UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended August 31, 2009.
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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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 of incorporation)
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95-3666267
(IRS employer identification number)
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10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
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 whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See 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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(Do not check if a smaller reporting company)
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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
Indicate the number of shares outstanding of each of the issuers classes of common stock as of
August 31, 2009.
Common stock, par value $1.00 per share: 88,072,926 shares outstanding, including 11,731,482 shares
held by the registrants Grantor Stock Ownership Trust and excluding 27,047,379 shares held in
treasury.
KB HOME
FORM 10-Q
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts Unaudited)
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Nine Months Ended August 31,
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Three Months Ended August 31,
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2009
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2008
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2009
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2008
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Total revenues
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$
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1,150,282
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$
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2,114,899
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$
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458,451
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$
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681,610
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Homebuilding:
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Revenues
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$
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1,145,014
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$
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2,107,517
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$
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456,348
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$
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679,115
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Construction and land costs
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(1,082,343
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)
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(2,322,213
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)
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(414,575
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(653,732
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)
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Selling, general and administrative expenses
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(217,647
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(379,914
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(83,878
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)
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(133,211
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Goodwill impairment
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(24,570
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)
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Operating loss
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(154,976
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)
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(619,180
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)
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(42,105
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(107,828
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Interest income
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6,410
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29,240
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1,131
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6,686
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Loss on early redemption/interest expense, net
of amounts capitalized
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(35,502
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(10,388
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(15,379
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(10,388
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Equity in loss of unconsolidated joint ventures
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(47,811
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)
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(91,564
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(26,315
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(46,203
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Homebuilding pretax loss
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(231,879
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(691,892
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(82,668
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(157,733
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Financial services:
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Revenues
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5,268
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7,382
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2,103
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2,495
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Expenses
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(2,569
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)
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(3,317
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(915
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(1,085
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Equity in income of unconsolidated joint
venture
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8,977
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12,880
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4,432
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4,578
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Financial services pretax income
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11,676
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16,945
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5,620
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5,988
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Total pretax loss
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(220,203
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(674,947
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(77,048
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(151,745
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Income tax benefit
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17,700
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6,100
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11,000
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7,000
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Net loss
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$
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(202,503
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)
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$
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(668,847
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$
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(66,048
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$
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(144,745
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Basic and diluted loss per share
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$
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(2.64
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$
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(8.63
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$
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(.87
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$
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(1.87
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Basic and diluted average shares outstanding
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76,656
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77,464
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76,329
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77,565
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Cash dividends declared per common share
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$
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.1875
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$
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.75
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$
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.0625
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$
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See accompanying notes.
3
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands Unaudited)
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August 31,
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November 30,
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2009
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2008
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Assets
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Homebuilding:
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Cash and cash equivalents
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$
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953,510
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$
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1,135,399
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Restricted cash
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104,180
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115,404
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Receivables
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137,836
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357,719
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Inventories
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1,911,317
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2,106,716
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Investments in unconsolidated joint ventures
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172,147
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177,649
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Other assets
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87,814
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99,261
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3,366,804
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3,992,148
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Financial services
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26,480
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52,152
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Total assets
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$
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3,393,284
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$
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4,044,300
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Liabilities and stockholders equity
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Homebuilding:
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Accounts payable
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$
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427,463
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$
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541,294
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Accrued expenses and other liabilities
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528,683
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721,397
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Mortgages and notes payable
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1,812,839
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1,941,537
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2,768,985
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3,204,228
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Financial services
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10,787
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9,467
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Common stock
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115,120
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115,120
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Paid-in capital
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863,562
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865,123
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Retained earnings
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710,526
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927,324
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Accumulated other comprehensive loss
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(17,402
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)
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(17,402
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)
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Grantor stock ownership trust, at cost
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(127,444
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)
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(129,326
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)
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Treasury stock, at cost
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(930,850
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)
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(930,234
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)
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Total stockholders equity
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613,512
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830,605
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Total liabilities and stockholders equity
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$
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3,393,284
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$
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4,044,300
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See accompanying notes.
4
KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands Unaudited)
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Nine Months Ended August 31,
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2009
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2008
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Cash flows from operating activities:
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Net loss
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$
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(202,503
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)
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$
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(668,847
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)
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Adjustments to reconcile net loss to net cash provided by
operating activities:
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Equity in loss of unconsolidated joint ventures
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38,834
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78,684
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Distributions of earnings from unconsolidated joint ventures
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7,662
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9,125
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Amortization of discounts and issuance costs
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1,111
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2,942
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Depreciation and amortization
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4,243
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7,542
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Loss on early redemption of debt
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976
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10,388
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Tax benefits from stock-based compensation
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4,093
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2,097
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Stock-based compensation expense
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2,218
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3,830
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Inventory impairments and land option contract abandonments
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91,469
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401,073
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Goodwill impairment
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24,570
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Change in assets and liabilities:
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Receivables
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236,305
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109,032
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Inventories
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170,070
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230,307
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Accounts payable, accrued expenses and other liabilities
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(249,674
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)
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(196,540
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)
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Other, net
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8,413
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16,040
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Net cash provided by operating activities
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113,217
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30,243
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Cash flows from investing activities:
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Investments in unconsolidated joint ventures
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(19,971
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)
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(61,464
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)
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Sales (purchases) of property and equipment, net
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(1,245
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)
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6,124
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Net cash used by investing activities
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(21,216
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)
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(55,340
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)
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Cash flows from financing activities:
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Change in restricted cash
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11,224
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Proceeds from issuance of senior notes
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259,737
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Payment of senior notes issuance costs
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(4,294
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)
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|
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Repayment of senior and senior subordinated notes
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(453,105
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)
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|
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(305,814
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)
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Payments on mortgages, land contracts and other loans
|
|
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(78,983
|
)
|
|
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(3,066
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)
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Issuance of common stock under employee stock plans
|
|
|
2,196
|
|
|
|
5,111
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|
Payments of cash dividends
|
|
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(14,295
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)
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|
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(58,102
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)
|
Repurchases of common stock
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|
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(616
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)
|
|
|
(557
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)
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|
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|
|
|
|
|
|
|
|
|
|
|
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Net cash used by financing activities
|
|
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(278,136
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)
|
|
|
(362,428
|
)
|
|
|
|
|
|
|
|
|
|
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|
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|
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Net decrease in cash and cash equivalents
|
|
|
(186,135
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)
|
|
|
(387,525
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)
|
Cash and cash equivalents at beginning of period
|
|
|
1,141,518
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|
|
|
1,343,742
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Cash and cash equivalents at end of period
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$
|
955,383
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|
|
$
|
956,217
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|
|
|
|
|
|
|
|
See accompanying notes.
5
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
|
Basis of Presentation and Significant Accounting Policies
|
The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission (SEC).
Accordingly, certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting principles have
been condensed or omitted.
In the opinion of KB Home (the Company), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Companys consolidated financial position as of August 31, 2009, the results
of its consolidated operations for the nine months and three months ended August 31, 2009 and
2008, and its consolidated cash flows for the nine months ended August 31, 2009 and 2008. The
results of operations for the nine months and three months ended August 31, 2009 are not
necessarily indicative of the results to be expected for the full year, due to seasonal
variations in operating results and other factors. The consolidated balance sheet at November
30, 2008 has been taken from the audited consolidated financial statements as of that date. These
unaudited consolidated financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended November 30, 2008, which are contained in
the Companys Annual Report on Form 10-K for that period.
Use of Estimates
The accompanying unaudited consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles and, therefore, include amounts based on
informed estimates and judgments of management. Actual results could differ from these
estimates.
Loss per share
Basic loss per share is calculated by dividing the net loss by the average number of common
shares outstanding for the period. Diluted loss per share is calculated by dividing the net 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 loss per share calculation for the nine months and three months ended August 31, 2009 and
2008 because the effect of their inclusion would be antidilutive, or would decrease the reported
loss per share.
Comprehensive loss
The Companys comprehensive loss was $66.0 million for the three months ended August 31, 2009 and
$144.7 million for the three months ended August 31, 2008. The Companys comprehensive loss was
$202.5 million for the nine months ended August 31, 2009 and $668.8 million for the nine months
ended August 31, 2008. The accumulated balances of other comprehensive loss in the consolidated
balance sheets as of August 31, 2009 and November 30, 2008 are comprised solely of adjustments
recorded directly to accumulated other comprehensive loss in accordance with Statement of
Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R), which
requires an employer to recognize the funded status of a defined postretirement benefit plan 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).
Reclassifications
Certain amounts in the consolidated financial statements of prior periods have been reclassified
to conform to the 2009 presentation.
6
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
|
|
Stock-Based Compensation
|
The Company adopted the fair value recognition provisions of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment (SFAS No. 123(R)), using the modified prospective
transition method effective December 1, 2005. SFAS No. 123(R) requires a public entity to
measure compensation cost associated with awards of equity instruments based on the grant-date
fair value of the awards over the requisite service period. SFAS No. 123(R) requires public
entities to initially measure compensation cost associated with awards of liability instruments
based on their current fair value. The fair value of that award is to be remeasured subsequently
at each reporting date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period.
Stock Options
In accordance with SFAS No. 123(R), the Company estimates the grant-date fair value of its stock
options using the Black-Scholes option-pricing model, which takes into account assumptions
regarding the dividend yield, the risk-free interest rate, the expected stock-price volatility
and the expected term of the stock options. The following table summarizes the stock options
outstanding and stock options exercisable as of August 31, 2009, as well as stock options
activity during the nine months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(3,535,110
|
)
|
|
|
28.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
|
4,312,292
|
|
|
$
|
31.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
4,003,926
|
|
|
$
|
31.09
|
|
|
|
|
|
|
|
|
As of August 31, 2009, the weighted average remaining contractual lives of stock options
outstanding and stock options exercisable were each 8.4 years. There was $.7 million of total
unrecognized compensation cost related to unvested stock option awards as of August 31, 2009.
For the three months ended August 31, 2009 and 2008, compensation expense associated with stock
options totaled $.5 million and $1.2 million, respectively. For the nine months ended August 31,
2009 and 2008, compensation expense associated with stock options totaled $1.4 million and $3.8
million, respectively. The aggregate intrinsic values of stock options outstanding and stock
options exercisable were each $3.0 million as of August 31, 2009. (The intrinsic value of a
stock option is the amount by which the market value of a share of the Companys common stock
exceeds the exercise price of the stock option.)
On February 9, 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.
Other Stock-Based Awards
From time to time, the Company grants restricted stock, phantom shares and stock appreciation
rights to various employees. The Company recognized total compensation expense of $6.6 million
in the three months ended August 31, 2009 and $3.0 million in the three months ended August 31,
2008 related to these stock-based awards. The Company recognized total compensation expense of
$13.5 million in the nine months ended August 31, 2009 and $9.6 million in the nine months ended
August 31, 2008 related to these stock-based awards.
7
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of August 31, 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 Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. As of August 31, 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, North Carolina and South Carolina
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 pretax income.
The Companys financial services reporting segment provides title and insurance services to the
Companys homebuyers. The financial services reporting segment also provides mortgage banking
services to the Companys homebuyers indirectly through KB Home Mortgage, LLC (KB Home
Mortgage), a joint venture between a Company subsidiary and CWB Venture Management Corporation,
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. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
495,249
|
|
|
$
|
700,301
|
|
|
$
|
205,071
|
|
|
$
|
259,362
|
|
Southwest
|
|
|
149,214
|
|
|
|
459,672
|
|
|
|
52,768
|
|
|
|
95,471
|
|
Central
|
|
|
277,444
|
|
|
|
442,650
|
|
|
|
116,689
|
|
|
|
142,175
|
|
Southeast
|
|
|
223,107
|
|
|
|
504,894
|
|
|
|
81,820
|
|
|
|
182,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
|
1,145,014
|
|
|
|
2,107,517
|
|
|
|
456,348
|
|
|
|
679,115
|
|
Financial services
|
|
|
5,268
|
|
|
|
7,382
|
|
|
|
2,103
|
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,150,282
|
|
|
$
|
2,114,899
|
|
|
$
|
458,451
|
|
|
$
|
681,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.
|
|
Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(49,573
|
)
|
|
$
|
(191,455
|
)
|
|
$
|
2,848
|
|
|
$
|
(18,020
|
)
|
Southwest
|
|
|
(31,113
|
)
|
|
|
(186,634
|
)
|
|
|
(5,167
|
)
|
|
|
(68,553
|
)
|
Central
|
|
|
(27,123
|
)
|
|
|
(48,850
|
)
|
|
|
(16,610
|
)
|
|
|
(7,070
|
)
|
Southeast
|
|
|
(60,331
|
)
|
|
|
(185,783
|
)
|
|
|
(30,690
|
)
|
|
|
(40,891
|
)
|
Corporate and other (a)
|
|
|
(63,739
|
)
|
|
|
(79,170
|
)
|
|
|
(33,049
|
)
|
|
|
(23,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding pretax loss
|
|
|
(231,879
|
)
|
|
|
(691,892
|
)
|
|
|
(82,668
|
)
|
|
|
(157,733
|
)
|
Financial services
|
|
|
11,676
|
|
|
|
16,945
|
|
|
|
5,620
|
|
|
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
$
|
(220,203
|
)
|
|
$
|
(674,947
|
)
|
|
$
|
(77,048
|
)
|
|
$
|
(151,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income (loss)
of unconsolidated
joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(7,852
|
)
|
|
$
|
(17,346
|
)
|
|
$
|
188
|
|
|
$
|
(6,540
|
)
|
Southwest
|
|
|
(13,346
|
)
|
|
|
(24,330
|
)
|
|
|
(3,404
|
)
|
|
|
(18,314
|
)
|
Central
|
|
|
506
|
|
|
|
(4,519
|
)
|
|
|
|
|
|
|
75
|
|
Southeast
|
|
|
(27,119
|
)
|
|
|
(45,369
|
)
|
|
|
(23,099
|
)
|
|
|
(21,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(47,811
|
)
|
|
$
|
(91,564
|
)
|
|
$
|
(26,315
|
)
|
|
$
|
(46,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
16,182
|
|
|
$
|
134,776
|
|
|
$
|
7,779
|
|
|
$
|
1,807
|
|
Southwest
|
|
|
13,267
|
|
|
|
140,181
|
|
|
|
|
|
|
|
37,318
|
|
Central
|
|
|
16,286
|
|
|
|
20,539
|
|
|
|
14,669
|
|
|
|
|
|
Southeast
|
|
|
7,193
|
|
|
|
77,900
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,928
|
|
|
$
|
373,396
|
|
|
$
|
22,781
|
|
|
$
|
39,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory abandonments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
27,679
|
|
|
$
|
9,186
|
|
|
$
|
|
|
|
$
|
|
|
Southwest
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
10,862
|
|
|
|
18,304
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,541
|
|
|
$
|
27,677
|
|
|
$
|
1,708
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
7,190
|
|
|
$
|
13,757
|
|
|
$
|
|
|
|
$
|
5,651
|
|
Southwest
|
|
|
5,426
|
|
|
|
21,311
|
|
|
|
|
|
|
|
16,367
|
|
Central
|
|
|
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
25,369
|
|
|
|
43,934
|
|
|
|
23,183
|
|
|
|
21,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,985
|
|
|
$
|
81,631
|
|
|
$
|
23,183
|
|
|
$
|
43,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Corporate and other includes corporate general and administrative expenses.
|
9
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.
