KB Home
KB HOME (Form: 8-K, Received: 09/28/2017 16:21:45)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K  
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: September 28, 2017
(Date of earliest event reported)  
KB HOME
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
1-9195
 
95-3666267
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
                                               10990 Wilshire Boulevard, Los Angeles, California
 
90024
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (310) 231-4000
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o





Item 2.02 Results of Operations and Financial Condition.
On September 28, 2017 , KB Home issued a press release announcing its results of operations for the three months and nine months ended August 31, 2017 . A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated herein.
The information in this report, including Exhibit 99.1 attached hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits .
99.1


2



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: September 28, 2017
 
 
KB Home
 
 
By:
/s/ Jeff J. Kaminski
 
Jeff J. Kaminski
 
Executive Vice President and Chief Financial Officer
 


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EXHIBIT INDEX
Exhibit No.
  
Description
 
 
 
99.1
 



Exhibit 99.1




KBHPRESSRELEASEIMAGEAA12.JPG

FOR RELEASE, Thursday, September 28, 2017
  
For Further Information :
1:05 p.m. Pacific Time
  
Jill Peters, Investor Relations Contact
 
  
(310) 893-7456 or jpeters@kbhome.com
 
  
Susan Martin, Media Contact
 
  
(310) 231-4142 or smartin@kbhome.com
KB HOME REPORTS 2017 THIRD QUARTER RESULTS
Revenues Up 25% to $1.1 Billion ; Net Income Increases 28% to $50.2 Million
Homebuilding Operating Income Margin Improves 100 Basis Points
Net Order Value Grows 15% to $1.1 Billion ; Backlog Value Up 14% to $2.1 Billion

LOS ANGELES ( September 28, 2017 ) — KB Home (NYSE: KBH) today reported results for its third quarter ended August 31, 2017 .
“We continued to make considerable progress on our three-year returns-focused growth plan with outstanding results in our 2017 third quarter,” said Jeffrey Mezger, chairman, president and chief executive officer.  “We posted double-digit increases in revenues and earnings, and generated measurable improvement across our key financial metrics. Significantly, we increased our housing gross profit margin on a year-over-year basis, excluding inventory-related charges, and we expect to sustain this favorable comparison on a quarterly basis going into 2018.  In addition, with the expansion in our gross margin and a record-low third quarter SG&A ratio, we improved our operating income margin by 100 basis points, extending the upward trend in this important profitability measure.”
 
“We believe we are well positioned as we move into the closing months of our fiscal year, with a backlog value of more than $2 billion and positive conditions in most of our served markets,” said Mezger.  "Moreover, we are confident that we are firmly on track to achieve the objectives of our three-year plan through consistent execution of our core business strategy and steady focus on enhancing asset efficiency.”
Three Months Ended August 31, 2017 (comparisons on a year-over-year basis)
Total revenues grew 25% to $1.14 billion .
Deliveries rose 11% to 2,765 homes.
Average selling price increased 12% to $411,400 .
Homebuilding operating income rose 49% to $76.7 million . This included inventory-related charges of $8.1 million , compared to $3.1 million .
KBHFOOTERIMAGEA01A2A01AA14.JPG




