e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ Annual
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
For the fiscal year ended November 30, 2008
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)
|
|
|
Delaware
(State or other jurisdiction of
incorporation or organization)
|
|
95-3666267
(I.R.S. Employer
Identification No.)
|
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:
|
|
|
|
|
Name of each exchange
|
Title
of each class
|
|
on which registered
|
|
Common Stock (par value $1.00 per share)
|
|
New York Stock Exchange
|
Rights to Purchase Series A Participating Cumulative
Preferred Stock
|
|
New York Stock Exchange
|
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ
No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
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, a non-accelerated
filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act.
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company 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, 2008 was
$1,837,819,039, including 12,091,182 shares held by the
registrants grantor stock ownership trust and excluding
25,483,921 shares held in treasury.
The number of shares outstanding of each of the
registrants classes of common stock on December 31,
2008 was as follows: Common Stock (par value $1.00 per share)
89,607,919 shares, including 11,891,482 shares held by
the registrants grantor stock ownership trust and
excluding 25,512,386 shares held in treasury.
Documents Incorporated by Reference
Portions of the registrants definitive Proxy Statement
for the 2009 Annual Meeting of Stockholders (incorporated into
Part III).
KB
HOME
FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2008
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 have been building
quality homes for families for more than 50 years. We construct
and sell homes through our operating divisions across the
United States under the name KB Home. Unless the context
indicates otherwise, the terms the Company,
we, our and us used 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
other homebuilders. Today, we operate a geographically diverse
homebuilding and financial services business serving homebuyers
in markets nationwide. 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 12,438 homes in 2008 and 23,743 homes in 2007.
In 2008, our average selling price of $236,400 decreased from
$261,600 in 2007. We generated total revenues of
$3.03 billion and a net loss of $976.1 million in
2008, compared to total revenues of $6.42 billion and a
loss from continuing operations of $1.41 billion in 2007.
Our homebuilding revenues, which include revenues from land
sales, accounted for 99.6% of our total revenues in 2008 and
99.8% of our total revenues in 2007. Our results in 2008 and
2007 reflect the significant downturn in housing markets that
began in 2006, as well as our resulting actions to align the
size of our operations with diminished home sales activity and
to maintain a strong balance sheet. In 2008, the housing market
downturn was exacerbated by a severe decline in the overall
economy in the second half of the year.
Our financial services segment derives income from mortgage
banking, title and insurance services offered to our homebuyers.
Mortgage banking services are provided to our homebuyers
indirectly through Countrywide KB Home Loans, LLC
(Countrywide KB Home Loans), a joint venture between
us and CWB Venture Management Corporation, a subsidiary of Bank
of America, N.A. Countrywide KB Home Loans, which is operated by
our joint venture partner, offers a variety of loan programs to
serve the financing needs of our homebuyers. Our financial
services segment accounted for .4% of our total revenues in 2008
and .2% of our total revenues in 2007.
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
We have four homebuilding segments based on the markets in which
we construct homes West Coast, Southwest, Central
and Southeast which together reflect the wide
geographic reach of our homebuilding business. As of the date of
this report, we operate in the eight states and 29 major
markets shown below:
|
|
|
|
|
Segment
|
|
State(s)
|
|
Major Market(s)
|
|
West Coast
|
|
California
|
|
Fresno, Los Angeles/Ventura, Orange County, Riverside,
Sacramento, San Bernardino, San Diego, San
Jose/Oakland and Stockton
|
Southwest
|
|
Arizona
|
|
Phoenix and Tucson
|
|
|
Nevada
|
|
Las Vegas and Reno
|
Central
|
|
Colorado
|
|
Denver
|
|
|
Texas
|
|
Austin, Dallas/Fort Worth, Houston and San Antonio
|
Southeast
|
|
Florida
|
|
Daytona Beach, Jacksonville, Lakeland, Orlando, Sarasota and
Tampa
|
|
|
North Carolina
|
|
Charlotte and Raleigh
|
|
|
South Carolina
|
|
Bluffton/Hilton Head, Charleston and Columbia
|
Segment Operating Information. The following
table presents specific operating information for our
homebuilding segments for the years ended November 30,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
West Coast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
2,972
|
|
|
|
4,957
|
|
|
|
7,213
|
|
Percent of total homes delivered
|
|
|
24
|
%
|
|
|
21
|
%
|
|
|
22
|
%
|
Average selling price
|
|
$
|
354,700
|
|
|
$
|
433,600
|
|
|
$
|
489,500
|
|
Total revenues (in millions) (a)
|
|
$
|
1,055.1
|
|
|
$
|
2,203.3
|
|
|
$
|
3,531.3
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
2,393
|
|
|
|
4,855
|
|
|
|
7,011
|
|
Percent of total homes delivered
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
Average selling price
|
|
$
|
229,200
|
|
|
$
|
258,500
|
|
|
$
|
306,900
|
|
Total revenues (in millions) (a)
|
|
$
|
618.0
|
|
|
$
|
1,349.6
|
|
|
$
|
2,183.8
|
|
Central:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
3,348
|
|
|
|
6,310
|
|
|
|
9,613
|
|
Percent of total homes delivered
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
30
|
%
|
Average selling price
|
|
$
|
175,000
|
|
|
$
|
167,800
|
|
|
$
|
159,800
|
|
Total revenues (in millions) (a)
|
|
$
|
594.3
|
|
|
$
|
1,077.3
|
|
|
$
|
1,553.3
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
3,725
|
|
|
|
7,621
|
|
|
|
8,287
|
|
Percent of total homes delivered
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
26
|
%
|
Average selling price
|
|
$
|
201,800
|
|
|
$
|
229,400
|
|
|
$
|
244,300
|
|
Total revenues (in millions) (a)
|
|
$
|
755.8
|
|
|
$
|
1,770.4
|
|
|
$
|
2,091.4
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
12,438
|
|
|
|
23,743
|
|
|
|
32,124
|
|
Average selling price
|
|
$
|
236,400
|
|
|
$
|
261,600
|
|
|
$
|
287,700
|
|
Total revenues (in millions) (a)
|
|
$
|
3,023.2
|
|
|
$
|
6,400.6
|
|
|
$
|
9,359.8
|
|
|
|
(a) |
Total revenues include revenues from housing and land sales.
|
Unconsolidated Joint Ventures. The above table
does not include homes delivered from our unconsolidated joint
ventures. From time to time, we participate in the acquisition,
development, construction and sale of residential properties
through unconsolidated joint ventures. Our unconsolidated joint
ventures delivered 262 homes in 2008, 127 homes in 2007 and 4
homes in 2006.
2
Strategy
Major housing markets across the United States began declining
in mid-2006. Most of our served markets have progressively
weakened since then. Over the two-and-a-half year period, an
increasing oversupply of new and resale homes, exacerbated more
recently by rising foreclosure activity, drove home prices
steadily lower. In 2008, weakening economic activity and rising
job losses prompted a historic decline in consumer confidence
that further discouraged home purchases. In this environment,
our business has confronted fierce competition from heightened
homebuilder, financial institution and investor efforts to sell
homes and land, declining demand for new homes, and tighter
lending standards due to turmoil in mortgage finance and credit
markets. We expect housing market and general economic
conditions to remain difficult and possibly worsen in 2009. And,
while we believe that long-term fundamentals for the housing
sector remain strong, and that current negative conditions will
stabilize over time, we cannot predict when a meaningful
recovery in the housing market will occur.
We recognized early in 2006 that housing markets were slowing
after several years of record growth. In response, we shifted
our strategic focus from expansion to an emphasis on capital
preservation, inventory, overhead and debt reduction, and cash
generation. Entering fiscal 2009, with housing markets still in
turmoil, we continue to emphasize three priorities: maintaining
a strong financial position; restoring the profitability of our
homebuilding operations; and positioning our business for an
eventual housing market recovery, while adhering to the
disciplines of our core operational business model, KBnxt.
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:
|
|
|
|
|
gaining a detailed understanding of consumer location and
product preferences through regular surveys;
|
|
|
|
managing our working capital and reducing our operating risks by
acquiring developed and entitled land at reasonable prices in
markets with high growth potential and disposing of land and
interests in land that no longer meet our strategic or
investment goals;
|
|
|
|
using our knowledge of consumer preferences to design, construct
and deliver the products homebuyers desire;
|
|
|
|
in general, commencing construction of a home only after a
purchase contract has been signed;
|
|
|
|
building a backlog of net orders and reducing the time from
initial construction to final delivery of homes to customers;
|
|
|
|
establishing an even flow of production of high quality homes at
the lowest possible cost; and
|
|
|
|
offering customers affordable base prices and the opportunity to
customize their homes through choice of location, floor plans
and interior design options.
|
Our KBnxt operational business model is designed to help us
accomplish several objectives in a disciplined manner: build and
maintain 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;
calibrate our product lines to consumer preferences in both our
existing and new markets; and achieve lower costs and economies
of scale in acquiring and developing land, purchasing building
materials, subcontracting trade labor, and providing options to
customers.
Our expansion into new markets will depend on our assessment of
a potential new markets viability and our ability to
develop sustainable operations in that new market. We will also
continue to consider potential asset acquisitions, as market
conditions may produce attractive opportunities. However,
expansion into new markets and large acquisitions are not a
strategic priority for us in the near term.
3
Strategic Objectives. Guided by the
disciplines of our KBnxt operational business model and building
on the initiatives we have implemented in response to
increasingly challenging market conditions, our primary
strategic objectives include:
|
|
|
|
|
Maintaining a balanced geographic footprint and focusing on
potential growth opportunities in our existing served markets.
We believe this will allow us to efficiently capitalize on the
different rates at which we expect our served markets to
stabilize. We also believe that our existing served markets
offer the most attractive long-term growth prospects.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Maintaining ownership or control over a forecasted
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
us maintain a strong balance sheet to support long-term
strategic investments.
|
|
|
|
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 compete with
resales and foreclosures, generate revenues and maintain our
margins during the current housing market downturn and position
us for longer-term profit growth.
|
|
|
|
Restoring the profitability of our homebuilding operations by
continuing to align our cost structure with the expected size
and growth of our business, generating and preserving free cash
flow and maximizing the performance of our invested capital.
|
Marketing Strategy. Our marketing strategy
focuses on differentiating the KB Home brand from resale homes
and from homes sold through foreclosures and by other builders.
We believe that our Built to
OrderTM
message generates a high perceived value for our products and
our company among consumers. Built to Order emphasizes our
unique process of partnering with our homebuyers to create a
home built to their individual preferences as to a home design,
layout, square footage and homesite location, and to personalize
their home interiors with features and amenities that meet their
needs and interests. Built to Order serves as the consumer face
of core elements of our KBnxt operational business model and
ensures that our marketing strategy and advertising campaigns
are closely aligned with our overall operational focus.
Our KB Home Studios are integral to our Built to Order approach
to homebuying. These large showrooms allow our homebuyers to
select from thousands of product and design options available
for purchase as part of the original construction of their
homes. The coordinated efforts of our sales representatives and
KB Home Studio consultants are intended to provide high levels
of customer satisfaction and lead to enhanced customer retention
and referrals.
We are further differentiating the KB Home brand with an
industry-leading environmental commitment. In 2008, we launched
our My Home. My
Earth.®
environmental initiative that is focused on the challenge of
becoming a leading environmentally friendly national company and
issued our first sustainability report. In 2008, we were the
first national homebuilder to commit to installing exclusively
ENERGY
STARTM
appliances in all of our new homes. We also offer our homebuyers
an extensive line of high-value, low-cost products through our
KB Home Studios that can help minimize the environmental impact
of the homes they purchase.
During 2008, we continued to focus our marketing initiatives on
first-time, first
move-up and
active adult homebuyers. These historically have been our core
customers and it is among these groups that we see the greatest
potential for future home sales.
4
In 2009, our efforts to differentiate the value proposition of
the KB Home Built to Order homebuying experience will continue
with the introduction of new home designs that meet evolving
market trends. We also will continue to develop and promote our
environmental sustainability initiatives.
Sales Strategy. To ensure the consistency of
our message and adherence to our Built to Order approach, sales
of our homes are carried out by in-house teams of sales
representatives who work personally with each homebuyer to
create a one-of-a-kind home that meets the homebuyers
style and budget.
Customer
Service and Quality Control
Customer satisfaction is a high priority for us. We are
committed to building and delivering quality homes. Our on-site
construction supervisors perform regular pre-closing quality
checks during the construction process to ensure our homes meet
our quality standards and our homebuyers expectations. We
have 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 helps encourage repeat and referral business from homebuyers
and the real estate community. Our goal is for our customers to
be 100% satisfied with their new homes.
We provide a limited warranty on all of our homes. The specific
terms and conditions vary depending on the market where we do
business. We generally provide a structural warranty of
10 years, a warranty on electrical, heating, cooling,
plumbing and other building systems each varying from two to
five years based on geographic market and state law, and a
warranty of one year for other components of a home.
Local
Expertise
To maximize our KBnxt operational business models
effectiveness and help ensure its consistent execution, our
employees are continuously trained on KBnxt operational
principles and evaluated based on their achievement of relevant
KBnxt operational objectives. We also believe that our business
requires in-depth knowledge of local markets in order to acquire
land in desirable locations and on favorable terms, to engage
subcontractors, to plan communities that meet local demand, to
anticipate consumer tastes in specific markets and to assess
local regulatory environments. Accordingly, we operate our
business through local divisions with trained personnel who have
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, purchasing administration, product development,
architecture and accounting) to benefit from economies of scale,
our local management exercises considerable autonomy in
identifying land acquisition opportunities, developing product
and sales strategies, 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, the completion time of our community
development process has ranged from six to 24 months in our
West Coast segment to a somewhat shorter duration in our
other homebuilding segments. The length of the community
development process varies based on, among other things, the
extent of government approvals required, the overall size of the
community, necessary site preparation activities, weather
conditions and marketing results.
Although they vary significantly, our communities typically
consist of 50 to 250 lots ranging in size from 1,300 to
20,000 square feet. Depending on the community, we offer
from two to five model home designs and 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. We are
currently focused on maintaining a strong balance sheet and
positioning ourselves for future growth. Significant land
acquisitions are not currently a strategic 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
5
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 and continued market
viability analysis we conduct after entering into an agreement.
In some cases, our decision to exercise an option may be
conditioned on the land seller obtaining necessary entitlements,
such as zoning rights and environmental approvals, and/or
physically developing the land by a pre-determined date to allow
us to build homes relatively quickly. Depending on the
circumstances, our initial deposit payment for an option right
may or may not be refundable to us if we do not purchase the
underlying land.
In addition to acquiring land under option agreements, we may
acquire land under agreements that condition our purchase
obligation on our satisfaction with the feasibility of
developing the land and selling homes on the land by a certain
future date, consistent with our investment standards. Our
option and other purchase agreements may also allow us to phase
our land purchases and/or lot development over a period of time
and/or upon the satisfaction of certain conditions. We may also
acquire land with seller financing that is non-recourse to us,
or by working in conjunction with third-party land developers.
Our land option contracts generally do not contain provisions
requiring our specific performance.
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 the option
period perform technical, environmental, engineering and
entitlement feasibility studies, while we seek to obtain
necessary governmental approvals and permits. These activities
are sometimes done with the sellers assistance and/or at
the sellers cost. The use of option arrangements in this
context allows us to conduct these development-related
activities while minimizing our inventory levels and overall
financial commitments, including interest and other carrying
costs. It also improves our ability to accurately estimate
development costs prior to incurring them, an important element
in planning communities and pricing homes.
Before we commit to any land purchase or dispose of any interest
in land we hold, our senior corporate management carefully
evaluates each asset based on the results of our local
specialists due diligence and a set of strict financial
measures, including, but not limited to, gross margin analyses
and specific discounted,
after-tax
cash flow internal rate of return requirements. Potential land
acquisition or disposal transactions are subject to review and
approval by our corporate land committee, which is composed of
senior corporate and regional management. The stringent criteria
guiding our land acquisition and disposition decisions have
resulted in our maintaining inventory in areas that we believe
generally offer better returns for lower risk, and lower cash
and capital investment.
In light of difficult market conditions, we have sold some of
our land and interests in land and have abandoned a portion of
our options to acquire land. Consistent with our KBnxt
operational business model, we determined that these properties
no longer met our strategic needs or our internal investment
standards. If market conditions remain challenging, as we
expect, we may sell more of our land and interests in land, and
we may abandon or try to sell more options to acquire land.
6
The following table shows the number of inventory lots we owned,
in various stages of development, or controlled under option
contracts in our homebuilding segments as of November 30,
2008 and 2007. The table does not include approximately
316 acres optioned as of November 30, 2008 and
376 acres optioned as of November 30, 2007 that had
not yet been approved for subdivision into lots.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
|
Homes/Lots in
|
|
|
Land Under
|
|
|
Lots Under
|
|
|
Owned or
|
|
|
|
Production
|
|
|
Development
|
|
|
Option
|
|
|
Under Option
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
West Coast
|
|
|
7,257
|
|
|
|
8,174
|
|
|
|
1,826
|
|
|
|
2,961
|
|
|
|
1,018
|
|
|
|
3,598
|
|
|
|
10,101
|
|
|
|
14,733
|
|
Southwest
|
|
|
4,853
|
|
|
|
7,059
|
|
|
|
1,784
|
|
|
|
2,866
|
|
|
|
3,551
|
|
|
|
5,743
|
|
|
|
10,188
|
|
|
|
15,668
|
|
Central
|
|
|
7,643
|
|
|
|
9,944
|
|
|
|
2,454
|
|
|
|
3,257
|
|
|
|
1,840
|
|
|
|
2,472
|
|
|
|
11,937
|
|
|
|
15,673
|
|
Southeast
|
|
|
5,326
|
|
|
|
7,916
|
|
|
|
4,369
|
|
|
|
2,888
|
|
|
|
5,102
|
|
|
|
8,830
|
|
|
|
14,797
|
|
|
|
19,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,079
|
|
|
|
33,093
|
|
|
|
10,433
|
|
|
|
11,972
|
|
|
|
11,511
|
|
|
|
20,643
|
|
|
|
47,023
|
|
|
|
65,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflecting our geographic diversity and balanced operations, as
of November 30, 2008, 22% of the lots we owned or
controlled were located in the West Coast reporting segment, 22%
were in the Southwest reporting segment, 25% were in the Central
reporting segment, and 31% were in the Southeast reporting
segment.
The following table shows the dollar value of inventory we owned
in various stages of development or controlled under option
contracts in our homebuilding segments as of November 30,
2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lots
|
|
|
|
Homes/Lots in
|
|
|
Land Under
|
|
|
Lots Under
|
|
|
Owned or
|
|
|
|
Production
|
|
|
Development
|
|
|
Option
|
|
|
Under Option
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
West Coast
|
|
$
|
854,522
|
|
|
$
|
1,020,637
|
|
|
$
|
52,339
|
|
|
$
|
192,790
|
|
|
$
|
68,600
|
|
|
$
|
199,396
|
|
|
$
|
975,461
|
|
|
$
|
1,412,823
|
|
Southwest
|
|
|
192,530
|
|
|
|
491,098
|
|
|
|
96,073
|
|
|
|
161,820
|
|
|
|
24,673
|
|
|
|
34,357
|
|
|
|
313,276
|
|
|
|
687,275
|
|
Central
|
|
|
300,454
|
|
|
|
420,811
|
|
|
|
38,688
|
|
|
|
59,802
|
|
|
|
53,358
|
|
|
|
53,248
|
|
|
|
392,500
|
|
|
|
533,861
|
|
Southeast
|
|
|
252,541
|
|
|
|
464,922
|
|
|
|
127,241
|
|
|
|
131,009
|
|
|
|
45,697
|
|
|
|
82,530
|
|
|
|
425,479
|
|
|
|
678,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,600,047
|
|
|
$
|
2,397,468
|
|
|
$
|
314,341
|
|
|
$
|
545,421
|
|
|
$
|
192,328
|
|
|
$
|
369,531
|
|
|
$
|
2,106,716
|
|
|
$
|
3,312,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Construction and Sale. Following the
purchase of land and, if necessary, the completion of the
entitlement process, we typically begin marketing homes for sale
and constructing model homes. The time required for construction
of our homes depends on the weather, time of year, local labor
supply, availability of materials and supplies and other
factors. To minimize the costs and risks of standing inventory,
we generally begin construction of a home only when we have
signed a purchase contract with a homebuyer. However,
cancellations of home purchase contracts prior to the delivery
of the underlying homes 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 streamline the on-site
production process. We have also developed programs for national
and regional purchasing of certain building materials,
appliances and other items to take advantage of economies of
scale and to reduce costs through improved pricing and, where
available, participation in manufacturers or
suppliers rebate programs. As part of our My Home. My
Earth. environmental initiative, we have begun to integrate
products, materials and construction practices into our home
building process in certain areas to reduce the environmental
impact of our operations and the homes we build. At all stages
of production, our administrative and on-site supervisory
personnel coordinate the activities of subcontractors and
subject their work to quality and cost controls. As part of our
KBnxt operational business model, we also emphasize
even-flow
production methods to enhance the quality of our homes and
minimize production costs.
Backlog
We sell our homes under standard purchase contracts, which
generally require a customer deposit at the time of signing. The
amount of the deposit required varies among markets and
communities. Homebuyers are also generally
7
required to pay additional deposits when they select options or
upgrades for their homes. Most of our home purchase contracts
stipulate that if a homebuyer cancels a contract with us, we
have the right to retain the homebuyers deposits. However,
we generally permit homebuyers to cancel their obligations and
obtain refunds of all or a portion of their deposits in the
event mortgage financing cannot be obtained within a period of
time, as specified in their contract.
Backlog consists of homes that are under contract
but have not yet been delivered. Ending backlog represents the
number of homes in backlog from the previous period plus the
number of net orders (new orders for homes less cancellations)
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, 2008, excluding unconsolidated
joint ventures, consisted of 2,269 homes, down 64% from the
6,322 homes in backlog at year-end 2007. Our backlog
represented future housing revenues of approximately
$521.4 million at November 30, 2008 and
$1.50 billion at November 30, 2007. Our backlog ratio
was 82% for the fourth quarter of 2008 and 68% for the fourth
quarter of 2007, as we experienced fewer cancellations in the
fourth quarter of 2008. (Backlog ratio is defined as homes
delivered as a percentage of beginning backlog in the quarter.)
The significant decrease in backlog levels in 2008 reflects the
aggregate impact over the past several quarters of successive
negative year-over-year net order results, lower average selling
prices, and our strategic initiatives to reduce our inventory
and active community counts to align with reduced housing market
activity. Our net orders declined 58% to 8,274 in 2008 from
19,490 in 2007. Our average cancellation rate based on net
orders in 2008 was 41%, compared to an average of 42% in 2007.
During the fourth quarter of 2008, our net orders decreased 50%
from the fourth quarter of 2007, with decreases occurring in
each of our homebuilding segments. The lower level of net orders
reflects our reduced active community counts compared to the
year-earlier fourth quarter, as well as our strategic decisions
to wind down or exit certain communities as backlog is delivered
and to discontinue product in particular communities as part of
a product transition initiative.
8
The following table shows homes delivered, net orders,
cancellation rates (based on gross orders) and ending backlog by
reporting segment and with respect to our unconsolidated joint
ventures for each quarter during the years ended
November 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
West Coast
|
|
|
Southwest
|
|
|
Central
|
|
|
Southeast
|
|
|
Total
|
|
|
Joint Ventures
|
|
Homes delivered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
614
|
|
|
|
740
|
|
|
|
899
|
|
|
|
675
|
|
|
|
2,928
|
|
|
|
75
|
|
Second
|
|
|
603
|
|
|
|
534
|
|
|
|
863
|
|
|
|
810
|
|
|
|
2,810
|
|
|
|
74
|
|
Third
|
|
|
731
|
|
|
|
425
|
|
|
|
745
|
|
|
|
887
|
|
|
|
2,788
|
|
|
|
45
|
|
Fourth
|
|
|
1,024
|
|
|
|
694
|
|
|
|
841
|
|
|
|
1,353
|
|
|
|
3,912
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,972
|
|
|
|
2,393
|
|
|
|
3,348
|
|
|
|
3,725
|
|
|
|
12,438
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
539
|
|
|
|
186
|
|
|
|
231
|
|
|
|
493
|
|
|
|
1,449
|
|
|
|
48
|
|
Second
|
|
|
977
|
|
|
|
760
|
|
|
|
964
|
|
|
|
1,499
|
|
|
|
4,200
|
|
|
|
131
|
|
Third
|
|
|
361
|
|
|
|
282
|
|
|
|
506
|
|
|
|
180
|
|
|
|
1,329
|
|
|
|
39
|
|
Fourth
|
|
|
375
|
|
|
|
207
|
|
|
|
353
|
|
|
|
361
|
|
|
|
1,296
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,252
|
|
|
|
1,435
|
|
|
|
2,054
|
|
|
|
2,533
|
|
|
|
8,274
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
41%
|
|
|
|
56%
|
|
|
|
70%
|
|
|
|
50%
|
|
|
|
53%
|
|
|
|
45%
|
|
Second
|
|
|
29%
|
|
|
|
21%
|
|
|
|
31%
|
|
|
|
26%
|
|
|
|
27%
|
|
|
|
24%
|
|
Third
|
|
|
48%
|
|
|
|
37%
|
|
|
|
43%
|
|
|
|
74%
|
|
|
|
51%
|
|
|
|
57%
|
|
Fourth
|
|
|
42%
|
|
|
|
40%
|
|
|
|
48%
|
|
|
|
50%
|
|
|
|
46%
|
|
|
|
71%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
38%
|
|
|
|
34%
|
|
|
|
45%
|
|
|
|
43%
|
|
|
|
41%
|
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
28%
|
|
|
|
34%
|
|
|
|
40%
|
|
|
|
34%
|
|
|
|
34%
|
|
|
|
19%
|
|
Second
|
|
|
30%
|
|
|
|
30%
|
|
|
|
39%
|
|
|
|
33%
|
|
|
|
34%
|
|
|
|
25%
|
|
Third
|
|
|
57%
|
|
|
|
51%
|
|
|
|
47%
|
|
|
|
49%
|
|
|
|
50%
|
|
|
|
43%
|
|
Fourth
|
|
|
58%
|
|
|
|
55%
|
|
|
|
61%
|
|
|
|
57%
|
|
|
|
58%
|
|
|
|
92%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41%
|
|
|
|
40%
|
|
|
|
45%
|
|
|
|
41%
|
|
|
|
42%
|
|
|
|
44%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending backlog homes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
1,115
|
|
|
|
752
|
|
|
|
1,343
|
|
|
|
1,633
|
|
|
|
4,843
|
|
|
|
182
|
|
Second
|
|
|
1,489
|
|
|
|
978
|
|
|
|
1,444
|
|
|
|
2,322
|
|
|
|
6,233
|
|
|
|
239
|
|
Third
|
|
|
1,119
|
|
|
|
835
|
|
|
|
1,205
|
|
|
|
1,615
|
|
|
|
4,774
|
|
|
|
233
|
|
Fourth (a)
|
|
|
581
|
|
|
|
348
|
|
|
|
717
|
|
|
|
623
|
|
|
|
2,269
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
West Coast
|
|
|
Southwest
|
|
|
Central
|
|
|
Southeast
|
|
|
Total
|
|
|
Joint Ventures
|
|
Ending backlog value, in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
438,505
|
|
|
$
|
179,114
|
|
|
$
|
236,725
|
|
|
$
|
376,872
|
|
|
$
|
1,231,216
|
|
|
$
|
77,196
|
|
Second
|
|
|
516,073
|
|
|
|
222,279
|
|
|
|
260,404
|
|
|
|
467,141
|
|
|
|
1,465,897
|
|
|
|
101,748
|
|
Third
|
|
|
391,525
|
|
|
|
190,279
|
|
|
|
230,154
|
|
|
|
321,321
|
|
|
|
1,133,279
|
|
|
|
136,918
|
|
Fourth (a)
|
|
|
211,713
|
|
|
|
74,488
|
|
|
|
120,954
|
|
|
|
114,231
|
|
|
|
521,386
|
|
|
|
33,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ending backlog amounts have been adjusted to reflect the
consolidation of previously unconsolidated joint ventures during
the fourth quarter of 2008. |
Land and
Raw Materials
We currently own or control enough land to meet our forecasted
production goals for approximately the next three to four years,
and believe that we will be able to acquire land on acceptable
terms for our anticipated future needs. However, as discussed
above, we have recently sold some of our land and abandoned
options to purchase land in order to balance our holdings with
current and forecasted market conditions and we may sell
additional land or land interests in 2009. In 2008, our land
sales generated $82.9 million of revenues and
$82.8 million of pretax losses, including
$86.2 million of impairments. Our land option contract
abandonments resulted in pretax, noncash charges of
$40.9 million in 2008.
The principal raw materials used in the construction of our
homes are concrete and forest products. In addition, we use a
variety of other construction materials in the homebuilding
process, including sheetrock, plumbing and electrical items. We
attempt to maintain efficient operations by using
pre-made,
standardized materials that are commercially available on
competitive terms from a variety of sources. In addition, our
centralized or regionalized purchasing of certain building
materials, appliances and fixtures allows us to benefit from
large quantity purchase discounts and, in some cases,
manufacturer or supplier rebates. When possible, we make bulk
purchases of these products at favorable prices from
manufacturers and 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 mortgage financing for prospective
homebuyers through our Countrywide KB Home Loans retail mortgage
banking joint venture. Although our homebuyers may obtain
financing from any qualified lender, 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. This
includes both fixed and adjustable rate mortgages under
conventional, FHA-insured and VA-guaranteed mortgages, and
mortgages through revenue bond programs sponsored by states and
municipalities. Countrywide KB Home Loans originated loans for
80% of our customers who obtained mortgage financing in 2008 and
72% in 2007.
Discontinued
Operations
In July 2007, we sold our 49% interest in our publicly traded
French subsidiary, Kaufman and Broad, S.A. (KBSA).
The disposition of the French operations enabled us to invest
additional resources in our domestic homebuilding
operations and we have since operated exclusively in the United
States. The sale generated total gross proceeds of
$807.2 million and a pretax gain of $706.7 million
($438.1 million net of income taxes). As a result of the
sale, the French operations are presented as discontinued
operations in our consolidated financial statements in 2007 and
2006.
10
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, 2008, we had approximately
1,600 full-time employees in our operations, compared to
approximately 3,100 at December 31, 2007. 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, including resale
homes, foreclosed homes and rental housing. In certain markets
and at times when housing demand is high, we also compete with
other builders to hire subcontractors.
During 2008, difficult operating conditions prevailed across
most U.S. housing markets. The supply of unsold homes in
the marketplace increased substantially, exacerbated by
record-high mortgage defaults and foreclosures. Many consumers
were no longer able to afford their mortgage payments or were
unable to refinance homes when their principal payments became
due. Meanwhile, demand for new homes was constrained by weak
consumer confidence, a downturn in the general economy and job
markets, and tightening consumer mortgage lending standards.
This protracted supply/demand imbalance intensified competition
among homebuilders for orders throughout the year and produced
relentless downward pressure on home prices. We expect this
tough market environment to continue, and possibly worsen, in
2009.
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 will attempt to recover
restoration costs from third parties, such as the generators of
hazardous waste, land sellers or others in the prior chain of
title and/or their insurers. Based on these practices, we
anticipate that it is unlikely that environmental clean-up costs
will have a material effect on our future consolidated financial
position or results of operations. We have not been notified by
any governmental agency of any claim that any of the properties
owned or formerly owned by us are identified by the U.S.
Environmental Protection Agency (EPA) as being a
Superfund clean-up site requiring remediation, which
could have a material effect on our future consolidated
financial position or results of operations. Costs associated
with the use of environmental consultants are not material to
our consolidated financial position or results of operations.
11
Access to
Our Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (SEC). We make our public SEC filings
available, at no cost, through our website
http://www.kbhome.com, as soon as reasonably practicable after
the report is electronically filed with, or furnished to, the
SEC. We will also provide these reports in electronic or paper
format free of charge upon request made to our investor
relations department at investorrelations@kbhome.com or at our
principal executive offices. Our SEC filings are also available
to the public over the Internet at the SECs website at
http://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.
Item 1A. RISK
FACTORS
The following important factors could adversely impact our
business. These factors could cause our actual results to differ
materially from the forward-looking and other statements (i) we
make in registration statements, periodic reports and other
filings with the SEC and from time to time in our news releases,
annual reports and other written reports or communications, and
(ii) made orally from time to time by our representatives.
The homebuilding industry is experiencing a prolonged and
severe downturn that may continue for an indefinite period and
adversely affect our business and results of operations compared
to prior periods.
In 2008 and 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 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 2008 and 2007 compared to the past several
years. In 2008 and 2007, these negative supply and demand trends
were exacerbated by increasing foreclosure activity that reached
successive record highs, a severe downturn in general economic
conditions, weakening employment trends, turmoil in credit and
consumer lending markets and tighter lending standards.
Reflecting the impact of this difficult environment, we, like
many other homebuilders, experienced a large drop in net orders,
a decline in the average selling price of new homes sold and a
reduction in our margins in 2008 and 2007 relative to prior
years, and generated operating losses. We can provide no
assurances that the homebuilding market will improve in the near
future. In fact, we expect the weakness to continue, and
possibly worsen, in 2009 and have a corresponding adverse effect
on our business and our results of operations, including, but
not limited to, lower home sales and revenues.
Further tightening of mortgage lending or mortgage
financing requirements or further turmoil in credit and mortgage
lending markets could adversely affect the availability of
credit for some potential purchasers of our homes and thereby
reduce our sales.
During 2008 and 2007, the mortgage lending and mortgage finance
industries experienced significant instability due to, among
other things, delinquencies, defaults and foreclosures on home
loans and a resulting decline in their market value,
particularly subprime and adjustable-rate loans. A number of
providers, purchasers and insurers of such loans have gone out
of business or exited the market. In light of these
developments, lenders, investors, regulators and others
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, adjustable-rate and other
nonconforming loans has caused most lenders to stop offering
such loan products. Fewer loan products and providers and
tighter loan qualifications in turn make it more difficult for
some categories of borrowers to finance the purchase of our
homes or the purchase of existing homes from potential
move-up
buyers who wish to purchase one of our homes. In general, these
developments have resulted in a reduction in
12
demand for our homes and slowed any general improvement in the
housing market. Furthermore, they have resulted in a reduction
in demand for the mortgage loans originated through our
Countrywide KB Home Loans joint venture. 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 2009.
Many of our homebuyers obtain financing for their home purchases
from Countrywide KB Home Loans. Our partner, a Bank of America,
N.A. subsidiary, provides the loan products that the joint
venture offers to our homebuyers. If our partner refuses or is
unable to make loan products available to the joint venture to
provide to our homebuyers, our results of operations may be
adversely affected.
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 2008 and 2007, we have
done so at significantly reduced gross profit levels and have
incurred significant asset impairment charges. Moreover, many of
our strategic initiatives to generate cash and reduce our
inventories have involved lowering overhead through workforce
reductions, for which we incurred significant costs, and
reducing our active community counts through strategic wind
downs or market exits, curbs in development and sales of land
interests. These strategic steps have resulted in our generating
successively fewer net orders, homes delivered and revenues
compared to prior periods, and contributed to the net losses we
recognized in 2008 and 2007. Also, in 2008, notwithstanding our
sales strategies, we continued to experience volatility in
cancellations of home purchase contracts. We believe that the
volatile cancellation rates largely reflected a decrease in
homebuyer confidence based on sustained home price declines,
increased offerings of sales incentives in the marketplace for
both new and existing homes and generally poor economic
conditions, all of which prompted homebuyers to forgo or delay
home purchases. The more restrictive mortgage lending
environment and the inability of some buyers to sell their
existing homes have also led to lower demand for new homes and
higher cancellations. Many of these factors affecting new orders
and cancellation rates are beyond our control. It is uncertain
how long these factors, and the reduced sales levels and
volatility in cancellations we have experienced will continue.