|
|
Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
998,038
|
|
|
$
|
1,086,503
|
|
Southwest
|
|
|
436,327
|
|
|
|
497,034
|
|
Central
|
|
|
405,488
|
|
|
|
443,168
|
|
Southeast
|
|
|
413,996
|
|
|
|
453,771
|
|
Corporate and other
|
|
|
1,112,955
|
|
|
|
1,511,672
|
|
|
|
|
|
|
|
|
Total homebuilding assets
|
|
|
3,366,804
|
|
|
|
3,992,148
|
|
Financial services
|
|
|
26,480
|
|
|
|
52,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,393,284
|
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
55,761
|
|
|
$
|
55,856
|
|
Southwest
|
|
|
108,871
|
|
|
|
113,564
|
|
Central
|
|
|
|
|
|
|
3,339
|
|
Southeast
|
|
|
7,515
|
|
|
|
4,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,147
|
|
|
$
|
177,649
|
|
|
|
|
|
|
|
|
The following table presents financial information relating to the Companys financial services
reporting segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
29
|
|
|
$
|
155
|
|
|
$
|
1
|
|
|
$
|
50
|
|
Title services
|
|
|
740
|
|
|
|
1,557
|
|
|
|
292
|
|
|
|
574
|
|
Insurance commissions
|
|
|
4,499
|
|
|
|
5,670
|
|
|
|
1,810
|
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,268
|
|
|
|
7,382
|
|
|
|
2,103
|
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(2,569
|
)
|
|
|
(3,317
|
)
|
|
|
(915
|
)
|
|
|
(1,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,699
|
|
|
|
4,065
|
|
|
|
1,188
|
|
|
|
1,410
|
|
Equity in income of unconsolidated
joint venture
|
|
|
8,977
|
|
|
|
12,880
|
|
|
|
4,432
|
|
|
|
4,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
11,676
|
|
|
$
|
16,945
|
|
|
$
|
5,620
|
|
|
$
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
|
|
Financial Services (continued)
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,873
|
|
|
$
|
6,119
|
|
Receivables
|
|
|
851
|
|
|
|
1,240
|
|
Investment in unconsolidated joint venture
|
|
|
23,710
|
|
|
|
44,733
|
|
Other assets
|
|
|
46
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
26,480
|
|
|
$
|
52,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
10,787
|
|
|
$
|
9,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
10,787
|
|
|
$
|
9,467
|
|
|
|
|
|
|
|
|
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Homes, lots and improvements in production
|
|
$
|
1,476,630
|
|
|
$
|
1,649,838
|
|
|
|
|
|
|
|
|
|
|
Land under development
|
|
|
434,687
|
|
|
|
456,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,911,317
|
|
|
$
|
2,106,716
|
|
|
|
|
|
|
|
|
The Companys interest costs were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest at beginning of period
|
|
$
|
361,619
|
|
|
$
|
348,084
|
|
|
$
|
355,401
|
|
|
$
|
370,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred (a)
|
|
|
88,168
|
|
|
|
123,029
|
|
|
|
30,891
|
|
|
|
46,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early redemption/interest expensed
|
|
|
(35,502
|
)
|
|
|
(10,388
|
)
|
|
|
(15,379
|
)
|
|
|
(10,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest amortized
|
|
|
(78,832
|
)
|
|
|
(86,258
|
)
|
|
|
(35,460
|
)
|
|
|
(31,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest at end of period (b)
|
|
$
|
335,453
|
|
|
$
|
374,467
|
|
|
$
|
335,453
|
|
|
$
|
374,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amounts include loss on early redemption of debt of $1.0 million for the three months
and nine months ended August 31, 2009 and $10.4 million for the three months and nine
months ended August 31, 2008.
|
|
(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 generally not allocated to specific
components of inventory.
|
11
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.
|
|
Inventory Impairments and 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
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). When an indicator of potential impairment is identified,
the Company tests 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 community and may vary among 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 communities.
Based on the results of its evaluations, the Company recognized pretax, noncash inventory
impairment charges of $22.8 million in the three months ended August 31, 2009 and $39.1 million
in the three months ended August 31, 2008. In the nine months ended August 31, 2009 and 2008,
the Company recognized pretax, noncash inventory impairment charges of $52.9 million and $373.4
million, respectively. As of August 31, 2009, the aggregate carrying value of inventory impacted
by pretax, noncash impairment charges was $849.4 million, representing 136 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. Assessments are made separately for each optioned land
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 market 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 $1.7 million in
the three months ended August 31, 2009. The Company recognized no land option contract
abandonment charges in the three months ended August 31, 2008. In the nine months ended August
31, 2009 and 2008, the Company recognized land option contract abandonment charges of $38.5
million and $27.7 million, respectively.
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.
12
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.
|
|
Fair Value Disclosures
|
Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157)
provides a framework for measuring fair value of assets and liabilities under generally accepted
accounting principles 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.
|
The following table summarizes the Companys assets measured at fair value on a nonrecurring
basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Nine Months
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Ended
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
Description
|
|
August 31, 2009 (a)
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
held and used
|
|
$
|
60,786
|
|
|
$
|
|
|
|
$
|
12,236
|
|
|
$
|
48,550
|
|
|
$
|
(52,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amounts represent 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 SFAS No. 144, long-lived assets held and used with a
carrying amount of $113.7 million were written down to their fair value of $60.8 million during
the nine months ended August 31, 2009, resulting in noncash inventory impairment charges of $52.9
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.
13
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.
|
|
Fair Value Disclosures (continued)
|
The following table summarizes the carrying values and estimated fair values of the Companys
financial instruments, except for those which the carrying values approximate fair values (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
Senior notes due 2011 at 6 3/8%
|
|
$
|
99,772
|
|
|
$
|
100,625
|
|
Senior notes due 2014 at 5 3/4%
|
|
|
249,325
|
|
|
|
225,000
|
|
Senior notes due 2015 at 5 7/8%
|
|
|
298,828
|
|
|
|
271,500
|
|
Senior notes due 2015 at 6 1/4%
|
|
|
449,686
|
|
|
|
409,500
|
|
Senior notes due 2017 at 9.1%
|
|
|
259,774
|
|
|
|
270,300
|
|
Senior notes due 2018 at 7 1/4%
|
|
|
298,762
|
|
|
|
273,000
|
|
The carrying values of the Companys senior 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.
8.
|
|
Consolidation of Variable Interest Entities
|
FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (FASB
Interpretation No. 46(R)) requires a variable interest entity (VIE) to be consolidated in the
financial statements of a company if that company is the primary beneficiary of the VIE. Under
FASB Interpretation No. 46(R), 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.
The Company participates in joint ventures from time to time for the purpose of conducting land
acquisition, development and/or other homebuilding activities in various markets, typically where
its homebuilding operations are located. 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 FASB Interpretation No. 46(R) when they are
entered into or upon a reconsideration event. All of the Companys joint ventures at August 31,
2009 and November 30, 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 FASB Interpretation
No. 46(R), 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 FASB Interpretation No. 46(R), 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 the fair value of certain VIEs from
which the Company is purchasing land under option contracts. Although the Company does not
have legal title to the land, FASB Interpretation No. 46(R) 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
14
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.
|
|
Consolidation of Variable Interest Entities (continued)
|
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 its inventories, with a corresponding
increase to accrued expenses and other liabilities, on the Companys consolidated balance sheets
by $15.5 million at both August 31, 2009 and November 30, 2008. The liabilities related to the
Companys consolidation of VIEs from which it has arranged to purchase 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 $3.4 million at both August 31, 2009 and November 30, 2008. Creditors, if any,
of these VIEs have no recourse against the Company. As of August 31, 2009, the Company had cash
deposits totaling $8.8 million associated with land option and other contracts that the Company
determined to be unconsolidated VIEs, having an aggregate purchase price of $121.1 million. As
of August 31, 2009, the Company also had cash deposits totaling $6.3 million associated with land
option and other contracts that were not VIEs, having an aggregate purchase price of $353.7
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 deposits totaling $18.5 million at
August 31, 2009 and $33.1 million at November 30, 2008. In addition, the Company posted letters
of credit of $11.8 million at August 31, 2009 and $32.5 million at November 30, 2008 in lieu of
cash deposits under certain land option contracts.
The Company also evaluates land option and other contracts in accordance with Statement of
Financial Accounting Standards No. 49, Accounting for Product Financing Arrangements (SFAS
No. 49). 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 $41.1 million at August 31, 2009 and $81.5 million at November 30, 2008.
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, 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.
15
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
|
|
Investments in Unconsolidated Joint Ventures (continued)
|
Each unconsolidated joint venture is obligated to maintain financial statements in accordance
with U.S. generally accepted accounting principles. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
47,810
|
|
|
$
|
85,232
|
|
|
$
|
13,603
|
|
|
$
|
29,947
|
|
Construction and land costs
|
|
|
(100,911
|
)
|
|
|
(191,910
|
)
|
|
|
(50,540
|
)
|
|
|
(41,613
|
)
|
Other expenses, net
|
|
|
(39,216
|
)
|
|
|
(38,918
|
)
|
|
|
(16,123
|
)
|
|
|
(16,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(92,317
|
)
|
|
$
|
(145,596
|
)
|
|
$
|
(53,060
|
)
|
|
$
|
(28,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With respect to the Companys investment in unconsolidated joint ventures, its equity in loss of
unconsolidated joint ventures included pretax, noncash impairment charges of $23.2 million for
the three months ended August 31, 2009 and $43.1 million for the three months ended August 31,
2008. In the nine months ended August 31, 2009 and 2008, the Companys equity in loss of
unconsolidated joint ventures included pretax, noncash impairment charges of $38.0 million and
$81.6 million, respectively.
The following table presents combined condensed balance sheet information for the Companys
unconsolidated joint ventures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,813
|
|
|
$
|
29,194
|
|
Receivables
|
|
|
143,115
|
|
|
|
143,926
|
|
Inventories
|
|
|
784,758
|
|
|
|
1,029,306
|
|
Other assets
|
|
|
58,388
|
|
|
|
55,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
996,074
|
|
|
$
|
1,257,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
103,844
|
|
|
$
|
85,064
|
|
Mortgages and notes payable
|
|
|
561,519
|
|
|
|
871,279
|
|
Equity
|
|
|
330,711
|
|
|
|
301,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
996,074
|
|
|
$
|
1,257,715
|
|
|
|
|
|
|
|
|
16
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
|
|
Investments in Unconsolidated Joint Ventures (continued)
|
The following table presents information relating to the Companys investments in unconsolidated
joint ventures and the aggregate outstanding debt of its 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):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Number of investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt (a)
|
|
|
|
|
|
|
1
|
|
With limited recourse debt (b)
|
|
|
3
|
|
|
|
4
|
|
With non-recourse debt (c)
|
|
|
5
|
|
|
|
10
|
|
Other (d)
|
|
|
8
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
|
|
|
$
|
3,339
|
|
With limited recourse debt
|
|
|
3,163
|
|
|
|
1,360
|
|
With non-recourse debt
|
|
|
19,056
|
|
|
|
24,590
|
|
Other
|
|
|
149,928
|
|
|
|
148,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,147
|
|
|
$
|
177,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding debt of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
|
|
|
$
|
3,249
|
|
With limited recourse debt
|
|
|
22,346
|
|
|
|
112,700
|
|
With non-recourse debt
|
|
|
166,224
|
|
|
|
381,393
|
|
Other
|
|
|
372,949
|
|
|
|
373,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (e)
|
|
$
|
561,519
|
|
|
$
|
871,279
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This category consisted of an unconsolidated joint venture as to which the Company
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.
|
17
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
|
|
Investments in Unconsolidated Joint Ventures (continued)
|
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. These 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
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 $561.5 million at August 31, 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 actual 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.
18
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.
|
|
Investments in Unconsolidated Joint Ventures (continued)
|
At August 31, 2009, the Companys potential responsibility under its loan-to-value maintenance
guarantees totaled approximately $11.3 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 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, results of operations or liquidity.
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. The Company does not
believe, however, that the outcome of these lawsuits should have a material impact on the
Companys 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 August 31, 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.
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.
19
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.
|
|
Mortgages and Notes Payable
|
Mortgages and notes payable consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Mortgages and land contracts due to land sellers and other loans
|
|
$
|
156,692
|
|
|
$
|
96,368
|
|
Senior subordinated notes due December 15, 2008 at 8 5/8%
|
|
|
|
|
|
|
200,000
|
|
Senior notes due 2011 at 6 3/8%
|
|
|
99,772
|
|
|
|
348,908
|
|
Senior notes due 2014 at 5 3/4%
|
|
|
249,325
|
|
|
|
249,227
|
|
Senior notes due 2015 at 5 7/8%
|
|
|
298,828
|
|
|
|
298,692
|
|
Senior notes due 2015 at 6 1/4%
|
|
|
449,686
|
|
|
|
449,653
|
|
Senior notes due 2017 at 9.1%
|
|
|
259,774
|
|
|
|
|
|
Senior notes due 2018 at 7 1/4%
|
|
|
298,762
|
|
|
|
298,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,812,839
|
|
|
$
|
1,941,537
|
|
|
|
|
|
|
|
|
The Company has an unsecured revolving credit facility (the 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 August 31,
2009, the Company had no cash borrowings outstanding and $185.1 million in letters of credit
outstanding under the Credit Facility. 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.
On December 15, 2008, the Company repaid $200.0 million of 8 5/8% senior subordinated notes (the
$200 Million Senior Subordinated Notes), which matured on that date.
On July 30, 2009, pursuant to its universal shelf registration statement filed with the SEC on
October 17, 2008 (the 2008 Shelf Registration), the Company issued $265.0 million in aggregate
principal amount of 9.1% senior notes due 2017 (the $265 Million Senior 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 certain of the Companys
subsidiaries (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 its 6 3/8% senior notes due 2011. The total consideration paid to purchase the 6 3/8% senior
notes due 2011 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.
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.
20
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.
|
|
Mortgages and Notes Payable (continued)
|
As of August 31, 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. The Companys ability to continue to borrow funds depends in
part on its ability to remain in such compliance. The Companys inability to do so could make it
more difficult and expensive to maintain its current level of external debt financing or to
obtain additional financing.
11.
|
|
Commitments and Contingencies
|
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 a 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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
145,369
|
|
|
$
|
151,525
|
|
|
$
|
137,690
|
|
|
$
|
146,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranties issued
|
|
|
12,380
|
|
|
|
16,952
|
|
|
|
8,154
|
|
|
|
6,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and adjustments
|
|
|
(17,945
|
)
|
|
|
(22,645
|
)
|
|
|
(6,040
|
)
|
|
|
(6,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
139,804
|
|
|
$
|
145,832
|
|
|
$
|
139,804
|
|
|
$
|
145,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranties issued for the three months and nine months ended August 31, 2009, include a charge of
$5.7 million associated with the repair of approximately 140 homes 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 $139.8 million at August 31, 2009 is sufficient to cover the total $9.7 million of
estimated costs to be incurred 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 up to the
date of this report, the Company has not identified any homes outside of Florida and Louisiana
that contain this drywall material. Depending on the outcome of its review, the Company may
further increase its warranty liability in the future. Because the actual costs incurred up to
the date of this report 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.
As of the date of this report, 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. 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.
21
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11.
|
|
Commitments and Contingencies (continued)
|
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
August 31, 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 FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. 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 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 $103.1 million at August 31, 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 water, and to certain unconsolidated joint ventures. At
August 31, 2009, the Company had $600.0 million of performance bonds and $185.1 million of
letters of credit outstanding. In the event any such performance bonds or letters of credit are
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 Companys Credit Facility
are guaranteed by the Guarantor Subsidiaries.
In the ordinary course of its business, the Company enters into land option contracts to procure
land for the construction of homes. At August 31, 2009, the Company had total deposits of $30.3
million, comprised of cash deposits of $18.5 million and letters of credit of $11.8 million, to
purchase land with a total remaining purchase price of $493.7 million. The Companys land option
contracts generally do not contain provisions requiring the Companys specific performance.
ERISA Litigation
On March 16, 2007, plaintiffs Reba Bagley and Scott Silver filed an action brought under Section
502 of the
22
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12.
|
|
Legal Matters (continued)
|
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 the Company, its directors, certain of its current and former officers, and
the board of directors committee that oversees the KB Home 401(k) Savings Plan (the 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
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 Plan about the Companys alleged prior stock option backdating practices and
by failing to remove the Companys stock as an investment option under the Plan. Plaintiffs
allege that this breach of fiduciary duties caused plaintiffs to earn less on their Plan accounts
than they would have earned but for defendants alleged breach of duties. Plaintiffs seek
unspecified money damages and injunctive and other equitable relief.
