R1_ KB AR 2000_COVERS 3/2/01 5:03 AM Page 1
t w o ca r p e n t e r s
{an old story}
(cid:2)
two carpenters were asked what they were doing:
the first replied, “i am hammering.” the second answered,
“ i am on a team, building a home.”
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kb home 2000 annual report
R1_ KB AR 2000_COVERS 3/2/01 5:03 AM Page 2
l e s l e y
g i s e l l e
wants a pet giraffe.
wants an extra bedroom.
o u r ma n y t h a n k s t o a l l t h e
k b h o m e ow n e r s w h o ma d e t h i s r e p o r t
p o s s i b l e b y c o n t r i b u t i n g t h e i r time and by
sharing their expe rie nce s of home.
(cid:2)
design: louey/rubino design group inc. | santa monica, ca | new york city | hong kong
executive photo: michele smith | portrait photos: ken probst | printing: lithographix
it’s not just business,
it’s personal.
(cid:2)
KB HOME creates highly personalized homes for families at prices they can afford, in selected high-growth
markets in the United States. The Company’s domestic divisions are located in the following three regions: West Coast—
California; Southwest—Arizona, Nevada and New Mexico; and Central—Colorado and Texas. Kaufman & Broad S.A., the
Company’s majority-owned subsidiary, is one of the largest homebuilders in France and is publicly traded on the ParisBourse.
KB HOME also operates a full-service mortgage company for the convenience of its buyers. The Company offers value as
well as a multitude of personal choices to its customers, who are primarily first-time and first move-up buyers. Founded in
1957 as Kaufman and Broad, Inc., KB HOME is a Fortune 500 company listed on the New York Stock Exchange under the
ticker symbol “KBH.”
financial highlights
I N T H O U S A N D S , E X C E P T P E R S H A R E A N D U N I T A M O U N T S
2000
1999
1998
1997
1996
Y E A R S E N D E D N O V E M B E R 3 0 ,
net orders, deliveries and backlog
(number of homes)
Net orders
Deliveries
Unit backlog
revenues and income
Revenues
Operating income(1)
Pretax income(1)(2)
Net income(1)(2)
Basic earnings per share(1)(2)
Diluted earnings per share(1)(2)
assets, debt and equity
24,275
22,847
10,767
23,094
22,460
8,777
16,781
15,213
6,943
12,489
11,443
4,214
10,239
10,249
2,839
$3,930,858
312,441
258,030
170,330
4.38
4.25
$3,836,295
294,726
245,024
159,224
3.41
3.33
$2,449,362
170,085
146,567
95,267
2.41
2.32
$1,878,723
116,259
91,030
58,230
1.50
1.45
$1,787,525
111,419
75,013
48,013
1.17
1.15
Total assets
Mortgages and notes payable
Mandatorily redeemable preferred securities
Stockholders’ equity
Return on average stockholders’ equity
$2,828,921
1,373,274
189,750
654,759
$2,664,235
1,191,090
189,750
676,583
$1,860,204
769,259
189,750
474,511
$1,418,991
697,697
—
383,056
$1,243,494
577,585
—
340,350
25.6%
25.6%
22.2%
16.1%
12.7%
1Excludes impact of a mortgage banking pretax secondary marketing trading loss of $18.2 million recorded in the third quarter of
1999 and a $170.8 million construction pretax noncash charge for impairment of long-lived assets recorded in the second quar-
ter of 1996. For further discussion of the secondary marketing trading loss see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the accompanying consolidated financial statements and notes thereto.
2Excludes impact of a French IPO gain of $39.6 million recorded in the first quarter of 2000. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the accompanying consolidated financial statements and
notes thereto.
KB HOME 2000 annual report. | page 3.
very personal...
f u l f i l l i n g t h e d r e am o f h o m e ow n e r s h i p
is a very personal endeavor. For more than 40 years, kb home has been one of
the most respected and best-known companies in homebuilding. Throughout our
history, we have taken many innovative steps to offer families the opportunity to
purchase the best possible home at the best value in the communities where they
want to live. Our company’s highest goal is to focus on building the one personal
home for each family that has put its trust in us. We recognize that it is not impor-
tant how many homes we build, but that each home meets the needs and dreams of
each and every family.
k b h o m e
a letter to our shareholders
(cid:2)
kb home. we’ve always been about home, and we always will be.
After creating more than 325,000 homes for happy and excited new homeowners,
we’ve decided to adopt a new name that more clearly reflects what we do. We create
highly personalized homes for families at prices they can afford, in communities where
they want to build their lives.
kb home is more recognizable, easier to remember and easier to pronounce.
In today’s fast-paced digital culture, and in a business that revolves around marketing,
companies can’t afford to wait for consumers to understand what they offer; it must be
immediately clear. Consider this: 46% of the customer traffic in our sales offices sources
to signage, and we spend 51% more on our signage company-wide than we do on print
advertising.When the consumer is ready to buy a home, where our signs are placed and
their ability to attract that consumer are critical elements in the sale.
kb home 2000 annual report | page 5.
b r u c e k a rat z
Chairman and Chief Executive Officer
kb home 2000 annual report | page 6.
Each year, I write to you about the characteristics that set our company apart from
others in our industry. One key differentiating factor with KB is our commitment
to building our business by listening to our customers. More than one million home-
buyers have been surveyed to date, and the results of those surveys directly influence
what we offer and where we are located. Now, customer feedback has helped us choose
our new name. In a recent survey of people living in KB homes that was conducted by
houseCALL, our 24/7 leading-edge customer fulfillment call center, 75% identified
their builder as KB HOME or K&B.
So we listened to what our customers have been calling us for years.
KB HOME clears up the confusion over what to call us. It was also obvious, from our
customers’ responses, that we have equity in our initials that has grown over the
four-plus decades we have been in business. On the following pages, you’ll hear direct-
ly from our customers. We like the relationships we enjoy with our homebuyers.
We’ve changed our name; we haven’t changed who we are.
Focus on the entry-level and first move-up niche in the market has consistently
driven KB’s growth over the years. Focus has driven our financial performance,
(cid:2)
first-time buyers represent 45% of all
consumers in the marketplace
kb home 2000 annual report | page 7.
which includes a return on shareholders’ equity that is one of the highest among our
peers. Among the accomplishments that came as a result of our focus in fiscal 2000
are the following:
• Record earnings per share of $4.25 (excluding a $.99 per share gain on a
French IPO), a 27.6% increase over last year
• Completion of our stock buyback program, with the purchase of a total of
14.5 million shares, or approximately 30% of our total shares outstanding,
since 1999
• Backlog up 22.7% to 10,767 units, with a value of $1.85 billion,
30.3% higher than last year
• A 40-basis point improvement in our housing gross margin
• Return on average shareholders’ equity of 25.6%
First-time buyers represent 45% of all consumers in the marketplace.That’s an impres-
sive statistic, and particularly attractive if you know how to effectively reach that
segment, based on in-depth surveys and data.
At the KB HOME Studios, we take buyers through important and exciting
steps in the purchase of their home, from personalization of their new homes by choos-
ing from more than 5,000 items, to competitive mortgage financing. First-time buyers
in the U.S. encounter a wide range of median prices for homes, depending upon the
geographic market, from a low of $88,900 in Houston to a high of $325,000 in San
Francisco. Their monthly mortgage payments can range from a low of $788 in Phoenix
to a high of $1,817 in San Francisco.We have found that if we can offer a prospective
customer a mortgage payment equal to his or her tax-adjusted monthly rent, there is
kb home 2000 annual report | page 8.
no question which lifestyle is preferred. We think these buyers are less vulnerable to
downdrafts from the ‘wealth effect’ and are less likely to postpone their purchase deci-
sions than purely discretionary, high-end consumers.
One dramatically growing factor in the increase in homeownership is the
immigrant population. And no builder serves that sector of the population as well
as KB HOME does. The current immigration wave, in which we saw ten million
immigrants arrive in the period of 1991 to 2000, is the highest of any decade in U.S.
history. These families are now entering the prime homebuying years of their lives.
Studies have shown that immigrants usually live and work in the United States for
about ten years before they have accumulated enough money for a down payment on
a home:
it is estimated that immigrants will add 750,000 to 1,000,000 new home
purchases in the U.S. market in this decade.
How does all this relate to KB HOME? In three major ways: first, KB HOME
is a leader in five of the ten highest immigration metro areas—Los Angeles, San
Francisco, Houston, Dallas and San Diego. Second, families of Asian and Hispanic
ethnicity represent 36% of our buyers, closely tracking the growth and demographic
trends in the marketplace.
Third, immigration and ethnicity relate to a desire among families to live in
new housing in old, familiar, close-in neighborhoods. Families with several working
members like to live near their jobs, often in multi-generational households. The
answer: American CityVista, a joint venture we created with Henry Cisneros, the
former president of Univision Communications and former Secretary of the U.S.
Department of Housing and Urban Development.We were pleased to welcome Henry
to our Board of Directors this past August.
kb home 2000 annual report | page 9.
Only 12 weeks after the announcement of our joint venture, at the end of
October, we launched Lago Vista, a 600-home community in San Antonio. Lago Vista
represents the first new residential development on a major scale on the south side of
San Antonio in more than 40 years. Henry brilliantly brought together community
leaders, schools, the city council, mayor and local families to make Lago Vista possible.
SBC Communications has also pledged to ‘wire’ the community with DSL-ready
service, a real tribute to American CityVista’s efforts to bring value and cutting-edge
resources to families seeking better lives for their children and for generations to come.
American CityVista intends to provide a ‘village within the city’ experience, with new
home comforts and technologies, to communities it builds in KB HOME’s footprint
cities, soon to also include Los Angeles, Phoenix, Dallas, Las Vegas, Houston and
San Diego.
The boom in immigration, coupled with the baby boom and the ‘echo’ boom,
indicates long-term demand for housing. And looking at a 40-year chart of single
family housing starts, we see a narrowing of the cyclicality in housing, beginning in
1991. The volatile cycles prior to that time were greatly influenced by the erratic
mortgage financing policies of savings and loan associations. Today, mortgage availa-
bility is far more prevalent, and the advent of adjustable rate mortgages has taken a
lot of risk out of the market. I guess what I’m saying is that I think we can look
forward to steadier times ahead in the housing industry.
(cid:2)
the boom in immigration, coupled with the
baby boom and the ‘echo’ boom, indicates long-term
demand for housing
kb home 2000 annual report | page 10.
Whatever happens with the U.S. economy this year, we think that steadier
industry conditions and a smoothing of our operational performance through KB2000
practices lessen our risks. Pre-sales of homes, evidenced by our low speculative inven-
tory levels (less than two units per community), the adoption of even-flow production
by our divisions, centralized scheduling and faster cycle times render predictability to
the business. With a large backlog equal to nearly two quarters of deliveries, we have
visibility of earnings that is greater than ever before.
We also have greater control over our costs, with an ability to more quickly
react to a changing environment. As predicted last year, the Internet has helped us to
become more efficient. KBBid.com, our e.KB online system that allows contractors to
submit bids easier and faster for various construction jobs, has already saved us signifi-
cant amounts of money.
Advanced systems make us, and most of the big builders, more professionally-
managed and capable of further substantial growth. We’ve been asked frequently
lately, “How big can you guys get?” Well, with professional management and strong
operating systems, there is no barrier to eventual annual delivery levels of 50,000 to
60,000 homes. Granted, that reflects further consolidation in the industry, with the
possible combination of ‘equals.’
(cid:2)
we also have greater control over our costs,
with an ability to more quickly react to a
changing environment
kb home 2000 annual report | page 11.
Speaking for KB HOME, I think I’ve mentioned in the past the methods
by which we choose to grow—we expand in fast-growing markets where we can
become the leaders and effect above-average returns on capital.
From our vantage point today, we think we’re in a highly favorable environ-
ment for the purchase of a new KB home. Probably the most favorable environment in
more than 30 years. We see mortgage rates declining, inflation under control, and
household formations on the rise, creating a swelling demand for homeownership. I’m
hopeful that the new all-time highs reached by our stock in December indicate that
investors are recognizing the inherent values in our industry, and are rewarding us for
the performance KB HOME has delivered, as well as the performance we fully intend
to deliver in the future.
With enthusiasm for the new year,
b r u c e k a rat z Chairman and Chief Executive Officer
February 9, 2001
how do we provide our
customers with a new home, custom-
tailored to fit their dreams?
(cid:2)
KB HOME 2000 annual report | page 13.
we ask.
a front porch
fell in love with the walk-in closet
(and chris).
c h r i s
s h e l ly
fell in love with the front porch
(and shelly).
ra n dy j r .
ra n dy s r .
has a place for backyard BBQs.
has his own room.
a backyard
mat t h e w
c h r i s
has a pet lizard
no one knows about.
has the best batting
average in the league.
loves having her own room.
l at i s h a
t i a ra
loves having her own room.
g e o r g e
loves having a family room
(with a widescreen TV).
f r i e da
loves having a big kitchen
(with a dishwasher).
lots of rooms
a new home
dreamed of owning a home.
dreamed of having more
room for toys.
m i k a e l a
m i c h a e l
can do laundry any time
jamie decides to nap.
ma r t h a
j am i e
can run from room to room to room
with no intention of taking a nap.
freedom
a second floor
a gameroom is the perfect
place to avoid being hit by
paper airplanes.
a second floor landing
is the perfect launch pad for
paper airplanes.
a plush carpet is the
perfect place to land.
j o r da n
s y d n e y
j a r e d
survey results from more than one million
homebuyers and potential homebuyers have directly
influenced the types of homes we offer, their features
and their locations. kb home’s surveys illustrated the
fact that homebuyers treasure the ability to personalize
their new homes. in 2000, we opened our first dream
home studios–now kb home studios–all of which
showcase more than 5,000 options for new buyers to
customize their homes. one home at a time.
(cid:2)
KB HOME 2000 annual report | page 27.
we’re listening.
KB HOME 2000 annual report | page 28.
800 • 34 • homes
they can then
browse any of our
new communities
for the kb home
of their dreams.
www.kbhome.com
many kb homeowners
start by visiting us
at www.kbhome.com
or by calling us at
800 • 34 • homes.
step 1. g o step 2. l o o k step 3. p u r c h a s e
over 5,000
choices
a visit to the kb home Studio
offers new buyers over 5,000
choices to make their new home
truly their own.
finance
our Kaufman and Broad
Mortgage Company then
helps them through the
purchasing process.
smile, you’re home
a brand new home that
is as individual as each of
our buyers.
step 4. c h o o s e
step 5. m ov e
KB HOME 2000 annual report | page 30.
$3,870,488
construction revenues by region
foreign 12%
2000
west coast 38%
central 28%
1996
southwest 22%
1999
1998
1997
west coast 60%
southwest 11%
central 19%
foreign 10%
west coast 54%
southwest 12%
central 24%
foreign 10%
west coast 46%
southwest 15%
central 29%
foreign 10%
west coast 42%
southwest 22%
central 25%
foreign 11%
KB HOME 2000 annual report | page 31.
22,847
unit deliveries
19.7%
housing gross margin
12.2%
SG & A
25,000
20,000
15,000
10,000
5,000
0
20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%
96 97 98 99 00
96 97 98 99 00
96 97 98 99 00
9
4
2
,
0
1
3
4
4
,
1
1
3
1
2
,
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6
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,
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7
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,
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%
7
.
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.
8
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.
9
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3
.
9
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7
.
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2
.
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1
%
5
.
2
1
%
8
.
2
1
%
4
.
2
1
%
2
.
2
1
KB HOME 2000 annual report | page 32.
unit net orders24,275
backlog units*10,767
25,000
20,000
15,000
10,000
5,000
0
$4.69
cash EPS
$5.00
$4.00
$3.00
$2.00
$1.00
0
12,000
10,000
8,000
6,000
4,000
2,000
0
96 97 98 99 00
96 97 98 99 00
96 97 98 99 00
6
2
.
1
$
8
5
.
1
$
7
4
.
2
$
0
7
.
3
$
9
6
.
4
$
9
3
8
,
2
4
1
2
,
4
3
4
9
,
6
7
7
7
,
8
7
6
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,
3
2
5
7
2
,
4
2
cagr=38.9 %
cagr=39.6 %
cagr=24.1 %
*As of 11/30
KB HOME 2000 annual report | page 33.
25.6%
return on average
stockholders’ equity
78,796
lot positions*
59.3%
lots owned
30%
25%
20%
15%
10%
5%
0
96 97 98 99 00
%
7
.
2
1
%
1
.
6
1
%
2
.
2
2
%
6
.
5
2
%
6
.
