|
|
$
|
361,619
|
|
|
$
|
348,084
|
|
|
$
|
333,020
|
|
Interest incurred (a)
|
|
|
119,602
|
|
|
|
156,402
|
|
|
|
199,550
|
|
Loss on early redemption/interest expensed
|
|
|
(51,763
|
)
|
|
|
(12,966
|
)
|
|
|
(12,990
|
)
|
Interest amortized to construction and land costs
|
|
|
(138,179
|
)
|
|
|
(129,901
|
)
|
|
|
(171,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest at end of year (b)
|
|
$
|
291,279
|
|
|
$
|
361,619
|
|
|
$
|
348,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts include losses on the early redemption of debt of
$1.0 million for the year ended November 30, 2009,
$10.4 million for the year ended November 30, 2008 and
$13.0 million for the year ended November 30, 2007. |
|
|
|
(b) |
|
Inventory impairment charges are recognized against all
inventory costs of a community, such as land, land improvements,
cost of home construction and capitalized interest. Capitalized
interest amounts presented in the table reflect the gross amount
of capitalized interest as impairment charges recognized are not
generally allocated to specific components of inventory. |
|
|
Note 6.
|
Inventory
Impairments and Land Option Contract Abandonments
|
Each land parcel or community in the Companys owned
inventory is assessed to determine if indicators of potential
impairment exist. Impairment indicators are assessed separately
for each land parcel or community on a quarterly basis and
include, but are not limited to: significant decreases in sales
rates, average selling prices, volume of homes delivered, gross
margins on homes delivered or projected margins on homes in
backlog or future housing sales; significant increases in
budgeted land development and construction costs or cancellation
rates; or projected losses on expected future land sales. If
indicators of potential impairment exist for a land parcel or
community, the identified inventory is evaluated for
recoverability in accordance with ASC 360. When an indicator of
potential impairment is identified, the Company tests
68
the asset for recoverability by comparing the carrying amount of
the asset to the undiscounted future net cash flows expected to
be generated by the asset. The undiscounted future net cash
flows are impacted by trends and factors known to the Company at
the time they are calculated and the Companys expectations
related to: market supply and demand, including estimates
concerning average selling prices; sales and cancellation rates;
and anticipated land development, construction and overhead
costs to be incurred. These estimates, trends and expectations
are specific to each land parcel or community and may vary among
land parcels or communities.
A real estate asset is considered impaired when its carrying
amount is greater than the undiscounted future net cash flows
the asset is expected to generate. Impaired real estate assets
are written down to fair value, which is primarily based on the
estimated future cash flows discounted for inherent risk
associated with each asset. These discounted cash flows are
impacted by: the risk-free rate of return; expected risk premium
based on estimated land development, construction and delivery
timelines; market risk from potential future price erosion; cost
uncertainty due to development or construction cost increases;
and other risks specific to the asset or conditions in the
market in which the asset is located at the time the assessment
is made. These factors are specific to each community and may
vary among land parcels or communities.
Based on the results of its evaluations, the Company recognized
pretax, noncash inventory impairment charges of
$120.8 million in 2009, $565.9 million in 2008 and
$1.11 billion in 2007. As of November 30, 2009, the
aggregate carrying value of inventory impacted by pretax,
noncash impairment charges was $603.9 million, representing
128 communities and various other land parcels. As of
November 30, 2008, the aggregate carrying value of
inventory impacted by pretax, noncash impairment charges was
$1.01 billion, representing 163 communities and various
other land parcels.
The Companys optioned inventory is assessed to determine
whether it continues to meet the Companys internal
investment standards and marketing strategy. Assessments are
made separately for each optioned parcel on a quarterly basis
and are affected by, among other factors: current
and/or
anticipated sales rates, average selling prices and home
delivery volume; estimated land development and construction
costs; and projected profitability on expected future housing or
land sales. When a decision is made not to exercise certain land
option contracts due to market conditions
and/or
changes in marketing strategy, the Company writes off the costs,
including non-refundable deposits and pre-acquisition costs,
related to the abandoned projects. Based on the results of its
assessments, the Company recognized land option contract
abandonment charges of $47.3 million in 2009,
$40.9 million in 2008 and $144.0 million in 2007.
The inventory impairment and land option contract abandonment
charges are included in construction and land costs in the
Companys consolidated statements of operations.
Due to the judgment and assumptions applied in the estimation
process with respect to inventory impairments and land option
contract abandonments, it is possible that actual results could
differ substantially from those estimated.
|
|
Note 7.
|
Fair
Value Disclosures
|
Accounting Standards Codification Topic No. 820, Fair
Value Measurements and Disclosures, provides a framework
for measuring the fair value of assets and liabilities under
GAAP and establishes a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The fair
value hierarchy can be summarized as follows:
|
|
|
|
Level 1
|
Fair value determined based on quoted prices in active markets
for identical assets or liabilities.
|
|
|
Level 2
|
Fair value determined using significant observable inputs, such
as quoted prices for similar assets or liabilities or quoted
prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are
observable for the asset or liability, or inputs that are
derived principally from or corroborated by observable market
data, by correlation or other means.
|
|
|
Level 3
|
Fair value determined using significant unobservable inputs,
such as pricing models, discounted cash flows, or similar
techniques.
|
69
The following table presents the Companys assets measured
at fair value on a nonrecurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Year Ended
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
November 30,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
Description
|
|
2009 (a)
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
Long-lived assets held and used
|
|
$
|
129,032
|
|
|
$
|
|
|
|
$
|
12,236
|
|
|
$
|
116,796
|
|
|
$
|
(120,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amount represents the aggregate fair values for communities
where the Company recognized noncash inventory impairment
charges during the period, as of the date that the fair value
measurements were made. The carrying value for these communities
may have subsequently increased or decreased from the fair value
reflected due to activity that has occurred since the
measurement date. |
In accordance with the provisions of ASC 360, long-lived
assets held and used with a carrying amount of
$249.8 million were written down to their fair value of
$129.0 million during the year ended November 30,
2009, resulting in noncash inventory impairment charges of
$120.8 million. These inventory impairment charges were
included in the Companys construction and land costs in
the consolidated statement of operations.
The fair values for long-lived assets held and used, determined
using Level 2 inputs, were based on a bona fide letter of
intent from an outside party or an executed contract. Fair
values for long-lived assets held and used, determined using
Level 3 inputs, were primarily based on the estimated
future cash flows discounted for inherent risk associated with
each asset. These discounted cash flows are impacted by: the
risk-free rate of return; expected risk premium based on
estimated land development, construction and delivery timelines;
market risk from potential future price erosion; cost
uncertainty due to development or construction cost increases;
and other risks specific to the asset or conditions in the
market in which the asset is located at the time the assessment
is made. These factors are specific to each community and may
vary among communities.
The following table presents the carrying values and estimated
fair values of the Companys financial instruments, except
for those for which the carrying values approximate fair values
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
2009
|
|
2008
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
Value
|
|
Fair Value
|
|
Value
|
|
Fair Value
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated notes due December 15, 2008 at
85/8%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200,000
|
|
|
$
|
199,500
|
|
Senior notes due 2011 at
63/8%
|
|
|
99,800
|
|
|
|
100,250
|
|
|
|
348,908
|
|
|
|
274,765
|
|
Senior notes due 2014 at
53/4%
|
|
|
249,358
|
|
|
|
234,375
|
|
|
|
249,227
|
|
|
|
165,113
|
|
Senior notes due 2015 at
57/8%
|
|
|
298,875
|
|
|
|
276,000
|
|
|
|
298,692
|
|
|
|
182,949
|
|
Senior notes due 2015 at
61/4%
|
|
|
449,698
|
|
|
|
419,063
|
|
|
|
449,653
|
|
|
|
275,412
|
|
Senior notes due 2017 at 9.1%
|
|
|
259,884
|
|
|
|
276,263
|
|
|
|
|
|
|
|
|
|
Senior notes due 2018 at
71/4%
|
|
|
298,787
|
|
|
|
281,250
|
|
|
|
298,689
|
|
|
|
173,240
|
|
The fair values of the Companys senior and senior
subordinated notes are estimated based on quoted market prices.
The carrying amounts reported for cash and cash equivalents,
restricted cash, and mortgages and loan contracts due to land
sellers and other loans approximate fair values.
|
|
Note 8.
|
Consolidation
of Variable Interest Entities
|
ASC 810 requires a VIE to be consolidated in the financial
statements of a company if that company is the primary
beneficiary of the VIE. Under ASC 810, the primary beneficiary
of a VIE absorbs a majority of the VIEs expected losses,
receives a majority of the VIEs expected residual returns,
or both.
70
The Company participates in joint ventures from time to time for
the purpose of conducting land acquisition, development and/or
other homebuilding activities. Its investments in these joint
ventures may create a variable interest in a VIE, depending on
the contractual terms of the arrangement. The Company analyzes
its joint ventures in accordance with ASC 810 when they are
entered into or upon a reconsideration event. All of the
Companys joint ventures at November 30, 2009 and 2008
were determined to be unconsolidated joint ventures either
because they were not VIEs or, if they were VIEs, the Company
was not the primary beneficiary of the VIEs.
In the ordinary course of its business, the Company enters into
land option contracts (or similar agreements) in order to
procure land for the construction of homes. The use of such land
option and other contracts generally allows the Company to
reduce the risks associated with direct land ownership and
development, reduces the Companys capital and financial
commitments, including interest and other carrying costs, and
minimizes the amount of the Companys land inventories on
its consolidated balance sheets. Under such land option
contracts, the Company will pay a specified option deposit or
earnest money deposit in consideration for the right to purchase
land in the future, usually at a predetermined price. Under the
requirements of ASC 810, certain of the Companys land
option contracts may create a variable interest for the Company,
with the land seller being identified as a VIE.
In compliance with ASC 810, the Company analyzes its land
option contracts and other contractual arrangements when they
are entered into or upon a reconsideration event. As a result of
its analyses, the Company has consolidated certain VIEs from
which the Company is purchasing land under option contracts.
Although the Company does not have legal title to the optioned
land, ASC 810 requires the Company to consolidate the VIE
if the Company is determined to be the primary beneficiary. In
determining whether it is the primary beneficiary, the Company
considers, among other things, the size of its deposit relative
to the contract price, the risk of obtaining land entitlement
approval, the risk associated with land development required
under the land option contract, and the risk of changes in the
market value of the optioned land during the contract period.
The consolidation of VIEs in which the Company determined it was
the primary beneficiary increased inventories, with a
corresponding increase to accrued expenses and other
liabilities, on the Companys consolidated balance sheets
by $21.0 million at November 30, 2009 and
$15.5 million at November 30, 2008. The liabilities
related to the Companys consolidation of VIEs from which
it is purchasing land under option and other contracts represent
the difference between the purchase price of land not yet
purchased and the Companys cash deposits. The
Companys cash deposits related to these land option and
other contracts totaled $4.1 million at November 30,
2009 and $3.4 million at November 30, 2008. Creditors,
if any, of these VIEs have no recourse against the Company. As
of November 30, 2009, the Company had cash deposits
totaling $.8 million associated with land option and other
contracts that the Company determined to be unconsolidated VIEs,
having an aggregate purchase price of $20.5 million. As of
November 30, 2009, the Company also had cash deposits
totaling $4.7 million associated with land option and other
contracts that were not VIEs, having an aggregate purchase price
of $404.6 million.
The Companys exposure to loss related to its land option
and other contracts with third parties and unconsolidated
entities consisted of its non-refundable option deposits, which
totaled $9.6 million at November 30, 2009 and
$33.1 million at November 30, 2008. In addition, the
Company posted letters of credit of $8.7 million at
November 30, 2009 and $32.5 million at
November 30, 2008 in lieu of cash deposits for certain land
option contracts.
The Company also evaluates land option contracts for financing
arrangements in accordance with ASC 470. As a result of its
evaluations, the Company increased its inventories, with a
corresponding increase to accrued expenses and other
liabilities, on its consolidated balance sheets by
$36.1 million at November 30, 2009 and
$81.5 million at November 30, 2008.
|
|
Note 9.
|
Investments
in Unconsolidated Joint Ventures
|
The Company participates in unconsolidated joint ventures that
conduct land acquisition, development
and/or other
homebuilding activities in various markets, typically where the
Companys homebuilding operations are located. The
Companys partners in these unconsolidated joint ventures
are unrelated homebuilders, land developers and other real
estate entities, or commercial enterprises. Through these
unconsolidated joint ventures, the Company seeks to reduce and
share market and development risks and to reduce its investment
in land inventory, while potentially increasing the number of
homesites it controls or will own. In some instances,
participating in unconsolidated joint ventures enables the
Company to acquire and develop land that it might not otherwise
have access to due to a projects size, financing needs,
71
duration of development or other circumstances. While the
Company views its participation in unconsolidated joint ventures
as beneficial to its homebuilding activities, it does not view
such participation as essential.
The Company
and/or its
unconsolidated joint venture partners typically obtain options
or enter into other arrangements to have the right to purchase
portions of the land held by the unconsolidated joint ventures.
The prices for these land options or other arrangements are
generally negotiated prices that approximate fair value. When an
unconsolidated joint venture sells land to the Companys
homebuilding operations, the Company defers recognition of its
share of such unconsolidated joint venture earnings until a home
sale is closed and title passes to a homebuyer, at which time
the Company accounts for those earnings as a reduction of the
cost of purchasing the land from the unconsolidated joint
venture.
The Company and its unconsolidated joint venture partners make
initial or ongoing capital contributions to these unconsolidated
joint ventures, typically on a pro rata basis. The obligations
to make capital contributions are governed by each
unconsolidated joint ventures respective operating
agreement and related documents.
Each unconsolidated joint venture is obligated to maintain
financial statements in accordance with GAAP. The Company shares
in profits and losses of these unconsolidated joint ventures
generally in accordance with its respective equity interests.
The following table presents combined condensed statement of
operations information for the Companys unconsolidated
joint ventures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
60,790
|
|
|
$
|
112,767
|
|
|
$
|
662,705
|
|
Construction and land costs
|
|
|
(117,255
|
)
|
|
|
(458,168
|
)
|
|
|
(670,133
|
)
|
Other expenses, net
|
|
|
(46,432
|
)
|
|
|
(38,170
|
)
|
|
|
(44,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(102,897
|
)
|
|
$
|
(383,571
|
)
|
|
$
|
(51,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With respect to the Companys investment in unconsolidated
joint ventures, its equity in loss of unconsolidated joint
ventures included pretax, noncash impairment charges of
$38.5 million in 2009, $141.9 million in 2008 and
$156.4 million in 2007.
