Company Quick10K Filing
KB Home
Price25.09 EPS3
Shares95 P/E9
MCap2,374 P/FCF-11
Net Debt-180 EBIT303
TEV2,195 TEV/EBIT7
TTM 2019-05-31, in MM, except price, ratios
10-Q 2020-05-31 Filed 2020-07-09
10-Q 2020-02-29 Filed 2020-04-01
10-K 2019-11-30 Filed 2020-01-24
10-Q 2019-08-31 Filed 2019-10-04
10-Q 2019-05-31 Filed 2019-07-09
10-Q 2019-02-28 Filed 2019-04-05
10-K 2018-11-30 Filed 2019-01-24
10-Q 2018-08-31 Filed 2018-10-09
10-Q 2018-05-31 Filed 2018-07-06
10-Q 2018-02-28 Filed 2018-04-06
10-K 2017-11-30 Filed 2018-01-26
10-Q 2017-08-31 Filed 2017-10-05
10-Q 2017-05-31 Filed 2017-07-07
10-Q 2017-02-28 Filed 2017-04-05
10-K 2016-11-30 Filed 2017-01-27
10-Q 2016-08-31 Filed 2016-10-04
10-Q 2016-05-31 Filed 2016-07-08
10-Q 2016-02-29 Filed 2016-04-08
10-K 2015-11-30 Filed 2016-01-25
10-Q 2015-08-31 Filed 2015-10-09
10-Q 2015-05-31 Filed 2015-07-02
10-Q 2015-02-28 Filed 2015-04-08
10-K 2014-11-30 Filed 2015-01-22
10-Q 2014-08-31 Filed 2014-10-09
10-Q 2014-05-31 Filed 2014-07-09
10-Q 2014-02-28 Filed 2014-04-07
10-K 2013-11-30 Filed 2014-01-27
10-Q 2013-08-31 Filed 2013-10-10
10-Q 2013-02-28 Filed 2013-04-09
10-K 2012-11-30 Filed 2013-01-18
10-Q 2012-08-31 Filed 2012-10-09
10-Q 2012-05-31 Filed 2012-07-10
10-Q 2012-02-29 Filed 2012-04-09
10-K 2011-11-30 Filed 2012-01-30
10-Q 2011-08-31 Filed 2011-10-11
10-Q 2011-05-31 Filed 2011-07-11
10-Q 2011-02-28 Filed 2011-04-11
10-K 2010-11-30 Filed 2011-01-31
10-Q 2010-08-31 Filed 2010-10-08
10-Q 2010-05-31 Filed 2010-07-09
10-Q 2010-02-28 Filed 2010-04-09
10-K 2009-11-30 Filed 2010-01-29
8-K 2020-06-24
8-K 2020-04-09
8-K 2020-03-26
8-K 2020-01-23
8-K 2020-01-09
8-K 2019-11-04
8-K 2019-10-21
8-K 2019-10-07
8-K 2019-10-03
8-K 2019-09-25
8-K 2019-07-11
8-K 2019-06-26
8-K 2019-04-11
8-K 2019-03-26
8-K 2019-02-20
8-K 2019-02-05
8-K 2019-01-24
8-K 2019-01-09
8-K 2018-10-10
8-K 2018-09-25
8-K 2018-07-12
8-K 2018-06-28
8-K 2018-06-11
8-K 2018-05-15
8-K 2018-04-12
8-K 2018-03-22
8-K 2018-01-25
8-K 2018-01-10

KBH 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 kbh-05312020xexhx311.htm
EX-31.2 kbh-05312020xexhx312.htm
EX-32.1 kbh-05312020xexhx321.htm
EX-32.2 kbh-05312020xexhx322.htm

KB Home Earnings 2020-05-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.51.20.90.50.2-0.12012201420172020
Rev, G Profit, Net Income
0.60.40.20.0-0.2-0.42012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 2020.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from [            ] to [            ].
Commission File No. 001-09195
KB HOME
(Exact name of registrant as specified in its charter)
Delaware
95-3666267
(State of incorporation)
(IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
(Address and telephone number of principal executive offices) 
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange
on which registered
Common Stock (par value $1.00 per share)
 
KBH
 
New York Stock Exchange
Rights to Purchase Series A Participating Cumulative Preferred Stock
 

 
New York Stock Exchange
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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  
There were 90,527,074 shares of the registrant’s common stock, par value $1.00 per share, outstanding on May 31, 2020. The registrant’s grantor stock ownership trust held an additional 7,317,336 shares of the registrant’s common stock on that date.