5
2
40.7%
lots optioned
*As of 11/30/00
kb home 2000 annual report | page 34.
selected financial information
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
2000
1999
1998
1997
1996
YEARS ENDED NOVEMBER 30 ,
Construction:
Revenues
Operating income (loss)1
Total assets
Mortgages and notes payable
Mortgage banking:
Revenues
Operating income2
Total assets
Notes payable
Collateralized mortgage obligations
Consolidated:
Revenues
Operating income (loss)1,2
Net income (loss)1,2,3
Total assets
Mortgages and notes payable
Collateralized mortgage obligations
Mandatorily redeemable preferred
securities (Feline Prides)
Stockholders’ equity 1,2,3
Basic earnings (loss) per share1,2,3
Diluted earnings (loss) per share1,2,3
Cash dividends per common share
$3,870,488
288,609
2,361,768
987,980
$
60,370
23,832
467,153
385,294
29,928
$3,930,858
312,441
209,960
2,828,921
1,373,274
29,928
189,750
654,759
5.39
5.24
.30
$
$3,772,121
259,107
2,214,076
813,424
$
64,174
17,464
450,159
377,666
36,219
$3,836,295
276,571
147,469
2,664,235
1,191,090
36,219
189,750
676,583
3.16
3.08
.30
$
$2,402,966
148,672
1,542,544
529,846
$
46,396
21,413
317,660
239,413
49,264
$2,449,362
170,085
95,267
1,860,204
769,259
49,264
189,750
474,511
2.41
2.32
.30
$
$1,843,614
101,751
1,133,861
496,869
$
35,109
14,508
285,130
200,828
60,058
$1,878,723
116,259
58,230
1,418,991
697,697
60,058
$1,754,147
(72,078)
1,000,159
442,629
$
33,378
12,740
243,335
134,956
68,381
$1,787,525
(59,338)
(61,244)
1,243,494
577,585
68,381
383,056
340,350
$
1.50
1.45
.30
$
(1.80)
(1.80)
.30
1 Reflects a $170.8 million construction pretax noncash charge for impairment of long-lived assets recorded in the second quarter
of 1996.
2 Reflects an $18.2 million mortgage banking pretax secondary marketing trading loss recorded in the third quarter of 1999.
3 Reflects a $39.6 million construction gain on issuance of French subsidiary stock recorded in the first quarter of 2000.
kb home 2000 annual report | page 35.
management’s discussion and analysis of
financial condition and results of operations
Overview Revenues are primarily generated from the Company’s (i) housing operations in the western United States and
France and (ii) its domestic mortgage banking operations.
RESULTS OF OPERATIONS
The Company’s construction revenues are generated from operating divisions in the following regional groups: “West Coast”–
California; “Southwest”– Arizona, Nevada and New Mexico; and “Central”– Colorado and Texas. For several years prior to
this report, the Company grouped its domestic operating divisions in two regions: California and “Other U.S.” All year-over-
year comparisons have been accomplished by restating applicable prior years’ results in a manner consistent with the new
regional groupings.
The Company reported record earnings for the third consecutive year in 2000. Net income for the year ended November 30,
2000 totaled $210.0 million and diluted earnings per share reached $5.24, including a one-time gain on the issuance of stock by
the Company’s French subsidiary in an initial public offering in February 2000. Excluding this gain, diluted earnings per share
were $4.25, compared to diluted earnings per share of $3.33 (excluding a secondary marketing trading loss) recorded in 1999.
During the 2000 fiscal year, the Company delivered 22,392 homes.
Total Company revenues rose to an all-time high of $3.93 billion in 2000, up 2.5% from $3.84 billion in 1999, which had increased
56.6% from revenues of $2.45 billion in 1998. The increase in 2000 mainly resulted from increases in housing and land sale rev-
enues.The increase in revenues in 1999 compared to 1998 was primarily attributable to higher housing and land sale revenues, as
well as increased revenues from mortgage banking operations. Operating results for 1999 included the results of Lewis Homes
from its January 1999 acquisition date, as well as the first full year of results from the acquisitions of Houston-based Hallmark
Residential Group (“Hallmark”) and Phoenix/Tucson-based Estes Homebuilding Co. (“Estes”) and the assets of Denver-based
PrideMark Homebuilding Group (“PrideMark”), all of which the Company completed in the second quarter of 1998. Operating
results for 1999 also reflected the acquisition of the remaining minority interest of General Homes, which occurred on January 4,
1999. The Company had acquired a majority interest in General Homes in August 1998. Included in total Company revenues
were mortgage banking revenues of $60.4 million in 2000, $64.2 million in 1999 and $46.4 million in 1998, respectively.
Net income increased $62.5 million or 42.4% to $210.0 million, or $5.24 per diluted share in 2000, both Company records, up
from $147.5 million, or $3.08 per diluted share in 1999. These results include a one-time gain of $39.6 million, or $.99 per diluted
share, on the issuance of stock by the Company’s French subsidiary in an initial public offering in February 2000 (the “French IPO
gain”). Excluding the French IPO gain, diluted earnings per share for 2000 were $4.25, up 27.6% compared with 1999, excluding
the secondary marketing trading loss.The increase in diluted earnings per share in 2000 was principally driven by the combined
effect of a higher housing gross margin, lower selling, general and administrative expenses, a lower effective income tax rate and a
16.2% reduction in the average number of diluted shares outstanding due to the Company’s share repurchase program. Net income
of $147.5 million, or $3.08 per diluted share for 1999 was 54.8% higher than the $95.3 million, or $2.32 per diluted share recorded
in 1998. Net income and diluted earnings per share for 1999 included the impact of a third quarter secondary marketing trading
loss, resulting from unauthorized trading by an employee at the Company’s mortgage banking subsidiary. The loss totaled $11.8
million, or $.25 per diluted share, on an after tax basis. Excluding the impact of the trading loss, net income for 1999 was $159.2
million and diluted earnings per share were $3.33. The growth in diluted earnings per share occurred despite the trading loss
and despite an increase of 16.6% in the diluted average number of common shares outstanding in 1999, resulting from the
Lewis Homes acquisition which closed on January 7, 1999. The increase in diluted earnings per share in 1999 was principally
driven by significantly higher unit deliveries, an improved construction gross margin and a reduction in the selling, general
and administrative expense ratio.
kb home 2000 annual report | page 36.
CONSTRUCTION
Revenues Construction revenues rose to $3.87 billion in 2000 from $3.77 billion in 1999, which had increased from $2.40 billion
in 1998. The increase in 2000 was primarily due to higher housing and land sale revenues.The improvement in 1999 was mainly
the result of increased housing revenues, due, among other things, to the acquisition of Lewis Homes in 1999, the inclusion of
a full year’s operating results from the operations in Houston, Denver and Phoenix/Tucson acquired during 1998, and higher
land sale revenues.
WEST COAST
SOUTHWEST
CENTRAL
FOREIGN
TOTAL
UNCONSOLIDATED
JOINT VENTURES
Unit Deliveries
2000
First
Second
Third
Fourth
Total
1999
First
Second
Third
Fourth
Total
Net Orders
2000
First
Second
Third
Fourth
Total
1999
First
Second
Third
Fourth
Total
1,128
1,207
1,444
1,697
5,476
1,199
1,430
1,629
2,065
6,323
1,341
2,178
1,301
1,198
6,018
1,572
2,104
1,660
1,314
6,650
1,264
1,349
1,596
1,623
5,832
1,130
1,376
1,590
1,705
5,801
1,523
1,875
1,301
1,337
6,036
1,284
1,901
1,457
1,431
6,073
1,653
1,884
1,944
2,631
8,112
1,627
1,845
1,936
2,401
7,809
1,903
2,888
2,191
1,941
8,923
2,230
2,297
1,720
1,477
7,724
520
602
726
1,124
2,972
323
488
948
730
4,565
5,042
5,710
7,075
22,392
4,279
5,139
6,103
6,901
2,489
22,422
558
896
564
836
5,325
7,837
5,357
5,312
2,854
23,831
535
917
510
647
5,621
7,219
5,347
4,869
2,609
23,056
123
137
102
93
455
38
38
115
121
102
106
444
38
38
kb home 2000 annual report | page 37.
WEST COAST
SOUTHWEST
CENTRAL
FOREIGN
TOTAL
JOINT VENTURES
UNCONSOLIDATED
Ending Backlog-Units
2000
First
Second
Third
Fourth
1999
First
Second
Third
Fourth
Ending Backlog-Value In thousands
2000
First
Second
Third
Fourth
1999
First
Second
Third
Fourth
2,092
3,063
2,920
2,421
1,925
2,599
2,630
1,879
$495,782
755,243
737,912
643,620
$449,993
613,466
631,823
457,439
2,366
2,892
2,597
2,311
2,208
2,733
2,600
2,107
$349,122
413,692
377,324
345,609
$305,339
389,458
371,160
299,520
3,449
4,453
4,700
4,010
3,887
4,339
4,123
3,199
$438,739
570,012
607,767
541,258
$454,944
524,065
511,378
396,962
1,566
1,860
1,898
1,817
1,196
1,625
1,456
1,373
9,473
12,268
12,115
10,559
9,216
11,296
10,809
8,558
$249,581
315,151
310,240
272,901
$196,028
270,229
235,544
228,213
$1,533,224
2,054,098
2,033,243
1,803,388
$1,406,304
1,797,218
1,749,905
1,382,134
211
195
195
208
219
$38,824
36,660
35,880
42,224
$33,945
Housing revenues totaled a record $3.77 billion in 2000, $3.73 billion in 1999 and $2.38 billion in 1998. In 2000, housing revenues
increased 1.0% from 1999 as a result of a 1.1% increase in the average selling price as unit volume remained nearly flat with the
prior year. In 1999, housing revenues were up 56.9% from 1998 as a result of a 47.4% increase in unit volume and a 6.5% rise in the
average selling price.
Housing revenues from West Coast operations were $1.41 billion in 2000, down 9.5% from $1.56 billion in 1999 as a result of a
13.4% decrease in unit deliveries, partially offset by a 4.5% increase in the average selling price.West Coast housing operations gen-
erated 42.7% of domestic housing revenues in 2000, down from 46.8% in 1999 and 51.3% in 1998, mainly as a result of the
Company’s selective land investments in the region and the continued expansion of its Southwest and Central region operations.
This marks a consistent trend of diversification of the Company’s domestic operations outside of California since 1993. Housing
revenues generated from the Company’s Southwest region totaled $846.9 million in 2000, up 2.9% from $823.2 million in 1999,
while the Central region posted housing revenues of $1.04 billion, up 10.4% from $945.4 million a year earlier. Both the Southwest
and Central regions gained deliveries in 2000 with the Southwest up by 31 units and the Central region up by 303 units when
compared to 1999. Housing revenues in the Southwest were up in 1999 from $351.5 million in 1998, as a result of both increased
deliveries and a higher average selling price, partly due to acquisitions. In the Central region, housing revenues in 1999 rose from
$684.3 million in 1998 as a result of expansion in both Colorado and Texas, including the full year impact of acquisitions com-
pleted during 1998. Operations in France generated housing revenues of $470.3 million in 2000, up 16.6% from $403.4 million in
kb home 2000 annual report | page 38.
1999, as a result of higher unit volume, partially offset by a lower average selling price. In 1998, housing revenues from operations
in France totaled $240.0 million.
Company-wide, housing deliveries of 22,392 units in 2000 were virtually flat compared with 22,422 units in 1999 as a 2.6%
decrease in U.S. deliveries was partially offset by a 20.4% increase in French deliveries.The decline in domestic deliveries reflected
a 13.4% decrease in the West Coast region, partly offset by increases of .5% and 3.9% in the Southwest and Central regions, respec-
tively.West Coast deliveries decreased to 5,476 units in 2000 from 6,323 units in 1999, primarily due to two factors. First, the
re-focusing of the Company’s West Coast operations, following the Lewis Homes acquisition, in keeping with the KB2000
operational business model resulted in fewer active communities in Northern California in 2000 as compared to 1999. Second, the
strength of the Company’s Southwest and Central region operations, which generally offer lower risk for less investment in land,
has resulted in more stringent criteria guiding the Company’s land investment decisions and has caused the Company to be more
selective in its land investments in the West Coast region. Southwest operations delivered 5,832 units in 2000, up slightly from
5,801 units in 1999, despite a 4.9% decrease in the average number of active communities operated in this region. In the Central
region, deliveries totaled 8,112 units in 2000, up from 7,809 units in 1999 as active communities in the region rose 4.2%. French
deliveries increased to 2,967 units in 2000 from 2,465 units in 1999 as a result of expansion of these operations during 2000, partly
through acquisitions.
Housing deliveries increased 47.4% to 22,422 units in 1999 from 15,213 units in 1998. This improvement reflected increases in U.S.
and French deliveries of 47.0% and 53.2%, respectively.The increase in the number of domestic deliveries, partly due to acquisi-
tions and partly due to organic growth, was comprised of a 30.2% year-over-year increase in units delivered in the West Coast
region and increases of 112.5% and 30.8% in the Southwest and Central regions, respectively.West Coast deliveries rose to 6,323
units in 1999 from 4,858 units in 1998, reflecting a 34.4% increase in the average number of active communities in the state.
Southwest operations delivered 5,801 units in 1999, up from 2,730 units in 1998 as the average number of active communities rose
105.0%. Deliveries from Central region operations rose to 7,809 units in 1999, up from 5,968 units in 1998 due to a 26.3% rise in
the average number of active communities. Excluding the impact of acquisitions within the trailing twelve months, domestic
deliveries rose 12.2% in 1999 from 1998. French deliveries increased 53.2% to 2,465 units in 1999 from 1,609 units in 1998, largely
due to improved market conditions.
The Company-wide average new home price increased 1.1% in 2000, to $168,300 from $166,500 in 1999. The 1999 average had
increased 6.5% from $156,400 in 1998. The increase in the average selling price in 2000 resulted from a higher domestic average
selling price, partially offset by a lower average selling price in France.
In the West Coast region, the average selling price rose 4.5% in 2000 to $257,000 from $246,000 in 1999, which had increased
9.6% from $224,500 in 1998. The average selling price in the Southwest region increased 2.3% to $145,200 in 2000, compared
with $141,900 in 1999 and $128,800 in 1998. The Central region average selling price rose 6.2% to $128,600 in 2000 compared
with $121,100 in 1999 and $114,700 in 1998. The West Coast average selling price increased only moderately due to a lower pro-
portion of Northern California deliveries in 2000, which are generally higher priced than deliveries generated from Southern
California operations. Domestic price increases in 1999 resulted from the inclusion of higher-priced deliveries from the Lewis
Homes operations in California and Nevada, acquired early in 1999, and from selected increases in sales prices in certain markets
due to favorable market conditions.
The Company’s average selling price in France decreased to $158,500 in 2000 from $163,600 in 1999, which had increased from
$149,200 in 1998. The average selling price in France decreased in 2000 primarily due to an increase in the proportion of deliver-
ies generated from condominiums, which are typically priced below single-family detached homes, and the adverse foreign cur-
rency impact resulting from a weakening in the French franc versus the U.S. dollar.The French average selling price rose in 1999
primarily due to a change in the mix of deliveries and price appreciation in the French housing market.
kb home 2000 annual report | page 39.
Revenues from the development of commercial buildings, all located in metropolitan Paris, totaled $.8 million in 2000, $.7 million
in 1999 and $1.5 million in 1998. After several years of de-emphasizing its commercial development operations in France due to
French commercial market conditions, the Company currently anticipates a significant increase in this business in 2001, with
revenues from these activities expected to range between $75.0 million and $90.0 million for the year, dependent upon continued
favorable market conditions.
Land sale revenues totaled $100.5 million in 2000, $37.8 million in 1999 and $22.5 million in 1998. Generally, land sale revenues
fluctuate with decisions to maintain or decrease the Company’s land ownership position in certain markets based upon the vol-
ume of its holdings, the strength and number of competing developers entering particular markets at given points in time, the
availability of land in markets served by the Company and prevailing market conditions.The significant increase in land sales in
2000 resulted from the Company’s asset repositioning strategy, adopted in late 1999, which included the identification and sale of
non-core assets.
Operating Income Operating income increased 11.4% to a new Company record of $288.6 million in 2000 from $259.1 million
in 1999. The increase was primarily due to higher housing gross profits and lower selling, general and administrative expenses.
Housing gross profits in 2000 increased 3.0% or $22.1 million to $743.7 million from $721.6 million in 1999. As a percentage of
related revenues, housing gross profit margin was 19.7% in 2000, up from 19.3% in the prior year.The increase in the Company’s
housing gross margin resulted from several factors, including an improved pricing environment, generally favorable market condi-
tions throughout the year, deeper execution of the KB2000 operational business model and the reduced impact related to pur-
chase accounting associated with the 1999 acquisition of Lewis Homes. During 2000, the Company’s housing gross profit margin
showed sequential improvement each quarter and, in the fourth quarter reached 20.6%. Company-wide land sales generated a
profit of $2.8 million in 2000, compared to a loss of $1.2 million in 1999.
