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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 August 31, 2023.
or
☐ 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 79,318,673 shares of the registrant’s common stock, par value $1.00 per share, outstanding on August 31, 2023. The registrant’s grantor stock ownership trust held an additional 6,705,247 shares of the registrant’s common stock on that date.

KB HOME
FORM 10-Q
INDEX

| Page Number
PART I. FINANCIAL INFORMATION |
Item 1. Financial Statements |
Consolidated Statements of Operations - Three Months and Nine Months Ended August 31, 2023 and 2022 | 3
Consolidated Balance Sheets - August 31, 2023 and November 30, 2022 | 4
Consolidated Statements of Cash Flows - Nine Months Ended August 31, 2023 and 2022 | 5
Notes to Consolidated Financial Statements | 6
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 | 47
Item 1A. Risk Factors | 47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 48
Item 5. Other Information | 48
Item 6. Exhibits | 48
SIGNATURES | 49

2

PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts – Unaudited)

|  | Three Months Ended August 31, |  | Nine Months Ended August 31,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Total revenues |  | $ | 1,587,011 |  |  | $ | 1,844,895 |  |  | $ | 4,736,641 |  |  | $ | 4,963,746 |
Homebuilding: |  |  |  |  |  |  |  |
Revenues |  | $ | 1,579,719 |  |  | $ | 1,838,888 |  |  | $ | 4,716,102 |  |  | $ | 4,947,868 |
Construction and land costs |  | (1,240,380) |  |  | (1,350,540) |  |  | (3,709,759) |  |  | (3,714,404) |
Selling, general and administrative expenses |  | (160,097) |  |  | (163,238) |  |  | (468,510) |  |  | (474,332) |
Operating income |  | 179,242 |  |  | 325,110 |  |  | 537,833 |  |  | 759,132 |
Interest income |  | 5,492 |  |  | 192 |  |  | 7,688 |  |  | 267 |
Equity in loss of unconsolidated joint ventures |  | (112) |  |  | (100) |  |  | (1,182) |  |  | (387) |
Loss on early extinguishment of debt |  | — |  |  | (3,598) |  |  | — |  |  | (3,598) |
Homebuilding pretax income |  | 184,622 |  |  | 321,604 |  |  | 544,339 |  |  | 755,414 |
Financial services: |  |  |  |  |  |  |  |
Revenues |  | 7,292 |  |  | 6,007 |  |  | 20,539 |  |  | 15,878 |
Expenses |  | (1,530) |  |  | (1,510) |  |  | (4,360) |  |  | (4,219) |
Equity in income of unconsolidated joint ventures |  | 4,149 |  |  | 128 |  |  | 11,157 |  |  | 20,083 |
Financial services pretax income |  | 9,911 |  |  | 4,625 |  |  | 27,336 |  |  | 31,742 |
Total pretax income |  | 194,533 |  |  | 326,229 |  |  | 571,675 |  |  | 787,156 |
Income tax expense |  | (44,600) |  |  | (70,900) |  |  | (131,800) |  |  | (186,900) |
Net income |  | $ | 149,933 |  |  | $ | 255,329 |  |  | $ | 439,875 |  |  | $ | 600,256 |
Earnings per share: |  |  |  |  |  |  |  |
Basic |  | $ | 1.86 |  |  | $ | 2.94 |  |  | $ | 5.34 |  |  | $ | 6.82 |
Diluted |  | $ | 1.80 |  |  | $ | 2.86 |  |  | $ | 5.18 |  |  | $ | 6.63 |
Weighted average shares outstanding: |  |  |  |  |  |  |  |
Basic |  | 80,175 |  |  | 86,487 |  |  | 81,790 |  |  | 87,538 |
Diluted |  | 82,732 |  |  | 88,857 |  |  | 84,332 |  |  | 90,075 |

See accompanying notes.
3

KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands – Unaudited)

| August 31, 2023 |  | November 30, 2022
Assets |  |  |
Homebuilding: |  |  |
Cash and cash equivalents | $ | 612,076 |  |  | $ | 328,517 |
Receivables | 324,953 |  |  | 322,767 |
Inventories | 5,185,875 |  |  | 5,543,176 |
Investments in unconsolidated joint ventures | 56,390 |  |  | 46,785 |
Property and equipment, net | 88,669 |  |  | 89,234 |
Deferred tax assets, net | 145,968 |  |  | 160,868 |
Other assets | 102,520 |  |  | 101,051 |
| 6,516,451 |  |  | 6,592,398 |
Financial services | 60,535 |  |  | 59,532 |
Total assets | $ | 6,576,986 |  |  | $ | 6,651,930 |
Liabilities and stockholders’ equity |  |  |
Homebuilding: |  |  |
Accounts payable | $ | 389,918 |  |  | $ | 412,525 |
Accrued expenses and other liabilities | 665,499 |  |  | 736,971 |
Notes payable | 1,689,958 |  |  | 1,838,511 |
| 2,745,375 |  |  | 2,988,007 |
Financial services | 1,483 |  |  | 3,128 |
Stockholders’ equity: |  |  |
Common stock — 101,259,329 and 100,711,153 shares issued at August 31, 2023 and November 30, 2022, respectively | 101,259 |  |  | 100,711 |
Paid-in capital | 843,371 |  |  | 836,260 |
Retained earnings | 3,541,818 |  |  | 3,143,578 |
Accumulated other comprehensive loss | (5,575) |  |  | (5,575) |
Grantor stock ownership trust, at cost: 6,705,247 shares at August 31, 2023 and November 30, 2022 | (72,718) |  |  | (72,718) |
Treasury stock, at cost: 15,235,409 and 10,015,507 at August 31, 2023 and November 30, 2022, respectively | (578,027) |  |  | (341,461) |
Total stockholders’ equity | 3,830,128 |  |  | 3,660,795 |
Total liabilities and stockholders’ equity | $ | 6,576,986 |  |  | $ | 6,651,930 |

See accompanying notes.
4

KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands – Unaudited)

| Nine Months Ended August 31,
| 2023 |  | 2022
Cash flows from operating activities: |  |  |
Net income | $ | 439,875 |  |  | $ | 600,256 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |
Equity in income of unconsolidated joint ventures | (9,975) |  |  | (19,696) |
Distributions of earnings from unconsolidated joint ventures | 12,172 |  |  | 10,679 |
Amortization of debt issuance costs and premiums | 2,525 |  |  | 1,884 |
Depreciation and amortization | 26,986 |  |  | 23,861 |
Deferred income taxes | 14,900 |  |  | 21,100 |
Loss on early extinguishment of debt | — |  |  | 3,598 |
Stock-based compensation | 23,934 |  |  | 22,944 |
Inventory impairments and land option contract abandonments | 10,207 |  |  | 9,371 |
Changes in assets and liabilities: |  |  |
Receivables | (1,581) |  |  | (40,530) |
Inventories | 355,280 |  |  | (954,231) |
Accounts payable, accrued expenses and other liabilities | (100,486) |  |  | 94,688 |
Other, net | (1,314) |  |  | 2,077 |
Net cash provided by (used in) operating activities | 772,523 |  |  | (223,999) |
Cash flows from investing activities: |  |  |
Contributions to unconsolidated joint ventures | (23,461) |  |  | (21,609) |
Return of investments in unconsolidated joint ventures | 5,100 |  |  | 1,255 |
Purchases of property and equipment, net | (26,412) |  |  | (33,766) |
Net cash used in investing activities | (44,773) |  |  | (54,120) |
Cash flows from financing activities: |  |  |
Proceeds from issuance of debt | — |  |  | 350,000 |
Repayment of senior notes | — |  |  | (353,598) |
Payment of issuance costs | — |  |  | (10,695) |
Borrowings under revolving credit facility | 170,000 |  |  | 1,485,000 |
Repayments under revolving credit facility | (320,000) |  |  | (1,135,000) |
Payments on mortgages and land contracts due to land sellers and other loans | (3,188) |  |  | (400) |
Issuance of common stock under employee stock plans | 8,608 |  |  | — |
Stock repurchases | (249,588) |  |  | (100,000) |
Tax payments associated with stock-based compensation awards | (9,748) |  |  | (12,153) |
Payments of cash dividends | (41,635) |  |  | (39,914) |
Net cash provided by (used in) financing activities | (445,551) |  |  | 183,240 |
Net increase (decrease) in cash and cash equivalents | 282,199 |  |  | (94,879) |
Cash and cash equivalents at beginning of period | 330,198 |  |  | 292,136 |
Cash and cash equivalents at end of period | $ | 612,397 |  |  | $ | 197,257 |

See accompanying notes.
5

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, 2022, which are contained in our Annual Report on Form 10-K for that period. The consolidated balance sheet at November 30, 2022 has been taken from the audited consolidated financial statements as of that date. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of our results for the interim periods presented. The results of our consolidated operations for the three months and nine months ended August 31, 2023 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.
Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.
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 $460.9 million at August 31, 2023 and $15.8 million at November 30, 2022. At August 31, 2023 and November 30, 2022, the majority of our cash equivalents was invested in interest-bearing bank deposit accounts.
Comprehensive Income. Our comprehensive income was $149.9 million for the three months ended August 31, 2023 and $255.3 million for the three months ended August 31, 2022. For the nine months ended August 31, 2023 and 2022, our comprehensive income was $439.9 million and $600.3 million, respectively. Our comprehensive income for each of the three-month and nine-month periods ended August 31, 2023 and 2022 was equal to our net income for the respective periods.
2.Segment Information
We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of August 31, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

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

Our homebuilding reporting segments are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to first-time, first move-up and active adult homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.
Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments. Our financial services reporting segment earns revenues primarily from insurance commissions and from the provision of title services.
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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 August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |
West Coast | $ | 506,802 |  |  | $ | 829,405 |  |  | $ | 1,611,171 |  |  | $ | 2,249,496 |
Southwest | 306,284 |  |  | 321,808 |  |  | 881,699 |  |  | 822,499 |
Central | 506,640 |  |  | 443,581 |  |  | 1,441,805 |  |  | 1,231,949 |
Southeast | 259,993 |  |  | 244,094 |  |  | 781,427 |  |  | 643,924 |
Total | $ | 1,579,719 |  |  | $ | 1,838,888 |  |  | $ | 4,716,102 |  |  | $ | 4,947,868 |
Pretax income (loss): |  |  |  |  |  |  |
West Coast | $ | 55,034 |  |  | $ | 171,041 |  |  | $ | 169,683 |  |  | $ | 418,593 |
Southwest | 46,193 |  |  | 77,368 |  |  | 147,341 |  |  | 177,908 |
Central | 75,421 |  |  | 79,258 |  |  | 213,239 |  |  | 183,574 |
Southeast | 38,495 |  |  | 40,202 |  |  | 110,951 |  |  | 99,527 |
Corporate and other | (30,521) |  |  | (46,265) |  |  | (96,875) |  |  | (124,188) |
Total | $ | 184,622 |  |  | $ | 321,604 |  |  | $ | 544,339 |  |  | $ | 755,414 |

Inventory impairment and land option contract abandonment charges: |  |  |  |  |  |  |  |
West Coast |  | $ | 400 |  |  | $ | 4,465 |  |  | $ | 4,348 |  |  | $ | 4,622 |
Southwest |  | — |  |  | 432 |  |  | — |  |  | 596 |
Central |  | 231 |  |  | 1,311 |  |  | 2,310 |  |  | 1,897 |
Southeast |  | — |  |  | 2,256 |  |  | 3,549 |  |  | 2,256 |
Total |  | $ | 631 |  |  | $ | 8,464 |  |  | $ | 10,207 |  |  | $ | 9,371 |

| August 31, 2023 |  | November 30, 2022
Assets: |  |  |
West Coast | $ | 2,631,436 |  |  | $ | 2,631,598 |
Southwest | 917,502 |  |  | 1,074,912 |
Central | 1,193,529 |  |  | 1,493,486 |
Southeast | 921,338 |  |  | 929,208 |
Corporate and other | 852,646 |  |  | 463,194 |
Total | $ | 6,516,451 |  |  | $ | 6,592,398 |

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

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues |  |  |  |  |  |  |
Insurance commissions | $ | 4,153 |  |  | $ | 3,250 |  |  | $ | 11,537 |  |  | $ | 8,364 |
Title services | 3,139 |  |  | 2,757 |  |  | 9,002 |  |  | 7,495 |
Other | — |  |  | — |  |  | — |  |  | 19 |
Total | 7,292 |  |  | 6,007 |  |  | 20,539 |  |  | 15,878 |
Expenses |  |  |  |  |  |  |
General and administrative | (1,530) |  |  | (1,510) |  |  | (4,360) |  |  | (4,219) |
Operating income | 5,762 |  |  | 4,497 |  |  | 16,179 |  |  | 11,659 |
Equity in income of unconsolidated joint ventures | 4,149 |  |  | 128 |  |  | 11,157 |  |  | 20,083 |
Pretax income | $ | 9,911 |  |  | $ | 4,625 |  |  | $ | 27,336 |  |  | $ | 31,742 |

| August 31, 2023 |  | November 30, 2022
Assets |  |  |
Cash and cash equivalents | $ | 321 |  |  | $ | 1,681 |
Receivables | 2,870 |  |  | 3,475 |
Investments in unconsolidated joint venture | 25,814 |  |  | 26,678 |
Other assets (a) | 31,530 |  |  | 27,698 |
Total assets | $ | 60,535 |  |  | $ | 59,532 |
Liabilities |  |  |
Accounts payable and accrued expenses | $ | 1,483 |  |  | $ | 3,128 |
Total liabilities | $ | 1,483 |  |  | $ | 3,128 |

(a)Other assets at August 31, 2023 and November 30, 2022 included $31.4 million and $27.6 million, respectively, of contract assets for estimated future renewal commissions.
4. Earnings Per Share
Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Numerator: |  |  |  |  |  |  |
Net income | $ | 149,933 |  |  | $ | 255,329 |  |  | $ | 439,875 |  |  | $ | 600,256 |
Less: Distributed earnings allocated to nonvested restricted stock | (120) |  |  | (62) |  |  | (295) |  |  | (190) |
Less: Undistributed earnings allocated to nonvested restricted stock | (998) |  |  | (1,150) |  |  | (2,851) |  |  | (2,685) |
Numerator for basic earnings per share | 148,815 |  |  | 254,117 |  |  | 436,729 |  |  | 597,381 |
Effect of dilutive securities: |  |  |  |  |  |  |
Add: Undistributed earnings allocated to nonvested restricted stock | 998 |  |  | 1,150 |  |  | 2,851 |  |  | 2,685 |
Less: Undistributed earnings reallocated to nonvested restricted stock | (967) |  |  | (1,119) |  |  | (2,766) |  |  | (2,610) |
Numerator for diluted earnings per share | $ | 148,846 |  |  | $ | 254,148 |  |  | $ | 436,814 |  |  | $ | 597,456 |