KB HOME
FORM 10-Q
INDEX
 
 
Page
Number
 
 
 
 
 
 
Consolidated Statements of Operations -
Three Months and Six Months Ended May 31, 2020 and 2019
 
 
Consolidated Balance Sheets -
May 31, 2020 and November 30, 2019
 
 
Consolidated Statements of Cash Flows -
Three Months and Six Months Ended May 31, 2020 and 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I.    FINANCIAL INFORMATION
Item 1.
Financial Statements

KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts – Unaudited)
 

 
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
 
2020
 
2019
 
2020
 
2019
Total revenues
 
$
913,970

 
$
1,021,803

 
$
1,989,905

 
$
1,833,286

Homebuilding:
 
 
 
 
 
 
 
 
Revenues
 
$
910,280

 
$
1,018,671

 
$
1,982,662

 
$
1,827,459

Construction and land costs
 
(744,453
)
 
(843,744
)
 
(1,630,506
)
 
(1,514,599
)
Selling, general and administrative expenses
 
(114,238
)
 
(122,828
)
 
(240,372
)
 
(229,422
)
Operating income
 
51,589

 
52,099

 
111,784

 
83,438

Interest income
 
442

 
439

 
1,377

 
1,544

Equity in income (loss) of unconsolidated joint ventures
 
8,154

 
(369
)
 
10,059

 
(775
)
Homebuilding pretax income
 
60,185

 
52,169

 
123,220

 
84,207

Financial services:
 
 
 
 
 
 
 
 
Revenues
 
3,690

 
3,132

 
7,243

 
5,827

Expenses
 
(883
)
 
(1,040
)
 
(1,845
)
 
(2,064
)
Equity in income of unconsolidated joint ventures
 
4,797

 
2,500

 
8,019

 
3,302

Financial services pretax income
 
7,604

 
4,592

 
13,417

 
7,065

Total pretax income
 
67,789

 
56,761

 
136,637

 
91,272

Income tax expense
 
(15,800
)
 
(9,300
)
 
(24,900
)
 
(13,800
)
Net income
 
$
51,989

 
$
47,461

 
$
111,737

 
$
77,472

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
.57

 
$
.54

 
$
1.23

 
$
.88

Diluted
 
$
.55

 
$
.51

 
$
1.19

 
$
.82

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
90,493

 
87,641

 
90,169

 
87,310

Diluted
 
93,472

 
92,366

 
93,628

 
94,635

See accompanying notes.

3


KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands – Unaudited)
 

 
May 31,
2020
 
November 30,
2019
Assets
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
575,006

 
$
453,814

Receivables
312,928

 
249,055

Inventories
3,607,465

 
3,704,602

Investments in unconsolidated joint ventures
57,823

 
57,038

Property and equipment, net
65,764

 
65,043

Deferred tax assets, net
257,571

 
364,493

Other assets
126,588

 
83,041

 
5,003,145

 
4,977,086

Financial services
38,857

 
38,396

Total assets
$
5,042,002

 
$
5,015,482

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
180,868

 
$
262,772

Accrued expenses and other liabilities
602,393

 
618,783

Notes payable
1,766,539

 
1,748,747

 
2,549,800

 
2,630,302

Financial services
1,848

 
2,058

Stockholders’ equity:
 
 
 
Common stock
122,370

 
121,593

Paid-in capital
806,700

 
793,954

Retained earnings
2,255,742

 
2,157,183

Accumulated other comprehensive loss
(17,149
)
 
(15,506
)
Grantor stock ownership trust, at cost
(79,359
)
 
(82,758
)
Treasury stock, at cost
(597,950
)
 
(591,344
)
Total stockholders’ equity
2,490,354

 
2,383,122

Total liabilities and stockholders’ equity
$
5,042,002

 
$
5,015,482

See accompanying notes.