Selling, general and administrative expenses decreased .7%, or $3.3 million in 2000, to $458.0 million. As a percentage of housing
revenues, to which these expenses are most closely correlated, selling, general and administrative expenses were 12.2% in 2000
compared to 12.4% in 1999. The improved ratio resulted from savings generated by the Company’s cost-containment initiatives.
Operating income increased 74.3% to $259.1 million in 1999 from $148.7 million in 1998. This increase was primarily due to
higher housing gross profits, resulting from higher unit volume, partially offset by increased selling, general and administrative
expenses. Housing gross profits in 1999 increased 58.1% or $265.2 million to $721.6 million from $456.4 million in 1998. As a per-
centage of related revenues, housing gross profit margin was 19.3% in 1999, up from 19.2% in the prior year.This increase was pri-
marily due to more efficient home designs and construction costs in KB2000 communities and overall improved market
conditions, as well as market-driven price increases in selected communities, particularly in the West Coast region. Company-wide
land sales produced losses of $1.2 million and $3.2 million in 1999 and 1998, respectively.
Selling, general and administrative expenses increased 51.5%, or $156.7 million to $461.3 million in 1999. As a percentage of hous-
ing revenues, however, selling, general and administrative expenses decreased .4 percentage points to 12.4% in 1999 from 12.8% in
1998. The improvement in the selling, general and administrative expense ratio was due to a strong increase in unit volume and
reduced reliance on sales initiatives, partially offset by increased expenditures for information systems in support of the KB2000
operational business model and the Company’s year 2000 compliance plan, and by goodwill amortization and other expenses
related to the Lewis Homes transaction.
Interest Income and Expense
Interest income, which is generated from short-term investments and mortgages receivable,
amounted to $5.8 million in 2000, $7.8 million in 1999 and $5.7 million in 1998. The decrease in interest income in 2000 reflected
lower interest bearing average balances of short-term investments and mortgages receivable compared to the same period a year
ago.The increase in interest income in 1999 compared to 1998 primarily reflected an increase in the interest bearing average bal-
ance of mortgages receivable and a higher average balance of short-term investments.
kb home 2000 annual report | page 40.
Interest expense results principally from borrowings to finance land purchases, housing inventory and other operating and capital
needs. In 2000, interest expense, net of amounts capitalized, increased by $3.2 million to $31.5 million from $28.3 million in 1999.
Gross interest incurred in 2000 was $16.2 million higher than that incurred in 1999, reflecting an increase in average indebtedness.
The percentages of interest capitalized in 2000 and 1999 were 66.6% and 63.7%, respectively.The amounts of interest capitalized as
a percentage of gross interest incurred and distributions associated with the Company’s outstanding Feline Prides were 57.3% in
2000 and 53.3% in 1999.
In 1999, interest expense, net of amounts capitalized, increased to $28.3 million from $23.3 million in 1998. Gross interest incurred
in 1999 was $23.7 million higher than that incurred in 1998, reflecting an increase in average indebtedness, primarily as a result of
the Lewis Homes acquisition and growth in the number of new communities in 1999.
The percentage of interest capitalized in 1999 increased from the 57.0% capitalized in 1998. The higher capitalization rate in 1999
resulted from the effect of the issuance of Feline Prides in the third quarter of 1998 and a higher proportion of land under devel-
opment in 1999 compared to the previous year.The amount of interest capitalized as a percentage of gross interest incurred and
distributions associated with the Feline Prides was 51.3% in 1998.
Minority Interests Minority interests are comprised of two major components: pretax income of consolidated subsidiaries and
joint ventures related to residential and commercial activities; and distributions associated with the Feline Prides issued in July
1998. Operating income was reduced by minority interests of $31.6 million in 2000, $29.4 million in 1999 and $7.0 million in
1998. Minority interests in 2000 included the impact of the Company’s French IPO and $15.2 million in distributions related to
the Feline Prides. In 1999 and 1998, minority interests included $15.2 million and $6.1 million, respectively, in distributions related
to the Feline Prides. Increased joint venture activity contributed to the rise in minority interests from 1998 to 1999. In the aggre-
gate, minority interests in 2001 are expected to remain at high levels due to ongoing joint venture activity and distributions
associated with the Feline Prides.
Equity in Pretax Income of Unconsolidated Joint Ventures The Company’s unconsolidated joint venture activities were located in
California, Nevada, New Mexico and France in 2000; California, Nevada, New Mexico,Texas and France in 1999; and New
Mexico,Texas and France in 1998. These unconsolidated joint ventures posted combined revenues of $116.8 million in 2000, $13.9
million in 1999 and $17.7 million in 1998. Revenues from unconsolidated joint ventures increased in 2000 primarily due to the
inclusion of a new domestic joint venture related to a Nevada community. All unconsolidated joint venture revenues in 2000 and
1999 were generated from residential properties. French commercial activities accounted for $6.5 million of the combined rev-
enues in 1998. Unconsolidated joint ventures generated combined pretax income of $4.9 million in 2000, compared with pretax
income of $3.6 million and $5.0 million in 1999 and 1998, respectively.The Company’s share of pretax income from unconsoli-
dated joint ventures totaled $2.9 million in 2000, $.2 million in 1999 and $1.2 million in 1998.
Gain on Issuance of French Subsidiary Stock The Company recognized a one-time gain of $39.6 million from the issuance of
5,314,327 common shares (including the over allotment option) by Kaufman & Broad S.A. (“KBSA”), the Company’s wholly
owned French subsidiary, in an initial public offering in the first quarter of 2000. The offering was made in France and elsewhere
in Europe and was priced at 23 euros per share. KBSA is now listed on the Premier Marché of the ParisBourse.The offering gen-
erated total net proceeds of $113.1 million, of which $82.9 million was used by the Company to reduce its domestic debt and
repurchase additional shares of its common stock.The remainder of the proceeds was used to fund internal and external growth
of KBSA.The Company continues to own a majority interest in KBSA and will continue to consolidate these operations in its
financial statements.
kb home 2000 annual report | page 41.
MORTGAGE B ANKING
Interest Income and Expense The Company’s mortgage banking operations provide financing principally to purchasers of homes
sold by the Company’s domestic housing operations through the origination of residential mortgages. Interest income is earned
primarily from first mortgages and mortgage-backed securities held for long-term investment as collateral, while interest expense
results from notes payable and the collateralized mortgage obligations. Interest income increased to a record $21.1 million in 2000
from $19.2 million in 1999 and $15.6 million in 1998. Interest expense rose to $19.4 million in 2000 from $16.9 million in 1999
and $15.0 million in 1998. In both 2000 and 1999, interest income increased primarily due to a higher balance of first mortgages
held under commitments of sale and other receivables outstanding compared to the previous year.
Interest expense rose in both 2000 and 1999 due to a higher amount of notes payable outstanding compared to the prior year.
Combined interest income and expense resulted in net interest income of $1.7 million in 2000, $2.3 million in 1999 and $.6 mil-
lion in 1998. These differences reflect variations in mortgage production mix; movements in short-term versus long-term interest
rates; and the amount, timing and rates of return on interim reinvestments of monthly principal amortization and prepayments.
Other Mortgage Banking Revenues Other mortgage banking revenues, which principally consist of gains on sales of mortgages
and servicing rights and, to a lesser extent, mortgage servicing fees and insurance commissions, totaled $39.2 million in 2000, $45.0
million in 1999 and $30.8 million in 1998. The decrease in 2000 was primarily the result of lower gains on the sales of mortgages
and servicing rights due to lower unit delivery volume. Interest rate increases during 2000, including a shift in product mix toward
more variable rate loans, lower retention and the intensely competitive mortgage banking environment also contributed to the
decrease.The increase in 1999 reflected higher gains on the sales of mortgages and servicing rights due to a higher volume of
mortgage originations associated with increases in housing unit volume and improved retention in the United States.
General and Administrative Expenses General and administrative expenses associated with mortgage banking operations
increased to $17.2 million in 2000 from $11.6 million in 1999 and $9.9 million in 1998. The increase in general and administrative
expenses in 2000 was primarily due to expansion of the operations. In 1999, general and administrative expenses increased prima-
rily due to higher mortgage production volume.
Secondary Marketing Trading Loss On August 31, 1999, the Company disclosed that it had discovered unauthorized mortgage
loan trading activity by an employee of its mortgage banking subsidiary resulting in a pretax trading loss of $18.2 million ($11.8
million, or $.25 per diluted share, on an after-tax basis). It is normal practice for the Company’s mortgage banking subsidiary to sell
loans into the market that approximately match loan commitments to the Company’s homebuyers.This practice is intended to
hedge exposure to changes in interest rates that may occur until loans are sold to secondary market investors in the ordinary
course of its business.The loss was the result of a single employee engaging in unauthorized mortgage loan trading largely unre-
lated to mortgage originations.The employee who conducted the unauthorized trading was terminated.
INCOME TAXES
The Company recorded income tax expense of $87.7 million in 2000, $79.4 million in 1999 and $51.3 million in 1998. These
amounts represented effective income tax rates of approximately 34.0% in 2000 (excluding the one-time gain on the issuance of
French subsidiary stock) and 35.0% in both 1999 and 1998. The effective tax rate declined by 1.0 percentage point in 2000 as
a result of greater utilization of tax credits. Pretax income for financial reporting purposes and taxable income for income tax
purposes historically have differed primarily due to the impact of state income taxes, foreign tax rate differences, intercompany
dividends and the use of tax credits.
kb home 2000 annual report | page 42.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash to fund its operating and investing activities. Historically,
the Company has funded its construction and mortgage banking activities with internally generated cash flows and external
sources of debt and equity financing. In 2000, operating, investing and financing activities provided net cash of $4.7 million; in
1999, these activities used net cash of $35.0 million.
Operating activities provided $64.5 million in 2000 while operating activities in 1999 provided $106.8 million.The Company’s
sources of operating cash in 2000 included earnings of $210.0 million, various noncash items deducted from net income and other
operating items of $2.5 million. Partially offsetting these sources were investments in inventories of $96.1 million (excluding
acquisitions and $25.1 million of inventories acquired through seller financing), a decrease in accounts payable, accrued expenses
and other liabilities of $55.0 million, a decrease in receivables of $53.9 million and a gain on the issuance of French subsidiary stock
of $39.6 million.
In 1999, the sources of operating cash included earnings of $147.5 million, an increase of $130.3 million in accounts payable,
accrued expenses and other liabilities and various noncash items deducted from net income.The cash provided was partially offset
by an increase of $184.1 million in receivables and an investment of $38.8 million in inventories (excluding the effect of acquisi-
tions and $43.5 million of inventories acquired through seller financing).
Cash used by investing activities totaled $24.9 million in 2000 compared to $34.0 million in 1999. In 2000, $24.3 million, net of
cash acquired, was used for acquisitions, $18.5 million was used for net purchases of property and equipment and $2.6 million was
used for originations of mortgages held for long-term investment. Partially offsetting these uses were distributions related to
investments in unconsolidated joint ventures of $13.9 million and proceeds of $6.6 million received from mortgage-backed secu-
rities, which were principally used to pay down collateralized mortgage obligations for which the mortgage-backed securities had
served as collateral.
In 1999, cash used by investing activities included $19.2 million used for net purchases of property and equipment, $15.0 million
used for investments in unconsolidated joint ventures, $11.6 million, net of cash acquired, used for acquisitions, and $2.8 million
used for originations of mortgages held for long-term investment. Partially offsetting these uses were $14.6 million of proceeds
received from mortgage-backed securities.
Financing activities in 2000 used $34.9 million of cash compared to $107.8 million used in 1999. In 2000, the Company’s uses of
cash included payments for repurchases of common stock of $169.2 million (excluding $78.0 million of common stock repur-
chased through the issuance of promissory notes), payments to minority interests of $20.1 million, cash dividend payments of $11.5
million and payments on collateralized mortgage obligations of $6.3 million. Partially offsetting these uses were proceeds from the
issuance of French subsidiary stock of $113.1 million and net proceeds from borrowings of $59.1 million.The Company’s financial
leverage, as measured by the ratio of debt to total capital, net of invested cash, was 53.9% at the end of 2000 compared to 48.4% at
the end of 1999. The ratio for 1999 was adjusted to reflect $.7 million of invested cash at November 30, 1999. The Company seeks
to maintain its ratio of debt to total capital within a targeted range of 45% to 55%, and achieved this goal in 2000 despite execut-
ing stock repurchases of approximately $247.0 million during the year.The Company believes its debt to total capital ratio for
2000 reflects the impact of a strategic review of its assets and businesses initiated late in 1999.
Financing activities in 1999 used $81.9 million for the repurchase of common stock, $43.7 million for payments to minority inter-
ests, $14.2 million for cash dividend payments and $14.1 million for payments on collateralized mortgage obligations. Partially
offsetting these uses was cash of $46.1 million provided from net proceeds from borrowings.
kb home 2000 annual report | page 43.
On January 4, 1999, the Company invested approximately $14.5 million to acquire the remaining 49.7% of the outstanding stock
of General Homes, bringing its ownership interest to 100%. General Homes was a builder of single-family homes primarily in
Houston,Texas.The investment was accounted for under the purchase method and the results of operations of General Homes
were included in the Company’s consolidated financial statements as of January 4, 1999. The investment was financed by borrow-
ings under the Company’s domestic unsecured revolving credit facility.
Effective January 7, 1999, the Company acquired substantially all of the homebuilding assets of Lewis Homes. Lewis Homes was
engaged in the acquisition, development and sale of residential real estate in California and Nevada.The purchase price for Lewis
Homes was approximately $449.2 million, comprised of the assumption of approximately $303.2 million in debt and the issuance
of 7.9 million shares of the Company’s common stock valued at approximately $146.0 million.The purchase price was based on
the December 31, 1998 net book values of the entities purchased.The excess of the purchase price over the estimated fair value of
net assets acquired was $177.6 million and was allocated to goodwill.The Company is amortizing the goodwill on a straight-line
basis over a period of ten years.
The 7.9 million shares of Company common stock issued in the acquisition were “restricted” shares and could not be resold with-
out a registration statement or compliance with Rule 144 under the Securities Act of 1933 (“Rule 144”), which, among other
things, limits the number of shares that may be resold in a given period.The Company originally agreed to file a registration state-
ment for 6.0 million of those shares in three increments at the Lewis family’s request from July 1, 2000 to July 1, 2002. On
September 21, 2000, the Company instead repurchased 4.0 million of the shares issued in the acquisition from the Lewis holders at
a price of $26.00 per share. In connection with the repurchase, the Lewis holders’ registration rights for the first two increments
were extinguished. In the period subsequent to the Company’s repurchase, the Lewis holders sold most of the balance of their
shares within the requirements of Rule 144.
The acquisition consideration for Lewis Homes was determined by arms-length negotiations between the parties.The acquisition
was accounted for as a purchase, with the results of Lewis Homes included in the Company’s consolidated financial statements as
of January 7, 1999.
During the second half of 1999, the Company completed the acquisition of the outstanding shares of Park, a French apartment
builder, for a total price of approximately $16.6 million.The acquisition was financed by a three-year bank loan that provides for
interest at the Euro Interbank Offered Rate Plus 1.45%. The acquisition was accounted for under the purchase method, and the
results of operations of the builder are included in the Company’s consolidated financial statements as of the date of purchase.The
excess of the purchase price over the estimated fair value of net assets acquired was $10.0 million and was allocated to goodwill.
The Company is amortizing goodwill related to the acquisition on a straight-line basis over a period of ten years.
During the year ended November 30, 2000, the Company’s French subsidiary, KBSA, completed the acquisitions of four home-
builders in France.These companies were acquired for an aggregate purchase price of $33.5 million and were accounted for under
the purchase method of accounting.The excess of the purchase price over the estimated fair value of the net assets acquired was
$24.7 million and was allocated to goodwill.The Company is amortizing the goodwill on a straight-line basis over a period
of ten years.
kb home 2000 annual report | page 44.
In 2000 and 1999, common stock repurchases made under the Company’s share repurchase program, established in August 1999,
totaled $247.0 million and $81.9, respectively.The Company repurchased approximately 10.7 million shares in 2000 and 3.8 million
shares in 1999, thereby completing the purchase of all the 14.5 million shares of common stock previously authorized for repur-
chase by the Company’s Board of Directors. Included in the 10.7 million shares repurchased during 2000 were 4.0 million shares,
repurchased on September 21, 2000, which had been issued in the January 1999 acquisition of Lewis Homes.
In connection with its share repurchase program, on August 27, 1999, the Company established a grantor stock ownership trust
(the “Trust”) into which certain of the repurchased shares have been transferred.The Trust, administered by an independent
trustee, acquires, holds and distributes the shares of common stock for the purpose of funding certain employee compensation and
employee benefit obligations of the Company under its existing stock option, 401(k) and other employee benefit plans.The exis-
tence of the Trust has no impact on the amount of benefits or compensation that is paid under these plans.
