false--11-30Q320190000795266KBH0.180.170.180.170.170.170.170.17407300306400774100306400957200325300104540031500062624241118000000.0250.0250.0750.090.140.04750.08000.0700.068750.076250.07500.500The 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. 0000795266 2018-12-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2019-08-31 0000795266 2019-08-31 0000795266 us-gaap:RightsMember 2018-12-01 2019-08-31 0000795266 us-gaap:CommonStockMember 2018-12-01 2019-08-31 0000795266 2019-06-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember 2019-06-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2017-12-01 2018-08-31 0000795266 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember 2018-12-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember 2017-12-01 2018-08-31 0000795266 us-gaap:FinancialServiceMember 2019-06-01 2019-08-31 0000795266 2017-12-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2019-08-31 0000795266 2018-11-30 0000795266 us-gaap:HomeBuildingMember 2018-11-30 0000795266 us-gaap:FinancialServiceMember 2018-11-30 0000795266 2017-11-30 0000795266 2018-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-12-01 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-06-01 2019-08-31 0000795266 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-08-31 0000795266 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-08-31 0000795266 us-gaap:FinancialServiceMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2019-08-31 0000795266 us-gaap:FinancialServiceMember 2018-12-01 0000795266 us-gaap:HomeBuildingMember us-gaap:SalesRevenueNetMember us-gaap:ProductConcentrationRiskMember 2017-12-01 2018-11-30 0000795266 us-gaap:HomeBuildingMember 2018-12-01 0000795266 us-gaap:HomeBuildingMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-11-30 0000795266 us-gaap:FinancialServiceMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 0000795266 us-gaap:FinancialServiceMember us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-11-30 0000795266 us-gaap:HomeBuildingMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 0000795266 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-11-30 0000795266 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-01 0000795266 2018-12-01 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2017-12-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2017-12-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2017-12-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2017-12-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2018-06-01 2018-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2019-06-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2018-12-01 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2017-12-01 2018-08-31 0000795266 kbh:KBHSLLCMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2018-11-30 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2018-11-30 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:WestCoastMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:CentralMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2018-11-30 0000795266 us-gaap:HomeBuildingMember kbh:SouthwestMember 2018-11-30 0000795266 us-gaap:HomeBuildingMember kbh:SoutheastMember 2019-08-31 0000795266 us-gaap:HomeBuildingMember us-gaap:CorporateAndOtherMember 2018-11-30 0000795266 kbh:KBHSLLCMember kbh:StearnsLendingLLCMember 2019-08-31 0000795266 kbh:ConvertibleSeniorNotesDueTwoThousandNineteenAtOnePointThreeSevenFivePercentMemberMember us-gaap:ConvertibleNotesPayableMember 2019-02-01 0000795266 kbh:WarrantyandOtherMember 2018-11-30 0000795266 kbh:WarrantyandOtherMember 2019-08-31 0000795266 kbh:SelfInsuranceandOtherLegalClaimsMember 2018-11-30 0000795266 kbh:SelfInsuranceandOtherLegalClaimsMember 2019-08-31 0000795266 2018-05-31 0000795266 2019-05-31 0000795266 us-gaap:LandMember 2018-06-01 2018-08-31 0000795266 us-gaap:LandMember 2017-12-01 2018-08-31 0000795266 us-gaap:LandMember 2018-12-01 2019-08-31 0000795266 kbh:LandOptionContractAbandonmentMember 2018-12-01 2019-08-31 0000795266 kbh:LandOptionContractAbandonmentMember 2017-12-01 2018-08-31 0000795266 kbh:LandOptionContractAbandonmentMember 2018-06-01 2018-08-31 0000795266 kbh:LandOptionContractAbandonmentMember 2019-06-01 2019-08-31 0000795266 srt:MinimumMember 2019-06-01 2019-08-31 0000795266 srt:MinimumMember 2017-12-01 2018-08-31 0000795266 srt:MaximumMember 2018-12-01 2019-08-31 0000795266 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2018-12-01 2019-08-31 0000795266 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2018-06-01 2018-08-31 0000795266 srt:MaximumMember 2019-06-01 2019-08-31 0000795266 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2018-06-01 2018-08-31 0000795266 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2019-06-01 2019-08-31 0000795266 srt:MinimumMember 2018-12-01 2019-08-31 0000795266 srt:MaximumMember 2017-12-01 2018-08-31 0000795266 srt:MinimumMember us-gaap:MeasurementInputDiscountRateMember 2017-12-01 2018-08-31 0000795266 srt:MinimumMember 2018-06-01 2018-08-31 0000795266 srt:MaximumMember 2018-06-01 2018-08-31 0000795266 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2017-12-01 2018-08-31 0000795266 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2018-12-01 2019-08-31 0000795266 srt:MaximumMember us-gaap:MeasurementInputDiscountRateMember 2019-06-01 2019-08-31 0000795266 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember 2019-08-31 0000795266 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember 2018-11-30 0000795266 kbh:NonVIELandOptionContractsAndOtherSimilarContractsMember 2019-08-31 0000795266 kbh:NonVIELandOptionContractsAndOtherSimilarContractsMember 2018-11-30 0000795266 kbh:InvestmentsinUnconsolidatedJointVentureswithPurchaseCommitmentsMember 2019-08-31 0000795266 kbh:InvestmentsInUnconsolidatedJointVenturesWithDebtMember 2019-08-31 0000795266 kbh:InvestmentsInUnconsolidatedJointVenturesWithDebtMember 2018-11-30 0000795266 2019-02-28 0000795266 kbh:SeniorNotesDueTwoThousandNineteenatFourPointSevenFivePercentMember us-gaap:SeniorNotesMember 2018-11-30 0000795266 kbh:SeniorNotesDueTwoThousandTwentyAtEightPointZeroZeroPercentMember us-gaap:SeniorNotesMember 2018-11-30 0000795266 