The court has tentatively scheduled the trial to begin on November 9, 2010. On August 31, 2009,
the Company filed a motion for summary judgment dismissal of all of plaintiffs claims against
it. The Companys co-defendants also joined in the motion. The hearing on the motion is set for
November 9, 2009. While the Company believes it has strong defenses to the ERISA claims, it has
not concluded whether an unfavorable outcome is likely to be material to its consolidated
financial position or results of operations.
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.
The Company is also involved in litigation and governmental proceedings incidental to its
business. These cases are in various procedural stages and, based on reports of counsel, the
Company believes that provisions or reserves made for potential losses are adequate and any
liabilities or costs arising out of currently pending litigation should not have a materially
adverse effect on its consolidated financial position or results of operations.
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.
23
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.
|
|
Stockholders Equity (continued)
|
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.
As of August 31, 2009, the Company was authorized to repurchase four million shares of its common
stock under a board-approved share repurchase program. The Company did not repurchase any shares
of its common stock under this program in the nine months ended August 31, 2009. The Company
acquired $.6 million of common stock in the nine months ended August 31, 2009, 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.
On February 9, 2009, in connection with the settlement of certain stockholder derivative
litigation, the Companys former chairman and chief executive officer relinquished 1,379,594
shares of restricted stock to the Company. These shares were transferred to the Company and are
reflected as treasury stock.
During the quarter ended February 28, 2009, the Companys 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, the Companys 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, the
Companys 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 on August 6, 2009.
14.
|
|
Recent Accounting Pronouncements
|
|
|
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations
(SFAS No. 141(R)).
|
24
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14.
|
|
Recent Accounting Pronouncements (continued)
|
SFAS No. 141(R) amends Statement of Financial Accounting Standards No. 141, Business
Combinations, and provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It
also provides disclosure requirements to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008 and is to be applied prospectively. The Company is
currently evaluating the potential impact of adopting SFAS No. 141(R) on its consolidated
financial position and results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 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. SFAS No. 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company is currently evaluating the potential impact of adopting
SFAS No. 160 on its consolidated financial position and results of operations.
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP No.
EITF 03-6-1). Under FSP No. EITF 03-6-1, 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. FSP No. EITF 03-6-1 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 is currently evaluating the impact of adopting
FSP No. EITF 03-6-1 on its earnings per share.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to
FASB Interpretations No. 46(R) (SFAS No. 167). SFAS No. 167 revises the approach to
determining the primary beneficiary of a VIE to be more qualitative in nature and requires
companies to more frequently reassess whether they must consolidate a VIE. SFAS No. 167 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 is currently evaluating the potential impact of adopting SFAS No. 167 on its consolidated
financial position and results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,
a replacement of FASB Statement No. 162 (SFAS No. 168). SFAS No. 168 establishes the FASB
Accounting Standards Codification as the authoritative source for U.S. generally accepted
accounting principles to be applied by nongovernmental entities. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after September 15, 2009. SFAS
No. 168 does not change generally accepted accounting principles and will not have an impact on
the Companys consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-5, Fair Value Measurements
and Disclosures (Topic 820)Measuring Liabilities at Fair Value (FASB Update No. 2009-5),
which provides amendments to Accounting Standards Codification Subtopic 820-10, Fair Value
Measurements and Disclosures Overall, for the fair value measurement of liabilities. FASB
Update No. 2009-5 provides clarification for circumstances in which a quoted price in an
active market for the identical liability is not available. The amendments are intended to
reduce potential ambiguity in financial reporting when measuring the fair value of
liabilities. The guidance is effective for the first reporting period (including interim
period)
25
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14.
|
|
Recent Accounting Pronouncements (continued)
|
beginning after issuance. FASB Update No. 2009-5 concerns disclosure only and will not have an
impact on the Companys consolidated financial position or results of operations.
The Companys income tax benefit totaled $11.0 million for the three months ended August 31,
2009, compared to $7.0 million for the three months ended August 31, 2008. The Companys
effective income tax rate was 14.3% in the third quarter of 2009 compared to 4.6% for the third
quarter of 2008. For the nine months ended August 31, 2009, the Companys income tax benefit
totaled $17.7 million, compared to $6.1 million for the nine months ended August 31, 2008. The
Companys effective income tax rate was 8.0% in the nine months ended August 31, 2009, compared
to .9% in the year-earlier period. The difference in the Companys effective tax rate for the
three months ended August 31, 2009 compared to the year-earlier period resulted primarily from
the reversal of a $10.8 million liability for unrecognized federal tax benefits as a result of
the resolution of a federal tax audit. For the nine months ended August 31, 2009, the difference
in the Companys effective tax rate compared to the year-earlier period resulted primarily from
the reversal of a $13.1 million liability for unrecognized federal tax benefits and the
recognition of a $5.0 million federal and state income tax receivable based on the status of
federal tax audits and amended state filings.
In accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109), the Company evaluates its deferred tax assets quarterly to determine if
valuation allowances are required. SFAS No. 109 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. To the extent the Company generates taxable income in the
future to utilize these tax benefits, the Company would expect to reverse the valuation allowance
and decrease its effective tax rate on future income. However, to the extent the Company
generates future operating losses, it would be required to increase the valuation allowance on
its net deferred tax assets and its income tax provision would be adversely affected. During the
three months ended August 31, 2009, the Company recorded a valuation allowance of $35.5 million
against the net deferred tax assets generated from the net loss for the period. During the three
months ended August 31, 2008, the Company recorded a similar valuation allowance of $58.1 million
against net deferred tax assets. For the nine months ended August 31, 2009 and 2008, the Company
recorded valuation allowances of $89.9 million and $257.0 million, respectively, against the net
deferred tax assets generated in those periods. The Companys net deferred tax assets totaled
$1.1 million at both August 31, 2009 and November 30, 2008. The deferred tax asset valuation
allowance increased to $946.3 million at August 31, 2009 from $878.8 million at November 30,
2008. This increase reflected the net impact of the $89.9 million valuation allowance recorded
during the first nine months of 2009, partially offset by a reduction of deferred tax assets due
to the forfeiture of certain equity-based awards.
During the three months ended August 31, 2009, the Company had $.1 million of additions and $11.1
million of reductions to its total gross unrecognized tax benefits primarily due to the
resolution of a federal tax audit and the status of potential state adjustments. During the nine
months ended August 31, 2009, additions and reductions to the Companys total gross unrecognized
tax benefits were $10.3 million and $25.5 million, respectively. The total amount of gross
unrecognized tax benefits, including interest and penalties, was $10.8 million as of August 31,
2009. The Company anticipates that total gross unrecognized tax benefits will decrease by an
amount ranging from $3.0 million to $6.0 million during the twelve months from this reporting
date due to various state filings associated with the resolution of the federal audit.
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 Internal
Revenue Code Section 382 (Section 382). Based on the Companys analysis performed as of August
31, 2009, the Company does not believe it has experienced a change in ownership 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.
26
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16.
|
|
Supplemental Disclosure to Consolidated Statements of Cash Flows
|
The following table represents supplemental disclosures to the consolidated statements of cash
flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
Summary of cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
953,510
|
|
|
$
|
942,451
|
|
Financial services
|
|
|
1,873
|
|
|
|
13,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
955,383
|
|
|
$
|
956,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
67,833
|
|
|
$
|
48,386
|
|
Income taxes refunded
|
|
|
(231,483
|
)
|
|
|
(105,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Cost of inventories acquired through seller financing
|
|
|
8,964
|
|
|
|
16,320
|
|
Decrease in consolidated inventories not owned
|
|
|
(40,374
|
)
|
|
|
(134,678
|
)
|
|
|
|
|
|
|
|
17.
|
|
Supplemental Guarantor Information
|
The Companys obligation to pay principal, premium, if any, and interest under certain debt
instruments are guaranteed on a joint and several basis by certain of 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.
27
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
|
Supplemental Guarantor Information (continued)
|
Condensed Consolidating Statements of Operations
Nine Months Ended August 31, 2009 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,012,120
|
|
|
$
|
138,162
|
|
|
$
|
|
|
|
$
|
1,150,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,012,120
|
|
|
$
|
132,894
|
|
|
$
|
|
|
|
$
|
1,145,014
|
|
Construction and land costs
|
|
|
|
|
|
|
(956,354
|
)
|
|
|
(125,989
|
)
|
|
|
|
|
|
|
(1,082,343
|
)
|
Selling, general and
administrative expenses
|
|
|
(54,883
|
)
|
|
|
(134,632
|
)
|
|
|
(28,132
|
)
|
|
|
|
|
|
|
(217,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(54,883
|
)
|
|
|
(78,866
|
)
|
|
|
(21,227
|
)
|
|
|
|
|
|
|
(154,976
|
)
|
Interest income
|
|
|
5,233
|
|
|
|
572
|
|
|
|
605
|
|
|
|
|
|
|
|
6,410
|
|
Loss on early redemption/interest expense,
net of amounts capitalized
|
|
|
25,186
|
|
|
|
(56,293
|
)
|
|
|
(4,395
|
)
|
|
|
|
|
|
|
(35,502
|
)
|
Equity in loss of
unconsolidated joint ventures
|
|
|
|
|
|
|
(20,699
|
)
|
|
|
(27,112
|
)
|
|
|
|
|
|
|
(47,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(24,464
|
)
|
|
|
(155,286
|
)
|
|
|
(52,129
|
)
|
|
|
|
|
|
|
(231,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
11,676
|
|
|
|
|
|
|
|
11,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(24,464
|
)
|
|
|
(155,286
|
)
|
|
|
(40,453
|
)
|
|
|
|
|
|
|
(220,203
|
)
|
Income tax benefit
|
|
|
2,000
|
|
|
|
12,400
|
|
|
|
3,300
|
|
|
|
|
|
|
|
17,700
|
|
Equity in net loss of subsidiaries
|
|
|
(180,039
|
)
|
|
|
|
|
|
|
|
|
|
|
180,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(202,503
|
)
|
|
$
|
(142,886
|
)
|
|
$
|
(37,153
|
)
|
|
$
|
180,039
|
|
|
$
|
(202,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Operations
Nine Months Ended August 31, 2008 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,620,364
|
|
|
$
|
494,535
|
|
|
$
|
|
|
|
$
|
2,114,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,620,364
|
|
|
$
|
487,153
|
|
|
$
|
|
|
|
$
|
2,107,517
|
|
Construction and land costs
|
|
|
|
|
|
|
(1,781,778
|
)
|
|
|
(540,435
|
)
|
|
|
|
|
|
|
(2,322,213
|
)
|
Selling, general and
administrative expenses
|
|
|
(59,467
|
)
|
|
|
(221,123
|
)
|
|
|
(99,324
|
)
|
|
|
|
|
|
|
(379,914
|
)
|
Goodwill impairment
|
|
|
(24,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(84,037
|
)
|
|
|
(382,537
|
)
|
|
|
(152,606
|
)
|
|
|
|
|
|
|
(619,180
|
)
|
Interest income
|
|
|
26,700
|
|
|
|
2,231
|
|
|
|
309
|
|
|
|
|
|
|
|
29,240
|
|
Loss on early redemption of debt
|
|
|
42,542
|
|
|
|
(28,368
|
)
|
|
|
(24,562
|
)
|
|
|
|
|
|
|
(10,388
|
)
|
Equity in loss of
unconsolidated joint ventures
|
|
|
|
|
|
|
(6,586
|
)
|
|
|
(84,978
|
)
|
|
|
|
|
|
|
(91,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(14,795
|
)
|
|
|
(415,260
|
)
|
|
|
(261,837
|
)
|
|
|
|
|
|
|
(691,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
16,945
|
|
|
|
|
|
|
|
16,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(14,795
|
)
|
|
|
(415,260
|
)
|
|
|
(244,892
|
)
|
|
|
|
|
|
|
(674,947
|
)
|
Income tax benefit
|
|
|
100
|
|
|
|
3,700
|
|
|
|
2,300
|
|
|
|
|
|
|
|
6,100
|
|
Equity in net loss of subsidiaries
|
|
|
(654,152
|
)
|
|
|
|
|
|
|
|
|
|
|
654,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(668,847
|
)
|
|
$
|
(411,560
|
)
|
|
$
|
(242,592
|
)
|
|
$
|
654,152
|
|
|
$
|
(668,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
|
Supplemental Guarantor Information (continued)
|
Condensed Consolidating Statements of Operations
Three Months Ended August 31, 2009 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
410,438
|
|
|
$
|
48,013
|
|
|
$
|
|
|
|
$
|
458,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
410,438
|
|
|
$
|
45,910
|
|
|
$
|
|
|
|
$
|
456,348
|
|
Construction and land costs
|
|
|
|
|
|
|
(372,539
|
)
|
|
|
(42,036
|
)
|
|
|
|
|
|
|
(414,575
|
)
|
Selling, general and
administrative expenses
|
|
|
(27,834
|
)
|
|
|
(49,775
|
)
|
|
|
(6,269
|
)
|
|
|
|
|
|
|
(83,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(27,834
|
)
|
|
|
(11,876
|
)
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
(42,105
|
)
|
Interest income
|
|
|
887
|
|
|
|
155
|
|
|
|
89
|
|
|
|
|
|
|
|
1,131
|
|
Loss on early redemption/interest expense,
net of amounts capitalized
|
|
|
4,487
|
|
|
|
(17,098
|
)
|
|
|
(2,768
|
)
|
|
|
|
|
|
|
(15,379
|
)
|
Equity in loss of
unconsolidated joint ventures
|
|
|
|
|
|
|
(3,218
|
)
|
|
|
(23,097
|
)
|
|
|
|
|
|
|
(26,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(22,460
|
)
|
|
|
(32,037
|
)
|
|
|
(28,171
|
)
|
|
|
|
|
|
|
(82,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
5,620
|
|
|
|
|
|
|
|
5,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(22,460
|
)
|
|
|
(32,037
|
)
|
|
|
(22,551
|
)
|
|
|
|
|
|
|
(77,048
|
)
|
Income tax benefit
|
|
|
3,200
|
|
|
|
4,600
|
|
|
|
3,200
|
|
|
|
|
|
|
|
11,000
|
|
Equity in net loss of subsidiaries
|
|
|
(46,788
|
)
|
|
|
|
|
|
|
|
|
|
|
46,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(66,048
|
)
|
|
$
|
(27,437
|
)
|
|
$
|
(19,351
|
)
|
|
$
|
46,788
|
|
|
$
|
(66,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Operations
Three Months Ended August 31, 2008 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
516,431
|
|
|
$
|
165,179
|
|
|
$
|
|
|
|
$
|
681,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
516,431
|
|
|
$
|
162,684
|
|
|
$
|
|
|
|
$
|
679,115
|
|
Construction and land costs
|
|
|
|
|
|
|
(506,871
|
)
|
|
|
(146,861
|
)
|
|
|
|
|
|
|
(653,732
|
)
|
Selling, general and
administrative expenses
|
|
|
(22,035
|
)
|
|
|
(79,750
|
)
|
|
|
(31,426
|
)
|
|
|
|
|
|
|
(133,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(22,035
|
)
|
|
|
(70,190
|
)
|
|
|
(15,603
|
)
|
|
|
|
|
|
|
(107,828
|
)
|
Interest income
|
|
|
6,234
|
|
|
|
337
|
|
|
|
115
|
|
|
|
|
|
|
|
6,686
|
|
Loss on early redemption of debt
|
|
|
2,480
|
|
|
|
(5,914
|
)
|
|
|
(6,954
|
)
|
|
|
|
|
|
|
(10,388
|
)
|
Equity in loss of
unconsolidated joint ventures
|
|
|
|
|
|
|
(2,471
|
)
|
|
|
(43,732
|
)
|
|
|
|
|
|
|
(46,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(13,321
|
)
|
|
|
(78,238
|
)
|
|
|
(66,174
|
)
|
|
|
|
|
|
|
(157,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
5,988
|
|
|
|
|
|
|
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(13,321
|
)
|
|
|
(78,238
|
)
|
|
|
(60,186
|
)
|
|
|
|
|
|
|
(151,745
|
)
|
Income tax expense
|
|
|
600
|
|
|
|
3,300
|
|
|
|
3,100
|
|
|
|
|
|
|
|
7,000
|
|
Equity in net loss of subsidiaries
|
|
|
(132,024
|
