UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ
Annual
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
For the Fiscal Year Ended November 30, 2007
or
o
Transition
Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
to
.
Commission File No. 001-09195
KB HOME
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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95-3666267
(I.R.S. Employer
Identification No.)
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10990 Wilshire Boulevard, Los Angeles, California 90024
(Address of principal executive
offices)
Registrants telephone number, including area
code: (310) 231-4000
Securities Registered Pursuant to Section 12(b) of the
Act:
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Name of each exchange
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Title
of each class
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on which registered
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Common Stock (par value $1.00 per share)
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New York Stock Exchange
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Rights to Purchase Series A Participating Cumulative
Preferred Stock
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act.
Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation
S-K
is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K
or any
amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule
12b-2
of the
Exchange Act.
Large accelerated
filer
þ
Accelerated
filer
o
Non-accelerated
filer
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes
o
No
þ
The aggregate market value of voting stock held by
non-affiliates of the registrant on May 31, 2007 was
$4,107,806,638, including 12,314,882 shares held by the
registrants grantor stock ownership trust and excluding
25,358,823 shares held in treasury.
The number of shares outstanding of each of the
registrants classes of common stock on December 31,
2007 was as follows: Common Stock (par value $1.00 per share)
89,525,178 shares, including 12,192,182 shares held by
the registrants grantor stock ownership trust and
excluding 25,451,107 shares held in treasury.
Documents Incorporated by Reference
Portions of the registrants definitive Proxy Statement
for the 2008 Annual Meeting of Stockholders (incorporated into
Part III).
KB
HOME
FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2007
TABLE OF CONTENTS
General
KB Home is a Fortune 500 company listed on the New York Stock
Exchange under the ticker symbol KBH. We are one of
the nations largest homebuilders and commemorated our
50th year in the homebuilding industry in 2007. We
construct and sell homes through our operating divisions across
the United States under the name KB Home. Unless the
context indicates otherwise, the terms the Company,
we, our and us used herein
refer to KB Home, a Delaware corporation, and its predecessors
and subsidiaries.
Beginning in 1957 and continuing until 1986, our business was
operated through various subsidiaries of Kaufman and Broad, Inc.
(KBI) and its predecessors. In 1986, KBI transferred
to us the outstanding capital stock of its subsidiaries
conducting KBIs homebuilding and mortgage banking
business. Shortly thereafter, we completed an initial public
offering of 8% of our common stock and began operating under the
name Kaufman and Broad Home Corporation. In 1989, we were
spun-off from KBI, which then changed its name to Broad Inc.,
and operated as an independent company, primarily in California
and France. In 2001, we changed our name to KB Home. Since 1989,
we have expanded our business in both our existing markets and
into new markets through capital investments and acquisitions of
a number of other homebuilders. Today, we operate a
geographically diverse homebuilding and financial services
business serving homebuyers in markets across the United States.
We believe our geographic diversity helps to mitigate the
effects of local and regional economic cycles, enhancing our
long-term growth potential.
Our four homebuilding segments offer a variety of homes designed
primarily for first-time, first
move-up
and
active adult buyers, including attached and detached
single-family homes, townhomes and condominiums. We offer homes
in development communities, at urban in-fill locations and as
part of mixed-use projects. We use the term home to
refer to a single-family residence, whether it is a
single-family home or other type of residential property, and we
use the term community to refer to a single
development in which homes are constructed as part of an
integrated plan.
We delivered 23,743 homes in 2007 compared to our record 32,124
homes delivered in 2006. In 2007, our average selling price of
$261,600 decreased from $287,700 in 2006. We generated total
revenues of $6.42 billion and a loss from continuing
operations of $1.41 billion in 2007 compared to total
revenues of $9.38 billion and income from continuing
operations of $392.9 million in 2006. Our homebuilding
revenues, which include revenues from land sales, accounted for
99.8% of our total revenues in both 2007 and 2006. Our results
in 2007 reflected the significant market downturn the
homebuilding industry experienced throughout the year, and our
actions to align our operations with the diminished sales
environment and to strengthen our balance sheet.
Our financial services segment derives income from mortgage
banking, title and insurance services offered to our homebuyers.
Mortgage banking services are provided through Countrywide KB
Home Loans, a joint venture operated by Countrywide Financial
Corporation (Countrywide) that offers a variety of
loan programs to serve the needs of our homebuyers. Our
financial services segment accounted for .2% of our total
revenues in both 2007 and 2006.
On July 10, 2007, we sold our 49% equity interest in our
publicly traded French subsidiary, Kaufman & Broad S. A.
(KBSA). Accordingly, we now operate our homebuilding
and financial services business solely in the United States.
Our principal executive offices are located at
10990 Wilshire Boulevard, Los Angeles, California 90024.
The telephone number of our corporate headquarters is
(310) 231-4000
and our website address is http://www.kbhome.com. Our
Spanish-language website is http://www.kbcasa.com. In addition,
location and community information is available at (888)
KB-HOMES.
1
Markets
Our homebuilding operations span the United States from coast to
coast. Because of the geographic reach of our homebuilding
business, we have four homebuilding segments based on the
markets in which we construct homes West Coast,
Southwest, Central and Southeast. We operate in the 13 states
and 35 major markets shown below:
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Segment
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State(s)
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Major Market(s)
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West Coast
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California
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Fresno, Los Angeles/Ventura, Oakland, Orange County, Riverside,
Sacramento, San Bernardino, San Diego and Stockton
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Southwest
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Arizona
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Phoenix and Tucson
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Nevada
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Las Vegas and Reno
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New Mexico
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Albuquerque
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Central
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Colorado
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Colorado Springs and Denver
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Illinois
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Chicago
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Texas
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Austin, Dallas/Fort Worth, Houston and San Antonio
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Southeast
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Florida
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Daytona Beach, Jacksonville, Lakeland, Melbourne, Orlando,
Sarasota and Tampa
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Georgia
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Atlanta
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Maryland
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Washington, D.C.
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North Carolina
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Charlotte and Raleigh
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South Carolina
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Bluffton/Hilton Head, Charleston and Columbia
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Virginia
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Washington, D.C.
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Segment Operating Information.
The following
table sets forth specific operating information for our
homebuilding segments for the years ended November 30,
2007, 2006 and 2005:
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Years Ended November 30,
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2007
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2006
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2005
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West Coast:
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Homes delivered
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4,957
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7,213
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6,624
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Percent of total homes delivered
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21
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%
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22
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%
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21
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%
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Average selling price
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$
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433,600
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$
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489,500
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$
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460,500
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Total revenues (in millions) (a)
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$
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2,203.3
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$
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3,531.3
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$
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3,050.5
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Southwest:
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Homes delivered
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4,855
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7,011
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7,357
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Percent of total homes delivered
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20
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%
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22
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%
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24
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%
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Average selling price
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$
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258,500
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$
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306,900
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$
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265,600
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Total revenues (in millions) (a)
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$
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1,349.6
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$
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2,183.8
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$
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1,964.5
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Central:
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Homes delivered
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6,310
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9,613
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9,866
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Percent of total homes delivered
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27
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%
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30
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%
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32
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%
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Average selling price
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$
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167,800
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$
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159,800
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$
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157,600
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Total revenues (in millions) (a)
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$
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1,077.3
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$
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1,553.3
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$
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1,559.0
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Southeast:
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Homes delivered
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7,621
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8,287
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7,162
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Percent of total homes delivered
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32
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%
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26
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%
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23
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%
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Average selling price
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$
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229,400
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$
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244,300
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$
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215,100
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Total revenues (in millions) (a)
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$
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1,770.4
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$
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2,091.4
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$
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1,549.3
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Total:
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Homes delivered
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23,743
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32,124
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31,009
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Average selling price
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$
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261,600
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$
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287,700
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$
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261,200
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Total revenues (in millions) (a)
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$
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6,400.6
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$
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9,359.8
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$
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8,123.3
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(a)
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Total revenues include revenues from housing and land sales.
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Unconsolidated Joint Ventures.
The above
tables do not include deliveries from unconsolidated joint
ventures. From time to time, we participate in the acquisition,
development, construction and sale of residential properties
through
2
unconsolidated joint ventures. Our unconsolidated joint ventures
delivered 127 homes in 2007, 4 homes in 2006 and 83 homes in
2005.
Strategy
We expect the difficult conditions we experienced in our served
markets in 2007 to continue through 2008. Consistent with the
general downturn in housing markets across the United States,
most of our served markets have faced a persistent oversupply of
new and resale homes available for sale, with some areas
reaching historically high levels. In these markets, our
business has encountered significant challenges from heightened
builder and investor efforts to sell homes and land, increased
foreclosure activity, consumer reluctance to purchase homes,
tighter lending standards due to turmoil in the mortgage finance
and credit markets, and reduced home affordability, particularly
in areas that experienced rapid sales price increases in the
years leading up to and including 2006. These conditions
resulted in both lower overall sales in our homebuilding
business compared to prior years and downward pressure on our
selling prices and margins in 2007, as competition for sales
drove marketing expenses higher and increased the need for sales
incentives. We do not expect the present business environment in
our served markets or these trends to improve in 2008.
We believe our continued adherence to the disciplines of our
core built-to-order operational business model, KBnxt, will
enable us to manage through the current and expected near-term
business environment. We believe it will also position us to
capitalize on long-term growth opportunities that we expect will
arise as housing supply and demand conditions in our served
markets begin to stabilize.
KBnxt Operational Business Model.
We began
operating under the principles of our KBnxt operational business
model in 1997. The KBnxt operational business model seeks to
generate greater operating efficiencies and return on investment
through a disciplined, fact-based and process-driven approach to
homebuilding that is founded on a constant and systematic
assessment of consumer preferences and market opportunities. The
key principles of our KBnxt operational business model include:
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gaining a detailed understanding of consumer location and
product preferences through regular surveys;
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managing our working capital and reducing our operating risks by
acquiring developed and entitled land at reasonable prices in
markets with high growth potential, and by disposing of land and
interests in land that no longer meet our strategic or
investment goals;
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using our knowledge of consumer preferences to design, construct
and deliver the products homebuyers desire;
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in general, commencing construction of a home only after a
purchase contract has been signed;
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building a backlog of net orders and reducing the time from
initial construction to final delivery of homes to customers;
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establishing an even flow of production of high quality homes at
the lowest possible cost; and
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offering customers affordable base prices and the opportunity to
customize their homes through choice of location, floor plans
and interior design options.
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Our KBnxt operational business model is designed to help us
achieve a leading position in our existing markets, expand our
business into attractive new markets, exit investments that no
longer meet our return standards or marketing strategy and
calibrate our product lines to consumer preferences in both our
existing and new markets. Historically, this focus has allowed
us to achieve lower costs and economies of scale with respect to
acquiring and developing land, purchasing building materials,
subcontracting labor and providing options to customers.
Our expansion into new markets will depend on our assessment of
a potential new markets viability and our ability to
develop operations in that new market. We will also continue to
consider appropriate acquisitions, as market conditions may
produce attractive opportunities. However, expansion into new
markets and large acquisitions are not a priority for us in the
near term.
3
Strategic Objectives.
Based on our KBnxt
operational business model, and building on initiatives we
implemented in 2006 and 2007 as conditions in our served markets
became increasingly challenging, our primary strategic
objectives include:
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Maintaining our balanced geographic footprint and focusing on
growth opportunities in our existing served markets. We believe
this will allow us to efficiently capitalize on the different
rates at which our served markets are expected to stabilize. We
also believe that our existing served markets offer the most
attractive long-term growth prospects.
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Providing the best value and choice in homes and options for the
first-time, first move-up and active adult homebuyer. By
promoting value and choice through an affordable base price and
product customization, we believe we can stand out from other
homebuilders among our core customer base.
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Generating high levels of customer satisfaction and producing
high quality homes. Achieving high customer satisfaction levels
is a key driver to our long-term success and delivering quality
homes is critical to achieving high customer satisfaction.
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Maintaining ownership and control over a three-to-four year
supply of developable land. Keeping our inventory in line with
our future sales expectations maximizes the use of our working
capital, enhances our liquidity and helps maintain a strong
balance sheet to support long-term strategic investments.
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Improving the affordability of our homes and lowering our
production costs by redesigning and reengineering our products,
building smaller homes, reducing production cycle times and
direct construction costs, and targeting our pricing to median
income levels in our served markets. We believe making our homes
more affordable to our core customer base, with corresponding
decreases in our production costs, will help us generate
revenues and maintain our margins during the current housing
market downturn and position us for longer-term profit growth.
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Continuing to align our cost structure with the expected size
and growth of our business, generating free cash flow and
maximizing the performance of our invested capital.
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Marketing Strategy.
Our marketing strategy
aims to generate traffic to our communities by promoting our
distinct customized homebuying experience. We believe this
approach, supported with unique marketing partnerships and
consistently applied companywide under one brand, generates a
high perceived value for our products and our company among our
target customers nationwide.
Reflecting this approach, in 2007 we launched a Built to
Order consumer brand messaging initiative to provide
potential homebuyers with a clearer understanding of how our
homebuying experience differs from that of other homebuilders
and resale homes. The Built to Order campaign
emphasizes the choices our homebuyers can make in community
location, floor plan, exterior architectural style, and interior
design options and amenities to create a home built to their
individual preferences. In highlighting the choices we make
available to our homebuyers and reinforcing our general approach
to build homes only after we receive a qualified order, the
Built to Order campaign serves as the consumer face
to core elements of our KBnxt operational business model.
During 2007, we also saw the expansion of our successful
partnership with Martha Stewart, a leading lifestyle expert.
Under this partnership, we offer our homebuyers in selected
communities an opportunity to build homes inspired by Martha
Stewarts own residences and to customize them using
interior designs that reflect her style. We opened six
additional Martha Stewart communities in 2007, bringing the
total number to nine. The new Martha Stewart communities
included the first in California, Texas, Colorado and Florida,
as well as the second in North Carolina and Georgia. Our
Martha Stewart communities have generated significant consumer
and media interest and traffic, and we expect to open more of
them in the future.
In September 2007, we announced a high-profile collaboration
with The Walt Disney Company to develop exclusive Disney Home
product options to be offered to our homebuyers. Options include
elements that would normally be built into a home such as
lighting fixtures and window coverings and feature some of
Disneys most recognized characters. The first options in
the collaboration will be available to our homebuyers in 2008.
4
During 2007, we also maintained our focus on the Internet as a
key vehicle for reaching homebuyers. We redesigned our primary
consumer website, kbhome.com, to be easier to navigate, to
better reflect current technologies, and to make Built to
Order a central message throughout the site.
We renewed our emphasis on the first-time, first
move-up
and
active adult homebuyer in 2007. These homebuyers historically
have been our core customers and are the buyers we anticipate to
have the greatest potential for future home sales. In the
present mortgage financing environment, focusing on these types
of homebuyers also allows us to offer more homes that fall
within conforming loan limits for Fannie Mae, Federal Home Loan
Mortgage Corporation (Freddie Mac), Federal Housing
Administration (FHA) and Veterans Administration
(VA) programs.
In 2008, we will continue to implement our Built to
Order marketing strategy, building on our efforts in 2007.
Sales Strategy.
To ensure the consistency of
our message and adherence to our KBnxt operational business
model, sales of our homes are carried out by in-house teams of
sales representatives. Our sales representatives are trained to
provide prospective customers with floor plan and design
choices, pricing information and tours of fully furnished and
landscaped model homes that are decorated to emphasize the
distinctive options we offer. We also have Countrywide KB Home
Loans representatives available in many of our communities to
assist prospective customers with financing questions.
To help our homebuyers customize their homes, we operate KB Home
Studios in the vast majority of our markets. KB Home
Studios are large showrooms where our customers may select from
thousands of options to purchase conveniently as part of the
original construction of their homes. The coordinated efforts of
sales representatives, KB Home Studio consultants and other
personnel involved in the customers homebuying experience
are intended to provide high levels of customer satisfaction and
lead to enhanced customer retention and referrals.
Customer
Service and Quality Control
Customer satisfaction is a high priority for us and we are
committed to building and delivering quality homes. Our on-site
construction supervisors perform regular pre-closing quality
checks during the construction process to ensure our homes meet
our quality standards and our homebuyers expectations. We
have customer service personnel who are responsible for
responding to homebuyers post-closing needs, including
warranty claims. We believe prompt and courteous responses to
homebuyers needs throughout the homebuying process reduces
post-closing repair costs, enhances our reputation for quality
and service, and may help encourage repeat and referral business
from homebuyers and the real estate community. Our goal is for
our customers to be 100% satisfied with their new homes. We
provide a limited warranty on all of our homes. The specific
terms and conditions vary depending on the market where we do
business. We generally provide a structural warranty of
10 years, a warranty on electrical, heating, cooling,
plumbing and other building systems each varying from two to
five years based on geographic market and state law, and a
warranty of one year for other components of the home such as
appliances.
Local
Expertise
To maximize our KBnxt operational business models
effectiveness and help ensure its consistent execution, our
employees are continuously trained on KBnxt operational
principles and evaluated based on their achieving KBnxt
operational objectives relevant to their particular job duties.
We also believe that our business requires in-depth knowledge of
local markets in order to acquire land in desirable locations
and on favorable terms, to engage subcontractors, to plan
communities based on local demand, to anticipate consumer tastes
in specific markets and to assess the local regulatory
environments. Accordingly, we operate through local divisions
with local market expertise. We have experienced management
teams in each of our divisions. Although we have centralized
certain functions (such as marketing, advertising, legal,
materials purchasing, product development, architecture and
accounting) to benefit from economies of scale, our local
management exercises considerable autonomy in identifying land
acquisition opportunities, developing product and sales
strategies, conducting product operations and controlling costs.
Community
Development and Land Inventory Management
Our community development process generally consists of four
phases: land acquisition, land development, home construction
and sale. Historically, our community development process has
ranged from six to 24 months in our
5
West Coast segment to a somewhat shorter duration in our
other homebuilding segments. The length of the community
development process varies based on, among other things, the
extent of government approvals required, the overall size of the
community, necessary site preparation activities, weather
conditions and marketing results.
Although they vary significantly, our communities typically
consist of 50 to 250 lots ranging in size from 2,000 to
20,000 square feet. Depending on the community, we offer
from two to five model home designs with premium lots often
containing more square footage, better views or location
benefits. Our goal is to own or control enough lots to meet our
forecasted production goals over the next three to four years.
Land Acquisition and Land Development.
Our
current focus is on creating a strong balance sheet and
positioning ourselves for future growth. Significant land
acquisitions are not currently a priority, but we will consider
attractive opportunities as they arise. When we do acquire and
develop land, we do so consistent with our KBnxt operational
business model, which focuses on obtaining land containing fewer
than 250 lots that are entitled and either physically developed
(referred to as finished lots) or partially
finished. Acquiring finished or partially finished lots enables
us to construct and deliver homes shortly after the land is
acquired with minimal additional development expenditures. This
is a more efficient way to use our working capital and reduces
the operating risks associated with having to develop and/or
entitle land, such as unforeseen improvement costs and/or
changes in market conditions. However, depending on market
conditions, we may acquire undeveloped and/or unentitled land.
We expect that the overall balance of undeveloped, unentitled,
entitled and finished lots in our inventory will vary over time.
Consistent with our KBnxt operational business model, we target
geographic areas for potential land acquisitions and assess the
viability of our current inventory based on the results of
periodic surveys of both new and resale homebuyers in particular
markets. Local,
in-house
land acquisition specialists conduct site selection research and
analysis in targeted geographic areas to identify desirable land
or to evaluate whether an existing interest we hold is
consistent with our marketing strategy. We also use studies
performed by third-party marketing specialists. Some of the
factors we consider in evaluating land acquisition targets and
assessing current inventory are: consumer preferences; general
economic conditions; specific market conditions, with an
emphasis on the prices of comparable new and resale homes in the
market; expected sales rates; proximity to metropolitan areas
and employment centers; population and commercial growth
patterns; estimated costs of completing lot development; and
environmental matters.
We generally structure our land purchases and development
activities to minimize, or to defer the timing of cash and
capital expenditures, which enhances returns associated with new
land investments. While we use a variety of techniques to
accomplish this, as further described below, we typically use
agreements that give us an option right to purchase land at a
future date at a fixed price for a small or no initial deposit
payment. Our decision to exercise a particular option right is
based on the results of due diligence we conduct after entering
into an agreement. In some cases our decision to exercise an
option may be conditioned on the land seller obtaining necessary
entitlements, such as zoning rights and environmental approvals,
and/or physically developing the land by a pre-determined date
to allow us to build homes relatively quickly. Depending on the
circumstances, our initial deposit payment for an option right
may or may not be refundable to us if we do not purchase the
underlying land.
In addition to acquiring land under option agreements, we may
acquire land under agreements that condition our purchase
obligation on our satisfaction with the feasibility of
developing the land and selling homes on the land by a certain
future date. Our option and other purchase agreements may also
allow us to phase our land purchases and/or lot development over
a period of time and/or upon the satisfaction of certain
conditions. We may also acquire land with seller financing that
is non-recourse to us, or by working in conjunction with
third-party land developers. Our land option contracts generally
do not contain provisions requiring our specific performance.
As previously noted, under our KBnxt operational business model,
we generally attempt to minimize our land development costs by
focusing on acquiring finished or partially finished lots. Where
we purchase unentitled and unimproved land, we typically use
option agreements as described above and during an applicable
option period perform technical, environmental, engineering and
entitlement feasibility studies, while we seek to obtain
necessary governmental approvals and permits. These activities
are sometimes done with the sellers assistance or at the
sellers cost. The use of option arrangements in this
context allows us to conduct these development-related
activities while minimizing our inventory levels and overall
financial commitments, including interest and other carrying
costs. It also improves our ability to accurately estimate
development costs, an important element in planning communities
and pricing homes, prior to incurring them.
6
Before we commit to any land purchase or dispose of any interest
in land we hold, our senior corporate management carefully
evaluates each asset based on the results of our local
specialists due diligence and a set of strict financial
measures, including, but not limited to, gross margin analyses
and specific discounted,
after-tax
cash flow internal rate of return requirements. Potential land
acquisition or disposal transactions are subject to review and
approval by our corporate land committee, which is composed of
senior corporate and regional management. The stringent criteria
guiding our land acquisition and disposition decisions have
resulted in our maintaining inventory in areas that we believe
generally offer better returns for lower risk and lower cash and
capital investment.
In light of difficult market conditions, we have sold some of
our land and interests in land and have abandoned a portion of
our options to acquire land. Consistent with our KBnxt
operational business model, we determined that these sold or
abandoned properties no longer met our strategic needs or our
internal investment standards. If market conditions remain
challenging, we may sell more of our land and interests in land,
and we may abandon or try to sell our options to acquire land.
The following table shows the number of lots we owned in various
stages of development and under option contracts in our
homebuilding segments as of November 30, 2007 and 2006. The
table does not include approximately 376 acres optioned as
of November 30, 2007 and 393 acres optioned as of
November 30, 2006 that have not yet been approved for
subdivision into lots.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
|
Homes/Lots in
|
|
|
Land Under
|
|
|
Lots Under
|
|
|
Owned or
|
|
|
|
Production
|
|
|
Development
|
|
|
Option
|
|
|
Under Option
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
West Coast
|
|
|
8,174
|
|
|
|
10,957
|
|
|
|
2,961
|
|
|
|
4,387
|
|
|
|
3,598
|
|
|
|
11,762
|
|
|
|
14,733
|
|
|
|
27,106
|
|
Southwest
|
|
|
7,059
|
|
|
|
9,773
|
|
|
|
2,866
|
|
|
|
2,338
|
|
|
|
5,743
|
|
|
|
11,101
|
|
|
|
15,668
|
|
|
|
23,212
|
|
Central
|
|
|
9,944
|
|
|
|
12,799
|
|
|
|
3,257
|
|
|
|
6,856
|
|
|
|
2,472
|
|
|
|
5,448
|
|
|
|
15,673
|
|
|
|
25,103
|
|
Southeast
|
|
|
7,916
|
|
|
|
10,576
|
|
|
|
2,888
|
|
|
|
6,034
|
|
|
|
8,830
|
|
|
|
19,436
|
|
|
|
19,634
|
|
|
|
36,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
33,093
|
|
|
|
44,105
|
|
|
|
11,972
|
|
|
|
19,615
|
|
|
|
20,643
|
|
|
|
47,747
|
|
|
|
65,708
|
|
|
|
111,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflecting our geographic diversity and balanced operations, as
of November 30, 2007, 22% of the lots we owned or
controlled were located in the West Coast reporting segment, 24%
were in the Southwest reporting segment, 24% were in the Central
reporting segment, and 30% were in the Southeast reporting
segment.
The following table shows the dollar value of inventory we owned
in various stages of development and under option contracts in
our homebuilding segments as of November 30, 2007 and 2006
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
|
Homes/Lots in
|
|
|
Land Under
|
|
|
Lots Under
|
|
|
Owned or
|
|
|
|
Production
|
|
|
Development
|
|
|
Option
|
|
|
Under Option
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
West Coast
|
|
$
|
1,020,637
|
|
|
$
|
1,794,320
|
|
|
$
|
192,790
|
|
|
$
|
432,103
|
|
|
$
|
199,396
|
|
|
$
|
454,720
|
|
|
$
|
1,412,823
|
|
|
$
|
2,681,143
|
|
Southwest
|
|
|
491,098
|
|
|
|
688,942
|
|
|
|
161,820
|
|
|
|
222,011
|
|
|
|
34,357
|
|
|
|
202,821
|
|
|
|
687,275
|
|
|
|
1,113,774
|
|
Central
|
|
|
420,811
|
|
|
|
531,048
|
|
|
|
59,802
|
|
|
|
119,649
|
|
|
|
53,248
|
|
|
|
85,808
|
|
|
|
533,861
|
|
|
|
736,505
|
|
Southeast
|
|
|
464,922
|
|
|
|
714,955
|
|
|
|
131,009
|
|
|
|
293,891
|
|
|
|
82,530
|
|
|
|
211,375
|
|
|
|
678,461
|
|
|
|
1,220,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,397,468
|
|
|
$
|
3,729,265
|
|
|
$
|
545,421
|
|
|
$
|
1,067,654
|
|
|
$
|
369,531
|
|
|
$
|
954,724
|
|
|
$
|
3,312,420
|
|
|
$
|
5,751,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Construction and Sale.
Following the
purchase of land and, if necessary, the completion of the
entitlement process, we typically begin marketing homes and
constructing model homes. The time required for construction of
our homes depends on the weather, time of year, local labor
supply, availability of materials and supplies and other
factors. To minimize the costs and risks of standing inventory,
we generally begin construction of a home only when we have
contracted with a homebuyer. However, cancellations of home
purchase contracts prior to the delivery of the underlying homes
may cause us to have standing inventory of completed or
partially completed homes.
We act as the general contractor for the majority of our
communities and hire subcontractors for all production
activities. The use of subcontractors enables us to reduce our
investment in direct labor costs, equipment and facilities.
Where practical, we use mass production techniques, and
pre-made, standardized components and materials to
7
streamline the on-site production process. We have also
developed systems for national and regional purchasing of
certain building materials, appliances and other items to take
advantage of economies of scale and to reduce costs through
improved pricing and, where available, participation in
manufacturers rebate programs. At all stages of
production, our administrative and on-site supervisory personnel
coordinate the activities of subcontractors and subject their
work to quality and cost controls. As part of our KBnxt
operational business model, we have also emphasized even-flow
production methods to enhance the quality of our homes, minimize
production costs and improve the predictability of our revenues
and earnings.
Backlog
We sell our homes under standard purchase contracts, which
generally require a customer deposit at the time of signing. The
amount of deposit required varies among markets and communities.
Homebuyers are also generally required to pay additional
deposits when they select options or upgrades for their homes.
Most of our sales contracts stipulate that if a homebuyer
cancels a contract with us, we have the right to retain the
homebuyers earnest money and option or upgrade deposits.
However, we generally permit customers to cancel their
obligations and obtain refunds of all or a portion of their
deposit in the event mortgage financing cannot be obtained
within a period of time, as specified in their contract.
Backlog consists of homes that are under contract
but have not yet been delivered. Ending backlog represents the
number of homes in backlog from the previous period plus the
number of net orders (new orders for homes less cancellations)
taken during the current period minus the number of homes
delivered during the current period. The backlog at any given
time will be affected by cancellations. In addition, deliveries
of new homes typically increase from the first to the fourth
quarter in any year.
Our backlog at November 30, 2007, excluding unconsolidated
joint ventures, consisted of 6,322 homes, down 40% from the
10,575 homes in backlog at year-end 2006. Our backlog ratio
was 68% for the fourth quarter of 2007 and 60% for the fourth
quarter of 2006. (Backlog ratio is defined as homes delivered as
a percentage of beginning backlog in the quarter.)
The significant decrease in backlog levels in 2007 reflected an
overall decrease in net orders and lower average selling prices
compared to prior years, reflecting the persistently challenging
conditions in the housing market that began in 2006. Our net
orders declined 13% to 19,490 in 2007 from 22,459 in 2006. Our
average cancellation rate in 2007 was 42%, improving from an
average of 47% in 2006. During the fourth quarter of 2007, our
net orders decreased 32% from the fourth quarter of 2006,
reflecting decreases in each of our reporting segments. The
fourth quarter 2007 cancellation rate of 58% was the same as the
cancellation rate we experienced in the year-earlier quarter,
and 8 percentage points higher than the 50% cancellation
rate we experienced in the third quarter of 2007.
8
The following table sets forth homes delivered, net orders and
ending backlog for each quarter during the years ended
November 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
West Coast
|
|
|
Southwest
|
|
|
Central
|
|
|
Southeast
|
|
|
Total
|
|
|
Joint Ventures
|
|
Homes delivered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
895
|
|
|
|
1,185
|
|
|
|
1,427
|
|
|
|
1,629
|
|
|
|
5,136
|
|
|
|
8
|
|
Second
|
|
|
950
|
|
|
|
1,061
|
|
|
|
1,236
|
|
|
|
1,529
|
|
|
|
4,776
|
|
|
|
11
|
|
Third
|
|
|
1,252
|
|
|
|
1,133
|
|
|
|
1,433
|
|
|
|
1,881
|
|
|
|
5,699
|
|
|
|
13
|
|
Fourth
|
|
|
1,860
|
|
|
|
1,476
|
|
|
|
2,214
|
|
|
|
2,582
|
|
|
|
8,132
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,957
|
|
|
|
4,855
|
|
|
|
6,310
|
|
|
|
7,621
|
|
|
|
23,743
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
1,446
|
|
|
|
1,552
|
|
|
|
1,835
|
|
|
|
1,610
|
|
|
|
6,443
|
|
|
|
|
|
Second
|
|
|
1,579
|
|
|
|
1,813
|
|
|
|
2,183
|
|
|
|
1,827
|
|
|
|
7,402
|
|
|
|
|
|
Third
|
|
|
1,683
|
|
|
|
1,798
|
|
|
|
2,489
|
|
|
|
1,923
|
|
|
|
7,893
|
|
|
|
4
|
|
Fourth
|
|
|
2,505
|
|
|
|
1,848
|
|
|
|
3,106
|
|
|
|
2,927
|
|
|
|
10,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,213
|
|
|
|
7,011
|
|
|
|
9,613
|
|
|
|
8,287
|
|
|
|
32,124
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
1,467
|
|
|
|
1,108
|
|
|
|
1,333
|
|
|
|
1,836
|
|
|
|
5,744
|
|
|
|
85
|
|
Second
|
|
|
1,673
|
|
|
|
1,437
|
|
|
|
1,903
|
|
|
|
2,252
|
|
|
|
7,265
|
|
|
|
109
|
|
Third
|
|
|
713
|
|
|
|
604
|
|
|
|
1,370
|
|
|
|
1,220
|
|
|
|
3,907
|
|
|
|
79
|
|
Fourth
|
|
|
679
|
|
|
|
482
|
|
|
|
660
|
|
|
|
753
|
|
|
|
2,574
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,532
|
|
|
|
3,631
|
|
|
|
5,266
|
|
|
|
6,061
|
|
|
|
19,490
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
1,399
|
|
|
|
1,492
|
|
|
|
2,295
|
|
|
|
1,854
|
|
|
|
7,040
|
|
|
|
|
|
Second
|
|
|
1,628
|
|
|
|
1,239
|
|
|
|
2,723
|
|
|
|
1,899
|
|
|
|
7,489
|
|
|
|
|
|
Third
|
|
|
775
|
|
|
|
806
|
|
|
|
1,549
|
|
|
|
1,037
|
|
|
|
4,167
|
|
|
|
24
|
|
Fourth
|
|
|
772
|
|
|
|
576
|
|
|
|
1,156
|
|
|
|
1,259
|
|
|
|
3,763
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,574
|
|
|
|
4,113
|
|
|
|
7,723
|
|
|
|
6,049
|
|
|
|
22,459
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending backlog homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
2,187
|
|
|
|
2,453
|
|
|
|
2,961
|
|
|
|
3,582
|
|
|
|
11,183
|
|
|
|
131
|
|
Second
|
|
|
2,910
|
|
|
|
2,829
|
|
|
|
3,628
|
|
|
|
4,305
|
|
|
|
13,672
|
|
|
|
229
|
|
Third
|
|
|
2,371
|
|
|
|
2,300
|
|
|
|
3,565
|
|
|
|
3,644
|
|
|
|
11,880
|
|
|
|
295
|
|
Fourth
|
|
|
1,190
|
|
|
|
1,306
|
|
|
|
2,011
|
|
|
|
1,815
|
|
|
|
6,322
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
4,207
|
|
|
|
5,368
|
|
|
|
5,405
|
|
|
|
5,857
|
|
|
|
20,837
|
|
|
|
|
|
Second
|
|
|
4,256
|
|
|
|
4,794
|
|
|
|
5,945
|
|
|
|
5,929
|
|
|
|
20,924
|
|
|
|
|
|
Third
|
|
|
3,348
|
|
|
|
3,802
|
|
|
|
5,005
|
|
|
|
5,043
|
|
|
|
17,198
|
|
|
|
20
|
|
Fourth
|
|
|
1,615
|
|
|
|
2,530
|
|
|
|
3,055
|
|
|
|
3,375
|
|
|
|
10,575
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending backlog value, in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
1,054,825
|
|
|
$
|
640,856
|
|
|
$
|
494,429
|
|
|
$
|
846,070
|
|
|
$
|
3,036,180
|
|
|
$
|
42,401
|
|
Second
|
|
|
1,357,973
|
|
|
|
733,211
|
|
|
|
633,775
|
|
|
|
1,012,098
|
|
|
|
3,737,057
|
|
|
|
84,773
|
|
Third
|
|
|
1,042,194
|
|
|
|
590,711
|
|
|
|
599,400
|
|
|
|
834,588
|
|
|
|
3,066,893
|
|
|
|
108,821
|
|
Fourth
|
|
|
466,726
|
|
|
|
313,120
|
|
|
|
312,952
|
|
|
|
406,037
|
|
|
|
1,498,835
|
|
|
|
80,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
2,059,191
|
|
|
$
|
1,690,266
|
|
|
$
|
841,504
|
|
|
$
|
1,455,301
|
|
|
$
|
6,046,262
|
|
|
$
|
|
|
Second
|
|
|
2,200,413
|
|
|
|
1,473,792
|
|
|
|
947,562
|
|
|
|
1,499,091
|
|
|
|
6,120,858
|
|
|
|
|
|
Third
|
|
|
1,726,232
|
|
|
|
1,129,899
|
|
|
|
802,950
|
|
|
|
1,295,886
|
|
|
|
4,954,967
|
|
|
|
7,748
|
|
Fourth
|
|
|
819,795
|
|
|
|
708,206
|
|
|
|
487,223
|
|
|
|
811,533
|
|
|
|
2,826,757
|
|
|
|
20,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and
Raw Materials
We currently own or control enough land to meet our forecasted
production goals for approximately the next three to four years,
and we believe that we will be able to acquire land on
acceptable terms for future communities as needed. In
9
fact, as discussed above, we have recently sold some of our land
and abandoned options to purchase land in order to balance our
holdings with diminished current and forecasted market
conditions. In 2007, our land sales generated
$189.0 million of revenues and $74.3 million of pretax
losses, including $74.8 million of impairments. Our land
option contract abandonments resulted in pretax, non-cash
charges of $144.0 million in 2007.
The principal raw materials used in the construction of our
homes are concrete and forest products. In addition, we use a
variety of other construction materials in the homebuilding
process, including sheetrock, plumbing and electrical items. We
attempt to maintain efficient operations by using standardized
materials that are commercially available on competitive terms
from a variety of sources. In addition, our centralized or
regionalized purchasing of certain building materials,
appliances and fixtures allows us to benefit from large quantity
purchase discounts and, in some cases, supplier rebates. When
possible, we make bulk purchases of these products at favorable
prices from suppliers and often instruct subcontractors to
submit bids based on these prices.
Customer
Financing
On-site representatives at our communities facilitate sales by
offering to arrange financing for prospective customers through
Countrywide KB Home Loans. Countrywide KB Home Loans is a retail
mortgage banking joint venture that we established with
Countrywide in 2005. Although our customers have the choice of
obtaining financing elsewhere, we believe that the ability of
Countrywide KB Home Loans to offer customers a variety of
financing options on competitive terms as a part of the on-site
sales process is an important factor in completing sales.
Countrywide KB Home Loans provides mortgage banking
services to our homebuyers. Leveraging the resources of
Countrywide, the joint venture operates with decentralized teams
of employees located in all of our markets. Through its
relationship with Countrywide, the joint venture offers
virtually every loan program in the industry, as well as some
products not offered by other lenders. This includes fixed and
adjustable rate, conventional,
privately-insured
mortgages,
FHA-insured
or
VA-guaranteed
mortgages and mortgages funded by revenue bond programs of
states and municipalities. Countrywide KB Home Loans originated
loans for 72% of our customers who obtained mortgage financing
in 2007 and 57% in 2006.
Discontinued
Operations
In July 2007, we sold our 49% interest in our French operations.
The disposition of the French operations enables us to invest
additional resources in our U.S. homebuilding operations.
The sale generated total gross proceeds of $807.2 million
and a pretax gain of $706.7 million ($438.1 million
net of income taxes). As a result of the sale, the French
operations, which had previously been presented as a separate
reporting segment, are presented as discontinued operations in
our consolidated financial statements. All prior period
information has been reclassified to be consistent with the
current period presentation.
Employees
We employ a trained staff of land acquisition specialists,
architects, planners, engineers, construction supervisors,
marketing and sales personnel, and finance and accounting
personnel, supplemented as necessary by outside consultants, who
guide the development of our communities from their conception
through the marketing and sale of completed homes.
At December 31, 2007, we had approximately
3,100 full-time employees in our operations, compared to
approximately 5,100 at December 31, 2006. None of our
employees are represented by a collective bargaining agreement.
Competition
and Other Factors
We believe the use of our KBnxt operational business model,
particularly the aspects that involve gaining a deeper
understanding of customer interests and needs and offering a
wide range of choices to homebuyers, provides us with long-term
competitive advantages. The housing industry is highly
competitive, and we compete with numerous homebuilders ranging
from regional and national firms to small local builders
primarily on the basis of price, location, financing, design,
reputation, quality and amenities. In addition, we compete with
housing alternatives other than new homes,
10
including resale homes and rental housing. In certain markets
and at times when housing demand is high, we also compete with
other builders to hire subcontractors.
Financing
We do not generally finance the development of our communities
with project financing. By project financing, we
mean proceeds of loans specifically obtained for, or secured by,
particular communities. Instead, our operations have been
primarily funded by results of operations, public debt and
equity financing, and borrowings under our unsecured revolving
credit facility with various banks (the Credit
Facility).
Regulation
and Environmental Matters
As part of our due diligence process for all land acquisitions,
our policy is to use third-party environmental consultants to
investigate for environmental risks and to require disclosure
from land sellers of known environmental risks. Despite these
precautions, there can be no assurance that we will avoid
material liabilities relating to the removal of toxic wastes,
site restoration, monitoring or other environmental matters
affecting properties currently or previously owned by us. No
estimate of any potential liabilities can be made although we
may, from time to time, purchase property that requires modest
environmental clean-up costs after appropriate due diligence. In
such instances, we take steps prior to acquisition to gain
assurance as to the precise scope of work required and the costs
associated with removal, site restoration and/or monitoring,
using detailed investigations performed by environmental
consultants. To the extent contamination or other environmental
issues have occurred in the past, we believe we may be able to
recover restoration costs from third parties, such as the
generators of hazardous waste, land sellers or others in the
prior chain of title and/or insurers. Based on these practices,
we anticipate that it is unlikely that environmental clean-up
costs will have a material effect on our future consolidated
financial position or results of operations. We have not been
notified by any governmental agency of any claim that any of the
properties owned or formerly owned by us are identified by the
U.S. Environmental Protection Agency (EPA) as being
a Superfund clean-up site requiring remediation,
which could have a material effect on our future consolidated
financial position or results of operations. Costs associated
with the use of environmental consultants are not material to
our consolidated financial position or results of operations.
Access to
Our Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (SEC). Our SEC filings are available to
the public over the Internet at the SECs website at
http://www.sec.gov. The public may also read and copy any
document we file at the SECs public reference room located
at 100 F Street N.E., Washington, D.C. 20549. Please call the
SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room.
We encourage the public to read our periodic and current
reports. Copies of these filings, as well as any future filings,
may be obtained, at no cost, through our website
http://www.kbhome.com or by writing to our investor relations
department at investorrelations@kbhome.com or at our principal
executive offices.
Item 1A. RISK
FACTORS
In addition to the risks and the challenging market conditions
previously mentioned, the following important factors could
adversely impact our business. These factors could cause our
actual results to differ materially from the forward-looking and
other statements that we make in registration statements,
periodic reports and other filings with the SEC, and that we
make from time to time in our news releases, annual reports and
other written communications, as well as oral forward-looking
and other statements made from time to time by our
representatives.
The homebuilding industry is experiencing a severe
downturn that may continue for an indefinite period and
adversely affect our business and results of operations compared
to prior periods.
In 2007, many of our served markets and the U.S. homebuilding
industry as a whole continued to experience a significant and
sustained decrease in demand for new homes and an oversupply of
new and existing homes available for sale, conditions that
generally began in 2006. In many markets, a rapid increase in
new and existing home prices in the years leading up to and
including 2006 reduced housing affordability relative to
consumer incomes and tempered buyer
11
demand. At the same time, investors and speculators reduced
their purchasing activity and instead stepped up their efforts
to sell residential property they had earlier acquired. These
trends, which were more pronounced in markets that had
experienced the greatest levels of price appreciation, resulted
in overall fewer home sales, greater cancellations of home
purchase agreements by buyers, higher inventories of unsold
homes and the increased use by homebuilders, speculators,
investors and others of discounts, incentives, price concessions
and other marketing efforts to close home sales in 2007 compared
to the past several years.
Reflecting these demand and supply trends, we, like many other
homebuilders, experienced a large drop in net orders, a decline
in the selling price of new homes sold and a reduction in our
margins in 2007 relative to prior years. We can provide no
assurances that the homebuilding market will improve in the near
future. In fact, we expect the weakness to continue at least
through 2008 and have an adverse effect on our business and our
results of operations.
Our
strategies in responding to the adverse conditions in the
homebuilding industry have had limited success, and the
continued implementation of these and other strategies may not
be successful.
While we have been successful in generating positive operating
cash flow and reducing our inventories in 2007, we have done so
at significantly reduced gross profit levels and have incurred
significant asset impairment charges. These contributed to the
net loss we recognized in 2007. Also, in 2007, notwithstanding
our sales strategies, we continued to experience an elevated
rate of sales contract cancellations. We believe that the
elevated cancellation rate largely reflects a decrease in
homebuyer confidence, with continued price declines and
increases in the level of sales incentives for both new and
existing homes prompting homebuyers to forgo or delay home
purchases. A more restrictive mortgage lending environment and
the inability of some buyers to sell their existing homes have
also led to cancellations. Many of the factors that affect new
orders and cancellation rates are beyond our control. It is
uncertain how long the reduced sales levels and the increased
level of cancellations will continue.
Our
business is cyclical and is significantly affected by changes in
general and local economic conditions.
Our business can be substantially affected by adverse changes in
general economic or business conditions that are outside of our
control, including changes in:
|
|
|
|
|
short- and long-term interest rates;
|
|
|
|
the availability of financing for homebuyers;
|
|
|
|
consumer confidence generally and the confidence of potential
homebuyers in particular;
|
|
|
|
federal mortgage financing programs and federal and state
regulation of lending practices;
|
|
|
|
federal and state income tax provisions, including provisions
for the deduction of mortgage interest payments;
|
|
|
|
housing demand from population growth and demographic changes,
among other factors;
|
|
|
|
the supply of available new or existing homes and other housing
alternatives, such as apartments and other residential rental
property;
|
|
|
|
employment levels and job and personal income growth; and
|
|
|
|
real estate taxes.
|
Adverse changes in these conditions may affect our business
nationally or may be more prevalent or concentrated in
particular regions or localities in which we operate. In 2007,
adverse changes in many of these factors affected all of our
markets, and we expect the widespread nature of the downturn in
the housing market to continue at least through 2008. A downturn
in the economy would likely exacerbate the adverse trends the
housing market experienced in 2007.
Weather conditions and natural disasters, such as earthquakes,
hurricanes, tornadoes, floods, droughts, fires and other
environmental conditions, can also harm our homebuilding
business on a local or regional basis. Civil unrest or acts of
terrorism can also have an adverse effect on our business.
12
Fluctuating lumber prices and shortages, as well as shortages or
price fluctuations in other building materials or commodities,
can have an adverse effect on our business. Similarly, labor
shortages or unrest among key trades, such as carpenters,
roofers, electricians and plumbers, can delay the delivery of
our homes and increase our costs.
The potential difficulties described above can cause demand and
prices for our homes to diminish or cause us to take longer and
incur more costs to build our homes. We may not be able to
recover these increased costs by raising prices because of
market conditions and because the price of each home is usually
set several months before the home is delivered, as our
customers typically sign their home purchase contracts before
construction begins. The potential difficulties described above
could cause some homebuyers to cancel or refuse to honor their
home purchase contracts altogether. In fact, reflecting the
difficult conditions in our served markets, we continued to
experience elevated cancellation rates in 2007 and we may
experience similar cancellation rates in 2008.
Supply
shortages and other risks related to demand for building
materials
and/or
skilled labor could increase costs and delay
deliveries.
The homebuilding industry is highly competitive for skilled
labor and building materials. Increased costs or shortages in
building materials or skilled labor could cause increases in
construction costs and construction delays. We generally are
unable to pass on increases in construction costs to customers
who have already entered into sales contracts, as the sales
contracts generally fix the price of the home at the time the
contract is signed, and may be signed well in advance of when
construction commences. Sustained increases in construction
costs may, over time, erode our margins, and pricing competition
for materials and labor may restrict our ability to pass on any
additional costs, thereby decreasing our margins.
Inflation
may adversely affect us by increasing costs that we may not be
able to recover, particularly if sales prices
decrease.
Inflation can have a long-term impact on us because increasing
costs of land, materials and labor may call for us to increase
sales prices of homes in order to maintain satisfactory margins.
However, if the current challenging and highly competitive
conditions in the homebuilding market persist, we may be
required to decrease prices in an attempt to stimulate sales
volume. This potential lowering of sales prices, in addition to
impacting our margins on new homes, may also reduce the value of
our land inventory and make it more difficult for us to recover
the full cost of previously purchased land in new home sales
prices or, if we choose, in the disposition of land assets. In
addition, depressed land values may cause us to forfeit deposits
on land option contracts if we cannot satisfactorily renegotiate
the purchase price of the optioned land. We may incur non-cash
charges for inventory impairments or land option contract
abandonments if the value of our inventory is so reduced or if
we choose not to exercise land option contracts.
Reduced
home sales may impair our ability to recoup development costs or
force us to absorb additional costs.
We incur many costs even before we begin to build homes in a
community. Depending on the stage of development, these include
costs of preparing land and installing roads, sewage and other
utilities, as well as taxes and other costs related to ownership
of the land on which we plan to build homes. Reducing the rate
at which we build homes extends the length of time it takes us
to recover these costs. Also, we frequently acquire options to
purchase land and make deposits that will be forfeited if we do
not exercise the options within specified periods. Because of
current market conditions, we have had to terminate some of
these options, resulting in the forfeiture of deposits and
unrecoverable development costs.
The value of the land and housing inventory we own or
control may fall significantly and our profits may
decrease.
The value of the land and housing inventory we currently own or
control depends on market conditions, including estimates of
future demand for, and the revenues that can be generated from,
such inventory. The market value of our land inventory can vary
considerably because there is often a significant amount of time
between our initial acquisition of land and the delivery of
homes on that land. The downturn in the housing market has
caused the fair market value of certain of our inventory to
fall, in some cases well below the estimated fair market value
at the time we acquired it. Depending on our assessment of fair
market value, we may need to write down the carrying value of
certain of our inventory and take corresponding non-cash charges
against our earnings to reflect the impaired value. We may also
abandon our interests in certain land inventory that no longer
meets our internal investment standards, which would also
require us to take non-cash charges. If the current downturn in
the housing market continues, we may need to take additional
charges against
13
our earnings for abandonments or inventory impairments, or both.
Any such non-cash charges would have an adverse effect on our
consolidated results of operations.
If new home prices decline, interest rates increase or
there is a downturn in the economy, some homebuyers may cancel
their home purchases because the required deposits are small and
generally refundable.
Our backlog numbers reflect the number of homes for which we
have entered into a purchase contract with a customer but not
yet delivered the home. Our home purchase contracts typically
require only a small deposit, and in many states, the deposit is
fully refundable at any time prior to closing. If the prices for
new homes decline, competitors increase their use of sales
incentives, interest rates increase, the availability of
mortgage financing diminishes or there is a downturn in local or
regional economies or the national economy, homebuyers may
terminate their existing home purchase contracts with us in
order to negotiate for a lower price or to explore other
options. In 2007 and 2006, we experienced elevated cancellation
rates, in part because of these reasons. Additional
cancellations could have an adverse effect on our business and
our results of operations.