To the extent that they do, we expect that they will have a
negative effect on our business and our results of operations.
Our
business is cyclical and is significantly affected by changes in
general and local economic conditions.
Our business can be substantially affected by adverse changes in
general economic or business conditions that are outside of our
control, including changes in:
|
|
|
|
|
short- and long-term interest rates;
|
|
|
|
the availability of financing for homebuyers;
|
|
|
|
consumer confidence generally and the confidence of potential
homebuyers in particular;
|
|
|
|
U.S. and global financial system and credit market stability;
|
|
|
|
private and federal mortgage financing programs and federal and
state regulation of lending 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 2008
and 2007, unfavorable changes in many of these factors
negatively affected all of our served markets, and we expect the
widespread nature of the downturn in the housing market to
continue in 2009. A continued downturn in the economy would
likely worsen the unfavorable trends the housing market
experienced in 2008 and 2007.
Weather conditions and natural disasters, such as earthquakes,
hurricanes, tornadoes, floods, droughts, fires and other
environmental conditions, can also impair our homebuilding
business on a local or regional basis. Civil unrest or acts of
terrorism can also have a negative effect on our business.
13
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 we sell is
usually set several months before the home is delivered, as our
customers typically sign their home purchase contracts before
construction begins. The potential difficulties described above
could cause some homebuyers to cancel or refuse to honor their
home purchase contracts altogether. In fact, reflecting the
difficult conditions in our served markets, we continued to
experience volatile home purchase contract cancellation rates in
2008 and we may experience similar volatility in 2009.
Supply
shortages and other risks related to demand for building
materials
and/or
skilled labor could increase costs and delay
deliveries.
There is a high level of competition in the homebuilding
industry for skilled labor and building materials. Increased
costs or shortages in building materials or skilled labor could
cause increases in construction costs and construction delays.
We generally are unable to pass on increases in construction
costs to customers who have already entered into home purchase
contracts, as the purchase contracts generally fix the price of
the home at the time the contract is signed, and may be signed
well in advance of when construction commences. Further, we may
not be able to pass on increases in construction costs because
of market conditions. Sustained increases in construction costs
due, among other things, to pricing competition for materials
and skilled labor may, over time, decrease our margins.
Inflation
may adversely affect us by increasing costs that we may not be
able to recover, particularly if sales prices
decrease.
Inflation can have a long-term impact on us because increasing
costs of land, materials and skilled 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 further decrease prices in an attempt to stimulate sales
volume. Our 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 with new home sales prices or,
if we choose, in disposing of land assets. In addition,
depressed land values may cause us to forfeit deposits on land
option contracts if we cannot satisfactorily renegotiate the
purchase price of the optioned land. We may incur noncash
charges for inventory impairments if the value of our owned
inventory is reduced or for land option contract abandonments if
we choose not to exercise land option contracts.
Reduced
home sales may impair our ability to recoup development costs or
force us to absorb additional costs.
We incur many costs even before we begin to build homes in a
community. Depending on the stage of development, these include
costs of preparing land, finishing and entitling lots, and
installing roads, sewage and other utilities, as well as taxes
and other costs related to ownership of the land on which we
plan to build homes. 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 may be forfeited if we do not exercise the options
within specified periods. Because of current market conditions,
we have strategically terminated some of these options,
resulting in the forfeiture of deposits and unrecoverable due
diligence and development costs.
The value of the land and housing inventory we own or
control may fall significantly and our profits may
decrease.
The value of the land and housing inventory we currently own or
control depends on market conditions, including estimates of
future demand for, and the revenues that can be generated from,
such inventory. The market value of our land inventory can vary
considerably because there is often a significant amount of time
between our initial acquisition or optioning of land and the
delivery of homes on that land. The downturn in the housing
market has caused the fair value of certain of our owned or
controlled inventory to fall, in some cases well below the
estimated fair value at the time we acquired it. Because of our
assessments of fair value, we have been required to write down
the carrying value of certain of our inventory, including
certain inventory that we have previously written down, and take
corresponding noncash charges against our earnings to reflect
the impaired value. We have also abandoned our interests in
certain land inventory that no longer meets our internal
investment standards, which also required us to take noncash
charges. If the current downturn in the housing market
continues, we may need to take additional charges against our
earnings for inventory
14
impairments or land option contract abandonments, or both. Any
such noncash charges would have an adverse effect on our
consolidated results of operations.
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 further downturn in
local or regional economies or the national economy, homebuyers
may terminate their existing home purchase contracts with us in
order to negotiate for a lower price, explore other options or
because they cannot, or become reluctant to, complete the
purchase. In 2008, 2007 and 2006, we experienced elevated and
volatile cancellation rates, in part because of these reasons.
Continued elevated and volatile cancellation rates due to these
conditions, or otherwise, could have an adverse effect on our
business and our results of operations.
Our long-term success depends on the availability of
improved lots and undeveloped land that meet our land investment
criteria.
The availability of finished and partially developed lots, and
undeveloped land for purchase that meet our internal investment
standards depends on a number of factors outside of our control,
including land availability in general, competition with other
homebuilders and land buyers for desirable property, inflation
in land prices, zoning, allowable housing density and other
regulatory requirements. Should suitable lots or land become
less available, the number of homes we may be able to build and
sell could be reduced, and the cost of attractive land could
increase, perhaps substantially, which could adversely impact
our results of operations including, but not limited to, our
margins.
Home
prices and sales activity in the particular markets and regions
in which we do business affect our results of operations because
our business is concentrated in these markets.
Home prices and sales activity in some of our key served markets
have declined from time to time for market-specific reasons,
including adverse weather, lack of affordability or economic
contraction due to, among other things, the failure or decline
of key industries and employers. If home prices or sales
activity decline in one or more of our key served markets,
particularly in Arizona, California, Florida, Nevada or Texas,
our costs may not decline at all or at the same rate and, as a
result, our overall results of operations may be adversely
affected.
Interest
rate increases or changes in federal lending programs or
regulation could lower demand for our homes.
Nearly all of our customers finance the purchase of their homes.
Prior to 2006, historically low interest rates and the increased
availability of specialized mortgage products, including
mortgage products requiring no or low down payments, and
interest-only and adjustable rate mortgages, had made homebuying
more affordable for a number of customers and more available to
customers with lower credit scores. Increases in interest rates
or decreases in the availability of mortgage financing or of
certain mortgage programs, as discussed above, may lead to fewer
mortgage loans being provided, higher down payment requirements
or monthly mortgage costs, or a combination of the foregoing,
and, as a result, reduce demand for our homes.
Increased interest rates can also hinder our ability to realize
our backlog because our home purchase contracts provide our
customers with a financing contingency. Financing contingencies
allow customers to cancel their home purchase contracts in the
event they cannot arrange for adequate financing.
Because the availability of Fannie Mae, Freddie Mac, FHA- and
VA-backed mortgage financing is an important factor in marketing
and selling many of our homes, any limitations or restrictions
in the availability of such government-backed financing could
reduce our home sales and adversely affect our results of
operations. This may occur as a result of the federal
governments conservatorship of Fannie Mae and Freddie Mac
in 2008.
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, by
eliminating or substantially reducing these income tax
15
benefits, the after-tax cost of owning a new home would increase
substantially. This could adversely impact demand for and/or
sales prices of new homes.
We are subject to substantial legal and regulatory
requirements regarding the development of land, the homebuilding
process and protection of the environment, which can cause us to
suffer delays and incur costs associated with compliance and
which can prohibit or restrict homebuilding activity in some
regions or areas.
Our homebuilding business is heavily regulated and subject to an
increasing amount of local, state and federal regulation
concerning zoning, resource protection and other environmental
impacts, building design, construction and similar matters.
These regulations often provide broad discretion to governmental
authorities that oversee these matters, which can result in
unanticipated delays or increases in the cost of a specified
project or a number of projects in particular markets. We may
also experience periodic delays in homebuilding projects due to
building moratoria and permitting requirements in any of the
areas in which we operate.
We are also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning the
environment, and recently entered into a consent decree with the
EPA and certain states concerning our storm water pollution
prevention practices. These laws and regulations and the consent
decree 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, 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 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
(including existing homes sold through foreclosures) and rental
housing. The competitive conditions in the homebuilding industry
can result in:
|
|
|
|
|
our delivering fewer homes;
|
|
|
|
our selling homes at lower selling prices;
|
|
|
|
our offering or increasing sales incentives, discounts or price
concessions;
|
16
|
|
|
|
|
our experiencing lower profit margins;
|
|
|
|
declining new home sales or increasing cancellations by
homebuyers of their home purchase contracts with us;
|
|
|
|
impairments in the value of our inventory and other assets;
|
|
|
|
difficulty in acquiring desirable land that meets our investment
return criteria, and in selling our interests in land that no
longer meet such criteria on favorable terms;
|
|
|
|
difficulty in our acquiring raw materials and skilled management
and labor at acceptable prices; or
|
|
|
|
delays in construction of our homes.
|
These competitive conditions may adversely affect our business
and financial results by decreasing our revenues, increasing our
costs and/or diminishing growth in our local or regional
homebuilding business. In the current downturn in the
homebuilding industry, the reactions of our new home and housing
alternative competitors are reducing the effectiveness of our
efforts to achieve pricing stability, generate home sales, and
reduce our inventory levels.
Homebuilding
is subject to warranty and liability claims in the ordinary
course of business that can be significant.
In the ordinary course of our homebuilding business, we are
subject to home warranty and construction defect claims. We
record warranty and other reserves for the homes we sell based
on historical experience in our served markets and our judgment
of the risks associated with the types of homes we build. We
have, and require the majority of our subcontractors to have,
general liability, property, errors and omissions, workers
compensation and other business insurance. These insurance
policies protect us against a portion of our risk of loss from
claims, subject to certain self-insured retentions, deductibles,
and other coverage limits. Through our captive insurance
subsidiary, we reserve for costs to cover our self-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, or that any potential inadequacies will
not have an adverse affect on our results of operations.
Additionally, the coverage offered by and the availability of
general liability insurance for construction defects are
currently limited and costly. There can be no assurance that
coverage will not be further restricted, increasing our risks,
and become more costly.
Because
of the seasonal nature of our business, our quarterly operating
results fluctuate.
We have experienced seasonal fluctuations in our quarterly
operating results. We typically do not commence significant
construction on a home before a home purchase contract has been
signed with a homebuyer. Historically, a significant percentage
of our home purchase contracts are entered into in the spring
and summer months, and a corresponding significant percentage of
our 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 2008 resulted in
lower sales in the spring and summer months and correspondingly
lower deliveries in the fall and winter months as compared to
2007. With the current difficult market conditions expected to
continue into 2009, 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 indenture governing our outstanding
public notes impose restrictions on our operations and
activities. The restrictions primarily relate to cash dividends,
stock repurchases, incurrence of indebtedness, creation of liens
and asset dispositions, defaults with respect to other debt
obligations and require maintenance of a maximum debt to equity
(or leverage) ratio, a minimum interest coverage ratio, and a
minimum level of tangible net worth. 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, which would have a
17
significant adverse effect on our ability to invest in and grow
our business. Moreover, we may curtail our investment activities
and other uses of cash to maintain compliance with these
restrictions and covenants.
We
participate in certain unconsolidated joint ventures where we
may be adversely impacted by the failure of the unconsolidated
joint venture or the other partners in the unconsolidated joint
venture to fulfill their obligations.
We have investments in and commitments to certain unconsolidated
joint ventures with unrelated strategic partners to acquire and
develop land and, in some cases, build and deliver homes. To
finance these activities, our unconsolidated joint ventures
often obtain loans from third-party lenders that are secured by
the unconsolidated joint ventures assets. In certain
instances, we and the other partners in an unconsolidated joint
venture provide guarantees and indemnities to lenders with
respect to the unconsolidated joint ventures debt, which
may be triggered under certain conditions when the
unconsolidated joint venture fails to fulfill its obligations
under its loan agreements. Because we do not have a controlling
interest in these unconsolidated joint ventures, we depend
heavily on the other partners in each unconsolidated joint
venture to both (i) cooperate and make mutually acceptable
decisions regarding the conduct of the business and affairs of
the unconsolidated joint venture and (ii) ensure that they,
and the unconsolidated joint venture, fulfill their respective
obligations to us and to third parties. If the other partners in
our unconsolidated joint ventures do not provide such
cooperation or fulfill these obligations due to their financial
condition, strategic business interests (which may be contrary
to ours), or otherwise, we may be required to spend additional
resources (including payments under the guarantees we have
provided to the unconsolidated joint ventures lenders) and
suffer losses, each of which could be significant. Moreover, our
ability to recoup such expenditures and losses by exercising
remedies against such partners may be limited due to potential
legal defenses they may have, their respective financial
condition and other circumstances.
The
downturn in the housing market and the continuation of the
disruptions in the credit markets could limit our ability to
access capital and increase our costs of capital or stockholder
dilution.
We have historically funded our homebuilding and financial
services operations with internally generated cash flows and
external sources of debt and equity financing. However, during
this downturn in the housing market, we have relied primarily on
the positive operating cash flow we have generated to meet our
working capital needs and repay outstanding indebtedness. While
we anticipate generating positive operating cash flow in 2009,
principally through the receipt of federal income tax refunds
and from home and land sales, the prolonged downturn in the
housing markets and the disruption in the credit markets have
reduced the availability to us of other sources of liquidity.
As of November 30, 2008, we had $200.0 million of
85/8% senior
subordinated notes (the $200 Million Senior
Subordinated Notes) outstanding, which matured on
December 15, 2008. We had sufficient cash on hand and
redeemed these notes upon their scheduled maturity. However,
current market conditions would significantly limit our ability
to replace this indebtedness if we chose to do so, particularly
due to the lowering of our senior debt ratings by three rating
agencies during 2008. Pricing in the public debt markets has
increased substantially, and the indenture terms available in
these markets are generally more restrictive than those in our
current indentures. Moreover, due to the deterioration in the
credit markets and the uncertainties that exist in the general
economy and for homebuilders in particular, we cannot be certain
that we would be able to replace existing financing or secure
additional sources of financing. In addition, the significant
decline in our stock price, the ongoing volatility in the stock
markets and the reduction in our stockholders equity
relative to our debt could also impede our access to the equity
markets or increase the amount of dilution our stockholders
would experience should we seek or need to raise capital through
issuance of equity.
While we believe we can meet our forecasted capital requirements
from our cash resources, future cash flow and the sources of
financing that we anticipate will be available to us, we can
provide no assurance that we will be able to do so, particularly
if current difficult housing or credit market or economic
conditions continue or deteriorate further. The effects on our
business, liquidity and financial results of these conditions
could be material and adverse to us.
Our
net operating loss carryforwards could be substantially limited
if we experience an ownership change as defined in the Internal
Revenue Code.
Since the end of our 2007 fiscal year, we have generated
significant net operating losses, (NOLs), and we may
generate additional NOLs in 2009. Under federal tax laws, we can
use our NOLs (and certain related tax credits) to offset
ordinary income tax on our future taxable income for up to
20 years, after which they expire for such purposes. Until
they expire, we can carry forward our NOLs (and certain related
tax credits) that we do not use in any particular year to offset
income tax in future years.
18
The benefits of our NOLs would be reduced or eliminated if we
experience an ownership change, as determined under
Section 382 of the Internal Revenue Code. A
Section 382 ownership change occurs if a
stockholder or a group of stockholders who are deemed to own at
least 5% of our common stock increase their ownership by more
than 50 percentage points over their lowest ownership
percentage within a rolling three-year period. If an
ownership change occurs, Section 382 would
impose an annual limit on the amount of NOLs we can use to
offset income tax equal to the product of the total value of our
outstanding equity immediately prior to the ownership
change (reduced by certain items specified in
Section 382) and the federal long-term tax-exempt
interest rate in effect for the month of the ownership
change. A number of special rules apply to calculating
this annual limit.
While the complexity of Section 382s provisions and
the limited knowledge any public company has about the ownership
of its publicly-traded stock make it difficult to determine
whether an ownership change has occurred, we
currently believe that an ownership change has not
occurred. However, if an ownership change were to
occur, the annual limit Section 382 may impose could result
in a material amount of our NOLs expiring unused. This would
significantly impair the value of our NOL assets and, as a
result, have a negative impact on our financial position and
results of operations.
A decline in our tangible net worth and the resulting
increase in our leverage ratio may place burdens on our ability
to comply with the terms of our indebtedness, may restrict our
ability to operate and may prevent us from fulfilling our
obligations.
The amount of our debt could have important consequences. For
example, it could:
|
|
|
|
|
limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements or other requirements;
|
|
|
|
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;
|
|
|
|
impact our flexibility in planning for, or reacting to, changes
in our business;
|
|
|
|
place us at a competitive disadvantage because we have more debt
than some of our competitors; and
|
|
|
|
make us more vulnerable in the event of a further downturn in
our business or in general economic conditions.
|
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.
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. In fact, the total
commitment available under our Credit Facility was reduced in
2008. Should we not generate sufficient cash flow from
operations or have borrowings available to us under our Credit
Facility, 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, or through equity issuances that
would dilute existing stockholders interests. However, we
currently do not anticipate a need to borrow under the Credit
Facility through its November 2010 maturity.
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, 2008, we would have been permitted to incur
up to $1.55 billion of consolidated total indebtedness, as
defined in the Credit Facility. This maximum amount exceeded our
actual consolidated total indebtedness at November 30, 2008
by $814.5 million. In addition, the Credit Facility limits
our ability to borrow senior indebtedness, as defined in the
Credit Facility, subject to a specified borrowing base. At
November 30, 2008, we would have been permitted to incur up
to
19
$2.47 billion of senior indebtedness under the Credit
Facility. This maximum amount exceeded our actual total senior
indebtedness at November 30, 2008 by $825.0 million.
There can be no assurance that we can actually borrow up to
these maximum amounts of total consolidated indebtedness or
senior indebtedness at any time, as our ability to borrow
additional funds, and to raise additional capital through other
means, also depends on conditions in the capital markets and our
perceived credit worthiness, as discussed above. If conditions
in the capital markets change significantly, it could reduce our
ability to generate sales and may hinder our future growth and
results of operations.
Item 1B. UNRESOLVED
STAFF COMMENTS
None.
Item 2. PROPERTIES
We lease our corporate headquarters in Los Angeles, California.
Our homebuilding division offices, except for our San Antonio,
Texas office, and our KB Home Studios are located in leased
space in the markets where we conduct business. We own the
premises for our San Antonio, Texas office.
We believe that such properties, including the equipment located
therein, are suitable and adequate to meet the needs of our
businesses.
Item 3. LEGAL
PROCEEDINGS
Derivative
Litigation
In the summer of 2006, four shareholder derivative lawsuits were
filed, ostensibly on our behalf, alleging, among other things,
that the 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
stockholder-approved stock option plans. Two of the lawsuits
were state court actions filed in Los Angeles County Superior
Court, and two were federal actions filed in the United States
District Court for the Central District of California. The two
federal lawsuits also included substantive claims under the
federal securities laws.
We recently reached a tentative global settlement with the
parties in the four actions. The settlement also includes a
resolution of all issues with our former Chairman and Chief
Executive Officer, Bruce Karatz. On December 9, 2008, the
parties to the federal court actions submitted the proposed
settlement to the court, and the plaintiffs in those actions
concurrently filed an unopposed motion seeking preliminary
approval of the proposed settlement. On December 15, 2008,
the court granted preliminary approval of the proposed
settlement and scheduled a hearing for February 9, 2009 to
determine whether the settlement should be finally approved by
the court. If it is finally approved, the federal litigation
will be dismissed, and all parties have agreed that the state
court litigation will be dismissed as well. If the settlement is
not approved, the federal and state court litigation will
continue.
ERISA
Litigation
On March 16, 2007, plaintiffs Reba Bagley and Scott Silver
filed an action brought under Section 502 of the Employee
Retirement Income Security Act (ERISA),
29 U.S.C. § 1132, Bagley et al., v. KB Home,
et al., in the United States District Court for the Central
District of California. The action was brought against us, our
directors, and certain of our current and former officers. After
the court allowed leave to file an amended complaint, on
April 3, 2008, plaintiffs filed an amended complaint adding
Tolan Beck and Rod Hughes as additional plaintiffs and
dismissing certain individuals as defendants. All four
plaintiffs claim to be former employees of KB Home who
participated in the KB Home 401(k) Savings Plan (the
Plan). Plaintiffs allege on behalf of themselves and
on behalf of all others similarly situated that all defendants
breached fiduciary duties owed to plaintiffs and purported class
members under ERISA by failing to disclose information to and
providing misleading information to participants in the Plan
about our alleged prior stock option backdating practices and by
failing to remove our stock as an investment option under the
Plan. Plaintiffs allege that this breach of fiduciary duties
caused plaintiffs to earn less on their Plan accounts than they
would have earned but for defendants alleged breach of
duties. Plaintiffs seek unspecified money damages and injunctive
and other equitable relief. On May 16, 2008, we filed a
motion to dismiss on the ground that plaintiffs
allegations fail to state a claim against us. Plaintiffs filed
an opposition to the motion on June 20, 2008. The hearing
on the motion was held on September 8, 2008. On
October 6, 2008, the court issued its order. The court
denied our motion to dismiss the plaintiffs claims for
breach of fiduciary duty and breach of the duty to monitor and
granted our motion to dismiss the plaintiffs claims for
breach of the fiduciary duty of disclosure. The court also
denied a separate motion to dismiss filed by the
20
individual defendants based on the standing of plaintiffs to
sue. We filed our answer to the first amended complaint on
November 5, 2008. On November 24, 2008, the court
approved a stipulation to stay all discovery and other
proceedings through February 6, 2009, in order to allow the
parties time to attempt to settle the plaintiffs claims
through mediation.
Other
Matters
We are also involved in litigation and governmental proceedings
incidental to our business. These cases are in various
procedural stages and, based on reports of counsel, we believe
that provisions or reserves made for potential losses are
adequate and any liabilities or costs arising out of currently
pending litigation should not have a materially adverse effect
on our consolidated financial position or results of operations.
Item 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2008 to a
vote of security holders, through the solicitation of proxies or
otherwise.
21
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our
executive officers as of January 22, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
at
|
|
Other Positions and Other
|
|
|
|
|
|
|
|
|
|
Present
|
|
|
KB
|
|
Business Experience within the
|
|
|
Name
|
|
Age
|
|
|
Present Position
|
|
Position
|
|
|
Home
|
|
Last Five Years (a)
|
|
From To
|
|
Jeffrey T. Mezger
|
|
|
53
|
|
|
President and Chief
Executive Officer (b)
|
|
|
2006
|
|
|
|
15
|
|
|
Executive Vice President and Chief Operating Officer
|
|
1999-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy C. Shiba
|
|
|
58
|
|
|
Executive Vice President, General Counsel and Secretary
|
|
|
2007
|
|
|
|
1
|
|
|
Senior Vice President, Chief Legal Officer and Secretary,
Polyone Corporation (a global provider of specialized polymer
materials, services and solutions)
|
|
2006-2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, Chief Legal Officer and Secretary, Polyone
Corporation
|
|
2001-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Barnard
|
|
|
64
|
|
|
Senior Vice President, KBnxt Group
|
|
|
2006
|
|
|
|
10
|
|
|
Regional General Manager (c)
|
|
2004-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer, Constellation Real Technologies (real
estate consortium)
|
|
2001-2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William R. Hollinger
|
|
|
50
|
|
|
Senior Vice President and
|
|
|
2007
|
|
|
|
21
|
|
|
Senior Vice President and Controller
|
|
2001-2006
|
|
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly Masuda
|
|
|
41
|
|
|
Senior Vice President and
Treasurer
|
|
|
2005
|
|
|
|
5
|
|
|
Senior Vice President, Capital Markets and Treasurer
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, Capital Markets and Treasurer
|
|
2003-2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas F. Norton
|
|
|
38
|
|
|
Senior Vice President, Human Resources
|
|
|
2009
|
|
|
|
|
|
|
Chief Human Resources Officer, BJs Restaurants, Inc.
(owner and operator of restaurants)
|
|
2006-2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President of Human Resources, American Golf
Corporation (golf course management firm)
|
|
2003-2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
All positions described were with us, unless otherwise indicated.
|
|
|
(b) |
Mr. Mezger has served as a director since 2006.
|
|
|
(c) |
Mr. Barnard was a senior executive with us from 1996-2001, and
rejoined us in 2004.
|
There is no family relationship between any of our executive
officers or between any of our executive officers and any of our
directors.
22
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
As of December 31, 2008, there were 843 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, and cash dividends declared and paid
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
Paid
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
Paid
|
|
|
First Quarter
|
|
$
|
28.99
|
|
|
$
|
15.76
|
|
|
$
|
.25
|
|
|
$
|
.25
|
|
|
$
|
56.08
|
|
|
$
|
47.69
|
|
|
$
|
.25
|
|
|
$
|
.25
|
|
Second Quarter
|
|
|
28.93
|
|
|
|
19.62
|
|
|
|
.50
|
|
|
|
.25
|
|
|
|
50.90
|
|
|
|
40.89
|
|
|
|
.25
|
|
|
|
.25
|
|
Third Quarter
|
|
|
21.93
|
|
|
|
13.16
|
|
|
|
|
|
|
|
.25
|
|
|
|
47.57
|
|
|
|
28.00
|
|
|
|
.25
|
|
|
|
.25
|
|
Fourth Quarter
|
|
|
25.43
|
|
|
|
6.90
|
|
|
|
.0625
|
|
|
|
.0625
|
|
|
|
31.69
|
|
|
|
18.44
|
|
|
|
.25
|
|
|
|
.25
|
|
The declaration and payment of cash dividends on shares of our
common stock, whether at current levels or at all, are at the
discretion of our board of directors, and depend upon, among
other things, our expected future earnings, cash flows, capital
requirements, operational investment strategy, and our general
financial condition and general business conditions as well as
compliance with covenants contained in our Credit Facility. In
November 2008, our board of directors reduced the quarterly cash
dividend on our common stock to $.0625 per share from $.25 per
share.
The description of our equity compensation plans required by
Item 201(d) of Regulation S-K is incorporated herein by
reference to Part III, Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters of this Form 10-K.
The following table summarizes our purchases of our own equity
securities during the three months ended November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
28,465
|
|
|
|
14.37
|
|
|
|
|
|
|
|
4,000,000
|
|
November 1 - 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,465
|
|
|
$
|
14.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2008, we were authorized to repurchase four million shares under
this share repurchase program. During the three months ended
November 30, 2008, no shares were repurchased pursuant to
this share repurchase program. The 28,465 shares purchased
during the three months ended November 30, 2008 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.
23
Stock
Performance Graph
The graph below compares the cumulative total return of KB Home
common stock, the S&P 500 Index, the
S&P Homebuilding Index and the Dow Jones Home
Construction Index for the last five year-end periods ended
November 30.
Comparison
of Five-Year Cumulative Total Return
Among KB Home, S&P 500 Index, S&P Homebuilding
Index and Dow Jones Home Construction Index
The above graph is based on the KB Home common stock and index
prices calculated as of the last trading day before
December 1st
of the year-end periods presented. As of November 30, 2008,
the closing common stock price on the New York Stock
Exchange was $11.63 per share. On December 31, 2008, our
common stock closed at $13.62 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, 2003 in KB Home common stock, the
S&P 500 Index, the S&P Homebuilding Index and the Dow
Jones Home Construction Index including reinvestment of
dividends.
24
Item 6. SELECTED
FINANCIAL DATA
The data in this table should be read in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and our Consolidated Financial
Statements and the Notes thereto. Both are included later in
this report.
KB
HOME
SELECTED FINANCIAL INFORMATION
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
|
$
|
8,123,313
|
|
|
$
|
5,974,496
|
|
Operating income (loss)
|
|
|
(860,643
|
)
|
|
|
(1,358,335
|
)
|
|
|
570,316
|
|
|
|
1,188,935
|
|
|
|
637,229
|
|
Total assets
|
|
|
3,992,148
|
|
|
|
5,661,564
|
|
|
|
7,825,339
|
|
|
|
6,881,486
|
|
|
|
4,760,288
|
|
Mortgages and notes payable
|
|
|
1,941,537
|
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
|
|
1,771,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
10,767
|
|
|
$
|
15,935
|
|
|
$
|
20,240
|
|
|
$
|
31,368
|
|
|
$
|
44,417
|
|
Operating income
|
|
|
6,278
|
|
|
|
11,139
|
|
|
|
14,317
|
|
|
|
10,968
|
|
|
|
8,688
|
|
Total assets
|
|
|
52,152
|
|
|
|
44,392
|
|
|
|
44,024
|
|
|
|
29,933
|
|
|
|
210,460
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,394,375
|
|
|
$
|
1,102,898
|
|
|
$
|
1,020,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
$
|
8,154,681
|
|
|
$
|
6,018,913
|
|
Operating income (loss)
|
|
|
(854,365
|
)
|
|
|
(1,347,196
|
)
|
|
|
584,633
|
|
|
|
1,199,903
|
|
|
|
645,917
|
|
Income (loss) from continuing operations
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
|
|
754,534
|
|
|
|
430,384
|
|
Income from discontinued operations, net of income taxes (a)
|
|
|
|
|
|
|
485,356
|
|
|
|
89,404
|
|
|
|
69,178
|
|
|
|
43,652
|
|
Net income (loss)
|
|
|
(976,131
|
)
|
|
|
(929,414
|
)
|
|
|
482,351
|
|
|
|
823,712
|
|
|
|
474,036
|
|
Total assets
|
|
|
4,044,300
|
|
|
|
5,705,956
|
|
|
|
9,263,738
|
|
|
|
8,014,317
|
|
|
|
5,990,830
|
|
Mortgages and notes payable
|
|
|
1,941,537
|
|
|
|
2,161,794
|
|
|
|
2,920,334
|
|
|
|
2,211,935
|
|
|
|
1,843,591
|
|
Stockholders equity
|
|
|
830,605
|
|
|
|
1,850,687
|
|
|
|
2,922,748
|
|
|
|
2,773,797
|
|
|
|
2,039,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
|
$
|
9.21
|
|
|
$
|
5.49
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
.85
|
|
|
|
.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
$
|
10.06
|
|
|
$
|
6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
|
$
|
8.54
|
|
|
$
|
5.10
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
.78
|
|
|
|
.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
$
|
9.32
|
|
|
$
|
5.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
.8125
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
.75
|
|
|
$
|
.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Discontinued operations consist only of our French operations,
which have been presented as discontinued operations for all
periods presented. Income from discontinued operations, net of
income taxes, in 2007 includes a gain of $438.1 million
realized on the sale of our French operations.
|
25
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
RESULTS
OF OPERATIONS
Overview. Revenues are generated from our
homebuilding operations and our financial services
operations. On July 10, 2007, we sold our 49% equity
interest in KBSA. Accordingly, our French operations are
presented as discontinued operations in this report. The
following table presents a summary of our consolidated results
of operations for the years ended November 30, 2008, 2007
and 2006 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
Financial services
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
(991,749
|
)
|
|
$
|
(1,494,606
|
)
|
|
$
|
538,311
|
|
Financial services
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(967,931
|
)
|
|
|
(1,460,770
|
)
|
|
|
571,847
|
|
Income tax benefit (expense)
|
|
|
(8,200
|
)
|
|
|
46,000
|
|
|
|
(178,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
47,252
|
|
|
|
89,404
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extreme negative conditions continued to confront the
homebuilding industry throughout 2008, deepening the downturn
that began in the second half of 2006. Record-high foreclosure
activity during the year worsened the oversupply of unsold homes
existing in several housing markets when the year began, and put
sustained downward pressure on home prices. At the same time,
tepid demand for new homes weakened further as deteriorating
conditions in the overall economy and rising unemployment
precipitated historic declines in consumer confidence,
discouraging home purchases. Demand also suffered as consumer
mortgage financing became progressively less available due to
credit market turmoil and tightening lending standards. Our
results for the year ended November 30, 2008 reflect the
impact of these conditions, which show no signs of abating in
the year ahead.
In 2008, we posted year-over-year declines in net orders, homes
delivered and revenues across all of our homebuilding reporting
segments. These decreases reflected the impact of the prolonged
housing market downturn as well as the strategic actions we have
taken to reduce our inventory levels and community count in line
with current housing market activity. We operated from 38% fewer
active communities in 2008 than in 2007. In addition, our
inventory of lots owned or controlled as of November 30,
2008 was down 28% from a year ago.
We recorded a net loss for the year, largely due to pretax,
noncash charges for inventory and joint venture impairments,
land option contract abandonments and goodwill impairments, and
noncash charges for net deferred tax
26
asset valuation allowances. Our year-over-year results for 2008
were also affected by our providing targeted price reductions
and sales incentives in certain communities in response to
competitive conditions, or to facilitate our exit from specific
markets, projects or product types.
Despite the difficult housing market conditions and our
year-over-year declines in homes delivered and revenues
generated, our net loss in 2008 was smaller than our loss from
continuing operations in 2007. This improvement was principally
due to the substantially lower asset impairment and abandonment
charges we incurred in 2008 compared to the previous year. Our
financial results in 2008 were also helped by strategic
adjustments we have made in response to the changing operating
environment. Since 2006, we have implemented a series of
aggressive actions focused on generating and preserving cash,
lowering our direct building costs, gaining operational
efficiencies, lowering overhead, developing new product to
compete with resales and foreclosures, and restoring
profitability. Specific strategic actions taken during 2008
included calibrating our business to market conditions by
consolidating certain operating divisions, reducing our
workforce by 57%, and transitioning to new, value-engineered
homes that are less expensive to build and can be offered to
homebuyers at more affordable prices and with greater design
choices. These actions had a positive impact on our results for
the year, particularly in the fourth quarter, creating a
foundation we intend to build on as we enter 2009.
Our total revenues of $3.03 billion for the year ended
November 30, 2008 decreased 53% from $6.42 billion in
2007, which had decreased 32% from $9.38 billion in 2006.
Revenues declined in 2008 and 2007 primarily due to decreases in
our housing revenues corresponding to fewer homes delivered and
lower average selling prices. Included in our total revenues
were financial services revenues of $10.8 million in 2008,
$15.9 million in 2007 and $20.2 million in 2006.
Financial services revenues decreased in both 2008 and 2007
primarily due to our delivering fewer homes and the termination
of our escrow coordination business in 2007.
We incurred a net loss of $976.1 million, or $12.59 per
diluted share in 2008, largely due to pretax, noncash charges of
$748.6 million for inventory and joint venture impairments
and the abandonment of land option contracts, and
$68.0 million for goodwill impairments. These charges
reflected the deterioriating housing market conditions, which
exerted downward pressure on asset values. The bulk of these
charges were associated with our West Coast, Southwest and
Southeast reporting segments. The goodwill impairment charges in
2008 related to our Central and Southeast reporting segments,
and resulted in our having no remaining goodwill company-wide at
November 30, 2008. The net loss in 2008 also reflected a
$355.9 million valuation allowance charge taken against net
deferred tax assets to fully reserve the tax benefits generated
from our pretax loss for the year in accordance with Statement
of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS No. 109). In
2007, our continuing operations generated an after-tax loss of
$1.41 billion, or $18.33 per diluted share, due to pretax,
noncash charges of $1.41 billion for inventory and joint
venture impairments and the abandonment of land option
contracts, and $107.9 million for goodwill impairments
recognized during the year. The majority of the
inventory-related charges in 2007 related to our West Coast and
Southwest reporting segments, and the goodwill impairments
related solely to our Southwest reporting segment. Our 2007 loss
from continuing operations also reflected a noncash charge of
$514.2 million to establish a valuation allowance for our
net deferred tax assets. In 2006, we reported after-tax income
from continuing operations of $392.9 million or $4.74 per
diluted share.