4


KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands – Unaudited)
 
 
Six Months Ended May 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
111,737

 
$
77,472

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Equity in income of unconsolidated joint ventures
(18,078
)
 
(2,527
)
Distributions of earnings from unconsolidated joint ventures
15,150

 
3,550

Amortization of discounts, premiums and issuance costs
1,234

 
2,597

Depreciation and amortization
14,510

 
12,780

Deferred income taxes
23,800

 
13,401

Stock-based compensation
8,131

 
9,966

Inventory impairments and land option contract abandonments
10,051

 
7,892

Changes in assets and liabilities:
 
 
 
Receivables
19,286

 
(5,408
)
Inventories
100,077

 
(253,473
)
Accounts payable, accrued expenses and other liabilities
(117,274
)
 
(41,440
)
Other, net
(13,930
)
 
(5,144
)
Net cash provided by (used in) operating activities
154,694

 
(180,334
)
Cash flows from investing activities:
 
 
 
Contributions to unconsolidated joint ventures
(3,586
)
 
(4,245
)
Return of investments in unconsolidated joint ventures
500

 
5,001

Proceeds from sale of building

 
5,804

Purchases of property and equipment, net
(15,224
)
 
(22,264
)
Net cash used in investing activities
(18,310
)
 
(15,704
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt

 
405,250

Payment of debt issuance costs

 
(5,209
)
Repayment of senior notes

 
(630,000
)
Borrowings under revolving credit facility

 
330,000

Repayments under revolving credit facility

 
(280,000
)
Payments on mortgages and land contracts due to land sellers and other loans
(1,063
)
 
(28,020
)
Issuance of common stock under employee stock plans
8,404

 
16,462

Tax payments associated with stock-based compensation awards
(6,219
)
 
(3,345
)
Payments of cash dividends
(16,331
)
 
(4,455
)
Net cash used in financing activities
(15,209
)
 
(199,317
)
Net increase (decrease) in cash and cash equivalents
121,175

 
(395,355
)
Cash and cash equivalents at beginning of period
454,858

 
575,119

Cash and cash equivalents at end of period
$
576,033

 
$
179,764

See accompanying notes.

5




KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly our consolidated financial position as of May 31, 2020, the results of our consolidated operations for the three months and six months ended May 31, 2020 and 2019, and our consolidated cash flows for the six months ended May 31, 2020 and 2019. The results of our consolidated operations for the three months and six months ended May 31, 2020 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors. The consolidated balance sheet at November 30, 2019 has been taken from the audited consolidated financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2019, which are contained in our Annual Report on Form 10-K for that period.
Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.
Impact of COVID-19 Pandemic on Consolidated Financial Statements. The outbreak of the 2019 coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread (“COVID-19 control responses”) severely impacted the global and national economies, the housing market and our business during the 2020 second quarter. With the health and well-being of our employees, customers and business partners, and their families, being a high priority, we temporarily closed our sales centers, model homes and design studios to the public in mid-March and shifted to virtual sales tools and then an appointment-only personalized home sales process in April, where permitted. Our construction operations were also restricted in many jurisdictions, and together with the reduced availability or capacity of some municipal and private services necessary to build and deliver homes, we experienced home delivery delays during most of the quarter. In addition, our order pace moderated significantly and home purchase cancellations increased considerably. In the latter part of May, conditions started to improve in conjunction with state and local governments relaxing their COVID-19 control responses, and we began the process of more broadly opening our communities to the public while also expanding construction and warranty service activities to the extent permitted by local authorities. Following a low point in April 2020, we experienced steady and significant improvements in our order trends and cancellation rate beginning in May, which have extended through the date of this report. Given the prolonged, and ongoing, COVID-19-related impacts, we focused on generating cash inflows from our business and preserving cash and liquidity by proceeding in a carefully targeted manner with land acquisition and land development and curtailing overhead expenditures, partly through workforce realignment and reductions. As a result, we recorded severance charges of $6.7 million within our selling, general and administrative expenses for the 2020 second quarter. Our consolidated financial statements and the notes thereto in this report reflect the foregoing course of unprecedented events and the actions we took during the 2020 second quarter.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing COVID-19 pandemic and the COVID-19 control responses, and such differences may be material.
Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled $404.5 million at May 31, 2020 and $302.5 million at November 30, 2019. At May 31, 2020 and November 30, 2019, the majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.
Comprehensive Income. Our comprehensive income was $52.0 million for the three months ended May 31, 2020 and $47.5 million for the three months ended May 31, 2019. For the six months ended May 31, 2020 and 2019, our comprehensive income was $111.7 million and $77.5 million, respectively. Our comprehensive income for each of the three-month and six-month periods ended May 31, 2020 and 2019 was equal to our net income for the respective periods.

