What changed in this filing

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Item 1. Financial Statements

2023-07-07 compared with 2023-04-07 · 152 added, 111 removed, 585 unchanged (31% of the section changed)

2 unchanged sentences

(In Thousands, Except Per Share Amounts – Unaudited)

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Total revenues $ 1,765,316 $ 1,720,062 $ 3,149,630 $ 3,118,851

5 unchanged sentences

Interest income 1,729 39 2,196 75

Equity in income (loss) of unconsolidated joint ventures ( 757 ) 23

Equity in loss of unconsolidated joint ventures ( 313 ) ( 310 ) ( 1,070 ) ( 287 )

Homebuilding pretax income 203,518 264,189 359,717 433,810

2 unchanged sentences

Expenses ( 1,472 ) ( 1,362 ) ( 2,830 ) ( 2,709 )

Equity in income of unconsolidated joint venture 1,582 5,148

Equity in income of unconsolidated joint ventures 5,426 14,807 7,008 19,955

Financial services pretax income 11,424 18,681 17,425 27,117

38 unchanged sentences

Stockholders’ equity:

Common stock — 100,783,133 and 100,711,153 shares issued at February 28, 2023 and November 30, 2022, respectively

Common stock — 101,019,249 and 100,711,153 shares issued at May 31, 2023 and November 30, 2022, respectively

101,019 100,711

5 unchanged sentences

Grantor stock ownership trust, at cost:

6,705,247 shares at February 28, 2023 and November 30, 2022

6,705,247 shares at May 31, 2023 and November 30, 2022

( 72,718 ) ( 72,718 )

Treasury stock, at cost:

11,586,694 and 10,015,507 at February 28, 2023 and November 30, 2022, respectively

13,704,091 and 10,015,507 at May 31, 2023 and November 30, 2022, respectively

( 494,822 ) ( 341,461 )

5 unchanged sentences

(In Thousands – Unaudited)

Three Months Ended February 28,

Six Months Ended May 31,

Cash flows from operating activities:

$ 289,942 $ 344,927

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Equity in income of unconsolidated joint ventures ( 5,938 ) ( 19,668 )

2 unchanged sentences

Depreciation and amortization

17,760 15,534

Deferred income taxes

10,600 11,500

Stock-based compensation

14,686 15,888

Inventory impairments and land option contract abandonments

28 unchanged sentences

Net cash provided by (used in) financing activities ( 350,534 ) 306,500

Net decrease in cash and cash equivalents ( 69,371 ) ( 49,399 )

Net increase (decrease) in cash and cash equivalents 227,259 ( 45,555 )

Cash and cash equivalents at beginning of period 330,198 292,136

10 unchanged sentences

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 ended February 28, 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.

The results of our consolidated operations for the three months and six months ended May 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.

4 unchanged sentences

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 $ 51.3 million at February 28, 2023 and $ 15.8 million at November 30, 2022.

At February 28, 2023 and November 30, 2022, the majority of our cash equivalents was invested in interest-bearing bank deposit accounts.

Our cash equivalents totaled $ 372.6 million at May 31, 2023 and $ 15.8 million at November 30, 2022.

At May 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 $ 125.5 million for the three months ended February 28, 2023 and $ 134.3 million for the three months ended February 28, 2022.

Our comprehensive income for each of the three-month periods ended February 28, 2023 and 2022 was equal to our net income for the respective periods.

Our comprehensive income was $ 164.4 million for the three months ended May 31, 2023 and $ 210.7 million for the three months ended May 31, 2022.

For the six months ended May 31, 2023 and 2022, our comprehensive income was $ 289.9 million and $ 344.9 million, respectively.

Our comprehensive income for each of the three-month and six-month periods ended May 31, 2023 and 2022 was equal to our net income for the respective periods.

Segment Information

We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment.

As of February 28, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

As of May 31, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

California, Idaho and Washington

8 unchanged sentences

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”).

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.

2 unchanged sentences

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

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

West Coast $ 564,350 $ 761,217 $ 1,104,369 $ 1,420,091

25 unchanged sentences

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

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Insurance commissions $ 4,010 $ 2,596 $ 7,384 $ 5,114

Title services 3,460 2,637 5,863 4,738

Other — 3 — 19

Total 7,470 5,236 13,247 9,871

1 unchanged sentence

Operating income 5,998 3,874 10,417 7,162

Equity in income of unconsolidated joint venture 1,582 5,148

Equity in income of unconsolidated joint ventures 5,426 14,807 7,008 19,955

Pretax income $ 11,424 $ 18,681 $ 17,425 $ 27,117

7 unchanged sentences

Total liabilities $ 1,203 $ 3,128

(a) Other assets at February 28, 2023 and November 30, 2022 included $ 28.9 million and $ 27.6 million, respectively, of contract assets for estimated future renewal commissions.