Homebuilding operating income margin increased 100 basis points to 6.7% . Excluding inventory-related charges, the improvement was 140 basis points to 7.4% .
Housing gross profits increased 23% to $184.0 million , and the related margin was 16.2% .
Housing gross profit margin excluding inventory-related charges rose 10 basis points to 16.9% .
Adjusted housing gross profit margin, a metric that excludes the amortization of previously capitalized interest and inventory-related charges, increased 50 basis points to 21.7% .
Selling, general and administrative expenses improved 120 basis points to 9.6% of housing revenues, a third-quarter record for the Company.
Financial services pretax income rose to $3.0 million , up from $2.4 million , mainly due to income from KBHS Home Loans, LLC, the Company’s recently formed mortgage banking joint venture that is operating in all of the Company’s served markets as of June.
Pretax income increased 48% to $79.2 million .
Income tax expense was $29.0 million and represented an effective tax rate of 36.6% , compared to 26.4% . The effective tax rates for the 2017 and 2016 third quarters were favorably impacted by $2.6 million and $6.7 million , respectively, of federal energy tax credits earned from building energy-efficient homes.
Net income increased 28% to $50.2 million , or $.51 per diluted share.
Nine Months Ended August 31, 2017 (comparisons on a year-over-year basis)
Total revenues rose 23% to $2.97 billion .
Deliveries grew 12% to 7,569 homes.
Average selling price increased 10% to $389,000 .
Homebuilding operating income rose 57% to $151.5 million .
Inventory-related charges totaled $18.1 million , compared to $16.8 million .
Pretax income rose 62% to $152.6 million .
Net income increased 41% to $96.2 million , or $1.00 per diluted share.
Backlog and Net Orders (comparisons on a year-over-year basis)
Net order value grew 15% to $1.07 billion on a 4% increase in net orders to 2,608 , with double-digit growth in the Company’s West Coast and Southwest regions.
Company-wide, net orders per community averaged 3.7 per month.
Ending backlog value grew 14% to $2.12 billion , with homes in backlog up 4% to 5,455 and the average selling price of those homes rising 10% .
The cancellation rate as a percentage of gross orders improved to 25% from 29% .
Average community count for the quarter was essentially flat at 234 . Ending community count was up 2% to 231 .


2



Balance Sheet as of August 31, 2017 (comparisons to November 30, 2016)
The Company had total liquidity of $961.0 million , including cash and cash equivalents of $494.1 million and availability under its unsecured revolving credit facility.
On July 27, 2017, the Company entered into an amended and restated revolving loan agreement with a syndicate of financial institutions that increased the commitment under its unsecured revolving credit facility from $275.0 million to $500.0 million and extended the maturity from August 7, 2019 to July 27, 2021.
There were no cash borrowings outstanding under the Company’s unsecured revolving credit facility.
Inventories increased to $3.51 billion , with investments in land acquisition and development totaling $1.12 billion for the first nine months of 2017.
Lots owned or controlled aggregated to 45,624 , with 78% owned.
Notes payable decreased to $2.50 billion from $2.64 billion , primarily due to the early redemption of $100.0 million of senior notes in the 2017 first quarter using internally generated cash.
Subsequent to the end of the third quarter, the Company repaid the remaining $165.0 million in aggregate principal amount of its 9.10% Senior Notes due 2017 at their maturity on September 15 using internally generated cash.
The ratio of debt to capital improved to 57.6% , and the ratio of net debt to capital improved to 52.2% .
Stockholders’ equity grew to $1.84 billion and book value per share increased to $21.28 .
Earnings Conference Call
The conference call to discuss the Company’s third quarter 2017 earnings will be broadcast live TODAY at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time. To listen, please go to the Investor Relations section of the Company’s website at www.kbhome.com .
About KB Home
KB Home (NYSE: KBH) is one of the largest homebuilders in the United States, with nearly 600,000 homes delivered since our founding in 1957. We operate in 36 markets in 7 states, primarily serving first-time and first move-up homebuyers, as well as active adults. We are differentiated in offering customers the ability to personalize what they value most in their home, from choosing their lot, floor plan, and exterior, to selecting design and décor choices in our KB Home Studios. In addition, we are an industry leader in sustainability, building innovative and highly energy- and water-efficient homes. We invite you to learn more about KB Home by visiting www.kbhome.com, calling 888-KB-HOMES,  or connecting with us on Facebook.com/KBHome or Twitter.com/KBHome .