6


Adoption of New Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires leases with original lease terms of more than 12 months to be recorded on the balance sheet. On December 1, 2019, we adopted ASU 2016-02 and its related amendments (collectively, “ASC 842”) using the modified retrospective method. Results for reporting periods beginning December 1, 2019 and after are presented under ASC 842, while results for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our original assessment of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We also elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. The adoption of ASC 842 resulted in our recording lease right-of-use assets and lease liabilities of $31.2 million on our consolidated balance sheet as of December 1, 2019. Lease right-of-use assets are classified within other assets on our consolidated balance sheet, and lease liabilities are classified within accrued expenses and other liabilities. At the December 1, 2019 adoption date, we also recorded a cumulative effect adjustment to increase beginning retained earnings by $1.5 million, net of tax, to recognize a previously deferred gain on our sale and leaseback of an office building in 2019. The adoption of ASC 842 did not materially impact our consolidated statements of operations or consolidated cash flows. Further information regarding our leases is provided in Note 13 – Leases.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (“TCJA”), and requires certain disclosures about stranded tax effects. We adopted ASU 2018-02 effective December 1, 2019 and elected to reclassify the income tax effects of the TCJA from accumulated other comprehensive loss to retained earnings, which resulted in an increase of $1.6 million to both retained earnings and accumulated other comprehensive loss, with no impact on total stockholders’ equity. Amounts for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods.
Recent Accounting Pronouncements Not Yet Adopted. In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an incurred loss approach to a new expected credit loss methodology. ASU 2016-13 is effective for us beginning December 1, 2020, with early adoption permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities.  ASU 2019-12 is effective for us beginning December 1, 2021, with early adoption permitted. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.  We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

7


2.
Segment Information
We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of May 31, 2020, our homebuilding reporting segments conducted ongoing operations in the following states to the extent permitted by applicable public health orders as part of their respective COVID-19 control responses:
West Coast: California and Washington
Southwest: Arizona and Nevada
Central: Colorado and Texas
Southeast: Florida and North Carolina
Our 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 homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.
Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments. Our financial services reporting segment earns revenues primarily from insurance commissions and from the provision of title services.
We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), an unconsolidated joint venture we formed with Stearns Ventures, LLC (“Stearns”). We and Stearns each have a 50.0% ownership interest, with Stearns providing management oversight of KBHS’ operations. The financial services reporting segment is separately reported in our consolidated financial statements.
Our reporting segments follow the same accounting policies used for our consolidated financial statements. The results of each reporting 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, nor are they indicative of the results to be expected in future periods.
The following tables present financial information relating to our homebuilding reporting segments (in thousands):
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
West Coast
$
331,882

 
$
391,264

 
$
816,379

 
$
697,074

Southwest
175,251

 
184,827

 
366,569

 
342,483

Central
284,193

 
307,080

 
567,706

 
548,672

Southeast
118,954

 
135,500

 
232,008

 
239,230

Total
$
910,280

 
$
1,018,671

 
$
1,982,662

 
$
1,827,459

 
 
 
 
 
 
 
 
Pretax income (loss):
 
 
 
 
 
 
 
