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Form 8-K KB HOME For: Sep 20

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September 20, 2016 4:11 PM EDT


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 20, 2016
(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))




Item 2.02 Results of Operations and Financial Condition.
On September 20, 2016, KB Home issued a press release announcing its results of operations for the three months and nine months ended August 31, 2016. 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
Press release dated September 20, 2016 announcing KB Home’s results of operations for the three months and nine months ended August 31, 2016.


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 20, 2016
 
 
KB Home
 
 
By:
/s/ Jeff J. Kaminski
 
Jeff J. Kaminski
 
Executive Vice President and Chief Financial Officer
 


3


EXHIBIT INDEX
Exhibit No.
  
Description
 
 
 
99.1
 
Press release dated September 20, 2016 announcing KB Home’s results of operations for the three months and nine months ended August 31, 2016.



Exhibit 99.1



kbhpressreleaseimageaa06.jpg
FOR RELEASE, Tuesday, September 20, 2016
  
For Further Information:
1:05 p.m. Pacific Time
  
Jill Peters, Investor Relations Contact
 
  
(310) 893-7456 or [email protected]
 
  
Susan Martin, Media Contact
 
  
(310) 231-4142 or [email protected]
KB HOME REPORTS 2016 THIRD QUARTER RESULTS
Diluted Earnings Per Share Rises 83% to $.42
Net Orders Increase 16% to 2,508; Net Order Value Up 20% to $930 Million
LOS ANGELES (September 20, 2016) — KB Home (NYSE: KBH) today reported results for its third quarter ended August 31, 2016.
“We are very pleased with our third quarter results, as we continued our trajectory of solid earnings performance for the year,” said Jeffrey Mezger, chairman, president and chief executive officer. “Our execution on our core strategies was the primary catalyst for our double-digit growth in deliveries and housing revenues, and our significantly improved operating income margin, all of which helped drive an 83% increase in earnings per share. Moving forward, we intend to maintain our balanced approach centered on expanding our revenues and operating income margin, while sharpening our focus on increasing our asset efficiency in order to generate higher returns on invested capital.”
“Housing market conditions remain healthy, with positive employment, higher household income and economic trends supporting steady consumer demand amid constrained supply,” said Mezger. “In this environment, we believe we have the strategies in place to strengthen and leverage our growth platform to expand our business and increase market share across our current geographic footprint.”
Three Months Ended August 31, 2016 (comparisons on a year-over-year basis)
•
Total revenues of $913.3 million increased 8%, with housing revenues up 14%.
◦
There were no revenues from land sales, compared to $41.6 million.
•
Deliveries grew 11% to 2,487 homes, reflecting double-digit increases in the Company’s West Coast and Central regions.
•
Average selling price increased 2% to $365,900.
•
Housing gross profit margin increased 20 basis points to 16.4%.
◦
Excluding inventory-related charges of $3.1 million, housing gross profit margin rose to 16.8%.
◦
Adjusted housing gross profit margin, which excludes the amortization of previously capitalized interest and inventory-related charges, improved 10 basis points to 21.2%.
•
Selling, general and administrative expenses improved 110 basis points to 10.8% of housing revenues.
kbhfooterimagea01a2a01aa08.jpg