Forward-Looking and Cautionary Statements
Certain matters discussed in this press release, including any statements that are predictive in nature or concern future market and economic conditions, business and prospects, our future financial and operational performance, or our future actions and their expected results are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and projections about future events and are not guarantees of future performance. We do not have a specific policy or intent of updating or revising forward-looking statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to the following: general economic, employment and business conditions; population growth, household formations and demographic trends; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; material and trade costs and availability; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors; government actions, policies, programs and regulations directed at or affecting the housing market (including the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; changes in existing tax laws or enacted corporate income tax rates; the availability and cost of land in desirable areas; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations,

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claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; our ability to use/realize the net deferred tax assets we have generated; our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability to successfully implement our returns-focused growth plan and achieve the associated revenue, margin, profitability, cash flow, community reactivation, land sales, business growth, asset efficiency, return on invested capital, return on equity, net debt-to-capital ratio and other financial and operational targets and objectives; the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services; the performance of mortgage lenders to our homebuyers; completing the wind down of Home Community Mortgage as planned; the performance of KBHS Home Loans, LLC, our mortgage banking joint venture with Stearns Lending, LLC; information technology failures and data security breaches; and other events outside of our control. Please see our periodic reports and other filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business.


# # #
(Tables Follow)
# # #

4



KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended August 31, 2017 and 2016
(In Thousands, Except Per Share Amounts – Unaudited)
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2017
 
2016
 
2017
 
2016
Total revenues
$
1,144,001

 
$
913,283

 
$
2,965,391

 
$
2,402,704

Homebuilding:
 
 
 
 
 
 
 
Revenues
$
1,140,787

 
$
910,111

 
$
2,957,105

 
$
2,394,315

Costs and expenses
(1,064,096
)
 
(858,634
)
 
(2,805,578
)
 
(2,297,908
)
Operating income
76,691

 
51,477

 
151,527

 
96,407

Interest income
347

 
109

 
747

 
395

Interest expense

 

 
(6,307
)
 
(5,667
)
Equity in loss of unconsolidated joint ventures
(814
)
 
(536
)
 
(679
)
 
(1,964
)
Homebuilding pretax income
76,224

 
51,050

 
145,288

 
89,171

Financial services:
 
 
 
 
 
 
 
Revenues
3,214

 
3,172

 
8,286

 
8,389

Expenses
(890
)
 
(891
)
 
(2,525
)
 
(2,621
)
Equity in income (loss) of unconsolidated joint ventures
660

 
132

 
1,600

 
(652
)
Financial services pretax income
2,984

 
2,413

 
7,361

 
5,116

Total pretax income
79,208

 
53,463

 
152,649

 
94,287

Income tax expense
(29,000
)
 
(14,100
)
 
(56,400
)
 
(26,200
)
Net income
$
50,208

 
$
39,363

 
$
96,249

 
$
68,087

Earnings per share:
 
 
 
 
 
 
 
Basic
$
.58

 
$
.46

 
$
1.12

 
$
.79

Diluted
$
.51

 
$
.42

 
$
1.00

 
$
.72

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
85,974

 
84,457

 
85,517

 
85,952

Diluted
98,912

 
95,203

 
97,624

 
96,437


5



KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands – Unaudited)
 
August 31,
2017
 
November 30,
2016
Assets
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
494,053

 
$
592,086

Receivables
229,033

 
231,665

Inventories
3,513,794

 
3,403,228

Investments in unconsolidated joint ventures
64,513

 
64,016

Deferred tax assets, net
683,085

 
738,985

Other assets
102,394

 
91,145

 
5,086,872

 
5,121,125

Financial services
12,687

 
10,499

Total assets
$
5,099,559

 
$
5,131,624

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
189,535

 
$
215,331

Accrued expenses and other liabilities
565,168

 
550,996

Notes payable
2,502,379

 
2,640,149

 
3,257,082

 
3,406,476

Financial services
1,535

 
2,003

Stockholders’ equity
1,840,942

 
1,723,145

Total liabilities and stockholders’ equity
$
5,099,559

 
$
5,131,624


6


KB HOME
SUPPLEMENTAL INFORMATION
For the Three Months and Nine Months Ended August 31, 2017 and 2016
(In Thousands, Except Average Selling Price – Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2017
 
