0000795266false11/302023Q3true0.6http://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrentAndNoncurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrentAndNoncurrent0.5P2Y00007952662022-12-012023-08-310000795266us-gaap:CommonStockMember2022-12-012023-08-310000795266us-gaap:RightsMember2022-12-012023-08-3100007952662023-08-31xbrli:shares0000795266us-gaap:TrustForBenefitOfEmployeesMember2023-08-3100007952662023-06-012023-08-31iso4217:USD00007952662022-06-012022-08-3100007952662021-12-012022-08-310000795266us-gaap:HomeBuildingMember2023-06-012023-08-310000795266us-gaap:HomeBuildingMember2022-06-012022-08-310000795266us-gaap:HomeBuildingMember2022-12-012023-08-310000795266us-gaap:HomeBuildingMember2021-12-012022-08-310000795266us-gaap:FinancialServiceMember2023-06-012023-08-310000795266us-gaap:FinancialServiceMember2022-06-012022-08-310000795266us-gaap:FinancialServiceMember2022-12-012023-08-310000795266us-gaap:FinancialServiceMember2021-12-012022-08-31iso4217:USDxbrli:shares0000795266us-gaap:HomeBuildingMember2023-08-310000795266us-gaap:HomeBuildingMember2022-11-300000795266us-gaap:FinancialServiceMember2023-08-310000795266us-gaap:FinancialServiceMember2022-11-3000007952662022-11-3000007952662021-11-3000007952662022-08-31kbh:segment0000795266kbh:GRAllianceLLCMemberkbh:KBHSLLCMember2023-08-31xbrli:pure0000795266us-gaap:FinancialServiceMemberkbh:KBHSLLCMember2023-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2023-06-012023-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2022-06-012022-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2022-12-012023-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2021-12-012022-08-310000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2023-06-012023-08-310000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2022-06-012022-08-310000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2022-12-012023-08-310000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2021-12-012022-08-310000795266kbh:CentralMemberus-gaap:HomeBuildingMember2023-06-012023-08-310000795266kbh:CentralMemberus-gaap:HomeBuildingMember2022-06-012022-08-310000795266kbh:CentralMemberus-gaap:HomeBuildingMember2022-12-012023-08-310000795266kbh:CentralMemberus-gaap:HomeBuildingMember2021-12-012022-08-310000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2023-06-012023-08-310000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2022-06-012022-08-310000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2022-12-012023-08-310000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2021-12-012022-08-310000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2023-06-012023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2022-06-012022-08-310000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2022-12-012023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2021-12-012022-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2023-08-310000795266us-gaap:HomeBuildingMemberkbh:WestCoastMember2022-11-300000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2023-08-310000795266kbh:SouthwestMemberus-gaap:HomeBuildingMember2022-11-300000795266kbh:CentralMemberus-gaap:HomeBuildingMember2023-08-310000795266kbh:CentralMemberus-gaap:HomeBuildingMember2022-11-300000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2023-08-310000795266kbh:SoutheastMemberus-gaap:HomeBuildingMember2022-11-300000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:CorporateAndOtherMember2022-11-3000007952662023-05-3100007952662022-05-31kbh:community0000795266kbh:LandOptionContractAbandonmentMember2022-12-012023-08-310000795266kbh:LandOptionContractAbandonmentMember2022-06-012022-08-310000795266kbh:LandOptionContractAbandonmentMember2021-12-012022-08-310000795266kbh:LandOptionContractAbandonmentMember2023-06-012023-08-310000795266us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2022-11-30kbh:joint_venture0000795266us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2023-08-310000795266kbh:NonVIELandOptionContractsAndOtherSimilarContractsMember2023-08-310000795266kbh:NonVIELandOptionContractsAndOtherSimilarContractsMember2022-11-300000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-06-012023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-06-012022-08-310000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-12-012023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2021-12-012022-08-310000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-08-310000795266us-gaap:HomeBuildingMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-11-300000795266us-gaap:LineOfCreditMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-08-310000795266us-gaap:LineOfCreditMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-12-012023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-06-012023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-06-012022-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-12-012023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2021-12-012022-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2022-11-300000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2022-11-300000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2023-06-012023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2022-12-012023-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2022-06-012022-08-310000795266us-gaap:FinancialServiceMemberus-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMemberus-gaap:InterestRateLockCommitmentsMember2021-12-012022-08-310000795266us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2023-08-310000795266us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2022-11-300000795266kbh:SeniorUnsecuredTermLoanDueAugust252026Memberkbh:TermLoanMember2023-08-310000795266kbh:SeniorUnsecuredTermLoanDueAugust252026Memberkbh:TermLoanMember2022-11-300000795266kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomainus-gaap:SeniorNotesMember2023-08-310000795266kbh:SeniorNotesDueTwoThousandTwentySevenAtSixPointEightSevenFivePercentDomainus-gaap:SeniorNotesMember2022-11-300000795266us-gaap:SeniorNotesMemberkbh:SeniorNotesDueTwoThousandTwentyNineAtFourPointEightPercentDomainDomain2023-08-310000795266us-gaap:SeniorNotesMemberkbh:SeniorNotesDueTwoThousandTwentyNineAtFourPointEightPercentDomainDomain2022-11-300000795266kbh:SeniorNotesDueTwoThousandThirtyAtSevenPointTwoFivePercentMemberus-gaap:SeniorNotesMember2023-08-310000795266kbh:SeniorNotesDueTwoThousandThirtyAtSevenPointTwoFivePercentMemberus-gaap:SeniorNotesMember2022-11-300000795266kbh:SeniorNotesDueTwoThousandThirtyOneAtFourPointZeroZeroPercentMemberus-gaap:SeniorNotesMember2023-08-310000795266kbh:SeniorNotesDueTwoThousandThirtyOneAtFourPointZeroZeroPercentMemberus-gaap:SeniorNotesMember2022-11-300000795266kbh:MortgagesAndLandContractsDueToLandSellersAndOtherLoansMember2023-08-310000795266kbh:MortgagesAndLandContractsDueToLandSellersAndOtherLoansMember