Our long-term success depends on the availability of
improved lots and undeveloped land that meet our land investment
criteria.
The availability of finished and partially developed lots and
undeveloped land for purchase that meet our internal investment
criteria depends on a number of factors outside our control,
including land availability in general, competition with other
homebuilders and land buyers for desirable property, inflation
in land prices, zoning, allowable housing density and other
regulatory requirements. Should suitable lots or land become
less available, the number of homes we may be able to build and
sell could be reduced, and the cost of land could increase,
perhaps substantially, which could adversely impact our results
of operations.
Home
prices and sales activity in the particular markets and regions
in which we do business affect our results of operations because
our business is concentrated in these markets.
Home prices and sales activity in some of our key markets have
declined from time to time for market-specific reasons,
including adverse weather, lack of affordability or economic
contraction due to, among other things, the failure or decline
of key industries and employers. If home prices or sales
activity decline in one or more of the key markets in which we
operate, particularly in Arizona, California, Florida, Nevada or
Texas, our costs may not decline at all or at the same rate and,
as a result, our overall results of operations may be adversely
affected.
Market conditions in the mortgage lending and mortgage
finance industries deteriorated significantly in 2007, which
adversely affected the availability of credit for some
purchasers of our homes, reduced the population of potential
mortgage customers and reduced mortgage liquidity. Further
tightening of mortgage lending or mortgage financing
requirements or further reduced mortgage liquidity could
adversely affect the availability of credit for some purchasers
of our homes and thereby reduce our sales.
During 2007, the mortgage lending and mortgage finance
industries experienced significant instability due to, among
other things, defaults on subprime loans and a resulting decline
in the market value of such loans. In light of these
developments, lenders, investors, regulators and other third
parties questioned the adequacy of lending standards and other
credit requirements for several loan programs made available to
borrowers in recent years. This has led to reduced investor
demand for mortgage loans and mortgage-backed securities,
tightened credit requirements, reduced liquidity, increased
credit risk premiums and regulatory actions. Deterioration in
credit quality among subprime and other nonconforming loans has
caused most lenders to eliminate subprime mortgages and most
other loan products that do not conform to Fannie Mae, Freddie
Mac, FHA or VA standards. Fewer loan products and tighter loan
qualifications in turn make it more difficult for some
categories of borrowers to finance the purchase of our homes or
the purchase of existing homes from potential
move-up
buyers who wish to purchase one of our homes. In general, these
developments have resulted in a reduction in demand for the
homes we sell and have delayed any general improvement in the
housing market. Furthermore, they have resulted in a reduction
in demand for the mortgage loans that we originate through
Countrywide KB Home Loans, our joint venture with Countrywide.
These reductions in demand have had, and are expected to
continue to have, a materially adverse effect on our business
and results of operations in 2008.
14
Many of our homebuyers obtain financing for their home purchases
from Countrywide KB Home Loans. Countrywide provides the loan
products that the joint venture offers to our homebuyers. If
Countrywide refuses or is unable to make loan products available
to the joint venture to provide to our homebuyers, our results
of operations may be adversely affected.
Interest
rate increases or changes in federal lending programs could
lower demand for our homes.
Nearly all of our customers finance the purchase of their homes.
In recent years, historically low interest rates and the
increased availability of specialized mortgage products,
including mortgage products requiring no or low down payments,
and interest-only and adjustable rate mortgages, had made
homebuying more affordable for a number of customers. Increases
in interest rates or decreases in the availability of mortgage
financing or of certain mortgage programs, as discussed above,
may lead to higher down payment requirements or monthly mortgage
costs, or both, and could therefore reduce demand for our homes.
Increased interest rates can also hinder our ability to realize
our backlog because our home purchase contracts provide our
customers with a financing contingency. Financing contingencies
allow customers to cancel their home purchase contracts in the
event they cannot arrange for financing.
Because the availability of Fannie Mae, Freddie Mac, FHA and VA
mortgage financing is an important factor in marketing and
selling many of our homes, any limitations or restrictions in
the availability of such government-backed financing could
reduce our home sales.
Tax
law changes could make home ownership more expensive or less
attractive.
Significant expenses of owning a home, including mortgage
interest expense and real estate taxes, generally are deductible
expenses for the purpose of calculating an individuals
federal, and in some cases state, taxable income, subject to
various limitations, under current tax law and policy. If the
federal government or a state government changes income tax
laws, as some policy makers have discussed recently, eliminating
or substantially reducing these income tax deductions, the
after-tax cost of owning a new home would increase
substantially. This could adversely impact demand for and/or
sales prices of new homes.
We are subject to substantial legal and regulatory
requirements regarding the development of land, the homebuilding
process and protection of the environment, which can cause us to
suffer delays and incur costs associated with compliance and
which can prohibit or restrict homebuilding activity in some
regions or areas.
Our homebuilding business is heavily regulated and subject to an
increasing amount of local, state and federal regulation
concerning zoning, resource protection and other environmental
impacts, building design, construction and similar matters.
These regulations often provide broad discretion to governmental
authorities that oversee these matters, which can result in
unanticipated delays or increases in the cost of a specified
project or a number of projects in particular markets. We may
also experience periodic delays in homebuilding projects due to
building moratoria in any of the areas in which we operate.
We are also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning the
environment. These laws and regulations may cause delays in
construction and delivery of new homes, may cause us to incur
substantial compliance and other costs, and can prohibit or
severely restrict homebuilding activity in certain
environmentally sensitive regions or areas. In addition,
environmental laws may impose liability for the costs of removal
or remediation of hazardous or toxic substances whether or not
the developer or owner of the property knew of, or was
responsible for, the presence of those substances. The presence
of those substances on our properties may prevent us from
selling our homes and we may also be liable, under applicable
laws and regulations or lawsuits brought by private parties, for
hazardous or toxic substances on properties and lots that we
have sold in the past.
Further, a significant portion of our business is conducted in
California, which is one of the most highly regulated and
litigious states in the country. Therefore, our potential
exposure to losses and expenses due to new laws, regulations or
litigation may be greater than other homebuilders with a less
significant California presence.
The mortgage banking operations of Countrywide KB Home Loans are
heavily regulated and subject to the rules and regulations
promulgated by a number of governmental and quasi-governmental
agencies. There are a number of
15
federal and state statutes and regulations which, among other
things, prohibit discrimination, establish underwriting
guidelines that include obtaining inspections and appraisals,
require credit reports on prospective borrowers and fix maximum
loan amounts. A finding that we or Countrywide KB Home Loans
materially violated any of the foregoing laws could have an
adverse effect on our results of operations.
We are subject to a Consent Order that we entered into with the
Federal Trade Commission in 1979 and related Consent Decrees
that were entered into in 1991 and 2005. Pursuant to the Consent
Order and the related Consent Decrees, we provide explicit
warranties on the quality of our homes, follow certain
guidelines in advertising and provide certain disclosures to
prospective purchasers of our homes. A finding that we have
significantly violated the Consent Order and/or the related
Consent Decrees could result in substantial liabilities or
penalties and could limit our ability to sell homes in certain
markets.
Homebuilding and financial services are very competitive,
and competitive conditions could adversely affect our business
or our financial results.
The homebuilding industry is highly competitive. Homebuilders
compete not only for homebuyers, but also for desirable land,
financing, building materials, skilled management and trade
labor. We compete in each of our served markets with other
local, regional and national homebuilders, including those with
a sales presence on the Internet, often within larger
subdivisions containing portions designed, planned and developed
by such homebuilders. These homebuilders may also have
long-standing relationships with local labor, materials
suppliers or land sellers, which may provide an advantage in
their respective regions or local markets. We also compete with
other housing alternatives, such as existing home sales and
rental housing. The competitive conditions in the homebuilding
industry can result in:
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fewer homes delivered;
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lower selling prices;
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our offering or increasing sales incentives, discounts or price
concessions;
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lower profit margins;
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declining new home sales or increasing cancellations by
homebuyers of their home purchase contracts with us;
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impairments in the value of our inventory, goodwill and other
assets;
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difficulty in acquiring desirable land that meets our land
buying criteria, and in selling our interests in land that no
longer meet our investment return criteria on favorable terms;
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difficulty in acquiring raw materials and skilled management and
labor at acceptable prices; or
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delays in construction of our homes.
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Our financial services business competes with other mortgage
lenders, including national, regional and local mortgage banks
and other financial institutions. Mortgage lenders with greater
access to capital or different lending criteria may be able to
offer more attractive financing to potential customers.
When we are affected by these competitive conditions, our
business and financial results can be adversely affected by
decreased revenues, increased costs and/or diminished growth in
our local or regional homebuilding business. In the current
downturn in the homebuilding industry, the reactions of our
competitors may be reducing the effectiveness of our efforts to
achieve pricing stability and reduce our inventory levels.
Homebuilding
is subject to warranty and liability claims in the ordinary
course of business that can be significant.
In the ordinary course of our homebuilding business, we are
subject to home warranty and construction defect claims. We
record warranty and other reserves for the homes we sell based
on historical experience in our markets and our judgment of the
qualitative risks associated with the types of homes we build.
We have, and require the majority of our subcontractors to have,
general liability, property, errors and omissions, workers
compensation and other business insurance. These insurance
policies protect us against a portion of our risk of loss from
claims, subject to certain self-insured retentions, deductibles,
and other coverage limits. Through our captive insurance
subsidiary, we reserve for costs to cover our self-
16
insured and deductible amounts under these policies and for any
costs of claims and lawsuits, based on an analysis of our
historical claims, which includes an estimate of claims incurred
but not yet reported. Because of the uncertainties inherent to
these matters, we cannot provide assurance that our insurance
coverage, our subcontractor arrangements and our reserves will
be adequate to address all our warranty and construction defect
claims in the future. Additionally, the coverage offered by and
the availability of general liability insurance for construction
defects are currently limited and costly. There can be no
assurance that coverage will not be further restricted and
become more costly.
Because
of the seasonal nature of our business, our quarterly operating
results fluctuate.
We have experienced seasonal fluctuations in quarterly operating
results. We typically do not commence significant construction
on a home before a home purchase contract has been signed with a
homebuyer. Historically, a significant percentage of our home
purchase contracts are entered into in the spring and summer
months, and a corresponding significant percentage of our
deliveries occur in the fall and winter months. Construction of
our homes typically requires approximately four months and
weather delays that often occur in late winter and early spring
may extend this period. As a result of these combined factors,
we historically have experienced uneven quarterly results, with
lower revenues and operating income generally during the first
and second quarters of the year. However, the increasingly
challenging market conditions we experienced in 2007 resulted in
lower sales in the spring and summer months and correspondingly
lower deliveries in the fall and winter months as compared to
2006. With the current difficult market conditions expected to
continue through at least 2008, we can make no assurances that
our normal seasonal patterns will occur in the near future.
Failure
to comply with the covenants and conditions imposed by the
agreements governing our indebtedness could restrict future
borrowing or cause our debt to become immediately due and
payable.
Our Credit Facility and the indentures governing our outstanding
senior and senior subordinated public notes impose restrictions
on our operations and activities. The most significant
restrictions relate to limits on investments, cash dividends,
stock repurchases and other restricted payments, incurrence of
indebtedness, creation of liens and asset dispositions, and
require maintenance of a maximum debt to equity (or leverage)
ratio, a minimum interest coverage ratio, and a minimum level of
tangible net worth. If we fail to comply with these restrictions
or covenants, the holders of those debt instruments or the
banks, as appropriate, could cause our debt to become due and
payable prior to maturity or could demand that we compensate
them for waiving instances of noncompliance. In addition, a
default under the indenture for any of our notes or our Credit
Facility could cause a default with respect to our other notes
or the Credit Facility, as the case may be, and result in the
acceleration of the maturity of all such defaulted indebtedness
and our inability to borrow under the Credit Facility. Moreover,
we may curtail our investment activities and other uses of cash
to maintain compliance with these restrictions and covenants.
Our leverage may place burdens on our ability to comply
with the terms of our indebtedness, may restrict our ability to
operate and may prevent us from fulfilling our
obligations.
The amount of our debt could have important consequences. For
example, it could:
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limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements or other requirements;
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require us to dedicate a substantial portion of our cash flow
from operations to the payment of our debt and reduce our
ability to use our cash flow for other purposes;
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impact our flexibility in planning for, or reacting to, changes
in our business;
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place us at a competitive disadvantage because we have more debt
than some of our competitors; and
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make us more vulnerable in the event of a downturn in our
business or in general economic conditions.
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Our ability to meet our debt service and other obligations will
depend upon our future performance. Our business is
substantially affected by changes in economic cycles. Our
revenues, earnings and cash flows vary with the level of general
economic activity and competition in the markets in which we
operate. Our business could also be affected by financial,
political and other factors, many of which are beyond our
control. Changes in prevailing interest rates may also affect
our ability to meet our debt service obligations because
borrowings under our Credit Facility bear interest at floating
rates. A higher interest rate on our debt could adversely affect
our operating results.
17
Our business may not generate sufficient cash flow from
operations and borrowings may not be available to us under our
Credit Facility in an amount sufficient to pay our debt service
obligations, fulfill financial or operational guarantees we have
provided for certain unconsolidated joint venture transactions,
or to fund our other liquidity needs. Should this occur, we may
need to refinance all or a portion of our debt on or before
maturity, which we may not be able to do on favorable terms or
at all.
We may have difficulty in continuing to obtain the
additional financing required to operate and develop our
business.
Our homebuilding operations require significant amounts of cash
and/or available credit. It is not possible to predict the
future terms or availability of additional capital. Moreover,
our outstanding public debt and the Credit Facility contain
provisions that may restrict the amount and nature of debt we
may incur in the future. The Credit Facility limits our ability
to borrow additional funds by placing a maximum cap on our
leverage ratio. Under the most restrictive of these provisions,
at November 30, 2007, we would have been permitted to incur
up to $3.56 billion of total consolidated indebtedness, as
defined in the Credit Facility. This maximum amount exceeded our
actual total consolidated indebtedness at November 30, 2007
by $2.68 billion. In addition, the Credit Facility limits
our ability to borrow senior indebtedness, as defined in the
Credit Facility, subject to a specified borrowing base. At
November 30, 2007, we would have been permitted to incur up
to $3.32 billion of senior indebtedness under the Credit
Facility. This maximum amount exceeded our actual total senior
indebtedness at November 30, 2007 by $1.66 billion.
There can be no assurance that we can actually borrow up to
these maximum amounts of total consolidated indebtedness or
senior indebtedness at any time, as our ability to borrow
additional funds, and to raise additional capital through other
means, also depends on conditions in the capital markets and our
credit worthiness. If conditions in the capital markets change
significantly, it could reduce our ability to generate sales and
may hinder our future growth and results of operations.
We are involved in government investigations and
litigation relating to our past stock option grant
practices.
The SEC and the U.S. Department of Justice (DOJ) are
conducting investigations into our stock option grant practices.
In addition, shareholder derivative lawsuits have been filed in
California state and federal courts relating to our stock option
grant practices. It is possible that additional lawsuits may be
filed. The investigations and lawsuits have resulted in, and
will continue to result in, substantial legal and professional
fees, and will continue to occupy our time and attention. An
adverse outcome to the investigations or one or more of the
lawsuits may have a negative effect on our business and our
results of operations.
Item 1B. UNRESOLVED
STAFF COMMENTS
None.
Item 2. PROPERTIES
We lease our corporate headquarters in Los Angeles, California.
Our homebuilding division offices, except for our San Antonio,
Texas office, and our KB Home Studios are located in leased
space in the markets where we conduct business. Our homebuilding
operations in San Antonio, Texas are principally conducted from
premises that we own.
We believe that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of
our businesses.
Item 3. LEGAL
PROCEEDINGS
Derivative
Litigation
On July 10, 2006, a shareholder derivative action,
Wildt
v. Karatz, et al
., was filed in Los Angeles Superior
Court. On August 8, 2006, a virtually identical shareholder
derivative lawsuit,
Davidson v. Karatz, et al
., was also
filed in Los Angeles Superior Court. These actions, which
ostensibly are brought on our behalf, allege, among other
things, that defendants (various of our current and former
directors and officers) breached their fiduciary duties to us
by, among other things, backdating grants of stock options to
various current and former executives in violation of our
shareholder-approved stock option plans. Defendants have not yet
responded to the complaints. On January 22, 2007, the Court
entered an order, pursuant to an agreement among the parties and
us, providing, among other things, that, to preserve the
18
status quo without prejudicing any partys substantive
rights, our former Chairman and Chief Executive Officer shall
not exercise any of his outstanding options, at any price,
during the period in which the order is in effect. Pursuant to
further stipulated orders, these terms remain in effect and are
now scheduled to expire on February 1, 2008, unless
otherwise agreed in writing. The plaintiffs have agreed to stay
their cases while the parallel federal court derivative lawsuits
discussed below are pursued. A stipulation and order
effectuating the parties agreement to stay the state court
actions was entered by the court on February 7, 2007. The
parties may extend the agreement that options will not be
exercised by our former Chairman and Chief Executive Officer
beyond the current February 1, 2008 expiration date.
On August 16, 2006, a shareholder derivative lawsuit,
Redfield v. Karatz, et al.
, was filed in the United
States District Court for the Central District of California. On
August 31, 2006, a virtually identical shareholder
derivative lawsuit,
Staehr v. Karatz, et al
., was also
filed in the United States District Court for the Central
District of California. These actions, which ostensibly are
brought on our behalf, allege, among other things, that
defendants (various of our current and former directors and
officers) breached their fiduciary duties to us by, among other
things, backdating grants of stock options to various current
and former executives in violation of our shareholder-approved
stock option plans. Unlike
Wildt
and
Davidson
,
however, these lawsuits also include substantive claims under
the federal securities laws. On January 9, 2007, plaintiffs
filed a consolidated complaint. All defendants filed motions to
dismiss the complaint on April 2, 2007. Subsequently,
plaintiffs filed a motion for partial summary judgment against
certain of the defendants. Pursuant to stipulated orders, the
motions to dismiss and the motion for partial summary judgment
have been taken off calendar to permit the parties to explore
settlement via mediation. The latest order provides that unless
otherwise agreed to by the parties or order by the court, the
motions shall be back on calendar as of late March 2008.
Discovery has not commenced.
Government
Investigations
In August 2006, we announced that we had received an informal
inquiry from the SEC relating to our stock option grant
practices. In January 2007, we were informed that the SEC is
conducting a formal investigation of this matter. The DOJ is
also looking into these practices but has informed KB Home that
it is not a target of this investigation. We have cooperated
with these government agencies and intend to continue to do so.
ERISA
Litigation
A complaint dated March 14, 2007 in an action brought under
Section 502 of the Employee Retirement Income Security Act
(ERISA), 29 U.S.C. § 1132,
Bagley
et al., v. KB Home, et al.
, was filed in the United States
District Court for the Central District of California. The
action is brought against us, our directors, and certain of our
current and former officers. Plaintiffs allege that they are
bringing the action on behalf of all participants in the KB Home
401(k) Savings Plan (the 401(k) Plan). Plaintiffs
allege that the defendants breached fiduciary duties owed to
members of the 401(k) Plan by virtue of issuing backdated option
grants and failing to disclose this information to the 401(k)
Plan participants. Plaintiffs claim that this conduct unjustly
enriched certain defendants to the detriment of the 401(k) Plan
and its participants, and caused the 401(k) Plan to invest in
our securities at allegedly artificially inflated prices. The
action purports to assert three causes of action for various
alleged breaches of fiduciary duty. We have filed a motion to
dismiss all claims alleged against us. The Court heard oral
argument on the motion on November 19, 2007, after which
the Court took the motion under submission. The Court has not
yet ruled on the motion, and because of the pendency of the
motion, no discovery has been taken in the action.
Storm
Water Matter
In January 2003, we received a request for information from the
EPA pursuant to Section 308 of the Clean Water Act. Several
other public homebuilders have received similar requests. The
request sought information about storm water pollution control
program implementation at certain of our construction sites, and
we provided information pursuant to the request. In May 2004, on
behalf of the EPA, the DOJ tentatively asserted that certain
regulatory requirements applicable to storm water discharges had
been violated on certain occasions at certain of our
construction sites, and civil penalties and injunctive relief
might be warranted. The DOJ has also proposed certain steps it
would expect us to take in the future relating to compliance
with the EPAs requirements applicable to storm water
discharges. We have defenses to the claims that have been
asserted and are exploring with the EPA, DOJ and other
homebuilders methods of resolving the matter. To resolve the
matter, the DOJ will want us to pay civil penalties and sign a
consent decree affecting our storm water pollution practices at
construction sites.
19
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our
executive officers as of December 31, 2007:
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Year
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Years
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Assumed
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at
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Other Positions and Other
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Present Position at
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Present
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KB
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Business Experience within the
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Name
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Age
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December 31, 2007
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Position
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Home
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Last Five Years (a)
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From To
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Jeffrey T. Mezger
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52
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President and Chief
Executive Officer (b)
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2006
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14
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Executive Vice President and Chief Operating Officer
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1999-2006
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Domenico Cecere
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58
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Executive Vice President and
Chief Financial Officer
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2007
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6
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Senior Vice President and Chief Financial Officer
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2002-2006
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Wendy C. Shiba
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57
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Executive Vice President, General Counsel and Secretary
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2007
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1
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Senior Vice President, Chief Legal Officer and Secretary,
Polyone Corporation (specialized polymer materials, services and
solutions)
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2006-2007
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Vice President, Chief Legal Officer and Secretary, Polyone
Corporation
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2001-2006
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Glen Barnard
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63
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Senior Vice President, KBnxt Group
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2006
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9
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Regional General Manager (c)
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2004-2006
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Chief Executive Officer, Constellation Real Technologies (real
estate consortium)
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2001-2003
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William R. Hollinger
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49
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Senior Vice President and
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2007
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20
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Senior Vice President and Controller
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2001-2006
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Chief Accounting Officer
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Kelly Masuda
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40
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Senior Vice President and
Treasurer
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2005
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4
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Senior Vice President, Capital Markets and Treasurer
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2005
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Vice President, Capital Markets and Treasurer
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2003-2005
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Director, Credit Suisse First Boston (investment bank)
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2000-2002
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John Staines
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45
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Senior Vice President, Human Resources
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2007
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1
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Senior Vice President, Human Resources, DaVita, Inc. (kidney
dialysis center operator)
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2006
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Vice President, Human Resources, Global Supply Chain, The Gap
Inc. (clothing retailer)
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2004-2006
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Vice President, Human Resources, Mattel, Inc. (toy manufacturer)
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2001-2004
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(a)
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All positions described were with us, unless otherwise indicated.
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(b)
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Mr. Mezger has served as a director since 2006.
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(c)
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Mr. Barnard was a senior executive with us from 1996-2001, and
rejoined us in 2004.
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There is no family relationship between any of our executive
officers or between any of our executive officers and any of our
directors.
21
PART II
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Item 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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As of December 31, 2007, there were 880 holders of record
of our common stock. Our common stock is traded on the New York
Stock Exchange under the ticker symbol KBH. The
following table sets forth, for the periods indicated, the price
ranges of our common stock:
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2007
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2006
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High
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Low
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High
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Low
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First Quarter
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$
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56.08
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$
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47.69
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$
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81.99
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$
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64.80
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Second Quarter
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50.90
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40.89
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69.10
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50.40
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Third Quarter
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47.57
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28.00
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52.65
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37.89
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Fourth Quarter
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31.69
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18.44
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52.18
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38.66
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We paid quarterly cash dividends of $.25 per common share
in 2007 and 2006.
The declaration and payment of cash dividends on shares of our
common stock, whether at current levels or at all, are at the
discretion of our board of directors, and depend upon, among
other things, our future earnings, cash flows, capital
requirements, operational investment strategy, and our general
financial condition and general business conditions. In
addition, debt instruments to which we are a party contain
restrictions on the payment of cash dividends. Based on the most
restrictive of these provisions, $283.2 million was
available for payment of cash dividends at November 30,
2007.
The description of our equity compensation plans required by
Item 201(d) of Regulation S-K is incorporated herein by
reference to Part III, Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters of this Form 10-K.
The following table summarizes our purchases of our own equity
securities during the three months ended November 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
Total Number of
|
|
That May Yet be
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
Purchased
|
|
|
Total Number
|
|
Average
|
|
|
Part of Publicly
|
|
Under the
|
|
|
of Shares
|
|
Price Paid
|
|
|
Announced
|
|
Plans or
|
Period
|
|
Purchased
|
|
per Share
|
|
|
Plans or Programs
|
|
Programs
|
|
September 1 - 30
|
|
|
|
|
$
|
|
|
|
|
|
|
|
4,000,000
|
October 1 - 31
|
|
|
73,049
|
|
|
27.19
|
|
|
|
|
|
|
4,000,000
|
November 1 - 30
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
73,049
|
|
$
|
27.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 8, 2005, our board of directors authorized a
share repurchase program under which we may repurchase up to
10 million shares of our common stock. Acquisitions under
the share repurchase program may be made in open market or
private transactions and will be made strategically from time to
time at managements discretion based on its assessment of
market conditions and buying opportunities. At November 30,
2007, we were authorized to repurchase four million shares under
this share repurchase program. During the three months ended
November 30, 2007, no shares were repurchased pursuant to
this share repurchase program. The 73,049 shares purchased
during the three months ended November 30, 2007 were
previously issued shares delivered to us by employees to satisfy
withholding taxes on the vesting of restricted stock awards.
These transactions are not considered repurchases pursuant to
the share repurchase program.
22
Stock
Performance Graph
The graph below compares the cumulative total return of KB Home
common stock, the S&P Homebuilding Index, the Dow Jones
Home Construction Index and the S&P 500 Index for the last
five year-end periods ended November 30.
Comparison
of Five-Year Cumulative Total Return
Among KB Home, S&P Homebuilding
Index, Dow Jones Home Construction Index and S&P 500 Index
The above graph is based on the KB Home common stock and index
prices calculated as of the last trading day before
December 1
st
of the year-end periods presented. Our November 30, 2007
closing common stock price on the New York Stock Exchange
was $20.89 per share. On December 31, 2007, our common
stock closed at $21.60 per share. The performance of our common
stock depicted in the graphs above represents past performance
only and is not indicative of future performance. Total return
assumes $100 invested at market close on November 30, 2002
in KB Home common stock, the S&P Homebuilding Index,
the Dow Jones Home Construction Index and the S&P 500 Index
including reinvestment of dividends.
23
Item 6. SELECTED
FINANCIAL DATA
The data in this table should be read in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial
Statements and Notes thereto included later in this report.
KB
HOME
SELECTED FINANCIAL INFORMATION
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
|
$
|
8,123,313
|
|
|
$
|
5,974,496
|
|
|
$
|
4,870,522
|
|
Operating income (loss)
|
|
|
(1,358,335
|
)
|
|
|
570,316
|
|
|
|
1,188,935
|
|
|
|
637,229
|
|
|
|
469,426
|
|
Total assets
|
|
|
5,661,564
|
|
|
|
7,825,339
|
|
|
|
6,881,486
|
|
|
|
4,760,288
|
|
|
|
3,307,164
|
|
Mortgages and notes payable
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
|
|
1,771,962
|
|
|
|
1,049,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,935
|
|
|
$
|
20,240
|
|
|
$
|
31,368
|
|
|
$
|
44,417
|
|
|
$
|
75,125
|
|
Operating income
|
|
|
11,139
|
|
|
|
14,317
|
|
|
|
10,968
|
|
|
|
8,688
|
|
|
|
35,777
|
|
Total assets
|
|
|
44,392
|
|
|
|
44,024
|
|
|
|
29,933
|
|
|
|
210,460
|
|
|
|
253,113
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,629
|
|
|
|
132,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
1,394,375
|
|
|
$
|
1,102,898
|
|
|
$
|
1,020,082
|
|
|
$
|
810,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
|
$
|
6,018,913
|
|
|
$
|
4,945,647
|
|
Operating income (loss)
|
|
|
(1,347,196
|
)
|
|
|
584,633
|
|
|
|
1,199,903
|
|
|
|
645,917
|
|
|
|
505,203
|
|
Income (loss) from continuing operations
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
|
|
754,534
|
|
|
|
430,384
|
|
|
|
332,610
|
|
Income from discontinued operations, net of income taxes (a)
|
|
|
485,356
|
|
|
|
89,404
|
|
|
|
69,178
|
|
|
|
43,652
|
|
|
|
35,311
|
|
Net income (loss)
|
|
|
(929,414
|
)
|
|
|
482,351
|
|
|
|
823,712
|
|
|
|
474,036
|
|
|
|
367,921
|
|
Total assets
|
|
|
5,705,956
|
|
|
|
9,263,738
|
|
|
|
8,014,317
|
|
|
|
5,990,830
|
|
|
|
4,370,938
|
|
Mortgages and notes payable
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
|
|
1,843,591
|
|
|
|
1,181,667
|
|
Stockholders equity
|
|
|
1,850,687
|
|
|
|
2,922,748
|
|
|
|
2,773,797
|
|
|
|
2,039,390
|
|
|
|
1,592,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
|
$
|
9.21
|
|
|
$
|
5.49
|
|
|
$
|
4.22
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
.85
|
|
|
|
.56
|
|
|
|
.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
$
|
10.06
|
|
|
$
|
6.05
|
|
|
$
|
4.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
|
$
|
8.54
|
|
|
$
|
5.10
|
|
|
$
|
3.95
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
.78
|
|
|
|
.52
|
|
|
|
.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
$
|
9.32
|
|
|
$
|
5.62
|
|
|
$
|
4.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
.75
|
|
|
$
|
.50
|
|
|
$
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Discontinued operations are comprised of our French operations,
which have been presented as discontinued operations for all
periods presented. Income from discontinued operations, net of
income taxes, in 2007 includes a gain of $438.1 million
realized on the sale of our French operations.
|
24
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
RESULTS
OF OPERATIONS
Overview.
Revenues are generated from our
homebuilding operations and our financial services
operations. On July 10, 2007, we sold our 49% equity
interest in our publicly traded French subsidiary, KBSA.
Accordingly, our French operations are presented as discontinued
operations in this report and the financial results of prior
periods have been reclassified to conform to the current year
presentation. The following table presents a summary of our
consolidated results of operations for the years ended
November 30, 2007, 2006 and 2005 (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
|
$
|
8,123,313
|
|
Financial services
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
31,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
(1,494,606
|
)
|
|
$
|
538,311
|
|
|
$
|
1,190,336
|
|
Financial services
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(1,460,770
|
)
|
|
|
571,847
|
|
|
|
1,201,534
|
|
Income tax benefit (expense)
|
|
|
46,000
|
|
|
|
(178,900
|
)
|
|
|
(447,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
|
|
754,534
|
|
Income from discontinued operations, net of income taxes
|
|
|
47,252
|
|
|
|
89,404
|
|
|
|
69,178
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
|
$
|
823,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
|
$
|
9.21
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
$
|
10.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
|
$
|
8.54
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
$
|
9.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing the downward trends that began in 2006, conditions in
the overall housing market were challenging throughout 2007 and
became increasingly difficult as the year progressed. Several
factors weighed on the housing industry during the year,
including a persistent oversupply of new and resale homes
available for sale that reached historically high levels; rising
foreclosure activity; heightened competition for home sales;
reduced home affordability due largely to a record increase in
average home prices during the first half of this decade;
turmoil in the mortgage finance and credit markets; diminished
real estate speculation; and decreased consumer confidence in
purchasing homes. Our results for 2007 reflect the impact of
these difficult conditions. They also reflect our efforts to
reduce inventory investments and community counts to better
align our operations with a housing market experiencing
significantly reduced activity from the peak levels of a few
years ago.
With the prolonged market downturn, we have experienced
successive negative year-over-year comparisons in our net orders
(new orders for homes less cancellations) for the past several
quarters. As a result, our current backlog levels are
significantly below year-earlier levels and we delivered fewer
homes and generated less revenue in 2007 than in 2006. Our
revenues in 2007 were also negatively affected by decreases in
our average selling prices in three of our four homebuilding
segments compared to year-earlier levels due to competitive
pressures and changes in our product mix.
25
At the same time, intensified competition and pricing pressures,
slowing sales rates, and sustained high cancellation rates in
many of our markets during 2007 lowered the fair value of
certain of our assets and led us to reassess our land positions.
This caused us to incur non-cash charges during the year for
impairments in the value of our inventory, joint ventures and
goodwill and for the abandonment of certain land option
contracts. These non-cash charges and lower revenues in 2007
compressed our gross margins compared to the prior year.
Further impacting our results for 2007 was a substantial
valuation allowance we established in the fourth quarter against
certain deferred tax assets in accordance with Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS No. 109). The
deferred tax assets were produced largely from the inventory
impairments we took during the year, and the valuation allowance
was established in light of the continued downturn of the
housing market and uncertainty as to its length and magnitude.
To the extent that we generate sufficient taxable income in the
future to utilize the tax benefits of the related deferred tax
assets, we expect to experience a reduction in our effective
income tax rate as the valuation allowance is reversed.
We reported a loss from continuing operations in 2007 resulting
from the combination of fewer deliveries, lower average selling
prices, compressed gross margins, non-cash charges for inventory
and joint venture impairments, land option contract
abandonments, goodwill impairments and the valuation allowance
for deferred tax assets. We do not expect the business climate
in most of the markets we serve and the overall housing market
to improve in 2008.
Our total revenues of $6.42 billion for the year ended
November 30, 2007 declined 32% from $9.38 billion in
2006, which had increased 15% from $8.15 billion in 2005.
The decrease in total revenues in 2007 was primarily due to a
decrease in housing revenues, reflecting fewer homes delivered
and lower average selling prices compared to 2006. The increase
in our revenues in 2006 was driven by an increase in housing
revenues stemming from an increase in homes delivered and higher
average selling prices compared to the prior year. Included in
our total revenues were financial services revenues of
$15.9 million in 2007, $20.2 million in 2006 and
$31.4 million in 2005. The decline in financial services
revenues in 2007 compared to 2006 was mainly due to fewer homes
delivered from our homebuilding operations and the termination
of our escrow coordination business in 2007. The decrease in
financial services revenues in 2006 compared to 2005 was
primarily due to the change in the mortgage banking operations
of KB Home Mortgage Company (KBHMC) in the fourth
quarter of 2005 to an unconsolidated joint venture. On
September 1, 2005, we sold substantially all the mortgage
banking assets of KBHMC to Countrywide and in a separate
transaction established Countrywide KB Home Loans. We and
Countrywide each have a 50% ownership interest in Countrywide KB
Home Loans, which is accounted for as an unconsolidated joint
venture in the financial services reporting segment of our
consolidated financial statements.
Our continuing operations generated an after-tax loss of
$1.41 billion in 2007 due to pretax, non-cash charges of
$1.41 billion for inventory and joint venture impairments
and the abandonment of land option contracts, and
$107.9 million for goodwill impairment recognized during
the year. The majority of the inventory and joint venture
impairments related to our West Coast and Southwest reporting
segments, and the goodwill impairment related solely to our
Southwest reporting segment. Our 2007 loss from continuing
operations also reflected a non-cash charge of
$514.2 million to establish a valuation allowance for
certain deferred tax assets. In 2006, we reported after-tax
income from continuing operations of $392.9 million, down
from $754.5 million in 2005 primarily due to a decrease in
the operating margin in our homebuilding operations. Our 2006
results included charges of $431.2 million associated with
inventory and joint venture impairments and land option contract
abandonments, and a gain of $27.6 million related to the
sale of our ownership interest in an unconsolidated joint
venture. In 2007, we posted a loss per diluted share from
continuing operations of $18.33 compared to earnings per diluted
share from continuing operations of $4.74 in 2006 and $8.54 in
2005.
Income from discontinued operations, net of income taxes,
totaled $485.4 million in 2007, including a
$438.1 million after-tax gain on the sale of our French
operations. Income from discontinued operations, net of income
taxes, totaled $89.4 million in 2006 and $69.2 million
in 2005. Discontinued operations are comprised solely of our
French operations.
Overall, we posted a net loss of $929.4 million, or $12.04
per diluted share (including the French discontinued operations)
in 2007. This compares to net income of $482.4 million, or
$5.82 per diluted share, in 2006 and $823.7 million, or
$9.32 per diluted share, in 2005.
26
Our backlog at November 30, 2007 consisted of 6,322 homes,
representing future housing revenues of approximately
$1.50 billion. These backlog levels decreased 40% and 47%,
respectively, from the 10,575 homes in backlog,
representing approximately $2.83 billion in future
revenues, at November 30, 2006. These decreases were due to
the effects of several successive quarters of negative
year-over-year net order comparisons and lower average selling
prices, reflecting persistently deteriorating housing market
conditions. Our homebuilding operations generated 2,574 net
orders in the fourth quarter of 2007, down 32% from 3,763 net
orders in the fourth quarter of 2006. Net orders in the fourth
quarter of 2007 decreased year-over-year in each of our
reporting segments. The fourth quarter 2007 cancellation rate of
58% was the same as the cancellation rate we experienced in the
fourth quarter of 2006, but was higher than the 50% cancellation
rate we experienced in the third quarter of 2007.
HOMEBUILDING
We have grouped our homebuilding activities into four reportable
segments, which we refer to as West Coast, Southwest, Central
and Southeast. As of November 30, 2007, our reportable
homebuilding segments consisted of operations located in the
following states: West Coast California;
Southwest Arizona, Nevada and New Mexico;
Central Colorado, Illinois and Texas;
Southeast Florida, Georgia, Maryland, North
Carolina, South Carolina and Virginia.
The following table presents a summary of selected financial and
operational data for our homebuilding operations (dollars in
thousands, except average selling price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended November 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
$
|
6,211,563
|
|
|
$
|
9,243,236
|
|
|
$
|
8,099,771
|
|
|
|
|
|
Land
|
|
|
189,028
|
|
|
|
116,607
|
|
|
|
23,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,400,591
|
|
|
|
9,359,843
|
|
|
|
8,123,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
(6,563,082
|
)
|
|
|
(7,456,003
|
)
|
|
|
(5,934,948
|
)
|
|
|
|
|
Land
|
|
|
(263,297
|
)
|
|
|
(210,016
|
)
|
|
|
(19,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(6,826,379
|
)
|
|
|
(7,666,019
|
)
|
|
|
(5,954,768
|
)
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(824,621
|
)
|
|
|
(1,123,508
|
)
|
|
|
(979,610
|
)
|
|
|
|
|
Goodwill impairment
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(7,758,926
|
)
|
|
|
(8,789,527
|
)
|
|
|
(6,934,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(1,358,335
|
)
|
|
$
|
570,316
|
|
|
$
|
1,188,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
23,743
|
|
|
|
32,124
|
|
|
|
31,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price
|
|
$
|
261,600
|
|
|
$
|
287,700
|
|
|
$
|
261,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin
|
|
|
(5.7
|
)%
|
|
|
19.3
|
%
|
|
|
26.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses as a percent of
housing revenues
|
|
|
13.3
|
%
|
|
|
12.2
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percent of homebuilding revenues
|
|
|
(21.2
|
)%
|
|
|
6.1
|
%
|
|
|
14.6
|
%
|
|
|
|
|
Revenues.
Homebuilding revenues totaled
$6.40 billion in 2007, decreasing 32% from
$9.36 billion in 2006, which had increased 15% from
$8.12 billion in 2005. The decrease in 2007 compared to
2006 reflected lower housing revenues due to fewer homes
delivered and a lower average selling price. The increase in
2006 compared to 2005 resulted primarily from higher housing
revenues driven by an increase in homes delivered and a higher
average selling price.
27
Housing revenues totaled $6.21 billion in 2007,
$9.24 billion in 2006 and $8.10 billion in 2005. In
2007, housing revenues decreased 33% from the previous year due
to a 26% decline in homes delivered and a 9% decrease in the
average selling price. In 2006, housing revenues increased 14%
from 2005 due to a 4% increase in homes delivered and a 10%
increase in the average selling price.
We delivered 23,743 homes in 2007, down from
32,124 homes in 2006, reflecting year-over-year decreases
in each of our reporting segments. The lower delivery volume in
2007 was due, in part, to our reducing our community count to
better align our operations with reduced housing market activity.
In 2006, we delivered 32,124 homes, up from
31,009 homes delivered in 2005. The growth in homes
delivered in 2006 reflected year-over-year increases of 9% and
16% in our West Coast and Southeast segments, respectively,
partially offset by decreases of 5% and 3% in homes delivered
from our Southwest and Central segments, respectively.
Our average new home selling price decreased 9% in 2007 to
$261,600 from $287,700 in 2006.
Year-over-year
average selling prices declined 11% in our West Coast segment,
16% in our Southwest segment and 6% in our Southeast segment due
to weak consumer demand and heightened competition from
homebuilders and other sellers, which put downward pressure on
home prices. The average selling price in our Central segment
increased 5% in 2007 from the previous year, solely due to
changes in product mix.
Our 2006 average new home price had increased 10% from $261,200
in 2005, primarily due to the delivery in 2006 of homes
purchased in the latter half of 2005, when market conditions
were more favorable. Increases in our average selling prices in
2006 were more significant in the West Coast, Southwest and
Southeast segments, with a slight increase in the Central
segment.
Land sale revenues totaled $189.0 million in 2007,
$116.6 million in 2006 and $23.5 million in 2005.
Generally, land sale revenues fluctuate with our decisions to
maintain or decrease our land ownership position in certain
markets based upon the volume of our holdings, our marketing
strategy, the strength and number of competing developers
entering particular markets at given points in time, the
availability of land in markets we serve and prevailing market
conditions. Land sale revenues were more significant in 2007 and
2006 compared to 2005 as deteriorating market conditions caused
us to reassess our future sales expectations which resulted in
our selling land that no longer fit our marketing strategy
rather than holding it for future development.
Operating Income.
Our homebuilding operations
posted an operating loss of $1.36 billion in 2007, a
decrease of $1.93 billion from operating income of
$570.3 million in 2006, reflecting losses from both housing
operations and land sales. The operating loss in 2007
represented a negative 21.2% of homebuilding revenues. In 2006,
operating income as a percent of homebuilding revenues was 6.1%.
The 2007 operating loss was due to a decrease in our housing
gross margin, which fell to a negative 5.7% in 2007 from a
positive 19.3% for the same period of 2006. The change in our
housing gross margin was largely the result of pretax non-cash
charges of $1.18 billion for inventory impairments and land
option contract abandonments in 2007 primarily in our West Coast
and Southwest segments. These impairment and abandonment charges
resulted from declining market conditions, which depressed new
home values and sales rates in certain housing markets across
the country. Poor market conditions also depressed land values
and led us to terminate our options on projects that no longer
met our internal investment standards. Excluding inventory
impairment and abandonment charges ($1.18 billion in 2007
and $309.5 million in 2006), our housing gross margin would
have been 13.3% in 2007 and 22.7% in 2006.
Operating income decreased to $570.3 million in 2006, down from
$1.19 billion in 2005. As a percentage of homebuilding
revenues, operating income decreased to 6.1% in 2006 from 14.6%
in 2005, mainly due to a lower housing gross margin, which
decreased to 19.3% in 2006 from 26.7% in 2005. The decrease in
housing gross margin was primarily due to a greater use of price
concessions and sales incentives to meet competitive conditions
and to aggregate charges of $309.5 million associated with
inventory impairments and the abandonment of land option
contracts we no longer planned to pursue.
In 2007, our land sales generated losses of $74.3 million,
including impairment charges of $74.8 million relating to
future land sales. Our land sales generated losses of
$93.4 million in 2006, including impairment charges of
$63.1 million relating to future land sales. In 2005, land
sales generated profits of $3.7 million, including
$9.6 million of impairment charges.
28
We evaluate our land and housing inventory 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)
whenever indicators of potential impairment exist. Based on our
evaluations, we recognized non-cash charges for the impairment
of inventory of $1.11 billion in 2007, $228.7 million
in 2006 and $26.7 million in 2005.
The higher impairment charge in 2007 reflects the increasingly
challenging housing market conditions that we experienced during
the year that lowered the value of certain assets compared to
prior periods. These conditions included a significant
oversupply of homes available for sale, reduced housing
affordability and tighter credit conditions that are keeping
prospective buyers from trading up or entering the market,
higher foreclosure activity, and heightened competition. As a
result, our sales rates, sales prices and gross margins declined
in 2007, lowering the fair value of certain inventory positions
and resulting in the impairment of inventory. Further
deterioration in housing market conditions may lead to
additional non-cash impairment charges in the future or cause us
to reevaluate our strategy concerning certain assets that could
result in future charges associated with the abandonment of land
option contracts. In 2006, most of our inventory impairment and
abandonment charges were incurred in the fourth quarter, as
conditions became more challenging in certain markets, mainly as
a result of a growing imbalance between new home supply and
demand. These market dynamics caused a decline in the fair value
of certain inventory positions and led us to reassess our
strategy concerning certain inventory positions.
When we determine that we no longer plan to exercise land
purchase 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. We recognized abandonment charges
associated with land option contracts of $144.0 million in
2007, $143.9 million in 2006 and $16.2 million in
2005. The inventory impairment charges and land option contract
abandonments are included in construction and land costs in our
consolidated statements of operations.
Selling, general and administrative expenses totaled
$824.6 million in 2007 compared with $1.12 billion in
2006 and $979.6 million in 2005. As a percentage of housing
revenues, to which these expenses are most closely correlated,
selling, general and administrative expenses were 13.3% in 2007,
12.2% in 2006 and 12.1% in 2005.
Goodwill Impairment.
We have recorded goodwill
in connection with various acquisitions in prior years. Goodwill
represents the excess of the purchase price over the fair value
of net assets acquired. In accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), we
test goodwill for potential impairment annually as of November
30 and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. During the third
quarter of 2007, we determined that it was necessary to evaluate
goodwill for impairment due to deteriorating conditions in
certain housing markets, the significant inventory impairments
we identified and recognized during the quarter in accordance
with SFAS No. 144, and the decline in the market price
of our common stock to a level below our per share book value.
We evaluated goodwill for impairment using the two-step process
prescribed in SFAS No. 142. The first step is to
identify potential impairment by comparing the fair value of a
reporting unit to the book value, including goodwill. If the
fair value of a reporting unit exceeds the book value, goodwill
is not considered impaired. If the book value exceeds the fair
value, the second step of the process is performed to measure
the amount of impairment. Our goodwill evaluations utilized
discounted cash flow analyses and market multiple analyses of
historical and forecasted operating results of our reporting
units. Inherent in our fair value determinations are certain
judgments and estimates relating to future cash flows, including
the interpretation of current economic indicators and market
valuations, and assumptions about our strategic plans with
regard to our operations. A change in such assumptions may cause
a change in the results of the analyses performed. In addition,
to the extent significant changes occur in market conditions,
overall economic conditions or our strategic operational plans,
it is possible that goodwill not currently impaired may become
impaired in the future. Based on the results of our evaluation,
we recorded an impairment charge of $107.9 million in the
third quarter of 2007 related to our Southwest reporting
segment, where the goodwill previously recorded was determined
to be impaired. We recorded the charge at our corporate level
since all goodwill is carried at that level. The annual
impairment test we performed as of November 30, 2007
indicated no additional impairments. The impairment tests we
performed as of November 30, 2006 and 2005 indicated no
goodwill impairment.
Interest Income.
Interest income, which is
generated from short-term investments and mortgages and notes
receivable, amounted to $28.6 million in 2007, $5.5 million
in 2006 and $3.5 million in 2005. Generally, increases and
decreases in interest income are attributable to changes in the
interest-bearing average balances of our short-term
29
investments and our mortgages and notes receivable, as well as
fluctuations in interest rates. The increase in interest income
in 2007 compared to 2006 reflects a substantial increase in
short-term investments due to the higher level of cash generated
in 2007.
Loss on Early Redemption/Interest Expense, Net of Amounts
Capitalized.
In 2007, we completed the early
redemption of $650.0 million of debt. On July 27,
2007, we redeemed all $250.0 million of our
9
1
/
2
% senior
subordinated notes due in 2011 at a price of 103.167% of the
principal amount of the notes, plus accrued interest to the date
of redemption. On July 31, 2007, we repaid in full an
unsecured $400.0 million term loan (the
$400 Million Term Loan), together with accrued
interest to the date of repayment. The $400 Million Term Loan
was scheduled to mature on April 11, 2011. We incurred a
loss of $13.0 million associated with the early
extinguishment of this debt, primarily due to a call premium on
the senior subordinated notes and the write-off of unamortized
debt issuance costs.
Interest expense results principally from borrowings to finance
land purchases, housing inventory and other operating and
capital needs. During 2007, all of our interest was capitalized
and, consequently, we had no interest expense, net of amounts
capitalized. In 2006, interest expense, net of amounts
capitalized, totaled $16.7 million. Gross interest
incurred during 2007 decreased by $38.2 million, to
$199.6 million, from $237.8 million incurred in 2006,
mainly due to lower debt levels in 2007. The percentage of
interest capitalized in 2007 increased to 100% from 93% in 2006
due to an increase in inventory qualifying for interest
capitalization compared to 2006.
In 2006, interest expense, net of amounts capitalized, increased
to $16.7 million from $16.3 million in 2005. Gross
interest incurred in 2006 was $78.7 million higher than the
amount incurred in 2005, reflecting higher debt levels in 2006.
The percentage of interest capitalized in 2005 was 90%.
Equity in Income (Loss) of Unconsolidated Joint
Ventures.