West Coast
$
27,820

 
$
24,789

 
$
61,849

 
$
42,705

Southwest
24,891

 
27,995

 
57,003

 
50,067

Central
26,896

 
27,199

 
49,574

 
45,782

Southeast
6,629

 
589

 
9,259

 
44

Corporate and other
(26,051
)
 
(28,403
)
 
(54,465
)
 
(54,391
)
Total
$
60,185

 
$
52,169

 
$
123,220

 
$
84,207



8


 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Inventory impairment and land option contract abandonment charges:
 
 
 
 
 
 
 
West Coast
$
672

 
$
3,832

 
$
5,064

 
$
7,083

Southwest

 
223

 
171

 
282

Central
3,452

 
121

 
4,436

 
366

Southeast
255

 
161

 
380

 
161

Total
$
4,379

 
$
4,337

 
$
10,051

 
$
7,892


 
May 31,
2020
 
November 30,
2019
Assets:
 
 
 
West Coast
$
1,854,154

 
$
1,925,192

Southwest
714,672

 
674,310

Central
994,038

 
1,035,563

Southeast
421,385

 
441,451

Corporate and other
1,018,896

 
900,570

Total
$
5,003,145

 
$
4,977,086


3.
Financial Services
The following tables present financial information relating to our financial services reporting segment (in thousands):
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Revenues
 
 
 
 
 
 
 
Insurance commissions
$
2,030

 
$
1,646

 
$
3,983

 
$
3,118

Title services
1,660

 
1,486

 
3,260

 
2,703

Interest income

 

 

 
6

Total
3,690

 
3,132

 
7,243

 
5,827

Expenses
 
 
 
 
 
 
 
General and administrative
(883
)
 
(1,040
)
 
(1,845
)
 
(2,064
)
Operating income
2,807

 
2,092

 
5,398

 
3,763

Equity in income of unconsolidated joint ventures
4,797

 
2,500

 
8,019

 
3,302

Pretax income
$
7,604

 
$
4,592

 
$
13,417

 
$
7,065



9


 
May 31,
2020
 
November 30,
2019
Assets
 
 
 
Cash and cash equivalents
$
1,027

 
$
1,044

Receivables
1,690

 
2,232

Investments in unconsolidated joint ventures
14,243

 
14,374

Other assets (a)
21,897

 
20,746

Total assets
$
38,857

 
$
38,396

Liabilities
 
 
 
Accounts payable and accrued expenses
$
1,848

 
$
2,058

Total liabilities
$
1,848

 
$
2,058


(a)
Other assets at May 31, 2020 and November 30, 2019 included $21.5 million and $20.6 million, respectively, of contract assets for estimated future renewal commissions related to then-existing insurance policies.
4.
Earnings Per Share
Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):
 
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
 
2020
 
2019
 
2020
 
2019
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
51,989

 
$
47,461

 
$
111,737

 
$
77,472

Less: Distributed earnings allocated to nonvested restricted stock
 
(43
)
 
(14
)
 
(87
)
 
(27
)
Less: Undistributed earnings allocated to nonvested restricted stock
 
(231
)
 
(280
)
 
(511
)
 
(456
)
Numerator for basic earnings per share
 
51,715

 
47,167

 
111,139

 
76,989

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes
 

 

 

 
541

Add: Undistributed earnings allocated to nonvested restricted stock
 
231

 
280

 
511

 
456

Less: Undistributed earnings reallocated to nonvested restricted stock
 
(223
)
 
(265
)
 
(492
)
 
(421
)
Numerator for diluted earnings per share
 
$
51,723

 
$
47,182

 
$
111,158

 
$
77,565

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding — basic
 
90,493

 
87,641

 
90,169

 
87,310

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Share-based payments
 
2,979

 
4,725

 
3,459

 
4,463

Convertible senior notes
 

 

 