)
|
|
|
|
|
|
|
|
|
|
|
132,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(144,745
|
)
|
|
$
|
(74,938
|
)
|
|
$
|
(57,086
|
)
|
|
$
|
132,024
|
|
|
$
|
(144,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
|
Supplemental Guarantor Information (continued)
|
Condensed Consolidating Balance Sheets
August 31, 2009 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
819,004
|
|
|
$
|
21,044
|
|
|
$
|
113,462
|
|
|
$
|
|
|
|
$
|
953,510
|
|
Restricted cash
|
|
|
104,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,180
|
|
Receivables
|
|
|
3,739
|
|
|
|
111,852
|
|
|
|
22,245
|
|
|
|
|
|
|
|
137,836
|
|
Inventories
|
|
|
|
|
|
|
1,751,457
|
|
|
|
159,860
|
|
|
|
|
|
|
|
1,911,317
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
168,484
|
|
|
|
3,663
|
|
|
|
|
|
|
|
172,147
|
|
Other assets
|
|
|
72,993
|
|
|
|
14,573
|
|
|
|
248
|
|
|
|
|
|
|
|
87,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999,916
|
|
|
|
2,067,410
|
|
|
|
299,478
|
|
|
|
|
|
|
|
3,366,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
26,480
|
|
|
|
|
|
|
|
26,480
|
|
Investments in subsidiaries
|
|
|
(33,168
|
)
|
|
|
|
|
|
|
|
|
|
|
33,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
966,748
|
|
|
$
|
2,067,410
|
|
|
$
|
325,958
|
|
|
$
|
33,168
|
|
|
$
|
3,393,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and
other liabilities
|
|
$
|
112,494
|
|
|
$
|
676,460
|
|
|
$
|
167,192
|
|
|
$
|
|
|
|
$
|
956,146
|
|
Mortgages and notes payable
|
|
|
1,656,147
|
|
|
|
156,692
|
|
|
|
|
|
|
|
|
|
|
|
1,812,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,768,641
|
|
|
|
833,152
|
|
|
|
167,192
|
|
|
|
|
|
|
|
2,768,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
10,787
|
|
|
|
|
|
|
|
10,787
|
|
Intercompany
|
|
|
(1,415,405
|
)
|
|
|
1,266,105
|
|
|
|
149,300
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
613,512
|
|
|
|
(31,847
|
)
|
|
|
(1,321
|
)
|
|
|
33,168
|
|
|
|
613,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
966,748
|
|
|
$
|
2,067,410
|
|
|
$
|
325,958
|
|
|
$
|
33,168
|
|
|
$
|
3,393,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
November 30, 2008 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
|
Supplemental Guarantor Information (continued)
|
Condensed Consolidating Statements of Cash Flows
Nine Months Ended August 31, 2009 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(202,503
|
)
|
|
$
|
(142,886
|
)
|
|
$
|
(37,153
|
)
|
|
$
|
180,039
|
|
|
$
|
(202,503
|
)
|
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract
abandonments
|
|
|
|
|
|
|
86,541
|
|
|
|
4,928
|
|
|
|
|
|
|
|
91,469
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
214,861
|
|
|
|
30,894
|
|
|
|
(9,450
|
)
|
|
|
|
|
|
|
236,305
|
|
Inventories
|
|
|
|
|
|
|
(23,295
|
)
|
|
|
193,365
|
|
|
|
|
|
|
|
170,070
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(82,054
|
)
|
|
|
(50,650
|
)
|
|
|
(116,970
|
)
|
|
|
|
|
|
|
(249,674
|
)
|
Other, net
|
|
|
20,959
|
|
|
|
20,926
|
|
|
|
25,665
|
|
|
|
|
|
|
|
67,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(48,737
|
)
|
|
|
(78,470
|
)
|
|
|
60,385
|
|
|
|
180,039
|
|
|
|
113,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(14,811
|
)
|
|
|
(5,160
|
)
|
|
|
|
|
|
|
(19,971
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
(65
|
)
|
|
|
(1,444
|
)
|
|
|
264
|
|
|
|
|
|
|
|
(1,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(65
|
)
|
|
|
(16,255
|
)
|
|
|
(4,896
|
)
|
|
|
|
|
|
|
(21,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
11,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,224
|
|
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
|
|
|
2,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,196
|
|
Payments of cash dividends
|
|
|
(14,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,295
|
)
|
Repurchases of common stock
|
|
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(616
|
)
|
Intercompany
|
|
|
79,902
|
|
|
|
169,685
|
|
|
|
(69,548
|
)
|
|
|
(180,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(119,251
|
)
|
|
|
90,702
|
|
|
|
(69,548
|
)
|
|
|
(180,039
|
)
|
|
|
(278,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(168,053
|
)
|
|
|
(4,023
|
)
|
|
|
(14,059
|
)
|
|
|
|
|
|
|
(186,135
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
987,057
|
|
|
|
25,067
|
|
|
|
129,394
|
|
|
|
|
|
|
|
1,141,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
819,004
|
|
|
$
|
21,044
|
|
|
$
|
115,335
|
|
|
$
|
|
|
|
$
|
955,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17.
|
|
Supplemental Guarantor Information (continued)
|
Condensed Consolidated Statements of Cash Flows
Nine Months Ended August 31, 2008 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(668,847
|
)
|
|
$
|
(411,560
|
)
|
|
$
|
(242,592
|
)
|
|
$
|
654,152
|
|
|
$
|
(668,847
|
)
|
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract
abandonments
|
|
|
|
|
|
|
303,981
|
|
|
|
97,092
|
|
|
|
|
|
|
|
401,073
|
|
Goodwill impairment
|
|
|
24,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,570
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
99,209
|
|
|
|
13,663
|
|
|
|
(3,840
|
)
|
|
|
|
|
|
|
109,032
|
|
Inventories
|
|
|
|
|
|
|
149,701
|
|
|
|
80,606
|
|
|
|
|
|
|
|
230,307
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(48,130
|
)
|
|
|
(132,593
|
)
|
|
|
(15,817
|
)
|
|
|
|
|
|
|
(196,540
|
)
|
Other, net
|
|
|
32,384
|
|
|
|
12,555
|
|
|
|
85,709
|
|
|
|
|
|
|
|
130,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(560,814
|
)
|
|
|
(64,253
|
)
|
|
|
1,158
|
|
|
|
654,152
|
|
|
|
30,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(1,821
|
)
|
|
|
(59,643
|
)
|
|
|
|
|
|
|
(61,464
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
5,869
|
|
|
|
(28
|
)
|
|
|
283
|
|
|
|
|
|
|
|
6,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
5,869
|
|
|
|
(1,849
|
)
|
|
|
(59,360
|
)
|
|
|
|
|
|
|
(55,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of senior subordinated notes
|
|
|
(305,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,814
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(3,066
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,066
|
)
|
Issuance of common stock under employee stock plans
|
|
|
5,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,111
|
|
Payments of cash dividends
|
|
|
(58,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,102
|
)
|
Repurchases of common stock
|
|
|
(557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(557
|
)
|
Intercompany
|
|
|
607,099
|
|
|
|
25,594
|
|
|
|
21,459
|
|
|
|
(654,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
247,737
|
|
|
|
22,528
|
|
|
|
21,459
|
|
|
|
(654,152
|
)
|
|
|
(362,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(307,208
|
)
|
|
|
(43,574
|
)
|
|
|
(36,743
|
)
|
|
|
|
|
|
|
(387,525
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,104,429
|
|
|
|
71,519
|
|
|
|
167,794
|
|
|
|
|
|
|
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
797,221
|
|
|
$
|
27,945
|
|
|
$
|
131,051
|
|
|
$
|
|
|
|
$
|
956,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has evaluated subsequent events through October 9, 2009, the date the financial
statements were filed with the SEC.
32
Item 2. 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.
The following table presents a summary of our results for the nine months and three months ended
August 31, 2009 and 2008 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,145,014
|
|
|
$
|
2,107,517
|
|
|
$
|
456,348
|
|
|
$
|
679,115
|
|
Financial services
|
|
|
5,268
|
|
|
|
7,382
|
|
|
|
2,103
|
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,150,282
|
|
|
$
|
2,114,899
|
|
|
$
|
458,451
|
|
|
$
|
681,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
(231,879
|
)
|
|
$
|
(691,892
|
)
|
|
$
|
(82,668
|
)
|
|
$
|
(157,733
|
)
|
Financial services
|
|
|
11,676
|
|
|
|
16,945
|
|
|
|
5,620
|
|
|
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(220,203
|
)
|
|
|
(674,947
|
)
|
|
|
(77,048
|
)
|
|
|
(151,745
|
)
|
Income tax benefit
|
|
|
17,700
|
|
|
|
6,100
|
|
|
|
11,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(202,503
|
)
|
|
$
|
(668,847
|
)
|
|
$
|
(66,048
|
)
|
|
$
|
(144,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(2.64
|
)
|
|
$
|
(8.63
|
)
|
|
$
|
(.87
|
)
|
|
$
|
(1.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating conditions during the three months ended August 31, 2009 remained challenging,
reflecting the impact of the ongoing downturn in the overall housing market and the weak U.S.
economy. A general oversupply of new and resale homes, exacerbated by rising mortgage
delinquencies and foreclosures, continued to depress prices and intensify competition, while poor
job market conditions, tight mortgage lending standards and weak consumer confidence restrained
demand. These negative factors were partially offset to varying degrees in some markets by
continued improvement in housing affordability, government tax incentives, and relatively low
mortgage interest rates.
Amid these mixed conditions, we delivered fewer homes and generated lower revenues in the 2009
third quarter compared to the same period a year ago, but we reduced our net loss by more than
half and increased our net orders by 62%. We believe these net loss and net order improvements
are largely the result of strategies we have put into action over the past several quarters to
achieve 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
housing market recovery when it occurs. As these goals remain our core strategic focus, and as
we expect market conditions to change little through the remainder of our current fiscal year, we
anticipate reporting lower year-over-year revenues and homes delivered in the 2009 fourth
quarter, but improved year-over-year bottom line results.
Our total revenues of $458.5 million for the three months ended August 31, 2009 declined 33% from
$681.6 million for the three months ended August 31, 2008, primarily due to a decrease in housing
revenues. Housing revenues totaled $454.2 million in the third quarter of 2009, down 32% from
$668.3 million in the year-earlier quarter, reflecting decreases in both the number of homes we
delivered and our average selling price. We use the term home in this discussion and analysis
to refer to a single-family residence, whether it is a single-family home or other type of
residential property. We delivered 2,240 homes in the third quarter of 2009, down 20% from the
2,788 homes we delivered in the year-earlier quarter. The decrease was largely attributable to
our Southwest and Southeast homebuilding segments, where the number of homes delivered fell 26%
and 47%, respectively, on a year-over-year basis. In our West Coast homebuilding segment, the
number of homes delivered in the third quarter of 2009 was down 8% from the year-earlier quarter,
while in the Central homebuilding segment the number of homes delivered increased 5%. The
overall average selling price of our
33
homes decreased 15% to $202,800 in the third quarter of 2009
from $239,700 in the corresponding quarter of 2008, reflecting year-over-year decreases in each
of our homebuilding segments.
The number of homes delivered in the three months ended August 31, 2009 decreased from the
year-earlier quarter mainly due to a 37% reduction in the number of active communities we
operated. Active communities are those that deliver five or more homes in a particular
reporting period. We have strategically reduced the number of active communities we operate over
the past several quarters 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. We have done
this primarily by exiting underperforming markets, operating fewer communities in weaker markets
and curtailing land acquisitions and development activities. As a result of these efforts, our
inventory balance of $1.91 billion at August 31, 2009 was 25% lower than the $2.56 billion
balance at August 31, 2008. Our ongoing nationwide rollout of
The Open Series
product line,
which is described further below under Outlook, also contributed to our reduced active
community count in the third quarter of 2009, as it temporarily reduced the number of homes
delivered in some transitioning communities.
The decline in our average selling price in the third quarter of 2009 relative to the
year-earlier quarter reflected targeted price reductions we implemented in some markets in
response to intense competition, as well as our rollout of value-engineered product, including
The Open Series
, at lower price points compared to our pre-existing product.
Included in our total revenues were financial services revenues of $2.1 million in the third
quarter of 2009 and $2.5 million in the third quarter of 2008. Financial services revenues
decreased in the three months ended August 31, 2009 mainly due to the lower number of homes we
delivered in the period compared to a year ago, which reduced title and insurance services
revenue.
We incurred a net loss of $66.0 million, or $.87 per diluted share, in the third quarter of 2009,
compared to a net loss of $144.7 million, or $1.87 per diluted share, for the year-earlier
period. The reduction in our third quarter 2009 net loss compared to the year-earlier quarter
was due to a decrease in total charges for inventory and joint venture impairments and land
option contract abandonments, an increase in our housing gross margin, and a decrease in our
selling, general and administrative expenses. Our net loss for the three months ended August 31,
2009 included pretax, noncash charges of $47.7 million for inventory and joint venture
impairments and land option contract abandonments, and $5.7 million to increase our warranty
liability for allegedly defective drywall material that was or may have been installed in some of
our homes. We also recorded a $35.5 million after-tax valuation allowance charge against net
deferred tax assets in the third quarter of 2009 to fully reserve the tax benefits generated from
our pretax loss. In the year-earlier quarter, our net loss included $82.2 million of pretax,
noncash inventory and joint venture impairment charges and a $58.1 million after-tax valuation
allowance charge against net deferred tax assets. Our housing gross margin in the third quarter
of 2009 increased to 11.1% from 3.9% in the year-earlier quarter. Excluding inventory-related
charges of $16.0 million in the 2009 third quarter and $38.5 million in the 2008 third quarter,
our housing gross margin improved year-over-year to 14.6% from 9.6%, mainly due to our ongoing
implementation of initiatives to roll out more cost-effective product, reduce direct construction
costs and increase operating efficiencies, consistent with the principles of our KBnxt
operational business model. Our selling, general and administrative expenses in the three months
ended August 31, 2009 decreased 37% to $83.9 million, down from $133.2 million in the
year-earlier quarter, reflecting operational consolidations and workforce reductions we have
implemented over the past several quarters to reduce our overhead costs.
Total revenues for the nine months ended August 31, 2009 were $1.15 billion, down 46% from $2.11
billion in the year-earlier period. Included in our total revenues were financial services
revenues of $5.3 million in the first nine months of 2009 and $7.4 million in the year-earlier
period. Our net loss for the nine months ended August 31, 2009 totaled $202.5 million, or $2.64
per diluted share, including pretax, noncash charges of $129.5 million for inventory and joint
venture impairments and land option contract abandonments, and an after-tax valuation allowance
charge of $89.9 million against net deferred tax assets to fully reserve the tax benefits
generated from our pretax loss in the period. For the nine months ended August 31, 2008, we
incurred a net loss of $668.8 million, or $8.63 per diluted share, including pretax, noncash
charges of $482.7 million for inventory and joint venture impairments and land option contract
abandonments, and $24.6 million for goodwill impairment, and an after-tax valuation charge of
$257.0 million against the net deferred tax assets generated during the period.
Consistent with our goal of maintaining a strong cash position and balance sheet, we ended the
2009 third quarter with $1.06 billion of cash and cash equivalents and restricted cash, no cash
borrowings under the Credit Facility
34
and no public debt maturities until 2011. Our debt balance
at August 31, 2009 was $1.81 billion, down $128.7 million from the end of our 2008 fiscal year,
mainly due to the maturity and repayment of the $200 Million Senior Subordinated Notes on
December 15, 2008 and our purchase of $250.0 million in aggregate principal amount of 6 3/8%
senior notes due 2011, partly offset by the issuance of the $265 Million Senior Notes and the
addition of debt associated with previously unconsolidated joint ventures that were consolidated
in the third quarter of 2009.
Our backlog at August 31, 2009 was comprised of 3,722 net orders, representing projected future
housing revenues of approximately $734.1 million, compared to a backlog at August 31, 2008 of
4,774 net orders representing potential future housing revenues of approximately $1.13 billion.
