What changed in this filing

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Item 1. Financial Statements

2023-10-06 compared with 2023-07-07 · 134 added, 113 removed, 624 unchanged (28% of the section changed)

2 unchanged sentences

(In Thousands, Except Per Share Amounts – Unaudited)

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

7 unchanged sentences

Equity in loss of unconsolidated joint ventures ( 112 ) ( 100 ) ( 1,182 ) ( 387 )

Loss on early extinguishment of debt — ( 3,598 ) — ( 3,598 )

Homebuilding pretax income 184,622 321,604 544,339 755,414

43 unchanged sentences

Stockholders’ equity:

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

Common stock — 101,259,329 and 100,711,153 shares issued at August 31, 2023 and November 30, 2022, respectively

101,259 100,711

5 unchanged sentences

Grantor stock ownership trust, at cost:

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

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

( 72,718 ) ( 72,718 )

Treasury stock, at cost:

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

15,235,409 and 10,015,507 at August 31, 2023 and November 30, 2022, respectively

( 578,027 ) ( 341,461 )

5 unchanged sentences

(In Thousands – Unaudited)

Six Months Ended May 31,

Nine Months Ended August 31,

Cash flows from operating activities:

3 unchanged sentences

Distributions of earnings from unconsolidated joint ventures

12,172 10,679

Amortization of debt issuance costs and premiums 2,525 1,884

3 unchanged sentences

14,900 21,100

Loss on early extinguishment of debt

Stock-based compensation

16 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of debt

Repayment of senior notes

— ( 353,598 )

Payment of issuance costs — ( 10,695 )

Borrowings under revolving credit facility

2 unchanged sentences

( 320,000 ) ( 1,135,000 )

Issuance costs for unsecured revolving credit facility

Payments on mortgages and land contracts due to land sellers and other loans

20 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 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.

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.

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 $ 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.

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 $ 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.

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.

Segment Information

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

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

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

California, Idaho and Washington

7 unchanged sentences

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.

2 unchanged sentences

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

26 unchanged sentences

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

15 unchanged sentences

Total liabilities $ 1,483 $ 3,128

(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.

(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.

Earnings Per Share

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

7 unchanged sentences

Numerator for diluted earnings per share $ 148,846 $ 254,148 $ 436,814 $ 597,456

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

7 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 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.

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.

13 unchanged sentences

Total $ 5,185,875 $ 5,543,176

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.

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.

2 unchanged sentences

Our interest costs were as follows (in thousands):

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

1 unchanged sentence

Interest incurred 26,810 31,778 80,609 89,102

Interest amortized to construction and land costs ( 31,932 ) ( 34,005 ) ( 58,068 ) ( 63,778 )

Interest amortized to construction and land costs (a)

( 29,305 ) ( 35,979 ) ( 87,373 ) ( 99,757 )

Capitalized interest at end of period $ 138,730 $ 150,464 $ 138,730 $ 150,464

(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.

Inventory Impairments and Land Option Contract Abandonments

5 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 one active community for recoverability as of May 31, 2023 with a carrying value of $ 15.9 million.

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 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.

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.

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 $ 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.

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.

3 unchanged sentences

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 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.

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.

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 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.

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):

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Deposits Aggregate

6 unchanged sentences

$ 39,234 $ 1,203,658 $ 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 $ 30.1 million at May 31, 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 $ 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.

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 $ 9.3 million at May 31, 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 $ 2.9 million at August 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 May 31, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures.

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):

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

13 unchanged sentences

Total liabilities and equity $ 162,860 $ 132,558

(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.

(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 May 31, 2023 or November 30, 2022.

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;

7 unchanged sentences

Financial Services.

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,

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):

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

22 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 $ 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.

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.

2 unchanged sentences

Funding facilities .

KBHS maintains warehouse line 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.

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 May 31, 2023.

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.

The warehouse line 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”).

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”).

Other assets consisted of the following (in thousands):

12 unchanged sentences

Customer deposits 65,931 76,738

Accrued interest payable 28,891 29,989

Lease liabilities 24,977 27,494

Inventory-related obligations (a) 24,391 19,136

Federal and state taxes payable 15,449 3,671

Accrued interest payable 17,623 29,989

Real estate and business taxes 17,144 17,557

Federal and state taxes payable 15,774 3,671

Other 37,802 43,925

7 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 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.

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):

6 unchanged sentences

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

2 unchanged sentences

22.9 % 21.7 % 23.1 % 23.7 %

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.

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.

3 unchanged sentences

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

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.

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.

17 unchanged sentences

$ 1,689,958 $ 1,838,511

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.

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.

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 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.

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.

5 unchanged sentences

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

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

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

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.

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 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 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.

1 unchanged sentence

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

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.

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.

1 unchanged sentence

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

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:

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;

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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 six months ended May 31, 2023 and the year ended November 30, 2022 (in thousands):

May 31, 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 nine months ended August 31, 2023 and the year ended November 30, 2022 (in thousands):

August 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)

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(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 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):

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Description Fair Value

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

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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 $ 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.

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.

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

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

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

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.

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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 May 31, 2023, we had $ 1.34 billion of performance bonds and $ 21.2 million of letters of credit outstanding.

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.

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

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.

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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 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 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;

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

Three Months Ended May 31, 2023 and 2022

Three Months Ended August 31, 2023 and 2022

Number of Shares

3 unchanged sentences

Ownership Trust Treasury Stock Total Stockholders’ Equity

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

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

1 unchanged sentence

Employee stock options/other 240 — — 240 3,358 — — — — 3,598

— — 46 — ( 1,598 ) — — — 1,598 —

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

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 — — — — — 255,329 — — — 255,329

Dividends on common stock — — — — — ( 12,772 ) — — — ( 12,772 )

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

Stock-based compensation — — — — 7,056 — — — — 7,056

Stock repurchases — — ( 1,582 ) — — — — — ( 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

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

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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 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

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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

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.

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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.

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.

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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.

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 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.

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 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.

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.

Stock-Based Compensation

Stock Options.

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.

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.

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.

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.)

1 unchanged sentence

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

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.

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.

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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.

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):

Six Months Ended May 31,

Nine Months Ended August 31,

Summary of cash and cash equivalents at end of period:

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Supplemental disclosures of non-cash activities:

Increase (decrease) in consolidated inventories not owned 4,264 ( 13,465 )

Inventories acquired through seller financing 2,891 —

Decrease in consolidated inventories not owned

( 2,129 ) ( 19,423 )

Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 7,569 8,436

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