KB HOME [KBH] Filings

10-Q 1 kbh-20240531.htm 10-Q kbh-20240531

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, 2024.

☐ 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	☐
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 75,203,769 shares of the registrant’s common stock, par value $1.00 per share, outstanding on May 31, 2024. 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, 2024 and 2023			3

Consolidated Balance Sheets - May 31, 2024 and November 30, 2023			4

Consolidated Statements of Stockholders' Equity - Three Months and Six Months Ended May 31, 2024 and 2023			5

Consolidated Statements of Cash Flows - Six Months Ended May 31, 2024 and 2023			6

Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25

Item 3. Quantitative and Qualitative Disclosures About Market Risk			46

Item 4. Controls and Procedures			46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			46

Item 1A. Risk Factors			46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47

Item 5. Other Information			47

Item 6. Exhibits			47

SIGNATURES			48

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,
	2024		2023		2024		2023
Total revenues	$	1,709,813	$	1,765,316	$	3,177,579	$	3,149,630
Homebuilding:
Revenues	$	1,701,512	$	1,757,846	$	3,163,210	$	3,136,383
Construction and land costs	(1,342,102)		(1,386,558)		(2,488,630)		(2,469,379)
Selling, general and administrative expenses	(171,227)		(169,186)		(328,721)		(308,413)
Operating income	188,183		202,102		345,859		358,591
Interest income and other	19,449		1,729		25,306		2,196

Equity in income (loss) of unconsolidated joint ventures	224		(313)		(221)		(1,070)

Homebuilding pretax income	207,856		203,518		370,944		359,717
Financial services:
Revenues	8,301		7,470		14,369		13,247
Expenses	(1,473)		(1,472)		(3,019)		(2,830)
Equity in income of unconsolidated joint venture	6,435		5,426		13,490		7,008
Financial services pretax income	13,263		11,424		24,840		17,425
Total pretax income	221,119		214,942		395,784		377,142
Income tax expense	(52,700)		(50,500)		(88,700)		(87,200)
Net income	$	168,419	$	164,442	$	307,084	$	289,942
Earnings per share:
Basic	$	2.21	$	2.00	$	4.02	$	3.49
Diluted	$	2.15	$	1.94	$	3.91	$	3.38
Weighted average shares outstanding:
Basic	75,653		81,764		75,773		82,607
Diluted	77,806		84,306		78,034		85,141

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)


	May 31, 2024		November 30, 2023
Assets
Homebuilding:
Cash and cash equivalents	$	643,536	$	727,076

Receivables	371,674		366,862
Inventories	5,335,185		5,133,646
Investments in unconsolidated joint ventures	64,319		59,128
Property and equipment, net	89,228		88,309
Deferred tax assets, net	114,475		119,475
Other assets	119,453		96,987
	6,737,870		6,591,483
Financial services	67,810		56,879
Total assets	$	6,805,680	$	6,648,362

Liabilities and stockholders’ equity
Homebuilding:
Accounts payable	$	396,584	$	388,452
Accrued expenses and other liabilities	720,622		758,227
Notes payable	1,695,196		1,689,898
	2,812,402		2,836,577
Financial services	1,574		1,645
Stockholders’ equity:
Common stock — 101,891,905 and 101,275,979 shares issued at May 31, 2024 and November 30, 2023, respectively	101,892		101,276
Paid-in capital	848,635		845,693
Retained earnings	3,948,878		3,676,924
Accumulated other comprehensive loss	(3,671)		(3,671)
Grantor stock ownership trust, at cost: 6,705,247 shares at May 31, 2024 and November 30, 2023	(72,718)		(72,718)
Treasury stock, at cost: 19,982,889 and 18,703,704 at May 31, 2024 and November 30, 2023, respectively	(831,312)		(737,364)
Total stockholders’ equity	3,991,704		3,810,140
Total liabilities and stockholders’ equity	$	6,805,680	$	6,648,362

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands – Unaudited)


	Three Months Ended May 31, 2024 and 2023
	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 29, 2024	101,862	(6,705)	(19,241)	$	101,862	$	839,772	$	3,799,234	$	(3,671)	$	(72,718)	$	(781,809)	$	3,882,670
Net income	—	—	—	—		—		168,419		—		—		—		168,419
Dividends on common stock	—	—	—	—		—		(18,775)		—		—		—		(18,775)
Employee stock options/other	30	—	—	30		438		—		—		—		—		468