Our unconsolidated joint ventures
operate in certain markets where our consolidated homebuilding
operations are located. These unconsolidated joint ventures
posted combined revenues of $662.7 million in 2007,
$167.5 million in 2006 and $212.3 million in 2005. The
increase in revenues in 2007 over the prior year was primarily
due to an increase in the number of lots sold by these
unconsolidated joint ventures. The decrease in unconsolidated
joint venture revenues in 2006 from 2005 reflected a change in
product mix. Activities performed by our unconsolidated joint
ventures generally include buying, developing and selling land,
and, in some cases, constructing and delivering homes. Our
unconsolidated joint ventures delivered 127 homes in 2007, 4
homes in 2006 and 83 homes in 2005. Unconsolidated joint
ventures generated combined losses of $51.6 million in 2007
and $48.6 million in 2006, and combined income of
$34.7 million in 2005. In 2007, our equity in loss of
unconsolidated joint ventures of $151.9 million included a
charge of $156.4 million to recognize the impairment of
certain unconsolidated joint ventures mainly in our West Coast,
Southwest and Southeast segments. In 2006, our equity in loss of
unconsolidated joint ventures of $20.8 million included a
charge of $58.6 million to recognize the impairment of
certain unconsolidated joint ventures in our West Coast and
Southeast segments and a gain of $27.6 million related to
the sale of our ownership interest in an unconsolidated joint
venture. In 2005, our equity in income from unconsolidated joint
ventures totaled $14.2 million.
30
HOMEBUILDING
SEGMENTS
The following table sets forth financial information related to
our homebuilding reporting segments for the years indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
West Coast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,203,303
|
|
|
$
|
3,531,279
|
|
|
$
|
3,050,486
|
|
Operating costs and expenses
|
|
|
(2,848,548
|
)
|
|
|
(3,178,973
|
)
|
|
|
(2,383,112
|
)
|
Other, net
|
|
|
(20,600
|
)
|
|
|
7,558
|
|
|
|
13,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(665,845
|
)
|
|
$
|
359,864
|
|
|
$
|
681,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,349,570
|
|
|
$
|
2,183,830
|
|
|
$
|
1,964,483
|
|
Operating costs and expenses
|
|
|
(1,617,395
|
)
|
|
|
(1,809,930
|
)
|
|
|
(1,452,272
|
)
|
Other, net
|
|
|
(19,514
|
)
|
|
|
(8,802
|
)
|
|
|
1,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(287,339
|
)
|
|
$
|
365,098
|
|
|
$
|
513,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,077,304
|
|
|
$
|
1,553,309
|
|
|
$
|
1,559,067
|
|
Operating costs and expenses
|
|
|
(1,134,601
|
)
|
|
|
(1,591,982
|
)
|
|
|
(1,512,831
|
)
|
Other, net
|
|
|
(6,913
|
)
|
|
|
(16,076
|
)
|
|
|
(18,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(64,210
|
)
|
|
$
|
(54,749
|
)
|
|
$
|
28,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,770,414
|
|
|
$
|
2,091,425
|
|
|
$
|
1,549,277
|
|
Operating costs and expenses
|
|
|
(1,932,084
|
)
|
|
|
(2,036,000
|
)
|
|
|
(1,392,825
|
)
|
Other, net
|
|
|
(68,750
|
)
|
|
|
(16,492
|
)
|
|
|
(3,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(230,420
|
)
|
|
$
|
38,933
|
|
|
$
|
152,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information concerning our housing
revenues and homes delivered by homebuilding reporting segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
|
Housing
|
|
|
Housing
|
|
|
Homes
|
|
|
Homes
|
|
|
Selling
|
|
Years Ended November 30,
|
|
Revenues
|
|
|
Revenues
|
|
|
Delivered
|
|
|
Delivered
|
|
|
Price
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
2,149,547
|
|
|
|
35
|
%
|
|
|
4,957
|
|
|
|
21
|
%
|
|
$
|
433,600
|
|
Southwest
|
|
|
1,254,932
|
|
|
|
20
|
|
|
|
4,855
|
|
|
|
20
|
|
|
|
258,500
|
|
Central
|
|
|
1,058,985
|
|
|
|
17
|
|
|
|
6,310
|
|
|
|
27
|
|
|
|
167,800
|
|
Southeast
|
|
|
1,748,099
|
|
|
|
28
|
|
|
|
7,621
|
|
|
|
32
|
|
|
|
229,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,211,563
|
|
|
|
100
|
%
|
|
|
23,743
|
|
|
|
100
|
%
|
|
$
|
261,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
3,530,679
|
|
|
|
38
|
%
|
|
|
7,213
|
|
|
|
22
|
%
|
|
$
|
489,500
|
|
Southwest
|
|
|
2,151,908
|
|
|
|
23
|
|
|
|
7,011
|
|
|
|
22
|
|
|
|
306,900
|
|
Central
|
|
|
1,536,075
|
|
|
|
17
|
|
|
|
9,613
|
|
|
|
30
|
|
|
|
159,800
|
|
Southeast
|
|
|
2,024,574
|
|
|
|
22
|
|
|
|
8,287
|
|
|
|
26
|
|
|
|
244,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,243,236
|
|
|
|
100
|
%
|
|
|
32,124
|
|
|
|
100
|
%
|
|
$
|
287,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
|
Housing
|
|
|
Housing
|
|
|
Homes
|
|
|
Homes
|
|
|
Selling
|
|
Years Ended November 30,
|
|
Revenues
|
|
|
Revenues
|
|
|
Delivered
|
|
|
Delivered
|
|
|
Price
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
3,050,486
|
|
|
|
38
|
%
|
|
|
6,624
|
|
|
|
21
|
%
|
|
$
|
460,500
|
|
Southwest
|
|
|
1,954,196
|
|
|
|
24
|
|
|
|
7,357
|
|
|
|
24
|
|
|
|
265,600
|
|
Central
|
|
|
1,554,863
|
|
|
|
19
|
|
|
|
9,866
|
|
|
|
32
|
|
|
|
157,600
|
|
Southeast
|
|
|
1,540,226
|
|
|
|
19
|
|
|
|
7,162
|
|
|
|
23
|
|
|
|
215,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,099,771
|
|
|
|
100
|
%
|
|
|
31,009
|
|
|
|
100
|
%
|
|
$
|
261,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
Housing revenues in our West Coast
segment decreased 39% to $2.15 billion in 2007 from
$3.53 billion in 2006 due to a 31% decrease in homes
delivered and an 11% decrease in the average selling price.
Homes delivered in this segment decreased to 4,957 in 2007 from
7,213 in 2006 primarily due to a 10% decrease in active
communities. We have decreased our active communities to match
reduced levels of demand in this segment compared to prior
periods. The average selling price fell to $433,600 in 2007 from
$489,500 in 2006 due to pricing pressure stemming from highly
competitive conditions and weak demand. Our lower average
selling price in 2007 also reflects our efforts to redesign and
reengineer our products to improve their affordability,
particularly in light of tighter mortgage financing requirements
applicable to loans above conforming limits. The West Coast
segment generated a pretax loss of $665.8 million in 2007,
down from pretax income of $359.9 million in 2006. This
decrease was principally due to charges of $716.4 million
for inventory and joint venture impairments and the abandonment
of land option contracts in 2007, and a lower housing gross
margin stemming from lower sales prices and more frequent use of
price concessions and sales incentives.
In 2006, West Coast segment housing revenues increased 16%, from
$3.05 billion in 2005, due to a 9% increase in homes
delivered and a 6% increase in the average selling price. We
delivered 7,213 homes with an average selling price of $489,500
in 2006, up from 6,624 homes with an average selling price
of $460,500 in 2005. Pretax income decreased to
$359.9 million in 2006 from $681.3 million in 2005. As
a percentage of total revenues, pretax income decreased to 10.2%
in 2006 from 22.3% in 2005. This decrease was principally due to
$213.1 million of inventory and joint venture impairment charges
and land option contract abandonments in 2006, and a lower
housing gross margin stemming from greater use of price
concessions and sales incentives as a result of increasing
competition.
Southwest
Housing revenues in the Southwest
segment decreased 42% to $1.25 billion in 2007, from
$2.15 billion in 2006, due to a 16% decrease in the average
selling price, and a 31% decrease in homes delivered. The
average selling price decreased to $258,500 in 2007 from
$306,900 in 2006 due to pricing pressure stemming from a
persistent oversupply of new and resale homes in certain markets
within this segment coupled with declining demand. We delivered
4,855 homes in the Southwest segment in 2007, down from
7,011 homes in 2006 primarily due to a 24% decrease in
active communities, principally in Las Vegas, reflecting our
efforts to align our operations with relatively lower levels of
demand. The Southwest segment generated a pretax loss of
$287.3 million in 2007 compared to pretax income of
$365.1 million in 2006. The decrease was primarily due to
$385.4 million of inventory and joint venture impairment
charges and land option contract abandonments in 2007, and a
lower housing gross margin resulting from ongoing weakness in
market conditions, greater competition, and the increased use of
price concessions and sales incentives to stimulate sales.
In 2006, Southwest segment housing revenues increased 10% from
$1.95 billion in 2005, due to a 16% increase in the average
selling price, partly offset by a 5% decrease in homes
delivered. We delivered 7,011 homes in this segment in 2006
at an average selling price of $306,900 compared to 7,357 homes
delivered in 2005 at an average selling price of $265,600.
Pretax income decreased to $365.1 million in 2006 from
$513.8 million in 2005. As a percentage of total revenues,
pretax income decreased to 16.7% in 2006 from 26.2% in 2005. The
decrease was primarily due to a lower housing gross margin,
reflecting moderating market conditions, greater competition,
and the increased use of price concessions and sales incentives.
Central
Housing revenues in the Central
segment of $1.06 billion in 2007 decreased 31% from
$1.54 billion in 2006, reflecting a
year-over-year
decrease of 34% in homes delivered, partially offset by a 5%
increase in the average
32
selling price. In this segment, homes delivered decreased to
6,310 in 2007 from 9,613 in 2006 primarily due to a 26% decrease
in active communities, principally in Texas and Indiana, due to
our exiting smaller submarkets and realigning our operations
with our reduced sales expectations in these states. The average
selling price increased to $167,800 in 2007 from $159,800 in
2006 due to a change in product mix. This segment generated a
pretax loss of $64.2 million in 2007, down from a pretax
loss of $54.7 million in 2006. The 2007 loss included $38.9
million of inventory and joint venture impairment and land
option contract abandonment charges.
In 2006, Central segment housing revenues were essentially flat
with 2005, reflecting a 3% decrease in homes delivered offset by
a slight increase in the average selling price. Homes delivered
in this segment decreased to 9,613 in 2006 from 9,866 in 2005
while the average selling price increased to $159,800 in 2006
from $157,600 in 2005. This segment generated a pretax loss of
$54.7 million in 2006, down from pretax income of
$28.2 million in 2005 primarily due to $48.8 million
of inventory impairments and land option contract abandonments
in 2006 and a slightly lower housing gross margin.
Southeast
Housing revenues in the Southeast
segment decreased 14% to $1.75 billion in 2007 from
$2.02 billion in 2006 due to decreases of 8% in homes
delivered and 6% in the average selling price. Homes delivered
decreased to 7,621 in 2007 from 8,287 in 2006 reflecting the
difficult conditions in many Southeast markets. The average
selling price decreased to $229,400 in 2007 from $244,300 in
2006 as highly competitive conditions exerted downward pressure
on home prices, primarily in Florida. The Southeast segment
generated a pretax loss of $230.4 million in 2007,
including charges of $269.6 million for inventory and joint
venture impairments and the abandonment of land option
contracts, compared to pretax income of $38.9 million in
2006. The Southeast segment impairment and abandonment charges
were principally in Florida.
In 2006, Southeast segment housing revenues rose 31% to
$2.02 billion from $1.54 billion in 2005 as a result
of a 16% increase in homes delivered and a 14% increase in the
average selling price. Homes delivered in this segment increased
to 8,287 in 2006 from 7,162 in 2005, while the average selling
price increased to $244,300 in 2006 from $215,100 in 2005.
Pretax income decreased to $38.9 million in 2006 from
$152.5 million in 2005. As a percentage of total revenues,
pretax income decreased to 1.9% in 2006 from 9.8% in 2005
principally due to $129.9 million of inventory impairment
charges and land option contract abandonments in 2006.
FINANCIAL
SERVICES SEGMENT
Our financial services segment provides title and insurance
services to our homebuyers and provided escrow coordination
services until 2007, when we terminated our escrow coordination
business. This segment also provides mortgage banking services
to our homebuyers indirectly through Countrywide KB Home Loans.
On September 1, 2005, we completed the sale of
substantially all the mortgage banking assets of KBHMC to
Countrywide and in a separate transaction established
Countrywide KB Home Loans, a joint venture with Countrywide.
Countrywide KB Home Loans began making loans to our homebuyers
on September 1, 2005 and essentially replaced the mortgage
banking operations of KBHMC, our wholly owned financial services
subsidiary which had provided mortgage banking services to our
homebuyers in the past. We and Countrywide each have a 50%
ownership interest in the joint venture with Countrywide
providing management oversight of the joint ventures
operations. Countrywide KB Home Loans is accounted for as an
unconsolidated joint venture in the financial services reporting
segment of our consolidated financial statements.
33
The following table presents a summary of selected financial and
operational data for our financial services segment (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
15,935
|
|
|
$
|
20,240
|
|
|
$
|
31,368
|
|
Expenses
|
|
|
(4,796
|
)
|
|
|
(5,923
|
)
|
|
|
(20,400
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
33,836
|
|
|
$
|
33,536
|
|
|
$
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
16,869
|
|
|
|
15,740
|
|
|
|
15,325
|
|
Principal
|
|
$
|
3,934,336
|
|
|
$
|
3,843,793
|
|
|
$
|
2,789,818
|
|
Retention rate
|
|
|
72
|
%
|
|
|
57
|
%
|
|
|
48
|
%
|
Loans sold to third parties (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
16,909
|
|
|
|
15,613
|
|
|
|
12,045
|
|
Principal
|
|
$
|
3,969,827
|
|
|
$
|
3,787,597
|
|
|
$
|
1,910,153
|
|
|
|
(a)
|
Includes combined Countrywide KB Home Loans and KBHMC results
for 2005.
|
Revenues.
Our financial services operations
generated revenues primarily from the following sources:
interest income; title services; insurance commissions; escrow
coordination fees; and sales of mortgage loans and servicing
rights. Financial services revenues included interest income of
$.2 million in 2007, $.2 million in 2006 and
$8.2 million in 2005, which was earned primarily from first
mortgages and mortgage-backed securities held for long-term
investment as collateral. Interest income decreased in 2007 and
2006 mainly due to the wind-down of the mortgage banking
operations of KBHMC. Financial services revenues also included
revenues from title services, insurance commissions and escrow
coordination fees of $15.7 million in 2007,
$20.0 million in 2006, and $17.3 million in 2005. The
decrease in financial services revenues in 2007 compared to 2006
was due to the lower number of homes delivered by our
homebuilding operations and the termination of our escrow
coordination business in 2007. The increases in revenues related
to these services in 2006 correlated with the increase in the
number of homes delivered from our homebuilding operations.
Financial services revenues included mortgage and servicing
rights income of $5.9 million in 2005. Due to the sale of
KBHMCs mortgage banking operations in the fourth quarter
of 2005, the financial services segment did not generate any
mortgages and servicing rights income in 2006 or 2007.
Expenses.
Financial services expenses in 2007,
2006 and 2005 were comprised of interest expense, general and
administrative expenses, and other income and expense items.
Interest expense decreased to a nominal amount in 2007 and 2006
from $5.2 million in 2005 due to the wind-down of
KBHMCs mortgage banking operations in late 2005. General
and administrative expenses totaled $4.8 million in 2007,
$5.9 million in 2006 and $22.0 million in 2005. The
decrease in general and administrative expenses in 2007 was
primarily due to the termination of our escrow coordination
business in 2007. In 2006, the decrease in general and
administrative expenses was primarily due to the wind-down of
KBHMCs mortgage banking operations in the fourth quarter
of 2005 and the change in the mortgage banking operations of
KBHMC to an unconsolidated joint venture structure. In 2005,
financial services expenses included other items aggregating to
income of $6.8 million. These other items included a
$26.6 million gain recorded in connection with the sale of
assets to Countrywide. The gain represented the cash received
over the sum of the book value of the assets sold and certain
nominal costs associated with the disposal. In addition,
financial services expenses in 2005 included $19.8 million
of expenses accrued for various regulatory and other
contingencies.
Equity in income of unconsolidated joint
venture.
The equity in income of unconsolidated
joint venture of $22.7 million in 2007, $19.2 million
in 2006 and $.2 million in 2005 relates to our 50% interest
in the Countrywide KB Home Loans joint venture. The increase in
unconsolidated joint venture income in 2007 compared to 2006
reflected a 7% increase in the number of loans originated by the
Countrywide KB Home Loans joint venture, reflecting a higher
retention rate (the percentage of our homebuyers using
Countrywide KB Home Loans as their loan originator). The overall
retention rate increase during 2007 reflected the continuing
maturation of the joint venture, which began in late 2005. In
2006, the increase in unconsolidated joint venture income
reflected the joint ventures first full year of operation.
34
INCOME
TAXES
We recognized an income tax benefit from continuing operations
of $46.0 million in 2007 and income tax expense from
continuing operations of $178.9 million in 2006 and
$447.0 million in 2005. These amounts represent an
effective tax rate on the pretax loss from continuing operations
for 2007 of 3% and effective tax rates on pretax income from
continuing operations of 31% for 2006 and 37% for 2005. The
decrease in our effective tax rate in 2007 from 2006 was
primarily due to a non-cash valuation allowance recorded as a
reserve against deferred tax assets. Excluding the impact of the
valuation allowance, our effective tax rate for 2007 would have
been 38%. The decrease in our effective tax rate in 2006 from
2005 was primarily due to the release of excess state tax
accruals, tax benefits from the manufacturing deduction created
by the American Jobs Creation Act of 2004, and a reduction in
the disallowance of stock-based compensation deductions and
related expenses, partially offset by a reduction in available
tax credits and a 25% phase-out of these credits.
We generated significant deferred tax assets in 2007 largely due
to the inventory impairments we incurred during the year. We
evaluate our deferred tax assets on a quarterly basis to
determine whether a valuation allowance is required. In
accordance with SFAS No. 109, we assess whether a valuation
allowance should be established based on our determination of
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. In light of the
continued downturn in the housing market and the uncertainty as
to its length and magnitude, we anticipate being in a three-year
cumulative loss position during fiscal year 2008. According to
SFAS No. 109, a three-year cumulative loss is
significant negative evidence in considering whether deferred
tax assets are realizable, and also generally precludes relying
on projections of future taxable income to support the recovery
of deferred tax assets. Therefore, during the fourth quarter of
2007, we recorded a valuation allowance totaling approximately
$522.9 million against our deferred tax assets. The
valuation allowance was reflected as a non-cash charge of
$514.2 million to income tax expense and $8.7 million
to accumulated other comprehensive loss (as a result of an
adjustment made in accordance with Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Post Retirement
Plans, an amendment of FASB Statement No. 87, 88, 106 and
132(R) (SFAS No. 158)). The deferred tax
assets, for which there is no valuation allowance, relate to
amounts that can be realized through future reversals of
existing taxable temporary differences or through carrybacks to
the 2006 and 2007 years. The majority of the tax benefits
associated with our deferred tax assets can be carried forward
for 20 years. To the extent we generate sufficient taxable
income in the future to fully utilize the tax benefits of the
related deferred tax assets, we expect our effective tax rate to
decrease as the valuation allowance is reversed.
During 2007, 2006 and 2005, we made investments that resulted in
benefits in the form of synthetic fuel tax credits. During 2005,
a small portion of these tax credits were forfeited as part of
an Internal Revenue Service (IRS) settlement.
Additionally, these tax credits are subject to a phase-out
provision that gradually reduces the tax credits if the annual
average price of domestic crude oil increases to a stated
phase-out range. We currently estimate the phase-out percentage
for 2007 to be 65%. In 2006, there was a 25% reduction in tax
credits and in 2005 there was no reduction in tax credits.
DISCONTINUED
OPERATIONS
Discontinued operations are comprised solely of our French
operations, which were sold on July 10, 2007. We sold our
49% equity interest in KBSA for total gross proceeds of
$807.2 million, and a pretax gain of $706.7 million
($438.1 million, net of income taxes) was recognized in the
third quarter of 2007 related to the transaction. The sale was
made pursuant to a share purchase agreement dated May 22,
2007 (the Share Purchase Agreement), among us,
Financière Gaillon 8 SAS (the Purchaser), an
affiliate of PAI partners, a European private equity firm, and
three of our wholly owned subsidiaries: Kaufman and Broad
Development Group, International Mortgage Acceptance
Corporation, and Kaufman and Broad International, Inc.
(collectively, the Selling Subsidiaries). Under the
Share Purchase Agreement, the Purchaser agreed to acquire our
49% equity interest (representing 10,921,954 shares held
collectively by the Selling Subsidiaries) at a price of 55.00
euros per share. The purchase price consisted of 50.17 euros per
share paid by the Purchaser in cash, and a cash dividend of 4.83
euros per share paid by KBSA.
In 2007, income from discontinued operations, net of income
taxes, totaled $485.4 million, or $6.29 per diluted share,
including the gain realized on the sale of these operations.
Income from discontinued operations, net of income taxes,
totaled $89.4 million, or $1.08 per diluted share, in 2006
and $69.2 million, or $.78 per diluted share, in 2005.
35
LIQUIDITY
AND CAPITAL RESOURCES
Overview.
We historically have funded our
homebuilding and financial services operations with internally
generated cash flows and external sources of debt and equity
financing. We also have the Credit Facility under which we may
borrow funds from time to time as needed.
In light of the deteriorating market conditions in 2007, we took
several decisive actions during the year to generate cash flow,
reduce debt levels and strengthen our balance sheet. These
actions included reducing inventory and community counts,
trimming our workforce, consolidating or exiting underperforming
markets and selling our French operations. Due to the strategies
we employed, we reduced our debt by $758.5 million and
increased our cash balance by $625.2 million in 2007.
In 2007, we completed the early redemption of
$650.0 million of debt. On July 27, 2007, we completed
the redemption of all $250.0 million of our
9
1
/
2
% senior
subordinated notes due in 2011 at a price of 103.167% of the
principal amount of the notes, plus accrued interest to the date
of redemption. On July 31, 2007, we repaid in full our $400
Million Term Loan, together with accrued interest to the date of
repayment. The $400 Million Term Loan was scheduled to mature on
April 11, 2011. We incurred a loss of $13.0 million
associated with the early extinguishment of this debt, primarily
due to a call premium on the senior subordinated notes and the
write-off of unamortized debt issuance costs.
Our financial leverage, as measured by the ratio of debt to
total capital, was 53.9% at the end of 2007 and 50.0% at the end
of 2006. The year-over-year increase in this ratio reflected
lower retained earnings in 2007 primarily due to substantial
non-cash charges recorded during the year for the impairment of
inventory, joint ventures and goodwill; the abandonment of land
option contracts; and the valuation allowance recorded on
certain deferred tax assets. Our ratio of net debt to net total
capital at November 30, 2007 was 31.1%, representing an
improvement of 12.1 percentage points from our 43.2% ratio
at November 30, 2006. Net debt to net total capital is
calculated by dividing mortgages and notes payable, net of
homebuilding cash, by net total capital (mortgages and notes
payable, net of homebuilding 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 comparing us with others in the homebuilding
industry.
Capital Resources.
External sources of
financing for our homebuilding activities include our Credit
Facility, third-party secured financings, and the public debt
and equity markets. Substantial unused lines of credit remain
available for our future use, if required, principally through
our Credit Facility. Interest on the Credit Facility is payable
monthly at the London Interbank Offered Rate plus an applicable
spread on amounts borrowed. At November 30, 2007, we had
$296.8 million of outstanding letters of credit and no
outstanding borrowings, leaving approximately $1.20 billion
available for our future use under the Credit Facility. (This
amount is based on the $1.50 billion aggregate commitment
under the Credit Facility at November 30, 2007. On
January 25, 2008, the Credit Facility was amended and the
aggregate commitment was reduced to $1.30 billion as
disclosed in Note 22. Subsequent Event in the Notes to
Consolidated Financial Statements in this Form 10-K. If the
$1.30 billion had been in effect at November 30, 2007,
approximately $1.00 billion would have been available for
our future use at that date.)
On August 17, 2007, we entered into a third amendment (the
Revolver Amendment) to the Credit Facility. The
Revolver Amendment allows for a reduction of the minimum
interest coverage ratio (the Coverage Ratio)
otherwise required under the Credit Facility for a period of up
to nine consecutive quarters (the
Reduction Period). The Coverage Ratio is the
ratio of our consolidated EBITDA to consolidated interest
expense (as defined under the Credit Facility). During the
Reduction Period, the interest rates applied to borrowings and
the unused line fee under the Credit Facility, and the maximum
ratio of our consolidated total indebtedness to consolidated
tangible net worth, are subject to adjustment. The Revolver
Amendment also permits us to eliminate any minimum Coverage
Ratio requirement during the Reduction Period, for a period of
up to four quarters, if certain financial criteria are met, and
makes permanent amendments to certain other provisions of the
Credit Facility. Consenting lenders to the Revolver Amendment
received a fee in connection with this amendment.
The Credit Facility, as amended, contains covenants that require
us to stay within certain specified financial ratios. The
non-cash charges associated with inventory and joint venture
impairments, land option contract abandonments, goodwill
impairment and the valuation allowance on deferred tax assets in
2007 negatively affected our ability to comply at
November 30, 2007 with a covenant in the Credit Facility
that requires us to maintain a certain consolidated tangible
36
net worth. As a result, on January 7, 2008, we obtained a
waiver of compliance under this covenant. To address our
covenant compliance for future periods, we entered into a fourth
amendment to the Credit Facility on January 25, 2008 that
amended the minimum consolidated tangible net worth we are
required to maintain.
Depending on available terms and our negotiating leverage
related to specific market conditions, we also finance certain
land acquisitions with purchase-money financing from land
sellers or with other forms of financing from third parties. At
November 30, 2007, we had outstanding seller-financed notes
payable of $19.1 million secured primarily by the
underlying property, which had a carrying value of
$48.0 million.
Consolidated Cash Flows.
Operating, investing
and financing activities provided net cash of
$539.6 million in 2007 and $479.2 million in 2006.
These activities used net cash of $66.0 million in 2005.
Operating Activities.
Continuing operations
provided net operating cash of $896.9 million during 2007
and $480.2 million during 2006. The year-over-year change
in operating cash flow primarily reflected a net decrease in
inventories stemming from our curtailment of inventory
investments in light of challenging housing market conditions
and our diminished future sales expectations. Our sources of
operating cash in 2007 included a net decrease in inventories of
$779.9 million (excluding inventory impairments and land
option contract abandonments, $4.1 million of inventories
acquired through seller financing and a decrease of
$409.5 million in consolidated inventories not owned),
other operating sources of $17.4 million, and various
non-cash items added to the loss from continuing operations.
Partially offsetting the cash provided was a loss from
continuing operations of $929.4 million and a decrease in
accounts payable, accrued expenses and other liabilities of
$340.6 million. Our French discontinued operations provided
net cash from operating activities of $297.4 million in
2007.
In 2006, sources of operating cash from our continuing
operations included earnings of $482.4 million, an increase
in accounts payable, accrued expenses and other liabilities of
$205.7 million, other operating sources of
$7.2 million and various non-cash items deducted from net
income. Our sources of operating cash in 2006 were partially
offset by an increase in inventories of $356.3 million
(excluding inventory impairments and land option contract
abandonments, $128.7 million of inventories acquired
through seller financing and a decrease of $18.1 million in
consolidated inventories not owned) and an increase in
receivables of $23.5 million. Our French discontinued
operations provided net cash from operating activities of
$229.5 million in 2006.
In 2005, uses of operating cash by our continuing operations
included net investments in inventories of $1.81 billion
(excluding inventory impairments and land option contract
abandonments, $36.8 million of inventories acquired through
seller financing and an increase of $120.7 million in
consolidated inventories not owned). The cash used was partially
offset by earnings of $823.7 million, an increase in
accounts payable, accrued expenses and other liabilities of
$697.5 million, a decrease in receivables of
$50.1 million, other operating sources of
$55.7 million and various
non-cash
items deducted from net income. Our French discontinued
operations provided net cash from operating activities of
$86.7 million in 2005.
Investing Activities.
Continuing operations
provided net cash from investing activities of
$498.9 million in 2007 and used $196.9 million in the
year-earlier period. In 2007, $739.8 million was provided
from the sale of our French discontinued operations, net of cash
divested and $.7 million was provided from net sales of
property and equipment. Partially offsetting the cash provided
was $241.6 million used for investments in unconsolidated
joint ventures. Our French discontinued operations used net cash
for investing activities of $12.1 million in 2007.
In 2006, $237.8 million was used by continuing operations
for investments in unconsolidated joint ventures and
$17.6 million was used for net purchases of property and
equipment. The cash used was partially offset by proceeds of
$57.8 million from the sale of our investment in an
unconsolidated joint venture and $.7 million from other
investing activities. In 2006, our French discontinued
operations used net cash of $4.5 million for investing
activities.
In 2005, $117.6 million was used by continuing operations
for investments in unconsolidated joint ventures and
$22.1 million was used for net purchases of property and
equipment. The cash used was partially offset by proceeds of
$42.4 million from the sale of substantially all of the
mortgage banking assets of KBHMC and $1.3 million provided
from other investing activities. Our French discontinued
operations used net cash of $1.9 million for investing
activities in 2005.
37
Financing Activities.
Continuing operations
used net cash of $835.0 million for financing activities in
2007 and provided net cash of $185.9 million for financing
activities in 2006. In 2007, cash was used for the redemption of
the $400 Million Term Loan, which was scheduled to mature on
April 11, 2011, and $250.0 million of
9
1
/
2
% senior
subordinated notes due in 2011, net payments on short-term
borrowings of $114.1 million, dividend payments of
$77.2 million and repurchases of common stock of
$6.9 million in connection with the satisfaction of
employee withholding taxes on vested restricted stock. These
uses of cash were partly offset by $12.3 million from the
issuance of common stock under employee stock plans and
$.9 million of excess tax benefit associated with the
exercise of stock options. Our French discontinued operations
used net cash of $306.5 million for financing activities in
2007.
In 2006, sources of cash from our continuing operations included
proceeds from the $400 Million Term Loan, $298.5 million in
total proceeds from the issuance of $300.0 million of
7
1
/
4
%
senior notes due 2018 (the $300 Million
7
1
/
4
% Senior
Notes), $65.1 million from the issuance of common
stock under employee stock plans and $15.4 million of
excess tax benefits associated with the exercise of stock
options. Partially offsetting the sources of cash were
$394.1 million used for repurchases of common stock, net
payments of $120.7 million on short-term borrowings and
dividend payments of $78.3 million. On December 8,
2005, our board of directors increased the annual cash dividend
on our common stock to $1.00 per share from $.75 per share. In
2006, our French discontinued operations used net cash of
$215.0 million for financing activities.
In 2005, financing activities provided $747.6 million in
total proceeds from the issuance of $300.0 million of
5
7
/
8
%
senior notes due 2015 (the $300 Million
5
7
/
8
%
Senior Notes) and $450.0 million of
6
1
/
4
%
senior notes due 2015 (the $450 Million Senior
Notes), and $101.8 million from the issuance of
common stock under employee stock plans. Partially offsetting
the cash provided were $417.7 million of net payments on
short-term borrowings, $134.7 million used for repurchases
of common stock and $61.6 million for cash dividend
payments. On December 2, 2004, our board of directors
increased the annual cash dividend on our common stock to
$.75 per share from $.50 per share. Our French
discontinued operations used net cash of $119.2 million for
financing activities in 2005.
Shelf Registration Statement.
At
November 30, 2007, $450.0 million of capacity remained
available under our universal shelf registration statement filed
with the SEC on November 12, 2004 (the 2004 Shelf
Registration).
Changes in Capital Structure.
At
November 30, 2007, 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 2007.
We continually consider various options for the use of our cash,
including internal capital investments, investments to grow our
business and additional debt reductions. Based on our current
capital position, we believe we have adequate resources and
sufficient credit facilities to satisfy our current and
reasonably anticipated future requirements for funds to acquire
capital assets and land, 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.
OFF-BALANCE
SHEET ARRANGEMENTS
We conduct a portion of our land acquisition, development and
other homebuilding activities through participation in
unconsolidated joint ventures in which we hold less than a
controlling interest. These unconsolidated joint ventures
operate in certain markets where our consolidated homebuilding
operations are located. Through unconsolidated joint ventures,
we reduce and share our risk and also reduce the amount invested
in land, while increasing our access to potential future
homesites. The use of unconsolidated joint ventures also, in
some instances, enables us to acquire land which we might not
otherwise obtain or have access to on as favorable terms without
the participation of a strategic partner. Our partners in these
unconsolidated joint ventures are unrelated homebuilders, land
developers and other real estate entities, or other commercial
enterprises. While we view our participation in unconsolidated
joint ventures as beneficial to our homebuilding activities, we
do not view them as essential to those activities.
We and/or our joint venture partners sometimes obtain certain
options or enter into other arrangements to purchase portions of
the land held by the unconsolidated joint ventures. These land
option prices are generally negotiated prices that approximate
fair value. We do not include in our income from unconsolidated
joint ventures our pro rata share of unconsolidated joint
venture earnings resulting from land sales to our homebuilding
operations. We defer recognition of our share of such
unconsolidated joint venture earnings until a home sale is
closed and title passes to a homebuyer, at which time we account
for those earnings as a reduction of the cost of purchasing the
land from the unconsolidated joint ventures.
38
Our investments in unconsolidated joint ventures totaled
$297.0 million at November 30, 2007 and
$381.2 million at November 30, 2006. These
unconsolidated joint ventures had total assets of
$2.51 billion at November 30, 2007 and
$2.40 billion at November 30, 2006 and outstanding
secured construction debt of approximately $1.54 billion at
November 30, 2007 and $1.45 billion at
November 30, 2006. In certain instances, we provide varying
levels of guarantees on the debt of unconsolidated joint
ventures. When we provide a guarantee, the unconsolidated joint
venture generally receives more favorable terms from lenders
than would otherwise be available to it. At November 30,
2007, we had payment guarantees related to the third-party debt
of two of our unconsolidated joint ventures. One of these
unconsolidated joint ventures had aggregate third-party debt of
$320.4 million at November 30, 2007, of which each of
the joint venture partners guaranteed its pro rata share. Our
share of the payment guarantee, which is triggered only in the
event of bankruptcy of the joint venture, was 49% or
$155.2 million. The other unconsolidated joint venture had
total third-party debt of $6.2 million at November 30,
2007, of which each of the joint venture partners guaranteed its
pro rata share. Our share of this guarantee was 50% or
$3.1 million. Our pro rata share of limited maintenance
guarantees of unconsolidated entity debt totaled
$103.8 million at November 30, 2007. The limited
maintenance guarantees apply only if the value of the collateral
(generally land and improvements) is less than a specific
percentage of the loan balance. If we are required to make a
payment under a limited maintenance guarantee to bring the value
of the collateral above the specified percentage of the loan
balance, the payment would constitute a capital contribution
and/or loan to the affected unconsolidated joint venture.
In the ordinary course of business, we enter into land option
contracts in order to procure land for the construction of
homes. The use of such option agreements allows us to reduce the
risks associated with land ownership and development, reduce our
financial commitments, including interest and other carrying
costs, and minimize land inventories. Under such land option
contracts, we will fund 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),
Consolidation of Variable Interest Entities
(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 variable interest entity
(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, and 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 optioned
land, FASB Interpretation No. 46(R) requires us to
consolidate the VIE if we are determined to be the primary
beneficiary. The consolidation of these VIEs, where we were
determined to be the primary beneficiary, increased our
inventories, with a corresponding increase to accrued expenses
and other liabilities, on our consolidated balance sheets by
$19.0 million at November 30, 2007 and
$215.4 million at November 30, 2006. The significant
decrease in 2007 from the previous year resulted from our
abandonment of certain land option contracts due to challenging
market conditions in 2007 and exercising options to purchase
land from VIEs that were previously consolidated. The
liabilities related to our consolidation of VIEs from which we
are purchasing land under option contracts represent the
difference between the purchase price of optioned land not yet
purchased and our cash deposits. Our cash deposits related to
these land option contracts totaled $4.7 million at
November 30, 2007 and $41.9 million at
November 30, 2006. Creditors, if any, of these VIEs have no
recourse against us. As of November 30, 2007, excluding
consolidated VIEs, we had cash deposits totaling
$54.6 million that were associated with land option
contracts having an aggregate purchase price of
$979.1 million.
We also evaluate land option contracts in accordance with
Statement of Financial Accounting Standards No. 49,
Accounting for Product Financing Arrangements
(SFAS No. 49), and increased inventories, with
a corresponding increase to accrued expenses and other
liabilities, on our consolidated balance sheets by
$221.1 million at November 30, 2007 and
$434.2 million at November 30, 2006, as a result of
our evaluations. The decrease in the 2007 amount compared to the
previous year is due to the exercise of land option contracts
and the abandonment of certain land option contracts.
39
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table summarizes our future cash requirements
under contractual obligations as of November 30, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
Thereafter
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,161,794
|
|
|
$
|
1,909
|
|
|
$
|
515,504
|
|
|
$
|
348,549
|
|
|
$
|
1,295,832
|
|
Interest
|
|
|
815,262
|
|
|
|
144,688
|
|
|
|
243,996
|
|
|
|
179,554
|
|
|
|
247,024
|
|
Operating lease obligations
|
|
|
79,603
|
|
|
|
21,926
|
|
|
|
34,696
|
|
|
|
14,689
|
|
|
|
8,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,056,659
|
|
|
$
|
168,523
|
|
|
$
|
794,196
|
|
|
$
|
542,792
|
|
|
$
|
1,551,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are often required to obtain bonds and letters of credit in
support of our obligations to various municipalities and other
government agencies in connection with subdivision improvements
such as roads, sewers and water. At November 30, 2007, we
had approximately $1.08 billion of performance bonds and
$296.8 million of letters of credit outstanding. At
November 30, 2006, we had approximately $1.24 billion
of performance bonds and $464.2 million of letters of
credit outstanding. We do not believe that any currently
outstanding bonds or letters of credit will be called. The
expiration dates of letters of credit coincide with the expected
completion dates of the related projects. If the obligations
related to a project are ongoing, annual extensions of the
letters of credit are typically granted on a year-to-year basis.
Performance bonds do not have stated expiration dates. Rather,
we are released from the bonds as the contractual performance is
completed.
We have, and require the majority of the subcontractors we use
to have, general liability insurance (including construction
defect coverage) and workers compensation insurance. These
insurance policies protect us against a portion of our risk of
loss from claims, subject to certain self-insured retentions,
deductibles and other coverage limits. We self-insure a portion
of our overall risk through the use of a captive insurance
subsidiary.
We record expenses and liabilities related to the costs to cover
our self-insured and deductible amounts under our insurance
policies and for any estimated costs of potential claims and
lawsuits (including expected legal costs) in excess of our
coverage limits or not covered by our policies, based on an
analysis of our historical claims, which includes an estimate of
construction defect claims incurred but not yet reported. We
engage a third-party actuary that uses our historical claim data
to estimate our unpaid claims, claim adjustment expenses and
incurred but not reported claims reserves for the risks that we
are assuming under the general liability. Projection of losses
related to these liabilities is subject to a high degree of
variability due to uncertainties such as trends in construction
defect claims relative to our markets and the types of products
we build, claim settlement patterns, insurance industry
practices and legal interpretations, among others. Because of
the high degree of judgment required in determining these
estimated liability amounts, actual future costs could differ
significantly from our currently estimated amounts.
CRITICAL
ACCOUNTING POLICIES
Listed below are accounting policies that we believe are
critical because of the significance of the activity or because
they require the use of significant judgment in their
application.
Homebuilding Revenue Recognition.
As discussed
in Note 1. Summary of Significant Accounting Policies in
the Notes to Consolidated Financial Statements in this
Form 10-K,
revenues from housing and other real estate sales are recognized
in accordance with Statement of Financial Accounting Standards
No. 66, Accounting for Sales of Real Estate
(SFAS No. 66), when sales are closed and title
passes to the buyer. Sales are closed when all of the following
conditions are met: a sale is consummated, a significant down
payment is received, the earnings process is complete and the
collection of any remaining receivables is reasonably assured.
Inventories and Cost of Sales.
As discussed in
Note 1. Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements in this
Form 10-K,
inventories are stated at cost, unless the carrying amount of
the parcel or community is determined not to be recoverable, in
which case the inventories are written down to fair value in
accordance with SFAS No. 144. Fair value is determined
based on estimated future cash flows discounted for inherent
risks associated
40
with the real estate assets, or other valuation techniques. Due
to uncertainties in the estimation process, it is possible that
actual results could differ from those estimates. Our
inventories typically do not consist of completed projects.
We rely on certain estimates to determine construction and land
costs and resulting gross margins associated with revenues
recognized. Our construction and land costs are comprised of
direct and allocated costs, including estimated future costs for
warranties and amenities. Land, land improvements and other
common costs are generally allocated on a relative fair value
basis to homes within a parcel or community. Land and land
development costs include related interest and real estate taxes.
In determining a portion of the construction and land costs for
each period, we rely on project budgets that are based on a
variety of assumptions, including future construction schedules
and costs to be incurred. It is possible that actual results
could differ from budgeted amounts for various reasons,
including construction delays, labor or materials shortages,
increases in costs that have not yet been committed, changes in
governmental requirements, unforeseen environmental hazard
discoveries or other unanticipated issues encountered during
construction that fall outside the scope of contracts obtained.
While the actual results for a particular construction project
are accurately reported over time, variances between the
budgeted and actual costs of a project could result in the
understatement or overstatement of construction and land costs
and homebuilding gross margins in a specific reporting period.
To reduce the potential for such distortion, we have set forth
procedures that collectively comprise a critical
accounting policy. These procedures, which we have applied
on a consistent basis, include updating, assessing and revising
project budgets on a monthly basis, obtaining commitments from
subcontractors and vendors for future costs to be incurred,
reviewing the adequacy of warranty accruals and historical
warranty claims experience, and utilizing the most recent
information available to estimate construction and land costs to
be charged to expense. The variances between budgeted and actual
amounts identified by us have historically not had a material
impact on our consolidated results of operations. We believe
that our policies provide for reasonably dependable estimates to
be used in the calculation and reporting of construction and
land costs.
Warranty Costs.
As discussed in Note 12.
Commitments and Contingencies in the Notes to Consolidated
Financial Statements in this
Form 10-K,
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 and 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 such as appliances. 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. Factors that affect our
warranty liability include the number of homes delivered,
historical and anticipated rates of warranty claims, and cost
per claim. We periodically assess the adequacy of our recorded
warranty liabilities and adjust the amounts as necessary. While
we believe the warranty accrual reflected in the consolidated
balance sheets to be adequate, actual warranty costs in the
future could differ from our current estimates.
Stock-Based Compensation.
As discussed in
Note 1. Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements in this Form 10-K,
effective December 1, 2005, we adopted the fair value
recognition provisions of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment
(SFAS No. 123(R)), which requires that
companies measure and recognize compensation expense at an
amount equal to the fair value of
share-based
payments granted under compensation arrangements. We provide
compensation benefits by issuing stock options, restricted
stock, phantom shares and stock appreciation rights
(SARs). Determining the fair value of share-based
awards at the grant date requires judgment to identify the
appropriate valuation model and develop the assumptions,
including the expected term of the stock options, expected
stock-price volatility and dividend yield, to be used in the
calculation. Judgment is also required in estimating the
percentage of share-based awards that are expected to be
forfeited. We estimated the fair value of stock options granted
using the Black-Scholes option-pricing model with assumptions
based primarily on historical data. In addition, we estimated
the fair value of certain restricted common stock that is
subject to a market condition (Performance Shares)
using a Monte Carlo simulation model. If actual results differ
significantly from these estimates, stock-based compensation
expense and our consolidated results of operations could be
materially impacted. Prior to December 1, 2005, we
accounted for stock option grants under the recognition and
measurement provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees (APB Opinion No.
25) and related interpretations.
41
Goodwill.
As disclosed in Note 1. Summary
of Significant Accounting Policies in the Notes to Consolidated
Financial Statements in this
Form 10-K,
we have recorded goodwill in connection with various
acquisitions in prior years. In accordance with SFAS No. 142, we
test goodwill for potential impairment annually as of
November 30 and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
process of evaluating goodwill for impairment involves the
determination of the fair value of our reporting units. Inherent
in such fair value determinations are certain judgments and
estimates relating to future cash flows, including the
interpretation of current economic indicators and market
valuations, and assumptions about our strategic plans with
regard to our operations. To the extent additional information
arises, market conditions change or our strategies change, it is
possible that our conclusion regarding goodwill impairment could
change and result in a material effect on our consolidated
financial position or results of operations.
Income Taxes.
As discussed in Note 1.
Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements in this
Form 10-K,
income taxes are accounted for in accordance with
SFAS No. 109. The provision for, or benefit from,
income taxes is calculated using the asset and liability method,
under which deferred tax assets and liabilities are recorded
based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. We evaluate our deferred tax assets on a quarterly
basis to determine whether a valuation allowance is required. In
accordance with SFAS No. 109, we assess whether a valuation
allowance should be established based on our determination of
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets depends primarily on the
generation of future taxable income during the periods in which
those temporary differences become deductible. Judgment is
required in determining the future tax consequences of events
that have been recognized in our consolidated financial
statements and/or tax returns. Differences between anticipated
and actual outcomes of these future tax consequences could have
a material impact on our consolidated financial position or
results of operations. Further discussion of the valuation
allowance recorded in 2007 is included in Note 17. Income Taxes
in the Notes to Consolidated Financial Statements in this
Form 10-K.
SUBSEQUENT
EVENT
On January 25, 2008, we entered into the fourth amendment
to the Credit Facility. The fourth amendment amends the minimum
consolidated tangible net worth we are required to maintain
under the Credit Facility and reduces the aggregate commitment
under the Credit Facility from $1.50 billion to
$1.30 billion.
RECENT
ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement 109 (FASB
Interpretation No. 48). FASB Interpretation
No. 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. FASB Interpretation No. 48 also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. The provisions of FASB Interpretation No. 48
are effective for our first quarter ending February 29,
2008. We are in the process of evaluating the potential impact
of adopting FASB Interpretation No. 48, but do not expect
the interpretation to have a material impact on our consolidated
financial position or results of operations.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157). SFAS
No. 157 provides guidance for using fair value to measure
assets and liabilities, defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007 and for interim periods
within those years. We are currently evaluating the potential
impact of adopting SFAS No. 157 on our consolidated
financial position and results of operations.
In November 2006, the Emerging Issues Task Force
(EITF) ratified EITF Issue
No. 06-8,
Applicability of the Assessment of a Buyers
Continuing Investment under SFAS No. 66 for Sales of
Condominiums (EITF
06-8).
EITF
06-8
states that adequacy of the buyers investment under
SFAS No. 66 should be assessed in determining whether
to recognize profit under the
percentage-of-completion
method on the sale of individual units in a condominium project.
EITF
06-8
could require that additional deposits be collected by
developers of condominium projects that wish to recognize profit
during the construction period under the
percentage-of-completion
method. EITF
06-8
is
effective for
42
fiscal years beginning after March 15, 2007. We are
currently evaluating the potential impact of adopting EITF
06-8
on our
consolidated financial position and results of operations.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115
(SFAS No. 159), which permits entities to
choose to measure certain financial assets and certain other
items at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year that begins
after November 15, 2007. We are currently evaluating the
potential impact of the adoption of SFAS No. 159;
however, we do not expect it to have a material impact on our
consolidated financial position or results of operations.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)).
SFAS No. 141(R) amends Statement of Financial
Accounting Standards No. 141, Business
Combinations (SFAS No. 141), 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. It is effective for fiscal years beginning
after December 15, 2008 and is to be applied prospectively.
We are currently evaluating the potential impact of adopting
SFAS No. 141(R) on our 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 Statements an
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. We
are currently evaluating the potential impact of adopting
SFAS No. 160 on our consolidated financial position
and results of operations.
OUTLOOK
At November 30, 2007, we had 6,322 homes in backlog, a
decrease of 40% from the 10,575 homes in backlog at
November 30, 2006. Our backlog at November 30, 2007
represented future housing revenues of approximately $1.50
billion, down 47% from approximately $2.83 billion at
November 30, 2006. The reduction in our backlog reflects
several successive quarters of year-over-year decreases in net
orders. In the fourth quarter of 2007, our homebuilding
operations generated 2,574 net orders, down 32% from the
3,763 net orders generated in the final quarter of 2006.
The year-over-year decline in our fourth quarter net orders was
due, in part, to a 22% decrease in the number of active
communities, consistent with our efforts to adjust our
homebuilding operations to the market environment. Our fourth
quarter 2007 cancellation rate of 58% was unchanged from the
cancellation rate we experienced in the fourth quarter of 2006,
but was higher than the 50% rate reported in the third quarter
of 2007.
We expect the negative operational and financial pressures the
homebuilding industry and our business experienced in 2007 to
continue and possibly even intensify in 2008 as the housing
market contraction, which gained momentum throughout 2007, looks
to extend well into the year ahead. While affordability
constraints and declining buyer confidence were key factors
driving the downturn in the housing market in 2006, they were
joined in 2007 by tighter credit standards and disrupted
mortgage markets. These factors are causing many potential
homebuyers to forgo or defer home purchases because they are
unable to obtain adequate financing, are concerned that they
cannot sell their existing home at a fair price or at a price
that covers their existing mortgage,
and/or
are
expecting home prices to fall further. This demand-side dynamic
is a key reason there were in 2007, and there continues to be, a
considerable number of new and existing homes available for sale
in housing markets across the country. The oversupply of homes
available for sale relative to demand created the extremely
challenging conditions we experienced in 2007 and its
persistence and depth suggest there will be little, if any,
improvement in the near-term future.