2022-11-300000795266us-gaap:RevolvingCreditFacilityMember2023-08-310000795266us-gaap:RevolvingCreditFacilityMember2022-12-012023-08-310000795266us-gaap:LetterOfCreditMember2023-08-310000795266us-gaap:RevolvingCreditFacilityMembersrt:MinimumMember2022-12-012023-08-310000795266us-gaap:RevolvingCreditFacilityMembersrt:MaximumMember2022-12-012023-08-310000795266kbh:TermLoanMember2023-08-310000795266kbh:TermLoanMemberkbh:TermLoanMember2023-08-310000795266kbh:LOCFacilitiesMember2023-08-310000795266kbh:LOCFacilitiesMember2023-08-092023-08-090000795266kbh:LOCFacilitiesMember2023-08-102023-08-100000795266kbh:LOCFacilitiesMember2022-11-300000795266kbh:SeniorNotesDueTwoThousandThirtyAtSevenPointTwoFivePercentMemberus-gaap:SeniorNotesMember2022-08-310000795266kbh:SeniorNotesDueTwoThousandTwentyTwoAtSevenPointFivePercentMemberus-gaap:SeniorNotesMember2022-06-012022-08-310000795266us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2023-08-310000795266us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2022-12-012023-08-310000795266us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2022-11-300000795266us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2021-12-012022-11-300000795266us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2023-08-310000795266us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-08-310000795266us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2022-11-300000795266us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-11-300000795266srt:MinimumMember2022-12-012023-08-310000795266srt:MaximumMember2022-12-012023-08-310000795266us-gaap:DamagesFromProductDefectsMember2022-12-012023-08-31kbh:home0000795266us-gaap:WarrantyObligationsMember2022-12-012023-08-310000795266kbh:SelfInsuranceMember2023-08-310000795266kbh:SelfInsuranceMember2022-11-300000795266kbh:SelfInsuranceMember2023-06-012023-08-310000795266kbh:SelfInsuranceMember2022-06-012022-08-310000795266kbh:SelfInsuranceMember2022-12-012023-08-310000795266kbh:SelfInsuranceMember2021-12-012022-08-310000795266kbh:Chapter558oftheFloridaStatutesMember2022-12-012023-08-31kbh:claim0000795266kbh:LOCFacilitiesMember2022-12-012023-08-310000795266us-gaap:CommonStockMember2023-05-310000795266us-gaap:TrustForBenefitOfEmployeesMember2023-05-310000795266us-gaap:TreasuryStockCommonMember2023-05-310000795266us-gaap:AdditionalPaidInCapitalMember2023-05-310000795266us-gaap:RetainedEarningsMember2023-05-310000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-05-310000795266us-gaap:RetainedEarningsMember2023-06-012023-08-310000795266us-gaap:CommonStockMember2023-06-012023-08-310000795266us-gaap:AdditionalPaidInCapitalMember2023-06-012023-08-310000795266us-gaap:TreasuryStockCommonMember2023-06-012023-08-310000795266us-gaap:CommonStockMember2023-08-310000795266us-gaap:TreasuryStockCommonMember2023-08-310000795266us-gaap:AdditionalPaidInCapitalMember2023-08-310000795266us-gaap:RetainedEarningsMember2023-08-310000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-08-310000795266us-gaap:CommonStockMember2022-05-310000795266us-gaap:TrustForBenefitOfEmployeesMember2022-05-310000795266us-gaap:TreasuryStockCommonMember2022-05-310000795266us-gaap:AdditionalPaidInCapitalMember2022-05-310000795266us-gaap:RetainedEarningsMember2022-05-310000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-05-310000795266us-gaap:RetainedEarningsMember2022-06-012022-08-310000795266us-gaap:AdditionalPaidInCapitalMember2022-06-012022-08-310000795266us-gaap:TreasuryStockCommonMember2022-06-012022-08-310000795266us-gaap:CommonStockMember2022-08-310000795266us-gaap:TrustForBenefitOfEmployeesMember2022-08-310000795266us-gaap:TreasuryStockCommonMember2022-08-310000795266us-gaap:AdditionalPaidInCapitalMember2022-08-310000795266us-gaap:RetainedEarningsMember2022-08-310000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-08-310000795266us-gaap:CommonStockMember2022-11-300000795266us-gaap:TrustForBenefitOfEmployeesMember2022-11-300000795266us-gaap:TreasuryStockCommonMember2022-11-300000795266us-gaap:AdditionalPaidInCapitalMember2022-11-300000795266us-gaap:RetainedEarningsMember2022-11-300000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-11-300000795266us-gaap:RetainedEarningsMember2022-12-012023-08-310000795266us-gaap:CommonStockMember2022-12-012023-08-310000795266us-gaap:AdditionalPaidInCapitalMember2022-12-012023-08-310000795266us-gaap:TreasuryStockCommonMember2022-12-012023-08-310000795266us-gaap:CommonStockMember2021-11-300000795266us-gaap:TrustForBenefitOfEmployeesMember2021-11-300000795266us-gaap:TreasuryStockCommonMember2021-11-300000795266us-gaap:AdditionalPaidInCapitalMember2021-11-300000795266us-gaap:RetainedEarningsMember2021-11-300000795266us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-11-300000795266us-gaap:RetainedEarningsMember2021-12-012022-08-310000795266us-gaap:TreasuryStockCommonMember2021-12-012022-08-310000795266us-gaap:AdditionalPaidInCapitalMember2021-12-012022-08-310000795266kbh:PSU2019Memberus-gaap:PerformanceSharesMember2023-02-240000795266us-gaap:HomeBuildingMemberus-gaap:PerformanceSharesMember2019-12-012022-11-300000795266kbh:SharesWithheldtoPayTaxesMember2022-12-012023-02-280000795266kbh:April2022StockRepurchaseProgramMember2022-04-070000795266kbh:April2022StockRepurchaseProgramMember2022-11-300000795266us-gaap:TreasuryStockCommonMember2022-12-012023-02-280000795266kbh:April2022StockRepurchaseProgramMember2022-12-012023-02-280000795266kbh:March2023StockRepurchaseProgramMember2023-03-210000795266kbh:April2022StockRepurchaseProgramMember2023-02-280000795266kbh:March2023StockRepurchaseProgramMemberus-gaap:TreasuryStockCommonMember2023-06-012023-08-310000795266kbh:March2023StockRepurchaseProgramMember2023-06-012023-08-310000795266kbh:March2023StockRepurchaseProgramMember2022-12-012023-08-310000795266kbh:March2023StockRepurchaseProgramMember2023-08-310000795266us-gaap:EmployeeStockOptionMember2022-12-012023-08-310000795266us-gaap:EmployeeStockOptionMember2021-12-012022-08-310000795266us-gaap:EmployeeStockOptionMember2022-06-012022-08-310000795266us-gaap:EmployeeStockOptionMember2023-06-012023-08-310000795266kbh:RestrictedStockandPerformanceUnitSharesMember2023-06-012023-08-310000795266kbh:RestrictedStockandPerformanceUnitSharesMember2022-06-012022-08-310000795266kbh:RestrictedStockandPerformanceUnitSharesMember2022-12-012023-08-310000795266kbh:RestrictedStockandPerformanceUnitSharesMember2021-12-012022-08-310000795266kbh:EquityIncentive2014AmendedAndRestatedPlanMember2023-04-200000795266kbh:EquityIncentivePlan2014Member2023-04-1900007952662023-04-190000795266kbh:EquityIncentivePlan2010Member2023-04-200000795266kbh:EquityIncentive2014AmendedAndRestatedPlanMember2022-12-012023-08-310000795266us-gaap:HomeBuildingMember2022-08-310000795266us-gaap:FinancialServiceMember2022-08-310000795266us-gaap:OtherInvesteesMember2022-12-012023-08-310000795266us-gaap:OtherInvesteesMember2021-12-012022-08-31