kbh:MortgagesAndLandContractsDueToLandSellersAndOtherLoansMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentyAtEightPointZeroZeroPercentMember us-gaap:SeniorNotesMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentyOneAtSevenPointZeroZeroPercentMember us-gaap:SeniorNotesMember 2018-11-30 0000795266 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2018-11-30 0000795266 kbh:MortgagesAndLandContractsDueToLandSellersAndOtherLoansMember 2018-11-30 0000795266 kbh:SeniorNotesDueTwoThousandTwentyTwoAtSevenPointFiveZeroPercentMember us-gaap:SeniorNotesMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomain us-gaap:SeniorNotesMember 2019-08-31 0000795266 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomain us-gaap:SeniorNotesMember 2018-11-30 0000795266 kbh:SeniorNotesDueTwoThousandNineteenatFourPointSevenFivePercentMember us-gaap:SeniorNotesMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentyThreeAtSevenPointSixTwoFivePercentDomain us-gaap:SeniorNotesMember 2018-11-30 0000795266 kbh:ConvertibleSeniorNotesDueTwoThousandNineteenAtOnePointThreeSevenFivePercentMemberMember us-gaap:ConvertibleNotesPayableMember 2018-11-30 0000795266 kbh:SeniorNotesDueTwoThousandTwentyThreeAtSevenPointSixTwoFivePercentDomain us-gaap:SeniorNotesMember 2019-08-31 0000795266 kbh:ConvertibleSeniorNotesDueTwoThousandNineteenAtOnePointThreeSevenFivePercentMemberMember us-gaap:ConvertibleNotesPayableMember 2019-08-31 0000795266 kbh:SeniorNotesDueTwoThousandTwentyTwoAtSevenPointFiveZeroPercentMember us-gaap:SeniorNotesMember 2018-11-30 0000795266 kbh:SeniorNotesDueTwoThousandTwentyOneAtSevenPointZeroZeroPercentMember us-gaap:SeniorNotesMember 2019-08-31 0000795266 kbh:LOCFacilitiesMember 2019-08-31 0000795266 2019-02-20 2019-02-20 0000795266 kbh:SeniorNotesDueTwoThousandNineteenatFourPointSevenFivePercentMember us-gaap:SeniorNotesMember 2019-03-08 2019-03-08 0000795266 kbh:SeniorNotesDueTwoThousandTwentyThreeAtSevenPointSixTwoFivePercentDomain us-gaap:SeniorNotesMember 2019-02-20 2019-02-20 0000795266 kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomain us-gaap:SeniorNotesMember 2019-02-20 2019-02-20 0000795266 kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomain us-gaap:SeniorNotesMember 2019-06-01 2019-08-31 0000795266 us-gaap:RevolvingCreditFacilityMember 2019-08-31 0000795266 kbh:LOCFacilitiesMember 2018-11-30 0000795266 us-gaap:LetterOfCreditMember 2019-08-31 0000795266 us-gaap:RevolvingCreditFacilityMember 2019-06-01 2019-08-31 0000795266 kbh:ConvertibleSeniorNotesDueTwoThousandNineteenAtOnePointThreeSevenFivePercentMemberMember us-gaap:ConvertibleNotesPayableMember 2019-02-01 2019-02-01 0000795266 kbh:SeniorNotesDueTwoThousandTwentyThreeAtSevenPointSixTwoFivePercentDomain us-gaap:SeniorNotesMember 2019-06-01 2019-08-31 0000795266 us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-08-31 0000795266 us-gaap:SeniorNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-11-30 0000795266 us-gaap:SeniorNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-11-30 0000795266 us-gaap:SeniorNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-08-31 0000795266 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-11-30 0000795266 us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-11-30 0000795266 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-08-31 0000795266 us-gaap:SeniorNotesMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-08-31 0000795266 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-08-31 0000795266 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2018-11-30 0000795266 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2017-12-01 2018-11-30 0000795266 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2018-12-01 2019-08-31 0000795266 us-gaap:DamagesFromProductDefectsMember 2018-12-01 2019-08-31 0000795266 kbh:WarrantyandOtherMember 2019-08-31 0000795266 kbh:NorthernCaliforniaTownhomeCommunityMember 2017-06-01 2017-08-31 0000795266 kbh:SelfInsuranceMember 2018-11-30 0000795266 kbh:Chapter558oftheFloridaStatutesMember 2019-08-31 0000795266 us-gaap:WarrantyObligationsMember 2018-12-01 2019-08-31 0000795266 kbh:SelfInsuranceMember 2019-08-31 0000795266 kbh:WarrantyandOtherMember 2018-11-30 0000795266 kbh:NorthernCaliforniaTownhomeCommunityMember 2018-12-01 2019-08-31 0000795266 kbh:A2014EquityIncentivePlanDomain 2019-08-31 0000795266 kbh:January2016StockRepurchaseProgramMember 2019-08-31 0000795266 kbh:SharesWithheldtoPayTaxesMember 2018-12-01 2019-08-31 0000795266 us-gaap:PerformanceSharesMember kbh:PSU2015Domain 2019-02-15 0000795266 kbh:DirectorPlanSARsDomain 2014-07-17 0000795266 us-gaap:CommonStockMember 2019-08-31 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2017-12-01 2018-08-31 0000795266 us-gaap:CommonStockMember 2018-12-01 2019-08-31 0000795266 us-gaap:TreasuryStockMember 2018-06-01 2018-08-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2018-06-01 2018-08-31 0000795266 us-gaap:CommonStockMember 2017-12-01 2018-08-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2019-06-01 2019-08-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2018-12-01 2019-08-31 0000795266 us-gaap:RetainedEarningsMember 2019-08-31 0000795266 us-gaap:TreasuryStockMember 2019-08-31 0000795266 us-gaap:RetainedEarningsMember 2018-05-31 0000795266 us-gaap:RetainedEarningsMember 2018-08-31 0000795266 us-gaap:CommonStockMember 2018-05-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2019-08-31 0000795266 us-gaap:TreasuryStockMember 2019-05-31 0000795266 us-gaap:RetainedEarningsMember 2018-06-01 2018-08-31 0000795266 us-gaap:TreasuryStockMember 2018-12-01 2019-08-31 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-08-31 0000795266 us-gaap:RetainedEarningsMember 2017-12-01 2018-08-31 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2018-12-01 2019-08-31 0000795266 us-gaap:TreasuryStockMember 2018-08-31 0000795266 us-gaap:CommonStockMember 2019-06-01 2019-08-31 0000795266 us-gaap:CommonStockMember 2017-11-30 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-08-31 0000795266 us-gaap:TreasuryStockMember 2017-12-01 2018-08-31 0000795266 us-gaap:RetainedEarningsMember 2019-06-01 2019-08-31 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-11-30 0000795266 us-gaap:TreasuryStockMember 2017-11-30 