Income from our French discontinued operations, net of income
taxes, totaled $485.4 million in 2007, including a
$438.1 million after-tax gain on the sale of these
operations. Income from our French discontinued operations, net
of income taxes, totaled $89.4 million in 2006.
Overall, we posted a net loss of $929.4 million, or $12.04
per diluted share (including the discontinued operations) in
2007. This compares to net income of $482.4 million, or
$5.82 per diluted share, in 2006.
Our backlog at November 30, 2008 was comprised of 2,269
homes, representing future housing revenues of approximately
$521.4 million. These backlog measures decreased 64% and
65%, respectively, from the 6,322 homes in backlog, representing
approximately $1.50 billion in future housing revenues, at
November 30, 2007. These decreases were due to the combined
impact over the past several quarters of negative year-over-year
net order results, lower average selling prices, and our
strategic initiatives to reduce our inventory and community
count to better align with reduced housing market activity. Our
homebuilding operations generated 8,274 net orders in 2008,
down 58% from 19,490 net orders in 2007. The decrease in
net orders in 2008 reflected our year-over-year reduction in
community counts, the gradual winding down of certain
communities as backlog was delivered, and our discontinuation of
product in particular communities as part of our product
transition strategy. Order cancellations as a percentage of
gross orders improved slightly to 41% in 2008 from 42% in 2007.
27
We generated $341.3 million of positive cash flow from
operating activities in 2008 and ended the year with cash and
cash equivalents and restricted cash totaling
$1.25 billion. Our total debt at year-end stood at
$1.94 billion, down $220.3 million from
$2.16 billion at November 30, 2007, mainly due to the
early redemption of our $300.0 million of
73/4% senior
subordinated notes due in 2010 (the $300 Million
Senior Subordinated Notes) partially offset by increased
mortgages and land contracts due to land sellers. We ended 2008
with no cash borrowings outstanding under our Credit Facility.
As of November 30, 2008, our ratio of debt to total
capital, net of cash and cash equivalents and restricted cash,
was 45.4%, within our targeted range of 40%-50%. Restricted cash
consists of an interest reserve account established with the
Credit Facilitys administrative agent (the Interest
Reserve Account), as discussed below. Our liquidity,
including the available capacity under our Credit Facility, was
approximately $1.84 billion at November 30, 2008. Our
inventory balance of $2.10 billion at November 30,
2008 was 36% lower than the $3.31 billion balance at
November 30, 2007. We ended 2008 with what we believe is an
attractive, geographically diverse land portfolio of
approximately 47,000 lots owned or controlled. We ended 2007
with approximately 66,000 lots owned or controlled. We believe
our solid financial position and fewer, well-situated lot
positions give us a distinct competitive advantage relative to
other homebuilding companies and should allow us to capitalize
on opportunities as housing markets stabilize. However, it is
uncertain when meaningful stabilization will occur.
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, 2008, our reportable
homebuilding segments consisted of ongoing operations located in
the following states: West Coast California;
Southwest Arizona and Nevada; Central
Colorado and Texas; Southeast Florida, North
Carolina and South Carolina.
The following table presents a summary of certain financial and
operational data for our homebuilding operations (dollars in
thousands, except average selling price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
$
|
2,940,241
|
|
|
$
|
6,211,563
|
|
|
$
|
9,243,236
|
|
Land
|
|
|
82,928
|
|
|
|
189,028
|
|
|
|
116,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,023,169
|
|
|
|
6,400,591
|
|
|
|
9,359,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
(3,149,083
|
)
|
|
|
(6,563,082
|
)
|
|
|
(7,456,003
|
)
|
Land
|
|
|
(165,732
|
)
|
|
|
(263,297
|
)
|
|
|
(210,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(3,314,815
|
)
|
|
|
(6,826,379
|
)
|
|
|
(7,666,019
|
)
|
Selling, general and administrative expenses
|
|
|
(501,027
|
)
|
|
|
(824,621
|
)
|
|
|
(1,123,508
|
)
|
Goodwill impairment
|
|
|
(67,970
|
)
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(3,883,812
|
)
|
|
|
(7,758,926
|
)
|
|
|
(8,789,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(860,643
|
)
|
|
$
|
(1,358,335
|
)
|
|
$
|
570,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes delivered
|
|
|
12,438
|
|
|
|
23,743
|
|
|
|
32,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price
|
|
$
|
236,400
|
|
|
$
|
261,600
|
|
|
$
|
287,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing gross margin
|
|
|
(7.1
|
)%
|
|
|
(5.7
|
)%
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses as a percent of
housing revenues
|
|
|
17.0
|
%
|
|
|
13.3
|
%
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percent of homebuilding revenues
|
|
|
(28.5
|
)%
|
|
|
(21.2
|
)%
|
|
|
6.1
|
%
|
28
Revenues. Homebuilding revenues totaled
$3.02 billion in 2008, decreasing 53% from
$6.40 billion in 2007, which had decreased 32% from
$9.36 billion in 2006. The year-over-year decreases in both
2008 and 2007 primarily reflected declines in housing revenues
driven by fewer homes delivered and lower average selling prices.
Housing revenues decreased to $2.94 billion in 2008 from
$6.21 billion in 2007 and $9.24 billion in 2006. In
2008, housing revenues fell 53% from the previous year due to a
48% decrease in homes delivered and a 10% decline in the average
selling price. In 2007, housing revenues fell 33% from 2006 due
to a 26% decrease in homes delivered and a 9% decline in the
average selling price.
We delivered 12,438 homes in 2008, down from 23,743 homes in
2007, mainly due to a 38% year-over-year reduction in the number
of our active communities and poor demand for new homes. Over
the past several quarters, we progressively reduced our
community counts in line with diminished housing market activity
in the wake of the persistent housing market downturn. Each of
our reporting segments delivered fewer homes in 2008 compared to
2007, with decreases ranging from 40% to 51%.
In 2007, we delivered 23,743 homes, down from 32,124 homes
delivered in 2006, reflecting year-over-year decreases in each
of our reporting segments. The lower delivery volume in 2007
compared to 2006 was due, in part, to a 14% year-over-year
reduction in our active community count.
Our average new home selling price decreased to $236,400 in 2008
from $261,600 in 2007. Year-over-year average selling prices
declined 18% in our West Coast segment, 11% in our Southwest
segment and 12% in our Southeast segment as a result of downward
pricing pressures. These pressures were driven by difficult
market conditions, intense competition from homebuilders and
sellers of existing and foreclosed homes, and our introducing
product at lower price points, in line with median income
levels, to meet consumer demand for more affordable homes. The
average selling price in our Central segment increased 4% in
2008 from the previous year, reflecting changes in product mix.
Our 2007 average new home selling price had decreased 9% 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
2006, solely due to changes in product mix.
Land sale revenues totaled $82.9 million in 2008,
$189.0 million in 2007 and $116.6 million in 2006.
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 2008 as we sold a higher volume of land that no
longer fit our marketing strategy or met our investment
standards, rather than hold it for future development.
Operating Income (Loss). Our homebuilding
operations generated operating losses of $860.6 million in
2008 and $1.36 billion in 2007 due to losses from both
housing operations and land sales. In 2006, our homebuilding
operations posted operating income of $570.3 million. Our
homebuilding operating losses represented negative 28.5% of
homebuilding revenues in 2008 and negative 21.2% of homebuilding
revenues in 2007. The losses increased on a percentage basis in
2008 due to a decrease in our housing gross margin and an
increase in our selling, general and administrative expenses as
a percentage of housing revenues.
Within housing operations, the 2008 operating loss was largely
due to pretax, noncash charges of $520.5 million for inventory
impairments and land option contract abandonments and $68.0
million for goodwill impairments, as well as lower margins
achieved amid fiercely competitive market conditions and higher
overhead costs relative to the volume of homes delivered.
Inventory impairment charges in 2008 were necessitated by
declining asset values in certain markets, the result of
persistent increases in housing supply and decreases in demand,
both of which reduced achievable sales prices. In 2007, the
operating loss within housing operations was driven by pretax,
noncash charges of $1.18 billion for inventory impairments
and land option contract abandonments and $107.9 million
for goodwill impairments. The inventory-related charges in 2007
resulted from declining market conditions, which depressed new
home values and sales rates in certain housing markets across
the country. Poor market conditions also depressed land values
and led us to terminate our land option contracts on projects
that no longer met our investment standards.
29
Our housing gross margin decreased to negative 7.1% in 2008 from
negative 5.7% in 2007. Our housing gross margin in 2008 was
adversely impacted by pretax, noncash charges for inventory
impairments and land option contract abandonments, lower average
selling prices and our providing targeted price reductions and
sales incentives in response to competitive conditions or to
facilitate strategic project or product exits. Excluding the
inventory-related noncash charges ($520.5 million in 2008
and $1.18 billion in 2007), our housing gross margin would
have been 10.6% in 2008 and 13.3% in 2007.
In 2007, the homebuilding operating loss was $1.36 billion
compared to operating income of $570.3 million in 2006. The
operating loss in 2007 represented negative 21.2% of
homebuilding revenues. In 2006, operating income as a percentage
of homebuilding revenues was 6.1%. The operating loss in 2007
resulted from a decrease in our housing gross margin, which fell
to a negative 5.7% from 19.3% in 2006. The change in our housing
gross margin was largely the result of higher pretax, noncash
charges for inventory impairments and land option contract
abandonments in 2007, primarily in our West Coast and Southwest
segments. Excluding the inventory-related noncash 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.
In 2008, our land sales generated losses of $82.8 million,
including impairment charges of $86.2 million relating to
future land sales. Our land sales generated losses of
$74.3 million in 2007 and $93.4 million in 2006,
including impairment charges relating to future land sales of
$74.8 million in 2007 and $63.1 million in 2006.
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 pretax, noncash charges for inventory
impairments of $565.9 million in 2008, $1.11 billion
in 2007 and $228.7 million in 2006.
The impairment charges in 2008 and 2007 reflected the
deteriorating housing market conditions that we experienced
during those years, which 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 kept
prospective buyers from trading up or entering the market,
higher foreclosure activity, and heightened competition. As a
result, our order rates, selling prices and gross margins
declined in 2008 and 2007, lowering the fair value of certain
inventory positions and resulting in the impairment of that
inventory. Further deterioration in housing market conditions
may lead to additional noncash impairment charges or cause us to
reevaluate our strategy concerning certain assets that could
result in future charges associated with land sales or the
abandonment of land option contracts. 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 decide not to exercise certain land purchase option
contracts due to market conditions
and/or
changes in our market strategy, we write off the costs,
including non-refundable deposits and pre-acquisition costs,
related to the abandoned projects. We recognized abandonment
charges associated with land option contracts of
$40.9 million in 2008, $144.0 million in 2007 and
$143.9 million in 2006. 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
$501.0 million in 2008, down from $824.6 million in
2007, which had decreased from $1.12 billion in 2006. The
year-over-year decreases in 2008 and 2007 reflected the results
of our ongoing efforts to rescale the size of our operations to
the lower volume of homes we were delivering and to our future
sales expectations. During 2008, we took aggressive actions to
streamline our organizational structure by consolidating certain
homebuilding operations, strategically exiting or winding down
activity in certain markets, and reducing our workforce. Since
the beginning of 2008, we have reduced our workforce by 57%. The
full impact of these actions in reducing our selling, general
and administrative expenses is not reflected in our 2008 results
due to the costs we incurred to implement them. As a percentage
of housing revenues, to which these expenses are most closely
correlated, selling, general and administrative expenses
increased to 17.0% in 2008 from 13.3% in 2007, which had
increased from 12.2% in 2006. The percentages increased in 2008
and 2007 because our expense reductions have been exceeded by
the significant year-over-year declines in our housing revenues
and the costs of implementing these reductions.
30
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 2008 and
2007, we determined that it was necessary to evaluate goodwill
for impairment between annual tests due to deteriorating
conditions in certain housing markets and the significant
inventory impairments we identified and recognized in those
years, in accordance with SFAS No. 144.
Based on the results of our impairment evaluation performed in
the second quarter of 2008, we recorded an impairment charge of
$24.6 million in that quarter related to our Central
reporting segment, where all of the goodwill previously recorded
was determined to be impaired. The annual goodwill impairment
test we performed as of November 30, 2008 resulted in an
impairment charge of $43.4 million in the fourth quarter of
2008 related to our Southeast reporting segment, where all of
the goodwill previously recorded was determined to be impaired.
Based on the results of our impairment evaluation performed in
the third quarter of 2007, we recorded an impairment charge of
$107.9 million in that quarter related to our Southwest
reporting segment, where all of the goodwill previously recorded
was determined to be impaired. The annual goodwill impairment
test we performed as of November 30, 2007 indicated no
additional impairment. The goodwill impairment charges in 2008
and 2007 were recorded at our corporate level because all
goodwill is carried at that level. As a result of these
impairment charges, we have no remaining goodwill
company-wide
at November 30, 2008.
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 our
interpretation of current economic indicators and market
valuations, and assumptions about our strategic plans with
regard to our operations. Due to the uncertainties associated
with such estimates, actual results could differ from such
estimates.
Interest Income. Interest income, which is
generated from short-term investments and mortgages receivable,
totaled $34.6 million in 2008, $28.6 million in 2007
and $5.5 million in 2006. Generally, increases and
decreases in interest income are attributable to changes in the
interest-bearing average balances of short-term investments and
mortgages receivable, as well as fluctuations in interest rates.
Mortgages receivable are primarily related to land sales. The
year-over-year increases in interest income in 2008 and 2007
reflected the higher levels of cash and cash equivalents on our
balance sheet stemming from the July 2007 sale of our
French discontinued operations and other assets, the cash
generated from our operations, and our reduction in land
purchases.
Loss on Early Redemption/Interest Expense, Net of Amounts
Capitalized. On July 14, 2008, we completed
the early redemption of the $300 Million Senior
Subordinated Notes at a price of 101.938% of the principal
amount plus accrued interest to the date of redemption. We
incurred a loss of $7.1 million in 2008 related to the
early redemption of debt, as a result of the call premium and
the unamortized original issue discount. On August 28,
2008, we entered into the fifth amendment (the Fifth
Amendment) to our Credit Facility, which reduced the
aggregate commitment under the Credit Facility from
$1.30 billion to $800.0 million. In light of this
reduction in the aggregate commitment, we wrote off
$3.3 million of unamortized fees associated with the Credit
Facility.
On July 27, 2007, we redeemed all $250.0 million of
our
91/2% senior
subordinated notes due in 2011 (the $250 Million Senior
Subordinated Notes) at a price of 103.167% of the
principal amount of the notes, plus accrued interest to the date
of redemption. In addition, on July 31, 2007, we repaid in
full an unsecured $400.0 million term loan due 2011
(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 in the third quarter of
2007 related to the early redemption of debt, mainly due to the
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. In 2008, interest expense, net of amounts
capitalized, totaled $2.6 million. In 2007, all of our
interest was capitalized and, consequently, we had no interest
expense, net of amounts capitalized. The percentage of interest
capitalized decreased to 98% in 2008 as the amount of inventory
qualifying for interest capitalization fell below our debt level
in the fourth quarter, reflecting our inventory reduction
strategies and our suspension of land development
31
in certain communities. In 2006, interest expense, net of
amounts capitalized, totaled $16.7 million. Gross interest
incurred during 2008 decreased by $43.2 million, to
$156.4 million, from $199.6 million incurred in 2007,
due to lower debt levels in 2008. Gross interest incurred in
2007 decreased $38.2 million from the amount incurred in
2006, reflecting lower debt levels in 2007.
Equity in Loss of Unconsolidated Joint
Ventures. Our unconsolidated joint ventures
operate in various markets, typically where our consolidated
homebuilding operations are located. These unconsolidated joint
ventures posted combined revenues of $112.8 million in
2008, $662.7 million in 2007 and $167.5 million in
2006. The year-over-year decrease in unconsolidated joint
venture revenues in 2008 primarily reflected fewer land sales by
the unconsolidated joint ventures than in 2007. 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. 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 262 homes in 2008, 127
homes in 2007 and 4 homes in 2006. Unconsolidated joint ventures
generated combined losses of $383.6 million in 2008,
$51.6 million in 2007 and $48.6 million in 2006. Our
equity in loss of unconsolidated joint ventures of
$152.8 million in 2008 included a charge of
$141.9 million to recognize the impairment of certain
unconsolidated joint ventures primarily in our West Coast,
Southwest and Southeast reporting segments. In 2007, our equity
in loss of unconsolidated joint ventures of $151.9 million
included a similar charge of $156.4 million also mainly
related to our West Coast, Southwest and Southeast reporting
segments. In 2006, our equity in loss of unconsolidated joint
ventures of $20.8 million included a charge of
$58.6 million for unconsolidated joint venture impairments
in our West Coast and Southeast reporting segments, and a gain
of $27.6 million related to the sale of our ownership
interest in an unconsolidated joint venture.
HOMEBUILDING
SEGMENTS
The following table presents financial information related to
our homebuilding reporting segments for the years indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
West Coast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,055,021
|
|
|
$
|
2,203,303
|
|
|
$
|
3,531,279
|
|
Construction and land costs
|
|
|
(1,202,054
|
)
|
|
|
(2,635,415
|
)
|
|
|
(2,879,509
|
)
|
Selling, general and administrative expenses
|
|
|
(120,446
|
)
|
|
|
(213,133
|
)
|
|
|
(299,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(267,479
|
)
|
|
|
(645,245
|
)
|
|
|
352,306
|
|
Other, net
|
|
|
(30,568
|
)
|
|
|
(20,600
|
)
|
|
|
7,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(298,047
|
)
|
|
$
|
(665,845
|
)
|
|
$
|
359,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
618,014
|
|
|
$
|
1,349,570
|
|
|
$
|
2,183,830
|
|
Construction and land costs
|
|
|
(722,643
|
)
|
|
|
(1,492,933
|
)
|
|
|
(1,616,458
|
)
|
Selling, general and administrative expenses
|
|
|
(69,865
|
)
|
|
|
(124,462
|
)
|
|
|
(193,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(174,494
|
)
|
|
|
(267,825
|
)
|
|
|
373,900
|
|
Other, net
|
|
|
(37,700
|
)
|
|
|
(19,514
|
)
|
|
|
(8,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(212,194
|
)
|
|
$
|
(287,339
|
)
|
|
$
|
365,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
594,317
|
|
|
$
|
1,077,304
|
|
|
$
|
1,553,309
|
|
Construction and land costs
|
|
|
(570,512
|
)
|
|
|
(970,912
|
)
|
|
|
(1,368,530
|
)
|
Selling, general and administrative expenses
|
|
|
(96,306
|
)
|
|
|
(163,689
|
)
|
|
|
(223,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(72,501
|
)
|
|
|
(57,297
|
)
|
|
|
(38,673
|
)
|
Other, net
|
|
|
(10,288
|
)
|
|
|
(6,913
|
)
|
|
|
(16,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(82,789
|
)
|
|
$
|
(64,210
|
)
|
|
$
|
(54,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
755,817
|
|
|
$
|
1,770,414
|
|
|
$
|
2,091,425
|
|
Construction and land costs
|
|
|
(808,354
|
)
|
|
|
(1,718,548
|
)
|
|
|
(1,794,326
|
)
|
Selling, general and administrative expenses
|
|
|
(125,798
|
)
|
|
|
(213,536
|
)
|
|
|
(241,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(178,335
|
)
|
|
|
(161,670
|
)
|
|
|
55,425
|
|
Other, net
|
|
|
(80,233
|
)
|
|
|
(68,750
|
)
|
|
|
(16,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(258,568
|
)
|
|
$
|
(230,420
|
)
|
|
$
|
38,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information concerning our housing
revenues, homes delivered and average selling price 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
1,054,256
|
|
|
|
36%
|
|
|
|
2,972
|
|
|
|
24%
|
|
|
$
|
354,700
|
|
Southwest
|
|
|
548,544
|
|
|
|
19
|
|
|
|
2,393
|
|
|
|
19
|
|
|
|
229,200
|
|
Central
|
|
|
585,826
|
|
|
|
20
|
|
|
|
3,348
|
|
|
|
27
|
|
|
|
175,000
|
|
Southeast
|
|
|
751,615
|
|
|
|
25
|
|
|
|
3,725
|
|
|
|
30
|
|
|
|
201,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,940,241
|
|
|
|
100%
|
|
|
|
12,438
|
|
|
|
100%
|
|
|
$
|
236,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
2,149,547
|
|
|
|
35%
|
|
|
|
4,957
|
|
|
|
21%
|
|
|
$
|
433,600
|
|
Southwest
|
|
|
1,254,932
|
|
|
|
20
|
|
|
|
4,855
|
|
|
|
20
|
|
|
|
258,500
|
|
Central
|
|
|
1,058,985
|
|
|
|
17
|
|
|
|
6,310
|
|
|
|
27
|
|
|
|
167,800
|
|
Southeast
|
|
|
1,748,099
|
|
|
|
28
|
|
|
|
7,621
|
|
|
|
32
|
|
|
|
229,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,211,563
|
|
|
|
100%
|
|
|
|
23,743
|
|
|
|
100%
|
|
|
$
|
261,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast Our West Coast segment generated
total revenues of $1.06 billion in 2008, down 52% from
$2.20 billion in 2007 due to lower housing and land sale
revenues. Housing revenues decreased to $1.05 billion in
2008 from $2.15 billion in 2007 due to a 40% decrease in
homes delivered and an 18% decrease in the average selling
price. We delivered 2,972 homes at an average selling price of
$354,700 in 2008 and 4,957 homes at an average selling price of
$433,600 in 2007. The year-over-year decrease in the number of
homes delivered was largely due to a 34% decrease in the number
of active communities we operated in the segment. The lower
average selling price in 2008 resulted from highly competitive
conditions and rising foreclosures as well as from our
introduction of new product at lower price points. Revenues from
land sales totaled $.8 million in 2008 and
$53.8 million in 2007.
Our West Coast segment posted pretax losses of
$298.0 million in 2008 and $665.8 million in 2007.
Pretax results improved in 2008 compared to 2007 due to lower
inventory impairment and land option contract abandonment
charges and lower selling, general and administrative expenses.
Inventory impairment and land option contract abandonment
charges totaled $246.5 million in 2008 and
$659.4 million in 2007. As a percentage of revenues, these
charges were 23% in 2008 and 30% in 2007. The gross margin was
negative 13.9% in 2008 compared to negative 19.6% in 2007,
reflecting a decrease in inventory-related charges as a percent
of revenues, partly offset by lower average selling prices and
greater use of targeted sales price reductions and sales
incentives. Selling, general and administrative expenses
decreased by $92.7 million, or 43%, to $120.4 million
in 2008 from $213.1 million in 2007 due to our actions to
align overhead
33
with the reduced volume of homes delivered and our future sales
expectations. Included in other, net expenses were
unconsolidated joint venture impairments of $43.1 million
in 2008 and $57.0 million in 2007.
Revenues from our West Coast segment decreased 38% to $2.20
billion in 2007, from $3.53 billion in 2006, due to lower
housing revenues. Housing revenues were down 39%, from
$3.53 billion in 2006, reflecting a 31% decrease in homes
delivered and an 11% decrease in the average selling price. We
delivered 4,957 homes in 2007 compared with 7,213 homes in 2006
due primarily to our reducing the number of active communities
by 10% to match reduced levels of demand in this segment
compared to 2006. Our average selling price declined to $433,600
in 2007 from $489,500 in 2006 due to highly competitive
conditions and weak demand. Our lower average selling price in
2007 versus 2006 also reflected our efforts to redesign and
reengineer our products to improve their affordability,
particularly in light of tighter mortgage financing standards
applicable to loans above conforming limits. Land sale revenues
totaled $53.8 million in 2007 compared with
$.6 million in 2006.
Our 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 increased inventory impairment and land option contract
abandonment charges in 2007 that reflected deteriorating market
conditions. These charges totaled $659.4 million in 2007
compared to $178.8 million in 2006. As a percentage of
revenues, inventory impairments and land option contract
abandonment charges were 30% in 2007 and 5% in 2006. The gross
margin decreased to negative 19.6% in 2007 from 18.5% in 2006 as
a result of higher inventory-related charges as a percent of
revenues, a lower average selling price and more frequent use of
price concessions and sales incentives. Selling, general and
administrative expenses decreased by $86.3 million, or 29%,
to $213.1 million in 2007 from $299.5 million in 2006.
Included in other, net expenses were unconsolidated joint
venture impairments of $57.0 million in 2007 and
$34.4 million in 2006.
Southwest Total revenues from our Southwest
segment declined 54% to $618.0 million in 2008 from
$1.35 billion in 2007, reflecting decreases in housing and
land sale revenues. Housing revenues fell 56% to
$548.5 million in 2008 from $1.25 billion in 2007 due
to a 51% decrease in the number of homes delivered and an 11%
decrease in the average selling price. We delivered 2,393 homes
in this segment for 2008 compared with 4,855 homes in 2007,
largely due to a 32% reduction in the number of our active
communities. Our average selling price of $229,200 in 2008
decreased from $258,500 in 2007, reflecting highly competitive
conditions driven by an excess supply of new and resale homes,
rising foreclosures and lower demand, as well as our
introduction of new, value-engineered product at lower price
points. Revenues from land sales totaled $69.5 million in
2008 compared to $94.6 million in 2007.
Our Southwest segment generated pretax losses of
$212.2 million in 2008 and $287.3 million in 2007. The
decrease in the pretax loss in 2008 reflected a decrease in
inventory-related charges and lower selling, general and
administrative expenses. Inventory impairment and land option
contract abandonment charges totaled $160.8 million in 2008
compared with $354.4 million in 2007. These charges
represented 26% of revenues in both 2008 and 2007. The gross
margin was negative 16.9% in 2008 compared to negative 10.6% in
2007 primarily due to the decline in average selling prices.
Selling, general and administrative expenses decreased by
$54.6 million, or 44%, to $69.9 million in 2008 from
$124.5 million in 2007, largely as a result of our cost
reduction efforts. Included in other, net expenses were
unconsolidated joint venture impairments of $30.4 million
in 2008 and $31.0 million in 2007.
In 2007, our Southwest segments total revenues decreased
38% to $1.35 billion from $2.18 billion in 2006 due to
lower housing revenues. Housing revenues decreased 42% to
$1.25 billion in 2007 from $2.15 billion in 2006, due
to a 31% decrease in homes delivered and a 16% decrease in the
average selling price. We delivered 4,855 homes in 2007, down
from 7,011 homes in 2006, primarily due to a 24% decrease in the
number of our active communities, principally in Las Vegas,
reflecting our efforts to align our operations with lower levels
of demand. The average selling price decreased to $258,500 in
2007 from $306,900 in 2006 due to a persistent oversupply of new
and resale homes in certain markets coupled with declining
demand. Land sale revenues totaled $94.6 million in 2007
and $31.9 million in 2006.
Our Southwest segment posted a pretax loss of
$287.3 million in 2007 and pretax income of
$365.1 million in 2006. The pretax results decreased in
2007 principally due to increased inventory impairment and land
option contract abandonment charges. Inventory impairment and
land option contract abandonment charges totaled
$354.4 million in 2007 and $39.4 million in 2006. As a
percentage of revenues, these charges were 26% in 2007 and 2% in
2006. The gross margin in our Southwest segment fell to negative
10.6% in 2007 compared to 26.0% in 2006, reflecting an increase
in inventory-related charges as a percent of revenues, weakness
in market conditions, greater competition, and the increased use
of price concessions and sales incentives to stimulate sales.
Selling, general and administrative expenses in our
34
Southwest segment decreased by $69.0 million, or 36%, to
$124.5 million in 2007 from $193.5 million in 2006 due
to our actions to rescale the size of our operations to the
reduced number of homes we delivered and our future sales
expectations. Included in other, net expenses were
unconsolidated joint venture impairment charges of
$31.0 million in 2007. In 2006, there were no
unconsolidated joint venture impairment charges in the Southwest
segment.
Central Our Central segment generated total
revenues of $594.3 million in 2008, down 45% from
$1.08 billion in 2007, reflecting lower revenues from
housing and land sales. Housing revenues decreased 45% to
$585.8 million in 2008 from $1.06 billion in 2007, due
to a 47% decrease in the number of homes we delivered, partly
offset by a 4% increase in our average selling price. In 2008,
we delivered 3,348 homes at an average price of $175,000
compared to 6,310 homes delivered at an average price of
$167,800 in 2007. The decrease in homes delivered reflected a
38% reduction in the number of active communities we operated.
The increase in the average selling price was due to a change in
product mix. Land sale revenues totaled $8.5 million in
2008 and $18.3 million in 2007.
Our Central segment generated pretax losses of
$82.8 million in 2008 and $64.2 million in 2007. The
loss increased in 2008 principally due to higher
inventory-related charges driven by deteriorating market
conditions. These charges totaled $51.5 million in 2008
compared to $34.4 million in 2007. As a percentage of
revenues, inventory impairments and land option contract
abandonment charges were 9% in 2008 and 3% in 2007. The gross
margin decreased to 4.0% in 2008 from 9.9% in 2007 as a result
of an increase in inventory-related charges as a percent of
revenues, partly offset by a higher average selling price.
Selling, general and administrative expenses decreased by
$67.4 million, or 41%, to $96.3 million in 2008 from
$163.7 million in 2007, reflecting our efforts to calibrate
our operations with reduced housing market activity. Included in
other, net expenses were unconsolidated joint venture
impairments of $2.6 million in 2008 and $4.5 million
in 2007.
In 2007, total revenues from our Central segment fell 31% from
$1.55 billion in 2006, primarily due to lower housing
revenues. Housing revenues 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 selling price. Homes
delivered decreased to 6,310 in 2007 from 9,613 in 2006
primarily due to a 26% decrease in the number of our active
communities, principally in Texas and Indiana, due to our
exiting smaller submarkets and adjusting our operations to 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.
Our Central segment posted pretax losses of $64.2 million
in 2007 and $54.7 million in 2006. The pretax results
decreased in 2007 mainly due to a decrease in gross margin.
Inventory-related impairment and land option contract
abandonment charges totaled $34.4 million in 2007 and
$48.8 million in 2006. As a percentage of revenues, these
charges were 3% in both 2007 and 2006. The gross margin
decreased to 9.9% in 2007 from 11.9% in 2006. Selling, general
and administrative expenses decreased by $59.8 million, or
27%, to $163.7 million in 2007 from $223.5 million in
2006 due to our actions to reduce overhead. Included in other,
net expenses were unconsolidated joint venture impairment
charges of $4.5 million in 2007. There were no
unconsolidated joint venture impairment charges in the Central
segment in 2006.
Southeast Our Southeast segment generated
total revenues of $755.8 million in 2008 compared to
$1.77 billion in 2007 due to lower housing and land sale
revenues. Housing revenues decreased 57% to $751.6 million
in 2008 from $1.75 billion in 2007 as a result of a 51%
decrease in homes delivered and a 12% decline in the average
selling price. Homes delivered fell to 3,725 in 2008 from 7,621
in 2007, while the average selling price decreased to $201,800
in 2008 from $229,400 in 2007. The decrease in homes delivered
was principally due to a 44% reduction in the number of our
active communities. The lower average selling price mainly
reflected highly competitive conditions and rising foreclosures
as well as our introduction of value-engineered product at lower
price points. Revenues from land sales totaled $4.2 million
in 2008 and $22.3 million in 2007.
Our Southeast segment posted pretax losses of
$258.6 million in 2008 and $230.4 million in 2007. The
increased loss was principally due to a decline in the gross
margin, partly offset by a decrease in selling, general and
administrative expenses. The gross margin decreased to negative
7.0% in 2008 from 2.9% in 2007, reflecting the impact of lower
average selling prices. Inventory impairment and land option
contract abandonment charges totaled $148.0 million in 2008
compared to $205.8 million in 2007. As a percentage of
revenues, inventory impairments and land option contract
abandonment charges were 20% in 2008 and 12% in 2007. Selling,
general and administrative expenses decreased by
$87.7 million, or 41%, to $125.8 million in 2008 from
$213.5 million in 2007, reflecting our actions to reduce
costs in
35
line with the reduced volume of homes delivered and our future
sales expectations. Included in other, net expenses were
unconsolidated joint venture impairments of $65.7 million
in 2008 and $63.8 million in 2007.
In 2007, total revenues from the Southeast segment declined 15%
from $2.09 billion in 2006, reflecting decreases in housing
and land sale revenues. Housing revenues 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 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. In 2007,
revenues from land sales totaled $22.3 million, down from
$66.9 million in 2006.
Our Southeast segment generated a pretax loss of
$230.4 million in 2007 compared to pretax income of
$38.9 million in 2006. This decrease was mainly due to
increased inventory-related charges in 2007 resulting from
challenging market conditions. These inventory-related charges
totaled $205.8 million in 2007 compared to
$105.7 million in 2006. The inventory impairment and land
option contract abandonment charges in 2007 were principally in
Florida. As a percentage of revenues, inventory impairments and
land option contract abandonment charges were 12% in 2007 and 5%
in 2006. The gross margin decreased to 2.9% in 2007 from 14.2%
in 2006 as a result of an increase in inventory-related charges
as a percent of revenues. Selling, general and administrative
expenses decreased by $28.2 million, or 12%, to
$213.5 million in 2007 from $241.7 million in 2006,
reflecting our efforts to calibrate operations with reduced
housing market activity. Included in other, net expenses were
unconsolidated joint venture impairments of $63.8 million
in 2007 and $24.2 million 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.
We and CWB Venture Management Corporation, a subsidiary of Bank
of America, N.A., each have a 50% ownership interest in
Countrywide KB Home Loans. Countrywide KB Home Loans is operated
by our joint venture partner. Countrywide KB Home Loans is
accounted for as an unconsolidated joint venture in the
financial services reporting segment of our consolidated
financial statements.
The following table presents a summary of selected financial and
operational data for our financial services segment (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
10,767
|
|
|
$
|
15,935
|
|
|
$
|
20,240
|
|
Expenses
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
|
|
(5,923
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
23,818
|
|
|
$
|
33,836
|
|
|
$
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
10,141
|
|
|
|
16,869
|
|
|
|
15,740
|
|
Principal
|
|
$
|
2,073,382
|
|
|
$
|
3,934,336
|
|
|
$
|
3,843,793
|
|
Retention rate
|
|
|
80
|
%
|
|
|
72
|
%
|
|
|
57
|
%
|
Loans sold to third parties (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
11,289
|
|
|
|
16,909
|
|
|
|
15,613
|
|
Principal
|
|
$
|
2,328,702
|
|
|
$
|
3,969,827
|
|
|
$
|
3,787,597
|
|
|
|
(a) |
Loan originations and sales are within Countrywide KB Home Loans.
|
Revenues. In 2008, 2007 and 2006, our
financial services operations generated revenues primarily from
the following sources: interest income, title services, and
insurance commissions. In 2007 and 2006, financial services
revenues also included escrow coordination fees. Financial
services revenues totaled $10.8 million in 2008,
$15.9 million in 2007 and $20.2 million in 2006. The
decrease in financial services revenues in 2008 versus 2007
resulted primarily from lower revenues from title and insurance
services, reflecting fewer homes delivered from our homebuilding
36
operations. The lower financial services revenues in 2007
compared to 2006 was mainly due to the decreased number of homes
delivered by our homebuilding operations and the reduction in
escrow coordination fee revenues due to the termination of our
escrow coordination business in the second quarter of 2007.
Financial services revenues in 2008, 2007 and 2006 included
interest income of $.2 million, which was earned in each
year primarily from money market deposits and first mortgages
held for sale. Financial services revenues also included
revenues from title services and insurance commissions of
$10.6 million in 2008, $15.1 million in 2007 and
$16.6 million in 2006, and escrow coordination fees of
$.6 million in 2007 and $3.4 million in 2006.
Expenses. General and administrative expenses
totaled $4.5 million in 2008, $4.8 million in 2007 and
$5.9 million in 2006. The decreases in general and
administrative expenses in 2008 and 2007 were primarily due to
the termination of our escrow coordination business in the
second quarter of 2007.