As housing industry conditions became increasingly difficult in
2007, we continued to execute on a number of strategies that we
adopted in 2006 to solidify our financial position and to
reposition our business with the present market environment and
our future expectations. We made strengthening our balance sheet
one of our highest priorities
43
during the year and focused on reducing our debt levels and
generating cash through greater conversion of our backlog into
revenue and strategically converting operating assets into cash,
including the sale of our interest in our French operations.
From our efforts in 2007, we enter 2008 with a cash balance of
$1.33 billion, no borrowings outstanding under our Credit
Facility and a debt balance that is $758.5 million lower
than at the beginning of 2007. We believe our substantial cash
position and reduced leverage provide us with an opportunity to
strategically reload our land pipeline for higher margin
deliveries in future periods.
We also reviewed our market positions, community counts and
overhead requirements during the year, and curtailed our
investments where it made financial or strategic sense to do so.
Based in part on this review and the conversion of our backlog,
we have reduced the number of lots we own or control by 65%
since February 28, 2006 from approximately 186,000 to
66,000 at November 30, 2007. We also reduced our community
counts in weaker markets, and exited certain underperforming
markets altogether. We anticipate further reducing our active
communities in 2008, which will likely have a negative impact on
our year-over-year net order results compared to 2007.
In positioning our business for the future, we intensified our
focus in 2007 on our core customer base the
first-time, first
move-up
and
active adult homebuyer and further refined our
Built to Order operating disciplines. During 2007,
we introduced newly designed, smaller, more affordable homes in
our active communities at price points calibrated to median
income levels to attract our core customers. We also
reengineered our home designs to lower production costs and
cycle times, while continuing to invest in our KB Home Studios
to provide our customers with a customized choice/value
proposition that we believe uniquely differentiates us from
other builders in the marketplace.
Based on our efforts in 2007, we believe we are well positioned
financially and strategically to navigate through the current
housing market downturn and have set a foundation for future
growth. However, we believe 2008 will be another tough year for
the homebuilding industry and see no indication that housing
markets struggling with a significant oversupply of homes
available for sale are stabilizing. We believe the moderating
sales activity and significant pricing and margin pressures that
affected the homebuilding industry throughout 2007 will
continue, and may deepen, until current new and resale home
inventory levels are in better balance with demand, and it is
not clear when this may occur. As a result, we do not expect our
delivery volume and related revenues to improve in 2008, and we
may need to take additional charges for inventory impairments in
the future. In addition, our 2008, and possibly 2009, results
may be negatively affected if there is a downturn in the general
economy, a decrease in job growth and/or a decline in overall
consumer confidence that further prolongs the recovery of the
housing markets.
As we move ahead, we expect to continue our efforts from the
past year to maintain a strong financial position, sharpen our
focus on our core customer base and our Built to
Order business model, and to align our cost structure and
operations with market conditions. Longer term, we expect
favorable demographics and continuing population growth in our
served markets to drive demand for new homes, and believe that
our operating approach and financial resources will allow us to
capitalize on improvements in these housing markets as they
occur.
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, 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.
44
Actual events and results may differ materially from those
expressed or forecasted in the forward-looking statements due to
a number of factors. The most important risk factors that could
cause our actual performance and future events and actions to
differ materially from such forward-looking statements include,
but are not limited to: general economic and business
conditions; material prices and availability; labor costs and
availability; changes in interest rates; our debt level;
declines in consumer confidence; increases in competition;
weather conditions, significant natural disasters and other
environmental factors; government regulations; the availability
and cost of land in desirable areas; government investigations
and shareholder lawsuits regarding our past stock option grant
practices and the restatement of certain of our financial
statements; other legal or regulatory proceedings or claims;
conditions in the capital, credit (including consumer mortgage
lending standards) and homebuilding markets; and the other risks
discussed above in Item 1A. Risk Factors.
45
|
|
Item 7A.
|
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
and senior subordinated notes. For fixed rate debt, changes in
interest rates generally affect the fair market value of the
debt instrument, but not our earnings or cash flows. Under our
current policies, we do not use interest rate derivative
instruments to manage our exposure to interest rate changes.
The following table sets forth principal cash flows by scheduled
maturity, weighted average interest rates and the estimated fair
market value of our long-term debt obligations as of
November 30, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
Years Ended November 30,
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
2007
|
|
|
Long-term debt (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
|
|
|
$
|
200,000
|
|
|
$
|
298,273
|
|
|
$
|
348,549
|
|
|
$
|
|
|
|
$
|
1,295,832
|
|
|
$
|
2,142,654
|
|
|
|
$1,921,042
|
|
Weighted Average Interest Rate
|
|
|
|
%
|
|
|
8.6
|
%
|
|
|
7.8
|
%
|
|
|
6.4
|
%
|
|
|
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
(a) Includes senior
subordinated and senior notes.
46
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
KB
HOME
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
Consolidated Statements of Operations for the Years Ended
November 30, 2007, 2006 and 2005
|
|
|
48
|
|
Consolidated Balance Sheets as of November 30, 2007 and 2006
|
|
|
49
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended November 30, 2007, 2006 and 2005
|
|
|
50
|
|
Consolidated Statements of Cash Flows for the Years Ended
November 30, 2007, 2006 and 2005
|
|
|
51
|
|
Notes to Consolidated Financial Statements
|
|
|
52-85
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
86-87
|
|
Separate combined financial statements of our unconsolidated
joint venture activities have been omitted because, if
considered in the aggregate, they would not constitute a
significant subsidiary as defined by
Rule 3-09
of Regulation
S-X.
47
KB
HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Total revenues
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
|
$
|
8,123,313
|
|
Construction and land costs
|
|
|
(6,826,379
|
)
|
|
|
(7,666,019
|
)
|
|
|
(5,954,768
|
)
|
Selling, general and administrative expenses
|
|
|
(824,621
|
)
|
|
|
(1,123,508
|
)
|
|
|
(979,610
|
)
|
Goodwill impairment
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,358,335
|
)
|
|
|
570,316
|
|
|
|
1,188,935
|
|
Interest income
|
|
|
28,636
|
|
|
|
5,503
|
|
|
|
3,529
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
(12,990
|
)
|
|
|
(16,678
|
)
|
|
|
(16,343
|
)
|
Equity in income (loss) of unconsolidated joint ventures
|
|
|
(151,917
|
)
|
|
|
(20,830
|
)
|
|
|
14,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
(1,494,606
|
)
|
|
|
538,311
|
|
|
|
1,190,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
31,368
|
|
Expenses
|
|
|
(4,796
|
)
|
|
|
(5,923
|
)
|
|
|
(20,400
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(1,460,770
|
)
|
|
|
571,847
|
|
|
|
1,201,534
|
|
Income tax benefit (expense)
|
|
|
46,000
|
|
|
|
(178,900
|
)
|
|
|
(447,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
|
|
754,534
|
|
Income from discontinued operations, net of income taxes
|
|
|
47,252
|
|
|
|
89,404
|
|
|
|
69,178
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
|
$
|
823,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
|
$
|
9.21
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
$
|
10.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
|
$
|
8.54
|
|
Discontinued operations
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
$
|
9.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
KB
HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares)
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,325,255
|
|
|
$
|
700,041
|
|
Receivables
|
|
|
295,739
|
|
|
|
224,077
|
|
Inventories
|
|
|
3,312,420
|
|
|
|
5,751,643
|
|
Investments in unconsolidated joint ventures
|
|
|
297,010
|
|
|
|
381,242
|
|
Deferred income taxes
|
|
|
222,458
|
|
|
|
430,806
|
|
Goodwill
|
|
|
67,970
|
|
|
|
177,333
|
|
Other assets
|
|
|
140,712
|
|
|
|
160,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,661,564
|
|
|
|
7,825,339
|
|
Financial services
|
|
|
44,392
|
|
|
|
44,024
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
1,394,375
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,705,956
|
|
|
$
|
9,263,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
699,851
|
|
|
$
|
626,243
|
|
Accrued expenses and other liabilities
|
|
|
975,828
|
|
|
|
1,600,617
|
|
Mortgages and notes payable
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,837,473
|
|
|
|
5,147,194
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
17,796
|
|
|
|
26,276
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
1,167,520
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $1.00 par value; authorized,
10,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock $1.00 par value; authorized,
290,000,000 shares at November 30, 2007 and 2006;
114,976,285 and 114,648,604 shares issued at
November 30, 2007 and 2006, respectively
|
|
|
114,976
|
|
|
|
114,649
|
|
Paid-in capital
|
|
|
851,628
|
|
|
|
825,958
|
|
Retained earnings
|
|
|
1,968,881
|
|
|
|
2,975,465
|
|
Accumulated other comprehensive income (loss)
|
|
|
(22,923
|
)
|
|
|
63,197
|
|
Grantor stock ownership trust, at cost: 12,203,282 and
12,345,182 shares at November 30, 2007 and 2006,
respectively
|
|
|
(132,608
|
)
|
|
|
(134,150
|
)
|
Treasury stock, at cost: 25,451,107 and 25,274,482 shares
at November 30, 2007 and 2006, respectively
|
|
|
(929,267
|
)
|
|
|
(922,371
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,850,687
|
|
|
|
2,922,748
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,705,956
|
|
|
$
|
9,263,738
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
KB
HOME
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30, 2007, 2006 and 2005
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Grantor
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Ownership
|
|
|
Treasury
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
Deferred
|
|
|
Ownership
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Trust
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Compensation
|
|
|
Trust
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at November 30, 2004
|
|
|
110,273
|
|
|
|
(14,755
|
)
|
|
|
(16,896
|
)
|
|
$
|
110,273
|
|
|
$
|
610,333
|
|
|
$
|
1,818,774
|
|
|
$
|
59,968
|
|
|
$
|
(6,046
|
)
|
|
$
|
(160,334
|
)
|
|
$
|
(393,578
|
)
|
|
$
|
2,039,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
823,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
823,712
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
792,448
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,577
|
)
|
Exercise of employee stock options
|
|
|
3,632
|
|
|
|
950
|
|
|
|
|
|
|
|
3,632
|
|
|
|
91,072
|
|
|
|
(1,301
|
)
|
|
|
|
|
|
|
|
|
|
|
10,323
|
|
|
|
|
|
|
|
103,726
|
|
Restricted stock awards
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
7,940
|
|
|
|
|
|
|
|
|
|
|
|
(9,555
|
)
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,996
|
|
|
|
|
|
|
|
|
|
|
|
1,996
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,809
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
27,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,130
|
|
|
|
|
|
|
|
34,954
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,713
|
)
|
|
|
(134,713
|
)
|
French share transfer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2005
|
|
|
113,905
|
|
|
|
(13,000
|
)
|
|
|
(19,021
|
)
|
|
|
113,905
|
|
|
|
742,978
|
|
|
|
2,571,372
|
|
|
|
28,704
|
|
|
|
(13,605
|
)
|
|
|
(141,266
|
)
|
|
|
(528,291
|
)
|
|
|
2,773,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,351
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,844
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,258
|
)
|
Exercise of employee stock options
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
744
|
|
|
|
34,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,467
|
|
Restricted stock awards
|
|
|
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
32,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,839
|
|
|
|
|
|
|
|
38,565
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,649
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,358
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277
|
|
|
|
|
|
|
|
6,406
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(6,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(394,080
|
)
|
|
|
(394,080
|
)
|
Reclass due to SFAS No. 123(R) implementation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,605
|
)
|
|
|
|
|
|
|
|
|
|
|
13,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2006
|
|
|
114,649
|
|
|
|
(12,345
|
)
|
|
|
(25,274
|
)
|
|
|
114,649
|
|
|
|
825,958
|
|
|
|
2,975,465
|
|
|
|
63,197
|
|
|
|
|
|
|
|
(134,150
|
)
|
|
|
(922,371
|
)
|
|
|
2,922,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929,414
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(992,611
|
)
|
Postretirement benefits adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,923
|
)
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
Exercise of employee stock options
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
327
|
|
|
|
9,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,045
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,354
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,542
|
|
|
|
|
|
|
|
3,147
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,896
|
)
|
|
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2007
|
|
|
114,976
|
|
|
|
(12,203
|
)
|
|
|
(25,451
|
)
|
|
$
|
114,976
|
|
|
$
|
851,628
|
|
|
$
|
1,968,881
|
|
|
$
|
(22,923
|
)
|
|
$
|
|
|
|
$
|
(132,608
|
)
|
|
$
|
(929,267
|
)
|
|
$
|
1,850,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
KB
HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
|
$
|
823,712
|
|
Income from discontinued operations, net of income taxes
|
|
|
(47,252
|
)
|
|
|
(89,404
|
)
|
|
|
(69,178
|
)
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
(438,104
|
)
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
(used) by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (income) loss of unconsolidated joint ventures
|
|
|
129,220
|
|
|
|
1,611
|
|
|
|
(14,445
|
)
|
Distributions of earnings from unconsolidated joint ventures
|
|
|
42,356
|
|
|
|
13,553
|
|
|
|
11,973
|
|
Gain on sale of investment in unconsolidated joint venture
|
|
|
|
|
|
|
(27,612
|
)
|
|
|
|
|
Gain on sale of mortgage banking assets
|
|
|
|
|
|
|
|
|
|
|
(26,647
|
)
|
Amortization of discounts and issuance costs
|
|
|
2,478
|
|
|
|
2,441
|
|
|
|
1,550
|
|
Depreciation and amortization
|
|
|
17,274
|
|
|
|
18,091
|
|
|
|
17,546
|
|
Provision for deferred income taxes
|
|
|
208,348
|
|
|
|
(189,047
|
)
|
|
|
3,150
|
|
Excess tax benefit associated with exercise of stock options
|
|
|
(882
|
)
|
|
|
(15,384
|
)
|
|
|
|
|
Stock option income tax benefits
|
|
|
|
|
|
|
|
|
|
|
36,930
|
|
Stock-based compensation expense
|
|
|
9,354
|
|
|
|
19,358
|
|
|
|
5,809
|
|
Inventory and joint venture impairments and land option contract
abandonments
|
|
|
1,410,345
|
|
|
|
431,239
|
|
|
|
42,922
|
|
Goodwill impairment
|
|
|
107,926
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(71,406
|
)
|
|
|
(23,529
|
)
|
|
|
50,146
|
|
Inventories
|
|
|
779,875
|
|
|
|
(356,342
|
)
|
|
|
(1,807,593
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(340,630
|
)
|
|
|
205,707
|
|
|
|
697,484
|
|
Other, net
|
|
|
17,409
|
|
|
|
7,182
|
|
|
|
55,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
896,897
|
|
|
|
480,215
|
|
|
|
(170,962
|
)
|
Net cash provided by operating activities discontinued
operations
|
|
|
297,397
|
|
|
|
229,505
|
|
|
|
86,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
1,194,294
|
|
|
|
709,720
|
|
|
|
(84,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
739,764
|
|
|
|
|
|
|
|
|
|
Sale of investment in unconsolidated joint venture
|
|
|
|
|
|
|
57,767
|
|
|
|
|
|
Sale of mortgage banking assets
|
|
|
|
|
|
|
|
|
|
|
42,396
|
|
Investments in unconsolidated joint ventures
|
|
|
(241,551
|
)
|
|
|
(237,786
|
)
|
|
|
(117,633
|
)
|
Purchases of property and equipment, net
|
|
|
685
|
|
|
|
(17,638
|
)
|
|
|
(22,059
|
)
|
Other, net
|
|
|
|
|
|
|
772
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
498,898
|
|
|
|
(196,885
|
)
|
|
|
(96,036
|
)
|
Net cash used by investing activities discontinued
operations
|
|
|
(12,112
|
)
|
|
|
(4,477
|
)
|
|
|
(1,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
486,786
|
|
|
|
(201,362
|
)
|
|
|
(97,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on credit agreements and other short-term borrowings
|
|
|
|
|
|
|
(84,100
|
)
|
|
|
(378,529
|
)
|
Proceeds from (redemption of) term loan
|
|
|
(400,000
|
)
|
|
|
400,000
|
|
|
|
|
|
Redemption of senior subordinated notes
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
298,458
|
|
|
|
747,591
|
|
Payments on mortgages, land contracts and other loans
|
|
|
(114,119
|
)
|
|
|
(36,595
|
)
|
|
|
(39,119
|
)
|
Issuance of common stock under employee stock plans
|
|
|
12,310
|
|
|
|
65,052
|
|
|
|
101,749
|
|
Excess tax benefit associated with exercise of stock options
|
|
|
882
|
|
|
|
15,384
|
|
|
|
|
|
Payments of cash dividends
|
|
|
(77,170
|
)
|
|
|
(78,258
|
)
|
|
|
(61,577
|
)
|
Repurchases of common stock
|
|
|
(6,896
|
)
|
|
|
(394,080
|
)
|
|
|
(134,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
(834,993
|
)
|
|
|
185,861
|
|
|
|
235,402
|
|
Net cash used by financing activities discontinued
operations
|
|
|
(306,527
|
)
|
|
|
(215,010
|
)
|
|
|
(119,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,141,520
|
)
|
|
|
(29,149
|
)
|
|
|
116,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
539,560
|
|
|
|
479,209
|
|
|
|
(66,032
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
804,182
|
|
|
|
324,973
|
|
|
|
391,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,343,742
|
|
|
$
|
804,182
|
|
|
$
|
324,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
51
KB
HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
Operations.
KB Home is a builder of
single-family homes, townhomes and condominiums. The Company
operates in Arizona, California, Colorado, Florida, Georgia,
Illinois, Maryland, Nevada, New Mexico, North Carolina, South
Carolina, Texas and Virginia. The Company also offers mortgage
services through Countrywide KB Home Loans, a joint venture with
Countrywide. Countrywide KB Home Loans, which is accounted for
as an unconsolidated joint venture within the Companys
financial services reporting segment, began offering loans to
the Companys homebuyers on September 1, 2005. Through
its financial services subsidiary, KBHMC, the Company provides
title and insurance services to its homebuyers. The Company
previously offered mortgage banking services directly through
KBHMC until September 1, 2005 when substantially all of
KBHMCs mortgage banking assets were sold to Countrywide.
Basis of Presentation.
The consolidated
financial statements include the accounts of the Company and all
significant subsidiaries and joint ventures in which a
controlling interest is held, as well as certain VIEs required
to be consolidated pursuant to FASB Interpretation No. 46(R).
All intercompany transactions have been eliminated. Investments
in unconsolidated joint ventures in which the Company has less
than a controlling interest are accounted for using the equity
method.
In July 2007, the Company sold its 49% equity interest in its
publicly traded French subsidiary, KBSA. Therefore, for the
years ended November 30, 2007, 2006 and 2005, the French
operations have been presented as discontinued operations in the
consolidated financial statements.
Use of Estimates.
The consolidated financial
statements have been prepared in conformity with U.S. generally
accepted accounting principles and, as such, include amounts
based on informed estimates and judgments of management. Actual
results could differ from these estimates.
Cash and Cash Equivalents.
The Company
considers all highly liquid debt instruments and other
short-term investments, purchased with a maturity of three
months or less, to be cash equivalents. The Companys cash
equivalents totaled $1.11 billion at November 30, 2007
and $371.0 million at November 30, 2006.
Goodwill.
The Company has recorded goodwill in
connection with various acquisitions in prior years. Goodwill
represents the excess of the purchase price over the fair value
of net assets acquired. In accordance with SFAS No. 142,
the Company tests goodwill for potential impairment annually as
of November 30 and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
Company evaluates goodwill for impairment using the two-step
process prescribed in SFAS No. 142. The first step is
to identify potential impairment by comparing the fair value of
a reporting unit to the book value, including goodwill. If the
fair value of a reporting unit exceeds the book value, goodwill
is not considered impaired. If the book value exceeds the fair
value, the second step of the process is performed to measure
the amount of impairment.
Property and Equipment and
Depreciation.
Property and equipment are recorded
at cost and are depreciated over their estimated useful lives,
which generally range from two to 10 years, using the
straight-line method. Repair and maintenance costs are charged
to earnings as incurred. Property and equipment are included in
other assets on the consolidated balance sheets and totaled
$32.7 million, net of accumulated depreciation of
$61.3 million, at November 30, 2007 and
$50.7 million, net of accumulated depreciation of
$55.2 million, at November 30, 2006. Depreciation
expense totaled $17.3 million in 2007, $17.2 million
in 2006, and $17.4 million in 2005.
Foreign Currency Translation.
Results of
operations for KBSA were translated to U.S. dollars using
the average exchange rates during the period. Assets and
liabilities were translated using the exchange rates in effect
at the balance sheet date. Resulting translation adjustments
were recorded in stockholders equity as foreign currency
translation adjustments. Cumulative translation adjustments of
$63.2 million related to the Companys French
operations were recognized in 2007 in connection with the sale
of those operations.
Homebuilding Operations.
Revenues from housing
and other real estate sales are recognized in accordance with
SFAS No. 66 when sales are closed and title passes to the buyer.
Sales are closed when all of the following conditions are met: a
sale is consummated, a significant down payment is received, the
earnings process is complete and the collection of any remaining
receivables is reasonably assured.
52
Construction and land costs are comprised of direct and
allocated costs, including estimated future costs for warranties
and amenities. Land, land improvements and other common costs
are generally allocated on a relative fair value basis to homes
within a parcel or community. Land and land development costs
include related interest and real estate taxes.
Inventories are stated at cost unless the carrying amount of the
parcel or community is determined not to be recoverable, in
which case the inventories are written down to fair value in
accordance with SFAS No. 144. SFAS No. 144
requires that real estate assets be tested for recoverability
whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Recoverability of
assets is measured by comparing the carrying amount of an asset
to the undiscounted future net cash flows expected to be
generated by the asset. These evaluations for impairment are
significantly impacted by estimates of revenues, costs and
expenses, and other factors. If real estate assets are
considered to be impaired, the impairment to be recognized is
measured by the amount which the carrying value of the assets
exceeds the fair value of the assets. Fair value is determined
based on estimated future cash flows discounted for inherent
risks associated with the real estate assets, or other valuation
techniques.
Financial Services Operations.
Revenues are
generated primarily from the following sources: interest income;
title services; and insurance commissions. Interest income is
accrued as earned. Title services revenues are recognized as
closing services are rendered and title insurance policies are
issued, both of which generally occur simultaneously at the time
each home is closed. Insurance commissions are recognized when
policies are issued. The financial services segment also
generated revenues from escrow coordination services until the
escrow coordination business was terminated in 2007. Escrow
coordination fees were recognized at the time the home was
closed.
Prior to September 1, 2005, the Company also directly
generated revenues from loan originations and sales of mortgage
loans and servicing rights through KBHMC. Since
September 1, 2005, these mortgage banking activities have
been performed by Countrywide KB Home Loans, an unconsolidated
joint venture.
Stock-Based Compensation.
Effective
December 1, 2005, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), which
requires that companies measure and recognize compensation
expense at an amount equal to the fair value of share-based
payments granted under compensation arrangements. The Company
provides compensation benefits by issuing stock options,
restricted stock, phantom shares and SARs. Prior to
December 1, 2005, the Company accounted for its stock
option grants under the recognition and measurement provisions
of APB Opinion No. 25 and related interpretations.
The Company adopted SFAS No. 123(R) using the modified
prospective transition method. Under that transition method, the
provisions of SFAS No. 123(R) apply to all awards
granted or modified after the date of adoption. In addition,
compensation expense must be recognized for any unvested stock
option awards outstanding as of the date of adoption on a
straight-line basis over the remaining vesting period. The fair
value of stock options is estimated on the date of grant using
the Black-Scholes option-pricing model. In addition,
SFAS No. 123(R) requires the tax benefit resulting
from tax deductions in excess of the compensation expense
recognized for those options to be reported in the statement of
cash flows as an operating cash outflow and a financing cash
inflow rather than as an operating cash inflow as previously
reported.
SFAS No. 123(R) requires disclosure of pro forma financial
information for periods prior to adoption. The following table
sets forth the effect on net income and earnings per share as if
the fair value recognition provisions of SFAS
53
No. 123(R) had been applied to all outstanding and unvested
awards in the year ended November 30, 2005 (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
823,712
|
|
|
|
|
|
Add: Stock-based compensation expense included in net income,
net of related tax effects
|
|
|
4,309
|
|
|
|
|
|
Deduct: Stock-based compensation expense determined using the
fair value method, net of related tax effects
|
|
|
(19,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
808,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
10.06
|
|
|
|
|
|
Basic pro forma
|
|
|
9.87
|
|
|
|
|
|
Diluted as reported
|
|
|
9.32
|
|
|
|
|
|
Diluted pro forma
|
|
|
9.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising Costs.
The Company expenses
advertising costs as incurred. The Company incurred advertising
costs of $68.0 million in 2007, $107.0 million in 2006
and $78.6 million in 2005.
Insurance.
The Company has, and requires the
majority of its subcontractors to have, general liability
insurance (including construction defect coverage) and workers
compensation insurance. These insurance policies protect the
Company against a portion of its risk of loss from claims,
subject to certain self-insured retentions, deductibles and
other coverage limits. The Company records expenses and
liabilities for self-insured and deductible amounts, based on an
analysis of its historical claims, which includes an estimate of
claims incurred but not yet reported. The Company self-insures a
portion of its overall risk through a captive insurance
subsidiary.
Income Taxes.
Income taxes are accounted for
in accordance with SFAS No. 109. The provision for, or
benefit from, income taxes is calculated using the asset and
liability method, under which deferred tax assets and
liabilities are recorded based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are
evaluated on a quarterly basis to determine whether a valuation
allowance is required. In accordance with SFAS No. 109, the
Company assesses whether a valuation allowance should be
established based on its determination of whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets depends primarily on the generation of
future taxable income during the periods in which those
temporary differences become deductible. Judgment is required in
determining the future tax consequences of events that have been
recognized in the Companys consolidated financial
statements and/or tax returns. Differences between anticipated
and actual outcomes of these future tax consequences could have
a material impact on the Companys consolidated financial
position or results of operations.
Other Comprehensive Income (Loss).
The
accumulated balance of other comprehensive loss in the
consolidated balance sheet as of November 30, 2007 is
comprised solely of an adjustment of $22.9 million recorded
directly to accumulated other comprehensive loss at the end of
2007 to initially apply SFAS No. 158, 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). The accumulated balance of other
comprehensive income in the consolidated balance sheet as of
November 30, 2006 is comprised solely of cumulative foreign
currency translation adjustments of $63.2 million related
to the Companys French operations, which were sold in 2007.
Earnings (Loss) Per Share.
Basic earnings
(loss) per share is calculated by dividing net income (loss) by
the average number of common shares outstanding for the period.
Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the average number of shares outstanding
including all potentially dilutive shares issuable under
outstanding stock options. All outstanding stock options were
excluded from the diluted earnings (loss) per share calculations
for the year ended November 30, 2007 because they were
antidilutive due to the loss from continuing
operations. For the years ended November 30, 2006 and
2005, options to purchase 597,100 shares and
5,700 shares, respectively, were excluded from the
computations of diluted earnings per share because the exercise
price was greater
54
than the average market price of the common stock and their
effect would have been antidilutive. The following table
presents a reconciliation of average shares outstanding (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Basic average shares outstanding
|
|
|
77,172
|
|
|
|
78,829
|
|
|
|
81,888
|
|
Net effect of stock options assumed to be exercised
|
|
|
|
|
|
|
4,027
|
|
|
|
6,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
77,172
|
|
|
|
82,856
|
|
|
|
88,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements.
In July
2006, the FASB issued FASB Interpretation No. 48, which
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FASB
Interpretation No. 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
provisions of FASB Interpretation No. 48 are effective for
the Companys first quarter ending February 29, 2008.
The Company is in the process of evaluating the potential impact
of adopting FASB Interpretation No. 48, but does not expect
the interpretation to have a material impact on its consolidated
financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, which
provides guidance for using fair value to measure assets and
liabilities, defines fair value, establishes a framework for
measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007 and for interim periods
within those years. The Company is currently evaluating the
potential impact of adopting SFAS No. 157 on its
consolidated financial position and results of operations.
In November 2006, the EITF ratified EITF
06-8,
which
states that adequacy of the buyers investment under
SFAS No. 66 should be assessed in determining whether
to recognize profit under the
percentage-of-completion
method on the sale of individual units in a condominium project.
EITF
06-8
could require that additional deposits be collected by
developers of condominium projects that wish to recognize profit
during the construction period under the
percentage-of-completion
method. EITF
06-8
is
effective for fiscal years beginning after March 15, 2007.
The Company is currently evaluating the potential impact of
adopting EITF
06-8
on its
consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, which
permits entities to choose to measure certain financial assets
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
are reported in earnings. SFAS No. 159 is effective as
of the beginning of an entitys first fiscal year that
begins after November 15, 2007. The Company is currently
evaluating the potential impact of the adoption of
SFAS No. 159; however, it is not expected to have a
material impact on the Companys consolidated financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 141(R),
which amends SFAS No. 141, 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 SFAS No. 160, which
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.
Reclassifications.
Certain amounts in the
consolidated financial statements of prior years have been
reclassified to conform to the 2007 presentation.
55
|
|
Note 2.
|
Segment
Information
|
As of November 30, 2007, 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.
The homebuilding reporting segments have operations in the
following states:
West Coast: California
Southwest: Arizona, Nevada and New Mexico
Central: Colorado, Illinois and Texas
Southeast: Florida, Georgia, Maryland, North Carolina, South
Carolina and Virginia
The Companys homebuilding reporting segments are engaged
in the acquisition and development of land primarily for
residential purposes and offer a wide variety of homes that are
designed to appeal to first-time, first move-up and active adult
buyers.
The Companys homebuilding reporting segments were
identified based primarily on similarities in economic and
geographic characteristics, as well as similar product type,
regulatory environments, methods used to sell and construct
homes and land acquisition characteristics. The Company
evaluates segment performance primarily based on segment pretax
income.
The Companys financial services reporting segment provides
mortgage banking, title and insurance services to the
Companys homebuyers. This segment also provided escrow
coordination services to the Companys homebuyers until the
escrow coordination business was terminated in 2007. Mortgage
banking services were provided directly by KBHMC prior to
September 1, 2005. From and after that date, mortgage
banking services have been provided through Countrywide KB Home
Loans. The Companys financial services segment operates in
the same markets as the Companys homebuilding reporting
segments.
The Companys reporting segments follow the same accounting
policies used for the Companys consolidated financial
statements as described in Note 1. Summary of Significant
Accounting Policies. Operational results of each segment are not
necessarily indicative of the results that would have occurred
had the segment been an independent, stand-alone entity during
the periods presented.
The following tables present financial information relating to
the Companys reporting segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
2,203,303
|
|
|
$
|
3,531,279
|
|
|
$
|
3,050,486
|
|
Southwest
|
|
|
1,349,570
|
|
|
|
2,183,830
|
|
|
|
1,964,483
|
|
Central
|
|
|
1,077,304
|
|
|
|
1,553,309
|
|
|
|
1,559,067
|
|
Southeast
|
|
|
1,770,414
|
|
|
|
2,091,425
|
|
|
|
1,549,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
|
6,400,591
|
|
|
|
9,359,843
|
|
|
|
8,123,313
|
|
Financial services
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
31,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(665,845
|
)
|
|
$
|
359,864
|
|
|
$
|
681,303
|
|
Southwest
|
|
|
(287,339
|
)
|
|
|
365,098
|
|
|
|
513,846
|
|
Central
|
|
|
(64,210
|
)
|
|
|
(54,749
|
)
|
|
|
28,152
|
|
Southeast
|
|
|
(230,420
|
)
|
|
|
38,933
|
|
|
|
152,508
|
|
Corporate and other (a)
|
|
|
(246,792
|
)
|
|
|
(170,835
|
)
|
|
|
(185,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding income (loss) from continuing operations
before income taxes
|
|
|
(1,494,606
|
)
|
|
|
538,311
|
|
|
|
1,190,336
|
|
Financial services
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations before income
taxes
|
|
$
|
(1,460,770
|
)
|
|
$
|
571,847
|
|
|
$
|
1,201,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Interest cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
63,902
|
|
|
$
|
20,160
|
|
|
$
|
16,970
|
|
Southwest
|
|
|
45,827
|
|
|
|
49,622
|
|
|
|
27,912
|
|
Central
|
|
|
21,184
|
|
|
|
37,518
|
|
|
|
41,046
|
|
Southeast
|
|
|
44,364
|
|
|
|
31,850
|
|
|
|
14,150
|
|
Corporate and other
|
|
|
9,209
|
|
|
|
20,777
|
|
|
|
17,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (b)
|
|
$
|
184,486
|
|
|
$
|
159,927
|
|
|
$
|
117,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income (loss) of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(64,886
|
)
|
|
$
|
(25,732
|
)
|
|
$
|
13,287
|
|
Southwest
|
|
|
(15,734
|
)
|
|
|
(26
|
)
|
|
|
112
|
|
Central
|
|
|
(6,916
|
)
|
|
|
(3,829
|
)
|
|
|
(2
|
)
|
Southeast
|
|
|
(64,381
|
)
|
|
|
(12,290
|
)
|
|
|
(319
|
)
|
Corporate and other
|
|
|
|
|
|
|
21,047
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(151,917
|
)
|
|
$
|
(20,830
|
)
|
|
$
|
14,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
631,399
|
|
|
$
|
113,022
|
|
|
$
|
|
|
Southwest
|
|
|
337,889
|
|
|
|
17,343
|
|
|
|
|
|
Central
|
|
|
24,662
|
|
|
|
30,592
|
|
|
|
23,743
|
|
Southeast
|
|
|
116,023
|
|
|
|
67,808
|
|
|
|
2,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,109,973
|
|
|
$
|
228,765
|
|
|
$
|
26,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory abandonments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
28,011
|
|
|
$
|
65,740
|
|
|
$
|
6,083
|
|
Southwest
|
|
|
16,479
|
|
|
|
22,069
|
|
|
|
1,521
|
|
Central
|
|
|
9,783
|
|
|
|
18,198
|
|
|
|
4,026
|
|
Southeast
|
|
|
89,736
|
|
|
|
37,865
|
|
|
|
4,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,009
|
|
|
$
|
143,872
|
|
|
$
|
16,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
57,030
|
|
|
$
|
34,401
|
|
|
$
|
|
|
Southwest
|
|
|
31,049
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
63,801
|
|
|
|
24,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
156,363
|
|
|
$
|
58,602
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Corporate and other includes corporate general and
administrative expenses and goodwill impairment.
|
|
(b)
|
|
Interest cost includes interest amortized in construction and
land costs, interest expense, and, in 2007, the loss on early
redemption of debt. Interest included in construction and land
costs totaled $171.5 million in 2007, $143.2 million
in 2006 and $101.0 million in 2005. The loss on early
redemption of debt in 2007 totaled $13.0 million. Interest
expense totaled $0 million in 2007, $16.7 million in
2006 and $16.3 million in 2005.
|
57
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
Assets:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
1,542,948
|
|
|
$
|
2,910,764
|
|
Southwest
|
|
|
887,361
|
|
|
|
1,324,239
|
|
Central
|
|
|
643,599
|
|
|
|
879,134
|
|
Southeast
|
|
|
845,679
|
|
|
|
1,504,333
|
|
Corporate and other
|
|
|
1,741,977
|
|
|
|
1,206,869
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding assets
|
|
|
5,661,564
|
|
|
|
7,825,339
|
|
Financial services
|
|
|
44,392
|
|
|
|
44,024
|
|
Discontinued operations
|
|
|
|
|
|
|
1,394,375
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,705,956
|
|
|
$
|
9,263,738
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
63,450
|
|
|
$
|
48,013
|
|
Southwest
|
|
|
134,082
|
|
|
|
174,168
|
|
Central
|
|
|
7,230
|
|
|
|
14,344
|
|
Southeast
|
|
|
92,248
|
|
|
|
144,717
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
297,010
|
|
|
$
|
381,242
|
|
|
|
|
|
|
|
|
|
|
Note 3. Financial
Services
Financial information related to the Companys financial
services segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
158
|
|
|
$
|
230
|
|
|
$
|
8,167
|
|
Title services
|
|
|
5,977
|
|
|
|
7,205
|
|
|
|
6,053
|
|
Insurance commissions
|
|
|
9,193
|
|
|
|
9,410
|
|
|
|
8,256
|
|
Escrow coordination fees
|
|
|
607
|
|
|
|
3,395
|
|
|
|
3,037
|
|
Mortgage and servicing rights income
|
|
|
|
|
|
|
|
|
|
|
5,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
31,368
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
(49
|
)
|
|
|
(5,164
|
)
|
General and administrative
|
|
|
(4,796
|
)
|
|
|
(5,874
|
)
|
|
|
(22,077
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
6,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11,139
|
|
|
|
14,317
|
|
|
|
10,968
|
|
Equity in income of unconsolidated joint venture
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
33,836
|
|
|
$
|
33,536
|
|
|
$
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,487
|
|
|
$
|
15,417
|
|
Receivables
|
|
|
2,655
|
|
|
|
2,911
|
|
Investment in unconsolidated joint venture
|
|
|
23,140
|
|
|
|
25,296
|
|
Other assets
|
|
|
110
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
44,392
|
|
|
$
|
44,024
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
17,796
|
|
|
$
|
26,276
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
17,796
|
|
|
$
|
26,276
|
|
|
|
|
|
|
|
|
|
|
On September 1, 2005, the Company completed the sale of
substantially all the mortgage banking assets of KBHMC to
Countrywide and in a separate transaction established a joint
venture, Countrywide KB Home Loans. In the first transaction,
the Company received $42.4 million of cash as full
consideration for the assets sold. The Company recognized a gain
of $26.6 million on the sale, which represented the cash
received over the sum of the book value of the assets sold and
certain nominal costs associated with the disposal. The gain is
included in other financial services expenses of
$6.8 million in 2005 along with $19.8 million of
expenses accrued for various regulatory and other contingencies.
In the second transaction, the Company contributed
$15.0 million of cash for a 50% interest in the Countrywide
KB Home Loans joint venture. The Countrywide KB Home Loans
joint venture replaced the mortgage banking operations of KBHMC.
Countrywide KB Home Loans makes loans to many of the
Companys homebuyers. The Company and Countrywide each have
a 50% ownership interest in the joint venture with Countrywide
providing management oversight of the joint ventures
operations. The results of operations of the financial services
segment in 2005 reflect the wind-down of KBHMCs mortgage
banking operations, which were consolidated in the
Companys financial statements, and the commencement of
operations of the Countrywide KB Home Loans joint venture, which
is accounted for as an unconsolidated joint venture.
KBHMC may be required to repurchase an individual loan sold to
an investor if the representations or warranties that it made in
connection with the sale of the loan are breached, in the event
of an early payment default, or if the loan does not comply with
the underwriting standards or other requirements of the ultimate
investor.
Mortgages and notes receivable totaled $46.8 million at
November 30, 2007 and $6.8 million at
November 30, 2006. Mortgages receivable are primarily
related to land sales. Interest rates on mortgages and notes
receivable ranged from 5% to
8
1
/
4
%
at November 30, 2007. The interest rate on mortgages and
notes receivable at November 30, 2006 was 5%. Principal
amounts at November 30, 2007 are due during the following
years: 2008 $2.8 million; 2009
$1.7 million; 2010 $1.9 million;
2011 $0; 2012 $.4 million; and
thereafter $40.0 million. Other receivables of
$248.9 million at November 30, 2007 and
$217.3 million at November 30, 2006 included federal
and state income taxes receivable, amounts due from
municipalities and utility companies, and escrow deposits. Other
receivables were net of allowances for doubtful accounts of
$76.9 million in 2007 and $39.4 million in 2006.
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Homes, lots and improvements in production
|
|
$
|
2,473,980
|
|
|
$
|
3,834,969
|
|
Land under development
|
|
|
838,440
|
|
|
|
1,916,674
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,312,420
|
|
|
$
|
5,751,643
|
|
|
|
|
|
|
|
|
|
|
59
Inventories include land and land development costs, direct
construction costs, capitalized interest and real estate taxes.
Land under development primarily consists of parcels on which
50% or less of estimated development costs have been incurred.
Interest is capitalized to inventories while the related
communities are being actively developed. Capitalized interest
is amortized in construction and land costs as the related
inventories are delivered to homebuyers. The Companys
interest costs are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Capitalized interest at beginning of year
|
|
$
|
333,020
|
|
|
$
|
255,195
|
|
|
$
|
213,428
|
|
Interest incurred
|
|
|
199,550
|
|
|
|
237,752
|
|
|
|
159,081
|
|
Loss on early redemption/interest expensed
|
|
|
(12,990
|
)
|
|
|
(16,678
|
)
|
|
|
(16,343
|
)
|
Interest amortized
|
|
|
(171,496
|
)
|
|
|
(143,249
|
)
|
|
|
(100,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest at end of year
|
|
$
|
348,084
|
|
|
$
|
333,020
|
|
|
$
|
255,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6.
|
Inventory
Impairments and Abandonments
|
The Company evaluates its inventory for recoverability in
accordance with SFAS No. 144 whenever indicators of
potential impairment exist. Impairment indicators are assessed
separately for each parcel or community and include, but are not
limited to: significant decreases in sales rates, average
selling prices, home delivery volume or gross margins;
significant increases in budgeted land development and
construction costs or cancellation rates; or projected losses on
expected future housing or land sales. 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.
Impaired assets are written down to fair value, which is
primarily based on estimated future cash flows discounted for
inherent risk associated with each asset. These cash flows are
impacted by the Companys expectations related to market
supply and demand, including its estimates concerning average
selling prices; sales incentives; and sales and cancellation
rates. These cash flows also reflect the Companys expected
land development construction timelines and anticipated land
development, construction, and overhead costs to be incurred.
The Companys estimates are specific to each community and
may vary among communities. Generally, the assumptions used
reflect the Companys expectation that the challenging
conditions in the homebuilding industry will continue in 2008.
Due to the judgment and assumptions applied in the estimation
process, it is possible that actual results could differ from
those estimated.
Based on the results of its evaluations, the Company recognized
non-cash inventory impairment charges of $1.11 billion in
2007, $228.7 million in 2006 and $26.7 million in
2005. The carrying value of inventories impacted by
non-cash
impairment charges totaled $1.35 billion at November 30,
2007 and $497.8 million at November 30, 2006.
When the Company determines that it no longer plans to exercise
land option contracts due to market conditions and/or changes in
market strategy, it writes off the costs, including
non-refundable deposits and pre-acquisition costs, related to
the abandoned projects. The Company recognized abandonment
charges associated with land option contracts of
$144.0 million in 2007, $143.9 million in 2006 and
$16.2 million in 2005.
The inventory impairment charges and land option contract
abandonment charges are included in construction and land costs
in the Companys consolidated statements of operations.
|
|
Note 7.
|
Consolidation
of Variable Interest Entities
|
In December 2003, FASB Interpretation No. 46(R) was issued
by the FASB to clarify the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements to certain entities, VIEs, in which equity
investors do not have the characteristics of a controlling
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support. Under FASB Interpretation No. 46(R), an
enterprise that absorbs a majority of the VIEs expected
losses, receives a majority of the VIEs expected residual
returns, or both, is considered to be the primary beneficiary of
the VIE and must consolidate the entity in its financial
statements.
60
The Company enters into joint ventures from time to time for the
purpose of conducting land acquisition, development and other
homebuilding activities. Its investments in these joint ventures
may create a variable interest in a VIE, depending on the
contractual terms of the arrangement. The Company analyzes its
joint ventures in accordance with FASB Interpretation
No. 46(R) when they are entered into or upon a
reconsideration event. All of the Companys joint ventures
at November 30, 2007 and 2006 were determined to be
unconsolidated joint ventures because either 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 in order to procure land for the
construction of homes. Under such land option contracts, the
Company will fund 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, and 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 optioned land, FASB Interpretation No. 46(R)
requires the Company to consolidate the VIE if it is determined
to be the primary beneficiary. The consolidation of these VIEs
where the Company was determined to be the primary beneficiary
increased inventories, with a corresponding increase to accrued
expenses and other liabilities, on the Companys
consolidated balance sheets by $19.0 million at
November 30, 2007 and $215.4 million at
November 30, 2006. The liabilities related to the
Companys consolidation of VIEs from which it is purchasing
land under option contracts represent the difference between the
purchase price of optioned land not yet purchased and the
Companys cash deposits. The Companys cash deposits
related to these land option contracts totaled $4.7 million
at November 30, 2007 and $41.9 million at
November 30, 2006. Creditors, if any, of these VIEs have no
recourse against the Company. As of November 30, 2007,
excluding consolidated VIEs, the Company had cash deposits
totaling $54.6 million that were associated with land
option contracts having an aggregate purchase price of
$979.1 million.
The Companys exposure to loss related to its option
contracts with third parties and unconsolidated entities
consisted of its non-refundable option deposits totaling $59.3
million at November 30, 2007 and $132.7 million at
November 30, 2006. In addition, the Company posted letters
of credit of $103.7 million at November 30, 2007 and
$197.6 million at November 30, 2006 in lieu of cash
deposits under certain option contracts.
The Company also evaluates land option contracts in accordance
with SFAS No. 49 and increased inventories, with a
corresponding increase to accrued expenses and other
liabilities, on its consolidated balance sheets by
$221.1 million at November 30, 2007 and
$434.2 million at November 30, 2006, as a result of
its evaluations.
|
|
Note 8.
|
Investments
in Unconsolidated Joint Ventures
|
The Company conducts a portion of its land acquisition,
development and other homebuilding activities through
participation in unconsolidated joint ventures in which the
Company holds less than a controlling interest. These
unconsolidated joint ventures operate in certain markets where
the Companys consolidated homebuilding operations are
located. Through unconsolidated joint ventures, the Company
reduces and shares its risk and also reduces the amount invested
in land, while increasing its access to potential future
homesites. The use of unconsolidated joint ventures also, in
some instances, enables the Company to acquire land which it may
not otherwise obtain or access on as favorable terms without the
participation of a strategic partner. The Companys
partners in these unconsolidated joint ventures are unrelated
homebuilders, land developers and other real estate entities, or
other commercial enterprises. The unconsolidated joint ventures
follow U.S. generally accepted accounting principles. The
Company shares in profits and losses of these unconsolidated
joint ventures generally in accordance with its ownership
interests.
The Company and/or its joint venture partners sometimes obtain
certain options or enter into other arrangements to purchase
portions of the land held by the unconsolidated joint ventures.
These land option prices are generally negotiated prices that
approximate fair value. The Company does not include in its
income from unconsolidated joint ventures its pro rata share of
unconsolidated joint venture earnings resulting from land sales
to its 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
61
land from the unconsolidated joint ventures. Combined condensed
statement of operations information concerning the
Companys unconsolidated joint venture activities follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
662,705
|
|
|
$
|
167,536
|
|
|
$
|
212,270
|
|
Construction and land costs
|
|
|
(670,133
|
)
|
|
|
(189,507
|
)
|
|
|
(172,002
|
)
|
Other expenses, net
|
|
|
(44,126
|
)
|
|
|
(26,598
|
)
|
|
|
(5,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
$
|
(51,554
|
)
|
|
$
|
(48,569
|
)
|
|
$
|
34,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys equity in loss of unconsolidated joint
ventures reflects non-cash impairment charges of
$156.4 million in 2007, including $123.4 million of
valuation adjustments related to the Companys investments
in certain unconsolidated joint ventures. In 2006, the
Companys equity in loss of unconsolidated joint ventures
included
non-cash
impairment charges of $58.6 million associated with certain
unconsolidated joint ventures and a gain of $27.6 million
related to the sale of the Companys ownership interest in
an unconsolidated joint venture.
Combined condensed balance sheet information concerning the
Companys unconsolidated joint venture activities follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
51,249
|
|
|
$
|
61,745
|
|
Receivables
|
|
|
234,265
|
|
|
|
6,704
|
|
Inventories
|
|
|
2,209,907
|
|
|
|
2,305,423
|
|
Other assets
|
|
|
15,513
|
|
|
|
23,100
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,510,934
|
|
|
$
|
2,396,972
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
68,217
|
|
|
$
|
55,144
|
|
Mortgages and notes payable
|
|
|
1,540,931
|
|
|
|
1,450,369
|
|
Equity
|
|
|
901,786
|
|
|
|
891,459
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,510,934
|
|
|
$
|
2,396,972
|
|
|
|
|
|
|
|
|
|
|
The joint ventures finance land and inventory investments
through a variety of borrowing arrangements. In certain
instances, the Company provides varying levels of guarantees on
the debt of unconsolidated joint ventures.
During the third quarter of 2007, the Company determined that it
was necessary to evaluate goodwill for impairment in accordance
with SFAS No. 142 due to the deteriorating conditions in certain
housing markets, the significant inventory impairments the
Company identified and recognized during the quarter in
accordance with SFAS No. 144, and the decline in the market
price of the Companys common stock to a level below its
per share book value. Based on the results of its evaluation,
the Company recorded an impairment charge of $107.9 million
in the third quarter of 2007 related to its Southwest reporting
segment, where the goodwill previously recorded was determined
to be impaired. The charge was recorded at the Companys
corporate level since all goodwill is carried at that level. The
annual impairment test performed by the Company as of
November 30, 2007 indicated no additional impairments. The
impairment test performed by the Company as of November 30,
2006 indicated no goodwill impairment.
The Companys goodwill evaluations utilized discounted cash
flow analyses and market multiple analyses of historical and
forecasted operating results of its reporting units. Inherent in
the Companys fair value determinations are certain
judgments and estimates relating to future cash flows, current
economic indicators and market valuations, and the
Companys strategic operational plans. A change in such
assumptions may cause a change in the results of the analyses
performed. In addition, to the extent significant changes occur
in market conditions, overall economic conditions or the
62
Companys strategic operational plans, it is possible that
goodwill not currently impaired may become impaired in the
future.