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| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Denominator: |  |  |  |  |  |  |
Weighted average shares outstanding — basic | 80,175 |  |  | 86,487 |  |  | 81,790 |  |  | 87,538 |
Effect of dilutive securities: |  |  |  |  |  |  |
Share-based payments | 2,557 |  |  | 2,370 |  |  | 2,542 |  |  | 2,537 |
Weighted average shares outstanding — diluted | 82,732 |  |  | 88,857 |  |  | 84,332 |  |  | 90,075 |
Basic earnings per share | $ | 1.86 |  |  | $ | 2.94 |  |  | $ | 5.34 |  |  | $ | 6.82 |
Diluted earnings per share | $ | 1.80 |  |  | $ | 2.86 |  |  | $ | 5.18 |  |  | $ | 6.63 |

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 August 31, 2023 or 2022.
For the three-month and nine-month periods ended August 31, 2023 and 2022, no outstanding stock options were excluded from the diluted earnings per share calculations. Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.
5. Receivables
Receivables consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022
Due from utility companies, improvement districts and municipalities | $ | 206,283 |  |  | $ | 181,443 |
Recoveries related to self-insurance and other legal claims | 48,445 |  |  | 76,581 |
Refundable deposits and bonds | 15,374 |  |  | 17,610 |
Other | 58,924 |  |  | 52,201 |
Subtotal | 329,026 |  |  | 327,835 |
Allowance for doubtful accounts | (4,073) |  |  | (5,068) |
Total | $ | 324,953 |  |  | $ | 322,767 |

6. Inventories
Inventories consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022
Homes completed or under construction | $ | 2,228,400 |  |  | $ | 2,414,675 |
Land under development | 2,957,475 |  |  | 3,128,501 |
Total | $ | 5,185,875 |  |  | $ | 5,543,176 |

Land under development at August 31, 2023 and November 30, 2022 included land held for future development or sale of $27.4 million and $21.6 million, respectively.
Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale. 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.
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Our interest costs were as follows (in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Capitalized interest at beginning of period | $ | 141,225 |  |  | $ | 154,665 |  |  | $ | 145,494 |  |  | $ | 161,119 |
Interest incurred | 26,810 |  |  | 31,778 |  |  | 80,609 |  |  | 89,102 |
Interest amortized to construction and land costs (a) | (29,305) |  |  | (35,979) |  |  | (87,373) |  |  | (99,757) |
Capitalized interest at end of period | $ | 138,730 |  |  | $ | 150,464 |  |  | $ | 138,730 |  |  | $ | 150,464 |

(a) Interest amortized to construction and land costs for the three months and nine months ended August 31, 2023 included nominal amounts related to land sales during the periods.
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 four active communities or land parcels for recoverability as of August 31, 2023 with a carrying value of $66.2 million. As of November 30, 2022, we evaluated five active communities or land parcels for recoverability with a carrying value of $118.7 million. In addition, we evaluated land held for future development for recoverability as of both August 31, 2023 and November 30, 2022.
Based on the results of our evaluations, we recognized no inventory impairment charges for the three-month and nine-month periods ended August 31, 2023. For both the three-month and nine-month periods ended August 31, 2022, we recognized inventory impairment charges of $2.6 million related to a parcel of land held for sale.
As of August 31, 2023, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $80.9 million, representing six communities and various other land parcels. As of November 30, 2022, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $102.9 million, representing eight communities and various other land parcels.
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 $.6 million for the three months ended August 31, 2023 and $10.2 million for the nine months ended August 31, 2023. For the three-month and nine-month periods ended August 31, 2022, we recognized land option contract abandonment charges of $5.9 million and $6.8 million, respectively.
Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, and in our estimations of the remaining operating lives of our inventory assets and the realization of our inventory balances, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.
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
10

whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analyses, we determined that one of our joint ventures at August 31, 2023 and November 30, 2022 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at August 31, 2023 and November 30, 2022 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.
Land Option Contracts and Other Similar Contracts. 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 August 31, 2023 and November 30, 2022, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts. We perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):

| August 31, 2023 |  | November 30, 2022
| Cash Deposits |  | Aggregate Purchase Price |  | Cash Deposits |  | Aggregate Purchase Price
Unconsolidated VIEs | $ | 17,384 |  |  | $ | 742,685 |  |  | $ | 22,399 |  |  | $ | 635,502 |
Other land option contracts and other similar contracts | 21,850 |  |  | 460,973 |  |  | 29,451 |  |  | 529,430 |
Total | $ | 39,234 |  |  | $ | 1,203,658 |  |  | $ | 51,850 |  |  | $ | 1,164,932 |

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $19.4 million at August 31, 2023 and $33.1 million at November 30, 2022. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.
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 $2.9 million at August 31, 2023 and $5.1 million at November 30, 2022.
9. Investments in Unconsolidated Joint Ventures
Homebuilding. We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.
As of both August 31, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures. The following table presents combined condensed information from the statements of operations for our homebuilding unconsolidated joint ventures (in thousands):
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| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | — |  |  | $ | 1,293 |  |  | $ | 1,171 |  |  | $ | 5,251 |
Construction and land costs | — |  |  | (801) |  |  | (686) |  |  | (3,872) |
Other expense, net | (193) |  |  | (666) |  |  | (2,603) |  |  | (2,014) |
Loss | $ | (193) |  |  | $ | (174) |  |  | $ | (2,118) |  |  | $ | (635) |

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

| August 31, 2023 |  | November 30, 2022
Assets |  |  |
Cash | $ | 15,787 |  |  | $ | 14,066 |
Receivables | 3,193 |  |  | 3,394 |
Inventories | 143,366 |  |  | 114,465 |
Other assets | 514 |  |  | 633 |
Total assets | $ | 162,860 |  |  | $ | 132,558 |
Liabilities and equity |  |  |
Accounts payable and other liabilities | $ | 8,917 |  |  | $ | 8,369 |
Notes payable (a) | 49,313 |  |  | 34,396 |
Equity | 104,630 |  |  | 89,793 |
Total liabilities and equity | $ | 162,860 |  |  | $ | 132,558 |

(a) As of both August 31, 2023 and November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities. Borrowings under this line of credit, which has a maximum commitment of $62.0 million, are secured by the underlying property and related project assets. The line of credit is scheduled to mature on April 19, 2026, unless extended or terminated pursuant to its applicable terms. None of our other unconsolidated joint ventures had outstanding debt at August 31, 2023 or November 30, 2022.
We provide certain guarantees and indemnities to the lender in connection with the above-described revolving line of credit, including a guaranty of interest and carry costs; a guaranty to complete the construction of phases of the improvements for the project as such phases are commenced; a guaranty against losses suffered due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; and an indemnity from environmental issues. Except to the extent related to the foregoing guarantees and indemnities, we do not have a guaranty or any other obligation to repay borrowings under the line of credit or to support the value of the underlying collateral. However, various financial and non-financial covenants apply under the line of credit and with respect to the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations. As of the date of this report, we were in compliance with the relevant covenants. We do not believe that our existing exposure under our guaranty and indemnity obligations related to outstanding borrowings under the line of credit is material to our consolidated financial statements.
Financial Services. The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint ventures, mostly comprised of KBHS’ activities (in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | 26,000 |  |  | $ | 19,857 |  |  | $ | 74,640 |  |  | $ | 100,057 |
Expenses | (17,701) |  |  | (19,601) |  |  | (52,325) |  |  | (59,888) |
Income | $ | 8,299 |  |  | $ | 256 |  |  | $ | 22,315 |  |  | $ | 40,169 |

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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):

| August 31, 2023 |  | November 30, 2022
Assets |  |  |
Cash and cash equivalents | $ | 36,958 |  |  | $ | 28,120 |
Mortgage loans held for sale | 117,295 |  |  | 250,572 |
Other assets | 23,033 |  |  | 33,176 |
Total assets | $ | 177,286 |  |  | $ | 311,868 |
Liabilities and equity |  |  |
Accounts payable and other liabilities | $ | 13,549 |  |  | $ | 15,590 |
Funding facilities | 112,109 |  |  | 242,944 |
Equity | 51,628 |  |  | 53,334 |
Total liabilities and equity | $ | 177,286 |  |  | $ | 311,868 |

Mortgage loans held for sale. Originated mortgage loans expected to be sold into the secondary market in the foreseeable future are reported as mortgage loans held for sale and carried in KBHS’ balance sheets at fair value, with changes in fair value recognized within revenues in KBHS’ statements of operations.
Interest Rate Lock Commitments (“IRLCs”). KBHS enters into IRLCs in connection with originating certain mortgage loans held for sale, at specified interest rates and within a specified period of time, with customers who have applied for a mortgage loan and meet certain credit and underwriting criteria. KBHS accounts for IRLCs as free-standing derivatives and does not designate any for hedge accounting. As a result, IRLCs are recognized in KBHS’ balance sheets at fair value, and gains or losses resulting from changes in fair value are recognized within revenues in KBHS’ statements of operations. The fair value of IRLCs is based on market prices, which includes an estimate of the fair value of the associated mortgage servicing rights, adjusted for estimated costs to originate the underlying mortgage loans as well as the probability that the mortgage loans will fund within the terms of the IRLCs. The fair value of IRLCs included in other assets in KBHS’ balance sheets was $20.4 million at August 31, 2023 and $29.8 million at November 30, 2022. The changes in the fair value of IRLCs, which were reported in revenues for the applicable periods, were losses of $5.2 million and $9.4 million for the three-month and nine-month periods ended August 31, 2023, respectively, and a loss of $6.3 million and a gain of $27.1 million for the three-month and nine-month periods ended August 31, 2022, respectively.
KBHS manages the interest rate and price risk associated with its outstanding IRLCs by entering into best efforts forward sale commitments under which mortgage loans locked with a borrower are simultaneously committed to a secondary market investor at a fixed price, subject to the underlying mortgage loans being funded. 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 August 31, 2023. In addition to its compliance with these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions to extend such credit facilities to KBHS to fund its originated mortgage loans. KBHS intends to renew these facilities when they expire at various dates in 2023 and 2024. The warehouse lines of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our senior notes, unsecured revolving credit facility with various banks (“Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).
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10.Other Assets
Other assets consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022
Cash surrender value of corporate-owned life insurance contracts | $ | 53,558 |  |  | $ | 55,591 |
Lease right-of-use assets | 23,094 |  |  | 25,469 |
Prepaid expenses | 22,303 |  |  | 15,645 |
Debt issuance costs associated with unsecured revolving credit facility, net | 3,565 |  |  | 4,346 |
Total | $ | 102,520 |  |  | $ | 101,051 |

11.Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022
Self-insurance and other legal liabilities | $ | 214,281 |  |  | $ | 234,128 |
Employee compensation and related benefits | 151,861 |  |  | 182,443 |
Warranty liability | 95,715 |  |  | 101,890 |
Customer deposits | 65,931 |  |  | 76,738 |
Lease liabilities | 24,977 |  |  | 27,494 |
Inventory-related obligations (a) | 24,391 |  |  | 19,136 |
Accrued interest payable | 17,623 |  |  | 29,989 |
Real estate and business taxes | 17,144 |  |  | 17,557 |
Federal and state taxes payable | 15,774 |  |  | 3,671 |
Other | 37,802 |  |  | 43,925 |
Total | $ | 665,499 |  |  | $ | 736,971 |

(a)Represents liabilities for financing arrangements discussed in Note 8 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer. As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.
12.Leases
We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded in our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months. Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less. Our total lease expense for the three months ended August 31, 2023 and 2022 was $5.7 million and $5.4 million, respectively, and included short-term lease costs of $2.4 million and $2.2 million, respectively. For the nine months ended August 31, 2023 and 2022, our total lease expense was $16.5 million and $14.6 million, respectively, and included short-term lease costs of $6.3 million and $5.2 million, respectively. Variable lease costs and external sublease income for the three-month and nine-month periods ended August 31, 2023 and 2022 were immaterial.
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The following table presents our lease right-of-use assets and lease liabilities (in thousands):

| August 31, 2023 |  | November 30, 2022
Lease right-of-use assets (a) | $ | 23,103 |  |  | $ | 25,545 |
Lease liabilities (a) | 24,985 |  |  | 27,580 |

(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 August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Income tax expense | $ | 44,600 |  |  | $ | 70,900 |  |  | $ | 131,800 |  |  | $ | 186,900 |
Effective tax rate | 22.9 | % |  | 21.7 | % |  | 23.1 | % |  | 23.7 | %

Our income tax expense and effective tax rate for the three months ended August 31, 2023 included the favorable impact of $6.9 million of federal tax credits we recognized primarily from building energy-efficient homes and $1.9 million of excess tax benefits related to stock-based compensation, partly offset by $2.6 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the three months ended August 31, 2022 reflected the favorable impact of $15.3 million of federal tax credits we recognized primarily from building energy-efficient homes, partly offset by $2.9 million of nondeductible executive compensation expense.
For the nine months ended August 31, 2023, our income tax expense and effective tax rate included the favorable impacts of $19.4 million of federal tax credits we recognized primarily from building energy-efficient homes and $5.7 million of excess tax benefits related to stock-based compensation, partly offset by $9.2 million of nondeductible executive compensation expense. Our income tax expense and effective tax rate for the nine months ended August 31, 2022 reflected the favorable impacts of $16.1 million of federal tax credits we recognized primarily from building energy-efficient homes and $2.2 million of excess tax benefits related to stock-based compensation, partly offset by $6.8 million of nondeductible executive compensation expense.
Deferred Tax Asset Valuation Allowance. 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 $163.1 million as of August 31, 2023 and $178.0 million as of November 30, 2022 were each partly offset by a valuation allowance of $17.1 million. The deferred tax asset valuation allowances as of August 31, 2023 and November 30, 2022 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of August 31, 2023, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax asset valuation allowance were needed for the nine months ended August 31, 2023.
We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. 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.
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14.Notes Payable
Notes payable consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022
Unsecured revolving credit facility | $ | — |  |  | $ | 150,000 |
Senior unsecured term loan due August 25, 2026 | 357,988 |  |  | 357,485 |
6.875% Senior notes due June 15, 2027 | 297,942 |  |  | 297,595 |
4.80% Senior notes due November 15, 2029 | 297,485 |  |  | 297,230 |
7.25% Senior notes due July 15, 2030 | 345,988 |  |  | 345,663 |
4.00% Senior notes due June 15, 2031 | 386,092 |  |  | 385,778 |
Mortgages and land contracts due to land sellers and other loans | 4,463 |  |  | 4,760 |
Total | $ | 1,689,958 |  |  | $ | 1,838,511 |