Equity in Income of Unconsolidated Joint
Venture. The equity in income of unconsolidated
joint venture of $17.5 million in 2008, $22.7 million
in 2007 and $19.2 million in 2006 relates to our 50%
interest in the Countrywide KB Home Loans joint venture. The
decrease in unconsolidated joint venture income in 2008 compared
to 2007 was largely due to a 40% decline in the number of loans
originated by Countrywide KB Home Loans, reflecting the lower
volume of homes we delivered, partly offset by an increase in
Countrywide KB Home Loans retention rate (the percentage
of our homebuyers using Countrywide KB Home Loans as a loan
originator). Countrywide KB Home Loans retention rate
increased to 80% in 2008 from 72% in 2007. The higher retention
rate primarily reflected the diminished availability of
alternative consumer mortgage lenders in the marketplace. In
2007, unconsolidated joint venture income increased from the
previous year due to a 7% increase in the number of loans
originated by the Countrywide KB Home Loans joint venture
reflecting a higher retention rate. The overall retention rate
rose to 72% in 2007 from 57% in 2006 reflecting the maturation
of the joint ventures operations, which began in late 2005.
The equity in income of unconsolidated joint venture in 2008 was
affected by Countrywide KB Home Loans adoption of Staff
Accounting Bulletin No. 109, Written Loan
Commitments Recorded at Fair Value Through Earnings
(SAB No. 109) and 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). SAB No. 109
revises and rescinds portions of Staff Accounting Bulletin
No. 105, Application of Accounting Principles to Loan
Commitments (SAB No. 105), and
expresses the current view of the SEC that, consistent with the
guidance in Statement of Financial Accounting Standards
No. 156, Accounting for Servicing of Financial
Assets an amendment of FASB Statement
No. 140 (SFAS No. 156) and
SFAS No. 159, the expected net future cash flows
related to the associated servicing of loans should be included
in the measurement of the fair value of all written loan
commitments that are accounted for at fair value through
earnings. SFAS No. 159 permits entities to choose to
measure various financial instruments and certain other items at
fair value on a
contract-by-contract
basis. Under SFAS No. 159, Countrywide KB Home Loans
elected the fair value option for residential mortgage loans
held for sale that were originated subsequent to
February 29, 2008. As a result of Countrywide KB Home
Loans adoption of SAB No. 109 and
SFAS No. 159, our equity in income of unconsolidated
joint venture of the financial services segment increased by
$1.7 million in 2008.
INCOME
TAXES
We recognized income tax expense of $8.2 million in 2008,
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. These
amounts represent effective income tax rates of approximately
.8% for 2008, 3% for 2007 and 31% for 2006. The change in our
effective tax rate in 2008 from 2007 was primarily due to the
disallowance of tax benefits related to our current year loss as
a result of a full valuation allowance. The decrease in our
effective tax rate in 2007 from 2006 was primarily due to a
noncash valuation allowance recorded as a reserve against net
deferred tax assets.
In accordance with SFAS No. 109, we evaluate our
deferred tax assets quarterly to determine if valuation
allowances are required. SFAS No. 109 requires that
companies assess whether valuation allowances should be
established based on the consideration of all available evidence
using a more likely than not standard. For 2008, we
recorded a valuation allowance of $355.9 million against our net
deferred tax assets. The valuation allowance was reflected as a
noncash charge of $358.2 million to income tax expense and
a noncash benefit of $2.3 million to accumulated other
comprehensive loss (as a result of an adjustment made in
accordance with Statement of Financial Accounting
Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
37
88, 106 and 132(R) (SFAS No. 158)).
For 2007, we recorded a valuation allowance totaling
approximately $522.9 million against our deferred tax
assets. The valuation allowance was reflected as a noncash
charge of $514.2 million to income tax expense and
$8.7 million to accumulated other comprehensive loss. The
majority of the tax benefits associated with our net deferred
tax assets can be carried forward for 20 years and applied
to offset future taxable income. Our deferred tax assets for
which we did not establish a valuation allowance relate to
amounts that can be realized through future reversals of
existing taxable temporary differences or through carrybacks to
the 2007 and 2006 years. To the extent we generate
sufficient taxable income in the future to fully utilize the tax
benefits of the related deferred tax assets, we expect our
effective tax rate to decrease as the valuation allowance is
reversed.
DISCONTINUED
OPERATIONS
Discontinued operations consist 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 we recognized a pretax gain of $706.7 million
($438.1 million, net of income taxes) in the third quarter
of 2007 related to the transaction. The sale was made pursuant
to a share purchase agreement (the Share Purchase
Agreement), among us, Financière Gaillon 8 SAS (the
Purchaser), an affiliate of PAI partners, a European
private equity firm, and three of our wholly owned subsidiaries:
Kaufman and Broad Development Group, International Mortgage
Acceptance Corporation, and Kaufman and Broad International,
Inc. (collectively, the Selling Subsidiaries). Under
the Share Purchase Agreement, the Purchaser agreed to acquire
our 49% equity interest (representing 10,921,954 shares
held collectively by the Selling Subsidiaries) at a price of
55.00 euros per share. The purchase price consisted of 50.17
euros per share paid by the Purchaser in cash, and a cash
dividend of 4.83 euros per share paid by KBSA.
In 2007, income from discontinued operations, net of income
taxes, totaled $485.4 million, or $6.29 per diluted share,
including the gain realized on the sale of these operations.
Income from discontinued operations, net of income taxes,
totaled $89.4 million, or $1.08 per diluted share, in 2006.
LIQUIDITY
AND CAPITAL RESOURCES
Overview. Historically, we have funded our
homebuilding and financial services operations with internally
generated cash flows and external sources of debt and equity
financing. We may also borrow funds from time to time under our
Credit Facility.
In light of the prolonged downturn in the housing market, we
remain focused on maintaining a strong balance sheet. We took
several decisive actions in 2007 that resulted in substantial
cash flow generation and debt reductions, including selling our
French operations and other assets, reducing inventory and our
active community counts, reducing our workforce, consolidating
operations, and selectively exiting or winding down operations
in underperforming markets. During 2008, we remained committed
to our balance sheet initiatives and, as a result, generated
positive operating cash flows and ended the year with
$1.25 billion of cash and cash equivalents and restricted
cash and $1.94 billion of debt.
Capital Resources. At November 30, 2008,
we had $1.94 billion of mortgages and notes payable
outstanding compared to $2.16 billion outstanding at
November 30, 2007. The decrease in our debt balance was
mainly due to the early redemption of debt during the third
quarter of 2008. On July 14, 2008, we completed the early
redemption of the $300 Million Senior Subordinated Notes at
a price of 101.938% of the principal amount plus accrued
interest to the date of redemption. We incurred a loss of
$7.1 million in 2008 related to the early redemption of
debt, as a result of the call premium and the unamortized
original issue discount.
In managing our investments in unconsolidated joint ventures, we
expect in some cases, as occurred in 2008, to opportunistically
purchase our partners interests and consolidate the joint
venture, which would result in an increase in our consolidated
mortgages and notes payable. We do not believe that such
consolidations should have a material effect on our consolidated
financial position, our results of operations, or our ability to
comply with the terms governing our Credit Facility or public
debt. In the first fiscal quarter of 2009, we redeemed the
$200 Million Senior Subordinated Notes upon their
December 15, 2008 scheduled maturity. Our next bond
maturity does not occur until August 15, 2011, when
$350.0 million of
63/8% senior
notes (the $350 Million Senior Notes) become due.
38
Our financial leverage, as measured by the ratio of debt to
total capital, was 70.0% at November 30, 2008 compared to
53.9% at November 30, 2007. The increase in this ratio
reflected lower retained earnings at November 30, 2008,
primarily due to the pretax, noncash charges recorded during
2008 for the impairment of inventory, joint ventures and
goodwill, and the abandonment of land option contracts, as well
as a noncash charge to record a valuation allowance against the
net deferred tax assets generated during the period. Our ratio
of net debt to net total capital at November 30, 2008 was
45.4%, compared to 31.1% at November 30, 2007. Net debt to
net total capital is calculated by dividing mortgages and notes
payable, net of homebuilding cash and cash equivalents and
restricted cash, by net total capital (mortgages and notes
payable, net of homebuilding cash and cash equivalents and
restricted cash, plus stockholders equity). We believe the
ratio of net debt to net total capital is useful in
understanding the leverage employed in our operations and in
comparing us with other companies in the homebuilding industry.
As of November 30, 2008, we had no cash borrowings
outstanding and $211.8 million in letters of credit
outstanding under our Credit Facility, leaving us with
$588.2 million available for future borrowings.
On August 28, 2008, we entered into the Fifth Amendment to
the Credit Facility. The Fifth Amendment, among other things,
reduced the aggregate commitment under the Credit Facility from
$1.30 billion to $800.0 million and provided that the
aggregate commitment may be permanently reduced to:
(a) $650.0 million, if at the end of any fiscal
quarter our consolidated tangible net worth is less than or
equal to $800.0 million but greater than
$500.0 million, and (b) $500.0 million, if at the
end of any fiscal quarter our consolidated tangible net worth is
less than or equal to $500.0 million. In addition, the
Fifth Amendment reduced the sublimit for swing line loans from
$100.0 million to $60.0 million; reduced the sublimit
for the issuance of letters of credit from $1.00 billion to
$600.0 million; and reduced the amount of unrestricted cash
applied to the borrowing base calculation by the amount of
outstanding borrowings under the Credit Facility as of the
measurement date.
Under the terms of the Credit Facility, we are required, among
other things, to maintain a minimum consolidated tangible net
worth and certain financial statement ratios, and are subject to
limitations on acquisitions, inventories and indebtedness.
Specifically, the Credit Facility, requires us to maintain a
minimum consolidated tangible net worth of $1.00 billion,
reduced by the cumulative deferred tax valuation allowances not
to exceed $721.8 million (Permissible Deferred Tax
Valuation Allowances). The minimum consolidated tangible
net worth requirement is increased by the amount of the proceeds
from any issuance of capital stock and 50% of our cumulative
consolidated net income, before the effect of deferred tax
valuation allowances, for each quarter after May 31, 2008
where we have cumulative consolidated net income. There is no
decrease when we have cumulative consolidated net losses. At
November 30, 2008, our applicable minimum consolidated
tangible net worth requirement was $278.2 million.
Other financial statement ratios required under the Credit
Facility consist of maintaining at the end of each fiscal
quarter a Coverage Ratio greater than 1.00 to 1.00 and a
Leverage Ratio less than 2.00 to 1.00, 1.25 to 1.00, or 1.00 to
1.00, depending on our Coverage Ratio. The Coverage Ratio is the
ratio of our consolidated adjusted EBITDA to consolidated
interest expense (as defined under the Credit Facility) over the
previous 12 months. The Leverage Ratio is the ratio of our
consolidated total indebtedness (as defined under the Credit
Facility) to the sum of consolidated tangible net worth and
Permissible Deferred Tax Valuation Allowances (Adjusted
Consolidated Tangible Net Worth).
If our Coverage Ratio is less than 1.00 to 1.00, we will not be
in default under the Credit Facility if our Leverage Ratio is
less than 1.00 to 1.00 and we establish the Interest Reserve
Account equal to the amount of interest we incurred on a
consolidated basis during the most recent completed quarter,
multiplied by the number of quarters remaining until the Credit
Facility maturity date of November 2010, not to exceed a maximum
of four. We may withdraw all amounts deposited in the Interest
Reserve Account when our Coverage Ratio at the end of a fiscal
quarter is greater than or equal to 1.00 to 1.00, provided that
there is no default under the Credit Facility at the time the
amounts are withdrawn. An Interest Reserve Account is not
required when our actual Coverage Ratio is greater than or equal
to 1.00 to 1.00.
39
The following table summarizes certain key financial metrics we
are required to maintain under our Credit Facility at
November 30, 2008 and our actual ratios:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
|
Covenant
|
|
|
|
|
Financial Covenant
|
|
Requirement
|
|
|
Actual
|
|
|
Minimum consolidated tangible net worth
|
|
$
|
278.2 million
|
|
|
$
|
827.9 million
|
|
Coverage Ratio
|
|
|
(a)
|
|
|
|
(a)
|
|
Leverage Ratio (b)
|
|
|
≤1.00
|
|
|
|
.47
|
|
Investment in subsidiaries and joint ventures as a percent of
Adjusted Consolidated Tangible Net Worth
|
|
|
<35
|
%
|
|
|
15
|
%
|
Borrowing base in excess of senior indebtedness (as defined)
|
|
|
Greater than zero
|
|
|
$
|
825.0 million
|
|
|
|
|
(a) |
|
Our Coverage Ratio of negative .27 was less than 1.00 to 1.00 as
of November 30, 2008. Because our Leverage Ratio as of
August 31, 2008 was below 1.00 to 1.00, we established an
Interest Reserve Account of $115.4 million in the fourth
quarter of 2008 to remain in compliance with the terms of the
Credit Facility. The Interest Reserve Account had a balance of
$115.4 million at November 30, 2008. Because our
Leverage Ratio as of November 30, 2008 was below 1.00 to
1.00, we will continue to maintain the Interest Reserve Account,
but the balance will be reduced to $111.2 million in the
first quarter of 2009. |
|
(b) |
|
The Leverage Ratio requirement varies based on our Coverage
Ratio. If our Coverage Ratio is greater than or equal to 1.50 to
1.00, the Leverage Ratio requirement is less than 2.00 to 1.00.
If our Coverage Ratio is between 1.00 and 1.50 to 1.00, the
Leverage Ratio requirement is less than 1.25 to 1.00. If our
Coverage Ratio is less than 1.00 to 1.00, the Leverage Ratio
requirement is less than or equal to 1.00 to 1.00. |
The Credit Facility also contains limitations on the total
consideration paid for exchanges of capital stock with our
employees, unimproved land book value, investments in
subsidiaries and joint ventures, speculative home deliveries and
borrowing base requirements. Transactions with employees for
exchanges of capital stock, such as payments for incentive and
employee benefit plans or cashless exercises of stock options,
cannot exceed $5.0 million in any fiscal year. In addition
to the financial covenants summarized in the above table, other
covenants provide that: (a) the unimproved land book value
cannot exceed consolidated tangible net worth; and
(b) speculative home deliveries within a given quarter
cannot exceed 40% of the previous 12 months total
deliveries.
If our Coverage Ratio is less than 2.00 to 1.00, we are
restricted from optional payment or prepayment of principal,
interest or any other amount for subordinated obligations before
their maturity; payments to retire, redeem, purchase or acquire
for value shares of capital stock from or with non-employees;
and investments in a holder of 5% or more of our capital stock
if the purpose of the investment is to avoid default. These
restrictions do not apply if (a) our unrestricted cash
equals or exceeds the aggregate commitment; (b) there are
no outstanding borrowings against the Credit Facility; and
(c) there is no default under the Credit Facility.
The indenture governing our senior notes does not contain any
financial covenants. Subject to specified exceptions, the senior
notes indenture contains certain restrictive covenants that,
among other things, limit our ability to incur secured
indebtedness; engage in sale-leaseback transactions involving
property or assets above a certain specified value; or engage in
mergers, consolidations, or sales of assets.
As of November 30, 2008, we were in compliance with the
terms of our senior notes indenture and our Credit Facility.
However, our ability to continue to borrow funds depends in part
on our ability to remain in such compliance. Our inability to do
so could make it more difficult and expensive to maintain our
current level of external debt financing or to obtain additional
financing.
During the quarter ended February 29, 2008, our board of
directors declared a cash dividend of $.25 per share of common
stock, which was paid on February 21, 2008 to stockholders
of record on February 7, 2008. During the quarter ended
May 31, 2008, our board of directors declared a cash
dividend of $.25 per share of common stock, which was paid on
May 22, 2008 to stockholders of record on May 8, 2008,
and declared a cash dividend of $.25 per share of common stock,
which was paid on July 24, 2008 to stockholders of record
on July 10, 2008. During the quarter ended
November 30, 2008, our board of directors declared a cash
dividend of $.0625 per share of common stock, which was paid
40
on November 25, 2008 to shareholders of record on
November 14, 2008. During 2008, we have declared and paid
total cash dividends of $.8125 per share of common stock.
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, 2008, we had outstanding notes payable of
$96.4 million secured primarily by the underlying property,
which had a carrying value of $169.8 million.
Consolidated Cash Flows. Operating, investing
and financing activities used net cash of $202.2 million in
2008. These activities provided net cash of $539.6 million
in 2007 and $479.2 million in 2006.
Operating Activities. Operating activities
provided net cash flows of $341.3 million in 2008 and
$1.05 billion in 2007. The year-over-year change in
operating cash flow was primarily due to the $297.4 million
of cash provided by the French discontinued operations in 2007
and fewer
year-over-year
homes delivered and lower average selling prices in 2008. Our
sources of operating cash in 2008 included a net decrease in
inventories of $545.9 million (excluding inventory
impairments and land option contract abandonments,
$90.0 million of inventories acquired through seller
financing and a decrease of $143.1 million in consolidated
inventories not owned), other operating sources of
$32.6 million and various noncash items added to the net
loss. Partially offsetting the cash provided in 2008 was a net
loss of $976.1 million, a decrease in accounts payable,
accrued expenses and other liabilities of $282.8 million
and an increase in receivables of $60.6 million.
In 2007, operating cash provided by our continuing operations
included a net decrease in inventories of $779.9 million
(excluding inventory impairments and land option contract
abandonments, $4.1 million of inventories acquired through
seller financing and a decrease of $409.5 million in
consolidated inventories not owned), other operating sources of
$13.4 million and various noncash items added to the loss
from continuing operations. Partially offsetting the cash
provided in 2007 was a net loss of $929.4 million, a
decrease in accounts payable, accrued expenses and other
liabilities of $340.6 million and an increase in
receivables of $71.4 million. Our French discontinued
operations provided net cash from operating activities of
$297.4 million in 2007.
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 noncash 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.
Investing Activities. Investing activities
used net cash of $167.9 million in 2008 and provided net
cash of $643.1 million in 2007. In 2008,
$115.4 million of cash was used to establish the Interest
Reserve Account as required under the terms of our Credit
Facility (making it restricted cash), and $59.6 million was
used for investments in unconsolidated joint ventures. The cash
used in 2008 was partially offset by $7.1 million provided
from net sales of property and equipment. In 2007, continuing
operations provided cash of $739.8 million from the sale of
our French discontinued operations, net of cash divested, and
$.6 million was provided from net sales of property and
equipment. Partially offsetting the cash provided in the period
was $85.2 million used for investments in unconsolidated
joint ventures. Our French discontinued operations used net cash
of $12.1 million for investing activities in 2007.
In 2006, our continuing operations used cash for investing
activities, including $179.2 million for investments in
unconsolidated joint ventures and $17.6 million 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.
Financing Activities. Net cash used for
financing activities totaled $375.6 million in 2008 and
$1.15 billion in 2007. In 2008, cash was used for the
redemption of the $300 Million Senior Subordinated Notes,
dividend payments of $63.0 million, net payments on
short-term borrowings of $12.8 million and repurchases of
common stock of $1.0 million in connection with the
satisfaction of employee withholding taxes on vested restricted
stock. These uses of cash in 2008 were partly offset by
$7.0 million provided from the issuance of common stock
under our employee stock plans.
41
In 2007, our continuing operations used cash for the redemption
of the $400 Million Term Loan, which was scheduled to
mature on April 11, 2011, the redemption of the
$250 Million Senior Subordinated Notes, net payments
on short-term borrowings of $114.1 million, dividend
payments of $77.2 million, and repurchases of common stock
of $6.9 million in connection with the satisfaction of
employee withholding taxes on vested restricted stock. These
uses of cash were partly offset in 2007 by $12.3 million
provided from the issuance of common stock under our employee
stock plans and $.9 million of excess tax benefit
associated with the exercise of stock options. Our French
discontinued operations used net cash of $306.5 million for
financing activities in 2007.
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
71/4%
senior notes due 2018 (the $300 Million
71/4% 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 on short-term borrowings of $120.7 million and
dividend payments of $78.3 million. In 2006, our French
discontinued operations used net cash of $215.0 million for
financing activities.
Shelf Registration Statement. On
October 17, 2008, we filed an automatically effective
universal shelf registration statement (the 2008 Shelf
Registration) with the SEC, registering debt and equity
securities that we may issue from time to time in amounts to be
determined. Our previously outstanding universal shelf
registration filed with the SEC on November 12, 2004 (the
2004 Shelf Registration) was subsumed within the
2008 Shelf Registration. As of the date of this
Form 10-K,
we have not issued any securities under our 2008 Shelf
Registration.
Share Repurchase Program. At November 30,
2008, 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 2008.
In the present environment, we are carefully managing our use of
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, consistent with our marketing
strategies and investment standards, to construct homes, to
finance our financial services operations, and to meet any other
needs in the ordinary course of our business, both on a short-
and long-term basis. Although we anticipate that our asset
acquisition and development activities will remain limited in
the near term until markets stabilize, we are analyzing
potential asset acquisitions and will use our present financial
strength to acquire assets in good, long-term markets when the
prices, timing and strategic fit are compelling.
OFF-BALANCE
SHEET ARRANGEMENTS
We participate in unconsolidated joint ventures that conduct
land acquisition, development
and/or other
homebuilding activities in various markets, typically where our
homebuilding operations are located. Our partners in these
unconsolidated joint ventures are unrelated homebuilders, land
developers and other real estate entities, or commercial
enterprises. Through unconsolidated joint ventures, we seek to
reduce and share market and development risks and to reduce our
investment in land inventory, while potentially increasing the
number of homesites we own or control. In some instances,
participating in unconsolidated joint ventures enables us to
acquire and develop land that we might not otherwise have access
to due to a projects size, financing needs, duration of
development or other circumstances. While we view our
participation in unconsolidated joint ventures as beneficial to
our homebuilding activities, we do not view such participation
as essential.
We and/or
our unconsolidated joint venture partners typically obtain
options or enter into other arrangements to purchase portions of
the land held by the unconsolidated joint ventures. The prices
for these land options are generally negotiated prices that
approximate fair value. When an unconsolidated joint venture
sells land to our homebuilding operations, we defer recognition
of our share of such unconsolidated joint venture earnings until
a home sale is closed and title passes to a homebuyer, at which
time we account for those earnings as a reduction of the cost of
purchasing the land from the unconsolidated joint venture.
42
We and our unconsolidated joint venture partners make initial or
ongoing capital contributions to these unconsolidated joint
ventures, typically on a pro rata basis. The obligation to make
capital contributions is governed by each unconsolidated joint
ventures respective operating agreement.
Each unconsolidated joint venture maintains financial statements
in accordance with U.S. generally accepted accounting
principles. We share in profits and losses of these
unconsolidated joint ventures generally in accordance with our
respective equity interests. Our investment in these
unconsolidated joint ventures totaled $177.6 million at
November 30, 2008 and $297.0 million at
November 30, 2007. These unconsolidated joint ventures had
total assets of $1.26 billion at November 30, 2008 and
$2.51 billion at November 30, 2007. We expect our
investments in unconsolidated joint ventures to continue to
decrease over time and are reviewing each investment to ensure
it fits into our current overall strategic plans and business
objectives.
The unconsolidated joint ventures finance land and inventory
investments through a variety of arrangements. To finance their
respective land acquisition and development activities, many of
our unconsolidated joint ventures have obtained loans from
third-party lenders that are secured by the underlying property
and related project assets. Unconsolidated joint ventures had
outstanding debt, substantially all of which was secured, of
approximately $871.3 million at November 30, 2008 and
$1.54 billion at November 30, 2007. The unconsolidated
joint ventures are subject to various financial and
non-financial covenants in conjunction with their debt,
primarily related to equity maintenance, fair value of
collateral and minimum land purchase or sale requirements within
a specified period. In a few instances, the financial covenants
are based on our financial position.
In certain instances, we
and/or our
partner(s) in an unconsolidated joint venture provide guarantees
and indemnities to the unconsolidated joint ventures
lenders that may include one or more of the following:
(a) a completion guaranty; (b) a loan-to-value
maintenance guaranty;
and/or
(c) a carve-out guaranty. A completion guaranty refers to
the physical completion of improvements for a project
and/or the
obligation to contribute equity to an unconsolidated joint
venture to enable it to fund its completion obligations. A
loan-to-value maintenance guaranty refers to the payment of
funds to maintain the applicable loan balance at or below a
specific percentage of the value of an unconsolidated joint
ventures secured collateral (generally land and
improvements). A carve-out guaranty refers to the payment of
(i) losses a lender suffers due to certain bad acts or
omissions by an unconsolidated joint venture or its partners,
such as fraud or misappropriation, or due to environmental
liabilities arising with respect to the relevant project, or
(ii) outstanding principal and interest and certain other
amounts owed to lenders upon the filing by an unconsolidated
joint venture of a voluntary bankruptcy petition or the filing
of an involuntary bankruptcy petition by creditors of the
unconsolidated joint venture in which an unconsolidated joint
venture or its partners collude or which the unconsolidated
joint venture fails to contest.
In most cases, our maximum potential responsibility under these
guarantees and indemnities is limited to either a specified
maximum dollar amount or an amount equal to our pro rata
interest in the relevant unconsolidated joint venture. In a few
cases, we have entered into agreements with our unconsolidated
joint venture partners to be reimbursed or indemnified with
respect to the guarantees we have provided to an unconsolidated
joint ventures lenders for any amounts we may pay pursuant
to such guarantees above our pro rata interest in the
unconsolidated joint venture. If our unconsolidated joint
venture partners are unable to fulfill their reimbursement or
indemnity obligations, or otherwise fail to do so, we could
incur more than our allocable share under the relevant guaranty.
Should there be indications that advances (if made) will not be
voluntarily repaid by an unconsolidated joint venture partner
under any such reimbursement arrangements, we vigorously pursue
all rights and remedies available to us under the applicable
agreements, at law or in equity to enforce our reimbursement
rights.
Our potential responsibility under our completion guarantees, if
triggered, is highly dependent on the facts of a particular
case. In any event, we believe our actual responsibility under
these guarantees is limited to the amount, if any, by which an
unconsolidated joint ventures outstanding borrowings
exceed the value of its assets, but may be substantially less
than this amount.
At November 30, 2008, our potential responsibility under
our loan-to-value maintenance guarantees totaled approximately
$45.4 million, if any liability were determined to be due
thereunder. This amount represents our maximum responsibility
under such loan-to-value maintenance guarantees assuming the
underlying collateral has no value and without regard to
defenses that could be available to us against attempted
enforcement of such guarantees.
43
Notwithstanding these potential responsibilities, at this time
we do not believe that our exposure under our existing
completion, loan-to-value and carve-out guarantees and
indemnities related to unconsolidated joint venture debt is
material to our consolidated financial position or results of
operations.
Recently, the lenders for two of our unconsolidated joint
ventures filed lawsuits against some of the unconsolidated joint
ventures members, and certain of those members
parent companies, seeking to recover damages under completion
guarantees, among other claims. We and the other parent
companies, together with the members, are defending the lawsuits
in which they have been named. We do not believe that these
lawsuits will have a material impact on our consolidated
financial position or results of operations.
In addition to the above-described guarantees and indemnities,
we have also provided a several guaranty to the lenders of one
of our unconsolidated joint ventures. By its terms, the guaranty
purports to guarantee the repayment of principal and interest
and certain other amounts owed to the unconsolidated joint
ventures lenders when an involuntary bankruptcy proceeding
is filed against the unconsolidated joint venture that is not
dismissed within 60 days or for which an order approving
relief under bankruptcy law is entered, even if the
unconsolidated joint venture or its partners do not collude in
the filing and the unconsolidated joint venture contests the
filing. Our potential responsibility under this several guaranty
fluctuates with the outstanding borrowings against the
unconsolidated joint ventures debt and with us and our
partners respective land purchases from the unconsolidated
joint venture. At November 30, 2008, this unconsolidated
joint venture had total outstanding indebtedness of
approximately $373.9 million and, if this guaranty were
then enforced, our maximum potential responsibility under the
guaranty would have been approximately $182.7 million,
which amount does not account for any offsets or defenses that
could be available to us. This unconsolidated joint venture has
received notices from its lenders administrative agent
alleging a number of defaults under its loan agreement. We are
currently exploring resolutions with the lenders, the
lenders administrative agent and our unconsolidated joint
venture partners, but there is no assurance that we will reach a
satisfactory resolution with all of the parties involved.
Certain of our other unconsolidated joint ventures operating in
difficult market conditions are in default of their debt
agreements with their lenders or are at risk of defaulting. In
addition, certain of our unconsolidated joint venture partners
have curtailed funding of their allocable joint venture
obligations. We are carefully managing our investments in these
particular unconsolidated joint ventures and are working with
the relevant lenders and unconsolidated joint venture partners
to reach satisfactory resolutions. In some instances, we may
decide to opportunistically purchase our partners
interests and would consolidate the joint venture, which would
result in an increase in our consolidated mortgages and notes
payable. However, such purchases may not resolve a claimed
default by the joint venture under its debt agreements.
Additionally, we may seek new equity partners to participate in
our unconsolidated joint ventures or, based on market conditions
and other strategic considerations, may decide to withdraw from
an unconsolidated joint venture and allow the unconsolidated
joint ventures lenders to exercise their remedies with
respect to the underlying collateral (subject to any relevant
defenses available to us). Based on the terms and amounts of the
debt involved for these particular unconsolidated joint ventures
and the terms of the applicable joint venture operating
agreements, we do not believe that our exposure related to any
defaults by or with respect to these particular unconsolidated
joint ventures is material to our consolidated financial
position or results of operations.
In the ordinary course of our business, we enter into land
option contracts to procure land for the construction of homes.
The use of such land option contracts generally allows us to
reduce the risks associated with direct land ownership and
development, reduces our capital and financial commitments,
including interest and other carrying costs, and minimizes the
amount of our land inventories on our consolidated balance
sheet. Under such land option contracts, we will pay a specified
option deposit or earnest money deposit in consideration for the
right to purchase land in the future, usually at a predetermined
price. Under the requirements of FASB Interpretation
No. 46(R), 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 as a result 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 VIEs in which we were
determined to be the primary beneficiary increased our
44
inventories, with a corresponding increase to accrued expenses
and other liabilities, on our consolidated balance sheets by
$15.5 million at November 30, 2008 and
$19.0 million at November 30, 2007. 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 $3.4 million at November 30,
2008 and $4.7 million at November 30, 2007. Creditors,
if any, of these VIEs have no recourse against us. As of
November 30, 2008, excluding consolidated VIEs, we had cash
deposits totaling $29.7 million, which were associated with
land option contracts having an aggregate purchase price of
$533.2 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, as a result of our
evaluations, increased inventories, with a corresponding
increase to accrued expenses and other liabilities, on our
consolidated balance sheets by $81.5 million at
November 30, 2008 and $221.1 million at
November 30, 2007.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table summarizes our future cash requirements
under contractual obligations as of November 30, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
Thereafter
|
|
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,941,537
|
|
|
$
|
279,522
|
|
|
$
|
365,754
|
|
|
$
|
|
|
|
$
|
1,296,261
|
|
Interest
|
|
|
643,579
|
|
|
|
112,813
|
|
|
|
201,867
|
|
|
|
163,750
|
|
|
|
165,149
|
|
Operating lease obligations
|
|
|
61,743
|
|
|
|
18,957
|
|
|
|
26,317
|
|
|
|
11,712
|
|
|
|
4,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,646,859
|
|
|
$
|
411,292
|
|
|
$
|
593,938
|
|
|
$
|
175,462
|
|
|
$
|
1,466,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are often required to obtain performance bonds and letters of
credit in support of our obligations to various municipalities
and other government agencies in connection with subdivision
improvements such as roads, sewers and water. At
November 30, 2008, we had $761.1 million of
performance bonds and $211.8 million of letters of credit
outstanding. At November 30, 2007, we had
$1.08 billion of performance bonds and $296.8 million
of letters of credit outstanding. In the event any such
performance bonds or letters of credit are called, we would be
obligated to reimburse the issuer of the performance bond or
letter of credit. At this time, we do not believe that a
material amount of any currently outstanding performance bonds
or letters of credit will be called. Performance bonds do not
have stated expiration dates. Rather, we are released from the
performance bonds as the contractual performance is completed.
The expiration dates of letters of credit issued in connection
with subdivision improvements 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.
CRITICAL
ACCOUNTING POLICIES
Discussed below are accounting policies that we believe are
critical because of the significance of the activity to which
they relate or because they require the use of significant
judgment in their application.
Homebuilding Revenue Recognition. As discussed
in Note 1. Summary of Significant Accounting Policies in
the Notes to Consolidated Financial Statements in this
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,
land and housing inventories are stated at cost, unless the
carrying amount is determined not to be recoverable, in which
case the inventories are written down to fair value in
accordance with SFAS No. 144. Fair value is determined
based on estimated future cash flows discounted for inherent
risks associated with the real estate assets, or other valuation
techniques. Due to uncertainties in the estimation process, it
is possible that actual
45
results could differ from those estimates. Our inventories
typically do not consist of completed projects. However, order
cancellations may result in our having a relatively small amount
of inventory of constructed or partially constructed unsold
homes.
We rely on certain estimates to determine our construction and
land costs and resulting gross margins associated with revenues
recognized. Construction and land costs are comprised of direct
and allocated costs, including estimated future costs for
warranties and amenities. Land, land improvements and other
common costs are generally allocated on a relative fair value
basis to homes within a parcel or community. Land and land
development costs include related interest and real estate taxes.
In determining a portion of the construction and land costs for
each period, we rely on project budgets that are based on a
variety of assumptions, including future construction schedules
and costs to be incurred. It is possible that actual results
could differ from budgeted amounts for various reasons,
including construction delays, labor or materials shortages,
increases in costs that have not yet been committed, changes in
governmental requirements, unforeseen environmental hazard
discoveries or other unanticipated issues encountered during
construction. While the actual results for a particular
construction project are accurately reported over time,
variances between the budgeted and actual costs of a project
could result in the understatement or overstatement of
construction and land costs and homebuilding gross margins in a
specific reporting period. To reduce the potential for such
distortion, we have set forth procedures that collectively
comprise a critical accounting policy. These
procedures, which we have applied on a consistent basis, include
updating, assessing and revising project budgets on a monthly
basis, obtaining commitments from subcontractors and vendors for
future costs to be incurred, reviewing the adequacy of warranty
accruals and historical warranty claims experience, and
utilizing the most current information available to estimate
construction and land costs to be charged to expense. The
variances between budgeted and actual costs have historically
not had a material impact on our consolidated results of
operations. We believe that our policies provide for reasonably
dependable estimates to be used in the calculation and reporting
of construction and land costs.
Inventory Impairments and Abandonments. As
discussed in Note 6. Inventory Impairments and Abandonments
in the Notes to Consolidated Financial Statements in this
Form 10-K,
each parcel or community in our owned inventory is assessed to
determine if indicators of potential impairment exist. If
indicators of potential impairment exist for a parcel or
community, the identified inventory is evaluated for
recoverability in accordance with SFAS No. 144.
Impairment indicators are assessed separately for each parcel or
community on a quarterly basis and include, but are not limited
to: significant decreases in sales rates, average selling
prices, volume of homes delivered 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, we test the asset for recoverability by comparing
the carrying amount of the asset to the undiscounted future net
cash flows expected to be generated by the asset. The
undiscounted future net cash flows are impacted by our
expectations related to: market supply and demand, including
estimates concerning average selling prices; sales incentives;
sales and cancellation rates; and anticipated land development,
construction and overhead costs to be incurred. These estimates
are specific to each community and may vary among communities.