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2018-08-31 0000795266 us-gaap:CommonStockMember 2018-11-30 0000795266 us-gaap:AdditionalPaidInCapitalMember 2017-12-01 2018-08-31 0000795266 us-gaap:CommonStockMember 2018-06-01 2018-08-31 0000795266 us-gaap:RetainedEarningsMember 2017-11-30 0000795266 us-gaap:AdditionalPaidInCapitalMember 2018-05-31 0000795266 us-gaap:TreasuryStockMember 2018-11-30 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-05-31 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-05-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2017-11-30 0000795266 us-gaap:RetainedEarningsMember 2018-12-01 2019-08-31 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2018-05-31 0000795266 us-gaap:CommonStockMember 2019-05-31 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2018-11-30 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2019-05-31 0000795266 us-gaap:AdditionalPaidInCapitalMember 2018-11-30 0000795266 us-gaap:CommonStockMember 2018-08-31 0000795266 us-gaap:TreasuryStockMember 2018-05-31 0000795266 us-gaap:RetainedEarningsMember 2018-11-30 0000795266 us-gaap:TrustForBenefitOfEmployeesMember 2017-11-30 0000795266 us-gaap:AdditionalPaidInCapitalMember 2018-08-31 0000795266 us-gaap:RetainedEarningsMember 2019-05-31 0000795266 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-11-30 0000795266 us-gaap:AdditionalPaidInCapitalMember 2019-05-31 0000795266 kbh:RestrictedStockandPerformanceUnitSharesMember 2018-06-01 2018-08-31 0000795266 kbh:RestrictedStockandPerformanceUnitSharesMember 2019-06-01 2019-08-31 0000795266 kbh:RestrictedStockandPerformanceUnitSharesMember 2018-12-01 2019-08-31 0000795266 us-gaap:EmployeeStockOptionMember 2017-12-01 2018-08-31 0000795266 kbh:RestrictedStockandPerformanceUnitSharesMember 2017-12-01 2018-08-31 0000795266 us-gaap:FinancialServiceMember 2018-08-31 0000795266 us-gaap:HomeBuildingMember 2018-08-31 0000795266 kbh:InspiradaBuildersLLCMember 2018-12-01 2019-08-31 0000795266 us-gaap:AccountingStandardsUpdate201409Member 2018-12-01 0000795266 us-gaap:AccountingStandardsUpdate201409Member 2018-08-31 0000795266 kbh:InspiradaBuildersLLCMember 2017-12-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2018-11-30 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-11-30 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-11-30 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-11-30 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-11-30 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-11-30 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-11-30 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-11-30 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-11-30 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-11-30 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2018-11-30 0000795266 srt:ConsolidationEliminationsMember 2018-11-30 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-01 2018-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-11-30 0000795266 srt:ConsolidationEliminationsMember 2017-12-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2017-12-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2017-11-30 0000795266 srt:ConsolidationEliminationsMember 2018-08-31 0000795266 srt:ConsolidationEliminationsMember 2017-11-30 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-11-30 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-08-31 0000795266 srt:ConsolidationEliminationsMember 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-12-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember 2018-12-01 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2018-12-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-12-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-12-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-12-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-01 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-12-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2017-12-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2017-12-01 2018-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2017-12-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2017-12-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2017-12-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2017-12-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2017-12-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2017-12-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-06-01 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-06-01 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-06-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-06-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-06-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember 2019-06-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2019-06-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2019-06-01 2019-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-06-01 2019-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2019-06-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-06-01 2019-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2019-06-01 2019-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-06-01 2018-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-06-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:HomeBuildingMember 2018-06-01 2018-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-06-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:HomeBuildingMember 2018-06-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember 2018-06-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-06-01 2018-08-31 0000795266 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-06-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-06-01 2018-08-31 0000795266 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-06-01 2018-08-31 0000795266 srt:ConsolidationEliminationsMember us-gaap:FinancialServiceMember 2018-06-01 2018-08-31 0000795266 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember us-gaap:FinancialServiceMember 2018-06-01 2018-08-31 kbh:property iso4217:USD xbrli:shares xbrli:shares kbh:segment utreg:Rate kbh:lot kbh:joint_venture kbh:delivery xbrli:pure iso4217:USD kbh:Home kbh:claim_filed