For financial reporting purposes, the Trust is consolidated with the Company. Any dividend transactions between the Company
and the Trust are eliminated. Acquired shares held by the Trust remain valued at the market price at the date of purchase and are
shown as a reduction to stockholders’ equity in the consolidated balance sheet.The difference between the Trust share value and
the fair market value on the date shares are released from the Trust, for the benefit of employees, will be included in additional
paid-in capital. Common stock held in the Trust is not considered outstanding in the computation of earnings per share.The Trust
held 8.8 million and 3.8 million shares of common stock at November 30, 2000 and 1999, respectively.The trustee votes shares
held by the Trust in accordance with voting directions from eligible employees, as specified in a trust agreement with the trustee.
External sources of financing for the Company’s construction activities include its domestic unsecured credit facility, other domes-
tic and foreign bank lines, third-party secured financings, and the public debt and equity markets. Substantial unused lines of credit
remain available for the Company’s future use, if required, principally through its domestic unsecured revolving credit facility. On
October 6, 2000, the Company entered into a $725.0 million unsecured credit agreement (the “$725.0 million Unsecured Credit
Facility”), consisting of a $564.0 million four-year committed revolving credit facility and a $161.0 million five-year term loan,
which together replaced its previously existing revolving credit facility and Term Loan Agreement.This $725.0 million Unsecured
Credit Facility could be expanded up to an aggregate total of $900.0 million if additional bank lending commitments are obtained.
Interest on the $725.0 million Unsecured Credit Facility is payable monthly at the London Interbank Offered Rate plus an appli-
cable spread on amounts borrowed. Under the $725.0 million Unsecured Credit Facility, $725.0 million remained committed and
$414.4 million was available for the Company’s future use at November 30, 2000. In addition, the Company’s French subsidiaries
have lines of credit with various banks which totaled $207.8 million at November 30, 2000 and have various committed expiration
dates through November 2003. Under these unsecured financing agreements, $82.7 million was available in the aggregate at
November 30, 2000.
Depending upon available terms and its negotiating leverage related to specific market conditions, the Company also finances cer-
tain land acquisitions with purchase-money financing from land sellers and other third parties. At November 30, 2000, the
Company had outstanding seller-financed notes payable of $29.8 million secured primarily by the underlying property which had
a carrying value of $75.2 million.
On September 21, 2000, in connection with the repurchase of 4.0 million shares from the Lewis holders, the Company issued
promissory notes (the “Shareholder Notes”), with an aggregate principal amount of $78.0 million, to the Lewis holders. Interest
on the Shareholder Notes is accrued monthly at a rate of 6.6%. Under the terms of the notes, principal payments of $26.0 million
plus accrued interest are due on January 4, 2001, June 7, 2001 and December 6, 2001.
kb home 2000 annual report | page 45.
On December 5, 1997, the Company filed a universal shelf registration statement (the “1997 Shelf Registration”) with the
Securities and Exchange Commission for up to $500.0 million of the Company’s debt and equity securities.This universal shelf
registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior sub-
ordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities.The registration was
declared effective on December 16, 1997, and as of November 30, 2000 no securities had been issued thereunder.
On July 7, 1998, the Company, together with a KBHC Trust that is wholly owned by the Company, issued an aggregate of (i) 19.0
million Feline Prides, and (ii) 1.0 million KBHC Trust capital securities, with a $10 stated liquidation amount.The Feline Prides
consisted of (i) 18.0 million Income Prides with the stated amount per Income Prides of $10, which are units comprised of a cap-
ital security and a stock purchase contract under which the holders will purchase common stock from the Company not later than
August 16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments, and (ii) 1.0 million
Growth Prides with a face amount per Growth Prides equal to the $10 stated amount, which are units consisting of a 1/100th
beneficial interest in a zero-coupon U.S.Treasury security and a stock purchase contract under which the holders will purchase
common stock from the Company not later than August 16, 2001 and the Company will pay to the holders certain unsecured
contract adjustment payments.
The distribution rate on the Income Prides is 8.25% per annum and the distribution rate on the Growth Prides is .75% per
annum. Under the stock purchase contracts, investors will be required to purchase shares of common stock of the Company for an
effective price ranging between a minimum of $31.75 per share and a maximum of $38.10 per share, and the Company will issue
approximately 5 to 6 million common shares by August 16, 2001, depending upon the price of the common stock upon settlement
of the purchase contracts (subject to adjustment under certain circumstances).The capital securities associated with the Income
Prides and the U.S.Treasury securities associated with the Growth Prides have been pledged as collateral to secure the holders’
obligations in respect of the common stock purchase contracts.The capital securities issued by the KBHC Trust are entitled to a
distribution rate of 8% per annum of their $10 stated liquidation amount.
The Company uses its capital resources primarily for land purchases, land development and housing construction.The Company
typically manages its investments in land by purchasing property under options and other types of conditional contracts whenever
possible, and similarly controls its investment in housing inventories by emphasizing the pre-sale of homes over speculative con-
struction and carefully managing the timing of the production process.The Company’s backlog ratio (beginning backlog as a per-
centage of unit deliveries in the succeeding quarter) for the fourth quarter of 2000 was 174.0% versus 156.6% in the fourth quarter
of 1999. During the 1990’s, inventories became geographically more diverse, primarily as a result of the Company’s extensive
domestic expansion outside of the West Coast region.The Company continues to concentrate its housing operations in desirable
areas within targeted growth markets, principally oriented toward entry-level and first-time move up purchasers.
The principal sources of liquidity for the Company’s mortgage banking operations are internally generated funds from the sales of
mortgages and related servicing rights. Mortgages originated by the mortgage banking operations are generally sold in the sec-
ondary market within 60 days of origination. External sources of financing for these operations include a $300.0 million revolving
mortgage warehouse agreement (the “Mortgage Warehouse Facility”) and a $250.0 million Master Loan and Security Agreement.
On February 18, 2000, the Company’s mortgage banking subsidiary renewed its Mortgage Warehouse Facility and increased the
facility from $250.0 million.The Mortgage Warehouse Facility, which expires on February 18, 2003, provides for an annual fee
based on the committed balance of the facility and provides for interest at either the London Interbank Offered Rate or the
Federal Funds Rate plus an applicable spread on amounts borrowed.The Master Loan and Security Agreement was renewed on
May 19, 2000 with an investment bank and was increased from $150.0 million.The agreement, which expires on May 18, 2001,
provides for a facility fee based on the $250.0 million maximum amount available and provides for interest to be paid monthly at
the Eurodollar Rate plus an applicable spread on amounts borrowed.The amounts outstanding under the Mortgage Warehouse
Facility and the Master Loan and Security Agreement are secured by a borrowing base, which includes certain mortgage loans
kb home 2000 annual report | page 46.
held under commitments of sale, and are repayable from sales proceeds.There are no compensating balance requirements under
either facility. Both facilities include financial covenants and restrictions which, among other things, require the maintenance of
certain financial statement ratios, a minimum tangible net worth and a minimum net income.
Debt service on the Company’s collateralized mortgage obligations is funded by receipts from mortgage-backed securities. Such
funds are expected to be adequate to meet future debt-payment schedules for the collateralized mortgage obligations and there-
fore these securities have virtually no impact on the capital resources and liquidity of the mortgage banking operations.
The Company continues to benefit in all of its operations from the strength of its capital position, which has allowed it to main-
tain overall profitability during troubled economic times, finance domestic and international expansion, re-engineer product lines
and diversify into new markets. Secure access to capital at competitive rates, among other reasons, should enable the Company to
continue to grow and expand. As a result of its geographic diversification, the disciplines of the KB2000 operational business
model and its strong capital position, the Company believes it has adequate resources and sufficient credit line facilities to satisfy its
current and reasonably anticipated future requirements for the funds needed to acquire capital assets and land, to construct homes,
to fund its mortgage banking operations, and to meet other needs of its business, both on a short and long-term basis.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain member countries of the European Union (the “EU”) established fixed conversion rates between their
existing currencies and the European Union’s common currency (the “euro”).The Company conducts substantial business in
France, an EU member country. During the established transition period for the introduction of the euro, which extends to June
30, 2002, the Company will address the issues involved with the adoption of the new currency.The most important issues facing
the Company include: converting information technology systems; reassessing currency risk; negotiating and amending contracts;
and processing tax and accounting records.
Based upon progress to date, the Company believes that use of the euro will not have a significant impact on the manner in which
it conducts its business affairs and processes its business and accounting records.Accordingly, conversion to the euro is not expected
to have a material effect on the Company’s financial condition or results of operations.
SUBSEQUENT EVENT
On February 8, 2001, pursuant to the 1997 Shelf Registration, the Company issued $250.0 million of 91⁄2% senior subordinated
notes at 100% of the principal amount of the notes. The notes, which are due February 15, 2011 with interest payable semi-
annually, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness
of the Company.The notes are redeemable at the option of the Company, in whole or in part, at 104.750% of their principal
amount beginning February 15, 2006, and thereafter at prices declining annually to 100% on and after February 15, 2009. Proceeds
from the issuance of the notes were used to pay down bank borrowings.
OUTLOOK
The Company’s residential backlog at November 30, 2000 consisted of 10,559 units, representing aggregate future revenues of
$1.80 billion. Both amounts established new year-end records, and reflected increases of 22.7% and 30.3%, respectively, when com-
pared to the 8,558 units in residential backlog, representing aggregate future revenues of $1.38 billion, at year-end 1999. Company-
wide net orders for the fourth quarter of 2000 totaled 5,312, up 9.1% from the comparable quarter of 1999.
The Company’s domestic residential backlog at November 30, 2000 increased to $1.53 billion, up 32.6% from $1.15 billion at year-
end 1999. On a unit basis, domestic backlog stood at 8,742 units at year-end 2000, up 21.7% from 7,185 units at year-end 1999.
Improvement occurred in all domestic regions, reflecting generally good market conditions throughout the United States.The
kb home 2000 annual report | page 47.
success of communities designed under the Company’s KB2000 operational business model also contributed to the increase in
total U.S. backlog levels.West Coast operations produced substantial year-over-year growth, with backlog at November 30, 2000
rising to $643.6 million on 2,421 units from $457.4 million on 1,879 units at November 30, 1999. Full-year results were tempered
by an 8.8% decline in net orders from West Coast operations in the fourth quarter of 2000 to 1,198 units from 1,314 units in the
fourth quarter of 1999. In Southwest operations, backlog value increased to $345.6 million on 2,311 units at November 30, 2000
from $299.5 million on 2,107 units at November 30, 1999. This improvement occurred despite the region’s average number of
active communities decreasing 4.9% compared to the prior year. Fourth quarter 2000 net orders in Southwest operations decreased
6.6% to 1,337 units from 1,431 units in the year-earlier period. In the Central region, backlog rose to $541.3 million on 4,010 units
at November 30, 2000 from $397.0 million on 3,199 units at November 30, 2000. Fourth quarter 2000 net orders in Central oper-
ations increased 31.4% to 1,941 units from 1,477 units in the year-earlier period.
In France, residential backlog at November 30, 2000 totaled $272.9 million on 1,817 units, up 20.1% and 32.7%, respectively, from
$227.2 million on 1,369 units at year-end 1999. French net orders increased 29.2% to 836 units in the fourth quarter of 2000 from
647 units in the year-earlier period.The value of the backlog associated with French commercial development activities totaled
approximately $88.6 million at November 30, 2000, up from $1.7 million at year-end 1999, reflecting the Company’s increasing
level of activity.
Substantially all homes included in the year-end 2000 backlog are expected to be delivered during 2001. However, cancellations
could occur, particularly if market conditions deteriorate or mortgage interest rates increase, thereby decreasing backlog and
related future revenues.
Company-wide net orders during the first two months of fiscal 2001 increased 18.2% from the comparable period of 2000.
Domestic net orders during the two-month period increased 20.1%, reflecting increases of 34.2% and 33.8% in Southwest and
Central operations, respectively, partially offset by a decrease of 12.5% in the West Coast region. In France, net orders for the first
two months of fiscal 2001 increased 3.6% compared to the same period in 2000, reflecting the expansion of the French operations
through acquisitions and new community openings. Full year Company-wide net order results could be further affected by cur-
rent global or regional market uncertainties, mortgage interest rate volatility in France or the U.S., declines in consumer confi-
dence in either country and/or other factors.
As a result of the Company’s more selective land investment within the West Coast region and its continued domestic expansion
outside of the region, the percentage of domestic unit deliveries generated from West Coast operations decreased to 28.2% in 2000
from 31.7% in 1999. On a housing revenue basis, these percentages were 42.7% in 2000 and 46.8% in 1999. In response to persist-
ently weak conditions for new housing and general recessionary trends in the West Coast region during the first half of the 1990’s
and in order to spur growth, the Company diversified its business through aggressive expansion into other western states.Although
the West Coast housing market has improved significantly since then, the Company has maintained a more selective approach to
its land investments in keeping with its KB2000 operational business model.
The Company’s Southwest and Central operations continued to experience growth in 2000. The Company has also achieved the
most significant penetration of its KB2000 operational business model in these markets.The Company is seeking to continue to
expand its Southwest and Central operations and continues to explore opportunities to enter new domestic markets as well as
grow its businesses within existing markets.
The French housing market has continued to improve in recent years. In 2000, the Company’s unit deliveries in France rose by
20.4% from the previous year as the Company expanded these operations, partly through acquisitions. French commercial activities
are also likely to rebound in 2001 as the division reinvigorates its commercial business. The initial public offering of KBSA,
completed in February 2000, has strengthened the French business by providing it with access to additional capital to
support its growth.
kb home 2000 annual report | page 48.
While adhering to the disciplines of the KB2000 operational business model, the Company has leveraged the model with addi-
tional complementary initiatives, including strategies to establish and deepen its leading market positions and to identify new
acquisition opportunities.The Company hopes to increase overall unit delivery growth in future years through these strategies.
The Company’s growth strategies include the expansion of existing operations to achieve optimal market volume levels, and the
possible entry into new geographic markets through acquisitions. Growth in the Company’s existing markets will be driven by the
Company’s ability to increase the average number of active communities through the continued successful implementation of its
KB2000 operational business model.
As part of its strategy, the Company has made a commitment to pursue e-commerce opportunities through its recently formed
subsidiary, e.KB, Inc.These efforts include continually improving its website, kbhome.com, to provide more information for con-
sumers, utilizing its houseCALL center to support website efforts and selectively investing in related e-commerce businesses.The
Company intends to continue to focus on e-commerce initiatives with the hope of reducing supply chain costs, building longer-
term relationships with its customers and bringing new technology to its customers.
In August 2000, the Company announced that it had formed American CityVista, a joint venture with Henry Cisneros, former
president of Univision Communications and former Secretary of the U.S. Department of Housing and Urban Development, now
also a director of the Company. American CityVista will develop distinctive communities in urban in-fill areas where new resi-
dential development has not occurred in recent years.Working with the Company, American CityVista is expected to identify
appropriate sites, plan neighborhoods, acquire and develop land, build homes and market them as competitively priced “villages
within cities” that are designed to honor local tastes and traditions.
During 2000, the Company focused on the asset repositioning strategy that it announced in late 1999. As part of this strategy, the
Company reviewed its assets and businesses for the purpose of monetizing non-strategic or marginal positions, and instituted more
stringent criteria for land acquisitions.The Company’s asset repositioning activities during 2000 included the partial IPO of its
French subsidiary and various land sales. A majority of the land assets originally identified through the asset repositioning strategy
as non-core were sold as of November 30, 2000. The asset repositioning initiatives were intended to increase cash flows available to
reduce debt and /or repurchase additional stock, or possibly to fund future acquisitions.
In January 2001, the Company announced that it was changing its name to “KB Home.” This new name, which resulted from
homebuyer input, is intended to convey the Company’s strong customer focus and its commitment to helping homebuyers realize
their dream of home ownership.
Based on its current projections, the Company expects to establish its fourth consecutive year of record earnings per share in fiscal
2001. However, this goal could be materially affected by various risk factors, such as changes in general economic conditions,
either nationally, in the U.S. or France, or in the localized regions in which the Company operates; changes in job growth or
employment levels; a downturn in the economy’s pace; changes in home mortgage interest rates or consumer confidence, among
other things.The Company is proceeding with caution into 2001 as recent economic data indicates an overall slowing in the
economy.The Conference Board recently reported that U.S. consumer confidence in December 2000 sank to its lowest level in
two years.The Federal Reserve, in its recent decision to cut the federal funds rate, also cited a variety of cautionary factors, includ-
ing weakening sales and production, falling consumer confidence, skittish financial markets and high energy prices.The Company
will closely monitor overall economic trends in 2001 while remaining focused on the effective management of its business units,
using the KB2000 principles, to minimize the impact of any sustained economic slowdown.
kb home 2000 annual report | page 49.