(a) Other assets at May 31, 2023 and November 30, 2022 included $ 30.2 million and $ 27.6 million, respectively, of contract assets for estimated future renewal commissions.

Earnings Per Share

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

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Net income $ 164,442 $ 210,670 $ 289,942 $ 344,927

6 unchanged sentences

Numerator for diluted earnings per share $ 163,266 $ 209,675 $ 287,955 $ 343,303

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Weighted average shares outstanding — basic 81,764 87,858 82,607 88,069

6 unchanged sentences

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 February 28, 2023 or 2022.

For the three-month periods ended February 28, 2023 and 2022, no outstanding stock options were excluded from the diluted earnings per share calculations.

We had no other participating securities at May 31, 2023 or 2022.

For the three-month and six-month periods ended May 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.

13 unchanged sentences

Total $ 5,128,841 $ 5,543,176

Land under development at February 28, 2023 and November 30, 2022 included land held for future development or sale of $ 25.3 million and $ 21.6 million, respectively.

Land under development at May 31, 2023 and November 30, 2022 included land held for future development or sale of $ 25.8 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).

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):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Capitalized interest at beginning of period $ 147,162 $ 159,649 $ 145,494 $ 161,119

9 unchanged sentences

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 February 28, 2023 with a carrying value of $ 72.0 million.

We evaluated one active community for recoverability as of May 31, 2023 with a carrying value of $ 15.9 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 February 28, 2023 and November 30, 2022.

Based on the results of our evaluations, we recognized no inventory impairment charges for the three months ended February 28, 2023 and 2022.

As of February 28, 2023, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 91.9 million, representing seven communities and various other land parcels.

In addition, we evaluated land held for future development for recoverability as of both May 31, 2023 and November 30, 2022.

Based on the results of our evaluations, we recognized no inventory impairment charges for the three-month and six-month periods ended May 31, 2023 and 2022.

As of May 31, 2023, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 76.9 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.

1 unchanged sentence

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 $ 5.3 million for the three months ended February 28, 2023 and $.2 million for the three months ended February 28, 2022.

Based on the results of our assessments, we recognized land option contract abandonment charges of $ 4.3 million for the three months ended May 31, 2023 and $ 9.6 million for the six months ended May 31, 2023.

For the three-month and six-month periods ended May 31, 2022, we recognized land option contract abandonment charges of $.7 million and $.9 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.

4 unchanged sentences

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 February 28, 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 February 28, 2023 and November 30, 2022 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Based on our analyses, we determined that one of our joint ventures at May 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 May 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.

3 unchanged sentences

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 February 28, 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.

As a result of our analyses, we determined that as of May 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):

February 28, 2023 November 30, 2022

May 31, 2023 November 30, 2022

Deposits Aggregate

6 unchanged sentences

$ 36,267 $ 994,045 $ 51,850 $ 1,164,932

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 $ 30.4 million at February 28, 2023 and $ 33.1 million at November 30, 2022.

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 $ 30.1 million at May 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.

2 unchanged sentences

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 $ 10.7 million at February 28, 2023 and $ 5.1 million at November 30, 2022.

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 $ 9.3 million at May 31, 2023 and $ 5.1 million at November 30, 2022.

Investments in Unconsolidated Joint Ventures

3 unchanged sentences

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 February 28, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures.

As of both May 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):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Revenues $ 1,171 $ 1,108 $ 1,171 $ 3,958

1 unchanged sentence

Other expense, net ( 960 ) ( 918 ) ( 2,410 ) ( 1,348 )

Income (loss) $ ( 1,453 ) $ 121

Loss $ ( 472 ) $ ( 582 ) $ ( 1,925 ) $ ( 461 )

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

8 unchanged sentences

Total liabilities and equity $ 155,553 $ 132,558

(a) As of both February 28, 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.

(a) As of both May 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 February 28, 2023 or November 30, 2022.

None of our other unconsolidated joint ventures had outstanding debt at May 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;

7 unchanged sentences

Financial Services.