Stock awards	—	—	23	—		(938)		—		—		—		938		—
Stock-based compensation	—	—	—	—		9,363		—		—		—		—		9,363
Stock repurchases, including excise tax	—	—	(765)	—		—		—		—		—		(50,441)		(50,441)

Balance at May 31, 2024	101,892	(6,705)	(19,983)	$	101,892	$	848,635	$	3,948,878	$	(3,671)	$	(72,718)	$	(831,312)	$	3,991,704

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


Net income	—	—	—	—		—		164,442		—		—		—		164,442
Dividends on common stock	—	—	—	—		—		(13,231)		—		—		—		(13,231)
Employee stock options/other	236	—	—	236		3,640		—		—		—		—		3,876
Stock awards	—	—	46	—		(1,598)		—		—		—		1,598		—
Stock-based compensation	—	—	—	—		8,819		—		—		—		—		8,819
Stock repurchases, including excise tax	—	—	(2,163)	—		—		—		—		—		(92,887)		(92,887)

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



	Six Months Ended May 31, 2024 and 2023
	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, 2023	101,276	(6,705)	(18,704)	$	101,276	$	845,693	$	3,676,924	$	(3,671)	$	(72,718)	$	(737,364)	$	3,810,140

Net income	—	—	—	—		—		307,084		—		—		—		307,084
Dividends on common stock	—	—	—	—		—		(35,130)		—		—		—		(35,130)
Employee stock options/other	616	—	—	616		8,656		—		—		—		—		9,272
Stock awards	—	—	571	—		(22,998)		—		—		—		22,998		—
Stock-based compensation	—	—	—	—		17,284		—		—		—		—		17,284
Stock repurchases, including excise tax	—	—	(1,592)	—		—		—		—		—		(100,441)		(100,441)
Tax payments associated with stock-based compensation awards	—	—	(258)	—		—		—		—		—		(16,505)		(16,505)
Balance at May 31, 2024	101,892	(6,705)	(19,983)	$	101,892	$	848,635	$	3,948,878	$	(3,671)	$	(72,718)	$	(831,312)	$	3,991,704

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, including excise tax	—	—	(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

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)


	Six Months Ended May 31,
	2024		2023
Cash flows from operating activities:
Net income	$	307,084	$	289,942
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in income of unconsolidated joint ventures	(13,269)		(5,938)
Distributions of earnings from unconsolidated joint ventures	7,533		12,172
Amortization of debt issuance costs and premiums	1,729		1,673
Depreciation and amortization	18,843		17,760

Deferred income taxes	5,000		10,600

Gain on sale of investment	(12,516)		—
Stock-based compensation	17,284		14,686
Inventory impairments and land option contract abandonments	2,508		9,576
Changes in assets and liabilities:
Receivables	(52)		(18,460)
Inventories	(195,291)		413,774
Accounts payable, accrued expenses and other liabilities	(40,632)		(132,245)
Other, net	(8,227)		(4,810)
Net cash provided by operating activities	89,994		608,730
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	(10,937)		(17,713)
Return of investments in unconsolidated joint ventures	—		5,100
Proceeds from sale of investment	1,709		—

Purchases of property and equipment, net	(19,754)		(18,324)
Net cash used in investing activities	(28,982)		(30,937)
Cash flows from financing activities:



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

Payments on mortgages and land contracts due to land sellers and other loans	(1,739)		(3,001)

Issuance of common stock under employee stock plans	9,272		5,010
Stock repurchases	(100,000)		(167,088)
Tax payments associated with stock-based compensation awards	(16,505)		(9,748)
Payments of cash dividends	(35,130)		(25,707)
Net cash used in financing activities	(144,102)		(350,534)
Net increase (decrease) in cash and cash equivalents	(83,090)		227,259
Cash and cash equivalents at beginning of period	727,342		330,198
Cash and cash equivalents at end of period	$	644,252	$	557,457

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, 2023, which are contained in our Annual Report on Form 10-K for that period. The consolidated balance sheet at November 30, 2023 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, 2024 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

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

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

Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled $528.7 million at May 31, 2024 and $508.2 million at November 30, 2023. At May 31, 2024 and November 30, 2023, our cash equivalents were mainly invested in interest-bearing bank deposit accounts and money market funds.