A real estate asset is considered impaired when its carrying
amount is greater than the undiscounted future net cash flows
the asset is expected to generate. Impaired real estate assets
are written down to fair value, which is primarily based on the
estimated future cash flows discounted for inherent risk
associated with each asset. These discounted cash flows are
impacted by: the risk-free rate of return; expected risk premium
based on estimated land development, construction and delivery
timelines; market risk from potential future price erosion; cost
uncertainty due to development or construction cost increases;
and other risks specific to the asset or conditions in the
market in which the asset is located at the time the assessment
is made. These factors are specific to each community and may
vary among communities.
Our optioned inventory is assessed to determine whether it
continues to meet our internal investment standards. Assessments
are made separately for each optioned parcel on a quarterly
basis and are affected by, among other factors: current
and/or
anticipated sales rates, average selling prices, home delivery
volume and gross margins; estimated land development and
construction costs; and projected profitability on expected
future housing or land sales. When a decision is made not to
exercise certain land option contracts due to market conditions
and/or
changes in market strategy, we write off the costs, including
non-refundable deposits and pre-acquisition costs, related to
the abandoned projects.
The value of the land and housing inventory we currently own or
control depends on market conditions, including estimates of
future demand for, and the revenues that can be generated from,
such inventory. We have analyzed trends and
46
other information related to each of the markets where we do
business and have incorporated this information as well as our
current outlook into the assumptions we use in our impairment
analyses. Due to the judgment and assumptions applied in the
estimation process with respect to impairments and land option
contract abandonments, it is possible that actual results could
differ substantially from those estimated.
We believe the carrying value of our remaining inventory is
currently recoverable. However, if conditions in the housing
market worsen in the future beyond our current expectations, or
if future changes in our marketing strategy significantly affect
any key assumptions used in our fair value calculations, we may
need to take additional charges in future periods for inventory
impairments or land option contract abandonments, or both,
related to existing assets. Any such noncash charges would have
an adverse effect on our consolidated financial position and
results of operations and may be material.
Warranty Costs. As discussed in Note 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, plumbing and other building systems each
varying from two to five years based on geographic market and
state law, and a warranty of one year for other components of
the home. We estimate the costs that may be incurred under each
limited warranty and record a liability in the amount of such
costs at the time the revenue associated with the sale of each
home is recognized. 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, which are included in accrued expenses and other
liabilities in the consolidated balance sheets, and adjust the
amounts as necessary based on our assessment. While we believe
the warranty accrual reflected in the consolidated balance
sheets to be adequate, 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.
Insurance. As disclosed in Note 1.
Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements in this
Form 10-K,
we have, and require the majority of our subcontractors 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 related to our homebuilding activities, 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 based on the costs required to cover
our self-insured retention and deductible amounts under our
insurance policies, and on the estimated costs of potential
claims and claim adjustment expenses above our coverage limits
or not covered by our policies. These estimated costs are based
on an analysis of our historical claims and include an estimate
of construction defect claims incurred but not yet reported. 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 self-insured portion of our general
liability insurance. 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 product 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.
47
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. Goodwill represents the excess of
the purchase price over the fair value of net assets acquired.
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. We evaluate 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. In accordance with SFAS No. 142,
we have determined that our reporting units are the same as our
reporting segments. Accordingly, we have four homebuilding
reporting units (West Coast, Southwest, Central and Southeast)
and one financial services reporting unit.
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 our
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 whether existing goodwill
is impaired could change and result in a material effect on our
consolidated financial position or results of operations.
In performing our impairment analysis, we developed a range of
fair values for our homebuilding and financial services
reporting units using a discounted cash flow methodology and a
market multiple methodology. For the financial services
reporting unit, we also used a comparable transaction
methodology.
The discounted cash flow methodology establishes fair value by
estimating the present value of the projected future cash flows
to be generated from the reporting unit. The discount rate
applied to the projected future cash flows to arrive at the
present value is intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future
cash flows. The discounted cash flow methodology uses our
projections of financial performance for a five-year period. The
most significant assumptions used in the discounted cash flow
methodology are the discount rate, the terminal value and
expected future revenues, gross margins and operating margins,
which vary among reporting units.
The market multiple methodology establishes fair value by
comparing us to other publicly traded companies that are similar
to us from an operational and economic standpoint. The market
multiple methodology compares us to the comparable companies on
the basis of risk characteristics in order to determine our risk
profile relative to the comparable companies as a group. This
analysis generally focuses on quantitative considerations, which
include financial performance and other quantifiable data, and
qualitative considerations, which include any factors which are
expected to impact future financial performance. The most
significant assumptions affecting the market multiple
methodology are the market multiples and control premium. The
market multiples we use are: a) price to net book value and
b) enterprise value to revenue (for each of the
homebuilding reporting units). A control premium represents the
value an investor would pay above minority interest transaction
prices in order to obtain a controlling interest in the
respective company. The comparable transaction methodology
establishes fair value similar to the market multiple
methodology, utilizing recent transactions within the industry
as the market multiple. However, no control premium is applied
when using the comparable transaction methodology because these
transactions represent control transactions.
Based on the results of our impairment evaluation performed in
the second quarter of 2008, we recorded an impairment charge of
$24.6 million in that quarter related to our Central
reporting segment, where all of the goodwill previously recorded
was determined to be impaired. The annual goodwill impairment
test we performed as of November 30, 2008 resulted in an
impairment charge of $43.4 million in the fourth quarter of
2008 related to our Southeast reporting segment, where all of
the goodwill previously recorded was determined to be impaired.
Based on the results of our impairment evaluation performed in
the third quarter of 2007, we recorded an impairment charge of
$107.9 million in that quarter related to our Southwest
reporting segment, where all of the goodwill previously recorded
was determined to be impaired. The annual goodwill impairment
test we performed as of November 30, 2007 indicated no
additional impairment. The goodwill impairment charges in 2008
and 2007 were recorded at our corporate level because all
goodwill is carried at that level. As a result of these
impairment charges, we have no remaining goodwill company-wide
at November 30, 2008.
48
Income Taxes. As discussed in Note 1.
Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements in this
Form 10-K,
we account for income taxes 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, we assess whether a
valuation allowance should be established based on our
determination of whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets depends
primarily on the generation of future taxable income during the
periods in which those temporary differences become deductible.
Judgment is required in determining the future tax consequences
of events that have been recognized in our consolidated
financial statements
and/or tax
returns. Differences between anticipated and actual outcomes of
these future tax consequences could have a material impact on
our consolidated financial position or results of operations.
As discussed in Note 17. Income Taxes in the Notes to
Consolidated Financial Statements in this
Form 10-K,
we implemented the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No.
109 (FASB Interpretation No. 48), effective
December 1, 2007. The cumulative effect of the adoption of
FASB Interpretation No. 48 was recorded in 2008 as a
$2.5 million reduction to beginning retained earnings. In
accordance with the provisions of FASB Interpretation
No. 48, we recognized, in our consolidated financial
statements, the impact of a tax position if a tax returns
position or future tax position is more likely than
not to prevail (defined as a likelihood of more than 50%
of being sustained upon audit, based on the technical merits of
the tax position).
We recognize accrued interest and penalties related to
unrecognized tax benefits in our consolidated financial
statements as a component of the income tax provision consistent
with our historical accounting policy. Our liability for
unrecognized tax benefits, combined with accrued interest and
penalties, is reflected as a component of accrued expenses and
other liabilities in our consolidated balance sheets.
Prior to the adoption of FASB Interpretation No. 48, we
applied Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies,
(SFAS No. 5), to assess and provide for
potential income tax exposures. In accordance with
SFAS No. 5, we maintained reserves for tax
contingencies based on reasonable estimates of the tax
liabilities, interest, and penalties (if any) that may result
from such audits. FASB Interpretation No. 48 substantially
changes the applicable accounting model and is likely to cause
greater volatility in our consolidated statements of operations
and effective tax rates as more items are specifically
recognized
and/or
derecognized within income tax expense.
RECENT
ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(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. In February 2008, the FASB issued FASB Staff
Position No.
FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP No. FAS
157-2),
which delayed for one year the applicability of
SFAS No. 157s fair value measurements to certain
nonfinancial assets and liabilities. We adopted
SFAS No. 157 in 2008, except as it applies to those
nonfinancial assets and liabilities affected by the one-year
delay. The partial adoption of SFAS No. 157 did not
have a material impact on our consolidated financial position or
results of operations. While we are currently evaluating the
impact of adopting the remaining provisions of
SFAS No. 157, we do not expect SFAS No. 157 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. SFAS No. 141(R) is effective for
fiscal years beginning after December 15, 2008 and
49
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.
In May 2008, the FASB issued Statement of Financial Accounting
Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles
(SFAS No. 162). SFAS No. 162
identifies the sources of accounting principles and the
framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted
accounting principles in the United States. We do not expect the
adoption of SFAS No. 162 to have a material impact on
our consolidated financial position or results of operations.
In May 2008, the FASB issued Statement of Financial Accounting
Standards No. 163, Accounting for Financial Guarantee
Insurance Contracts an interpretation of FASB
Statement No. 60
(SFAS No. 163). SFAS No. 163
clarifies how Statement of Financial Accounting Standards
No. 60, Accounting and Reporting by Insurance
Enterprises (SFAS No. 60) applies to
financial guarantee insurance contracts, including the
recognition and measurement of premium revenue and claim
liabilities. SFAS No. 163 also requires expanded
disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for financial statements
issued for fiscal years and interim periods beginning after
December 15, 2008. We are currently evaluating the
potential impact of adopting SFAS No. 163 on our
consolidated financial position and results of operations.
In June 2008, the FASB issued FASB Staff Position No. EITF
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP No.
EITF 03-6-1).
Under FSP No.
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. FSP No.
EITF 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years and requires retrospective application. We
are currently evaluating the impact of adopting FSP No.
EITF 03-6-1
on our earnings per share.
In October 2008, the FASB issued FASB Staff Position
No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market For That Asset Is Not Active (FSP No.
FAS 157-3).
FSP No.
FAS 157-3
clarifies the application of SFAS No. 157 in a market
that is not active. FSP No.
FAS 157-3
became effective upon issuance, including prior periods for
which financial statements have not been issued. Our adoption of
FSP No.
FAS 157-3
did not have a material impact on our consolidated financial
position or results of operations.
In December 2008, the FASB issued FASB Staff Position
No. FAS 140-4
and
FIN 46-(R)-8,
Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest
Entities (FSP
No. FAS 140-4
and FIN 46(R)-8). FSP
No. FAS 140-4
and FIN 46(R)-8 amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (SFAS No.
140), to require public entities to provide additional
disclosures about transfers of financial assets. It also amends
FASB Interpretation No. 46(R), to require public
enterprises, including sponsors that have a variable interest in
a VIE, to provide additional disclosures about their involvement
with VIEs. FSP
No. FAS 140-4
and FIN 46(R)-8 is related to disclosure only and will not
have an impact on our consolidated financial position or results
of operations.
OUTLOOK
At November 30, 2008, our backlog of new home orders
totaled 2,269 homes, a decrease of 64% from the 6,322 homes in
backlog at November 30, 2007. Our backlog at
November 30, 2008 represented projected future housing
revenues of approximately $521.4 million, down 65% from
approximately $1.50 billion at November 30, 2007. The
50
substantially lower backlog of homes and projected future
housing revenues at the end of our 2008 fiscal year compared to
the prior year-end was due to the combined impact over the past
several quarters of negative year-over-year net order results,
lower average selling prices, and our strategic initiatives to
reduce our inventory and active community counts to better align
with diminished housing market activity. In 2008, our average
active community count was 38% lower than in 2007.
Our lower active community count also reduced our operating
results in the fourth quarter of 2008 compared to the
year-earlier quarter. Our homebuilding operations generated
1,296 net orders in the fourth quarter of 2008, down 50%
from the 2,574 net orders generated in the corresponding
quarter of 2007. Our net orders in the fourth quarter of 2008
were also reduced by our transition to new, value-engineered
product, which disrupted sales activity as some communities were
temporarily shut down and other communities experienced a lag in
orders while discontinuing current product offerings, and by
continued weakness in demand for new housing.
Conditions in the housing sector continued to decline throughout
2008, accelerating in the second half of the year with the sharp
decline in the general economy. A deteriorating economy and
turbulent financial and credit markets further eroded consumer
confidence, increased unemployment and foreclosures and caused
credit standards for homebuyers to tighten further. As a result,
although home prices and mortgage rates fell substantially
during 2008, improving affordability, many potential homebuyers
remain reluctant or are unable to commit to a new home purchase.
There are several reasons for their reluctance, including an
inability to obtain adequate financing; an inability to sell
their existing home at a perceived fair price or at a price that
covers their existing mortgage; anxiety about current economic
conditions or employment prospects; or expectations that home
prices will fall further or that greater incentives will be
offered by home sellers given the persistent oversupply in many
markets.
As we enter 2009, the U.S. economy remains in a severe
recession and the homebuilding industry faces even greater
adverse pressures than at the beginning of 2008. Affordability,
wavering buyer confidence and significantly tighter mortgage
lending standards, coupled with a considerable oversupply of new
and existing homes for sale (boosted by foreclosures), continue
to weigh on the housing market and may cause further
deterioration in operating conditions and sales results.
Meanwhile, it remains uncertain when the housing market or the
broader economy will experience a meaningful recovery.
Recent actions taken or under consideration by the federal
government designed to boost housing demand could soften the
impact of the recession. Nonetheless, it is very likely that key
housing metrics, including starts, new home sales and existing
home sales, will continue to weaken in 2009. We therefore
expect fierce price competition to persist well into 2009
and margins to remain under pressure throughout the year. This
could lead to more inventory impairments and land option
contract abandonments, though potentially smaller in magnitude.
Given the volatile trends and uncertain economic conditions
clouding the housing markets, and our current backlog levels, we
have limited ability to forecast our 2009 consolidated operating
and financial results. As of the date of this
Form 10-K,
we expect poor demand for, and the substantial oversupply of,
housing to continue, sustaining the sharply reduced home sales
volumes and severe downward pricing pressures that we and our
industry have experienced since the second half of 2006,
compared to the first half of this decade.
While there are many significant factors that we cannot control,
we intend to navigate the present housing market and general
economic downturn by remaining focused on improving areas within
our control and on achieving further progress on three primary
goals: maintaining a strong cash position and balance sheet;
restoring our homebuilding operations to profitability; and
positioning our business to capitalize on a housing market
recovery when it occurs. Consistent with these goals, in the
past two years we have: (i) built up and conserved our
cash, ending 2008 with a substantial cash balance of
$1.25 billion, including $115.4 million of restricted
cash in the Interest Reserve Account, and no cash borrowings
under our Credit Facility; (ii) reduced our inventory and
active community counts, consolidated operations and cut
overhead costs in many markets, while selectively exiting or
winding down activity in others; and (iii) introduced new
products designed to meet consumers needs, tastes and
affordability concerns. Our key business strategies and plans
for 2009 will continue to reflect these priorities, and we
expect to be cash flow positive and to have no outstanding cash
borrowings under our Credit Facility during the year.
Our highest priority as we move ahead is to increase our margins
and restore the profitability of our homebuilding operations. In
the near term, our focus on margins and profitability will mean
selling the right product at the right price, with the right
marketing strategy, for each individual served market, and
maintaining our presence in those markets that
51
we believe will provide the best operating platform to drive
future growth. It also means continuing to reduce our costs and
to operate more efficiently in accordance with the principles of
our KBnxt operational business model.
Consistent with our near-term focus on offering the right
product at the right price, we accelerated a product transition
strategy in the second half of 2008, introducing in particular
communities new, value-engineered product with more affordable
standard features that are more cost-effective to build and can
be offered at lower base selling prices compared to prior
product offerings. The reengineered product, which we refer to
as The Open
Seriestm,
is designed to meet the demands of our core first-time
homebuyers in the current market environment by offering greater
design choices than the product it is replacing and price points
for consumers at or near median income levels. At the same time,
it gives homebuyers more flexibility and options to customize a
home to meet their own tastes and budget. We are continuing to
roll out the reengineered product and expect to have more
communities fully transitioned to The Open Series in 2009. We
believe our product transition strategy, when fully implemented,
will have a positive impact on our margins and net orders in
future periods. However, we expect that the implementation
process will temporarily depress our sales and margins for
transitioning communities in 2009, reflecting a lag between
discontinuing prior product and bringing the new product online,
and will reduce our year-over-year results of operations for
that period.
During 2008, we continued our aggressive steps to streamline our
organizational structure to reduce costs in proportion to our
revenues. We expect these changes to produce tangible benefits,
in the form of selling, general and administrative expense
reductions, in future quarters. In making these adjustments, we
have selectively maintained operations in key served markets and
have made investments that we believe will enable us to
prudently and effectively expand our operations when market
conditions improve. In 2009, we will maintain our focus on
bringing our costs in line with our revenues and preserving a
solid foundation for growth as market conditions become more
favorable.
We will continue to assess and re-assess our geographic
footprint, seeking optimal volume levels at which to operate,
and adjusting our community counts and product mix to maximize
financial performance. We expect to continue to operate with
fewer active communities and to remain conservative in our asset
acquisition and development activities until we see reasonable
signs of a housing market recovery, though we remain alert to
potential new opportunities. As a result, we expect our delivery
volume and corresponding revenues to remain at reduced levels in
2009 and, if market conditions decline further, we may need to
take additional noncash charges for inventory and joint venture
impairments and land option contract abandonments. In addition,
our 2009 results could be adversely affected if general economic
conditions continue to deteriorate, if job losses accelerate, if
foreclosures increase, if consumer mortgage lending becomes less
available or more expensive, or if consumer confidence remains
weak or declines further, any or all of which could further
delay a recovery in housing markets or result in further
deterioration of operating conditions and our financial results.
In light of the current recession, conditions in the housing
market and the overall economy are likely to deteriorate further
before they improve. We continue to believe that a meaningful
improvement in housing market conditions will require a
sustained decrease in unsold homes, price stabilization, reduced
foreclosure rates, and the restoration of consumer and credit
market confidence that will support a decision to buy a home.
While we cannot predict when these events will occur, based in
large part on the aggressive actions we have taken over the past
two years, we believe we are well-positioned financially and
strategically to weather the current downturn and to capitalize
on potential future opportunities for growth in the expected
near-term housing market environment. Longer term, we believe
favorable demographics, population growth and the continuing
desire for home ownership will drive demand for new homes in our
served markets, and that our operating approach and financial
resources will allow us to capitalize on opportunities in those
markets as they emerge.
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
52
earnings per share, or growth or growth rates), future market
conditions, future interest rates, and other economic
conditions, ongoing business strategies or prospects, future
dividends and changes in dividend levels, the value of backlog
(including amounts that we expect to realize upon delivery of
homes included in backlog and the timing of those deliveries),
potential future acquisitions and the impact of completed
acquisitions, future share repurchases and possible future
actions, which may be provided by us, are also forward-looking
statements as defined by the Act. Forward-looking statements are
based on current expectations and projections about future
events and are subject to risks, uncertainties, and assumptions
about our operations, economic and market factors, and the
homebuilding industry, among other things. These statements are
not guarantees of future performance, and we have no specific
policy or intention to update these statements.
Actual events and results may differ materially from those
expressed or forecasted in the forward-looking statements due to
a number of factors. The most important risk factors that could
cause our actual performance and future events and actions to
differ materially from such forward-looking statements include,
but are not limited to: general economic and business
conditions; adverse market conditions that could result in
additional impairments or abandonment charges and operating
losses, including an oversupply of unsold homes and declining
home prices, among other things; conditions in the capital and
credit markets (including consumer mortgage lending standards,
the availability of consumer mortgage financing and mortgage
foreclosure rates); material prices and availability; labor
costs and availability; changes in interest rates; inflation;
our debt level; declines in consumer confidence; increases in
competition; weather conditions, significant natural disasters
and other environmental factors; government actions and
regulations directed at or affecting the housing market, the
homebuilding industry, or construction activities; the
availability and cost of land in desirable areas; legal or
regulatory proceedings or claims; the ability and/or willingness
of participants in our unconsolidated joint ventures to fulfill
their obligations; our ability to access capital, including our
capacity under our Credit Facility; our ability to use the net
deferred tax assets we have generated; our ability to
successfully implement our planned product transition,
geographic and market repositioning and cost reduction
strategies; consumer interest in our new product designs; and
the other risks discussed above in Item 1A. Risk Factors.
53
|
|
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
notes. For fixed rate debt, changes in interest rates generally
affect the fair 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 tables set forth principal cash flows by scheduled
maturity, weighted average interest rates and the estimated fair
value of our long-term debt obligations as of November 30,
2008 and November 30, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
As of November 30, 2008 for the Years Ended November
30,
|
|
|
November 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
2008
|
|
|
Long-term debt (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
348,908
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,296,261
|
|
|
$
|
1,845,169
|
|
|
$
|
1,270,979
|
|
Weighted Average Interest Rate
|
|
|
8.6
|
%
|
|
|
|
%
|
|
|
6.4
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
(a)The fixed rate debt expected to
mature in our 2009 fiscal year matured on December 15,
2008 and was redeemed by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
As of November 30, 2007 for the Years Ended November
30,
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
2007
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
54
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
KB
HOME
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
60
|
|
|
|
|
95
|
|
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.
55
KB
HOME
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total revenues
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,023,169
|
|
|
$
|
6,400,591
|
|
|
$
|
9,359,843
|
|
Construction and land costs
|
|
|
(3,314,815
|
)
|
|
|
(6,826,379
|
)
|
|
|
(7,666,019
|
)
|
Selling, general and administrative expenses
|
|
|
(501,027
|
)
|
|
|
(824,621
|
)
|
|
|
(1,123,508
|
)
|
Goodwill impairment
|
|
|
(67,970
|
)
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(860,643
|
)
|
|
|
(1,358,335
|
)
|
|
|
570,316
|
|
Interest income
|
|
|
34,610
|
|
|
|
28,636
|
|
|
|
5,503
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
(12,966
|
)
|
|
|
(12,990
|
)
|
|
|
(16,678
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
(152,750
|
)
|
|
|
(151,917
|
)
|
|
|
(20,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax income (loss)
|
|
|
(991,749
|
)
|
|
|
(1,494,606
|
)
|
|
|
538,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
20,240
|
|
Expenses
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
|
|
(5,923
|
)
|
Equity in income of unconsolidated joint venture
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services pretax income
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(967,931
|
)
|
|
|
(1,460,770
|
)
|
|
|
571,847
|
|
Income tax benefit (expense)
|
|
|
(8,200
|
)
|
|
|
46,000
|
|
|
|
(178,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(976,131
|
)
|
|
|
(1,414,770
|
)
|
|
|
392,947
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
47,252
|
|
|
|
89,404
|
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
438,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.99
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
6.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(12.59
|
)
|
|
$
|
(18.33
|
)
|
|
$
|
4.74
|
|
Discontinued operations
|
|
|
|
|
|
|
6.29
|
|
|
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(12.59
|
)
|
|
$
|
(12.04
|
)
|
|
$
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
56
KB
HOME
(In Thousands, Except Shares)
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,135,399
|
|
|
$
|
1,325,255
|
|
Restricted cash
|
|
|
115,404
|
|
|
|
|
|
Receivables
|
|
|
357,719
|
|
|
|
295,739
|
|
Inventories
|
|
|
2,106,716
|
|
|
|
3,312,420
|
|
Investments in unconsolidated joint ventures
|
|
|
177,649
|
|
|
|
297,010
|
|
Deferred income taxes
|
|
|
1,152
|
|
|
|
222,458
|
|
Goodwill
|
|
|
|
|
|
|
67,970
|
|
Other assets
|
|
|
98,109
|
|
|
|
140,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,992,148
|
|
|
|
5,661,564
|
|
Financial services
|
|
|
52,152
|
|
|
|
44,392
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,044,300
|
|
|
$
|
5,705,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
541,294
|
|
|
$
|
699,851
|
|
Accrued expenses and other liabilities
|
|
|
721,397
|
|
|
|
975,828
|
|
Mortgages and notes payable
|
|
|
1,941,537
|
|
|
|
2,161,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,204,228
|
|
|
|
3,837,473
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
9,467
|
|
|
|
17,796
|
|
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, 2008 and 2007;
115,120,305 and 114,976,285 shares issued at
November 30, 2008 and 2007, respectively
|
|
|
115,120
|
|
|
|
114,976
|
|
Paid-in capital
|
|
|
865,123
|
|
|
|
851,628
|
|
Retained earnings
|
|
|
927,324
|
|
|
|
1,968,881
|
|
Accumulated other comprehensive loss
|
|
|
(17,402
|
)
|
|
|
(22,923
|
)
|
Grantor stock ownership trust, at cost: 11,901,382 and
12,203,282 shares at November 30, 2008 and 2007,
respectively
|
|
|
(129,326
|
)
|
|
|
(132,608
|
)
|
Treasury stock, at cost: 25,512,386 and 25,451,107 shares
at November 30, 2008 and 2007, respectively
|
|
|
(930,234
|
)
|
|
|
(929,267
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
830,605
|
|
|
|
1,850,687
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
4,044,300
|
|
|
$
|
5,705,956
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
57
KB
HOME
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30, 2008, 2007 and 2006
|
|
|
|
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, 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
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(976,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(976,131
|
)
|
Postretirement benefits adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(970,610
|
)
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
FASB Interpretation No. 48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,459
|
)
|
Exercise of employee stock options
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,587
|
|
Restricted stock amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,946
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,018
|
|
Grantor stock ownership trust
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,282
|
|
|
|
|
|
|
|
5,370
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967
|
)
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2008
|
|
|
115,120
|
|
|
|
(11,901
|
)
|
|
|
(25,512
|
)
|
|
$
|
115,120
|
|
|
$
|
865,123
|
|
|
$
|
927,324
|
|
|
$
|
(17,402
|
)
|
|
$
|
|
|
|
$
|
(129,326
|
)
|
|
$
|
(930,234
|
)
|
|
$
|
830,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
KB
HOME
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(976,131
|
)
|
|
$
|
(929,414
|
)
|
|
$
|
482,351
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(47,252
|
)
|
|
|
(89,404
|
)
|
Gain on sale of discontinued operations, net of income taxes
|
|
|
|
|
|
|
(438,104
|
)
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
|
|
|
135,210
|
|
|
|
129,220
|
|
|
|
1,611
|
|
Distributions of earnings from unconsolidated joint ventures
|
|
|
22,183
|
|
|
|
42,356
|
|
|
|
13,553
|
|
Gain on sale of investment in unconsolidated joint venture
|
|
|
|
|
|
|
|
|
|
|
(27,612
|
)
|
Amortization of discounts and issuance costs
|
|
|
2,062
|
|
|
|
2,478
|
|
|
|
2,441
|
|
Depreciation and amortization
|
|
|
9,317
|
|
|
|
17,274
|
|
|
|
18,091
|
|
Loss on early redemption of debt
|
|
|
10,388
|
|
|
|
12,990
|
|
|
|
|
|
Deferred income taxes
|
|
|
221,306
|
|
|
|
208,348
|
|
|
|
(189,047
|
)
|
Tax benefit associated with exercise of stock options
|
|
|
2,097
|
|
|
|
(882
|
)
|
|
|
(15,384
|
)
|
Stock-based compensation expense
|
|
|
5,018
|
|
|
|
9,354
|
|
|
|
19,358
|
|
Inventory impairments and land option contract abandonments
|
|
|
606,791
|
|
|
|
1,253,982
|
|
|
|
372,637
|
|
Goodwill impairment
|
|
|
67,970
|
|
|
|
107,926
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(60,565
|
)
|
|
|
(71,406
|
)
|
|
|
(23,529
|
)
|
Inventories
|
|
|
545,850
|
|
|
|
779,875
|
|
|
|
(356,342
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(282,781
|
)
|
|
|
(340,630
|
)
|
|
|
205,707
|
|
Other, net
|
|
|
32,607
|
|
|
|
13,387
|
|
|
|
7,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations
|
|
|
341,322
|
|
|
|
749,502
|
|
|
|
421,613
|
|
Net cash provided by operating activities discontinued
operations
|
|
|
|
|
|
|
297,397
|
|
|
|
229,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
341,322
|
|
|
|
1,046,899
|
|
|
|
651,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
|
|
|
|
739,764
|
|
|
|
|
|
Sale of investment in unconsolidated joint venture
|
|
|
|
|
|
|
|
|
|
|
57,767
|
|
Change in restricted cash
|
|
|
(115,404
|
)
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures
|
|
|
(59,625
|
)
|
|
|
(85,188
|
)
|
|
|
(179,184
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
7,073
|
|
|
|
685
|
|
|
|
(17,638
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
(167,956
|
)
|
|
|
655,261
|
|
|
|
(138,283
|
)
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
(167,956
|
)
|
|
|
643,149
|
|
|
|
(142,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on credit agreements and other short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
(84,100
|
)
|
Proceeds from (redemption of) term loan
|
|
|
|
|
|
|
(400,000
|
)
|
|
|
400,000
|
|
Redemption of senior subordinated notes
|
|
|
(305,814
|
)
|
|
|
(258,968
|
)
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
|
|
|
|
298,458
|
|
Payments on mortgages, land contracts and other loans
|
|
|
(12,800
|
)
|
|
|
(114,119
|
)
|
|
|
(36,595
|
)
|
Issuance of common stock under employee stock plans
|
|
|
6,958
|
|
|
|
12,310
|
|
|
|
65,052
|
|
Excess tax benefit associated with exercise of stock options
|
|
|
|
|
|
|
882
|
|
|
|
15,384
|
|
Payments of cash dividends
|
|
|
(62,967
|
)
|
|
|
(77,170
|
)
|
|
|
(78,258
|
)
|
Repurchases of common stock
|
|
|
(967
|
)
|
|
|
(6,896
|
)
|
|
|
(394,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
(375,590
|
)
|
|
|
(843,961
|
)
|
|
|
185,861
|
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
(215,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(375,590
|
)
|
|
|
(1,150,488
|
)
|
|
|
(29,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(202,224
|
)
|
|
|
539,560
|
|
|
|
479,209
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,343,742
|
|
|
|
804,182
|
|
|
|
324,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,141,518
|
|
|
$
|
1,343,742
|
|
|
$
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
59
KB
HOME
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
Operations. KB Home is a builder of
single-family homes, townhomes and condominiums. The Company has
ongoing operations in Arizona, California, Colorado, Florida,
Nevada, North Carolina, South Carolina and Texas. The Company
also offers mortgage services through Countrywide KB Home Loans,
a joint venture with a subsidiary of Bank of America N.A.
Countrywide KB Home Loans is accounted for as an unconsolidated
joint venture within the Companys financial services
reporting segment. Through its financial services subsidiary, KB
Home Mortgage Company (KBHMC), the Company provides
title and insurance services to its homebuyers.
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 and 2006, 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, and Restricted
Cash. The Company considers all highly liquid
debt instruments and other short-term investments, purchased
with an original maturity of three months or less, to be cash
equivalents. The Companys cash equivalents totaled
$1.05 billion at November 30, 2008 and
$1.11 billion at November 30, 2007. The majority of
the Companys cash and cash equivalents were invested in
high-quality money market accounts that are covered by the U.S.
Treasurys Temporary Guarantee Program, currently set to
expire on April 30, 2009, and U.S. government securities.
Restricted cash at November 30, 2008 consisted solely of
$115.4 million maintained in an Interest Reserve Account
with the administrative agent of the Companys Credit
Facility. The Company may withdraw the amounts deposited in the
Interest Reserve Account when its Coverage Ratio at the end of a
fiscal quarter is greater than or equal to 1.00 to 1.00,
provided there is no default under the Credit Facility at the
time amounts are withdrawn.
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. In accordance with SFAS No. 142, the
Company has determined that its reporting units are the same as
its reporting segments. Accordingly, the Company has four
homebuilding reporting units (West Coast, Southwest, Central and
Southeast) and one financial services reporting unit.
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
$16.3 million, net of accumulated depreciation of
$36.9 million, at November 30, 2008, and
$32.7 million, net of accumulated depreciation of
$61.3 million, at November 30, 2007. Depreciation
expense totaled $9.4 million in 2008, $17.3 million in
2007, and $17.2 million in 2006.
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.
60
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.
Construction and land costs are comprised of direct and
allocated costs, including estimated future costs for warranties
and amenities. Land, land improvements and other common costs
are generally allocated on a relative fair value basis to homes
within a parcel or community. Land and land development costs
include related interest and real estate taxes.
Housing and land inventories are stated at cost, unless the
carrying amount is determined not to be recoverable, in which
case the inventories are written down to fair value in
accordance with 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.
Stock-Based Compensation. With the approval of
the management development and compensation committee,
consisting of independent members of the Companys board of
directors, the Company provides compensation benefits by issuing
stock options, restricted stock, phantom shares and SARs.
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
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 granted is estimated on the date of grant using the
Black-Scholes option-pricing model. SFAS No. 123(R)
also requires the tax benefit resulting from tax deductions in
excess of the compensation expense recognized for those options
to be reported in the statement of cash flows as an operating
cash outflow and a financing cash inflow rather than as an
operating cash inflow as previously reported.
Advertising Costs. The Company expenses
advertising costs as incurred. The Company incurred advertising
costs of $34.6 million in 2008, $68.0 million in 2007
and $107.0 million in 2006.
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
related to its homebuilding activities, subject to certain
self-insured retentions, deductibles and other coverage limits.
The Company self-insures a portion of its overall risk through
the use of a captive insurance subsidiary. The Company records
expenses and liabilities based on the costs required to cover
its self-insured retention and deductible amounts under its
insurance policies, and on the estimated costs of potential
claims and claim adjustment expenses above its coverage limits
or not covered by its policies. These estimated costs are based
on an analysis of the Companys historical claims and
include an estimate of construction defect claims incurred but
not yet reported. The Company engages a third-party actuary that
uses the Companys historical claim data to estimate its
unpaid claims, claim adjustment expenses and incurred but not
reported claims reserves for the risks that the Company is
assuming under the self-insured portion of its general liability
insurance. Projection of losses related to these liabilities is
subject to a high degree of variability due to uncertainties
such as trends in construction defect claims relative to the
Companys markets and the types of product it builds, claim
settlement patterns, insurance industry practices and legal
interpretations, among others. Because of the high degree of
judgment required in determining these
61
estimated liability amounts, actual future costs could differ
significantly from the Companys currently estimated
amounts.
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.
Accumulated Other Comprehensive Income
(Loss). The accumulated balances of other
comprehensive loss in the consolidated balance sheets as of
November 30, 2008 and 2007 are comprised solely of
adjustments recorded directly to accumulated other comprehensive
loss in accordance with SFAS No. 158. SFAS No. 158 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 Company initially applied the
provisions of SFAS No. 158, as required, 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 common shares outstanding
including all potentially dilutive shares issuable under
outstanding stock options. All outstanding stock options were
excluded from the diluted earnings (loss) per share calculations
for the years ended November 30, 2008 and 2007 because the
effect of their inclusion would be antidilutive, or would
decrease the reported loss per share. For the year ended
November 30, 2006, options to purchase 597,100 shares
were excluded from the diluted earnings per share calculation
because the exercise price was greater 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Basic average shares outstanding
|
|
|
77,509
|
|
|
|
77,172
|
|
|
|
78,829
|
|
Net effect of stock options assumed to be exercised
|
|
|
|
|
|
|
|
|
|
|
4,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
77,509
|
|
|
|
77,172
|
|
|
|
82,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements. 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. In February 2008, the FASB issued FSP
No. FAS 157-2,
which delayed for one year the applicability of
SFAS No. 157s fair-value measurements to certain
nonfinancial assets and liabilities. The Company adopted
SFAS No. 157 in 2008, except as it applies to those
nonfinancial assets and liabilities affected by the one-year
delay. The partial adoption of SFAS No. 157 did not
have a material impact on the Companys consolidated
financial position or results of operations. While it is
currently evaluating the impact of adopting the remaining
provisions of SFAS No. 157, the Company does not
expect SFAS No. 157 to have a material impact on its
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.
62
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.
In May 2008, the FASB issued SFAS No. 162, which
identifies the sources of accounting principles and the
framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted
accounting principles in the United States. The Company does not
expect the adoption of SFAS No. 162 to have a material
impact on its consolidated financial position or results of
operations.