 
2,862

Weighted average shares outstanding — diluted
 
93,472

 
92,366

 
93,628

 
94,635

Basic earnings per share
 
$
.57

 
$
.54

 
$
1.23

 
$
.88

Diluted earnings per share
 
$
.55

 
$
.51

 
$
1.19

 
$
.82



10


We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at May 31, 2020 or 2019.
For the three-month and six-month periods ended May 31, 2020, no outstanding stock options were excluded from the diluted earnings per share calculation. For the three-month and six-month periods ended May 31, 2019, outstanding stock options to purchase .8 million shares of our common stock were excluded from the diluted earnings per share calculation because the effect of their inclusion would be antidilutive. The diluted earnings per share calculation for the six months ended May 31, 2019 included the dilutive effect of the $230.0 million in aggregate principal amount of our 1.375% convertible senior notes due 2019 (“1.375% Convertible Senior Notes due 2019”) based on the number of days they were outstanding during the period. We repaid these notes at their February 1, 2019 maturity.
Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented as the applicable vesting conditions had not been satisfied.
5.
Receivables
Receivables consisted of the following (in thousands):
 
May 31,
2020
 
November 30,
2019
Due from utility companies, improvement districts and municipalities
$
122,633

 
$
128,047

Income taxes receivable
83,599

 

Recoveries related to self-insurance and other legal claims
67,142

 
80,729

Refundable deposits and bonds
10,665

 
10,925

Other
36,608

 
37,846

Subtotal
320,647

 
257,547

Allowance for doubtful accounts
(7,719
)
 
(8,492
)
Total
$
312,928

 
$
249,055

6.
Inventories
Inventories consisted of the following (in thousands):
 
May 31,
2020
 
November 30,
2019
Homes completed or under construction
$
1,199,381

 
$
1,340,412

Land under development
2,255,342

 
2,213,713

Land held for future development or sale (a)
152,742

 
150,477

Total
$
3,607,465

 
$
3,704,602


(a)    Land held for sale totaled $21.4 million at May 31, 2020 and $19.3 million at November 30, 2019.
Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale. Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable). For land held for future development or sale, applicable interest is expensed as incurred.

11


Our interest costs were as follows (in thousands):
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Capitalized interest at beginning of period
$
192,125

 
$
213,370

 
$
195,738

 
$
209,129

Interest incurred
31,055

 
36,544

 
62,017

 
71,332

Interest amortized to construction and land costs (a)
(28,746
)
 
(37,754
)
 
(63,321
)
 
(68,301
)
Capitalized interest at end of period (b)
$
194,434

 
$
212,160

 
$
194,434

 
$
212,160


(a)
Interest amortized to construction and land costs for the three months and six months ended May 31, 2019 included a nominal amount and $.6 million, respectively, related to land sales during the periods. There was no such interest amortized for the three months and six months ended May 31, 2020.
(b)
Capitalized interest amounts reflect the gross amount of capitalized interest, as inventory impairment charges recognized, if any, are not generally allocated to specific components of inventory.
7.
Inventory Impairments and Land Option Contract Abandonments
Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques. We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.
When an indicator of potential impairment is identified for a community or land parcel, we test the asset for recoverability by comparing the carrying value 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 then-current conditions and trends in the market in which the asset is located as well as factors known to us at the time the cash flows are calculated. These factors may include recent trends in our orders, backlog, cancellation rates and volume of homes delivered, as well as our expectations related to the following: product offerings; market supply and demand, including estimated average selling prices and related price appreciation; and land development, home construction and overhead costs to be incurred and related cost inflation. With respect to the three months ended May 31, 2020, these expectations considered that beginning in mid-March and throughout the remainder of the 2020 second quarter, the COVID-19 pandemic and related COVID-19 control responses in our served markets caused a significant contraction in economic activity and adversely affected our ability to conduct normal operations, as described in Note 1 – Basis of Presentation and Significant Accounting Policies, as well as reductions in our net orders, backlog levels and homes delivered in the quarter. Our impairment assessments also considered that our average selling price of homes delivered in the 2020 second quarter was nearly even with the year-earlier quarter, and our housing gross profit margin for the period improved significantly, with sales incentives as a percentage of housing revenues remaining flat year over year. Moreover, the average selling price of our net orders generated during the 2020 second quarter increased modestly from the year-earlier period, and in conjunction with our ability to begin to effectively resume nearly all of our operations, our net orders rose steadily in May from the low levels in April, although below year-earlier levels. Taken together, and notwithstanding the significant disruptions associated with the COVID-19 pandemic during the 2020 second quarter, our inventory assessments as of May 31, 2020 determined that market conditions for each of our assets in inventory where impairment indicators were identified were expected to be sufficiently stable, with a tempered overall net order pace and a steady average selling price for the remainder of 2020 and into 2021 relative to the performance in recent quarters, to support such assets’ recoverability. Our inventory is assessed for potential impairment on a quarterly basis, and the assumptions used are reviewed and adjusted, as necessary, to reflect the market conditions and trends and our expectations at the time each assessment is performed.
We evaluated 18 and 24 communities or land parcels for recoverability during the six months ended May 31, 2020 and 2019, respectively, including certain communities or land parcels previously held for future development that were reactivated as part of our ongoing efforts to improve asset efficiency. The carrying values of the communities or land parcels evaluated were $148.3 million at May 31, 2020 and $164.0 million at May 31, 2019. Some of the communities or land parcels evaluated