 

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

(Address, including zip code, and telephone number of principal executive offices) 

Securities registered pursuant to section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No  ☒

There were 79,318,673 shares of the registrant’s common stock, par value $1.00 per share, outstanding on August 31, 2023. The registrant’s grantor stock ownership trust held an additional 6,705,247 shares of the registrant’s common stock on that date.

 

Item 1.Financial Statements

(In Thousands, Except Per Share Amounts – Unaudited)

 

 

(Unaudited)

1.    Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2022, which are contained in our Annual Report on Form 10-K for that period. The consolidated balance sheet at November 30, 2022 has been taken from the audited consolidated financial statements as of that date. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of our results for the interim periods presented. The results of our consolidated operations for the three months and nine months ended August 31, 2023 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled $460.9 million at August 31, 2023 and $15.8 million at November 30, 2022. At August 31, 2023 and November 30, 2022, the majority of our cash equivalents was invested in interest-bearing bank deposit accounts.

Comprehensive Income. Our comprehensive income was $149.9 million for the three months ended August 31, 2023 and $255.3 million for the three months ended August 31, 2022. For the nine months ended August 31, 2023 and 2022, our comprehensive income was $439.9 million and $600.3 million, respectively. Our comprehensive income for each of the three-month and nine-month periods ended August 31, 2023 and 2022 was equal to our net income for the respective periods.

2.Segment Information

We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of August 31, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

Our homebuilding reporting segments are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to first-time, first move-up and active adult homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.

Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments. Our financial services reporting segment earns revenues primarily from insurance commissions and from the provision of title services.

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), our unconsolidated joint venture with GR Alliance Ventures, LLC (“GR Alliance”), a subsidiary of Guaranteed Rate, Inc. We and GR Alliance each have a 50.0% ownership interest, with GR Alliance providing management oversight of KBHS’ operations.

Our reporting segments follow the same accounting policies used for our consolidated financial statements. The results of each reporting segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our homebuilding reporting segments (in thousands):

			Three Months Ended August 31,												Nine Months Ended August 31,
			2023						2022						2023						2022
Revenues:
West Coast			$	506,802					$	829,405					$	1,611,171					$	2,249,496
Southwest			306,284						321,808						881,699						822,499
Central			506,640						443,581						1,441,805						1,231,949
Southeast			259,993						244,094						781,427						643,924
Total			$	1,579,719					$	1,838,888					$	4,716,102					$	4,947,868
Pretax income (loss):
West Coast			$	55,034					$	171,041					$	169,683					$	418,593
Southwest			46,193						77,368						147,341						177,908
Central			75,421						79,258						213,239						183,574
Southeast			38,495						40,202						110,951						99,527
Corporate and other			(30,521)						(46,265)						(96,875)						(124,188)
Total			$	184,622					$	321,604					$	544,339					$	755,414

Inventory impairment and land option contract abandonment charges:
West Coast						$	400					$	4,465					$	4,348					$	4,622
Southwest						—						432						—						596
Central						231						1,311						2,310						1,897
Southeast						—						2,256						3,549						2,256
Total						$	631					$	8,464					$	10,207					$	9,371

3.    Financial Services

The following tables present financial information relating to our financial services reporting segment (in thousands):

(a)Other assets at August 31, 2023 and November 30, 2022 included $31.4 million and $27.6 million, respectively, of contract assets for estimated future renewal commissions.

4.    Earnings Per Share

Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at August 31, 2023 or 2022.

For the three-month and nine-month periods ended August 31, 2023 and 2022, no outstanding stock options were excluded from the diluted earnings per share calculations. Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.

5.    Receivables

Receivables consisted of the following (in thousands):

6.    Inventories

Inventories consisted of the following (in thousands):

Land under development at August 31, 2023 and November 30, 2022 included land held for future development or sale of $27.4 million and $21.6 million, respectively.

Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale. Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable). In the case of land held for future development and land held for sale, applicable interest is expensed as incurred.

Our interest costs were as follows (in thousands):

(a)    Interest amortized to construction and land costs for the three months and nine months ended August 31, 2023 included nominal amounts related to land sales during the periods.

7.    Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques. We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

We evaluated four active communities or land parcels for recoverability as of August 31, 2023 with a carrying value of $66.2 million. As of November 30, 2022, we evaluated five active communities or land parcels for recoverability with a carrying value of $118.7 million. In addition, we evaluated land held for future development for recoverability as of both August 31, 2023 and November 30, 2022.

Based on the results of our evaluations, we recognized no inventory impairment charges for the three-month and nine-month periods ended August 31, 2023. For both the three-month and nine-month periods ended August 31, 2022, we recognized inventory impairment charges of $2.6 million related to a parcel of land held for sale.

As of August 31, 2023, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $80.9 million, representing six communities and various other land parcels. As of November 30, 2022, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $102.9 million, representing eight communities and various other land parcels.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of $.6 million for the three months ended August 31, 2023 and $10.2 million for the nine months ended August 31, 2023. For the three-month and nine-month periods ended August 31, 2022, we recognized land option contract abandonment charges of $5.9 million and $6.8 million, respectively.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, and in our estimations of the remaining operating lives of our inventory assets and the realization of our inventory balances, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.

8.    Variable Interest Entities

Unconsolidated Joint Ventures. We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary.

Based on our analyses, we determined that one of our joint ventures at August 31, 2023 and November 30, 2022 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at August 31, 2023 and November 30, 2022 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. Under these contracts, we typically make a specified option payment or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of August 31, 2023 and November 30, 2022, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts. We perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $19.4 million at August 31, 2023 and $33.1 million at November 30, 2022. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s). As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $2.9 million at August 31, 2023 and $5.1 million at November 30, 2022.

9.    Investments in Unconsolidated Joint Ventures

Homebuilding. We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

As of both August 31, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures. The following table presents combined condensed information from the statements of operations for our homebuilding unconsolidated joint ventures (in thousands):

The following table presents combined condensed balance sheet information for our homebuilding unconsolidated joint ventures (in thousands):

(a)    As of both August 31, 2023 and November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities. Borrowings under this line of credit, which has a maximum commitment of $62.0 million, are secured by the underlying property and related project assets. The line of credit is scheduled to mature on April 19, 2026, unless extended or terminated pursuant to its applicable terms. None of our other unconsolidated joint ventures had outstanding debt at August 31, 2023 or November 30, 2022.

We provide certain guarantees and indemnities to the lender in connection with the above-described revolving line of credit, including a guaranty of interest and carry costs; a guaranty to complete the construction of phases of the improvements for the project as such phases are commenced; a guaranty against losses suffered due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; and an indemnity from environmental issues. Except to the extent related to the foregoing guarantees and indemnities, we do not have a guaranty or any other obligation to repay borrowings under the line of credit or to support the value of the underlying collateral. However, various financial and non-financial covenants apply under the line of credit and with respect to the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations. As of the date of this report, we were in compliance with the relevant covenants. We do not believe that our existing exposure under our guaranty and indemnity obligations related to outstanding borrowings under the line of credit is material to our consolidated financial statements.

Financial Services. The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint ventures, mostly comprised of KBHS’ activities (in thousands):

Revenues are primarily generated from fees earned on mortgage loan originations, interest earned for the period loans are held by KBHS, and gains on the sales of mortgage loans held for sale. Gains on the sales of mortgage loans held for sale include the realized and unrealized gains and losses associated with changes in the fair value of such loans and any related derivative financial instruments.

The following table presents combined condensed balance sheet information for our financial services unconsolidated joint venture (in thousands):

Mortgage loans held for sale. Originated mortgage loans expected to be sold into the secondary market in the foreseeable future are reported as mortgage loans held for sale and carried in KBHS’ balance sheets at fair value, with changes in fair value recognized within revenues in KBHS’ statements of operations.

Interest Rate Lock Commitments (“IRLCs”). KBHS enters into IRLCs in connection with originating certain mortgage loans held for sale, at specified interest rates and within a specified period of time, with customers who have applied for a mortgage loan and meet certain credit and underwriting criteria. KBHS accounts for IRLCs as free-standing derivatives and does not designate any for hedge accounting. As a result, IRLCs are recognized in KBHS’ balance sheets at fair value, and gains or losses resulting from changes in fair value are recognized within revenues in KBHS’ statements of operations. The fair value of IRLCs is based on market prices, which includes an estimate of the fair value of the associated mortgage servicing rights, adjusted for estimated costs to originate the underlying mortgage loans as well as the probability that the mortgage loans will fund within the terms of the IRLCs. The fair value of IRLCs included in other assets in KBHS’ balance sheets was $20.4 million at August 31, 2023 and $29.8 million at November 30, 2022. The changes in the fair value of IRLCs, which were reported in revenues for the applicable periods, were losses of $5.2 million and $9.4 million for the three-month and nine-month periods ended August 31, 2023, respectively, and a loss of $6.3 million and a gain of $27.1 million for the three-month and nine-month periods ended August 31, 2022, respectively.

KBHS manages the interest rate and price risk associated with its outstanding IRLCs by entering into best efforts forward sale commitments under which mortgage loans locked with a borrower are simultaneously committed to a secondary market investor at a fixed price, subject to the underlying mortgage loans being funded. These best efforts forward sale commitments do not meet the definition of derivative financial instruments and are therefore not recorded in KBHS’ balance sheets. If the mortgage loans underlying the IRLCs do not fund, KBHS has no obligation to fulfill the secondary market investor commitments.