In May 2008, the FASB also issued SFAS No. 163, which
clarifies how SFAS No. 60 applies to financial
guarantee insurance contracts, including the recognition and
measurement of premium revenue and claim liabilities.
SFAS No. 163 also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008. The
Company is currently evaluating the potential impact of adopting
SFAS No. 163 on its consolidated financial position
and results of operations.
In June 2008, the FASB issued FSP No.
EITF 03-6-1.
Under FSP No.
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method.
FSP No. EITF 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years and requires retrospective application. The
Company is currently evaluating the impact of adopting FSP No.
EITF 03-6-1
on its earnings per share.
In October 2008, the FASB issued FSP No. FAS
157-3, which
clarifies the application of SFAS No. 157 in a market
that is not active. FSP No. FAS
157-3 became
effective upon issuance, including prior periods for which
financial statements have not been issued. The Companys
adoption of FSP No. FAS 157-3 did not have a material
impact on its consolidated financial position or results of
operations.
In December 2008, the FASB issued FSP No. FAS
140-4 and
FIN 46(R)-8, which amends SFAS No. 140, to require public
entities to provide additional disclosures about transfers of
financial assets. It also amends FASB Interpretation
No. 46(R), to require public enterprises, including
sponsors that have a variable interest in a VIE, to provide
additional disclosures about their involvement with VIEs. FSP
No. FAS
140-4 and
FIN 46(R)-8 is related to disclosure only and will not have
a impact on the Companys consolidated financial position
or results of operations.
Reclassifications. Certain amounts in the
consolidated financial statements of prior years have been
reclassified to conform to the 2008 presentation.
|
|
Note 2.
|
Segment
Information
|
As of November 30, 2008, the Company has identified five
reporting segments, comprised of four homebuilding reporting
segments and one financial services reporting segment, within
its consolidated operations in accordance with Statement of
Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information.
As of November 30, 2008, the Companys homebuilding
reporting segments conducted ongoing operations in the following
states:
West Coast: California
Southwest: Arizona and Nevada
Central: Colorado and Texas
Southeast: Florida, North Carolina and South Carolina.
The Companys homebuilding reporting segments are engaged
in the acquisition and development of land primarily for
residential purposes and offer a wide variety of homes that are
designed to appeal to first-time, first move-up and active adult
buyers.
The Companys homebuilding reporting segments were
identified based primarily on similarities in economic and
geographic characteristics, as well as similar product type,
regulatory environments, methods used to sell and construct
homes and land acquisition characteristics. The Company
evaluates segment performance primarily based on segment pretax
income.
63
The Companys financial services reporting segment provides
title and insurance services to the Companys homebuyers
and provided escrow coordination services until the second
quarter of 2007, when the Company terminated the escrow
coordination business. The segment also provides mortgage
banking services to the Companys homebuyers indirectly
through Countrywide KB Home Loans, a joint venture between a
Company subsidiary and CWB Venture Management Corporation, a
subsidiary of Bank of America N.A. The Companys financial
services reporting segment conducts operations in the same
markets as the Companys homebuilding reporting segments.
The Companys reporting segments follow the same accounting
policies used for 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
1,055,021
|
|
|
$
|
2,203,303
|
|
|
$
|
3,531,279
|
|
Southwest
|
|
|
618,014
|
|
|
|
1,349,570
|
|
|
|
2,183,830
|
|
Central
|
|
|
594,317
|
|
|
|
1,077,304
|
|
|
|
1,553,309
|
|
Southeast
|
|
|
755,817
|
|
|
|
1,770,414
|
|
|
|
2,091,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
|
3,023,169
|
|
|
|
6,400,591
|
|
|
|
9,359,843
|
|
Financial services
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
20,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,033,936
|
|
|
$
|
6,416,526
|
|
|
$
|
9,380,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(298,047
|
)
|
|
$
|
(665,845
|
)
|
|
$
|
359,864
|
|
Southwest
|
|
|
(212,194
|
)
|
|
|
(287,339
|
)
|
|
|
365,098
|
|
Central
|
|
|
(82,789
|
)
|
|
|
(64,210
|
)
|
|
|
(54,749
|
)
|
Southeast
|
|
|
(258,568
|
)
|
|
|
(230,420
|
)
|
|
|
38,933
|
|
Corporate and other (a)
|
|
|
(140,151
|
)
|
|
|
(246,792
|
)
|
|
|
(170,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding income (loss) from continuing operations
before income taxes
|
|
|
(991,749
|
)
|
|
|
(1,494,606
|
)
|
|
|
538,311
|
|
Financial services
|
|
|
23,818
|
|
|
|
33,836
|
|
|
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations before income
taxes
|
|
$
|
(967,931
|
)
|
|
$
|
(1,460,770
|
)
|
|
$
|
571,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
43,140
|
|
|
$
|
63,902
|
|
|
$
|
20,160
|
|
Southwest
|
|
|
32,953
|
|
|
|
45,827
|
|
|
|
49,622
|
|
Central
|
|
|
23,836
|
|
|
|
21,184
|
|
|
|
37,518
|
|
Southeast
|
|
|
38,955
|
|
|
|
44,364
|
|
|
|
31,850
|
|
Corporate and other
|
|
|
3,983
|
|
|
|
9,209
|
|
|
|
20,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (b)
|
|
$
|
142,867
|
|
|
$
|
184,486
|
|
|
$
|
159,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Equity in income (loss) of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
(45,180
|
)
|
|
$
|
(64,886
|
)
|
|
$
|
(25,732
|
)
|
Southwest
|
|
|
(35,633
|
)
|
|
|
(15,734
|
)
|
|
|
(26
|
)
|
Central
|
|
|
(4,515
|
)
|
|
|
(6,916
|
)
|
|
|
(3,829
|
)
|
Southeast
|
|
|
(67,422
|
)
|
|
|
(64,381
|
)
|
|
|
(12,290
|
)
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
21,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(152,750
|
)
|
|
$
|
(151,917
|
)
|
|
$
|
(20,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
229,059
|
|
|
$
|
631,399
|
|
|
$
|
113,022
|
|
Southwest
|
|
|
160,574
|
|
|
|
337,889
|
|
|
|
17,343
|
|
Central
|
|
|
51,518
|
|
|
|
24,662
|
|
|
|
30,592
|
|
Southeast
|
|
|
124,726
|
|
|
|
116,023
|
|
|
|
67,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
565,877
|
|
|
$
|
1,109,973
|
|
|
$
|
228,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory abandonments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
17,475
|
|
|
$
|
28,011
|
|
|
$
|
65,740
|
|
Southwest
|
|
|
187
|
|
|
|
16,479
|
|
|
|
22,069
|
|
Central
|
|
|
|
|
|
|
9,783
|
|
|
|
18,198
|
|
Southeast
|
|
|
23,252
|
|
|
|
89,736
|
|
|
|
37,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,914
|
|
|
$
|
144,009
|
|
|
$
|
143,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
43,116
|
|
|
$
|
57,030
|
|
|
$
|
34,401
|
|
Southwest
|
|
|
30,434
|
|
|
|
31,049
|
|
|
|
|
|
Central
|
|
|
2,629
|
|
|
|
4,483
|
|
|
|
|
|
Southeast
|
|
|
65,671
|
|
|
|
63,801
|
|
|
|
24,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,850
|
|
|
$
|
156,363
|
|
|
$
|
58,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and other includes corporate general and
administrative expenses and goodwill impairment. |
|
|
|
(b) |
|
Interest cost for 2008 included $129.9 million of interest
amortized in construction and land costs, $2.6 million of
interest expense, $7.1 million related to the loss on early
redemption of debt and $3.3 million of unamortized fees
that were written off in connection with an amendment of the
Credit Facility. Interest cost for 2007 included
$171.5 million of interest amortized in construction and
land costs and $13.0 million related to the loss on early
redemption of debt. Interest cost for 2006 included
$143.2 million of interest amortized in construction and
land costs and $16.7 million of interest expense. |
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
Assets:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
1,086,503
|
|
|
$
|
1,542,948
|
|
Southwest
|
|
|
497,034
|
|
|
|
887,361
|
|
Central
|
|
|
443,168
|
|
|
|
643,599
|
|
Southeast
|
|
|
453,771
|
|
|
|
845,679
|
|
Corporate and other
|
|
|
1,511,672
|
|
|
|
1,741,977
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding assets
|
|
|
3,992,148
|
|
|
|
5,661,564
|
|
Financial services
|
|
|
52,152
|
|
|
|
44,392
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,044,300
|
|
|
$
|
5,705,956
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
West Coast
|
|
$
|
55,856
|
|
|
$
|
63,450
|
|
Southwest
|
|
|
113,564
|
|
|
|
134,082
|
|
Central
|
|
|
3,339
|
|
|
|
7,230
|
|
Southeast
|
|
|
4,890
|
|
|
|
92,248
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177,649
|
|
|
$
|
297,010
|
|
|
|
|
|
|
|
|
|
|
Note 3. Financial
Services
Financial information related to the Companys financial
services segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
209
|
|
|
$
|
158
|
|
|
$
|
230
|
|
Title services
|
|
|
2,369
|
|
|
|
5,977
|
|
|
|
7,205
|
|
Insurance commissions
|
|
|
8,189
|
|
|
|
9,193
|
|
|
|
9,410
|
|
Escrow coordination fees
|
|
|
|
|
|
|
607
|
|
|
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,767
|
|
|
|
15,935
|
|
|
|
20,240
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
General and administrative
|
|
|
(4,489
|
)
|
|
|
(4,796
|
)
|
|
|
(5,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,278
|
|
|
|
11,139
|
|
|
|
14,317
|
|
Equity in income of unconsolidated joint venture
|
|
|
17,540
|
|
|
|
22,697
|
|
|
|
19,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
23,818
|
|
|
$
|
33,836
|
|
|
$
|
33,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,119
|
|
|
$
|
18,487
|
|
Receivables
|
|
|
1,240
|
|
|
|
2,655
|
|
Investment in unconsolidated joint venture
|
|
|
44,733
|
|
|
|
23,140
|
|
Other assets
|
|
|
60
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
52,152
|
|
|
$
|
44,392
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
9,467
|
|
|
$
|
17,796
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
9,467
|
|
|
$
|
17,796
|
|
|
|
|
|
|
|
|
|
|
KBHMC may be required to repurchase an individual loan that it
funded on or before August 31, 2005 and sold to an investor
if the representations or warranties that it made in connection
with the sale of the loan are breached, in the event of an early
payment default, or if the loan does not comply with the
underwriting standards or other requirements of the ultimate
investor. KBHMC ceased originating and selling loans on
September 1, 2005.
Mortgages and notes receivable totaled $53.5 million at
November 30, 2008 and $46.8 million at
November 30, 2007. Mortgages receivable are primarily
related to land sales. Interest rates on mortgages and notes
receivable ranged from 5% to 8% at November 30, 2008. The
interest rate on mortgages and notes receivable at
November 30, 2007 ranged from 5% to
81/4%.
Principal amounts at November 30, 2008 are due during the
following years: 2009 $9.8 million;
2010 $3.3 million; 2011 $0;
2012 $40.0 million; and 2013
$.4 million. Federal and state
66
income taxes receivable totaled $211.3 million at
November 30, 2008 and $124.0 million at
November 30, 2007. Other receivables of $92.9 million
at November 30, 2008 and $124.9 million at
November 30, 2007 included amounts due from municipalities
and utility companies, and escrow deposits. Other receivables
were net of allowances for doubtful accounts of
$72.5 million in 2008 and $76.9 million in 2007.
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Homes, lots and improvements in production
|
|
$
|
1,649,838
|
|
|
$
|
2,473,980
|
|
Land under development
|
|
|
456,878
|
|
|
|
838,440
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,106,716
|
|
|
$
|
3,312,420
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Capitalized interest at beginning of year
|
|
$
|
348,084
|
|
|
$
|
333,020
|
|
|
$
|
255,195
|
|
Interest incurred
|
|
|
156,402
|
|
|
|
199,550
|
|
|
|
237,752
|
|
Loss on early redemption/interest expensed
|
|
|
(12,966
|
)
|
|
|
(12,990
|
)
|
|
|
(16,678
|
)
|
Interest amortized to construction and land costs
|
|
|
(129,901
|
)
|
|
|
(171,496
|
)
|
|
|
(143,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest at end of year (a)
|
|
$
|
361,619
|
|
|
$
|
348,084
|
|
|
$
|
333,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Inventory impairment charges are recognized against all
inventory costs of a community, such as land, land improvements,
cost of home construction and capitalized interest. Capitalized
interest amounts presented in the table reflect the gross amount
of capitalized interest as impairment charges recognized are not
generally allocated to specific components of inventory. |
|
|
Note 6.
|
Inventory
Impairments and Abandonments
|
Each parcel or community in the Companys owned inventory
is assessed to determine if indicators of potential impairment
exist. If indicators of potential impairment exist for a parcel
or community, the identified inventory is evaluated for
recoverability in accordance with SFAS No. 144.
Impairment indicators are assessed separately for each parcel or
community on a quarterly basis and include, but are not limited
to: significant decreases in sales rates, average selling
prices, volume of homes delivered 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. The
undiscounted future net cash flows are impacted by the
Companys expectations related to: market supply and
demand, including estimates concerning average selling prices;
sales incentives; sales and cancellation rates; and anticipated
land development, construction and overhead costs to be
incurred. These estimates are specific to each community and may
vary among communities.
A real estate asset is considered impaired when its carrying
amount is greater than the undiscounted future net cash flows
the asset is expected to generate. Impaired real estate assets
are written down to fair value, which is primarily based on the
estimated future cash flows discounted for inherent risk
associated with each asset. These discounted cash flows are
67
impacted by: the risk-free rate of return; expected risk premium
based on estimated land development, construction and delivery
timelines; market risk from potential future price erosion; cost
uncertainty due to development or construction cost increases;
and other risks specific to the asset or conditions in the
market in which the asset is located at the time the assessment
is made. These factors are specific to each community and may
vary among communities.
Based on the results of its evaluations, the Company recognized
pretax, noncash inventory impairment charges of
$565.9 million in 2008, $1.11 billion in 2007 and
$228.7 million in 2006. As of November 30, 2008, the
aggregate carrying value of inventory impacted by pretax,
noncash impairment charges was $1.01 billion, representing
163 communities and various other land parcels. As of
November 30, 2007, the aggregate carrying value of
inventory impacted by pretax, noncash impairment charges was
$1.35 billion, representing 145 communities and various
other land parcels.
The Companys optioned inventory is assessed to determine
whether it continues to meet the Companys internal
investment standards. Assessments are made separately for each
optioned parcel on a quarterly basis and are affected by, among
other factors: current
and/or
anticipated sales rates, average selling prices, home delivery
volume and gross margins; estimated land development and
construction costs; and projected profitability on expected
future housing or land sales. When a decision is made not to
exercise certain land option contracts due to market conditions
and/or
changes in market strategy, the Company writes off the costs,
including non-refundable deposits and pre-acquisition costs,
related to the abandoned projects.
The Company recognized abandonment charges associated with land
option contracts of $40.9 million in 2008,
$144.0 million in 2007 and $143.9 million in 2006.
The inventory impairment charges and land option contract
abandonment charges are included in construction and land costs
in the Companys consolidated statements of operations.
Due to the judgment and assumptions applied in the estimation
process with respect to impairments and land option contract
abandonments, it is possible that actual results could differ
substantially from those estimated.
|
|
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.
The Company participates in joint ventures from time to time for
the purpose of conducting land acquisition, development and/or
other homebuilding activities. Its investments in these joint
ventures may create a variable interest in a VIE, depending on
the contractual terms of the arrangement. The Company analyzes
its joint ventures in accordance with FASB Interpretation
No. 46(R) when they are entered into or upon a
reconsideration event. All of the Companys joint ventures
at November 30, 2008 and 2007 were determined to be
unconsolidated joint ventures either because they were not VIEs
or, if they were VIEs, the Company was not the primary
beneficiary of the VIEs.
In the ordinary course of its business, the Company enters into
land option contracts to procure land for the construction of
homes. The use of such land option contracts generally allows
the Company to reduce the risks associated with direct land
ownership and development, reduces the Companys capital
and financial commitments, including interest and other carrying
costs, and minimizes the amount of the Companys land
inventories on its consolidated balance sheet. Under such land
option contracts, the Company will pay a specified option
deposit or earnest money deposit in consideration for the right
to purchase land in the future, usually at a predetermined
price. Under the requirements of FASB Interpretation
No. 46(R), certain of the Companys land option
contracts may create a variable interest for the Company, with
the land seller being identified as a VIE.
In compliance with FASB Interpretation No. 46(R), the
Company analyzes its land option contracts and other contractual
arrangements when they are entered into or upon a
reconsideration event, and as a result has consolidated the fair
value of certain VIEs from which the Company is purchasing land
under option contracts. Although the Company does not
68
have legal title to the optioned land, FASB Interpretation
No. 46(R) requires the Company to consolidate the VIE if
the Company is determined to be the primary beneficiary. The
consolidation of VIEs in which 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 $15.5 million at November 30, 2008 and
$19.0 million at November 30, 2007. 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 $3.4 million at November 30, 2008
and $4.7 million at November 30, 2007. Creditors, if
any, of these VIEs have no recourse against the Company. As of
November 30, 2008, excluding consolidated VIEs, the Company
had cash deposits totaling $29.7 million, which were
associated with land option contracts having an aggregate
purchase price of $533.2 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
$33.1 million at November 30, 2008 and
$59.3 million at November 30, 2007. In addition, the
Company posted letters of credit of $32.5 million at
November 30, 2008 and $103.7 million at
November 30, 2007 in lieu of cash deposits under certain
option contracts.
The Company also evaluates land option contracts in accordance
with SFAS No. 49, and, as a result of its evaluations,
increased inventories, with a corresponding increase to accrued
expenses and other liabilities, on its consolidated balance
sheets by $81.5 million at November 30, 2008 and
$221.1 million at November 30, 2007.
|
|
Note 8.
|
Investments
in Unconsolidated Joint Ventures
|
The Company participates in unconsolidated joint ventures that
conduct land acquisition, development
and/or other
homebuilding activities in various markets, typically where the
Companys homebuilding operations are located. The
Companys partners in these unconsolidated joint ventures
are unrelated homebuilders, land developers and other real
estate entities, or commercial enterprises. Through these
unconsolidated joint ventures, the Company seeks to reduce and
share market and development risks and to reduce its investment
in land inventory, while potentially increasing the number of
homesites it owns or controls. In some instances, participating
in unconsolidated joint ventures enables the Company to acquire
and develop land that it might not otherwise have access to due
to a projects size, financing needs, duration of
development or other circumstances. While the Company views its
participation in unconsolidated joint ventures as beneficial to
its homebuilding activities, it does not view such participation
as essential.
The Company
and/or its
unconsolidated joint venture partners typically obtain options
or enter into other arrangements to purchase portions of the
land held by the unconsolidated joint ventures. The prices for
these land options are generally negotiated prices that
approximate fair value. When an unconsolidated joint venture
sells land to the Companys homebuilding operations, the
Company defers recognition of its share of such unconsolidated
joint venture earnings until a home sale is closed and title
passes to a homebuyer, at which time the Company accounts for
those earnings as a reduction of the cost of purchasing the land
from the unconsolidated joint venture.
The Company and its unconsolidated joint venture partners make
initial or ongoing capital contributions to these unconsolidated
joint ventures, typically on a pro rata basis. The obligation to
make capital contributions is governed by each unconsolidated
joint ventures respective operating agreement.
Each unconsolidated joint venture maintains financial statements
in accordance with U.S. generally accepted accounting
principles. The Company shares in profits and losses of these
unconsolidated joint ventures generally in accordance with its
respective equity interests.
The following table presents combined condensed statement of
operations information for the Companys unconsolidated
joint ventures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
112,767
|
|
|
$
|
662,705
|
|
|
$
|
167,536
|
|
Construction and land costs
|
|
|
(458,168
|
)
|
|
|
(670,133
|
)
|
|
|
(189,507
|
)
|
Other expenses, net
|
|
|
(38,170
|
)
|
|
|
(44,126
|
)
|
|
|
(26,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(383,571
|
)
|
|
$
|
(51,554
|
)
|
|
$
|
(48,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
With respect to the Companys investment in unconsolidated
joint ventures, its equity in loss of unconsolidated joint
ventures in 2008 included pretax, noncash impairment charges of
$141.9 million in 2008 and $156.4 million in 2007. In
2006, the Companys equity in income of unconsolidated
joint ventures included pretax, noncash 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.
The following table presents combined condensed balance sheet
information for the Companys unconsolidated joint ventures
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
29,194
|
|
|
$
|
51,249
|
|
Receivables
|
|
|
143,926
|
|
|
|
234,265
|
|
Inventories
|
|
|
1,029,306
|
|
|
|
2,209,907
|
|
Other assets
|
|
|
55,289
|
|
|
|
15,513
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,257,715
|
|
|
$
|
2,510,934
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
85,064
|
|
|
$
|
68,217
|
|
Mortgages and notes payable
|
|
|
871,279
|
|
|
|
1,540,931
|
|
Equity
|
|
|
301,372
|
|
|
|
901,786
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,257,715
|
|
|
$
|
2,510,934
|
|
|
|
|
|
|
|
|
|
|
The following table presents information relating to the
Companys investments in unconsolidated joint ventures and
the aggregate outstanding debt of unconsolidated joint ventures
as of the dates specified, categorized by the nature of the
Companys potential responsibility under a guaranty, if
any, for such debt (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Number of investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt (a)
|
|
|
1
|
|
|
|
1
|
|
With limited recourse debt (b)
|
|
|
4
|
|
|
|
7
|
|
With non-recourse debt (c)
|
|
|
10
|
|
|
|
14
|
|
Other (d)
|
|
|
10
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
3,339
|
|
|
$
|
1,855
|
|
With limited recourse debt
|
|
|
1,360
|
|
|
|
17,342
|
|
With non-recourse debt
|
|
|
24,590
|
|
|
|
161,721
|
|
Other
|
|
|
148,360
|
|
|
|
116,092
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177,649
|
|
|
$
|
297,010
|
|
|
|
|
|
|
|
|
|
|
Aggregate outstanding debt of unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
With recourse debt
|
|
$
|
3,249
|
|
|
$
|
6,317
|
|
With limited recourse debt
|
|
|
112,700
|
|
|
|
276,553
|
|
With non-recourse debt
|
|
|
381,393
|
|
|
|
894,115
|
|
Other
|
|
|
373,937
|
|
|
|
363,946
|
|
|
|
|
|
|
|
|
|
|
Total (e)
|
|
$
|
871,279
|
|
|
$
|
1,540,931
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
(a) |
|
This category consists of an unconsolidated joint venture as to
which the Company has entered into a several guaranty with
respect to the repayment of a portion of the unconsolidated
joint ventures outstanding debt. |
|
(b) |
|
This category consists of unconsolidated joint ventures as to
which the Company has entered into a loan-to-value maintenance
guaranty with respect to a portion of each such unconsolidated
joint ventures outstanding secured debt. |
|
(c) |
|
This category consists of unconsolidated joint ventures as to
which the Company does not have a guaranty or any other
obligation to repay or to support the value of the collateral
(including letters of credit) underlying such unconsolidated
joint ventures respective outstanding secured debt
(excluding any potential responsibility under a carve-out
guaranty). |
|
(d) |
|
This category consists of unconsolidated joint ventures with no
outstanding debt and an unconsolidated joint venture as to which
the Company has entered into a several guaranty that, by its
terms, purports to require the Company to guarantee the
repayment of a portion of the unconsolidated joint
ventures outstanding debt in the event an involuntary
bankruptcy proceeding is filed against the unconsolidated joint
venture that is not dismissed within 60 days or for which
an order approving relief under bankruptcy law is entered, even
if the unconsolidated joint venture or its partners do not
collude in the filing and the unconsolidated joint venture
contests the filing, as further described below. |
|
|
|
In some cases, the Company may have also entered into a
completion guaranty and/or a carve-out guaranty with the lenders
for the unconsolidated joint ventures identified in categories
(a) through (d). |
|
(e) |
|
The Total amounts represent the aggregate
outstanding debt of the unconsolidated joint ventures in which
the Company participates. The amounts do not represent the
Companys potential responsibility for such debt, if any.
The Companys maximum potential responsibility for any
portion of such debt, if any, is limited to either a specified
maximum amount or an amount equal to its pro rata interest in
the relevant unconsolidated joint venture, as further described
below. |
The unconsolidated joint ventures finance land and inventory
investments through a variety of arrangements. To finance their
respective land acquisition and development activities, many of
the Companys unconsolidated joint ventures have obtained
loans from third-party lenders that are secured by the
underlying property and related project assets. Unconsolidated
joint ventures had outstanding debt, substantially all of which
was secured, of approximately $871.3 million at
November 30, 2008 and $1.54 billion at
November 30, 2007. The unconsolidated joint ventures are
subject to various financial and non-financial covenants in
conjunction with their debt, primarily related to equity
maintenance, fair value of collateral and minimum land purchase
or sale requirements within a specified period. In a few
instances, the financial covenants are based on the
Companys financial position.
In certain instances, the Company
and/or its
partner(s) in an unconsolidated joint venture provide guarantees
and indemnities to the unconsolidated joint ventures
lenders that may include one or more of the following:
(a) a completion guaranty; (b) a loan-to-value
maintenance guaranty;
and/or
(c) a carve-out guaranty. A completion guaranty refers to
the physical completion of improvements for a project
and/or the
obligation to contribute equity to an unconsolidated joint
venture to enable it to fund its completion obligations. A
loan-to-value maintenance guaranty refers to the payment of
funds to maintain the applicable loan balance at or below a
specific percentage of the value of an unconsolidated joint
ventures secured collateral (generally land and
improvements). A carve-out guaranty refers to the payment of
(i) losses a lender suffers due to certain bad acts or
omissions by an unconsolidated joint venture or its partners,
such as fraud or misappropriation, or due to environmental
liabilities arising with respect to the relevant project, or
(ii) outstanding principal and interest and certain other
amounts owed to lenders upon the filing by an unconsolidated
joint venture of a voluntary bankruptcy petition or the filing
of an involuntary bankruptcy petition by creditors of the
unconsolidated joint venture in which an unconsolidated joint
venture or its partners collude or which the unconsolidated
joint venture fails to contest.
In most cases, the Companys maximum potential
responsibility under these guarantees and indemnities is limited
to either a specified maximum dollar amount or an amount equal
to its pro rata interest in the relevant unconsolidated joint
venture. In a few cases, the Company has entered into agreements
with its unconsolidated joint venture partners to be reimbursed
or indemnified with respect to the guarantees the Company has
provided to an unconsolidated joint ventures lenders for
any amounts the Company may pay pursuant to such guarantees
above its pro rata interest in the
71
unconsolidated joint venture. If the Companys
unconsolidated joint venture partners are unable to fulfill
their reimbursement or indemnity obligations, or otherwise fail
to do so, the Company could incur more than its allocable share
under the relevant guaranty. Should there be indications that
advances (if made) will not be voluntarily repaid by an
unconsolidated joint venture partner under any such
reimbursement arrangements, the Company vigorously pursues all
rights and remedies available to it under the applicable
agreements, at law or in equity to enforce its reimbursement
rights.
The Companys potential responsibility under its completion
guarantees, if triggered, is highly dependent on the facts of a
particular case. In any event, the Company believes its actual
responsibility under these guarantees is limited to the amount,
if any, by which an unconsolidated joint ventures
outstanding borrowings exceed the value of its assets, but may
be substantially less than this amount.
At November 30, 2008, the Companys potential
responsibility under its loan-to-value maintenance guarantees
totaled approximately $45.4 million, if any liability were
determined to be due thereunder. This amount represents the
Companys maximum responsibility under such loan-to-value
maintenance guarantees assuming the underlying collateral has no
value and without regard to defenses that could be available to
the Company against attempted enforcement of such guarantees.
Notwithstanding these potential responsibilities, at this time
the Company does not believe that its exposure under its
existing completion, loan-to-value and carve-out guarantees and
indemnities related to unconsolidated joint venture debt is
material to the Companys consolidated financial position
or results of operations.
Recently, the lenders for two of the Companys
unconsolidated joint ventures filed lawsuits against some of the
unconsolidated joint ventures members, and certain of
those members parent companies, seeking to recover damages
under completion guarantees, among other claims. The Company and
the other parent companies, together with the members, are
defending the lawsuits in which they have been named. The
Company does not believe that these lawsuits will have a
material impact on the Companys consolidated financial
position or results of operations.
In addition to the above-described guarantees and indemnities,
the Company has also provided a several guaranty to the lenders
of one of the Companys unconsolidated joint ventures. By
its terms, the guaranty purports to guarantee the repayment of
principal and interest and certain other amounts owed to the
unconsolidated joint ventures lenders when an involuntary
bankruptcy proceeding is filed against the unconsolidated joint
venture that is not dismissed within 60 days or for which
an order approving relief under bankruptcy law is entered, even
if the unconsolidated joint venture or its partners do not
collude in the filing and the unconsolidated joint venture
contests the filing. The Companys potential responsibility
under this several guaranty fluctuates with the outstanding
borrowings against the unconsolidated joint ventures debt
and with the Companys and its partners respective
land purchases from the unconsolidated joint venture. At
November 30, 2008, this unconsolidated joint venture had
total outstanding indebtedness of approximately
$373.9 million and, if this guaranty were then enforced,
the Companys maximum potential responsibility under the
guaranty would have been approximately $182.7 million,
which amount does not account for any offsets or defenses that
could be available to the Company. This unconsolidated joint
venture has received notices from its lenders
administrative agent alleging a number of defaults under its
loan agreement. The Company is currently exploring resolutions
with the lenders, the lenders administrative agent and the
Companys unconsolidated joint venture partners, but there
is no assurance that the Company will reach a satisfactory
resolution with all of the parties involved.
Certain of the Companys other unconsolidated joint
ventures operating in difficult market conditions are in default
of their debt agreements with their lenders or are at risk of
defaulting. In addition, certain of the Companys
unconsolidated joint venture partners have curtailed funding of
their allocable joint venture obligations. The Company is
carefully managing its investments in these particular
unconsolidated joint ventures and is working with the relevant
lenders and unconsolidated joint venture partners to reach
satisfactory resolutions. In some instances, the Company may
decide to opportunistically purchase its partners
interests and would consolidate the joint venture, which would
result in an increase in the Companys consolidated
mortgages and notes payable. However, such purchases may not
resolve a claimed default by the joint venture under its debt
agreements. Additionally, the Company may seek new equity
partners to participate in its unconsolidated joint ventures or,
based on market conditions and other strategic considerations,
may decide to withdraw from an unconsolidated joint venture and
allow the unconsolidated joint ventures lenders to
exercise their remedies with respect to the underlying
collateral (subject to any relevant defenses available to the
Company). Based on the terms and amounts of the debt involved
for these particular unconsolidated joint ventures and the terms
of the
72
applicable joint venture operating agreements, the Company does
not believe that its exposure related to any defaults by or with
respect to these particular unconsolidated joint ventures is
material to the Companys consolidated financial position
or results of operations.
The changes in the carrying amount of goodwill are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
67,970
|
|
|
$
|
177,333
|
|
Impairments
|
|
|
(67,970
|
)
|
|
|
(107,926
|
)
|
Other
|
|
|
|
|
|
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
67,970
|
|
|
|
|
|
|
|
|
|
|
The Companys goodwill balance at November 30, 2007
consisted of $24.6 million and $43.4 million related
to the Central and Southeast reporting segments, respectively.
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. During
2008 and 2007, the Company determined that it was necessary to
evaluate goodwill for impairment between annual tests due to
deteriorating conditions in certain housing markets and the
significant inventory impairments the Company identified and
recognized during those years in accordance with
SFAS No. 144.
Based on the results of its impairment evaluation performed in
the second quarter of 2008, the Company recorded an impairment
charge of $24.6 million in that quarter related to its
Central reporting segment, where all of the goodwill previously
recorded was determined to be impaired. The annual goodwill
impairment test performed by the Company as of November 30,
2008 resulted in an impairment charge of $43.4 million in
the fourth quarter of 2008 related to its Southeast reporting
segment, where all of the goodwill previously recorded was
determined to be impaired. Based on the results of its
impairment evaluation performed in the third quarter of 2007,
the Company recorded an impairment charge of $107.9 million
in that quarter related to its Southwest reporting segment,
where all of the goodwill previously recorded was determined to
be impaired. The annual goodwill impairment test performed by
the Company as of November 30, 2007 indicated no additional
impairment. The goodwill impairment charges in 2008 and 2007
were recorded at the Companys corporate level because all
goodwill is carried at that level. As a result of these
impairment charges, the Company has no remaining goodwill
company-wide at November 30, 2008.
The process of evaluating goodwill for impairment involves the
determination of the fair value of the Companys reporting
units. Inherent in such fair value determinations are certain
judgments and estimates relating to future cash flows, including
the Companys interpretation of current economic indicators
and market valuations, and assumptions about the Companys
strategic plans with regard to its operations. Due to the
uncertainties associated with such estimates, actual results
could differ from such estimates.
In performing its impairment analysis, the Company developed a
range of fair values for its homebuilding and financial services
reporting units using a discounted cash flow methodology and a
market multiple methodology. For the financial services
reporting unit, the Company also used a comparable transaction
methodology.
The discounted cash flow methodology establishes fair value by
estimating the present value of the projected future cash flows
to be generated from the reporting unit. The discount rate
applied to the projected future cash flows to arrive at the
present value is intended to reflect all risks of ownership and
the associated risks of realizing the stream of projected future
cash flows. The discounted cash flow methodology uses the
Companys projections of financial performance for a
five-year period. The most significant assumptions used in the
discounted cash flow methodology are the discount rate, the
terminal value and expected future revenues, gross margins and
operating margins, which vary among reporting units.
73
The market multiple methodology establishes fair value by
comparing the Company to other publicly traded companies that
are similar to it from an operational and economic standpoint.
The market multiple methodology compares the Company to the
comparable companies on the basis of risk characteristics in
order to determine its risk profile relative to the comparable
companies as a group. This analysis generally focuses on
quantitative considerations, which include financial performance
and other quantifiable data, and qualitative considerations,
which include any factors which are expected to impact future
financial performance. The most significant assumptions
affecting the market multiple methodology are the market
multiples and control premium. The market multiples the Company
uses are: (a) price to net book value and
(b) enterprise value to revenue (for each of the
homebuilding reporting units). A control premium represents the
value an investor would pay above minority interest transaction
prices in order to obtain a controlling interest in the
respective company. The comparable transaction methodology
establishes fair value similar to the market multiple
methodology, utilizing recent transactions within the industry
as the market multiple. However, no control premium is applied
when using the comparable transaction methodology because these
transactions represent control transactions.
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
Mortgages and land contracts due to land sellers and other loans
(41/4%
to 8% in 2008 and 4% to 10% in 2007)
|
|
$
|
96,368
|
|
|
$
|
19,140
|
|
Senior subordinated notes due December 15, 2008 at
85/8%
|
|
|
200,000
|
|
|
|
200,000
|
|
Senior subordinated notes due 2010 at
73/4%
|
|
|
|
|
|
|
298,273
|
|
Senior notes due 2011 at
63/8%
|
|
|
348,908
|
|
|
|
348,549
|
|
Senior notes due 2014 at
53/4%
|
|
|
249,227
|
|
|
|
249,102
|
|
Senior notes due 2015 at
57/8%
|
|
|
298,692
|
|
|
|
298,521
|
|
Senior notes due 2015 at
61/4%
|
|
|
449,653
|
|
|
|
449,612
|
|
Senior notes due 2018 at
71/4%
|
|
|
298,689
|
|
|
|
298,597
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,941,537
|
|
|
$
|
2,161,794
|
|
|
|
|
|
|
|
|
|
|
On July 14, 2008, the Company completed the early
redemption of the $300 Million Senior Subordinated Notes at
a price of 101.938% of the principal amount plus accrued
interest to the date of redemption. The Company incurred a loss
of $7.1 million in 2008 related to the early redemption of
debt, as a result of the call premium and the unamortized
original issue discount. This loss is included in the loss on
early redemption of debt in the consolidated statements of
operations.