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $14.5 million at August 31, 2023 and $16.2 million at November 30, 2022.
Unsecured Revolving Credit Facility. 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 August 31, 2023, we had no cash borrowings and $6.6 million of letters of credit outstanding under the Credit Facility. Therefore, as of August 31, 2023, we had $1.08 billion available for cash borrowings under the Credit Facility, with up to $243.4 million of that amount available for the issuance of letters of credit.
Senior Unsecured Term Loan. 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 August 31, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.8%.
Letter of Credit Facility. We maintain an unsecured letter of credit agreement with a financial institution (“LOC Facility”) to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, we may issue up to $75.0 million of letters of credit. On August 10, 2023, we entered into an amendment to our LOC Facility that extended the expiration date from February 13, 2025 to February 18, 2027. As of August 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $13.0 million and $36.4 million, respectively.
Senior Notes. All the senior notes outstanding at August 31, 2023 and November 30, 2022 represent senior unsecured obligations that are guaranteed by our Guarantor Subsidiaries and rank equally in right of payment with all of our and our Guarantor Subsidiaries’ existing unsecured and unsubordinated indebtedness. All of our senior notes were issued in underwritten public offerings. Interest on each of these senior notes is payable semi-annually.
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In the three months ended August 31, 2022, we completed the underwritten public offering of $350.0 million in aggregate principal amount of 7.25% senior notes due 2030 (“7.25% Senior Notes due 2030”) and used the net proceeds, together with cash on hand, to retire $350.0 million in aggregate principal amount of certain outstanding senior notes before their maturity date, pursuant to the optional redemption terms specified for such notes. We paid $353.6 million to redeem these notes and recorded a charge of $3.6 million for the early extinguishment of debt in the 2022 third quarter.
The indenture governing our senior notes does not contain any financial covenants. 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 August 31, 2023, we were in compliance with our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. 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 August 31, 2023, inventories having a carrying value of $33.2 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.
Shelf Registration. On July 10, 2023, we filed an automatically effective universal shelf registration statement (“2023 Shelf Registration”) with the SEC. The 2023 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity. The 2023 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 9, 2020. We have not made any offerings of securities under the 2023 Shelf Registration.
As of August 31, 2023, principal payments on our notes payable are due during each year ending November 30 as follows: 2023 – $1.1 million; 2024 – $2.9 million; 2025 – $.5 million; 2026 – $360.0 million; 2027 – $300.0 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. The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the nine months ended August 31, 2023 and the year ended November 30, 2022 (in thousands):

|  |  |  | August 31, 2023 |  | November 30, 2022
Description |  | Fair Value Hierarchy |  | Pre-Impairment Value |  | Inventory Impairment Charges |  | Fair Value (a) |  | Pre-Impairment Value |  | Inventory Impairment Charges |  | Fair Value (a)
Inventories |  | Level 3 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 65,372 |  |  | $ | (24,077) |  |  | $ | 41,295 |

(a)Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date that the fair value measurements were made. The carrying value for these real estate
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assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.
The fair values for inventories that were determined using Level 3 inputs were primarily based on the estimated future net cash flows discounted for inherent risk associated with each underlying asset.
The following table presents the fair value hierarchy, carrying values and estimated fair values of our financial instruments, except those for which the carrying values approximate fair values (in thousands):

|  |  |  | August 31, 2023 |  | November 30, 2022
Description |  | Fair Value Hierarchy |  | Carrying Value (a) |  | Estimated Fair Value |  | Carrying Value (a) |  | Estimated Fair Value
Financial Liabilities: |  |  |  |  |  |  |  |  |  |
Senior notes |  | Level 2 |  | $ | 1,327,507 |  |  | $ | 1,250,125 |  |  | $ | 1,326,266 |  |  | $ | 1,205,875 |

(a)The carrying values for the senior notes, as presented, include unamortized debt issuance costs. Debt issuance costs are not factored into the estimated fair values of these notes.
The fair values of our senior notes are generally estimated based on quoted market prices for these instruments. The carrying values reported for cash and cash equivalents, outstanding borrowings under the Credit Facility and the Term Loan, and mortgages and land contracts due to land sellers and other loans 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.
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The changes in our warranty liability were as follows (in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Balance at beginning of period | $ | 99,142 |  |  | $ | 99,207 |  |  | $ | 101,890 |  |  | $ | 96,153 |
Warranties issued | 9,354 |  |  | 10,377 |  |  | 27,997 |  |  | 27,945 |
Payments | (12,781) |  |  | (10,084) |  |  | (34,172) |  |  | (24,598) |
Balance at end of period | $ | 95,715 |  |  | $ | 99,500 |  |  | $ | 95,715 |  |  | $ | 99,500 |

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.
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Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other recoveries of $31.6 million and $32.7 million are included in receivables in our consolidated balance sheets at August 31, 2023 and November 30, 2022, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period. 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 August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Balance at beginning of period | $ | 172,223 |  |  | $ | 168,675 |  |  | $ | 175,977 |  |  | $ | 189,131 |
Self-insurance provided | 4,794 |  |  | 5,763 |  |  | 12,612 |  |  | 16,275 |
Payments | (4,277) |  |  | (860) |  |  | (13,411) |  |  | (14,990) |
Adjustments (a) | 1,259 |  |  | (2,300) |  |  | (1,179) |  |  | (19,138) |
Balance at end of period | $ | 173,999 |  |  | $ | 171,278 |  |  | $ | 173,999 |  |  | $ | 171,278 |

(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.
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 August 31, 2023, we had approximately 485 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond. In addition, some of our trade partners’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs. At August 31, 2023, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries. While it is reasonably possible that our loss could exceed the amount accrued and our recoveries could be less than the amount recorded, at this time, we are unable to estimate the total amount of the loss in excess of the accrued amount and/or associated with a shortfall in the recoveries that is reasonably possible. In addition, although we believe it is probable we will receive additional claims in future periods, we are unable to reasonably estimate the number of such claims or the amount or range of any potential losses associated with such claims as each of these is dependent on several factors, including the actions of third parties over which we have no control; the nature of any specific claims; and our evaluation of the particular facts surrounding each such claim.
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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 August 31, 2023, we had $1.32 billion of performance bonds and $19.7 million of letters of credit outstanding. At November 30, 2022, we had $1.27 billion of performance bonds and $43.0 million of letters of credit outstanding. 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 August 31, 2023, we had total cash deposits of $39.2 million to purchase land having an aggregate purchase price of $1.20 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.
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 August 31, 2023, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (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.
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18.Stockholders’ Equity
A summary of changes in stockholders’ equity is presented below (in thousands):

| Three Months Ended August 31, 2023 and 2022
| Number of Shares |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common Stock |  | Grantor Stock Ownership Trust |  | Treasury Stock |  | Common Stock |  | Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Grantor Stock Ownership Trust |  | Treasury Stock |  | Total Stockholders’ Equity
Balance at May 31, 2023 | 101,019 |  |  | (6,705) |  |  | (13,704) |  |  | $ | 101,019 |  |  | $ | 830,765 |  |  | $ | 3,407,813 |  |  | $ | (5,575) |  |  | $ | (72,718) |  |  | $ | (494,822) |  |  | $ | 3,766,482 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 149,933 |  |  | — |  |  | — |  |  | — |  |  | 149,933 |
Dividends on common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (15,928) |  |  | — |  |  | — |  |  | — |  |  | (15,928) |
Employee stock options/other | 240 |  |  | — |  |  | — |  |  | 240 |  |  | 3,358 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,598 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 9,248 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,248 |
Stock repurchases | — |  |  | — |  |  | (1,531) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (83,205) |  |  | (83,205) |
Balance at August 31, 2023 | 101,259 |  |  | (6,705) |  |  | (15,235) |  |  | $ | 101,259 |  |  | $ | 843,371 |  |  | $ | 3,541,818 |  |  | $ | (5,575) |  |  | $ | (72,718) |  |  | $ | (578,027) |  |  | $ | 3,830,128 |
Balance at May 31, 2022 | 100,711 |  |  | (6,705) |  |  | (6,840) |  |  | $ | 100,711 |  |  | $ | 834,883 |  |  | $ | 2,697,149 |  |  | $ | (19,119) |  |  | $ | (72,718) |  |  | $ | (249,911) |  |  | $ | 3,290,995 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 255,329 |  |  | — |  |  | — |  |  | — |  |  | 255,329 |
Dividends on common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,772) |  |  | — |  |  | — |  |  | — |  |  | (12,772) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 7,056 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,056 |
Stock repurchases | — |  |  | — |  |  | (1,582) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (50,000) |  |  | (50,000) |
Balance at August 31, 2022 | 100,711 |  |  | (6,705) |  |  | (8,422) |  |  | $ | 100,711 |  |  | $ | 841,939 |  |  | $ | 2,939,706 |  |  | $ | (19,119) |  |  | $ | (72,718) |  |  | $ | (299,911) |  |  | $ | 3,490,608 |
| Nine Months Ended August 31, 2023 and 2022
| Number of Shares |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common Stock |  | Grantor Stock Ownership Trust |  | Treasury Stock |  | Common Stock |  | Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Grantor Stock Ownership Trust |  | Treasury Stock |  | Total Stockholders’ Equity
Balance at November 30, 2022 | 100,711 |  |  | (6,705) |  |  | (10,016) |  |  | $ | 100,711 |  |  | $ | 836,260 |  |  | $ | 3,143,578 |  |  | $ | (5,575) |  |  | $ | (72,718) |  |  | $ | (341,461) |  |  | $ | 3,660,795 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 439,875 |  |  | — |  |  | — |  |  | — |  |  | 439,875 |
Dividends on common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (41,635) |  |  | — |  |  | — |  |  | — |  |  | (41,635) |
Employee stock options/other | 548 |  |  | — |  |  | — |  |  | 548 |  |  | 8,060 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,608 |
Stock awards | — |  |  | — |  |  | 717 |  |  | — |  |  | (24,883) |  |  | — |  |  | — |  |  | — |  |  | 24,883 |  |  | — |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 23,934 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 23,934 |
Stock repurchases | — |  |  | — |  |  | (5,659) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (251,701) |  |  | (251,701) |
Tax payments associated with stock-based compensation awards | — |  |  | — |  |  | (277) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9,748) |  |  | (9,748) |
Balance at August 31, 2023 | 101,259 |  |  | (6,705) |  |  | (15,235) |  |  | $ | 101,259 |  |  | $ | 843,371 |  |  | $ | 3,541,818 |  |  | $ | (5,575) |  |  | $ | (72,718) |  |  | $ | (578,027) |  |  | $ | 3,830,128 |
Balance at November 30, 2021 | 100,711 |  |  | (6,705) |  |  | (5,785) |  |  | $ | 100,711 |  |  | $ | 848,620 |  |  | $ | 2,379,364 |  |  | $ | (19,119) |  |  | $ | (72,718) |  |  | $ | (217,383) |  |  | $ | 3,019,475 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 600,256 |  |  | — |  |  | — |  |  | — |  |  | 600,256 |
Dividends on common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (39,914) |  |  | — |  |  | — |  |  | — |  |  | (39,914) |
Stock awards | — |  |  | — |  |  | 785 |  |  | — |  |  | (29,625) |  |  | — |  |  | — |  |  | — |  |  | 29,625 |  |  | — |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 22,944 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 22,944 |
Stock repurchases | — |  |  | — |  |  | (3,102) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (100,000) |  |  | (100,000) |
Tax payments associated with stock-based compensation awards | — |  |  | — |  |  | (320) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,153) |  |  | (12,153) |
Balance at August 31, 2022 | 100,711 |  |  | (6,705) |  |  | (8,422) |  |  | $ | 100,711 |  |  | $ | 841,939 |  |  | $ | 2,939,706 |  |  | $ | (19,119) |  |  | $ | (72,718) |  |  | $ | (299,911) |  |  | $ | 3,490,608 |

On February 24, 2023, the management development and compensation committee of our board of directors approved the payout of 602,265 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October 3, 2019. 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, 2019 through November 30, 2022. Of the shares of common stock paid out, 276,853 shares, or $9.7 million, were purchased by us in the 2023 first quarter to satisfy the recipients’ withholding taxes on the vesting of the PSUs. The shares purchased
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were not considered repurchases under the authorizations described below.
On April 7, 2022, our board of directors authorized us to repurchase up to $300.0 million of our outstanding common stock, excluding excise tax. As of November 30, 2022, there was $150.0 million of remaining availability under this share repurchase authorization, excluding excise tax. In the 2023 first quarter, we repurchased 1,965,442 shares of our common stock on the open market pursuant to this authorization at a total cost of approximately $75.0 million, excluding excise tax. On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, excluding excise tax. This authorization replaced the prior board of directors authorization, which had $75.0 million remaining, excluding excise tax. In the 2023 third quarter, we repurchased 1,531,318 shares of our common stock at a total cost of approximately $82.5 million, excluding excise tax, bringing our total repurchases for the nine months ended August 31, 2023 to 5,659,642 shares of common stock at a total cost of approximately $249.6 million, excluding excise tax. Repurchases under the current authorization may occur periodically through open market purchases, privately negotiated transactions or otherwise, with the timing and amount at management’s discretion and dependent on market, business and other conditions. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors, and does not obligate us to purchase any shares. As of August 31, 2023, we were authorized to repurchase up to approximately $325.4 million of our outstanding common stock in additional transactions, excluding excise tax.
The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. In the nine months ended August 31, 2023, we reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accrued expenses and other liabilities on our consolidated balance sheet.
In the 2023 third quarter, our board of directors approved a $.05 per share increase in the quarterly cash dividend on our common stock to $.20 per share and declared, and we paid, a quarterly cash dividend at the new higher rate. In the 2022 third quarter, our board of directors declared, and we paid a quarterly cash dividend on our common stock of $.15 per share. Quarterly cash dividends declared and paid during the nine-month periods ended August 31, 2023 and 2022 totaled $.50 per share and $.45 per share, respectively.
19.Stock-Based Compensation
Stock Options. At August 31, 2023 and November 30, 2022, we had 1,126,217 and 1,674,393 stock options outstanding with a weighted average exercise price of $15.49 and $15.56, respectively. We have not granted any stock option awards since 2016. During the nine months ended August 31, 2023, a total of 548,176 stock options with a weighted average exercise price of $15.70 were exercised. As of August 31, 2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 2.5 years. As all outstanding stock options have been fully vested since 2019, there was no stock-based compensation expense associated with stock options for the three-month and nine-month periods ended August 31, 2023 and 2022. Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $39.8 million at August 31, 2023. (The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)
Other Stock-Based Awards. From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit. We recognized total compensation expense of $9.2 million and $7.0 million for the three months ended August 31, 2023 and 2022, respectively, related to restricted stock and PSUs. For the nine months ended August 31, 2023 and 2022, we recognized total compensation expense of $23.9 million and $22.9 million, respectively.
Approval of the Amended and Restated KB Home 2014 Equity Incentive Plan. At our Annual Meeting of Stockholders held on April 20, 2023, our stockholders approved the Amended and Restated KB Home 2014 Equity Incentive Plan (“Amended and Restated 2014 Plan”), confirming, among other things, an aggregate share grant capacity for stock-based awards to our employees, non-employee directors and consultants of 18,200,000 shares through approving and incorporating the base amount of 12,300,000 shares under the predecessor Amended KB Home 2014 Equity Incentive Plan and adding 5,900,000 shares, plus any shares subject to outstanding awards under our 2010 Equity Incentive Plan (“2010 Plan”) that subsequently expire or are cancelled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash. With no other shares available for grant under the 2010 Plan, the Amended and Restated 2014 Plan is our only active equity compensation plan. As with the Amended KB Home 2014 Equity Incentive Plan, under the Amended and Restated 2014 Plan, grants of stock options and other similar awards reduce the share grant capacity on a 1-for-1 basis, and grants of restricted stock and other similar “full value” awards reduce the share grant capacity on a 1.78-for-1 basis. The Amended and Restated 2014 Plan provides stock options and SARs may be awarded for periods of up to 10 years, and enables us to grant other stock-based awards and cash bonuses. As of the date
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of this report, no grants have been made under the Amended and Restated 2014 Plan following the date of its approval by our stockholders.
20.Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):

| Nine Months Ended August 31,
| 2023 |  | 2022
Summary of cash and cash equivalents at end of period: |  |  |
Homebuilding | $ | 612,076 |  |  | $ | 195,402 |
Financial services | 321 |  |  | 1,855 |
Total | $ | 612,397 |  |  | $ | 197,257 |
Supplemental disclosures of cash flow information: |  |  |
Interest paid, net of amounts capitalized | $ | 12,366 |  |  | $ | (1,100) |
Income taxes paid | 104,799 |  |  | 168,709 |
Supplemental disclosures of non-cash activities: |  |  |
Inventories acquired through seller financing | 2,891 |  |  | — |
Decrease in consolidated inventories not owned | (2,129) |  |  | (19,423) |
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture | 7,569 |  |  | 8,436 |