Comprehensive Income. Our comprehensive income was $168.4 million for the three months ended May 31, 2024 and $164.4 million for the three months ended May 31, 2023. For the six months ended May 31, 2024 and 2023, our comprehensive income was $307.1 million and $289.9 million, respectively. Our comprehensive income for each of the three-month and six-month periods ended May 31, 2024 and 2023 was equal to our net income for the respective periods.

Recent Accounting Pronouncements Not Yet Adopted. In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

2.Segment Information

We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of May 31, 2024, 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,
	2024		2023		2024		2023
Revenues:
West Coast	$	698,417	$	564,350	$	1,256,719	$	1,104,369
Southwest	318,665		335,828		641,790		575,415
Central	375,790		545,214		696,274		935,165
Southeast	308,640		312,454		568,427		521,434
Total	$	1,701,512	$	1,757,846	$	3,163,210	$	3,136,383

Pretax income (loss):
West Coast	$	87,137	$	55,099	$	152,877	$	114,649
Southwest	54,765		57,117		110,476		101,148
Central	46,567		78,985		85,142		137,818
Southeast	38,559		48,931		70,824		72,456
Corporate and other	(19,172)		(36,614)		(48,375)		(66,354)
Total	$	207,856	$	203,518	$	370,944	$	359,717


	Three Months Ended May 31,				Six Months Ended May 31,
	2024		2023		2024		2023
Inventory impairment and land option contract abandonment charges:
West Coast	$	647	$	3,079	$	1,945	$	3,948
Southwest	116		—		116		—
Central	256		1,128		256		2,079
Southeast	191		80		191		3,549
Total	$	1,210	$	4,287	$	2,508	$	9,576


	May 31, 2024		November 30, 2023
Assets:
West Coast	$	2,886,660	$	2,638,455
Southwest	900,761		908,578
Central	1,063,333		1,158,949
Southeast	1,002,849		939,997
Corporate and other	884,267		945,504
Total	$	6,737,870	$	6,591,483

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,
	2024		2023		2024		2023
Revenues
Insurance commissions	$	5,402	$	4,010	$	8,994	$	7,384
Title services	2,899		3,460		5,375		5,863

Total	8,301		7,470		14,369		13,247

Expenses
General and administrative	(1,473)		(1,472)		(3,019)		(2,830)
Operating income	6,828		5,998		11,350		10,417
Equity in income of unconsolidated joint venture	6,435		5,426		13,490		7,008
Pretax income	$	13,263	$	11,424	$	24,840	$	17,425


	May 31, 2024		November 30, 2023
Assets
Cash and cash equivalents	$	716	$	266
Receivables	2,915		2,783
Investment in unconsolidated joint venture	26,311		19,354
Other assets (a)	37,868		34,476
Total assets	$	67,810	$	56,879


	May 31, 2024		November 30, 2023
Liabilities
Accounts payable and accrued expenses	$	1,574	$	1,645
Total liabilities	$	1,574	$	1,645

(a)Other assets at May 31, 2024 and November 30, 2023 included $37.8 million and $34.4 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,
	2024		2023		2024		2023
Numerator:
Net income	$	168,419	$	164,442	$	307,084	$	289,942
Less: Distributed earnings allocated to participating securities	(145)		(91)		(262)		(176)
Less: Undistributed earnings allocated to participating securities	(1,136)		(1,119)		(2,072)		(1,866)
Numerator for basic earnings per share	167,138		163,232		304,750		287,900
Effect of dilutive securities:

Add: Undistributed earnings allocated to participating securities	1,136		1,119		2,072		1,866
Less: Undistributed earnings reallocated to participating securities	(1,105)		(1,085)		(2,013)		(1,811)
Numerator for diluted earnings per share	$	167,169	$	163,266	$	304,809	$	287,955



Denominator:
Weighted average shares outstanding — basic	75,653		81,764		75,773		82,607
Effect of dilutive securities:
Share-based payments	2,153		2,542		2,261		2,534
Weighted average shares outstanding — diluted	77,806		84,306		78,034		85,141
Basic earnings per share	$	2.21	$	2.00	$	4.02	$	3.49
Diluted earnings per share	$	2.15	$	1.94	$	3.91	$	3.38

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 during the three-month and six-month periods ended May 31, 2024 and 2023.