IMPACT OF INFLATION
The Company’s business is significantly affected by general economic conditions, particularly by inflation and its generally associ-
ated adverse effect on interest rates. Although inflation rates have been low in recent years, rising inflation would likely affect the
Company’s revenues and earning power by reducing demand for homes as a result of correspondingly higher interest rates. In
periods of high inflation, the rising costs of land, construction, labor, interest and administrative expenses have often been recover-
able through increased selling prices, although this has not always been possible because of high mortgage interest rates and com-
petitive factors in the marketplace. In recent years, inflation has had no significant adverse impact on the Company, as average
annual cost increases have not exceeded the average rate of inflation.
* * *
Investors are cautioned that certain statements contained in this document, as well as some statements by the Company in periodic
press releases and some oral statements by Company officials to securities analysts and stockholders during presentations about the
Company are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the
“Act”). Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include
words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute for-
ward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings
or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by man-
agement are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations
and projections about future events and are subject to risks, uncertainties, and assumptions about the Company, economic and
market factors and the homebuilding industry, among other things.These statements are not guaranties of future performance, and
the Company has no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements made by the
Company or Company officials due to a number of factors.The principal important risk factors that could cause the Company’s
actual performance and future events and actions to differ materially from such forward-looking statements include, but are not
limited to, national or regional changes in general economic conditions, employment levels, costs of homebuilding material and
labor, home mortgage and other interest rates, the secondary market for mortgage loans, competition, currency exchange rates as
they affect the Company’s operations in France, consumer confidence, government regulation or restrictions on real estate devel-
opment, capital or credit market conditions affecting the Company’s cost of capital; the availability and cost of land in desirable
areas, environmental factors, governmental regulations, unanticipated violations of Company policy, property taxes, and unantici-
pated delays in the Company’s operations.
kb home 2000 annual report | page 50.
consolidated statements of income
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
TOTAL REVENUES
Construction:
Revenues
Construction and land costs
Selling, general and administrative expenses
Operating income
Interest income
Interest expense, net of amounts capitalized
Minority interests
Equity in pretax income of unconsolidated joint ventures
Gain on issuance of French subsidiary stock
Construction pretax income
Mortgage banking:
Revenues:
Interest income
Other
Expenses:
Interest
General and administrative
Secondary marketing trading loss
Mortgage banking pretax income
Total pretax income
Income taxes
NET INCOME
B ASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
See accompanying notes.
YEARS ENDED NOVEMBER 30 ,
2000
1999
1998
$ 3,930,858
$ 3,836,295
$ 2,449,362
$ 3,870,488
(3,123,869)
(458,010)
$ 3,772,121
(3,051,698)
(461,316)
$ 2,402,966
(1,949,729)
(304,565)
288,609
5,782
(31,479)
(31,640)
2,926
39,630
273,828
21,130
39,240
60,370
(19,374)
(17,164)
23,832
297,660
(87,700)
209,960
5.39
5.24
$
$
$
259,107
7,806
(28,340)
(29,392)
224
148,672
5,674
(23,341)
(7,002)
1,151
209,405
125,154
19,186
44,988
64,174
(16,941)
(11,614)
(18,155)
17,464
226,869
(79,400)
147,469
3.16
3.08
$
$
$
15,569
30,827
46,396
(15,046)
(9,937)
21,413
146,567
(51,300)
95,267
2.41
2.32
$
$
$
kb home 2000 annual report | page 51.
consolidated balance sheets
IN THOUSANDS, EXCEPT SHARES
ASSETS
Construction:
Cash and cash equivalents
Trade and other receivables
Mortgages and notes receivable
Inventories
Investments in unconsolidated joint ventures
Deferred income taxes
Goodwill
Other assets
Mortgage banking:
Cash and cash equivalents
Receivables:
First mortgages and mortgage-backed securities
First mortgages held under commitments of sale and other receivables
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Construction:
Accounts payable
Accrued expenses and other liabilities
Mortgages and notes payable
Mortgage banking:
Accounts payable and accrued expenses
Notes payable
Collateralized mortgage obligations secured by mortgage-backed securities
Minority interests:
Consolidated subsidiaries and joint ventures
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely debentures of the Company
Stockholders’ equity:
Preferred stock – $1.00 par value; authorized, 10,000,000 shares: none outstanding
Common stock – $1.00 par value; authorized, 100,000,000 shares; 44,397,243 and
48,090,615 shares outstanding at November 30, 2000 and 1999, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Grantor stock ownership trust, at cost: 8,782,252 shares and 3,750,100 shares at
November 30, 2000 and 1999, respectively
Treasury stock, at cost: 1,448,100 shares at November 30, 2000
TOTAL STOCKHOLDERS’ EQUITY
NOVEMBER 30 ,
2000
1999
$
21,385
294,760
11,821
1,657,401
10,407
73,842
202,177
89,975
2,361,768
11,696
43,137
403,165
9,155
467,153
$
15,576
205,847
58,702
1,521,265
21,290
99,519
205,618
86,259
2,214,076
12,791
47,080
386,076
4,212
450,159
$2,828,921
$2,664,235
$ 311,537
201,672
987,980
1,501,189
$ 328,528
222,855
813,424
1,364,807
11,135
385,294
29,928
426,357
56,866
189,750
246,616
44,397
240,761
598,374
(9,564)
(190,872)
(28,337)
654,759
9,711
377,666
36,219
423,596
9,499
189,750
199,249
48,091
335,324
376,626
(1,584)
(81,874)
676,583
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$2,828,921
$2,664,235
See accompanying notes.
kb home 2000 annual report | page 52.
consolidated statements of stockholders’ equity
IN THOUSANDS
YEARS ENDED NOVEMBER 30 ,
2000 , 1999 AND 1998
NUMBER OF SHARES
GRANTOR
STOCK
COMMON
STOCK
OWNERSHIP TREASURY
STOCK
TRUST
COMMON
STOCK
PAID-IN
CAPITAL
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
GRANTOR
STOCK
OWNERSHIP
TRUST
TOTAL
TREASURY STOCKHOLDERS’
EQUITY
STOCK
Balance at November 30, 1997
38,997
$38,997
$186,086
$159,960
$(1,987)
$383,056
Comprehensive income:
Net income
Foreign currency translation
adjustments
Total comprehensive income
Dividends on common stock
Exercise of employee stock
95,267
(11,871)
(370)
options
995
995
15,699
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust holding
solely debentures of the
Company – contract
adjustment payments and
issuance costs
(8,265)
Balance at November 30, 1998
39,992
39,992
193,520
243,356
(2,357)
Comprehensive income:
Net income
Foreign currency translation
adjustments
Total comprehensive income
Dividends on common stock
Exercise of employee stock
options
Issuance of common stock
related to an acquisition
Grantor stock ownership trust
147,469
(14,199)
773
212
7,887
212
3,686
7,887
138,118
Balance at November 30, 1999
48,091
(3,750)
(3,750)
48,091
335,324
376,626
(1,584)
(81,874)
$ (81,874)
Comprehensive income:
Net income
Foreign currency translation
adjustments
Total comprehensive income
Dividends on common stock
Exercise of employee stock
options
Common stock purchased and
retired
Grantor stock ownership trust
Treasury stock
Issuance of French
subsidiary stock
306
(4,000)
306
5,445
(4,000)
(100,000)
(8)
(5,032)
(1,448)
(7,980)
209,960
(11,465)
23,253
(108,998)
$(28,337)
95,267
(370)
94,897
(11,871)
16,694
(8,265)
474,511
147,469
773
148,242
(14,199)
3,898
146,005
(81,874)
676,583
209,960
(7,980)
201,980
(11,465)
5,751
(104,000)
(109,006)
(28,337)
23,253
Balance at November 30, 2000
44,397
(8,782)
(1,448)
$44,397
$240,761
$598,374
$(9,564)
$(190,872)
$(28,337)
$654,759
See accompanying notes.
kb home 2000 annual report | page 53.
consolidated statements of cash flows
IN THOUSANDS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Equity in pretax income of unconsolidated joint ventures
Minority interests
Gain on issuance of French subsidiary stock
Amortization of discounts and issuance costs
Depreciation and amortization
Provision for deferred income taxes
Change in assets and liabilities, net of effects from acquisitions:
Receivables
Inventories
Accounts payable, accrued expenses and other liabilities
Other, net
Net cash provided (used) by operating activities
Cash flows from investing activities:
Acquisitions, net of cash acquired
Investments in unconsolidated joint ventures
Net sales (originations) of mortgages held for long-term investment
Payments received on first mortgages and mortgage-backed securities
Purchases of property and equipment, net
Net cash used by investing activities
Cash flows from financing activities:
Net proceeds from credit agreements and other short-term borrowings
Issuance of French subsidiary stock
Proceeds from Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures of the Company
Payments on collateralized mortgage obligations
Payments on mortgages, land contracts and other loans
Payments to minority interests
Payments of cash dividends
Repurchases of common stock
Net cash provided (used) for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid
Supplemental disclosures of noncash activities:
Cost of inventories acquired through seller financing
Issuance of promissory notes to repurchase common stock
Issuance of common stock related to an acquisition
Debt assumed related to an acquisition
See accompanying notes.
YEARS ENDED NOVEMBER 30 ,
2000
1999
1998
$ 209,960
$ 147,469
$ 95,267
(2,926)
31,640
(39,630)
1,012
41,298
25,677
(53,935)
(96,078)
(54,970)
2,496
64,544
(24,292)
13,885
(2,645)
6,615
(18,500)
(24,937)
84,984
113,118
(224)
29,392
1,501
38,251
(25,913)
(184,116)
(38,761)
130,257
8,911
106,767
(11,646)
(15,022)
(2,756)
14,629
(19,160)
(33,955)
(1,151)
7,002
1,882
16,178
474
(50,040)
(125,719)
51,283
(8,025)
(12,849)
(162,818)
2,214
1,686
12,933
(15,859)
(161,844)
119,425
63,187
(6,312)
(25,857)
(20,133)
(11,465)
(169,228)
(14,098)
(73,329)
(43,723)
(14,199)
(81,874)
183,057
(12,324)
(45,239)
(7,006)
(11,871)
(34,893)
(107,798)
169,804
4,714
28,367
(34,986)
63,353
(4,889)
68,242
$ 33,081
$ 28,367
$ 63,353
$ 50,042
40,818
$ 43,014
64,554
$ 37,915
40,521
$ 25,054
78,000
$ 43,529
$ 29,911
146,005
303,239
kb home 2000 annual report | page 54.
notes to consolidated financial statements
NOTE 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations KB Home (the “Company”) is a regional builder of single-family homes with domestic operations throughout the
western United States, and international operations in France.The Company also develops commercial and high-density residen-
tial projects in France.Through its mortgage banking subsidiary, Kaufman and Broad Mortgage Company, the Company provides
mortgage banking services to its domestic homebuyers.
Basis of Presentation The consolidated financial statements include the accounts of the Company and all significant subsidiaries
and joint ventures in which a controlling interest is held. All significant intercompany transactions have been eliminated.
Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using
the equity method.
Use of Estimates The financial statements have been prepared in conformity with generally accepted accounting principles
and, as such, include amounts based on informed estimates and judgments of management. Actual results could differ from
these estimates.
Cash and Cash Equivalents The Company considers all highly liquid debt instruments and other short-term investments
purchased with a maturity of three months or less to be cash equivalents.As of November 30, 2000 and 1999, the Company’s cash
equivalents totaled $1,830,000 and $704,000, respectively.
Foreign Currency Translation Results of operations for foreign entities are translated to U.S. dollars using the average exchange
rates during the period. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Resulting
translation adjustments are recorded in stockholders’ equity as foreign currency translation adjustments.
Construction Operations Housing and other real estate sales are recognized when title passes to the buyer and all of the follow-
ing conditions are met: a sale is consummated, a significant down payment is received, the earnings process is complete and the
collection of any remaining receivables is reasonably assured. In France, revenues from development and construction of single-
family detached homes, condominiums and commercial buildings, under long-term contracts with individual investors who own
the land, are recognized using the percentage of completion method, which is generally based on costs incurred as a percentage of
estimated total costs of individual projects. Revenues recognized in excess of amounts collected are classified as receivables.
Amounts received from buyers in excess of revenues recognized, if any, are classified as other liabilities.
Construction and land costs are comprised of direct and allocated costs, including estimated future costs for warranties and ameni-
ties. Land, land improvements and other common costs are allocated on a relative fair value basis to units within a parcel or sub-
division. Land and land development costs generally include related interest and property taxes incurred until development is
substantially completed or deliveries have begun within a subdivision.
Land to be developed and projects under development are stated at cost unless the carrying amount of the parcel or subdivision is
determined not to be recoverable, in which case the impaired inventories are written down to fair value.Write-downs of impaired
inventories are recorded as adjustments to the cost basis of the inventory.The Company’s inventories typically do not consist of
completed projects.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized by the Company
over periods ranging from five to ten years using the straight-line method. Accumulated amortization was $79,756,000 and
$52,765,000 at November 30, 2000 and 1999, respectively. In the event that facts and circumstances indicate that the carrying value
of goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated
future undiscounted cash flows associated with the goodwill would be compared to its carrying amount to determine if a write-
down to fair value or discounted cash flow is required.
kb home 2000 annual report | page 55.
Mortgage Banking Operations
First mortgages and mortgage-backed securities consist of securities held for long-term invest-
ment and are valued at amortized cost. First mortgages held under commitments of sale are valued at the lower of aggregate cost
or market. Market is principally based on public market quotations or outstanding commitments obtained from investors to pur-
chase first mortgages receivable.
Principal and interest payments received on mortgage-backed securities are invested in short-term securities maturing on the next
debt service date of the collateralized mortgage obligations for which the securities are held as collateral. Such payments are
restricted to the payment of the debt service on the collateralized mortgage obligations.
Secondary Marketing Trading Loss On August 31, 1999, the Company disclosed that it had discovered unauthorized mortgage
loan trading activity by an employee of its mortgage banking subsidiary resulting in a pretax trading loss of $18,155,000
($11,755,000, or $.25 per diluted share, on an after-tax basis). It is normal practice for the Company’s mortgage banking subsidiary
to sell loans into the market that approximately match loan commitments to the Company’s homebuyers.This practice is intended
to hedge exposure to changes in interest rates that may occur until loans are sold to secondary market investors in the ordinary
course of business.The loss was the result of a single employee engaging in unauthorized mortgage loan trading largely unrelated
to mortgage originations.The employee who conducted the unauthorized trading was terminated.
Stock Options The Company’s employee stock option plans are accounted for under Accounting Principles Board Opinion
No. 25,“Accounting for Stock Issued to Employees” (“APB Opinion No. 25”).
Income Taxes
Income taxes are provided for at rates applicable in the countries in which the income is earned. Provision is made
currently for United States federal income taxes on earnings of foreign subsidiaries that are not expected to be reinvested
indefinitely.
Earnings Per Share Basic earnings per share is calculated by dividing net income by the average number of common shares out-
standing for the period. Diluted earnings per share is calculated by dividing net income by the average number of shares outstand-
ing including all dilutive potentially issuable shares under various stock option plans and stock purchase contracts.The following
table presents a reconciliation of average shares outstanding:
IN THOUSANDS
Basic average shares outstanding
Net effect of stock options assumed to be exercised
Diluted average shares outstanding
YEARS ENDED NOVEMBER 30 ,
2000
38,931
1,138
40,069
1999
46,730
1,101
47,831
1998
39,553
1,480
41,033
Segment Information
In accordance with Statement of Financial Accounting Standards No. 131,“Disclosures about Segments of
an Enterprise and Related Information,” the Company identified two reportable segments: construction and mortgage banking.
The Company’s construction segment consists primarily of domestic and foreign homebuilding operations.The Company’s con-
struction operations 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 the first-time homebuyer. Domestically, the Company currently sells homes in six
western states. Internationally, the Company operates in France.The Company also builds commercial projects and high-density
residential properties, such as condominium complexes, in France.The Company’s mortgage banking operations provide mort-
gage banking services to the Company’s domestic homebuyers.The mortgage banking segment originates, processes and sells
mortgages to third-party investors.The Company does not retain or service the mortgages that it originates but, rather, sells the
mortgages and related servicing rights to investors.
kb home 2000 annual report | page 56.
Information for the Company’s reportable segments are presented in its consolidated statements of income and consolidated bal-
ance sheets included herein.The Company’s reporting segments follow the same accounting policies used for the Company’s con-
solidated financial statements as described in the summary of significant accounting policies. Management evaluates a segment’s
performance based upon a number of factors including pretax results.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”), was issued in June 1998.This statement addresses the accounting for
and disclosure of derivative instruments, including derivative instruments imbedded in other contracts, and hedging activities.