Our lower backlog at the end of the third quarter of 2009 compared to the year-earlier quarter
mainly reflected lower inventory levels, a reduction in the number of active communities we
operated, lower year-over-year second quarter net orders and lower average selling prices.
Our
homebuilding operations generated 2,158 net orders in the three months ended August 31, 2009,
up 62% from 1,329 net orders in the year-earlier quarter. This increase reflected strong net
orders of our value-engineered product line, including
The Open Series
, in communities where we
have introduced it, and improvement in our cancellation rate. Our value-engineered product
accounted for 62% of our total net orders in the third quarter of 2009, up from 50% in the second
quarter of 2009. We plan to continue to roll out these product designs in more communities and
believe the positive momentum generated from our product transition will favorably impact our net
orders in the fourth quarter of 2009. As a percentage of gross orders, our third-quarter
cancellation rate improved to 27% from 51% in the third quarter of 2008, with each of our
homebuilding segments experiencing improvement. Our cancellation rate as a percentage of
beginning backlog also improved in the third quarter of 2009, to 20% from 22% in the third
quarter of 2008.
HOMEBUILDING
We have grouped our homebuilding activities into four reportable segments, which we refer to as
West Coast, Southwest, Central and Southeast. As of August 31, 2009, these segments consisted of
ongoing operations located in the following states: West Coast California; Southwest
Arizona and Nevada; Central Colorado and Texas; and Southeast Florida, North Carolina and
South Carolina. As described further under Outlook, we announced in September 2009 that we are
resuming homebuilding operations in the Washington, D.C. metro market, which will be grouped into
our Southeast segment.
The following table presents a summary of certain financial and operational data for our
homebuilding operations (dollars in thousands, except average selling price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
$
|
1,139,472
|
|
|
$
|
2,031,725
|
|
|
$
|
454,212
|
|
|
$
|
668,292
|
|
Land
|
|
|
5,542
|
|
|
|
75,792
|
|
|
|
2,136
|
|
|
|
10,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,145,014
|
|
|
|
2,107,517
|
|
|
|
456,348
|
|
|
|
679,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
1,066,882
|
|
|
|
2,162,558
|
|
|
|
404,006
|
|
|
|
642,467
|
|
Land
|
|
|
15,461
|
|
|
|
159,655
|
|
|
|
10,569
|
|
|
|
11,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,082,343
|
|
|
|
2,322,213
|
|
|
|
414,575
|
|
|
|
653,732
|
|
Selling, general and
administrative expenses
|
|
|
217,647
|
|
|
|
379,914
|
|
|
|
83,878
|
|
|
|
133,211
|
|
Goodwill impairment
|
|
|
|
|
|
|
24,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,299,990
|
|
|
|
2,726,697
|
|
|
|
498,453
|
|
|
|
786,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(154,976
|
)
|
|
$
|
(619,180
|
)
|
|
$
|
(42,105
|
)
|
|
$
|
(107,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
5,446
|
|
|
|
8,526
|
|
|
|
2,240
|
|
|
|
2,788
|
|
Average selling price
|
|
$
|
209,200
|
|
|
$
|
238,300
|
|
|
$
|
202,800
|
|
|
$
|
239,700
|
|
Housing gross margin
|
|
|
6.4
|
%
|
|
|
-6.4
|
%
|
|
|
11.1
|
%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses as a
percent of housing revenues
|
|
|
19.1
|
%
|
|
|
18.7
|
%
|
|
|
18.5
|
%
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss as a percent of
homebuilding revenues
|
|
|
-13.5
|
%
|
|
|
-29.4
|
%
|
|
|
-9.2
|
%
|
|
|
-15.9
|
%
|
The following tables present homes delivered, net orders and cancellation rates (based on gross
orders) by reporting segment and with respect to our unconsolidated joint ventures for the
three-month and nine-month periods ended August 31, 2009 and 2008, and our ending backlog at
August 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
|
|
Homes Delivered
|
|
|
Net Orders
|
|
|
Cancellation Rates
|
|
Segment
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
|
669
|
|
|
|
731
|
|
|
|
591
|
|
|
|
361
|
|
|
|
23
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
314
|
|
|
|
425
|
|
|
|
355
|
|
|
|
282
|
|
|
|
20
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
783
|
|
|
|
745
|
|
|
|
808
|
|
|
|
506
|
|
|
|
28
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
474
|
|
|
|
887
|
|
|
|
404
|
|
|
|
180
|
|
|
|
32
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,240
|
|
|
|
2,788
|
|
|
|
2,158
|
|
|
|
1,329
|
|
|
|
27
|
%
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated joint ventures
|
|
|
37
|
|
|
|
45
|
|
|
|
17
|
|
|
|
39
|
|
|
|
32
|
%
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
|
Homes Delivered
|
|
|
Net Orders
|
|
|
Cancellation Rates
|
|
Segment
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
|
1,589
|
|
|
|
1,948
|
|
|
|
1,978
|
|
|
|
1,877
|
|
|
|
21
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
822
|
|
|
|
1,699
|
|
|
|
936
|
|
|
|
1,228
|
|
|
|
21
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
1,755
|
|
|
|
2,507
|
|
|
|
2,478
|
|
|
|
1,701
|
|
|
|
25
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
1,280
|
|
|
|
2,372
|
|
|
|
1,503
|
|
|
|
2,172
|
|
|
|
28
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,446
|
|
|
|
8,526
|
|
|
|
6,895
|
|
|
|
6,978
|
|
|
|
24
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated joint ventures
|
|
|
115
|
|
|
|
194
|
|
|
|
90
|
|
|
|
218
|
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
|
|
|
|
|
|
|
|
Backlog - Value
|
|
|
|
Backlog - Homes
|
|
|
(In Thousands)
|
|
Segment
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
|
970
|
|
|
|
1,119
|
|
|
$
|
293,329
|
|
|
$
|
391,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
462
|
|
|
|
835
|
|
|
|
75,439
|
|
|
|
190,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
1,444
|
|
|
|
1,205
|
|
|
|
218,430
|
|
|
|
230,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
846
|
|
|
|
1,615
|
|
|
|
146,896
|
|
|
|
321,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,722
|
|
|
|
4,774
|
|
|
$
|
734,094
|
|
|
$
|
1,133,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated joint ventures
|
|
|
42
|
|
|
|
233
|
|
|
$
|
15,456
|
|
|
$
|
136,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Revenues.
Homebuilding revenues decreased by $222.8 million, or 33%, to $456.3 million in the
three months ended August 31, 2009 from $679.1 million in the year-earlier quarter, mainly due to
a decrease in housing revenues. Housing revenues of $454.2 million for the three months ended
August 31, 2009 fell by $214.1 million, or 32%, from $668.3 million in the year-earlier quarter,
reflecting a 20% decrease in homes delivered and a 15% decline in the average selling price. We
delivered 2,240 homes in the third quarter of 2009, down from 2,788 homes delivered in the
year-earlier quarter, largely due to a 37% reduction in the number of active communities we
operated. We have strategically reduced the number of active communities we operate over the past
several quarters 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. We expect our
reduction in active communities to decrease the number of homes we deliver and the amount of
revenues we generate from our housing operations on a year-over-year basis in the fourth quarter
of 2009.
Our overall average selling price of $202,800 for the three months ended August 31, 2009
decreased from $239,700 in the year-earlier period, reflecting lower average selling prices in
each of our geographic segments. Year-over-year, average selling prices declined 13% in our
West Coast segment, 28% in our Southwest segment, 18% in our Central segment and 15% in our
Southeast segment, due to downward pricing pressures. These pressures included, to varying
degrees depending on local market circumstances, difficult economic and job market conditions,
intense competition from homebuilders and sellers of existing and foreclosed homes, and our
rollout of value-engineered product at price points lower than those of our pre-existing product
in order to meet consumer demand for more affordable homes. We expect our overall average selling
price to decrease in the fourth quarter of 2009 as these downward pricing pressures are likely to
continue.
Homebuilding revenues for the nine months ended August 31, 2009 decreased by $962.5 million, or
46%, to $1.15 billion from $2.11 billion for the year-earlier period, due to lower housing and
land sale revenues. Housing revenues for the nine months ended August 31, 2009 totaled $1.14
billion, down 44% from $2.03 billion in the year-earlier period, due to a 36% decrease in homes
delivered and a 12% decline in our average selling price. We delivered 5,446 homes in the first
nine months of 2009, down from 8,526 homes in the first nine months of 2008, primarily due to a
reduction in the number of active communities we operated. Due to the downward pricing pressures
described above, our average selling price decreased to $209,200 in the first nine months of 2009
from $238,300 in the corresponding period of 2008.
Revenues from land sales totaled $2.1 million in the three months ended August 31, 2009, compared
to $10.8 million in the year-earlier period. For the nine months ended August 31, 2009, revenues
from land sales totaled $5.5 million compared to $75.8 million for the corresponding period of
2008. 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 for the nine months ended August 31, 2009 decreased substantially compared to
the nine months ended August 31, 2008 as we sold a greater volume of land in the year-earlier
period that no longer fit our marketing strategy, rather than hold it for future development.
Operating Loss.
Our homebuilding business generated operating losses of $42.1 million in the
third quarter of 2009 and $107.8 million in the year-earlier quarter, principally due to losses
from housing operations. Our homebuilding operating losses represented negative 9.2% of
homebuilding revenues in the three months ended August 31, 2009 and negative 15.9% of
homebuilding revenues in the year-earlier period. The homebuilding operating loss improved on a
percentage basis in the three months ended August 31, 2009 compared to the year-earlier period
due to an increase in our housing gross margin and a reduction in our selling, general and
administrative expenses as a percent of revenues.
Within our housing operations, the 2009 third quarter operating loss decreased from the
year-earlier quarter due to lower pretax, noncash charges for inventory impairments and land
option contract abandonments, an improved gross margin and lower selling, general and
administrative expenses. Inventory impairment and land option contract abandonment charges
totaled $16.0 million in the third quarter of 2009, down from $38.5 million in the third quarter
of 2008. Of the inventory-related charges recorded in the 2009 third quarter, 48% related to our
West Coast segment, 39% related to our Central segment and 13% related to our Southeast segment.
There were no inventory impairment or land option contract abandonment charges in our Southwest
segment in the third quarter of 2009.
37
The inventory impairments we recorded in the third quarters of 2009 and 2008 reflected declining
asset values in certain markets due to difficult economic and housing market conditions,
including a persistent oversupply of new and resale homes, rising foreclosure activity,
heightened competition for orders, and turmoil and tightening in the consumer mortgage lending
and other credit markets. The charges for land option contract abandonments reflected our
termination of land option contracts on projects that no longer met our investment standards. Our
housing gross margin, including inventory-related charges, improved by 7.2 percentage points to
11.1% in the third quarter of 2009 from 3.9% in the year-earlier quarter. Excluding the
inventory-related charges of $16.0 million in the third quarter of 2009 and $38.5 million in the
third quarter of 2008, our housing gross margin would have been 14.6% in 2009 and 9.6% in 2008.
This margin improvement reflects the combined impact of our initiatives to roll out more
cost-effective product, such as
The Open Series
, reduce direct construction costs and increase
operating efficiencies, consistent with the principles of our KBnxt operational business model.
Our margins were also favorably impacted by the inventory-related charges incurred in prior
quarters.
Company-wide land sales generated a loss of $8.4 million in the three months ended August 31,
2009, including $8.5 million of pretax, noncash impairment charges related to planned future land
sales. In the three months ended August 31, 2008, land sales produced a loss of $.4 million,
which included $.6 million of similar impairment charges.
As of August 31, 2009, the aggregate carrying value of inventory that had been impacted by
pretax, noncash impairment charges was $849.4 million, representing 136 communities and various
other land parcels. As of November 30, 2008, the aggregate carrying value of inventory that had
been impacted by pretax, noncash impairment charges was $1.01 billion, representing 163
communities and various other land parcels.
Selling, general and administrative expenses in the three months ended August 31, 2009 decreased
by $49.3 million, or 37%, to $83.9 million from $133.2 million in the year-earlier period. The
year-over-year decrease was driven by the operational consolidations and workforce reductions we
have implemented over the past several quarters to adjust our operations to the significantly
reduced home sales activity we have experienced relative to the peak levels of a few years ago.
Most of the cost reductions in the third quarter of 2009 were related to lower salary and other
payroll-related expenses stemming from a 31% decrease in our personnel from the year-earlier
quarter. As a percent of housing revenues, selling, general and administrative expenses
decreased to 18.5% in the three months ended August 31, 2009 from 19.9% in the corresponding 2008
period. We expect our selling, general and administrative expenses as a percent of housing
revenues to improve slightly in the fourth quarter of 2009 relative to the year-earlier quarter.
However, we expect the ratio to remain above historical levels in part due to our strategic
decision to maintain an operational platform that can effectively take advantage of long-term
growth opportunities that we expect will arise as housing markets stabilize.
Our homebuilding business posted operating losses of $155.0 million for the nine months ended
August 31, 2009 and $619.2 million for the nine months ended August 31, 2008, due to losses from
both housing operations and land sales. As a percentage of homebuilding revenues, the operating
loss improved to negative 13.5% in the first nine months of 2009 from negative 29.4% in the first
nine months of 2008, largely as a result of the expansion of our housing gross margin to positive
6.4% from negative 6.4% in the year-earlier period. This improvement was primarily due to a
decrease in pretax, noncash charges for inventory impairments and land option contract
abandonments and the favorable impact of our operational initiatives designed to reduce direct
construction costs and increase operating efficiencies. In the nine months ended August 31,
2009, the housing gross margin reflected $81.7 million of inventory impairment and land option
contract abandonment charges compared to $315.9 million of similar charges in the year-earlier
period. Company-wide land sales generated a loss of $9.9 million in the first nine months of
2009, including $9.8 million of impairment charges related to future land sales. In the first
nine months of 2008, land sales produced losses of $83.9 million, including $85.2 million of
similar impairment charges.
Selling, general and administrative expenses decreased by $162.3 million, or 43%, to $217.6
million in the nine months ended August 31, 2009 from $379.9 million in the corresponding period
of 2008. As a percentage of housing revenues, selling, general and administrative expenses
increased to 19.1% in the first nine months of 2009 from 18.7% in the year-earlier period,
primarily due to the substantial year-over-year decline in our housing revenues.
38
Interest Income.
Interest income, which is generated from short-term investments and mortgages
receivable, totaled $1.1 million in the three months ended August 31, 2009 and $6.7 million in
the three months ended August 31, 2008. For the nine months ended August 31, 2009, interest
income totaled $6.4 million compared to $29.2 million in the year-earlier period. 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. Interest income decreased in the three months and nine months ended August 31,
2009 compared to the year-earlier periods, due to a decrease in the average balance of cash and
cash equivalents we maintained and lower interest rates. The lower interest rates reflect in part
the investment of the majority of our cash and cash equivalents in money market accounts that are
covered by the U.S. Treasurys Temporary Guarantee Program and in U.S. government securities.
Loss on Early Redemption/Interest Expense, Net of Amounts Capitalized.
In the three months and
nine months ended August 31, 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 of $250.0
million in aggregate principal amount of our 6 3/8% senior notes due 2011, 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 the three months and nine months ended August 31, 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 7 3/4% of senior subordinated notes due in 2010 and $3.3
million associated with an amendment of the Credit Facility.
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
$14.4 million and $34.5 million in the three months and nine months ended August 31, 2009,
respectively. In the corresponding periods of 2008, all of our interest was capitalized and,
consequently, we had no interest expense, net of amounts capitalized. The percentage of interest
capitalized was 50% in the three months ended August 31, 2009 and 60% in the nine months ended
August 31, 2009. These percentages decreased from the corresponding year-earlier periods because
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 suspension of land development in certain communities. Gross interest incurred decreased
to $30.9 million in the third quarter of 2009 from $46.1 million in the corresponding quarter of
2008. For the first nine months of 2009, gross interest incurred totaled $88.2 million compared
to $123.0 million in the first nine months of 2008. The decrease in gross interest incurred in
the three months and nine months ended August 31, 2009 compared to the corresponding year-earlier
periods reflected our overall lower debt levels in 2009. We expect to continue to incur interest
expense, net of amounts capitalized, in the fourth quarter of 2009.