Funding facilities. KBHS maintains warehouse lines of credit and master repurchase agreements with various financial institutions to fund its originated mortgage loans, with its mortgage loans held for sale pledged as collateral under these agreements. The agreements contain covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, maximum debt to net worth ratio and positive net income, as defined in the agreements. KBHS was in compliance with these covenants as of August 31, 2023. In addition to its compliance with these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions to extend such credit facilities to KBHS to fund its originated mortgage loans. KBHS intends to renew these facilities when they expire at various dates in 2023 and 2024. The warehouse lines of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our senior notes, unsecured revolving credit facility with various banks (“Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).

10.Other Assets

Other assets consisted of the following (in thousands):

11.Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

(a)Represents liabilities for financing arrangements discussed in Note 8 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer. As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.

12.Leases

We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded in our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months. Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less. Our total lease expense for the three months ended August 31, 2023 and 2022 was $5.7 million and $5.4 million, respectively, and included short-term lease costs of $2.4 million and $2.2 million, respectively. For the nine months ended August 31, 2023 and 2022, our total lease expense was $16.5 million and $14.6 million, respectively, and included short-term lease costs of $6.3 million and $5.2 million, respectively. Variable lease costs and external sublease income for the three-month and nine-month periods ended August 31, 2023 and 2022 were immaterial.

The following table presents our lease right-of-use assets and lease liabilities (in thousands):

(a)Consists of amounts within both our homebuilding and financial services operations. The financial services amounts were nominal as of each date.

13.Income Taxes

Our income tax expense and effective tax rate for the three months ended August 31, 2023 included the favorable impact of $6.9 million of federal tax credits we recognized primarily from building energy-efficient homes and $1.9 million of excess tax benefits related to stock-based compensation, partly offset by $2.6 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the three months ended August 31, 2022 reflected the favorable impact of $15.3 million of federal tax credits we recognized primarily from building energy-efficient homes, partly offset by $2.9 million of nondeductible executive compensation expense.

For the nine months ended August 31, 2023, our income tax expense and effective tax rate included the favorable impacts of $19.4 million of federal tax credits we recognized primarily from building energy-efficient homes and $5.7 million of excess tax benefits related to stock-based compensation, partly offset by $9.2 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the nine months ended August 31, 2022 reflected the favorable impacts of $16.1 million of federal tax credits we recognized primarily from building energy-efficient homes and $2.2 million of excess tax benefits related to stock-based compensation, partly offset by $6.8 million of nondeductible executive compensation expense.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $163.1 million as of August 31, 2023 and $178.0 million as of November 30, 2022 were each partly offset by a valuation allowance of $17.1 million. The deferred tax asset valuation allowances as of August 31, 2023 and November 30, 2022 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of August 31, 2023, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax asset valuation allowance were needed for the nine months ended August 31, 2023.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

14.Notes Payable

Notes payable consisted of the following (in thousands):

			August 31, 2023						November 30, 2022
Unsecured revolving credit facility			$	—					$	150,000
Senior unsecured term loan due August 25, 2026			357,988						357,485
6.875% Senior notes due June 15, 2027			297,942						297,595
4.80% Senior notes due November 15, 2029			297,485						297,230
7.25% Senior notes due July 15, 2030			345,988						345,663
4.00% Senior notes due June 15, 2031			386,092						385,778
Mortgages and land contracts due to land sellers and other loans			4,463						4,760
Total			$	1,689,958					$	1,838,511

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $14.5 million at August 31, 2023 and $16.2 million at November 30, 2022.

Unsecured Revolving Credit Facility. We have a $1.09 billion Credit Facility that will mature on February 18, 2027. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $250.0 million for the issuance of letters of credit. Interest on amounts borrowed under the Credit Facility accrues at an adjusted term Secured Overnight Financing Rate (“SOFR”) or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR). The Credit Facility also requires the payment of a commitment fee at a per annum rate ranging from .15% to .35% of the unused commitment, based on our Leverage Ratio. Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. Our obligations to pay borrowings under the Credit Facility are guaranteed on a joint and several basis by our Guarantor Subsidiaries. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of August 31, 2023, we had no cash borrowings and $6.6 million of letters of credit outstanding under the Credit Facility. Therefore, as of August 31, 2023, we had $1.08 billion available for cash borrowings under the Credit Facility, with up to $243.4 million of that amount available for the issuance of letters of credit.

Senior Unsecured Term Loan. We have a $360.0 million Term Loan with the lenders party thereto. The Term Loan will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions). Interest under the Term Loan accrues at an adjusted term SOFR or a base rate, plus a spread that depends on our Leverage Ratio. Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR). The Term Loan contains various covenants that are substantially the same as those under the Credit Facility. Proceeds drawn under the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries. As of August 31, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.8%.

Letter of Credit Facility. We maintain an unsecured letter of credit agreement with a financial institution (“LOC Facility”) to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, we may issue up to $75.0 million of letters of credit. On August 10, 2023, we entered into an amendment to our LOC Facility that extended the expiration date from February 13, 2025 to February 18, 2027. As of August 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $13.0 million and $36.4 million, respectively.

Senior Notes. All the senior notes outstanding at August 31, 2023 and November 30, 2022 represent senior unsecured obligations that are guaranteed by our Guarantor Subsidiaries and rank equally in right of payment with all of our and our Guarantor Subsidiaries’ existing unsecured and unsubordinated indebtedness. All of our senior notes were issued in underwritten public offerings. Interest on each of these senior notes is payable semi-annually.

In the three months ended August 31, 2022, we completed the underwritten public offering of $350.0 million in aggregate principal amount of 7.25% senior notes due 2030 (“7.25% Senior Notes due 2030”) and used the net proceeds, together with cash on hand, to retire $350.0 million in aggregate principal amount of certain outstanding senior notes before their maturity date, pursuant to the optional redemption terms specified for such notes. We paid $353.6 million to redeem these notes and recorded a charge of $3.6 million for the early extinguishment of debt in the 2022 third quarter.

The indenture governing our senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale and leaseback transactions involving property above a certain specified value. In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets.