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 August 31, 2019.
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 88,398,314 shares of the registrant’s common stock, par value $1.00 per share, outstanding on August 31, 2019. The registrant’s grantor stock ownership trust held an additional 7,859,975 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 Nine Months Ended August 31, 2019 and 2018
 
 
Consolidated Balance Sheets -
August 31, 2019 and November 30, 2018
 
 
Consolidated Statements of Cash Flows -
Nine Months Ended August 31, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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 August 31,
 
Nine Months Ended August 31,
 
 
2019
 
2018
 
2019
 
2018
Total revenues
 
$
1,160,786

 
$
1,225,347

 
$
2,994,072

 
$
3,198,393

Homebuilding:
 
 
 
 
 
 
 
 
Revenues
 
$
1,156,855

 
$
1,221,875

 
$
2,984,314

 
$
3,189,753

Construction and land costs
 
(943,754
)
 
(1,001,509
)
 
(2,458,353
)
 
(2,642,231
)
Selling, general and administrative expenses
 
(127,626
)
 
(114,753
)
 
(357,048
)
 
(323,708
)
Operating income
 
85,475

 
105,613

 
168,913

 
223,814

Interest income
 
201

 
458

 
1,745

 
2,739

Equity in income (loss) of unconsolidated joint ventures
 
(384
)
 
3,493

 
(1,159
)
 
2,326

Homebuilding pretax income
 
85,292

 
109,564

 
169,499

 
228,879

Financial services:
 
 
 
 
 
 
 
 
Revenues
 
3,931

 
3,472

 
9,758

 
8,640

Expenses
 
(1,003
)
 
(945
)
 
(3,067
)
 
(2,855
)
Equity in income of unconsolidated joint ventures
 
3,716

 
2,585

 
7,018

 
4,365

Financial services pretax income
 
6,644

 
5,112

 
13,709

 
10,150

Total pretax income
 
91,936

 
114,676

 
183,208

 
239,029

Income tax expense
 
(23,800
)
 
(27,200
)
 
(37,600
)
 
(165,500
)
Net income
 
$
68,136

 
$
87,476

 
$
145,608

 
$
73,529

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
.77

 
$
.99

 
$
1.65

 
$
.83

Diluted
 
$
.73

 
$
.87

 
$
1.55

 
$
.75

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
88,262

 
87,951

 
87,630

 
87,565

Diluted
 
92,842

 
101,072

 
94,032

 
101,213

See accompanying notes.

3


KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands – Unaudited)
 

 
August 31,
2019
 
November 30,
2018
Assets
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
183,794

 
$
574,359

Receivables
291,492

 
292,830

Inventories
3,919,076

 
3,582,839

Investments in unconsolidated joint ventures
57,168

 
61,960

Property and equipment, net
64,119

 
24,283

Deferred tax assets, net
402,095

 
441,820

Other assets
85,515

 
83,100

 
5,003,259

 
5,061,191

Financial services
31,911

 
12,380

Total assets
$
5,035,170

 
$
5,073,571

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
281,855

 
$
258,045

Accrued expenses and other liabilities
629,168

 
666,268

Notes payable
1,860,135

 
2,060,263

 
2,771,158

 
2,984,576

Financial services
1,783

 
1,495

Stockholders’ equity:
 
 
 
Common stock
120,523

 
119,196

Paid-in capital
782,300

 
753,570

Retained earnings
2,042,034

 
1,897,168

Accumulated other comprehensive loss
(9,565
)
 
(9,565
)
Grantor stock ownership trust, at cost
(85,246
)
 
(88,472
)
Treasury stock, at cost
(587,817
)
 
(584,397
)
Total stockholders’ equity
2,262,229

 
2,087,500

Total liabilities and stockholders’ equity
$
5,035,170

 
$
5,073,571

See accompanying notes.

4


KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands – Unaudited)
 
 
Nine Months Ended August 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
145,608

 
$
73,529

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Equity in income of unconsolidated joint ventures
(5,859
)
 
(6,691
)
Distributions of earnings from unconsolidated joint ventures
6,450

 
6,297

Amortization of discounts, premiums and issuance costs
3,500

 
4,677

Depreciation and amortization
19,825

 
1,882

Deferred income taxes
35,701

 
164,668

Stock-based compensation
14,479

 
12,149

Inventory impairments and land option contract abandonments
13,143

 
19,925

Changes in assets and liabilities:
 
 
 
Receivables
2,788

 
(36,030
)
Inventories
(389,461
)
 
(370,048
)
Accounts payable, accrued expenses and other liabilities
4,965

 
84,885

Other, net
(3,283
)
 
(4,751
)
Net cash used in operating activities
(152,144
)
 
(49,508
)
Cash flows from investing activities:
 
 
 
Contributions to unconsolidated joint ventures
(7,656
)
 
(15,640
)
Return of investments in unconsolidated joint ventures
5,001

 
9,934

Proceeds from sale of building
5,804

 

Purchases of property and equipment, net
(32,211
)
 
(4,137
)
Net cash used in investing activities
(29,062
)
 
(9,843
)
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
)
 
(300,000
)
Borrowings under revolving credit facility
460,000

 
70,000

Repayments under revolving credit facility
(410,000
)
 
(70,000
)
Payments on mortgages and land contracts due to land sellers and other loans
(32,149
)
 
(10,494
)
Issuance of common stock under employee stock plans
18,729

 
17,433

Tax payments associated with stock-based compensation awards
(3,345
)
 
(6,787
)
Payments of cash dividends
(12,352
)
 
(6,686
)
Net cash used in financing activities
(209,076
)
 
(306,534
)
Net decrease in cash and cash equivalents
(390,282
)
 