Equity in Loss of Unconsolidated Joint Ventures.
Our equity in loss of unconsolidated joint
ventures totaled $26.3 million in the three months ended August 31, 2009 compared to $46.2
million in the three months ended August 31, 2008. Our equity in loss of unconsolidated joint
ventures included pretax, noncash charges of $23.2 million in the third quarter of 2009 and $43.1
million in the third quarter of 2008 to recognize the impairment of certain unconsolidated joint
venture investments. Our unconsolidated joint ventures posted combined revenues of $13.6 million
and delivered 37 homes in the third quarter of 2009 compared to revenues of $29.9 million and 45
homes delivered in the year-earlier quarter. The year-over-year decrease in unconsolidated joint
venture revenues in the 2009 third quarter was primarily due to the corresponding decline in
homes delivered from unconsolidated joint ventures in 2009. For the nine months ended August 31,
2009, our equity in loss of unconsolidated joint ventures totaled $47.8 million, compared to
$91.6 million for the same period of 2008. These amounts included pretax, noncash charges of
$38.0 million in the nine months ended August 31, 2009 and $81.6 million in the nine months ended
August 31, 2008 to recognize the impairment of certain unconsolidated joint venture investments.
Combined revenues from our unconsolidated joint ventures totaled $47.8 million in the first nine
months of 2009 and $85.2 million in the first nine months of 2008. During the first nine months
of 2009, our unconsolidated joint ventures delivered 115 homes, compared to 194 homes delivered
in the first nine months of 2008. Activities performed by our unconsolidated joint ventures
generally include buying, developing and selling land, and, in some cases, constructing and
delivering homes. Unconsolidated joint ventures generated combined losses of $53.1 million in the
third quarter of 2009 and $28.0 million in the corresponding quarter of 2008. In the first nine
months of 2009 and 2008, unconsolidated joint ventures generated combined losses of $92.3 million
and $145.6 million, respectively.
39
HOMEBUILDING SEGMENTS
The following table presents financial information related to our homebuilding reporting segments
for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
West Coast:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
495,249
|
|
|
$
|
700,301
|
|
|
$
|
205,071
|
|
|
$
|
259,362
|
|
Construction and land costs
|
|
|
(466,599
|
)
|
|
|
(794,169
|
)
|
|
|
(176,889
|
)
|
|
|
(238,564
|
)
|
Selling, general and
administrative expenses
|
|
|
(55,638
|
)
|
|
|
(88,761
|
)
|
|
|
(20,709
|
)
|
|
|
(32,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(26,988
|
)
|
|
|
(182,629
|
)
|
|
|
7,473
|
|
|
|
(11,822
|
)
|
Other, net
|
|
|
(22,585
|
)
|
|
|
(8,826
|
)
|
|
|
(4,625
|
)
|
|
|
(6,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(49,573
|
)
|
|
$
|
(191,455
|
)
|
|
$
|
2,848
|
|
|
$
|
(18,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
149,214
|
|
|
$
|
459,672
|
|
|
$
|
52,768
|
|
|
$
|
95,471
|
|
Construction and land costs
|
|
|
(139,570
|
)
|
|
|
(566,094
|
)
|
|
|
(44,197
|
)
|
|
|
(126,402
|
)
|
Selling, general and
administrative expenses
|
|
|
(23,664
|
)
|
|
|
(54,109
|
)
|
|
|
(8,409
|
)
|
|
|
(16,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(14,020
|
)
|
|
|
(160,531
|
)
|
|
|
162
|
|
|
|
(47,624
|
)
|
Other, net
|
|
|
(17,093
|
)
|
|
|
(26,103
|
)
|
|
|
(5,329
|
)
|
|
|
(20,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(31,113
|
)
|
|
$
|
(186,634
|
)
|
|
$
|
(5,167
|
)
|
|
$
|
(68,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
277,444
|
|
|
$
|
442,650
|
|
|
$
|
116,689
|
|
|
$
|
142,175
|
|
Construction and land costs
|
|
|
(254,716
|
)
|
|
|
(409,674
|
)
|
|
|
(114,688
|
)
|
|
|
(123,513
|
)
|
Selling, general and
administrative expenses
|
|
|
(42,154
|
)
|
|
|
(72,790
|
)
|
|
|
(15,450
|
)
|
|
|
(23,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(19,426
|
)
|
|
|
(39,814
|
)
|
|
|
(13,449
|
)
|
|
|
(4,803
|
)
|
Other, net
|
|
|
(7,697
|
)
|
|
|
(9,036
|
)
|
|
|
(3,161
|
)
|
|
|
(2,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(27,123
|
)
|
|
$
|
(48,850
|
)
|
|
$
|
(16,610
|
)
|
|
$
|
(7,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
223,107
|
|
|
$
|
504,894
|
|
|
$
|
81,820
|
|
|
$
|
182,107
|
|
Construction and land costs
|
|
|
(214,452
|
)
|
|
|
(543,724
|
)
|
|
|
(76,138
|
)
|
|
|
(161,791
|
)
|
Selling, general and
administrative expenses
|
|
|
(30,411
|
)
|
|
|
(92,159
|
)
|
|
|
(8,082
|
)
|
|
|
(34,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,756
|
)
|
|
|
(130,989
|
)
|
|
|
(2,400
|
)
|
|
|
(14,176
|
)
|
Other, net
|
|
|
(38,575
|
)
|
|
|
(54,794
|
)
|
|
|
(28,290
|
)
|
|
|
(26,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(60,331
|
)
|
|
$
|
(185,783
|
)
|
|
$
|
(30,690
|
)
|
|
$
|
(40,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
Total revenues from our West Coast segment decreased 21% to $205.1 million in the
three months ended August 31, 2009 from $259.4 million in the year-earlier period, primarily due
to lower housing revenues. In the third quarter of 2009, housing revenues decreased 21% to
$205.1 million from $258.6 million in the year-earlier quarter due to an 8% decrease in homes
delivered and a 13% decline in the average selling price. We delivered 669 homes in the third
quarter of 2009, down from 731 in the year-earlier quarter, reflecting a 31% reduction in the
number of active communities we operated. The average selling price decreased to $306,500 in the
quarter ended August 31, 2009 from $353,800 in the quarter ended August 31, 2008, due to downward
pricing pressures resulting from intense competition and our rollout of value-engineered product
at lower price points compared to our pre-existing product.
This segment generated pretax income of $2.8 million for the three months ended August 31, 2009,
compared to a pretax loss of $18.0 million for the three months ended August 31, 2008. The
year-over-year improvement in third quarter pretax results was largely due to a higher gross
margin and reduced selling, general and
40
administrative expenses. The gross margin increased to 13.7% in the third quarter of 2009
compared to 8.0% in the year-earlier quarter due to our reduction of direct construction costs.
Inventory impairment charges totaled $7.8 million in the third quarter of 2009 and represented 4%
of revenues. In the third quarter of 2008, inventory impairment charges totaled $1.8 million and
represented 1% of revenues. Selling, general and administrative expenses decreased by $11.9
million, or 37%, to $20.7 million in the third quarter of 2009 from $32.6 million in the third
quarter of 2008, reflecting operational consolidations, workforce reductions and other
cost-saving initiatives. Other, net expenses included no joint venture impairment charges in the
third quarter of 2009, but included $5.7 million of such charges in the third quarter of 2008.
For the nine months ended August 31, 2009, this segment generated total revenues of $495.3
million, down 29% from $700.3 million in the year-earlier period, primarily due to lower housing
revenues. In the nine months ended August 31, 2009, housing revenues decreased to $495.3 million
from $699.5 million in the year-earlier period due to an 18% decrease in homes delivered and a
13% decline in the average selling price. Homes delivered decreased to 1,589 in the nine months
ended August 31, 2009 from 1,948 in the nine months ended August 31, 2008, primarily due to a 21%
year-over-year reduction in the number of active communities we operated. The average selling
price declined to $311,700 in the first nine months of 2009 from $359,100 in the year-earlier
period, reflecting the same downward pricing pressures described above with respect to the
three-month period ended August 31, 2009.
Pretax losses from this segment totaled $49.6 million for the nine months ended August 31, 2009
and $191.5 million for the year-earlier period. The pretax loss decreased in the first nine
months of 2009 compared to the first nine months of 2008, largely due to a reduction in total
charges for inventory impairments and land option contract abandonments. These charges decreased
to $43.9 million in the first nine months of 2009 from $144.0 million in the year-earlier period
and, as a percentage of revenues, were 9% and 21% in the first nine months of 2009 and 2008,
respectively. The gross margin improved to positive 5.8% in the nine months ended August 31,
2009 from negative 13.4% in the year-earlier period, due to the same factors described above with
respect to the three-month period ended August 31, 2009 and reduced inventory impairments and
land option contract abandonments. Selling, general and administrative expenses of $55.6 million
in the first nine months of 2009 decreased by $33.2 million, or 37%, from $88.8 million in the
first nine months of 2008 as a result of operational consolidations, workforce reductions and
other cost-saving initiatives. Other, net expenses included $7.2 million of joint venture
impairment charges in the nine months ended August 31, 2009, and $13.8 million of such charges in
the nine months ended August 31, 2008.
Southwest
Our Southwest segment generated total revenues of $52.7 million in the third quarter
of 2009, down 45% from $95.5 million in the year-earlier quarter, mainly due to lower housing
revenues. In the third quarter of 2009, housing revenues decreased 47% to $50.7 million from
$95.5 million in the year-earlier quarter due to a 26% decrease in homes delivered and a 28%
decline in the average selling price. We delivered 314 homes at an average selling price of
$161,800 in the third quarter of 2009 compared to 425 homes at an average selling price of
$224,600 in the year-earlier quarter. The year-over-year decrease in homes delivered was largely
due to a 33% decrease in the number of active communities we operated. The decline in the average
selling price reflected intense pricing pressure stemming from an oversupply of new and resale
homes in the marketplace, rising foreclosures and lower demand, as well as our rollout of
value-engineered product at lower price points compared to those of our pre-existing product. In
the third quarter of 2009, land sale revenues totaled $2.0 million. There were no land sales in
the Southwest segment in the third quarter of 2008.
Pretax losses from this segment totaled $5.2 million in the three months ended August 31, 2009
and $68.6 million in the three months ended August 31, 2008. The pretax loss in the third
quarter of 2009 decreased from the year-earlier quarter largely because there were no inventory
impairment or land option contract abandonment charges in the current quarter. In the third
quarter of 2008, inventory impairment charges totaled $37.3 million and represented 39% of
revenues. The gross margin improved to positive 16.2% in the third quarter of 2009 from negative
32.4% in the third quarter of 2008, largely due to the reduced inventory impairment charges.
Selling, general and administrative expenses decreased by $8.3 million, or 50%, to $8.4 million
in the quarter ended August 31, 2009 from $16.7 million in the year-earlier quarter, primarily
due to our actions to streamline overhead costs. Other, net expenses included no joint venture
impairment charges in the third quarter of 2009, but included $16.4 million of such charges in
the third quarter of 2008.
For the first nine months of 2009, total revenues from this segment decreased to $149.2 million,
down 68% from $459.7 million in the year-earlier quarter, reflecting lower revenues from housing
and land sales. Housing revenues decreased 63% to $145.5 million from $397.0 million in the
year-earlier period due to a 52% decrease in homes delivered and a 24% decline in the average
selling price. We delivered 822 homes in the nine months
41
ended August 31, 2009 compared to 1,699 homes delivered in the year-earlier period, mainly due to
a 50% decrease in the number of active communities we operated. The average selling price
decreased to $177,000 in the first nine months of 2009 from $233,700 in the year-earlier period,
reflecting the downward pricing pressures described above with respect to the three-month period
ended August 31, 2009. Land sale revenues totaled $3.7 million in the first nine months of 2009
compared to $62.6 million in the first nine months of 2008.
The pretax losses from this segment decreased to $31.1 million in the nine months ended August
31, 2009 from $186.6 million in the year-earlier period, principally due to lower charges for
inventory impairments and land option contract abandonments. These charges decreased to $13.3
million in the first nine months of 2009 from $140.4 million in the first nine months of 2008 and
represented 9% of revenues in the nine months ended August 31, 2009, compared to 31% in the
year-earlier period. The gross margin improved to positive 6.5% in the nine months ended August
31, 2009 from negative 23.2% in the year-earlier period, primarily due to the reduced inventory
impairment charges. Selling, general and administrative expenses decreased by $30.4 million, or
56%, to $23.7 million in the nine months ended August 31, 2009 from $54.1 million in the
year-earlier period due primarily to overhead reductions and other cost-saving initiatives.
Other, net expenses included $5.4 million of joint venture impairment charges in the first nine
months of 2009 and $21.3 million of similar charges in the first nine months of 2008.
Central
Total revenues from our Central segment decreased 18% to $116.7 million for the three
months ended August 31, 2009 from $142.2 million for the three months ended August 31, 2008, due
to decreases in both housing and land sale revenues. In the third quarter of 2009, housing
revenues declined 14% to $116.6 million from $134.7 million in the year-earlier quarter due to an
18% decline in the average selling price, partly offset by a 5% increase in homes delivered. In
the third quarter of 2009, we delivered 783 homes at an average selling price of $148,900
compared to 745 homes delivered in the third quarter of 2008 at an average selling price of
$180,900. The increase in homes delivered occurred despite a 23% reduction in the number of
active communities we operated. The lower average selling price reflected downward pricing
pressure due to highly competitive conditions, and our rollout of lower-priced product. Land
sale revenues totaled $.1 million in the third quarter of 2009 and $7.4 million in the
year-earlier quarter.
Pretax losses from this segment totaled $16.6 million in the quarter ended August 31, 2009 and
$7.1 million in the quarter ended August 31, 2008. The year-over-year increase in the pretax
loss primarily resulted from an increase in inventory impairment charges. The gross margin from
this segment fell to 1.7% in the third quarter of 2009 from 13.1% in the year-earlier quarter as
a result of $14.7 million of inventory impairment charges recorded in the 2009 third quarter,
which represented 13% of total revenues. There were no such impairment charges in the third
quarter of 2008. Selling, general and administrative expenses of $15.5 million in the third
quarter of 2009 decreased by $8.0 million, or 34%, from $23.5 million in the third quarter of
2008 as a result of the steps we have taken to align our overhead costs with the reduction in
home sales activity.
For the nine months ended August 31, 2009, this segment posted total revenues of $277.4 million,
down 37% from $442.7 million in the year-earlier period, reflecting lower housing and land sale
revenues. Housing revenues decreased to $276.8 million in the first nine months of 2009 from
$434.4 million in the year-earlier period, mainly due to a 30% decrease in homes delivered and a
9% decline in the average selling price. Homes delivered decreased to 1,755 in the nine months
ended August 31, 2009 from 2,507 in the year-earlier period, partly due to a 40% year-over-year
reduction in the number of active communities we operated. The average selling price declined to
$157,700 in the first nine months of 2009 from $173,300 in the year-earlier period, primarily due
to the factors described above with respect to the three-month period ended August 31, 2009.
Land sale revenues totaled $.6 million in the nine months ended August 31, 2009 and $8.3 million
in the nine months ended August 31, 2008.
This segment generated pretax losses of $27.1 million for the nine months ended August 31, 2009
and $48.9 million for the nine months ended August 31, 2008. The pretax loss decreased in the
first nine months of 2009 compared to the year-earlier period largely due to lower inventory
impairment charges. These charges decreased to $16.3 million in the first nine months of 2009
from $20.5 million in the year-earlier period. As a percentage of revenues, inventory impairment
charges were 6% in the first nine months of 2009 compared to 5% in the first nine months of 2008.
The gross margin improved to 8.2% in the nine months ended August 31, 2009 from 7.4% in the
year-earlier period, mainly due to our reduction of direct construction costs. Selling, general
and administrative expenses of $42.2 million in the first nine months of 2009 decreased by $30.6
million, or 42%, from $72.8 million in the first nine months of 2008 as a result of our efforts
to calibrate our operations to the reduced level of housing activity. Other, net expenses
included no joint venture impairment charges in the nine months ended August 31, 2009 and $2.6
million of such charges in the nine months ended August 31, 2008.