•
Homebuilding operating income increased 43% to $51.5 million.
◦
Homebuilding operating income margin improved 140 basis points to 5.7%. Excluding inventory-related charges and prior year land sale results, homebuilding operating income margin rose 120 basis points to 6.0%.
•
All interest incurred was capitalized, resulting in no interest expense as compared to $4.4 million of interest expense.
•
Financial services pretax income decreased 11% to $2.4 million.
◦
The Company and Nationstar Mortgage LLC have begun the process of winding down their mortgage banking joint venture, Home Community Mortgage, LLC, and transferring Home Community Mortgage’s assets and operations to Stearns Lending, LLC. Currently, Stearns Lending is offering mortgage banking services to the Company’s homebuyers, and the Company and Stearns Lending are working to establish a new relationship.
•
Pretax income increased 57% to $53.5 million.
•
Income tax expense of $14.1 million was favorably impacted by $6.7 million of federal energy tax credits earned from building energy-efficient homes and represented an effective tax rate of 26.4%.
◦
Income tax expense for the three months ended August 31, 2015 included the favorable impact of $2.5 million of federal energy tax credits, which resulted in an effective income tax rate of 31.5%.
•
Net income rose 69% to $39.4 million and earnings per diluted share increased 83% to $.42.
Nine Months Ended August 31, 2016 (comparisons on a year-over-year basis)
•
Total revenues increased 17% to $2.40 billion.
◦
Land sale revenues totaled $4.2 million, compared to $110.5 million.
•
Housing revenues grew 24% to $2.39 billion.
•
Deliveries rose 21% to 6,769 homes.
•
Average selling price increased 3% to $353,100.
•
Homebuilding operating income rose 41% to $96.4 million.
•
Net income increased 68% to $68.1 million and earnings per diluted share advanced to $.72 from $.42.
Backlog and Net Orders (comparisons on a year-over-year basis)
•
Ending backlog value grew 17% to $1.85 billion, reflecting increases in all of the Company’s regions.
•
Homes in backlog rose 12% to 5,226.
•
Net order value for the quarter grew 20% to $929.6 million.
•
Net orders for the quarter increased 16% to 2,508.
•
The cancellation rate as a percentage of beginning backlog for the quarter improved to 19% from 20%, and as a percentage of gross orders improved to 29% from 30%.
•
Average community count for the quarter decreased 9% to 235.

2


Balance Sheet (as of August 31, 2016)
•
Cash, cash equivalents and restricted cash totaled $335.3 million.
•
Inventories totaled $3.60 billion, with investments in land acquisition and development totaling $1.06 billion for the nine months ended August 31, 2016.
•
Lots owned or controlled totaled 46,636, of which 81% were owned.
•
There were no cash borrowings outstanding under the unsecured revolving credit facility.
•
Average diluted shares outstanding for the quarter were reduced 7% from the year-earlier quarter to 95.2 million, reflecting repurchases of nearly 8.4 million shares of common stock during the 2016 first quarter at a total cost of $85.9 million. No shares were repurchased in the 2016 second or third quarters.
Earnings Conference Call
The conference call to discuss the Company’s third quarter 2016 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 and most recognized homebuilders in the United States and an industry leader in sustainability, building innovative and highly energy- and water-efficient new homes. Founded in 1957 and the first homebuilder listed on the New York Stock Exchange, the Company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them. To learn more about KB Home, call 888-KB-HOMES, visit www.kbhome.com or connect 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, including the severe prolonged drought and related water-constrained conditions in the southwest United States and California; 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; 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, 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 (including our plans to transition out of the Metro Washington, D.C. area), 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 strategic and operational initiatives that will enable us to expand revenues and our operating income margin, increase our asset efficiency and generate higher returns on invested capital; 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, and the management of its assets and operations during the wind-down process; whether we can establish a joint venture or other relationship with a mortgage banking services provider; 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)
# # #

3


KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months and Three Months Ended August 31, 2016 and 2015
(In Thousands, Except Per Share Amounts — Unaudited)
 
Nine Months Ended August 31,
 
Three Months Ended August 31,
 
2016
 
2015
 
2016
 
2015
Total revenues
$
2,402,704

 
$
2,046,247

 
$
913,283

 
$
843,157

Homebuilding:
 
 
 
 
 
 
 
Revenues
$
2,394,315

 
$
2,038,896

 
$
910,111

 
$
840,204

Costs and expenses
(2,297,908
)
 
(1,970,654
)
 
(858,634
)
 
(804,222
)
Operating income
96,407

 
68,242

 
51,477

 
35,982

Interest income
395

 
342

 
109

 
87

Interest expense
(5,667
)
 
(17,850
)
 
—

 
(4,394
)
Equity in loss of unconsolidated joint ventures
(1,964
)
 
(1,180
)
 
(536
)
 
(422
)
Homebuilding pretax income
89,171

 
49,554

 
51,050

 
31,253

Financial services:
 