The Company has a Credit Facility with a syndicate of lenders
that matures in November 2010. Interest on the Credit Facility
is payable monthly at the London Interbank Offered Rate plus an
applicable spread on amounts borrowed. At November 30, 2008
and 2007, the Company had no cash borrowings outstanding and
$211.8 million and $296.8 million, respectively, in
letters of credit outstanding under the Credit Facility.
On August 28, 2008, the Company entered into the Fifth
Amendment to the Credit Facility. The Fifth Amendment, among
other things, reduced the aggregate commitment under the Credit
Facility from $1.30 billion to $800.0 million and
provided that the aggregate commitment may be permanently
reduced to: (a) $650.0 million, if at the end of any
fiscal quarter the Companys consolidated tangible net
worth is less than or equal to $800.0 million but greater
than $500.0 million, or (b) $500.0 million, if at
the end of any fiscal quarter the Companys consolidated
tangible net worth is less than or equal to $500.0 million.
In addition, the Fifth Amendment reduced the sublimit for swing
line loans from $100.0 million to $60.0 million;
reduced the sublimit for the issuance of letters of credit from
$1.00 billion to $600.0 million; and reduced the
amount of unrestricted cash applied to the borrowing base
calculation by subtracting the amount of outstanding borrowings
under the Credit Facility as of the measurement date.
The Fifth Amendment also (a) made permanent certain prior
amendments to covenant requirements regarding the minimum
Coverage Ratio, the maximum consolidated Leverage Ratio, and
distributions in respect of capital stock; (b) amended
covenants regarding payment of subordinated obligations,
investments in subsidiaries and joint ventures,
74
and the minimum level of consolidated tangible net worth; and
(c) increased the applicable rates for Eurodollar
borrowings, the letter of credit fees, and unused commitment
fee. The maturity date of the Credit Facility remains unchanged.
The Company paid a fee to lenders party to the Fifth Amendment.
In light of the reduction in the aggregate commitment, the
Company wrote off $3.3 million of unamortized fees
associated with the Credit Facility during 2008. This write-off
is included in the loss on early redemption of debt in the
consolidated statements of operations.
In addition to the financial covenants affected by the Fifth
Amendment, the Credit Facility also contains covenants limiting
the Companys unimproved land book value, speculative unit
deliveries within a given fiscal quarter and borrowing base
requirements.
On October 17, 2008, the Company filed the 2008 Shelf
Registration with the SEC, registering debt and equity
securities that it may issue from time to time in amounts to be
determined. The Companys previously outstanding 2004 Shelf
Registration was subsumed within the 2008 Shelf Registration. As
of the date of this Annual Report on
Form 10-K,
the Company has not issued any securities under its 2008 Shelf
Registration.
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 the $200 Million Senior Subordinated Notes at 100%
of the principal amount of the notes. The notes, which matured
on December 15, 2008, represented unsecured obligations of
the Company and were subordinated to all existing and future
senior indebtedness of the Company. The notes were 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
of
93/8% senior
subordinated notes, which were due in 2003. The remaining net
proceeds were used for general corporate purposes.
The Company issued 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
53/4%
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 December 15, 2004, pursuant to the 2004 Shelf
Registration, the Company issued $300.0 million of
57/8%
senior notes due 2015 (the $300 Million
57/8%
Senior Notes) at 99.357% of the principal amount of the
notes. The $300 Million
57/8%
Senior Notes, which are due January 15, 2015, with interest
payable semi-annually, represent senior unsecured obligations of
the Company and rank equally in right of payment with all of the
Companys existing and future senior unsecured
indebtedness. The $300 Million
57/8%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of:
(a) 100% of their principal amount and (b) the sum of
the present values of the remaining scheduled payments
discounted to the date of redemption at a defined rate, plus, in
each case accrued and unpaid interest to the applicable
redemption date. The notes are unconditionally guaranteed
jointly and severally by the Guarantor Subsidiaries on a senior
unsecured basis. The Company used all of the net proceeds from
the issuance of the $300 Million
57/8%
Senior Notes to pay down bank borrowings.
75
Pursuant to the 2004 Shelf Registration, on June 2, 2005,
the Company issued $450.0 million of
61/4%
senior notes due 2015 (the $450 Million Senior
Notes) at 100.614% of the principal amount of the notes
plus accrued interest from June 2, 2005. The
$450 Million Senior Notes, which are due June 15,
2015, with interest payable semi-annually, represent senior
unsecured obligations of the Company and rank equally in right
of payment with all of the Companys existing and future
senior unsecured indebtedness. The $450 Million Senior
Notes may be redeemed, in whole at any time or from time to time
in part, at a price equal to the greater of: (a) 100% of
their principal amount and (b) the sum of 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
71/4%
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
71/4%
Senior Notes may be redeemed, in whole at any time or from time
to time in part, at a price equal to the greater of: (a) 100% of
their principal amount and (b) the sum of the present values of
the remaining scheduled payments of principal and interest on
the notes to be redeemed discounted at a defined rate, plus, in
each case, accrued and unpaid interest to the applicable
redemption date. The Company used all of the proceeds from the
$300 Million
71/4%
Senior Notes to repay borrowings under its Credit Facility.
The Companys senior notes indenture does not contain any
financial covenants. Subject to specified exceptions, the senior
notes indenture contains certain restrictive covenants that,
among other things, limit the Companys ability to incur
secured indebtedness; engage in sale-leaseback transactions
involving property or assets above a certain specified value; or
engage in mergers, consolidations, or sales of assets.
As of November 30, 2008, the Company was in compliance with
the terms of its Credit Facility and senior notes indenture.
However, the Companys ability to continue to borrow funds
depends in part on its ability to remain in such compliance. The
Companys inability to do so could make it more difficult
and expensive to maintain its current level of external debt
financing or to obtain additional financing. Based on the
applicable terms of the Credit Facility and the senior notes
indenture, $549.6 million of retained earnings would have
been available for the payment of dividends at November 30,
2008.
Principal payments on notes, mortgages, land contracts and other
loans are due as follows: 2009 $279.5 million;
2010 $16.8 million; 2011
$348.9 million; 2012 $0; 2013 $0;
and thereafter $1.30 billion.
Assets (primarily inventories) having a carrying value of
approximately $169.8 million as of November 30, 2008
are pledged to collateralize mortgages, land contracts and other
secured loans.
|
|
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.
76
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Carrying Value
|
|
|
Value
|
|
|
Carrying Value
|
|
|
Value
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85/8% Senior
subordinated notes
|
|
$
|
200,000
|
|
|
$
|
199,500
|
|
|
$
|
200,000
|
|
|
$
|
194,750
|
|
73/4% Senior
subordinated notes
|
|
|
|
|
|
|
|
|
|
|
298,273
|
|
|
|
277,394
|
|
63/8% Senior
notes
|
|
|
348,908
|
|
|
|
274,765
|
|
|
|
348,549
|
|
|
|
319,358
|
|
53/4% Senior
notes
|
|
|
249,227
|
|
|
|
165,113
|
|
|
|
249,102
|
|
|
|
216,096
|
|
57/8% Senior
notes
|
|
|
298,692
|
|
|
|
182,949
|
|
|
|
298,521
|
|
|
|
256,728
|
|
61/4% Senior
notes
|
|
|
449,653
|
|
|
|
275,412
|
|
|
|
449,612
|
|
|
|
388,352
|
|
71/4% Senior
notes
|
|
|
298,689
|
|
|
|
173,240
|
|
|
|
298,597
|
|
|
|
268,364
|
|
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
restricted cash 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. 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 based on its assessment.
The changes in the Companys warranty liability are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
151,525
|
|
|
$
|
141,060
|
|
|
$
|
122,503
|
|
Warranties issued
|
|
|
25,324
|
|
|
|
60,620
|
|
|
|
78,527
|
|
Payments and adjustments
|
|
|
(31,480
|
)
|
|
|
(50,155
|
)
|
|
|
(59,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
145,369
|
|
|
$
|
151,525
|
|
|
$
|
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
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 related to its homebuilding activities,
subject to certain self-insured retentions, deductibles and
other coverage limits. The Company self-insures a portion of its
overall risk through the use of a captive insurance subsidiary.
The Company records expenses and liabilities based on the costs
required to cover its self-insured
77
retention and deductible amounts under its insurance policies,
and on the estimated costs of potential claims and claim
adjustment expenses above its coverage limits or not covered by
its policies. These estimated costs are based on an analysis of
the Companys historical claims and include an estimate of
construction defect claims incurred but not yet reported. The
Companys estimated liabilities for such items were
$101.5 million at November 30, 2008 and
$95.6 million at November 30, 2007, and are included
in accrued expenses and other liabilities in the consolidated
balance sheets.
The Company is often required to obtain performance bonds and
letters of credit in support of its obligations to various
municipalities and other government agencies in connection with
subdivision improvements such as roads, sewers and water. At
November 30, 2008, the Company had $761.1 million of
performance bonds and $211.8 million of letters of credit
outstanding. At November 30, 2007, the Company had
$1.08 billion of performance bonds and $296.8 million
of letters of credit outstanding. In the event any such
performance bonds or letters of credit are called, the Company
would be obligated to reimburse the issuer of the performance
bond or letter of credit. At this time, the Company does not
believe that a material amount of any currently outstanding
performance bonds or letters of credit will be called.
Performance bonds do not have stated expiration dates. Rather,
the Company is released from the performance bonds as the
contractual performance is completed. The expiration dates of
letters of credit issued in connection with subdivision
improvements 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.
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, 2008, the Company had total deposits of
$65.6 million, comprised of cash deposits of
$33.1 million and letters of credit of $32.5 million,
to purchase land with a total remaining purchase price of
$548.7 million. The Companys land option contracts
generally do not contain provisions requiring its specific
performance.
The Company leases certain property and equipment under
noncancelable operating leases. Office and equipment leases are
typically for terms of three to five years and generally provide
renewal options for terms up to an additional five years. In
most cases, the Company expects that, in the normal course of
business, leases that expire will be renewed or replaced by
other leases. The future minimum rental payments under operating
leases, which primarily consist of office leases having initial
or remaining noncancelable lease terms in excess of one year are
as follows: 2009 $19.0 million;
2010 $16.5 million; 2011
$9.8 million; 2012 $6.8 million;
2013 $4.9 million; and thereafter
$4.8 million. Rental expense on these operating leases was
$17.3 million in 2008, $21.7 million in 2007 and
$22.8 million in 2006.
Derivative Litigation. In the summer of 2006,
four shareholder derivative lawsuits were filed, ostensibly on
behalf of the Company, alleging, among other things, that the
defendants (various current and former directors and officers of
the Company) 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 stockholder-approved stock option plans. Two of
the lawsuits were state court actions filed in Los Angeles
County Superior Court, and two were federal actions filed in the
United States District Court for the Central District of
California. The two federal lawsuits also included substantive
claims under the federal securities laws.
The Company recently reached a tentative global settlement with
the parties in the four actions. The settlement also includes a
resolution of all issues with the Companys former Chairman
and Chief Executive Officer, Bruce Karatz. On December 9,
2008, the parties to the federal court actions submitted the
proposed settlement to the court, and the plaintiffs in those
actions concurrently filed an unopposed motion seeking
preliminary approval of the proposed settlement. On
December 15, 2008, the court granted preliminary approval
of the proposed settlement and scheduled a hearing for
February 9, 2009 to determine whether the settlement should
be finally approved by the court. If it is finally approved, the
federal litigation will be dismissed, and all parties have
agreed that the state court litigation will be dismissed as
well. If the settlement is not approved, the federal and state
court litigation will continue. At this time, the Company does
not believe that the shareholder derivative litigation or the
resolution of issues with the Companys former Chairman and
Chief Executive Officer should have a material impact on the
Companys consolidated financial position or results of
operations.
78
ERISA Litigation. On March 16, 2007,
plaintiffs Reba Bagley and Scott Silver filed an action brought
under Section 502 of the ERISA, 29 U.S.C.
§ 1132, Bagley et al., v. KB Home, et al.,
in the United States District Court for the Central District of
California. The action was brought against the Company, its
directors, and certain of its current and former officers. After
the court allowed leave to file an amended complaint, on
April 3, 2008, plaintiffs filed an amended complaint adding
Tolan Beck and Rod Hughes as additional plaintiffs and
dismissing certain individuals as defendants. All four
plaintiffs claim to be former employees of the Company who
participated in the Plan. Plaintiffs allege on behalf of
themselves and on behalf of all others similarly situated that
all defendants breached fiduciary duties owed to plaintiffs and
purported class members under ERISA by failing to disclose
information to and providing misleading information to
participants in the Plan about alleged prior stock option
backdating practices of the Company and by failing to remove the
Companys stock as an investment option under the Plan.
Plaintiffs allege that this breach of fiduciary duties caused
plaintiffs to earn less on their Plan accounts than they would
have earned but for defendants alleged breach of duties.
Plaintiffs seek unspecified money damages and injunctive and
other equitable relief. On May 16, 2008, the Company filed
a motion to dismiss on the ground that plaintiffs
allegations fail to state a claim against the Company.
Plaintiffs filed an opposition to the motion on June 20,
2008. The hearing on the motion was held on September 8,
2008. On October 6, 2008, the court issued its order. The
court denied the Companys motion to dismiss the
plaintiffs claims for breach of fiduciary duty and breach
of the duty to monitor and granted the Companys motion to
dismiss the plaintiffs claims for breach of the fiduciary
duty of disclosure. The court also denied a separate motion to
dismiss filed by the individual defendants based on the standing
of plaintiffs to sue. The Company filed its answer to the first
amended complaint on November 5, 2008. On November 24,
2008, the court approved a stipulation to stay all discovery and
other proceedings through February 6, 2009, in order to
allow the parties time to attempt to settle the plaintiffs
claims through mediation. While the Company believes it has
strong defenses to the ERISA claims, it has not concluded
whether an unfavorable outcome is likely to be material to its
consolidated financial position or results of operations.
Other Matters. 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.
|
|
Note 14.
|
Stockholders
Equity
|
Preferred Stock. On February 4, 1999, the
Company adopted a stockholder rights plan to replace the
shareholder rights plan it 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 5, 1999,
immediately after the expiration of the rights issued under the
1989 Rights Plan. On January 22, 2009, the Company adopted
an amendment to the rights plan designed to preserve the value
of certain of the Companys net deferred tax assets. Under
the plan as amended, under certain circumstances, each right
will entitle the holder to purchase 1/100th of a share of
the Companys Series A Participating Cumulative
Preferred Stock at an exercise price of $270.00, subject to
adjustment. 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 common stock
representing 4.9% or more of the then-outstanding shares of
common stock, or (b) 10 business days following the
commencement of a tender or exchange offer for Company common
stock representing 4.9% or more of the then-outstanding shares
of common stock. If 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 4.9% or more of the outstanding 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 may be redeemed prior to becoming
exercisable at a redemption price of $.005 per right. Unless
previously redeemed or exchanged, the rights will expire on
March 5, 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. Further, on January 22,
2009, the Company adopted a successor rights plan, dated as of
that date, and declared a dividend distribution of one preferred
share purchase right for each outstanding share of common stock.
The terms of the successor rights plan are substantially similar
to the Companys current rights plan, as amended. The
successor rights plan will take effect upon the expiration of
the rights issued pursuant to the existing rights plan. Unless
the rights issued pursuant to the successor
79
rights plan are earlier exchanged or redeemed, they will expire
on March 5, 2019, or on March 5, 2010 if the successor
rights plan has not been approved by the Companys
stockholders prior to that date.
Common Stock. As of November 30, 2008,
the Company was authorized to repurchase four million
shares of its common stock under a board-approved stock
repurchase program. The Company did not repurchase any of its
common stock under this program in 2008 or 2007. The Company
repurchased six million shares of its common stock in 2006
at an aggregate price of $377.4 million under stock
repurchase programs authorized by its board of directors. In
addition to the repurchases in 2006, which consisted of open
market transactions, the Company acquired $1.0 million in
2008, $6.9 million in 2007 and $16.7 million in 2006,
of common stock, which were previously issued shares delivered
to the Company by employees to satisfy withholding taxes on the
vesting of restricted stock awards. These transactions are not
considered repurchases under the share repurchase program.
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.
In November 2008, the Companys board of directors reduced
the quarterly cash dividend on the Companys common stock
to $.0625 per share from $.25 per share.
|
|
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 $4.1 million in 2008,
$6.2 million in 2007 and $10.8 million in 2006. 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, 2008, 2007 and 2006,
approximately 5%, 5% and 11%, 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. New awards may not be issued under
the 1999 Plan after April 2, 2009.
Stock
Options. Stock
option transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options outstanding at beginning of year
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
8,354,276
|
|
|
$
|
28.71
|
|
|
|
9,176,253
|
|
|
$
|
28.16
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
787,600
|
|
|
|
34.78
|
|
|
|
85,569
|
|
|
|
67.53
|
|
Exercised
|
|
|
(144,020
|
)
|
|
|
18.31
|
|
|
|
(327,681
|
)
|
|
|
24.27
|
|
|
|
(743,481
|
)
|
|
|
24.19
|
|
Cancelled
|
|
|
(182,042
|
)
|
|
|
42.33
|
|
|
|
(640,731
|
)
|
|
|
37.04
|
|
|
|
(164,065
|
)
|
|
|
38.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
8,173,464
|
|
|
$
|
30.17
|
|
|
|
8,354,276
|
|
|
$
|
28.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
7,321,170
|
|
|
$
|
29.77
|
|
|
|
7,238,598
|
|
|
$
|
28.98
|
|
|
|
7,428,952
|
|
|
$
|
26.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant at end of year
|
|
|
593,897
|
|
|
|
|
|
|
|
501,892
|
|
|
|
|
|
|
|
1,016,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended November 30, 2008, 2007 and 2006 was
$1.0 million, $5.5 million and $29.5 million,
respectively. The aggregate intrinsic value of options
outstanding was
80
$.1 million, $9.9 million and $199.1 million at
November 30, 2008, 2007 and 2006, respectively. The
aggregate intrinsic value of options exercisable at
November 30, 2008, 2007 and 2006 was $.1 million,
$9.9 million and $190.8 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 considers 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 elimination of the
Non-Employee Directors Stock Plans capacity.
Stock options outstanding at November 30, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
Range of Exercise Price
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
$ 8.88 to $15.64
|
|
|
1,519,401
|
|
|
$
|
14.76
|
|
|
|
7.83
|
|
|
|
1,519,401
|
|
|
$
|
14.76
|
|
|
|
|
|
$15.65 to $21.51
|
|
|
1,863,452
|
|
|
|
21.36
|
|
|
|
8.79
|
|
|
|
1,863,452
|
|
|
|
21.36
|
|
|
|
|
|
$21.52 to $34.05
|
|
|
1,943,963
|
|
|
|
31.80
|
|
|
|
9.66
|
|
|
|
1,852,297
|
|
|
|
31.98
|
|
|
|
|
|
$34.06 to $40.90
|
|
|
1,674,766
|
|
|
|
39.01
|
|
|
|
9.87
|
|
|
|
1,241,366
|
|
|
|
40.00
|
|
|
|
|
|
$40.91 to $69.63
|
|
|
845,820
|
|
|
|
55.47
|
|
|
|
8.79
|
|
|
|
844,654
|
|
|
|
55.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 8.88 to $69.63
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
9.05
|
|
|
|
7,321,170
|
|
|
$
|
29.77
|
|
|
|
9.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company granted no stock options in 2008. The weighted
average fair value of options granted in 2007 and 2006 was
$11.42 and $24.76, 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 and 2006, respectively: a risk-free interest rate
of 4.8% and 4.8%; an expected volatility factor for the market
price of the Companys common stock of 41.1% and 41.0%; a
dividend yield of 2.9% and 1.9%; and an expected life of
5 years and 5 years.
The Companys stock-based compensation expense related to
stock option grants was $5.0 million in 2008,
$9.4 million in 2007 and $19.4 million in 2006. As of
November 30, 2008, there was $2.2 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 1.1 years.
The Company records proceeds from the exercise of stock options
as additions to common stock and paid-in capital. Actual tax
shortfall realized for the tax deduction from stock option
exercises of $1.1 million in 2008, and actual tax benefits
realized for the tax deduction from stock option exercises of
$2.1 million and $17.5 million in 2007 and 2006,
respectively, were recorded as paid-in capital. In 2008, 2007
and 2006, the consolidated statement of cash flows reflects $0,
$.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 700,000 at
November 30, 2008 and 830,750 at November 30, 2007.
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
81
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 2008 and 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. The phantom shares vest in full at the end of three
years while the SARs vest in equal annual installments over
three years. There were 1,099,722 phantom shares and 2,424,507
SARs outstanding as of November 30, 2008, and 892,926
phantom shares and 1,100,519 SARs outstanding as of
November 30, 2007.
The Company recognized total compensation expense of
$7.1 million in 2008, $7.4 million in 2007 and
$4.7 million in 2006 related to restricted common 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 to support 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 is included in paid-in capital. Common stock held
in the Trust is not considered outstanding in the computations
of earnings (loss) per share. The Trust held 11,901,382 and
12,203,282 shares of common stock at November 30, 2008 and
2007, 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 $43.5 million at November 30,
2008 and $53.6 million at November 30, 2007.
On November 1, 2001, the Company implemented an unfunded
death benefit plan, the KB Home Death Benefit Only Plan, for
certain key management employees. In connection with the plan,
the Company has purchased cost recovery life insurance on the
lives of certain employees. Insurance contracts associated with
the plan are held by a trust, established as part of the plan to
implement and carry out the provisions of the plan and to
finance the benefits offered under the plan. The trust is the
owner and beneficiary of such contracts. The amount of the
coverage is designed to provide sufficient revenues to cover all
costs of the plan if assumptions made as to employment term,
mortality experience, policy earnings and other factors are
realized. The cash surrender value of these insurance contracts
was $15.0 million at November 30, 2008 and
$19.6 million at November 30, 2007.
82
The net periodic benefit cost of the Companys
postretirement benefit plans for the year ended
November 30, 2008 was $6.5 million, which included
service costs of $1.3 million, interest costs of
$2.9 million, amortization of prior service costs of
$1.6 million and other costs of $.7 million. The net
periodic benefit cost of these 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, and 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
liabilities related to the postretirement benefit plans were
$50.1 million at November 30, 2008 and
$49.1 million at November 30, 2007, and are included
in accrued expenses and other liabilities in the consolidated
balance sheets. For the years ended November 30, 2008 and
2007, 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 postretirement 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 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
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(18,704
|
)
|
|
$
|
10,504
|
|
|
$
|
(8,200
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(18,704
|
)
|
|
$
|
10,504
|
|
|
$
|
(8,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
236,961
|
|
|
$
|
27,195
|
|
|
$
|
264,156
|
|
Deferred
|
|
|
(156,772
|
)
|
|
|
(61,384
|
)
|
|
|
(218,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
80,189
|
|
|
$
|
(34,189
|
)
|
|
$
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized expenses
|
|
$
|
137,975
|
|
|
$
|
131,147
|
|
State taxes
|
|
|
36,699
|
|
|
|
56,751
|
|
Other
|
|
|
398
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,072
|
|
|
$
|
188,545
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory impairments and land option contract abandonments
|
|
$
|
483,199
|
|
|
$
|
479,716
|
|
2008 net operating loss
|
|
|
52,841
|
|
|
|
|
|
Warranty, legal and other accruals
|
|
|
191,209
|
|
|
|
198,118
|
|
Employee benefits
|
|
|
90,521
|
|
|
|
103,525
|
|
Partnerships and joint ventures
|
|
|
107,838
|
|
|
|
59,035
|
|
Depreciation and amortization
|
|
|
49,909
|
|
|
|
41,558
|
|
Capitalized expenses
|
|
|
9,039
|
|
|
|
19,530
|
|
Tax credits
|
|
|
59,676
|
|
|
|
18,823
|
|
Deferred income
|
|
|
2,741
|
|
|
|
9,411
|
|
Other
|
|
|
8,029
|
|
|
|
4,140
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,055,002
|
|
|
|
933,856
|
|
Valuation allowance
|
|
|
(878,778
|
)
|
|
|
(522,853
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
176,224
|
|
|
|
411,003
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,152
|
|
|
$
|
222,458
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income tax benefit (expense) computed at statutory rate
|
|
$
|
338,776
|
|
|
$
|
511,270
|
|
|
$
|
(200,148
|
)
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal income tax benefit
|
|
|
25,142
|
|
|
|
46,116
|
|
|
|
12,028
|
|
Non-deductible stock-based and other compensation and related
expenses
|
|
|
|
|
|
|
(3,574
|
)
|
|
|
(3,871
|
)
|
Internal Revenue Code Section 199 manufacturing deduction
|
|
|
|
|
|
|
|
|
|
|
6,265
|
|
Tax credits
|
|
|
(3,984
|
)
|
|
|
(3,594
|
)
|
|
|
4,625
|
|
Valuation allowance for deferred tax assets
|
|
|
(358,159
|
)
|
|
|
(514,234
|
)
|
|
|
|
|
Other, net
|
|
|
(9,975
|
)
|
|
|
10,016
|
|
|
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(8,200
|
)
|
|
$
|
46,000
|
|
|
$
|
(178,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized income tax expense of $8.2 million
in 2008, 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. These
amounts represent effective tax rates of .8% for 2008, 3.0% for
2007 and 31.0% for 2006. The change in the Companys
effective tax rate in 2008 from 2007 was primarily due to the
disallowance of tax benefits related to the Companys
current year loss as a result of a full valuation allowance. The
decrease in the Companys effective tax rate in 2007 from
2006 was primarily due to the noncash valuation allowance
recorded against net deferred tax assets.
In accordance with SFAS No. 109, the Company evaluates
its deferred tax assets quarterly to determine if valuation
allowances are required. SFAS No. 109 requires that
companies assess whether valuation allowances should be
established based on the consideration of all available evidence
using a more likely than not standard. For 2008, the
Company recorded a valuation allowance of $355.9 million against
its net deferred tax assets. The valuation allowance was
reflected as a noncash charge of $358.2 million to income
tax expense and a noncash benefit of $2.3 million to
accumulated other comprehensive loss (as a result of an
adjustment made in accordance with SFAS No. 158). For
2007, the Company recorded a valuation allowance totaling
approximately $522.9 million against its deferred tax
assets. The valuation allowance was reflected as a noncash
charge of $514.2 million to income tax expense and $8.7
million to accumulated other comprehensive income. The majority
of the tax benefits associated with the Companys net
deferred tax assets can be carried forward for 20 years and
applied to offset future taxable income. The Companys
deferred tax assets for which it did
84
not establish a valuation allowance relate to amounts that can
be realized through future reversals of existing taxable
temporary differences or through carrybacks to the 2007 and
2006 years. To the extent the Company generates sufficient
taxable income in the future to fully utilize the tax benefits
of the related deferred tax assets, the Company expects its
effective tax rate to decrease as the valuation allowance is
reversed.
The Company implemented the provisions of FASB Interpretation
No. 48 effective December 1, 2007. As of the date of
adoption, the Companys net liability for unrecognized tax
benefits was $18.3 million, which represented
$27.6 million of gross unrecognized tax benefits less
$9.3 million of indirect tax benefits. The Company
recognizes accrued interest and penalties related to
unrecognized tax benefits in its consolidated financial
statements as a component of the provision for income taxes. As
of November 30, 2008, the Companys liability for
gross unrecognized tax benefits was $18.3 million, of which
$7.0 million, if recognized, will affect the Companys
effective tax rate. The Company had $16.5 million and
$16.9 million in accrued interest and penalties at
December 1, 2007 and November 30, 2008, respectively.
It is reasonably possible that, within the next 12 months,
total unrecognized tax benefits may decrease as a result of the
potential resolution with the Internal Revenue Service relating
to issues stemming from fiscal years 2004 and 2005. However, any
such change cannot be estimated at this time.
A reconciliation of the beginning and ending balances of the
gross unrecognized tax benefits, excluding interest and
penalties, is as follows (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
November 30, 2008
|
|
Balance at beginning of year
|
|
$
|
27,617
|
|
Additions for tax positions related to prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
199
|
|
Settlements
|
|
|
(9,484
|
)
|
|
|
|
|
|
Balance at end of year
|
|
$
|
18,332
|
|
|
|
|
|
|
Included in the balance of gross unrecognized tax benefits at
the beginning of the year and the end of the year are tax
positions of $6.3 million and $4.3 million,
respectively, for which the ultimate deductibility is highly
certain but for which there is uncertainty about the timing of
such deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance
of the shorter deductibility period would not affect the annual
effective tax rate but would accelerate the payment of cash to
the tax authority to an earlier period.
The tax years
2004-2007
remain open to examination by major taxing jurisdictions to
which the Company is subject.
85
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Summary of cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,135,399
|
|
|
$
|
1,325,255
|
|
|
$
|
700,041
|
|
Financial services
|
|
|
6,119
|
|
|
|
18,487
|
|
|
|
15,417
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
88,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,141,518
|
|
|
$
|
1,343,742
|
|
|
$
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
20,726
|
|
|
$
|
29,572
|
|
|
$
|
|
|
Income taxes paid
|
|
|
(122,872
|
)
|
|
|
131,329
|
|
|
|
322,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories acquired through seller financing
|
|
$
|
90,028
|
|
|
$
|
4,139
|
|
|
$
|
128,726
|
|
Decrease in consolidated inventories not owned
|
|
|
(143,091
|
)
|
|
|
(409,505
|
)
|
|
|
(18,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
are included in discontinued operations in the Companys
consolidated statements of operations for all periods presented.
In addition, cash flows related to these discontinued operations
are presented separately in the consolidated statements of cash
flows for all periods presented.
The following amounts related to the French operations were
derived from historical financial information and have been
segregated from continuing operations and reported as
discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
911,841
|
|
|
$
|
1,623,709
|
|
Construction and land costs
|
|
|
(680,234
|
)
|
|
|
(1,187,484
|
)
|
Selling, general and administrative expenses
|
|
|
(129,407
|
)
|
|
|
(251,104
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
102,200
|
|
|
|
185,121
|
|
Interest income
|
|
|
1,199
|
|
|
|
643
|
|
Interest expense, net of amounts capitalized
|
|
|
|
|
|
|
(2,045
|
)
|
Minority interests
|
|
|
(38,665
|
)
|
|
|
(68,020
|
)
|
Equity in income of unconsolidated joint ventures
|
|
|
4,118
|
|
|
|
10,505
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
68,852
|
|
|
|
126,204
|
|
Income tax expense
|
|
|
(21,600
|
)
|
|
|
(36,800
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
47,252
|
|
|
$
|
89,404
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Note 20.
|
Quarterly
Results (unaudited)
|
Shown below are consolidated quarterly results for the Company
for the years ended November 30, 2008 and 2007 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
794,224
|
|
|
$
|
639,065
|
|
|
$
|
681,610
|
|
|
$
|
919,037
|
|
Gross profit (loss)
|
|
|
(121,333
|
)
|
|
|
(118,746
|
)
|
|
|
25,383
|
|
|
|
(76,950
|
)
|
Loss from continuing operations
|
|
|
(268,172
|
)
|
|
|
(255,930
|
)
|
|
|
(144,745
|
)
|
|
|
(307,284
|
)
|
Net loss
|
|
|
(268,172
|
)
|
|
|
(255,930
|
)
|
|
|
(144,745
|
)
|
|
|
(307,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(3.47
|
)
|
|
$
|
(3.30
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(3.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(3.47
|
)
|
|
$
|
(3.30
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(3.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Discontinued operations consist only 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 first, second, third and
fourth quarters of 2008 were inventory impairment charges of
$180.3 million, $154.0 million, $39.1 million and
$192.5 million, respectively. Gross profit (loss) in the
first, second and fourth quarters of 2008 also included pretax
charges for land option contract abandonments of
$7.3 million, $20.4 million, and $13.2 million,
respectively. There were no such charges in the third quarter of
2008. The loss from continuing operations in the first, second,
third and fourth quarters of 2008 also included pretax charges
for joint venture impairments of $36.4 million,
$2.2 million, $43.1 million and $60.2 million,
respectively. Included in gross profit (loss) in the first,
second, third and fourth quarters of 2007 were inventory
impairment charges of $5.0 million, $261.2 million,
$610.3 million and $233.5 million, respectively, and
pretax charges for land option contract abandonments of
$3.6 million, $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, $17.2 million and $97.9 million,
respectively.
The loss from continuing operations in the second and fourth
quarters of 2008 included pretax charges of $24.6 million
and $43.4 million, respectively, for goodwill impairments
recorded in accordance with SFAS No. 142. The loss
from continuing operations in the third quarter of 2007 included
a pretax charge of $107.9 million for goodwill impairments
recorded in accordance with SFAS No. 142.
87
The net loss in the first, second, third and fourth quarters of
2008 included charges of $100.0 million,
$98.9 million, $58.1 million and $98.9 million,
respectively, to record valuation allowances against net
deferred tax assets in accordance with SFAS No. 109.
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 net
deferred tax assets 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.