As of August 31, 2023, we were in compliance with our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of August 31, 2023, inventories having a carrying value of $33.2 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

Shelf Registration. On July 10, 2023, we filed an automatically effective universal shelf registration statement (“2023 Shelf Registration”) with the SEC. The 2023 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity. The 2023 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 9, 2020. We have not made any offerings of securities under the 2023 Shelf Registration.

As of August 31, 2023, principal payments on our notes payable are due during each year ending November 30 as follows: 2023 – $1.1 million; 2024 – $2.9 million; 2025 – $.5 million; 2026 – $360.0 million; 2027 – $300.0 million and thereafter – $1.04 billion.

15.Fair Value Disclosures

Fair value measurements of assets and liabilities are categorized based on the following hierarchy:

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the nine months ended August 31, 2023 and the year ended November 30, 2022 (in thousands): 

(a)Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date that the fair value measurements were made. The carrying value for these real estate

assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

The fair values for inventories that were determined using Level 3 inputs were primarily based on the estimated future net cash flows discounted for inherent risk associated with each underlying asset.

The following table presents the fair value hierarchy, carrying values and estimated fair values of our financial instruments, except those for which the carrying values approximate fair values (in thousands):

(a)The carrying values for the senior notes, as presented, include unamortized debt issuance costs. Debt issuance costs are not factored into the estimated fair values of these notes.

The fair values of our senior notes are generally estimated based on quoted market prices for these instruments. The carrying values reported for cash and cash equivalents, outstanding borrowings under the Credit Facility and the Term Loan, and mortgages and land contracts due to land sellers and other loans approximate fair values. The carrying value of corporate-owned life insurance is based on the cash surrender value of the policies and, accordingly, approximates fair value.

16.Commitments and Contingencies

Commitments and contingencies include typical obligations of homebuilders for the completion of contracts and those incurred in the ordinary course of business.

Warranty. We provide a limited warranty on all of our homes. The specific terms and conditions of our limited warranty program vary depending upon the markets in which we do business. We generally provide a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and certain other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of the home. Our limited warranty program is ordinarily how we respond to and account for homeowners’ requests to local division offices seeking repairs of certain conditions or defects, including claims where we could have liability under applicable state statutes or tort law for a defective condition in or damages to a home. Our warranty liability covers our costs of repairs associated with homeowner claims made under our limited warranty program. These claims are generally made directly by a homeowner and involve their individual home.

We estimate the costs that may be incurred under each limited warranty and record a liability in the amount of such costs at the time the revenue associated with the sale of each home is recognized. Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience. Factors that affect our warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our accrued warranty liability, which is included in accrued expenses and other liabilities in our consolidated balance sheets, and adjust the amount as necessary based on our assessment. Our assessment includes the review of our actual warranty costs incurred to identify trends and changes in our warranty claims experience, and considers our home construction quality and customer service initiatives and outside events. While we believe the warranty liability currently reflected in our consolidated balance sheets to be adequate, unanticipated changes or developments in the legal environment, local weather, land or environmental conditions, quality of materials or methods used in the construction of homes or customer service practices and/or our warranty claims experience could have a significant impact on our actual warranty costs in future periods and such amounts could differ significantly from our current estimates.

The changes in our warranty liability were as follows (in thousands):

Guarantees. In the normal course of our business, we issue certain representations, warranties and guarantees related to our home sales and land sales. Based on historical experience, we do not believe any potential liability with respect to these representations, warranties or guarantees would be material to our consolidated financial statements.

Self-Insurance. We maintain, and require the majority of our independent contractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. We also maintain certain other insurance policies. Costs associated with our self-insurance programs are included in selling, general and administrative expenses. In Arizona, California, Colorado and Nevada, our contractors’ general liability insurance primarily takes the form of a wrap-up policy under a program where eligible independent contractors are enrolled as insureds on each community. Enrolled contractors generally contribute toward the cost of the insurance and agree to pay a contractual amount in the future if there is a claim related to their work. To the extent provided under the wrap-up program, we absorb the enrolled contractors’ general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self-insurance.

We self-insure a portion of our overall risk through the use of a captive insurance subsidiary, which provides coverage for our exposure to construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to certain limits. Our self-insurance liability generally covers the costs of settlements and/or repairs, if any, as well as our costs to defend and resolve the following types of claims:

•Construction defect: Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting two or more homes within the same community, or they involve a common area or homeowners’ association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.

•Bodily injury: Bodily injury claims typically involve individuals (other than our employees) who claim they were injured while on our property or as a result of our operations.

•Property damage: Property damage claims generally involve claims by third parties for alleged damage to real or personal property as a result of our operations. Such claims may occasionally include those made against us by owners of property located near our communities.

Our self-insurance liability at each reporting date represents the estimated costs of reported claims, claims incurred but not yet reported, and claim adjustment expenses. The amount of our self-insurance liability is based on an analysis performed by a third-party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of products we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. In addition, changes in the frequency and severity of reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Though state regulations vary, construction defect claims are reported and resolved over a long period of time, which can extend for 10 years or more. As a result, the majority of the estimated self-insurance liability based on the actuarial analysis relates to claims incurred but not yet reported. Therefore, adjustments related to individual existing claims generally do not significantly impact the overall estimated liability. Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs.

Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other recoveries of $31.6 million and $32.7 million are included in receivables in our consolidated balance sheets at August 31, 2023 and November 30, 2022, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.

The changes in our self-insurance liability were as follows (in thousands):

(a)Represents net changes in estimated probable recoveries related to self-insurance, which are recorded in receivables, to present our self-insurance liability on a gross basis.