12


during the six months ended May 31, 2020 and 2019 were evaluated in more than one quarterly period. Communities or land parcels evaluated for recoverability in more than one quarterly period were counted only once for each six-month period.
Based on the results of our evaluations, we recognized no inventory impairment charges for the three months ended May 31, 2020 and $5.1 million of inventory impairment charges for the six months ended May 31, 2020. For the three months and six months ended May 31, 2019, we recognized inventory impairment charges of $3.4 million and $6.6 million, respectively. The impairment charges for the six-month period ended May 31, 2020 and the three-month and six-month periods ended May 31, 2019 reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.
The following table summarizes significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value during the periods presented:
 
 
Three Months Ended May 31,
 
Six Months Ended May 31,
Unobservable Input (a)
 
2020
 
2019
 
2020
 
2019
Average selling price
 
$-
 
$315,000 - $398,500
 
$302,700 - $915,500
 
$315,000 - $1,045,400
Deliveries per month
 
-
 
4
 
1 - 4
 
1 - 4
Discount rate
 
-
 
17%
 
17% - 18%
 
17%

(a)
The ranges of inputs used in each period primarily reflect differences between the housing markets where each impacted community is located, rather than fluctuations in prevailing market conditions.
As of May 31, 2020, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $89.7 million, representing 16 communities and various other land parcels. As of November 30, 2019, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $115.6 million, representing 19 communities and various other land parcels.
Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of $4.4 million for the three months ended May 31, 2020 and $4.9 million for the six months ended May 31, 2020. For the three-month and six-month periods ended May 31, 2019, we recognized land option contract abandonment charges of $.9 million and $1.3 million, respectively.
If conditions in our served markets are or are expected to be adversely affected for a prolonged period due to the COVID-19 control responses or otherwise, we may determine through our community and land parcel evaluations in future quarters that we need to take impairment charges, and such charges could be material. In addition, due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.
8.
Variable Interest Entities
Unconsolidated Joint Ventures. We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analyses, we determined that one of our joint ventures at May 31, 2020 and November 30, 2019 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at May 31, 2020 and November 30, 2019 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.
Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. Under these contracts, we typically make a specified option payment or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary

13


beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of May 31, 2020 and November 30, 2019, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts. We perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):
 
May 31, 2020
 
November 30, 2019
 
Cash
Deposits
 
Aggregate
Purchase Price
 
Cash
Deposits
 
Aggregate
Purchase Price
Unconsolidated VIEs
$
29,467

 
$
761,329

 
$
34,595

 
$
823,427

Other land option contracts and other similar contracts
29,772

 
503,739

 
40,591

 
600,092

Total
$
59,239

 
$
1,265,068

 
$
75,186

 
$
1,423,519


In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $33.3 million at May 31, 2020 and $32.8 million at November 30, 2019. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.
For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s). As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $1.8 million at May 31, 2020 and $12.2 million at November 30, 2019.
9.
Investments in Unconsolidated Joint Ventures
We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.
The following table presents combined condensed information from the statements of operations of our unconsolidated joint ventures (in thousands):
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Revenues
$
66,873

 
$