For the three-month and six-month periods ended May 31, 2024 and 2023, 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, 2024		November 30, 2023
Due from utility companies, improvement districts and municipalities	$	188,345	$	197,102
Recoveries related to self-insurance and other legal claims	111,960		107,065
Refundable deposits and bonds	12,373		13,292
Income taxes receivable	12,356		—

Other	50,878		53,615
Subtotal	375,912		371,074
Allowance for doubtful accounts	(4,238)		(4,212)
Total	$	371,674	$	366,862

6. Inventories

Inventories consisted of the following (in thousands):


	May 31, 2024		November 30, 2023
Homes completed or under construction	$	2,286,970	$	2,106,149
Land under development	3,048,215		3,027,497
Total	$	5,335,185	$	5,133,646

Land under development at May 31, 2024 and November 30, 2023 included land held for future development of $17.2 million and $17.0 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,
	2024		2023		2024		2023
Capitalized interest at beginning of period	$	134,377	$	147,162	$	134,375	$	145,494
Interest incurred	26,577		25,995		53,082		53,799

Interest amortized to construction and land costs (a)	(29,189)		(31,932)		(55,692)		(58,068)
Capitalized interest at end of period	$	131,765	$	141,225	$	131,765	$	141,225

(a)Interest amortized to construction and land costs for the six-month period ended May 31, 2024 included $.2 million related to land sales. There was no interest amortized to construction and land costs related to land sales for the three- month period ended May 31, 2024 and three-month and six-month periods ended May 31, 2023.

7. Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques. We record an inventory impairment charge on land held for

sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

We evaluated seven active communities or land parcels for recoverability as of May 31, 2024 with a carrying value of $89.8 million. As of November 30, 2023, we evaluated five active communities or land parcels for recoverability with a carrying value of $89.3 million. In addition, we evaluated land held for future development for recoverability as of both May 31, 2024 and November 30, 2023. Based on the results of our evaluations, we recognized no inventory impairment charges for the three-month and six-month periods ended May 31, 2024 and 2023.

As of May 31, 2024, the aggregate carrying value of our inventory that had been impacted by previous inventory impairment charges was $51.6 million, representing five communities and various other land parcels. As of November 30, 2023, the aggregate carrying value of our inventory that had been impacted by previous inventory impairment charges was $73.9 million, representing five 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 $1.2 million and $2.5 million for the three-month and six-month periods ended May 31, 2024, respectively. For the three-month and six-month periods ended May 31, 2023, we recognized land option contract abandonment charges of $4.3 million and $9.6 million, respectively.

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

8. Variable Interest Entities

Unconsolidated Joint Ventures. We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analyses, we determined that one of our joint ventures at May 31, 2024 and November 30, 2023 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at May 31, 2024 and November 30, 2023 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, 2024 and November 30, 2023, 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.

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


	May 31, 2024				November 30, 2023
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	56,058	$	1,438,993	$	21,554	$	727,620
Other land option contracts and other similar contracts	42,351		695,506		23,464		540,912
Total	$	98,409	$	2,134,499	$	45,018	$	1,268,532

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 $23.2 million at May 31, 2024 and $18.5 million at November 30, 2023. 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 $19.9 million at May 31, 2024 and $21.5 million at November 30, 2023.

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.

We had investments in six homebuilding unconsolidated joint ventures as of May 31, 2024 and November 30, 2023. 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,
	2024		2023		2024		2023
Revenues	$	5,298	$	1,171	$	5,298	$	1,171
Construction and land costs	(3,824)		(683)		(3,824)		(686)
Other expense, net	(993)		(960)		(1,847)		(2,410)
Income (loss)	$	481	$	(472)	$	(373)	$	(1,925)

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


	May 31, 2024		November 30, 2023
Assets
Cash	$	15,778	$	16,260
Receivables	2,765		3,437
Inventories	172,354		152,456
Other assets	1,296		679
Total assets	$	192,193	$	172,832

Liabilities and equity
Accounts payable and other liabilities	$	8,062	$	9,632

Notes payable (a)	64,909		53,386
Equity	119,222		109,814
Total liabilities and equity	$	192,193	$	172,832

(a) As of both May 31, 2024 and November 30, 2023, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities. In April 2024, the revolving line of credit was amended, increasing the aggregate commitment to $70.0 million from $62.0 million, with the amount of all advances through October 2024 not to exceed $80.0 million. Borrowings under the line of credit 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, 2024 or November 30, 2023.