(365,885
)
Cash and cash equivalents at beginning of period
575,119

 
720,861

Cash and cash equivalents at end of period
$
184,837

 
$
354,976

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 August 31, 2019, the results of our consolidated operations for the three months and nine months ended August 31, 2019 and 2018, and our consolidated cash flows for the nine months ended August 31, 2019 and 2018. The results of our consolidated operations for the three months and nine months ended August 31, 2019 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, 2018 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, 2018, 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.
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 those estimates.
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 $11.4 million at August 31, 2019 and $385.2 million at November 30, 2018. At August 31, 2019 and November 30, 2018, our cash equivalents were invested in interest-bearing bank deposit accounts.
Comprehensive Income. Our comprehensive income was $68.1 million for the three months ended August 31, 2019 and $87.5 million for the three months ended August 31, 2018. For the nine months ended August 31, 2019 and 2018, our comprehensive income was $145.6 million and $73.5 million, respectively. Our comprehensive income for each of the three-month and nine-month periods ended August 31, 2019 and 2018 was equal to our net income for the respective periods.
Adoption of New Accounting Pronouncement. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue guidance in Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific revenue and cost guidance in the accounting standards codification, including some cost guidance related to construction-type and production-type contracts. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
On December 1, 2018, we adopted ASU 2014-09 and its related amendments (collectively, “ASC 606”), using the modified retrospective method applied to contracts that were not completed as of the adoption date. Results for reporting periods beginning December 1, 2018 and after are presented under ASC 606, 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 recorded the following cumulative effect adjustment to increase beginning retained earnings as of December 1, 2018 (in thousands):

6


Balance Sheet
 
Balance at November 30, 2018
 
Adjustments due to ASC 606
 
Balance at December 1, 2018
Assets
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
Inventories
 
$
3,582,839

 
$
(35,288
)
 
$
3,547,551

Deferred tax assets, net
 
441,820

 
(4,024
)
 
437,796

Property and equipment, net
 
24,283

 
31,194

 
55,477

Financial services
 
12,380

 
19,728

 
32,108

Stockholders’ equity:
 
 
 
 
 
 
Retained earnings
 
1,897,168

 
11,610

 
1,908,778


Within our homebuilding operations, ASC 606 impacts the classification and timing of recognition in our consolidated financial statements of certain community sales office and other marketing- and model home-related costs, which we previously capitalized to inventories and amortized through construction and land costs with each home delivered in a community. With our adoption of ASC 606, these costs are capitalized to property and equipment and depreciated to selling, general and administrative expenses, or expensed to selling, general and administrative expenses as incurred. Upon adopting ASC 606, we reclassified these community sales office and other marketing- and model home-related costs and related accumulated amortization from inventories to either property and equipment, net or retained earnings in our consolidated balance sheet. Forfeited deposits related to cancelled home sale and land sale contracts, which were previously reflected as other income within selling, general and administrative expenses, are included in homebuilding revenues under ASC 606.
Within our financial services operations, ASC 606 impacts the timing of recognition in our consolidated financial statements of insurance commissions for insurance policy renewals. We previously recognized such insurance commissions as revenue when policies were renewed. With our adoption of ASC 606, insurance commissions for future policy renewals are estimated and recognized as revenue when the insurance carrier issues an initial insurance policy to our homebuyer, which generally occurs at the time each applicable home sale is closed. Upon adopting ASC 606, we recognized contract assets for the estimated future renewal commissions related to existing insurance policies as of December 1, 2018.
There were no significant changes to our business processes or internal control over financial reporting as a result of adopting ASC 606.
The impacts of adopting ASC 606 on our consolidated statements of operations for the three months and nine months ended August 31, 2019 and consolidated balance sheet as of August 31, 2019 were as follows (in thousands, except per share amounts):
 
 
Three Months Ended August 31, 2019
 
Nine Months Ended August 31, 2019
Statement of Operations
 
As Reported
 
Amounts without the Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
 
As Reported
 
Amounts without the Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Homebuilding:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
1,156,855

 
$
1,156,112

 
$
743

 
$
2,984,314

 
$
2,982,201

 
$
2,113

Construction and land costs
 
(943,754
)
 
(951,613
)
 
(7,859
)
 
(2,458,353
)
 
(2,478,583
)
 
(20,230
)
Selling, general and administrative expenses
 
(127,626
)
 
(118,772
)
 
8,854

 
(357,048
)
 
(332,691
)
 
24,357

Operating income
 
85,475

 
85,727

 
(252
)
 
168,913

 
170,927

 
(2,014
)
Financial services:
 
 
 
 
 
 
 
 
 
 
 

Revenues
 
3,931

 
3,751

 
180

 
9,758

 
9,366

 
392

Total pretax income
 
91,936

 
92,008

 
(72
)
 
183,208

 
184,830

 
(1,622
)
Income tax expense
 
(23,800
)
 
(23,800
)
 

 
(37,600
)
 
(38,000
)
 
(400
)
Net income
 
68,136

 
68,208

 
(72
)
 
145,608

 
146,830

 
(1,222
)
Diluted earnings per share
 
.73

 
.73

 

 
1.55

 
1.56

 
(.01
)

7


 
 
As of August 31, 2019
Balance Sheet
 
As Reported
 
Amounts without the Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Assets
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
Inventories
 
$
3,919,076

 
$
3,964,873

 
$
(45,797
)
Deferred tax assets, net
 
402,095

 
405,719

 
(3,624
)
Property and equipment, net
 
64,119

 
24,431

 
39,688

Financial services
 
31,911

 
11,791

 
20,120

Stockholders’ equity:
 
 
 
 
 