For most of our claims, there is no interaction between our warranty liability and self-insurance liability. Typically, if a matter is identified at its outset as either a warranty or self-insurance claim, it remains as such through its resolution. However, there can be instances of interaction between the liabilities, such as where individual homeowners in a community separately request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken. In these instances, the claims and related repair work generally are initially covered by our warranty liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

The payments we make in connection with claims and related repair work, whether covered within our warranty liability and/or our self-insurance liability, may be recovered from our insurers to the extent such payments exceed the self-insured retentions or deductibles under our general liability insurance policies. Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of and/or on behalf of an independent contractor(s) or their insurer(s) and believe we will be reimbursed for such payments. Estimates of all such amounts, if any, are recorded as receivables in our consolidated balance sheets when any such recovery is considered probable.

Florida Chapter 558 Actions. We and certain of our trade partners continue to receive claims from attorneys on behalf of individual owners of our homes and/or homeowners’ associations that allege, pursuant to Chapter 558 of the Florida Statutes, various construction defects, with most relating to stucco and water-intrusion issues. The claims primarily involve homes in our Jacksonville, Orlando, and Tampa operations. Under Chapter 558, homeowners must serve written notice of a construction defect(s) and provide the served construction and/or design contractor(s) with an opportunity to respond to the noticed issue(s) before they can file a lawsuit. Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable trade partners or their insurers covering the related costs, as of August 31, 2023, we had approximately 485 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond. In addition, some of our trade partners’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs. At August 31, 2023, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries. While it is reasonably possible that our loss could exceed the amount accrued and our recoveries could be less than the amount recorded, at this time, we are unable to estimate the total amount of the loss in excess of the accrued amount and/or associated with a shortfall in the recoveries that is reasonably possible. In addition, although we believe it is probable we will receive additional claims in future periods, we are unable to reasonably estimate the number of such claims or the amount or range of any potential losses associated with such claims as each of these is dependent on several factors, including the actions of third parties over which we have no control; the nature of any specific claims; and our evaluation of the particular facts surrounding each such claim.

Performance Bonds and Letters of Credit. We are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. At August 31, 2023, we had $1.32 billion of performance bonds and $19.7 million of letters of credit outstanding. At November 30, 2022, we had $1.27 billion of performance bonds and $43.0 million of letters of credit outstanding. If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed. The expiration dates of some letters of credit issued in connection with community improvements coincide with the expected completion dates of the related projects or obligations. Most letters of credit, however, are issued with an initial term of one year and are typically extended on a year-to-year basis until the related performance obligations are completed.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes. At August 31, 2023, we had total cash deposits of $39.2 million to purchase land having an aggregate purchase price of $1.20 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

17.Legal Matters

We are involved in litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of August 31, 2023, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (b) the advice and analyses of counsel; and (c) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. Our accruals for litigation and regulatory proceedings are presented on a gross basis without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimates of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable. Based on our experience, we believe the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if an accrual had not been made, could be material to our consolidated financial statements. Pursuant to SEC rules, we will disclose any proceeding in which a governmental authority is a party and that arises under any federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment only where we believe that such proceeding will result in monetary sanctions on us, exclusive of interest and costs, above $1.0 million or is otherwise material to our consolidated financial statements.

18.Stockholders’ Equity

A summary of changes in stockholders’ equity is presented below (in thousands):

			Three Months Ended August 31, 2023 and 2022
			Number of Shares
			Common Stock						Grantor Stock Ownership Trust						Treasury Stock						Common Stock						Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Grantor Stock Ownership Trust						Treasury Stock						Total Stockholders’ Equity
Balance at May 31, 2023			101,019						(6,705)						(13,704)						$	101,019					$	830,765					$	3,407,813					$	(5,575)					$	(72,718)					$	(494,822)					$	3,766,482
Net income			—						—						—						—						—						149,933						—						—						—						149,933
Dividends on common stock			—						—						—						—						—						(15,928)						—						—						—						(15,928)
Employee stock options/other			240						—						—						240						3,358						—						—						—						—						3,598
Stock-based compensation			—						—						—						—						9,248						—						—						—						—						9,248
Stock repurchases			—						—						(1,531)						—						—						—						—						—						(83,205)						(83,205)
Balance at August 31, 2023			101,259						(6,705)						(15,235)						$	101,259					$	843,371					$	3,541,818					$	(5,575)					$	(72,718)					$	(578,027)					$	3,830,128
Balance at May 31, 2022			100,711						(6,705)						(6,840)						$	100,711					$	834,883					$	2,697,149					$	(19,119)					$	(72,718)					$	(249,911)					$	3,290,995
Net income			—						—						—						—						—						255,329						—						—						—						255,329
Dividends on common stock			—						—						—						—						—						(12,772)						—						—						—						(12,772)
Stock-based compensation			—						—						—						—						7,056						—						—						—						—						7,056
Stock repurchases			—						—						(1,582)						—						—						—						—						—						(50,000)						(50,000)
Balance at August 31, 2022			100,711						(6,705)						(8,422)						$	100,711					$	841,939					$	2,939,706					$	(19,119)					$	(72,718)					$	(299,911)					$	3,490,608
			Nine Months Ended August 31, 2023 and 2022
			Number of Shares
			Common Stock						Grantor Stock Ownership Trust						Treasury Stock						Common Stock						Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Grantor Stock Ownership Trust						Treasury Stock						Total Stockholders’ Equity
Balance at November 30, 2022			100,711						(6,705)						(10,016)						$	100,711					$	836,260					$	3,143,578					$	(5,575)					$	(72,718)					$	(341,461)					$	3,660,795
Net income			—						—						—						—						—						439,875						—						—						—						439,875
Dividends on common stock			—						—						—						—						—						(41,635)						—						—						—						(41,635)
Employee stock options/other			548						—						—						548						8,060						—						—						—						—						8,608
Stock awards			—						—						717						—						(24,883)						—						—						—						24,883						—
Stock-based compensation			—						—						—						—						23,934						—						—						—						—						23,934
Stock repurchases			—						—						(5,659)						—						—						—						—						—						(251,701)						(251,701)
Tax payments associated with stock-based compensation awards			—						—						(277)						—						—						—						—						—						(9,748)						(9,748)
Balance at August 31, 2023			101,259						(6,705)						(15,235)						$	101,259					$	843,371					$	3,541,818					$	(5,575)					$	(72,718)					$	(578,027)					$	3,830,128
Balance at November 30, 2021			100,711						(6,705)						(5,785)						$	100,711					$	848,620					$	2,379,364					$	(19,119)					$	(72,718)					$	(217,383)					$	3,019,475
Net income			—						—						—						—						—						600,256						—						—						—						600,256
Dividends on common stock			—						—						—						—						—						(39,914)						—						—						—						(39,914)
Stock awards			—						—						785						—						(29,625)						—						—						—						29,625						—
Stock-based compensation			—						—						—						—						22,944						—						—						—						—						22,944
Stock repurchases			—						—						(3,102)						—						—						—						—						—						(100,000)						(100,000)
Tax payments associated with stock-based compensation awards			—						—						(320)						—						—						—						—						—						(12,153)						(12,153)
Balance at August 31, 2022			100,711						(6,705)						(8,422)						$	100,711					$	841,939					$	2,939,706					$	(19,119)					$	(72,718)					$	(299,911)					$	3,490,608