The changes in the carrying amount of goodwill are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
177,333
|
|
|
$
|
182,062
|
|
Impairments
|
|
|
(107,926
|
)
|
|
|
|
|
Other
|
|
|
(1,437
|
)
|
|
|
(4,729
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
67,970
|
|
|
$
|
177,333
|
|
|
|
|
|
|
|
|
|
|
The Companys goodwill balance at November 30, 2007
was comprised of $24.6 million and $43.4 million
related to the Central and Southeast segments, respectively. At
November 30, 2006, goodwill consisted of
$107.9 million, $25.0 million and $44.4 million
related to the Southwest, Central and Southeast segments,
respectively.
|
|
Note 10.
|
Mortgages
and Notes Payable
|
Mortgages and notes payable consisted of the following (in
thousands, interest rates are as of November 30):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Mortgages and land contracts due to land sellers and other loans
(4% to 10% in 2007 and 5% to 8% in 2006)
|
|
$
|
19,140
|
|
|
$
|
129,121
|
|
Term loan due 2011
(6
1
/
8
%
in 2006)
|
|
|
|
|
|
|
400,000
|
|
Senior subordinated notes due 2008 at
8
5
/
8
%
|
|
|
200,000
|
|
|
|
200,000
|
|
Senior subordinated notes due 2010 at
7
3
/
4
%
|
|
|
298,273
|
|
|
|
297,569
|
|
Senior subordinated notes due 2011 at
9
1
/
2
%
|
|
|
|
|
|
|
250,000
|
|
Senior notes due 2011 at
6
3
/
8
%
|
|
|
348,549
|
|
|
|
348,213
|
|
Senior notes due 2014 at
5
3
/
4
%
|
|
|
249,102
|
|
|
|
248,984
|
|
Senior notes due 2015 at
5
7
/
8
%
|
|
|
298,521
|
|
|
|
298,362
|
|
Senior notes due 2015 at
6
1
/
4
%
|
|
|
449,612
|
|
|
|
449,573
|
|
Senior notes due 2018 at
7
1
/
4
%
|
|
|
298,597
|
|
|
|
298,512
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,161,794
|
|
|
$
|
2,920,334
|
|
|
|
|
|
|
|
|
|
|
The Company entered into the five-year Credit Facility with a
consortium of lenders on November 22, 2005. Interest on the
Credit Facility is payable monthly at the London Interbank
Offered Rate plus an applicable spread on amounts borrowed. At
November 30, 2007 and 2006, the Company had no borrowings
under the Credit Facility and there were $296.8 million and
$464.2 million, respectively, in letters of credit
outstanding.
On August 17, 2007, the Company entered into the Revolver
Amendment to the Credit Facility. The Revolver Amendment allows
for a reduction of the Coverage Ratio otherwise required under
the Credit Facility for the Reduction Period. The Coverage Ratio
is the ratio of the Companys consolidated EBITDA to
consolidated interest expense (as defined under the Credit
Facility). During the Reduction Period, the interest rates
applied to borrowings and the unused line fee under the Credit
Facility, and the maximum ratio of the Companys
consolidated total indebtedness to consolidated tangible net
worth, are subject to adjustment. The Revolver Amendment also
permits the Company to eliminate any minimum Coverage Ratio
requirement during the Reduction Period, for a period of up to
four quarters, if certain financial criteria are met, and makes
certain permanent amendments to certain other provisions of the
Credit Facility. Consenting lenders to the Revolver Amendment
received a fee in connection with this amendment.
In 2007, the Company completed the early redemption of
$650.0 million of debt. On July 27, 2007, the Company
redeemed all $250.0 million of its
9
1
/
2
%
senior subordinated notes due in 2011 at a price of 103.167% of
the principal amount of the notes, plus accrued interest to the
date of redemption. On July 31, 2007, the Company repaid in
full the $400 Million Term Loan, together with accrued
interest to the date of repayment. The $400 Million Term Loan
was
63
scheduled to mature on April 11, 2011. The Company incurred
a loss of $13.0 million associated with the early
extinguishment of debt, primarily due to a call premium on the
senior subordinated notes and the write-off of unamortized debt
issuance costs.
The weighted average annual interest rate on aggregate unsecured
borrowings, excluding the senior subordinated and senior notes,
was
6
1
/
8
%
at November 30, 2006. The Company had no unsecured
borrowings, excluding the senior subordinated and senior notes,
at November 30, 2007.
On December 14, 2001, pursuant to its universal shelf
registration statement filed with the SEC on December 5,
1997 (the 1997 Shelf Registration), the Company
issued $200.0 million of
8
5
/
8
% senior
subordinated notes at 100% of the principal amount of the notes.
The notes, which are due December 15, 2008, with interest
payable semi-annually, represent unsecured obligations of the
Company and are subordinated to all existing and future senior
indebtedness of the Company. The notes are not redeemable at the
option of the Company. The Company used $175.0 million of
the net proceeds from the issuance of the notes to redeem all of
its then-outstanding $175.0 million
9
3
/
8
% senior
subordinated notes, which were due in 2003. The remaining net
proceeds were used for general corporate purposes.
Pursuant to its universal shelf registration statement filed
with the SEC on October 15, 2001 (as subsequently amended,
the 2001 Shelf Registration), on January 27,
2003, the Company issued $250.0 million of
7
3
/
4
% senior
subordinated notes at 98.444% of the principal amount of the
notes and on February 7, 2003, the Company issued an
additional $50.0 million of notes in the same series
(collectively, the $300 Million Senior Subordinated
Notes). The $300 Million Senior Subordinated Notes,
which are due February 1, 2010, with interest payable
semi-annually, represent unsecured obligations of the Company
and are subordinated to all existing and future senior
indebtedness of the Company. The $300 Million Senior
Subordinated Notes were redeemable at the option of the Company
at 103.875% of their principal amount beginning February 1,
2007 and are redeemable thereafter at prices declining annually
to 100% on and after February 1, 2009. The Company used
$129.0 million of the net proceeds from the issuance of the
notes to redeem all of its then-outstanding $125.0 million
9
5
/
8
% senior
subordinated notes, which were due in 2006.
The Company issued $350.0 million of
6
3
/
8
%
senior notes due 2011 (the $350 Million Senior
Notes) on June 30, 2004 at 99.3% of the principal
amount of the notes in a private placement. The notes, which are
due August 15, 2011, with interest payable semi-annually,
represent senior unsecured obligations of the Company and rank
equally in right of payment with all of the Companys
existing and future senior unsecured indebtedness. The
$350 Million Senior Notes may be redeemed, in whole at any
time or from time to time in part, at a price equal to 100% of
their principal amount, plus a premium, plus accrued and unpaid
interest to the applicable redemption date. The notes are
unconditionally guaranteed jointly and severally by certain of
the Companys subsidiaries (Guarantor
Subsidiaries) on a senior unsecured basis. The Company
used all of the net proceeds from the issuance of the
$350 Million Senior Notes to repay bank borrowings. On
December 3, 2004, the Company exchanged all of the
privately placed $350 Million Senior Notes for notes that
are substantially identical except that the new notes are
registered under the Securities Act of 1933.
On January 28, 2004, the Company issued $250.0 million of
5
3
/
4
%
senior notes due 2014 (the $250 Million Senior
Notes) at 99.474% of the principal amount of the notes in
a private placement. The notes, which are due February 1,
2014, with interest payable semi-annually, represent senior
unsecured obligations of the Company and rank equally in right
of payment with all of the Companys existing and future
senior unsecured indebtedness. The $250 Million Senior
Notes may be redeemed, in whole at any time or from time to time
in part, at a price equal to 100% of their principal amount,
plus a premium, plus accrued and unpaid interest to the
applicable redemption date. The notes are unconditionally
guaranteed jointly and severally by the Guarantor Subsidiaries
on a senior unsecured basis. The Company used all of the net
proceeds from the issuance of the $250 Million Senior Notes
to repay bank borrowings. On June 16, 2004, the Company
exchanged all of the privately placed $250 Million Senior
Notes for notes that are substantially identical except that the
new notes are registered under the Securities Act of 1933.
On November 12, 2004, the Company filed the 2004 Shelf
Registration with the SEC. The 2004 Shelf Registration, which
provided the Company with a total public debt and equity
issuance capacity of $1.50 billion, was declared effective
on November 29, 2004. The Companys previously
outstanding 2001 Shelf Registration in the amount of
$450.0 million was subsumed within the 2004 Shelf
Registration. The 2004 Shelf Registration provides that
securities may be offered from time to time in one or more
series and in the form of senior, senior subordinated or
subordinated debt, guarantees of debt securities, preferred
stock, common stock, stock purchase contracts, stock purchase
units, depositary shares and/or warrants to purchase such
securities.
64
On December 15, 2004, pursuant to the 2004 Shelf
Registration, the Company issued the $300 Million
5
7
/
8
%
Senior Notes at 99.357% of the principal amount of the notes.
The $300 Million
5
7
/
8
%
Senior Notes, which are due January 15, 2015, with interest
payable semi-annually, represent senior unsecured obligations of
the Company and rank equally in right of payment with all of the
Companys existing and future senior unsecured
indebtedness. The $300 Million
5
7
/
8
%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of
(a) 100% of their principal amount and (b) the sum of
the present values of the remaining scheduled payments
discounted to the date of redemption at a defined rate, plus, in
each case accrued and unpaid interest to the applicable
redemption date. The notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis. The Company used all of the net proceeds from
the issuance of the $300 Million
5
7
/
8
%
Senior Notes to pay down bank borrowings.
Pursuant to the 2004 Shelf Registration, on June 2, 2005,
the Company issued the $450 Million Senior Notes at
100.614% of the principal amount of the notes plus accrued
interest from June 2, 2005. The $450 Million Senior
Notes, which are due June 15, 2015, with interest payable
semi-annually, represent senior unsecured obligations of the
Company and rank equally in right of payment with all of the
Companys existing and future senior unsecured
indebtedness. The $450 Million Senior Notes may be
redeemed, in whole at any time or from time to time in part, at
a price equal to the greater of (a) 100% of their principal
amount and (b) the sum of the present values of the
remaining scheduled payments discounted to the date of
redemption at a defined rate, plus, in each case, accrued and
unpaid interest to the applicable redemption date. The notes are
unconditionally guaranteed jointly and severally by the
Guarantor Subsidiaries on a senior unsecured basis. The Company
used all of the net proceeds from the issuance of the
$450 Million Senior Notes to pay down bank borrowings.
On April 3, 2006, pursuant to the 2004 Shelf Registration,
the Company issued the $300 Million
7
1
/
4
%
Senior Notes. The notes, which are due June 15, 2018 with
interest payable semi-annually, represent senior unsecured
obligations and rank equally in right of payment with all of the
Companys existing and future senior unsecured indebtedness
and are guaranteed jointly and severally by the Guarantor
Subsidiaries on a senior unsecured basis. The $300 Million
7
1
/
4
%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of (a) 100% of
their principal amount and (b) the sum of the present values of
the remaining scheduled payments of principal and interest on
the notes to be redeemed discounted at a defined rate, plus, in
each case, accrued and unpaid interest to the applicable
redemption date. The Company used all of the proceeds from the
$300 Million
7
1
/
4
%
Senior Notes to repay borrowings under its Credit Facility. At
November 30, 2007, $450.0 million of capacity remained
available under the 2004 Shelf Registration.
The senior and senior subordinated notes contain certain
restrictive covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay
dividends, make certain investments, create certain liens,
engage in mergers, consolidations, or sales of assets, or engage
in certain transactions with officers, directors and employees.
Under the terms of the Credit Facility, the Company is required,
among other things, to maintain certain financial statement
ratios and a minimum net worth and is subject to limitations on
acquisitions, inventories and indebtedness. Based on the terms
of the Credit Facility, senior subordinated and senior notes,
$283.2 million was available for payment of cash dividends
or stock repurchases at November 30, 2007.
The non-cash charges associated with inventory and joint venture
impairments, land option contract abandonments, goodwill
impairment and the valuation allowance on deferred tax assets in
2007 negatively affected the Companys ability to comply at
November 30, 2007 with a covenant in the Credit Facility
that requires the Company to maintain a certain consolidated
tangible net worth. As a result, on January 7, 2008, the
Company obtained a waiver of compliance under this covenant. To
address its covenant compliance for future periods, the Company
entered into a fourth amendment to its Credit Facility on
January 25, 2008 that amended the minimum consolidated tangible
net worth the Company is required to maintain.
Principal payments on senior subordinated and senior notes,
mortgages, land contracts and other loans are due as follows:
2008 $1.9 million; 2009
$200.4 million; 2010 $315.1 million;
2011 $348.5 million; 2012 $0; and
thereafter $1.30 billion.
Assets (primarily inventories) having a carrying value of
approximately $48.0 million as of November 30, 2007
are pledged to collateralize mortgages, land contracts and other
secured loans.
65
|
|
Note 11.
|
Fair
Values of Financial Instruments
|
The estimated fair values of financial instruments have been
determined based on available market information and appropriate
valuation methodologies. However, judgment is required in
interpreting market data to develop the estimates of fair value.
In that regard, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange.
The carrying values and estimated fair values of the
Companys financial instruments, except for those for which
the carrying values approximate fair values, are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Carrying Value
|
|
|
Value
|
|
|
Carrying Value
|
|
|
Value
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
5
/
8
% Senior
subordinated notes
|
|
$
|
200,000
|
|
|
$
|
194,750
|
|
|
$
|
200,000
|
|
|
$
|
208,500
|
|
7
3
/
4
% Senior
subordinated notes
|
|
|
298,273
|
|
|
|
277,394
|
|
|
|
297,569
|
|
|
|
302,776
|
|
9
1
/
2
% Senior
subordinated notes
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
258,658
|
|
6
3
/
8
% Senior
notes
|
|
|
348,549
|
|
|
|
319,358
|
|
|
|
348,213
|
|
|
|
342,398
|
|
5
3
/
4
% Senior
notes
|
|
|
249,102
|
|
|
|
216,096
|
|
|
|
248,984
|
|
|
|
229,573
|
|
5
7
/
8
% Senior
notes
|
|
|
298,521
|
|
|
|
256,728
|
|
|
|
298,362
|
|
|
|
274,493
|
|
6
1
/
4
% Senior
notes
|
|
|
449,612
|
|
|
|
388,352
|
|
|
|
449,573
|
|
|
|
426,532
|
|
7
1
/
4
% Senior
notes
|
|
|
298,597
|
|
|
|
268,364
|
|
|
|
298,512
|
|
|
|
298,906
|
|
The Company used the following methods and assumptions in
estimating fair values:
The fair values of the Companys senior subordinated and
senior notes are estimated based on quoted market prices.
The carrying amounts reported for cash and cash equivalents and
the $400 Million Term Loan approximate fair values.
|
|
Note 12.
|
Commitments
and Contingencies
|
Commitments and contingencies include the usual obligations of
homebuilders for the completion of contracts and those incurred
in the ordinary course of business.
The Company provides a limited warranty on all of its homes. The
specific terms and conditions of warranties vary depending upon
the market in which the Company does business. The Company
generally provides a structural warranty of 10 years, a
warranty on electrical, heating, cooling, plumbing and other
building systems each varying from two to five years based on
geographic market and state law, and a warranty of one year for
other components of the home such as appliances. 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
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.
The changes in the Companys warranty liability are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
141,060
|
|
|
$
|
122,503
|
|
Warranties issued
|
|
|
40,380
|
|
|
|
78,527
|
|
Payments and adjustments
|
|
|
(38,282
|
)
|
|
|
(59,970
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
143,158
|
|
|
$
|
141,060
|
|
|
|
|
|
|
|
|
|
|
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
66
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 construction
defect coverage) and workers compensation insurance. These
insurance policies protect the Company against a portion of its
risk of loss from claims, subject to certain self-insured
retentions, deductibles and other coverage limits. The Company
records expenses and liabilities for self-insured and deductible
amounts, based on an analysis of its historical claims, which
includes an estimate of claims incurred but not yet reported.
The Company self-insures a portion of its overall risk through a
captive insurance subsidiary. The Companys estimated
liabilities for such items were $95.6 million at
November 30, 2007 and $85.8 million at
November 30, 2006, and are included in the consolidated
balance sheets as accrued expenses and other liabilities.
The Company is often required to obtain bonds and letters of
credit in support of its obligations to various municipalities
and other government agencies in connection with subdivision
improvements such as roads, sewers and water. At
November 30, 2007, the Company had approximately
$1.08 billion of performance bonds and $296.8 million
of letters of credit outstanding. At November 30, 2006, the
Company had approximately $1.24 billion of performance
bonds and $464.2 million of letters of credit outstanding.
In the event any such bonds or letters of credit are called, the
Company would be obligated to reimburse the issuer of the bond
or letter of credit. However, the Company does not believe that
any currently outstanding bonds or letters of credit will be
called.
Borrowings outstanding and letters of credit issued under the
Credit Facility are guaranteed by the Guarantor Subsidiaries.
In the ordinary course of business, the Company enters into land
option contracts to procure land for the construction of homes.
At November 30, 2007, the Company had total deposits of
$163.0 million, comprised of cash deposits of
$59.3 million, and letters of credit of
$103.7 million, to purchase land with a total remaining
purchase price of $998.1 million. The Companys land
option contracts generally do not contain provisions requiring
its specific performance.
The Company conducts a portion of its land acquisition,
development and other residential activities through
unconsolidated joint ventures. These unconsolidated joint
ventures had outstanding secured construction debt of
approximately $1.54 billion at November 30, 2007 and
$1.45 billion at November 30, 2006. In certain
instances, the Company provides varying levels of guarantees on
the debt of unconsolidated joint ventures. When the Company
provides a guarantee, the unconsolidated joint venture generally
receives more favorable terms from lenders than would otherwise
be available to it. At November 30, 2007, the Company had
payment guarantees related to the third-party debt of two of its
unconsolidated joint ventures. One of these unconsolidated joint
ventures had aggregate third-party debt of $320.4 million
at November 30, 2007, of which each of the joint venture
partners guaranteed its pro rata share. The Companys share
of the payment guarantee, which is triggered only in the event
of bankruptcy of the joint venture, was 49% or
$155.2 million. The other unconsolidated joint venture had
total third-party debt of $6.2 million at November 30,
2007, of which each of the joint venture partners guaranteed its
pro rata share. The Companys share of this payment
guarantee was 50% or $3.1 million. The Companys pro
rata share of limited maintenance guarantees of unconsolidated
entity debt totaled $103.8 million at November 30,
2007. The limited maintenance guarantees only apply if the value
of the collateral (generally land and improvements) is less than
a specific percentage of the loan balance. If the Company is
required to make a payment under a limited maintenance guarantee
to bring the value of the collateral above the specified
percentage of the loan balance, the payment would constitute a
capital contribution and/or loan to the affected unconsolidated
joint venture.
The Company leases certain property and equipment under
noncancelable operating leases. Office and equipment leases are
typically for terms of three to five years and generally provide
renewal options for terms up to an additional five years. In
most cases, the Company expects that, in the normal course of
business, leases that expire will be renewed or replaced by
other leases. The future minimum rental payments under operating
leases, which primarily consist of office leases having initial
or remaining noncancelable lease terms in excess of one year are
as follows: 2008 $21.9 million;
2009 $19.8 million; 2010
$14.9 million; 2011 $8.5 million;
2012 $6.2 million; and thereafter
$8.3 million. Rental expense on these operating leases was
$21.7 million in 2007, $22.8 million in 2006 and
$18.7 million in 2005.
67
On November 12, 2006, the Company entered into a Tolling
Agreement with its former Chairman and Chief Executive Officer
in connection with the termination of his service with the
Company. The Company and its former Chairman and Chief Executive
Officer reserved all rights under his employment agreement and
under any stock option, restricted stock, retirement and other
benefit plans to which he was a party. The Company agreed to pay
him the dollar value of all accrued and unpaid vacation benefits
and sick pay based on his base salary and unreimbursed business
expenses through the date of his departure. The Company retained
and suspended the payment of any other compensation and benefits
to him that may be payable under his employment agreement or the
Companys compensation programs in which he participated.
The Tolling Agreement provides that neither the Company nor its
former Chairman and Chief Executive Officer has made an
admission as to the characterization of his termination of
service, including whether such termination constituted a
retirement or other form of termination. This
characterization can be expected to affect his rights to receive
severance payments and other benefits under his employment
agreement and the Companys compensation programs in which
he participated.
The Tolling Agreement remains in effect and no resolution has
been reached as to the matters reserved under its terms.
Derivative Litigation.
On July 10, 2006,
a shareholder derivative action,
Wildt v. Karatz, et al.
,
was filed in Los Angeles Superior Court. On August 8,
2006, a virtually identical shareholder derivative lawsuit,
Davidson v. Karatz, et al.
, was also filed in Los Angeles
Superior Court. These actions, which ostensibly are brought on
behalf of the Company, allege, among other things, that
defendants (various of the Companys current and former
directors and officers) breached their fiduciary duties to the
Company by, among other things, backdating grants of stock
options to various current and former executives in violation of
the Companys shareholder-approved stock option plans.
Defendants have not yet responded to the complaints. On
January 22, 2007, the Court entered an order, pursuant to
an agreement among the parties and the Company, providing, among
other things, that, to preserve the status quo without
prejudicing any partys substantive rights, the
Companys former Chairman and Chief Executive Officer shall
not exercise any of his outstanding options, at any price,
during the period in which the order is in effect. Pursuant to
further stipulated orders, these terms remain in effect and are
now scheduled to expire on February 1, 2008, unless
otherwise agreed in writing. The plaintiffs have agreed to stay
their cases while the parallel federal court derivative lawsuits
discussed below are pursued. A stipulation and order
effectuating the parties agreement to stay the state court
actions was entered by the court on February 7, 2007. The
parties may extend the agreement that options will not be
exercised by the Companys former Chairman and Chief
Executive Officer beyond the current February 1, 2008
expiration date.
On August 16, 2006, a shareholder derivative lawsuit,
Redfield v. Karatz, et al
., was filed in the United
States District Court for the Central District of California. On
August 31, 2006, a virtually identical shareholder
derivative lawsuit,
Staehr v. Karatz, et al
., was also
filed in the United States District Court for the Central
District of California. These actions, which ostensibly are
brought on behalf of the Company, allege, among other things,
that defendants (various of the Companys current and
former directors and officers) breached their fiduciary duties
to the Company by, among other things, backdating grants of
stock options to various current and former executives in
violation of the Companys shareholder-approved stock
option plans. Unlike
Wildt
and
Davidson
, however,
these lawsuits also include substantive claims under the federal
securities laws. On January 9, 2007, plaintiffs filed a
consolidated complaint. All defendants filed motions to dismiss
the complaint on April 2, 2007. Subsequently, plaintiffs
filed a motion for partial summary judgment against certain of
the defendants. Pursuant to stipulated orders, the motions to
dismiss and the motion for partial summary judgment have been
taken off calendar to permit the parties to explore settlement
via mediation. The latest order provides that unless otherwise
agreed to by the parties or ordered by the court, the motions
shall be back on calendar as of late March 2008. Discovery has
not commenced. At this time, the Company has not concluded
whether any potential outcome of the derivative litigation is
likely to be material to its consolidated financial position or
results of operations.
Government Investigations.
In August 2006, the
Company announced that it had received an informal inquiry from
the SEC relating to its stock option grant practices. In January
2007, the Company was informed that the SEC is conducting a
formal investigation of this matter. The DOJ is also looking
into these practices but has informed the Company that it is not
a target of this investigation. The Company has cooperated with
these government agencies and
68
intends to continue to do so. At this time, the Company has not
concluded whether an unfavorable outcome of one or both of the
government investigations is likely to be material to its
consolidated financial position or results of operations.
ERISA Litigation.
A complaint dated
March 14, 2007 in an action brought under Section 502
of ERISA, 29 U.S.C. § 1132,
Bagley et
al., v. KB Home, et al.
, was filed in the United States
District Court for the Central District of California. The
action is brought against the Company, its directors, and
certain of its current and former officers. Plaintiffs allege
that they are bringing the action on behalf of all participants
in the 401(k) Plan. Plaintiffs allege that the defendants
breached fiduciary duties owed to members of the 401(k) Plan by
virtue of issuing backdated option grants and failing to
disclose this information to the 401(k) Plan participants.
Plaintiffs claim that this conduct unjustly enriched certain
defendants to the detriment of the 401(k) Plan and its
participants, and caused the 401(k) Plan to invest in the
Companys securities at allegedly artificially inflated
prices. The action purports to assert three causes of action for
various alleged breaches of fiduciary duty. The Company has
filed a motion to dismiss all claims alleged against it. The
Court heard oral argument on the motion on November 19,
2007, after which the Court took the motion under submission.
The Court has not yet ruled on the motion, and because of the
pendency of the motion, no discovery has been taken in the
action. 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.
Storm Water Matter.
In January 2003, the
Company received a request for information from the EPA pursuant
to Section 308 of the Clean Water Act. Several other public
homebuilders have received similar requests. The request sought
information about storm water pollution control program
implementation at certain of the Companys construction
sites, and the Company provided information pursuant to the
request. In May 2004, on behalf of the EPA, the DOJ tentatively
asserted that certain regulatory requirements applicable to
storm water discharges had been violated on certain occasions at
certain of the Companys construction sites, and civil
penalties and injunctive relief might be warranted. The DOJ has
also proposed certain steps it would expect the Company to take
in the future relating to compliance with the EPAs
requirements applicable to storm water discharges. The Company
has defenses to the claims that have been asserted and is
exploring with the EPA, DOJ and other homebuilders methods of
resolving the matter. To resolve the matter, the DOJ will want
the Company to pay civil penalties and sign a consent decree
affecting the Companys storm water pollution practices at
construction sites. The Company believes that the costs
associated with any resolution of the matter are not likely to
be material to its consolidated financial position or results of
operations.
Other Matters.
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.
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|
Note 14.
|
Stockholders
Equity
|
Preferred Stock.
On February 4, 1999, the
Company adopted a new Stockholder Rights Plan to replace its
preexisting shareholder rights plan adopted in 1989 (the
1989 Rights Plan) and declared a dividend
distribution of one preferred share purchase right for each
outstanding share of common stock; such rights were issued on
March 7, 1999, simultaneously with the expiration of the
rights issued under the 1989 Rights Plan. Under certain
circumstances, each right entitles the holder to
purchase 1/100th of a share of the Companys
Series A Participating Cumulative Preferred Stock at a
price of $270.00, subject to certain anti-dilution provisions.
The rights are not exercisable until the earlier to occur of
(a) 10 days following a public announcement that a
person or group has acquired Company stock representing 15% or
more of the aggregate votes entitled to be cast by all shares of
common stock, or (b) 10 days following the
commencement of a tender offer for Company stock representing
15% or more of the aggregate votes entitled to be cast by all
shares of common stock. If, without approval of the board of
directors, the Company is acquired in a merger or other business
combination transaction, or 50% or more of the Companys
assets or earning power is sold, each right will entitle its
holder to receive, upon exercise, common stock of the acquiring
company having a market value of twice the exercise price of the
right; and if, without approval of the board of directors, any
person or group acquires Company stock representing 15% or more
of the aggregate votes entitled to be cast by all shares of
common stock, each right will entitle its holder to receive,
upon exercise, common stock of the Company having a market value
of twice the exercise price of the right. At the option of the
Company, the rights are redeemable prior to becoming exercisable
at $.005 per right. Unless previously redeemed, the rights
will expire on March 7, 2009. Until a right is exercised,
the holder will have no rights as a stockholder of the Company,
including the right to vote or receive dividends.
69
Common Stock.
As of November 30, 2007,
the Company was authorized to repurchase four million
shares under its board-approved stock repurchase program. The
Company did not repurchase any of its common stock under this
program in 2007. The Company repurchased six million shares
of its common stock in 2006 at an aggregate price of
$377.4 million and two million shares of its common stock
in 2005 at an aggregate price of $129.4 million under stock
repurchase programs authorized by its board of directors. In
addition to the repurchases in 2006 and 2005, which consisted of
open market transactions, the Company acquired $6.9 million
in 2007, $16.7 million in 2006 and $5.3 million in
2005, of common stock in connection with the satisfaction of
employee withholding taxes on vested restricted stock.
On April 7, 2005, the Companys stockholders approved
an amendment to the Companys certificate of incorporation
increasing the number of authorized shares of the Companys
common stock from 100 million to 300 million. On
April 6, 2006, the Companys stockholders approved an
amendment to the Companys certificate of incorporation
reducing the number of authorized shares of the Companys
common stock from 300 million to 290 million.
On December 8, 2005, the Companys board of directors
increased the annual cash dividend on the Companys common
stock to $1.00 per share from $.75 per share.
|
|
Note 15.
|
Employee
Benefit and Stock Plans
|
Most employees are eligible to participate in the Companys
401(k) Savings Plan under which contributions by employees are
partially matched by the Company. The aggregate cost of this
plan to the Company was $6.2 million in 2007,
$10.8 million in 2006 and $10.6 million in 2005. The
assets of the Companys 401(k) Savings Plan are held by a
third-party trustee. Plan participants may direct the investment
of their funds among one or more of the several fund options
offered by the plan. A fund consisting of the Companys
common stock is one of the investment choices available to
participants. As of November 30, 2007, 2006 and 2005,
approximately 5%, 11% and 18%, respectively, of the plans
net assets were invested in the fund consisting of the
Companys common stock.
The Companys Amended and Restated 1999 Incentive Plan (the
1999 Plan) provides that stock options, performance
stock, restricted stock and stock units may be awarded to any
employee of the Company for periods of up to 10 years. The 1999
Plan also enables the Company to grant cash bonuses, SARs and
other stock-based awards. The Company also has awards
outstanding under its 2001 Stock Incentive Plan, 1998 Stock
Incentive Plan, 1988 Employee Stock Plan and its
Performance-Based Incentive Plan for Senior Management, each of
which provides for generally the same types of awards as the
1999 Plan, but with periods of up to 15 years. The 1999
Plan and the 2001 Stock Incentive Plan are the Companys
primary employee stock plans.
Stock
Options.
Stock
option transactions are summarized as follows:
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Years Ended November 30,
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2007
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2006
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2005
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Weighted
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|
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|
|
Weighted
|
|
|
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Weighted
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Average
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Average
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Average
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Exercise
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Exercise
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Exercise
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Options
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Price
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Options
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Price
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Options
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Price
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Options outstanding at beginning of year
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8,354,276
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$
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28.71
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9,176,253
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$
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28.16
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13,425,306
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$
|
22.20
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Granted
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787,600
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34.78
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85,569
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67.53
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556,088
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62.19
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Exercised
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(327,681
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)
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24.27
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(743,481
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)
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24.19
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(4,582,497
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)
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14.64
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Cancelled
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(640,731
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)
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37.04
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(164,065
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)
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38.63
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(222,644
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)
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34.97
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Options outstanding at end of year
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8,173,464
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$
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30.17
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8,354,276
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$
|
28.71
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9,176,253
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$
|
28.16
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Options exercisable at end of year
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7,238,598
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$
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28.98
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7,428,952
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$
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26.46
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6,631,515
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$
|
23.17
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Options available for grant at end of year
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501,892
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1,016,199
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4,394,024
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70
The total intrinsic value of options exercised during the years
ended November 30, 2007, 2006 and 2005 was
$5.5 million, $29.5 million and $223.1 million,
respectively. The aggregate intrinsic value of options
outstanding was $9.9 million, $199.1 million and
$381.9 million at November 30, 2007, 2006 and 2005,
respectively. The aggregate intrinsic value of options
exercisable at November 30, 2007, 2006 and 2005 was
$9.9 million, $190.8 million and $309.1 million,
respectively. The intrinsic value of a stock option is the
amount by which the market value of the underlying stock exceeds
the price of the option. The total amount of options cancelled
in 2007 includes 371,399 options that were cancelled as a result
of the irrevocable election of each of the Companys
non-employee directors to receive payouts in cash of all
outstanding stock-based awards granted to them under the
Companys Non-Employee Directors Stock Plan.
In 2007, the Company performed a review of past equity grants
under its employee stock plans in compliance with an
Equity-Based Award Grant Policy that was adopted on
February 1, 2007 by the management development and
compensation committee of the Companys board of directors.
Based on that review, the Company determined that as of
November 30, 2006, the Company should have counted
2,890,260 shares of restricted stock against the limits
stated in its employee stock plans based on the terms of those
plans and recent changes in New York Stock Exchange rules. In
addition, because of the irrevocable cash payout election of
each of the Companys non-employee directors, the Company
has no intention of issuing any shares under the Non-Employee
Directors Stock Plan. Therefore, the Company is treating the
plan as having no available capacity to issue shares of common
stock, rather than the 566,061 shares of available capacity
previously reported as of November 30, 2006. The options
available for grant at November 30, 2006 have been adjusted
to reflect the results of the review and the exclusion of the
Non-Employee Directors Stock Plans capacity.
Stock options outstanding at November 30, 2007 are as
follows:
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Options Outstanding
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Options Exercisable
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Weighted
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Weighted
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Weighted
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Average
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Weighted
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Average
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Average
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Remaining
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Average
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Remaining
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Exercise
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Contractual
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Exercise
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Contractual
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Range of Exercise Price
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Options
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Price
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Life
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Options
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Price
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Life
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$ 6.56 to $13.95
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749,650
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$
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13.59
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8.68
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749,650
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$
|
13.59
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$13.96 to $20.07
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989,286
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16.37
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8.91
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989,286
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16.37
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$20.08 to $28.71
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2,286,472
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22.44
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9.83
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2,148,972
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22.08
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$28.72 to $36.19
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2,167,169
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34.49
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10.46
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1,517,069
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33.76
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$36.20 to $69.63
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1,980,887
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47.55
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10.97
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1,833,621
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46.21
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$ 6.56 to $69.63
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8,173,464
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$
|
30.17
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|
10.06
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7,238,598
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$
|
28.98
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|
10.17
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The weighted average fair value of options granted in 2007, 2006
and 2005 was $11.42, $24.76 and $26.84, respectively. The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 2007, 2006 and 2005,
respectively: a risk-free interest rate of 4.8%, 4.8% and 4.3%;
an expected volatility factor for the market price of the
Companys common stock of 41.1%, 41.0% and 42.8%; a
dividend yield of 2.9%, 1.9% and 1.4%; and an expected life of
5 years, 5 years and 6 years.
The Companys stock-based compensation expense related to
stock option grants was $9.4 million in 2007,
$19.4 million in 2006 and $5.8 million in 2005. As of
November 30, 2007, there was $7.7 million of total
unrecognized stock-based compensation expense related to
unvested stock option awards. This expense is expected to be
recognized over a weighted average period of 1.5 years.
The Company records proceeds from the exercise of stock options
as additions to common stock and paid-in capital. Actual tax
benefits realized for the tax deduction from stock option
exercises of $2.1 million, $17.5 million and
$36.9 million were recorded as paid-in capital in 2007,
2006, and 2005, respectively. In 2007 and 2006, the consolidated
statement of cash flows reflects $.9 million and
$15.4 million, respectively, of excess tax benefit
associated with the exercise of stock options since
December 1, 2005, in accordance with the cash flow
classification requirements of SFAS No. 123(R).
Other Stock-Based Awards.
From time to time,
the Company grants restricted common stock to key executives.
During the restriction periods, the executives are entitled to
vote and receive dividends on such shares. The restrictions
imposed with respect to the shares granted lapse over periods of
three or eight years if certain conditions are met. The shares
of restricted stock outstanding totaled 830,750 at
November 30, 2007 and 957,550 at November 30, 2006.
71
On July 12, 2007, the Company awarded 54,000 Performance
Shares to its President and Chief Executive Officer subject to
the terms of the 1999 Plan, the President and Chief Executive
Officers Performance Stock Agreement dated July 12,
2007 and his Employment Agreement dated February 28, 2007.
Depending on the Companys total shareholder return over
the three-year period ending on November 30, 2009 relative
to a group of peer companies, zero to 150% of the Performance
Shares will vest and become unrestricted. In accordance with
SFAS No. 123(R), the Company used a Monte Carlo
simulation model to estimate the grant-date fair value of the
Performance Shares. The total grant-date fair value of
$2.0 million will be recognized over the requisite service
period.
During 2007, the Company granted phantom shares and SARs to
various employees. These awards are accounted for as liabilities
in the Companys consolidated financial statements because
such awards provide for settlement in cash. Each phantom share
represents the right to receive a cash payment equal to the
closing price of the Companys common stock on the
applicable vesting date. Each SAR represents a right to receive
a cash payment equal to the positive difference, if any, between
the grant price and the market value of a share of the
Companys common stock on the date of exercise, up to a
maximum payout of four times the grant price. The phantom shares
vest in full at the end of three years while the SARs vest in
equal annual installments over three years. Phantom shares
granted to senior management and all of the SARs require the
achievement of a performance goal related to the Companys
cash flow as an additional condition to vesting. There were
892,926 phantom shares and 1,100,519 SARs outstanding as of
November 30, 2007.
The Company recognized total compensation expense of
$7.4 million in 2007, $4.7 million in 2006 and
$2.0 million in 2005 related to restricted stock,
Performance Shares, phantom shares and SARs.
Grantor Stock Ownership Trust.
In connection
with a share repurchase program, on August 27, 1999, the
Company established a grantor stock ownership trust (the
Trust) into which certain shares repurchased in 2000
and 1999 were transferred. The Trust, administered by a
third-party trustee, holds and distributes the shares of common
stock acquired for the purpose of funding certain employee
compensation and employee benefit obligations of the Company
under its existing stock option, 401(k) Savings Plan and other
employee benefit plans. The existence of the Trust has no impact
on the amount of benefits or compensation that is paid under
these plans.
For financial reporting purposes, the Trust is consolidated with
the Company. Any dividend transactions between the Company and
the Trust are eliminated. Acquired shares held by the Trust
remain valued at the market price at the date of purchase and
are shown as a reduction to stockholders equity in the
consolidated balance sheets. The difference between the Trust
share value and the market value on the date shares are released
from the Trust, for the benefit of employees, is included in
paid-in capital. Common stock held in the Trust is not
considered outstanding in the computations of earnings (loss)
per share. The Trust held 12,203,282 and 12,345,182 shares of
common stock at November 30, 2007 and 2006, respectively.
The trustee votes shares held by the Trust in accordance with
voting directions from eligible employees, as specified in a
trust agreement with the trustee.
|
|
Note 16.
|
Postretirement
Benefits
|
The Company has two supplemental non-qualified, unfunded
retirement plans, the KB Home Supplemental Executive Retirement
Plan, restated effective as of July 12, 2001, and the KB
Home Retirement Plan, effective as of July 11, 2002,
pursuant to which the Company pays supplemental pension benefits
to certain key employees upon retirement. In connection with the
plans, the Company has purchased cost recovery life insurance on
the lives of certain employees. Insurance contracts associated
with each plan are held by a trust, established as part of the
plans to implement and carry out the provisions of the plans and
to finance the benefits offered under the plans. The trust is
the owner and beneficiary of such contracts. The amount of the
insurance coverage is designed to provide sufficient revenues to
cover all costs of the plans if assumptions made as to
employment term, mortality experience, policy earnings and other
factors are realized. The cash surrender value of these
insurance contracts was $53.6 million at November 30,
2007 and $43.1 million at November 30, 2006.
On November 1, 2001, the Company implemented an unfunded
death benefit plan, the KB Home Death Benefit Only Plan, for
certain key management employees. In connection with the plan,
the Company has purchased cost recovery life insurance on the
lives of certain employees. Insurance contracts associated with
the plan are held by a trust, established as part of the plan to
implement and carry out the provisions of the plan and to
finance the benefits offered under the plan. The trust is the
owner and beneficiary of such contracts. The amount of the
coverage is designed to provide sufficient revenues to cover all
costs of the plan if assumptions made as to employment term,
mortality
72
experience, policy earnings and other factors are realized. The
cash surrender value of these insurance contracts was
$19.6 million at November 30, 2007 and
$17.1 million at November 30, 2006.
The net periodic benefit cost of the Companys
post-retirement benefit plans for the year ended
November 30, 2007 was $5.6 million, which included
service costs of $1.4 million, interest costs of
$2.6 million and amortization of prior service costs of
$1.6 million. The net periodic benefit cost of these plans
for the year ended November 30, 2006 was $6.8 million,
which included service costs of $2.7 million, interest
costs of $2.5 million and amortization of prior service
costs of $1.6 million. The liability in the Companys
consolidated balance sheets related to the post-retirement
benefit plans was $49.1 million at November 30, 2007 and
$20.6 million at November 30, 2006. For the years
ended November 30, 2007 and 2006, the discount rate used
for the plans was 6% and the rate of compensation increase was
4%.
Effective November 30, 2007, the Company adopted SFAS
No. 158, which requires an employer to recognize the funded
status of defined postretirement benefit plans as an asset or
liability on the balance sheet and requires any unrecognized
prior service cost and actuarial gains/losses to be recognized
in other comprehensive income (loss). The post-retirement
benefit liability at November 30, 2007 reflects the
Companys adoption of SFAS No. 158, which increased
the liability by $22.9 million with a corresponding charge
to accumulated other comprehensive income (loss) in
stockholders equity in the consolidated balance sheet. The
$8.7 million deferred tax asset resulting from the adoption
of SFAS No. 158 was offset by a valuation allowance
established in accordance with SFAS No. 109. The adoption
of SFAS No. 158 did not affect the Companys
consolidated results of operations or cash flows. The Company
uses November 30 as the measurement date for its
postretirement benefit plans.
The components of income tax benefit (expense) in the
consolidated statements of operations are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
236,961
|
|
|
$
|
27,195
|
|
|
$
|
264,156
|
|
Deferred
|
|
|
(156,772
|
)
|
|
|
(61,384
|
)
|
|
|
(218,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
80,189
|
|
|
$
|
(34,189
|
)
|
|
$
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(277,960
|
)
|
|
$
|
(9,476
|
)
|
|
$
|
(287,436
|
)
|
Deferred
|
|
|
80,555
|
|
|
|
27,981
|
|
|
|
108,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(197,405
|
)
|
|
$
|
18,505
|
|
|
$
|
(178,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(372,352
|
)
|
|
$
|
(60,000
|
)
|
|
$
|
(432,352
|
)
|
Deferred
|
|
|
(14,648
|
)
|
|
|
|
|
|
|
(14,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(387,000
|
)
|
|
$
|
(60,000
|
)
|
|
$
|
(447,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes result from temporary differences in the
financial and tax basis of assets and liabilities. Significant
components of the Companys deferred tax liabilities and
assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized expenses
|
|
$
|
131,147
|
|
|
$
|
90,817
|
|
State taxes
|
|
|
56,751
|
|
|
|
|
|
Repatriation of French subsidiaries
|
|
|
|
|
|
|
60,793
|
|
Depreciation and amortization
|
|
|
|
|
|
|
10,727
|
|
Other
|
|
|
647
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
188,545
|
|
|
$
|
163,045
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract abandonments
|
|
$
|
479,716
|
|
|
$
|
116,126
|
|
Warranty, legal and other accruals
|
|
|
198,118
|
|
|
|
134,213
|
|
Employee benefits
|
|
|
103,525
|
|
|
|
93,213
|
|
Partnerships and joint ventures
|
|
|
59,035
|
|
|
|
53,256
|
|
Depreciation and amortization
|
|
|
41,558
|
|
|
|
3,760
|
|
Capitalized expenses
|
|
|
19,530
|
|
|
|
54,456
|
|
Deferred income
|
|
|
9,411
|
|
|
|
23,367
|
|
Tax credits
|
|
|
18,823
|
|
|
|
|
|
Foreign tax credits
|
|
|
|
|
|
|
71,700
|
|
French royalty
|
|
|
|
|
|
|
40,633
|
|
State taxes
|
|
|
|
|
|
|
1,087
|
|
Other
|
|
|
4,140
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
933,856
|
|
|
|
593,851
|
|
Valuation allowance
|
|
|
(522,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
411,003
|
|
|
|
593,851
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
222,458
|
|
|
$
|
430,806
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) computed at the statutory
U.S. federal income tax rate and income tax benefit
(expense) provided in the consolidated statements of operations
differ as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Income tax benefit (expense) computed at statutory rate
|
|
$
|
511,270
|
|
|
$
|
(200,148
|
)
|
|
$
|
(420,537
|
)
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal income tax benefit
|
|
|
46,116
|
|
|
|
12,028
|
|
|
|
(39,000
|
)
|
Non-deductible stock-based and other compensation and related
expenses
|
|
|
(3,574
|
)
|
|
|
(3,871
|
)
|
|
|
(11,013
|
)
|
Internal Revenue Code Section 199 manufacturing deduction
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
Tax credits
|
|
|
(3,594
|
)
|
|
|
4,625
|
|
|
|
35,143
|
|
Valuation allowance for deferred tax assets
|
|
|
(514,234
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
10,016
|
|
|
|
2,201
|
|
|
|
(11,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
46,000
|
|
|
$
|
(178,900
|
)
|
|
$
|
(447,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generated significant deferred tax assets in 2007
largely due to the inventory impairments the Company incurred
during the year. The Company evaluates its deferred tax assets
on a quarterly basis to determine whether a valuation allowance
is required. In accordance with SFAS No. 109, the Company
assesses whether a valuation allowance should be established
based on its determination of whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. In light of the continued downturn in the housing
market and the uncertainty as to its length and magnitude, the
Company anticipates being in a
three-year
cumulative loss position during fiscal year 2008. According to
SFAS No. 109, a
three-year
cumulative loss is significant negative evidence in considering
whether deferred tax assets are realizable, and also generally
precludes relying on projections of future taxable income to
support the recovery of deferred tax assets. Therefore, during
the fourth quarter of 2007, the Company recorded a valuation
allowance totaling approximately $522.9 million against its
deferred tax assets. The valuation allowance was reflected as a
non-cash charge of $514.2 million to income tax expense and
$8.7 million to accumulated other comprehensive loss (as a
result of an adjustment made in accordance with
SFAS No. 158). The Companys deferred tax assets,
for which there is no valuation allowance, relate to amounts
that can be realized through future reversals of existing
taxable temporary differences or through carrybacks to the 2006
and 2007 years. The majority of the tax benefits associated with
the Companys deferred tax assets can be carried forward
for 20 years.
74
During 2007, 2006 and 2005, the Company made investments that
resulted in benefits in the form of synthetic fuel tax credits.
During 2005, a small portion of these credits were forfeited as
part of an IRS settlement. Additionally, these tax credits are
subject to a phase-out provision that gradually reduces the tax
credits if the annual average price of domestic crude oil
increases to a stated phase-out range. The Company currently
estimates the phase-out percentage for 2007 to be 65%. In 2006,
there was a 25% reduction in tax credits and in 2005 there was
no reduction in tax credits.
|
|
Note
18.
|
Supplemental
Disclosure to Consolidated Statements of Cash Flows
|
The following are supplemental disclosures to the consolidated
statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Summary of cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,325,255
|
|
|
$
|
700,041
|
|
|
$
|
237,060
|
|
Financial services
|
|
|
18,487
|
|
|
|
15,417
|
|
|
|
9,207
|
|
Discontinued operations
|
|
|
|
|
|
|
88,724
|
|
|
|
78,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,343,742
|
|
|
$
|
804,182
|
|
|
$
|
324,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
29,572
|
|
|
$
|
|
|
|
$
|
|
|
Income taxes paid
|
|
|
140,852
|
|
|
|
322,983
|
|
|
|
292,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories acquired through seller financing
|
|
$
|
4,139
|
|
|
$
|
128,726
|
|
|
$
|
36,817
|
|
Increase (decrease) in consolidated inventories not owned
|
|
|
(409,505
|
)
|
|
|
(18,130
|
)
|
|
|
120,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
19.
|
Discontinued
Operations
|
On July 10, 2007, the Company sold its 49% equity interest
in its publicly traded French subsidiary, KBSA. The sale
generated total gross proceeds of $807.2 million and a
pretax gain of $706.7 million ($438.1 million, net of
income taxes), which was recognized in the third quarter of
2007. The sale was made pursuant to the Share Purchase Agreement
among the Company, the Purchaser and the Selling Subsidiaries.
Under the Share Purchase Agreement, the Purchaser agreed to
acquire the 49% equity interest (representing
10,921,954 shares held collectively by the Selling
Subsidiaries) at a price of 55.00 euros per share. The purchase
price consisted of 50.17 euros per share paid by the Purchaser
in cash, and a cash dividend of 4.83 euros per share paid by
KBSA.
As a result of the sale, the results of the French operations,
which had previously been presented as a separate reporting
segment, are included in discontinued operations in the
Companys consolidated statements of operations. In
addition, any assets and liabilities related to these
discontinued operations are presented separately on the
consolidated balance sheets, and any cash flows related to these
discontinued operations are presented separately in the
consolidated statements of cash flows. All prior period
information has been reclassified to be consistent with the
current period presentation.