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
OVERVIEW
Revenues are generated from our homebuilding and financial services operations. The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
Revenues: |  |  |  |  |  |  |  |  |  |  |
Homebuilding | $ | 1,579,719 |  |  | $ | 1,838,888 |  |  | (14) | % |  | $ | 4,716,102 |  |  | $ | 4,947,868 |  |  | (5) | %
Financial services | 7,292 |  |  | 6,007 |  |  | 21 |  |  | 20,539 |  |  | 15,878 |  |  | 29 |
Total revenues | $ | 1,587,011 |  |  | $ | 1,844,895 |  |  | (14) | % |  | $ | 4,736,641 |  |  | $ | 4,963,746 |  |  | (5) | %
Pretax income: |  |  |  |  |  |  |  |  |  |  |
Homebuilding | $ | 184,622 |  |  | $ | 321,604 |  |  | (43) | % |  | $ | 544,339 |  |  | $ | 755,414 |  |  | (28) | %
Financial services | 9,911 |  |  | 4,625 |  |  | 114 |  |  | 27,336 |  |  | 31,742 |  |  | (14) |
Total pretax income | 194,533 |  |  | 326,229 |  |  | (40) |  |  | 571,675 |  |  | 787,156 |  |  | (27) |
Income tax expense | (44,600) |  |  | (70,900) |  |  | 37 |  |  | (131,800) |  |  | (186,900) |  |  | 29 |
Net income | $ | 149,933 |  |  | $ | 255,329 |  |  | (41) | % |  | $ | 439,875 |  |  | $ | 600,256 |  |  | (27) | %
Diluted earnings per share | $ | 1.80 |  |  | $ | 2.86 |  |  | (37) | % |  | $ | 5.18 |  |  | $ | 6.63 |  |  | (22) | %

We generated solid financial results in the 2023 third quarter, though below our exceptional results in the year-earlier quarter, when we achieved record-high third-quarter net income and diluted earnings per share. Housing market conditions improved in the current period compared to the 2022 second half and 2023 first quarter, periods in which the combination of relatively high mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns significantly depressed demand. We continued to experience steady demand throughout the 2023 third quarter as we did in the second quarter, even as mortgage interest rates rose, indicative of constrained resale home inventory, favorable demographic trends and demand for homes at our price points. Our net orders for the 2023 third quarter grew 52% from the year-earlier quarter, driven by a 9% year-over-year expansion in our average community count and a higher monthly net order pace per community of 4.3. This pace increased from 3.1 a year ago and was above our historical third-quarter average, prior to pandemic-driven volatility.
During the third quarter, we remained focused on balancing pace, price and construction starts at each community to optimize our return on each inventory asset within its market context. With recent market conditions having improved, we were able to raise or maintain selling prices in the 2023 second and third quarters in most of our communities. At the same time, ongoing elevated mortgage interest rates and inflation continued to negatively affect housing affordability and temper demand, which we expect will continue in the 2023 fourth quarter. On a more selective basis and to a lesser extent than in the first and second quarters, in the current quarter we employed targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), to help drive order activity and minimize cancellations. These actions, together with product and geographic mix shifts, as discussed below under “Homebuilding” and “Homebuilding Reporting Segments,” contributed to our 2023 third-quarter net orders increasing 52% year over year and net order value increasing 54%, reflecting a higher average selling price for these net orders. Our year-over-year performance improved significantly from the 2022 third quarter, when the negative factors described above impacted our net orders and net order value, which decreased 50% and 51%, respectively, compared to the corresponding 2021 period. However, we anticipate the pricing adjustments and other homebuyer concessions we have utilized in 2023 will contribute to a year-over-year decrease in the average selling price of homes delivered in the 2023 fourth quarter.
Homebuilding revenues for the three months ended August 31, 2023 were generated from housing revenues and $6.0 million of land sale revenues. In the three months ended August 31, 2022, homebuilding revenues were generated entirely from housing revenues. Housing revenues of $1.57 billion for the 2023 third quarter were down 14% from the year-earlier quarter due to a 7% decrease in the number of homes delivered to 3,375 and an 8% decline in their average selling price to $466,300. Approximately 49% of our homes delivered in the 2023 third quarter were to first-time homebuyers. Homebuilding operating income for the three months ended August 31, 2023 was $179.2 million, compared to $325.1 million for the year-earlier quarter, and as a percentage of revenues, was 11.3%, compared to 17.7%. Our homebuilding operating income margin for the 2023 third quarter reflected a decrease in our housing gross profit margin to 21.5%, compared to 26.7% for the year-ago
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quarter. Net income and diluted earnings per share for the three months ended August 31, 2023 were down 41% and 37%, respectively, from the record third-quarter results we achieved in the year-earlier period. Our diluted earnings per share for the 2023 third quarter reflected the favorable impact of our common stock repurchases over the past several quarters.
In the 2023 third quarter, we achieved a meaningful sequential improvement in our construction cycle times, as we did in the 2023 second quarter. This was driven by a stabilizing supply chain and better construction services availability as well as our ongoing initiative to simplify our product offerings, alleviating, to an extent, the significant production challenges that have persisted to varying degrees since the 2020 second quarter, and resulted in cycle times that remain extended relative to our historical average, and delays in opening communities and delivering homes. We remain committed to further reducing our build times. While we are pleased with the production gains in the second and third quarters, ongoing supply chain-related challenges for certain items may continue to negatively affect our land development and home construction activities through the 2023 fourth quarter, and it is possible they may worsen in that and in later periods.
We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through evolving market conditions. For the nine months ended August 31, 2023, we generated $772.5 million of cash from operating activities, reflecting our reduced investments in land and land development in the 2023 first half due to the prevailing housing environment in the 2022 second half and 2023 first quarter. In the 2023 third quarter, we increased our investments in land and land development to $554.5 million, up 40% from the 2023 second quarter and essentially equal to the year-earlier period. We also repurchased approximately 1.5 million shares of our common stock during the quarter, bringing our total repurchases in 2023 to approximately 5.7 million shares at a total cost of $249.6 million. In July 2023, our board of directors increased the quarterly cash dividend on our common stock by approximately 33% to $.20 per share, from $.15. We ended the 2023 third quarter with total liquidity of $1.70 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility. With net repayments of $150.0 million under the Credit Facility in the first nine months of 2023, we had no cash borrowings outstanding under the Credit Facility at August 31, 2023.
Our ending backlog value at August 31, 2023 decreased 35% year over year to approximately $3.40 billion, largely due to our lower backlog at the beginning of the quarter, which reflected the slowdown in housing market demand that began in the 2022 second half and continued into the 2023 first quarter. Yet, we believe we are well-positioned to achieve solid results for the 2023 fourth quarter and full year, as described below under “Outlook.”
HOMEBUILDING
Financial Results. The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |
Housing | $ | 1,573,684 |  |  | $ | 1,838,888 |  |  | $ | 4,710,067 |  |  | $ | 4,947,868 |
Land | 6,035 |  |  | — |  |  | 6,035 |  |  | — |
Total | 1,579,719 |  |  | 1,838,888 |  |  | 4,716,102 |  |  | 4,947,868 |
Costs and expenses: |  |  |  |  |  |  |
Construction and land costs |  |  |  |  |  |  |
Housing | (1,235,469) |  |  | (1,347,999) |  |  | (3,704,848) |  |  | (3,711,863) |
Land | (4,911) |  |  | (2,541) |  |  | (4,911) |  |  | (2,541) |
Total | (1,240,380) |  |  | (1,350,540) |  |  | (3,709,759) |  |  | (3,714,404) |
Selling, general and administrative expenses | (160,097) |  |  | (163,238) |  |  | (468,510) |  |  | (474,332) |
Total | (1,400,477) |  |  | (1,513,778) |  |  | (4,178,269) |  |  | (4,188,736) |
Operating income | 179,242 |  |  | 325,110 |  |  | 537,833 |  |  | 759,132 |
Interest income | 5,492 |  |  | 192 |  |  | 7,688 |  |  | 267 |
Equity in loss of unconsolidated joint ventures | (112) |  |  | (100) |  |  | (1,182) |  |  | (387) |
Loss on early extinguishment of debt | — |  |  | (3,598) |  |  | — |  |  | (3,598) |
Homebuilding pretax income | $ | 184,622 |  |  | $ | 321,604 |  |  | $ | 544,339 |  |  | $ | 755,414 |

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| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Homes delivered | 3,375 |  |  | 3,615 |  |  | 9,829 |  |  | 9,952 |
Average selling price | $ | 466,300 |  |  | $ | 508,700 |  |  | $ | 479,200 |  |  | $ | 497,200 |
Housing gross profit margin as a percentage of housing revenues | 21.5 | % |  | 26.7 | % |  | 21.3 | % |  | 25.0 | %
Adjusted housing gross profit margin as a percentage of housing revenues | 21.5 | % |  | 27.0 | % |  | 21.6 | % |  | 25.1 | %
Selling, general and administrative expenses as a percentage of housing revenues | 10.2 | % |  | 8.9 | % |  | 9.9 | % |  | 9.6 | %
Operating income as a percentage of revenues | 11.3 | % |  | 17.7 | % |  | 11.4 | % |  | 15.3 | %

Revenues. Homebuilding revenues for the three months and nine months ended August 31, 2023 were comprised of housing revenues and $6.0 million of land sale revenues. Homebuilding revenues for the three months and nine months ended August 31, 2022 were comprised solely of housing revenues. In the 2023 third quarter, housing revenues were down 14% from the year-earlier quarter, reflecting decreases of 7% in the number of homes delivered and 8% in their overall average selling price. The year-over-year decline in the number of homes delivered reflected decreases of 37% and 3% in our West Coast and Southwest homebuilding reporting segments, respectively, partly offset by increases of 17% and 3% in our Central and Southeast homebuilding reporting segments, respectively. The decline in our West Coast homebuilding reporting segment mainly resulted from a 31% year-over-year decrease in this segment’s backlog of homes at the beginning of the quarter combined with a decrease in its backlog conversion rate, which largely reflected that the beginning backlog for the current period was more heavily weighted to the early building stages. The lower overall average selling price primarily reflected product and geographic mix factors, mainly a shift away from our higher-priced West Coast homebuilding reporting segment, and increased concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies.
For the nine months ended August 31, 2023, housing revenues were down 5% from the corresponding 2022 period, with the number of homes delivered nearly even with the year-earlier period and their overall average selling price declining 4%.
Operating Income. Our homebuilding operating income for the three months ended August 31, 2023 was down 45% year over year, mainly reflecting lower housing gross profits. Operating income for the 2023 third quarter included inventory-related charges of $.6 million, compared to $5.9 million in the year-earlier quarter. As a percentage of revenues, our operating income for the three months ended August 31, 2023 was 11.3%, compared to 17.7% for the corresponding 2022 period, reflecting a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of housing revenues. Excluding inventory-related charges, our operating income as a percentage of revenues decreased to 11.4% for the 2023 third quarter from 18.1% for the year-earlier quarter.
For the nine months ended August 31, 2023, our operating income decreased 29% from the prior-year period primarily due to lower housing gross profits. Operating income for the nine months ended August 31, 2023 included inventory-related charges of $10.2 million, compared to $9.4 million of such charges in the corresponding 2022 period. As a percentage of revenues, our operating income for the nine months ended August 31, 2023 decreased 390 basis points year over year to 11.4%, mainly reflecting a lower housing gross profit margin. Excluding inventory-related charges, our operating income as a percentage of revenues declined 390 basis points to 11.6% for the nine months ended August 31, 2023 from 15.5% for the corresponding year-earlier period.
•Housing Gross Profits – Housing gross profits of $338.2 million for the three months ended August 31, 2023 declined 31% from $490.9 million for the year-earlier period, due to decreases in both our housing gross profit margin and housing revenues. Our housing gross profit margin for the 2023 third quarter was 21.5%, down 520 basis points year over year, primarily due to price decreases and other homebuyer concessions, higher construction costs, and product and geographic mix shifts, partly offset by a decrease in inventory-related charges. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations, which is included in construction and land costs, was 1.8% and 2.0% for the three months ended August 31, 2023 and 2022, respectively. Excluding the inventory-related charges associated with housing operations of $.6 million in the current quarter and $5.9 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2023 third quarter decreased 550 basis points year over year.
For the nine months ended August 31, 2023, our housing gross profits of $1.01 billion decreased 19% from $1.24 billion for the year-earlier period. Our housing gross profit margin for the nine months ended August 31, 2023 declined 370 basis
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points to 21.3%, primarily due to the reasons described above with respect to the three months ended August 31, 2023. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 1.9% for the nine months ended August 31, 2023, compared to 2.0% for the corresponding 2022 period. Excluding the inventory-related charges associated with housing operations of $10.2 million in the current period and $6.8 million in the year-earlier period, our adjusted housing gross profit margin of 21.6% for the nine months ended August 31, 2023 decreased 350 basis points year over year.
The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”
•Land Sale Profits (Losses) – Land sale profits totaled $1.1 million for the three months and nine months ended August 31, 2023. Land sale losses of $2.6 million for the three months and nine months ended August 31, 2022 were comprised solely of an inventory impairment charge related to a parcel of land held for sale.
•Selling, General and Administrative Expenses – The following table presents the components of our selling, general and administrative expenses (dollars in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | % of Housing Revenues |  | 2022 |  | % of Housing Revenues |  | 2023 |  | % of Housing Revenues |  | 2022 |  | % of Housing Revenues
Marketing expenses | $ | 37,059 |  |  | 2.4 | % |  | $ | 35,011 |  |  | 1.9 | % |  | $ | 107,985 |  |  | 2.3 | % |  | $ | 99,509 |  |  | 2.0 | %
Commission expenses (a) | 56,145 |  |  | 3.6 |  |  | 56,368 |  |  | 3.1 |  |  | 165,538 |  |  | 3.5 |  |  | 159,791 |  |  | 3.2 |
General and administrative expenses | 66,893 |  |  | 4.2 |  |  | 71,859 |  |  | 3.9 |  |  | 194,987 |  |  | 4.1 |  |  | 215,032 |  |  | 4.4 |
Total | $ | 160,097 |  |  | 10.2 | % |  | $ | 163,238 |  |  | 8.9 | % |  | $ | 468,510 |  |  | 9.9 | % |  | $ | 474,332 |  |  | 9.6 | %