The following table presents combined condensed balance sheet
information for the Companys unconsolidated joint ventures
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,816
|
|
|
$
|
29,194
|
|
Receivables
|
|
|
142,639
|
|
|
|
143,926
|
|
Inventories
|
|
|
709,130
|
|
|
|
1,029,306
|
|
Other assets
|
|
|
56,939
|
|
|
|
55,289
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
921,524
|
|
|
$
|
1,257,715
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
94,533
|
|
|
$
|
85,064
|
|
Mortgages and notes payable
|
|
|
514,172
|
|
|
|
871,279
|
|
Equity
|
|
|
312,819
|
|
|
|
301,372
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
921,524
|
|
|
$
|
1,257,715
|
|
|
|
|
|
|
|
|
|
|
72
The following table presents information relating to the
Companys investments in unconsolidated joint ventures and
the outstanding debt of unconsolidated joint ventures as of the
dates specified, categorized by the nature of the Companys
potential responsibility under a guaranty, if any, for such debt
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Number of investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt (a)
|
|
|
|
|
|
|
1
|
|
With limited recourse debt (b)
|
|
|
2
|
|
|
|
4
|
|
With non-recourse debt (c)
|
|
|
2
|
|
|
|
10
|
|
Other (d)
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
|
|
|
$
|
3,339
|
|
With limited recourse debt
|
|
|
1,277
|
|
|
|
1,360
|
|
With non-recourse debt
|
|
|
9,983
|
|
|
|
24,590
|
|
Other
|
|
|
108,408
|
|
|
|
148,360
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,668
|
|
|
$
|
177,649
|
|
|
|
|
|
|
|
|
|
|
Outstanding debt of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
|
|
|
$
|
3,249
|
|
With limited recourse debt
|
|
|
11,198
|
|
|
|
112,700
|
|
With non-recourse debt
|
|
|
130,025
|
|
|
|
381,393
|
|
Other
|
|
|
372,949
|
|
|
|
373,937
|
|
|
|
|
|
|
|
|
|
|
Total (e)
|
|
$
|
514,172
|
|
|
$
|
871,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This category consisted of an unconsolidated joint venture as to
which the Company has entered into a several guaranty with
respect to the repayment of a portion of the unconsolidated
joint ventures outstanding debt. This unconsolidated joint
venture was dissolved during the quarter ended May 31, 2009. |
|
(b) |
|
This category consists of unconsolidated joint ventures as to
which the Company has entered into a loan-to-value maintenance
guaranty with respect to a portion of each such unconsolidated
joint ventures outstanding secured debt. |
|
(c) |
|
This category consists of unconsolidated joint ventures as to
which the Company does not have a guaranty or any other
obligation to repay or to support the value of the collateral
(which collateral includes any letters of credit) underlying
such unconsolidated joint ventures respective outstanding
secured debt. |
|
(d) |
|
This category consists of unconsolidated joint ventures with no
outstanding debt and an unconsolidated joint venture as to which
the Company has entered into a several guaranty. This guaranty,
by its terms, purports to require the Company to guarantee the
repayment of a portion of the unconsolidated joint
ventures outstanding debt in the event an involuntary
bankruptcy proceeding is filed against the unconsolidated joint
venture that is not dismissed within 60 days or for which
an order approving relief under bankruptcy law is entered, even
if the unconsolidated joint venture or its partners do not
collude in the filing and the unconsolidated joint venture
contests the filing, as further described below. |
|
|
|
In most cases, the Company may have also entered into a
completion guaranty and/or a carve-out guaranty with the lenders
for the unconsolidated joint ventures identified in categories
(a) through (d) as further described below. |
|
(e) |
|
The Total amounts represent the aggregate
outstanding debt of the unconsolidated joint ventures in which
the Company participates. The amounts do not represent the
Companys potential responsibility for such debt, if any.
In most cases, the Companys maximum potential
responsibility for any portion of such debt, if any, is limited
to either |
73
|
|
|
|
|
a specified maximum amount or an amount equal to its pro rata
interest in the relevant unconsolidated joint venture, as
further described below. |
The unconsolidated joint ventures finance land and inventory
investments through a variety of arrangements. To finance their
respective land acquisition and development activities, many of
the Companys unconsolidated joint ventures have obtained
loans from third-party lenders that are secured by the
underlying property and related project assets. The
unconsolidated joint ventures had outstanding debt,
substantially all of which was secured, of approximately
$514.2 million at November 30, 2009 and
$871.3 million at November 30, 2008. The
unconsolidated joint ventures are subject to various financial
and non-financial covenants in conjunction with their debt,
primarily related to fair value of collateral and minimum land
purchase or sale requirements within a specified period. In a
few instances, the financial covenants are based on the
Companys financial position. The inability of an
unconsolidated joint venture to comply with its debt covenants
could result in a default and cause lenders to seek to enforce
guarantees, if applicable, as described below.
In certain instances, the Company
and/or its
partner(s) in an unconsolidated joint venture provide guarantees
and indemnities to the unconsolidated joint ventures
lenders that may include one or more of the following:
(a) a completion guaranty; (b) a loan-to-value
maintenance guaranty;
and/or
(c) a carve-out guaranty. A completion guaranty refers to
the physical completion of improvements for a project
and/or the
obligation to contribute equity to an unconsolidated joint
venture to enable it to fund its completion obligations. A
loan-to-value maintenance guaranty refers to the payment of
funds to maintain the applicable loan balance at or below a
specific percentage of the value of an unconsolidated joint
ventures secured collateral (generally land and
improvements). A carve-out guaranty refers to the payment of
(i) losses a lender suffers due to certain bad acts or
omissions by an unconsolidated joint venture or its partners,
such as fraud or misappropriation, or due to environmental
liabilities arising with respect to the relevant project, or
(ii) outstanding principal and interest and certain other
amounts owed to lenders upon the filing by an unconsolidated
joint venture of a voluntary bankruptcy petition or the filing
of an involuntary bankruptcy petition by creditors of the
unconsolidated joint venture in which an unconsolidated joint
venture or its partners collude or which the unconsolidated
joint venture fails to contest.
In most cases, the Companys maximum potential
responsibility under these guarantees and indemnities is limited
to either a specified maximum dollar amount or an amount equal
to its pro rata interest in the relevant unconsolidated joint
venture. In a few cases, the Company has entered into agreements
with its unconsolidated joint venture partners to be reimbursed
or indemnified with respect to the guarantees the Company has
provided to an unconsolidated joint ventures lenders for
any amounts the Company may pay pursuant to such guarantees
above its pro rata interest in the unconsolidated joint venture.
If the Companys unconsolidated joint venture partners are
unable to fulfill their reimbursement or indemnity obligations,
or otherwise fail to do so, the Company could incur more than
its allocable share under the relevant guaranty. Should there be
indications that advances (if made) will not be voluntarily
repaid by an unconsolidated joint venture partner under any such
reimbursement arrangements, the Company vigorously pursues all
rights and remedies available to it under the applicable
agreements, at law or in equity to enforce its rights.
The Companys potential responsibility under its completion
guarantees, if triggered, is highly dependent on the facts of a
particular case. In any event, the Company believes its actual
responsibility under these guarantees is limited to the amount,
if any, by which an unconsolidated joint ventures
outstanding borrowings exceed the value of its assets, but may
be substantially less than this amount.
At November 30, 2009, the Companys potential
responsibility under its loan-to-value maintenance guarantees
totaled approximately $3.8 million, if any liability were
determined to be due thereunder. This amount represents the
Companys maximum responsibility under such loan-to-value
maintenance guarantees assuming the underlying collateral has no
value and without regard to defenses that could be available to
the Company against any attempted enforcement of such guarantees.
Notwithstanding the Companys potential unconsolidated
joint venture guaranty and indemnity responsibilities and
resolutions it has reached in certain instances with
unconsolidated joint venture lenders with respect to those
potential responsibilities, at this time the Company does not
believe, except as described below, that its existing exposure
under its outstanding completion, loan-to-value and carve-out
guarantees and indemnities related to unconsolidated joint
venture debt is material to the Companys consolidated
financial position or results of operations.
74
The lenders for two of the Companys unconsolidated joint
ventures have filed lawsuits against some of the unconsolidated
joint ventures members, and certain of those members
parent companies, seeking to recover damages under completion
guarantees, among other claims. The Company and the other parent
companies, together with the members, are defending the lawsuits
in which they have been named and are currently exploring
resolutions with the lenders, but there is no assurance that the
parties involved will reach satisfactory resolutions. Related to
these lawsuits, an arbitration proceeding has commenced among
the members (including the Company) of one of these
unconsolidated joint ventures concerning the members
respective obligations in regards to the unconsolidated joint
venture. The Company has not concluded whether any potential
outcome of these proceedings is likely, individually or in the
aggregate, to be material to its consolidated financial position
or results of operations.
In addition to the above-described guarantees and indemnities,
the Company has also provided a several guaranty to the lenders
of one of the Companys unconsolidated joint ventures. By
its terms, the guaranty purports to guarantee the repayment of
principal and interest and certain other amounts owed to the
unconsolidated joint ventures lenders when an involuntary
bankruptcy proceeding is filed against the unconsolidated joint
venture that is not dismissed within 60 days or for which
an order approving relief under bankruptcy law is entered, even
if the unconsolidated joint venture or its partners do not
collude in the filing and the unconsolidated joint venture
contests the filing. The Companys potential responsibility
under this several guaranty fluctuates with the unconsolidated
joint ventures debt and with the Companys and its
partners respective land purchases from the unconsolidated
joint venture. At November 30, 2009, this unconsolidated
joint venture had total outstanding indebtedness of
approximately $372.9 million and, if this guaranty were
then enforced, the Companys maximum potential
responsibility under the guaranty would have been approximately
$182.7 million, which amount does not account for any
offsets or defenses that could be available to the Company. This
unconsolidated joint venture has received notices from its
lenders administrative agent alleging a number of defaults
under its loan agreement. The Company is currently exploring
resolutions with the lenders, the lenders administrative
agent and the Companys unconsolidated joint venture
partners, but there is no assurance that the Company will reach
a satisfactory resolution with all of the parties involved.
Certain of the Companys other unconsolidated joint
ventures operating in difficult market conditions are in default
of their debt agreements with their lenders or are at risk of
defaulting. In addition, certain of the Companys
unconsolidated joint venture partners have curtailed funding of
their allocable joint venture obligations. The Company is
carefully managing its investments in these particular
unconsolidated joint ventures and is working with the relevant
lenders and unconsolidated joint venture partners to reach
satisfactory resolutions. In some instances, the Company may
decide to purchase its partners interests and consolidate
the joint venture, which could result in an increase in the
amount of mortgages and notes payable on the Companys
consolidated balance sheets. However, such purchases may not
resolve a claimed default by the joint venture under its debt
agreements. Based on the terms and amounts of the debt involved
for these particular unconsolidated joint ventures and the terms
of the applicable joint venture operating agreements, the
Company does not believe that its exposure related to any
defaults by or with respect to these particular unconsolidated
joint ventures is material to the Companys consolidated
financial position, results of operations or liquidity.
The Company had a goodwill balance of $68.0 million at
November 30, 2007, which consisted of $24.6 million
and $43.4 million related to its Central and Southeast
homebuilding reporting segments, respectively.
In accordance with ASC 350, the Company tested goodwill for
potential impairment annually as of November 30 and between
annual tests if an event occurred or circumstances changed that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. During 2008 and 2007, the
Company determined that it was necessary to evaluate goodwill
for impairment between annual tests due to deteriorating
conditions in certain housing markets and the significant
inventory impairments the Company identified and recognized in
those years in accordance with ASC 360.
Based on the results of its impairment evaluation performed in
the second quarter of 2008, the Company recorded an impairment
charge of $24.6 million in that quarter related to its
Central reporting segment, where it determined all of the
goodwill previously recorded was impaired. The annual goodwill
impairment test performed by the Company as of November 30,
2008 resulted in an impairment charge of $43.4 million in
the fourth quarter of 2008 related to its Southeast reporting
segment, where it determined all of the goodwill previously
recorded was impaired. The goodwill
75
impairment charges in 2008 were recorded at the Companys
corporate level because all goodwill was carried at that level.
As a result of those impairment charges, the Company had no
remaining goodwill at November 30, 2008 or
November 30, 2009.
The process of evaluating goodwill for impairment involved the
determination of the fair value of the Companys reporting
units. Inherent in such fair value determinations were certain
judgments and estimates relating to future cash flows, including
the Companys interpretation of current economic indicators
and market valuations, and assumptions about the Companys
strategic plans with regard to its operations. Due to the
uncertainties associated with such estimates, actual results
could differ from such estimates.
In performing its impairment analysis, the Company developed a
range of fair values for its homebuilding and financial services
reporting units using a discounted cash flow methodology and a
market multiple methodology. For the financial services
reporting unit, the Company also used a comparable transaction
methodology.
The discounted cash flow methodology established fair value by
estimating the present value of the projected future cash flows
to be generated from the reporting unit. The discount rate
applied to the projected future cash flows to arrive at the
present value was intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future
cash flows. The discounted cash flow methodology used the
Companys projections of financial performance for a
five-year period. The most significant assumptions used in the
discounted cash flow methodology were the discount rate, the
terminal value and expected future revenues, gross margins and
operating margins, which varied among reporting units.
The market multiple methodology established fair value by
comparing the Company to other publicly traded companies that
were similar to it from an operational and economic standpoint.
The market multiple methodology compared the Company to those
companies on the basis of risk characteristics in order to
determine its risk profile relative to those companies as a
group. This analysis generally focused on quantitative
considerations, which included financial performance and other
quantifiable data, and qualitative considerations, which
included any factors which were expected to impact future
financial performance. The most significant assumptions
affecting the market multiple methodology were the market
multiples and control premium. The market multiples the Company
used were: (a) price to net book value and
(b) enterprise value to revenue (for each of the
homebuilding reporting units). A control premium represents the
value an investor would pay above minority interest transaction
prices in order to obtain a controlling interest in the
respective company. The comparable transaction methodology
established fair value similar to the market multiple
methodology, and utilized recent transactions within the
industry as the market multiple. However, no control premium was
applied when using the comparable transaction methodology
because those transactions represented control transactions.
Other assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating properties
|
|
$
|
72,548
|
|
|
$
|
|
|
Prepaid expenses
|
|
|
62,067
|
|
|
|
79,102
|
|
Property and equipment
|
|
|
12,465
|
|
|
|
16,298
|
|
Debt issuance costs
|
|
|
6,334
|
|
|
|
2,709
|
|
Deferred tax assets
|
|
|
1,152
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
154,566
|
|
|
$
|
99,261
|
|
|
|
|
|
|
|
|
|
|
During the quarter ended November 30, 2009, the Company
reclassified $72.5 million from inventories to operating
properties, as a result of converting a multi-level residential
building to a rental operation.
76
|
|
Note 12.
|
Accrued
Expenses and Other Liabilities
|
Accrued expenses and other liabilities consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Warranty liability
|
|
$
|
135,749
|
|
|
$
|
145,369
|
|
Construction defect and other litigation liabilities
|
|
|
121,781
|
|
|
|
118,774
|
|
Employee compensation and related benefits
|
|
|
88,385
|
|
|
|
113,861
|
|
Liabilities related to inventory not owned
|
|
|
57,150
|
|
|
|
97,008
|
|
Accrued interest payable
|
|
|
46,302
|
|
|
|
50,430
|
|
Real estate and business taxes
|
|
|
12,516
|
|
|
|
23,957
|
|
Other
|
|
|
98,485
|
|
|
|
171,998
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
560,368
|
|
|
$
|
721,397
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13.
|
Mortgages
and Notes Payable
|
Mortgages and notes payable consisted of the following (in
thousands, interest rates are as of November 30):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Mortgages and land contracts due to land sellers and other loans
(2% to 8% in 2009 and
41/4%
to 8% in 2008)
|
|
$
|
163,968
|
|
|
$
|
96,368
|
|
Senior subordinated notes due December 15, 2008 at
85/8%
|
|
|
|
|
|
|
200,000
|
|
Senior notes due 2011 at
63/8%
|
|
|
99,800
|
|
|
|
348,908
|
|
Senior notes due 2014 at
53/4%
|
|
|
249,358
|
|
|
|
249,227
|
|
Senior notes due 2015 at
57/8%
|
|
|
298,875
|
|
|
|
298,692
|
|
Senior notes due 2015 at
61/4%
|
|
|
449,698
|
|
|
|
449,653
|
|
Senior notes due 2017 at 9.1%
|
|
|
259,884
|
|
|
|
|
|
Senior notes due 2018 at
71/4%
|
|
|
298,787
|
|
|
|
298,689
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,820,370
|
|
|
$
|
1,941,537
|
|
|
|
|
|
|
|
|
|
|
The Company has a Credit Facility with a syndicate of lenders
that matures in November 2010. Interest on the Credit Facility
is payable monthly at the London Interbank Offered Rate plus an
applicable spread on amounts borrowed. At November 30, 2009
and 2008, the Company had no cash borrowings outstanding and
$175.0 million and $211.8 million, respectively, in
letters of credit outstanding under the Credit Facility.