75
The following amounts related to the French operations were
derived from historical financial information and have been
segregated from continuing operations and reported as
discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
911,841
|
|
|
$
|
1,623,709
|
|
|
$
|
1,286,969
|
|
Construction and land costs
|
|
|
(680,234
|
)
|
|
|
(1,187,484
|
)
|
|
|
(933,371
|
)
|
Selling, general and administrative expenses
|
|
|
(129,407
|
)
|
|
|
(251,104
|
)
|
|
|
(215,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
102,200
|
|
|
|
185,121
|
|
|
|
138,477
|
|
Interest income
|
|
|
1,199
|
|
|
|
643
|
|
|
|
681
|
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
(2,045
|
)
|
|
|
(2,529
|
)
|
Minority interests
|
|
|
(38,665
|
)
|
|
|
(68,020
|
)
|
|
|
(54,052
|
)
|
Equity in income of unconsolidated joint ventures
|
|
|
4,118
|
|
|
|
10,505
|
|
|
|
6,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
68,852
|
|
|
|
126,204
|
|
|
|
88,678
|
|
Income tax expense
|
|
|
(21,600
|
)
|
|
|
(36,800
|
)
|
|
|
(19,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
47,252
|
|
|
$
|
89,404
|
|
|
$
|
69,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the assets and liabilities of the
French discontinued operations. The amounts presented below were
derived from historical financial information and adjusted to
exclude intercompany receivables and payables between the French
discontinued operations and the Company (in thousands):
|
|
|
|
|
|
|
November 30,
|
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
88,724
|
|
Receivables
|
|
|
435,520
|
|
Inventories
|
|
|
703,120
|
|
Investments in unconsolidated joint ventures
|
|
|
16,489
|
|
Goodwill
|
|
|
56,482
|
|
Other assets
|
|
|
94,040
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,394,375
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
594,576
|
|
Accrued expenses and other liabilities
|
|
|
183,580
|
|
Mortgages and notes payable
|
|
|
205,469
|
|
Minority interests
|
|
|
183,895
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,167,520
|
|
|
|
|
|
|
The Company also had cumulative foreign currency translation
adjustments of $63.2 million related to the French
discontinued operations as of November 30, 2006 that were
included in stockholders equity.
76
|
|
Note 20.
|
Quarterly
Results (unaudited)
|
Consolidated quarterly results for the Company for the years
ended November 30, 2007 and 2006 follow (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,388,838
|
|
|
$
|
1,413,208
|
|
|
$
|
1,543,900
|
|
|
$
|
2,070,580
|
|
Gross profit (loss)
|
|
|
208,370
|
|
|
|
(69,419
|
)
|
|
|
(461,774
|
)
|
|
|
(102,965
|
)
|
Income (loss) from continuing operations
|
|
|
10,655
|
|
|
|
(174,152
|
)
|
|
|
(478,620
|
)
|
|
|
(772,653
|
)
|
Income from discontinued operations, net of income taxes (a)
|
|
|
16,882
|
|
|
|
25,466
|
|
|
|
443,008
|
|
|
|
|
|
Net income (loss)
|
|
|
27,537
|
|
|
|
(148,686
|
)
|
|
|
(35,612
|
)
|
|
|
(772,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.14
|
|
|
$
|
(2.26
|
)
|
|
$
|
(6.19
|
)
|
|
$
|
(9.99
|
)
|
Discontinued operations
|
|
|
.22
|
|
|
|
.33
|
|
|
|
5.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
.36
|
|
|
$
|
(1.93
|
)
|
|
$
|
(.46
|
)
|
|
$
|
(9.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.13
|
|
|
$
|
(2.26
|
)
|
|
$
|
(6.19
|
)
|
|
$
|
(9.99
|
)
|
Discontinued operations
|
|
|
.21
|
|
|
|
.33
|
|
|
|
5.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
.34
|
|
|
$
|
(1.93
|
)
|
|
$
|
(.46
|
)
|
|
$
|
(9.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,882,271
|
|
|
$
|
2,202,275
|
|
|
$
|
2,283,865
|
|
|
$
|
3,011,672
|
|
Gross profit
|
|
|
482,566
|
|
|
|
561,086
|
|
|
|
479,129
|
|
|
|
171,043
|
|
Income (loss) from continuing operations
|
|
|
159,118
|
|
|
|
184,429
|
|
|
|
129,342
|
|
|
|
(79,942
|
)
|
Income from discontinued operations, net of income taxes (a)
|
|
|
14,216
|
|
|
|
21,016
|
|
|
|
23,872
|
|
|
|
30,300
|
|
Net income (loss)
|
|
|
173,334
|
|
|
|
205,445
|
|
|
|
153,214
|
|
|
|
(49,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.96
|
|
|
$
|
2.33
|
|
|
$
|
1.66
|
|
|
$
|
(1.04
|
)
|
Discontinued operations
|
|
|
.18
|
|
|
|
.26
|
|
|
|
.31
|
|
|
|
.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
2.14
|
|
|
$
|
2.59
|
|
|
$
|
1.97
|
|
|
$
|
(.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.85
|
|
|
$
|
2.20
|
|
|
$
|
1.60
|
|
|
$
|
(1.04
|
)
|
Discontinued operations
|
|
|
.16
|
|
|
|
.25
|
|
|
|
.30
|
|
|
|
.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
2.01
|
|
|
$
|
2.45
|
|
|
$
|
1.90
|
|
|
$
|
(.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Discontinued operations are comprised of the Companys
French operations, which have been presented as discontinued
operations for all periods presented. Income from discontinued
operations, net of income taxes, in 2007 includes a gain of
$438.1 million realized on the sale of the French
operations.
|
Included in gross profit (loss) in the second, third and fourth
quarters of 2007 were inventory impairment charges of
$261.2 million, $610.3 million and
$233.5 million, respectively, and pretax charges for land
option contract abandonments of $5.7 million,
$62.7 million and $72.0 million, respectively. The
loss from continuing operations in the second, third and fourth
quarters of 2007 also included pretax charges for joint venture
impairments of $41.3 million, $17.1 million and
$97.9 million, respectively. In the fourth quarter of
2006, the gross profit reflected pretax charges of
$215.7 million for inventory impairments and
$88.3 million for land option contract abandonments. The
loss from continuing operations in the fourth quarter of 2006
also included a pretax charge of $39.3 million for joint
venture impairments.
77
The loss from continuing operations in the third quarter of 2007
included a pretax charge of $107.9 million for goodwill
impairment recorded in accordance with SFAS No. 142.
In the fourth quarter of 2007, the loss from continuing
operations, net of income taxes, included a charge of
$514.2 million to record a valuation allowance on deferred
taxes in accordance with SFAS No. 109.
Quarterly and
year-to-date
computations of per share amounts are made independently.
Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
|
|
Note 21.
|
Supplemental
Guarantor Information
|
The Companys obligations to pay principal, premium, if
any, and interest under certain debt instruments are guaranteed
on a joint and several basis by the Guarantor Subsidiaries. The
guarantees are full and unconditional and the Guarantor
Subsidiaries are 100% owned by the Company. The Company has
determined that separate, full financial statements of the
Guarantor Subsidiaries would not be material to investors and,
accordingly, supplemental financial information for the
Guarantor Subsidiaries is presented.
78
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,663,877
|
|
|
$
|
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,647,942
|
|
|
$
|
|
|
|
$
|
6,400,591
|
|
Construction and land costs
|
|
|
|
|
|
|
(5,299,357
|
)
|
|
|
(1,527,022
|
)
|
|
|
|
|
|
|
(6,826,379
|
)
|
Selling, general and administrative expenses
|
|
|
(104,646
|
)
|
|
|
(518,912
|
)
|
|
|
(201,063
|
)
|
|
|
|
|
|
|
(824,621
|
)
|
Goodwill impairment
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(212,572
|
)
|
|
|
(1,065,620
|
)
|
|
|
(80,143
|
)
|
|
|
|
|
|
|
(1,358,335
|
)
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
179,100
|
|
|
|
(146,204
|
)
|
|
|
(45,886
|
)
|
|
|
|
|
|
|
(12,990
|
)
|
Other, net
|
|
|
21,869
|
|
|
|
(19,912
|
)
|
|
|
(125,238
|
)
|
|
|
|
|
|
|
(123,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(251,267
|
)
|
|
|
|
|
|
|
(1,494,606
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(217,431
|
)
|
|
|
|
|
|
|
(1,460,770
|
)
|
Income tax benefit
|
|
|
400
|
|
|
|
38,800
|
|
|
|
6,800
|
|
|
|
|
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before equity in net loss of
subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
(210,631
|
)
|
|
|
|
|
|
|
(1,414,770
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
274,725
|
|
|
|
|
|
|
|
(929,414
|
)
|
Equity in net income (loss) of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
1,403,567
|
|
|
|
|
|
Discontinued operations
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
(485,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
(1,192,936
|
)
|
|
$
|
274,725
|
|
|
$
|
918,211
|
|
|
$
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2006
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
7,386,128
|
|
|
$
|
1,993,955
|
|
|
$
|
|
|
|
$
|
9,380,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
7,386,128
|
|
|
$
|
1,973,715
|
|
|
$
|
|
|
|
$
|
9,359,843
|
|
Construction and land costs
|
|
|
|
|
|
|
(5,875,431
|
)
|
|
|
(1,790,588
|
)
|
|
|
|
|
|
|
(7,666,019
|
)
|
Selling, general and administrative expenses
|
|
|
(156,099
|
)
|
|
|
(713,519
|
)
|
|
|
(253,890
|
)
|
|
|
|
|
|
|
(1,123,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(156,099
|
)
|
|
|
797,178
|
|
|
|
(70,763
|
)
|
|
|
|
|
|
|
570,316
|
|
Interest expense, net of amounts capitalized
|
|
|
201,837
|
|
|
|
(153,141
|
)
|
|
|
(65,374
|
)
|
|
|
|
|
|
|
(16,678
|
)
|
Other, net
|
|
|
28,909
|
|
|
|
(21,787
|
)
|
|
|
(22,449
|
)
|
|
|
|
|
|
|
(15,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
74,647
|
|
|
|
622,250
|
|
|
|
(158,586
|
)
|
|
|
|
|
|
|
538,311
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
33,536
|
|
|
|
|
|
|
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
74,647
|
|
|
|
622,250
|
|
|
|
(125,050
|
)
|
|
|
|
|
|
|
571,847
|
|
Income tax benefit (expense)
|
|
|
(23,400
|
)
|
|
|
(194,600
|
)
|
|
|
39,100
|
|
|
|
|
|
|
|
(178,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before equity in net
income of subsidiaries
|
|
|
51,247
|
|
|
|
427,650
|
|
|
|
(85,950
|
)
|
|
|
|
|
|
|
392,947
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
89,404
|
|
|
|
|
|
|
|
89,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net income of subsidiaries
|
|
|
51,247
|
|
|
|
427,650
|
|
|
|
3,454
|
|
|
|
|
|
|
|
482,351
|
|
Equity in net income of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
341,700
|
|
|
|
|
|
|
|
|
|
|
|
(341,700
|
)
|
|
|
|
|
Discontinued operations
|
|
|
89,404
|
|
|
|
|
|
|
|
|
|
|
|
(89,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
482,351
|
|
|
$
|
427,650
|
|
|
$
|
3,454
|
|
|
$
|
(431,104
|
)
|
|
$
|
482,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2005
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
6,560,610
|
|
|
$
|
1,594,071
|
|
|
$
|
|
|
|
$
|
8,154,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
6,560,610
|
|
|
$
|
1,562,703
|
|
|
$
|
|
|
|
$
|
8,123,313
|
|
Construction and land costs
|
|
|
|
|
|
|
(4,677,411
|
)
|
|
|
(1,277,357
|
)
|
|
|
|
|
|
|
(5,954,768
|
)
|
Selling, general and administrative expenses
|
|
|
(151,675
|
)
|
|
|
(634,240
|
)
|
|
|
(193,695
|
)
|
|
|
|
|
|
|
(979,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(151,675
|
)
|
|
|
1,248,959
|
|
|
|
91,651
|
|
|
|
|
|
|
|
1,188,935
|
|
Interest expense, net of amounts capitalized
|
|
|
179,743
|
|
|
|
(152,283
|
)
|
|
|
(43,803
|
)
|
|
|
|
|
|
|
(16,343
|
)
|
Other, net
|
|
|
1,322
|
|
|
|
16,325
|
|
|
|
97
|
|
|
|
|
|
|
|
17,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income
|
|
|
29,390
|
|
|
|
1,113,001
|
|
|
|
47,945
|
|
|
|
|
|
|
|
1,190,336
|
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
11,198
|
|
|
|
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
29,390
|
|
|
|
1,113,001
|
|
|
|
59,143
|
|
|
|
|
|
|
|
1,201,534
|
|
Income tax expense
|
|
|
(10,900
|
)
|
|
|
(414,100
|
)
|
|
|
(22,000
|
)
|
|
|
|
|
|
|
(447,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before equity in net income of
subsidiaries
|
|
|
18,490
|
|
|
|
698,901
|
|
|
|
37,143
|
|
|
|
|
|
|
|
754,534
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
69,178
|
|
|
|
|
|
|
|
69,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net income of subsidiaries
|
|
|
18,490
|
|
|
|
698,901
|
|
|
|
106,321
|
|
|
|
|
|
|
|
823,712
|
|
Equity in net income of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
736,044
|
|
|
|
|
|
|
|
|
|
|
|
(736,044
|
)
|
|
|
|
|
Discontinued operations
|
|
|
69,178
|
|
|
|
|
|
|
|
|
|
|
|
(69,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
823,712
|
|
|
$
|
698,901
|
|
|
$
|
106,321
|
|
|
$
|
(805,222
|
)
|
|
$
|
823,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
CONDENSED
CONSOLIDATING BALANCE SHEETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2007
|
|
|
KB Home
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
Consolidating
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Adjustments
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,104,429
|
|
|
$
|
71,519
|
|
$
|
149,307
|
|
$
|
|
|
|
$
|
1,325,255
|
Receivables
|
|
|
126,531
|
|
|
|
151,089
|
|
|
18,119
|
|
|
|
|
|
|
295,739
|
Inventories
|
|
|
|
|
|
|
2,670,155
|
|
|
642,265
|
|
|
|
|
|
|
3,312,420
|
Other assets
|
|
|
405,306
|
|
|
|
219,146
|
|
|
103,698
|
|
|
|
|
|
|
728,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,636,266
|
|
|
|
3,111,909
|
|
|
913,389
|
|
|
|
|
|
|
5,661,564
|
Financial services
|
|
|
|
|
|
|
|
|
|
44,392
|
|
|
|
|
|
|
44,392
|
Investments in subsidiaries
|
|
|
64,148
|
|
|
|
|
|
|
|
|
|
(64,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,700,414
|
|
|
$
|
3,111,909
|
|
$
|
957,781
|
|
$
|
(64,148
|
)
|
|
$
|
5,705,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
210,697
|
|
|
$
|
1,130,047
|
|
$
|
334,935
|
|
$
|
|
|
|
$
|
1,675,679
|
Mortgages and notes payable
|
|
|
2,142,654
|
|
|
|
19,140
|
|
|
|
|
|
|
|
|
|
2,161,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,353,351
|
|
|
|
1,149,187
|
|
|
334,935
|
|
|
|
|
|
|
3,837,473
|
Financial services
|
|
|
|
|
|
|
|
|
|
17,796
|
|
|
|
|
|
|
17,796
|
Intercompany
|
|
|
(2,503,624
|
)
|
|
|
1,962,722
|
|
|
540,902
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,850,687
|
|
|
|
|
|
|
64,148
|
|
|
(64,148
|
)
|
|
|
1,850,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,700,414
|
|
|
$
|
3,111,909
|
|
$
|
957,781
|
|
$
|
(64,148
|
)
|
|
$
|
5,705,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2006
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
447,221
|
|
|
$
|
150,829
|
|
|
$
|
101,991
|
|
|
$
|
|
|
|
$
|
700,041
|
|
Receivables
|
|
|
5,306
|
|
|
|
192,815
|
|
|
|
25,956
|
|
|
|
|
|
|
|
224,077
|
|
Inventories
|
|
|
|
|
|
|
4,589,308
|
|
|
|
1,162,335
|
|
|
|
|
|
|
|
5,751,643
|
|
Other assets
|
|
|
727,754
|
|
|
|
237,248
|
|
|
|
184,576
|
|
|
|
|
|
|
|
1,149,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180,281
|
|
|
|
5,170,200
|
|
|
|
1,474,858
|
|
|
|
|
|
|
|
7,825,339
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
44,024
|
|
|
|
|
|
|
|
44,024
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,394,375
|
|
|
|
|
|
|
|
1,394,375
|
|
Investments in subsidiaries
|
|
|
400,691
|
|
|
|
|
|
|
|
|
|
|
|
(400,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,580,972
|
|
|
$
|
5,170,200
|
|
|
$
|
2,913,257
|
|
|
$
|
(400,691
|
)
|
|
$
|
9,263,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
436,279
|
|
|
$
|
1,450,342
|
|
|
$
|
340,239
|
|
|
$
|
|
|
|
$
|
2,226,860
|
|
Mortgages and notes payable
|
|
|
2,791,213
|
|
|
|
102,567
|
|
|
|
26,554
|
|
|
|
|
|
|
|
2,920,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,227,492
|
|
|
|
1,552,909
|
|
|
|
366,793
|
|
|
|
|
|
|
|
5,147,194
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
26,276
|
|
|
|
|
|
|
|
26,276
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,167,520
|
|
|
|
|
|
|
|
1,167,520
|
|
Intercompany
|
|
|
(4,569,268
|
)
|
|
|
3,617,291
|
|
|
|
951,977
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
2,922,748
|
|
|
|
|
|
|
|
400,691
|
|
|
|
(400,691
|
)
|
|
|
2,922,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,580,972
|
|
|
$
|
5,170,200
|
|
|
$
|
2,913,257
|
|
|
$
|
(400,691
|
)
|
|
$
|
9,263,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(929,414
|
)
|
|
$
|
(1,192,936
|
)
|
|
$
|
(210,631
|
)
|
|
$
|
1,403,567
|
|
|
$
|
(929,414
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(47,252
|
)
|
|
|
|
|
|
|
(47,252
|
)
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
(438,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438,104
|
)
|
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory and joint venture impairments and land option
contract abandonments
|
|
|
|
|
|
|
1,209,775
|
|
|
|
200,570
|
|
|
|
|
|
|
|
1,410,345
|
|
Goodwill impairment
|
|
|
107,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,926
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
367,142
|
|
|
|
412,733
|
|
|
|
|
|
|
|
779,875
|
|
Other, net
|
|
|
(272,193
|
)
|
|
|
161,717
|
|
|
|
123,997
|
|
|
|
|
|
|
|
13,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
(1,531,785
|
)
|
|
|
545,698
|
|
|
|
479,417
|
|
|
|
1,403,567
|
|
|
|
896,897
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(1,531,785
|
)
|
|
|
545,698
|
|
|
|
776,814
|
|
|
|
1,403,567
|
|
|
|
1,194,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
739,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,764
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(71,147
|
)
|
|
|
(170,404
|
)
|
|
|
|
|
|
|
(241,551
|
)
|
Other, net
|
|
|
(558
|
)
|
|
|
(201
|
)
|
|
|
1,444
|
|
|
|
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
739,206
|
|
|
|
(71,348
|
)
|
|
|
(168,960
|
)
|
|
|
|
|
|
|
498,898
|
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
739,206
|
|
|
|
(71,348
|
)
|
|
|
(181,072
|
)
|
|
|
|
|
|
|
486,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of term loan
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
Redemption of senior subordinated notes
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,000
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(87,566
|
)
|
|
|
(26,553
|
)
|
|
|
|
|
|
|
(114,119
|
)
|
Other, net
|
|
|
(70,874
|
)
|
|
|
(4,463
|
)
|
|
|
4,463
|
|
|
|
|
|
|
|
(70,874
|
)
|
Intercompany
|
|
|
2,170,661
|
|
|
|
(461,631
|
)
|
|
|
(305,463
|
)
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
1,449,787
|
|
|
|
(553,660
|
)
|
|
|
(327,553
|
)
|
|
|
(1,403,567
|
)
|
|
|
(834,993
|
)
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
1,449,787
|
|
|
|
(553,660
|
)
|
|
|
(634,080
|
)
|
|
|
(1,403,567
|
)
|
|
|
(1,141,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
657,208
|
|
|
|
(79,310
|
)
|
|
|
(38,338
|
)
|
|
|
|
|
|
|
539,560
|
|
Cash and cash equivalents at beginning of year
|
|
|
447,221
|
|
|
|
150,829
|
|
|
|
206,132
|
|
|
|
|
|
|
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,104,429
|
|
|
$
|
71,519
|
|
|
$
|
167,794
|
|
|
$
|
|
|
|
$
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2006
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
482,351
|
|
|
$
|
427,650
|
|
|
$
|
(85,950
|
)
|
|
$
|
(341,700
|
)
|
|
$
|
482,351
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(89,404
|
)
|
|
|
|
|
|
|
(89,404
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory and joint venture impairments
and land option contract abandonments
|
|
|
|
|
|
|
280,437
|
|
|
|
150,802
|
|
|
|
|
|
|
|
431,239
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
(156,135
|
)
|
|
|
(200,207
|
)
|
|
|
|
|
|
|
(356,342
|
)
|
Other, net
|
|
|
(154,187
|
)
|
|
|
150,525
|
|
|
|
16,033
|
|
|
|
|
|
|
|
12,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
328,164
|
|
|
|
702,477
|
|
|
|
(208,726
|
)
|
|
|
(341,700
|
)
|
|
|
480,215
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
229,505
|
|
|
|
|
|
|
|
229,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
328,164
|
|
|
|
702,477
|
|
|
|
20,779
|
|
|
|
(341,700
|
)
|
|
|
709,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of investment in unconsolidated joint venture
|
|
|
57,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,767
|
|
Investments in unconsolidated joint ventures
|
|
|
22,587
|
|
|
|
(126,300
|
)
|
|
|
(134,073
|
)
|
|
|
|
|
|
|
(237,786
|
)
|
Other, net
|
|
|
(3,146
|
)
|
|
|
(8,674
|
)
|
|
|
(5,046
|
)
|
|
|
|
|
|
|
(16,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
77,208
|
|
|
|
(134,974
|
)
|
|
|
(139,119
|
)
|
|
|
|
|
|
|
(196,885
|
)
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
77,208
|
|
|
|
(134,974
|
)
|
|
|
(143,596
|
)
|
|
|
|
|
|
|
(201,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on credit agreements and
other short-term borrowings
|
|
|
(84,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,100
|
)
|
Proceeds from issuance of senior notes and term loan
|
|
|
698,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698,458
|
|
Repurchases of common stock
|
|
|
(394,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(394,080
|
)
|
Other, net
|
|
|
11,313
|
|
|
|
(33,494
|
)
|
|
|
(12,236
|
)
|
|
|
|
|
|
|
(34,417
|
)
|
Intercompany
|
|
|
(244,421
|
)
|
|
|
(519,129
|
)
|
|
|
421,850
|
|
|
|
341,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
(12,830
|
)
|
|
|
(552,623
|
)
|
|
|
409,614
|
|
|
|
341,700
|
|
|
|
185,861
|
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(215,010
|
)
|
|
|
|
|
|
|
(215,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(12,830
|
)
|
|
|
(552,623
|
)
|
|
|
194,604
|
|
|
|
341,700
|
|
|
|
(29,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
392,542
|
|
|
|
14,880
|
|
|
|
71,787
|
|
|
|
|
|
|
|
479,209
|
|
Cash and cash equivalents at beginning of year
|
|
|
54,679
|
|
|
|
135,949
|
|
|
|
134,345
|
|
|
|
|
|
|
|
324,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
447,221
|
|
|
$
|
150,829
|
|
|
$
|
206,132
|
|
|
$
|
|
|
|
$
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2005
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
823,712
|
|
|
$
|
698,901
|
|
|
$
|
37,143
|
|
|
$
|
(736,044
|
)
|
|
$
|
823,712
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
(69,178
|
)
|
|
|
|
|
|
|
(69,178
|
)
|
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
(1,459,530
|
)
|
|
|
(348,063
|
)
|
|
|
|
|
|
|
(1,807,593
|
)
|
Other, net
|
|
|
283,120
|
|
|
|
399,531
|
|
|
|
199,446
|
|
|
|
|
|
|
|
882,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
1,106,832
|
|
|
|
(361,098
|
)
|
|
|
(180,652
|
)
|
|
|
(736,044
|
)
|
|
|
(170,962
|
)
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
86,715
|
|
|
|
|
|
|
|
86,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
1,106,832
|
|
|
|
(361,098
|
)
|
|
|
(93,937
|
)
|
|
|
(736,044
|
)
|
|
|
(84,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of mortgage banking assets
|
|
|
|
|
|
|
|
|
|
|
42,396
|
|
|
|
|
|
|
|
42,396
|
|
Other, net
|
|
|
(8,439
|
)
|
|
|
(83,107
|
)
|
|
|
(46,886
|
)
|
|
|
|
|
|
|
(138,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities continuing
operations
|
|
|
(8,439
|
)
|
|
|
(83,107
|
)
|
|
|
(4,490
|
)
|
|
|
|
|
|
|
(96,036
|
)
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(1,938
|
)
|
|
|
|
|
|
|
(1,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(8,439
|
)
|
|
|
(83,107
|
)
|
|
|
(6,428
|
)
|
|
|
|
|
|
|
(97,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on credit agreements and other
short-term
borrowings
|
|
|
(306,900
|
)
|
|
|
|
|
|
|
(71,629
|
)
|
|
|
|
|
|
|
(378,529
|
)
|
Proceeds from issuance of senior notes
|
|
|
747,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747,591
|
|
Repurchases of common stock
|
|
|
(134,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,713
|
)
|
Other, net
|
|
|
54,290
|
|
|
|
(60,037
|
)
|
|
|
6,800
|
|
|
|
|
|
|
|
1,053
|
|
Intercompany
|
|
|
(1,501,912
|
)
|
|
|
531,222
|
|
|
|
234,646
|
|
|
|
736,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
(1,141,644
|
)
|
|
|
471,185
|
|
|
|
169,817
|
|
|
|
736,044
|
|
|
|
235,402
|
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(119,213
|
)
|
|
|
|
|
|
|
(119,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,141,644
|
)
|
|
|
471,185
|
|
|
|
50,604
|
|
|
|
736,044
|
|
|
|
116,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(43,251
|
)
|
|
|
26,980
|
|
|
|
(49,761
|
)
|
|
|
|
|
|
|
(66,032
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
97,930
|
|
|
|
108,969
|
|
|
|
184,106
|
|
|
|
|
|
|
|
391,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
54,679
|
|
|
$
|
135,949
|
|
|
$
|
134,345
|
|
|
$
|
|
|
|
$
|
324,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 22. Subsequent
Event
On January 25, 2008, the Company entered into the fourth
amendment to the Credit Facility. The fourth amendment amends
the minimum consolidated tangible net worth the Company is
required to maintain under the Credit Facility and reduces the
aggregate commitment under the Credit Facility from
$1.50 billion to $1.30 billion. Consenting lenders to
the fourth amendment received a fee in connection with this
amendment.
85
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of KB Home:
We have audited the accompanying consolidated balance sheets of
KB Home as of November 30, 2007 and 2006, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended November 30, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of KB Home at November 30, 2007 and
2006, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
November 30, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, in 2006 the Company changed its method of accounting
for stock-based compensation.
As discussed in Note 16 to the consolidated financial
statements, in 2007 the Company changed its method of accounting
for defined postretirement benefit plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of KB Homes internal control over financial
reporting as of November 30, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated January 25, 2008
expressed an unqualified opinion thereon.
Los Angeles, California
January 25, 2008
86
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of KB Home:
We have audited KB Homes internal control over financial
reporting as of November 30, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). KB Homes
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, KB Home maintained, in all material respects,
effective internal control over financial reporting as of
November 30, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of KB Home as of November 30,
2007 and 2006, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended November 30, 2007
and our report dated January 25, 2008 expressed an
unqualified opinion thereon.
Los Angeles, California
January 25, 2008
87
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
Item
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure
that information we are required to disclose in the reports we
file or submit under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and
accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. Under
the supervision and with the participation of senior management,
including our Chief Executive Officer and Chief Financial
Officer, we evaluated our disclosure controls and procedures as
of November 30, 2007. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
November 30, 2007.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended November 30,
2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
under the Securities and Exchange Act of 1934. Under the
supervision and with the participation of senior management,
including our Chief Executive Officer and Chief Financial
Officer, we evaluated the effectiveness of our internal control
over financial reporting based on the framework in
Internal
Control-Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on
the evaluation under that framework and applicable SEC rules,
our management concluded that our internal control over
financial reporting was effective as of November 30, 2007.
|
|
Item
9B.
|
OTHER
INFORMATION
|
None.
88
The information required by this item for executive officers is
set forth under the heading Executive Officers of
Registrant in Part I. Except as set forth below, the
other information called for by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Proposal 1: Election of
Directors sections of our Proxy Statement for the 2008
Annual Meeting of Stockholders, which will be filed with the SEC
not later than March 29, 2008 (120 days after the end of
our fiscal year).
Ethics
Policy
We have adopted an Ethics Policy for our directors, officers
(including our principal executive officer, principal financial
officer and principal accounting officer) and employees. The
Ethics Policy is available on our website at
http://www.kbhome.com/investor. Stockholders may request a free
copy of the Ethics Policy from:
|
|
|
|
|
KB Home
|
|
|
Attention: Investor Relations
|
|
|
10990 Wilshire Boulevard
|
|
|
Los Angeles, California 90024
|
|
|
(310) 231-4000
|
|
|
investorrelations@kbhome.com
|
Within the time period required by the SEC and the New York
Stock Exchange, we will post on our website any amendment to our
Ethics Policy and any waiver applicable to our principal
executive officer, principal financial officer or principal
accounting officer, or persons performing similar functions, and
our executive officers or directors.
Corporate
Governance Principles
We have adopted Corporate Governance Principles, which are
available on our website at http://www.kbhome.com/investor.
Stockholders may request a free copy of the Corporate Governance
Principles from the address, phone number and email address set
forth under Ethics Policy.
New York
Stock Exchange Annual Certification
On May 4, 2007, we submitted to the New York Stock Exchange
a certification of our President and Chief Executive Officer
that he was not aware of any violation by KB Home of the
New York Stock Exchanges corporate governance listing
standards as of the date of the certification.
Item
11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Executive Compensation
sections of our Proxy Statement for the 2008 Annual Meeting of
Stockholders, which will be filed with the SEC not later than
March 29, 2008 (120 days after the end of our fiscal year).
|
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to the Ownership of KB Home Securities
section of our Proxy Statement for the 2008 Annual Meeting of
Stockholders, which will be filed with the SEC not later than
March 29, 2008 (120 days after the end of our fiscal year),
except for the information required by Item 201(d) of Regulation
S-K, which is provided below.
89
The following table provides information as of November 30,
2007 with respect to shares of our common stock that may be
issued under our existing compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
Number of common
|
|
|
|
Number of
|
|
|
|
|
|
shares remaining
|
|
|
|
common shares to
|
|
|
|
|
|
available for future
|
|
|
|
be issued upon
|
|
|
|
|
|
issuance under equity
|
|
|
|
exercise of
|
|
|
Weighted-average
|
|
|
compensation plans
|
|
|
|
outstanding options,
|
|
|
exercise price of
|
|
|
(excluding common
|
|
|
|
warrants and
|
|
|
outstanding options,
|
|
|
shares reflected in
|
|
|
|
rights
|
|
|
warrants and rights
|
|
|
column(a))
|
|
Plan category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by stockholders
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
501,892
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
501,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
Represents the Non-Employee Directors Stock Plan. The
Non-Employee Directors Stock Plan provides for an unlimited
number of grants of deferred common stock units or stock options
to our non-employee directors. The terms of the stock units and
options granted under the Non-Employee Directors Stock Plan are
described in our Proxy Statement for the 2008 Annual Meeting of
Stockholders, which is incorporated herein. Although we may
purchase shares of our common stock on the open market to
satisfy the payment of stock awards under the Non-Employee
Directors Stock Plan, to date, all stock awards under the
Non-Employee Directors Stock Plan have been settled in cash. In
addition, because of the irrevocable election of each of our
non-employee
directors to receive payouts in cash of all outstanding
stock-based awards granted to them under the Non-Employee
Directors Stock Plan, we do not intend to issue any shares of
common stock under the plan. Therefore, we are treating the
Non-Employee
Directors Stock Plan as having no available capacity to issue
shares of our common stock.
|
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Other Matters sections of our
Proxy Statement for the 2008 Annual Meeting of Stockholders,
which will be filed with the SEC not later than March 29, 2008
(120 days after the end of our fiscal year).
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the Independent Auditor Fees and
Services section of our Proxy Statement for the 2008
Annual Meeting of Stockholders, which will be filed with the SEC
not later than March 29, 2008 (120 days after the end of our
fiscal year).
90
PART IV
|
|
Item 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Financial
Statements
Reference is made to the index set forth on page 47 of this
Annual Report on
Form 10-K.
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on Form 10-Q for the quarter
ended February 28, 2007, is incorporated by reference
herein.
|
|
3
|
.2
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
4
|
.1
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, dated February 4, 1999,
filed as an exhibit to the Companys Current Report on Form
8-K dated February 4, 1999, is incorporated by reference
herein.
|
|
4
|
.2
|
|
Indenture relating to
8
5
/
8
%
Senior Subordinated Notes due 2008, and
7
3
/
4
%
Senior Subordinated Notes due 2010 between the Company and Sun
Trust Bank, Atlanta, dated November 19, 1996 filed as an
exhibit to the Companys Current Report on Form 8-K
dated November 19, 1996, is incorporated by reference
herein.
|
|
4
|
.3
|
|
Specimen of
8
5
/
8
%
Senior Subordinated Notes due 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
December 13, 2001, is incorporated by reference herein.
|
|
4
|
.4
|
|
Form of officers certificate establishing the terms of the
8
5
/
8
%
Senior Subordinated Notes due 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
December 13, 2001, is incorporated by reference herein.
|
|
4
|
.5
|
|
Specimen of
7
3
/
4
%
Senior Subordinated Notes due 2010, filed as an exhibit to the
Companys Current Report on Form 8-K dated
January 27, 2003, is incorporated by reference herein.
|
|
4
|
.6
|
|
Form of officers certificate establishing the terms of the
7
3
/
4
%
Senior Subordinated Notes due 2010, filed as an exhibit to the
Companys Current Report on Form 8-K dated
January 27, 2003, is incorporated by reference herein.
|
|
4
|
.7
|
|
Indenture and Supplemental Indenture relating to
5
3
/
4
% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
4
|
.8
|
|
Specimen of
5
3
/
4
% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
|
4
|
.9
|
|
Second Supplemental Indenture relating to
6
3
/
8
% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
4
|
.10
|
|
Specimen of
5
7
/
8
% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.11
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
5
7
/
8
% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.12
|
|
Specimen of
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
91
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.13
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
4
|
.14
|
|
Specimen of
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
4
|
.15
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
4
|
.16
|
|
Specimen of
7
1
/
4
% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
4
|
.17
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
7
1
/
4
% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
4
|
.18
|
|
Second Supplemental Indenture relating to the Companys
Senior Subordinated Notes by and between the Company, the
Guarantors named therein, and SunTrust Bank, dated as of
May 1, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
4
|
.19
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
4
|
.20
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
4
|
.21
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
4
|
.22
|
|
Third Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Subordinated Notes by and
between the Company, the Guarantors, and the Trustee, and the
Guaranties, each dated August 17, 2007, of the Senior
Subordinated Notes, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
10
|
.2*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
filed as an exhibit to the Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.3*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.4*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
10
|
.5*
|
|
KB Home 1998 Stock Incentive Plan, filed as an exhibit to the
Companys 1998 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
10
|
.6
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.7
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.8*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
92
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.9*
|
|
KB Home Nonqualified Deferred Compensation Plan, filed as an
exhibit to the Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.10*
|
|
KB Home 2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.11*
|
|
KB Home Change in Control Severance Plan, filed as an exhibit to
the Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.12*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.13*
|
|
KB Home Retirement Plan, filed as an exhibit to the
Companys 2002 Annual Report on Form
10-K,
is
incorporated by reference herein.
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended,
filed as an exhibit to the Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.15
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated as of July 10, 2003, filed as an exhibit to the
Companys 2003 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
10
|
.16
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
10
|
.17
|
|
Term Loan Agreement, dated as of April 12, 2006, filed as
an exhibit to the Companys Current Report on
Form 8-K
dated April 19, 2006, is incorporated by reference herein.
|
|
10
|
.18*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.19*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.20*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.21
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., filed as an exhibit to the Companys Current
Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
10
|
.22
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
10
|
.23
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as administrative agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
10
|
.24*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.25*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
93
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.26*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
10
|
.27*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.28*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.29*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.30*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.31*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.32*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.33
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
10
|
.34*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
10
|
.35*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985.
|
|
10
|
.36*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989.
|
|
10
|
.37
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order.
|
|
10
|
.38*
|
|
Kaufman and Broad Home Corporation 1988 Employee Stock Plan, as
amended on January 27, 1994.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
31
|
.2
|
|
Certification of Domenico Cecere, 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 Domenico Cecere, 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.
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
Financial
Statement Schedules
Financial statement schedules have been omitted because they are
not applicable or the required information is shown in the
consolidated financial statements and notes thereto.
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KB Home
|
|
|
|
By:
|
/s/ WILLIAM
R. HOLLINGER
|
William R. Hollinger
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Dated: January 25, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ JEFFREY T. MEZGER
Jeffrey T. Mezger
|
|
Director, President and
Chief Executive Officer
(Principal Executive Officer)
|
|
January 25, 2008
|
|
|
|
|
|
/s/ DOMENICO CECERE
Domenico Cecere
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
January 25, 2008
|
|
|
|
|
|
/s/ STEPHEN F. BOLLENBACH
Stephen F. Bollenbach
|
|
Chairman of the Board and Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ RONALD W. BURKLE
Ronald W. Burkle
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ TIMOTHY W. FINCHEM
Timothy W. Finchem
|
|
Director
|
|
January 18, 2008
|
|
|
|
|
|
/s/ KENNETH M. JASTROW, II
Kenneth M. Jastrow, II
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ JAMES A. JOHNSON
James A. Johnson
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ J. TERRENCE LANNI
J. Terrence Lanni
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ MELISSA LORA
Melissa Lora
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ MICHAEL G. MCCAFFERY
Michael G. McCaffery
|
|
Director
|
|
January 18, 2008
|
|
|
|
|
|
/s/ LESLIE MOONVES
Leslie Moonves
|
|
Director
|
|
January 23, 2008
|
|
|
|
|
|
/s/ LUIS G. NOGALES
Luis G. Nogales
|
|
Director
|
|
January 22, 2008
|
95
LIST OF
EXHIBITS FILED
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on Form 10-Q for the quarter
ended February 28, 2007, is incorporated by reference
herein.
|
|
|
|
|
|
3
|
.2
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
|
|
|
|
4
|
.1
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, dated February 4, 1999,
filed as an exhibit to the Companys Current Report on Form
8-K dated February 4, 1999, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.2
|
|
Indenture relating to
8
5
/
8
%
Senior Subordinated Notes due 2008, and
7
3
/
4
%
Senior Subordinated Notes due 2010 between the Company and Sun
Trust Bank, Atlanta, dated November 19, 1996 filed as an
exhibit to the Companys Current Report on Form 8-K
dated November 19, 1996, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.3
|
|
Specimen of
8
5
/
8
%
Senior Subordinated Notes due 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
December 13, 2001, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.4
|
|
Form of officers certificate establishing the terms of the
8
5
/
8
%
Senior Subordinated Notes due 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
December 13, 2001, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.5
|
|
Specimen of
7
3
/
4
%
Senior Subordinated Notes due 2010, filed as an exhibit to the
Companys Current Report on Form 8-K dated
January 27, 2003, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.6
|
|
Form of officers certificate establishing the terms of the
7
3
/
4
%
Senior Subordinated Notes due 2010, filed as an exhibit to the
Companys Current Report on Form 8-K dated
January 27, 2003, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.7
|
|
Indenture and Supplemental Indenture relating to
5
3
/
4
% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
|
|
|
|
4
|
.8
|
|
Specimen of
5
3
/
4
% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.9
|
|
Second Supplemental Indenture relating to
6
3
/
8
% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.10
|
|
Specimen of
5
7
/
8
% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.11
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
5
7
/
8
% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.12
|
|
Specimen of
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
4
|
.13
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.14
|
|
Specimen of
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.15
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
6
1
/
4
%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.16
|
|
Specimen of
7
1
/
4
% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.17
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
7
1
/
4
% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.18
|
|
Second Supplemental Indenture relating to the Companys
Senior Subordinated Notes by and between the Company, the
Guarantors named therein, and SunTrust Bank, dated as of
May 1, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.19
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.20
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.21
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.22
|
|
Third Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Subordinated Notes by and
between the Company, the Guarantors, and the Trustee, and the
Guaranties, each dated August 17, 2007, of the Senior
Subordinated Notes, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.2*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
filed as an exhibit to the Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.3*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.4*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.5*
|
|
KB Home 1998 Stock Incentive Plan, filed as an exhibit to the
Companys 1998 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
10
|
.6
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.7
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.8*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.9*
|
|
KB Home Nonqualified Deferred Compensation Plan, filed as an
exhibit to the Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.10*
|
|
KB Home 2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.11*
|
|
KB Home Change in Control Severance Plan, filed as an exhibit to
the Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.12*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.13*
|
|
KB Home Retirement Plan, filed as an exhibit to the
Companys 2002 Annual Report on Form
10-K,
is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended,
filed as an exhibit to the Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.15
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated as of July 10, 2003, filed as an exhibit to the
Companys 2003 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.16
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.17
|
|
Term Loan Agreement, dated as of April 12, 2006, filed as
an exhibit to the Companys Current Report on
Form 8-K
dated April 19, 2006, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.18*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.19*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.20*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.21
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., filed as an exhibit to the Companys Current
Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.22
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
10
|
.23
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as administrative agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.24*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.25*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.26*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.27*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.28*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.29*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.30*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.31*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.32*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.33
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.34*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.35*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985.
|
|
|
|
|
|
10
|
.36*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989.
|
|
|
|
|
|
10
|
.37
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order.
|
|
|
|
|
|
10
|
.38*
|
|
Kaufman and Broad Home Corporation 1988 Employee Stock Plan, as
amended on January 27, 1994.
|
|
|
|
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31
|
.2
|
|
Certification of Domenico Cecere, 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 Domenico Cecere, 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.
|
|
|
|
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
|
|
|
Document filed with this
Form 10-K.
|
EXHIBIT 10.35
KAUFMAN AND BROAD, INC.
Executive Deferred Compensation Plan
This Executive Deferred Compensation Plan (hereinafter referred to as the Plan) has been adopted
by the Personnel, Compensation and Stock Option Committee of the Board of Directors of Kaufman and
Broad, Inc. (hereinafter referred to as the Employer), effective as of July 11, 1985.
|
|
The purpose of the Plan is to provide supplemental retirement income and death benefits for
certain Executives (hereinafter defined).
|
|
|
The following definitions, set forth in alphabetical order, are used throughout the Plan.
Whenever words or phrases have initial capital letters in the Plan, a special definition for
those words or phrases is set forth below.
|
|
(a)
|
|
Account means the record maintained by the Committee
of each Participants Deferrals, Employer contributions, credited interest and distributions under the Plan.
|
|
|
(b)
|
|
Anniversary Date means the last day of each Plan Year.
|
|
|
(c)
|
|
Beneficiary means the person, persons or entity
designated in writing by the Participant on forms
provided by the Committee to receive distribution of
certain death benefits under the Plan in the event of
the Participants death. A Participant may change the
designated Beneficiary from time to time by filing a new
written designation with the Committee, and
such designation shall be effective upon receipt by the Committee. If a Participant
has not designated a Beneficiary, or if a designated Beneficiary is not living or in
existence at the time of a Participants death, any death benefits payable under the
Plan shall be paid to the Participants spouse, if then living, and if the
Participants spouse is not then living, to the Participants estate.
|
|
|
(d)
|
|
Benefit Agreement means a benefit agreement described
in Section 8(a) relating to a Total Deferral commitment beginning in a specific Plan Year.
|
-1-
|
(e)
|
|
Board of Directors means the Board of Directors of
Kaufman and Broad, Inc.
|
|
|
(f)
|
|
Code means the Internal Revenue Code of 1986, as
amended.
|
|
|
(g)
|
|
Committee means the Personnel, Compensation and Stock
Option Committee of the Board of Directors or any
successor thereof.
|
|
|
(h)
|
|
Covered Bonus means the annual cash bonus earned by the Participant in the current Plan
Year and payable in the following Plan Year.
|
|
|
(i)
|
|
Covered Salary means annual base salary, excluding any bonus or other form of remuneration.
|
|
|
(j)
|
|
Deferral means the portion of a Participants Covered Salary and/or Covered Bonus that has
been deferred in accordance with Section 3(d). Deferral amounts are retained by the Employer
as part of its general assets.
|
|
|
(k)
|
|
Deferral Period means the period beginning with the
effective date of a particular Benefit Agreement and ending on November 30, 1992.
|
|
|
(l)
|
|
Disability means Total Disability. Total Disability must last continuously at least six
months during the Participants lifetime. Total Disability of the Participant means his
inability, caused by disease or bodily injury, to do substantially all the material duties of
his regular job, except that:
|
|
(i)
|
|
After such inability has continued for two years, a Participant is not totally
disabled if he can work for pay or profit at some other job for which he is reasonably
fitted by education, training or experience, and
|
|
|
(ii)
|
|
A Participant is not totally disabled at any time when he is working for pay or
profit.
|
|
|
|
Total Disability excludes intentional self-inflicted injury, and war or any act incident to
war, or service in the armed forces or any auxiliary civilian force of any country at war.
|
|
(m)
|
|
Disability Plan means the insured long-term disability plan maintained by the Employer
which covers the Participants in this Plan, or any successor disability plan.
|
-2-
|
(n)
|
|
Early Retirement Date means the first day of the month coinciding with or next following
the later of:
|
|
(i)
|
|
Attainment of age 50; and
|
|
|
(ii)
|
|
Completion of all Total Deferral commitments under the Plan; and
|
|
|
(iii)
|
|
Completion of ten (10) years of continuous employment with the
Employer.
|
|
(o)
|
|
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
|
|
|
(p)
|
|
Executive means a management or highly-compensated employee of the Employer or any of its
subsidiaries who has been specifically designated, by the Board of Directors or the Committee,
as eligible to participate in this Plan as either a Tier I or Tier II Executive.
|
|
|
(q)
|
|
Minimum Annual Deferral means the minimum amount of Deferral that a Participant may
make in any Plan Year under
Section 3(d)(ii).
|
|
|
(r)
|
|
Normal Retirement Date means the first day of the month coinciding with or next
following the later of:
|
|
(i)
|
|
Attainment of age 60, if the Executive was less than age 51 when he became a
Participant, or attainment of age 65 for all other Participants; and
|
|
|
(ii)
|
|
Completion of all Total Deferral commitments under the Plan.
|
|
(s)
|
|
Participant means an Executive who has made a written election to participate in the Plan
in accordance with Section 3(a).
|
|
|
(t)
|
|
Plan Interest Rate means:
|
|
(i)
|
|
For the period from February 1, 1986, to January 31, 1987, 15% per annum;
and
|
|
|
(ii)
|
|
For the period February 1, 1987 to November 30, 1987, the average of the Moodys
AAA Seasoned Corporate Bond Yield (which yield is published in Section H.15(519) of the
Federal Reserve Statistical Release) for the 12 months ended November 30, 1986,
increased by 300 basis points; and
|
-3-
|
(iii)
|
|
For all Plan Years subsequent to that ended
November 30, 1987, the average of the Moodys AAA Seasoned Corporate Bond
Yield (which yield is published in Section H.15(519) of the Federal Reserve
Statistical Release) for the 12 months preceding such Plan Year, increased
by 300 basis points.
|
|
(u)
|
|
Plan Year means a fiscal year beginning December 1 of any year and ending
November 30 of the following year, or such other fiscal year as adopted by the
Employer.
|
|
|
(v)
|
|
Post-Retirement Death Benefit means the benefit payable to the Beneficiary
of a Participant who dies after the commencement of his Retirement Income Benefit, as
described in Section 6.
|
|
|
(w)
|
|
Pre-Retirement Death Benefit means the benefit payable to the Beneficiary
of a Participant who dies prior to commencement of his Retirement Income Benefit, as
described in Section 5.
|
|
|
(x)
|
|
Retirement Income Benefit means the retirement benefit described in Section
4.
|
|
|
(y)
|
|
Total Deferral means the total amount of Deferrals that a Participant
commits to make during the Deferral Period under Section 3(c) with respect to a
particular Benefit Agreement.
|
|
(a)
|
|
Commencement of Deferral Period:
|
|
|
|
|
An Executive shall become a Participant hereunder upon execution by the Participant
and the Committee of an initial Benefit Agreement. A Participant (with the consent of
the Committee) may enter into additional Benefit Agreements for Deferral Periods
commencing in subsequent Plan Years until the Plan Year commencing on December 1,
1991. Each Benefit Agreement shall become effective on the next December 1 after
execution, and shall contain the items described in this Section and in Section 8(a).