The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes
in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.The ineffective portion
of a derivative’s change is recognized in earnings. Management has analyzed the implementation requirements and does not
anticipate that the adoption of the new statement as of December 1, 2000 will have a significant effect on the earnings or financial
position of the Company.
The Company manages its interest rate market risk on mortgage loans held for sale and its estimated future commitments to orig-
inate and close mortgage loans at fixed prices through the use of mandatory forward commitments to sell mortgage-backed secu-
rities and best-efforts whole loan delivery commitments.The Company estimates the portion of the locked mortgage loan pipeline
that is expected to close in order to determine the amount of hedging instruments.These hedging instruments are effective as
hedges for interest rate market risk on mortgage loans held for sale and estimated future commitments. Accordingly, gains and
losses are deferred until the ultimate disposition of the contract. As of November 30, 2000 and 1999, the Company had approxi-
mately $512,000,000 and $378,000,000, respectively, of mandatory forward commitments outstanding.
Reclassifications Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to the
2000 presentation.
NOTE 2 . ISSUANCE OF FRENCH SUBSIDIARY STOCK
On February 7, 2000, Kaufman & Broad S.A. (“KBSA”), the Company’s wholly owned French subsidiary, issued 5,314,327 com-
mon shares (including the over-allotment option) in an initial public offering.The offering was made in France and elsewhere in
Europe and was priced at 23 euros per share. KBSA is now listed on the Premier Marché of the ParisBourse.The offering gener-
ated total net proceeds of $113,100,000, of which $82,900,000 was used by the Company to reduce its domestic debt and repur-
chase additional shares of its common stock.The remainder of the proceeds was used to fund internal and external growth of
KBSA.The Company recognized a gain of $39,630,000, or $.99 per diluted share as a result of the offering.The Company contin-
ues to own a majority interest in KBSA and will continue to consolidate these operations in its financial statements.
NOTE 3 . ACQUISITIONS
Effective January 7, 1999, the Company acquired substantially all of the homebuilding assets of the Lewis Homes group of compa-
nies (“Lewis Homes”). Lewis Homes was engaged in the acquisition, development and sale of residential real estate in California
and Nevada.The purchase price for Lewis Homes was approximately $449,244,000, comprised of the assumption of approxi-
mately $303,239,000 in debt and the issuance of 7,886,686 shares of the Company’s common stock valued at approximately
$146,005,000.The purchase price was based on the December 31, 1998 net book values of the entities purchased.The excess of the
purchase price over the estimated fair value of net assets acquired was $177,600,000 and was allocated to goodwill.The Company
is amortizing the goodwill on a straight-line basis over a period of ten years. Under the terms of the purchase agreement, a Lewis
family member was also appointed to the Company’s Board of Directors.
kb home 2000 annual report | page 57.
The 7,886,686 shares of Company common stock issued in the acquisition were “restricted” shares and could not be resold with-
out a registration statement or compliance with Rule 144 under the Securities Act of 1933 (“Rule 144”), which, among other
things, limits the number of shares that may be resold in a given period.The Company originally agreed to file a registration state-
ment for 6,000,000 of those shares in three increments at the Lewis family’s request from July 1, 2000 to July 1, 2002. On
September 21, 2000, the Company instead repurchased 4,000,000 of the shares issued in the acquisition from the Lewis holders at
a price of $26.00 per share. In connection with the repurchase, the Lewis holders’ registration rights for the first two increments
were extinguished. In the period subsequent to the Company’s repurchase, the Lewis holders sold most of the balance of their
shares within the requirements of Rule . In connection with the acquisition of Lewis Homes, the Company obtained a
$200,000,000 unsecured term loan agreement with various banks (the “Term Loan Agreement”) to refinance certain debt
assumed.The Company used borrowings under its existing domestic unsecured revolving credit facility to refinance certain other
debt assumed in the Lewis Homes acquisition.
The acquisition consideration for Lewis Homes was determined by arm’s-length negotiations between the parties.The acquisition
was accounted for as a purchase, with the results of Lewis Homes included in the Company’s consolidated financial statements as
of January 7, 1999.
The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as
if the acquisition of Lewis Homes had occurred as of December 1, 1998 with pro forma adjustments to give effect to amortization
of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects:
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
YEAR ENDED NOVEMBER 30 ,
Total revenues
Total pretax income
Net income
Basic earnings per share
Diluted earnings per share
1999
$3,919,247
231,384
150,384
3.16
3.09
This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated as of December 1, 1998, nor are they necessarily indicative
of future operating results.
During the year ended November 30, 2000, the Company’s French subsidiary, KBSA, completed the acquisitions of four
homebuilders in France.These companies were acquired for an aggregate purchase price of $33,516,000 and were accounted for
under the purchase method of accounting.The excess of the purchase price over the estimated fair value of the net assets acquired
was $24,745,000 and was allocated to goodwill.The Company is amortizing the goodwill on a straight-line basis over a period of
ten years.The pro forma results for 2000 and 1999, assuming these acquisitions had been made at the beginning of the year, would
not be materially different from reported results.
NOTE 4 . R ECEIVABLES
Construction Trade receivables amounted to $213,197,000 and $138,250,000 at November 30, 2000 and 1999, respectively.
Included in these amounts are unbilled receivables due from buyers on French single-family detached home, condominium and
commercial building sales accounted for using the percentage of completion method totaling $161,658,000 at November 30, 2000
and $97,264,000 at November 30, 1999.The buyers are contractually obligated to remit payments against their unbilled balances.
Other receivables of $81,563,000 at November 30, 2000 and $67,597,000 at November 30, 1999 included escrow deposits and
amounts due from municipalities and utility companies.
kb home 2000 annual report | page 58.
At November 30, 2000 and 1999, receivables were net of allowances for doubtful accounts of $10,152,000 and $16,578,000,
respectively.
Mortgage Banking
First mortgages and mortgage-backed securities consisted of loans of $11,734,000 at November 30, 2000 and
$9,089,000 at November 30, 1999 and mortgage-backed securities of $31,403,000 and $37,991,000 at November 30, 2000 and
1999, respectively.The mortgage-backed securities serve as collateral for related collateralized mortgage obligations.The properties
covered by the mortgages underlying the mortgage-backed securities are single-family residences. Issuers of the mortgage-backed
securities are the Government National Mortgage Association and Fannie Mae. The first mortgages and mortgage-backed
securities bore interest at an average rate of 83⁄8% at both November 30, 2000 and 1999 (with rates ranging from 7% to 12% in
both 2000 and 1999).
The Company’s mortgage-backed securities held for long-term investment have been classified as held-to-maturity and are stated
at amortized cost, adjusted for amortization of discounts and premiums to maturity. Such amortization is included in interest
income.The total gross unrealized gains and gross unrealized losses on the mortgage-backed securities were $600,000 and $0,
respectively at November 30, 2000 and $685,000 and $0, respectively at November 30, 1999.
First mortgages held under commitments of sale and other receivables consisted of first mortgages held under commitments of
sale of $389,494,000 at November 30, 2000 and $376,377,000 at November 30, 1999 and other receivables of $13,671,000 and
$9,699,000 at November 30, 2000 and 1999, respectively.The first mortgages held under commitments of sale bore interest at an
average rate of 71⁄2% at both November 30, 2000 and 1999.The balance in first mortgages held under commitments of sale and
other receivables fluctuates significantly during the year and typically reaches its highest level at quarter-ends, corresponding to the
Company’s home and mortgage delivery activity.
NOTE 5 . INVENTORIES
Inventories consisted of the following:
IN THOUSANDS
Homes, lots and improvements in production
Land under development
Total inventories
NOVEMBER 30 ,
2000
1999
$1,115,824
541,577
$1,063,505
457,760
$1,657,401
$1,521,265
Land under development primarily consists of parcels on which 50% or less of estimated development costs have been incurred.
The impact of capitalizing interest costs on consolidated pretax income is as follows:
IN THOUSANDS
Interest incurred
Interest expensed
Interest capitalized
Interest amortized
YEARS ENDED NOVEMBER 30 ,
2000
1999
1998
$ 94,201
(31,479)
62,722
(40,679)
$ 78,041
(28,340)
49,701
(44,257)
$ 54,299
(23,341)
30,958
(30,752)
Net impact on consolidated pretax income
$ 22,043
$ 5,444
$
206
kb home 2000 annual report | page 59.
NOTE 6 . INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company participates in a number of joint ventures in which it has less than a controlling interest.These joint ventures are
based in California, Nevada, New Mexico,Texas and France and are engaged in the development, construction and sale of resi-
dential properties and commercial projects. Combined condensed financial information concerning the Company’s unconsoli-
dated joint venture activities follows:
IN THOUSANDS
Cash
Receivables
Inventories
Other assets
Total assets
Mortgages and notes payable
Other liabilities
Equity of:
The Company
Others
Total liabilities and equity
NOVEMBER 30 ,
2000
$ 9,151
11,440
36,100
166
$56,857
$17,522
14,936
10,407
13,992
1999
$ 3,386
4,914
82,021
377
$90,698
$30,988
11,111
21,290
27,309
$56,857
$90,698
The joint ventures finance land and inventory investments primarily through a variety of borrowing arrangements.The Company
typically does not guarantee these financing arrangements.
IN THOUSANDS
Revenues
Cost of sales
Other expenses, net
Total pretax income
The Company’s share of pretax income
YEARS ENDED NOVEMBER 30 ,
2000
$116,837
(85,383)
(26,533)
$
$
4,921
2,926
1999
$13,889
(9,842)
(426)
$ 3,621
$
224
1998
$ 17,657
(12,245)
(384)
$ 5,028
$ 1,151
The Company’s share of pretax income includes management fees earned from the unconsolidated joint ventures.
kb home 2000 annual report | page 60.
Construction Mortgages and notes payable consisted of the following (interest rates are as of November 30):
NOTE 7. MORTGAGES AND NOTES PAYABLE
IN THOUSANDS
Unsecured domestic borrowings with banks under a revolving credit agreement
(77⁄8% in 2000 and 63⁄8% in 1999)
Other unsecured domestic borrowings with banks due within one year
(63⁄8% to 61⁄2% in 1999)
Unsecured French borrowings (54⁄5% to 61⁄2% in 2000 and 33⁄4% to 7% in 1999)
Term loan borrowings (83⁄8% in 2000 and 67⁄8% in 1999)
Shareholder notes (63⁄5% in 2000)
Mortgages and land contracts due to land sellers and other loans
(41⁄4% to 101⁄2% in 2000 and 7% to 101⁄4% in 1999)
Senior notes due 2004 at 73⁄4%
Senior subordinated notes due 2003 at 93⁄8%
Senior subordinated notes due 2006 at 95⁄8%
Total mortgages and notes payable
NOVEMBER 30 ,
2000
1999
$120,000
$ 50,000
125,135
160,950
78,000
29,780
175,000
174,534
124,581
9,000
49,940
200,000
30,583
175,000
174,370
124,531
$987,980
$813,424
On January 7, 1999, in connection with the acquisition of Lewis Homes, the Company obtained a $200,000,000 Term Loan
Agreement to refinance certain debt assumed.The Term Loan Agreement provided for three payments of $25,000,000, due on
January 31, 2000, April 30, 2000 and July 31, 2000, with the remaining principal balance due on April 30, 2001. Interest was payable
monthly at the London Interbank Offered Rate plus an applicable spread. Under the terms of the Term Loan Agreement, the
Company was required, among other things, to maintain certain financial statement ratios and a minimum net worth and was sub-
ject to limitations on acquisitions, inventories and indebtedness.The financing obtained under the Term Loan Agreement did not
affect the amounts available under the Company’s pre-existing borrowing arrangements.
On October 6, 2000, the Company entered into a $725,000,000 unsecured credit agreement (the “$725,000,000 Unsecured
Credit Facility”), consisting of a $564,050,000 four-year committed revolving credit facility and a $160,950,000 five-year term
loan, which together replaced its previously existing revolving credit facility and Term Loan Agreement. The $725,000,000
Unsecured Credit Facility could be expanded up to an aggregate total of $900,000,000 if additional bank lending commitments
are obtained. Interest on the $725,000,000 Unsecured Credit Facility is payable monthly at the London Interbank Offered Rate
plus an applicable spread on amounts borrowed.
The Company’s French subsidiaries have lines of credit with various banks which totaled $207,824,000 at November 30, 2000 and
have various committed expiration dates through November 2003.These lines of credit provide for interest on borrowings at
either the French Federal Funds Rate or the Paris Interbank Offered Rate plus an applicable spread.
On September 21, 2000, in connection with the repurchase of 4,000,000 shares from the Lewis holders, the Company issued
promissory notes (the “Shareholder Notes”), with an aggregate principal amount of $78,000,000, to the Lewis holders. Interest on
the Shareholder Notes is accrued monthly at an annual rate of 63⁄5%. Under the terms of the notes, principal payments of
$26,000,000 plus accrued interest are due on January 4, 2001, June 7, 2001 and December 6, 2001.
The weighted average annual interest rate on aggregate unsecured borrowings, excluding the senior and senior subordinated
notes, was 73⁄8% and 63⁄5% at November 30, 2000 and 1999, respectively.
kb home 2000 annual report | page 61.
On April 26, 1993, the Company issued $175,000,000 principal amount of 93⁄8% senior subordinated notes at 99.202%.The notes
are due May 1, 2003 with interest payable semi-annually.The notes represent unsecured obligations of the Company and are sub-
ordinated to all existing and future senior indebtedness of the Company.The Company may redeem the notes, in whole or in part,
at any time at 100% of their principal amount.
On October 29, 1996, the Company filed a universal shelf registration statement (the “1996 Shelf Registration”) with the
Securities and Exchange Commission for up to $300,000,000 of the Company’s debt and equity securities.The Company’s previ-
ously outstanding shelf registration for debt securities in the amount of $100,000,000 was subsumed within the 1996 Shelf
Registration. On November 14, 1996, the Company utilized the 1996 Shelf Registration to issue $125,000,000 of 95⁄8% senior sub-
ordinated notes at 99.525%.The notes, which are due November 15, 2006 with interest payable semi-annually, represent unsecured
obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company.The notes are
redeemable at the option of the Company, in whole or in part, at 104.8125% of their principal amount beginning November 15,
2001, and thereafter, at prices declining annually to 100% on and after November 15, 2004.
On October 14, 1997, pursuant to the 1996 Shelf Registration, the Company issued $175,000,000 of 73⁄4% senior notes at 100% of
the principal amount of the notes.The notes, which are due October 15, 2004 with interest payable semi-annually, represent unse-
cured obligations of the Company and rank pari passu in right of payment with all other senior unsecured indebtedness of the
Company.The notes are not redeemable by the Company prior to stated maturity.This offering resulted in the issuance of all
available securities under the 1996 Shelf Registration.
The 73⁄4% senior notes and 93⁄8% and 95⁄8% senior subordinated notes contain certain restrictive covenants that, among other things,
limit the ability of the Company to incur additional indebtedness, pay dividends, make certain investments, create certain liens,
engage in mergers, consolidations, or sales of assets, or engage in certain transactions with officers, directors and employees. Under
the terms of the $725,000,000 Unsecured Credit Facility, the Company is required, among other things, to maintain certain finan-
cial statement ratios and a minimum net worth and is subject to limitations on acquisitions, inventories and indebtedness. Based on
the terms of the Company’s $725,000,000 Unsecured Credit Facility, senior notes and senior subordinated notes, retained earnings
of $108,599,000 were available for payment of cash dividends or stock repurchases at November 30, 2000.
Principal payments on senior and senior subordinated notes, term loan borrowings, shareholder notes, mortgages, land contracts
and other loans are due as follows: 2001, $65,072,000; 2002, $37,355,000; 2003, $179,112,000; 2004, $175,668,000; 2005,
$160,989,000; and thereafter, $124,649,000.
Assets (primarily inventories) having a carrying value of approximately $75,243,000 are pledged to collateralize mortgages, land
contracts and other secured loans.
On December 5, 1997, the Company filed a universal shelf registration statement (the “1997 Shelf Registration”) with the
Securities and Exchange Commission for up to $500,000,000 of the Company’s debt and equity securities.This universal shelf
registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior sub-
ordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities.The registration was
declared effective on December 16, 1997, and as of November 30, 2000 no securities had been issued thereunder.
kb home 2000 annual report | page 62.