 
 
 
 
 
 
Revenues
8,389

 
7,351

 
3,172

 
2,953

Expenses
(2,621
)
 
(2,802
)
 
(891
)
 
(910
)
Equity in income (loss) of unconsolidated joint ventures
(652
)
 
3,023

 
132

 
658

Financial services pretax income
5,116

 
7,572

 
2,413

 
2,701

Total pretax income
94,287

 
57,126

 
53,463

 
33,954

Income tax expense
(26,200
)
 
(16,500
)
 
(14,100
)
 
(10,700
)
Net income
$
68,087

 
$
40,626

 
$
39,363

 
$
23,254

Earnings per share:
 
 
 
 
 
 
 
Basic
$
.79

 
$
.44

 
$
.46

 
$
.25

Diluted
$
.72

 
$
.42

 
$
.42

 
$
.23

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
85,952

 
92,005

 
84,457

 
92,065

Diluted
96,437

 
101,605

 
95,203

 
101,874


4


KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands — Unaudited)
 
August 31,
2016
 
November 30,
2015
Assets
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
334,669

 
$
559,042

Restricted cash
602

 
9,344

Receivables
149,219

 
152,682

Inventories
3,597,673

 
3,313,747

Investments in unconsolidated joint ventures
61,526

 
71,558

Deferred tax assets, net
756,596

 
782,196

Other assets
113,341

 
112,774

 
5,013,626

 
5,001,343

Financial services
14,135

 
14,028

Total assets
$
5,027,761

 
$
5,015,371

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
195,785

 
$
183,770

Accrued expenses and other liabilities
471,295

 
513,414

Notes payable
2,674,795

 
2,625,536

 
3,341,875

 
3,322,720

Financial services
3,436

 
1,817

Stockholders’ equity
1,682,450

 
1,690,834

Total liabilities and stockholders’ equity
$
5,027,761

 
$
5,015,371


5

KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2016 and 2015
(In Thousands, Except Average Selling Price — Unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended August 31,
 
Three Months Ended August 31,
 
2016
 
2015
 
2016
 
2015
Homebuilding revenues:
 
 
 
 
 
 
 
Housing
$
2,390,165

 
$
1,928,395

 
$
910,111

 
$
798,633

Land
4,150

 
110,501

 
—

 
41,571

Total
$
2,394,315

 
$
2,038,896

 
$
910,111

 
$
840,204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding costs and expenses:
 
 
 
 
 
 
 
Construction and land costs
 
 
 
 
 
 
 
Housing
$
2,007,621

 
$
1,622,530

 
$
760,490

 
$
668,871

Land
10,401

 
103,446

 
—

 
40,277

Subtotal
2,018,022

 
1,725,976

 
760,490

 
709,148

Selling, general and administrative expenses
279,886

 
244,678

 
98,144

 
95,074

Total
$
2,297,908

 
$
1,970,654

 
$
858,634

 
$
804,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
Interest incurred
$
138,994

 
$
140,789

 
$
46,485

 
$
46,587

Interest capitalized
(133,327
)
 
(122,939
)
 
(46,485
)
 
(42,193
)
Total
$
5,667

 
$
17,850

 
$
—

 
$
4,394

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
Depreciation and amortization
$
8,431

 
$
8,413

 
$
2,829

 
$
2,853

Amortization of previously capitalized interest
106,663

 
99,488

 
40,424

 
51,752

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average selling price:
 
 
 
 
 
 
 
West Coast
$
572,100

 
$
571,500

 
$
583,300

 
$
579,800

Southwest
286,400

 
279,500

 
287,800

 
285,200

Central
265,900

 
244,600

 
272,100

 
256,000

Southeast
279,700

 
278,100

 
287,600

 
287,300

Total
$
353,100

 
$
343,400

 
$
365,900

 
$
357,200



6

KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2016 and 2015
(Dollars in Thousands — Unaudited)
 
 
 
 
 
Nine Months Ended August 31,
 
Three Months Ended August 31,
 
2016
 
2015
 
2016
 
2015
Homes delivered:
 
 
 