Subject to subsection (b), the elections made in a Benefit Agreement shall be
irrevocable.
|
|
|
(b)
|
|
Deferrals:
|
|
|
|
|
A Participant may continue to make the Deferrals provided under subsection (d) with
respect to a specific Benefit Agreement until his designation as an Executive is
revoked by the Board of Directors, he terminates
|
-4-
|
|
|
employment with the Employer, he receives a hardship withdrawal or he has made the Total
Deferral described in subsection (c).
|
|
|
(c)
|
|
Election of Total Deferral:
|
|
|
|
|
The Participant shall elect the Total Deferral that he will make during the Deferral Period
in his respective Benefit Agreement. Such Total Deferral shall be either the minimum or
maximum as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Maximum
|
Tier I Executives
|
|
$
|
80,000
|
|
|
$
|
160,000
|
|
Tier II Executives
|
|
|
40,000
|
|
|
|
80,000
|
|
|
(d)
|
|
Annual Election:
|
|
|
|
|
Participants may irrevocably elect in writing with respect to each Benefit Agreement to make
a Deferral for a Plan Year in the Deferral Period in accordance with the following rules:
|
|
(i)
|
|
Each Participant shall make a Deferral for the
first Plan Year of the respective Deferral Period equal to 25% of his Total
Deferral. The source of such Deferral shall be the Participants Covered Bonus
payable in such Plan Year and/or the Participants Covered Salary for such Plan
Year, as requested by the Participant in his Benefit Agreement for such Deferral
Period.
|
|
|
(ii)
|
|
Each Participant may elect to make an annual Deferral for a subsequent Plan Year
of the respective Deferral Period from his Covered Bonus payable in such Plan Year
and/or his Covered Salary payable in such Plan Year. Such election must be made on or
before November 30 preceding the Plan Year. If the Participant elects to make a
Deferral, the amount of the annual Deferral shall be at least $10,000 or $20,000 (the
Minimum Annual Deferral for Tier II or Tier I, respectively), and not more than the
lesser of: 25% of his Total Deferral or, if the Deferral Period is less than four years,
the amount necessary to make such Total Deferral in equal installments over the
Deferral Period; or the amount needed to complete his Total Deferral.
|
|
|
(iii)
|
|
Deferrals for a Plan Year shall be credited to
Participants Accounts as of the end of the month in which the Deferral is
subtracted from the Participants Covered Bonus or Covered Salary.
|
-5-
|
(iv)
|
|
If a Participant fails to make his Total Deferral by the end of the
Deferral Period, he shall cease to be a Participant in the Plan with respect
to that Benefit Agreement. He shall receive a lump-sum payment within 90
days of the end of the Deferral Period equal to his Account balance as of
the end of the Deferral Period attributable to such Benefit Agreement
reduced to reflect the crediting of interest at the rate of 3% less than the
Plan Interest Rate rather than the Plan Interest Rate throughout the
Deferral Period and the elimination of Employer contributions that had been
credited to the Account and interest thereon. Neither the Participant,
spouse nor Beneficiary shall be entitled to any further benefit hereunder
with respect to such Benefit Agreement.
|
|
(e)
|
|
Employer Contributions:
|
|
|
|
|
For any month in which the Participants Account is credited with a Deferral,
the Account shall also be credited with an Employer contribution. The Employer
contribution shall be equal to 25% of the Participants Minimum Annual Deferral as
described in Section 3(d)(ii) and the aggregate of all such Employer contributions
shall not exceed 25% of the minimum Total Deferral available to the Participant under
section 3(c), computed separately with respect to each Benefit Agreement.
|
|
|
(f)
|
|
Interest:
|
|
|
|
|
Except as otherwise provided, interest shall be credited to each Participants Account
quarterly during each Plan Year based upon the Plan Interest Rate in effect for such
Plan Year for so long as there remains a balance in the Participants Account.
|
|
|
|
A Participant who retires on his Normal Retirement Date shall be entitled to a
Retirement Income Benefit commencing at Normal Retirement Date consisting of equal
monthly payments over 20 years if the Participant was less than age 51 when he
commenced participation in the Plan, or 15 years if he had attained age 51 when
he commenced participation. The amount of the monthly payments shall be calculated
to pay out over the specified period the balance in the Account at the commencement of
payments with interest credited monthly on the declining balance at the average
Plan Interest
|
-6-
|
|
|
Rate for the five Plan Years preceding the commencement of payments (minimum interest
rate). The Participants Account shall continue to be credited quarterly with interest at
the Plan Interest Rate and charged with the monthly payments to the Participant. At the end
of every three years until the payment period has elapsed, the actual amount of interest
credited to the Account shall be compared to the interest that would have been generated by
the minimum interest rate over the same time period. If the actual interest is greater than
the minimum interest, the difference shall be paid to the Participant in a lump-sum payment
and subtracted from the Account as a distribution. If it is determined that the minimum
interest exceeds the actual interest, the account shall be adjusted for such difference, but
the Participant will not have to repay any portion of his distributions.
|
|
(i)
|
|
A Participant who retires prior to his Normal Retirement Date, but on or after
his Early Retirement Date, shall be entitled to a Retirement Income Benefit commencing
on his Normal Retirement Date, determined in accordance with subsection (a).
|
|
|
(ii)
|
|
In lieu of the Retirement Income Benefit described in paragraph (i), a
Participant who retires prior to his Normal Retirement Date, but on or after his Early
Retirement Date, may elect with the consent of the Committee at any time prior to his
Normal Retirement Date to commence to receive on the first day of the month following
his early retirement a Retirement Income Benefit determined in the manner set forth in
subsection (a), based upon the balance in his Account as of such date.
|
|
|
|
A Participant who retires after his Normal Retirement Date shall be entitled to a Retirement
Income Benefit commencing on the first day of the month following his actual retirement,
determined in accordance with subsection (a) using the balance in his Account as of his actual
retirement date in lieu of the balance as of his Normal Retirement Date.
|
-7-
|
(d)
|
|
Termination of Employment:
|
|
|
|
|
A Participant who terminates employment prior to his Early Retirement Date shall be entitled
to a termination benefit. The benefit shall be a lump-sum payment made within 90 days of the
end of the Plan Year in which his employment terminates, equal to his Account balance as of
the date of distribution including interest prorated to such date. Neither the Participant,
spouse nor Beneficiary shall be entitled to any further benefit hereunder.
|
|
|
(e)
|
|
Disability:
|
|
(i)
|
|
A Disabled Participant who is:
|
|
(A)
|
|
Within the initial exclusion period under the Disability Plan and
for that reason only is not receiving benefits thereunder; or
|
|
|
(B)
|
|
Receiving benefits under the Disability Plan;
|
shall be deemed to be an Executive during such period and shall continue to be
eligible for retirement benefits without reduction for payments under Section
4(e)(ii) and Pre-Retirement and Post-Retirement Death Benefits under Sections 5 and
6. If the period of disability occurs within a Deferral Period, and the Disabled
Participant had not completed making his Total Deferrals prior to the period of
disability, he shall be excused from making one additional Deferral under each
applicable Benefit Agreement for each Plan Year of disability, but no amounts shall be
credited to his Account with respect to such excused Deferral(s). However, if he
returns to employment within the Deferral Period, he may elect in the normal time
period to make the Deferrals that were previously excused.
|
(ii)
|
|
A Disabled Participant who is receiving benefits under the
Disability Plan shall
receive an additional disability benefit under this Plan. The disability benefit shall
consist of monthly payments during the period the Participant is receiving payments under
the Disability Plan. Such monthly payments shall equal on an annual basis 37.5% of the
Total Deferral elected by the Participant under Section 3(c) under all Benefit
Agreements.
|
- 8 -
|
(iii)
|
|
With the approval of the Committee, the Disabled Participant may withdraw his
Account balance in a lump sum. Such withdrawal shall make the Disabled Participant,
spouse and Beneficiary ineligible for further benefits hereunder except for the benefits
provided under paragraph (ii) of this subsection and the death benefits provided under
Sections 5 and 6.
|
|
(f)
|
|
Hardship Withdrawal:
|
|
|
|
|
At any time prior to the commencement of Retirement Income Benefits hereunder, a Participant
may request the Committee to make a distribution to him from his Account balance in a lump
sum within 90 days. Such distribution shall be made only if the Committee determines that
the Participant is suffering from a financial hardship that cannot be satisfied by his normal
sources of income. In addition, the following rules shall apply separately with respect to
each of the Participants Benefit Agreements:
|
|
(i)
|
|
If the hardship withdrawal is to be made within the Deferral Period, the amount
to be distributed shall be the entire Account balance, and neither the Participant,
spouse nor Beneficiary shall be entitled to any further benefit hereunder.
|
|
|
(ii)
|
|
If the hardship withdrawal is to be made after the Deferral Period, the
Participant may select the portion of his Account to be withdrawn. The Participant will
remain eligible for retirement, death, termination and disability benefits hereunder
(based upon his remaining Account balance where applicable).
|
|
(g)
|
|
Change of Control:
|
|
|
|
|
In the event of a Change of Control as defined below, a Participant may elect to withdraw
his entire Account balance (including interest accrued to the date of payment) by giving
written notice to the Committee. Upon the delivery of such notice, the Participants Account
balance (together with interest thereon) shall become due and payable as a lump-sum
distribution on the date of such Change of Control.
|
|
|
|
|
A Change of Control shall be deemed to have taken place if:
|
|
(i)
|
|
As a result of or in connection with any cash
tender or exchange offer, merger or other business combination, sale of assets or contested
election,
|
- 9 -
or any combination of the foregoing transactions (Transaction), the persons
who were directors of the Company before the Transaction shall cease to
constitute a majority of the Board of Directors of the Company or any
successor to the Company, or
|
(ii)
|
|
Any person or group as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of the shares of the Company having 25% or more of the total
number of votes that may be cast for the election of directors of the Company,
or
|
|
|
(iii)
|
|
The shareholders of the Company shall have approved an agreement
providing for a transaction in which the Company will cease to be an independent
publicly-owned company or for the exchange of at least a majority of the
outstanding stock for cash or property or securities (other than common stock of
the Company) or for the sale or other disposition of all or substantially all of
the assets of the Company.
|
5.
|
|
Pre-Retirement Death Benefit
|
|
(a)
|
|
Regular Benefit Account Balance:
|
|
|
|
|
The Beneficiary of a Participant who dies:
|
|
(i)
|
|
While employed by the Employer; or
|
|
|
(ii)
|
|
After termination, but prior to commencement of his Retirement
Income Benefit
|
shall be entitled to receive the balance in the Participants Account. This will be paid in
a lump sum unless the Participant (with the consent of the Committee) elected a different
payment period prior to his death. A Participant may change this election annually during
the month of December. The benefit shall be paid or shall commence to be paid as soon as
practicable after the Participants death.
|
(b)
|
|
Enhanced Benefit Pre-Retirement Survivor Annuity
|
|
|
|
|
The Beneficiary of a Participant who dies:
|
|
(i)
|
|
While employed
by the Employer, or
|
|
(ii)
|
|
After termination of employment having qualified for a Retirement
Income Benefit, but prior to commencement of his Retirement Income Benefit; and
|
- 10 -
|
(iii)
|
|
After waiving coverage under the supplemental
executive group term life insurance plan provided by the Employer
|
|
|
shall be entitled to the death benefit provided under
subsection (a), and shall also be
entitled to ten annual payments of $145,000 commencing as soon as practicable after the
Participants death.
|
6.
|
|
Post-Retirement Death Benefit
|
|
(a)
|
|
Regular Benefit:
|
|
|
|
|
The Beneficiary of a Participant who dies after commencement of his Retirement Income
Benefit shall be entitled to continue to receive the Retirement Income Benefit
payments being made to the Participant under Section 4 for the period specified in
that section.
|
|
|
(b)
|
|
Spouses Survivor Benefit:
|
|
|
|
|
The spouse of a Participant who dies after commencement of his Retirement Income
Benefit on account of early, normal or deferred retirement shall be entitled to
receive a spouses survivor benefit. The spouses survivor benefit shall commence
after all benefits have been paid to the Beneficiary under subsection (a), and shall
consist of an annuity for the life of the spouse with monthly payments equal to 66.67%
of the average monthly payments made to the Participant and Beneficiary under Sections
4 and 6(a), respectively. Notwithstanding the foregoing, if the spouse is more than
five years younger than the Participant, the annuity will be determined with reference
to the actual age of the spouse and the monthly payments reduced to produce the
actuarial equivalent of an annuity for a spouse who is five years younger than the
Participant. In addition, a Benefit Agreement for a Benefit Deferral Period commencing
after December 1, 1987 may set forth a different Post-Retirement Death Benefit
applicable to such Benefit Agreement.
|
- 11 -
|
(a)
|
|
Participants Account:
|
|
|
|
|
Except as otherwise provided in Section 3(d)(iv), a Participant shall be 100% vested
in his Account balance at all times and shall rank as an unsecured creditor of the
Company for his entire Account balance.
|
|
|
(b)
|
|
Other Benefits:
|
|
|
|
|
Retirement and death benefits, to the extent that they exceed a Participants Account
balance, shall vest only upon the retirement or death of the Participant, whichever
is applicable, and may be modified or eliminated until such vesting in accordance
with Section 12.
|
|
(a)
|
|
Benefit Agreement:
|
|
|
|
|
The Committee shall provide to each Executive a form of Benefit Agreement with respect
to each Deferral Period for which the Committee will permit the Executive to make
Deferrals, which shall set forth the Executives acceptance of the benefits provided
hereunder, his agreement to be bound by the terms of the Plan and such other matters
as are set forth in this Plan or deemed advisable by the Committee.
|
|
|
(b)
|
|
Exclusion for Suicide or Self-Inflicted
Injury:
|
|
|
|
|
Notwithstanding any other provision of the Plan, no Spouses Survivor Benefit under
Section 6(b) with respect to a specific Benefit Contract shall be paid to the spouse
or Beneficiary of any Executive who dies within two years of the effective date of
such Benefit Contract as the result of suicide or self-inflicted injury.
|
|
|
(c)
|
|
Leave of Absence:
|
|
|
|
|
An Executive who is on an approved leave of absence with salary, or on an approved
leave of absence without salary for a period of not more than six months, shall be
deemed to be an Executive employed by the Employer during such leave of absence. An
Executive who is on an approved leave of absence without salary for a period in excess
of six months shall be deemed to have voluntarily
|
- 12 -
|
|
|
terminated his employment as of the end of such six-month period and therefore
shall be subject to the conditions set forth in
Section 4(d).
|
|
(d)
|
|
Alternative Forms of Benefit:
|
|
|
|
|
The Board of Directors in its sole discretion, but with the consent of the recipient,
may elect to pay the Participant, spouse or Beneficiary an actuarially equivalent
lump sum or other form of benefit that it deems appropriate in lieu of the form of
benefit otherwise provided.
|
|
|
(e)
|
|
Actuarial Equivalence:
|
|
|
|
|
Actuarial equivalence hereunder shall be determined using the interest and mortality
factors adopted from time to time by the Board of Directors or the Committee. The
initial factors to be used shall be an interest rate of six percent (6%) per year and
a mortality assumption based upon the 1970 Group Annuity Table for males (to be used
for both males and females).
|
|
|
(f)
|
|
Withholding:
|
|
|
|
|
Benefit payments hereunder shall be subject to applicable federal, state or
local withholding laws.
|
|
|
|
The Plan shall be unfunded. All benefits payable under the Plan shall be paid from
the Employers general assets, and nothing contained in the Plan shall require the
Employer to set aside or hold in trust any funds for the benefit of a Participant or
his Beneficiary, who shall have the status of a general unsecured creditor with
respect to the Employers obligation to make payments under the Plan. Any funds of
the Employer available to pay benefits under the Plan shall be subject to the claims
of general creditors of the Employer and may be used for any purpose by the Employer.
|
10.
|
|
Administration of the Plan
|
|
(a)
|
|
The Committee:
|
|
|
|
|
The Committee shall administer the Plan and shall keep a written record of its action and
proceedings regarding the Plan and all dates, records and documents relating to its administration
of the Plan.
|
- 13 -
|
|
|
Subsequent to the close of each Plan Year, the Committee shall apprise in writing each
Executive of his Account balance.
|
|
|
|
The Committee is authorized to interpret the Plan, to make, amend and rescind such rules as
it deems necessary for the proper administration of the Plan, to make all other
determinations necessary or advisable for the administration of the Plan and to correct any
defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to
the extent that the Committee deems desirable to carry the Plan into effect. The powers and
duties of the Committee shall include, without limitation, the following:
|
|
(i)
|
|
Resolving all questions relating to the
eligibility of Executives to become Participants;
|
|
|
(ii)
|
|
Determining the amount of benefits payable to Participants or their
Beneficiaries and authorizing and directing the Employer with respect to the payment of
benefits under the Plan.
|
|
|
(iii)
|
|
Construing and interpreting the Plan whenever
necessary to carry out its intention and purpose and making and publishing such
rules for the regulation of the Plan as are not inconsistent with the terms of the
Plan.
|
|
|
(iv)
|
|
Compiling and maintaining all records it
determines to be necessary, appropriate or convenient in connection with the
administration of the Plan; and
|
|
|
(v)
|
|
Engaging any administrative, actuarial, legal,
medical, accounting, clerical, or other services it may deem appropriate to
effectuate the Plan.
|
Any action taken or determination made by the Committee shall, except as otherwise provided in
Section 12 below, be conclusive on all parties. No members of the Committee shall vote on any
matter affecting such member. In determining whether an Executive is Disabled, the Committee
may rely on the conclusions reached by any insurance carrier that has issued an insurance
policy to the Employer covering the Executive.
|
(b)
|
|
Expenses of the Committee:
|
|
|
|
|
The expenses of the Committee properly and actually incurred in the performance of its duties
under the Plan shall be paid by the Employer and shall not decrease Participants Account
balances.
|
- 14 -
|
(c)
|
|
Bonding and Compensation:
|
|
|
|
|
The members of the Committee shall serve without bond, and without compensation for their
services as Committee members except as the Employer may provide in its discretion.
|
|
|
(d)
|
|
Information to be Submitted to the Committee:
|
|
|
|
|
To enable the Committee to perform its functions, the Employer shall supply full and timely
information to the Committee on all matters relating to Executives and Participants as the
Committee may require, and shall maintain such other records as the Committee may determine
are necessary in order to determine the benefits due or which may become due to Participants
or their Beneficiaries under the Plan. The Committee may rely on such records as conclusive
with respect to the matters set forth therein.
|
|
|
(e)
|
|
Notices, Statements and Reports:
|
|
|
|
|
The Employer shall be the administrator of the Plan as defined in Section 3(16)(A) of ERISA
for purposes of the reporting and disclosure requirements imposed by ERISA and the Code. The
Committee shall assist the Employer, as requested, in complying with such reporting and
disclosure requirements.
|
|
|
(f)
|
|
Service of Process:
|
|
|
|
|
The Committee may from time to time designate an agent of the Plan for the service of legal
process. The Committee shall cause such agent to be identified in materials it distributes
or causes to be distributed when such identification is required under applicable law. In
the absence of such a designation, the Employer shall be the agent of the Plan for the
service of legal process.
|
|
|
(g)
|
|
Insurance:
|
|
|
|
|
The Employer, in its discretion, may obtain, pay for and keep current a policy or policies of
insurance insuring the Committee members, the members of the Board of Directors and other
employees to whom any responsibility with respect to the administration of the Plan has been
delegated, against any and all costs, expenses and liabilities (including attorneys fees)
incurred by such persons as a result of any act, or omission to act, in connection with the
performance of their duties, responsibilities, and obligations under the Plan and any
applicable law.
|
-15-
|
(h)
|
|
Indemnity:
|
|
|
|
|
If the Employer does not obtain, pay for and keep current the type of insurance policy
or policies referred to in subsection (g), or if such insurance is provided but any of
the parties referred to in subsection (g) incur any costs or expenses which are not
covered under such policies, then the Employer shall indemnify and hold harmless, to
the extent permitted by law, such parties against any and all costs, expenses and
liabilities (including attorneys fees) incurred by such parties in performing their
duties and responsibilities under this Plan, provided that such party or parties were
not guilty of willful misconduct. In the event that such party is named as a defendant
in a lawsuit or proceeding involving the Plan, the party shall be entitled to receive
on a current basis the indemnity payments provided for in this subsection, provided
however that if the final judgment entered in the lawsuit or proceeding holds that the
party is guilty of willful misconduct with respect to the Plan, the party shall be
required to refund the indemnity payments that it has received.
|
11.
Claims Procedure
|
(a)
|
|
Filing Claim for Benefits:
|
|
|
|
|
If a Participant or Beneficiary (hereinafter referred to as the Applicant) does not
receive the timely payment of the benefits which the Applicant believes are due under
the Plan, the Applicant may make a claim for benefits in the manner hereinafter
provided.
|
|
|
|
|
All claims for benefits under the Plan shall be made in writing and shall be signed by
the Applicant. Claims shall be submitted to a representative designated by the
Committee and hereinafter referred to as the Claims Coordinator. The Claims
Coordinator may, but need not, be a member of the Committee. If the Applicant does
not furnish sufficient information with the claim for the Claims Coordinator to
determine the validity of the claim, the Claims Coordinator shall indicate to the
Applicant any additional information which is necessary for the Claims Coordinator to
determine the validity of the claim.
|
|
|
|
|
Each claim hereunder shall be acted on and approved or disapproved by the Claims
Coordinator within 90 days following the receipt by the Claims Coordinator of the
information necessary to process the claim.
|
-16-
|
|
|
In the event the Claims Coordinator denies a claim for
benefits in whole or in part, the
Claims Coordinator shall notify the Applicant in writing of the denial of the claim and
notify the Applicant of his right to a review of the Claims Coordinators decision by the
Committee. Such notice by the Claims Coordinator shall also set forth, in a manner
calculated to be understood by the Applicant, the specific denial, the specific provisions of
the Plan or Agreement on which the denial is based, a description of any additional material
or information necessary to perfect the claim with an explanation of why such material or
information is necessary, and an explanation of the Plans appeals procedure as set forth in
this section.
|
|
|
|
|
If no action is taken by the Claims Coordinator on an Applicants claim within 90 days after
receipt by the Claims Coordinator, such claim shall be deemed to be denied for purposes of
the following appeals procedure.
|
|
|
(b)
|
|
Appeals Procedure:
|
|
|
|
|
Any Applicant whose claim for benefits is denied in whole or in part may appeal from such
denial to the Committee for a review of the decision by the Committee. Such appeal must be
made within three months after the Applicant has received actual or constructive notice of
the denial as provided above. An appeal must be submitted in writing within such period and
must:
|
|
(i)
|
|
Request a review by the Committee of the claim for benefits under the Plan;
|
|
|
(ii)
|
|
Set forth all of the grounds upon which the Applicants request for review is based and any facts in support thereof; and
|
|
|
(iii)
|
|
Set forth any issues or comments which the Applicant deems pertinent
to the appeal.
|
|
|
|
The Committee shall regularly review appeals by Applicants. The Committee shall act upon each
appeal within 60 days after receipt thereof unless special circumstances require an extension
of the time for processing, in which case a decision shall be rendered by the Committee as
soon as possible but not later than 90 days after the last documentation is received by the
Committee.
|
|
|
|
|
The Committee shall make full and fair review of each appeal and any written materials
submitted by the Applicant in connection therewith. The Committee may require the Applicant
to submit such additional facts,
|
-17-
|
|
|
documents or other evidence as the Committee in its discretion deems necessary or
advisable in making its review. The Applicant shall be given the opportunity to
review pertinent documents or materials upon submission of a written request to the
Committee, provided the Committee finds the requested documents or materials are
pertinent to the appeal.
|
|
|
|
|
On the basis of its review, the Committee shall make an independent determination of
the Applicants eligibility for benefits under the Plan. The decision of the
Committee on any claim for benefits shall be final and conclusive upon all parties
thereto.
|
|
|
|
|
In the event the Committee denies an appeal in whole or in part, the Committee shall
give written notice of the decision to the Applicant, which notice shall set forth, in
a manner calculated to be understood by the Applicant, the specific reasons for such
denial and which shall make specific reference to the pertinent provisions of the Plan
or Agreement on which the Committees decision is based.
|
12.
Amendment, Termination or Suspension
|
(a)
|
|
The Plan may be amended or terminated by the Board of
Directors at any time. Such amendment or termination
may modify or eliminate any benefit hereunder other than
a benefit that is in pay status, or the vested portion
of a benefit that is not in pay status.
|
|
|
(b)
|
|
If the Board of Directors determines that payments under
the Plan would have a material adverse effect on the
Employers ability to carry on its business, the Board
of Directors may suspend such payments temporarily for
such time as in its sole discretion it deems advisable,
but in no event for a period in excess of one year. The
Employer shall pay such suspended payments immediately
upon the expiration of the period of suspension.
|
|
|
(c)
|
|
The Plan is intended to provide benefits for a select
group of management or highly compensated employees
within the meaning of Sections 201, 301 and 401 of
ERISA, and therefore to be exempt from Sections 2, 3 and
4 of Title 1 of ERISA. Accordingly, the Plan shall
terminate and, except for existing Account balances and
other benefits in pay status (which, at the option of
the Board of Directors, may be accelerated and the
balance paid in a single, actuarially equivalent lump
sum), no further benefits, vested or nonvested, shall be
paid hereunder in the event it is determined by a court
of competent jurisdiction or by an opinion of counsel
|
-18-
|
|
|
that the Plan constitutes an employee pension benefit plan within the meaning of
Section 3(2) of ERISA which is not so exempt.
|
13.
Miscellaneous
|
(a)
|
|
Participant Rights:
|
|
|
|
|
Nothing in the Plan shall confer upon a Participant the right to continue in the
employ of the Employer or shall limit or restrict the right of the Employer to
terminate the employment of a Participant at any time with or without cause.
|
|
|
(b)
|
|
Alienation:
|
|
|
|
|
Except as otherwise provided in the Plan, no right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge such
right or benefit shall be void. No such right or benefit shall in any manner be liable
for or subject to the debts, liability or torts of a Participant or Beneficiary.
|
|
|
(c)
|
|
Partial Invalidity:
|
|
|
|
|
If any provision in the Plan is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions shall nevertheless
continue to be in full force and effect without being impaired or invalidated in
any way.
|
|
|
(d)
|
|
Choice of Law:
|
|
|
|
|
The Plan shall be construed in accordance with ERISA and the laws of the State of
California.
|
|
|
(e)
|
|
Payment to Minors or Persons Under Legal Disability:
|
|
|
|
|
If any benefit becomes payable to a minor or to a person under a legal disability,
payment of such benefit shall be made only to the conservator or the guardian of the
estate of such intended recipient appointed by a court of competent jurisdiction or any
other individual or institution maintaining or having custody of such intended
recipient. A release by such conservator, guardian, individual or institution shall
constitute a legal discharge of the Plans obligation to the intended recipient.
|
-19-
Headings of sections and subsections as used herein are inserted solely for convenience and
reference and constitute no part of the Plan.
Executed
at Los Angeles, California this
day of
,
|
|
|
|
|
|
KAUFMAN AND BROAD, INC.
|
|
|
By
|
/s/ Norman J. Metcalfe
|
|
|
|
Norman J. Metcalfe
|
|
|
|
Its Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ Susan L. Harris
|
|
|
|
Susan L. Harris
|
|
|
|
Its Secretary
|
|
|
-20-
KAUFMAN AND BROAD, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
BENEFIT AGREEMENT
This Benefit Agreement is entered into between KAUFMAN
AND BROAD, INC. (the Company) and
(the Employee), pursuant to the KAUFMAN AND BROAD, INC. EXECUTIVE
DEFERRED COMPENSATION PLAN (the Plan).
1.
Provisions of the Plan
The Employee hereby acknowledges receipt of a copy of the Plan. In particular, the Employee
acknowledges having read and understood the provisions of the Plan respecting the entitlement to
and calculation of benefits, that no assets of the Company are to be segregated to be used to pay
benefits under the Plan, and that the Plan may be amended or terminated at any time
in accordance with its terms.
2.
Status as Executive
The Company hereby acknowledges that the Employee presently qualifies as a Tier ___
Executive as defined in the Plan, and as such is eligible to become a Participant in the Plan.
Such qualification may be terminated by the Board of Directors of the Company at any time in its
sole discretion.
3.
Election to Participate
The Employee hereby elects to participate in the Plan, and to make the following Total
Deferral under the Plan during the seven year Deferral Period:
Tier I Executive (Minimum $80,000; Maximum $160,000) $
Tier II Executive (Minimum $40,000; Maximum $80,000) $
The Employee confirms that he will make a Deferral equal to 25% of his Total Deferral in the 1986
Plan Year, and that he will make the balance of his Total Deferrals during the Deferral Period by
filing appropriate annual election forms with the Committee in accordance with the Plan. All
Deferral elections are irrevocable. The Deferral for the 1986 Plan Year shall be made from the
Employees:
Covered Salary
; or
Covered Bonus
. (check one)
4.
Acceptance of Benefits
The Employee hereby agrees on his own behalf and on behalf of his Beneficiaries to accept
those benefits under the Plan to which he or his beneficiaries may become entitled, and to be bound
by all of the terms and conditions of the Plan.
5.
Designation of Beneficiary
The Plan provides certain death benefits to the Beneficiary specifically designated by the
Employee for that purpose. The Committee which administers the Plan will make appropriate
beneficiary designation forms available to the Employee.
6.
Plan Document
All of the terms and conditions of the Plan are contained in the Plan document, and no
officer or employee of the Company has been authorized to vary such terms and conditions orally
or in writing. The Plan may be modified only by amendment to the Plan adopted by the Board of
Directors.
|
|
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|
|
KAUFMAN AND BROAD, INC.
|
|
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|
|
Date of Signature:
|
|
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|
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By:
|
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Title:
|
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Date of Signature:
|
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EMPLOYEE
|
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|
KAUFMAN AND BROAD, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
DESIGNATION OF BENEFICIARY
Check if this is a revised designation
I hereby revoke any previous Designation of Beneficiary that I may have made with respect to
this Plan, and designate the following Beneficiary(ies) to receive any benefit payable under the
Plan by reason of my death as to which the Plan permits such designation:
Primary Beneficiary
Contingent Beneficiary
If no Primary Beneficiary is alive when I die, the benefit should be paid to the following
Contingent Beneficiary:
|
|
|
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|
|
Signature of Participant
|
|
Date
|
|
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|
|
Consent of Participants Spouse
|
|
Date
|
Instructions
You may normally list only one person or entity (such as a testamentary or inter vivos trust)
in both the Primary and Contingent Beneficiary sections. However, if you are designating your
children or grandchildren in either section and you have more than one such child or grandchild,
you may designate any number of such children or grandchildren as Beneficiaries. In that event,
they will share in the benefit to be distributed in the percentage shares that you indicate. If you
do not indicate percentage shares, each Primary Beneficiary will share equally in the benefit to be
distributed. If one or more Primary Beneficiaries dies before you do,
their share of the benefit
will be divided among the surviving Primary Beneficiary(ies) (in proportion to their relative
percentage shares).
Your
Contingent Beneficiary will only receive a distribution of the benefit if no Primary
Beneficiary is alive at the time of your death. If you list more than one Contingent
Beneficiary under the circumstances permitted above, the rules for dividing the benefit between
them are the same as the rules for dividing the benefit between your Primary Beneficiaries.
If you are married, you are urged to consult your spouse with respect to any designation that
you make on this form, and to have your spouse sign the designation. You are also urged to consult
with your estate planning counsel.
This Designation will remain in effect until the Plans Administrative Committee has
received a revised Designation properly signed by you. You may file a revised Designation at any
time.
KAUFMAN AND BROAD, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
ANNUAL DEFERRAL ELECTION
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Name of Participant:
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Plan Year:
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I hereby elect to have the following portion of my Base Salary or Base Bonus payable in the
Plan Year deferred and credited to my Account in the Kaufman and Broad, Inc. Executive Deferred
Compensation Plan:
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Base Salary $
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Base Bonus $
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I understand that:
1. The minimum Deferral is $5,000 and the maximum Deferral is 25% of the
Total Deferral that I have elected to make over the seven year Deferral Period.
2. I may not defer more than my Total Deferral.
3. This Deferral Election is irrevocable.
4. This Deferral Election is invalid if not submitted
to the Plan Administration Committee within the time limits
imposed by the Plan. The Committee may reject a Deferral
Election that does not conform to the terms of the Plan.
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Date of Signature:
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Participant
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EXHIBIT
10.36
KAUFMAN AND BROAD HOME CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
SECTION 1.
Establishment and Purpose.
Kaufman and Broad Home Corporation (the
Company) hereby establishes effective as of July 27, 1989, a plan known as the Kaufman and Broad
Home Corporation Directors Deferred Compensation Plan (the Plan). The purpose of the Plan is to
attract and retain certain individuals of outstanding competence as members of the Board of
Directors of the Company by permitting such individuals to elect to defer a portion of their
compensation from the Company to a later date or event.
SECTION 2.
Definitions.
As used in this Plan, the following terms shall have the
indicated meanings:
(a)
Board:
The Board of Directors of Kaufman and Broad Home Corporation.
(b)
Committee:
The Personnel and Nominating Committee of the Board.
(c)
Company:
Kaufman and Broad Home Corporation.
(d)
Compensation:
The annual retainer and all fees (excluding any reimbursed
expenses) payable to a Director in his capacity as a member of the Board in any calendar year.
(e)
Deferral Year:
Each calendar year as to which an election is made to defer
Compensation in accordance with the provisions of Section 3 of the Plan.
(f)
Director:
Any member of the Board who receives Compensation in his capacity as a
member of the Board.
(g)
Participant:
Any Director who becomes a Participant in the Plan as provided in
Section 3 of the Plan.
(h)
Plan:
The Kaufman and Broad Home Corporation Directors Deferred Compensation Plan, as it
may be amended from time to time.
(i)
Retirement:
Any termination from membership of the Board, including any mandatory
retirement at age 70.
SECTION
3.
Eligibility and Participation:
(a) All Directors shall be eligible to
participate in the Plan. A Director may become a Participant for any calendar year by executing an
irrevocable deferral election (in the form attached hereto as Exhibit A or on such other form as
may be prescribed by the Committee) with respect to his Compensation for such calendar year.
Except as provided in Section 3(b), such election shall be executed
on or before the
first Monday in December of the preceding calendar year.
(b) With respect to an individual who first becomes eligible to participate in the Plan after
the beginning of a calendar year by reason of an election or appointment to the Board of
Directors, such individual may become a Participant for the remainder of such year by executing an
irrevocable deferral election (on a form prescribed by the Committee) with respect to his
Compensation as soon as practicable, but in any event within thirty (30) days of the date such
individual becomes a Director. A Director at the time the Plan becomes effective may become a
Participant for the remainder of the calendar year by executing such a form immediately upon
approval of the Plan.
SECTION 4.
Deferral Election.
(a) As a condition of participation under the Plan, a
Director must agree to defer one hundred percent (100%) of Compensation for each calendar year as
to which such Director elects to defer Compensation. An election made under this Plan with respect
to Compensation shall relate only to Compensation for the succeeding calendar year, or to
Compensation for the remainder of a calendar year if Section 3(b) applies, and a separate election
must be made in order to defer Compensation during any subsequent year. In the event of a failure
to make a timely election to defer Compensation for any year, no portion of the Participants
Compensation for such year may be deferred under this Plan.
(b) Each deferral election shall (in accordance with Sections 7(b), 7(c) and 7(d)) also
designate:
(1) the
date, or event on which payment is to commence;
(2) the method of payment; and
(3) the beneficiary to receive any payments if the Participant
dies before receiving all amounts to which he is entitled under the Plan.
SECTION 5.
Participants Account.
(a) The Company shall establish bookkeeping accounts
to record the deferrals and additions under this Plan. Each Participant shall have a separate
account for each Deferral Year, and each account shall be increased and decreased as provided in
this Section.
(b) During the Deferral Year, each Participants account shall be credited with the amount of
Compensation deferred by each Participant by a quarterly crediting at the end of each March, June,
September and December of the amount of Compensation which would have been payable to such
Participant in such quarter
- 2 -
(determined
without regard to such Participants deferral election under Section 3).
(c) The amount determined in Section 5(a) shall be increased as of the last day of each
calendar quarter during the Deferral Year by the amount obtained by multiplying the account balance
as of the first day of such quarter by one-fourth the rate equivalent to the prime rate at Security
Pacific National Bank in effect as of the first day of such quarter.
(d) In all years following the Deferral Year, the Participants account will be increased
as of the last day of each calendar quarter by an amount equal to the account balance as of the
first day of such calendar quarter multiplied by one-fourth the prime rate at Security Pacific
National Bank in effect as of the first day of such calendar quarter. A Participants account
(reduced in accordance with Section 5(f)) shall continue to be increased in accordance with this
paragraph during any installment payment period which may have been elected by the Participant
under Section 7(c) or approved by the Committee under Sections 7(c) or 7(d).
(f) The Participants account shall be reduced by any payments made to the Participant or his
or her beneficiary, estate or representative.
SECTION 6.
Funding Prohibitions.
All entries in a Participants account shall be
bookkeeping entries only and shall not represent a special reserve or otherwise constitute a
funding of the Companys unsecured promise to pay any amounts hereunder. All payments to be made
under the Plan shall be paid from the general funds of the Company. Participants and their
beneficiaries shall have no right, title or interest in or to any investments which the Company
may make to aid it in meeting its obligations under the Plan. All such assets shall be the
property solely of the Company and shall be subject to the claims of the Companys unsecured
general creditors. To the extent a Participant or any other person acquires a right to receive
payments from the Company under the Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company and such person shall have only the unsecured promise of
the Company that such payments shall be made.
SECTION 7.
Payment.
(a) Payment of amounts credited to a Participants account shall
be made in the manner and at the time or times specified herein. All payments shall be made by
Company check. The normal payment schedule will consist of one payment in January of each year.
- 3 -
(b) When the Participant makes a deferral election for a Deferral Year, he shall also elect
the time at which or the event (such as Retirement) after which payment of the amounts credited to
the account established for such Deferral Year shall commence. Once made, such election of time of
commencement of payment for such Deferral Year shall be irrevocable. Payment of amounts credited
to the account for such Deferral Year shall commence within thirty (30) days of the date or the
occurrence of the event specified by the Participant in such election.
(c) When the Participant makes a deferral election he shall also elect to have the balance of
his account paid out in one of two methods: (1) a single lump sum or (2) approximately equal
annual installments (calculated on the basis of the amount in the Participants account and the
amounts to be accrued during the installment payment period) over a period of years (selected by
the Participant) not to exceed fifteen. Once made, such election of payment method for such
Deferral Year shall be irrevocable. Notwithstanding any other provision of the Plan to the
contrary, a Participant or beneficiary may withdraw an amount from his account upon a finding by
the Committee in its sole discretion that an unanticipated emergency that is caused by an event
beyond the control of such Participant or beneficiary has occurred that such emergency would result
in severe financial hardship to such Participant or beneficiary if early withdrawal were not
permitted. The amount which may be withdrawn pursuant to this Section shall not exceed the amount
necessary to meet such financial hardship as determined by the Committee in its sole discretion.
The Committee shall have the right to require such Participant or beneficiary to submit such
documentation as it deems appropriate for the purpose of determining the existence, cause and
extent of such financial hardship.
(d). Notwithstanding any provision of the Plan to the contrary, in the event of the death of
any Participant, the balance in the Participants account shall be paid to the Participants
beneficiary in a single lump sum payment within thirty (30) days after the date of such death.
Each Participant shall designate a beneficiary to whom any balance in his account under this
plan shall be payable on his death. A Participant may also designate an alternate beneficiary to
receive such payment in the event that the designated beneficiary cannot receive payment for any
reason. In the event no designated or alternate beneficiary can receive such payment for any
reason, payment will be made to the Participants surviving spouse, if any, or if the Participant
has no surviving spouse, then to the following beneficiaries if then living in the following order
of priority: (i) to the Participants children (including adopted children and stepchildren) in
equal shares, (ii) to the Participants parents in equal shares, (iii) to the Participants
brothers and sisters in equal shares, and (iv) to the Participants
- 4 -
estate. Each participant may at any time change any beneficiary designation. A change of
beneficiary designation must be made in writing and delivered to the Committee or its delegate for
such purposes. The interest of any beneficiary who dies before the Participant will terminate
unless otherwise specified by the Participant.
(e) Upon a Participants Retirement, payments from the Participants account will be made as
the Participant specified in the deferral election, pursuant to Section 5(c).
SECTION 8.
Administration.
The Plan shall be administered by the Personnel and
Nominating Committee of the Board of Directors of the Company. The Personnel and Nominating
Committee shall have all powers necessary to carry out the provisions of the Plan, including
without limitation, the power to delegate administrative matters to other persons and to interpret
the Plan in a manner consistent with its express provisions.
SECTION 9.
Miscellaneous
:
(a)
Termination of Plan.
The Company may at any time by action of its Board terminate
this Plan. Upon termination of the Plan, no further deferrals will be permitted, and the
Participants Compensation will be restored on a non-deferred basis. Each Participants accounts
as they then exist will be maintained, credited and paid pursuant to the provisions of this Plan
and the Participants elections.
(b)
Amendment.
The Company may at any time amend this Plan in any respect, (i) in the
case of amendments which have a material effect on the cost to the Company of maintaining the
Plan, by action of its Board or, (ii) with respect to any other amendments, by action of the
Committee; provided, however, that no such amendment shall adversely effect the right of
Participants or their beneficiaries to any amounts credited or to be credited to the
Participants accounts with respect to any Deferral Year which has commenced prior to the adoption
of any such amendment.
(c)
No Alienation of Benefits.
To the extent permitted by law, Participants and
beneficiaries shall not have the right to alienate, anticipate, commute, sell, assign, transfer,
pledge, encumber or otherwise convey the right to receive any payments under this Plan, and any
payments under this Plan or rights thereto shall not be subject to the debts, liabilities,
contracts, engagements or torts of Participants or beneficiaries nor to attachment, garnishment
or execution, nor shall they be transferable by operation of law in the event of bankruptcy or
insolvency. Any attempt, whether voluntary or involuntary, to effect any such action shall be
null, void and of no effect.
-5-
(d)
No Right To Continue As A Director.
Nothing contained herein shall be construed
as conferring upon a Director the right to continue as a member of the Board of Directors.
(e)
Headings.
The headings of paragraphs are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the provisions of the
Plan.
(f)
Governing
Law.
The Plan shall be construed and administered under the laws of the
State of California.
-6-
EXHIBIT
10.37
WILLIAM BRANIFF
United States Attorney
Southern District of California
940 Front Street
San Diego, California 92101
(619) 557-5610
Attorney for Plaintiff
ELROY H. WOLFF
Sidley & Austin
1722 Eye Street, N.W.
Washington, D.C. 20006
(202) 429-4000
Attorney for Defendant
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA,
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CIVIL ACTION NO.
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Plaintiff,
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v.
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CONSENT DECREE
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KAUFMAN AND BROAD HOME CORPORATION,
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)
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Defendant.
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WHEREAS plaintiff, the
United States of America, commenced this action on , 1991,
by filing the complaint herein; and whereas defendant Kaufman and Broad Home Corporation has waived service of the
summons and complaint; and whereas the parties have been represented by the attorneys whose names appear hereafter; and
whereas plaintiff and defendant have agreed to settlement of this action upon the following terms and condition
and without defendant admitting liability for any of
the violations charged or admitting the accuracy of any of the allegations in the complaint;
Now on the joint motion of plaintiff and defendant,
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:
1. This Court has jurisdiction of the subject matter herein and of the parties hereto. The
complaint states a claim upon which relief may be granted against defendant under Sections 5(1), 9,
13(b) and 16(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §§ 45(1), 49, 53(b) and 56(a)(1).
2. Defendant is ordered, pursuant to Section 5(1) of the Federal Trade Commission Act, 15
U.S.C § 45(1), to pay a monetary civil penalty in the total amount of $595,000. Such payment shall
be by wire transfer of the funds, in accordance with instructions received from the Office of
Consumer Litigation, Civil Division, U.S. Department of Justice, Washington, D.C. 20530, to the
United States Treasury within ten (10) days of entry of this Consent Decree.
3. In the event of default in payment, which default continues for ten (10) days beyond the
due date of the payment, interest shall be computed pursuant to 28 U.S.C. § 1961(a). Interest shall
accrue from the date of default to the date of payment.
4. Defendant
Kaufman and Broad Home Corporation, its successors and assigns, and its officers,
agents, representatives, and employees, directly or through any corporation, subsidiary, division,
or other device, in connection with the production, advertising, offering for sale or sale of
on-site residential housing in or affecting commerce, as
Page 2 of 5
commerce is defined in the Federal Trade Commission Act, are hereby enjoined from ever violating
any provision of the Commissions order in FTC Docket No. C-2954, 93 F.T.C. 235 (1979), a copy of
which is attached herewith as Appendix A and made a part of this Consent Decree.
5. This Court shall retain jurisdiction of this matter for the purpose of enabling any of the
parties to this Consent Decree to apply to the Court at any time for such further orders or
directives as may be necessary or appropriate for the interpretation or modification of this
Consent Decree, for the enforcement of the compliance therewith, or for the punishment of the
violations thereof.
JUDGMENT IS THEREFORE ENTERED in favor of plaintiff, the United States of America, and against
defendant Kaufman and Broad Home Corporation pursuant to all the terms and conditions recited
above.
DATED: 7-2-91
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JUDITH N.KEEP
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United States District Judge
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The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent
Decree as set forth above and consent to the entry thereof. Each party shall bear its own costs and
attorneys fees.
Page 3 of 5
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FOR THE UNITED STATES
STUART M. GERSON
Assistant Attorney General
Civil Division
WILLIAM BRANIFF
United States Attorney
Southern District of California
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By:
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/s/ JOHN R. NEECE
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JOHN R. NEECE
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Assistant United States Attorney
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/s/ JOHN R. FLEDER
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JOHN R. FLEDER
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Director
Office of Consumer Litigation
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/s/ DAVID A. LEVITT
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DAVID A. LEVITT
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Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530
(202) 514-6786
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FOR THE FEDERAL TRADE COMMISSION
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/s/ WILLIAM S. SANGER
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WILLIAM S. SANGER
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Associate Director for Enforcement
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/s/ JUSTIN DINGFELDER
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JUSTIN DINGFELDER
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Assistant Director
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Page 4 of 5
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/s/ THOMAS D. MASSIE
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THOMAS D. MASSIE
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Attorney
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/s/ ROBERT M. FRISBY
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ROBERT M. FRISBY
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Attorney
Division of Enforcement
Federal Trade Commission
Washington, D.C. 20580
(202) 326-2982
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FOR THE DEFENDANT
KAUFMAN AND BROAD HOME CORPORATION:
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By:
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/s/ ALBERT Z. PRAW
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ALBERT Z. PRAW
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General Counsel and Senior Vice President
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SIDLEY & AUSTIN
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By:
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/s/ ELROY H. WOLFF
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ELROY H. WOLFF
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A Member of the Firm
1722 Eye Street, N.W.
Washington, D.C. 20006
(202) 429-4000
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MORGAN, LEWIS & BOCKIUS
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By:
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/s/ CASWELL O. HOBBS
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CASWELL O. HOBBS
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A Member of the Firm
1800 M Street, N.W.
Washington, D.C. 20036
(202) 467-7200
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Page 5 of 5
WILLIAM BRANIFF
United States Attorney
Southern District of California
940 Front Street
San Diego, California 92101
(619) 557-5610
Attorney for Plaintiff
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA,
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CIVIL ACTION NO.
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Plaintiff,
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)
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COMPLAINT FOR CIVIL
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v.
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)
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PENALTIES AND OTHER
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)
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RELIEF
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KAUFMAN AND BROAD HOME CORPORATION,
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)
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Defendant.
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Plaintiff, the Unites States of America, by its attorney, William Braniff, United States Attorney
for the Southern District of California, acting upon notification and authorization to the Attorney
General of the United States by the Federal Trade Commission (Commission), alleges that:
1. This is an action brought under Sections 5(l), 9, and 13(b), of the Federal Trade Commission Act
(FTC Act), 15 U.S.C. §§ 45(l), 49, and 53(b), as amended, to recover from defendant monetary civil
penalties for violations of a final cease and desist order issued by the Commission and to secure
injunctive and other relief.
Jurisdiction and Venue
2. This
Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355,
under 15 U.S.C. §§ 45(1), 49 and 53(b).
3. Venue in the
Southern District of California is based on 28 U.S.C. §§ 1391(b) and (c) and
1395(a) and on 15 U.S.C. § 53(b).
Defendant and Its Business
4. Defendant,
Kaufman and Broad Home Corporation, is a corporation organized, existing, and
doing business under and by virtue of the laws of the State of Delaware and has its office and
principal place of business located at 10877 Wilshire Boulevard, Los Angeles, California 90024.
Defendant is the successor or assign of Kaufman and Broad, Inc.
5. At all times material herein, Kaufman and Broad Home Corporation and/or Kaufman and Broad,
Inc. have done and transacted business within the Southern District of California.
6. At all times
material herein, Kaufman and Broad Home Corporation and/or Kaufman
and Broad,
Inc. (hereinafter K&B) have engaged in the production,
advertising, offering for sale, and sale of
on-site residential housing in or affecting commerce, as commerce is defined in Section 4 of
the FTC Act, 15 U.S.C. § 44.
Prior Commission Proceeding
7. In a Commission proceeding bearing Docket No. C-2954, in which Kaufman and Broad, Inc., was
charged with violating Section 5(a)(1) of the FTC Act, 15
U.S.C. § 45(a)(1), the Commission on
Page 2 of 11
February 12, 1979, issued against Kaufman and Broad, Inc., its successors and assigns, a consent
order to cease and desist certain business practices, 93 F.T.C. 235 (1979) (Commissions Order).
The Commissions Order was served upon Kaufman and Broad, Inc., on February 23, 1979, and became
final and enforceable by operation of law on that date and has remained in full force and effect
ever since that date.
8. Included in the Commissions Order are the following provisions which have been final and
enforceable since on or about February 23, 1979:
I
DEFINITIONS
On-site residential housing shall mean housing structures, including lots,
consisting of single family dwelling units or housing structures consisting of multi-family
dwelling units (including condominiums) represented and sold by respondents in the United
States as completely constructed or partially constructed units.
An express warranty as used in this order shall mean any written affirmation of fact
or written promise made or assigned by respondents to a purchaser as part of the
transaction of the sale of a unit of on-site residential housing.
The HOW warranty as used in this order shall mean the warranty issued under the Home
Owners Warranty Corporations national home warranty program.
A major construction defect as used in this order shall mean a major construction
defect as defined in the Home Owners Warranty Corporation Home Warranty Agreement ...