2016
 
2017
 
2016
Homebuilding revenues:
 
 
 
 
 
 
 
Housing
$
1,137,406

 
$
910,111

 
$
2,944,013

 
$
2,390,165

Land
3,381

 

 
13,092

 
4,150

Total
$
1,140,787

 
$
910,111

 
$
2,957,105

 
$
2,394,315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding costs and expenses:
 
 
 
 
 
 
 
Construction and land costs
 
 
 
 
 
 
 
Housing
$
953,413

 
$
760,490

 
$
2,488,577

 
$
2,007,621

Land
1,588

 

 
11,100

 
10,401

Subtotal
955,001

 
760,490

 
2,499,677

 
2,018,022

Selling, general and administrative expenses
109,095

 
98,144

 
305,901

 
279,886

Total
$
1,064,096

 
$
858,634

 
$
2,805,578

 
$
2,297,908

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
Interest incurred
$
43,434

 
$
46,485

 
$
131,172

 
$
138,994

Loss on early extinguishment of debt

 

 
5,685

 

Interest capitalized
(43,434
)
 
(46,485
)
 
(130,550
)
 
(133,327
)
Total
$

 
$

 
$
6,307

 
$
5,667

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
Depreciation and amortization
$
2,343

 
$
2,829

 
$
7,157

 
$
8,431

Amortization of previously capitalized interest
55,204

 
40,424

 
145,059

 
106,663

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average selling price:
 
 
 
 
 
 
 
West Coast
$
682,500

 
$
583,300

 
$
639,600

 
$
572,100

Southwest
291,400

 
287,800

 
290,000

 
286,400

Central
280,800

 
272,100

 
282,100

 
265,900

Southeast
277,300

 
287,600

 
284,500

 
279,700

Total
$
411,400

 
$
365,900

 
$
389,000

 
$
353,100



7


KB HOME
SUPPLEMENTAL INFORMATION
For the Three Months and Nine Months Ended August 31, 2017 and 2016
(Dollars in Thousands – Unaudited)
 
 
 
 
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2017
 
2016
 
2017
 
2016
Homes delivered:
 
 
 
 
 
 
 
West Coast
890

 
710

 
2,226

 
1,799

Southwest
454

 
369

 
1,297

 
1,111

Central
1,032

 
976

 
2,898

 
2,647

Southeast
389

 
432

 
1,148

 
1,212

Total
2,765

 
2,487

 
7,569

 
6,769

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net orders:
 
 
 
 
 
 
 
West Coast
853

 
775

 
2,744

 
2,325

Southwest
549

 
437

 
1,634

 
1,337

Central
859

 
931

 
3,094

 
3,042

Southeast
347

 
365

 
1,132

 
1,325

Total
2,608

 
2,508

 
8,604

 
8,029

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net order value:
 
 
 
 
 
 
 
West Coast
$
547,049

 
$
435,598

 
$
1,835,910

 
$
1,346,091

Southwest
168,300

 
122,876

 
484,833

 
385,501

Central
256,502

 
263,707

 
899,392

 
845,164

Southeast
100,081

 
107,408

 
320,731

 
380,509

Total
$
1,071,932

 
$
929,589

 
$
3,540,866

 
$
2,957,265

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
August 31, 2017
 
August 31, 2016
 
Homes
 
Value
 
Homes
 
Value
Backlog data:
 
 
 
 
 
 
 
West Coast
1,431

 
$
938,902

 
1,264

 
$
724,795

Southwest
1,141

 
336,523

 
831

 
234,736

Central
2,175

 
641,101

 
2,237

 
636,234

Southeast
708

 
199,416

 
894

 
252,815

Total
5,455

 
$
2,115,942

 
5,226

 
$
1,848,580






8




KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages - Unaudited)