Mortgage Banking Notes payable included the following (interest rates are as of November 30):
IN THOUSANDS
Mortgage Warehouse Facility (65⁄8% in 2000 and 61⁄8% in 1999)
Master Loan and Security Agreement (64⁄5% in 2000 and 61⁄2% in 1999)
Total notes payable
NOVEMBER 30 ,
2000
1999
$228,922
156,372
$385,294
$240,102
137,564
$377,666
First mortgages receivable are financed through a $300,000,000 revolving mortgage warehouse agreement (the “Mortgage
Warehouse Facility”). On February 18, 2000, the Company’s mortgage banking subsidiary renewed its Mortgage Warehouse
Facility and increased the facility from $250,000,000.The Mortgage Warehouse Facility, which expires on February 18, 2003, pro-
vides for an annual fee based on the committed balance of the facility and provides for interest at either the London Interbank
Offered Rate or the Federal Funds Rate plus an applicable spread on amounts borrowed.
On May 19, 2000, the Company’s mortgage banking subsidiary renewed its Master Loan and Security Agreement with an invest-
ment bank and increased the maximum amount available under the agreement from $150,000,000 to $250,000,000.The agree-
ment, which expires on May 18, 2001, provides for a facility fee based on the $250,000,000 maximum amount available and
provides for interest to be paid monthly at the Eurodollar Rate plus an applicable spread on amounts borrowed.
The amounts outstanding under the Mortgage Warehouse Facility and the Master Loan and Security Agreement are secured by a
borrowing base, which includes certain mortgage loans held under commitments of sale and are repayable from sales proceeds.
There are no compensating balance requirements under either facility. Both facilities include financial covenants and restrictions
which, among other things, require the maintenance of certain financial statement ratios, a minimum tangible net worth and a
minimum net income.
Collateralized mortgage obligations represent bonds issued to third parties which are collateralized by mortgage-backed securities
with substantially the same terms. At both November 30, 2000 and 1999, the collateralized mortgage obligations bore interest at
rates ranging from 8% to 121⁄4% with stated original principal maturities ranging from 3 to 30 years. Actual maturities are depend-
ent on the rate at which the underlying mortgage-backed securities are repaid. No collateralized mortgage obligations have been
issued since 1988.
NOTE 8 . COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF THE COMPANY (FELINE PRIDES)
On July 7, 1998, the Company, together with KBHC Financing I, a Delaware statutory business trust (the “KBHC Trust”) that is
wholly owned by the Company, issued an aggregate of (i) 18,975,000 Feline Prides, and (ii) 1,000,000 KBHC Trust capital securi-
ties, with a $10 stated liquidation amount.The Feline Prides consisted of (i) 17,975,000 Income Prides with a stated amount per
Income Prides of $10 (the “Stated Amount”), which are units comprised of a capital security and a stock purchase contract under
which the holders will purchase common stock from the Company not later than August 16, 2001 and the Company will pay to
the holders certain unsecured contract adjustment payments, and (ii) 1,000,000 Growth Prides with a face amount per Growth
Prides equal to the Stated Amount, which are units consisting of a 1/100th beneficial interest in a zero-coupon U.S.Treasury secu-
rity and a stock purchase contract under which the holders will purchase common stock from the Company not later than August
16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments.
The distribution rate on the Income Prides is 8.25% per annum and the distribution rate on the Growth Prides is .75% per
annum. Under the stock purchase contracts, investors will be required to purchase shares of common stock of the Company for an
effective price ranging between a minimum of $31.75 per share and a maximum of $38.10 per share, and the Company will issue
kb home 2000 annual report | page 63.
approximately 5,000,000 to 6,000,000 common shares by August 16, 2001, depending upon the price of the common stock upon
settlement of the purchase contracts (subject to adjustment under certain circumstances).The capital securities associated with the
Income Prides and the U.S.Treasury securities associated with the Growth Prides have been pledged as collateral to secure the
holders’ obligations in respect of the common stock purchase contracts.The capital securities issued by the KBHC Trust are enti-
tled to a distribution rate of 8% per annum of their $10 stated liquidation amount.
The KBHC Trust utilized the proceeds from the issuance of the Feline Prides and capital securities to purchase an equivalent prin-
cipal amount of the Company’s 8% Debentures due August 16, 2003 (the “8% Debentures”).The 8% Debentures are the sole asset
of the KBHC Trust.The Company’s obligations under the Debentures and related agreements, taken together, constitute a firm
and unconditional guarantee by the Company of the KBHC Trust’s obligations under the capital securities.The interest rate on
the 8% Debentures and the distribution rate on the capital securities of the KBHC Trust are to be reset, subject to certain limita-
tions, effective August 16, 2001.The Company has recorded the present value of the contract adjustment payments on the Feline
Prides, totaling $1,600,000, as a liability and a reduction of stockholders’ equity.The liability will be reduced as the contract adjust-
ment payments are made.The Company has the right to defer the contract adjustment payments and the payment of interest on
the 8% Debentures, but any such election will subject the Company to restrictions on the payment of dividends on, and redemp-
tion of, its outstanding shares of common stock, and on the payment of interest on, or redemption of, debt securities of the
Company junior in rank to the 8% Debentures, none of which are currently outstanding. Distributions of $15,180,000,
$15,180,000 and $6,072,000 are included as minority interests in the Company’s results of operations for each of the years ended
November 30, 2000, 1999 and 1998, respectively.
NOTE 9 . FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined based on available market information and appropriate
valuation methodologies. However, judgment is necessarily required in interpreting market data to develop the estimates of fair
value. In that regard, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize
in a current market exchange.
The carrying values and estimated fair values of the Company’s financial instruments, except for those for which the carrying
values approximate fair values, are summarized as follows:
IN THOUSANDS
Construction:
Financial liabilities
73⁄4% Senior notes
93⁄8% Senior subordinated notes
95⁄8% Senior subordinated notes
Mortgage banking:
Financial assets
Mortgage-backed securities
Financial liabilities
NOVEMBER 30 ,
2000
1999
CARRYING
VALUE
ESTIMATED
FAIR VALUE
CARRYING
VALUE
ESTIMATED
FAIR VALUE
$175,000
174,534
124,581
$164,745
173,110
122,388
$175,000
174,370
124,531
$163,520
174,738
125,700
31,403
32,003
37,991
38,676
Collateralized mortgage obligations secured by
mortgage-backed securities
29,928
30,982
36,219
36,897
Company obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely debentures of the Company
189,750
175,000
189,750
141,800
kb home 2000 annual report | page 64.
The Company used the following methods and assumptions in estimating fair values:
Cash and cash equivalents; first mortgages held under commitments of sale and other receivables; borrowings under the unsecured
credit facilities, Shareholder Notes, French lines of credit, Mortgage Warehouse Facility and Master Loan and Security Agreement:
The carrying amounts reported approximate fair values.
Senior notes and senior subordinated notes:The fair values of the Company’s senior notes and senior subordinated notes are esti-
mated based on quoted market prices.
Mortgage-backed securities and collateralized mortgage obligations secured by mortgage-backed securities:The fair values of
these financial instruments are estimated based on quoted market prices for the same or similar issues.
Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company:
The fair values of these financial instruments are based on quoted market prices on the New York Stock Exchange.
NOTE 10 . COMMITMENTS AND CONTINGENCIES
Commitments and contingencies include the usual obligations of homebuilders for the completion of contracts and those incurred
in the ordinary course of business.The Company is also involved in litigation incidental to its business, the disposition of which
should have no material effect on the Company’s financial position or results of operations.
NOTE 11. STOCKHOLDERS’ EQUITY
Preferred Stock On February 4, 1999, the Company adopted a new Stockholder Rights Plan to replace its preexisting share-
holder rights plan adopted in 1989 (the “1989 Rights Plan”), and declared a dividend distribution of one preferred share purchase
right for each outstanding share of common stock; such rights were issued on March 7, 1999, simultaneously with the expiration of
the rights issued under the 1989 Rights Plan. Under certain circumstances, each right entitles the holder to purchase 1/100th of a
share of the Company’s Series A Participating Cumulative Preferred Stock at a price of $135.00, subject to certain antidilution
provisions.The rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that a person or
group has acquired Company stock representing 15% or more of the aggregate votes entitled to be cast by all shares of common
stock or (ii) 10 days following the commencement of a tender offer for Company stock representing 15% or more of the aggregate
votes entitled to be cast by all shares of common stock. If, without approval of the Board of Directors, the Company is acquired in
a merger or other business combination transaction, or 50% or more of the Company’s assets or earning power is sold, each right
will entitle its holder to receive, upon exercise, common stock of the acquiring company having a market value of twice the exer-
cise price of the right; and if, without approval of the Board of Directors, any person or group acquires Company stock represent-
ing 15% or more of the aggregate votes entitled to be cast by all shares of common stock, each right will entitle its holder to
receive, upon exercise, common stock of the Company having a market value of twice the exercise price of the right. At the
option of the Company, the rights are redeemable prior to becoming exercisable at $.005 per right. Unless previously redeemed,
the rights will expire on March 7, 2009. Until a right is exercised, the holder will have no rights as a stockholder of the Company,
including the right to vote or receive dividends.
NOTE 12. EMPLOYEE BENEFIT AND STOCK PLANS
Benefits are provided to most employees under the Company’s 401(k) Savings Plan under which contributions by employees are
partially matched by the Company.The aggregate cost of this plan to the Company was $4,513,000 in 2000, $3,937,000 in 1999
and $3,025,000 in 1998.
kb home 2000 annual report | page 65.
The Company’s 1999 Incentive Plan (the “1999 Plan”) provides that stock options, associated limited stock appreciation rights,
restricted shares of common stock, stock units and other securities may be awarded to eligible individuals for periods of up to 15
years.The Company also has a Performance-Based Incentive Plan for Senior Management (the “Incentive Plan”) and a 1998 Stock
Incentive Plan (the “1998 Plan”) which provide for the same awards as may be made under the 1999 Plan, but require that such
awards be subject to certain conditions which are designed to assure that annual compensation paid in excess of $1,000,000 to
participating executives is tax deductible for the Company.The 1998 Plan and the 1999 Plan are the Company’s primary existing
employee stock plans.
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), issued in
October 1995, established financial accounting and reporting standards for stock-based employee compensation plans. As permit-
ted by SFAS No. 123, the Company elected to continue to use APB Opinion No. 25 and related interpretations in accounting for
its stock options. Had compensation expense for the Company’s stock option plans been determined based on the fair value at the
grant date for awards in 2000, 1999 and 1998 consistent with the provisions of SFAS No. 123, the Company’s net income and
diluted earnings per share would have been reduced to the pro forma amounts indicated below:
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Net income – as reported
Net income – pro forma
Diluted earnings per share – as reported
Diluted earnings per share – pro forma
YEARS ENDED NOVEMBER 30 ,
2000
$209,960
205,652
5.24
5.10
1999
$147,469
142,816
3.08
2.99
1998
$95,267
91,398
2.32
2.24
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the fol-
lowing assumptions used for grants in 2000, 1999 and 1998, respectively: a risk free interest rate of 5.44%. 6.14% and 4.38%; an
expected volatility factor for the market price of the Company’s common stock of 44.82%, 43.14% and 41.31%; a dividend yield of
1.00%, 1.36% and 1.19%; and an expected life of 4 years, 4 years and 4 years.The weighted average fair value of options granted in
2000, 1999 and 1998 was $7.70, $6.92 and $6.09, respectively.
Stock option transactions are summarized as follows:
2000
1999
1998
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS
Options outstanding at
beginning of year
Granted
Exercised
Cancelled
4,849,822
1,615,176
(306,628)
(419,638)
Options outstanding at end of year
5,738,732
Options exercisable at end of year
2,773,254
$17.26
24.74
16.46
21.08
$19.13
$15.60
2,965,067
2,241,736
(211,925)
(145,056)
4,849,822
2,041,106
$15.22
20.12
16.43
21.00
$17.26
$13.83
2,747,318
1,318,017
(995,235)
(105,033)
2,965,067
1,586,455
$ 9.98
22.83
10.70
16.56
$15.22
$12.16
Options available for grant
at end of year
1,671,996
2,867,334
2,464,014
kb home 2000 annual report | page 66.
The components of pretax income are as follows:
NOTE 13. INCOME TAXES
IN THOUSANDS
Domestic
Foreign
Total pretax income
The components of income taxes are as follows:
IN THOUSANDS
2000
Currently payable
Deferred
Total
1999
Currently payable
Deferred
Total
1998
Currently payable
Deferred
Total
YEARS ENDED NOVEMBER 30 ,
2000
1999
$263,266
34,394
$200,272
26,597
$297,660
$226,869
1998
$136,042
10,525
$146,567
TOTAL
FEDERAL
STATE
FOREIGN
$70,818
16,882
$87,700
$ 43,776
11,586
$ 55,362
$87,428
(8,028)
$ 65,557
(12,411)
$17,000
$17,000
$11,755
$79,400
$ 53,146
$11,755
$52,628
(1,328)
$ 39,989
(3,145)
$ 8,498
$51,300
$ 36,844
$ 8,498
$10,042
5,296
$15,338
$10,116
4,383
$14,499
$ 4,141
1,817
$ 5,958
kb home 2000 annual report | page 67.
Stock options outstanding at November 30, 2000 are as follows:
RANGE OF EXERCISE PRICE
$ 4.38 to $14.56
$16.13 to $19.88
$20.25 to $24.85
$25.00 to $33.94
$ 4.38 to $33.94
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE
5.10
13.60
12.74
14.78
11.78
WEIGHTED
AVERAGE
EXERCISE
PRICE
$ 7.78
17.79
22.42
25.39
$19.13
OPTIONS
1,255,489
1,103,166
1,833,714
1,546,363
5,738,732
OPTIONS
1,214,989
385,381
1,085,929
86,955
2,773,254
WEIGHTED
AVERAGE
EXERCISE
PRICE
$ 7.55
17.86
22.54
31.29
$15.60
The Company records proceeds from the exercise of stock options as additions to common stock and paid-in capital.The tax
benefit, if any, is recorded as additional paid-in capital.
In 1991, the Board of Directors approved the issuance of restricted stock awards under the 1988 Plan of up to an aggregate 600,000
shares of common stock to certain officers and key employees. Restrictions lapse each year through May 10, 2005 on specified
portions of the shares awarded to each participant so long as the participant has remained in the continuous employ of the
Company. Restricted shares under this grant outstanding at the end of the year totaled 108,331 in 2000, 129,998 in 1999 and
151,665 in 1998.
On August 4, 1999, the Company’s Board of Directors authorized a share repurchase program which allowed the Company to
purchase shares of its common stock at prices not to exceed $28 per share. As of November 30, 2000, the Board of Directors had
authorized the repurchase of a total of 14,500,000 shares.The Company had repurchased 14,500,000 shares and 3,750,100 shares,
respectively, under the repurchase program as of November 30, 2000 and 1999.
In connection with its share repurchase program, on August 27, 1999, the Company established a grantor stock ownership trust
(the “Trust”) into which certain of the repurchased shares have been transferred.The Trust, administered by an independent
trustee, acquires, holds and distributes the shares of common stock for the purpose of funding certain employee compensation and
employee benefit obligations of the Company under its existing stock option, 401(k) and other employee benefit plans.The exis-
tence of the Trust has no impact on the amount of benefits or compensation that is paid under these plans.
For financial reporting purposes, the Trust is consolidated with the Company. Any dividend transactions between the Company
and the Trust are eliminated. Acquired shares held by the Trust remain valued at the market price at the date of purchase and are
shown as a reduction to stockholders’ equity in the consolidated balance sheet.The difference between the Trust share value and
the fair market value on the date shares are released from the Trust, for the benefit of employees, will be included in additional
paid-in capital. Common stock held in the Trust is not considered outstanding in the computation of earnings per share.The Trust
held 8,782,252 and 3,750,100 shares of common stock at November 30, 2000 and 1999, respectively.The trustee votes shares held
by the Trust in accordance with voting directions from eligible employees, as specified in a trust agreement with the trustee.
kb home 2000 annual report | page 68.
Deferred income taxes result from temporary differences in the financial and tax bases of assets and liabilities. Significant compo-
nents of the Company’s deferred tax liabilities and assets are as follows:
IN THOUSANDS
Deferred tax liabilities:
Installment sales
Bad debt and other reserves
Capitalized expenses
Partnerships and joint ventures
Repatriation of foreign subsidiaries
Other
Total deferred tax liabilities
Deferred tax assets:
Warranty, legal and other accruals
Depreciation and amortization
Capitalized expenses
Partnerships and joint ventures
Noncash charge for impairment of long-lived assets
Foreign tax credits
Net operating losses
Other
Total deferred tax assets
Net deferred tax assets
NOVEMBER 30 ,
2000
1999
$ 15,763
468
21,970
1,237
3,917
43,355
27,372
19,328
14,928
14,139
6,400
20,347
14,683
117,197
$ 15,471
449
15,704
2,439
12,381
12,179
58,623
29,210
27,957
16,370
13,183
7,686
12,346
40,121
11,269
158,142
$ 73,842
$ 99,519
Net operating loss carryforwards expire in various years from 2005 through 2018.The Company expects that the entire deferred
tax benefit of the tax loss carryforwards will be recognized in future periods.