The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint venture (in thousands):

Three Months Ended February 28,

The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint ventures (in thousands):

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Revenues $ 28,450 $ 50,224 $ 48,640 $ 80,200

21 unchanged sentences

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 $ 28.3 million at February 28, 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 $ 1.5 million for the three months ended February 28, 2023 and gains of $ 7.6 million for the three months ended February 28, 2022.

The fair value of IRLCs included in other assets in KBHS’ balance sheets was $ 25.6 million at May 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 $ 2.7 million and $ 4.2 million for the three-month and six-month periods ended May 31, 2023, respectively, and gains of $ 25.8 million and $ 33.4 million for the three-month and six-month periods ended May 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.

4 unchanged sentences

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 February 28, 2023.

KBHS was in compliance with these covenants as of May 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.

15 unchanged sentences

Customer deposits 67,006 76,738

Federal and state taxes payable 34,963 3,671

Accrued interest payable 28,891 29,989

Lease liabilities 26,787 27,494

Inventory-related obligations (a) 21,461 19,136

Accrued interest payable 17,391 29,989

Federal and state taxes payable 15,449 3,671

Real estate and business taxes 11,125 17,557

8 unchanged sentences

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 February 28, 2023 and 2022 was $ 5.2 million and $ 4.3 million, respectively , and included short-term lease costs of $ 1.7 million and $ 1.2 million, respectively.

Variable lease costs and external sublease income for the three-month periods ended February 28, 2023 and 2022 were immaterial.

Our total lease expense for the three months ended May 31, 2023 and 2022 was $ 5.6 million and $ 4.9 million, respectively , and included short-term lease costs of $ 2.2 million and $ 1.8 million, respectively.

For the six months ended May 31, 2023 and 2022, our total lease expense was $ 10.8 million and $ 9.2 million, respectively, and included short-term lease costs of $ 3.9 million and $ 3.0 million, respectively.

Variable lease costs and external sublease income for the three-month and six-month periods ended May 31, 2023 and 2022 were immaterial.

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

6 unchanged sentences

Our income tax expense and effective tax rates were as follows (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Income tax expense $ 50,500 $ 72,200 $ 87,200 $ 116,000

1 unchanged sentence

23.5 % 25.5 % 23.1 % 25.2 %

Our income tax expense and effective tax rate for the three months ended February 28, 2023 included the favorable impact of $ 5.7 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 2.7 million of excess tax benefits related to stock-based compensation, partly offset by $ 3.1 million of nondeductible executive compensation expense.

Our income tax expense and effective tax rate for the three months ended February 28, 2022 reflected the favorable impacts of $ 2.2 million of excess tax benefits related to stock-based compensation and $.2 million of federal tax credits we recognized primarily from building energy-efficient homes, partly offset by $ 1.7 million of nondeductible executive compensation expense.

Our income tax expense and effective tax rate for the three months ended May 31, 2023 included the favorable impact of $ 6.8 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 1.1 million of excess tax benefits related to stock-based compensation, partly offset by $ 3.5 million of nondeductible executive compensation expense.

Our income tax expense and effective tax rate for the three months ended May 31, 2022 reflected the favorable impact of $.6 million of federal tax credits we recognized primarily from building energy-efficient homes, which was more than offset by $ 2.2 million of nondeductible executive compensation expense.

For the six months ended May 31, 2023, our income tax expense and effective tax rate included the favorable impacts of $ 12.5 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 3.8 million of excess tax benefits related to stock-based compensation, partly offset by $ 6.6 million of nondeductible executive compensation expense.

Our income tax expense and effective tax rate for the six months ended May 31, 2022 reflected the favorable impacts of $ 2.2 million of excess tax benefits related to stock-based compensation and $.8 million of federal tax credits we recognized primarily from building energy-efficient homes, which were more than offset by $ 3.9 million of nondeductible executive compensation expense.

Deferred Tax Asset Valuation Allowance.

3 unchanged sentences

The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $ 173.0 million as of February 28, 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 February 28, 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 February 28, 2023, we determined that most of our deferred tax assets would be realized.

Therefore, no adjustments to our deferred tax valuation allowance were needed for the three months ended February 28, 2023.

Our deferred tax assets of $ 167.4 million as of May 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 May 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 May 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 six months ended May 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.

17 unchanged sentences

$ 1,686,663 $ 1,838,511

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $ 15.7 million at February 28, 2023 and $ 16.2 million at November 30, 2022.

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $ 15.1 million at May 31, 2023 and $ 16.2 million at November 30, 2022.

Unsecured Revolving Credit Facility.