On August 28, 2008, the Company entered into the fifth
amendment (the Fifth Amendment) to the Credit
Facility. The Fifth Amendment, among other things, reduced the
aggregate commitment under the Credit Facility from
$1.30 billion to $800.0 million. In light of the
reduction in the aggregate commitment, the Company wrote off
$3.3 million of unamortized fees associated with the Credit
Facility during 2008. This write-off is included in the loss on
early redemption of debt in the consolidated statements of
operations.
The aggregate commitment under the Credit Facility, in
accordance with its terms, was permanently reduced from
$800.0 million to $650.0 million in the second quarter
of 2009 because the Companys consolidated tangible net
worth was below $800.0 million at February 28, 2009.
Under the terms of the Credit Facility, the Company is required,
among other things, to maintain a minimum consolidated tangible
net worth and certain financial statement ratios, and is subject
to limitations on acquisitions, inventories and indebtedness.
The Credit Facility also contains covenants limiting the
Companys unimproved land book value, speculative unit
deliveries within a given fiscal quarter and borrowing base
requirements.
On December 15, 2008, the Company repaid the $200 Million
Senior Subordinated Notes, which matured on that date.
77
On July 14, 2008, the Company completed the early
redemption of the $300 Million Senior Subordinated Notes at
a price of 101.938% of the principal amount plus accrued
interest to the date of redemption. The Company incurred a loss
of $7.1 million in 2008 related to the early redemption of
debt, as a result of the call premium and the unamortized
original issue discount. This loss is included in the loss on
early redemption of debt in the consolidated statements of
operations.
On October 17, 2008, the Company filed the 2008 Shelf
Registration with the SEC, registering debt and equity
securities that it may issue from time to time in amounts to be
determined. The Companys previously effective 2004 Shelf
Registration was subsumed within the 2008 Shelf Registration. On
July 30, 2009, the Company issued the $265 Million
Senior Notes under the 2008 Shelf Registration. The Company has
not issued any other securities under its 2008 Shelf
Registration.
On June 30, 2004, the Company issued the $350 Million
Senior Notes at 99.3% of the principal amount of the notes in a
private placement. The $350 Million Senior Notes, which are due
August 15, 2011, with interest payable semi-annually,
represent senior unsecured obligations of the Company and rank
equally in right of payment with all of the Companys
existing and future senior unsecured indebtedness. The $350
Million Senior Notes may be redeemed, in whole at any time or
from time to time in part, at a price equal to 100% of their
principal amount, plus a premium, plus accrued and unpaid
interest to the applicable redemption date. On December 3,
2004, the Company exchanged all of the privately placed
$350 Million Senior Notes for notes that are substantially
identical except that the new $350 Million Senior Notes are
registered under the Securities Act of 1933. The
$350 Million Senior Notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis.
On July 30, 2009, the Company purchased $250.0 million in
aggregate principal amount of its $350 Million Senior Notes
pursuant to a tender offer simultaneous with the issuance of the
$265 Million Senior Notes. The total consideration paid to
purchase the notes was $252.5 million. The Company incurred
a loss of $3.7 million in the third quarter of 2009 related
to the early redemption of debt due to the tender offer premium
and the unamortized original issue discount. This loss, which is
included in loss on early redemption/interest expense, net of
amounts capitalized in the consolidated statements of
operations, was partly offset by a gain of $2.7 million on
the early extinguishment of mortgages and land contracts due to
land sellers and other loans.
On January 28, 2004, the Company issued the $250 Million Senior
Notes at 99.474% of the principal amount of the notes in a
private placement. The $250 Million Senior Notes, which are
due February 1, 2014, with interest payable semi-annually,
represent senior unsecured obligations of the Company and rank
equally in right of payment with all of the Companys
existing and future senior unsecured indebtedness. The
$250 Million Senior Notes may be redeemed, in whole at any
time or from time to time in part, at a price equal to 100% of
their principal amount, plus a premium, plus accrued and unpaid
interest to the applicable redemption date. On June 16,
2004, the Company exchanged all of the privately placed
$250 Million Senior Notes for notes that are substantially
identical except that the new $250 Million Senior Notes are
registered under the Securities Act of 1933. The
$250 Million Senior Notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis.
On December 15, 2004, pursuant to the 2004 Shelf
Registration, the Company issued $300.0 million of
57/8%
senior notes due 2015 (the $300 Million
57/8%
Senior Notes) at 99.357% of the principal amount of the
notes. The $300 Million
57/8%
Senior Notes, which are due January 15, 2015, with interest
payable semi-annually, represent senior unsecured obligations of
the Company and rank equally in right of payment with all of the
Companys existing and future senior unsecured
indebtedness. The $300 Million
57/8%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of
(a) 100% of their principal amount and (b) the sum of
the present values of the remaining scheduled payments
discounted to the date of redemption at a defined rate, plus, in
each case accrued and unpaid interest to the applicable
redemption date. The notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis.
On June 2, 2005, pursuant to the 2004 Shelf Registration,
the Company issued $450.0 million of
61/4%
senior notes due 2015 (the $450 Million Senior
Notes) at 100.614% of the principal amount of the notes
plus accrued interest from June 2, 2005. The
$450 Million Senior Notes, which are due June 15,
2015, with interest payable semi-annually, represent senior
unsecured obligations of the Company and rank equally in right
of payment with all of the Companys existing and future
senior unsecured indebtedness. The $450 Million Senior
Notes may be redeemed, in whole at any time or from time to time
in part, at a price equal to the greater of (a) 100% of
their principal amount and (b) the sum of
78
the present values of the remaining scheduled payments
discounted to the date of redemption at a defined rate, plus, in
each case, accrued and unpaid interest to the applicable
redemption date. The notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis.
On July 30, 2009, pursuant to the 2008 Shelf Registration,
the Company issued the $265 Million Senior Notes at 98.014% of
the principal amount of the notes. The $265 Million Senior
Notes, which are due on September 15, 2017, with interest
payable semiannually, represent senior unsecured obligations of
the Company, and rank equally in right of payment with all of
the Companys existing and future senior indebtedness. The
$265 Million Senior Notes may be redeemed in whole at any time
or from time to time in part, at a price equal to the greater of
(a) 100% of their principal amount and (b) the sum of
the present values of the remaining scheduled payments of
principal and interest discounted to the date of redemption at a
defined rate, plus, in each case accrued and unpaid interest to
the applicable redemption date. The notes are unconditionally
guaranteed jointly and severally by the Guarantor Subsidiaries
on a senior unsecured basis. The Company used substantially all
of the net proceeds from the issuance of the $265 Million Senior
Notes to purchase, pursuant to a simultaneous tender offer,
$250.0 million in aggregate principal amount of the
$350 Million Senior Notes.
On April 3, 2006, pursuant to the 2004 Shelf Registration,
the Company issued $300.0 million of
71/4%
senior notes due 2018 (the $300 Million
71/4%
Senior Notes) at 99.486% of the principal amount of the
notes. The $300 Million
71/4%
Senior Notes, which are due June 15, 2018 with interest
payable semi-annually, represent senior unsecured obligations
and rank equally in right of payment with all of the
Companys existing and future senior unsecured indebtedness
and are guaranteed jointly and severally by the Guarantor
Subsidiaries on a senior unsecured basis. The $300 Million
71/4%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of (a) 100% of
their principal amount and (b) the sum of the present values of
the remaining scheduled payments of principal and interest on
the notes to be redeemed discounted at a defined rate, plus, in
each case, accrued and unpaid interest to the applicable
redemption date. The notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis.
The indenture governing the Companys senior notes does not
contain any financial maintenance covenants. Subject to
specified exceptions, the senior notes indenture contains
certain restrictive covenants that, among other things, limit
the Companys ability to incur secured indebtedness; engage
in sale-leaseback transactions involving property or assets
above a certain specified value; or engage in mergers,
consolidations, or sales of assets.
As of November 30, 2009, the Company was in compliance with
the applicable terms of all of its covenants under the Credit
Facility, senior notes indenture, and mortgages and land
contracts due to land sellers and other loans. Based on the
applicable terms of the Credit Facility and the senior notes
indenture, $422.6 million of retained earnings would have
been available for the payment of dividends at November 30,
2009.
Principal payments on notes, mortgages, land contracts and other
loans are due as follows: 2010 $18.5 million;
2011 $102.5 million; 2012
$142.8 million; 2013 $0; 2014
$249.4 million; and thereafter
$1.31 billion.
Assets (primarily inventories) having a carrying value of
approximately $189.9 million as of November 30, 2009
are pledged to collateralize mortgages, land contracts and other
secured loans.
|
|
Note 14.
|
Commitments
and Contingencies
|
Commitments and contingencies include the usual obligations of
homebuilders for the completion of contracts and those incurred
in the ordinary course of business.
The Company provides a limited warranty on all of its homes. The
specific terms and conditions of warranties vary depending upon
the market in which the Company does business. The Company
generally provides a structural warranty of 10 years, a
warranty on electrical, heating, cooling, plumbing and other
building systems each varying from two to five years based on
geographic market and state law, and a warranty of one year for
other components of the home. The Company estimates the costs
that may be incurred under each limited warranty and records a
liability in the amount of such costs at the time the revenue
associated with the sale of each home is recognized. Factors
that affect the Companys warranty liability include the
number of homes delivered, historical and anticipated rates of
warranty claims, and cost per claim. The Companys primary
assumption in estimating the amounts it accrues for warranty
costs is that historical claims experience is a strong indicator
of future claims experience. The Company periodically assesses
the adequacy of its
79
recorded warranty liabilities, which are included in accrued
expenses and other liabilities in the consolidated balance
sheets, and adjusts the amounts as necessary based on its
assessment.
The changes in the Companys warranty liability are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
145,369
|
|
|
$
|
151,525
|
|
|
$
|
141,060
|
|
Warranties issued
|
|
|
15,130
|
|
|
|
25,324
|
|
|
|
60,620
|
|
Payments and adjustments
|
|
|
(24,750
|
)
|
|
|
(31,480
|
)
|
|
|
(50,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
135,749
|
|
|
$
|
145,369
|
|
|
$
|
151,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranties issued for the year ended November 30, 2009
include a charge of $5.7 million associated with the repair
of approximately 230 homes primarily delivered in 2006 and 2007
and located in Florida and Louisiana that were identified as
containing or suspected of containing allegedly defective
drywall manufactured in China. The drywall was installed by
certain of the Companys subcontractors. After recording
the charge, the Company believes that its warranty liability of
$135.7 million at November 30, 2009 is sufficient to
cover the estimated costs associated with its limited warranty
obligations as well as the $14.4 million of estimated costs
remaining to repair the identified homes. The Company is
continuing to review whether there are any additional homes
delivered in Florida, Louisiana or other locations that contain
or may contain this drywall material. Based on the results of
its review, the Company has not identified any homes outside of
Florida and Louisiana that contain this drywall material.
Depending on the outcome of its review and its actual claims
experience, the Company may further increase its warranty
liability in the future. Because the actual costs paid to repair
the identified homes have been minimal, the amount accrued to
repair these homes is based largely on the Companys
estimates of future costs. If the actual costs to repair these
homes differ from the estimated costs, the Company may revise
its warranty estimate for this issue.
The Company has been named as a defendant in one lawsuit
relating to this drywall material, and it may in the future be
subject to other similar litigation or claims that could cause
the Company to incur significant costs. Given the preliminary
nature of the proceedings, the Company has not concluded whether
the outcome, if unfavorable, is likely to be material to its
consolidated financial position or results of operations.
The Company will seek reimbursement from various sources for the
costs it expects to incur to investigate and complete repairs
and to defend itself in litigation associated with this drywall
material. At this early stage of its efforts to investigate and
complete repairs and to respond to litigation, however, the
Company has not recorded any amounts for potential recoveries as
of November 30, 2009.
In the normal course of its business, the Company issues certain
representations, warranties and guarantees related to its home
sales and land sales that may be affected by Accounting
Standards Codification Topic No. 460,
Guarantees. Based on historical evidence, the
Company does not believe any of these representations,
warranties or guarantees would result in a material effect on
its consolidated financial position or results of operations.
The Company has, and requires the majority of its subcontractors
to have, general liability insurance (including bodily injury
and construction defect coverage), auto, and workers
compensation insurance. These insurance policies protect the
Company against a portion of its risk of loss from claims
related to its homebuilding activities, subject to certain
self-insured retentions, deductibles and other coverage limits.
In Arizona, California, Colorado and Nevada, the Companys
general liability insurance takes the form of a wrap-up policy,
where eligible subcontractors are enrolled as insureds on each
project. The Company self-insures a portion of its overall risk
through the use of a captive insurance subsidiary. The Company
records expenses and liabilities based on the estimated costs
required to cover its self-insured retention and deductible
amounts under its insurance policies, and on the estimated costs
of potential claims and claim adjustment expenses above its
coverage limits or that are not covered by its policies. These
estimated costs are based on an analysis of the Companys
historical claims and include an estimate of construction defect
claims incurred but not yet reported. The Companys
estimated liabilities for such items were $107.0 million at
November 30, 2009 and $101.5 million at
November 30, 2008. These amounts are included in accrued
expenses and other liabilities in the consolidated balance
sheets.
The Company is often required to obtain performance bonds and
letters of credit in support of its obligations to various
municipalities and other government agencies in connection with
community improvements such as roads, sewers and
80
water, and to certain unconsolidated joint ventures. At
November 30, 2009, the Company had $539.7 million of
performance bonds and $175.0 million of letters of credit
outstanding. At November 30, 2008, the Company had
$761.1 million of performance bonds and $211.8 million
of letters of credit outstanding. In the event any such
performance bonds or letters of credit were called, the Company
would be obligated to reimburse the issuer of the performance
bond or letter of credit. At this time, the Company does not
believe that a material amount of any currently outstanding
performance bonds or letters of credit will be called.
Performance bonds do not have stated expiration dates. Rather,
the Company is released from the performance bonds as the
underlying performance is completed. The expiration dates of
letters of credit issued in connection with community
improvements and certain unconsolidated joint ventures coincide
with the expected completion dates of the related projects or
obligations. If the obligations related to a project are
ongoing, the relevant letters of credit are typically extended
on a year-to-year basis.
Borrowings outstanding, if any, and letters of credit issued
under the Credit Facility are guaranteed by the Guarantor
Subsidiaries.
In the ordinary course of business, the Company enters into land
option contracts to procure land for the construction of homes.
At November 30, 2009, the Company had total deposits of
$18.3 million, comprised of cash deposits of
$9.6 million and letters of credit of $8.7 million, to
purchase land having an aggregate purchase price of
$450.2 million. The Companys land option contracts
generally do not contain provisions requiring the Companys
specific performance.