Income taxes computed at the statutory United States federal income tax rate and income tax expense provided in the financial
statements differ as follows:
IN THOUSANDS
Amount computed at statutory rate
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit
Differences in foreign tax rates
Intercompany dividends
Tax credits
Other, net
Total
YEARS ENDED NOVEMBER 30 ,
2000
1999
$104,181
$ 79,404
1998
$51,298
11,050
853
(2,537)
(24,211)
(1,636)
7,641
4,379
1,153
(11,329)
(1,848)
5,524
1,594
977
(3,351)
(4,742)
$ 87,700
$ 79,400
$51,300
kb home 2000 annual report | page 69.
The Company has commitments to invest $6,197,000 over five years in affordable housing partnerships which are scheduled to
provide tax credits.
The Company had foreign tax credit carryforwards at November 30, 2000 of $1,000,000 for United States federal income tax
purposes which expire in 2004.
NOTE 14. GEOGRAPHICAL INFORMATION
The following table presents information about the Company by geographic area.The Company’s domestic construction opera-
tions are comprised of three regions as follows:West Coast – California; Southwest – Arizona, Nevada and New Mexico; and
Central – Colorado and Texas.
IN THOUSANDS
2000
Construction:
West Coast
Southwest
Central
Foreign
Total construction
Mortgage banking
Total
1999
Construction:
West Coast
Southwest
Central
Foreign
Total construction
Mortgage banking
Total
1998
Construction:
West Coast
Southwest
Central
Foreign
Total construction
Mortgage banking
Total
REVENUES
OPERATING
INCOME
IDENTIFIABLE
ASSETS
$1,466,418
862,822
1,065,803
475,445
3,870,488
60,370
$ 95,243
67,899
90,018
35,449
288,609
23,832
$ 907,956
427,347
531,074
495,391
2,361,768
467,153
$3,930,858
$312,441
$2,828,921
$1,579,226
830,418
950,177
412,300
3,772,121
64,174
$115,515
58,434
59,488
25,670
259,107
17,464
$ 905,890
481,997
505,144
321,045
2,214,076
450,159
$3,836,295
$276,571
$2,664,235
$1,105,849
352,389
690,019
254,709
2,402,966
46,396
$ 82,939
25,742
32,493
7,498
148,672
21,413
$ 655,920
258,081
398,308
230,235
1,542,544
317,660
$2,449,362
$170,085
$1,860,204
kb home 2000 annual report | page 70.
Quarterly results for the years ended November 30, 2000 and 1999 follow:
NOTE 15. QUARTERLY RESULTS (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
FIRST
SECOND
THIRD
FOURTH
2000
Revenues
Operating income
Pretax income
Net income
Basic earnings per share
Diluted earnings per share
1999
Revenues
Operating income
Pretax income
Net income
Basic earnings per share
Diluted earnings per share
$799,585
47,275
77,414
64,214
1.51
1.47
$694,143
34,134
24,886
16,186
.36
.35
$906,182
53,678
42,700
27,700
.70
.68
$862,270
56,494
43,975
28,575
.60
.58
$ 981,024
81,964
66,439
44,639
1.17
1.14
$1,057,113
72,058
58,781
38,181
.80
.78
$1,244,067
129,524
111,107
73,407
2.10
2.00
$1,222,769
113,885
99,227
64,527
1.39
1.36
Quarterly and year-to-date computations of per share amounts are made independently.Therefore, the sum of per share amounts
for the quarters may not agree with per share amounts for the year.
NOTE 16. SUBSEQUENT EVENT (UNAUDITED)
On February 8, 2001, pursuant to the 1997 Shelf Registration, the Company issued $250,000,000 of 91⁄2% senior subordinated
notes at 100% of the principal amount of the notes.The notes, which are due February 15, 2011 with interest payable semi-annu-
ally, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the
Company.The notes are redeemable at the option of the Company, in whole or in part, at 104.750% of their principal amount
beginning February 15, 2006, and thereafter at prices declining annually to 100% on and after February 15, 2009. Proceeds from the
issuance of the notes were used to pay down bank borrowings.
kb home 2000 annual report | page 71.
report of independent auditors
To the Board of Directors and Stockholders of KB Home:
We have audited the accompanying consolidated balance sheets of KB Home as of November 30, 2000 and 1999, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended November
30, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States.Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of KB Home at November 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended November 30, 2000, in conformity with accounting principles generally accepted in the
United States.
Los Angeles, California
December 21, 2000
kb home 2000 annual report | page 72.
report on financial statements
The accompanying consolidated financial statements are the responsibility of management.The statements have been prepared in
conformity with generally accepted accounting principles. Estimates and judgments of management based on its current knowl-
edge of anticipated transactions and events are made to prepare the financial statements as required by generally accepted
accounting principles. Management relies on internal accounting controls, among other things, to produce records suitable for
the preparation of financial statements.
The responsibility of our external auditors for the financial statements is limited to their expressed opinion on the fairness of the
consolidated financial statements taken as a whole.Their examination is performed in accordance with generally accepted audit-
ing standards which include tests of our accounting records and internal accounting controls and evaluation of estimates and
judgments used to prepare the financial statements.The Company employs a staff of internal auditors whose work includes eval-
uating and testing internal accounting controls.
An audit committee of outside members of the Board of Directors periodically meets with management, the external auditors
and the internal auditors to evaluate the scope of auditing activities and review results. Both the external and internal auditors
have the unrestricted opportunity to communicate privately with the audit committee.
William R. Hollinger
Vice President and Controller
December 21, 2000
kb home 2000 annual report | page 73.
board of directors
Randall W. Lewis
Executive Vice President,
Lewis Operating Corp.
Los Angeles
Dr. Barry Munitz 1,4
President,
The J. Paul Getty Trust
Los Angeles
Guy Nafilyan
Executive Vice President,
KB Home
Los Angeles
Chairman and Chief Executive Officer,
Kaufman & Broad S.A.
Paris
Luis G. Nogales 3,4
President,
Nogales Partners
Los Angeles
Sanford C. Sigoloff 1,2
Chairman, President and Chief Executive Officer,
Sigoloff & Associates, Inc.
Los Angeles
Ron Burkle 1,3
Managing Partner,The Yucaipa Companies
Los Angeles
Henry G. Cisneros 3
Chairman and Chief Executive Officer
American CityVista
San Antonio
Jane Evans 1,4
President and Chief Executive Officer,
GAMUT Interactive, Inc.
Phoenix
Dr. Ray R. Irani 4
Chairman and Chief Executive Officer,
Occidental Petroleum Corporation
Los Angeles
James A. Johnson 3
Chairman and Chief Executive Officer,
Johnson Capital Partners
Former Chairman and Chief Executive Officer,
Fannie Mae
Washington, D.C.
Bruce Karatz 2
Chairman and Chief Executive Officer,
KB Home
Los Angeles
Committees of the Board of Directors
1 Audit and Compliance Committee
2 Executive Committee
3 Nominating and Corporate Governance Committee
4 Personnel, Compensation and Stock Plan Committee
kb home 2000 annual report | page 74.
management
Jeffrey T. Mezger
Executive Vice President and
Chief Operating Officer
Barton P. Pachino
Senior Vice President and
General Counsel
Steve Peterson
Vice President
SOUTHWEST
John H. Bremond
President,Tucson Division
Leah S.W. Bryant
President, Las Vegas Division
Bob Buthod
Senior Vice President,
New Mexico Division
Albert Z. Praw
Senior Vice President,
Asset Management and Acquisitions
Steven M. Davis
Regional General Manager and
President, Phoenix Division
CORPORATE OFFICERS
Glen Barnard
Executive Vice President and
President, e.kb Inc.
Bryan Binyon
Vice President and
Treasurer
George A. Brenner
Vice President and
Chief Information Officer
James R. Caldwell
Vice President
Cory F. Cohen
Vice President,Tax
Ken Gancarczyk
Vice President, Builder Services
Lawrence B. Gotlieb
Vice President
William R. Hollinger
Vice President and Controller
Lisa G. Kalmbach
Senior Vice President
Gary A. Ray
Senior Vice President,
Human Resources
Beth Schoenegge
Vice President
Nancy S. Schwappach
Vice President
David Simons
Vice President
Victor Toledo
Vice President
Bruce Karatz
Chairman and Chief Executive Officer
Kimberly N. King
Corporate Secretary
Kathleen L. Knoblauch
Vice President
Joe Manisco
Vice President
Wendy L. Marlett
Vice President, Marketing
Mary McCarthy
Senior Vice President,
Corporate Communications
DIVISION MANAGEMENT
WEST COAST
William R. Cardon
Regional General Manager and
President, Orange County Division
Robert Freed
Regional General Manager and
President, Northbay and South Bay
Divisions
Martin Lighterink
President, San Diego Division
Jay L. Moss
Regional General Manager and
President, Greater Los Angeles Division
CENTRAL
David Christian
President, Dallas Division
John “Buddy” E. Goodwin
Regional General Manager and
President, Houston Division
Larry E. Oglesby
President,Austin Division
Dwaine Rivers
President, San Antonio Division
Dennis Welsch
Regional General Manager and
President, Colorado Division
FRANCE
Pierre Beauchef
President, Condominium Division
Kaufman & Broad S.A., France
Joel Monribot
President,
Single Family Homes Division
Kaufman & Broad S.A., France
Guy Nafilyan
Chairman and Chief Executive Officer,
Kaufman & Broad S.A., France
MORTGAGE COMPANY
Mark Crivelli
President, Kaufman and Broad
Mortgage Company
kb home 2000 annual report | page 75.
office locations
CORPORATE
Headquarters
10990 Wilshire Boulevard
Seventh Floor
Los Angeles, California 90024
(310) 231-4000
(310) 231-4222 Fax
Architecture Group
801 Corporate Center Drive
Suite 100
Pomona, California 91768
(909) 802-2400
(909) 623-5167 Fax
houseCALL Center
4226 Rosewood Drive
Pleasanton, California 94588
(800) 34-HOMES
(925) 467-5506 Fax
Mortgage Company
21650 Oxnard Street, Suite 300
Woodland Hills, California 91367
(818) 887-2275
(818) 712-2422 Fax
DOMESTIC DIVISIONS
Arizona
Phoenix Division
Two Gateway
432 North 44th Street, Suite 200
Phoenix,Arizona 85008
(602) 306-1000
(602) 306-1010 Fax
Tucson Division
5780 North Swan Road, Suite 100
Tucson,Arizona 85718
(520) 577-7007
(520) 299-2725 Fax
California
Greater Los Angeles Division
801 Corporate Center Drive
Suite 201
Pomona, California 91768
(909) 802-1100
(909) 802-1111 Fax
Orange County Division
3 Jenner, Suite 100
Irvine, California 92618
(949) 790-9100
(949) 790-9119 Fax
North Bay Division
611 Orange Drive
Vacaville, California 95687
(707) 469-2400
(707) 469-2401 Fax
San Diego Division
12235 El Camino Real, Suite 100
San Diego, California 92130
(858) 259-6000
(858) 259-5108 Fax
South Bay Division
2201 Walnut Avenue, Suite 150
Fremont, California 94538
(510) 792-2900
(510) 792-5262 Fax
Reno Division
1380 Greg Street, Suite 230
Sparks, Nevada 89431
(775) 331-0345
(775) 331-0360 Fax
New Mexico
New Mexico Division
4921 Alexander, NE, Suite B
Albuquerque, New Mexico 87107
(505) 344-9400
(505) 344-5700 Fax
Texas
Austin Division
11911 Burnet Road
Austin,Texas 78758
(512) 833-8880
(512) 491-9432 Fax
Dallas Division
2611 Westgrove Road, Suite 101
Carrollton,Texas 75006
(972) 267-0700
(972) 267-0701 Fax
Houston Division
9990 Richmond Avenue, Suite 400
Houston,Texas 77042
(713) 977-6633
(713) 977-6678 Fax
Colorado
Colorado Division
8401 East Belleview Avenue, Suite 200
Denver, Colorado 80237
(303) 220-6000
(303) 773-1930 Fax
San Antonio Division
4800 Fredericksburg Road
San Antonio,Texas 78229
(210) 349-1111
(210) 524-2641 Fax
Nevada
Las Vegas Division
750 Pilot Road #F
Las Vegas, Nevada 89119
(702) 614-2500
(702) 614-2614 Fax
INTERNATIONAL DIVISION
Kaufman & Broad S.A.
Tour Maine Montparnasse
33 avenue du Maine
75755 Paris, Cedex 15
011-331-4-538-2000
011-331-4-538-2250 Fax
kb home 2000 annual report | page 76.
stockholder information
COMMON STOCK PRICES
2000
1999
HIGH
LOW
HIGH
LOW
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$2413⁄16
223⁄8
253⁄8
3213⁄16
$183⁄4
1613⁄16
1615⁄16
2315⁄16
$31
283⁄4
257⁄16
259⁄16
$213⁄8
21
191⁄4
163⁄4
HEADQUARTERS
KB Home
10990 Wilshire Boulevard, Seventh Floor
Los Angeles, California 90024
(310) 231-4000
(310) 231-4222 Fax
Location and Community Information:
kbhome.com
(800) 34-HOMES
DIVIDEND DATA
KB Home paid a quarterly cash dividend of $.075 per common
share in 2000 and 1999.
ANNUAL STOCKHOLDERS’ MEETING
The 2001 Annual Stockholders’ meeting will be held at The
W Hotel, Hilgard Avenue, in Los Angeles, California, at 9:00
a.m. on Thursday, April 5, 2001.
STOCK EXCHANGE LISTINGS
KB Home’s common stock is listed on the New York Stock
Exchange and is also traded on the Boston, Cincinnati, Midwest,
Pacific and Philadelphia Exchanges.The ticker symbol is KBH.
Kaufman & Broad S.A. is listed on the ParisBourse. The ticker
symbol is KOF. KBSA’s Web site address is ketb.com.
TRANSFER AGENT
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, New Jersey 07606-1915
(800) 356-2017
www.mellon-investor.com
INDEPENDENT AUDITORS
Ernst & Young LLP
Los Angeles, California
SHAREHOLDER INFORMATION
The Company’s common stock is traded on the New York Stock
Exchange under the symbol KBH. There were ,, shares of
common stock outstanding as of February 1, 2001.
FORM 10 -K
The Company’s 2000 Report on Form 10-K filed with the Securi-
ties and Exchange Commission may be obtained without charge by
writing to the Company’s Investor Relations department, or by
visiting the Company’s Web site at kbhome.com.
INVESTOR CONTACT
Mary McCarthy
Senior Vice President, Corporate Communications
KB Home
10990 Wilshire Boulevard, Seventh Floor
Los Angeles, California 90024
(310) 231-4000
mmccarthy@kbhome.com
BONDHOLDER SERVICES ADDRESSES
& PHONE NUMBERS
81⁄4 % $189,750,000 FELINE PRIDES – Due 8/16/01
Trustee:
Bank One, N.A.
Corporate Trust Investor Relations
One Bank One Plaza
Mail Code IL1-0126
Chicago, Illinois 60670
bondholder@em.fcnbd.com
(800) 524-9472
93⁄8 % $175,000,000 Note – Due 5/1/03
Trustee:
State Street Bank and Trust Company of California, N.A.
Corporate Trust Department
633 West 5th Street, 12th Floor
Los Angeles, California 90071
corporatetrust.statestreet.com
(800) 531-0368
73⁄4 % $175,000,000 Note – Due 10/15/04
95⁄8 % $125,000,000 Note – Due 11/15/06
91⁄2% $250,000,000 Note – Due 2/15/11
Trustee:
Sun Trust Bank
Corporate Trust Division
Mail Code 008
25 Park Place, 24th Floor
Building 10, Suite 810
Atlanta, Georgia 30303-2900
olga.warren@suntrust.com
(800) 711-1614
R1_ KB AR 2000_COVERS 2/28/01 7:37 PM Page 2
l e s l e y
g i s e l l e
wants a pet giraffe.
wants an extra bedroom.
o u r ma n y t h a n k s t o a l l t h e
k b h o m e ow n e r s w h o ma d e t h i s r e p o r t
p o s s i b l e b y c o n t r i b u t i n g t h e i r time and by
sharing their expe rie nce s of home.
(cid:2)
design: louey/rubino design group inc. | santa monica, ca | new york city | hong kong
executive photo: michele smith | portrait photos: ken probst | printing: lithographix
R1_ KB AR 2000_COVERS 2/28/01 7:37 PM Page 1
t w o ca r p e n t e r s
{an old story}
(cid:2)
two carpenters were asked what they were doing:
the first replied, “i am hammering.” the second answered,
“ i am on a team, building a home.”
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kb home 2000 annual report