    

On February 24, 2023, the management development and compensation committee of our board of directors approved the payout of 602,265 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October 3, 2019. The shares paid out under the PSUs reflected our achievement of certain performance measures that were based on cumulative earnings per share, average return on invested capital, and revenue growth relative to a peer group of high-production public homebuilding companies over the three-year period from December 1, 2019 through November 30, 2022. Of the shares of common stock paid out, 276,853 shares, or $9.7 million, were purchased by us in the 2023 first quarter to satisfy the recipients’ withholding taxes on the vesting of the PSUs. The shares purchased were not considered repurchases under the authorizations described below.

On April 7, 2022, our board of directors authorized us to repurchase up to $300.0 million of our outstanding common stock, excluding excise tax. As of November 30, 2022, there was $150.0 million of remaining availability under this share repurchase authorization, excluding excise tax. In the 2023 first quarter, we repurchased 1,965,442 shares of our common stock on the open market pursuant to this authorization at a total cost of approximately $75.0 million, excluding excise tax. On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, excluding excise tax. This authorization replaced the prior board of directors authorization, which had $75.0 million remaining, excluding excise tax. In the 2023 third quarter, we repurchased 1,531,318 shares of our common stock at a total cost of approximately $82.5 million, excluding excise tax, bringing our total repurchases for the nine months ended August 31, 2023 to 5,659,642 shares of common stock at a total cost of approximately $249.6 million, excluding excise tax. Repurchases under the current authorization may occur periodically through open market purchases, privately negotiated transactions or otherwise, with the timing and amount at management’s discretion and dependent on market, business and other conditions. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors, and does not obligate us to purchase any shares. As of August 31, 2023, we were authorized to repurchase up to approximately $325.4 million of our outstanding common stock in additional transactions, excluding excise tax.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. In the nine months ended August 31, 2023, we reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accrued expenses and other liabilities on our consolidated balance sheet.

In the 2023 third quarter, our board of directors approved a $.05 per share increase in the quarterly cash dividend on our common stock to $.20 per share and declared, and we paid, a quarterly cash dividend at the new higher rate. In the 2022 third quarter, our board of directors declared, and we paid a quarterly cash dividend on our common stock of $.15 per share. Quarterly cash dividends declared and paid during the nine-month periods ended August 31, 2023 and 2022 totaled $.50 per share and $.45 per share, respectively.

19.Stock-Based Compensation

Stock Options. At August 31, 2023 and November 30, 2022, we had 1,126,217 and 1,674,393 stock options outstanding with a weighted average exercise price of $15.49 and $15.56, respectively. We have not granted any stock option awards since 2016. During the nine months ended August 31, 2023, a total of 548,176 stock options with a weighted average exercise price of $15.70 were exercised. As of August 31, 2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 2.5 years. As all outstanding stock options have been fully vested since 2019, there was no stock-based compensation expense associated with stock options for the three-month and nine-month periods ended August 31, 2023 and 2022. Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $39.8 million at August 31, 2023. (The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)

Other Stock-Based Awards. From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit. We recognized total compensation expense of $9.2 million and $7.0 million for the three months ended August 31, 2023 and 2022, respectively, related to restricted stock and PSUs. For the nine months ended August 31, 2023 and 2022, we recognized total compensation expense of $23.9 million and $22.9 million, respectively.

Approval of the Amended and Restated KB Home 2014 Equity Incentive Plan. At our Annual Meeting of Stockholders held on April 20, 2023, our stockholders approved the Amended and Restated KB Home 2014 Equity Incentive Plan (“Amended and Restated 2014 Plan”), confirming, among other things, an aggregate share grant capacity for stock-based awards to our employees, non-employee directors and consultants of 18,200,000 shares through approving and incorporating the base amount of 12,300,000 shares under the predecessor Amended KB Home 2014 Equity Incentive Plan and adding 5,900,000 shares, plus any shares subject to outstanding awards under our 2010 Equity Incentive Plan (“2010 Plan”) that subsequently expire or are cancelled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash. With no other shares available for grant under the 2010 Plan, the Amended and Restated 2014 Plan is our only active equity compensation plan. As with the Amended KB Home 2014 Equity Incentive Plan, under the Amended and Restated 2014 Plan, grants of stock options and other similar awards reduce the share grant capacity on a 1-for-1 basis, and grants of restricted stock and other similar “full value” awards reduce the share grant capacity on a 1.78-for-1 basis. The Amended and Restated 2014 Plan provides stock options and SARs may be awarded for periods of up to 10 years, and enables us to grant other stock-based awards and cash bonuses. As of the date of this report, no grants have been made under the Amended and Restated 2014 Plan following the date of its approval by our stockholders.

20.Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revenues are generated from our homebuilding and financial services operations. The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):