88
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,331,771
|
|
|
$
|
702,165
|
|
|
$
|
|
|
|
$
|
3,033,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
2,331,771
|
|
|
$
|
691,398
|
|
|
$
|
|
|
|
$
|
3,023,169
|
|
Construction and land costs
|
|
|
|
|
|
|
(2,555,911
|
)
|
|
|
(758,904
|
)
|
|
|
|
|
|
|
(3,314,815
|
)
|
Selling, general and administrative expenses
|
|
|
(74,075
|
)
|
|
|
(296,964
|
)
|
|
|
(129,988
|
)
|
|
|
|
|
|
|
(501,027
|
)
|
Goodwill impairment
|
|
|
(67,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(142,045
|
)
|
|
|
(521,104
|
)
|
|
|
(197,494
|
)
|
|
|
|
|
|
|
(860,643
|
)
|
Interest income
|
|
|
31,666
|
|
|
|
2,524
|
|
|
|
420
|
|
|
|
|
|
|
|
34,610
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
56,541
|
|
|
|
(34,946
|
)
|
|
|
(34,561
|
)
|
|
|
|
|
|
|
(12,966
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(10,742
|
)
|
|
|
(142,008
|
)
|
|
|
|
|
|
|
(152,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(53,838
|
)
|
|
|
(564,268
|
)
|
|
|
(373,643
|
)
|
|
|
|
|
|
|
(991,749
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
23,818
|
|
|
|
|
|
|
|
23,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax loss
|
|
|
(53,838
|
)
|
|
|
(564,268
|
)
|
|
|
(349,825
|
)
|
|
|
|
|
|
|
(967,931
|
)
|
Income tax expense
|
|
|
(400
|
)
|
|
|
(4,600
|
)
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
(8,200
|
)
|
Equity in net loss of subsidiaries
|
|
|
(921,893
|
)
|
|
|
|
|
|
|
|
|
|
|
921,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(976,131
|
)
|
|
$
|
(568,868
|
)
|
|
$
|
(353,025
|
)
|
|
$
|
921,893
|
|
|
$
|
(976,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,663,877
|
|
|
$
|
|
|
|
$
|
6,416,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,752,649
|
|
|
$
|
1,647,942
|
|
|
$
|
|
|
|
$
|
6,400,591
|
|
Construction and land costs
|
|
|
|
|
|
|
(5,299,357
|
)
|
|
|
(1,527,022
|
)
|
|
|
|
|
|
|
(6,826,379
|
)
|
Selling, general and administrative expenses
|
|
|
(104,646
|
)
|
|
|
(518,912
|
)
|
|
|
(201,063
|
)
|
|
|
|
|
|
|
(824,621
|
)
|
Goodwill impairment
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(212,572
|
)
|
|
|
(1,065,620
|
)
|
|
|
(80,143
|
)
|
|
|
|
|
|
|
(1,358,335
|
)
|
Interest income
|
|
|
21,869
|
|
|
|
6,193
|
|
|
|
574
|
|
|
|
|
|
|
|
28,636
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
179,100
|
|
|
|
(146,204
|
)
|
|
|
(45,886
|
)
|
|
|
|
|
|
|
(12,990
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(26,105
|
)
|
|
|
(125,812
|
)
|
|
|
|
|
|
|
(151,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding pretax loss
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(251,267
|
)
|
|
|
|
|
|
|
(1,494,606
|
)
|
Financial services pretax income
|
|
|
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
33,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(11,603
|
)
|
|
|
(1,231,736
|
)
|
|
|
(217,431
|
)
|
|
|
|
|
|
|
(1,460,770
|
)
|
Income tax benefit
|
|
|
400
|
|
|
|
38,800
|
|
|
|
6,800
|
|
|
|
|
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before equity in net loss of
subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
(210,631
|
)
|
|
|
|
|
|
|
(1,414,770
|
)
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries
|
|
|
(11,203
|
)
|
|
|
(1,192,936
|
)
|
|
|
274,725
|
|
|
|
|
|
|
|
(929,414
|
)
|
Equity in net income (loss) of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
1,403,567
|
|
|
|
|
|
Discontinued operations
|
|
|
485,356
|
|
|
|
|
|
|
|
|
|
|
|
(485,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(929,414
|
)
|
|
$
|
(1,192,936
|
)
|
|
$
|
274,725
|
|
|
$
|
918,211
|
|
|
$
|
(929,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income
|
|
|
1,256
|
|
|
|
3,485
|
|
|
|
762
|
|
|
|
|
|
|
|
5,503
|
|
Loss on early redemption/interest expense, net of amounts
capitalized
|
|
|
201,837
|
|
|
|
(153,141
|
)
|
|
|
(65,374
|
)
|
|
|
|
|
|
|
(16,678
|
)
|
Equity in income (loss) of unconsolidated joint ventures
|
|
|
27,653
|
|
|
|
(25,272
|
)
|
|
|
(23,211
|
)
|
|
|
|
|
|
|
(20,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
CONDENSED
CONSOLIDATING BALANCE SHEETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
987,057
|
|
|
$
|
25,067
|
|
|
$
|
123,275
|
|
|
$
|
|
|
|
$
|
1,135,399
|
|
Restricted cash
|
|
|
115,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,404
|
|
Receivables
|
|
|
218,600
|
|
|
|
126,713
|
|
|
|
12,406
|
|
|
|
|
|
|
|
357,719
|
|
Inventories
|
|
|
|
|
|
|
1,748,526
|
|
|
|
358,190
|
|
|
|
|
|
|
|
2,106,716
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
176,290
|
|
|
|
1,359
|
|
|
|
|
|
|
|
177,649
|
|
Other assets
|
|
|
83,028
|
|
|
|
13,954
|
|
|
|
2,279
|
|
|
|
|
|
|
|
99,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,404,089
|
|
|
|
2,090,550
|
|
|
|
497,509
|
|
|
|
|
|
|
|
3,992,148
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
52,152
|
|
|
|
|
|
|
|
52,152
|
|
Investments in subsidiaries
|
|
|
51,848
|
|
|
|
|
|
|
|
|
|
|
|
(51,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,455,937
|
|
|
$
|
2,090,550
|
|
|
$
|
549,661
|
|
|
$
|
(51,848
|
)
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
190,455
|
|
|
$
|
786,717
|
|
|
$
|
285,519
|
|
|
$
|
|
|
|
$
|
1,262,691
|
|
Mortgages and notes payable
|
|
|
1,845,169
|
|
|
|
96,368
|
|
|
|
|
|
|
|
|
|
|
|
1,941,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,035,624
|
|
|
|
883,085
|
|
|
|
285,519
|
|
|
|
|
|
|
|
3,204,228
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
9,467
|
|
|
|
|
|
|
|
9,467
|
|
Intercompany
|
|
|
(1,410,292
|
)
|
|
|
1,207,465
|
|
|
|
202,827
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
830,605
|
|
|
|
|
|
|
|
51,848
|
|
|
|
(51,848
|
)
|
|
|
830,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,455,937
|
|
|
$
|
2,090,550
|
|
|
$
|
549,661
|
|
|
$
|
(51,848
|
)
|
|
$
|
4,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
199,254
|
|
|
|
97,756
|
|
|
|
|
|
|
|
297,010
|
|
Other assets
|
|
|
405,306
|
|
|
|
19,892
|
|
|
|
5,942
|
|
|
|
|
|
|
|
431,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2008
|
|
|
|
KB Home
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Corporate
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(976,131
|
)
|
|
$
|
(568,868
|
)
|
|
$
|
(353,025
|
)
|
|
$
|
921,893
|
|
|
$
|
(976,131
|
)
|
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
221,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,306
|
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
469,017
|
|
|
|
137,774
|
|
|
|
|
|
|
|
606,791
|
|
Goodwill impairment
|
|
|
67,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,970
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(92,069
|
)
|
|
|
24,376
|
|
|
|
7,128
|
|
|
|
|
|
|
|
(60,565
|
)
|
Inventories
|
|
|
|
|
|
|
409,629
|
|
|
|
136,221
|
|
|
|
|
|
|
|
545,850
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(20,246
|
)
|
|
|
(210,319
|
)
|
|
|
(52,216
|
)
|
|
|
|
|
|
|
(282,781
|
)
|
Other, net
|
|
|
48,519
|
|
|
|
19,978
|
|
|
|
150,385
|
|
|
|
|
|
|
|
218,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(750,651
|
)
|
|
|
143,813
|
|
|
|
26,267
|
|
|
|
921,893
|
|
|
|
341,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
(115,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,404
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
8,985
|
|
|
|
(68,610
|
)
|
|
|
|
|
|
|
(59,625
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
5,837
|
|
|
|
(55
|
)
|
|
|
1,291
|
|
|
|
|
|
|
|
7,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
(109,567
|
)
|
|
|
8,930
|
|
|
|
(67,319
|
)
|
|
|
|
|
|
|
(167,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of senior subordinated notes
|
|
|
(305,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,814
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(12,800
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,800
|
)
|
Payments of cash dividends
|
|
|
(62,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,967
|
)
|
Repurchase of common stock
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967
|
)
|
Other, net
|
|
|
6,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,958
|
|
Intercompany
|
|
|
1,105,636
|
|
|
|
(186,395
|
)
|
|
|
2,652
|
|
|
|
(921,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
742,846
|
|
|
|
(199,195
|
)
|
|
|
2,652
|
|
|
|
(921,893
|
)
|
|
|
(375,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(117,372
|
)
|
|
|
(46,452
|
)
|
|
|
(38,400
|
)
|
|
|
|
|
|
|
(202,224
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,104,429
|
|
|
|
71,519
|
|
|
|
167,794
|
|
|
|
|
|
|
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
987,057
|
|
|
$
|
25,067
|
|
|
$
|
129,394
|
|
|
$
|
|
|
|
$
|
1,141,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
208,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,348
|
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
1,173,855
|
|
|
|
80,127
|
|
|
|
|
|
|
|
1,253,982
|
|
Goodwill impairment
|
|
|
107,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,926
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(121,225
|
)
|
|
|
41,726
|
|
|
|
8,093
|
|
|
|
|
|
|
|
(71,406
|
)
|
Inventories
|
|
|
|
|
|
|
367,142
|
|
|
|
412,733
|
|
|
|
|
|
|
|
779,875
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(199,306
|
)
|
|
|
62,000
|
|
|
|
(203,324
|
)
|
|
|
|
|
|
|
(340,630
|
)
|
Other, net
|
|
|
(151,042
|
)
|
|
|
53,528
|
|
|
|
323,691
|
|
|
|
|
|
|
|
226,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
(1,522,817
|
)
|
|
|
505,315
|
|
|
|
363,437
|
|
|
|
1,403,567
|
|
|
|
749,502
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
297,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(1,522,817
|
)
|
|
|
505,315
|
|
|
|
660,834
|
|
|
|
1,403,567
|
|
|
|
1,046,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations, net of cash divested
|
|
|
739,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,764
|
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(35,227
|
)
|
|
|
(49,961
|
)
|
|
|
|
|
|
|
(85,188
|
)
|
Sales (purchases) of property and equipment, net
|
|
|
(558
|
)
|
|
|
(201
|
)
|
|
|
1,444
|
|
|
|
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
739,206
|
|
|
|
(35,428
|
)
|
|
|
(48,517
|
)
|
|
|
|
|
|
|
655,261
|
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
739,206
|
|
|
|
(35,428
|
)
|
|
|
(60,629
|
)
|
|
|
|
|
|
|
643,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of term loan
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400,000
|
)
|
Redemption of senior subordinated notes
|
|
|
(258,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,968
|
)
|
Payments on mortgages, land contracts and other loans
|
|
|
|
|
|
|
(87,566
|
)
|
|
|
(26,553
|
)
|
|
|
|
|
|
|
(114,119
|
)
|
Payments of cash dividends
|
|
|
(77,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,170
|
)
|
Repurchases of common stock
|
|
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,896
|
)
|
Other, net
|
|
|
13,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,192
|
|
Intercompany
|
|
|
2,170,661
|
|
|
|
(461,631
|
)
|
|
|
(305,463
|
)
|
|
|
(1,403,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
continuing operations
|
|
|
1,440,819
|
|
|
|
(549,197
|
)
|
|
|
(332,016
|
)
|
|
|
(1,403,567
|
)
|
|
|
(843,961
|
)
|
Net cash used by financing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
(306,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
1,440,819
|
|
|
|
(549,197
|
)
|
|
|
(638,543
|
)
|
|
|
(1,403,567
|
)
|
|
|
(1,150,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
657,208
|
|
|
|
(79,310
|
)
|
|
|
(38,338
|
)
|
|
|
|
|
|
|
539,560
|
|
Cash and cash equivalents at beginning of year
|
|
|
447,221
|
|
|
|
150,829
|
|
|
|
206,132
|
|
|
|
|
|
|
|
804,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,104,429
|
|
|
$
|
71,519
|
|
|
$
|
167,794
|
|
|
$
|
|
|
|
$
|
1,343,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(189,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,047
|
)
|
Inventory impairments and land option contract abandonments
|
|
|
|
|
|
|
252,642
|
|
|
|
119,995
|
|
|
|
|
|
|
|
372,637
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
1,464
|
|
|
|
(10,126
|
)
|
|
|
(14,867
|
)
|
|
|
|
|
|
|
(23,529
|
)
|
Inventories
|
|
|
|
|
|
|
(156,135
|
)
|
|
|
(200,207
|
)
|
|
|
|
|
|
|
(356,342
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(63,541
|
)
|
|
|
125,535
|
|
|
|
143,713
|
|
|
|
|
|
|
|
205,707
|
|
Other, net
|
|
|
96,937
|
|
|
|
35,116
|
|
|
|
(112,813
|
)
|
|
|
|
|
|
|
19,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
continuing operations
|
|
|
328,164
|
|
|
|
674,682
|
|
|
|
(239,533
|
)
|
|
|
(341,700
|
)
|
|
|
421,613
|
|
Net cash provided by operating activities
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
229,505
|
|
|
|
|
|
|
|
229,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
328,164
|
|
|
|
674,682
|
|
|
|
(10,028
|
)
|
|
|
(341,700
|
)
|
|
|
651,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of investment in unconsolidated joint venture
|
|
|
57,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,767
|
|
Investments in unconsolidated joint ventures
|
|
|
22,587
|
|
|
|
(98,505
|
)
|
|
|
(103,266
|
)
|
|
|
|
|
|
|
(179,184
|
)
|
Purchases of property and equipment, net
|
|
|
(3,146
|
)
|
|
|
(8,674
|
)
|
|
|
(5,818
|
)
|
|
|
|
|
|
|
(17,638
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
continuing operations
|
|
|
77,208
|
|
|
|
(107,179
|
)
|
|
|
(108,312
|
)
|
|
|
|
|
|
|
(138,283
|
)
|
Net cash used by investing activities discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
77,208
|
|
|
|
(107,179
|
)
|
|
|
(112,789
|
)
|
|
|
|
|
|
|
(142,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Payments of cash dividends
|
|
|
(78,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,258
|
)
|
Repurchases of common stock
|
|
|
(394,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(394,080
|
)
|
Other, net
|
|
|
89,571
|
|
|
|
(33,494
|
)
|
|
|
(12,236
|
)
|
|
|
|
|
|
|
43,841
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 22. Subsequent
Events
On December 15, 2008, the Company redeemed the
$200 Million Senior Subordinated Notes upon their scheduled
maturity.
On January 22, 2009, the Company adopted an amendment to
the 1989 Rights Plan and a successor rights plan designed to
preserve the value of certain of the Companys net deferred
tax assets. The amendment and the successor rights plan are
discussed in Note 14. Stockholders Equity in this
Form 10-K.
94
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, 2008 and 2007, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended November 30, 2008. 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, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
November 30, 2008, in conformity with U.S. generally
accepted accounting principles.
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), KB
Homes internal control over financial reporting as of
November 30, 2008, 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 26, 2009 expressed an
unqualified opinion thereon.
Los Angeles, California
January 26, 2009
95
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
Item
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We have established disclosure controls and procedures to ensure
that information we are required to disclose in the reports we
file or submit under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and
accumulated and communicated to management, including the
President and Chief Executive Officer (the Principal
Executive Officer) and Senior Vice President and Chief
Accounting Officer (the Principal Financial
Officer), as appropriate, to allow timely decisions
regarding required disclosure. Under the supervision and with
the participation of senior management, including our Principal
Executive Officer and Principal Financial Officer, we evaluated
our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934. Based on this evaluation, our Principal Executive
Officer and Principal Financial Officer concluded that our
disclosure controls and procedures were effective as of
November 30, 2008.
Internal
Control Over Financial Reporting
(a) Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
under the Securities and Exchange Act of 1934. Under the
supervision and with the participation of senior management,
including our Principal Executive Officer and Principal
Financial Officer, we evaluated the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on the evaluation under that framework and
applicable SEC rules, our management concluded that our internal
control over financial reporting was effective as of
November 30, 2008.
Ernst & Young LLP, the Independent registered public
accounting firm that audited the Companys consolidated
financial statements included in this annual report, has issued
its report on the effectiveness of the Companys internal
control over financial reporting as of November 30, 2008.
(b) Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of KB Home:
We have audited KB Homes internal control over financial
reporting as of November 30, 2008, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). KB Homes
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
96
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, 2008, 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,
2008 and 2007, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended November 30, 2008
and our report dated January 26, 2009 expressed an
unqualified opinion thereon.
Los Angeles, California
January 26, 2009
(c) Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended November 30,
2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item
9B.
|
OTHER
INFORMATION
|
None.
97
The information required by this item for executive officers is
set forth under the heading Executive Officers of the
Registrant in Part I. Except as set forth below, the
other information called for by this item is incorporated by
reference to the Corporate Governance and Board
Matters and the Proposal 1: Election of
Directors sections of our Proxy Statement for the 2009
Annual Meeting of Stockholders, which will be filed with the SEC
not later than March 30, 2009 (120 days after the end of
our fiscal year) (the 2009 Proxy Statement).
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 at
http://www.kbhome.com/investor any amendment to our Ethics
Policy and any waiver applicable to our principal executive
officer, principal financial officer or principal accounting
officer, or persons performing similar functions, and our other
executive officers or directors.
Corporate
Governance Principles
We have adopted Corporate Governance Principles, which are
available on our website at http://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 April 14, 2008, 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 the 2009 Proxy Statement.
|
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to the Ownership of KB Home Securities
section of the 2009 Proxy Statement, except for the information
required by Item 201(d) of Regulation S-K, which is provided
below.
98
The following table provides information as of November 30,
2008 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
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
593,897
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,847,402
|
|
|
$
|
30.11
|
|
|
|
593,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 the Director Compensation section of
our 2009 Proxy Statement, 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 consider 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
2009 Proxy Statement.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the Independent Auditor Fees and
Services section of our 2009 Proxy Statement.
99
PART IV
|
|
Item 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Financial
Statements
Reference is made to the index set forth on page 55 of this
Annual Report on
Form 10-K.
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
3
|
.2
|
|
Certificate of Designation of Series A Participating Cumulative
Preferred Stock, dated as of January 22, 2009, filed as an
exhibit to the Companys Current Report on Form 8-K/A dated
January 28, 2009, is incorporated by reference herein.
|
|
3
|
.3
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
4
|
.1
|
|
Rights Agreement between the Company and Mellon Investor
Services LLC, as rights agent, dated January 22, 2009,
filed as an exhibit to the Companys Current Report on Form
8-K/A dated January 28, 2009, is incorporated by reference
herein.
|
|
4
|
.2
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated February 4, 1999, filed
as an exhibit to the Companys Current Report on Form 8-K
dated February 4, 1999, is incorporated by reference herein.
|
|
4
|
.3
|
|
First Amendment, dated as of April 29, 2005, to the Rights
Agreement, dated as of February 4, 1999, between the Company and
Mellon Investor Services LLC, as rights agent, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended May 31, 2005, is incorporated by reference
herein.
|
|
4
|
.4
|
|
Second Amendment, dated as of January 22, 2009, to the Rights
Agreement, dated as of February 4, 1999 and amended as of April
29, 2005, between the Company and Mellon Investor Services LLC,
as rights agent, filed as an exhibit to the Companys
Current Report on Form 8-K/A dated January 28, 2009, is
incorporated by reference herein.
|
|
4
|
.5
|
|
Indenture and Supplemental Indenture relating to
53/4% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
4
|
.6
|
|
Second Supplemental Indenture relating to
63/8% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
4
|
.7
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
4
|
.8
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
4
|
.9
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
4
|
.10
|
|
Specimen of
53/4% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
100
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.11
|
|
Specimen of
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.12
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
4
|
.13
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated June 2, 2005, is incorporated by reference herein.
|
|
4
|
.14
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
4
|
.15
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated June 27, 2005, is incorporated by reference herein.
|
|
4
|
.16
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
4
|
.17
|
|
Specimen of
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
4
|
.18
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
10
|
.2*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.3*
|
|
Amendment to Kaufman and Broad, Inc. Executive Deferred
Compensation Plan for amounts earned or vested on or after
January 1, 2005, effective January 1, 2009.
|
|
10
|
.4*
|
|
KB Home 1986 Stock Option Plan, as amended and restated on
October 2, 2008.
|
|
10
|
.5*
|
|
KB Home 1988 Employee Stock Plan, as amended and restated on
October 2, 2008.
|
|
10
|
.6*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989,
filed as an exhibit to the Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.7
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.8*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
as amended and restated on October 2, 2008.
|
|
10
|
.9*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.10*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
10
|
.11*
|
|
KB Home 1998 Stock Incentive Plan, as amended and restated on
October 2, 2008.
|
|
10
|
.12
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.13
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended and
restated on October 2, 2008.
|
|
10
|
.15*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
101
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.16*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.17*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
10
|
.18*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.19*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.20*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
|
10
|
.21*
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
10
|
.22*
|
|
KB Home 2001 Stock Incentive Plan, as amended and restated on
October 2, 2008.
|
|
10
|
.23*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.24*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.25*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals prior to January 1, 2005, effective March 1,
2001, filed as an exhibit to the Companys 2001 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
10
|
.26*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals on and after January 1, 2005, effective
January 1, 2009.
|
|
10
|
.27*
|
|
KB Home Change in Control Severance Plan, as amended and
restated effective January 1, 2009.
|
|
10
|
.28*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
10
|
.29*
|
|
Amendment No. 1 to the KB Home Death Benefit Only Plan,
effective as of January 1, 2009.
|
|
10
|
.30*
|
|
KB Home Retirement Plan, as amended and restated effective
January 1, 2009.
|
|
10
|
.31
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated effective January 1, 2009.
|
|
10
|
.32
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
10
|
.33
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., filed as an exhibit to the Companys Current
Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
10
|
.34
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as administrative agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
10
|
.35
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
10
|
.36
|
|
Fourth Amendment Agreement, dated January 25, 2008, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated January 28, 2008, is incorporated by reference
herein.
|
102
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.37
|
|
Fifth Amendment, dated August 28, 2008, to Revolving Loan
Agreement, dated as of November 22, 2005, among the
Company, as Borrower, the banks party thereto, and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 29, 2008, is incorporated by reference herein.
|
|
10
|
.38*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
10
|
.39*
|
|
Amendment to the Employment Agreement of Jeffrey T. Mezger,
dated December 24, 2008.
|
|
10
|
.40*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.41*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.42*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
10
|
.43*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.44*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
10
|
.45*
|
|
Description of fiscal year 2007 bonus arrangements with the
Companys Named Executive Officers and description of
fiscal year 2008 annual incentive compensation arrangements with
executive officers, each determined on January 22, 2008,
filed on the Companys Current Report on
Form 8-K
dated January 25, 2008, is incorporated by reference herein.
|
|
10
|
.46*
|
|
Policy Regarding Stockholder Approval of Certain Severance
Payments, adopted July 10, 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
July 15, 2008, is incorporated by reference herein.
|
|
10
|
.47*
|
|
KB Home Executive Severance Plan, filed as an exhibit to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2008, is incorporated by
reference herein.
|
|
10
|
.48*
|
|
Description of Fiscal Year 2009 Long-Term Incentive Awards to
the Companys Named Executive Officers granted on
October 2, 2008, filed on the Companys Current Report
on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
10
|
.49*
|
|
Form of Fiscal Year 2009 Stock Appreciation Rights Agreement,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
10
|
.50*
|
|
Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
31
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
32
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
|
32
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
Document filed with this Form 10-K.
103
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.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KB Home
|
|
|
|
By:
|
/s/ WILLIAM
R. HOLLINGER
|
William R. Hollinger
Senior Vice President and Chief Accounting Officer
Date: January 22, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ JEFFREY T. MEZGER Jeffrey T. Mezger
|
|
Director, President and
Chief Executive Officer
(Principal Executive Officer)
|
|
January 22, 2009
|
|
|
|
|
|
/s/ WILLIAM R. HOLLINGER William R. Hollinger
|
|
Senior Vice President and
Chief Accounting Officer
(Principal Financial and Accounting Officer)
|
|
January 22, 2009
|
|
|
|
|
|
/s/ STEPHEN F. BOLLENBACH Stephen F. Bollenbach
|
|
Chairman of the Board and Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ RONALD W. BURKLE Ronald W. Burkle
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ TIMOTHY W. FINCHEM Timothy W. Finchem
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ KENNETH M. JASTROW, II Kenneth M. Jastrow, II
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ ROBERT L. JOHNSON Robert L. Johnson
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ MELISSA LORA Melissa Lora
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ MICHAEL G. MCCAFFERY Michael G. McCaffery
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ LESLIE MOONVES Leslie Moonves
|
|
Director
|
|
January 22, 2009
|
|
|
|
|
|
/s/ LUIS G. NOGALES Luis G. Nogales
|
|
Director
|
|
January 22, 2009
|
105
LIST OF
EXHIBITS FILED
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
2
|
.1
|
|
Share Purchase Agreement, dated May 22, 2007, by and
between KB Home, Kaufman and Broad Development Group,
International Mortgage Acceptance Corporation, Kaufman and Broad
International, Inc. and Financière Gaillon 8 S.A.S., filed
as an exhibit to the Companys Current Report on
Form 8-K
dated May 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation, filed as an exhibit to
the Companys Quarterly Report on Form 10-Q for the quarter
ended February 28, 2007, is incorporated by reference
herein.
|
|
|
|
|
|
3
|
.2
|
|
Certificate of Designation of Series A Participating Cumulative
Preferred Stock, dated as of January 22, 2009, filed as an
exhibit to the Companys Current Report on Form 8-K/A
dated January 28, 2009, is incorporated by reference herein.
|
|
|
|
|
|
3
|
.3
|
|
By-Laws, as amended and restated on April 5, 2007, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended February 28, 2007, is incorporated by
reference herein.
|
|
|
|
|
|
4
|
.1
|
|
Rights Agreement between the Company and Mellon Investor
Services LLC, as rights agent, dated January 22, 2009,
filed as an exhibit to the Companys Current Report on
Form 8-K/A dated January 28, 2009, is incorporated by
reference herein.
|
|
|
|
|
|
4
|
.2
|
|
Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated February 4, 1999, filed
as an exhibit to the Companys Current Report on Form 8-K
dated February 4, 1999, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.3
|
|
First Amendment, dated as of April 29, 2005, to the Rights
Agreement, dated as of February 4, 1999, between the Company and
Mellon Investor Services LLC, as rights agent, filed as an
exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended May 31, 2005, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.4
|
|
Second Amendment, dated as of January 22, 2009, to the Rights
Agreement, dated as of February 4, 1999 and amended as of April
29, 2005, between the Company and Mellon Investor Services LLC,
as rights agent, filed as an exhibit to the Companys
Current Report on Form 8-K/A dated January 28, 2009, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.5
|
|
Indenture and Supplemental Indenture relating to
53/4% Senior
Notes due 2014 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, each dated January 28, 2004,
filed as exhibits to the Companys Registration Statement
No. 333-114761
on
Form S-4,
are incorporated by reference herein.
|
|
|
|
|
|
4
|
.6
|
|
Second Supplemental Indenture relating to
63/8% Senior
Notes due 2011 among the Company, the Guarantors and Sun
Trust Bank, Atlanta, dated June 30, 2004, filed as an
exhibit to the Companys registration statement
No. 333-119228
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.7
|
|
Third Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein, the Subsidiary Guarantor named therein and SunTrust
Bank, dated as of May 1, 2006, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated May 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.8
|
|
Fourth Supplemental Indenture relating to the Companys
Senior Notes by and between the Company, the Guarantors named
therein and U.S. Bank National Association, dated as of
November 9, 2006, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.9
|
|
Fifth Supplemental Indenture, dated August 17, 2007,
relating to the Companys Senior Notes by and between the
Company, the Guarantors, and the Trustee, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
4
|
.10
|
|
Specimen of
53/4% Senior
Notes due 2014, filed as an exhibit to the Companys
Registration Statement
No. 333-114761
on
Form S-4,
is incorporated by reference herein.
|
|
|
|
|
|
4
|
.11
|
|
Specimen of
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.12
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
57/8% Senior
Notes due 2015, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated December 15, 2004, is incorporated by reference
herein.
|
|
|
|
|
|
4
|
.13
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.14
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 2, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.15
|
|
Specimen of
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.16
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
61/4%
Senior Notes due 2015, filed as an exhibit to the Companys
Current Report on Form 8-K dated June 27, 2005, is
incorporated by reference herein.
|
|
|
|
|
|
4
|
.17
|
|
Specimen of
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
4
|
.18
|
|
Form of officers certificates and guarantors
certificates establishing the terms of the
71/4% Senior
Notes due 2018, filed as an exhibit to the Companys
Current Report on
Form 8-K
dated April 3, 2006, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.1
|
|
Consent Order, Federal Trade Commission Docket No. C-2954,
dated February 12, 1979, filed as an exhibit to the
Companys Registration Statement No. 33-6471 on
Form S-1, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.2*
|
|
Kaufman and Broad, Inc. Executive Deferred Compensation Plan,
effective as of July 11, 1985, filed as an exhibit to the
Companys 2007 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.3*
|
|
Amendment to Kaufman and Broad, Inc. Executive Deferred
Compensation Plan for amounts earned or vested on or after
January 1, 2005, effective January 1, 2009.
|
|
|
|
|
|
10
|
.4*
|
|
KB Home 1986 Stock Option Plan, as amended and restated on
October 2, 2008.
|
|
|
|
|
|
10
|
.5*
|
|
KB Home 1988 Employee Stock Plan, as amended and restated on
October 2, 2008.
|
|
|
|
|
|
10
|
.6*
|
|
Kaufman and Broad Home Corporation Directors Deferred
Compensation Plan established effective as of July 27, 1989,
filed as an exhibit to the Companys 2007 Annual Report on
Form 10-K, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.7
|
|
Consent decree, dated July 2, 1991, relating to Federal
Trade Commission Consent Order, filed as an exhibit to the
Companys 2007 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.8*
|
|
KB Home Performance-Based Incentive Plan for Senior Management,
as amended and restated on October 2, 2008.
|
|
|
|
|
|
10
|
.9*
|
|
Form of Stock Option Agreement under KB Home Performance-Based
Incentive Plan for Senior Management, filed as an exhibit to the
Companys 1995 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.10*
|
|
KB Home Unit Performance Program, filed as an exhibit to the
Companys 1996 Annual Report on Form 10-K, is
incorporated by reference herein.
|
|
|
|
|
|
10
|
.11*
|
|
KB Home 1998 Stock Incentive Plan, as amended and restated on
October 2, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
10
|
.12
|
|
KB Home Directors Legacy Program, as amended
January 1, 1999, filed as an exhibit to the Companys
1998 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.13
|
|
Trust Agreement between Kaufman and Broad Home Corporation and
Wachovia Bank, N.A. as Trustee, dated as of August 27,
1999, filed as an exhibit to the Companys 1999 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.14*
|
|
Amended and Restated KB Home 1999 Incentive Plan, as amended and
restated on October 2, 2008.
|
|
|
|
|
|
10
|
.15*
|
|
Form of Non-Qualified Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.16*
|
|
Form of Incentive Stock Option Agreement under the
Companys Amended and Restated 1999 Incentive Plan, filed
as an exhibit to the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.17*
|
|
Form of Restricted Stock Agreement under the Companys
Amended and Restated 1999 Incentive Plan, filed as an exhibit to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended May 31, 2006, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.18*
|
|
Form of Amended and Restated 1999 Incentive Plan Stock
Appreciation Right Agreement, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.19*
|
|
Form of Amended and Restated 1999 Incentive Plan Phantom Share
Agreement, filed as an exhibit to the Companys Current
Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.20*
|
|
Amended and Restated Employment Agreement of Bruce Karatz, dated
July 11, 2001, filed as an exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended
August 31, 2001, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.21*
|
|
Tolling Agreement, dated as of November 12, 2006, by and
between the Company and Bruce Karatz, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated November 13, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.22*
|
|
KB Home 2001 Stock Incentive Plan, as amended and restated on
October 2, 2008.
|
|
|
|
|
|
10
|
.23*
|
|
Form of Stock Option Agreement under the Companys 2001
Stock Incentive Plan, filed as an exhibit to the Companys
2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.24*
|
|
Form of Stock Restriction Agreement under the Companys
2001 Stock Incentive Plan, filed as an exhibit to the
Companys 2006 Annual Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.25*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals prior to January 1, 2005, effective March 1,
2001, filed as an exhibit to the Companys 2001 Annual
Report on
Form 10-K,
is incorporated by reference herein.
|
|
|
|
|
|
10
|
.26*
|
|
KB Home Nonqualified Deferred Compensation Plan with respect to
deferrals on and after January 1, 2005, effective
January 1, 2009.
|
|
|
|
|
|
10
|
.27*
|
|
KB Home Change in Control Severance Plan, as amended and
restated effective January 1, 2009.
|
|
|
|
|
|
10
|
.28*
|
|
KB Home Death Benefit Only Plan, filed as an exhibit to the
Companys 2001 Annual Report on Form 10-K, is incorporated
by reference herein.
|
|
|
|
|
|
10
|
.29*
|
|
Amendment No. 1 to the KB Home Death Benefit Only Plan,
effective as of January 1, 2009.
|
|
|
|
|
|
10
|
.30*
|
|
KB Home Retirement Plan, as amended and restated effective
January 1, 2009.
|
|
|
|
|
|
10
|
.31
|
|
KB Home Non-Employee Directors Stock Plan, as amended and
restated effective January 1, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
10
|
.32
|
|
Revolving Loan Agreement, dated as of November 22, 2005,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated November 23, 2005, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.33
|
|
First Amendment, dated as of October 10, 2006, to the
Revolving Loan Agreement dated as of November 22, 2005
among the Company, the lenders party thereto and Bank of
America, N.A., filed as an exhibit to the Companys Current
Report on
Form 8-K
dated October 19, 2006, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.34
|
|
Second Amendment to the Revolving Loan Agreement dated as of
November 22, 2005 among KB Home, the lenders party thereto,
and Bank of America, N.A., as administrative agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated December 12, 2006, is incorporated by reference
herein.
|
|
|
|
|
|
10
|
.35
|
|
Third Amendment Agreement, dated August 17, 2007, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated August 22, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.36
|
|
Fourth Amendment Agreement, dated January 25, 2008, to
Revolving Loan Agreement, dated as of November 22, 2005,
between the Company, as Borrower, the banks party thereto, and
Bank of America, N.A., as Administrative Agent, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated January 28, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.37
|
|
Fifth Amendment, dated August 28, 2008, to Revolving Loan
Agreement, dated as of November 22, 2005, among the
Company, as Borrower, the banks party thereto, and Bank of
America, N.A., as Administrative Agent, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated August 29, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.38*
|
|
Employment Agreement of Jeffrey T. Mezger, dated
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated March 6, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.39*
|
|
Amendment to the Employment Agreement of Jeffrey T. Mezger,
dated December 24, 2008.
|
|
|
|
|
|
10
|
.40*
|
|
Amended and Restated 1999 Incentive Plan Performance Stock
Agreement between the Company and Jeffrey T. Mezger, filed
as an exhibit to the Companys Current Report on Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.41*
|
|
Form of Stock Option Agreement under the Employment Agreement
between the Company and Jeffrey T. Mezger dated as of
February 28, 2007, filed as an exhibit to the
Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.42*
|
|
Form of Stock Option Agreement under the Amended and Restated
1999 Incentive Plan for stock option grant to Jeffrey T.
Mezger, filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31,
2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.43*
|
|
Form of Phantom Share Agreement for Non-Senior Management, filed
as an exhibit to the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.44*
|
|
Form of Over Cap Phantom Share Agreement, filed as an exhibit to
the Companys Current Report on
Form 8-K
dated July 18, 2007, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.45*
|
|
Description of fiscal year 2007 bonus arrangements with the
Companys Named Executive Officers and description of
fiscal year 2008 annual incentive compensation arrangements with
executive officers, each determined on January 22, 2008,
filed on the Companys Current Report on
Form 8-K
dated January 25, 2008, is incorporated by reference
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential
|
|
Exhibit
|
|
|
|
Page
|
|
Number
|
|
Description
|
|
Number
|
|
|
|
10
|
.46*
|
|
Policy Regarding Stockholder Approval of Certain Severance
Payments, adopted July 10, 2008, filed as an exhibit to the
Companys Current Report on Form 8-K dated
July 15, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.47*
|
|
KB Home Executive Severance Plan, filed as an exhibit to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended August 31, 2008, is incorporated by
reference herein.
|
|
|
|
|
|
10
|
.48*
|
|
Description of Fiscal Year 2009 Long-Term Incentive Awards to
the Companys Named Executive Officers granted on
October 2, 2008, filed on the Companys Current Report
on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.49*
|
|
Form of Fiscal Year 2009 Stock Appreciation Rights Agreement,
filed as an exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
10
|
.50*
|
|
Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an
exhibit to the Companys Current Report on
Form 8-K
dated October 8, 2008, is incorporated by reference herein.
|
|
|
|
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
31
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to Section 302
of the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
32
|
.1
|
|
Certification of Jeffrey T. Mezger, President and Chief
Executive Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
32
|
.2
|
|
Certification of William R. Hollinger, Senior Vice President and
Chief Accounting Officer of KB Home Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
* Management contract or compensatory plan or arrangement
in which executive officers are eligible to participate.
|
|
|
Document filed with this
Form 10-K.
|