42
Southeast
Our Southeast segment generated total revenues of $81.8 million in the third quarter
of 2009, down 55% from $182.1 million in the year-earlier quarter, primarily due to a decrease in
housing revenues. In the three months ended August 31, 2009, housing revenues decreased 54% to
$81.8 million from $179.5 million in the three months ended August 31, 2008. The year-over-year
decline in housing revenues reflected a 47% decrease in homes delivered and a 15% decline in the
average selling price. Homes delivered decreased to 474 in the third quarter of 2009 from 887 in
the year-earlier quarter, largely due to a 53% reduction in the number of active communities we
operated. The average selling price declined to $172,600 in the third quarter of 2009 from
$202,300 in the year-earlier quarter, due to downward pricing pressure from highly competitive
conditions and our rollout of product at lower price points compared to those of our pre-existing
product.
Pretax losses from this segment totaled $30.7 million in the three months ended August 31, 2009
and $40.9 million in the three months ended August 31, 2008. The loss in the third quarter of
2009 decreased from the year-earlier quarter due to lower selling, general and administrative
expenses. The gross margin declined to 6.9% in the third quarter of 2009 from 11.2% in the third
quarter of 2008, largely due to decreased revenues. Inventory impairment and land option
contract abandonment charges totaled $.3 million in the third quarter of 2009. There were no
inventory impairment or land option contract abandonment charges in the third quarter of 2008.
Selling, general and administrative expenses of $8.1 million in the three months ended August 31,
2009 decreased by $26.4 million, or 77%, from $34.5 million in the year-earlier period,
reflecting our actions to reduce overhead costs. Included in other, net expenses were joint
venture impairments of $23.2 million for the three months ended August 31, 2009 and $21.1 million
for the year-earlier quarter.
For the first nine months of 2009, total revenues from this segment decreased to $223.1 million,
down 56% from $504.9 million in the year-earlier period, primarily due to lower housing revenues.
Housing revenues declined 56% to $221.9 million from $500.8 million in the first nine months of
2008 due to a 46% decrease in homes delivered and an 18% decline in the average selling price.
We delivered 1,280 homes in the nine months ended August 31, 2009 compared to 2,372 homes
delivered in the year-earlier period, reflecting a 49% reduction in the number of active
communities we operated. The average selling price fell to $173,400 in the first nine months of
2009 from $211,100 in the year-earlier period, due to the downward pricing pressures described
above with respect to the three-month period ended August 31, 2009. Land sale revenues totaled
$1.2 million in the nine months ended August 31, 2009 compared to $4.1 million in the nine months
ended August 31, 2008.
This segment generated pretax losses of $60.3 million for the nine months ended August 31, 2009
and $185.8 million for the nine months ended August 31, 2008. The year-over-year decrease in the
pretax loss reflected the lower total charges for inventory impairments and land option contract
abandonments, which decreased to $18.0 million in the first nine months of 2009 from $96.2
million in the year-earlier period. As a percentage of revenues, these charges were 8% in the
first nine months of 2009 compared to 19% in the first nine months of 2008. The gross margin
improved to positive 3.9% in the nine months ended August 31, 2009 from negative 7.7% in the
year-earlier period, reflecting the lower level of inventory impairment and
land option contract abandonment charges. Selling, general and administrative expenses of $30.4
million in the first nine months of 2009 decreased by $61.8 million, or 67%, from $92.2 million
in the first nine months of 2008 as a result of our actions to reduce overhead to align with
reduced home sales activity. Included in other, net expenses were joint venture impairments of
$25.4 million in the nine months ended August 31, 2009 and $43.9 million in the nine months ended
August 31, 2008.
FINANCIAL SERVICES
Our financial services segment provides title and insurance services to our homebuyers. This
segment also provides mortgage banking services to our homebuyers indirectly through KB Home
Mortgage. We and CWB Venture Management Corporation, a subsidiary of Bank of America, N.A., each
have a 50% ownership interest in KB Home Mortgage. KB Home Mortgage is operated solely 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.
43
The following table presents a summary of selected financial and operational data for our
financial services segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31,
|
|
|
Three Months Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,268
|
|
|
$
|
7,382
|
|
|
$
|
2,103
|
|
|
$
|
2,495
|
|
Expenses
|
|
|
(2,569
|
)
|
|
|
(3,317
|
)
|
|
|
(915
|
)
|
|
|
(1,085
|
)
|
Equity in income of unconsolidated
joint venture
|
|
|
8,977
|
|
|
|
12,880
|
|
|
|
4,432
|
|
|
|
4,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
11,676
|
|
|
$
|
16,945
|
|
|
$
|
5,620
|
|
|
$
|
5,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
4,610
|
|
|
|
7,010
|
|
|
|
1,990
|
|
|
|
2,215
|
|
Principal
|
|
$
|
858,156
|
|
|
$
|
1,454,475
|
|
|
$
|
359,707
|
|
|
$
|
464,734
|
|
% of homebuyers using KB Home
Mortgage
|
|
|
83
|
%
|
|
|
79
|
%
|
|
|
86
|
%
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans sold to third parties (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
4,307
|
|
|
|
8,045
|
|
|
|
1,903
|
|
|
|
2,277
|
|
Principal
|
|
$
|
800,649
|
|
|
$
|
1,683,551
|
|
|
$
|
343,604
|
|
|
$
|
475,524
|
|
|
|
|
(a)
|
|
Loan originations and sales occur within KB Home Mortgage.
|
Revenues
. Financial services revenues totaled $2.1 million for the three months ended August 31,
2009 and $2.5 million for the three months ended August 31, 2008, and included revenues from
interest income, title services and insurance commissions. In the first nine months of 2009,
financial services revenues totaled $5.3 million compared to $7.4 million in the corresponding
year-earlier period. The year-over-year decrease in financial services revenues in the three
months and nine months ended August 31, 2009 resulted mainly from lower revenues from title and
insurance services, reflecting fewer homes delivered from our homebuilding operations.
Expenses
. General and administrative expenses totaled $.9 million in the third quarter of 2009
and $1.1 million in the third quarter of 2008. In the first nine months of 2009, general and
administrative expenses totaled $2.6 million compared to $3.3 million in the year-earlier period.
The year-over-year decrease in general and administrative expenses in the three months and nine
months ended August 31, 2009 was primarily due to actions we have taken to reduce overhead within
our financial services segment to align with the lower level of revenues.
Equity in Income of Unconsolidated Joint Venture
. The equity in income of unconsolidated joint
venture of $4.4 million in the three months ended August 31, 2009 and $4.6 million in the three
months ended August 31, 2008 related to our 50% interest in KB Home Mortgage. For the nine
months ended August 31, 2009, the equity in income of unconsolidated joint venture totaled $9.0
million compared to $12.9 million for the nine months ended August 31, 2008. The decreases in
unconsolidated joint venture income in the three months and nine months ended August 31, 2009
compared to the corresponding year-earlier periods were largely due to a decline in the number of
loans originated by KB Home Mortgage, reflecting the lower volume of homes we delivered on a
year-over-year basis, as well as a decrease in average loan size due to the generally lower
average selling price of our homes.
KB Home Mortgage originated 1,990 loans in the third quarter of 2009 compared to 2,215 loans in
the year-earlier quarter. In the first nine months of 2009, KB Home Mortgage originated 4,610
loans, down from 7,010 loans originated in the year-earlier period. The percentage of our
homebuyers using KB Home Mortgage as a loan originator was 86% for the three months ended August
31, 2009 and 80% for the three months ended August 31, 2008. For the nine months ended August
31, 2009, the rate was 83% compared to 79% for the year-earlier period.
INCOME TAXES
Our income tax benefit totaled $11.0 million for the three months ended August 31, 2009, compared
to $7.0 million for the three months ended August 31, 2008. Our effective income tax rate was
14.3% in the third
44
quarter of 2009 compared to 4.6% for the third quarter of 2008. For the nine months ended August
31, 2009, our income tax benefit totaled $17.7 million, compared to $6.1 million for the nine
months ended August 31, 2008. Our effective income tax rate was 8.0% in the nine months ended
August 31, 2009, compared to .9% in the year-earlier period. The difference in our effective tax
rate for the three months ended August 31, 2009 compared to the year-earlier period resulted
primarily from the reversal of a $10.8 million liability for unrecognized federal tax benefits as
a result of the resolution of a federal tax audit. For the nine months ended August 31, 2009,
the difference in our effective tax rate compared to the year-earlier period resulted primarily
from the reversal of a $13.1 million liability for unrecognized federal tax benefits and the
recognition of a $5.0 million federal and state income tax receivable based on the status of
federal tax audits and amended state filings.
In accordance with SFAS No. 109, we evaluate our deferred tax assets quarterly to determine if
valuation allowances are required. During the three months ended August 31, 2009, we recorded a
valuation allowance of $35.5 million against the net deferred tax assets generated from the net
loss for the period. During the three months ended August 31, 2008, we recorded a similar
valuation allowance of $58.1 million against net deferred tax assets. For the nine months ended
August 31, 2009 and 2008, we recorded valuation allowances of $89.9 million and $257.0 million,
respectively, against the net deferred tax assets generated in those periods. Our net deferred
tax assets totaled $1.1 million at both August 31, 2009 and November 30, 2008. The deferred tax
asset valuation allowance increased to $946.3 million at August 31, 2009 from $878.8 million at
November 30, 2008. This increase reflected the net impact of the $89.9 million valuation
allowance recorded during the first nine months of 2009, partially offset by a reduction of
deferred tax assets due to the forfeiture of certain equity-based awards.
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 August 31, 2009, we do not believe we have experienced a change in
ownership 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.
Liquidity and Capital Resources
Overview.
We historically have funded our homebuilding and financial services activities with
internally generated cash flows and external sources of debt and equity financing. We may also
borrow funds from time to time under the Credit Facility.
In light of the prolonged downturn in the housing market and our goal to be well-positioned for
future opportunities, we remain focused on generating and preserving cash. We ended the third
quarter of 2009 with $1.06 billion of cash and cash equivalents and restricted cash, and no cash
borrowings under the Credit Facility.
Capital Resources.
At August 31, 2009, we had $1.81 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 the $200 Million Senior Subordinated
Notes on December 15, 2008 and our purchase of $250.0 million in aggregate principal amount of 6
3/8% senior notes due 2011, partially offset by the issuance of 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 2008 Shelf Registration, we issued the $265 Million Senior
Notes due on September 15, 2017 with interest payable semiannually, which 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 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 our 6 3/8% senior notes due 2011. The total consideration paid to purchase the 6 3/8% senior
notes due 2011 was $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. The next scheduled public debt maturity is in 2011 when the remaining
$100.0 million
45
of our 6 3/8% senior notes mature, following which there are no scheduled maturities of our
outstanding public debt until 2014, when $250.0 million of our 5 3/4% senior notes become due.
In managing our investments in unconsolidated joint ventures, we expect that in some cases, as
occurred in 2008 and in the first nine months of 2009, we may purchase our partners interests
and consolidate certain of the joint ventures. The consolidation of unconsolidated joint
ventures, if any occur, could result in an increase in the amount of mortgages and notes payable
on our consolidated balance sheets. As of August 31, 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 that 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 74.7% at August
31, 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 since November 30, 2008. Our ratio of net debt to net total capital at August 31, 2009
was 55.2%, compared to 45.4% at November 30, 2008. Net debt to net total capital is calculated by
dividing mortgages and notes payable, net of homebuilding cash and cash equivalents and
restricted cash, by net total capital (mortgages and notes payable, net of homebuilding cash and
cash equivalents and restricted cash, plus stockholders equity). We believe the ratio of net
debt to net total capital is useful in understanding the leverage employed in our operations and
in comparing us with other companies in the homebuilding industry.
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 August 31,
2009, we had no cash borrowings outstanding and $185.1 million in letters of credit outstanding
under the Credit Facility. Accordingly, we had $464.9 million available for future borrowings at
August 31, 2009.
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
our 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 net income. There is no
decrease when we have cumulative consolidated net losses. At August 31, 2009, our applicable
minimum consolidated tangible net worth requirement was $278.2 million.
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 (Interest Reserve Account)
equal to the amount of interest 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.
46
The following table summarizes certain key financial metrics we were required to maintain under
the Credit Facility at August 31, 2009 and our actual ratios:
|
|
|
|
|
|
|
August 31, 2009
|
|
|
Covenant
|
|
|
Financial Covenant
|
|
Requirement
|
|
Actual
|
|
Minimum consolidated tangible net worth
|
|
$278.2 million
|
|
$607.0 million
|
Coverage Ratio
|
|
(a)
|
|
(a)
|
Leverage Ratio (b)
|
|
<
1.00
|
|
.58
|
Investment in subsidiaries and joint
ventures as a percent of Adjusted
Consolidated Tangible Net Worth
|
|
<35%
|
|
15%
|
Borrowing base in excess of senior
indebtedness (as defined)
|
|
>$0
|
|
$547.4 million
|
|
|
|
(a)
|
|
Our Coverage Ratio of .76 was less than 1.00 to 1.00 as of August 31, 2009. With our
Leverage Ratio as of November 30, 2008 below 1.00 to 1.00, we maintained an Interest Reserve
Account through the 2009 third quarter to remain in compliance with the terms of the Credit
Facility. The Interest Reserve Account had a balance of $104.2 million at August 31, 2009.
With our Leverage Ratio as of August 31, 2009 below 1.00 to 1.00, we will continue to
maintain the Interest Reserve Account in the fourth quarter of 2009, but the balance is
expected to increase to $114.3 million by the end of that period, reflecting an increase in
our consolidated interest expense.
|
|
(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.
|
The following table summarizes 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 percent of Adjusted
Consolidated Tangible Net Worth
|
|
<35%
|
|
15%
|
Borrowing base in excess of senior
indebtedness (as defined)
|
|
>$0
|
|
$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 an Interest
Reserve Account 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 under the Credit Facility; (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
47
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 August 31, 2009, we were in compliance with the applicable terms of all of our covenants
under our 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 Off-Balance Sheet Arrangements, Contractual Obligations and
Commercial Commitments, 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 various types of guarantees, if applicable, provided by us
and/or our corresponding unconsolidated joint venture partner(s). Notwithstanding our potential
responsibilities under these guarantees, at this time we do not believe that our exposure under
them is material to our consolidated financial position, results of operations or liquidity.
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 on August 6, 2009.
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 August 31,
2009, we had outstanding notes payable in connection with such financing of $156.7 million.
Consolidated Cash Flows.
Operating, investing and financing activities used net cash of $186.1
million in the nine months ended August 31, 2009 and $387.5 million in the nine months ended
August 31, 2008.
Operating Activities
. Operating activities provided net cash flows of $113.2 million in the first
nine months of 2009 and $30.2 million in the first nine months of 2008. The year-over-year
change in operating cash flow primarily reflected the reduction in our net loss and a larger net
decrease in receivables in the first nine months of 2009 compared to the year-earlier period.
Our sources of operating cash in the first nine months of 2009 included a net decrease in
receivables of $236.3 million, due to a $221.0 million federal income tax refund we received
during the first quarter, a net decrease in inventories of $170.1 million (excluding inventory
impairments and land option contract abandonments, $9.0 million of inventories acquired through
seller financing, a decrease of $40.4 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 $8.4 million and various
noncash items added to the net loss. The cash provided was partly offset by a net loss of $202.5
million and a decrease in accounts payable, accrued expenses and other liabilities of $249.7
million.
In the first nine months of 2008, cash was provided by a net decrease in inventories of $230.3
million (excluding inventory impairments and land option contract abandonments, $16.3 million of
inventories acquired through seller financing and a decrease of $134.7 million in consolidated
inventories not owned), a decrease in receivables of $109.0 million, other operating sources of
$16.0 million and various noncash items added to the net loss. The cash provided was partially
offset by a net loss of $668.8 million and a decrease in accounts payable, accrued expenses and
other liabilities of $196.5 million.
