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What changed in KB HOME's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KB HOME's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+498 added−478 removedSource: 10-K (2024-01-19) vs 10-K (2023-01-20)

Top changes in KB HOME's 2023 10-K

498 paragraphs added · 478 removed · 371 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

107 edited+32 added−31 removed77 unchanged
Biggest changeWe have been recognized with major national awards for our leading sustainability practices, including: • 2022 ENERGY STAR Partner of the Year – Sustained Excellence Award – Our 12th consecutive award for demonstrating leadership in energy-efficient construction; • 2022 ENERGY STAR Certified Homes Market Leader Awards – A record 28 awards in all, recognizing excellence in energy-efficient home building; • 2022 WaterSense Sustained Excellence Award – The eighth consecutive year we have received this award for our achievements in constructing water-efficient homes and our 12th consecutive year being recognized by WaterSense; and • Newsweek’s 2023 list of America’s Most Responsible Companies – Our third consecutive year recognized for demonstrating leading ESG practices, specifically, our industry-leading environmental initiatives, dedication to social responsibility and strong corporate governance standards.
Biggest changeWe have been recognized with major national awards for our leading sustainability practices, including: • 2023 ENERGY STAR Partner of the Year – Sustained Excellence Award – This was our 13th consecutive award for demonstrating leadership in building highly energy-efficient homes; • 2023 ENERGY STAR Market Leader Awards – We set a new industry record by earning an unprecedented 29 awards, more than any other homebuilder; 13 • 2023 WaterSense Sustained Excellence Award – We were once again the only national homebuilder to receive this honor in 2023, which is the highest level of recognition given by the EPA WaterSense program.
We build a variety of new homes designed primarily for first-time and first move-up, as well as second move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums. We offer homes in development communities, at urban in-fill locations and as part of mixed-use projects.
We build a variety of new homes, including attached and detached single-family residential homes, townhomes and condominiums, designed primarily for first-time and first move-up, as well as second move-up and active adult, homebuyers. We offer homes in development communities, at urban in-fill locations and as part of mixed-use projects.
Our approach to corporate governance aligns with the principles of the Investor Stewardship Group, a coalition of some of the world’s largest investors and asset managers, as follows: 14 Stewardship Principle What We Do • Boards are accountable to stockholders. • Our board is unclassified and directors stand for election annually under a majority voting standard in an uncontested election. • Stockholders should be entitled to voting rights in proportion to their economic interest. • We have one class of outstanding voting securities that allow each holder one vote for each share held. • Boards should be responsive to stockholders and be proactive in order to understand their perspectives. • Stockholders may communicate with us and our board. • We proactively engage with stockholders year-round.
Our approach to corporate governance aligns with the principles of the Investor Stewardship Group, a coalition of some of the world’s largest investors and asset managers, as follows: Stewardship Principle What We Do • Boards are accountable to stockholders. • Our board is unclassified and directors stand for election annually under a majority voting standard in an uncontested election. • Stockholders should be entitled to voting rights in proportion to their economic interest. • We have one class of outstanding voting securities that allow each holder one vote for each share held. • Boards should be responsive to stockholders and be proactive in order to understand their perspectives. • Stockholders may communicate with us and our board. • We proactively engage with stockholders year-round.
We typically use contracts that, in exchange for a small initial option payment or earnest money deposit, give us an option or similar right to acquire land at a future date, usually at a pre-determined 7 price and pending our satisfaction with the feasibility of developing and selling homes on the land and/or an underlying land seller’s completion of certain obligations, such as securing entitlements, developing infrastructure or finishing lots.
We typically use contracts that, in exchange for a small initial option payment or earnest money deposit, give us an option or similar right to acquire land at a future date, usually at a pre-determined price and pending our satisfaction with the feasibility of developing and selling homes on the land and/or an underlying land seller’s completion of certain obligations, such as securing entitlements, developing infrastructure or finishing lots.
These factors in each of our served markets will affect the costs we incur and the time it takes to locate, acquire rights to and develop land, open 10 communities for sales, and market and build homes; the size of our homes; our selling prices (including the contribution from homebuyers’ purchases of design options and upgrades); the pace at which we sell and deliver homes; the rate at which communities are sold out; and our housing gross profits and housing gross profit margins.
These factors in each of our served markets will affect the costs we incur and the time it takes to locate, acquire rights to and develop land, open communities for sales, and market and build homes; the size of our homes; our selling prices (including the contribution from homebuyers’ purchases of design options and upgrades); the pace at which we sell and deliver homes; the rate at which communities are sold out; and our housing gross profits and housing gross profit margins.
Our community development process varies based on, among other things, the extent and speed of required government approvals and utility service activations, the overall size of a particular community, the scope of necessary site preparation activities, the type of product(s) that will be offered, weather conditions, time of year, promotional marketing results, the availability of construction resources, consumer demand, local and general economic and housing market conditions, and other factors.
Our community development process varies based on, among 6 other things, the extent and speed of required government approvals and utility service activations, the overall size of a particular community, the scope of necessary site preparation activities, the type of product(s) that will be offered, weather conditions, time of year, promotional marketing results, the availability of construction resources, consumer demand, local and general economic and housing market conditions, and other factors.