The Company leases certain property and equipment under
noncancelable operating leases. Office and equipment leases are
typically for terms of three to five years and generally provide
renewal options for terms up to an additional five years. In
most cases, the Company expects that, in the normal course of
business, leases that expire will be renewed or replaced by
other leases. The future minimum rental payments under operating
leases, which primarily consist of office leases having initial
or remaining noncancelable lease terms in excess of one year,
are as follows: 2010 $11.7 million;
2011 $10.1 million; 2012
$7.9 million; 2013 $5.6 million;
2014 $3.4 million; and thereafter
$1.5 million. Rental expense on these operating leases was
$10.3 million in 2009, $17.3 million in 2008 and
$21.7 million in 2007.
ERISA Litigation. On March 16, 2007,
plaintiffs Reba Bagley and Scott Silver filed an action brought
under Section 502 of ERISA, 29 U.S.C.
§ 1132, Bagley et al., v. KB Home, et
al., in the United States District Court for the Central
District of California. The action was brought against the
Company, its directors, certain of its current and former
officers, and the board of directors committee that oversees the
401(k) Plan. After the court allowed leave to file an amended
complaint, plaintiffs filed an amended complaint adding Tolan
Beck and Rod Hughes as additional plaintiffs and dismissing
certain individuals as defendants. All four plaintiffs claim to
be former employees of KB Home who participated in the 401(k)
Plan. Plaintiffs allege on behalf of themselves and on behalf of
all others similarly situated that all defendants breached
fiduciary duties owed to plaintiffs and purported class members
under ERISA by failing to disclose information to and providing
misleading information to participants in the 401(k) Plan about
the Companys alleged prior stock option backdating
practices and by failing to remove the Companys stock as
an investment option under the 401(k) Plan. Plaintiffs allege
that this breach of fiduciary duties caused plaintiffs to earn
less on their 401(k) Plan accounts than they would have earned
but for defendants alleged breach of duties.
The parties to the litigation have reached a settlement in
principle, and the court was informed of this development on
December 1, 2009. A scheduled hearing on the Companys
motion for summary judgment was taken off calendar, and the
Company expects the final settlement to be submitted to the
court for approval during the month of February 2010.
Other Matters. On October 2, 2009, the
staff of the SEC notified the Company that a formal order of
investigation had been issued regarding possible accounting and
disclosure issues. The staff has stated that its investigation
should not be construed as an indication by the SEC that there
has been any violation of the federal securities laws. The
Company is cooperating with the staff of the SEC in connection
with the investigation. The Company cannot predict the outcome
of, or the timeframe for, the conclusion of this matter.
In addition to those described in this report, the Company is
involved in litigation and government proceedings incidental to
its business. These proceedings are in various procedural stages
and, based on reports of counsel, the Company believes as of the
date of this report that provisions or accruals made for any
potential losses (to the extent estimable) are adequate and that
any liabilities or costs arising out of these proceedings are
not likely to have a materially adverse effect on its
consolidated financial position or results of operations. The
outcome of any of these proceedings,
81
however, is inherently uncertain, and if unfavorable outcomes
were to occur, there is a possibility that they would,
individually or in the aggregate, have a materially adverse
effect on the Companys consolidated financial position or
results of operations.
The components of income tax benefit (expense) in the
consolidated statements of operations are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
207,900
|
|
|
$
|
1,500
|
|
|
$
|
209,400
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
207,900
|
|
|
$
|
1,500
|
|
|
$
|
209,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(18,704
|
)
|
|
$
|
10,504
|
|
|
$
|
(8,200
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(18,704
|
)
|
|
$
|
10,504
|
|
|
$
|
(8,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
236,961
|
|
|
$
|
27,195
|
|
|
$
|
264,156
|
|
Deferred
|
|
|
(156,772
|
)
|
|
|
(61,384
|
)
|
|
|
(218,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
80,189
|
|
|
$
|
(34,189
|
)
|
|
$
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes result from temporary differences in the
financial and tax basis of assets and liabilities. Significant
components of the Companys deferred tax liabilities and
assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized expenses
|
|
$
|
117,684
|
|
|
$
|
137,975
|
|
State taxes
|
|
|
52,223
|
|
|
|
36,699
|
|
Other
|
|
|
142
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
170,049
|
|
|
$
|
175,072
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract abandonments
|
|
$
|
378,834
|
|
|
$
|
483,199
|
|
2009 and 2008 net operating loss
|
|
|
84,424
|
|
|
|
52,841
|
|
Warranty, legal and other accruals
|
|
|
147,924
|
|
|
|
191,209
|
|
Employee benefits
|
|
|
60,822
|
|
|
|
90,521
|
|
Partnerships and joint ventures
|
|
|
58,611
|
|
|
|
107,838
|
|
Depreciation and amortization
|
|
|
38,888
|
|
|
|
49,909
|
|
Capitalized expenses
|
|
|
6,573
|
|
|
|
9,039
|
|
Tax credits
|
|
|
140,133
|
|
|
|
59,676
|
|
Deferred income
|
|
|
1,219
|
|
|
|
2,741
|
|
Other
|
|
|
3,738
|
|
|
|
8,029
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
921,166
|
|
|
|
1,055,002
|
|
Valuation allowance
|
|
|
(749,965
|
)
|
|
|
(878,778
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
171,201
|
|
|
|
176,224
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,152
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
82
Income tax benefit computed at the statutory U.S. federal
income tax rate and income tax benefit (expense) provided in the
consolidated statements of operations differ as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax benefit computed at statutory rate
|
|
$
|
108,914
|
|
|
$
|
338,776
|
|
|
$
|
511,270
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal income tax benefit
|
|
|
11,079
|
|
|
|
25,142
|
|
|
|
46,116
|
|
Non-deductible stock-based and other compensation and related
expenses
|
|
|
|
|
|
|
|
|
|
|
(3,574
|
)
|
Tax credits
|
|
|
203
|
|
|
|
(3,984
|
)
|
|
|
(3,594
|
)
|
Valuation allowance for deferred tax assets (a)
|
|
|
91,918
|
|
|
|
(358,159
|
)
|
|
|
(514,234
|
)
|
Other, net
|
|
|
(2,714
|
)
|
|
|
(9,975
|
)
|
|
|
10,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
209,400
|
|
|
$
|
(8,200
|
)
|
|
$
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts in the table include only those items that impacted
the income tax benefit (expense) in the consolidated statements
of operations for each year. In 2009, the $128.8 million
total net decrease in the valuation allowance for deferred tax
assets reflected $91.9 million recorded as an income tax
benefit in the consolidated statement of operations and
$38.8 million of other reductions, primarily from
forfeitures of certain equity-based awards. These amounts were
partially offset by a $1.9 million increase in the
valuation allowance recorded as a charge to accumulated other
comprehensive loss. |
The Company recognized an income tax benefit of
$209.4 million in 2009, an income tax expense of
$8.2 million in 2008, and an income tax benefit from
continuing operations of $46.0 million in 2007. These
amounts represent effective tax rates of approximately 67.3% for
2009, .8% for 2008 and 3.0% for 2007. The difference in the
Companys effective tax rate for 2009 compared to 2008
resulted primarily from the recognition of a $190.7 million
federal income tax benefit based on the carryback and offset of
its 2009 NOL against the Companys earnings for 2005 and
2004, and the reversal of a $16.3 million liability for
unrecognized federal and state tax benefits due to the status of
federal and state tax audits. The change in the Companys
effective tax rate in 2008 from 2007 was primarily due to the
disallowance of tax benefits related to the Companys 2008
loss as a result of a full valuation allowance.
On November 6, 2009, the Worker, Homeownership, and
Business Assistance Act of 2009 was enacted into law and amended
Section 172 of the Internal Revenue Code to extend the
permitted carryback period for offsetting certain NOLs against
earnings to up to five years. Due to this recently enacted
federal tax legislation, the Company was able to carry back and
offset its 2009 NOL against earnings it generated in 2005 and
2004. As a result, the Company filed an application for a
federal tax refund of $190.7 million and reflected this
amount as a receivable in its consolidated balance sheet as of
November 30, 2009. The Company expects to receive the cash
proceeds from the refund in the first quarter of 2010.
In accordance with ASC 740, the Company evaluates its
deferred tax assets quarterly to determine if valuation
allowances are required. ASC 740 requires that companies
assess whether valuation allowances should be established based
on the consideration of all available evidence using a
more likely than not standard. During the first nine
months of 2009, the Company recognized a net increase of
$67.5 million in the valuation allowance. This increase
reflected the net impact of an $89.9 million valuation
allowance recorded during the first nine months of 2009, partly
offset by a reduction of deferred tax assets due to the
forfeiture of certain equity-based awards. In the fourth quarter
of 2009, the Company recognized a decrease in the valuation
allowance of $196.3 million primarily due to the benefit
derived from the carryback and offset of its 2009 NOL against
earnings it generated in 2005 and 2004. As a result, the net
decrease in the valuation allowance for the year ended November
30, 2009 totaled $128.8 million. The decrease in the
valuation allowance was reflected as a noncash income tax
benefit of $130.7 million and a noncash charge of
$1.9 million to accumulated other comprehensive loss.
During 2008, the Company recorded a valuation allowance of
$355.9 million against its net deferred tax assets. The
valuation allowance was reflected as a noncash charge of
$358.2 million to income tax expense and a noncash benefit
of $2.3 million to accumulated other comprehensive loss (as
a result of an adjustment made in accordance with ASC 715).
For 2007, the Company recorded a valuation allowance totaling
approximately $522.9 million against its net deferred tax
assets. The valuation allowance was reflected as a noncash
charge of $514.2 million to income tax expense and $8.7
million to
83
accumulated other comprehensive loss. The majority of the tax
benefits associated with the Companys net deferred tax
assets can be carried forward for 20 years and applied to
offset future taxable income.
The Companys net deferred tax assets totaled
$1.1 million at both November 30, 2009 and 2008. The
Companys deferred tax assets for which it did not
establish a valuation allowance relate to amounts that can be
realized through future reversals of existing taxable temporary
differences or through carrybacks to the 2007 and
2006 years. To the extent the Company generates sufficient
taxable income in the future to fully utilize the tax benefits
of the related deferred tax assets, the Company expects its
effective tax rate to decrease as the valuation allowance is
reversed.
In July 2006, the FASB issued guidance which prescribes a
recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
Company adopted this guidance effective December 1, 2007.
As of the date of adoption, the Companys net liability for
unrecognized tax benefits was $18.3 million, which
represented $27.6 million of gross unrecognized tax
benefits less $9.3 million of indirect tax benefits. The
Company recognizes accrued interest and penalties related to
unrecognized tax benefits in its consolidated financial
statements as a component of the provision for income taxes. As
of November 30, 2008, the Companys liability for
gross unrecognized tax benefits was $18.3 million, of which
$7.0 million, if recognized, will affect the Companys
effective tax rate. The Company had $16.5 million and
$16.9 million in accrued interest and penalties at
December 1, 2007 and November 30, 2008, respectively.
As of November 30, 2009, the Companys liability for
gross unrecognized tax benefits was $11.0 million, of which
$1.3 million, if recognized, will affect the Companys
effective tax rate. The Company had $4.9 million in accrued
interest and penalties at November 30, 2009. The
Companys liabilities for unrecognized tax benefits at
November 30, 2009 and 2008 are included in accrued expenses
and other liabilities on its consolidated balance sheets.
A reconciliation of the beginning and ending balances of the
gross unrecognized tax benefits, excluding interest and
penalties, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
18,332
|
|
|
$
|
27,617
|
|
Additions for tax positions related to prior years
|
|
|
4,230
|
|
|
|
199
|
|
Reductions for tax positions of prior years
|
|
|
(270
|
)
|
|
|
|
|
Reductions due to lapse of statute of limitations
|
|
|
(1,277
|
)
|
|
|
|
|
Reductions due to resolution of federal and state audits
|
|
|
(9,991
|
)
|
|
|
(9,484
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
11,024
|
|
|
$
|
18,332
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of gross unrecognized tax benefits at
November 30, 2009 and 2008 are tax positions of
$6.5 million and $6.3 million, respectively, for which
the ultimate deductibility is highly certain but there is
uncertainty about the timing of such deductibility. Because of
the impact of deferred tax accounting, other than interest and
penalties, the disallowance of the shorter deductibility period
would not affect the annual effective tax rate but would
accelerate the payment of cash to a tax authority to an earlier
period.
During 2009, the Company reached a resolution with the Internal
Revenue Service regarding an audit of fiscal years 2003 through
2005. The resolution was the primary reason for the reduction in
the Companys unrecognized tax benefits. The Company
anticipates that total gross unrecognized tax benefits will
decrease by an amount ranging from $3.0 million to
$4.0 million during the twelve months from this reporting
date due to various state filings associated with the resolution
of the federal audit.
The fiscal years ending after 2005 remain open to federal
examination and fiscal years after 2004 remain open to
examination by various state taxing jurisdictions.
The benefits of the Companys net operating losses,
built-in losses and tax credits would be reduced or potentially
eliminated if the Company experienced an ownership
change under Section 382. Based on the Companys
analysis performed as of November 30, 2009, the Company
does not believe it has experienced an ownership change as
defined by Section 382, and, therefore, the net operating
losses, built-in losses and tax credits the Company has
generated should not be subject to a Section 382 limitation as
of this reporting date.
84
|
|
Note 17.
|
Stockholders
Equity
|
Preferred Stock. On January 22, 2009, the
Company adopted a Rights Agreement between the Company and
Mellon Investor Services LLC, as rights agent, dated as of that
date (the 2009 Rights Agreement), and declared a
dividend distribution of one preferred share purchase right for
each outstanding share of common stock that was payable to
stockholders of record as of the close of business on
March 5, 2009. Subject to the terms, provisions and
conditions of the 2009 Rights Agreement, if these rights become
exercisable, each right would initially represent the right to
purchase from the Company 1/100th of a share of its
Series A Participating Cumulative Preferred Stock for a
purchase price of $85.00 (the Purchase Price). If
issued, each fractional share of preferred stock would generally
give a stockholder approximately the same dividend, voting and
liquidation rights as does one share of the Companys
common stock. However, prior to exercise, a right does not give
its holder any rights as a stockholder, including without
limitation any dividend, voting or liquidation rights. The
rights will not be exercisable until the earlier of (i) 10
calendar days after a public announcement by the Company that a
person or group has become an Acquiring Person (as defined under
the 2009 Rights Agreement) and (ii) 10 business days after
the commencement of a tender or exchange offer by a person or
group if upon consummation of the offer the person or group
would beneficially own 4.9% or more of the Companys
outstanding common stock.
Until these rights become exercisable (the Distribution
Date), common stock certificates will evidence the rights
and may contain a notation to that effect. Any transfer of
shares of the Companys common stock prior to the
Distribution Date will constitute a transfer of the associated
rights. After the Distribution Date, the rights may be
transferred other than in connection with the transfer of the
underlying shares of the Companys common stock. If there
is an Acquiring Person on the Distribution Date or a person or
group becomes an Acquiring Person after the Distribution Date,
each holder of a right, other than rights that are or were
beneficially owned by an Acquiring Person, which will be void,
will thereafter have the right to receive upon exercise of a
right and payment of the Purchase Price, that number of shares
of the Companys common stock having a market value of two
times the Purchase Price. After the later of the Distribution
Date and the time the Company publicly announces that an
Acquiring Person has become such, the Companys board of
directors may exchange the rights, other than rights that are or
were beneficially owned by an Acquiring Person, which will be
void, in whole or in part, at an exchange ratio of one share of
common stock per right, subject to adjustment.