48
Investing Activities
. Investing activities used net cash of $21.2 million in the first nine
months of 2009 and $55.3 million in the year-earlier period. In the first nine months of 2009,
we used cash of $20.0 million for investments in unconsolidated joint ventures and $1.2 million
for net purchases of property and equipment. In the first nine months of 2008, $61.4 million was
used for investments in unconsolidated joint ventures partially offset by $6.1 million provided
from net sales of property and equipment.
Financing Activities
. Net cash used for financing activities totaled $278.1 million in the first
nine months of 2009 and $362.4 million in the first nine months of 2008. In the first nine
months of 2009, cash was used for the repayment of $250.0 million of 6 3/8% senior notes and the
$200 Million Senior Subordinated Notes, payments of $79.0 million on mortgages, land contracts
and other loans, dividend payments of $14.3 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 were partly offset
by $259.7 million of cash provided from the issuance of the $265 Million Senior Notes, $11.2
million provided from a reduction in the balance of the Interest Reserve Account we are required
to maintain under the terms of the Credit Facility (making it restricted cash) and $2.2 million
provided from the issuance of common stock under employee stock plans.
In the first nine months of 2008, we used cash for the redemption of $300.0 million of 7 3/4%
senior subordinated notes due in 2010, dividend payments of $58.1 million, net payments on
short-term borrowings of $3.0 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 were partly offset by $5.1 million provided from the issuance of common stock under
employee stock plans.
Shelf Registration Statement.
On July 30, 2009, we issued the $265 Million Senior Notes under
the 2008 Shelf Registration. As of the date of this report, we have not issued any other
securities under the 2008 Shelf Registration.
Share Repurchase Program.
At August 31, 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 the third quarter of 2009.
In the present environment, we are carefully managing our use of cash for internal investments,
investments to grow our business and additional debt reductions. Based on our current capital
position, we believe we have adequate resources, availability under our existing credit
facilities 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, Contractual Obligations and Commercial Commitments
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 sells land to our homebuilding
operations, we defer recognition of our share of
49
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.
Each unconsolidated joint venture is obligated to maintain financial statements in accordance
with U.S. generally accepted accounting principles. We share in profits and losses of these
unconsolidated joint ventures generally in accordance with our respective equity interests. Our
investment in these unconsolidated joint ventures totaled $172.1 million at August 31, 2009 and
$177.6 million at November 30, 2008. These unconsolidated joint ventures had total assets of
$996.1 million at August 31, 2009 and $1.26 billion at November 30, 2008. We expect our
investments in unconsolidated joint ventures to 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 $561.5 million at
August 31, 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 actual 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 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.
50
At August 31, 2009, our potential responsibility under our loan-to-value maintenance guarantees
totaled approximately $11.3 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
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, results of operations or liquidity.
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. We do not believe, however, that the
outcome of these lawsuits should have a material impact on 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 August 31, 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 interest and other
carrying costs, and minimizes the amount of our land inventories on our consolidated balance
sheet. 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 FASB Interpretation No. 46(R), certain of our land option
contracts may create a variable interest for us, with the land seller being identified as a VIE.
In compliance with FASB Interpretation No. 46(R), 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 the fair value of certain VIEs from which we are purchasing
land under option contracts. Although we do not have legal title to the land, FASB Interpretation
No. 46(R) 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
51
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 our inventories, with a corresponding increase to accrued expenses and
other liabilities, on our consolidated balance sheets by $15.5 million at both August 31, 2009
and November 30, 2008. The liabilities related to our consolidation of VIEs from which we have
arranged to purchase 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 $3.4 million at both August 31, 2009 and
November 30, 2008. Creditors, if any, of these VIEs have no recourse against us. As of August
31, 2009, we had cash deposits totaling $8.8 million associated with land option and other
contracts that we determined to be unconsolidated VIEs, having an aggregate purchase price of
$121.1 million. As of August 31, 2009, we also had cash deposits totaling $6.3 million
associated with land option and other contracts that were not VIEs, having an aggregate purchase
price of $353.7 million.
We also evaluate land option and other contracts in accordance with SFAS No. 49. 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 $41.1 million at August 31, 2009 and
$81.5 million at November 30, 2008.
Critical Accounting Policies
Except as set forth below, there have been no significant changes to our critical accounting
policies and estimates during the nine months ended August 31, 2009 compared to those disclosed
in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2008.
Inventory Impairments and Abandonments
. As discussed in Note 6. Inventory Impairments and
Abandonments in the Notes to Consolidated Financial Statements in this Form 10-Q, 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 SFAS No. 144. When an
indicator of potential impairment is identified, we test 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 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 community and may vary among 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 communities.
Based on the results of our evaluations, we recognized pretax, noncash inventory impairment
charges of $52.9 million in the nine months ended August 31, 2009 corresponding to 33 communities
with a post-impairment fair value of $60.8 million. In the nine months ended August 31, 2008, we
recognized pretax, noncash inventory impairment charges of $373.4 million corresponding to 119
communities with a post-impairment fair value of $714.4 million.
52
Our optioned inventory is assessed to determine whether it continues to meet our internal
investment standards. Assessments are made separately for each optioned land 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
market 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 $1.7 million in the three months ended August 31,
2009 corresponding to 162 lots. We recognized no land option contract abandonment charges in the
three months ended August 31, 2008. In the nine months ended August 31, 2009, we recognized land
option contract abandonment charges of $38.5 million corresponding to 766 lots. In the nine
months ended August 31, 2008, we recognized land option contract abandonment charges of $27.7
million corresponding to 1,481 lots.
As of August 31, 2009, the aggregate carrying value of inventory impacted by pretax, noncash
impairment charges was $849.4 million, representing 136 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 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 11. Commitments and Contingencies in the Notes to
Consolidated Financial Statements in this Form 10-Q, 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 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 $8.2 million in the three months
ended August 31, 2009 and $6.2 million in the three months ended August 31, 2008. Our expense
associated with these warranties totaled $12.4 million in the nine months ended August 31, 2009
and $17.0 million in the year-earlier period.
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.
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Insurance
. As discussed in Note 11. Commitments and Contingencies in the Notes to Consolidated
Financial Statements in this Form 10-Q, 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 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 $1.8
million in the three months ended August 31, 2009 and $1.4 million in the three months ended
August 31, 2008. Our expense associated with self-insurance totaled $5.3 million in the nine
months ended August 31, 2009 and $9.2 million in the nine months ended August 31, 2008.
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.
Outlook
Our backlog at August 31, 2009 totaled 3,722 net orders, representing projected future housing
revenues of approximately $734.1 million. By comparison, at August 31, 2008, our backlog totaled
4,774 net orders, representing projected future housing revenues of approximately $1.13 billion.
The year-over-year decreases of 22% in the number of net orders in backlog and 35% in projected
future housing revenues primarily resulted from lower year-over-year second quarter net orders,
lower average selling prices stemming from intense price competition
and our rollout of value-engineered product
at lower price points compared to those of our pre-existing product, and our strategic
initiatives to reduce our inventory and active community count to better align our housing
operations with reduced overall market activity. Company-wide net orders from our
housing operations increased to 2,158 in the third quarter of 2009, up 62% from 1,329 net orders
in the year-earlier quarter. The increase reflected strong net orders of our value-engineered
product, including
The Open Series
product line, and improvement in our cancellation rate. In
the third quarter of 2009, net orders increased in each of our homebuilding segments on a
year-over-year basis.
Throughout the first nine months of 2009, the homebuilding industry has faced economic headwinds
that have generally increased the supply of homes and restrained demand for them. These
headwinds have included mounting mortgage delinquencies and foreclosures, rising unemployment,
tight credit standards and relatively weak consumer confidence. Entering the fourth quarter of
2009, there are tentative indications that some negative trends in the economy are slowing or
leveling off, but it remains uncertain when and to what extent housing markets, or the broader
economy, will experience a meaningful, sustained recovery. As a result, despite some signs of
market improvement, particularly in housing affordability, we expect to experience continued
significant weakness in housing demand along with pricing pressures that could heighten already
intense competition and further depress overall housing market conditions. Actions taken or
announced by federal, state and local governments to support housing may soften, but are not
expected to reverse, the current market downturn. Given this environment, we believe the 2009
fourth quarter will yield fewer homes delivered and lower housing revenues relative to the
year-earlier quarter for the both homebuilding industry and our business along with continued
intense price competition.
Since the beginning of the housing market downturn in 2006, and in response to its persistence
and increasing severity, we have pursued three primary goals to weather the extremely challenging
operating conditions and to enhance our ability to take advantage of potential growth
opportunities. Consistent with the core principles of our KBnxt operational business model,
these goals are to generate cash and maintain a strong balance sheet; restore the profitability of our homebuilding operations; and position our business to capitalize
on a housing
54
market recovery when it occurs. Among other things, these goals have driven our
strategic choices to redesign our product line, institute disciplined market-by-market pricing,
and reduce the number of active communities we operate and our inventory of lots and land.
Restoring the profitability of our homebuilding operations is our highest priority and we believe
we have made progress during the first three quarters of 2009 toward achieving this goal. While
we have delivered fewer homes at lower average selling prices, we have narrowed our loss in each
quarter of 2009 on a year-over-year basis with improvements in our gross margin, reductions in
our selling, general and administrative expenses and the reduced need for asset impairment and
abandonment charges. We expect the favorable trends we have experienced in the first nine months
of 2009 to continue in the 2009 fourth quarter.
We have sustained a position of substantial financial strength and flexibility throughout the
first three quarters of 2009, ending the third quarter with a cash balance of $1.06 billion
(including $104.2 million of restricted cash in the Interest Reserve Account), no cash borrowings
under the Credit Facility, and an overall debt level lower than that at the end of our 2008
fiscal year. We have accomplished this in part by reorganizing and consolidating operations and
reducing overhead costs in many markets, while selectively exiting or winding down activity in
others, and by converting our backlog to revenue more quickly.
The centerpiece of our product line transformation is our ongoing nationwide rollout of
The Open
Series
designs, which began in late 2008. We have tailored this product line to the design
preferences and affordability demands of our core customer the first-time homebuyer. We are
also building these homes using materials and construction methods that reflect our commitment to
sustainable homebuilding practices.
Based on the strong initial consumer response to
The Open Series
at the communities where it has
been introduced, we believe this product line will favorably impact our net orders in the fourth
quarter of 2009 and into 2010, even in markets with high levels of unsold resale and foreclosure
homes. These potential outcomes, however, will depend in critical part on the absence of further
deterioration or prolonged weakness in economic conditions, which remains a significant risk.
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 (
i.e.
, the time
between the sale of a home and its delivery to a homebuyer), while adhering to our quality
standards. 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 continuous work with our trade
partners and materials suppliers to reduce direct construction costs. All of these efforts allow
us to achieve faster returns and higher gross margins from our inventory compared to our
pre-existing product designs, supporting strong cash flow generation and driving progress toward
our profitability goal. With the product lines lower price points, however, we anticipate that
incrementally higher sales of these homes will, at least in the near term, depress our overall
average selling price.
Demonstrating our willingness and ability to capitalize on attractive market opportunities as
they arise, in September 2009, we announced our resumption of homebuilding operations in the
Washington, D.C. metro market. This step bolsters our presence in the southeastern United States
and complements our existing operations across Florida and the Carolinas. We initially entered
this market in 2005, but curtailed our operations in late 2007 as part of our strategy to
conserve cash, reduce our inventory and streamline our overhead, and also due to the prevailing
market conditions at that time. We maintained certain land assets in the region and believe
that, with the improvements we have seen in local market conditions, our cost-effective
The Open
Series
product line and focused Built to Order
TM
operating model will compete well in
light of the regions growing demand for affordable, high-quality new homes.
We will continue to focus on our three primary goals in the fourth quarter of 2009. In addition,
as we have over the last several quarters, we will continue to seek opportunities to reduce
overhead, improve the efficiency of our operations and prudently manage our inventory. Among
other things, this means preserving a balanced presence in markets where we see solid long-term
growth potential, winding down activity and exiting areas that no longer fit our strategy,
limiting our acquisition of lots and other land positions to compelling opportunities that
complement our operational footprint and meet our internal investment standards, and using
primarily option contracts to minimize cash outflow. In combination, we believe our efforts to
accomplish our primary goals will eventually restore our ability to generate profitable returns
for our stockholders.
55
Our near-term outlook, however, remains cautious. Although we have seen positive results from our
strategic initiatives during the first nine months of 2009, we do not see current negative market
dynamics abating in the near future. 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. Our 2009 fourth quarter and full year results could also be adversely affected if
general economic conditions decline, if job losses accelerate or weak employment levels persist,
if mortgage delinquencies 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 drive renewed 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 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
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 homebuilding
industry, or construction activities; the availability and cost of land in desirable areas; legal
or regulatory proceedings or claims; the ability and/or willingness of participants in our
unconsolidated joint ventures to fulfill their obligations; our ability to access capital,
including our capacity under our Credit Facility; 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 positioning (including, but not limited to, our plans to resume operations
in the Washington, D.C. metro market) and cost reduction strategies; consumer interest in our new
product designs, including
The Open Series
, and other events outside of our control. Please see
our Annual Report on Form 10-K for the year ended November 30, 2008 and other filings with the
SEC for a further discussion of these and other risks and uncertainties applicable to our
business.
56
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We primarily enter into debt obligations to support general corporate purposes, including the
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 table presents principal cash flows by scheduled maturity, weighted average
interest rates and the estimated fair value of our long-term debt obligations as of August 31,
2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Fiscal Year of Expected Maturity
|
|
Fixed Rate Debt
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
|
|
%
|
2010
|
|
|
|
|
|
|
|
|
2011
|
|
|
99,772
|
|
|
|
6.4
|
|
2012
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
1,556,375
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,656,147
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at August 31, 2009
|
|
$
|
1,549,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information regarding our market risk, refer to Item 7A, Quantitative and
Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended
November 30, 2008.
Item 4. 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 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 Executive Vice President and Chief
Financial 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 the Principal Executive Officer and the 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 August 31, 2009.
57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 us, our directors,
certain of our current and former officers, and the board of directors committee that oversees
the 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 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 Plan about our alleged prior stock option backdating practices
and by failing to remove our stock as an investment option under the Plan. Plaintiffs allege
that this breach of fiduciary duties caused plaintiffs to earn less on their Plan accounts than
they would have earned but for defendants alleged breach of duties. Plaintiffs seek unspecified
money damages and injunctive and other equitable relief.
The court has tentatively scheduled the trial to begin on November 9, 2010. On August 31, 2009,
we filed a motion for summary judgment dismissal of all of plaintiffs claims against us. Our
co-defendants also joined in the motion. The hearing on the motion is set for November 9, 2009.
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.
We are also involved in litigation and governmental proceedings incidental to our business. These
cases are in various procedural stages and, based on reports of counsel, we believe that
provisions or reserves made for potential losses are adequate and any liabilities or costs
arising out of currently pending litigation should not have a materially adverse effect on our
consolidated financial position or results of operations.
Item 1A. Risk Factors
Except as set forth below, there have been no material changes to the risk factors we previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2008.
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.
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 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
58
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.
59
Item 6. Exhibits
|
|
|
|
|
Exhibits
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
10.52
|
|
|
Amendment to Trust Agreement by and between KB Home and Wachovia Bank, N.A., dated
August 24, 2009.
|
|
|
|
|
|
|
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 Raymond P. Silcock, Executive Vice President and Chief Financial 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 Raymond P. Silcock, Executive Vice President and Chief Financial 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.
|
60
SIGNATURES
Pursuant to the requirements 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
Registrant
|
|
Dated October 9, 2009
|
/s/ JEFFREY T. MEZGER
|
|
|
Jeffrey T. Mezger
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
Dated October 9, 2009
|
/s/ RAYMOND P. SILCOCK
|
|
|
Raymond P. Silcock
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
61
INDEX OF EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page of Sequentially
|
|
|
|
|
|
|
|
Numbered Pages
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.52
|
|
|
Amendment to Trust Agreement by and between KB Home and Wachovia Bank, N.A.,
dated August 24, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
|
Certification of Raymond P. Silcock, Executive Vice President and Chief Financial
Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
|
Certification of Raymond P. Silcock, Executive Vice President and Chief Financial
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.
|
|
|
66
|
|
62