8 unchanged sentences

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 February 28, 2023, we had $ 100.0 million of cash borrowings and $ 6.6 million of letters of credit outstanding under the Credit Facility.

Therefore, as of February 28, 2023, we had $ 983.4 million 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.

As of February 28, 2023, the weighted average annual interest rate on our outstanding borrowings under the Credit Facility was 5.9 %.

As of May 31, 2023, we had no cash borrowings and $ 6.6 million of letters of credit outstanding under the Credit Facility.

Therefore, as of May 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.

5 unchanged sentences

Proceeds drawn under the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries.

As of February 28, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.1 %.

As of May 31, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.4 %.

Letter of Credit Facility.

1 unchanged sentence

Under the LOC Facility, which expires on February 13, 2025 , we may issue up to $ 75.0 million of letters of credit.

As of February 28, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $ 23.1 million and $ 36.4 million, respectively.

As of May 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $ 14.5 million and $ 36.4 million, respectively.

Senior Notes.

All the senior notes outstanding at February 28, 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 the senior notes outstanding at May 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.

3 unchanged sentences

In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets.

As of February 28, 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.

As of May 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.

1 unchanged sentence

Mortgages and Land Contracts Due to Land Sellers and Other Loans.

As of February 28, 2023, inventories having a carrying value of $ 28.4 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

As of February 28, 2023, principal payments on our notes payable are due during each year ending November 30 as follows:

As of May 31, 2023, inventories having a carrying value of $ 23.6 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

As of May 31, 2023, principal payments on our notes payable are due during each year ending November 30 as follows:

2023 – $.4 million;

3 unchanged sentences

2027 – $ 300.0 million and thereafter – $ 1.04 billion.

Borrowings under the Credit Facility are reflected as principal payments due in 2027, corresponding to the Credit Facility’s maturity date.

Fair Value Disclosures

4 unchanged sentences

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 (in thousands):

February 28, 2023 November 30, 2022

The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the six months ended May 31, 2023 and the year ended November 30, 2022 (in thousands):

May 31, 2023 November 30, 2022

Description Fair Value Hierarchy Pre-Impairment Value Inventory Impairment Charges Fair Value (a) Pre-Impairment Value Inventory Impairment Charges Fair Value (a)

4 unchanged sentences

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):

February 28, 2023 November 30, 2022

May 31, 2023 November 30, 2022

Description Fair Value

25 unchanged sentences

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

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Balance at beginning of period $ 101,238 $ 97,466 $ 101,890 $ 96,153

35 unchanged sentences

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 $ 31.5 million and $ 32.7 million are included in receivables in our consolidated balance sheets at February 28, 2023 and November 30, 2022, respectively.

Estimated probable insurance and other recoveries of $ 30.3 million and $ 32.7 million are included in receivables in our consolidated balance sheets at May 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.

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

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Balance at beginning of period $ 171,269 $ 190,594 $ 175,977 $ 189,131

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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.

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.

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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 February 28, 2023, we had approximately 480 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond.

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 May 31, 2023, we had approximately 465 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 February 28, 2023, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries.

At May 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.

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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 February 28, 2023, we had $ 1.30 billion of performance bonds and $ 29.8 million of letters of credit outstanding.

At May 31, 2023, we had $ 1.34 billion of performance bonds and $ 21.2 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.

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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.

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 February 28, 2023, we had total cash deposits of $ 41.5 million to purchase land having an aggregate purchase price of $ 1.05 billion.

At May 31, 2023, we had total cash deposits of $ 36.3 million to purchase land having an aggregate purchase price of $ 994.0 million.

Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

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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 February 28, 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 believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of May 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;

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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.

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.

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

Three Months Ended February 28, 2023 and 2022

Three Months Ended May 31, 2023 and 2022

Number of Shares

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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

Balance at February 28, 2023 100,783 ( 6,705 ) ( 11,587 ) $ 100,783 $ 819,904 $ 3,256,602 $ ( 5,575 ) $ ( 72,718 ) $ ( 403,533 ) $ 3,695,463

Net income — — — — — 164,442 — — — 164,442

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Stock repurchases — — ( 2,163 ) — — — — — ( 92,887 ) ( 92,887 )

Tax payments associated with stock-based compensation awards

— — ( 277 ) — — — — — ( 9,748 ) ( 9,748 )

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

Balance at February 28, 2022 100,711 ( 6,705 ) ( 5,384 ) $ 100,711 $ 828,238 $ 2,499,491 $ ( 19,119 ) $ ( 72,718 ) $ ( 202,287 ) $ 3,134,316