At any time prior to the later of the Distribution Date and the
time the Company publicly announces that an Acquiring Person
becomes such, the Companys board of directors may redeem
all of the then-outstanding rights in whole, but not in part, at
a price of $0.001 per right, subject to adjustment (the
Redemption Price). The redemption will be
effective immediately upon the board of directors action,
unless the action provides that such redemption will be
effective at a subsequent time or upon the occurrence or
nonoccurrence of one or more specified events, in which case the
redemption will be effective in accordance with the provisions
of the action. Immediately upon the effectiveness of the
redemption of the rights, the right to exercise the rights will
terminate and the only right of the holders of rights will be to
receive the Redemption Price, with interest thereon. The
rights issued pursuant to the 2009 Rights Agreement will expire
on the earliest of (a) the close of business on
March 5, 2019, (b) the time at which the rights are
redeemed, (c) the time at which the rights are exchanged,
(d) the time at which the Companys board of directors
determines that a related provision in the Companys
Restated Certificate of Incorporation is no longer necessary,
and (e) the close of business on the first day of a taxable
year of the Company to which the Companys board of
directors determines that no tax benefits may be carried
forward. At the Companys annual meeting of stockholders on
April 2, 2009, the Companys stockholders approved the
2009 Rights Agreement.
Common Stock. As of November 30, 2009,
the Company was authorized to repurchase four million
shares of its common stock under a board-approved stock
repurchase program. The Company did not repurchase any of its
common stock under this program in 2009, 2008 or 2007. The
Company acquired $.6 million in 2009, $1.0 million in
2008 and $6.9 million in 2007, of common stock, which were
previously issued shares delivered to the Company by employees
to satisfy withholding taxes on the vesting of restricted stock
awards. These transactions are not considered repurchases under
the share repurchase program.
In November 2008, the Companys board of directors reduced
the quarterly cash dividend on the Companys common stock
to $.0625 per share from $.25 per share.
85
|
|
Note 18.
|
Employee
Benefit and Stock Plans
|
Most employees are eligible to participate in the 401(k) Plan
under which contributions by employees are partially matched by
the Company. The aggregate cost of the 401(k) Plan to the
Company was $3.2 million in 2009, $4.1 million in 2008
and $6.2 million in 2007. The assets of the 401(k) Plan are
held by a third-party trustee. The 401(k) plan participants may
direct the investment of their funds among one or more of the
several fund options offered by the 401(k) Plan. A fund
consisting of the Companys common stock is one of the
investment choices available to participants. As of
November 30, 2009, 2008 and 2007, approximately 6%, 5% and
5%, respectively, of the 401(k) Plans net assets were
invested in the fund consisting of the Companys common
stock.
The Companys 2001 Stock Incentive Plan provides that stock
options, performance stock, restricted stock and stock units may
be awarded to any employee of the Company for periods of up to
15 years. The 2001 Stock Incentive Plan also enables the Company
to grant cash bonuses, SARs and other stock-based awards. In
addition to awards outstanding under the 2001 Stock Incentive
Plan, the Company has awards outstanding under its 1998 Stock
Incentive Plan, 1988 Employee Stock Plan and its
Performance-Based Incentive Plan for Senior Management, each of
which provides for generally the same types of awards as the
2001 Stock Incentive Plan, and its Amended and Restated 1999
Incentive Plan (the 1999 Plan) which provides for
generally the same types of awards as the 2001 Stock Incentive
Plan, but with periods of up to 10 years. As of November 30,
2009, the 2001 Stock Incentive Plan is the Companys
primary employee stock plan.
Stock
Options. Stock
option transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options outstanding at beginning of year
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
8,354,276
|
|
|
$
|
28.71
|
|
Granted
|
|
|
1,403,141
|
|
|
|
15.44
|
|
|
|
|
|
|
|
|
|
|
|
787,600
|
|
|
|
34.78
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(144,020
|
)
|
|
|
18.31
|
|
|
|
(327,681
|
)
|
|
|
24.27
|
|
Cancelled
|
|
|
(3,538,842
|
)
|
|
|
28.69
|
|
|
|
(182,042
|
)
|
|
|
42.33
|
|
|
|
(640,731
|
)
|
|
|
37.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
5,711,701
|
|
|
$
|
27.39
|
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
4,046,027
|
|
|
$
|
31.05
|
|
|
|
7,321,170
|
|
|
$
|
29.77
|
|
|
|
7,238,598
|
|
|
$
|
28.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant at end of year
|
|
|
1,714,650
|
|
|
|
|
|
|
|
593,897
|
|
|
|
|
|
|
|
501,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options exercised during the year ended
November 30, 2009. The total intrinsic value of stock
options exercised during the years ended November 30, 2008
and 2007 was $1.0 million and $5.5 million,
respectively. The aggregate intrinsic value of stock options
outstanding was $.1 million, $.1 million and
$9.9 million at November 30, 2009, 2008 and 2007,
respectively. The aggregate intrinsic value of stock options
exercisable at November 30, 2009, 2008 and 2007 was
$.1 million, $.1 million and $9.9 million,
respectively. The intrinsic value of a stock option is the
amount by which the market value of the underlying stock exceeds
the price of the option. In 2009, in connection with the
settlement of certain stockholder derivative litigation, the
Companys former chairman and chief executive officer
relinquished 3,011,452 stock options to the Company and those
stock options were cancelled. In 2007, 371,399 options were
cancelled as a result of the irrevocable election of each of the
Companys non-employee directors to receive payouts in cash
of all outstanding stock-based awards granted to them under the
Companys compensation plan for such directors.
86
Stock options outstanding at November 30, 2009 are as
follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
Range of Exercise Price
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
$ 8.88 to $13.95
|
|
|
668,539
|
|
|
$
|
13.73
|
|
|
|
6.79
|
|
|
|
668,539
|
|
|
$
|
13.73
|
|
|
|
|
|
$13.96 to $15.44
|
|
|
1,403,141
|
|
|
|
15.44
|
|
|
|
9.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15.45 to $32.66
|
|
|
1,192,703
|
|
|
|
24.14
|
|
|
|
7.99
|
|
|
|
1,146,870
|
|
|
|
23.98
|
|
|
|
|
|
$32.67 to $36.19
|
|
|
1,495,929
|
|
|
|
34.86
|
|
|
|
8.21
|
|
|
|
1,279,229
|
|
|
|
34.63
|
|
|
|
|
|
$36.20 to $69.63
|
|
|
951,389
|
|
|
|
46.93
|
|
|
|
9.14
|
|
|
|
951,389
|
|
|
|
46.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 8.88 to $69.63
|
|
|
5,711,701
|
|
|
$
|
27.39
|
|
|
|
8.55
|
|
|
|
4,046,027
|
|
|
$
|
31.05
|
|
|
|
8.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted in 2009 and
2007 was $7.16 and $11.42, respectively. The Company granted no
stock options in 2008. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for
grants in 2009 and 2007, respectively: a risk-free interest rate
of 1.9% and 4.8%; an expected volatility factor for the market
price of the Companys common stock of 64.3% and 41.1%; a
dividend yield of 1.6% and 2.9%; and an expected life of
4 years and 5 years.
The Companys stock-based compensation expense related to
stock option grants was $2.6 million in 2009,
$5.0 million in 2008 and $9.4 million in 2007. As of
November 30, 2009, there was $9.5 million of total
unrecognized stock-based compensation expense related to
unvested stock option awards. This expense is expected to be
recognized over a weighted average period of 1.7 years.
The Company records proceeds from the exercise of stock options
as additions to common stock and paid-in capital. Actual tax
shortfalls realized for the tax deduction from stock option
exercises of $4.1 million in 2009 and $1.1 million in
2008, and actual tax benefits realized for the tax deduction
from stock option exercises of $2.1 million in 2007, were
recorded as paid-in capital. In 2009, 2008 and 2007, the
consolidated statement of cash flows reflects
$0, $0 and $.9 million, respectively, of excess
tax benefit associated with the exercise of stock options since
December 1, 2005, in accordance with the cash flow
classification requirements of ASC 718.
Other Stock-Based Awards. From time to time,
the Company grants restricted common stock to various employees
as a compensation benefit. During the restriction periods, the
employees are entitled to vote and receive dividends on such
shares. The restrictions imposed with respect to the shares
granted lapse over periods of three or eight years if certain
conditions are met.
Restricted stock transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
per Share
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Outstanding at beginning of year
|
|
|
700,000
|
|
|
$
|
15.70
|
|
Granted
|
|
|
445,831
|
|
|
|
15.44
|
|
Vested
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(700,000
|
)
|
|
|
15.70
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
445,831
|
|
|
$
|
15.44
|
|
|
|
|
|
|
|
|
|
|
In 2009, in connection with the settlement of certain
stockholder derivative litigation, the Companys former
chairman and chief executive officer relinquished
700,000 shares of restricted common stock.
On July 12, 2007, the Company awarded 54,000 Performance
Shares to its President and Chief Executive Officer subject to
the terms of the 1999 Plan, the President and Chief Executive
Officers Performance Stock Agreement dated July 12,
2007 and his Employment Agreement dated February 28, 2007.
Depending on the Companys total shareholder return over
the three-year period ending on November 30, 2009 relative
to a group of peer companies, zero to 150% of
87
the Performance Shares will vest and become unrestricted. In
accordance with ASC 718, the Company used a Monte Carlo
simulation model to estimate the grant-date fair value of the
Performance Shares. The total grant-date fair value of
$2.0 million was recognized over the requisite service
period. On January 21, 2010, the management development and
compensation committee of the Companys board of directors
certified the Companys relative total shareholder return
over the performance period associated with the Performance
Shares and determined that the vesting restrictions lapsed with
respect to 48,492 Performance Shares effective on that date.
During 2009, 2008 and 2007, the Company granted phantom shares
to various employees. During 2008 and 2007, the Company also
granted SARs to various employees. Both phantom shares and SARs
are accounted for as liabilities in the Companys
consolidated financial statements because such awards provide
for settlement in cash. Each phantom share represents the right
to receive a cash payment equal to the closing price of the
Companys common stock on the applicable vesting date. Each
SAR represents a right to receive a cash payment equal to the
positive difference, if any, between the grant price and the
market value of a share of the Companys common stock on
the date of exercise. The phantom shares vest in full at the end
of three years, while the SARs vest in equal annual installments
over three years. There were 926,705 phantom shares and
2,292,537 SARs outstanding as of November 30, 2009,
1,099,722 phantom shares and 2,345,154 SARs outstanding as of
November 30, 2008, and 892,926 phantom shares and 1,100,519
SARs outstanding as of November 30, 2007.
The Company recognized total compensation expense of
$10.0 million in 2009, $7.1 million in 2008 and
$7.4 million in 2007 related to restricted common stock,
the Performance Shares, phantom shares and SARs.
Grantor Stock Ownership Trust. On
August 27, 1999, the Company established a grantor stock
ownership trust (the Trust) into which certain
shares repurchased in 2000 and 1999 were transferred. The Trust,
administered by a third-party trustee, holds and distributes the
shares of common stock acquired to support certain employee
compensation and employee benefit obligations of the Company
under its existing stock option, 401(k) Plan and other employee
benefit plans. The existence of the Trust has no impact on the
amount of benefits or compensation that is paid under these
plans.
For financial reporting purposes, the Trust is consolidated with
the Company. Any dividend transactions between the Company and
the Trust are eliminated. Acquired shares held by the Trust
remain valued at the market price at the date of purchase and
are shown as a reduction to stockholders equity in the
consolidated balance sheets. The difference between the Trust
share value and the market value on the date shares are released
from the Trust is included in paid-in capital. Common stock held
in the Trust is not considered outstanding in the computations
of earnings (loss) per share. The Trust held 11,228,951 and
11,901,382 shares of common stock at November 30, 2009 and
2008, respectively. The trustee votes shares held by the Trust
in accordance with voting directions from eligible employees, as
specified in a trust agreement with the trustee.
|
|
Note 19.
|
Postretirement
Benefits
|
As of November 30, 2009, the Company had a supplemental
non-qualified, unfunded retirement plan, the KB Home
Retirement Plan, effective as of July 11, 2002, pursuant to
which the Company pays supplemental pension benefits to certain
employees upon retirement. The Companys supplemental
non-qualified, unfunded retirement plan, the KB Home
Supplemental Executive Retirement Plan, restated effective as of
July 12, 2001, was terminated during 2009. In connection
with the plans, the Company has purchased cost recovery life
insurance on the lives of certain employees. Insurance contracts
associated with each plan are held by a trust, established as
part of the plans to implement and carry out the provisions of
the plans and to finance the benefits offered under the plans.
The trust is the owner and beneficiary of such contracts. The
amount of the insurance coverage is designed to provide
sufficient revenues to cover all costs of the plans if
assumptions made as to employment term, mortality experience,
policy earnings and other factors are realized. The cash
surrender value of these insurance contracts was
$38.3 million at November 30, 2009 and
$43.5 million at November 30, 2008.
On November 1, 2001, the Company implemented an unfunded
death benefit plan, the KB Home Death Benefit Only Plan, for
certain key management employees. In connection with the plan,
the Company has purchased cost recovery life insurance on the
lives of certain employees. Insurance contracts associated with
the plan are held by a trust, established as part of the plan to
implement and carry out the provisions of the plan and to
finance the benefits offered under the plan. The trust is the
owner and beneficiary of such contracts. The amount of the
coverage is designed to provide sufficient revenues to cover all
costs of the plan if assumptions made as to employment term,
mortality experience, policy earnings and other factors are
realized. The cash surrender value of these insurance contracts
was $12.9 million at November 30, 2009 and
$15.0 million at November 30, 2008.
88
The net periodic benefit cost of the Companys
postretirement benefit plans for the year ended
November 30, 2009 was $5.6 million, which included
service costs of $1.1 million, interest costs of
$2.4 million, amortization of prior service costs of
$1.5 million and a charge of $.8 million due to plan
settlements, partly offset by other income of $.2 million.
The net periodic benefit cost of these plans for the year ended
November 30, 2008 was $6.5 million, which included
service costs of $1.3 million, interest costs of
$2.9 million, amortization of prior service costs of
$1.6 million and other costs of $.7 million and for
the year ended November 30, 2007 was $5.6 million,
which included service costs of $1.4 million, interest
costs of $2.6 million and amortization of prior service
costs of $1.6 million. In 2009, in connection with the
settlement of certain stockholder derivative litigation, the
Company paid $22.2 million to its former chairman and chief
executive officer under the KB Home Retirement Plan and the KB
Home Supplemental Executive Retirement Plan. The liabilities
related to the postretirement benefit plans were
$38.3 million at November 30, 2009 and
$50.1 million at November 30, 2008, and are included
in accrued expenses and other liabilities in the consolidated
balance sheets. For the years ended November 30, 2009 and
2008, the discount rates used for the plans were 5.7% and 6.5%,
respectively.
Benefit payments under the Companys postretirement benefit
plans are expected to be paid as follows: 2010
$.2 million; 2011 $.2 million; 2012
$.3 million; 2013 $1.1 million; 2014
$1.4 million; and for the five years ended November 30,
2019 $13.1 million in the aggregate.
Effective November 30, 2007, the Company adopted provisions
of ASC 715, which require an employer to recognize the funded
status of defined postretirement benefit plans as an asset or
liability on the balance sheet and requires any unrecognized
prior service cost and actuarial gains/losses to be recognized
in other comprehensive income (loss). The postretirement benefit
liability at November 30, 2007 reflected the Companys
adoption of ASC 715, which increased the liability by
$22.9 million with a corresponding charge to accumulated
other comprehensive loss in stockholders equity in the
consolidated balance sheet. The $8.7 million deferred tax
asset resulting from the adoption of ASC 715 was offset by a
valuation allowance established in accordance with ASC 740.