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

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2024		2023		2024		2023
Revenues	$	31,458	$	28,450	$	61,870	$	48,640
Expenses	(18,589)		(17,599)		(34,890)		(34,624)
Income	$	12,869	$	10,851	$	26,980	$	14,016

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

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


	May 31, 2024		November 30, 2023
Assets
Cash and cash equivalents	$	40,364	$	29,163
Mortgage loans held for sale	125,353		164,252
Other assets	21,086		18,380
Total assets	$	186,803	$	211,795

Liabilities and equity
Accounts payable and other liabilities	$	12,714	$	13,763
Funding facilities	121,467		159,324

Equity	52,622		38,708
Total liabilities and equity	$	186,803	$	211,795

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 $18.0 million at May 31, 2024 and $13.9 million at November 30, 2023. The changes in the fair value of IRLCs, which were reported in revenues for the applicable periods, were gains of $1.3 million and $4.2 million for the three-month and six-month periods ended May 31, 2024, respectively, and losses of $2.7 million and $4.2 million for the three-month and six-month periods ended May 31, 2023, respectively.

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

Funding facilities. KBHS maintains warehouse lines of credit and master repurchase agreements with various financial institutions to fund its originated mortgage loans, with its mortgage loans held for sale pledged as collateral under these agreements. The agreements contain covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, maximum debt to net worth ratio and positive net income, as defined in the agreements. KBHS was in compliance with these covenants as of May 31, 2024. In addition to its compliance with these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions to extend such credit facilities to KBHS to fund its originated mortgage loans. KBHS intends to renew these facilities when they expire at various dates in 2024 and 2025. The warehouse lines of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our senior notes, unsecured revolving credit facility with various banks (“Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).

10.Other Assets

Other assets consisted of the following (in thousands):


	May 31, 2024		November 30, 2023
Cash surrender value of corporate-owned life insurance contracts	$	52,900	$	53,079
Prepaid expenses	26,192		15,879
Lease right-of-use assets	22,335		24,725
Other	18,026		3,304
Total	$	119,453	$	96,987

On March 1, 2024, substantially all the assets of an investee company, in which we had an aggregate ownership interest of approximately 13.5%, held largely through a limited liability company we established to hold the investment, were sold to a privately held buyer through a merger. Prior to the sale, certain assets of the investee company that were not included in the sale were distributed to a separate privately held entity in which we received the same proportionate equity interest. From the sale, we received cash plus certain preferred and common equity interests in the buyer. The estimated fair value of the private equity interests is included in other assets as of May 31, 2024. In connection with the sale, we recognized a gain of $12.5 million within interest income and other in our consolidated statements of operations for the three months and six months ended May 31, 2024. Certain of our executives are eligible to receive a portion of the proceeds from the sale transaction, including any later distributions, pursuant to nominal interests they acquired, including our chairman and chief executive officer who acquired a 3.3% interest, in the relevant limited liability company in 2000 through an incentive program described in the Proxy Statement for our 2001 Annual Meeting of Stockholders.

11.Accrued Expenses and Other Liabilities

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


	May 31, 2024		November 30, 2023
Self-insurance and other legal liabilities	$	280,180	$	269,735
Employee compensation and related benefits	130,283		171,408
Warranty liability	94,803		98,000
Customer deposits	61,973		58,910
Inventory-related obligations (a)	39,760		41,525
Accrued interest payable	29,183		29,391
Lease liabilities	24,526		26,531
Real estate and business taxes	10,463		15,169
Federal and state taxes payable	2,024		1,851
Other	47,427		45,707
Total	$	720,622	$	758,227

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

12.Leases

We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded in our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months. Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-

term leases with terms of 12 months or less. Our total lease expense for the three months ended May 31, 2024 and 2023 was $5.2 million and $5.6 million, respectively, and included short-term lease costs of $1.9 million and $2.2 million, respectively. For the six months ended May 31, 2024 and 2023, our total lease expense was $10.3 million and $10.8 million, respectively, and included short-term lease costs of $3.7 million and $3.9 million, respectively. Variable lease costs and external sublease income for the three-month and six-month periods ended May 31, 2024 and 2023 were immaterial.

