UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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 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.

PART I.    FINANCIAL INFORMATION

(In Thousands, Except Per Share Amounts – Unaudited)

(In Thousands – Unaudited)

(Unaudited)

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.

We have identified 5five operating reporting segments, comprised of 4four homebuilding reporting segments and 1one financial services reporting segment. As of May 31, 2022,February 28, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

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

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

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

Ventures, LLC (“GR Alliance”). 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):

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, 2022February 28, 2023 or 2021.

For the three-month and six-month periods ended May 31,February 28, 2023 and 2022, and 2021, 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.

Land under development at May 31, 2022February 28, 2023 and November 30, 20212022 included land held for future development or sale of $54.8$25.3 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.

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

As of May 31, 2022 and November 30, 2021, noWe evaluated four active communities or land parcels for recoverability as of February 28, 2023 with indicatorsa carrying value of potential impairment were identified.$72.0 million. As a result, noof November 30, 2022, we evaluated five 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, 2022February 28, 2023 and November 30, 2021.

As of February 28, 2023, the three months ended May 31, 2021. For the six months ended May 31, 2021, we recognizedaggregate carrying value of our inventory that had been impacted by inventory impairment charges of $3.6was $91.9 million, that reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certainrepresenting seven communities by accelerating the overall pace for selling, building and delivering homes therein, including communities onvarious other land previously held for future development.

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$5.3 million for the three months ended May 31, 2022February 28, 2023 and $.9$.2 million for the sixthree months ended May 31,February 28, 2022. For the three months and six months ended May 31, 2021, we recognized land option contract abandonment charges of $.5 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.

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$30.4 million at May 31, 2022February 28, 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$10.7 million at May 31, 2022February 28, 2023 and $26.5$5.1 million at November 30, 2021.2022.

As of both May 31, 2022February 28, 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):

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

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.

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.

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.

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

Our income tax expense and effective tax rate for the three months ended May 31, 2022February 28, 2023 included the favorable impact of $.6$5.7 million of federal tax credits we earnedrecognized primarily from building energy-efficient homes which was more thanand $2.7 million of excess tax benefits related to stock-based compensation, partly offset by $2.2$3.1 million of non-deductiblenondeductible 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, 2021February 28, 2022 reflected the favorable impacts of $14.8 million of federal tax credits we earned from building energy-efficient homes and $.4 million of excess tax benefits related to stock-based compensation, partly offset by $1.9 million of non-deductible executive compensation expense.

Our deferred tax assets of $183.3$173.0 million as of May 31, 2022February 28, 2023 and $194.8$178.0 million as of November 30, 20212022 were each partly offset by a valuation allowance of $17.4$17.1 million. The deferred tax asset valuation allowances as of May 31, 2022February 28, 2023 and November 30, 20212022 were primarily related to certain state NOLsnet 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,February 28, 2023, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax valuation allowance were needed for the sixthree months ended May 31, 2022.February 28, 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.