The adoption of ASC 715 did not affect the Companys
consolidated results of operations or cash flows. The Company
uses November 30 as the measurement date for its
postretirement benefit plans.
|
|
Note
20.
|
Supplemental
Disclosure to Consolidated Statements of Cash Flows
|
The following are supplemental disclosures to the consolidated
statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Summary of cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,174,715
|
|
|
$
|
1,135,399
|
|
|
$
|
1,325,255
|
|
Financial services
|
|
|
3,246
|
|
|
|
6,119
|
|
|
|
18,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,177,961
|
|
|
$
|
1,141,518
|
|
|
$
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
55,892
|
|
|
$
|
20,726
|
|
|
$
|
29,572
|
|
Income taxes paid (refunded)
|
|
|
(235,273
|
)
|
|
|
(122,872
|
)
|
|
|
131,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventories in connection with consolidation of
joint ventures
|
|
$
|
97,550
|
|
|
$
|
|
|
|
$
|
|
|
Increase in secured debt in connection with consolidation of
joint ventures
|
|
|
133,051
|
|
|
|
|
|
|
|
|
|
Reclassification from inventory to operating properties
|
|
|
72,548
|
|
|
|
|
|
|
|
|
|
Reclassification from accounts payable to investments in
unconsolidated joint ventures
|
|
|
50,626
|
|
|
|
|
|
|
|
|
|
Cost of inventories acquired through seller financing
|
|
|
16,240
|
|
|
|
90,028
|
|
|
|
4,139
|
|
Decrease in consolidated inventories not owned
|
|
|
(45,340
|
)
|
|
|
(143,091
|
)
|
|
|
(409,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
21.
|
Discontinued
Operations
|
On July 10, 2007, the Company sold its 49% equity interest
in its publicly traded French subsidiary, KBSA. The sale
generated total gross proceeds of $807.2 million and a
pretax gain of $706.7 million ($438.1 million, net of
income taxes), which was recognized in the third quarter of
2007. The sale was made pursuant to the Share Purchase Agreement
89
among the Company, the Purchaser and the Selling Subsidiaries.
Under the Share Purchase Agreement, the Purchaser agreed to
acquire the 49% equity interest (representing
10,921,954 shares held collectively by the Selling
Subsidiaries) at a price of 55.00 euros per share. The purchase
price consisted of 50.17 euros per share paid by the Purchaser
in cash, and a cash dividend of 4.83 euros per share paid by
KBSA.
As a result of the sale, the results of the former French
operations are included in discontinued operations in the
Companys consolidated statements of operations for all
periods presented. In addition, cash flows related to these
discontinued operations are presented separately in the
consolidated statements of cash flows for all periods presented.
The following amounts related to the French operations were
derived from historical financial information and have been
segregated from continuing operations and reported as
discontinued operations (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
Revenues
|
|
$
|
911,841
|
|
Construction and land costs
|
|
|
(680,234
|
)
|
Selling, general and administrative expenses
|
|
|
(129,407
|
)
|
|
|
|
|
|
Operating income
|
|
|
102,200
|
|
Interest income
|
|
|
1,199
|
|
Minority interests
|
|
|
(38,665
|
)
|
Equity in income of unconsolidated joint ventures
|
|
|
4,118
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
68,852
|
|
Income tax expense
|
|
|
(21,600
|
)
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
47,252
|
|
|
|
|
|
|
Results of operations for KBSA were translated to
U.S. dollars using the average exchange rates during the
period. Assets and liabilities were translated using the
exchange rates in effect at the balance sheet date. Resulting
translation adjustments were recorded in stockholders
equity as foreign currency translation adjustments. Cumulative
translation adjustments of $63.2 million related to the
Companys French operations were recognized in 2007 in
connection with the sale of those operations.
|
|
Note 22.
|
Quarterly
Results (unaudited)
|
Shown below are consolidated quarterly results for the Company
for the years ended November 30, 2009 and 2008 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
307,361
|
|
|
$
|
384,470
|
|
|
$
|
458,451
|
|
|
$
|
674,568
|
|
Gross profit
|
|
|
14,783
|
|
|
|
6,115
|
|
|
|
41,773
|
|
|
|
3,833
|
|
Pretax loss
|
|
|
(59,572
|
)
|
|
|
(83,583
|
)
|
|
|
(77,048
|
)
|
|
|
(90,981
|
)
|
Net income (loss)
|
|
|
(58,072
|
)
|
|
|
(78,383
|
)
|
|
|
(66,048
|
)
|
|
|
100,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
$
|
(.75
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(.87
|
)
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
794,224
|
|
|
$
|
639,065
|
|
|
$
|
681,610
|
|
|
$
|
919,037
|
|
Gross profit (loss)
|
|
|
(121,333
|
)
|
|
|
(118,746
|
)
|
|
|
25,383
|
|
|
|
(76,950
|
)
|
Pretax loss
|
|
|
(267,872
|
)
|
|
|
(255,330
|
)
|
|
|
(151,745
|
)
|
|
|
(292,984
|
)
|
Net loss
|
|
|
(268,172
|
)
|
|
|
(255,930
|
)
|
|
|
(144,745
|
)
|
|
|
(307,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(3.47
|
)
|
|
$
|
(3.30
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(3.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in gross profit in the first, second, third and fourth
quarters of 2009 were inventory impairment charges of
$24.4 million, $5.8 million, $22.8 million and
$67.9 million, respectively, and pretax charges for land
option contract abandonments of $.3 million,
$36.5 million, $1.7 million and $8.8 million,
respectively. The pretax loss in the first,
90
second, third and fourth quarters of 2009 also included charges
for joint venture impairments of $7.6 million,
$7.2 million, $23.2 million and $.5 million,
respectively. Included in gross profit (loss) in the first,
second, third and fourth quarters of 2008 were inventory
impairment charges of $180.3 million, $154.0 million,
$39.1 million and $192.5 million, respectively. Gross
profit (loss) in the first, second and fourth quarters of 2008
also included pretax charges for land option contract
abandonments of $7.3 million, $20.4 million, and
$13.2 million, respectively. There were no such charges in
the third quarter of 2008. The pretax loss in the first, second,
third and fourth quarters of 2008 also included charges for
joint venture impairments of $36.4 million,
$2.2 million, $43.1 million and $60.2 million,
respectively.
The pretax loss in the second and fourth quarters of 2008
included charges of $24.6 million and $43.4 million,
respectively, for goodwill impairments.
The net loss in the first, second and third quarters of 2009
included charges of $22.7 million, $31.7 million,
$35.5 million, respectively, to record valuation allowances
against net deferred tax assets in accordance with ASC 740.
The charge in the first quarter was substantially offset by a
reduction of deferred tax assets due to the forfeiture of
certain equity-based awards. The net income in the fourth
quarter of 2009 included a decrease of $196.3 million in
the deferred tax asset valuation allowance primarily due to the
benefit derived from the Companys carryback and offset of
its 2009 NOL against earnings it generated in 2005 and 2004 in
accordance with recently enacted federal tax legislation. The
net loss in the first, second, third and fourth quarters of 2008
included charges of $100.0 million, $98.9 million,
$58.1 million and $98.9 million, respectively, to
record valuation allowances against net deferred tax assets in
accordance with ASC 740.
Quarterly and
year-to-date
computations of per share amounts are made independently.
Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
|
|
Note 23.
|
Supplemental
Guarantor Information
|
The Companys obligations to pay principal, premium, if
any, and interest under certain debt instruments are guaranteed
on a joint and several basis by the Guarantor Subsidiaries. The
guarantees are full and unconditional and the Guarantor
Subsidiaries are 100% owned by the Company. The Company has
determined that separate, full financial statements of the
Guarantor Subsidiaries would not be material to investors and,
accordingly, supplemental financial information for the
Guarantor Subsidiaries is presented.
91
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2009
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,608,533
|
|
|
$
|
216,317
|
|
|
$
|
|
|
|
$
|
1,824,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,608,533
|
|
|
$
|
207,882
|
|
|
$
|
|
|
|
$
|
1,816,415
|
|
Construction and land costs
|
|
|
|
|
|
|
(1,548,678
|
)
|
|
|
(201,233
|
)
|
|
|
|
|
|
|
(1,749,911
|
)
|
Selling, general and administrative expenses
|
|
|
(71,181
|
)
|
|
|
(198,964
|
)
|
|
|
(32,879
|
)
|
|
|
|
|
|
|
(303,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(71,181
|
)
|
|
|
(139,109
|
)
|
|
|
(26,230
|
)
|
|
|
|
|
|
|
(236,520
|
)
|
Interest income
|
|
|
5,965
|
|
|
|
887
|
|
|
|
663
|
|
|
|
|
|
|
|
7,515
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
31,442
|
|
|
|
(74,946
|
)
|
|
|
(8,259
|
)
|
|
|
|
|
|
|
(51,763
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(22,840
|
)
|
|
|
(26,775
|
)
|
|
|
|
|
|
|
(49,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(33,774
|
)
|
|
|
(236,008
|
)
|
|
|
(60,601
|
)
|
|
|
|
|
|
|
(330,383
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
19,199
|
|
|
|
|
|
|
|
19,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(33,774
|
)
|
|
|
(236,008
|
)
|
|
|
(41,402
|
)
|
|
|
|
|
|
|
(311,184
|
)
|
Income tax benefit
|
|
|
22,700
|
|
|
|
158,800
|
|
|
|
27,900
|
|
|
|
|
|
|
|
209,400
|
|
Equity in net loss of subsidiaries
|
|
|
(90,710
|
)
|
|
|
|
|
|
|
|
|
|
|
90,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(101,784
|
)
|
|
$
|
(77,208
|
)
|
|
$
|
(13,502
|
)
|
|
$
|
90,710
|
|
|
$
|
(101,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,331,771
|
|
|
$
|
702,165
|
|
|
$
|
|
|
|
$
|
3,033,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,331,771
|
|
|
$
|
691,398
|
|
|
$
|
|
|
|
$
|
3,023,169
|
|
Construction and land costs
|
|
|
|
|
|
|
(2,555,911
|
)
|
|
|
(758,904
|
)
|
|
|
|
|
|
|
(3,314,815
|
)
|
Selling, general and administrative expenses
|
|
|
(74,075
|
)
|
|
|
(296,964
|
)
|
|
|
(129,988
|
)
|
|
|
|
|
|
|
(501,027
|
)
|
Goodwill impairment
|
|
|
(67,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(142,045
|
)
|
|
|
(521,104
|
)
|
|
|
(197,494
|
)
|
|
|
|
|
|
|
(860,643
|
)
|
Interest income
|
|
|
31,666
|
|
|
|
2,524
|
|
|
|
420
|
|
|
|
|
|
|
|
34,610
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
56,541
|
|
|
|
(34,946
|
)
|
|
|
(34,561
|
)
|
|
|
|
|
|
|
(12,966
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(10,742
|
)
|
|
|
(142,008
|
)
|
|
|
|
|
|
|
(152,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(53,838
|
)
|
|
|
(564,268
|
)
|
|
|
(373,643
|
)
|
|
|
|
|
|
|
(991,749
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
23,818
|
|
|
|
|
|
|
|
23,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(53,838
|
)
|
|
|
(564,268
|
)
|
|
|
(349,825
|
)
|
|
|
|
|
|
|
(967,931
|
)
|
Income tax expense
|
|
|
(400
|
)
|
|
|
(4,600
|
)
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
(8,200
|
)
|
Equity in net loss of subsidiaries
|
|
|
(921,893
|
)
|
|
|
|
|
|
|
|
|
|
|
921,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(976,131
|
)
|
|
$
|
(568,868
|
)
|
|
$
|
(353,025
|
)
|
|
$
|
921,893
|
|
|
$
|
(976,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,663,877
|
|
|
$
|
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,647,942
|
|
|
$
|
|
|
|
$
|
6,400,591
|
|
Construction and land costs
|
|
|
|
|
|
|
(5,299,357
|
)
|
|
|
(1,527,022
|
)
|
|
|
|
|
|
|
(6,826,379
|
)
|
Selling, general and administrative expenses
|
|
|
(104,646
|
)
|
|
|
(518,912
|
)
|
|
|
(201,063
|
)
|
|
|
|
|
|
|
(824,621
|
)
|
Goodwill impairment
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(212,572
|
)
|
|
|
(1,065,620
|
)
|
|
|
(80,143
|
)
|
|
|
|
|
|
|
(1,358,335
|
)
|
Interest income
|
|
|
21,869
|
|
|
|
6,193
|
|
|
|
574
|
|
|
|
|
|
|
|
28,636
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
179,100
|
|
|
|
(146,204
|
)
|
|
|
(45,886
|
)
|
|
|
|
|
|
|
(12,990
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(26,105
|
)
|
|
|
(125,812
|
)
|
|
|
|
|
|
|
(151,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(251,267
|
)
|
|
|
|
|
|
|
(1,494,606
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(217,431
|
)
|
|
|
|
|
|
|
(1,460,770
|
)
|
Income tax benefit
|
|
|
400
|
|
|
|
38,800
|
|
|
|
6,800
|
|
|
|
|
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before equity in net loss of
subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
(210,631
|
)
|
|
|
|
|
|
|
(1,414,770
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
274,725
|
|
|
|
|
|
|
|
(929,414
|
)
|
Equity in net income (loss) of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
1,403,567
|
|
|
|
|
|
Discontinued operations
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
(485,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
(1,192,936
|
)
|
|
$
|
274,725
|
|
|
$
|
918,211
|
|
|
$
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
CONDENSED
CONSOLIDATING BALANCE SHEETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2009
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
995,122
|
|
|
$
|
56,969
|
|
|
$
|
122,624
|
|
|
$
|
|
|
|
$
|
1,174,715
|
|
Restricted cash
|
|
|
114,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,292
|
|
Receivables
|
|
|
191,747
|
|
|
|
109,536
|
|
|
|
36,647
|
|
|
|
|
|
|
|
337,930
|
|
Inventories
|
|
|
|
|
|
|
1,374,617
|
|
|
|
126,777
|
|
|
|
|
|
|
|
1,501,394
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
115,402
|
|
|
|
4,266
|
|
|
|
|
|
|
|
119,668
|
|
Other assets
|
|
|
68,895
|
|
|
|
85,856
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
154,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,370,056
|
|
|
|
1,742,380
|
|
|
|
290,129
|
|
|
|
|
|
|
|
3,402,565
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
33,424
|
|
|
|
|
|
|
|
33,424
|
|
Investments in subsidiaries
|
|
|
35,955
|
|
|
|
|
|
|
|
|
|
|
|
(35,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,406,011
|
|
|
$
|
1,742,380
|
|
|
$
|
323,553
|
|
|
$
|
(35,955
|
)
|
|
$
|
3,435,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
147,264
|
|
|
$
|
588,203
|
|
|
$
|
165,878
|
|
|
$
|
|
|
|
$
|
901,345
|
|
Mortgages and notes payable
|
|
|
1,656,402
|
|
|
|
163,967
|
|
|
|
1
|
|
|
|
|
|
|
|
1,820,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,803,666
|
|
|
|
752,170
|
|
|
|
165,879
|
|
|
|
|
|
|
|
2,721,715
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
7,050
|
|
|
|
|
|
|
|
7,050
|
|
Intercompany
|
|
|
(1,104,879
|
)
|
|
|
990,210
|
|
|
|
114,669
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
707,224
|
|
|
|
|
|
|
|
35,955
|
|
|
|
(35,955
|
)
|
|
|
707,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,406,011
|
|
|
$
|
1,742,380
|
|
|
$
|
323,553
|
|
|
$
|
(35,955
|
)
|
|
$
|
3,435,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
987,057
|
|
|
$
|
25,067
|
|
|
$
|
123,275
|
|
|
$
|
|
|
|
$
|
1,135,399
|
|
Restricted cash
|
|
|
115,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,404
|
|
Receivables
|
|
|
218,600
|
|
|
|
126,713
|
|
|
|
12,406
|
|
|
|
|
|
|
|
357,719
|
|
Inventories
|
|
|
|
|
|
|
1,748,526
|
|
|
|
358,190
|
|
|
|
|
|
|
|
2,106,716
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
176,290
|
|
|
|
1,359
|
|
|
|
|
|
|
|
177,649
|
|
Other assets
|
|
|
83,028
|
|
|
|
13,954
|
|
|
|
2,279
|
|
|
|
|
|
|
|
99,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,404,089
|
|
|
|
2,090,550
|
|
|
|
497,509
|
|
|
|
|
|
|
|
3,992,148
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
52,152
|
|
|
|
|
|
|
|
52,152
|
|