This press release contains, and Company management’s discussion of the results presented in this press release may include, information about the Company’s adjusted housing gross profit margin and ratio of net debt to capital, neither of which are calculated in accordance with generally accepted accounting principles (“GAAP”). The Company believes these non-GAAP financial measures are relevant and useful to investors in understanding its operations and the leverage employed in its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. However, because the adjusted housing gross profit margin and the ratio of net debt to capital are not calculated in accordance with GAAP, these financial measures may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, these non-GAAP financial measures should be used to supplement their respective most directly comparable GAAP financial measures in order to provide a greater understanding of the factors and trends affecting the Company’s operations.
Adjusted Housing Gross Profit Margin
The following table reconciles the Company’s housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of the Company’s adjusted housing gross profit margin:
 
Three Months Ended August 31,
 
Nine Months Ended August 31,
 
2017
 
2016
 
2017
 
2016
Housing revenues
$
1,137,406

 
$
910,111

 
$
2,944,013

 
$
2,390,165

Housing construction and land costs
(953,413
)
 
(760,490
)
 
(2,488,577
)
 
(2,007,621
)
Housing gross profits
183,993

 
149,621

 
455,436

 
382,544

Add: Inventory-related charges (a)
8,113

 
3,052

 
18,122

 
10,615

Housing gross profits excluding inventory-related charges
192,106

 
152,673

 
473,558

 
393,159

Add: Amortization of previously capitalized interest (b)
55,036

 
40,424

 
143,254

 
106,181

Adjusted housing gross profits
$
247,142

 
$
193,097

 
$
616,812

 
$
499,340

Housing gross profit margin
16.2
%
 
16.4
%
 
15.5
%
 
16.0
%
Housing gross profit margin excluding inventory-related charges
16.9
%
 
16.8
%
 
16.1
%
 
16.4
%
Adjusted housing gross profit margin
21.7
%
 
21.2
%
 
21.0
%
 
20.9
%
(a)
Represents inventory impairment and land option contract abandonment charges associated with housing operations.
(b)
Represents the amortization of previously capitalized interest associated with housing operations.
Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs excluding (1) housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period and (2) amortization of previously capitalized interest associated with housing operations, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. The Company believes adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating the Company’s performance as it measures the gross profits the Company generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that housing inventory impairment and land option contract abandonment charges, and the amortization of previously capitalized interest associated with housing operations, have on housing gross profit margins, and allows investors to make comparisons with the Company’s competitors that adjust housing gross profit margins in a similar manner. The Company also believes investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory

9




KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages - Unaudited)

impairment and land option contract abandonment charges, and amortization of previously capitalized interest associated with housing operations. This financial measure assists management in making strategic decisions regarding community location and product mix, product pricing and construction pace.
Ratio of Net Debt to Capital
The following table reconciles the Company’s ratio of debt to capital calculated in accordance with GAAP to the non-GAAP financial measure of the Company’s ratio of net debt to capital:
 
August 31,
2017
 
November 30,
2016
Notes payable
$
2,502,379

 
$
2,640,149

Stockholders’ equity
1,840,942

 
1,723,145

Total capital
$
4,343,321

 
$
4,363,294

Ratio of debt to capital
57.6
%
 
60.5
%
 
 
 
 
 
 
 
 
Notes payable
$
2,502,379

 
$
2,640,149

Less: Cash and cash equivalents
(494,053
)
 
(592,086
)
Net debt
2,008,326

 
2,048,063

Stockholders’ equity
1,840,942

 
1,723,145

Total capital
$
3,849,268

 
$
3,771,208

Ratio of net debt to capital
52.2
%
 
54.3
%
The ratio of net debt to capital is a non-GAAP financial measure, which the Company calculates by dividing notes payable, net of homebuilding cash and cash equivalents, by capital (notes payable, net of homebuilding cash and cash equivalents, plus stockholders’ equity). The most directly comparable GAAP financial measure is the ratio of debt to capital. The Company believes the ratio of net debt to capital is a relevant and useful financial measure to investors in understanding the leverage employed in the Company’s operations.

10