(a)Commission expenses include sales commissions on homes delivered paid to internal sales counselors and external real estate brokers.
Selling, general and administrative expenses for the three months ended August 31, 2023 decreased 2% from the year-earlier quarter. As a percentage of housing revenues, our selling, general and administrative expenses for the 2023 third quarter increased 130 basis points, mainly reflecting reduced operating leverage due to our lower housing revenues as compared to the year-earlier quarter and higher sales commissions.
For the nine months ended August 31, 2023, selling, general and administrative expenses were down slightly from the corresponding 2022 period. As a percentage of housing revenues, selling, general and administrative expenses for the nine months ended August 31, 2023 increased 30 basis points, primarily due to the reasons described above with respect to the three months ended August 31, 2023.
Interest Income/Expense. Interest income, which is generated from short-term investments, totaled $5.5 million and $7.7 million for the three-month and nine-month periods ended August 31, 2023, respectively, and was nominal for both corresponding year-earlier periods. Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates.
We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs. All interest incurred during the three-month and nine-month periods ended August 31, 2023 and 2022 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period. Accordingly, we had no interest expense for these periods. Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report.
Equity in Loss of Unconsolidated Joint Ventures. Our equity in loss of unconsolidated joint ventures was nominal for the three months ended August 31, 2023 and 2022. For the nine months ended August 31, 2023, our equity in loss of unconsolidated joint ventures was $1.2 million, compared to $.4 million for the year-earlier period. Further information regarding our investments in homebuilding unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
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Loss on Early Extinguishment of Debt. For the three months and nine months ended August 31, 2022, we recognized a $3.6 million loss on the early extinguishment of debt associated with our retirement of $350.0 million in aggregate principal amount of senior notes before their maturity date, pursuant to the optional redemption terms specified for such notes.
Net Orders, Cancellation Rates, Backlog and Community Count. The following table presents information about our net orders, cancellation rate, ending backlog and community count (dollars in thousands):

|  | Three Months Ended August 31, |  | Nine Months Ended August 31,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Net orders |  | 3,097 |  |  | 2,040 |  |  | 9,175 |  |  | 10,164 |
Net order value (a) |  | $ | 1,512,380 |  |  | $ | 978,969 |  |  | $ | 4,413,897 |  |  | $ | 5,257,457 |
Cancellation rate (b) |  | 21 | % |  | 35 | % |  | 26 | % |  | 19 | %
Ending backlog — homes |  | 7,008 |  |  | 10,756 |  |  | 7,008 |  |  | 10,756 |
Ending backlog — value |  | $ | 3,395,389 |  |  | $ | 5,261,314 |  |  | $ | 3,395,389 |  |  | $ | 5,261,314 |
Ending community count |  | 230 |  |  | 227 |  |  | 230 |  |  | 227 |
Average community count |  | 240 |  |  | 221 |  |  | 245 |  |  | 217 |

(a) Net order value represents potential future housing revenues associated with net orders generated during the period, as well as homebuyer selections of lot and product premiums and design studio options and upgrades for homes in backlog during the same period.
(b) Cancellation rates represent the total number of contracts for new homes cancelled during a period divided by the total (gross) orders for new homes generated during the same period.
Net Orders. Net orders for the 2023 third quarter rose 52% from the year-earlier quarter, reflecting improved demand and a lower cancellation rate as compared to the year-earlier quarter, when the combination of rapidly rising mortgage interest rates, ongoing inflation and other macroeconomic concerns caused many prospective buyers to pause on their homebuying decision. The pace of monthly net orders per community increased to 4.3 in the 2023 third quarter, compared to 3.1 in the corresponding 2022 quarter, and was above our historical third-quarter average, prior to pandemic-related volatility. The value of our net orders grew 54% year over year as a result of the growth in net orders and a 2% increase in the average selling price for those homes to $488,300. In the 2023 third quarter, the year-over-year growth in our overall net orders reflected increases in all four homebuilding reporting segments, ranging from 30% in our Southeast segment to 74% in our West Coast segment.
Our cancellation rate as a percentage of gross orders for the three months ended August 31, 2023 improved from the year-earlier period, reflecting softer housing market demand in the year-ago period. On a sequential basis, the cancellation rate for the 2023 third quarter improved slightly from 22% in the 2023 second quarter.
Backlog. The number of homes in our backlog and our backlog value at August 31, 2023 each decreased 35% from August 31, 2022, mainly due to our substantially lower backlog levels at the beginning of the quarter. The year-over-year decrease in our overall backlog value at August 31, 2023 reflected decreases in all of our homebuilding reporting segments, ranging from 11% in our West Coast segment to 62% in our Central segment. A portion of the homes in backlog will not result in homes delivered due to cancellations.
Community Count. We use the term “community count” to refer to the number of communities open for sale with at least five homes left to sell at the end of a reporting period. Our average community count for the three months ended August 31, 2023 expanded 9% from the year-earlier period, reflecting increases in each of our homebuilding reporting segments. Our ending community count for the 2023 third quarter rose 1% from the corresponding 2022 quarter, as the number of new community openings exceeded the number of communities selling out over the past twelve months. On a sequential basis, our average and ending community counts for the 2023 third quarter were down 5% and 8%, respectively, as the number of communities selling out exceeded the number of community openings during the three months ended August 31, 2023. While maintaining a healthy supply of land owned or controlled under land option contracts and other similar contracts to fuel future community openings, we continued to calibrate our land investments for the nine months ended August 31, 2023 with evolving housing market conditions, as discussed below under “Liquidity and Capital Resources.”
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HOMEBUILDING REPORTING SEGMENTS
Operational Data. The following tables present information about our homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands):

|  | Three Months Ended August 31,
|  | Homes Delivered |  | Net Orders |  | Cancellation Rates
Segment |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
West Coast |  | 732 |  |  | 1,156 |  |  | 906 |  |  | 520 |  |  | 15 | % |  | 37 | %
Southwest |  | 717 |  |  | 737 |  |  | 656 |  |  | 430 |  |  | 13 |  |  | 22 |
Central |  | 1,258 |  |  | 1,072 |  |  | 865 |  |  | 573 |  |  | 33 |  |  | 45 |
Southeast |  | 668 |  |  | 650 |  |  | 670 |  |  | 517 |  |  | 19 |  |  | 28 |
Total |  | 3,375 |  |  | 3,615 |  |  | 3,097 |  |  | 2,040 |  |  | 21 | % |  | 35 | %
|  | Net Order Value |  | Average Community Count
Segment |  | 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
West Coast |  | $ | 638,643 |  |  | $ | 317,329 |  |  | 101 | % |  | 71 |  |  | 66 |  | 8 | %
Southwest |  | 296,811 |  |  | 191,868 |  |  | 55 |  |  | 44 |  |  | 40 |  | 10 |
Central |  | 296,255 |  |  | 272,288 |  |  | 9 |  |  | 79 |  |  | 76 |  | 4 |
Southeast |  | 280,671 |  |  | 197,484 |  |  | 42 |  |  | 46 |  |  | 39 |  | 18 |
Total |  | $ | 1,512,380 |  |  | $ | 978,969 |  |  | 54 | % |  | 240 |  |  | 221 |  | 9 | %
|  | Nine Months Ended August 31,
|  | Homes Delivered |  | Net Orders |  | Cancellation Rates
Segment |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
West Coast |  | 2,320 |  |  | 3,099 |  |  | 3,062 |  |  | 2,702 |  |  | 15 | % |  | 19 | %
Southwest |  | 2,031 |  |  | 1,938 |  |  | 1,915 |  |  | 1,897 |  |  | 18 |  |  | 13 |
Central |  | 3,495 |  |  | 3,142 |  |  | 2,318 |  |  | 3,317 |  |  | 40 |  |  | 24 |
Southeast |  | 1,983 |  |  | 1,773 |  |  | 1,880 |  |  | 2,248 |  |  | 26 |  |  | 17 |
Total |  | 9,829 |  |  | 9,952 |  |  | 9,175 |  |  | 10,164 |  |  | 26 | % |  | 19 | %
|  | Net Order Value |  | Average Community Count
Segment |  | 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
West Coast |  | $ | 2,044,331 |  |  | $ | 2,007,677 |  |  | 2 | % |  | 75 |  |  | 62 |  |  | 21 | %
Southwest |  | 819,543 |  |  | 860,677 |  |  | (5) |  |  | 44 |  |  | 37 |  |  | 19 |
Central |  | 800,936 |  |  | 1,472,381 |  |  | (46) |  |  | 80 |  |  | 75 |  |  | 7 |
Southeast |  | 749,087 |  |  | 916,722 |  |  | (18) |  |  | 46 |  |  | 43 |  |  | 7 |
Total |  | $ | 4,413,897 |  |  | $ | 5,257,457 |  |  | (16) | % |  | 245 |  |  | 217 |  |  | 13 | %

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|  | August 31,
|  | Backlog – Homes |  | Backlog – Value
Segment |  | 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
West Coast |  | 2,029 |  |  | 2,044 |  |  | (1) | % |  | $ | 1,356,175 |  |  | $ | 1,523,092 |  | (11) | %
Southwest |  | 1,576 |  |  | 2,153 |  |  | (27) |  |  | 692,175 |  |  | 948,761 |  | (27) |
Central |  | 1,812 |  |  | 4,086 |  |  | (56) |  |  | 678,994 |  |  | 1,789,006 |  | (62) |
Southeast |  | 1,591 |  |  | 2,473 |  |  | (36) |  |  | 668,045 |  |  | 1,000,455 |  | (33) |
Total |  | 7,008 |  |  | 10,756 |  |  | (35) | % |  | $ | 3,395,389 |  |  | $ | 5,261,314 |  | (35) | %

The composition of our homes delivered, net orders and backlog shifts with the product and geographic mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, changing as new communities open and existing communities wind down or sell out in the ordinary course. In addition, with our Built to Order model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and the design studio options and upgrades buyers select in the community. These intrinsic variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.
Financial Results. Below is a discussion of the financial results for each of our homebuilding reporting segments. Further information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report. The difference between each homebuilding reporting segment’s operating income (loss) and pretax income (loss) is generally due to the equity in income (loss) of unconsolidated joint ventures and/or interest income and expense.
In addition to the results of our homebuilding reporting segments presented below, our consolidated homebuilding operating income includes the results of Corporate and other, a non-operating segment. Corporate and other had operating losses of $36.0 million and $42.9 million in the three months ended August 31, 2023 and 2022, respectively. For the nine months ended August 31, 2023, Corporate and other had operating losses of $104.5 million, compared to $120.9 million for the corresponding year-earlier period.
The financial results of our homebuilding reporting segments for the three-month and nine-month periods ended August 31, 2023 were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered. Segment financial results for the three months and nine months ended August 31, 2023 were also affected by construction services availability constraints and building material cost pressures, as well as supply chain disruptions and other production-related challenges, though these impacts lessened in the 2023 third quarter compared to the 2023 first half and 2022 second half periods.
West Coast. The following table presents financial information related to our West Coast segment (dollars in thousands, except average selling price):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
Revenues | $ | 506,802 |  |  | $ | 829,405 |  |  | (39) | % |  | $ | 1,611,171 |  |  | $ | 2,249,496 |  |  | (28) | %
Construction and land costs | (412,915) |  |  | (614,462) |  |  | 33 |  |  | (1,319,259) |  |  | (1,697,636) |  |  | 22 |
Selling, general and administrative expenses | (38,786) |  |  | (43,847) |  |  | 12 |  |  | (120,983) |  |  | (133,096) |  |  | 9 |
Operating income | $ | 55,101 |  |  | $ | 171,096 |  |  | (68) | % |  | $ | 170,929 |  |  | $ | 418,764 |  |  | (59) | %
Homes delivered | 732 |  |  | 1,156 |  |  | (37) | % |  | 2,320 |  |  | 3,099 |  |  | (25) | %
Average selling price | $ | 692,400 |  |  | $ | 717,500 |  |  | (3) | % |  | $ | 694,500 |  |  | $ | 725,900 |  |  | (4) | %
Operating income as a percentage of revenues | 10.9 | % |  | 20.6 | % |  | (970) | bps |  | 10.6 | % |  | 18.6 | % |  | (800) | bps