Investments in subsidiaries
|
|
|
51,848
|
|
|
|
|
|
|
|
|
|
|
|
(51,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,455,937
|
|
|
$
|
2,090,550
|
|
|
$
|
549,661
|
|
|
$
|
(51,848
|
)
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
190,455
|
|
|
$
|
786,717
|
|
|
$
|
285,519
|
|
|
$
|
|
|
|
$
|
1,262,691
|
|
Mortgages and notes payable
|
|
|
1,845,169
|
|
|
|
96,368
|
|
|
|
|
|
|
|
|
|
|
|
1,941,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,035,624
|
|
|
|
883,085
|
|
|
|
285,519
|
|
|
|
|
|
|
|
3,204,228
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
9,467
|
|
|
|
|
|
|
|
9,467
|
|
Intercompany
|
|
|
(1,410,292
|
)
|
|
|
1,207,465
|
|
|
|
202,827
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
830,605
|
|
|
|
|
|
|
|
51,848
|
|
|
|
(51,848
|
)
|
|
|
830,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,455,937
|
|
|
$
|
2,090,550
|
|
|
$
|
549,661
|
|
|
$
|
(51,848
|
)
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2009
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(101,784
|
)
|
|
$
|
(77,208
|
)
|
|
$
|
(13,502
|
)
|
|
$
|
90,710
|
|
|
$
|
(101,784
|
)
|
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
153,294
|
|
|
|
14,855
|
|
|
|
|
|
|
|
168,149
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
26,853
|
|
|
|
33,210
|
|
|
|
(24,396
|
)
|
|
|
|
|
|
|
35,667
|
|
Inventories
|
|
|
|
|
|
|
216,554
|
|
|
|
216,521
|
|
|
|
|
|
|
|
433,075
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(47,284
|
)
|
|
|
(83,316
|
)
|
|
|
(122,020
|
)
|
|
|
|
|
|
|
(252,620
|
)
|
Other, net
|
|
|
22,313
|
|
|
|
24,411
|
|
|
|
20,701
|
|
|
|
|
|
|
|
67,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(99,902
|
)
|
|
|
266,945
|
|
|
|
92,159
|
|
|
|
90,710
|
|
|
|
349,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(14,517
|
)
|
|
|
(5,405
|
)
|
|
|
|
|
|
|
(19,922
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
(142
|
)
|
|
|
(1,497
|
)
|
|
|
264
|
|
|
|
|
|
|
|
(1,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(142
|
)
|
|
|
(16,014
|
)
|
|
|
(5,141
|
)
|
|
|
|
|
|
|
(21,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112
|
|
Proceeds from issuance of senior notes
|
|
|
259,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,737
|
|
Payment of senior notes issuance costs
|
|
|
(4,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,294
|
)
|
Repayment of senior and senior subordinated notes
|
|
|
(453,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(453,105
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(78,983
|
)
|
|
|
|
|
|
|
|
|
|
|
(78,983
|
)
|
Issuance of common stock under employee stock plans
|
|
|
3,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,074
|
|
Payments of cash dividends
|
|
|
(19,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,097
|
)
|
Repurchases of common stock
|
|
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(616
|
)
|
Intercompany
|
|
|
321,298
|
|
|
|
(140,046
|
)
|
|
|
(90,542
|
)
|
|
|
(90,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
108,109
|
|
|
|
(219,029
|
)
|
|
|
(90,542
|
)
|
|
|
(90,710
|
)
|
|
|
(292,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
8,065
|
|
|
|
31,902
|
|
|
|
(3,524
|
)
|
|
|
|
|
|
|
36,443
|
|
Cash and cash equivalents at beginning of year
|
|
|
987,057
|
|
|
|
25,067
|
|
|
|
129,394
|
|
|
|
|
|
|
|
1,141,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
995,122
|
|
|
$
|
56,969
|
|
|
$
|
125,870
|
|
|
$
|
|
|
|
$
|
1,177,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(976,131
|
)
|
|
$
|
(568,868
|
)
|
|
$
|
(353,025
|
)
|
|
$
|
921,893
|
|
|
$
|
(976,131
|
)
|
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for deferred income taxes
|
|
|
221,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,306
|
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
469,017
|
|
|
|
137,774
|
|
|
|
|
|
|
|
606,791
|
|
Goodwill impairment
|
|
|
67,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,970
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(92,069
|
)
|
|
|
24,376
|
|
|
|
7,128
|
|
|
|
|
|
|
|
(60,565
|
)
|
Inventories
|
|
|
|
|
|
|
409,629
|
|
|
|
136,221
|
|
|
|
|
|
|
|
545,850
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(20,246
|
)
|
|
|
(210,319
|
)
|
|
|
(52,216
|
)
|
|
|
|
|
|
|
(282,781
|
)
|
Other, net
|
|
|
48,519
|
|
|
|
19,978
|
|
|
|
150,385
|
|
|
|
|
|
|
|
218,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(750,651
|
)
|
|
|
143,813
|
|
|
|
26,267
|
|
|
|
921,893
|
|
|
|
341,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
8,985
|
|
|
|
(68,610
|
)
|
|
|
|
|
|
|
(59,625
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
5,837
|
|
|
|
(55
|
)
|
|
|
1,291
|
|
|
|
|
|
|
|
7,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
5,837
|
|
|
|
8,930
|
|
|
|
(67,319
|
)
|
|
|
|
|
|
|
(52,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
(115,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,404
|
)
|
Repayment of senior subordinated notes
|
|
|
(305,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,814
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(12,800
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,800
|
)
|
Issuance of common stock under employee stock plans
|
|
|
6,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,958
|
|
Payments of cash dividends
|
|
|
(62,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
Repurchases of common stock
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967
|
)
|
Intercompany
|
|
|
1,105,636
|
|
|
|
(186,395
|
)
|
|
|
2,652
|
|
|
|
(921,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
627,442
|
|
|
|
(199,195
|
)
|
|
|
2,652
|
|
|
|
(921,893
|
)
|
|
|
(490,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(117,372
|
)
|
|
|
(46,452
|
)
|
|
|
(38,400
|
)
|
|
|
|
|
|
|
(202,224
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,104,429
|
|
|
|
71,519
|
|
|
|
167,794
|
|
|
|
|
|
|
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
987,057
|
|
|
$
|
25,067
|
|
|
$
|
129,394
|
|
|
$
|
|
|
|
$
|
1,141,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(929,414
|
)
|
|
$
|
(1,192,936
|
)
|
|
$
|
(210,631
|
)
|
|
$
|
1,403,567
|
|
|
$
|
(929,414
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(47,252
|
)
|
|
|
|
|
|
|
(47,252
|
)
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
(438,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438,104
|
)
|
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for deferred income taxes
|
|
|
208,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,348
|
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
1,173,855
|
|
|
|
80,127
|
|
|
|
|
|
|
|
1,253,982
|
|
Goodwill impairment
|
|
|
107,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,926
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(121,225
|
)
|
|
|
41,726
|
|
|
|
8,093
|
|
|
|
|
|
|
|
(71,406
|
)
|
Inventories
|
|
|
|
|
|
|
367,142
|
|
|
|
412,733
|
|
|
|
|
|
|
|
779,875
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(199,306
|
)
|
|
|
62,000
|
|
|
|
(203,324
|
)
|
|
|
|
|
|
|
(340,630
|
)
|
Other, net
|
|
|
(151,042
|
)
|
|
|
53,528
|
|
|
|
323,691
|
|
|
|
|
|
|
|
226,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
(1,522,817
|
)
|
|
|
505,315
|
|
|
|
363,437
|
|
|
|
1,403,567
|
|
|
|
749,502
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(1,522,817
|
)
|
|
|
505,315
|
|
|
|
660,834
|
|
|
|
1,403,567
|
|
|
|
1,046,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
739,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,764
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(35,227
|
)
|
|
|
(49,961
|
)
|
|
|
|
|
|
|
(85,188
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
(558
|
)
|
|
|
(201
|
)
|
|
|
1,444
|
|
|
|
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
739,206
|
|
|
|
(35,428
|
)
|
|
|
(48,517
|
)
|
|
|
|
|
|
|
655,261
|
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
739,206
|
|
|
|
(35,428
|
)
|
|
|
(60,629
|
)
|
|
|
|
|
|
|
643,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of term loan
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
Repayment of senior subordinated notes
|
|
|
(258,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,968
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(87,566
|
)
|
|
|
(26,553
|
)
|
|
|
|
|
|
|
(114,119
|
)
|
Issuance of common stock under employee stock plans
|
|
|
12,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,310
|
|
Excess tax benefit associated with exercise of stock options
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
882
|
|
Payments of cash dividends
|
|
|
(77,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
Repurchases of common stock
|
|
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,896
|
)
|
Intercompany
|
|
|
2,170,661
|
|
|
|
(461,631
|
)
|
|
|
(305,463
|
)
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
1,440,819
|
|
|
|
(549,197
|
)
|
|
|
(332,016
|
)
|
|
|
(1,403,567
|
)
|
|
|
(843,961
|
)
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
1,440,819
|
|
|
|
(549,197
|
)
|
|
|
(638,543
|
)
|
|
|
(1,403,567
|
)
|
|
|
(1,150,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
657,208
|
|
|
|
(79,310
|
)
|
|
|
(38,338
|
)
|
|
|
|
|
|
|
539,560
|
|
Cash and cash equivalents at beginning of year
|
|
|
447,221
|
|
|
|
150,829
|
|
|
|
206,132
|
|
|
|
|
|
|
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,104,429
|
|
|
$
|
71,519
|
|
|
$
|
167,794
|
|
|
$
|
|
|
|
$
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Note 24. Subsequent
Events
Based on its current and expected future cash position, the
Company voluntarily reduced the aggregate commitment under the
Credit Facility from $650.0 million to $200.0 million,
effective December 28, 2009. The decrease in the aggregate
commitment will reduce the costs associated with maintaining the
Credit Facility. The November 2010 maturity date and the other
terms of the Credit Facility remain unchanged.
The Company has evaluated subsequent events through the filing
of the financial statements with the SEC on January 29,
2010.
98
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of KB Home:
We have audited the accompanying consolidated balance sheets of
KB Home as of November 30, 2009 and 2008, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended November 30, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 KB Home at November 30, 2009 and
2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
November 30, 2009, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 19 to the consolidated financial
statements, in 2007, the Company changed its method of
accounting for defined postretirement benefit plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), KB
Homes internal control over financial reporting as of
November 30, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated January 29, 2010 expressed an
unqualified opinion thereon.
Los Angeles, California
January 29, 2010
99
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
Item
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We have established disclosure controls and procedures to ensure
that information we are required to disclose in the reports we
file or submit under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and
accumulated and communicated to management, including the
President and Chief Executive Officer (the Principal
Executive Officer) and Senior Vice President and Chief
Accounting Officer (the Principal Financial
Officer), as appropriate, to allow timely decisions
regarding required disclosure. Under the supervision and with
the participation of senior management, including our Principal
Executive Officer and Principal Financial Officer, we evaluated
our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934. Based on this evaluation, our Principal Executive
Officer and Principal Financial Officer concluded that our
disclosure controls and procedures were effective as of
November 30, 2009.
Internal
Control Over Financial Reporting
(a) Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
under the Securities and Exchange Act of 1934. Under the
supervision and with the participation of senior management,
including our Principal Executive Officer and Principal
Financial Officer, we evaluated the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on the evaluation under that framework and
applicable SEC rules, our management concluded that our internal
control over financial reporting was effective as of
November 30, 2009.
Ernst & Young LLP, the independent registered public
accounting firm that audited our consolidated financial
statements included in this annual report, has issued its report
on the effectiveness of our internal control over financial
reporting as of November 30, 2009.
(b) Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of KB Home:
We have audited KB Homes internal control over financial
reporting as of November 30, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). KB Homes
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
100
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, KB Home maintained, in all material respects,
effective internal control over financial reporting as of
November 30, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of KB Home as of November 30,
2009 and 2008, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended November 30, 2009
and our report dated January 29, 2010 expressed an
unqualified opinion thereon.
Los Angeles, California
January 29, 2010
(c) Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended November 30,
2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item
9B.
|
OTHER
INFORMATION
|
None.
101
The information required by this item for executive officers is
set forth under the heading Executive Officers of the
Registrant in Part I. Except as set forth below, the
other information called for by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Proposal 1: Election of
Directors sections of our Proxy Statement for the 2010
Annual Meeting of Stockholders (the 2010 Proxy
Statement), which will be filed with the SEC not later
than March 30, 2010 (120 days after the end of our fiscal
year).
Ethics
Policy
We have adopted an Ethics Policy for our directors, officers
(including our principal executive officer, principal financial
officer and principal accounting officer) and employees. The
Ethics Policy is available on our website at
http://investor.kbhome.com. Stockholders may request a free copy
of the Ethics Policy from:
|
|
|
|
|
KB Home
|
|
|
Attention: Investor Relations
|
|
|
10990 Wilshire Boulevard
|
|
|
Los Angeles, California 90024
|
|
|
(310) 231-4000
|
|
|
investorrelations@kbhome.com
|
Within the time period required by the SEC and the New York
Stock Exchange, we will post on our website at
http://investor.kbhome.com any amendment to our Ethics Policy
and any waiver applicable to our principal executive officer,
principal financial officer or principal accounting officer, or
persons performing similar functions, and our other executive
officers or directors.
Corporate
Governance Principles
We have adopted Corporate Governance Principles, which are
available on our website at http://investor.kbhome.com.
Stockholders may request a free copy of the Corporate Governance
Principles from the address, phone number and email address set
forth above under Ethics Policy.
Item
11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Executive Compensation
sections of the 2010 Proxy Statement.
|
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to the Ownership of KB Home Securities
section of the 2010 Proxy Statement, except for the information
required by Item 201(d) of Regulation S-K, which is provided
below.