 
 
 
 
West Coast
1,799

 
1,498

 
710

 
625

Southwest
1,111

 
888

 
369

 
372

Central
2,647

 
2,212

 
976

 
822

Southeast
1,212

 
1,018

 
432

 
417

Total
6,769

 
5,616

 
2,487

 
2,236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net orders:
 
 
 
 
 
 
 
West Coast
2,325

 
1,886

 
775

 
564

Southwest
1,337

 
1,305

 
437

 
384

Central
3,042

 
2,864

 
931

 
818

Southeast
1,325

 
1,316

 
365

 
401

Total
8,029

 
7,371

 
2,508

 
2,167

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net order value:
 
 
 
 
 
 
 
West Coast
$
1,346,091

 
$
1,088,175

 
$
435,598

 
$
331,864

Southwest
385,501

 
368,394

 
122,876

 
110,181

Central
845,164

 
758,592

 
263,707

 
223,168

Southeast
380,509

 
364,169

 
107,408

 
108,075

Total
$
2,957,265

 
$
2,579,330

 
$
929,589

 
$
773,288

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
August 31, 2016
 
August 31, 2015
 
Backlog Homes
 
Backlog Value
 
Backlog Homes
 
Backlog Value
Backlog data:
 
 
 
 
 
 
 
West Coast
1,264

 
$
724,795

 
981

 
$
586,862

Southwest
831

 
234,736

 
741

 
204,802

Central
2,237

 
636,234

 
2,141

 
571,433

Southeast
894

 
252,815

 
801

 
222,381

Total
5,226

 
$
1,848,580

 
4,664

 
$
1,585,478






7

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Nine Months and Three Months Ended August 31, 2016 and 2015
(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, both of which are not 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, therefore, 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:
 
Nine Months Ended August 31,
 
Three Months Ended August 31,
 
2016
 
2015
 
2016
 
2015
Housing revenues
$
2,390,165

 
$
1,928,395

 
$
910,111

 
$
798,633

Housing construction and land costs
(2,007,621
)
 
(1,622,530
)
 
(760,490
)
 
(668,871
)
Housing gross profits
382,544

 
305,865

 
149,621

 
129,762

Add: Amortization of previously capitalized interest (a)
106,181

 
83,050

 
40,424

 
35,314

Inventory-related charges (b)
10,615

 
4,516

 
3,052

 
3,532

Adjusted housing gross profits
$
499,340

 
$
393,431

 
$
193,097

 
$
168,608

Housing gross profit margin as a percentage of housing revenues
16.0
%
 
15.9
%
 
16.4
%
 
16.2
%
Adjusted housing gross profit margin as a percentage of housing revenues
20.9
%
 
20.4
%
 
21.2
%
 
21.1
%
(a)
Represents the amortization of previously capitalized interest associated with housing operations.
(b)
Represents inventory impairment and land option contract abandonment charges 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) amortization of previously capitalized interest associated with housing operations and (2) housing inventory impairment and land option contract abandonment charges recorded during a given period, 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 the amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges 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 amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges. This financial measure assists management in making strategic decisions regarding community location and product mix, product pricing and construction pace.

8

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages — Unaudited)
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,
2016
 
November 30,
2015
Notes payable
$
2,674,795

 
$
2,625,536

Stockholders’ equity
1,682,450

 
1,690,834

Total capital
$
4,357,245

 
$
4,316,370

Ratio of debt to capital
61.4
%
 
60.8
%
 
 
 
 
 
 
 
 
Notes payable
$
2,674,795

 
$
2,625,536

Less: Cash and cash equivalents and restricted cash
(335,271
)
 
(568,386
)
Net debt
2,339,524

 
2,057,150

Stockholders’ equity
1,682,450

 
1,690,834

Total capital
$
4,021,974

 
$
3,747,984

Ratio of net debt to capital
58.2
%
 
54.9
%
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 and restricted cash, by capital (notes payable, net of homebuilding cash and cash equivalents and restricted cash, 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.

9

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