This segment’s revenues for the three-month and nine-month periods ended August 31, 2023 declined from the corresponding year-earlier periods due to decreases in both the number of homes delivered and their average selling price. Operating income
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for each of the three-month and nine-month periods ended August 31, 2023 was also down year over year, reflecting lower housing gross profits, partly offset by reduced selling, general and administrative expenses and the absence of a $2.6 million land sale loss included in the prior-year periods. Operating income as a percentage of revenues for the 2023 third quarter decreased from the year-earlier quarter, primarily due to a 770 basis-point decline in the housing gross profit margin to 18.5% and a 240 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.7%. For the nine months ended August 31, 2023, operating income as a percentage of revenues declined from the corresponding 2022 period, mainly reflecting a 650 basis-point decrease in the housing gross profit margin to 18.1% and a 160 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.5%.
The year-over-year decreases in the housing gross profit margins for the three-month and nine-month periods ended August 31, 2023 primarily reflected price decreases and other homebuyer concessions, higher relative construction costs, product and geographic mix shifts of homes delivered and reduced operating leverage from lower housing revenues. In the three months ended August 31, 2023, inventory-related charges associated with housing operations were nominal, compared to $1.9 million in the year-earlier period. For the nine months ended August 31, 2023, such inventory-related charges increased to $4.3 million, compared to $2.1 million in the year-earlier period. The year-over-year increases in selling, general and administrative expenses as a percentage of housing revenues for the three-month and nine-month periods ended August 31, 2023 reflected reduced operating leverage from lower housing revenues and higher sales commissions.
Southwest. The following table presents financial information related to our Southwest segment (dollars in thousands, except average selling price):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
Revenues | $ | 306,284 |  |  | $ | 321,808 |  |  | (5) | % |  | $ | 881,699 |  |  | $ | 822,499 |  |  | 7 | %
Construction and land costs | (237,844) |  |  | (221,634) |  |  | (7) |  |  | (670,882) |  |  | (582,531) |  |  | (15) |
Selling, general and administrative expenses | (22,203) |  |  | (22,764) |  |  | 2 |  |  | (63,397) |  |  | (61,852) |  |  | (2) |
Operating income | $ | 46,237 |  |  | $ | 77,410 |  |  | (40) | % |  | $ | 147,420 |  |  | $ | 178,116 |  |  | (17) | %
Homes delivered | 717 |  |  | 737 |  |  | (3) | % |  | 2,031 |  |  | 1,938 |  |  | 5 | %
Average selling price | $ | 418,800 |  |  | $ | 436,600 |  |  | (4) | % |  | $ | 431,100 |  |  | $ | 424,400 |  |  | 2 | %
Operating income as a percentage of revenues | 15.1 | % |  | 24.1 | % |  | (900) | bps |  | 16.7 | % |  | 21.7 | % |  | (500) | bps

This segment’s revenues for the three-month and nine-month periods ended August 31, 2023 were comprised of housing revenues and land sale revenues. Revenues for the three-month and nine-month periods ended August 31, 2022 were solely from housing operations. The year-over-year decline in this segment’s housing revenues to $300.2 million for the three months ended August 31, 2023 reflected decreases in both the number of homes delivered and their average selling price. Housing revenues for the nine months ended August 31, 2023 grew to $875.7 million, reflecting increases in both the number of homes delivered and their average selling price. Operating income for the three-month and nine-month periods ended August 31, 2023 was down from the corresponding year-earlier periods primarily due to lower housing gross profits, partly offset by a land sale gain of $1.1 million in each period. As a percentage of revenues, this segment’s operating income for the 2023 third quarter declined from the year-earlier quarter, reflecting an 880 basis-point decrease in the housing gross profit margin to 22.4% and a 30 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.4%. For the nine months ended August 31, 2023, operating income as a percentage of revenues was down from the corresponding 2022 period, reflecting a 530 basis-point decrease in the housing gross profit margin to 23.9%, partially offset by a 30 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.2%.
The year-over-year decline in the housing gross profit margin for the three months ended August 31, 2023 primarily reflected price decreases and other homebuyer concessions, a product and geographic mix shift of homes delivered, and reduced operating leverage from lower housing revenues. For the nine months ended August 31, 2023, the year-over-year decrease in the housing gross profit margin was mainly due to price decreases and other homebuyer concessions, and a product and geographic mix shift of homes delivered, partly offset by increased operating leverage from higher housing revenues. The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months ended August 31, 2023 primarily reflected reduced operating leverage from lower housing revenues. The improvement in selling, general and administrative expenses as a percentage of housing revenues for the nine-month period ended August 31, 2023, compared to the year-earlier period, was mainly due to increased operating leverage from higher housing revenues.
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Central. The following table presents financial information related to our Central segment (dollars in thousands, except average selling price):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
Revenues | $ | 506,640 |  |  | $ | 443,581 |  |  | 14 | % |  | $ | 1,441,805 |  |  | $ | 1,231,949 |  |  | 17 | %
Construction and land costs | (389,150) |  |  | (330,269) |  |  | (18) |  |  | (1,111,064) |  |  | (945,602) |  |  | (17) |
Selling, general and administrative expenses | (42,073) |  |  | (34,056) |  |  | (24) |  |  | (117,516) |  |  | (102,775) |  |  | (14) |
Operating income | $ | 75,417 |  |  | $ | 79,256 |  |  | (5) | % |  | $ | 213,225 |  |  | $ | 183,572 |  |  | 16 | %
Homes delivered | 1,258 |  |  | 1,072 |  |  | 17 | % |  | 3,495 |  |  | 3,142 |  |  | 11 | %
Average selling price | $ | 402,700 |  |  | $ | 413,800 |  |  | (3) | % |  | $ | 412,500 |  |  | $ | 392,100 |  |  | 5 | %
Operating income as a percentage of revenues | 14.9 | % |  | 17.9 | % |  | (300) | bps |  | 14.8 | % |  | 14.9 | % |  | (10) | bps

This segment’s revenues for the three months ended August 31, 2023 rose from the corresponding year-earlier period, reflecting an increase in the number of homes delivered, partly offset by a decrease in their average selling price. For the nine months ended August 31, 2023, this segment’s revenues grew from the corresponding 2022 period due to increases in both the number of homes delivered and their average selling price. Operating income for the 2023 third quarter decreased from the year-earlier quarter due to higher selling, general and administrative expenses, partly offset by higher housing gross profits. This segment’s operating income as a percentage of revenues for the three months ended August 31, 2023 was down from the year-earlier period primarily due to a 230 basis-point decline in the housing gross profit margin to 23.2% and a 60 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 8.3%. For the nine months ended August 31, 2023, operating income rose from the year-earlier period, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses. As a percentage of revenues, operating income for the nine months ended August 31, 2023 was down slightly from the corresponding 2022 period, reflecting a 30 basis-point decrease in the housing gross profit margin to 22.9% and a 10 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.2%.
The year-over-year decrease in the housing gross profit margin for the three-month and nine-month periods ended August 31, 2023 primarily reflected higher construction costs, a product and geographic mix shift of homes delivered and increased homebuyer concessions, partly offset by improved operating leverage from higher housing revenues. The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months and nine months ended August 31, 2023 was primarily due to increased sales commissions, partly offset by increased operating leverage from higher housing revenues.
Southeast. The following table presents financial information related to our Southeast segment (dollars in thousands, except average selling price):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | Variance |  | 2023 |  | 2022 |  | Variance
Revenues | $ | 259,993 |  |  | $ | 244,094 |  |  | 7 | % |  | $ | 781,427 |  |  | $ | 643,924 |  |  | 21 | %
Construction and land costs | (197,737) |  |  | (181,843) |  |  | (9) |  |  | (601,141) |  |  | (482,978) |  |  | (24) |
Selling, general and administrative expenses | (23,761) |  |  | (22,049) |  |  | (8) |  |  | (69,480) |  |  | (61,415) |  |  | (13) |
Operating income | $ | 38,495 |  |  | $ | 40,202 |  |  | (4) | % |  | $ | 110,806 |  |  | $ | 99,531 |  |  | 11 | %
Homes delivered | 668 |  |  | 650 |  |  | 3 | % |  | 1,983 |  |  | 1,773 |  |  | 12 | %
Average selling price | $ | 389,200 |  |  | $ | 375,500 |  |  | 4 | % |  | $ | 394,100 |  |  | $ | 363,200 |  |  | 9 | %
Operating income as a percentage of revenues | 14.8 | % |  | 16.5 | % |  | (170) | bps |  | 14.2 | % |  | 15.5 | % |  | (130) | bps

This segment’s revenues for the three-month and nine-month periods ended August 31, 2023 grew year over year from the corresponding 2022 periods as a result of increases in both the number of homes delivered and their average selling prices. Operating income for the 2023 third quarter decreased from the year-earlier quarter, reflecting higher selling, general and
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administrative expenses. As a percentage of revenues, operating income for the 2023 third quarter declined from the year-earlier quarter mainly due to a 160 basis-point decrease in the housing gross profit margin to 23.9% and a 10 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 9.1%. For the nine months ended August 31, 2023, operating income increased from the year-earlier period, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses. Operating income as a percentage of revenues for the nine months ended August 31, 2023 decreased from the corresponding 2022 period, reflecting a 190 basis-point decline in the housing gross profit margin to 23.1%, partly offset by a 60 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.9%.
The year-over-year decline in the housing gross profit margin for the three-month and nine-month periods ended August 31, 2023 primarily reflected higher construction costs, a product and geographic mix shift of homes delivered and increased homebuyer concessions, partly offset by improved operating leverage from higher housing revenues. The housing gross profit margin for the three months ended August 31, 2023 included no inventory-related charges, compared to $2.3 million of such charges in the year-earlier period. The housing gross profit margin for the nine months ended August 31, 2023 and 2022 included inventory-related charges of $3.5 million and $2.3 million, respectively. The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the nine months ended August 31, 2023 primarily reflected increased operating leverage from higher housing revenues.
FINANCIAL SERVICES REPORTING SEGMENT
The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | 7,292 |  |  | $ | 6,007 |  |  | $ | 20,539 |  |  | $ | 15,878 |
Expenses | (1,530) |  |  | (1,510) |  |  | (4,360) |  |  | (4,219) |
Equity in income of unconsolidated joint ventures | 4,149 |  |  | 128 |  |  | 11,157 |  |  | 20,083 |
Pretax income | $ | 9,911 |  |  | $ | 4,625 |  |  | $ | 27,336 |  |  | $ | 31,742 |
Total originations (a): |  |  |  |  |  |  |
Loans | 2,396 |  |  | 2,112 |  |  | 6,657 |  |  | 5,947 |
Principal | $ | 937,037 |  |  | $ | 848,954 |  |  | $ | 2,630,317 |  |  | $ | 2,340,439 |
Percentage of homebuyers using KBHS | 84 | % |  | 69 | % |  | 81 | % |  | 69 | %
Average FICO score | 735 |  |  | 734 |  |  | 735 |  |  | 733 |
Loans sold (a): |  |  |  |  |  |  |
Loans sold to GR Alliance | 2,469 |  |  | 2,107 |  |  | 6,680 |  |  | 5,464 |
Principal | $ | 972,776 |  |  | $ | 850,740 |  |  | $ | 2,662,715 |  |  | $ | 2,180,537 |
Loans sold to third parties | 93 |  |  | 141 |  |  | 273 |  |  | 758 |
Principal | $ | 32,910 |  |  | $ | 47,554 |  |  | $ | 96,274 |  |  | $ | 249,554 |

(a)Loan originations and sales occurred within KBHS.
Revenues. Financial services revenues for the three-month and nine-month periods ended August 31, 2023 grew from the corresponding 2022 periods due to increases in both title services revenues and insurance commissions.
Pretax income. Financial services pretax income for the three months ended August 31, 2023 grew 114% from the year-earlier period, reflecting an increase in the equity in income of unconsolidated joint ventures and improved results from our insurance and title services businesses. In the 2023 third quarter, the equity in income of unconsolidated joint ventures increased to $4.1 million, from $.1 million in the year-earlier quarter, due to an increase in KBHS’ income. KBHS income was nominal in the 2022 third quarter, reflecting a significant decrease in the volume of new IRLCs following a surge in the 2022 second quarter driven by the sharp rise in mortgage interest rates during that period. This IRLC volume surge effectively resulted in a shift of our equity in income of KBHS from the 2022 second half to the 2022 first half. Also contributing to the year-over-year increase in KBHS’ income was the higher principal amount of loans originated in the current quarter, which primarily reflected an increase in the percentage of homebuyers using KBHS. KBHS’ income in the 2023 third quarter included losses of $5.2 million in the fair value of IRLCs in the current quarter, compared to $6.3 million of such losses in the year-earlier quarter.
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For the nine months ended August 31, 2023, our financial services pretax income declined 14% from the corresponding 2022 period, reflecting a decrease in the equity in income of unconsolidated joint ventures, partially offset by improved results from our insurance and title services businesses. In the nine months ended August 31, 2023, the equity in income of unconsolidated joint ventures decreased to $11.2 million, from $20.1 million in the year-earlier period, mainly as a result of a decline in KBHS’ income. The year-over-year decline in KBHS’ income was primarily due to losses of $9.4 million in the fair value of IRLCs in the current period, compared to gains of $27.1 million in the year-earlier period. The significant gain in the nine months ended August 31, 2022 resulted from a substantial increase in the fair value of IRLCs within the joint venture in the 2022 second quarter due to the above-described volume surge.
Further information regarding our investments in unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
INCOME TAXES
Income Tax Expense. Our income tax expense and effective tax rates were as follows (dollars in thousands):

| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Income tax expense | $ | 44,600 |  |  | $ | 70,900 |  |  | $ | 131,800 |  |  | $ | 186,900 |
Effective tax rate | 22.9 | % |  | 21.7 | % |  | 23.1 | % |  | 23.7 | %

Our effective tax rate for the three months ended August 31, 2023 increased from the year-earlier period, mainly due to an $8.4 million decrease in the federal tax credits we recognized primarily from building energy-efficient homes, partly offset by a $1.9 million increase in excess tax benefits related to stock-based compensation and a $.3 million decrease in nondeductible executive compensation expense. For the nine months ended August 31, 2023, our effective tax rate decreased slightly from the year-earlier period, mainly due to a $3.5 million increase in excess tax benefits related to stock-based compensation and a $3.3 million increase in the federal tax credits we recognized primarily from building energy-efficient homes, partly offset by a $2.4 million increase in nondeductible executive compensation expense.
The federal tax credits for the three months and nine months ended August 31, 2023 reflected the enactment of the Inflation Reduction Act of 2022 on August 16, 2022, which extended the federal tax credit for building energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modified and increased it starting in 2023. Previously, the federal tax credit expired for homes delivered after December 31, 2021.
Further information regarding our income taxes is provided in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements in this report.
NON-GAAP FINANCIAL MEASURES
This report contains information about our adjusted housing gross profit margin, which is not calculated in accordance with GAAP. We believe this non-GAAP financial measure is relevant and useful to investors in understanding our operations and the leverage employed in our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. However, because it is not calculated in accordance with GAAP, this non-GAAP financial measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement the most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting our operations.
Adjusted Housing Gross Profit Margin. The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands):
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| Three Months Ended August 31, |  | Nine Months Ended August 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Housing revenues | $ | 1,573,684 |  |  | $ | 1,838,888 |  |  | $ | 4,710,067 |  |  | $ | 4,947,868 |
Housing construction and land costs | (1,235,469) |  |  | (1,347,999) |  |  | (3,704,848) |  |  | (3,711,863) |
Housing gross profits | 338,215 |  |  | 490,889 |  |  | 1,005,219 |  |  | 1,236,005 |
Add: Inventory-related charges (a) | 631 |  |  | 5,923 |  |  | 10,207 |  |  | 6,830 |
Adjusted housing gross profits | $ | 338,846 |  |  | $ | 496,812 |  |  | $ | 1,015,426 |  |  | $ | 1,242,835 |
Housing gross profit margin as a percentage of housing revenues | 21.5 | % |  | 26.7 | % |  | 21.3 | % |  | 25.0 | %
Adjusted housing gross profit margin as a percentage of housing revenues | 21.5 | % |  | 27.0 | % |  | 21.6 | % |  | 25.1 | %