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


	May 31, 2024		November 30, 2023
Lease right-of-use assets (a)	$	22,373	$	24,773
Lease liabilities (a)	24,567		26,581

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

13.Income Taxes

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,
	2024			2023			2024			2023
Income tax expense	$	52,700		$	50,500		$	88,700		$	87,200
Effective tax rate	23.8		%	23.5		%	22.4		%	23.1		%

Our income tax expense and effective tax rate for the three months ended May 31, 2024 included the favorable impact of $4.8 million of Internal Revenue Code Section 45L (“Section 45L”) tax credits we recognized primarily from building energy-efficient homes and $.4 million of excess tax benefits related to stock-based compensation, partly offset by $3.0 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the three months ended May 31, 2023 reflected the favorable impact of $6.8 million of Section 45L tax credits we recognized primarily from building energy-efficient homes and $1.1 million of excess tax benefits related to stock-based compensation, partly offset by $3.5 million of nondeductible executive compensation expense.

For the six months ended May 31, 2024, our income tax expense and effective tax rate included the favorable impacts of $8.9 million of Section 45L tax credits we recognized primarily from building energy-efficient homes and $6.5 million of excess tax benefits related to stock-based compensation, partly offset by $5.5 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the six months ended May 31, 2023 reflected the favorable impact of $12.5 million of Section 45L tax credits we recognized primarily from building energy-efficient homes and $3.8 million of excess tax benefits related to stock-based compensation, partly offset by $6.6 million of nondeductible executive compensation expense.

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 $131.4 million as of May 31, 2024 and $136.4 million at November 30, 2023 were both partly offset by valuation allowances of $16.9 million. The deferred tax asset valuation allowances at May 31, 2024 and November 30, 2023 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of May 31, 2024, 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, 2024.

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, 2024		November 30, 2023

Senior unsecured term loan due August 25, 2026	$	358,491	$	358,156
6.875% Senior notes due June 15, 2027	298,306		298,062
4.80% Senior notes due November 15, 2029	297,750		297,572
7.25% Senior notes due July 15, 2030	346,334		346,101
4.00% Senior notes due June 15, 2031	386,416		386,199
Mortgages and land contracts due to land sellers and other loans	7,899		3,808
Total	$	1,695,196	$	1,689,898

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $12.7 million at May 31, 2024 and $13.9 million at November 30, 2023.

Unsecured Revolving Credit Facility. We have a $1.09 billion Credit Facility that will mature on February 18, 2027. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $250.0 million for the issuance of letters of credit. Interest on amounts borrowed under the Credit Facility accrues at an adjusted term Secured Overnight Financing Rate (“SOFR”) or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR). The Credit Facility also requires the payment of a commitment fee at a per annum rate ranging from .15% to .35% of the unused commitment, based on our Leverage Ratio. Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. Our obligations to pay borrowings under the Credit Facility are guaranteed on a joint and several basis by our Guarantor Subsidiaries. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of May 31, 2024, we had no cash borrowings and $8.3 million of letters of credit outstanding under the Credit Facility. Therefore, as of May 31, 2024, we had $1.08 billion available for cash borrowings under the Credit Facility, with up to $241.7 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, 2024, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.8%.

Letter of Credit Facility. We maintain an unsecured letter of credit agreement with a financial institution (“LOC Facility”) to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, which expires on February 18, 2027, we may issue up to $75.0 million of letters of credit. As of May 31, 2024 and November 30, 2023, we had letters of credit outstanding under the LOC Facility of $45.9 million and $12.5 million, respectively.

Senior Notes. All the senior notes outstanding at May 31, 2024 and November 30, 2023 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, 2024, we were in compliance with all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, the LOC Facility, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of May 31, 2024, inventories having a carrying value of $30.3 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

As of May 31, 2024, principal payments on our notes payable are due during each year ending November 30 as follows: 2024 – $4.3 million; 2025 – $1.0 million; 2026 – $360.6 million; 2027 – $300.8 million; 2028 – $.8 million and thereafter – $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. Our inventories are generally Level 3 assets. We had no inventories with carrying values that were adjusted to fair value during the six months ended May 31, 2024 or the year ended November 30, 2023. See Note 7 – Inventory Impairments and Land Option Contract Abandonments for information regarding the valuation of these assets.

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


		May 31, 2024				November 30, 2023
Description	Fair Value Hierarchy	Carrying Value (a)		Estimated Fair Value		Carrying Value (a)		Estimated Fair Value
Financial Liabilities:
Senior notes	Level 2	$	1,328,806	$	1,282,263	$	1,327,934	$	1,260,725

(a)The carrying value for the senior notes, as presented, includes 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, the Term Loan, and mortgages and land contracts due to land sellers and other loans approximate fair values. The carrying value of corporate-owned life insurance is based on the cash surrender value of the policies and, accordingly, approximates fair value.