102
The following table presents information as of November 30,
2009 with respect to shares of our common stock that may be
issued under our existing compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
Number of common
|
|
|
|
Number of
|
|
|
|
|
|
shares remaining
|
|
|
|
common shares to
|
|
|
|
|
|
available for future
|
|
|
|
be issued upon
|
|
|
|
|
|
issuance under equity
|
|
|
|
exercise of
|
|
|
Weighted-average
|
|
|
compensation plans
|
|
|
|
outstanding options,
|
|
|
exercise price of
|
|
|
(excluding common
|
|
|
|
warrants and
|
|
|
outstanding options,
|
|
|
shares reflected in
|
|
|
|
rights
|
|
|
warrants and rights
|
|
|
column(a))
|
|
Plan category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by stockholders
|
|
|
5,711,701
|
|
|
$
|
27.39
|
|
|
|
1,714,650
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,711,701
|
|
|
$
|
27.39
|
|
|
|
1,714,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents our current compensation plan for our non-employee
directors that provides for an unlimited number of grants of
deferred common stock units or stock options. These stock units
and options are described in the Director
Compensation section of our 2010 Proxy Statement, which is
incorporated herein. Although we may purchase shares of our
common stock on the open market to satisfy the payment of these
stock units and options, to date, all of them have been settled
in cash. Further, under the
non-employee
directors current compensation plan, our
non-employee
directors cannot receive shares of our common stock in
satisfaction of their stock units or options unless and until
approved by our stockholders. Therefore, we consider the
non-employee
directors compensation plans as having no available capacity to
issue shares of our common stock.
|
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Other Matters sections of our
2010 Proxy Statement.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the Independent Auditor Fees and
Services section of our 2010 Proxy Statement.
103
PART IV
|
|
Item 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Financial
Statements
Reference is made to the index set forth on page 57 of this
Annual Report on
Form 10-K.
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
3
|
.2
|
|
Certificate of Designation of Series A Participating Cumulative
Preferred Stock, dated as of January 22, 2009, filed as an
exhibit to the Companys Current Report on Form 8-K/A dated
January 28, 2009, is incorporated by reference herein.
|
|
3
|
.3
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
3
|
.4
|
|
Restated Certificate of Incorporation, as amended, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated April 7, 2009, is incorporated by reference herein.
|
|
4
|
.1
|
|
Rights Agreement between the Company and Mellon Investor
Services LLC, as rights agent, dated January 22, 2009,
filed as an exhibit to the Companys Current Report on Form
8-K/A dated January 28, 2009, is incorporated by reference
herein.
|
|
4
|
.2
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated February 4, 1999, filed
as an exhibit to the Companys Current Report on Form 8-K
dated February 4, 1999, is incorporated by reference herein.
|
|
4
|
.3
|
|
First Amendment, dated as of April 29, 2005, to the Rights
Agreement, dated as of February 4, 1999, between the Company and
Mellon Investor Services LLC, as rights agent, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended May 31, 2005, is incorporated by reference
herein.
|
|
4
|
.4
|
|
Second Amendment, dated as of January 22, 2009, to the Rights
Agreement, dated as of February 4, 1999 and amended as of April
29, 2005, between the Company and Mellon Investor Services LLC,
as rights agent, filed as an exhibit to the Companys
Current Report on Form 8-K/A dated January 28, 2009, is
incorporated by reference herein.
|
|
4
|
.5
|
|
Indenture and Supplemental Indenture relating to
53/4% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
4
|
.6
|
|
Second Supplemental Indenture relating to
63/8% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
4
|
.7
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
4
|
.8
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
4
|
.9
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
104
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.10
|
|
Specimen of
53/4% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
|
4
|
.11
|
|
Specimen of
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.12
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.13
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated June 2, 2005, is incorporated by reference herein.
|
|
4
|
.14
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
4
|
.15
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated June 27, 2005, is incorporated by reference herein.
|
|
4
|
.16
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
4
|
.17
|
|
Specimen of
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
4
|
.18
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
4
|
.19
|
|
Specimen of 9.100% Senior Notes due 2017, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 30, 2009, is incorporated by reference herein.
|
|
4
|
.20
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the 9.100% Senior Notes
due 2017, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 30, 2009, is incorporated by reference herein.
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
10
|
.2*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.3*
|
|
Amendment to Kaufman and Broad, Inc. Executive Deferred
Compensation Plan for amounts earned or vested on or after
January 1, 2005, effective January 1, 2009, filed as
an exhibit to the Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.4*
|
|
KB Home 1986 Stock Option Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.5*
|
|
KB Home 1988 Employee Stock Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.6*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989,
filed as an exhibit to the Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.7
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.8*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
as amended and restated on October 2, 2008, filed as an
exhibit to the Companys 2008 Annual Report on Form 10-K,
is incorporated by reference herein.
|
|
10
|
.9*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.10*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
105
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.11*
|
|
KB Home 1998 Stock Incentive Plan, as amended and restated on
October 2, 2008 , filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
10
|
.12
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.13
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended and
restated on October 2, 2008, filed as an exhibit to the
Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.15*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.16*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.17*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.18*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.19*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.20*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
|
10
|
.21*
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
10
|
.22*
|
|
KB Home 2001 Stock Incentive Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.23*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.24*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.25*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals prior to January 1, 2005, effective March 1,
2001, filed as an exhibit to the Companys 2001 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.26*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals on and after January 1, 2005, effective
January 1, 2009, filed as an exhibit to the Companys
2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.27*
|
|
KB Home Change in Control Severance Plan, as amended and
restated effective January 1, 2009, filed as an exhibit to
the Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.28*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
10
|
.29*
|
|
Amendment No. 1 to the KB Home Death Benefit Only Plan,
effective as of January 1, 2009, filed as an exhibit to the
Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.30*
|
|
KB Home Retirement Plan, as amended and restated effective
January 1, 2009, filed as an exhibit to the Companys
2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.31
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated effective January 1, 2009, filed as an exhibit to
the Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
106
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.32
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
10
|
.33
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
10
|
.34
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
10
|
.35
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
10
|
.36
|
|
Fourth Amendment Agreement, dated January 25, 2008, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated January 28, 2008, is incorporated by reference herein.
|
|
10
|
.37
|
|
Fifth Amendment, dated August 28, 2008, to Revolving Loan
Agreement, dated as of November 22, 2005, among the
Company, as Borrower, the banks party thereto, and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 29, 2008, is incorporated by reference herein.
|
|
10
|
.38*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
10
|
.39*
|
|
Amendment to the Employment Agreement of Jeffrey T. Mezger,
dated December 24, 2008, filed as an exhibit to the
Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.40*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.41*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.42*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
10
|
.43*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.44*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.45*
|
|
Description of fiscal year 2007 bonus arrangements with the
Companys Named Executive Officers and description of
fiscal year 2008 annual incentive compensation arrangements with
executive officers, each determined on January 22, 2008,
filed on the Companys Current Report on
Form 8-K
dated January 25, 2008, is incorporated by reference herein.
|
|
10
|
.46*
|
|
Policy Regarding Stockholder Approval of Certain Severance
Payments, adopted July 10, 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
July 15, 2008, is incorporated by reference herein.
|
|
10
|
.47*
|
|
KB Home Executive Severance Plan, filed as an exhibit to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2008, is incorporated by
reference herein.
|
|
10
|
.48*
|
|
Description of Fiscal Year 2009 Long-Term Incentive Awards to
the Companys Named Executive Officers granted on
October 2, 2008, filed on the Companys Current Report
on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
10
|
.49*
|
|
Form of Fiscal Year 2009 Stock Appreciation Rights Agreement,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
107
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.50*
|
|
Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
10
|
.51*
|
|
KB Home Annual Incentive Plan for Executive Officers, filed as
Attachment C to the Companys Proxy Statement on Schedule
14A for the 2009 Annual Meeting of Stockholders, is incorporated
by reference herein.
|
|
10
|
.52
|
|
Amendment to Trust Agreement by and between KB Home and Wachovia
Bank, N.A., dated August 24, 2009, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2009, is incorporated by
reference herein.
|
|
10
|
.53
|
|
Amended and Restated KB Home Non-Employee Directors Compensation
Plan, effective as of July 9, 2009.
|
|
10
|
.54*
|
|
Offer Letter to Raymond P. Silcock dated September 1, 2009.
|
|
10
|
.55*
|
|
Separation Agreement between the Company and Raymond P. Silcock
dated December 16, 2009 and supplemental letter dated
December 18, 2009.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
31
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
32
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
|
32
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
Document filed with this Form 10-K.
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.
108
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.
KB Home
|
|
|
|
By:
|
/s/ WILLIAM
R. HOLLINGER
|
William R. Hollinger
Senior Vice President and Chief Accounting Officer
Date: January 21, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ JEFFREY T. MEZGER Jeffrey T. Mezger
|
|
Director, President and
Chief Executive Officer
(Principal Executive Officer)
|
|
January 21, 2010
|
|
|
|
|
|
/s/ WILLIAM R. HOLLINGER William R. Hollinger
|
|
Senior Vice President and
Chief Accounting Officer
(Principal Financial and Accounting Officer)
|
|
January 21, 2010
|
|
|
|
|
|
/s/ STEPHEN F. BOLLENBACH Stephen F. Bollenbach
|
|
Chairman of the Board and Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ RONALD W. BURKLE Ronald W. Burkle
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ TIMOTHY W. FINCHEM Timothy W. Finchem
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ KENNETH M. JASTROW, II Kenneth M. Jastrow, II
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ ROBERT L. JOHNSON Robert L. Johnson
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ MELISSA LORA Melissa Lora
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ MICHAEL G. MCCAFFERY Michael G. McCaffery
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ LESLIE MOONVES Leslie Moonves
|
|
Director
|
|
January 21, 2010
|
|
|
|
|
|
/s/ LUIS G. NOGALES Luis G. Nogales
|
|
Director
|
|
January 21, 2010
|
109
LIST OF
EXHIBITS FILED
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on Form 10-Q for the quarter
ended February 28, 2007, is incorporated by reference
herein.
|
|
|
|
|
|
3
|
.2
|
|
Certificate of Designation of Series A Participating Cumulative
Preferred Stock, dated as of January 22, 2009, filed as an
exhibit to the Companys Current Report on Form 8-K/A
dated January 28, 2009, is incorporated by reference herein.
|
|
|
|
|
|
3
|
.3
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
|
|
|
|
3
|
.4
|
|
Restated Certificate of Incorporation, as amended, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated April 7, 2009, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.1
|
|
Rights Agreement between the Company and Mellon Investor
Services LLC, as rights agent, dated January 22, 2009,
filed as an exhibit to the Companys Current Report on
Form 8-K/A dated January 28, 2009, is incorporated by
reference herein.
|
|
|
|
|
|
4
|
.2
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated February 4, 1999, filed
as an exhibit to the Companys Current Report on Form 8-K
dated February 4, 1999, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.3
|
|
First Amendment, dated as of April 29, 2005, to the Rights
Agreement, dated as of February 4, 1999, between the Company and
Mellon Investor Services LLC, as rights agent, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended May 31, 2005, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.4
|
|
Second Amendment, dated as of January 22, 2009, to the Rights
Agreement, dated as of February 4, 1999 and amended as of April
29, 2005, between the Company and Mellon Investor Services LLC,
as rights agent, filed as an exhibit to the Companys
Current Report on Form 8-K/A dated January 28, 2009, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.5
|
|
Indenture and Supplemental Indenture relating to
53/4% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
|
|
|
|
4
|
.6
|
|
Second Supplemental Indenture relating to
63/8% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.7
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.8
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
4
|
.9
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.10
|
|
Specimen of
53/4% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.11
|
|
Specimen of
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.12
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.13
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.14
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.15
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.16
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.17
|
|
Specimen of
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.18
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.19
|
|
Specimen of 9.100% Senior Notes due 2017, filed as an exhibit to
the Companys Current Report on Form 8-K dated July 30,
2009, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.20
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the 9.100% Senior Notes
due 2017, filed as an exhibit to the Companys Current
Report on Form 8-K dated July 30, 2009, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.2*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.3*
|
|
Amendment to Kaufman and Broad, Inc. Executive Deferred
Compensation Plan for amounts earned or vested on or after
January 1, 2005, effective January 1, 2009, filed as
an exhibit to the Companys 2008 Annual Report on Form
10-K, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.4*
|
|
KB Home 1986 Stock Option Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.5*
|
|
KB Home 1988 Employee Stock Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
10
|
.6*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989,
filed as an exhibit to the Companys 2007 Annual Report on
Form 10-K, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.7
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order, filed as an exhibit to the
Companys 2007 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.8*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
as amended and restated on October 2, 2008, filed as an
exhibit to the Companys 2008 Annual Report on Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.9*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.10*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.11*
|
|
KB Home 1998 Stock Incentive Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.12
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.13
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended and
restated on October 2, 2008, filed as an exhibit to the
Companys 2008 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.15*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.16*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.17*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.18*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.19*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.20*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.21*
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.22*
|
|
KB Home 2001 Stock Incentive Plan, as amended and restated on
October 2, 2008, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
10
|
.23*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.24*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.25*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals prior to January 1, 2005, effective March 1,
2001, filed as an exhibit to the Companys 2001 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.26*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals on and after January 1, 2005, effective
January 1, 2009, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.27*
|
|
KB Home Change in Control Severance Plan, as amended and
restated effective January 1, 2009, filed as an exhibit to
the Companys 2008 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.28*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.29*
|
|
Amendment No. 1 to the KB Home Death Benefit Only Plan,
effective as of January 1, 2009, filed as an exhibit to the
Companys 2008 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.30*
|
|
KB Home Retirement Plan, as amended and restated effective
January 1, 2009, filed as an exhibit to the Companys
2008 Annual Report on Form 10-K, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.31
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated effective January 1, 2009, filed as an exhibit to
the Companys 2008 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.32
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.33
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.34
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.35
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.36
|
|
Fourth Amendment Agreement, dated January 25, 2008, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated January 28, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.37
|
|
Fifth Amendment, dated August 28, 2008, to Revolving Loan
Agreement, dated as of November 22, 2005, among the
Company, as Borrower, the banks party thereto, and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 29, 2008, is incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
10
|
.38*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.39*
|
|
Amendment to the Employment Agreement of Jeffrey T. Mezger,
dated December 24, 2008, filed as an exhibit to the
Companys 2008 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.40*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.41*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.42*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.43*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.44*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.45*
|
|
Description of fiscal year 2007 bonus arrangements with the
Companys Named Executive Officers and description of
fiscal year 2008 annual incentive compensation arrangements with
executive officers, each determined on January 22, 2008,
filed on the Companys Current Report on
Form 8-K
dated January 25, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.46*
|
|
Policy Regarding Stockholder Approval of Certain Severance
Payments, adopted July 10, 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
July 15, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.47*
|
|
KB Home Executive Severance Plan, filed as an exhibit to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2008, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.48*
|
|
Description of Fiscal Year 2009 Long-Term Incentive Awards to
the Companys Named Executive Officers granted on
October 2, 2008, filed on the Companys Current Report
on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.49*
|
|
Form of Fiscal Year 2009 Stock Appreciation Rights Agreement,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.50*
|
|
Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.51*
|
|
KB Home Annual Incentive Plan for Executive Officers, filed as
Attachment C to the Companys Proxy Statement on Schedule
14A for the 2009 Annual Meeting of Stockholders, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.52
|
|
Amendment to Trust Agreement by and between KB Home and Wachovia
Bank, N.A., dated August 24, 2009, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2009, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.53
|
|
Amended and Restated KB Home Non-Employee Directors Compensation
Plan, effective as of July 9, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
Exhibit
|
|
|
|
Page
|
Number
|
|
Description
|
|
Number
|
|
|
10
|
.54*
|
|
Offer Letter to Raymond P. Silcock dated September 1, 2009.
|
|
|
|
|
|
10
|
.55*
|
|
Separation Agreement between the Company and Raymond P. Silcock
dated December 16, 2009 and supplemental letter dated
December 18, 2009.
|
|
|
|
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
32
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
32
|
.2
|
|
Certification of William R. Hollinger, Senior Vice
President and Chief Accounting Officer of KB Home Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
|
|
|
Document filed with this
Form 10-K.
|