 
Retained earnings
 
2,042,034

 
2,031,647

 
10,387


As a result of our adoption of ASC 606, we updated our significant accounting policies as follows:
Homebuilding Revenues. We apply the following steps in determining the timing and amount of revenue to recognize: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, if applicable; and (5) recognize revenue when (or as) we satisfy a performance obligation.
Our home sale transactions are made pursuant to contracts under which we typically have a single performance obligation to deliver a completed home to the homebuyer when closing conditions are met. Revenues from home sales are recognized when we have satisfied the performance obligation within the sales contract, which is generally when title to and possession of the home and the risks and rewards of ownership are transferred to the homebuyer on the closing date. Under our home sale contracts, we typically receive an initial cash deposit from the homebuyer at the time the sales contract is executed and receive the remaining consideration to which we are entitled, through a third-party escrow agent, at closing. Customer deposits related to sold but undelivered homes totaled $26.8 million and $19.5 million at August 31, 2019 and November 30, 2018, respectively, and are included in accrued expenses and other liabilities.
Concurrent with the recognition of revenues in our consolidated statements of operations, sales incentives in the form of price concessions on the selling price of a home are recorded as a reduction of revenues. The costs of sales incentives in the form of free or discounted products or services provided to homebuyers, including option upgrades and closing cost allowances, are reflected as construction and land costs because such incentives are identified in our home sale contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts. Sales incentives that we may provide in the form of closing cost allowances are immaterial to the related revenues. Cash proceeds from home sale closings held by third-party escrow agents for our benefit, typically for less than five days, are considered deposits in-transit and classified as cash.
Land sale transactions are made pursuant to contracts under which we typically have a performance obligation(s) to deliver specified land parcels to the buyer when closing conditions are met. We evaluate each land sale contract to determine our performance obligation(s) under the contract, including whether we have a distinct promise to perform post-closing land development work that is material within the context of the contract, and use objective criteria to determine our completion of the applicable performance obligation(s), whether at a point in time or over time. Revenues from land sales are recognized when we have satisfied the performance obligation(s) within the sales contract, which is generally when title to and possession of the land and the risks and rewards of ownership are transferred to the land buyer on the closing date. Under our land sale contracts, we typically receive an initial cash deposit from the buyer at the time the contract is executed and receive the remaining consideration to which we are entitled, through a third-party escrow agent, at closing. In the limited circumstances where we provide financing to the land buyer, we determine that collectibility of the receivable is reasonably assured before we recognize revenue.
In instances where we have a distinct and material performance obligation(s) within the context of a land sale contract to perform land development work after the closing date, a portion of the transaction price under the contract is allocated to such performance obligation(s) and is recognized as revenue over time based upon our estimated progress toward the satisfaction of the performance obligation(s). We generally measure our progress based on our costs incurred relative to the total costs expected to satisfy the performance obligation(s). While the payment terms for such a performance obligation(s) vary, we

8


generally receive the final payment when we have completed our land development work to the specifications detailed in the applicable land sale contract and it has been accepted by the land buyer.
Homebuilding revenues include forfeited deposits, which occur when home sale or land sale contracts that include a nonrefundable deposit are cancelled. Revenues from forfeited deposits are immaterial.
Within our homebuilding operations, substantially all of our contracts with customers and the related performance obligations have an original expected duration of one year or less.
Community Sales Office and Other Marketing- and Model Home-Related Costs. Community sales office and other marketing- and model home-related costs are either recorded as inventories, capitalized as property and equipment, or expensed to selling, general and administrative expenses as incurred. Costs related to the construction of a model home, inclusive of upgrades that will be sold as part of the home, are recorded as inventories and recognized as construction and land costs when the model home is delivered to a homebuyer. Costs to furnish and ready a model home or on-site community sales facility that will not be sold as part of the model home, such as model furnishings, community sales office and model complex grounds, sales office construction and sales office furniture and equipment, are capitalized as property and equipment under “model furnishings and sales office improvements.” Model furnishings and sales office improvements are depreciated to selling, general and administrative expenses over their estimated useful lives. Other costs related to the marketing of a community, removing the on-site community sales facility and readying a completed (model) home for sale are expensed to selling, general and administrative expenses as incurred.
Financial Services Revenues. Our financial services reporting segment generates revenues primarily from title services and insurance commissions. Revenues from title services are recognized when policies are issued, which generally occurs at the time each applicable home sale is closed. We receive insurance commissions from various third-party insurance carriers for arranging for the carriers to provide homeowner and other insurance policies for our homebuyers that elect to obtain such coverage. In addition, each time a homebuyer renews their insurance policy with the insurance carrier, we receive a renewal commission. Revenues from insurance commissions are recognized when the insurance carrier issues an initial insurance policy to our homebuyer, which generally occurs at the time each applicable home sale is closed. As our performance obligations for policy renewal commissions are satisfied upon issuance of the initial insurance policy, insurance commissions for renewals are considered variable consideration under ASC 606. Accordingly, we estimate the probable future renewal commissions when an initial policy is issued and record a corresponding contract asset and insurance commission revenues. We estimate the amount of variable consideration based on historical renewal trends and constrain the estimate such that it is probable that a significant reversal of cumulative recognized revenue will not occur. We also consider the likelihood and magnitude of a potential future reversal of revenue and update our assessment at the end of each reporting period. The contract assets for estimated future renewal commissions are included in other assets within our financial services reporting segment and totaled $20.1 million at August 31, 2019. Contract assets totaling $19.7 million were recognized on December 1, 2018 in connection with the adoption of ASC 606.
Disaggregation of Revenues. As our homebuilding operations accounted for 99.7% of our total revenues for the year ended November 30, 2018, with most of those revenues generated from home sale contracts with customers, we believe the disaggregation of revenues as reported in our consolidated statement of operations and as disclosed in Note 2 – Segment Information and in Note 3 – Financial Services, fairly depict how the nature, amount, timing and uncertainty of cash flows are affected by economic factors.
SEC Disclosure Update and Simplification. In August 2018, the SEC issued Final Rule Release No. 33-10532, “Disclosure Update and Simplification,” which makes a number of changes meant to simplify interim disclosures. In complying with the relevant aspects of the rule within this quarterly report, we have removed the presentation of cash dividends declared per common share from our consolidated statements of operations and expanded our analysis of stockholders equity in Note 18 – Stockholders’ Equity.
Recent Accounting Pronouncements Not Yet Adopted. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under this guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to previous lease accounting guidance. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. ASU 2016-02 is effective for us beginning December 1, 2019 (with early adoption permitted). We expect to adopt ASU 2016-02 and its related amendments (collectively, “ASC 842”) beginning December 1, 2019 using the modified retrospective method. Results for reporting periods beginning December 1, 2019 and after will be presented under ASC 842, while results for prior reporting periods will not be adjusted and will continue to be presented under the accounting guidance in effect for those periods. The main impact of our adoption of ASC 842 will be