Net income — — — — — 210,670 — — — 210,670

Dividends on common stock — — — — — ( 13,012 ) — — — ( 13,012 )

Stock awards — — 64 — ( 2,376 ) — — — 2,376 —

Stock-based compensation — — — — 9,021 — — — — 9,021

Stock repurchases — — ( 1,520 ) — — — — — ( 50,000 ) ( 50,000 )

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

Six Months Ended May 31, 2023 and 2022

Number of Shares

Stock Grantor

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

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Dividends on common stock — — — — — ( 25,707 ) — — — ( 25,707 )

Employee stock options/other 308 — — 308 4,702 — — — — 5,010

Stock awards — — 717 — ( 24,883 ) — — — 24,883 —

Stock-based compensation — — — — 14,686 — — — — 14,686

Stock repurchases — — ( 4,128 ) — — — — — ( 168,496 ) ( 168,496 )

Tax payments associated with stock-based compensation awards — — ( 277 ) — — — — — ( 9,748 ) ( 9,748 )

Balance at February 28, 2022 100,711 ( 6,705 ) ( 5,384 ) $ 100,711 $ 828,238 $ 2,499,491 $ ( 19,119 ) $ ( 72,718 ) $ ( 202,287 ) $ 3,134,316

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

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 — — — — — 344,927 — — — 344,927

Dividends on common stock — — — — — ( 27,142 ) — — — ( 27,142 )

Stock awards — — 785 — ( 29,625 ) — — — 29,625 —

Stock-based compensation — — — — 15,888 — — — — 15,888

Stock repurchases — — ( 1,520 ) — — — — — ( 50,000 ) ( 50,000 )

Tax payments associated with stock-based compensation awards — — ( 320 ) — — — — — ( 12,153 ) ( 12,153 )

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

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.

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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.

Repurchases under the 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 February 28, 2023, we were authorized to repurchase up to $ 75.0 million of our outstanding common stock in additional transactions, 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 second quarter, we repurchased 2,162,882 shares of our common stock at a total cost of approximately $ 92.1 million, excluding excise tax, bringing our total repurchases for the six months ended May 31, 2023 to 4,128,324 shares of common stock at a total cost of approximately $ 167.1 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 May 31, 2023, we were authorized to repurchase up to approximately $ 407.9 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 2023 first quarter, 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 three-month periods ended February 28, 2023 and 2022, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

In the 2023 first half, 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 three-month periods ended May 31, 2023 and 2022, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

Quarterly dividends declared and paid during the six-month periods ended May 31, 2023 and 2022 totaled $ .30 per share.

Stock-Based Compensation

Stock Options.

At February 28, 2023 and November 30, 2022, we had 1,602,413 and 1,674,393 stock options outstanding with a weighted average exercise price of $ 15.55 and $ 15.56 , respectively.

At May 31, 2023 and November 30, 2022, we had 1,366,297 and 1,674,393 stock options outstanding with a weighted average exercise price of $ 15.40 and $ 15.56 , respectively.

We have not granted any stock option awards since 2016.

In the 2023 first quarter, 71,980 stock options with a weighted average exercise price of $ 15.75 were exercised.

As of February 28, 2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 2.6 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 periods ended February 28, 2023 and 2022.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 31.6 million at February 28, 2023.

In the 2023 first half, 308,096 stock options with a weighted average exercise price of $ 16.26 were exercised.

As of May 31, 2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 2.6 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 six-month periods ended May 31, 2023 and 2022.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 38.2 million at May 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.)

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From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit.

We recognized total compensation expense of $ 5.9 million and $ 6.9 million for the three months ended February 28, 2023 and 2022, respectively, related to restricted stock and PSUs.

We recognized total compensation expense of $ 8.8 million and $ 9.0 million for the three months ended May 31, 2023 and 2022, respectively, related to restricted stock and PSUs.

For the six months ended May 31, 2023 and 2022, we recognized total compensation expense of $ 14.7 million and $ 15.9 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.

Supplemental Disclosure to Consolidated Statements of Cash Flows

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

Three Months Ended February 28,

Six Months Ended May 31,

Summary of cash and cash equivalents at end of period:

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Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 4,896 4,967

Subsequent Event

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 a prior board of directors authorization, as discussed in Note 18 – Stockholders’ Equity, which had $ 75.0 million remaining, excluding excise tax.

Repurchases under the new 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 the date of this report, we have not repurchased any shares under this authorization.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements