UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 31, ~~2022.~~2023.

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

For the transition period from [ ] to [ ].

Commission File No. 001-09195

KB HOME

(Exact name of registrant as specified in its charter)


Delaware			95-3666267
(State of incorporation)			(IRS employer identification number)

10990 Wilshire Boulevard

Los Angeles, California 90024

(310) 231-4000

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

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

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

Common Stock (par value $1.00 per share)

KBH

New York Stock Exchange

Rights to Purchase Series A Participating Cumulative Preferred Stock

New York Stock Exchange

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

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

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


Large ~~Accelerated Filer~~accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

There were ~~87,165,722~~80,609,911 shares of the registrant’s common stock, par value $1.00 per share, outstanding on May 31, ~~2022.~~2023. The registrant’s grantor stock ownership trust held an additional 6,705,247 shares of the registrant’s common stock on that date.

KB HOME

FORM 10-Q

INDEX


			Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations - Three Months and Six Months Ended May 31, ~~2022~~2023 and ~~2021~~2022			3

Consolidated Balance Sheets - May 31, ~~2022~~2023 and November 30, ~~2021~~2022			4

Consolidated Statements of Cash Flows - Six Months Ended May 31, ~~2022~~2023 and ~~2021~~2022			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2624

Item 3. Quantitative and Qualitative Disclosures About Market Risk			4645

Item 4. Controls and Procedures			4645

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			4745

Item 1A. Risk Factors			4745

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4746

Item 6. Exhibits			4847

SIGNATURES			4948

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts – Unaudited)


		Three Months Ended May 31,				Six Months Ended May 31,					Three Months Ended May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Total revenues	Total revenues	$	1,720,062	$	1,440,892	$	3,118,851	$	2,582,630	Total revenues	$	1,765,316	$	1,720,062	$	3,149,630	$	3,118,851
Homebuilding:	Homebuilding:									Homebuilding:
Revenues	Revenues	$	1,714,826	$	1,436,035	$	3,108,980	$	2,574,043	Revenues	$	1,757,846	$	1,714,826	$	3,136,383	$	3,108,980
Construction and land costs	Construction and land costs	(1,281,752)		(1,128,018)		(2,363,864)		(2,029,927)		Construction and land costs	(1,386,558)		(1,281,752)		(2,469,379)		(2,363,864)
Selling, general and administrative expenses	Selling, general and administrative expenses	(168,614)		(145,115)		(311,094)		(267,120)		Selling, general and administrative expenses	(169,186)		(168,614)		(308,413)		(311,094)
Operating income	Operating income	264,460		162,902		434,022		276,996		Operating income	202,102		264,460		358,591		434,022
Interest income	Interest income	39		241		75		894		Interest income	1,729		39		2,196		75

Equity in income (loss) of unconsolidated joint ventures		(310)		(127)		(287)		177
Equity in loss of unconsolidated joint ventures										Equity in loss of unconsolidated joint ventures	(313)		(310)		(1,070)		(287)

Homebuilding pretax income	Homebuilding pretax income	264,189		163,016		433,810		278,067		Homebuilding pretax income	203,518		264,189		359,717		433,810
Financial services:	Financial services:									Financial services:
Revenues	Revenues	5,236		4,857		9,871		8,587		Revenues	7,470		5,236		13,247		9,871
Expenses	Expenses	(1,362)		(1,253)		(2,709)		(2,453)		Expenses	(1,472)		(1,362)		(2,830)		(2,709)
Equity in income of unconsolidated joint ventures	Equity in income of unconsolidated joint ventures	14,807		7,044		19,955		13,014		Equity in income of unconsolidated joint ventures	5,426		14,807		7,008		19,955
Financial services pretax income	Financial services pretax income	18,681		10,648		27,117		19,148		Financial services pretax income	11,424		18,681		17,425		27,117
Total pretax income	Total pretax income	282,870		173,664		460,927		297,215		Total pretax income	214,942		282,870		377,142		460,927
Income tax expense	Income tax expense	(72,200)		(30,300)		(116,000)		(56,800)		Income tax expense	(50,500)		(72,200)		(87,200)		(116,000)
Net income	Net income	$	210,670	$	143,364	$	344,927	$	240,415	Net income	$	164,442	$	210,670	$	289,942	$	344,927
Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	2.39	$	1.55	$	3.90	$	2.60	Basic	$	2.00	$	2.39	$	3.49	$	3.90
Diluted	Diluted	$	2.32	$	1.50	$	3.79	$	2.52	Diluted	$	1.94	$	2.32	$	3.38	$	3.79
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	87,858		92,087		88,069		91,904		Basic	81,764		87,858		82,607		88,069
Diluted	Diluted	90,316		95,379		90,690		95,143		Diluted	84,306		90,316		85,141		90,690

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Assets	Assets					Assets
Homebuilding:	Homebuilding:					Homebuilding:
Cash and cash equivalents	Cash and cash equivalents	$	244,186	$	290,764	Cash and cash equivalents	$	557,037	$	328,517

Receivables	Receivables	315,017		304,191		Receivables	341,010		322,767
Inventories	Inventories	5,557,649		4,802,829		Inventories	5,128,841		5,543,176
Investments in unconsolidated joint ventures	Investments in unconsolidated joint ventures	44,857		36,088		Investments in unconsolidated joint ventures	53,427		46,785
Property and equipment, net	Property and equipment, net	82,902		76,313		Property and equipment, net	89,804		89,234
Deferred tax assets, net	Deferred tax assets, net	165,878		177,378		Deferred tax assets, net	150,268		160,868
Other assets	Other assets	111,222		104,153		Other assets	106,598		101,051
		6,521,711		5,791,716			6,426,985		6,592,398
Financial services	Financial services	57,766		44,202		Financial services	56,032		59,532
Total assets	Total assets	$	6,579,477	$	5,835,918	Total assets	$	6,483,017	$	6,651,930

Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Homebuilding:	Homebuilding:					Homebuilding:
Accounts payable	Accounts payable	$	480,441	$	371,826	Accounts payable	$	360,585	$	412,525
Accrued expenses and other liabilities	Accrued expenses and other liabilities	719,491		756,905		Accrued expenses and other liabilities	668,084		736,971
Notes payable	Notes payable	2,085,275		1,685,027		Notes payable	1,686,663		1,838,511
		3,285,207		2,813,758			2,715,332		2,988,007
Financial services	Financial services	3,275		2,685		Financial services	1,203		3,128
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock		100,711		100,711
Common stock — 101,019,249 and 100,711,153 shares issued at May 31, 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
Paid-in capital	Paid-in capital	834,883		848,620		Paid-in capital	830,765		836,260
Retained earnings	Retained earnings	2,697,149		2,379,364		Retained earnings	3,407,813		3,143,578
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(19,119)		(19,119)		Accumulated other comprehensive loss	(5,575)		(5,575)
Grantor stock ownership trust, at cost		(72,718)		(72,718)
Treasury stock, at cost		(249,911)		(217,383)
Grantor stock ownership trust, at cost: 6,705,247 shares at May 31, 2023 and November 30, 2022						Grantor stock ownership trust, at cost: 6,705,247 shares at May 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						Treasury stock, at cost: 13,704,091 and 10,015,507 at May 31, 2023 and November 30, 2022, respectively	(494,822)		(341,461)
Total stockholders’ equity	Total stockholders’ equity	3,290,995		3,019,475		Total stockholders’ equity	3,766,482		3,660,795
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,579,477	$	5,835,918	Total liabilities and stockholders’ equity	$	6,483,017	$	6,651,930

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)


		Six Months Ended May 31,					Six Months Ended May 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	344,927	$	240,415	Net income	$	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:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of unconsolidated joint ventures	Equity in income of unconsolidated joint ventures	(19,668)		(13,191)		Equity in income of unconsolidated joint ventures	(5,938)		(19,668)
Distributions of earnings from unconsolidated joint ventures	Distributions of earnings from unconsolidated joint ventures	9,295		11,981		Distributions of earnings from unconsolidated joint ventures	12,172		9,295
Amortization of debt issuance costs and premiums	Amortization of debt issuance costs and premiums	1,137		1,296		Amortization of debt issuance costs and premiums	1,673		1,137
Depreciation and amortization	Depreciation and amortization	15,534		14,496		Depreciation and amortization	17,760		15,534

Deferred income taxes	Deferred income taxes	11,500		31,700		Deferred income taxes	10,600		11,500

Stock-based compensation	Stock-based compensation	15,888		13,654		Stock-based compensation	14,686		15,888
Inventory impairments and land option contract abandonments	Inventory impairments and land option contract abandonments	907		4,521		Inventory impairments and land option contract abandonments	9,576		907
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	(11,112)		1,682		Receivables	(18,460)		(11,112)
Inventories	Inventories	(764,225)		(379,923)		Inventories	413,774		(764,225)
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	84,259		44,847		Accounts payable, accrued expenses and other liabilities	(132,245)		84,259
Other, net	Other, net	(3,254)		10,455		Other, net	(4,810)		(3,254)
Net cash used in operating activities		(314,812)		(18,067)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	608,730		(314,812)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Contributions to unconsolidated joint ventures	Contributions to unconsolidated joint ventures	(16,376)		(6,300)		Contributions to unconsolidated joint ventures	(17,713)		(16,376)
Return of investments in unconsolidated joint ventures	Return of investments in unconsolidated joint ventures	1,255		2,518		Return of investments in unconsolidated joint ventures	5,100		1,255

Purchases of property and equipment, net	Purchases of property and equipment, net	(22,122)		(18,286)		Purchases of property and equipment, net	(18,324)		(22,122)
Net cash used in investing activities	Net cash used in investing activities	(37,243)		(22,068)		Net cash used in investing activities	(30,937)		(37,243)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Borrowings under revolving credit facility	Borrowings under revolving credit facility	1,075,000		—		Borrowings under revolving credit facility	170,000		1,075,000
Repayments under revolving credit facility	Repayments under revolving credit facility	(675,000)		—		Repayments under revolving credit facility	(320,000)		(675,000)

Issuance costs for unsecured revolving credit facility	Issuance costs for unsecured revolving credit facility	(3,805)		—		Issuance costs for unsecured revolving credit facility	—		(3,805)
Payments on mortgages and land contracts due to land sellers and other loans	Payments on mortgages and land contracts due to land sellers and other loans	(400)		(600)		Payments on mortgages and land contracts due to land sellers and other loans	(3,001)		(400)

Issuance of common stock under employee stock plans	Issuance of common stock under employee stock plans	—		3,506		Issuance of common stock under employee stock plans	5,010		—
Stock repurchases	Stock repurchases	(50,000)		—		Stock repurchases	(167,088)		(50,000)
Tax payments associated with stock-based compensation awards	Tax payments associated with stock-based compensation awards	(12,153)		(8,456)		Tax payments associated with stock-based compensation awards	(9,748)		(12,153)
Payments of cash dividends	Payments of cash dividends	(27,142)		(27,797)		Payments of cash dividends	(25,707)		(27,142)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	306,500		(33,347)		Net cash provided by (used in) financing activities	(350,534)		306,500
Net decrease in cash and cash equivalents		(45,555)		(73,482)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	227,259		(45,555)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	292,136		682,529		Cash and cash equivalents at beginning of period	330,198		292,136
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	246,581	$	609,047	Cash and cash equivalents at end of period	$	557,457	$	246,581

See accompanying notes.

KB HOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, ~~2021,~~2022, which are contained in our Annual Report on Form 10-K for that period. The consolidated balance sheet at November 30, ~~2021~~2022 has been taken from the audited consolidated financial statements as of that date. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of our results for the interim periods presented. The results of our consolidated operations for the three months and six months ended May 31, ~~2022~~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.

~~Impact of COVID-19 Pandemic on Consolidated Financial Statements.~~ The 2019 coronavirus disease (“COVID-19”) pandemic and related responses by public health and governmental authorities to contain and combat the outbreak and spread (“COVID-19 control responses”) have adversely affected many economic sectors, significantly disrupted the global supply chain and fueled producer price and consumer inflation. Our business continued to be impacted by these issues during the three months and six months ended May 31, 2022. We experienced, among other things, ongoing construction services availability constraints, supply chain bottlenecks and rising and volatile raw and other building material prices amid uneven availability, including for lumber. In addition, we encountered delays related to state and municipal construction permitting, inspection and utility processes. All these factors, to varying degrees, extended our construction cycle times, delayed home deliveries and community openings and raised our costs in the 2022 first half. These factors could also negatively impact our growth, margins and financial results in future periods, as could additional significant COVID-19-related disruptions, if they emerge.

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

Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled ~~$15.5~~$372.6 million at May 31, ~~2022~~2023 and ~~$15.4~~$15.8 million at November 30, ~~2021.~~2022. At May 31, ~~2022~~2023 and November 30, ~~2021,~~2022, the majority of our ~~cash and~~ 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 and $143.4 million for the three months ended May 31, 2021.~~2022. For the six months ended May 31, ~~2022~~2023 and ~~2021,~~2022, our comprehensive income was ~~$344.9~~$289.9 million and ~~$240.4~~$344.9 million, respectively. Our comprehensive income for each of the three-month and six-month periods ended May 31, ~~2022~~2023 and ~~2021~~2022 was equal to our net income for the respective periods.

~~Adoption of New Accounting Pronouncement~~. In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. Our adoption of ASU 2019-12, effective December 1, 2021, did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements Not Yet Adopted~~. In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which

clarified the scope and application of the original guidance. We plan to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is discontinued. We are currently evaluating the potential impact of adopting this guidance, but do not expect it to have a material impact on our consolidated financial statements.

2.Segment Information

We have identified 5five operating reporting segments, comprised of 4four homebuilding reporting segments and 1one financial services reporting segment. As of May 31, ~~2022,~~2023, our homebuilding reporting segments conducted ongoing operations in the following states:


West Coast:			California, Idaho and Washington
Southwest:			Arizona and Nevada
Central:			Colorado and Texas
Southeast:			Florida and North Carolina

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

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

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), our unconsolidated joint venture with GR Alliance

Ventures, LLC (“GR Alliance”)., a subsidiary of Guaranteed Rate, Inc. We and GR Alliance each have a 50.0% ownership interest, with GR Alliance providing management oversight of KBHS’ operations.

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

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

Three Months Ended May 31, Six Months Ended May 31,
2022 2021 2022 2021
Revenues:
West Coast $ 761,217 $ 625,690 $ 1,420,091 $ 1,140,206
Southwest 290,924 258,061 500,691 445,746
Central 433,046 390,555 788,368 700,263
Southeast 229,639 161,729 399,830 287,828
Total $ 1,714,826 $ 1,436,035 $ 3,108,980 $ 2,574,043
Pretax income (loss):
West Coast $ 137,518 $ 76,630 $ 247,552 $ 135,261
Southwest 64,635 48,909 100,540 81,964
Central 66,200 56,283 104,316 97,275
Southeast 39,059 18,861 59,325 30,976
Corporate and other (43,223) (37,667) (77,923) (67,409)
Total $ 264,189 $ 163,016 $ 433,810 $ 278,067


	Three Months Ended May 31,				Six Months Ended May 31,
	2023		2022		2023		2022
Revenues:
West Coast	$	564,350	$	761,217	$	1,104,369	$	1,420,091
Southwest	335,828		290,924		575,415		500,691
Central	545,214		433,046		935,165		788,368
Southeast	312,454		229,639		521,434		399,830
Total	$	1,757,846	$	1,714,826	$	3,136,383	$	3,108,980

Pretax income (loss):
West Coast	$	55,099	$	137,518	$	114,649	$	247,552
Southwest	57,117		64,635		101,148		100,540
Central	78,985		66,200		137,818		104,316
Southeast	48,931		39,059		72,456		59,325
Corporate and other	(36,614)		(43,223)		(66,354)		(77,923)
Total	$	203,518	$	264,189	$	359,717	$	433,810




Inventory impairment and land option contract abandonment charges:
West Coast	$	3,079	$	157	$	3,948	$	157
Southwest	—		55		—		164
Central	1,128		520		2,079		586
Southeast	80		—		3,549		—
Total	$	4,287	$	732	$	9,576	$	907


	May 31, 2023		November 30, 2022
Assets:
West Coast	$	2,452,625	$	2,631,598
Southwest	965,223		1,074,912
Central	1,306,661		1,493,486
Southeast	895,182		929,208
Corporate and other	807,294		463,194
Total	$	6,426,985	$	6,592,398

Three Months Ended May 31, Six Months Ended May 31,
2022 2021 2022 2021
Inventory impairment and land option contract abandonment charges:
West Coast $ 157 $ 117 $ 157 $ 3,918
Southwest 55 165 164 293
Central 520 70 586 70
Southeast — 105 — 240
Total $ 732 $ 457 $ 907 $ 4,521

May 31,
2022 November 30,
2021
Assets:
West Coast $ 2,749,595 $ 2,520,374
Southwest 1,057,421 938,300
Central 1,383,349 1,168,242
Southeast 848,379 684,752
Corporate and other 482,967 480,048
Total $ 6,521,711 $ 5,791,716

3. Financial Services

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 May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues	Revenues									Revenues
Insurance commissions	Insurance commissions	$	2,596	$	2,432	$	5,114	$	4,280	Insurance commissions	$	4,010	$	2,596	$	7,384	$	5,114
Title services	Title services	2,637		2,425		4,738		4,307		Title services	3,460		2,637		5,863		4,738
Other	Other	3		—		19		—		Other	—		3		—		19
Total	Total	5,236		4,857		9,871		8,587		Total	7,470		5,236		13,247		9,871

Expenses	Expenses									Expenses
General and administrative	General and administrative	(1,362)		(1,253)		(2,709)		(2,453)		General and administrative	(1,472)		(1,362)		(2,830)		(2,709)
Operating income	Operating income	3,874		3,604		7,162		6,134		Operating income	5,998		3,874		10,417		7,162
Equity in income of unconsolidated joint ventures	Equity in income of unconsolidated joint ventures	14,807		7,044		19,955		13,014		Equity in income of unconsolidated joint ventures	5,426		14,807		7,008		19,955
Pretax income	Pretax income	$	18,681	$	10,648	$	27,117	$	19,148	Pretax income	$	11,424	$	18,681	$	17,425	$	27,117


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	2,395	$	1,372	Cash and cash equivalents	$	420	$	1,681
Receivables	Receivables	2,452		2,166		Receivables	3,692		3,475
Investments in unconsolidated joint ventures		27,222		16,317
Investments in unconsolidated joint venture						Investments in unconsolidated joint venture	21,664		26,678
Other assets (a)	Other assets (a)	25,697		24,347		Other assets (a)	30,256		27,698
Total assets	Total assets	$	57,766	$	44,202	Total assets	$	56,032	$	59,532

Liabilities	Liabilities					Liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	3,275	$	2,685	Accounts payable and accrued expenses	$	1,203	$	3,128
Total liabilities	Total liabilities	$	3,275	$	2,685	Total liabilities	$	1,203	$	3,128

(a)Other assets at May 31, ~~2022~~2023 and November 30, ~~2021~~2022 included ~~$25.5~~$30.2 million and ~~$24.1~~$27.6 million, respectively, of contract assets for estimated future renewal commissions.

4. Earnings Per Share

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


		Three Months Ended May 31,				Six Months Ended May 31,					Three Months Ended May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income	Net income	$	210,670	$	143,364	$	344,927	$	240,415	Net income	$	164,442	$	210,670	$	289,942	$	344,927
Less: Distributed earnings allocated to nonvested restricted stock	Less: Distributed earnings allocated to nonvested restricted stock	(64)		(63)		(129)		(126)		Less: Distributed earnings allocated to nonvested restricted stock	(91)		(64)		(176)		(129)
Less: Undistributed earnings allocated to nonvested restricted stock	Less: Undistributed earnings allocated to nonvested restricted stock	(957)		(587)		(1,539)		(968)		Less: Undistributed earnings allocated to nonvested restricted stock	(1,119)		(957)		(1,866)		(1,539)
Numerator for basic earnings per share	Numerator for basic earnings per share	209,649		142,714		343,259		239,321		Numerator for basic earnings per share	163,232		209,649		287,900		343,259
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:

Add: Undistributed earnings allocated to nonvested restricted stock	Add: Undistributed earnings allocated to nonvested restricted stock	957		587		1,539		968		Add: Undistributed earnings allocated to nonvested restricted stock	1,119		957		1,866		1,539
Less: Undistributed earnings reallocated to nonvested restricted stock	Less: Undistributed earnings reallocated to nonvested restricted stock	(931)		(567)		(1,495)		(935)		Less: Undistributed earnings reallocated to nonvested restricted stock	(1,085)		(931)		(1,811)		(1,495)
Numerator for diluted earnings per share	Numerator for diluted earnings per share	$	209,675	$	142,734	$	343,303	$	239,354	Numerator for diluted earnings per share	$	163,266	$	209,675	$	287,955	$	343,303

Denominator:
Weighted average shares outstanding — basic		87,858		92,087		88,069		91,904
Effect of dilutive securities:
Share-based payments		2,458		3,292		2,621		3,239
Weighted average shares outstanding — diluted		90,316		95,379		90,690		95,143
Basic earnings per share		$	2.39	$	1.55	$	3.90	$	2.60
Diluted earnings per share		$	2.32	$	1.50	$	3.79	$	2.52


	Three Months Ended May 31,				Six Months Ended May 31,
	2023		2022		2023		2022
Denominator:
Weighted average shares outstanding — basic	81,764		87,858		82,607		88,069
Effect of dilutive securities:
Share-based payments	2,542		2,458		2,534		2,621
Weighted average shares outstanding — diluted	84,306		90,316		85,141		90,690
Basic earnings per share	$	2.00	$	2.39	$	3.49	$	3.90
Diluted earnings per share	$	1.94	$	2.32	$	3.38	$	3.79

We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at May 31, ~~2022~~2023 or ~~2021.~~

2022.

For the three-month and six-month periods ended May 31, ~~2022~~2023 and ~~2021,~~2022, no outstanding stock options were excluded from the diluted earnings per share calculations. Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.

5. Receivables

Receivables consisted of the following (in thousands):

May 31,
2022 November 30,
2021
Due from utility companies, improvement districts and municipalities $ 175,676 $ 151,284
Recoveries related to self-insurance and other legal claims 72,815 95,063
Refundable deposits and bonds 15,940 13,681
Other 55,757 49,359
Subtotal 320,188 309,387
Allowance for doubtful accounts (5,171) (5,196)
Total $ 315,017 $ 304,191


	May 31, 2023		November 30, 2022
Due from utility companies, improvement districts and municipalities	$	212,385	$	181,443
Recoveries related to self-insurance and other legal claims	68,632		76,581
Refundable deposits and bonds	16,967		17,610


Other	47,861		52,201
Subtotal	345,845		327,835
Allowance for doubtful accounts	(4,835)		(5,068)
Total	$	341,010	$	322,767

6. Inventories

Inventories consisted of the following (in thousands):


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Homes completed or under construction	Homes completed or under construction	$	2,650,644	$	2,103,038	Homes completed or under construction	$	2,094,058	$	2,414,675
Land under development	Land under development	2,907,005		2,699,791		Land under development	3,034,783		3,128,501
Total	Total	$	5,557,649	$	4,802,829	Total	$	5,128,841	$	5,543,176

Land under development at May 31, ~~2022~~2023 and November 30, ~~2021~~2022 included land held for future development or sale of ~~$54.8~~$25.8 million and ~~$45.2~~$21.6 million, respectively.

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

Our interest costs were as follows (in thousands):

Three Months Ended May 31, Six Months Ended May 31,
2022 2021 2022 2021
Capitalized interest at beginning of period $ 159,649 $ 188,555 $ 161,119 $ 190,113
Interest incurred 29,021 31,110 57,324 62,202
Interest amortized to construction and land costs (a) (34,005) (39,600) (63,778) (72,250)
Capitalized interest at end of period $ 154,665 $ 180,065 $ 154,665 $ 180,065

~~(a)For the six months ended May 31, 2021, interest amortized to construction and land costs included a nominal amount related to land sales during the period.~~


	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
Interest incurred	25,995		29,021		53,799		57,324

Interest amortized to construction and land costs	(31,932)		(34,005)		(58,068)		(63,778)
Capitalized interest at end of period	$	141,225	$	154,665	$	141,225	$	154,665

7. Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is

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

AsWe evaluated one active community for recoverability as of May 31, ~~2022 and~~2023 with a carrying value of $15.9 million. As of November 30, ~~2021, no~~2022, we evaluated five active communities or land parcels ~~with indicators of potential impairment were identified. As a result, no active communities or land parcels were evaluated~~ for recoverability aswith a carrying value of ~~these dates. We~~$118.7 million. In addition, we evaluated land held for future development for recoverability as of both May 31, ~~2022~~2023 and November 30, ~~2021.~~

2022. Based on the results of our evaluations, we recognized no inventory impairment charges for the ~~three months or six months~~three-month and six-month periods ended May 31, 2022 or the three months ended May 31, 2021. For the six months ended May 31, 2021, we recognized inventory impairment charges of $3.6 million that reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building2023 and ~~delivering homes therein, including communities on land previously held for future development.~~

~~The following table summarizes significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value:~~

Three Months Ended May 31, Six Months Ended May 31,
Unobservable Input 2022 2021 2022 2021
Average selling price $— $— $— $471,000
Deliveries per month — — — 5
Discount rate —% —% —% 19%
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 ~~$81.7~~$102.9 million, representing 7 communities and various other land parcels. As of November 30, 2021, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $87.7 million, representing 11eight communities and various other land parcels.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of ~~$.7~~$4.3 million for the three months ended May 31, ~~2022~~2023 and ~~$.9~~$9.6 million for the six months ended May 31, ~~2022.~~2023. For the ~~three months~~three-month and ~~six months~~six-month periods ended May 31, ~~2021,~~2022, we recognized land option contract abandonment charges of ~~$.5~~$.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.

8. Variable Interest Entities

Unconsolidated Joint Ventures. We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analyses, we determined that 1one of our joint ventures at May 31, ~~2022~~2023 and November 30, ~~2021~~2022 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at May 31, ~~2022~~2023 and November 30, ~~2021~~2022 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. Under these contracts, we typically make a specified option payment or earnest money deposit in

consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of May 31, ~~2022~~2023 and November 30, ~~2021,~~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, 2022				November 30, 2021					May 31, 2023				November 30, 2022
		Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price			Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	Unconsolidated VIEs	$	31,674	$	982,198	$	38,333	$	1,093,669	Unconsolidated VIEs	$	16,471	$	609,927	$	22,399	$	635,502
Other land option contracts and other similar contracts	Other land option contracts and other similar contracts	42,167		881,648		36,176		766,182		Other land option contracts and other similar contracts	19,796		384,118		29,451		529,430
Total	Total	$	73,841	$	1,863,846	$	74,509	$	1,859,851	Total	$	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 ~~$44.0~~$30.1 million at May 31, ~~2022~~2023 and ~~$38.1~~$33.1 million at November 30, ~~2021.~~2022. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s). As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of ~~$13.0~~$9.3 million at May 31, ~~2022~~2023 and ~~$26.5~~$5.1 million at November 30, ~~2021.~~2022.

9. Investments in Unconsolidated Joint Ventures

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

As of both May 31, ~~2022~~2023 and November 30, ~~2021,~~2022, we had investments in 6six 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,
2022 2021 2022 2021
Revenues $ 1,108 $ 3,148 $ 3,958 $ 12,839
Construction and land costs (772) (2,819) (3,071) (10,944)
Other expense, net (918) (530) (1,348) (1,409)
Income (loss) $ (582) $ (201) $ (461) $ 486

1211


	Three Months Ended May 31,				Six Months Ended May 31,
	2023		2022		2023		2022
Revenues	$	1,171	$	1,108	$	1,171	$	3,958
Construction and land costs	(683)		(772)		(686)		(3,071)
Other expense, net	(960)		(918)		(2,410)		(1,348)
Loss	$	(472)	$	(582)	$	(1,925)	$	(461)

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


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Assets	Assets					Assets
Cash and cash equivalents		$	18,884	$	15,731
Cash						Cash	$	13,823	$	14,066
Receivables	Receivables	894		795		Receivables	2,886		3,394
Inventories	Inventories	105,734		64,034		Inventories	138,290		114,465
Other assets	Other assets	726		50		Other assets	554		633
Total assets	Total assets	$	126,238	$	80,610	Total assets	$	155,553	$	132,558

Liabilities and equity	Liabilities and equity					Liabilities and equity
Accounts payable and other liabilities	Accounts payable and other liabilities	$	11,871	$	12,285	Accounts payable and other liabilities	$	8,085	$	8,369

Notes payable (a)	Notes payable (a)	29,114		—		Notes payable (a)	47,457		34,396
Equity	Equity	85,253		68,325		Equity	100,011		89,793
Total liabilities and equity	Total liabilities and equity	$	126,238	$	80,610	Total liabilities and equity	$	155,553	$	132,558

(a) As of both May 31, 2023 and November 30, 2022, 1one 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, ~~2022~~2023 or November 30, ~~2021.~~2022.

We provide certain guarantees and indemnities to the lender in connection with the above-described revolving line of credit, ~~for 1 of our unconsolidated joint ventures,~~ including a guaranty of interest and carry costs; a guaranty to complete the construction of phases of the improvements for the project as such phases are commenced; a guaranty against losses suffered due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; and an indemnity from environmental issues. Except to the extent related to the foregoing guarantees and indemnities, we do not have a guaranty or any other obligation to repay borrowings under the line of credit or to support the value of the underlying collateral. However, various financial and non-financial covenants apply under the line of credit and with respect to the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations. As of the date of this report, we were in compliance with the relevant covenants. We do not believe that our existing exposure under our guaranty and indemnity obligations related to outstanding borrowings under the line of credit is material to our consolidated financial statements.

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


		Three Months Ended May 31,				Six Months Ended May 31,					Three Months Ended May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues	Revenues	$	50,224	$	34,298	$	80,200	$	65,370	Revenues	$	28,450	$	50,224	$	48,640	$	80,200
Expenses	Expenses	(20,607)		(20,240)		(40,287)		(39,373)		Expenses	(17,599)		(20,607)		(34,624)		(40,287)
Income	Income	$	29,617	$	14,058	$	39,913	$	25,997	Income	$	10,851	$	29,617	$	14,016	$	39,913

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

The following table presents combined condensed balance sheet information for our financial services unconsolidated joint ~~ventures, primarily comprised of KBHS~~venture (in thousands):


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	18,867	$	23,916	Cash and cash equivalents	$	21,818	$	28,120
Mortgage loans held for sale	Mortgage loans held for sale	189,255		234,669		Mortgage loans held for sale	186,573		250,572
Other assets	Other assets	68,493		46,218		Other assets	28,173		33,176
Total assets	Total assets	$	276,615	$	304,803	Total assets	$	236,564	$	311,868

Liabilities and equity	Liabilities and equity					Liabilities and equity
Accounts payable and other liabilities	Accounts payable and other liabilities	$	18,680	$	18,375	Accounts payable and other liabilities	$	13,255	$	15,590
Funding facilities	Funding facilities	203,486		253,791		Funding facilities	179,981		242,944

Equity	Equity	54,449		32,637		Equity	43,328		53,334
Total liabilities and equity	Total liabilities and equity	$	276,615	$	304,803	Total liabilities and equity	$	236,564	$	311,868

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

Interest Rate Lock Commitments (“IRLCs”). KBHS enters into IRLCs in connection with originating certain mortgage loans held for sale, at specified interest rates and within a specified period of time, with customers who have applied for a mortgage loan and meet certain credit and underwriting criteria. KBHS accounts for IRLCs as free-standing derivatives and does not designate any for hedge accounting. As a result, IRLCs are recognized in KBHS’ balance sheets at fair value, and gains or losses resulting from changes in fair value are recognized within revenues in KBHS’ statements of operations. The fair value of IRLCs is based on market prices, which includes an estimate of the fair value of the associated mortgage servicing rights, adjusted for estimated costs to originate the underlying mortgage loans as well as the probability that the mortgage loans will fund within the terms of the IRLCs. The fair value of IRLCs included in other assets in KBHS’ balance sheets was ~~$42.9~~$25.6 million at May 31, ~~2022~~2023 and ~~$9.5~~$29.8 million at November 30, ~~2021.~~2022. The ~~change~~changes in the fair value of IRLCs, which ~~was~~were reported in revenues ~~totaled~~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 months~~three-month and ~~six months~~six-month periods ended May 31, 2022, ~~respectively, and $1.9 million and $2.6 million for the three months and six months ended May 31, 2021,~~ respectively.

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

Funding facilities. KBHS maintains warehouse 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. 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, ~~2022.~~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 ~~agreements~~facilities when they expire at various dates in ~~2022 and~~ 2023. The warehouse line of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our ~~homebuilding~~senior notes, ~~payable~~unsecured revolving credit facility with various banks (“~~Guarantor~~Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).

1413

10.Other Assets

Other assets consisted of the following (in thousands):


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Cash surrender value of corporate-owned life insurance contracts	Cash surrender value of corporate-owned life insurance contracts	$	64,449	$	68,748	Cash surrender value of corporate-owned life insurance contracts	$	54,858	$	55,591

Lease right-of-use assets	Lease right-of-use assets	25,000		27,508		Lease right-of-use assets	24,757		25,469
Prepaid expenses	Prepaid expenses	16,904		6,344		Prepaid expenses	23,157		15,645
Debt issuance costs associated with unsecured revolving credit facility, net	Debt issuance costs associated with unsecured revolving credit facility, net	4,869		1,553		Debt issuance costs associated with unsecured revolving credit facility, net	3,826		4,346
Total	Total	$	111,222	$	104,153	Total	$	106,598	$	101,051

11.Accrued Expenses and Other Liabilities

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


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Self-insurance and other legal liabilities	Self-insurance and other legal liabilities	$	228,419	$	239,129	Self-insurance and other legal liabilities	$	229,283	$	234,128
Employee compensation and related benefits	Employee compensation and related benefits	160,753		192,549		Employee compensation and related benefits	130,749		182,443
Warranty liability	Warranty liability	99,207		96,153		Warranty liability	99,142		101,890
Customer deposits	Customer deposits	91,903		71,032		Customer deposits	67,006		76,738
Accrued interest payable						Accrued interest payable	28,891		29,989
Lease liabilities	Lease liabilities	26,908		29,279		Lease liabilities	26,787		27,494
Accrued interest payable		24,791		24,554
Inventory-related obligations (a)	Inventory-related obligations (a)	21,142		36,146		Inventory-related obligations (a)	21,461		19,136
Federal and state taxes payable	Federal and state taxes payable	15,224		8,290		Federal and state taxes payable	15,449		3,671
Real estate and business taxes	Real estate and business taxes	12,929		17,563		Real estate and business taxes	11,125		17,557
Other	Other	38,215		42,210		Other	38,191		43,925
Total	Total	$	719,491	$	756,905	Total	$	668,084	$	736,971

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

12.Leases

We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded in our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months. Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less. Our total lease expense for the ~~three-month periods~~three months ended May 31, ~~2022~~2023 and ~~2021~~2022 was $~~4.9~~5.6 million and ~~$4.3~~$4.9 million, respectively, and included short-term lease costs of ~~$1.8~~$2.2 million and ~~$1.2~~$1.8 million, respectively. For the six months ended May 31, ~~2022~~2023 and ~~2021,~~2022, our total lease expense was ~~$9.2~~$10.8 million and ~~$8.6~~$9.2 million, respectively, and included short-term lease costs of ~~$3.0~~$3.9 million and ~~$2.5~~$3.0 million, respectively. Variable lease costs and external sublease income for the three-month and six-month periods ended May 31, ~~2022~~2023 and ~~2021~~2022 were immaterial.

1514

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


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Lease right-of-use assets (a)	Lease right-of-use assets (a)	$	25,140	$	27,693	Lease right-of-use assets (a)	$	24,768	$	25,545
Lease liabilities ~~(b)~~(a)	Lease liabilities ~~(b)~~(a)	27,060		29,481		Lease liabilities ~~(b)~~(a)	26,795		27,580

(a)~~Represents lease right-of-use assets~~Consists of amounts within both our homebuilding ~~operations~~ and financial services ~~operations of $25.0 million and $.1 million, respectively, at May 31, 2022, and $27.5 million and $.2 million, respectively, at November 30, 2021.~~

~~(b)Represents lease liabilities within our homebuilding operations and~~operations. The financial services ~~operations~~amounts were nominal as of ~~$26.9 million and $.2 million, respectively, at May 31, 2022, and $29.3 million and $.2 million, respectively, at November 30, 2021.~~each date.

13.Income Taxes

Income Tax Expense. 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 May 31,						Six Months Ended May 31,
		2022			2021			2022			2021				2023			2022			2023			2022
Income tax expense	Income tax expense	$	72,200		$	30,300		$	116,000		$	56,800		Income tax expense	$	50,500		$	72,200		$	87,200		$	116,000
Effective tax rate	Effective tax rate	25.5		%	17.4		%	25.2		%	19.1		%	Effective tax rate	23.5		%	25.5		%	23.1		%	25.2		%

Our income tax expense and effective tax rate for the three months ended May 31, ~~2022~~2023 included the favorable impact of ~~$.6~~$6.8 million of federal tax credits we ~~earned~~recognized primarily from building energy-efficient homes ~~which was more than~~and $1.1 million of excess tax benefits related to stock-based compensation, partly offset by ~~$2.2~~$3.5 million of ~~non-deductible~~nondeductible executive compensation ~~expense under Internal Revenue Code Section 162(m).~~expense. Our income tax expense and effective tax rate for the three months ended May 31, ~~2021~~2022 reflected the favorable ~~impacts~~impact of ~~$14.8~~$.6 million of federal tax credits we ~~earned~~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 $12.5 million of federal tax credits we recognized primarily from building energy-efficient homes and ~~$.4~~$3.8 million of excess tax benefits related to stock-based compensation, partly offset by ~~$1.9~~$6.6 million of ~~non-deductible~~nondeductible executive compensation expense.

~~For~~ Our income tax expense and effective tax rate for the six months ended May 31, 2022 ~~our income tax expense and effective tax rate included~~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 ~~earned~~recognized primarily from building energy-efficient homes, which were more than offset by $3.9 million of ~~non-deductible~~nondeductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and effective tax rate for the six months ended May 31, 2021 reflected the favorable impacts of $17.5 million of federal tax credits we earned primarily from building energy-efficient homes and $3.9 million of excess tax benefits related to stock-based compensation, partly offset by $3.3 million of non-deductible executive compensation expense.

The federal energy tax credits for the three-month and six-month periods ended May 31, 2022 and 2021 resulted from legislation enacted in December 2020 and earlier periods. The federal tax credit for building new energy-efficient homes expired for homes delivered after December 31, 2021.

The Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020, provided an Employee Retention Credit (“ERC”), which is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020 and before January 1, 2021. Based on our evaluation of this provision and the significant pandemic-related impacts on our operations in 2020, we recognized an ERC of $4.3 million as an offset to payroll tax expenses within selling, general and administrative expenses in our consolidated statements of operations upon filing for the refund in the 2021 first quarter. We received the refund in the 2021 fourth quarter.

In June 2020, California enacted tax legislation that approved the suspension of California net operating loss (“NOL”) deductions for tax years 2020, 2021 and 2022. On February 9, 2022, California enacted legislation restoring the NOL deduction for tax years beginning on or after January 1, 2022, which would be effective for our 2023 fiscal year. Although the suspension of California NOL deductions did not have an impact on our income tax expense for the three months or six months ended May 31, 2022, it contributed to the year-over-year increase in the amount of taxes we paid in these periods.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among

other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of ~~$183.3~~$167.4 million as of May 31, ~~2022~~2023 and ~~$194.8~~$178.0 million as of November 30, ~~2021~~2022 were each partly offset by a valuation allowance of ~~$17.4~~$17.1 million. The deferred tax asset valuation allowances as of May 31, ~~2022~~2023 and November 30, ~~2021~~2022 were primarily related to certain state ~~NOLs~~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, ~~2022,~~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, ~~2022.~~2023.

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

14.Notes Payable

Notes payable consisted of the following (in thousands):


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Unsecured revolving credit facility	Unsecured revolving credit facility	$	400,000	$	—	Unsecured revolving credit facility	$	—	$	150,000

Mortgages and land contracts due to land sellers and other loans		4,927		5,327

7.50% Senior notes due September 15, 2022		349,802		349,471
7.625% Senior notes due May 15, 2023		350,532		350,788
Senior unsecured term loan due August 25, 2026						Senior unsecured term loan due August 25, 2026	357,821		357,485
6.875% Senior notes due June 15, 2027	6.875% Senior notes due June 15, 2027	297,375		297,161		6.875% Senior notes due June 15, 2027	297,824		297,595
4.80% Senior notes due November 15, 2029	4.80% Senior notes due November 15, 2029	297,065		296,905		4.80% Senior notes due November 15, 2029	297,399		297,230
7.25% Senior notes due July 15, 2030						7.25% Senior notes due July 15, 2030	345,878		345,663
4.00% Senior notes due June 15, 2031	4.00% Senior notes due June 15, 2031	385,574		385,375		4.00% Senior notes due June 15, 2031	385,982		385,778
Mortgages and land contracts due to land sellers and other loans						Mortgages and land contracts due to land sellers and other loans	1,759		4,760
Total	Total	$	2,085,275	$	1,685,027	Total	$	1,686,663	$	1,838,511

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, ~~and premiums,~~ which totaled ~~$9.7~~$15.1 million at May 31, ~~2022~~2023 and ~~$10.3~~$16.2 million at November 30, ~~2021.~~2022.

Unsecured Revolving Credit Facility. ~~On February 18, 2022, we entered into an amendment to our unsecured revolving credit facility with various banks (“Credit Facility”) that increased its borrowing capacity from $800.0 million to~~We have a $1.09 billion ~~and extended its maturity from October 7, 2023 to~~Credit Facility that will mature on February 18, 2027. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $250.0 million for the issuance of letters of credit. Interest on amounts borrowed under the Credit Facility accrues at ~~a rate based on either a~~an adjusted term Secured Overnight Financing Rate (“SOFR”) or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR). The Credit Facility also requires the payment of a commitment fee at a per annum rate ranging from .15% to .35% of the unused commitment, based on our Leverage Ratio. Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. Our obligations to pay borrowings under the Credit Facility are guaranteed on a joint and several basis by our Guarantor Subsidiaries. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of May 31, ~~2022,~~2023, we had ~~$400.0 million of~~no cash borrowings and ~~$8.6~~$6.6 million of letters of credit outstanding under the Credit Facility. Therefore, as of May 31, ~~2022,~~2023, we had ~~$681.4 million~~$1.08 billion available for cash borrowings under the Credit Facility, with up to ~~$241.4~~$243.4 million of that amount available for the issuance of letters of credit.

Senior Unsecured Term Loan.

We have a $360.0 million Term Loan with the lenders party thereto. The Term Loan will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions). Interest under the Term Loan accrues at an adjusted term SOFR or a base rate, plus a spread that depends on our Leverage Ratio. Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR). The Term Loan contains various covenants that are substantially the same as those under the Credit Facility. Proceeds drawn under the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries. As of May 31, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.4%.

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, ~~2022~~2023 and November 30, ~~2021,~~2022, we had letters of credit outstanding under the LOC Facility of $14.5 million and $36.4 million, ~~and $34.6 million,~~ respectively.

~~Mortgages and Land Contracts Due to Land Sellers and Other Loans.~~ ~~As of May 31, 2022, inventories having a carrying value of $22.2 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.~~

Senior Notes. All the senior notes outstanding at May 31, ~~2022~~2023 and November 30, ~~2021~~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.

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

As of May 31, ~~2022,~~2023, we were in compliance with our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, tomeet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

Mortgages and Land Contracts Due to Land Sellers and Other Loans.As of May 31, ~~2022, principal payments on senior notes,~~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~~loans.

As of May 31, 2023, principal payments on our notes payable are due during each year ending November 30 as follows: ~~2022 – $353.2 million;~~ 2023 – ~~$351.7~~$.4 million; 2024 – ~~$0;~~$.8 million; 2025 – ~~$0;~~$.6 million ; 2026 – ~~$0;~~$360.0 million; 2027 – $300.0 million and thereafter – ~~$990.0 million.~~$1.04 billion.

15.Fair Value Disclosures

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


Level 1						Fair value determined based on quoted prices in active markets for identical assets or liabilities.

Level 2						Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

Level 3						Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

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, ~~2022~~2023 and the year ended November 30, ~~2021~~2022 (in thousands):


			May 31, 2022						November 30, 2021								May 31, 2023						November 30, 2022
Description	Description	Fair Value Hierarchy	Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)		Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)		Description	Fair Value Hierarchy	Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)		Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)

Inventories	Inventories	Level 3	$	—	$	—	$	—	$	27,923	$	(9,903)	$	18,020	Inventories	Level 3	$	—	$	—	$	—	$	65,372	$	(24,077)	$	41,295

(a)Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date that the fair value measurements were made. The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

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

1817

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

May 31, 2022

November 30, 2021

May 31, 2023

November 30, 2022

Description

Fair Value
Hierarchy

Carrying
Value (a)

Estimated
Fair Value

Carrying
Value (a)

Estimated
Fair Value

Description

Fair Value
Hierarchy

Carrying
Value (a)

Estimated
Fair Value

Carrying
Value (a)

Estimated
Fair Value

Financial Liabilities:

Senior notes

Level 2

1,680,348

1,633,863

1,679,700

1,796,500

Senior notes

Level 2

1,327,083

1,263,000

1,326,266

1,205,875

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

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

16.Commitments and Contingencies

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

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

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

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


		Three Months Ended May 31,				Six Months Ended May 31,					Three Months Ended May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Balance at beginning of period	Balance at beginning of period	$	97,466	$	92,687	$	96,153	$	91,646	Balance at beginning of period	$	101,238	$	97,466	$	101,890	$	96,153
Warranties issued	Warranties issued	9,678		9,378		17,568		16,835		Warranties issued	10,653		9,678		18,643		17,568
Payments	Payments	(7,937)		(6,212)		(14,514)		(12,628)		Payments	(12,749)		(7,937)		(21,391)		(14,514)

Balance at end of period	Balance at end of period	$	99,207	$	95,853	$	99,207	$	95,853	Balance at end of period	$	99,142	$	99,207	$	99,142	$	99,207

1918

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

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

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

•Construction defect: Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting 2two or more homes within the same community, or they involve a common area or homeowners’ association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.

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

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

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

Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other recoveries of ~~$41.0~~$30.3 million and ~~$57.8~~$32.7 million are included in receivables in our consolidated balance sheets at May 31, ~~2022~~2023 and November 30, ~~2021,~~2022, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.

2019

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 May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Balance at beginning of period	Balance at beginning of period	$	190,594	$	193,445	$	189,131	$	194,180	Balance at beginning of period	$	171,269	$	190,594	$	175,977	$	189,131
Self-insurance provided	Self-insurance provided	5,773		5,928		10,512		10,511		Self-insurance provided	3,977		5,773		7,818		10,512
Payments	Payments	(11,664)		(10,097)		(14,130)		(15,597)		Payments	(1,838)		(11,664)		(9,134)		(14,130)
Adjustments (a)	Adjustments (a)	(16,028)		4,993		(16,838)		5,175		Adjustments (a)	(1,185)		(16,028)		(2,438)		(16,838)
Balance at end of period	Balance at end of period	$	168,675	$	194,269	$	168,675	$	194,269	Balance at end of period	$	172,223	$	168,675	$	172,223	$	168,675

(a)Represents net changes in estimated probable recoveries related to self-insurance, which are recorded in receivables, to present our self-insurance liability on a gross basis. Amounts for the three-month and six-month periods ended May 31, 2022 primarily reflected a change in the actuarially determined estimate of probable recoveries largely associated with higher self-insured retention levels in our more recent coverage years, and an insurance carrier’s payment of a portion of a townhome claim settlement reached in the 2022 first quarter.

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

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

Florida Chapter 558 Actions. We and certain of our trade partners continue to receive claims from attorneys on behalf of individual owners of our homes and/or homeowners’ associations that allege, pursuant to Chapter 558 of the Florida Statutes, various construction defects, with most relating to stucco and water-intrusion issues. The claims primarily involve homes in our Jacksonville, Orlando, and Tampa operations. Under Chapter 558, homeowners must serve written notice of a construction defect(s) and provide the served construction and/or design contractor(s) with an opportunity to respond to the noticed issue(s) before they can file a lawsuit. Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable trade partners or their insurers covering the related costs, as of May 31, ~~2022,~~2023, we had approximately ~~490~~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 May 31, ~~2022,~~2023, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries. While it is reasonably possible that our loss could exceed the amount accrued and our recoveries could be less than the amount recorded, at this time, we are unable to estimate the total amount of the loss in excess of the accrued amount and/or associated with a shortfall in the recoveries that is reasonably possible. In addition, although we believe it is probable we will receive additional claims in future periods, we are unable to reasonably estimate the number of such claims or the amount or range of any potential losses associated with such claims as each of these is dependent on several factors, including the actions of third parties over which we have no control; the nature of any specific claims; and our evaluation of the particular facts surrounding each such claim.

Performance Bonds and Letters of Credit. We are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. At May 31, ~~2022,~~2023, we had ~~$1.24~~$1.34 billion of performance bonds and ~~$45.0~~$21.2 million of letters of credit outstanding. At November 30, ~~2021,~~2022, we had ~~$1.11~~$1.27 billion of performance bonds and ~~$43.2~~$43.0 million of letters of credit outstanding. If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a

material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed. The expiration dates of some letters of credit issued in connection with community improvements coincide with the expected completion dates of the related projects or obligations. Most letters of credit, however, are issued with

an initial term of one year and are typically extended on a year-to-year basis until the related performance obligations are completed.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes. At May 31, ~~2022,~~2023, we had total cash deposits of ~~$73.8~~$36.3 million to purchase land having an aggregate purchase price of ~~$1.86 billion.~~$994.0 million. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

~~Potential Contingent Gain.~~ In pursuing e-commerce opportunities in the late-1990s, we sought strategic alliances to provide new products and services to our homebuyers and invested in certain technology businesses aimed at enhancing the homebuying experience. We accounted for these investments under the cost method. We wrote these investments off in 2001-2002, when we believed they were not recoverable based on the extended technology industry downturn and related severe stock market correction. One of these companies, in which we had invested approximately $1.8 million, has since developed a viable business and experienced significant revenue growth. We have a minority ownership interest in this investee company. In addition, in 2000, we granted nominal ownership interests in this and other investee companies to 16 then-current executives under an incentive compensation program. Prior to his appointment, our chairman, president and chief executive officer, who presently serves on this investee company’s board of directors, received such grants, including for this investee company, as a participant in the program. In January 2022, this investee company entered into a letter of intent with a prospective buyer. During the 2022 second quarter, the parties ceased negotiations on the potential transaction.

17.Legal Matters

We are involved in litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of May 31, ~~2022,~~2023, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (b) the advice and analyses of counsel; and (c) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. Our accruals for litigation and regulatory proceedings are presented on a gross basis without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimates of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable. Based on our experience, we believe the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if an accrual had not been made, could be material to our consolidated financial statements. Pursuant to SEC rules, we will disclose any proceeding in which a governmental authority is a party and that arises under any federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment only where we believe that such proceeding will result in monetary sanctions on us, exclusive of interest and costs, above $1.0 million or is otherwise material to our consolidated financial statements.

18.Stockholders’ Equity

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


		Three Months Ended May 31, 2022 and 2021																		Three Months Ended May 31, 2023 and 2022
		Number of Shares																		Number of Shares
																				Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at February 28, 2023																			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																			Net income	—	—	—	—		—		164,442		—		—		—		164,442
Dividends on common stock																			Dividends on common stock	—	—	—	—		—		(13,231)		—		—		—		(13,231)
Employee stock options/other																			Employee stock options/other	236	—	—	236		3,640		—		—		—		—		3,876

Stock awards																			Stock awards	—	—	46	—		(1,598)		—		—		—		1,598		—
Stock-based compensation																			Stock-based compensation	—	—	—	—		8,819		—		—		—		—		8,819
Stock repurchases																			Stock repurchases	—	—	(2,163)	—		—		—		—		—		(92,887)		(92,887)

Balance at May 31, 2023																			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
		Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at February 28, 2022	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 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	Net income	—	—	—	—		—		210,670		—		—		—		210,670		Net income	—	—	—	—		—		210,670		—		—		—		210,670
Dividends on common stock	Dividends on common stock	—	—	—	—		—		(13,012)		—		—		—		(13,012)		Dividends on common stock	—	—	—	—		—		(13,012)		—		—		—		(13,012)

Stock awards	Stock awards	—	—	64	—		(2,376)		—		—		—		2,376		—		Stock awards	—	—	64	—		(2,376)		—		—		—		2,376		—
Stock-based compensation	Stock-based compensation	—	—	—	—		9,021		—		—		—		—		9,021		Stock-based compensation	—	—	—	—		9,021		—		—		—		—		9,021
Stock repurchases	Stock repurchases	—	—	(1,520)	—		—		—		—		—		(50,000)		(50,000)		Stock repurchases	—	—	(1,520)	—		—		—		—		—		(50,000)		(50,000)

Balance at May 31, 2022	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 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, 2021		100,042	(6,705)	(1,305)	$	100,042	$	827,456	$	1,951,657	$	(22,276)	$	(72,718)	$	(35,977)	$	2,748,184

Net income		—	—	—	—		—		143,364		—		—		—		143,364
Dividends on common stock		—	—	—	—		—		(13,733)		—		—		—		(13,733)
Employee stock options/other		65	—	—	65		903		—		—		—		—		968
Stock awards		44	—	2	44		(88)		—		—		—		44		—
Stock-based compensation		—	—	—	—		8,082		—		—		—		—		8,082

Balance at May 31, 2021		100,151	(6,705)	(1,303)	$	100,151	$	836,353	$	2,081,288	$	(22,276)	$	(72,718)	$	(35,933)	$	2,886,865

		Six Months Ended May 31, 2022 and 2021
		Number of Shares
		Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at November 30, 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

Balance at November 30, 2020		99,869	(7,124)	(1,107)	$	99,869	$	824,306	$	1,868,896	$	(22,276)	$	(77,265)	$	(27,761)	$	2,665,769
Cumulative effect of adoption of new accounting standard for credit losses		—	—	—	—		—		(226)		—		—		—		(226)

Net income		—	—	—	—		—		240,415		—		—		—		240,415
Dividends on common stock		—	—	—	—		—		(27,797)		—		—		—		(27,797)
Employee stock options/other		238	—	—	238		3,268		—		—		—		—		3,506
Stock awards		44	419	12	44		(4,875)		—		—		4,547		284		—
Stock-based compensation		—	—	—	—		13,654		—		—		—		—		13,654
Tax payments associated with stock-based compensation awards		—	—	(208)	—		—		—		—		—		(8,456)		(8,456)
Balance at May 31, 2021		100,151	(6,705)	(1,303)	$	100,151	$	836,353	$	2,081,288	$	(22,276)	$	(72,718)	$	(35,933)	$	2,886,865


	Six Months Ended May 31, 2023 and 2022
	Number of Shares
	Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at November 30, 2022	100,711	(6,705)	(10,016)	$	100,711	$	836,260	$	3,143,578	$	(5,575)	$	(72,718)	$	(341,461)	$	3,660,795

Net income	—	—	—	—		—		289,942		—		—		—		289,942
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 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 ~~17, 2022,~~24, 2023, the management development and compensation committee of our board of directors approved the payout of ~~674,677~~602,265 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October ~~4, 2018.~~3, 2019. The shares paid out under the PSUs reflected our achievement of certain performance measures that were based on cumulative earnings per share, average return on invested capital, and revenue growth relative

to a peer group of high-production public homebuilding companies over the three-year period from December 1, ~~2018~~2019 through November 30, ~~2021.~~2022. Of the shares of common stock paid out, ~~319,815~~276,853 shares, or ~~$12.2~~$9.7 million, were purchased by us in the ~~2022~~2023 first quarter to satisfy the recipients’ withholding taxes on the vesting of the PSUs. The shares purchased were not considered repurchases under the authorizations described below.

On April 7, 2022, our board of directors authorized us to repurchase up to $300.0 million of our outstanding common ~~stock. This~~stock, excluding excise tax. As of November 30, 2022, there was $150.0 million of remaining availability under this share repurchase authorization, ~~replaced a prior board of directors authorization, which had 331,400 shares remaining for repurchase.~~excluding excise tax. In the ~~2022 second~~2023 first quarter, we repurchased ~~1,519,646~~1,965,442 shares of our common stock on the open market pursuant to this ~~new~~ authorization at a total cost of ~~$50.0 million.~~approximately $75.0 million, excluding excise tax. On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, excluding excise tax. This authorization replaced the prior board of directors authorization, which had $75.0 million remaining, excluding excise tax. In the 2023 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 ~~new~~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, ~~2022,~~2023, we ~~had $250.0~~were authorized to repurchase up to approximately $407.9 million ~~of common stock authorized for repurchase.~~

~~On April 7, 2022, our board of directors also terminated a separate stock repurchase authorization it made in 2014 for the repurchase of not more than 680,000 shares~~ of our outstanding common stock ~~solely~~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 ~~necessary~~part of the cost basis of the stock repurchased and recorded a corresponding liability for ~~director elections~~the excise taxes payable in ~~respect of outstanding stock appreciation rights awards granted under~~accrued expenses and other liabilities on our ~~Non-Employee Directors Compensation Plan. As the remaining outstanding stock appreciation rights awards expired in April 2022, this stock repurchase authorization was no longer needed.~~consolidated balance sheet.

In the three-month periods ended May 31, ~~2022~~2023 and ~~2021,~~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, ~~2022~~2023 and ~~2021~~2022 totaled $.30 per share.

19.Stock-Based Compensation

Stock Options. At ~~both~~ May 31, ~~2022~~2023 and November 30, ~~2021,~~2022, we had 1,366,297 and 1,674,393 stock options outstanding ~~and exercisable~~ with a weighted average exercise price of ~~$15.56.~~$15.40 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, ~~2022,~~2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of ~~3.4~~2.6 years. As all outstanding stock options have been fully vested since 2019, there was ~~no unrecognized compensation expense related to stock option awards at May 31, 2022 and~~ no stock-based compensation expense associated with stock options for the three-month and six-month periods ended May 31, ~~2022~~2023 and ~~2021.~~2022. Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of ~~$31.7~~$38.2 million at May 31, ~~2022.~~2023. (The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)

Other Stock-Based Awards. From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit. We recognized total compensation expense of ~~$9.0~~$8.8 million and ~~$8.1~~$9.0 million for the three months ended May 31, ~~2022~~2023 and ~~2021,~~2022, respectively, related to restricted stock and PSUs. For the six months ended May 31, ~~2022~~2023 and ~~2021,~~2022, we recognized total compensation expense of $14.7 million and $15.9 million, respectively.

Approval of the Amended and ~~$13.7 million, respectively.~~Restated KB Home 2014 Equity Incentive Plan. At our Annual Meeting of Stockholders held on April 20, 2023, our stockholders approved the Amended and Restated KB Home 2014 Equity Incentive Plan (“Amended and Restated 2014 Plan”), confirming, among other things, an aggregate share grant capacity for stock-based awards to our employees, non-employee directors and consultants of 18,200,000 shares through approving and incorporating the base amount of 12,300,000 shares under the predecessor Amended KB Home 2014 Equity Incentive Plan and adding 5,900,000 shares, plus any shares subject to outstanding awards under our 2010 Equity Incentive Plan (“2010 Plan”) that subsequently expire or are cancelled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash. With no other shares available for grant under the 2010 Plan, the Amended and Restated 2014 Plan is our only active equity compensation plan. As with the Amended KB Home 2014 Equity Incentive Plan, under the Amended and Restated 2014 Plan, grants of stock options and other similar awards reduce the share grant capacity on a 1-for-1 basis, and grants of restricted stock and other similar “full value” awards reduce the share grant capacity on a 1.78-for-1 basis. The Amended and Restated 2014 Plan provides stock options and SARs may be awarded for periods of up to 10 years, and enables us to grant other stock-based awards and cash bonuses. As of the date of this report, no grants have been made under the Amended and Restated 2014 Plan following the date of its approval by our stockholders.

20.Supplemental Disclosure to Consolidated Statements of Cash Flows

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


		Six Months Ended May 31,					Six Months Ended May 31,
		2022		2021			2023		2022
Summary of cash and cash equivalents at end of period:	Summary of cash and cash equivalents at end of period:					Summary of cash and cash equivalents at end of period:
Homebuilding	Homebuilding	$	244,186	$	608,069	Homebuilding	$	557,037	$	244,186
Financial services	Financial services	2,395		978		Financial services	420		2,395
Total	Total	$	246,581	$	609,047	Total	$	557,457	$	246,581

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	Interest paid, net of amounts capitalized	$	(237)	$	(164)	Interest paid, net of amounts capitalized	$	1,098	$	(237)
Income taxes paid	Income taxes paid	97,654		26,295		Income taxes paid	64,824		97,654
Supplemental disclosures of non-cash activities:						Supplemental disclosures of non-cash activities:

Increase (decrease) in consolidated inventories not owned						Increase (decrease) in consolidated inventories not owned	4,264		(13,465)
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture						Increase in inventories due to distributions of land and land development from an unconsolidated joint venture	4,896		4,967

Six Months Ended May 31,
2022 2021
Supplemental disclosures of non-cash activities:
Decrease in consolidated inventories not owned (13,465) (5,223)
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 4,967 4,905

~~21.Subsequent Event~~

On June 22, 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”) at 100% of their aggregate principal amount. Interest on the 7.25% Senior Notes due 2030, which represent senior unsecured obligations of ours and rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness, is payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2023. These notes will mature on July 15, 2030.

We used the net proceeds from the issuance of the 7.25% Senior Notes due 2030, together with cash on hand, to retire our outstanding $350.0 million in aggregate principal amount of 7.50% senior notes due 2022 (“7.50% Senior Notes due 2022”) on July 7, 2022, by redemption pursuant to the optional redemption terms specified for such notes. In connection with this early extinguishment of debt, we expect to recognize a charge of approximately $4.0 million in the 2022 third quarter.

2523

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

Results of Operations

OVERVIEW

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


		Three Months Ended May 31,						Six Months Ended May 31,							Three Months Ended May 31,						Six Months Ended May 31,
		2022		2021		Variance		2022		2021		Variance			2023		2022		Variance		2023		2022		Variance
Revenues:	Revenues:													Revenues:
Homebuilding	Homebuilding	$	1,714,826	$	1,436,035	19	%	$	3,108,980	$	2,574,043	21	%	Homebuilding	$	1,757,846	$	1,714,826	3	%	$	3,136,383	$	3,108,980	1	%
Financial services	Financial services	5,236		4,857		8		9,871		8,587		15		Financial services	7,470		5,236		43		13,247		9,871		34
Total revenues	Total revenues	$	1,720,062	$	1,440,892	19	%	$	3,118,851	$	2,582,630	21	%	Total revenues	$	1,765,316	$	1,720,062	3	%	$	3,149,630	$	3,118,851	1	%
Pretax income:	Pretax income:													Pretax income:
Homebuilding	Homebuilding	$	264,189	$	163,016	62	%	$	433,810	$	278,067	56	%	Homebuilding	$	203,518	$	264,189	(23)	%	$	359,717	$	433,810	(17)	%
Financial services	Financial services	18,681		10,648		75		27,117		19,148		42		Financial services	11,424		18,681		(39)		17,425		27,117		(36)
Total pretax income	Total pretax income	282,870		173,664		63		460,927		297,215		55		Total pretax income	214,942		282,870		(24)		377,142		460,927		(18)
Income tax expense	Income tax expense	(72,200)		(30,300)		(138)		(116,000)		(56,800)		(104)		Income tax expense	(50,500)		(72,200)		30		(87,200)		(116,000)		25
Net income	Net income	$	210,670	$	143,364	47	%	$	344,927	$	240,415	43	%	Net income	$	164,442	$	210,670	(22)	%	$	289,942	$	344,927	(16)	%
Diluted earnings per share	Diluted earnings per share	$	2.32	$	1.50	55	%	$	3.79	$	2.52	50	%	Diluted earnings per share	$	1.94	$	2.32	(16)	%	$	3.38	$	3.79	(11)	%

~~Housing~~We generated solid financial results in the 2023 second quarter amid improving housing market conditions ~~were generally~~compared to the 2022 second half and 2023 first quarter, periods in which the combination of relatively high mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns significantly depressed demand. Though the business environment continues to be less favorable ~~during the six months ended May 31, 2022, with solid demand and home price appreciation, reflecting a limited supply of new and resale inventory, and steady employment and wage growth. However,~~than during the 2022 ~~second~~first half, we achieved monthly sequential increases in our net orders in the current quarter, sustaining the ~~pace of sales across~~trend we experienced in the ~~homebuilding industry moderated from~~first quarter, due to typical seasonal factors, buyers adjusting to the ~~levels experienced over the previous 18 months, stemming from a sharp increase in~~higher mortgage interest rates, ~~in the quarter, significant inflation in the broader economy, the substantial rise in~~and low resale home ~~prices, and stock market volatility. These macro-economic trends have pressured housing affordability and negatively impacted homebuyer sentiment.~~

~~The value of our~~inventory. Our total net orders for the ~~2022~~2023 second quarter ~~increased 4% from~~were slightly above the year-earlier quarter, ~~due to~~and up 84% sequentially, as a 15% increase in their overall average selling price, partly offset by a 9% decline in net orders. The decrease in net orders reflected a moderation in our monthly net orders per community to 6.2 from 7.0, partly offset by a 3%20% year-over-year increase in our average community count ~~due~~offset a slower monthly net order pace per community of 5.2. While this monthly pace is down from the year-ago period’s exceptional 6.2 level, it is generally in line with our second-quarter average, prior to ~~new community openings. Considerable demand for our homes enabled us to lift selling prices in~~ the ~~vast majority of our communities during~~pandemic-driven volatility.

During the ~~2022~~ second quarter, ~~and, in combination with our focus~~we remained focused on balancing pace, price and construction starts at each community ~~helped us~~ to ~~enhance~~optimize our ~~returns, offset in part by the impact of significant persistent supply chain challenges and higher construction costs, as described further below.~~

Since the outbreak of COVID-19 in 2020, we have experienced intensifying building material cost pressures, including for lumber, and production capacity constraints affecting our product suppliers driven by sustained high levels of homebuilding and renovation activity, combined with supply chain disruptions stemming largely from international and domestic COVID-19 control responses and economy-wide labor shortages in the U.S. Inreturn on each inventory asset. With market conditions having improved compared to the 2022 second half and 2023 first quarter, ~~these supply chain disruptions continued, as well as ongoing restricted construction services availability~~reflecting a stabilizing mortgage interest rate environment, we were able to raise or maintain selling prices in most of our communities compared to those earlier periods. On a more selective basis and ~~delays with respect~~ to ~~state and municipal construction permitting, inspection and utility processes. Although our construction cycle times experienced modest improvement~~a lesser extent than in the ~~current~~first quarter, we implemented targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), to drive order activity and minimize cancellations. These actions, together with product and geographic mix shifts, as discussed below under “Homebuilding” and “Homebuilding Reporting Segments,” contributed to our 2023 second quarter net orders increasing 1% year over year and net order value decreasing 11%, reflecting a lower average selling price for these net orders. These year-over-year comparisons improved significantly from the ~~2022~~2023 first quarter ~~they remained extended as compared to~~when our net orders and net order value were down 49% and 53%, respectively. However, we anticipate the ~~2021 fourth quarter. Despite these operational challenges,~~pricing adjustments and other homebuyer concessions we ~~delivered approximately the same number of homes in the 2022 second quarter as we did in the year-earlier quarter. We~~ have adapted to the extent possible to these changing conditions, re-sequencing construction when necessary, and, in some cases, ordering items in advance of starting homes to mitigate delays. In addition, we continue to workimplemented, along with our suppliers and trade partners to address these issues as part of our efforts toward returning to historical construction cycle times. We believe these challenging circumstances affecting our land development and home construction activities will generally persist throughout the year, and this is reflected in our performance expectations, as presentedother factors discussed below under ~~“Outlook.~~“Outlook,” ~~However, it is possible that supply chain disruptions~~ will ~~worsen~~contribute to a year-over-year decrease in the coming periods due to the military conflict in Ukraine that began in late February 2022 and the wide-ranging sanctions the U.S. and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials.

~~Homebuilding revenues for the 2022 second quarter grew 19% due to higher housing revenues, driven by a 21% increase in the overall~~ average selling price of homes delivered in each of the remaining 2023 quarters.

Homebuilding revenues for the three months ended May 31, 2023 and 2022 were generated entirely from housing revenues. Housing revenues for the 2023 second quarter rose 3% from the year-earlier quarter due to ~~$494,300, as~~a 6% increase in the number of homes delivered ~~was essentially even with the year-earlier quarter.~~to 3,666, partly offset by a 3% decrease in their average selling price to $479,500. Approximately ~~56%~~48% of our homes delivered in the ~~2022~~2023 second quarter were to first-time homebuyers. Homebuilding operating income for the three months ended May 31, ~~2022 rose 62%~~2023 decreased 24% year over year to ~~$264.5~~$202.1 million and, as a percentage of revenues, ~~improved 410~~was down 390 basis points to ~~15.4%~~11.5%. ~~The increase in our~~Our homebuilding operating income margin for the 2023 second quarter reflected ~~improvements~~a decrease in ~~both~~ our housing gross profit margin ~~and selling, general and administrative expenses as a percentage of housing revenues. Our pretax income margin improved 430 basis points~~ to ~~16.4%~~21.1%, ~~and net~~compared to 25.3% for the year-ago quarter. Net income and diluted earnings per share ~~increased 47%~~for the three months ended May 31, 2023 decreased 22% and ~~55%~~16%, ~~respectively, each as compared~~respectively. Our diluted earnings per share for the 2023

second quarter reflected the favorable impact of our common stock repurchases over the past several quarters, which are discussed in Note 18 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.

In the ~~corresponding~~2023 second quarter, ~~of 2021.~~

~~COVID-19 Pandemic Impact.~~ ~~The COVID-19 pandemic and related COVID-19 control responses have adversely affected many economic sectors, significantly disrupted the global~~we achieved a meaningful sequential improvement in our construction cycle times. This was driven by a normalizing supply chain and fueled producer price and consumer inflation. Our business was impacted by these issues during the three-month and six-month periods ended May 31, 2022, as we experienced, among other things, supply chain bottlenecks and the other production-related challenges, includingbetter construction services availability ~~constraints, during these periods~~ as ~~described above~~well as our ongoing initiative to simplify our product offerings, alleviating to an extent the significant production challenges that have persisted to ~~various~~varying degrees ~~extended our construction~~since the 2020 second quarter, and resulted in cycle times ~~delayed home deliveries~~that remain extended relative to our historical average, and delivery and community ~~openings~~opening delays. We remain committed to further reducing build times and ~~raised our costs. They could negatively impact our growth, margins and financial results in future periods, as could additional significant COVID-19-related disruptions, if they emerge. We~~ continue to ~~be proactive~~work with our suppliers and ~~as feasible, aim~~trade partners to ~~address these issues as they arise to mitigate~~improve their performance and cost, which may help offset some of the impact onof the above-described pricing adjustments and other homebuyer concessions we have implemented. While we are pleased with the production gains in the second quarter, ongoing supply chain-related challenges for certain items may continue to negatively affect our ~~business going forward.~~land development and home construction activities through the 2023 second half, and it is possible they will worsen in that and in later periods.

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through evolving market conditions. In the 2023 first half, we generated $608.7 million of cash from operating activities, reflecting our reduced investments in land and land development as we continue to calibrate those investments to evolving market conditions. As a result, we ended the 2023 second quarter with total liquidity of $1.64 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility. We had no cash borrowings outstanding under the Credit Facility at May 31, 2023.

Our ending backlog value at May 31, ~~2022 grew 43%~~2023 decreased 44% year over year to approximately ~~$6.12~~$3.46 billion, largely due to our lower backlog at the ~~highest second-quarter level~~beginning of the quarter, which reflected the slowdown in ~~our history. With this backlog,~~housing market demand that began in the 2022 second half and continued into the 2023 first quarter. Yet, we ~~expect~~believe we are well-positioned to achieve ~~year-over-year growth in our scale, profitability and returns in~~solid results for the ~~2022~~2023 third quarter and full year, as described below under “Outlook.” In addition, to help achieve our growth objectives over the next few years, we continued to increase our land acquisition and development investments to expand our lot pipeline and support future community count growth. Our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.

HOMEBUILDING

Financial Results. The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):


		Three Months Ended May 31,				Six Months Ended May 31,					Three Months Ended May 31,				Six Months Ended May 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Housing	Housing	$	1,714,826	$	1,436,032	$	3,108,980	$	2,573,385	Housing	$	1,757,846	$	1,714,826	$	3,136,383	$	3,108,980
Land	Land	—		3		—		658		Land	—		—		—		—
Total	Total	1,714,826		1,436,035		3,108,980		2,574,043		Total	1,757,846		1,714,826		3,136,383		3,108,980
Costs and expenses:	Costs and expenses:									Costs and expenses:
Construction and land costs	Construction and land costs									Construction and land costs
Housing	Housing	(1,281,752)		(1,128,017)		(2,363,864)		(2,029,195)		Housing	(1,386,558)		(1,281,752)		(2,469,379)		(2,363,864)
Land	Land	—		(1)		—		(732)		Land	—		—		—		—
Total	Total	(1,281,752)		(1,128,018)		(2,363,864)		(2,029,927)		Total	(1,386,558)		(1,281,752)		(2,469,379)		(2,363,864)
Selling, general and administrative expenses	Selling, general and administrative expenses	(168,614)		(145,115)		(311,094)		(267,120)		Selling, general and administrative expenses	(169,186)		(168,614)		(308,413)		(311,094)
Total	Total	(1,450,366)		(1,273,133)		(2,674,958)		(2,297,047)		Total	(1,555,744)		(1,450,366)		(2,777,792)		(2,674,958)
Operating income	Operating income	264,460		162,902		434,022		276,996		Operating income	202,102		264,460		358,591		434,022
Interest income	Interest income	39		241		75		894		Interest income	1,729		39		2,196		75
Equity in income (loss) of unconsolidated joint ventures		(310)		(127)		(287)		177
Equity in loss of unconsolidated joint ventures										Equity in loss of unconsolidated joint ventures	(313)		(310)		(1,070)		(287)

Homebuilding pretax income	Homebuilding pretax income	$	264,189	$	163,016	$	433,810	$	278,067	Homebuilding pretax income	$	203,518	$	264,189	$	359,717	$	433,810
				\									\

2725


		Three Months Ended May 31,						Six Months Ended May 31,							Three Months Ended May 31,						Six Months Ended May 31,
		2022			2021			2022			2021				2023			2022			2023			2022
Homes delivered	Homes delivered	3,469			3,504			6,337			6,368			Homes delivered	3,666			3,469			6,454			6,337
Average selling price	Average selling price	$	494,300		$	409,800		$	490,600		$	404,100		Average selling price	$	479,500		$	494,300		$	486,000		$	490,600
Housing gross profit margin as a percentage of housing revenues	Housing gross profit margin as a percentage of housing revenues	25.3		%	21.4		%	24.0		%	21.1		%	Housing gross profit margin as a percentage of housing revenues	21.1		%	25.3		%	21.3		%	24.0		%
Adjusted housing gross profit margin as a percentage of housing revenues	Adjusted housing gross profit margin as a percentage of housing revenues	25.3		%	21.5		%	24.0		%	21.3		%	Adjusted housing gross profit margin as a percentage of housing revenues	21.4		%	25.3		%	21.6		%	24.0		%

Selling, general and administrative expenses as a percentage of housing revenues	Selling, general and administrative expenses as a percentage of housing revenues	9.8		%	10.1		%	10.0		%	10.4		%	Selling, general and administrative expenses as a percentage of housing revenues	9.6		%	9.8		%	9.8		%	10.0		%
Operating income as a percentage of revenues	Operating income as a percentage of revenues	15.4		%	11.3		%	14.0		%	10.8		%	Operating income as a percentage of revenues	11.5		%	15.4		%	11.4		%	14.0		%

Revenues. Homebuilding revenues for the three months and six months ended May 31, 2023 and 2022 were comprised solely of housing revenues. In the 2023 second quarter, housing revenues grew 3% from the year-earlier quarter, ~~due to~~reflecting a ~~19%~~6% increase in ~~housing revenues.~~the number of homes delivered, partly offset by a 3% decrease in their overall average selling price. The year-over-year growth in ~~housing revenues~~the number of homes delivered reflected increases of 23%, 17% and 14% in our Southeast, Central and Southwest homebuilding reporting segments, respectively, partly offset by a 22% decrease in our West Coast homebuilding reporting segment. The decline in our West Coast homebuilding reporting segment mainly resulted from a ~~21% increase~~48% year-over-year decrease in ~~the overall average selling price of homes delivered that reflected favorable housing market conditions as well as product and geographic mix shifts of homes delivered. Although our~~this segment’s backlog of homes at the beginning of the ~~quarter (“beginning backlog”)~~quarter. The lower overall average selling price primarily reflected product and geographic mix factors, and increased ~~29% year over year, the number of homes delivered~~concessions we selectively extended to buyers within backlog prior to delivery in ~~the 2022 second quarter was essentially flat primarily due to the ongoing supply chain disruptions and other production-related issues that extended~~conjunction with our construction cycle times, as described above under “Overview.” Reflecting these challenges, the number of homes delivered as a percentage of beginning backlog was 29% in the 2022 second quarter, compared to 38% in the year-earlier period, improving from 27% in the 2022 first quarter.targeted sales strategies.

For the six months ended May 31, ~~2022, homebuilding revenues grew 21% year over year to $3.11 billion, reflecting growth in housing revenues. The increase in~~2023, housing revenues ~~for~~were about the ~~six months ended May 31,~~same as the corresponding 2022 ~~was driven by a 21% rise in the overall average selling price of homes delivered,~~period, as the number of homes delivered ~~in the 2022 first half~~increased 2% and their overall average selling price was essentially ~~the same as in~~even with the year-earlier period.

Operating Income. Our homebuilding operating income for the three months ended May 31, ~~2022 grew 62%~~2023 decreased 24% from the year-earlier period, primarily reflecting ~~higher~~lower housing gross ~~profits, partly offset by an increase in selling, general and administrative expenses.~~profits. Operating income for the ~~2022~~2023 second quarter included inventory-related charges of ~~$.7~~$4.3 million, compared to ~~$.5~~$.7 million in the year-earlier quarter. As a percentage of revenues, our operating income for the three months ended May 31, ~~2022 improved 410 basis points to 15.4%~~2023 was 11.5%, compared to ~~11.3%~~15.4% for the corresponding ~~2021 period.~~2022 period, reflecting a lower housing gross profit margin. Excluding inventory-related charges, our operating income as a percentage of revenues ~~increased 410~~decreased 380 basis points to ~~15.5%~~11.7% for the ~~2022~~2023 second quarter from ~~11.4%~~15.5% for the year-earlier quarter.

For the six months ended May 31, ~~2022,~~2023, our operating income ~~increased 57%~~decreased 17% from the prior-year ~~period.~~period due to lower housing gross profits, partly offset by lower selling, general and administrative expenses. Operating income for the ~~2022 first half~~six months ended May 31, 2023 included inventory-related charges of ~~$.9~~$9.6 million, compared to ~~$4.5~~$.9 million of such charges in the corresponding ~~2021~~2022 period. As a percentage of revenues, our operating income for the six months ended May 31, ~~2022 grew 320~~2023 decreased 260 basis points year over year to ~~14.0%.~~11.4%, reflecting a lower housing gross profit margin. Excluding inventory-related charges, our operating income as a percentage of revenues ~~increased 310~~declined 230 basis points to ~~14.0%~~11.7% for the six months ended May 31, ~~2022~~2023 from ~~10.9%~~14.0% for the corresponding year-earlier period.

•Housing Gross Profits – Housing gross profits of ~~$433.1~~$371.3 million for the three months ended May 31, ~~2022 grew 41%~~2023 declined 14% from ~~$308.0~~$433.1 million for the year-earlier period, due to ~~increases~~a decrease in ~~both~~ our ~~housing revenues and~~ housing gross profit ~~margin.~~margin, partly offset by an increase in housing revenues. Our housing gross profit margin for the ~~2022~~2023 second quarter ~~rose 390~~decreased 420 basis points year over year to ~~25.3%~~21.1%, mainly ~~as a result of a favorable pricing environment that more than offset~~due to price decreases and other homebuyer concessions, together with higher construction costs, ~~(approximately 320 basis points), lower~~product and geographic mix shifts, and increased inventory-related charges. As a percentage of housing revenues, the amortization of previously capitalized interest ~~as a percentage of~~associated with housing ~~revenues (approximately 70 basis points), a decrease~~operations, which is included in construction and land costs, was 1.8% and 2.0% for the three months ended May 31, 2023 and 2022, respectively. Excluding the inventory-related charges ~~(approximately 10~~associated with housing operations of $4.3 million in the current quarter and $.7 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2023 second quarter decreased 390 basis ~~points) and other miscellaneous factors (approximately 30~~points year over year.

For the six months ended May 31, 2023, our housing gross profits of $667.0 million decreased 10% from $745.1 million for the year-earlier period. Our housing gross profit margin for the six months ended May 31, 2023 declined 270 basis ~~points). These favorable impacts were partly offset by increased expenses~~points to ~~support current operations and expected growth (approximately 40 basis points).~~21.3%, primarily due to the reasons described above with respect to the three months ended May 31, 2023. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 2.0% and 2.7% for the three months ended May 31, 2022 and 2021, respectively. Excluding the above-mentioned inventory-related charges for the applicable periods, our adjusted housing gross profit margin for the 2022 second quarter increased 380 basis points from the year-earlier period.

~~For the six months ended May 31, 2022, our housing gross profits of $745.1 million increased 37% from $544.2 million for the year-earlier period. Our housing gross profit margin~~1.9% for the six months ended May 31, 2023, compared to 2.1% for the corresponding 2022 ~~increased 290 basis points to 24.0%.~~period. Excluding the inventory-related charges ~~mentioned above,~~associated with housing operations of $9.6 million in the current period and $.9 million in the

year-earlier period, our adjusted housing gross profit margin of ~~24.0%~~21.6% for the six months ended May 31, ~~2022 increased 270~~2023 decreased 240 basis points year over ~~year, primarily due to the reasons described~~year.

above with respect to the three months ended May 31, 2022. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 2.1% for the six months ended May 31, 2022, compared to 2.8% for the corresponding 2021 period. The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”

•Selling, General and Administrative Expenses – The following table presents the components of our selling, general and administrative expenses (dollars in thousands):


		Three Months Ended May 31,								Six Months Ended May 31,									Three Months Ended May 31,								Six Months Ended May 31,
		2022		% of Housing Revenues		2021		% of Housing Revenues		2022		% of Housing Revenues		2021		% of Housing Revenues			2023		% of Housing Revenues		2022		% of Housing Revenues		2023		% of Housing Revenues		2022		% of Housing Revenues
Marketing expenses	Marketing expenses	$	35,655	2.1	%	$	29,498	2.1	%	$	64,503	2.1	%	$	57,904	2.3	%	Marketing expenses	$	37,788	2.1	%	$	35,655	2.1	%	$	70,926	2.2	%	$	64,503	2.1	%
Commission expenses (a)	Commission expenses (a)	54,794		3.2		56,623		3.9		103,423		3.3		101,475		3.9		Commission expenses (a)	62,906		3.6		54,794		3.2		109,393		3.5		103,423		3.3
General and administrative expenses	General and administrative expenses	78,165		4.5		58,994		4.1		143,168		4.6		107,741		4.2		General and administrative expenses	68,492		3.9		78,165		4.5		128,094		4.1		143,168		4.6
Total	Total	$	168,614	9.8	%	$	145,115	10.1	%	$	311,094	10.0	%	$	267,120	10.4	%	Total	$	169,186	9.6	%	$	168,614	9.8	%	$	308,413	9.8	%	$	311,094	10.0	%

(a)Commission expenses include sales commissions on homes delivered paid to internal sales counselors and external real estate brokers.

Selling, general and administrative expenses for the three months ended May 31, ~~2022 rose 16% from~~2023 were essentially even with the year-earlier quarter, mainly due to an increase in general and administrative expenses and marketing expenses. The year-over-year increase in general and administrative expenses primarily reflected higher costs associated with performance-based employee compensation plans, as well as expenses incurred to support current operations and expected growth. Marketing expenses for the three months ended May 31, 2022 increased from the year-earlier period mainly due to higher advertising costs to support our higher average community count.quarter. As a percentage of housing revenues, our selling, general and administrative expenses for the ~~2022~~2023 second quarter improved 3020 basis points, ~~largely~~ reflecting ~~lower external sales commissions and~~ increased operating leverage due to our higher housing revenues as compared to the year-earlier ~~quarter, partly offset by the above-mentioned higher expenses.~~quarter.

For the six months ended May 31, ~~2022,~~2023, selling, general and administrative expenses ~~increased 16%~~decreased slightly year over year, mainly due to the reasons described above with respect to the three months ended May 31, 2022. In addition, general and administrative expenses in the year-earlier quarter benefited from a $4.3 million ERC, which is described in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements in this report.year. As a percentage of housing revenues, selling, general and administrative expenses for the six months ~~improved 40 basis points to 10.0%, mainly due to the reasons described above with respect to the three months~~ ended May 31, ~~2022, partly offset by~~2023 improved 20 basis points, reflecting the ~~impact of~~slight decrease in general and administrative expenses, and housing revenues that were about the ~~ERC in~~same as the year-earlier period.

Interest Income/Expense. Interest income, which is generated from short-term investments, totaled $1.7 million and $2.2 million for the three-month and six-month periods ended May 31, 2023, respectively, and was nominal for the ~~three months ended May 31, 2022 and 2021. For the six-month period ended May 31, 2022, interest income was nominal, compared to $.9 million in 2021.~~corresponding year-earlier periods. Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates.

We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs. All interest incurred during the three-month and six-month periods ended May 31, ~~2022~~2023 and ~~2021~~2022 was capitalized ~~due to~~as the average amount of our inventory qualifying for interest capitalization ~~exceeding~~was higher than our average debt level for each period. ~~As a result,~~Accordingly, we had no interest expense for these periods. Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report.

Equity in ~~Income (Loss)~~Loss of Unconsolidated Joint Ventures. Our equity in ~~income (loss)~~loss of unconsolidated joint ventures was nominal for the ~~three-month and six-month periods~~three months ended May 31, ~~2022~~2023 and ~~2021.~~2022. For the six months ended May 31, 2023, our equity in loss of unconsolidated joint ventures was $1.1 million, compared to a nominal amount for the year-earlier period. Further information regarding our investments in homebuilding unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

Net Orders, Cancellation Rates, Backlog and Community Count. The following table presents information ~~concerning~~about our net orders, cancellation ~~rates,~~rate, ending backlog and community count (dollars in thousands):


		Three Months Ended May 31,						Six Months Ended May 31,							Three Months Ended May 31,						Six Months Ended May 31,
		2022			2021			2022			2021				2023			2022			2023			2022
Net orders	Net orders	3,914			4,300			8,124			8,592			Net orders	3,936			3,914			6,078			8,124
Net order value (a)	Net order value (a)	$	2,124,754		$	2,036,837		$	4,278,488		$	3,905,905		Net order value (a)	$	1,899,649		$	2,124,754		$	2,901,517		$	4,278,488
Cancellation rates (b)		17		%	9		%	14		%	10		%
Cancellation rate (b)														Cancellation rate (b)	22		%	17		%	28		%	14		%
Ending backlog — homes	Ending backlog — homes	12,331			10,034			12,331			10,034			Ending backlog — homes	7,286			12,331			7,286			12,331
Ending backlog — value	Ending backlog — value	$	6,121,233		$	4,294,923		$	6,121,233		$	4,294,923		Ending backlog — value	$	3,456,693		$	6,121,233		$	3,456,693		$	6,121,233
Ending community count	Ending community count	214			200			214			200			Ending community count	249			214			249			214
Average community count	Average community count	211			205			213			215			Average community count	253			211			250			213

(a) Net order value represents ~~the~~ potential future housing revenues associated with net orders generated during the period, as well as homebuyer selections of lot and product premiums and design studio options and upgrades for homes in backlog during the same period.

(b) Cancellation rates represent the total number of contracts for new homes cancelled during a period divided by the total (gross) orders for new homes generated during the same period.

Net Orders. ~~For~~Net orders for the ~~three months ended May 31, 2022, net~~2023 second quarter rose 1% from the year-earlier quarter, reflecting an increase in gross orders, ~~from our homebuilding operations decreased 9% year over year, reflecting a moderation in~~partly offset by higher cancellations. Although the pace of monthly net orders per community slowed to 5.2 in the 2023 second quarter, compared to 6.2 ~~from 7.0~~ in the ~~year-earlier period, partly offset by an~~corresponding quarter of 2022, overall net orders increased slightly due to a 20% increase in our average community count. The ~~moderation in~~value of our net orders ~~per community was~~declined 11% year over year, due to the ~~impact of higher mortgage interest rates, increased~~lower average selling ~~prices,~~price for those homes. Reflecting pricing adjustments and other ~~inflationary pressures on current~~ homebuyer ~~demand. We believe our Built-to-Order® homebuying process, which provides personalization~~concessions, as well as a product and ~~choice, contributed to our solid monthly net order pace in~~geographic mix shift, the ~~current quarter, particularly given recent affordability pressures.~~

~~Though~~average selling price of our net orders for the ~~2022~~2023 second quarter ~~decreased~~was $482,600, down 11% from ~~our 2021 second-quarter~~the year-earlier period. The year-over-year net ~~orders, which reached a 14-year high,~~order and net order value comparisons for the ~~value~~2023 second quarter improved from the declines of ~~our net orders rose 4% due to a 15% increase~~49% and 53%, respectively, in ~~their overall average selling price that largely reflected positive housing demand as well as product and geographic mix shifts. The~~the 2023 first quarter. In the 2023 second quarter, the year-over-year growth in our overall net ~~order value resulted from~~orders reflected increases of ~~26% in our Central homebuilding reporting segment~~19% and ~~37% in our Southeast segment, partly offset by decreases~~10% in our West Coast and Southwest homebuilding reporting segments, ~~of 10% and 9%, respectively.~~respectively, partly offset by a 20% decrease in our Central segment. Net orders in our Southeast segment were essentially even with the year-earlier quarter.

Our cancellation rate as a percentage of gross orders for the three months ended May 31, ~~2022~~2023 increased ~~from~~compared to the year-earlier period, reflecting ~~the recent sharp increase in~~elevated mortgage interest rates ~~as well as~~and ongoing economic uncertainty. On a sequential basis, the ~~housing demand we experienced in 2021. At~~cancellation rate for the ~~same time, the 2022~~2023 second quarter ~~cancellation rate remained below our~~improved from 36% in the 2023 first quarter, reflecting a moderation back toward historical ~~average.~~levels.

Backlog. The number of homes in our backlog at May 31, ~~2022 increased 23%~~2023 decreased 41% from May 31, ~~2021, reflecting~~2022, mainly due to our substantially ~~higher~~lower backlog at the beginning of the quarter ~~partly offset by~~and a year-over-year ~~decrease~~increase in ~~our net orders for~~homes delivered in the ~~three months ended May 31, 2022.~~2023 second quarter. The potential future housing revenues in our backlog at May 31, ~~2022 grew 43%~~2023 declined 44% from May 31, ~~2021~~2022 as a result of both the ~~higher~~lower number of homes in ~~our~~ backlog and a ~~16% increase~~4% decrease in ~~the overall~~their average selling ~~price~~price. The year-over-year decrease in our overall backlog value at May 31, 2023 reflected decreases in all of ~~those homes. Each of~~ our ~~four~~ homebuilding reporting segments, ~~generated year-over-year increases~~ranging from 36% in our Southwest segment to 55% in our Central segment. A portion of the homes in backlog ~~value, ranging from 18%~~will not result in ~~our West Coast segment~~homes delivered due to ~~98% in our Southeast segment.~~cancellations.

Community Count. We use the term “community count” to refer to the number of communities open for sale with at least five homes left to sell at the end of a reporting period. Our average community count for the ~~2022 second quarter increased 3%~~three months ended May 31, 2023 expanded 20% from the year-earlier period, ~~and~~reflecting increases in each of our homebuilding reporting segments. Our ending community count ~~increased 7% to 214.~~for the 2023 second quarter rose 16% from the corresponding quarter of 2022. The year-over-year increases in our ~~overall~~ average and ending community counts primarily reflected new community openings and fewer communities selling out during the three months ended May 31, ~~2022. We substantially increased~~2023. While maintaining a healthy supply of land owned or controlled under land option contracts and other similar contracts to fuel future community openings, we continued to moderate our land investments in ~~land acquisition and land development in~~ the ~~2022~~2023 first half with evolving housing market conditions, as ~~we did in 2021, to support future community count growth.~~discussed below under “Liquidity and Capital Resources.”

HOMEBUILDING REPORTING SEGMENTS

Operational Data. The following tables present information about our homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands):


	Three Months Ended May 31,
	Homes Delivered				Net Orders			Cancellation Rates
Segment	2023		2022		2023		2022	2023		2022
West Coast	802		1,029		1,299		1,088	12	%	15	%
Southwest	778		685		789		719	16		11
Central	1,302		1,117		1,042		1,300	33		22
Southeast	784		638		806		807	24		16
Total	3,666		3,469		3,936		3,914	22	%	17	%




	Net Order Value						Average Community Count
Segment	2023		2022		Variance		2023	2022		Variance
West Coast	$	870,149	$	844,831	3	%	78	59		32	%
Southwest	345,340		341,240		1		44	36		22
Central	365,213		582,084		(37)		83	73		14
Southeast	318,947		356,599		(11)		48	43		12
Total	$	1,899,649	$	2,124,754	(11)	%	253	211		20	%


	Six Months Ended May 31,
	Homes Delivered				Net Orders			Cancellation Rates
Segment	2023		2022		2023		2022	2023		2022
West Coast	1,588		1,943		2,156		2,182	16	%	13	%
Southwest	1,314		1,201		1,259		1,467	20		9
Central	2,237		2,070		1,453		2,744	43		18
Southeast	1,315		1,123		1,210		1,731	29		12
Total	6,454		6,337		6,078		8,124	28	%	14	%



	Net Order Value						Average Community Count
Segment	2023		2022		Variance		2023	2022		Variance
West Coast	$	1,405,688	$	1,690,348	(17)	%	79	58		36	%
Southwest	522,732		668,809		(22)		44	36		22
Central	504,681		1,200,093		(58)		81	75		8
Southeast	468,416		719,238		(35)		46	44		5
Total	$	2,901,517	$	4,278,488	(32)	%	250	213		17	%

Three Months Ended May 31,
Homes Delivered Net Orders Cancellation Rates
Segment 2022 2021 2022 2021 2022 2021
West Coast 1,029 1,006 1,088 1,300 15 % 9 %
Southwest 685 715 719 924 11 5
Central 1,117 1,232 1,300 1,292 22 12
Southeast 638 551 807 784 16 10
Total 3,469 3,504 3,914 4,300 17 % 9 %
Net Order Value Average Community Count
Segment 2022 2021 Variance 2022 2021 Variance
West Coast $ 844,831 $ 937,416 (10) % 59 58 2 %
Southwest 341,240 374,700 (9) 36 36 —
Central 582,084 463,746 26 73 73 —
Southeast 356,599 260,975 37 43 38 13
Total $ 2,124,754 $ 2,036,837 4 % 211 205 3 %
Six Months Ended May 31,
Homes Delivered Net Orders Cancellation Rates
Segment 2022 2021 2022 2021 2022 2021
West Coast 1,943 1,890 2,182 2,460 13 % 9 %
Southwest 1,201 1,249 1,467 1,791 9 7
Central 2,070 2,243 2,744 2,890 18 12
Southeast 1,123 986 1,731 1,451 12 11
Total 6,337 6,368 8,124 8,592 14 % 10 %
Net Order Value Average Community Count
Segment 2022 2021 Variance 2022 2021 Variance
West Coast $ 1,690,348 $ 1,716,967 (2) % 58 62 (6) %
Southwest 668,809 708,619 (6) 36 36 —
Central 1,200,093 1,016,687 18 75 78 (4)
Southeast 719,238 463,632 55 44 39 13
Total $ 4,278,488 $ 3,905,905 10 % 213 215 (1) %
May 31,
Backlog – Homes Backlog – Value
Segment 2022 2021 Variance 2022 2021 Variance
West Coast 2,680 2,594 3 % $ 2,035,168 $ 1,729,370 18 %
Southwest 2,460 2,063 19 1,078,701 786,578 37
Central 4,585 3,684 24 1,960,299 1,249,238 57
Southeast 2,606 1,693 54 1,047,065 529,737 98
Total 12,331 10,034 23 % $ 6,121,233 $ 4,294,923 43 %


	May 31,
	Backlog – Homes				Backlog – Value
Segment	2023	2022	Variance		2023		2022		Variance
West Coast	1,855	2,680	(31)	%	$	1,224,334	$	2,035,168	(40)	%
Southwest	1,637	2,460	(33)		695,613		1,078,701		(36)
Central	2,205	4,585	(52)		889,379		1,960,299		(55)
Southeast	1,589	2,606	(39)		647,367		1,047,065		(38)
Total	7,286	12,331	(41)	%	$	3,456,693	$	6,121,233	(44)	%

The composition of our homes delivered, net orders and backlog shifts with the product and geographic mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, ~~and changes~~changing as new communities open and existing communities wind down or sell ~~out.~~out in the ordinary course. In addition, with our ~~Built-to-Order~~Built to Order model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and ~~option~~the design studio options and ~~upgrade selections.~~upgrades buyers select in the community. These intrinsic variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.

Financial Results. Below is a discussion of the financial results for each of our homebuilding reporting segments. Further information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report. The difference between each homebuilding reporting segment’s operating income (loss) and pretax income (loss) is generally due to the equity in income (loss) of unconsolidated joint ventures and/or interest income and expense.

In addition to the results of our homebuilding reporting segments presented below, our consolidated homebuilding operating income includes the results of Corporate and other, a non-operating segment. Corporate and other had operating losses of $38.3 million and $43.3 million in the three months ended May 31, 2023 and 2022, ~~and $37.9 million in the three months ended May 31, 2021.~~respectively. For the six months ended May 31, ~~2022,~~2023, Corporate and other had operating losses of ~~$78.0~~$68.5 million, compared to ~~$68.3~~$78.0 million for the corresponding year-earlier period. ~~The year-over-year increases for~~

Housing market conditions in the three-month and six-month periods reflected higher selling, general and administrative expenses, mainly due to higher costs associated with performance-based employee compensation plans, as well as expenses to support current operations and expected growth.

ended May 31, 2023 were significantly more challenging than in the corresponding year-earlier periods. The financial results of our homebuilding reporting segments for each of the 2023 periods were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered. Segment financial results for three months and six months ended May 31, ~~2022~~2023 were ~~negatively~~also affected by ~~intensifying~~construction services availability constraints and building material cost pressures, as well as ~~the~~ongoing supply chain disruptions and other production-related ~~challenges, as described above under “Overview.”~~challenges.

West Coast. The following table presents financial information related to our West Coast segment (dollars in thousands, except average selling price):


		Three Months Ended May 31,								Six Months Ended May 31,									Three Months Ended May 31,								Six Months Ended May 31,
		2022			2021			Variance		2022			2021			Variance			2023			2022			Variance		2023			2022			Variance
Revenues	Revenues	$	761,217		$	625,690		22	%	$	1,420,091		$	1,140,206		25	%	Revenues	$	564,350		$	761,217		(26)	%	$	1,104,369		$	1,420,091		(22)	%
Construction and land costs	Construction and land costs	(575,709)			(507,276)			(13)		(1,083,174)			(928,331)			(17)		Construction and land costs	(465,158)			(575,709)			19		(906,344)			(1,083,174)			16
Selling, general and administrative expenses	Selling, general and administrative expenses	(47,741)			(41,748)			(14)		(89,249)			(77,006)			(16)		Selling, general and administrative expenses	(43,584)			(47,741)			9		(82,197)			(89,249)			8
Operating income	Operating income	$	137,767		$	76,666		80	%	$	247,668		$	134,869		84	%	Operating income	$	55,608		$	137,767		(60)	%	$	115,828		$	247,668		(53)	%

Homes delivered	Homes delivered	1,029			1,006			2	%	1,943			1,890			3	%	Homes delivered	802			1,029			(22)	%	1,588			1,943			(18)	%
Average selling price	Average selling price	$	739,800		$	622,000		19	%	$	730,900		$	603,300		21	%	Average selling price	$	703,700		$	739,800		(5)	%	$	695,400		$	730,900		(5)	%
Operating income as a percentage of revenues	Operating income as a percentage of revenues	18.1		%	12.3		%	580	bps	17.4		%	11.8		%	560	bps	Operating income as a percentage of revenues	9.9		%	18.1		%	(820)	bps	10.5		%	17.4		%	(690)	bps

This segment’s revenues for the three-month and six-month periods ended May 31, ~~2022 grew year over year~~2023 declined from the corresponding year-earlier periods due to ~~increases~~decreases in both the number of homes delivered and ~~the~~their average selling ~~price of those homes. The higher average selling price of homes delivered reflected favorable housing market conditions and product and geographic mix shifts of homes delivered.~~

price. Operating income for each of the ~~three months~~three-month and ~~six months~~six-month periods ended May 31, ~~2022 grew from the corresponding year-earlier periods,~~2023 was down year over year, reflecting ~~higher~~lower housing gross profits, partly offset by ~~higher~~reduced selling, general and administrative expenses. Operating income as a percentage of revenues for the ~~2022~~2023 second quarter ~~increased~~decreased from the year-earlier quarter, primarily due to a ~~550~~680 basis-point ~~expansion~~decline in the housing gross profit margin to ~~24.4%~~17.6% and a 40140 basis-point ~~improvement~~increase in selling, general and administrative expenses as a percentage of housing revenues to ~~6.3%~~7.7%. For the six months ended May 31, ~~2022,~~2023, operating income as a percentage of revenues ~~expanded~~declined from the corresponding ~~2021~~2022 period, ~~primarily due to~~reflecting a ~~510~~580 basis-point ~~increase~~decrease in the housing gross profit margin to ~~23.7%~~17.9% and a 50110 basis-point ~~improvement~~increase in selling, general and administrative expenses as a percentage of housing revenues to ~~6.3%~~7.4%.

The year-over-year ~~increases~~decreases in the housing gross profit margins for the three-month and six-month periods ended May 31, ~~2022 were largely driven~~2023 primarily reflected price decreases and other homebuyer concessions, higher relative construction costs, a product and geographic mix shift of homes delivered, and reduced operating leverage from lower housing revenues, partially offset by ~~a favorable pricing environment and~~ lower relative amortization of previously capitalized interest. In addition, the housing gross profit ~~margin~~margins for the ~~six months~~three-month and six-month periods ended May 31, ~~2022~~2023 included $3.1 million and $3.9 million of inventory-related charges, respectively, compared to nominal inventory-related charges

~~compared to $3.9 million~~ in each of ~~such charges in~~ the corresponding year-earlier ~~period.~~periods. The ~~improvement~~year-over-year increases in selling, general and administrative expenses as a percentage of housing revenues for ~~these same~~the three-month and six-month periods ~~mainly~~ended May 31, 2023 reflected ~~increased~~reduced operating leverage from ~~higher~~lower housing revenues, partly offset by ~~higher expenses incurred to support current operations and expected growth.~~a decrease in these expenses.

Southwest. The following table presents financial information related to our Southwest segment (dollars in thousands, except average selling price):


		Three Months Ended May 31,								Six Months Ended May 31,									Three Months Ended May 31,								Six Months Ended May 31,
		2022			2021			Variance		2022			2021			Variance			2023			2022			Variance		2023			2022			Variance
Revenues	Revenues	$	290,924		$	258,061		13	%	$	500,691		$	445,746		12	%	Revenues	$	335,828		$	290,924		15	%	$	575,415		$	500,691		15	%
Construction and land costs	Construction and land costs	(204,469)			(189,921)			(8)		(360,897)			(328,602)			(10)		Construction and land costs	(256,035)			(204,469)			(25)		(433,038)			(360,897)			(20)
Selling, general and administrative expenses	Selling, general and administrative expenses	(21,764)			(19,144)			(14)		(39,088)			(34,969)			(12)		Selling, general and administrative expenses	(22,728)			(21,764)			(4)		(41,194)			(39,088)			(5)
Operating income	Operating income	$	64,691		$	48,996		32	%	$	100,706		$	82,175		23	%	Operating income	$	57,065		$	64,691		(12)	%	$	101,183		$	100,706		—	%

Homes delivered	Homes delivered	685			715			(4)	%	1,201			1,249			(4)	%	Homes delivered	778			685			14	%	1,314			1,201			9	%
Average selling price	Average selling price	$	424,700		$	360,900		18	%	$	416,900		$	356,900		17	%	Average selling price	$	431,700		$	424,700		2	%	$	437,900		$	416,900		5	%
Operating income as a percentage of revenues	Operating income as a percentage of revenues	22.2		%	19.0		%	320	bps	20.1		%	18.4		%	170	bps	Operating income as a percentage of revenues	17.0		%	22.2		%	(520)	bps	17.6		%	20.1		%	(250)	bps

The year-over-year growth in this segment’s revenues for the three-month and six-month periods ended May 31, ~~2022~~2023 reflected ~~an increase~~increases in ~~the average selling price of homes delivered, partly offset by a decrease in~~both the number of homes ~~delivered. The higher~~delivered and their average selling ~~price reflected positive housing market conditions and a shift in product and geographic mix of homes delivered.~~

price. Operating income for the three months ~~and six months~~ ended May 31, ~~2022 increased~~2023 decreased from the corresponding ~~2021 periods, primarily~~year-earlier period due to ~~higher~~lower housing gross profits ~~partially offset by~~and higher selling, general and administrative expenses. As a percentage of revenues, this segment’s operating income for the ~~three-month period ended May 31, 2022 improved~~2023 second quarter declined from the year-earlier ~~period largely due to~~quarter, reflecting a ~~330~~590 basis-point ~~expansion~~decrease in the housing gross profit margin to ~~29.7%,~~23.8% that was partly offset by a 10 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.5%. For the six months ended May 31, 2022, operating income as a percentage of revenues expanded from the corresponding 2021 period, primarily due to a 160 basis-point increase in the housing gross profit margin to 27.9% and a 1070 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to ~~7.8%~~6.8%. ~~The year-over-year increases~~For the six months ended May 31, 2023, operating income was nearly even with the corresponding year-earlier period, while operating income as a percentage of revenues declined from the corresponding 2022 period, reflecting a 320 basis-point decrease in the housing gross profit ~~margins~~margin to 24.7%, partially offset by a 70 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.1%.

The year-over-year decline in the housing gross profit margin for the three months ended May 31, 2023 primarily reflected price decreases and other homebuyer concessions, a product and geographic mix shift of homes delivered, and higher relative amortization of previously capitalized interest, partly offset by improved operating leverage from higher housing revenues. The year-over-year decrease in the housing gross profit margin for the six months ended May 31, 2023 was mainly due to the same reasons described for the three months ended May 31, 2023, except for the relative amortization of previously capitalized interest, which was the same year over year. The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the three-month and six-month periods ended May 31, ~~2022~~2023 primarily reflected ~~a favorable pricing environment~~increased operating leverage from higher housing revenues as well as relatively lower general and ~~lower relative amortization of previously capitalized interest, partly offset by higher construction and land costs and increased expenses to support current operations and expected growth.~~administrative expenses.

Central. The following table presents financial information related to our Central segment (dollars in thousands, except average selling price):


		Three Months Ended May 31,								Six Months Ended May 31,									Three Months Ended May 31,								Six Months Ended May 31,
		2022			2021			Variance		2022			2021			Variance			2023			2022			Variance		2023			2022			Variance
Revenues	Revenues	$	433,046		$	390,555		11	%	$	788,368		$	700,263		13	%	Revenues	$	545,214		$	433,046		26	%	$	935,165		$	788,368		19	%
Construction and land costs	Construction and land costs	(330,473)			(300,914)			(10)		(615,333)			(539,865)			(14)		Construction and land costs	(424,628)			(330,473)			(28)		(721,914)			(615,333)			(17)
Selling, general and administrative expenses	Selling, general and administrative expenses	(36,373)			(33,359)			(9)		(68,719)			(63,124)			(9)		Selling, general and administrative expenses	(41,604)			(36,373)			(14)		(75,443)			(68,719)			(10)
Operating income	Operating income	$	66,200		$	56,282		18	%	$	104,316		$	97,274		7	%	Operating income	$	78,982		$	66,200		19	%	$	137,808		$	104,316		32	%

Homes delivered	Homes delivered	1,117			1,232			(9)	%	2,070			2,243			(8)	%	Homes delivered	1,302			1,117			17	%	2,237			2,070			8	%
Average selling price	Average selling price	$	387,700		$	317,000		22	%	$	380,900		$	312,200		22	%	Average selling price	$	418,800		$	387,700		8	%	$	418,000		$	380,900		10	%
Operating income as a percentage of revenues	Operating income as a percentage of revenues	15.3		%	14.4		%	90	bps	13.2		%	13.9		%	(70)	bps	Operating income as a percentage of revenues	14.5		%	15.3		%	(80)	bps	14.7		%	13.2		%	150	bps

This segment’s revenues for the three-month and six-month periods ended May 31, ~~2022 grew~~2023 rose from the corresponding year-earlier periods, ~~due to an increase~~reflecting increases in both the ~~average selling price~~number of homes delivered ~~partly offset by a decrease in the number of~~

~~homes delivered. The higher~~and their average selling ~~price reflected strong housing market conditions in areas where we operate within the segment and shifts in the product and geographic mix of homes delivered.~~

price. Operating income for the ~~three-month~~2023 second quarter and ~~six-month periods ended May 31, 2022~~first half increased from the corresponding year-earlier periods ~~mainly~~ due to higher housing gross profits, partly offset by higher selling, general and administrative expenses. ~~For the three months ended May 31, 2022, this~~This segment’s operating income as a percentage of revenues ~~increased~~for the three months ended May 31, 2023 decreased from the year-earlier period primarily due to a 70160 basis-point ~~increase~~decline in the housing gross profit margin to ~~23.7% and a 20~~22.1%, partly offset by an 80 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to ~~8.4%~~7.6%. ~~The year-over-year~~For the six months ended May 31, 2023, operating income as a percentage of revenues increased from the corresponding 2022 period, reflecting a 90 basis-point increase in the housing gross profit margin ~~for the three-month period ended May 31, 2022 reflected lower relative amortization of previously capitalized interest, partly offset by increased expenses~~ to ~~support current operations~~22.8% and ~~expected growth.~~

~~For the six months ended May 31, 2022, operating income as~~ a ~~percentage of revenues decreased from the year-earlier period due to a 100 basis-point decline in the housing gross profit margin to 21.9%, partly offset by a 30~~60 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to ~~8.7%~~8.1%.

The year-over-year decrease in the housing gross profit margin for the ~~six-month period~~three months ended May 31, ~~2022 was largely due to~~2023 primarily reflected higher construction costs, a product and ~~land costs~~geographic mix shift of homes delivered and increased ~~expenses to support current operations and expected growth,~~homebuyer concessions, partly offset by ~~lower relative amortization~~improved operating leverage from higher housing revenues. For the six months ended May 31, 2023, the year-over-year increase in the housing gross profit margin mainly reflected a product and geographic mix shift of ~~capitalized interest.~~homes delivered and improved operating leverage on higher housing revenues, partly offset by increased inventory-related charges and homebuyer concessions. Inventory-related charges for the 2023 first half were $2.1 million, compared to $.6 million for the year-earlier period. The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the three-month and six-month periods ended May 31, 2023 was primarily due to increased operating leverage from higher housing revenues.

Southeast. The following table presents financial information related to our Southeast segment (dollars in thousands, except average selling price):


		Three Months Ended May 31,								Six Months Ended May 31,									Three Months Ended May 31,								Six Months Ended May 31,
		2022			2021			Variance		2022			2021			Variance			2023			2022			Variance		2023			2022			Variance
Revenues	Revenues	$	229,639		$	161,729		42	%	$	399,830		$	287,828		39	%	Revenues	$	312,454		$	229,639		36	%	$	521,434		$	399,830		30	%
Construction and land costs	Construction and land costs	(168,905)			(128,307)			(32)		(301,135)			(229,540)			(31)		Construction and land costs	(238,348)			(168,905)			(41)		(403,404)			(301,135)			(34)
Selling, general and administrative expenses	Selling, general and administrative expenses	(21,671)			(14,559)			(49)		(39,366)			(27,311)			(44)		Selling, general and administrative expenses	(25,320)			(21,671)			(17)		(45,719)			(39,366)			(16)
Operating income	Operating income	$	39,063		$	18,863		107	%	$	59,329		$	30,977		92	%	Operating income	$	48,786		$	39,063		25	%	$	72,311		$	59,329		22	%

Homes delivered	Homes delivered	638			551			16	%	1,123			986			14	%	Homes delivered	784			638			23	%	1,315			1,123			17	%
Average selling price	Average selling price	$	359,900		$	293,500		23	%	$	356,000		$	291,300		22	%	Average selling price	$	398,500		$	359,900		11	%	$	396,500		$	356,000		11	%
Operating income as a percentage of revenues	Operating income as a percentage of revenues	17.0		%	11.7		%	530	bps	14.8		%	10.8		%	400	bps	Operating income as a percentage of revenues	15.6		%	17.0		%	(140)	bps	13.9		%	14.8		%	(90)	bps

This segment’s revenues for the three months and six months ended May 31, 2022 were generated solely from housing operations. For the three months and six months ended May 31, 2021, revenues were generated from both housing operations and nominal land sales. Housing revenues for the 2022 second quarter increased 42% year over year from $161.7 million. Housing revenues for the six months ended May 31, 2022 grew 39% year over year from $287.2 million. The housing revenue expansion for the three-month and six-month periods ended May 31, 2023 grew year over year from the corresponding 2022 ~~resulted from growth~~periods as a result of increases in both the number of homes delivered and ~~an increase in the overall~~their average selling ~~price of those homes, which reflected favorable housing market conditions and shifts in the product and geographic mix of homes delivered.~~

prices. Operating income for the ~~three-month~~2023 second quarter and ~~six-month periods ended May 31, 2022~~first half each increased ~~from the corresponding year-earlier periods,~~year over year, reflecting higher housing gross

profits, partly offset by higher selling, general and administrative expenses. As a percentage of revenues, operating income for the ~~2022~~2023 second quarter ~~rose~~declined from the year-earlier ~~period~~quarter mainly due to a ~~570~~270 basis-point ~~increase~~decrease in the housing gross profit margin to ~~26.4% that~~23.7%, partly offset by a 130 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.1%. For the six months ended May 31, 2023, operating income as a percentage of revenues decreased from the corresponding 2022 period, reflecting a 210 basis-point decline in the housing gross profit margin to 22.6%, partly offset by a 120 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.7%.

The year-over-year decline in the housing gross profit margin for the three-month and six-month periods ended May 31, 2023 primarily reflected higher construction costs, a ~~shift in~~product and geographic mix ~~lower relative amortization~~shift of ~~previously capitalized interest~~homes delivered and ~~reduced sales incentives. Selling,~~increased homebuyer concessions, partly offset by improved operating leverage from higher housing revenues. The year-over-year decrease in the housing gross profit margin for the six months ended May 31, 2023 was also due to inventory-related charges of $3.5 million in the current period, compared to no such charges in the year-earlier period. The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the ~~three months~~three-month and six-month periods ended May 31, ~~2022~~2023 primarily reflected increased ~~40 basis points~~operating leverage from the year-earlier period to 9.4%. For the six months ended May 31, 2022, operating income as a percentage of revenues expanded from the year-earlier period, primarily reflecting a 440 basis-point increase in thehigher housing gross profit margin to 24.7% due to the reasons described above for the three months ended May 31, 2022. Selling, general and administrative expenses as a percentage of housing revenues for the six months ended May 31, 2022 increased 40 basis points to 9.9%.revenues.

FINANCIAL SERVICES REPORTING SEGMENT

The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in thousands):


		Three Months Ended May 31,						Six Months Ended May 31,							Three Months Ended May 31,						Six Months Ended May 31,
		2022			2021			2022			2021				2023			2022			2023			2022
Revenues	Revenues	$	5,236		$	4,857		$	9,871		$	8,587		Revenues	$	7,470		$	5,236		$	13,247		$	9,871
Expenses	Expenses	(1,362)			(1,253)			(2,709)			(2,453)			Expenses	(1,472)			(1,362)			(2,830)			(2,709)
Equity in income of unconsolidated joint ventures	Equity in income of unconsolidated joint ventures	14,807			7,044			19,955			13,014			Equity in income of unconsolidated joint ventures	5,426			14,807			7,008			19,955
Pretax income	Pretax income	$	18,681		$	10,648		$	27,117		$	19,148		Pretax income	$	11,424		$	18,681		$	17,425		$	27,117

Total originations (a):	Total originations (a):													Total originations (a):
Loans	Loans	2,052			2,357			3,835			4,429			Loans	2,445			2,052			4,261			3,835
Principal	Principal	$	799,552		$	810,515		$	1,491,485		$	1,521,439		Principal	$	966,615		$	799,552		$	1,693,280		$	1,491,485
Percentage of homebuyers using KBHS	Percentage of homebuyers using KBHS	68		%	75		%	69		%	77		%	Percentage of homebuyers using KBHS	80		%	68		%	80		%	69		%
Average FICO score	Average FICO score	734			727			733			726			Average FICO score	736			734			735			733

Loans sold (a):	Loans sold (a):													Loans sold (a):
Loans sold to Stearns/GR Alliance		1,830			2,131			3,357			3,685
Loans sold to GR Alliance														Loans sold to GR Alliance	2,383			1,830			4,211			3,357
Principal	Principal	$	733,838		$	741,776		$	1,329,797		$	1,265,681		Principal	$	948,471		$	733,838		$	1,689,939		$	1,329,797
Loans sold to third parties	Loans sold to third parties	265			200			617			636			Loans sold to third parties	89			265			180			617
Principal	Principal	$	89,809		$	64,838		$	202,000		$	209,224		Principal	$	31,122		$	89,809		$	63,364		$	202,000

(a)Loan originations and sales occurred within KBHS.

Revenues. Financial services revenues for the ~~three months~~three-month and ~~six months~~six-month periods ended May 31, ~~2022~~2023 grew from the corresponding ~~2021~~2022 periods due to increases in both title services revenues and insurance commissions.

Pretax income. Financial services pretax income for the three months ended May 31, ~~2022 grew 75%~~2023 declined 39% from the year-earlier period, ~~mainly due to an increase~~as a decrease in ~~our~~the equity in income of unconsolidated joint ~~ventures.~~ventures was partly offset by improved results from our insurance and title services businesses. In the ~~2022~~2023 second quarter, the equity in income of ~~our~~ unconsolidated joint ~~venture, KBHS, increased 110% year over year~~ventures decreased to $5.4 million, compared to $14.8 million in the year-earlier quarter, primarily ~~reflecting~~as a result of a decline in KBHS’ income. The year-over-year decline in KBHS’ income mainly reflected losses of $2.7 million in the fair value of IRLCs in the current quarter, compared to gains of $25.8 million in the year-earlier quarter, due to a lower volume of new IRLCs in the 2023 second quarter. Partly offsetting this were the higher principal amount of loans originated in the current quarter, which primarily reflected increases in both the number of homes delivered and the percentage of homebuyers using KBHS. The significant gain in the 2022 second quarter resulted from a substantial increase in the fair value of IRLCs within the joint venture as a greater number of customers elected to lock their mortgage interest rates and for relatively extended periods, ~~aligned with their expected home delivery date,~~ due to the sharp rise in such rates during ~~the~~that period. This ~~impact was partly offset by~~substantial increase within KBHS resulted in a ~~lower principal amount~~shift of loan originations combined with lower margins, reflecting increased competition in the primary mortgage market. The lower principal amount of loan originations was mainly due to a decrease in the percentage of homebuyers using KBHS, partly offset by a 21% increase in the average selling price of homes delivered.

For the six months ended May 31, 2022, our financial services pretax income increased 42% from the corresponding 2021 period, primarily due to a 53% increase in the equity in income of our unconsolidated joint venture, KBHS, that reflected the factors described above for the three months ended May 31, 2022. KBHS’ accounting for the above-mentioned IRLCs had a favorable pull-forward effect on its earnings for the three months and six months ended May 31, 2022, shifting some of our ~~expected~~then-expected equity in income of KBHS from the 2022 second half to the 2022 first half.

For the six months ended May 31, 2023, our financial services pretax income declined 36% from the corresponding 2022 period, reflecting a decrease in the equity in income of unconsolidated joint ventures, partially offset by improved results from our insurance and title services businesses. In the 2023 first half, the equity in income of unconsolidated joint ventures decreased to $7.0 million, compared to $20.0 million in the year-earlier period, mainly as a result of a decline in KBHS’ income. The year-over-year decline in KBHS’ income was primarily due to losses of $4.2 million in the fair value of IRLCs in the current period, compared to gains of $33.4 million in the year-earlier period due to the factors described above for the three months ended May 31, 2023.

Further information regarding our investments in unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

INCOME TAXES

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

Three Months Ended May 31, Six Months Ended May 31,
2022 2021 2022 2021
Income tax expense $ 72,200 $ 30,300 $ 116,000 $ 56,800
Effective tax rate 25.5 % 17.4 % 25.2 % 19.1 %


	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
Effective tax rate	23.5		%	25.5		%	23.1		%	25.2		%

Our effective tax rate for the three months ended May 31, ~~2022 increased~~2023 decreased from the year-earlier period, mainly due to a ~~$14.2~~$6.2 million ~~decrease~~increase in the federal tax credits we ~~earned~~recognized primarily from building energy-efficient homes ~~reflecting the expiration of these credits for homes delivered after December 31, 2021. Also contributing to the higher effective tax rate were~~and a ~~$.4~~$1.1 million ~~decrease~~increase in excess tax benefits related to stock-based compensation, ~~and~~partly offset by a ~~$.3~~$1.3 million increase in ~~non-deductible~~nondeductible executive compensation expense.

For the six months ended May 31, ~~2022,~~2023, our effective tax rate ~~increased~~decreased from the year-earlier period, ~~primarily~~mainly due to a ~~$16.7~~$11.7 million ~~decrease~~increase in the federal tax credits we ~~earned~~recognized primarily from building energy-efficient homes and a ~~$1.7~~$1.6 million ~~decrease~~increase in excess tax benefits related to stock-based compensation, ~~and~~partly offset by a ~~$.6~~$2.7 million increase in ~~non-deductible~~nondeductible executive compensation expense.

~~In June 2020, California enacted~~ The year-over-year increase in federal tax legislation that approved the suspension of California NOL deductions for tax years 2020, 2021 and 2022. On February 9, 2022, California enacted legislation restoring the NOL deduction for tax years beginning on or after January 1, 2022, which would be effective for our 2023 fiscal year. Although the suspension of California NOL deductions did not have an impact on our income tax expensecredits for the three months and six months ended May 31, 2023 reflected the enactment of the Inflation Reduction Act of 2022 on August 16, 2022, which extended the federal tax credit for building energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modified and increased it ~~contributed to~~starting in 2023. Previously, the ~~year-over-year increase in the amount of taxes we paid in the period.~~federal tax credit expired for homes delivered after December 31, 2021.

Further information regarding our income taxes is provided in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

NON-GAAP FINANCIAL MEASURES

This report contains information about our adjusted housing gross profit margin, which is not calculated in accordance with GAAP. We believe this non-GAAP financial measure is relevant and useful to investors in understanding our operations and the leverage employed in our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. However, because it is not calculated in accordance with GAAP, this non-GAAP financial measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement the most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting our operations.

Adjusted Housing Gross Profit Margin. The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands):

Three Months Ended May 31, Six Months Ended May 31,
2022 2021 2022 2021
Housing revenues $ 1,714,826 $ 1,436,032 $ 3,108,980 $ 2,573,385
Housing construction and land costs (1,281,752) (1,128,017) (2,363,864) (2,029,195)
Housing gross profits 433,074 308,015 745,116 544,190
Add: Inventory-related charges (a) 732 457 907 4,521
Adjusted housing gross profits $ 433,806 $ 308,472 $ 746,023 $ 548,711
Housing gross profit margin as a percentage of housing revenues 25.3 % 21.4 % 24.0 % 21.1 %
Adjusted housing gross profit margin as a percentage of housing revenues 25.3 % 21.5 % 24.0 % 21.3 %


	Three Months Ended May 31,						Six Months Ended May 31,
	2023			2022			2023			2022
Housing revenues	$	1,757,846		$	1,714,826		$	3,136,383		$	3,108,980
Housing construction and land costs	(1,386,558)			(1,281,752)			(2,469,379)			(2,363,864)
Housing gross profits	371,288			433,074			667,004			745,116
Add: Inventory-related charges (a)	4,287			732			9,576			907
Adjusted housing gross profits	$	375,575		$	433,806		$	676,580		$	746,023

Housing gross profit margin as a percentage of housing revenues	21.1		%	25.3		%	21.3		%	24.0		%
Adjusted housing gross profit margin as a percentage of housing revenues	21.4		%	25.3		%	21.6		%	24.0		%

(a) Represents inventory impairment and land option contract abandonment charges associated with housing operations.

Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner. We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges. This financial

measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace.

Liquidity and Capital Resources

Overview. We have funded our homebuilding and financial services activities over the last several years with:

•internally generated cash flows;

•public issuances of debt securities;

•borrowings under the Credit Facility;

•the Term Loan;

•land option contracts and other similar contracts and seller notes;

•public issuances of our common stock; and

•letters of credit and performance bonds.

We manage our use of cash in the operation of our business to support the execution of our primary strategic goals. Over the past several years, we have primarily used cash for:

•land acquisition and land development;

•home construction;

•operating expenses;

•principal and interest payments on notes payable; ~~and~~

•repayments of borrowings under the Credit ~~Facility.~~Facility;

•dividends paid to stockholders; and

•repurchases of our common stock.

We ended the ~~2022~~2023 second quarter with total liquidity of ~~$925.6 million,~~$1.64 billion, including cash and cash equivalents and ~~$681.4 million~~$1.08 billion of available capacity under the Credit Facility. Based on our financial position as of May 31, ~~2022,~~2023, and our business forecast for the remainder of ~~2022~~2023 as discussed below under “Outlook,” we have no material concerns related to our liquidity. ~~While the ongoing COVID-19 pandemic creates potential liquidity risks, as discussed below, we~~We believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months. ~~As disclosed~~Though the financial industry and capital markets turmoil that began with regulatory authorities closing two U.S. banks in ~~Note 21~~early March 2023 could also create a potential liquidity risk if it spreads, as discussed below under Part II, Item 1A – ~~Subsequent Event in~~Risk Factors, as of the ~~Notes to Consolidated Financial Statements in~~date of this report, ~~on June 22, 2022,~~ we ~~completed~~believe it will not impair our ability to access any cash and cash equivalents we have invested in

interest-bearing bank deposit accounts, or the ~~underwritten public offering of $350.0 million in aggregate principal amount of 7.25% Senior Notes due 2030 at 100% of their aggregate principal amount. We used~~full borrowing, credit extension and payment guarantee capacities available under our Credit Facility and the net proceeds from the issuance of the 7.25% Senior Notes due 2030, together with cash on hand, to retire our outstanding $350.0 million in aggregate principal amount of 7.50% Senior Notes due 2022 on July 7, 2022, by redemption pursuant to the optional redemption terms specified for such notes.LOC Facility.

Cash Requirements. ~~There~~Other than the decrease in our notes payable presented in the table below, which reflects the repayment of all cash borrowings outstanding under the Credit Facility during the six months ended May 31, 2023, there have been no significant changes in our cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, ~~2021.~~2022.

Investments in Land and Land Development. Our investments in land and land development ~~increased 24% to $1.40 billion~~ for the six months ended May 31, ~~2022,~~2023 decreased 46% to $763.2 million, compared to ~~$1.13~~$1.40 billion for the year-earlier ~~period. Approximately 44%~~period, as we continued to calibrate our investments with evolving market conditions. In the six months ended May 31, 2023, our land acquisitions decreased 79% to $130.6 million from $624.0 million, reflecting a pivot in our land investment strategy beginning in the 2022 third quarter in response to then-softening housing market conditions, to emphasize developing land positions we already own or control under land option contracts and other similar contracts. We have also evaluated our transaction pipeline and renegotiated pricing and terms for many deals while abandoning others that no longer met our investment return standards. In addition, we have modified our land development strategy, electing where appropriate to build in smaller phases, and in some cases, defer the start of the next phase of lots in a community to align with expected demand. Reflecting these shifts in our land strategy, approximately 17% of our total investments for the six months ended May 31, ~~2022~~2023 related to land ~~acquisition,~~acquisitions, compared to approximately ~~47%~~44% in the prior-year period. While we made strategic investments in land and land development in each of our homebuilding reporting segments during the six months ended May 31, 2023 and 2022, approximately 55% and ~~2021, approximately~~ 52% ~~and 53%~~, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment. ~~Our~~

For the remainder of 2023, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment standards, though we anticipate at a lower level than in the past two years. While we expect our land acquisition activity to increase during the 2023 second half as compared to the 2023 first half, our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return ~~standards to support home delivery and revenue growth in the remainder of 2022 and beyond.~~standards.

The following table presents the number of lots we owned or controlled under land option contracts and other similar contracts and the carrying value of inventory by homebuilding reporting segment (dollars in thousands):

May 31, 2022 November 30, 2021 Variance
Segment Lots Carrying Value Lots Carrying Value Lots Carrying Value
West Coast 25,154 $ 2,579,035 23,539 $ 2,300,096 1,615 $ 278,939
Southwest 11,322 985,325 12,339 875,438 (1,017) 109,887
Central 30,762 1,197,682 28,961 995,811 1,801 201,871
Southeast 22,540 795,607 21,929 631,484 611 164,123
Total 89,778 $ 5,557,649 86,768 $ 4,802,829 3,010 $ 754,820


	May 31, 2023			November 30, 2022			Variance
Segment	Lots	Carrying Value		Lots	Carrying Value		Lots	Carrying Value
West Coast	17,018	$	2,300,284	19,302	$	2,425,141	(2,284)	$	(124,857)
Southwest	7,806	891,751		8,841	993,059		(1,035)	(101,308)
Central	19,232	1,098,704		24,001	1,278,420		(4,769)	(179,716)
Southeast	13,876	838,102		16,651	846,556		(2,775)	(8,454)
Total	57,932	$	5,128,841	68,795	$	5,543,176	(10,863)	$	(414,335)

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at May 31, ~~2022 increased~~2023 decreased from November 30, ~~2021, primarily due to~~2022, reflecting homes delivered in the 2023 first half as well as the above-mentioned pivot in our ~~investments in~~ land ~~and land development~~investment strategy, which included our abandonment of 6,179 previously controlled lots in the six months ended May 31, ~~2022 and an increase in the number of homes under construction.~~2023. The number of lots in inventory as of May 31, ~~2022~~2023 included ~~11,887~~3,448 lots under contract where the associated deposits were refundable at our discretion, compared to ~~12,434~~5,543 of such lots at November 30, ~~2021.~~2022. Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was ~~42%~~25% at May 31, ~~2022,~~2023, compared to ~~44%~~30% at November 30, ~~2021.~~2022. Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards.

Land Option Contracts and Other Similar Contracts. As discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance. Our decision to exercise a particular land option contract or other similar contract depends on the results of our due diligence reviews and ongoing market and project feasibility analysis that we conduct after entering into such a contract. In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date. We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the

sellers. If we were to acquire all the land we had under land option contracts and other similar contracts at May 31, ~~2022,~~2023, we estimate the remaining purchase price to be paid would be as follows: ~~2022 – $907.2 million;~~ 2023 – ~~$653.2~~$361.2 million; 2024 – ~~$132.7~~$295.1 million; 2025 – ~~$81.1~~$151.8 million; 2026 – ~~$15.8~~$175.8 million; 2027 – $6.3 million; and thereafter – ~~$0.~~$3.8 million.

Liquidity. The table below summarizes our cash and cash equivalents, and total liquidity (in thousands):


		May 31, 2022		November 30, 2021			May 31, 2023		November 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	244,186	$	290,764	Cash and cash equivalents	$	557,037	$	328,517
Credit Facility commitment	Credit Facility commitment	1,090,000		800,000		Credit Facility commitment	1,090,000		1,090,000
Borrowings outstanding under the Credit Facility	Borrowings outstanding under the Credit Facility	(400,000)		—		Borrowings outstanding under the Credit Facility	—		(150,000)
Letters of credit outstanding under the Credit Facility	Letters of credit outstanding under the Credit Facility	(8,618)		(8,618)		Letters of credit outstanding under the Credit Facility	(6,650)		(6,650)
Credit Facility availability	Credit Facility availability	681,382		791,382		Credit Facility availability	1,083,350		933,350
Total liquidity	Total liquidity	$	925,568	$	1,082,146	Total liquidity	$	1,640,387	$	1,261,867

The majority of our cash equivalents at May 31, ~~2022~~2023 and November 30, ~~2021~~2022 were invested in interest-bearing bank deposit accounts.

Capital Resources. Our notes payable consisted of the following (in thousands):


		May 31, 2022		November 30, 2021		Variance			May 31, 2023		November 30, 2022		Variance
Credit Facility	Credit Facility	$	400,000	$	—	$	400,000	Credit Facility	$	—	$	150,000	$	(150,000)
Term Loan								Term Loan	357,821		357,485		336
Senior notes								Senior notes	1,327,083		1,326,266		817
Mortgages and land contracts due to land sellers and other loans	Mortgages and land contracts due to land sellers and other loans	4,927		5,327		(400)		Mortgages and land contracts due to land sellers and other loans	1,759		4,760		(3,001)
Senior notes		1,680,348		1,679,700		648
Total	Total	$	2,085,275	$	1,685,027	$	400,248	Total	$	1,686,663	$	1,838,511	$	(151,848)

Our financial leverage, as measured by the ratio of debt to capital, was ~~38.8%~~30.9% at May 31, ~~2022,~~2023, compared to ~~35.8%~~33.4% at November 30, ~~2021.~~2022. The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus stockholders’ equity).

LOC Facility. We maintain anthe 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, ~~2022~~2023 and November 30, ~~2021,~~2022, we had letters of credit outstanding under the LOC Facility of ~~$36.4~~$14.5 million and ~~$34.6~~$36.4 million, respectively.

Performance Bonds. As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had ~~$1.24~~$1.34 billion and ~~$1.11~~$1.27 billion of performance bonds outstanding at May 31, ~~2022~~2023 and November 30, ~~2021,~~2022, respectively.

Unsecured Revolving Credit Facility. ~~On February 18, 2022, we entered into an amendment to our~~We have a $1.09 billion Credit Facility that ~~increased its borrowing capacity from $800.0 million to $1.09 billion and extended its maturity from October 7, 2023 to~~will mature on February 18, 2027. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments. The 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, ~~2022,~~2023, we had ~~$400.0 million of~~no cash borrowings and ~~$8.6~~$6.6 million of letters of credit outstanding under the Credit ~~Facility, with the outstanding borrowings reflecting a focus to operate with a more efficient cash balance as we continue to drive returns-focused growth.~~Facility. The Credit Facility is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Under the terms of the Credit Facility and the Term Loan, as discussed below, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth, Leverage Ratio, and either an Interest Coverage Ratio or minimum liquidity level, each as defined therein. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from comparable GAAP or other commonly used terms. The financial covenant requirements under the Credit Facility ~~as amended,~~and the Term Loan are set forth below:

•Consolidated ~~Tangible Net Worth~~tangible net worth – We must maintain a consolidated tangible net worth at the end of any fiscal quarter greater than or equal to the sum of (a) $2.09 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after November 30, 2021 and ending as of the last day of such fiscal quarter (though there is no reduction if there is a consolidated net loss in any fiscal quarter), plus (c) an amount equal to 50% of the cumulative net proceeds we receive from the issuance of our capital stock after November 30, 2021.

•Leverage Ratio – We must also maintain a Leverage Ratio of less than or equal to .60 at the end of each fiscal quarter. The Leverage Ratio is calculated as the ratio of our consolidated total indebtedness to the sum of consolidated total indebtedness and consolidated tangible net worth, all as defined under the Credit Facility.

•Interest Coverage Ratio or ~~Liquidity~~liquidity – We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of each fiscal quarter; or (b) a minimum level of liquidity, but not both. The Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest incurred, each as defined under the Credit Facility and the Term Loan, in each case for the previous 12 months. Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Credit Facility and the Term Loan, for the four most recently ended fiscal quarters in the aggregate.

In addition, under the Credit Facility and the Term Loan, our equity investments in joint ventures and non-guarantor subsidiaries ~~(which are shown, respectively, in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report~~ and ~~under “Supplemental Guarantor Financial Information” below)~~other unconsolidated entities as of the end of each fiscal quarter cannot exceed the sum of (a) $104.8 million and (b) 20% of consolidated tangible net worth. Further, for so long as we do not hold an investment grade rating, as defined under the Credit Facility and the Term Loan, the Credit Facility ~~does~~and the Term Loan do not permit our borrowing base indebtedness, which, ~~generally~~subject to certain exceptions, is the aggregate principal amount of our and certain of our subsidiaries’ outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, to be greater than our borrowing base (a measure relating to our inventory and unrestricted cash assets).

The covenants and other requirements under the Credit Facility and the Term Loan represent the most restrictive covenants that we are subject to with respect to our notes payable. The following table summarizes the financial covenants and other requirements under the Credit Facility and the Term Loan, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of May 31, ~~2022:~~2023:

Financial Covenants and Other Requirements Covenant Requirement Actual
Consolidated tangible net worth > $2.26 billion $3.25 billion
Leverage Ratio < .600 .392
Interest Coverage Ratio (a) > 1.500 9.043
Minimum liquidity (a) > $115.4 million $(155.8) million
Investments in joint ventures and non-guarantor subsidiaries < $755.5 million $266.1 million
Borrowing base in excess of borrowing base indebtedness (as defined) n/a $2.30 billion

Financial Covenants and Other Requirements

Covenant Requirement

Actual

Consolidated tangible net worth

$2.64 billion

$3.73 billion

Leverage Ratio

.600

.312

Interest Coverage Ratio (a)

1.500

10.316

Minimum liquidity (a)

$114.5 million

$557.0 million

Investments in joint ventures and non-guarantor subsidiaries

$849.9 million

$305.2 million

Borrowing base in excess of borrowing base indebtedness (as defined)

n/a

$2.64 billion

(a) Under the terms of the Credit Facility and the Term Loan, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity.

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

As of May 31, ~~2022,~~2023, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, tomeet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility or the Term Loan exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At May 31, ~~2022,~~2023, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of ~~$4.9~~$1.8 million, secured primarily by the underlying property, which had an aggregate carrying value of ~~$22.2~~$23.6 million.

~~Credit Ratings~~Senior Unsecured Term Loan.We have a $360.0 million Term Loan with the lenders party thereto that will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions). The Term Loan is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Credit Ratings. Our credit ratings are periodically reviewed by rating agencies. In ~~January 2022, Standard and Poor’s Financial Services~~April 2023, S&P Global reaffirmed our BB ~~credit rating and revised its rating outlook to positive from stable. In June 2022, Moody’s Investor Service reaffirmed our Ba2~~ credit rating and changed its rating outlook to ~~positive~~stable from ~~stable.~~positive.

Consolidated Cash Flows. The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands):


		Six Months Ended May 31,					Six Months Ended May 31,
		2022		2021			2023		2022
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	(314,812)	$	(18,067)	Operating activities	$	608,730	$	(314,812)
Investing activities	Investing activities	(37,243)		(22,068)		Investing activities	(30,937)		(37,243)
Financing activities	Financing activities	306,500		(33,347)		Financing activities	(350,534)		306,500
Net decrease in cash and cash equivalents		$	(45,555)	$	(73,482)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	$	227,259	$	(45,555)

Operating Activities. Generally, our net operating cash flows fluctuate ~~primarily~~mainly based on changes in our inventories and our profitability. Our net cash ~~used in~~provided by operating activities for the six months ended May 31, 2023 primarily reflected a net decrease in inventories of $413.8 million and net income of $289.9 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $132.2 million and a net increase in receivables of $18.5 million. In the six months ended May 31, 2022, our net cash used in operating activities mainly reflected a net increase in inventories of $764.2 million and a net increase in receivables of $11.1 million, partly offset by net income of $344.9 million and a net increase in accounts payable, accrued expenses and other liabilities of $84.3 million. In the six months ended May 31, 2021, our net cash used in operating activities mainly reflected a net increase in inventories of $379.9 million, partly offset by net income of $240.4 million, a net increase in accounts payable, accrued expenses and other liabilities of $44.8 million and a net decrease in receivables of $1.7 million.

Investing Activities. In the six months ended May 31, ~~2022,~~2023, our uses of cash included $18.3 million for net purchases of property and equipment and $17.7 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by a $5.1 million return of investments in unconsolidated joint ventures. In the six months ended May 31, 2022, the net cash used for investing activities reflected $22.1 million for net purchases of property and equipment and $16.4 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by a $1.3 million return of investments in unconsolidated joint ventures.

Financing Activities. In the six months ended May 31, ~~2021, the net cash used for investing activities reflected $18.3 million for net purchases of property and equipment and $6.3 million for contributions to unconsolidated joint ventures. These~~2023, our uses of cash ~~were partially~~included stock repurchases of $167.1 million, net repayments under the Credit Facility of $150.0 million, dividend payments on our common stock of $25.7 million, tax payments associated with stock-based compensation awards of $9.7 million and payments on mortgages and land contracts due to land sellers and other loans of $3.0 million. The cash used was partly offset by ~~a $2.5~~$5.0 million ~~return~~ of ~~investments in unconsolidated joint ventures.~~

~~Financing Activities~~.issuances of common stock under employee stock plans. In the six months ended May 31, 2022, cash was provided by net borrowings under the Credit Facility of $400.0 million. Partially offsetting the cash provided were $50.0 million of stock repurchases, $27.1 million of dividend payments on our common stock, $12.2 million of tax payments associated with stock-based compensation awards, $3.8 million of ~~issuance~~ costs incurred for an amendment of the Credit Facility ~~amendment~~ and $.4 million of payments on mortgages and land contracts due to land sellers and other loans. In the six months ended May 31, 2021, net cash was used for dividend payments on our common stock of $27.8 million, tax payments associated with stock-based compensation awards of $8.5 million and payments on mortgages

~~and land contracts due to land sellers and other loans of $.6 million. The cash used was partially offset by $3.5 million of issuances of common stock under employee stock plans.~~

Dividends. In the three-month periods ended May 31, ~~2022~~2023 and ~~2021,~~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, ~~2022~~2023 and ~~2021~~2022 totaled $.30 per share. The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our board of directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.

As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the

ordinary course of our business. For the remainder of ~~2022,~~2023, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions. During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities or loans to mature or expire. However, with the uncertainty surrounding the COVID-19 pandemic and international and domestic COVID-19 control responses, including in China, as well as the ongoing global supply chain disruptions, which may be exacerbated by the military conflict in Ukraine and the associated wide-ranging sanctions imposed on Russian business sectors, financial organizations, individuals and raw materials, each of which could materially and negatively affect our business and the housing market, ourOur ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions ~~as well as moderated investor and/~~or ~~lender interest or capacity~~other factors, and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions. ~~Further discussion of the~~The potential ~~impacts~~liquidity risks from the ~~COVID-19 pandemic on our~~financial industry and capital ~~resources and liquidity~~markets turmoil that began in early March 2023 with the closing of two U.S. banks is ~~provided in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended November 30, 2021.~~discussed below under Part II, Item 1A – Risk Factors.

Supplemental Guarantor Financial Information

As of May 31, ~~2022,~~2023, we had ~~$1.69~~$1.34 billion in aggregate principal amount of outstanding senior notes, no borrowings outstanding under the Credit Facility and ~~$400.0~~$360.0 million in aggregate principal amount of borrowings outstanding under the ~~Credit Facility.~~Term Loan. Our obligations to pay principal ~~premium, if any,~~ and interest on the senior notes and borrowings, if any, under the Credit Facility and the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries. Our other subsidiaries, including all of our subsidiaries associated with our financial services operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best interest. See Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes, the Credit Facility and the ~~Credit Facility.~~Term Loan.

The guarantees are full and unconditional, and the Guarantor Subsidiaries are 100% owned by us. The guarantees are senior unsecured obligations of each of the Guarantor Subsidiaries and rank equally in right of payment with all unsecured and unsubordinated indebtedness and guarantees of such Guarantor Subsidiaries. The guarantees are effectively subordinated to any secured indebtedness of such Guarantor Subsidiaries to the extent of the value of the assets securing such indebtedness, and structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries.

Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility and the Term Loan, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our Non-Guarantor ~~subsidiaries~~Subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes, ~~and~~ the Credit Facility and the Term Loan so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release.

The following tables present summarized financial information for KB Home and the Guarantor Subsidiaries on a combined basis, excluding unconsolidated joint ventures and after the elimination of (a) intercompany transactions and balances between KB Home and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries. See Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report for additional information regarding our unconsolidated joint ventures.


	May 31, 2023		November 30, 2022
Summarized Balance Sheet Data (in thousands)
Assets
Cash	$	521,705	$	265,916
Inventories	4,681,211		5,118,252
Amounts due from Non-Guarantor Subsidiaries	469,835		403,249
Total assets	6,305,162		6,404,755

Liabilities and Stockholders’ Equity
Notes payable	$	1,686,663	$	1,836,001
Amounts due to Non-Guarantor Subsidiaries	303,823		283,280
Total liabilities	2,790,451		2,977,348
Stockholders’ equity	3,514,711		3,427,407

May 31,
2022 November 30,
2021
Summarized Balance Sheet Data (in thousands)
Assets
Cash $ 211,457 $ 250,118
Inventories 5,079,727 4,425,531
Amounts due from Non-Guarantor Subsidiaries 413,041 323,549
Total assets 6,314,890 5,581,883
Liabilities and Stockholders’ Equity
Notes payable $ 2,082,765 $ 1,682,517
Amounts due to Non-Guarantor Subsidiaries 269,459 254,717
Total liabilities 3,245,114 2,755,817
Stockholders’ equity 3,069,776 2,826,066

Six Months Ended
May 31, ~~2022~~2023

Summarized Statement of Operations Data (in thousands)

Revenues

~~2,941,460~~2,963,692

Construction and land costs

~~(2,224,189)~~(2,323,069)

Selling, general and administrative expenses

~~(302,412)~~(302,244)

Interest income from ~~non-guarantor subsidiary~~Non-Guarantor Subsidiaries

~~13,212~~14,009

Pretax income

~~428,135~~354,204

Net income

~~320,135~~272,304

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the six months ended May 31, ~~2022~~2023 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, ~~2021.~~2022.

Recent Accounting Pronouncements

~~Recent~~There are no recent accounting pronouncements that are ~~discussed in Note 1 – Basis of Presentation and Significant Accounting Policies in the Notes~~expected to ~~Consolidated Financial Statements in this report.~~have a material impact on our consolidated financial statements.

Outlook

We believe several long-term housing market fundamental factors remain positive, including favorable demographics, a ~~housing supply-demand imbalance resulting from a~~ decade-plus underproduction of new homes ~~in relation~~relative to population growth and ~~a limited supply of~~low resale ~~homes available for sale. However,~~home inventory. In the ~~impact of rapidly rising~~current period, while mortgage interest rates ~~persistent significant inflationary pressures, high home prices,~~ and ~~stock market volatility is challenging housing affordability and is expected to weaken~~inflation remained elevated, demand ~~in the 2022 third and fourth quarters, and potentially beyond, compared to the prior 18 months, with higher cancellation rates for these same periods as~~strengthened compared to the 2022 second ~~quarter. Lower demand could also heighten~~half and 2023 first quarter, with buyers adjusting to the ~~typical seasonal decrease~~higher mortgage interest rates and a stabilizing rate environment. Our 3,936 net orders for the 2023 second quarter were about even with the year-earlier quarter and we achieved a 5.2 monthly net orders per community pace, generally in line with our second-quarter average, prior to the pandemic-driven volatility. We anticipate a sequential decline in net orders ~~we experience~~ in the 2023 third and fourth ~~quarters. Nonetheless,~~quarters, partly due to seasonality. This could be influenced up or down by inventory levels or movement in mortgage interest rates, among other supply and demand factors, including expected continued consumer caution from interest rate and economic uncertainties as well as affordability pressures.

With market conditions having improved compared to the 2022 second half and 2023 first quarter, we ~~believe the ability~~were able to raise or maintain selling prices in most of our ~~differentiating,~~communities in the 2023 second quarter as compared to those earlier periods. However, we anticipate the pricing adjustments and other homebuyer concessions we have selectively implemented since the 2022 second half and plan to use to a lesser extent in the 2023 second half, subject to market dynamics and the size and construction stage of the backlog within each community, as well as lower proportion of deliveries expected from higher-priced communities within our West Coast homebuilding reporting segment, will contribute to a year-over-year decrease in the average selling price of homes delivered in each of the remaining 2023 quarters. At the same time, we are continuing to pursue reductions in our direct construction costs and cycle times to help offset any such pricing adjustments and other homebuyer concessions. We are committed to reducing our build times to achieve deliveries within our normal historical period of between six and seven months from home order.

We believe we are in a strong position to operate effectively through changing market conditions, with a solid balance sheet and liquidity, and anticipated healthy operating cash flow for the 2023 fiscal year. While we expect our land acquisition activity to increase during the 2023 second half as compared to the 2023 first half, our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.

We intend to maintain a balanced approach to capital allocation to maximize long-term stockholder value. In this regard, we ended the 2023 second quarter with approximately $407.9 million remaining under our current board of directors share repurchase authorization, which provides us flexibility to continue to repurchase our common stock.

We plan to continue to balance pace, price and construction starts at each community to optimize our return on each inventory asset within its market context, leveraging our differentiated, highly customer-centric ~~Built-to-Order~~Built to Order business model and operational capabilities to help effectively meet evolving consumer preferences and ~~budgets,~~budgets. With our ~~operational capabilities and an anticipated year-over-year increase in~~backlog value of $3.46 billion at May 31, 2023, we believe we can achieve our ~~community count will assist us in navigating the changing market conditions and help drive growth in revenues and operating margin in 2022, as compared to 2021,~~projected results for 2023, subject to the factors and risks described in this report. Based on the foregoing, our present outlook for the ~~2022~~2023 third quarter and full year is as follows:

4241

~~2022~~2023 Third Quarter

•We expect to generate housing revenues in the range of ~~$1.82~~$1.35 billion to ~~$1.92~~$1.50 billion, ~~an increase~~a decrease from ~~$1.46~~$1.84 billion in the corresponding ~~2021~~2022 period, and anticipate our average selling price to be approximately ~~$495,000,~~$470,000, compared to ~~$426,800~~$508,700 in the year-earlier period.

•We expect our homebuilding operating income margin will be ~~approximately 16.9%~~in the range of 9.5% to 10.1%, assuming no inventory-related charges, updown from ~~12.1%~~18.1% for the year-earlier quarter.

•We expect our housing gross profit margin will be in the range of 20.4% to ~~be approximately 26.5%~~21.0%, assuming no inventory-related charges, compared to ~~22.0%~~27.0% for the corresponding ~~2021~~2022 quarter.

•~~We expect our selling, general and administrative expenses as a percentage of housing revenues to be approximately 9.6%, compared to 9.9% in the 2021 third quarter.~~

•~~We expect to recognize a charge of approximately $4.0 million for the early extinguishment of debt due to the optional redemption of our 7.50% Senior Notes due 2022 on July 7, 2022.~~

•We expect our effective tax rate will be approximately 25%. The effective tax rate for the year-earlier quarter was approximately 14%, reflecting the favorable effect of then-available federal tax credits we earned primarily from building energy-efficient homes.

•~~We expect a small sequential increase in our ending community count.~~

~~2022 Full Year~~

•We expect our housing revenues to be in the range of $7.30 billion to $7.50 billion, an increase of 30% at the mid-point of the range, from $5.69 billion in 2021, and anticipate our average selling price to be approximately $500,000, an increase of 18% from 2021.

•~~We expect our homebuilding operating income margin to be in the range of 16.0% to 16.6%, assuming no inventory-related charges, compared to 11.8% for 2021.~~

•~~We expect our housing gross profit margin to be in the range of 25.6% to 26.2%, assuming no inventory-related charges, compared to 21.8% for 2021.~~

•We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of ~~9.3%~~10.6% to ~~9.7%~~11.2%, compared to ~~10.1%~~8.9% in the 2022 third quarter.

•We expect our effective tax rate will be approximately 23%. The effective tax rate for the year-earlier quarter was approximately 22%.

•We expect our average community count will be up approximately 10%, compared to the prior-year quarter, with a sequential decline in our quarter-end community count.

•We expect our net orders will range between 3,000 and 3,500, representing a 59% year-over-year increase at the mid-point.

2023 Full Year

•We expect our housing revenues to be in the range of $5.80 billion to $6.20 billion, a 13% decrease at the mid-point from $6.88 billion in 2022, and anticipate our average selling price will be approximately $485,000, a decrease from $500,800 for 2022.

•We expect our homebuilding operating income margin to be about 11.0%, assuming no inventory-related charges, compared to 15.6% for 2022.

•We expect our housing gross profit margin to be approximately 21.2%, assuming no inventory-related charges, compared to 24.8% for 2022.

•We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.3%, compared to 9.2% in the prior year.

•We expect the effective tax rate will be approximately ~~25%. The effective tax rate~~23%, compared to approximately 24% for ~~2021 was approximately 19%, which reflected the favorable effect of then-available federal tax credits we earned primarily from building energy-efficient homes.~~2022.

•We expect our average community count will be up roughly 10%, and our ending community count ~~to be approximately 250, up 15% compared to year-end 2021.~~

•~~We expect our return on equity to be in excess of 27%, an improvement of more than 700 basis points compared to 19.9% for 2021.~~flat, year over year.

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly ~~regarding~~in regard to housing and mortgage loan financing policies). In particular, we and other residential construction firms continue to experience services and supply constraints and rising and volatile raw material prices, including for lumber. Although we continue to work with our suppliers and trade partners to resolve these land development and home construction issues, we believe they will generally persist throughout the year. Ongoing supply chain disruptions and other production-related challenges may worsen in the coming periods, as described above under “Overview,” and could extend our construction cycle times, delay our new community openings and intensify construction-related cost pressures beyond our experience in the 2022 first half or in 2021. In addition, as noted above, consumer demand for our homes and our ability to grow our scale, revenues, net orders, backlog and returns in 2022 could be materially and negatively affected by persistent inflation in the U.S. economy and theThe Federal Reserve’s aggressive raising of the federal funds interest rate and other ~~actions~~measures during 2022 and into 2023 to moderate persistent U.S. inflation, and the further actions it may take, are expected to be an ongoing headwind for the housing market, as ~~well as the severity of the ongoing COVID-19 pandemic and related international and domestic COVID-19 control responses, including in China, and/or other factors that cause~~they have elevated mortgage ~~loan~~ interest rates and created macroeconomic uncertainty and financial market turbulence that, among other things, has tempered consumer demand for homes and disrupted credit and lending markets. In addition, while we experienced improvement with respect to ~~increase or that temper mortgage loan availability, employment or income levels or consumer confidence~~ongoing supply chain disruptions, other production challenges and construction cost pressures described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe they will generally persist for the ~~U.S. or in our served markets.~~2023 second half. The potential extent and effect of these factors on our business is highly

uncertain, unpredictable and outside our control, and our past performance, including in the ~~2022~~2023 second quarter and first half, should not be considered indicative of our future results on any metric or set of ~~metrics.~~metrics, including, but not limited to, our net orders, backlog, revenues and returns.

Forward-Looking Statements

Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute ~~forward-looking~~forward-

looking statements. In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act. Forward-looking statements are based on our current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of future performance, and we have no specific policy or intention to update these statements. If we update or revise any such statement(s), no assumption should be made that we will further update or revise that statement(s) or update or revise any other such statement(s). In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions; the success, performance, effectiveness and/or relative positioning of our strategies, initiatives or operational activities; and other matters, may be based in whole or in part on general observations of our management, limited or anecdotal evidence and/or business or industry experience without in-depth or any particular empirical investigation, inquiry or analysis.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the following:

•general economic, employment and business conditions;

•population growth, household formations and demographic trends;

•conditions in the capital, credit and financial markets;

•our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms;

•the execution of any securities repurchases pursuant to our board of directors’ authorization;

•material and trade costs and availability, including building materials ~~especially lumber,~~ and ~~appliances;~~appliances, and delays related to state and municipal construction, permitting, inspection and utility processes, which have been disrupted by key equipment shortages;

•consumer and producer price inflation;

•changes in interest rates, including those set by the Federal Reserve, which the Federal Reserve has increased sharply in the past few quarters and may further increase to moderate inflation, and those available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans;

•our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule;

•our compliance with the terms of the Credit Facility and the Term Loan;

•the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility;

•volatility in the market price of our common stock;

•home selling prices, including our homes’ selling prices, ~~increasing at a faster rate than~~being unaffordable relative to consumer incomes;

•weak or declining consumer confidence, either generally or specifically with respect to purchasing homes;

•competition from other sellers of new and resale homes;

•weather events, significant natural disasters and other climate and environmental ~~factors;~~factors, such as a lack of adequate water supply to permit new home communities in certain areas;

•any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to any such failure;

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•government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities;

•changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect to thereto;

•changes in U.S. trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measures taken by other countries;

•disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S. and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, exacerbate building materials and appliance shortages and/or reduce our revenues and earnings;

•the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto;

•the availability and cost of land in desirable areas and our ability to timely and efficiently develop acquired land parcels and open new home communities;

•impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets;

•our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred;

•costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;

•our ability to use/realize the net deferred tax assets we have generated;

•our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into new markets;

•our operational and investment concentration in markets in California;

•consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers;

•our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California;

•our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this report or in any of our other public filings, presentations or disclosures;

•income tax expense volatility associated with stock-based compensation;

•the ability of our homebuyers to obtain homeowners insurance policies, which may depend on the ability and willingness of insurers to offer coverage in certain locations at an affordable price or at all;

•the ability of our homebuyers to obtain residential mortgage loans and mortgage banking ~~services;~~services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers;

•the performance of mortgage lenders to our homebuyers;

•the performance of KBHS;

•the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans;

•information technology failures and data security breaches;

•an epidemic or pandemic, ~~(such as the outbreak and worldwide spread of COVID-19),~~ and the control response measures that international, ~~(including China),~~ federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may ~~(as with COVID-19)~~ precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period; and

•other events outside of our control.

Please see our Annual Report on Form 10-K for the year ended November 30, ~~2021~~2022 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We enter into debt obligations primarily to support general corporate purposes, including the operations of our subsidiaries. We are subject to interest rate risk on our long-term debt. For fixed rate debt,There have been no material changes in ~~interest rates generally affect~~our market risk since November 30, 2022, other than our repayment of all $150.0 million of cash borrowings under the ~~fair value of~~Credit Facility during the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. We generally have no obligation to prepay our fixed rate debt before maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed rate debt until we are required or elect to refinance or repurchase such debt. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.

~~The following tables present principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of debt obligations as~~six months ended May 31, 2023. As of May 31, ~~2022 (dollars in thousands):~~

As of May 31, 2022 and for the Years Ending November 30, Fair Value at
May 31, 2022
2022 2023 2024 2025 2026 Thereafter Total
Long-term debt
Fixed Rate $ 350,000 $ 350,000 $ — $ — $ — $ 990,000 $ 1,690,000 $ 1,633,863
Weighted Average Effective Interest Rate 7.7 % 7.5 % — % — % — % 5.3 % 6.2 %
Variable rate (a) $ 400,000 $ — $ — $ — $ — $ — $ 400,000 $ 400,000
Weighted Average Effective Interest Rate 2.3 % — % — % — % — % — % 2.3 %

~~(a) The interest rate for our variable rate debt, which is comprised of~~2023, we had no cash borrowings outstanding under the Credit Facility. For additional information regarding our ~~Credit Facility, represents~~market risk, refer to the ~~weighted average interest rate in effect at May 31, 2022. Based upon the amount of variable rate debt outstanding at May 31, 2022,~~“Quantitative and ~~holding the variable rate debt balance constant, each 100-basis point increase in interest rates would increase the interest we incur by approximately $4.0 million per year.~~

~~Unconsolidated Joint Ventures.~~ ~~The table above does not include debt~~Qualitative Disclosures About Market Risk” section of our ~~unconsolidated joint ventures. For a discussion pertaining to~~Annual Report on Form 10-K for the debt of our homebuilding and financial services unconsolidated joint ventures, see Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

Our financial services unconsolidated joint venture, KBHS, is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing IRLCs to customers. KBHS enters into best efforts forward sale commitments with secondary market investors to manage the risk of adverse interest rate movements that could impact the fair value of IRLCs. Best efforts forward sale commitments allow KBHS to agree on the sales price of the underlying loans that will be realized upon their sale into the secondary market. KBHS does not engage in speculative or trading derivative activities. All of KBHS’ loan portfolio is held for sale and subject to best efforts forward sale commitments. Further information is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

year ended November 30, 2022.

Item 4.Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including our Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and our Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of May 31, ~~2022.~~2023.

We have invested significant resources over the past few years to develop and implement a new custom enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal operational and administrative activities. While the new ERP system has become an increasing component of our business as ~~more~~most of our operating divisions ~~transition~~have transitioned to it, the

related internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. Accordingly, we continue to rely upon a combination of our existing and new ERP systems for financial statement reporting purposes. Other than the new ERP system implementation, there have been no changes in our internal control over financial reporting during the quarter ended May 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.OTHER INFORMATION

Item 1.Legal Proceedings

For a discussion of our legal proceedings, see Note 17 – Legal Matters in the Notes to Consolidated Financial Statements in this report.

Item 1A.Risk Factors

~~There~~Except as set forth below, as of the date of this report, there have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended November 30, ~~2021.~~2022. However, we cannot provide any assurance that any such risk factor will not materialize.

Financial industry and capital markets turmoil may materially and adversely affect our liquidity and consolidated financial statements.

In early March 2023, federal and state banking regulators closed two U.S. banks, with which neither we nor KBHS had any banking, financing or other business relationships or dependencies, precipitating financial industry and capital markets turmoil centered on concerns about the stability and solvency of other banks and financial institutions and the attendant risk they may be closed and/or forced by governmental agencies into receivership or sale. The failure of other banks and financial institutions, if it occurs, could have a material adverse effect on our liquidity or consolidated financial statements if we have

placed cash and cash equivalent deposits at such banks or financial institutions, or if such banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility or LOC Facility. Under our Credit Facility, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit, and may not issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral). If the non-defaulting lenders are unable or unwilling to cover or acquire a defaulting lender’s respective commitment, potentially due to other demands they face under other credit instruments to which they are party, or because of regulatory restrictions, among other factors, we may not be able to access the Credit Facility’s full borrowing or letter of credit capacity to support our business needs. Similarly, if the applicable lender fails to meet its commitment to provide payment guarantees for us under the LOC Facility, we may not be able to access its full issuance capacity to carry out important operational processes. In addition, if a party to the warehouse line of credit and master repurchase agreements KBHS uses to fund mortgage originations fails, or is unable or unwilling to fulfill their obligations, KBHS may be limited in its ability, or unable, to provide mortgage loans to our homebuyers, which may prevent them from closing on their home at the time expected or at all. Also, if there is a failure of the lender of the revolving line of credit to one of our unconsolidated joint ventures for it to finance its land acquisition, development and construction activities, the unconsolidated joint venture may be delayed or unable to complete the project.

Based on our outreach to our, KBHS’ and the unconsolidated joint venture’s banking and financial institution partners, and steps we have taken to place deposits only with certain of those partners, as of the date of this report, we believe the above-described financial industry and capital markets turmoil will not impair our, KBHS’ or the unconsolidated joint venture’s ability to access any cash and cash equivalents on deposit or the full amounts available for borrowings or other credit extensions under the applicable financial instruments, in each case if and as needed in the ordinary course.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes purchases of our own equity securities during the three months ended May 31, ~~2022:~~2023 (dollars in thousands, except per share amounts):


Period	Period	Total Number of Shares Purchased	Average Price Paid per Share		Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs ($000’s)		Maximum Number (Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs ($000’s) (a)		Period	Total Number of Shares Purchased	Average Price Paid per Share (a)		Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs (a)		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (a) (b)
March 1-31	March 1-31	—	—		—		331,400		March 1-31	—	$	—	$	—	$	500,000
April 1-30	April 1-30	1,519,646	$	32.90	$	50,000	$	250,000	April 1-30	1,236,197	40.92		50,590		449,410
May 1-31	May 1-31	—	—		—		250,000		May 1-31	926,685	44.78		41,498		407,912
Total	Total	1,519,646	$	32.90	$	50,000			Total	2,162,882	$	42.58	$	92,088

(a) AsThe Inflation Reduction Act of ~~November 30, 2021, we had 331,400 shares authorized for repurchase under~~2022, which was enacted into law on August 16, 2022, imposed a ~~share repurchase program approved by our board~~nondeductible 1% excise tax on the net value of ~~directors in July 2021.~~certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.

(b) On ~~April 7, 2022,~~March 21, 2023, our board of directors authorized us to repurchase up to ~~$300.0~~$500.0 million of our outstanding common ~~stock.~~stock, excluding excise tax. This authorization replaced ~~the~~a prior board of directors authorization, ~~as discussed in Note 18 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.~~which had $75.0 million remaining, excluding excise tax. In the ~~2022~~2023 second quarter, we ~~purchased 1,519,646~~repurchased 2,162,882 shares of our common stock on the open market pursuant to ~~this~~the current authorization at a total cost of ~~$50.0~~$92.1 million. As of May 31, ~~2022,~~2023, we ~~had $250.0~~were authorized to repurchase up to $407.9 million of common stock ~~authorized for repurchase.~~in additional transactions, excluding excise tax.

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Item 6.Exhibits


Exhibits

10.35						Amended and Restated KB Home 2014 Equity Incentive Plan, effective April 20, 2023.

22						List of Guarantor Subsidiaries, filed as an exhibit to our Annual Report on Form 10-K for the year ended November 30, ~~2021~~2022 (File No. 001-09195), is incorporated by reference herein.

31.1						Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			KB HOME Registrant

Dated

July ~~8, 2022~~7, 2023

By:

/s/ JEFF J. KAMINSKI

Jeff J. Kaminski
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Dated

July ~~8, 2022~~7, 2023

By:

/s/ WILLIAM R. HOLLINGER

William R. Hollinger
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

4948


	Three Months Ended May 31,		Six Months Ended May 31,
Unobservable Input	2022	2021	2022	2021
Average selling price	$—	$—	$—	$471,000
Deliveries per month	—	—	—	5
Discount rate	—%	—%	—%	19%


	As of May 31, 2022 and for the Years Ending November 30,																					Fair Value at May 31, 2022
	2022			2023			2024			2025			2026			Thereafter			Total
Long-term debt
Fixed Rate	$	350,000		$	350,000		$	—		$	—		$	—		$	990,000		$	1,690,000		$	1,633,863
Weighted Average Effective Interest Rate	7.7		%	7.5		%	—		%	—		%	—		%	5.3		%	6.2		%
Variable rate (a)	$	400,000		$	—		$	—		$	—		$	—		$	—		$	400,000		$	400,000
Weighted Average Effective Interest Rate	2.3		%	—		%	—		%	—		%	—		%	—		%	2.3		%