16.Commitments and Contingencies

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

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

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

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2024		2023		2024		2023
Balance at beginning of period	$	95,920	$	101,238	$	98,000	$	101,890
Warranties issued	9,702		10,653		17,865		18,643
Payments	(10,819)		(12,749)		(21,062)		(21,391)

Balance at end of period	$	94,803	$	99,142	$	94,803	$	99,142

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

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

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

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

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

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

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

Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other recoveries of $26.5 million and $31.1 million are included in receivables in our consolidated balance sheets at May 31, 2024 and November 30, 2023, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2024		2023		2024		2023
Balance at beginning of period	$	177,331	$	171,269	$	179,832	$	175,977
Self-insurance provided	4,636		3,977		9,263		7,818
Payments	(5,270)		(1,838)		(11,480)		(9,134)
Adjustments (a)	(3,668)		(1,185)		(4,586)		(2,438)
Balance at end of period	$	173,029	$	172,223	$	173,029	$	172,223

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

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

liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

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

In addition to the risk that is effectively self-insured through our captive insurance subsidiary, we often obtain project-specific insurance coverage for construction defect risk on attached projects (e.g., condominiums or townhomes) with policy deductibles generally ranging from $50,000 to $250,000. We record estimated liabilities and recoveries for projected losses related to these projects on a gross basis, including for known claims as well as estimates for claims incurred but not yet reported, to the extent such amounts are considered probable and estimable.

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, 2024, we had approximately 434 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, 2024, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries, including an estimate for claims incurred but not reported. While it is reasonably possible that our losses could exceed the amounts accrued and our recoveries could be less than the amounts 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 as each of these is dependent on several factors, including the extent of additional claims to be reported in future periods; the nature of any specific claims; our evaluation of the particular facts surrounding each such claim; and actions of third parties over which we have no control.

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, 2024, we had $1.31 billion of performance bonds and $54.2 million of letters of credit outstanding. At November 30, 2023, we had $1.32 billion of performance bonds and $19.1 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, 2024, we had total cash deposits of $98.4 million to purchase land having an aggregate purchase price of $2.13 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

Civil Subpoena. On October 2, 2023, we received a subpoena from the U.S. Department of Justice Civil Division, dated September 27, 2023, to produce certain documents and testimony with respect to the inspection, rating, marketing and advertising of our ENERGY STAR homes, including our contracts and/or communications with U.S. Environmental Protection Agency and third-party ENERGY STAR rating companies, real estate brokers, real estate appraisers, financial institutions and other parties, as well as inspection-related guidelines, instructions, methods, policies, processes and procedures. We are cooperating with the government, producing documents and information. As of the date of this report, we are unable to predict what actions the government will take, if any; the timing or nature of the ultimate outcome in this

matter; or the impact, if any, such outcome may have on our business or consolidated financial statements. As a result, while a loss or penalty, if any, is reasonably possible in this matter, it is not considered to be probable or estimable.

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, 2024, 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

On February 28, 2024, the management development and compensation committee of our board of directors approved the payout of 519,636 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October 8, 2020. 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, 2020 through November 30, 2023. Of the shares of common stock paid out, 248,157 shares, or $15.9 million, were purchased by us in the 2024 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 March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock. As of November 30, 2023, there was $163.6 million of remaining availability under this share repurchase authorization. In the 2024 first quarter, we repurchased 826,663 shares of our common stock at a total cost of $50.0 million. On April 18, 2024, our board of directors authorized us to repurchase up to $1.00 billion of our outstanding common stock. This authorization replaced the prior board of directors authorization, which had $113.6 million remaining. In the 2024 second quarter, we repurchased 764,742 shares of our common stock at a total cost of $50.0 million, bringing our total repurchases for the six months ended May 31, 2024 to 1,591,405 shares of common stock at a total cost of $100.0 million. Repurchases under the authorization may occur periodically through open market purchases, privately negotiated transactions or otherwise, with the timing and amount at management’s discretion and dependent on market, business and other conditions. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors, and does not obligate us to purchase any shares. As of May 31, 2024, there was $950.0 million of remaining availability under this share repurchase authorization.

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 three-month and six-month periods ended May 31, 2024 and 2023, we reflected the applicable excise tax in treasury stock as part