9


the recording on our consolidated balance sheet of lease right-of-use assets and lease liabilities for our operating leases with terms of more than 12 months, which are primarily real estate leases for office space and our design studios, as well as certain equipment leases. While we are currently evaluating and quantifying the potential impact of adopting ASC 842, we do not expect the adoption to have a material impact on our consolidated statements of operations or cash flows.
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 to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), and requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for us beginning December 1, 2019 (with early adoption permitted), and shall be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the corporate income tax rate in the TCJA is recognized. We expect to adopt ASU 2018-02 beginning December 1, 2019. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
Reclassifications. Certain amounts in our consolidated financial statements of prior periods have been reclassified to conform to the current period presentation.
2.
Segment Information
We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of August 31, 2019, our homebuilding reporting segments conducted ongoing operations in the following states:
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. This 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.

10


The following tables present financial information relating to our homebuilding reporting segments (in thousands):
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
West Coast
$
497,654

 
$
571,880

 
$
1,194,728

 
$
1,455,272

Southwest
180,238

 
196,056

 
522,721

 
528,872

Central
326,058

 
327,888

 
874,730

 
885,875

Southeast
152,905

 
126,051

 
392,135

 
319,734

Total
$
1,156,855

 
$
1,221,875

 
$
2,984,314

 
$
3,189,753

 
 
 
 
 
 
 
 
Pretax income (loss):
 
 
 
 
 
 
 
West Coast
$
43,775

 
$
72,996

 
$
86,480

 
$
156,472

Southwest
26,366

 
31,065

 
76,433

 
66,619

Central
34,417

 
32,294

 
80,199

 
80,464

Southeast
5,272

 
(702
)
 
5,316

 
1,405

Corporate and other
(24,538
)
 
(26,089
)
 
(78,929
)
 
(76,081
)
Total
$
85,292

 
$
109,564

 
$
169,499

 
$
228,879


Inventory impairment and land option contract abandonment charges:
 
 
 
 
 
 
 
West Coast
$
5,065

 
$
4,409

 
$
12,148

 
$
15,697

Southwest
126

 
432

 
408

 
432

Central

 
1,131

 
366

 
1,354

Southeast
60

 
2,442

 
221

 
2,442

Total
$
5,251

 
$
8,414

 
$
13,143

 
$
19,925


 
August 31,
2019
 
November 30,
2018
Assets:
 
 
 
West Coast
$
2,177,265

 
$
1,880,516

Southwest
695,741

 
631,509

Central
1,048,958

 
1,017,490

Southeast
448,391

 
463,224

Corporate and other
632,904

 
1,068,452

Total
$
5,003,259

 
$
5,061,191


3.
Financial Services
The following tables present financial information relating to our financial services reporting segment (in thousands):
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Insurance commissions
$
2,224

 
$
1,928

 
$
5,342

 
$
4,743

Title services
1,707

 
1,544

 
4,410

 
3,897

Interest income

 

 
6

 

Total
3,931

 
3,472

 
9,758

 
8,640



11


 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
General and administrative
(1,003
)
 
(945
)
 
(3,067
)
 
(2,855
)
Operating income
2,928

 
2,527

 
6,691

 
5,785

Equity in income of unconsolidated joint ventures
3,716

 
2,585

 
7,018

 
4,365

Pretax income
$
6,644

 
$
5,112

 
$
13,709

 
$
10,150


 
August 31,
2019
 
November 30,
2018
Assets
 
 
 
Cash and cash equivalents
$
1,043

 
$
760

Receivables
1,435

 
2,885

Investments in unconsolidated joint ventures
9,162

 
8,594

Other assets (a)
20,271

 
141

Total assets
$
31,911

 
$
12,380

Liabilities
 
 
 
Accounts payable and accrued expenses
$
1,783

 
$
1,495

Total liabilities
$
1,783

 
$
1,495


(a)
Other assets at August 31, 2019 included $20.1 million of contract assets for estimated future renewal commissions due to our adoption of ASC 606 effective December 1, 2018, as described in Note 1 – Basis of Presentation and Significant Accounting Policies.
On July 9, 2019, the parent company of Stearns, our partner in KBHS, filed a voluntary bankruptcy petition in the United States Bankruptcy Court, Southern District of New York, with Stearns included as a debtor in the case. KBHS is not included in the filing and there are no known plans for it to be included as a debtor. The debtors obtained authority from the court to continue Stearns’ business with respect to KBHS in the ordinary course. On September 11, 2019, Stearns’ parent company announced it will seek confirmation of a modified plan of reorganization supported by its largest noteholders at a hearing scheduled for October 24, 2019. We are monitoring the status of the bankruptcy proceedings. We believe KBHS is, at present, financially and operationally able to continue to provide mortgage banking services to our homebuyers. However, the ultimate resolution and timing of the bankruptcy process is uncertain and could be disruptive to KBHS’ operations, which may, in turn, adversely impact the number of homes we deliver in future periods. We are currently unable to estimate the effect, if any, this event may have on our consolidated financial statements.
4.
Earnings Per Share
Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):
 
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
68,136

 
$
87,476

 
$
145,608

 
$
73,529

Less: Distributed earnings allocated to nonvested restricted stock
 
(48
)
 
(12
)
 
(76
)
 
(37
)
Less: Undistributed earnings allocated to nonvested restricted stock
 
(365
)
 
(472
)
 
(825
)
 