(a) Represents inventory impairment and land option contract abandonment charges associated with housing operations.
Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner. We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges. This financial measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace.
Liquidity and Capital Resources
Overview. We have funded our homebuilding and financial services activities over the last several years with:
•internally generated cash flows;
•public issuances of debt securities;
•borrowings under the Credit Facility;
•the Term Loan;
•land option contracts and other similar contracts and seller notes;
•public issuances of our common stock; and
•letters of credit and performance bonds.
We manage our use of cash in the operation of our business to support the execution of our primary strategic goals. Over the past several years, we have primarily used cash for:
•land acquisition and land development;
•home construction;
•operating expenses;
•principal and interest payments on notes payable;
•repayments of borrowings under the Credit Facility;
•dividends paid to stockholders; and
•repurchases of our common stock.
We ended the 2023 third quarter with total liquidity of $1.70 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility. Based on our financial position as of August 31, 2023, and our business forecast as discussed below under “Outlook,” we have no material concerns related to our liquidity. We believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months.
Cash Requirements. Other than the decrease in our notes payable presented in the table below, which reflects the repayment of all cash borrowings outstanding under the Credit Facility during the nine months ended August 31, 2023, there have been no
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significant changes in our cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.
Investments in Land and Land Development. Our investments in land and land development for the nine months ended August 31, 2023 decreased 33% to $1.32 billion, compared to $1.96 billion for the year-earlier period, reflecting lower investments in the 2023 first half, as our 2023 third-quarter investments of $554.5 million were essentially equal to the year-earlier period. In the nine months ended August 31, 2023, land acquisition expenditures, which are included in our investments in land and land development, decreased 57% to $329.5 million from $759.2 million. Our reduced investments in land and land development in the 2023 first half reflected a pivot in our land investment strategy beginning in the 2022 third quarter in response to then-softening housing market conditions, to emphasize developing land positions we already own or control under land option contracts and other similar contracts. As part of this pivot, we also evaluated our transaction pipeline and renegotiated pricing and terms for many deals while abandoning others that no longer met our investment return standards. In calibrating our investments to evolving market conditions and our outlook, we increased our investments in land and land development sequentially in both the 2023 second and third quarters. In the 2023 third quarter, our investments in land and land development were up 40% from the 2023 second quarter, as land acquisition expenditures more than doubled. In addition, we have modified our land development strategy, electing where appropriate to build in smaller phases, and in some cases, defer the start of the next phase of lots in a community to align with expected demand. Reflecting these shifts in our land strategy, approximately 25% of our total investments for the nine months ended August 31, 2023 related to land acquisitions, compared to approximately 39% in the prior-year period. While we made strategic investments in land and land development in each of our homebuilding reporting segments during the nine months ended August 31, 2023 and 2022, approximately 55% and 51%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.
In the 2023 fourth quarter, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment standards. While we expect our land acquisition activity to increase during the 2023 fourth quarter as compared to the prior 2023 quarters, our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.
The following table presents the number of lots we owned or controlled under land option contracts and other similar contracts and the carrying value of inventory by homebuilding reporting segment (dollars in thousands):

|  | August 31, 2023 |  | November 30, 2022 |  | Variance
Segment |  | Lots |  | Carrying Value |  | Lots |  | Carrying Value |  | Lots |  | Carrying Value
West Coast |  | 18,422 |  |  | $ | 2,480,497 |  |  | 19,302 |  |  | $ | 2,425,141 |  |  | (880) |  |  | $ | 55,356 |
Southwest |  | 7,340 |  |  | 842,389 |  |  | 8,841 |  |  | 993,059 |  |  | (1,501) |  |  | (150,670) |
Central |  | 17,662 |  |  | 984,024 |  |  | 24,001 |  |  | 1,278,420 |  |  | (6,339) |  |  | (294,396) |
Southeast |  | 13,708 |  |  | 878,965 |  |  | 16,651 |  |  | 846,556 |  |  | (2,943) |  |  | 32,409 |
Total |  | 57,132 |  |  | $ | 5,185,875 |  |  | 68,795 |  |  | $ | 5,543,176 |  |  | (11,663) |  |  | $ | (357,301) |

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at August 31, 2023 decreased from November 30, 2022, reflecting homes delivered in the nine months ended August 31, 2023 as well as the above-mentioned pivot in our land investment strategy, which included our abandonment of 8,097 previously controlled lots in the nine months ended August 31, 2023. The number of lots in inventory as of August 31, 2023 included 4,506 lots under contract where the associated deposits were refundable at our discretion, compared to 5,543 of such lots at November 30, 2022. Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 25% at August 31, 2023, compared to 30% at November 30, 2022. Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards.
Land Option Contracts and Other Similar Contracts. As discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance. Our decision to exercise a particular land option contract or other similar contract depends on the results of our due diligence reviews and ongoing market and project feasibility analysis that we conduct after entering into such a contract. In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date. We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the
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sellers. If we were to acquire all the land we had under land option contracts and other similar contracts at August 31, 2023, we estimate the remaining purchase price to be paid would be as follows: 2023 – $257.7 million; 2024 – $546.2 million; 2025 – $157.8 million; 2026 – $193.4 million; 2027 – $6.0 million; and thereafter – $3.3 million.
Liquidity. The table below summarizes our cash and cash equivalents, and total liquidity (in thousands):

|  | August 31, 2023 |  | November 30, 2022
Cash and cash equivalents |  | $ | 612,076 |  |  | $ | 328,517 |
Credit Facility commitment |  | 1,090,000 |  |  | 1,090,000 |
Borrowings outstanding under the Credit Facility |  | — |  |  | (150,000) |
Letters of credit outstanding under the Credit Facility |  | (6,650) |  |  | (6,650) |
Credit Facility availability |  | 1,083,350 |  |  | 933,350 |
Total liquidity |  | $ | 1,695,426 |  |  | $ | 1,261,867 |

The majority of our cash equivalents at August 31, 2023 and November 30, 2022 were invested in interest-bearing bank deposit accounts.
Capital Resources. Our notes payable consisted of the following (in thousands):

| August 31, 2023 |  | November 30, 2022 |  | Variance
Credit Facility | $ | — |  |  | $ | 150,000 |  |  | $ | (150,000) |
Term Loan | 357,988 |  |  | 357,485 |  |  | 503 |
Senior notes | 1,327,507 |  |  | 1,326,266 |  |  | 1,241 |
Mortgages and land contracts due to land sellers and other loans | 4,463 |  |  | 4,760 |  |  | (297) |
Total | $ | 1,689,958 |  |  | $ | 1,838,511 |  |  | $ | (148,553) |

Our financial leverage, as measured by the ratio of debt to capital, was 30.6% at August 31, 2023, compared to 33.4% at November 30, 2022. The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus stockholders’ equity).
LOC Facility. We maintain the LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, we may issue up to $75.0 million of letters of credit. On August 10, 2023, we entered into an amendment to the LOC Facility that extended the expiration date from February 13, 2025 to February 18, 2027. As of August 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $13.0 million and $36.4 million, respectively.
Performance Bonds. As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.32 billion and $1.27 billion of performance bonds outstanding at August 31, 2023 and November 30, 2022, respectively.
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 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 August 31, 2023, we had no cash borrowings and $6.6 million of letters of credit outstanding under the Credit Facility. The Credit Facility is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.
Under the terms of the Credit Facility and the Term Loan, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth, Leverage Ratio, and either an Interest Coverage Ratio or minimum liquidity level, each as defined therein. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term
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Loan and can differ in certain respects from comparable GAAP or other commonly used terms. The financial covenant requirements under the Credit Facility and the Term Loan are set forth below:
•Consolidated tangible net worth – We must maintain a consolidated tangible net worth at the end of any fiscal quarter greater than or equal to the sum of (a) $2.09 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after November 30, 2021 and ending as of the last day of such fiscal quarter (though there is no reduction if there is a consolidated net loss in any fiscal quarter), plus (c) an amount equal to 50% of the cumulative net proceeds we receive from the issuance of our capital stock after November 30, 2021.
•Leverage Ratio – We must also maintain a Leverage Ratio of less than or equal to .60 at the end of each fiscal quarter. The Leverage Ratio is calculated as the ratio of our consolidated total indebtedness to the sum of consolidated total indebtedness and consolidated tangible net worth, all as defined under the Credit Facility.
•Interest Coverage Ratio or liquidity – We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of each fiscal quarter; or (b) a minimum level of liquidity, but not both. The Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest incurred, each as defined under the Credit Facility and the Term Loan, in each case for the previous 12 months. Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Credit Facility and the Term Loan, for the four most recently ended fiscal quarters in the aggregate.
In addition, under the Credit Facility and the Term Loan, our equity investments in joint ventures and non-guarantor subsidiaries and other unconsolidated entities as of the end of each fiscal quarter cannot exceed the sum of (a) $104.8 million and (b) 20% of consolidated tangible net worth. Further, for so long as we do not hold an investment grade rating, as defined under the Credit Facility and the Term Loan, the Credit Facility and the Term Loan do not permit our borrowing base indebtedness, which, subject to certain exceptions, is the aggregate principal amount of our and certain of our subsidiaries’ outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, to be greater than our borrowing base (a measure relating to our inventory and unrestricted cash assets).
The covenants and other requirements under the Credit Facility and the Term Loan represent the most restrictive covenants that we are subject to with respect to our notes payable. The following table summarizes the financial covenants and other requirements under the Credit Facility and the Term Loan, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of August 31, 2023:

Financial Covenants and Other Requirements |  | Covenant Requirement |  | Actual
Consolidated tangible net worth |  | > | $2.72 billion |  | $3.79 billion
Leverage Ratio |  | < | .600 |  | .311
Interest Coverage Ratio (a) |  | > | 1.500 |  | 9.905
Minimum liquidity (a) |  | > | $104.2 million |  | $612.1 million
Investments in joint ventures and non-guarantor subsidiaries |  | < | $862.5 million |  | $318.9 million
Borrowing base in excess of borrowing base indebtedness (as defined) |  |  | n/a |  | $2.76 billion

(a) Under the terms of the Credit Facility and the Term Loan, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity.
The indenture governing our senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale-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 August 31, 2023, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.
There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility or
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the Term Loan exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).
Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At August 31, 2023, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $4.5 million, secured primarily by the underlying property, which had an aggregate carrying value of $33.2 million.
Senior Unsecured Term Loan. We have a $360.0 million Term Loan with the lenders party thereto that will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions). The Term Loan is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.
Credit Ratings. Our credit ratings are periodically reviewed by rating agencies. In April 2023, S&P Global reaffirmed our BB credit rating and changed its rating outlook to stable from positive.
Consolidated Cash Flows. The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands):

| Nine Months Ended August 31,
| 2023 |  | 2022
Net cash provided by (used in): |  |  |
Operating activities | $ | 772,523 |  |  | $ | (223,999) |
Investing activities | (44,773) |  |  | (54,120) |
Financing activities | (445,551) |  |  | 183,240 |
Net increase (decrease) in cash and cash equivalents | $ | 282,199 |  |  | $ | (94,879) |

Operating Activities. Generally, our net operating cash flows fluctuate mainly based on changes in our inventories and our profitability. Our net cash provided by operating activities for the nine months ended August 31, 2023 primarily reflected net income of $439.9 million and a net decrease in inventories of $355.3 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $100.5 million and a net increase in receivables of $1.6 million. In the nine months ended August 31, 2022, our net cash used in operating activities mainly reflected a net increase in inventories of $954.2 million and a net increase in receivables of $40.5 million, partly offset by net income of $600.3 million and a net increase in accounts payable, accrued expenses and other liabilities of $94.7 million.
Investing Activities. In the nine months ended August 31, 2023, our uses of cash included $26.4 million for net purchases of property and equipment and $23.5 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by a $5.1 million return of investments in unconsolidated joint ventures. In the nine months ended August 31, 2022, the net cash used for investing activities reflected $33.8 million for net purchases of property and equipment and $21.6 million for contributions to unconsolidated joint ventures. The cash used was partially offset by a $1.3 million return of investments in unconsolidated joint ventures.
Financing Activities. In the nine months ended August 31, 2023, our uses of cash included stock repurchases of $249.6 million, net repayments under the Credit Facility of $150.0 million, dividend payments on our common stock of $41.6 million, tax payments associated with stock-based compensation awards of $9.7 million and payments on mortgages and land contracts due to land sellers and other loans of $3.2 million. The cash used was partly offset by $8.6 million of issuances of common stock under employee stock plans. In the nine months ended August 31, 2022, cash was provided by our issuance of $350.0 million in aggregate principal amount of 7.25% Senior Notes due 2030, and $350.0 million of net borrowings under the Credit Facility. The cash provided was partially offset by our repayment of $350.0 million in aggregate principal amount of our senior notes, $100.0 million of stock repurchases, $39.9 million of dividend payments on our common stock, $12.2 million of tax payments associated with stock-based compensation awards, $10.7 million of issuance costs and $.4 million of payments on mortgages and land contracts due to land sellers and other loans.
Dividends. In the 2023 third quarter, our board of directors approved a $.05 per share increase in the quarterly cash dividend on our common stock to $.20 per share and declared, and we paid, a quarterly cash dividend at the new higher rate. In the 2022 third quarter, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.15 per share. Quarterly dividends declared and paid during the nine-month periods ended August 31, 2023 and 2022 totaled $.50 per share and $.45 per share, respectively. The declaration and payment of future cash dividends on our common stock, whether at
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current levels or at all, are at the discretion of our board of directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.
Shelf Registration. On July 10, 2023, we filed the 2023 Shelf Registration with the SEC. The 2023 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity. The 2023 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 9, 2020. We have not made any offerings of securities under the 2023 Shelf Registration.
As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business. For the 2023 fourth quarter, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions. During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities or loans to mature or expire. Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or other factors, including those described below under “Outlook,” and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
Supplemental Guarantor Financial Information
As of August 31, 2023, we had $1.34 billion in aggregate principal amount of outstanding senior notes, no borrowings outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the Term Loan. Our obligations to pay principal and interest on the senior notes and borrowings, if any, under the Credit Facility and the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries. Our other subsidiaries, including all of our subsidiaries associated with our financial services operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best interest. See Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes, the Credit Facility and the Term Loan.
The guarantees are full and unconditional, and the Guarantor Subsidiaries are 100% owned by us. The guarantees are senior unsecured obligations of each of the Guarantor Subsidiaries and rank equally in right of payment with all unsecured and unsubordinated indebtedness and guarantees of such Guarantor Subsidiaries. The guarantees are effectively subordinated to any secured indebtedness of such Guarantor Subsidiaries to the extent of the value of the assets securing such indebtedness, and structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries.
Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility and the Term Loan, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our Non-Guarantor Subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes, the Credit Facility and the Term Loan so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release.
The following tables present summarized financial information for KB Home and the Guarantor Subsidiaries on a combined basis, excluding unconsolidated joint ventures and after the elimination of (a) intercompany transactions and balances between KB Home and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries. See Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report for additional information regarding our unconsolidated joint ventures.
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|  | August 31, 2023 |  | November 30, 2022
Summarized Balance Sheet Data (in thousands) |  |
Assets |  |  |  |
Cash |  | $ | 588,058 |  |  | $ | 265,916 |
Inventories |  | 4,701,567 |  |  | 5,118,252 |
Amounts due from Non-Guarantor Subsidiaries |  | 509,557 |  |  | 403,249 |
Total assets |  | 6,404,654 |  |  | 6,404,755 |
Liabilities and Stockholders’ Equity |  |  |  |
Notes payable |  | $ | 1,689,958 |  |  | $ | 1,836,001 |
Amounts due to Non-Guarantor Subsidiaries |  | 323,176 |  |  | 283,280 |
Total liabilities |  | 2,837,029 |  |  | 2,977,348 |
Stockholders’ equity |  | 3,567,625 |  |  | 3,427,407 |

|  | Nine Months Ended August 31, 2023 |  |
Summarized Statement of Operations Data (in thousands) |  |  |
Revenues |  | $ | 4,450,829 |  |  |
Construction and land costs |  | (3,487,808) |  |  |
Selling, general and administrative expenses |  | (454,057) |  |  |
Interest income from Non-Guarantor Subsidiaries |  | 20,163 |  |  |
Pretax income |  | 536,075 |  |  |
Net income |  | 411,975 |  |  |

Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the nine months ended August 31, 2023 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a material impact on our consolidated financial statements.
Outlook
We believe several long-term housing market fundamental factors remain positive, including favorable demographic trends, a decade-plus underproduction of new homes relative to population growth and constrained resale home inventory. In the current period, even as mortgage interest rates rose, demand remained steady, supported by these positive factors. Our 3,097 net orders for the 2023 third quarter were up 52% from the year-earlier quarter and we achieved a 4.3 monthly net orders per community pace, which is above our historical third-quarter average, prior to pandemic-driven volatility. However, there is considerable uncertainty regarding the near-term direction of mortgage interest rates, which in recent weeks reached 20-year highs, inflation, consumer confidence and the overall economy, and the degree to which these factors, individually or collectively, may impact demand for our homes in the 2023 fourth quarter and beyond. We currently anticipate a sequential decline in net orders in the 2023 fourth quarter, partly due to seasonality. This could be influenced up or down by resale inventory levels or movement in mortgage interest rates, among other supply and demand factors, including economic uncertainties as well as affordability pressures.
While we were able to raise or maintain selling prices in the 2023 second and third quarters in most of our communities, we anticipate the pricing adjustments and other homebuyer concessions we have selectively employed since the 2022 second half and expect to use to a lesser extent in the 2023 fourth quarter will contribute to a year-over-year decrease in the average selling price of homes delivered in the 2023 fourth quarter. Our use of such concessions will depend on, among other things, market dynamics, including mortgage interest rates and overall housing affordability, and community-specific considerations,
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including the size and construction stage of the backlog, net order pace and lots remaining available for sale. On a sequential basis, we project our average selling price will increase in the 2023 fourth quarter due to an expected mix shift toward higher-priced deliveries from our West Coast homebuilding reporting segment. We are committed to further reducing our build times in the 2023 fourth quarter and moving closer to achieving deliveries within our historical build time of between four and five months.
We believe we are in a strong position to operate effectively through changing market conditions, with a solid balance sheet and liquidity, and anticipated healthy operating cash flow for the 2023 fiscal year. While we expect our land acquisition activity to increase during the 2023 fourth quarter as compared to the previous 2023 quarters, our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.
We intend to maintain a balanced approach to capital allocation designed to maximize long-term stockholder value. In this regard, we ended the 2023 third quarter with approximately $325.4 million remaining under our current board of directors share repurchase authorization. This provides us flexibility to continue to repurchase our common stock in the 2023 fourth quarter, with the volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our common stock, and the housing market and general economic environments.
We plan to continue to balance pace, price and construction starts at each community to optimize our return on each inventory asset within its market context, leveraging our differentiated, highly customer-centric Built to Order business model and operational capabilities to help effectively meet evolving consumer preferences and budgets, and shifts in demand arising from, among other things, additional increases in mortgage interest rates and/or softening economic conditions. With our backlog value of $3.40 billion at August 31, 2023, we believe we can achieve our projected results for 2023, subject to the factors and risks described in this report. Our present outlook for the 2023 fourth quarter, the 2023 full year and the 2024 full year as to certain metrics is as follows:
2023 Fourth Quarter
•We expect to generate housing revenues in the range of $1.55 billion to $1.65 billion, a decrease from $1.93 billion in the corresponding 2022 period, and anticipate our average selling price to be approximately $486,000, compared to $510,400 in the year-earlier period.
•We expect our homebuilding operating income margin will be approximately 10.5%, assuming no inventory-related charges, down from 15.8% for the year-earlier quarter.
•We expect our housing gross profit margin will be approximately 20.5%, assuming no inventory-related charges, compared to 23.9% for the corresponding 2022 quarter.
•We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.0%, compared to 8.0% in the 2022 fourth quarter.
•We expect our effective tax rate will be approximately 24%, essentially the same as the year-earlier quarter.
•We expect our ending community count will be approximately flat sequentially.
•We expect our net orders will range between 2,070 and 2,760.
2023 Full Year
•We expect our housing revenues to be approximately $6.31 billion, an 8% decrease from $6.88 billion in 2022, and anticipate our average selling price will be approximately $481,000, a decrease from $500,800 for 2022.
•We expect our homebuilding operating income margin to be about 11.3%, assuming no inventory-related charges, compared to 15.6% for 2022.
•We expect our housing gross profit margin to be approximately 21.3%, assuming no inventory-related charges, compared to 24.8% for 2022.
•We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.0%, compared to 9.2% in the prior year.
•We expect the effective tax rate will be approximately 23%, compared to approximately 24% for 2022.
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•We expect our average community count will be up about 9% year over year, with ending community count of approximately 230.
2024 Full Year
•We expect our housing revenues to be in the range of $6.50 billion to $7.00 billion.
•We expect our year-end community count will be up about 15%, as compared to 2023.
In addition to factors discussed elsewhere in this report, our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regard to housing and mortgage loan financing policies). For instance, the Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S. inflation, and the further actions it may take, are expected to be an ongoing headwind for the housing market, as they have elevated mortgage interest rates and created macroeconomic uncertainty and financial market turbulence that, among other things, has tempered consumer demand for homes and disrupted credit and lending markets. In addition, while we experienced improvement with respect to ongoing supply chain disruptions, other production challenges and construction cost pressures described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe they will persist to a certain degree in the 2023 fourth quarter. The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in the 2023 third quarter and first nine months, should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net orders, backlog, revenues and returns.
Forward-Looking Statements
Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements. In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act. Forward-looking statements are based on our current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of future performance, and we have no specific policy or intention to update these statements. If we update or revise any such statement(s), no assumption should be made that we will further update or revise that statement(s) or update or revise any other such statement(s). In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions; the success, performance, effectiveness and/or relative positioning of our strategies, initiatives or operational activities; and other matters, may be based in whole or in part on general observations of our management, limited or anecdotal evidence and/or business or industry experience without in-depth or any particular empirical investigation, inquiry or analysis.
Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the following:
•general economic, employment and business conditions;
•population growth, household formations and demographic trends;
•conditions in the capital, credit and financial markets;
•our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms;
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•the execution of any securities repurchases pursuant to our board of directors’ authorization;
•material and trade costs and availability, including building materials and appliances, and delays related to state and municipal construction, permitting, inspection and utility processes, which have been disrupted by key equipment shortages;
•consumer and producer price inflation;
•changes in interest rates, including those set by the Federal Reserve, which the Federal Reserve has increased sharply over the past year and may further increase to moderate inflation, and those available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans;
•our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule;
•our compliance with the terms of the Credit Facility and the Term Loan;
•the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility;
•volatility in the market price of our common stock;
•home selling prices, including our homes’ selling prices, being unaffordable relative to consumer incomes;
•weak or declining consumer confidence, either generally or specifically with respect to purchasing homes;
•competition from other sellers of new and resale homes;
•weather events, significant natural disasters and other climate and environmental factors, such as a lack of adequate water supply to permit new home communities in certain areas;
•any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations (also known as a government shutdown), and financial markets’ and businesses’ reactions to any such failure;
•government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities;
•changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto;
•changes in U.S. trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measures taken by other countries;
•disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S. and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, create and/or exacerbate building materials and appliance shortages and/or reduce our revenues and earnings;
•the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto;
•the availability and cost of land in desirable areas and our ability to timely and efficiently develop acquired land parcels and open new home communities;
•impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets;
•our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred;
•costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;
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•our ability to use/realize the net deferred tax assets we have generated;
•our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into new markets;
•our operational and investment concentration in markets in California;
•consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers;
•our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California;
•our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this report or in any of our other public filings, presentations or disclosures;
•income tax expense volatility associated with stock-based compensation;
•the ability of our homebuyers to obtain homeowners and flood insurance policies, and/or typical or lender-required policies for other hazards or events, for their homes, which may depend on the ability and willingness of insurers or government-funded or -sponsored programs to offer coverage at an affordable price or at all;
•the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers;
•the performance of mortgage lenders to our homebuyers;
•the performance of KBHS;
•the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans;
•information technology failures and data security breaches;
•an epidemic, pandemic or significant seasonal or other disease outbreak, and the control response measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period; and
•other events outside of our control.
Please see our Annual Report on Form 10-K for the year ended November 30, 2022 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk since November 30, 2022, other than our repayment of all $150.0 million of cash borrowings under the Credit Facility during the nine months ended August 31, 2023. As of August 31, 2023, we had no cash borrowings outstanding under the Credit Facility. For additional information regarding our market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the year ended November 30, 2022.
Item 4.Controls and Procedures
We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including our Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and our Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of August 31, 2023.
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We have invested significant resources over the past few years to develop and implement a new custom enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal operational and administrative activities. While the new ERP system has become an increasing component of our business as most of our operating divisions have transitioned to it, the related internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. Accordingly, we continue to rely upon a combination of our existing and new ERP systems for financial statement reporting purposes. Other than the new ERP system implementation, there have been no changes in our internal control over financial reporting during the quarter ended August 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
For a discussion of our legal proceedings, see Note 17 – Legal Matters in the Notes to Consolidated Financial Statements in this report.
Item 1A.Risk Factors
Except as set forth below, as of the date of this report, there have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended November 30, 2022. However, we cannot provide any assurance that any such risk factor will not materialize.
Financial industry and capital markets turmoil may materially and adversely affect our liquidity and consolidated financial statements.
In early March 2023, federal and state banking regulators closed two U.S. banks, with which neither we nor KBHS had any banking, financing or other business relationships or dependencies, precipitating financial industry and capital markets turmoil centered on concerns about the stability and solvency of other banks and financial institutions and the attendant risk they may be closed and/or forced by governmental agencies into receivership or sale. The failure of other banks and financial institutions, if it occurs, could have a material adverse effect on our liquidity or consolidated financial statements if we have placed cash and cash equivalent deposits at such banks or financial institutions, or if such banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility or LOC Facility. Under our Credit Facility, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit, and may not issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral). If the non-defaulting lenders are unable or unwilling to cover or acquire a defaulting lender’s respective commitment, potentially due to other demands they face under other credit instruments to which they are party, or because of regulatory restrictions, among other factors, we may not be able to access the Credit Facility’s full borrowing or letter of credit capacity to support our business needs. Similarly, if the applicable lender fails to meet its commitment to provide payment guarantees for us under the LOC Facility, we may not be able to access its full issuance capacity to carry out important operational processes. In addition, if a party to the warehouse line of credit and master repurchase agreements KBHS uses to fund mortgage originations fails, or is unable or unwilling to fulfill their obligations, KBHS may be limited in its ability, or unable, to provide mortgage loans to our homebuyers, which may prevent them from closing on their home at the time expected or at all. Also, if there is a failure of the lender of the revolving line of credit to one of our unconsolidated joint ventures for it to finance its land acquisition, development and construction activities, the unconsolidated joint venture may be delayed or unable to complete the project.
Based on our outreach to our, KBHS’ and the unconsolidated joint venture’s banking and financial institution partners, and steps we have taken to place deposits only with certain of those partners, as of the date of this report, we believe the above-described financial industry and capital markets turmoil will not impair our, KBHS’ or the unconsolidated joint venture’s ability to access any cash and cash equivalents on deposit or the full amounts available for borrowings or other credit extensions under the applicable financial instruments, in each case if and as needed in the ordinary course.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes purchases of our own equity securities during the three months ended August 31, 2023 (dollars in thousands, except per share amounts):

Period |  | Total Number of Shares Purchased |  | Average Price Paid per Share (a) |  | Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs (a) |  | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (a) (b)
June 1-30 |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | 407,912 |
July 1-31 |  | 765,570 |  |  | 53.86 |  |  | 41,230 |  |  | 366,682 |
August 1-31 |  | 765,748 |  |  | 53.90 |  |  | 41,270 |  |  | 325,412 |
Total |  | 1,531,318 |  |  | $ | 53.88 |  |  | $ | 82,500 |  |  |

(a) 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. All dollar amounts presented exclude such excise taxes, as applicable.
(b) On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, excluding excise tax. This authorization replaced a prior board of directors authorization, which had $75.0 million remaining, excluding excise tax. In the 2023 third quarter, we repurchased 1,531,318 shares of our common stock on the open market pursuant to the current authorization at a total cost of $82.5 million. As of August 31, 2023, we were authorized to repurchase up to $325.4 million of common stock in additional transactions, excluding excise tax.
Item 5.Other Information
None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended August 31, 2023, as such terms are defined under Item 408(a) of Regulation S-K. Additionally, we did not adopt or terminate a Rule 10b5–1 trading arrangement during the quarter ended August 31, 2023.
Item 6.Exhibits

Exhibits |  |
22 |  | List of Guarantor Subsidiaries, filed as an exhibit to our Annual Report on Form 10-K for the year ended November 30, 2022 (File No. 001-09195), is incorporated by reference herein.
31.1 |  | Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 |  | Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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

| KB HOME Registrant

Dated | October 6, 2023 |  | By: | /s/ JEFF J. KAMINSKI
|  |  |  | Jeff J. Kaminski Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Dated | October 6, 2023 |  | By: | /s/ WILLIAM R. HOLLINGER
|  |  |  | William R. Hollinger Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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