* * *
II
IT IS ORDERED that respondents Kaufman and Broad, Inc., a corporation, Kaufman and
Broad Homes, Inc., a corporation, and Kaufman and Broad Home Sales, Inc., a corporation,
their successors and assigns, and their officers, and respondents agents, representatives
and employees, directly or through
Page 3 of 11
any corporation, subsidiary, division or other device, in connection with the conduct and operation
of their business in or affecting commerce as commerce is defined in the Federal Trade Commission
Act in the production, advertising, offering for sale or sale of a unit of on-site residential
housing, do cease and desist from :
l. Selling and delivering any housing unit for use as on-site residential housing which is not
built in accordance with the approved standards or which contains a major construction defect
without taking the necessary action to repair, replace, or to pay the cost of repairing or
replacing the defect in such housing unit in accordance with the provisions of respondents express
warranty required under Part III B of this order.
* * *
6. Failing to repair, replace or to pay the cost of repairing or replacing any major construction
defect or any other defect in accordance with the provisions of respondents express warranty
required under Part III B of this order or in the performance of respondents obligations under
Part VII of this order within a reasonable time after receipt of written notice of such defect from
the purchaser or past purchaser of respondents on-site residential housing; provided, however,
that:
(a) Where respondents for any reason are unable to complete such requested repairs within thirty
(30) calendar days after receipt of written notice of such defect from the purchaser or past
purchaser of respondents on-site residential housing, respondents shall furnish to such purchaser
or past purchaser (as defined in Part VIII) a written statement setting forth the reason or reasons
why such requested repairs cannot be undertaken or completed within such thirty day period and a
scheduled date on which the requested repairs are, in fact, to be completed within the next sixty
(60) day period.
(b) Where respondents are or were prevented from completing repairs by scheduled date referred to
in subparagraph 6(a) above due to intervening circumstances beyond their control, such as labor
strike, supplier or subcontractor failure to deliver materials or perform work, or unsuitable
weather conditions, such repairs will be completed within a reasonable period of time not to exceed
sixty (60) days from the date of the termination of the
intervening circumstance.
(c) Where
respondents for any reason elect not to honor such requests for repairs, respondents
shall,
Page 4 of 11
within twenty-one (21) calendar days of receiving such request for repairs, notify the
purchaser or past purchaser in writing why respondents will not honor the request.
* * *
III
* * *
B. IT IS FURTHER ORDERED that respondents shall furnish purchasers of each unit of
respondents on-site residential housing with a warranty that is substantially identical to the
insurers and the warrantors undertaking in the Home Owners Warranty Corporations Home Warranty
Agreement . . . currently in use . . . and incorporated by reference in this order, including the
procedures for the settlement of disputes, provided that respondents undertaking for major
construction defects shall be for a term of at least four years from the commencement date of each
such warranty furnished, and provided further that nothing in this order shall relieve respondents
from complying with the Magnuson-Moss Warranty Act, Section 101
et seq
. (15 U.S.C. §§ 2301
et seq
.), the rules promulgated thereunder, and interpretations issued by the Federal Trade
Commission in respect thereto.
* * *
V
IT IS FURTHER ORDERED that in connection with the advertising, offering for sale or sale of
on-site residential housing, respondents shall make available to each and every prospective
purchaser who visits respondents sales offices or model homes a brochure or a written statement
relating to such housing that will include the following disclosures in a clear, conspicuous and
affirmative manner:
1. For on-site residential housing not covered by the National Flood Insurance Program
administered by the U.S. Department of Housing and Urban Development, the identity, address and
telephone number of the individual, business firm and government agency that conducted soil tests
on land used in the construction of the residential housing offered for sale. In addition,
respondents shall require their contractors to state in non-technical language to each prospective
purchaser who contacts such contractors whether the land tested is suitable for residential use;
2. The identity or title, address and telephone number of the responsible public school
district authority who will
Page 5 of 11
furnish information relating to the identity and location of schools for the particular housing
unit;
3. Each room or area of the particular housing unit to be purchased that is not insulated to
retain the same degree of warmth as rooms designed for use as principal living areas;
4. Each room or area of the particular housing unit to be purchased that is constructed
without waterproofing adequate to render such room or area suitable for use as a habitable living
area;
5. The most recent official tax rate and estimate obtained from the officially responsible tax
assessing authority and the identity or title, address and telephone number
of such tax assessing authority;
6. A list containing each and every architectural design, construction feature, appurtenance,
optional item or equipment or other characteristic or feature
exhibited to the particular
purchaser in connection with a model home sample or style offered for sale to such purchaser which
characteristic or feature is not included in the model or style of respondents housing unit
offered for sale to such purchaser at the offered or advertised price;
7. A list containing each and every construction feature, appurtenance, optional item or
equipment or other characteristic or feature exhibited to the particular purchaser in connection
with a model home sample or style offered for sale to such purchaser which characteristic or
feature cannot be included or duplicated in the particular housing unit offered for sale to such
purchaser even upon the payment of an additional charge because of the style, size, location or any
other reason associated with the land or the design of the particular housing unit offered;
8. A notice that plans and specifications for each home being offered for sale are available
for inspection by prospective purchasers at respondents sales offices during normal business
hours; provided that such specifications shall include a full description of the materials and
components used by respondents in the construction of their on-site residential housing; and
provided further, that such description will be satisfied if it substantially includes the type of
information contained in the Description of Materials disclosure statements required by the United
States Federal Housing Administration (FHA Form 2005, as amended from time to time) or the United
States Veterans Administration (VA Form 26-1852, as revised from time to time);
Page 6 of 11
9. A notice that
purchasers of respondents housing may select any lending institution
of their choice for the purpose of securing a mortgage and are not limited to the lending
institution provided by respondents;
10. A statement setting forth respondents arrangement for repairs and the satisfaction
of warranties or in lieu thereof, a copy of the warranty required by Part III B of this
order that will be furnished with the housing being offered for sale and a statement of the
procedure for settlement of disputes under such warranty.
VI
IT IS FURTHER ORDERED that respondents shall secure a written acknowledgement from each
purchaser of respondents on-site residential housing which shall state the following
information:
1. That the disclosures referred to in Paragraph V of this order were received.
2. The date on which the disclosures referred to in Paragraph V of this order were
received.
Residential Housing Developments
9. In the five years immediately preceding the filing of
this complaint K&B produced, advertised, offered for sale and
sold units of on-site residential housing in 103 residential
housing developments in the State of California, including
Southridge, a development located in the City of Fontana, County
of San Bernardino, State of California.
Plan 3 Homes
10. Commencing in 1983 and continuing for some period of
time thereafter, K&B built and sold a number of substantially
identical two story single family homes in Tracts numbered 7503,
17734, 18502 and 18574 located in the City of Riverside, County
of Riverside, State of California, and in Tracts numbered 11804
Page 7 of 11
and 12859 located in the City of Corona, County of Riverside, State of California (generally
referred to a Plan 3 homes).
First Cause of Action
11. K&B
sold and delivered with a major construction defect a number of the above-described Plan 3
homes for use as on-site residential housing yet failed to take the necessary action to repair,
replace, or to pay the cost of repairing or replacing the defect in those housing units in
accordance with the provisions of K&Bs express warranty that was required under Part III B of the
Commissions Order, thereby violating Part II 1 of the Commissions Order.
Second Cause of Action
12. K&B failed to repair, replace or to pay the cost of repairing or replacing major construction
defects under the terms of K&Bs express warranty required under Part III B of the Commissions
Order within a reasonable period of time after receipt of a written request for warranty service
from the purchasers of a number of the Plan 3 homes, thereby violating Part II 6 of the
Commissions Order.
Third Cause of Action
13. K&B
failed to repair, replace or to pay the cost of repairing or replacing defects under the
terms of K&Bs express warranty required under Part III B of the Commissions Order within a
reasonable period of time after receipt of a written request for warranty service from the
purchasers of a substantial number of units of K&Bs on-site residential housing in the
Page 8 of 11
Southridge development, thereby violating Part II 6 of the Commissions Order.
Fourth Cause of Action
14. K&B, in connection with the advertising, offering for
sale or sale of on-site residential housing, failed to make
available to numerous prospective purchasers who visited K&Bs
sales offices or model homes in K&Bs on-site residential housing
developments the disclosures required under Part V of the Commissions Order, thereby violating Part V of the Commissions Order.
Fifth Cause of Action
15. K&B did not secure from numerous purchasers of K&Bs
on-site residential housing in a number of the residential
housing developments the written acknowledgement of the receipt
of one or more of the disclosures required by Part V of the
Commissions Order, thereby violating Part VI of the Commissions Order.
Violations Charged
16. Each unit of on-site residential housing in which K&B in the five years prior to the
filing of the complaint failed to comply with the Commissions Order in one or more of the ways
described above, except with respect to the Fourth and Fifth Causes of Action, constitutes a
separate violation of the Commissions Order for which plaintiff seeks a civil penalty.
17. Each prospective purchaser or purchaser of on-site residential housing with respect to
whom K&B in the five years prior to the filing of the complaint failed to comply with the
Page 9 of 11
Commissions Order in the way described in the Fourth and Fifth Causes of Action constitutes a
separate violation of the Commissions Order for which plaintiff seeks a civil penalty.
Prayer
WHEREFORE, plaintiff respectfully requests that this Court pursuant to 15 U.S.C §§ 45(1),
49, and 53(b) and the Courts own equity powers:
1. Enter judgment against defendant and in favor of plaintiff for each violation charged in
this complaint;
2. Award
plaintiff monetary civil penalties from defendant for the violations alleged in this
complaint;
3. Enjoin defendant
from further violations of the Commissions Order in Docket No. C-2954; and
4. Award plaintiff such other and further relief as the Court may deem just and proper.
Dated: ____________________
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STUART M. GERSON
Assistant Attorney General
Civil Division
WILLIAM BRANIFF
United States Attorney
Southern District of California
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By:
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/s/ JOHN R. NEECE
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JOHN R. NEECE
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Assistant United States Attorney
Southern District of California
940 Front Street
San Diego, California 92101
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Page 10 of 11
OF COUNSEL:
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/s/ JOHN R. FLEDER
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WILLIAM S. SANGER
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JOHN R. FLEDER
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Associate Director for
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Director
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Enforcement
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Office of Consumer Litigation
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JUSTIN DINGFELDER
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Assistant Director
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/s/ DAVID LEVITT
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Division of Enforcement
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DAVID LEVITT
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Attorney
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THOMAS D. MASSIE
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Office of Consumer Litigation
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Attorney
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U.S. Department of Justice
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Division of Enforcement
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P.O. Box 386
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Washington, D.C. 20044
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ROBERT M. FRISBY
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(202) 514-6786
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Attorney
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Division of Enforcement
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Federal Trade Commission
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Washington, D.C. 20580
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Page 11 of 11
EXHIBIT 10.38
KAUFMAN AND BROAD HOME CORPORATION
1988 EMPLOYEE STOCK PLAN
(as amended on January 27, 1994)
SECTION 1.
Purpose.
The purpose of the 1988 Employee Stock Plan (the Plan) is to promote the
success of Kaufman and Broad Home Corporation (the Company) by providing a method whereby key
employees of the Company and its subsidiaries and certain other individuals may be encouraged to
invest in the Common Stock, $1.00 par value, of the Company (Common Stock), increase their
proprietary interest in its business, remain in the employ of the Company or its subsidiaries, and
increase their personal interests in the continued success and progress of the Company.
SECTION 2.
Definitions.
As used in this Plan, the following terms shall have the indicated
meanings:
(a) Award: An award of restricted shares under Section 7 and, except for
purposes of Section 7, a Stock Unit Award granted pursuant to Section 8.
(b) Board: The board of directors of Kaufman and Broad Home Corporation.
(c) Code: The Internal Revenue Code of 1986, as amended.
(d) Committee: The Personnel, Compensation and Stock Option Committee of
the Board.
(e) Company: Kaufman and Broad Home Corporation and its Subsidiaries.
(f) Lapsing Formula: With reference to a particular Award under Section 7, a
formula or schedule, and such other conditions as may be imposed, determined by the
Committee and set forth in a Stock Restriction Agreement, as a basis for establishing the
number of shares of Stock which may be released from the restrictions of an Award. A
Lapsing Formula may differ from Participant to Participant and from Award to Award.
(g) Limited Stock Appreciation Right: A right granted pursuant to Section 6(b) to
receive cash in certain circumstances with respect to a related Option.
(h) Option: A right to buy Common Stock granted pursuant to Section 6(a).
(i) Option Agreement: The agreement reflecting the grant of an Option pursuant to Section
6(a).
(j) Participant: A key employee or other individual selected to participate in this Plan
pursuant to its terms.
(k) Performance Objectives: With reference to a particular Award under Section 7, the
threshold Performance Objective, target Performance Objective and super Performance Objective
pertaining thereto, as determined by the Committee and specified in the applicable Stock
Restriction Agreement, which objectives are the criteria established by the Committee which may
accelerate the release of shares of Common Stock from the restrictions of such Award and its
Lapsing Formula. The Performance Objectives may differ from Participant to Participant and from
Award to Award.
(1) Performance Period: With reference to a particular Award under Section 7, the period of
time within which the Performance Objectives are to be achieved, as determined by the Committee and
specified in the applicable Stock Restriction Agreement. The Performance Period may differ from
Participant to Participant and from Award to Award.
(m) Plan: The Kaufman and Broad Home Corporation 1988 Employee Stock Plan, as it may be
amended from time to time.
(n) Stock Restriction Agreement: With reference to a particular Award, the agreement
between the Company and the Participant containing the restrictions set forth in Section
7(e), the Lapsing Formula and the Performance Objectives.
(o) Stock Unit Award: An award granted under Section 8.
(p) Subsidiary: A subsidiary of Kaufman and Broad Home Corporation within the meaning of
Section 425(f) of the Code.
(q) Tax Date: The date on which taxes of any kind are required by law to be withheld
with respect to shares of Common Stock subject to an Option or Award.
SECTION 3.
Administration.
(a) The Committee shall have full power and authority, subject to such orders or resolutions
not inconsistent with the provisions of the Plan as may from time to time be issued or adopted by
the Board, to grant to eligible persons Awards, Options and Limited Stock Appreciation Rights with
respect to shares of Common Stock pursuant to the provisions of the Plan, to fix the exercise price
and other terms of such Options, to fix the terms of any Award in a manner consistent with the
terms of Section 7, to prescribe, amend and rescind rules and regulations, if any, relating to the
Plan, to interpret the provisions of the Plan, Stock Restriction Agreements and Option Agreements
issued under the Plan, to amend such Option Agreements and Stock Restriction Agreements from time
to time subject to the provisions of the Plan, and to supervise the administration of the Plan. No
individual shall become a member of the Committee if he or she shall have been eligible to receive
Awards or Options to acquire shares of capital stock of the Company or any subsidiary at any time
during the 12-month period prior to becoming a member and no member of the Committee shall be
eligible to receive Awards or Options.
(b) All decisions made by the Committee pursuant to the provisions of the Plan
and related orders or resolutions of the Board shall be final, conclusive and binding on
all persons, including the Company, stockholders, employees and optionees.
(c) Each person who is or shall have been a member of the Committee or of the
Board shall be indemnified and held harmless by the Company from any loss, cost,
liability or expense that may be imposed upon or reasonably incurred by him or her in
connection with any claim, action, suit or proceeding to which he or she may be a party
by reason of any action taken or any failure to act under the Plan. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which
such persons may be entitled under the Companys Articles of Incorporation or Bylaws,
or as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
SECTION 4.
Shares Subject to the Plan.
(a) The shares to be delivered upon exercise of Options granted under the Plan or
pursuant to Awards may be made available from the authorized but unissued shares of
the Company or from shares reacquired by the Company, including shares purchased
in the open market or in private transactions.
(b) Subject to adjustments made pursuant to the provisions of Section 4(c), the
aggregate number of shares to be delivered pursuant to Awards and upon exercise of
all Options which may be granted under the Plan shall not exceed 3,000,000 shares of
Common Stock. If an Option or Award granted under the Plan shall expire or terminate
for any reason, other than by reason of the exercise of an associated Limited Stock
Appreciation Right, or if an Award is forfeited, the shares subject to but not delivered
under such Option or forfeited Award shall be available for other Awards or Options
and associated Limited Stock Appreciation Rights granted to the same Participant or
other Participants.
(c) In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or other
similar corporate event affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made available to
Participants under this Plan, then the Committee shall, in its sole discretion, subject to
approval by the Board, and in such manner as the Committee may deem equitable,
adjust any or all of (1) the number and kind of shares which thereafter may be awarded
3
or optioned and sold or made the subject of Limited Stock Appreciation Rights under the Plan, (2)
the number and kind of shares subject to outstanding Options and Awards, and Limited Stock
Appreciation Rights, and (3) the option price with respect to any of the foregoing and/or, if
deemed appropriate, make provision for a cash payment to a Participant, including to reflect such
an event occurring prior to an Award, the grant of which was intentionally deferred in anticipation
of such event; provided, however, that the number of shares subject to any Option or Award shall
always be a whole number.
SECTION 5.
Eligibility and Extent of Participation.
(a) The persons eligible to receive Awards, Options and associated Limited Stock
Appreciation Rights under the Plan shall consist of key employees of the Company and
other individuals who, in the Committees judgment, can make substantial
contributions to the Companys long-term profitability and value.
(b) Subject to the limitations of the Plan, the Committee shall, after such
consultation with and consideration of the recommendations of management as the
Committee considers desirable, select from eligible persons those Participants to be
granted Options and Awards and determine the time when each Option and Award
shall be granted, the number of shares subject to each Option and Award and whether
Limited Stock Appreciation Rights should be granted in connection with such Option,
the number of shares for each Award and the restrictions associated with such Award.
Subject to the provisions of Section 4, both Options and Awards may be granted to the
same Participant.
SECTION 6.
Grants of Options and Limited Stock Appreciation Rights.
(a) Grant of Options. Options on shares of Common Stock may be granted to
Participants by the Committee from time to time at its sole discretion. Each Option shall
be evidenced by an Option Agreement which shall contain such terms and conditions as
may be approved by the Committee and shall be signed by an officer of the Company
and the optionee. Neither the execution of any Option Agreement nor the granting of
any Option evidenced thereby shall constitute or be evidence of any agreement or other
understanding, express or implied, on the part of the Company or any Subsidiary to
employ an individual for any specific period.
(b) Grant of Limited Stock Appreciation Rights in the Event of Change of
Ownership. If deemed by the Committee to be in the best interests of the Company, any
Option granted on or after the effective date of the Plan may include a Limited Stock
Appreciation Right at the time of grant of the Option; also, the Committee may grant a
Limited Stock Appreciation Right with respect to any unexercised Option at any time
after granting such Option prior to the end of its term, provided such Option was
4
granted after the effective date of the Plan. Such Limited Stock Appreciation Rights shall be
subject to such terms and conditions not inconsistent with the Plan as the Committee shall
impose, provided that:
(1) A Limited Stock Appreciation Right shall be exercisable only during the
91 day period specified in the last sentence of Section 9(a), provided, however,
that no Limited Stock Appreciation Right shall be exercisable by an officer of the
Company within six months of the date of its grant; and
(2) A Limited Stock Appreciation Right shall, upon its exercise, entitle the
optionee to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the Offer Price per Share (as
such term is hereinafter defined) shall exceed the exercise price of the associated
Option, multiplied by the number of shares of Common Stock with respect to
which such Limited Stock Appreciation Right shall have been exercised. Upon
the exercise of a Limited Stock Appreciation Right, any associated Option shall
cease to be exercisable to the extent of the shares of Common Stock with respect
to which such Limited Stock Appreciation Right was exercised. Upon the
exercise or termination of an associated Option, any related Limited Stock
Appreciation Right shall terminate to the extent of the shares of Common Stock
with respect to which such associated Option was exercised or terminated.
The term Offer Price per Share as used in this Section 6(b) shall mean with respect to a
Limited Stock Appreciation Right the higher of (i) the fair market value per share of Common
Stock on the date of exercise of such Limited Stock Appreciation Right or (ii) the highest
price per share for Common Stock paid or to be paid in the transaction, if any, giving rise
to the event specified in clauses (1) or (2) (as the case may be) of Section 9(a) which
triggered the exercisability of such Limited Stock Appreciation Right. For purposes of
clause (ii) above, any securities or property which are part of the consideration paid or to
be paid in such transactions shall be valued in determining the Offer Price per Share at the
highest of (A) the valuation placed on such securities or property by the company, person or
other entity engaging in such transaction, or (B) the valuation placed on such securities or
property by the Committee.
(c) Option Price. (1) The price at which each share of Common Stock may be purchased upon
exercise of a particular Option shall be as specified by the Committee, in its sole
discretion, at the time such Option is granted and shall not be less than 100% of the fair
market value of a share of Common Stock at the time such Option is granted, provided,
however, that in the event that an optionee is required to make a payment pursuant to
paragraph (c)(3) below prior to receiving such Option, the exercise price per share of
Common Stock of such
5
Option shall not be less than 100% of the fair market value of a share of Common Stock at the time
such Option is granted less the purchase price per share of Common Stock of such Option. The Option
exercise price shall be set forth in the applicable Option Agreement.
(2) The Committee may, in its discretion, at any time or from time to time, by the adoption of a
written resolution to such effect, reduce the stated exercise or option price for any or all
Options then outstanding, but in no event shall such price be so reduced to a price which is less
than the fair market value of the shares of Common Stock which are subject to such Option or
Options on the date such resolution is adopted.
(3) If the Committee, in its discretion, shall deem it desirable, the grant of an Option may be
made conditional upon the receipt of a payment therefore by the optionee. Such condition and the
terms and conditions as to its satisfaction shall be set forth in the applicable Option Agreement
which may also provide for the reimbursement to the optionee of any part or all of such payment
under such circumstances as may be specified in such Option Agreement.
(d) Exercise. (1) Each Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the applicable Option Agreement
or thereafter, provided, however, that in no event may any Option granted hereunder be exercisable
after the expiration of 15 years from the date of such grant. Subject to the foregoing, each Option
Agreement shall specify the effect thereon of the death, retirement or other termination of
employment of the optionee. In addition, the Committee may impose such other conditions with
respect to the exercise of Options, including without limitation, any relating to the application
of Federal or state securities laws, as it may deem necessary or advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option until payment in full of the
option price therefor is received by the Company. Such payment may be made in cash, or its
equivalent, or by exchanging shares of Common Stock owned by the optionee (which are not the
subject of any pledge or other security interest), or by a combination of the foregoing, provided
that the combined value of all cash and cash equivalents and the fair market value of any such
Common Stock so tendered to the Company, valued as of the date of such tender, is at least equal to
such option price. No optionee or the legal representative, legatee or distributee of an optionee,
shall be deemed to be a holder of any shares subject to any Option prior to the issuance of such
shares upon exercise of such Option.
6
(e) Transferability of Options. An Option granted under the Plan, and any related Limited
Stock Appreciation Right, may not be transferred except by will or the laws of descent and
distribution and, during the lifetime of the person to whom granted, may be exercised only by such
person.
SECTION 7.
Awards
.
(a) Grant of Restricted Stock Awards.
(1) Selection of Participants. Subject to the terms of this Plan, the Committee shall select
those Participants to whom Awards shall be granted for each Performance Period. Awards shall
generally be made at the beginning of a Performance Period but may, in the Committees
discretion, be made from time to time during the term of a Performance Period.
(2) Award of Shares. The Committee shall determine the number of shares of Common Stock
covered by each Award. After the close of, and, if appropriate, during the term of, each
Performance Period, and at appropriate times based on the Lapsing Formula the Committee
shall determine whether the restrictions set forth in Section 7(e) hereof shall lapse with
respect to a portion or all of the shares covered by an Award.
(3) Form of Instrument. Each Award shall be made pursuant to a Stock Restriction Agreement
in a form prescribed by the Committee. Such instrument shall specify the restrictions set
forth in Section 7(e), a Lapsing Formula, a Performance Period and the Performance
Objectives which, if achieved during the Performance Period with respect to which they were
awarded, shall cause acceleration of the lapsing of restrictions imposed upon all or part of
the shares covered by an Award.
(b) Lapsing Formula and Performance Objectives. Each Award shall be subject to a Lapsing
Formula pursuant to which the restrictions set forth in Section 7(e) shall lapse, unless such
restrictions have earlier lapsed as to all or part of the shares due to achievement of Performance
Objectives during the Performance Period. Each Award shall be subject to Performance Objectives
which may be achieved by the Company during the Performance Period With respect to which the Award
is made. Performance Objectives may relate to separate performance objectives for the Company or
any Subsidiary or for any division, department or operation of the Company or any subsidiary.
Notwithstanding anything else in this Plan to the contrary, the restrictions set forth in Section
7(e) shall not lapse with respect to a Restricted Stock Award prior to the third anniversary of the
date of grant of such Award; provided, however, that the Committee may determine to have the
restrictions set forth in Section 7(e) lapse after the first
7
anniversary of the date of grant of an Award if the Committee has established Performance
Objectives for such Award. Subject to the preceding sentence, once established, Performance
Objectives and Lapsing Formulas may be changed, adjusted or amended during the term of a
Performance Period or thereafter.
(c) Rights with Respect to Shares. Subject to Section 7(d), each Participant to whom an Award
has been made shall have absolute ownership of such shares including the right to vote the same and
to receive dividends and other distributions thereon, subject, however, to the terms, conditions
and restrictions described in this Plan and in the Stock Restriction Agreement.
(d) Escrow. Shares of Common Stock issued pursuant to an Award shall be held in escrow by the
Company until such time as the Committee shall have determined that the restrictions set forth in
Section 7(e) shall have lapsed or until the shares subject to such Award are forfeited pursuant to
Section 7(e)(2).
(e) Restrictions Applicable to Awards. Each Stock Restriction Agreement under this Plan shall
contain the following terms, conditions and restrictions and such additional terms, conditions and
restrictions as may be determined by the Committee:
Until the restrictions set forth in this Section 7(e) shall lapse pursuant to Section 7(f), shares
of Common Stock awarded to a Participant pursuant to each Award:
(1) shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, and
(2) except as otherwise set forth in the Stock Restriction Agreement, shall be forfeited and
returned to the Company, and all rights of the Participant to such shares shall terminate
without any payment of consideration by the Company, If the Participants continuous
employment with or other service to the Company upon which an Award is based shall terminate
with or without cause or as a result of any event or for any other reason.
(f) Lapse of Restrictions.
(1) Lapse of Restrictions Due to Achievement of Performance Objectives. As soon as
practicable after the close of each Performance Period or prior thereto, if the Committee in
its discretion deems it appropriate, the Committee shall determine whether the Performance
Objectives established for such Performance Period have been achieved. Each Participant who
has received an Award shall be notified as to whether the Performance Objectives established
for the Performance Period have been achieved and the number of shares, if any, of
8
Common Stock with respect to which the restrictions of Section 7(e) have lapsed.
(2) Lapse of Restrictions Based on Lapsing Schedule. As to any shares covered by an Award as
to which the restrictions imposed by Section 7(e) have not lapsed pursuant to paragraph (1)
of this Section 7(f), such restrictions shall lapse in accordance with the Lapsing Formula
for such Award.
(g) Restrictive Legends. Certificates for shares of Common Stock delivered pursuant to Awards
shall bear an appropriate legend referring to the terms, conditions and restrictions described in
this Plan and in the applicable Stock Restriction Agreement. Any attempt to dispose of any such
shares of Common Stock in contravention of the terms, conditions and restrictions described in this
Plan or in the applicable Stock Restriction Agreement shall be ineffective. Any shares of Common
Stock of the Company or other property, including cash, received by a Participant as a dividend or
as a result of any stock split, combination, exchange of shares, reorganization, merger,
consolidation or similar event with respect to shares of Common Stock received pursuant to an Award
shall have the same status and bear the same legend and be held in escrow pursuant to Section 7(d)
as the shares received pursuant to the Award unless otherwise determined by the Committee at the
time of such event.
(h) Designation of Beneficiaries. A Participant may designate a beneficiary or beneficiaries
to receive such Participants Common Stock hereunder in the event of such Participants death, and
may, at any time and from time to time, change any such beneficiary designation. All beneficiary
designations and changes therein shall be in writing and shall be effective only if and when
delivered to the Committee during the lifetime of the Participant.
(i) The Committee may make adjustments or modifications, and its determination thereof shall
be conclusive, in the Lapsing Formula, Performance Objectives or Performance Period to give effect
to the intent of this Plan in connection with any event affecting the performance criteria
established as the Performance Objectives, including without limitation, any reorganization,
recapitalization, merger, consolidation, offering of additional shares of Common Stock or other
change in the Companys shareholders equity by means other than earnings, or any similar event. No
such adjustment shall be made if it would reduce the benefits otherwise accruing to existing
Participants under the Plan.
SECTION 8.
Stock Unit Awards.
(a) Grant of Stock Unit Awards. In addition to granting Options, Limited Stock Appreciation
Rights and Awards of restricted shares under Section 7, the Committee
9
shall have authority to grant to Participants Stock Unit Awards which can be in the form of Common
Stock or units, the value of which is based, in whole or in part, on the value of Common Stock.
Subject to the provisions of the Plan, including Section 8(b) below, Stock Unit Awards shall be
subject to such terms, restrictions, conditions, vesting requirements and payment rules (all of
which are sometimes, hereinafter collectively referred to as rules) as the Committee may
determine in its sole discretion, all such rules applicable to a particular Stock Unit Award to be
reflected in writing and furnished to the Participant at the time of grant. The rules need not be
identical for each Stock Unit Award.
(b) Rules. In the sole discretion of the Committee, a Stock Unit Award may be granted subject
to the following rules:
(1) Any shares of Common Stock which are part of a Stock Unit Award may not be assigned,
sold, transferred, pledged or otherwise encumbered prior to the date on which the shares are
issued or, if later, the date provided by the Committee at the time of the Award.
(2) Stock Unit Awards may provide for the payment of cash consideration by the person to
whom such Award is granted or provide that the Award, and Common Stock to be issued in
connection therewith, if applicable, shall be delivered without the payment of cash
consideration, provided that for any Common Stock to be purchased in connection with a Stock
Unit Award the purchase price shall be at least 50% of the fair market value of such Common
Stock on the date such Award is granted.
(3) Stock Unit Awards may relate in whole or in part to certain performance criteria
established by the Committee at the time of grant.
(4) Stock Unit Awards may provide for deferred payment schedules, vesting over a specified
period of employment, the payment (on a current or deferred basis) of dividend equivalent
amounts, with respect to the number of shares of Common Stock covered by the Award, and
elections by the employee to defer the payment of the Award or the lifting of restrictions
on the Award, if any.
(5) In such circumstances as the Committee may deem advisable, the Committee may waive or
otherwise remove, in whole or in part, any restrictions or limitation to which a Stock Unit
Award was made subject at the time of grant.
SECTION 9.
Special Rules.
(a) Notwithstanding anything to the contrary in this Plan, unless otherwise
10
specifically determined by the Committee at the time of grant, all Options theretofore granted and
not fully exercisable shall become exercisable in full and the restrictions on all outstanding
Awards shall lapse upon the occurrence of a Change of Ownership. A Change of Ownership shall be
deemed to have occurred if either (1) individuals who, as of the effective date of this Plan,
constitute the Board of Directors of the Company (the Board of Directors generally and as of the
date hereof the Incumbent Board) cease for any reason to constitute at least a majority of the
directors constituting the Board of Directors, provided that any person becoming a director
subsequent to the effective date of this Plan whose election, or nomination for election by the
Companys shareholders, was approved by a vote of at least three-quarters (3/4) of the then
directors who are members of the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is (A) in connection with the acquisition by a third
person, including a group as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the Act), of beneficial ownership, directly or indirectly, of 20% or more of
the combined voting securities ordinarily having the right to vote for the election of directors of
the Company (unless such acquisition of beneficial ownership was approved by a majority of the
Board of Directors who are members of the Incumbent Board), or (B) in connection with an actual or
threatened election contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-ll of Regulation 14A promulgated under the Act) shall be, for purposes of this
Plan, considered as though such person were a member of the Incumbent Board, or (2) the Board of
Directors (a majority of which shall consist of directors who are members of the Incumbent Board)
has determined that a Change of Ownership triggering the exercisability of Options and the lapse of
restrictions on Awards as described in this Section 9 shall have occurred. Options which become
fully exercisable by reason of events specified in clauses (1) or (2) shall remain exercisable for
90 days following the date on which they become so exercisable, after which they will revert to
being exercisable in accordance with their original terms, provided, however, that no Option which
has previously been exercised or has expired or otherwise terminated shall become exercisable by
virtue of this Section nor shall this Section permit exercise of any option during the portion, if
any, of such 90 day period which follows the termination Or expiration of any such Option.
(b) For purposes of this Plan and any Option or Award hereunder, termination of employment
shall not be deemed to occur upon the transfer of any optionee from the employ of the Company to
the employ of any Subsidiary or affiliate. For purposes of this Plan, affiliate means (1) any
entity 50% or more of the voting interest in which is owned, directly or indirectly, by an entity
which owns, directly or indirectly, 50% or more of the voting interest in the Company and (2) any
entity which owns, directly or indirectly, 50% or more of the voting interest in the Company.
SECTION 10.
Delivery of Shares.
No shares of Common Stock shall be delivered
11
pursuant to an Award or any exercise of an Option until the requirements of such laws and
regulations as may be deemed by the Committee to be applicable thereto are satisfied.
SECTION 11.
Financing and Withholding.
(a) Withholding of Taxes. As a condition to the making of an Award, to the lapse of the
restrictions pertaining to an Award, or to the delivery of shares in connection with the exercise
of an Option, the Company may require the Participant to pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any taxes of any kind required by law to be
withheld with respect to such shares of Common Stock.
(b) Financing. If requested by a Participant who exercises an Option or who has received
shares of Common Stock pursuant to an Award, the Committee may in its discretion provide financing
to the Participant in a principal amount sufficient for the purchase of shares of Common Stock
pursuant to such Option exercise or to pay the amount of taxes required by law to be withheld with respect to such Option exercise
or such receipt of shares of Common Stock. Any such loan shall be subject to all legal
requirements, and restrictions pertinent thereto, including if applicable, Regulation G promulgated
by the Federal Reserve Board. The grant of an Option or Award shall in no way obligate the Company
or the Committee to provide any financing whatsoever upon the lapse of restrictions on shares or
the exercise of such Option.
(c) Withholding of Shares.
(1) If requested by a Participant who acquires shares of Common Stock upon the exercise of
an Option or who has received Common Stock pursuant to an Award with respect to which the
restrictions shall have lapsed, the Committee may in its discretion permit the Participant
to satisfy any tax withholding obligations, in whole or in part, by having the Company
withhold a portion of such shares with a value equal to the amount of taxes required by law
to be withheld.
(2) Requests by a Participant to have shares of Common Stock withheld shall be (A) made
prior to the Tax Date and (B) irrevocable. In addition, in the event the Participant is an
officer or director of the Company within the meaning of Section 16 of the Act, such
requests must be made either six months prior to the Tax Date or in a ten day period
beginning on the third day following the release of the Companys quarterly or annual
earnings statement.
SECTION 12.
Amendments, Suspension or Discontinuance
. The Board of
12
Directors may amend, suspend or discontinue the Plan. Notwithstanding the foregoing, except as
permitted by Section 4(c), the Board may not, without prior approval of the shareholders of the
Company, make any amendment which operates (a) to abolish the Committee, change the qualification
of its members or withdraw the administration of the Plan from its supervision, (b) to make any
material change din the class of eligible persons as defined in the Plan, (c) to increase the total
number of shares of Common Stock which may be delivered in respect of Awards or on exercise of
Options granted under the Plan, (d) to extend the maximum option period or the period which Options
or Awards may be granted under the Plan or (e) to reduce the minimum permissible option exercise
price.
SECTION 13.
Term of Plan.
The Plan shall become effective on the date it is approved and
adopted by the Board, subject to its subsequent approval by shareholders of the Company. No Option
or award shall be granted under the Plan after the date that is fifteen (15) years after the date
on which the Plan is approved by the Companys shareholders or after such earlier date as the
Committee may decide, in its sole discretion.
13
Exhibit 12.1
KB
HOME
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands, Except Ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(1,460,770
|
)
|
|
$
|
571,847
|
|
|
$
|
1,201,534
|
|
|
$
|
642,184
|
|
|
$
|
488,510
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred
|
|
|
199,550
|
|
|
|
237,801
|
|
|
|
164,245
|
|
|
|
140,602
|
|
|
|
119,335
|
|
Amortization of premiums and discounts related to debt
|
|
|
2,478
|
|
|
|
2,441
|
|
|
|
1,550
|
|
|
|
1,617
|
|
|
|
1,769
|
|
Portion of rent expense considered to be interest
|
|
|
28,464
|
|
|
|
27,657
|
|
|
|
19,294
|
|
|
|
14,073
|
|
|
|
11,283
|
|
Amortization of previously capitalized interest
|
|
|
171,496
|
|
|
|
143,249
|
|
|
|
100,971
|
|
|
|
77,266
|
|
|
|
68,273
|
|
Distribution of earnings of unconsolidated joint ventures, net
of equity in income (loss)
|
|
|
194,274
|
|
|
|
34,383
|
|
|
|
(2,242
|
)
|
|
|
(2,302
|
)
|
|
|
(271
|
)
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized
|
|
|
(186,560
|
)
|
|
|
(221,074
|
)
|
|
|
(142,738
|
)
|
|
|
(121,241
|
)
|
|
|
(93,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) as adjusted
|
|
$
|
(1,051,068
|
)
|
|
$
|
796,304
|
|
|
$
|
1,342,614
|
|
|
$
|
752,199
|
|
|
$
|
595,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred
|
|
$
|
199,550
|
|
|
$
|
237,801
|
|
|
$
|
164,245
|
|
|
$
|
140,602
|
|
|
$
|
119,335
|
|
Amortization of premiums and discounts related to debt
|
|
|
2,478
|
|
|
|
2,441
|
|
|
|
1,550
|
|
|
|
1,617
|
|
|
|
1,769
|
|
Portion of rent expense considered to be interest
|
|
|
28,464
|
|
|
|
27,657
|
|
|
|
19,294
|
|
|
|
14,073
|
|
|
|
11,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
230,492
|
|
|
$
|
267,899
|
|
|
$
|
185,089
|
|
|
$
|
156,292
|
|
|
$
|
132,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
|
|
|
|
2.97
|
|
|
|
7.25
|
|
|
|
4.81
|
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coverage deficiency (a)
|
|
$
|
(1,281,560
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ratios of earnings to fixed charges are computed on a
consolidated basis excluding the French discontinued operations.
|
|
|
(a)
|
|
Earnings for the year ended November 30, 2007 were
insufficient to cover fixed charges for the period by
$1.28 billion.
|
EXHIBIT
21
KB HOME AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following subsidiaries of KB Home were included in the
November 30, 2007 consolidated financial
statements:
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Voting Securities
|
|
|
|
Owned by
|
|
|
|
the Registrant
|
|
|
|
or a
|
|
|
|
Subsidiary of
|
|
Name
of Company
|
|
the Registrant
|
|
Arizona
|
|
|
|
|
Escoba Insurance Company
|
|
|
100
|
|
KB HOME Phoenix Inc.
|
|
|
100
|
|
KB HOME Sales Phoenix Inc.
|
|
|
100
|
|
KB HOME Sales Tucson Inc.
|
|
|
100
|
|
KB HOME Tucson Inc.
|
|
|
100
|
|
|
|
|
|
|
California
|
|
|
|
|
Branching Tree Corp.
|
|
|
100
|
|
Custom Decor, Inc.
|
|
|
100
|
|
Kaufman and Broad Development Group
|
|
|
100
|
|
Kaufman and Broad Embarcadero, Inc.
|
|
|
100
|
|
Kaufman and Broad International, Inc.
|
|
|
100
|
|
Kaufman and Broad Monterey Bay, Inc.
|
|
|
100
|
|
Kaufman and Broad Moreno/Perris Valleys,
Inc.
|
|
|
100
|
|
Kaufman and Broad of Utah, Inc.
|
|
|
100
|
|
KBASW Mortgage Acceptance Corporation
|
|
|
100
|
|
KB Holdings One, Inc.
|
|
|
100
|
|
KB HOME Architecture Inc.
|
|
|
100
|
|
KB HOME Central Valley Inc.
|
|
|
100
|
|
KB HOME City Ranch Inc.
|
|
|
100
|
|
KB HOME Coastal Inc.
|
|
|
100
|
|
KB HOME Greater Los Angeles Inc.
|
|
|
100
|
|
KB HOME Holdings Inc.
|
|
|
100
|
|
KB HOME Insurance Agency Inc.
|
|
|
100
|
|
KB HOME Sacramento Inc.
|
|
|
100
|
|
KB HOME Sales Northern California Inc.
|
|
|
100
|
|
KB HOME Sales Southern California Inc.
|
|
|
100
|
|
KB HOME San Diego Inc.
|
|
|
100
|
|
KB HOME South Bay Inc.
|
|
|
100
|
|
KBI/Mortgage Acceptance Corporation
|
|
|
100
|
|
KBRAC IV Mortgage Acceptance Corporation
|
|
|
100
|
|
KB Resale Properties Inc.
|
|
|
100
|
|
Lewis Homes Management Corp.
|
|
|
100
|
|
Mather Housing Company LLC
|
|
|
100
|
|
|
|
|
|
|
Colorado
|
|
|
|
|
KB HOME Colorado Inc.
|
|
|
100
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Voting Securities
|
|
|
|
Owned by
|
|
|
|
the Registrant
|
|
|
|
or a
|
|
|
|
Subsidiary of
|
|
Name
of Company
|
|
the Registrant
|
|
Delaware
|
|
|
|
|
Belguim Knight LLC
|
|
|
100
|
|
City Ranch, LLC
|
|
|
100
|
|
e.KB, Inc.
|
|
|
100
|
|
Estes Homebuilding Co.
|
|
|
100
|
|
General Homes Corporation
|
|
|
100
|
|
General Homes Development LLC
|
|
|
100
|
|
HomeSafe Escrow Company
|
|
|
100
|
|
International Mortgage Acceptance Corporation
|
|
|
100
|
|
Kaufman and Broad Development Company
|
|
|
100
|
|
Kaufman and Broad Limited
|
|
|
100
|
|
Kaufman & Broad NexGen, LLC
|
|
|
100
|
|
KB Brea Development, LLC
|
|
|
100
|
|
KB HOME Atlanta LLC
|
|
|
100
|
|
KB HOME Charlotte Inc.
|
|
|
100
|
|
KB HOME Delaware Inc.
|
|
|
100
|
|
KB HOME DelMarVa Inc.
|
|
|
100
|
|
KB HOME District of Columbia Inc.
|
|
|
100
|
|
KB HOME Florida LLC
|
|
|
100
|
|
KB HOME Fort Myers LLC
|
|
|
100
|
|
KB HOME Georgia LLC
|
|
|
100
|
|
KB HOME Gold Coast LLC
|
|
|
100
|
|
KB HOME Gulf Coast Inc.
|
|
|
100
|
|
KB HOME Illinois Inc.
|
|
|
100
|
|
KB HOME Indiana Inc.
|
|
|
100
|
|
KB HOME Jacksonville LLC
|
|
|
100
|
|
KB HOME Maryland Inc.
|
|
|
100
|
|
KB HOME Mortgage Ventures LLC
|
|
|
100
|
|
KB HOME New Orleans Inc.
|
|
|
100
|
|
KB HOME North Carolina Inc.
|
|
|
100
|
|
KB HOME Orlando LLC
|
|
|
100
|
|
KB HOME Raleigh-Durham Inc.
|
|
|
100
|
|
KB HOME Sales Orlando LLC
|
|
|
100
|
|
KB HOME/Shaw Louisiana LLC
|
|
|
100
|
|
KB HOME South Carolina Inc.
|
|
|
100
|
|
KB HOME Tampa LLC
|
|
|
100
|
|
KB HOME Treasure Coast LLC
|
|
|
100
|
|
KB HOME Virginia Inc.
|
|
|
100
|
|
KB HOME Wisconsin LLC
|
|
|
100
|
|
KB Urban Inc.
|
|
|
100
|
|
LHC Arctic LLC
|
|
|
100
|
|
LHE Arctic LLC
|
|
|
100
|
|
LHN Arctic LLC
|
|
|
100
|
|
LP Arctic LLC
|
|
|
100
|
|
Martin Park, LLC
|
|
|
100
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Voting Securities
|
|
|
|
Owned by
|
|
|
|
the Registrant
|
|
|
|
or a
|
|
|
|
Subsidiary of
|
|
Name
of Company
|
|
the Registrant
|
|
Rate One Holdings, Inc.
|
|
|
100
|
|
rateOne Home Loans, LLC
|
|
|
100
|
|
Runkle Canyon, LLC
|
|
|
100
|
|
|
|
|
|
|
Florida
|
|
|
|
|
KB HOME Title Services Inc.
|
|
|
100
|
|
|
|
|
|
|
Georgia
|
|
|
|
|
Colony Homes, L.L.C.
|
|
|
100
|
|
KB HOME Sales Atlanta LLC
|
|
|
100
|
|
Village Utilities, LLC
|
|
|
100
|
|
|
|
|
|
|
Illinois
|
|
|
|
|
Kaufman and Broad of Illinois, Inc.
|
|
|
100
|
|
KB HOME Mortgage Company
|
|
|
100
|
|
|
|
|
|
|
Michigan
|
|
|
|
|
Keywick, Inc.
|
|
|
100
|
|
|
|
|
|
|
Nevada
|
|
|
|
|
HomeSafe Company
|
|
|
100
|
|
KB Durango LLC
|
|
|
100
|
|
KB HOME Nevada Inc.
|
|
|
100
|
|
KB HOME Reno Inc.
|
|
|
100
|
|
KB HOME Sales Nevada Inc.
|
|
|
100
|
|
KB HOME Sales Reno Inc.
|
|
|
100
|
|
KB Stonelake LLC
|
|
|
100
|
|
|
|
|
|
|
New Mexico
|
|
|
|
|
KB HOME New Mexico Inc.
|
|
|
100
|
|
KB HOME Sales New Mexico Inc.
|
|
|
100
|
|
|
|
|
|
|
New York
|
|
|
|
|
KB HOME Long Island Inc.
|
|
|
100
|
|
|
|
|
|
|
Texas
|
|
|
|
|
Clear Brook Crossing Inc.
|
|
|
100
|
|
Clear Brook Crossing Development LP
|
|
|
100
|
|
FGMC, INC.
|
|
|
100
|
|
Hallmark Residential Group, Inc.
|
|
|
100
|
|
Kaufman and Broad Development of Texas, L.P.
|
|
|
100
|
|
KB HOME Insurance Agency of Texas Holdings, Inc.
|
|
|
100
|
|
Kaufman and Broad of Texas, L.P.
|
|
|
100
|
|
KB HOME Lone Star Inc.
|
|
|
100
|
|
KB HOME Laredo LP
|
|
|
100
|
|
KBSA Inc.
|
|
|
100
|
|
Quoin Investments, Inc.
|
|
|
100
|
|
San Antonio Title Co.
|
|
|
100
|
|
Satex Properties, Inc.
|
|
|
100
|
|
|
|
|
|
|
Vermont
|
|
|
|
|
Westview Company
|
|
|
100
|
|
EXHIBIT
23
KB HOME AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following
Registration Statements:
(1) Registration Statement
(Form S-3
No. 333-14977),
as amended, of KB Home,
(2) Registration Statement
(Form S-3
No. 333-41549)
of KB Home,
(3) Registration Statement
(Form S-3
No. 333-51825),
as amended, of KB Home,
(4) Registration Statement
(Form S-3
No. 333-71630),
as amended, of KB Home,
(5) Registration Statement
(Form S-3
No. 333-120458)
of KB Home,
(6) Registration Statement
(Form S-8
No. 33-11692)
pertaining to the 1986 Stock Option Plan, and
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(7)
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Registration Statement
(Form S-8
No. 333-129273)
pertaining to the 1988 Employee Stock Plan, the 1998 Stock
Incentive Plan, the Performance-Based Incentive Plan for Senior
Management, the Non-Employee Directors Stock Plan, the 401(k)
Savings Plan, the 1999 Incentive Plan, the 2001 Stock Incentive
Plan, certain stock grants and the resale of certain shares by
officers of the Company;
|
of our reports dated January 25, 2008 with respect to the
consolidated financial statements of KB Home, and the
effectiveness of internal control over financial reporting of KB
Home, included in this Annual Report
(Form 10-K)
for the year ended November 30, 2007.
Los Angeles, California
January 28, 2008
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY
ACT OF 2002
I, Jeffrey T. Mezger, certify that:
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|
|
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1.
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I have reviewed this annual report on
Form 10-K
of KB Home;
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|
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2.
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Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
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|
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3.
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Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
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|
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4.
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
|
|
|
|
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a)
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Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
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b)
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Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
|
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c)
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Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
|
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d)
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
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5.
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The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
a)
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All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
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|
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b)
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Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
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Dated January 25, 2008
Jeffrey T. Mezger
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY
ACT OF 2002
I, Domenico Cecere, certify that:
|
|
|
|
1.
|
I have reviewed this annual report on
Form 10-K
of KB Home;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
|
|
|
4.
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
|
|
|
|
5.
|
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
|
Domenico Cecere
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of KB Home (the
Company) on
Form 10-K
for the period ended November 30, 2007 (the
Report), I, Jeffrey T. Mezger, President and
Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
|
|
|
|
(1)
|
The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
|
|
|
(2)
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
|
|
|
Dated January 25, 2008
|
|
/s/
JEFFREY
T. MEZGER
Jeffrey
T. Mezger
President and Chief Executive Officer
(Principal Executive Officer)
|
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of KB Home (the
Company) on
Form 10-K
for the period ended November 30, 2007 (the
Report), I, Domenico Cecere, Executive Vice
President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge:
|
|
|
|
(1)
|
The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
|
|
|
(2)
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
|
|
|
Dated January 25, 2008
|
|
/s/
DOMENICO
CECERE
Domenico
Cecere
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|