(388
)
Numerator for basic earnings per share
 
67,723

 
86,992

 
144,707

 
73,104



12


 
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
 
2019
 
2018
 
2019
 
2018
Effect of dilutive securities:
 
 
 
 
 
 
 
 
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes
 

 
796

 
541

 
2,389

Add: Undistributed earnings allocated to nonvested restricted stock
 
365

 
472

 
825

 
388

Less: Undistributed earnings reallocated to nonvested restricted stock
 
(354
)
 
(416
)
 
(769
)
 
(335
)
Numerator for diluted earnings per share
 
$
67,734

 
$
87,844

 
$
145,304

 
$
75,546

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding — basic
 
88,262

 
87,951

 
87,630

 
87,565

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Share-based payments
 
4,580

 
4,719

 
4,501

 
5,246

Convertible senior notes
 

 
8,402

 
1,901

 
8,402

Weighted average shares outstanding — diluted
 
92,842

 
101,072

 
94,032

 
101,213

Basic earnings per share
 
$
.77

 
$
.99

 
$
1.65

 
$
.83

Diluted earnings per share
 
$
.73

 
$
.87

 
$
1.55

 
$
.75


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 August 31, 2019 or 2018.
For the three-month and nine-month periods ended August 31, 2019, outstanding stock options to purchase .6 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 nine months ended August 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 the notes at their February 1, 2019 maturity.
For the three-month and nine-month periods ended August 31, 2018, outstanding stock options to purchase 1.6 million shares of our common stock were excluded from the diluted earnings per share calculation because the effect of their inclusion would be antidilutive. 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.

13


5.
Receivables
Receivables consisted of the following (in thousands):
 
August 31,
2019
 
November 30,
2018
Due from utility companies, improvement districts and municipalities
$
130,339

 
$
113,434

Recoveries related to self-insurance and other legal claims
115,904

 
138,261

Refundable deposits and bonds
11,453

 
14,115

Recoveries related to warranty and other claims
2,315

 
4,750

Other
40,793

 
33,775

Subtotal
300,804

 
304,335

Allowance for doubtful accounts
(9,312
)
 
(11,505
)
Total
$
291,492

 
$
292,830

6.
Inventories
Inventories consisted of the following (in thousands):
 
August 31,
2019
 
November 30,
2018
Homes under construction
$
1,587,617

 
$
1,125,152

Land under development
2,150,088

 
2,219,936

Land held for future development or sale (a)
181,371

 
237,751

Total
$
3,919,076

 
$
3,582,839


(a)    Land held for sale totaled $27.8 million at August 31, 2019 and $9.8 million at November 30, 2018.
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.
Our interest costs were as follows (in thousands):
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2019
 
2018
 
2019
 
2018
Capitalized interest at beginning of period
$
212,160

 
$
247,276

 
$
209,129

 
$
262,191

Interest incurred
36,024

 
35,228

 
107,356

 
115,096

Interest amortized to construction and land costs (a)
(38,558
)
 
(53,288
)
 
(106,859
)
 
(148,071
)
Capitalized interest at end of period (b)
$
209,626

 
$
229,216

 
$
209,626

 
$
229,216


(a)
Interest amortized to construction and land costs for the three months ended August 31, 2018 included $.3 million related to land sales during the period. Interest amortized to construction and land costs for the nine months ended August 31, 2019 and 2018 included $.6 million and $4.3 million, respectively, related to land sales during the periods.
(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

14


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.
We evaluated 31 and 47 communities or land parcels for recoverability during the nine months ended August 31, 2019 and 2018, respectively. The carrying value of those communities or land parcels evaluated during the nine months ended August 31, 2019 and 2018 was $219.2 million and $303.5 million, respectively. Some of the communities or land parcels evaluated during the nine months ended August 31, 2019 and 2018 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 nine-month period. In addition, the communities or land parcels evaluated during the nine months ended August 31, 2019 and 2018 included certain communities or land parcels previously held for future development that were reactivated as part of our efforts to improve asset efficiency under our Returns-Focused Growth Plan.
Based on the results of our evaluations, we recognized inventory impairment charges of $4.8 million for the three months ended August 31, 2019 and $11.5 million for the nine months ended August 31, 2019. For the three months and nine months ended August 31, 2018, we recognized inventory impairment charges of $7.1 million and $17.8 million, respectively. The impairment charges for the three-month and nine-month periods ended August 31, 2019 and 2018 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 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 August 31,
 
Nine Months Ended August 31,
Unobservable Input (a)
 
2019
 
2018
 
2019
 
2018
Average selling price
 
$325,300 - $957,200
 
$306,400 - $407,300
 
$315,000 - $1,045,400
 
$306,400 - $774,100
Deliveries per month
 
2 - 4
 
2 - 6
 
1 - 4
 
2 - 6
Discount rate
 
17%
 
17% - 18%
 
17%
 
17% - 18%

(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 August 31, 2019, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $134.7 million, representing 21 communities and various other land parcels. As of November 30, 2018, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $156.1 million, representing 22 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 million for the three months ended August 31, 2019 and $1.7 million for the nine months ended August 31, 2019. For the three-month and nine-month periods ended August 31, 2018, we recognized land option contract abandonment charges of $1.3 million and $2.1 million, respectively.
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

15


ventures at August 31, 2019 and November 30, 2018 was a VIE, but we were not the primary beneficiary of the VIE. All of our joint ventures at August 31, 2019 and November 30, 2018 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 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 August 31, 2019 and November 30, 2018, 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):
 
August 31, 2019
 
November 30, 2018
 
Cash
Deposits
 
Aggregate
Purchase Price
 
Cash
Deposits
 
Aggregate
Purchase Price
Unconsolidated VIEs
$
37,720

 
$
932,770

 
$
26,542

 
$
784,334

Other land option contracts and other similar contracts
32,017

 
532,159