In our communities, we typically offer three to 15 home design choices. We also generally build one to three model homes at each community so that prospective homebuyers can preview the various products available. Depending on the community, we may offer premium lots containing more square footage, better views and/or location benefits.
In our communities, we typically offer four to 15 home design choices. We also generally build one to three model homes at each community so that prospective homebuyers can preview the various products available. Depending on the community, we may offer premium lots containing more square footage, better views and/or location benefits.
Our contracts with these independent contractors require that they comply with all laws applicable to their work, including wage and safety laws, meet performance standards, follow local building codes and permits, and abide by our Ethics Policy referenced under Item 10 – Directors, Executive Officers and Corporate Governance in this report. 8 Raw Materials .
Our contracts with these independent contractors require that they comply with all laws applicable to their work, including wage and safety laws, meet performance standards, follow local building codes and permits, and abide by our Ethics Policy referenced under Item 10 – Directors, Executive Officers and Corporate Governance in this report. Raw Materials .
In markets experiencing extensive construction activity, including areas recovering from earthquakes, wildfires, hurricanes, flooding or other natural disasters, there can be craft and skilled trade shortages that limit independent contractors’ ability to supply construction services to us, which in turn tends to drive up our costs and/or extend our production schedules.
In markets experiencing extensive construction activity, including areas recovering from earthquakes, wildfires, hurricanes, flooding or other natural disasters, there can be craft and skilled trade shortages that limit independent contractors’ ability to supply construction services, which in turn tends to drive up our costs and/or extend our production schedules.
Information about our KB Home 10-year Limited Warranty program is provided in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report. We believe our approach differentiates us in the homebuilding industry and, along with our company culture that sustains it, enhances customer satisfaction.
Information about our KB Home 10-year Limited Warranty program is provided in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report. 4 We believe our approach differentiates us in the homebuilding industry and, along with our company culture that sustains it, enhances customer satisfaction.
In recent years, we have expanded our sustainability portfolio to include enhancing our homes’ indoor environment with high-performance ventilation systems and low- or zero-VOC products. Every KB home incorporates high-performance ventilation that regularly introduces fresh outdoor air and, together with comprehensive air sealing, helps to reduce indoor air pollutants.
In recent years, we have expanded our sustainability portfolio to include enhancing our homes’ indoor environment with air-sealing designs and high-performance ventilation systems and low- or zero-VOC products. Every KB home incorporates high-performance ventilation that regularly introduces fresh outdoor air and, together with comprehensive air sealing, helps to reduce indoor air pollutants.
Therefore, we strive to create an engaging internal environment that offers our employees satisfying work, with meaningful opportunities for career growth and development, rewarding short- and long-term compensation programs that are aligned with achieving our business goals, employee home purchase and referral programs, and employment milestone service awards.
Therefore, we strive to create an engaging environment that offers our employees satisfying work, with meaningful opportunities for career growth and development, rewarding short- and long-term compensation programs that are aligned with achieving our business goals, employee home purchase and referral programs, and employment milestone service awards.
In some cases, this competition occurs within larger residential development projects containing separate sections other homebuilders design, plan and develop. We also 9 compete for homebuyers against housing alternatives to new homes, including resale homes, apartments, single-family rentals and other rental housing.
In some cases, this competition occurs within larger residential development projects containing separate sections other homebuilders design, plan and develop. We also compete for homebuyers against housing alternatives to new homes, including resale homes, apartments, single-family rentals and other rental housing.
To the extent 15 contamination or other environmental issues have occurred in the past, we will attempt to recover restoration costs from third parties, such as the generators of hazardous waste, land sellers or others in the prior chain of title and/or their insurers.
To the extent contamination or other environmental issues have occurred in the past, we will attempt to recover restoration costs from third parties, such as the generators of hazardous waste, land sellers or others in the prior chain of title and/or their insurers.
We may from time to time choose to disclose or post important information about our business on or through our investor relations website, and/or through other electronic channels, including social media outlets, such as Facebook® (Facebook.com/KBHome) and Twitter® (Twitter.com/KBHome), and other evolving communication technologies.
We may from time to time choose to disclose or post important information about our business on or through our investor relations website, and/or through other electronic channels, including social media outlets, such as Facebook® (Facebook.com/KBHome) and X® (Twitter.com/KBHome), and other evolving communication technologies.
We ascertain homebuyer product design and location preferences through surveys we conduct of recent buyers of both new and resale homes across our served markets. We also obtain data from our own homebuyers’ selections and post-sale feedback.
We ascertain homebuyer product design and location preferences partly through surveys we conduct of recent buyers of both new and resale homes across our served markets. We also obtain data from our own homebuyers’ selections and post-sale feedback.
We support each person or family, whether it is their first time or they have already been homeowners, with a dedicated community team of sales counselors, design consultants, construction supervisors and 4 other personnel.
We support each person or family, whether it is their first time or they have already been homeowners, with a dedicated community team of sales counselors, design consultants, construction supervisors and other personnel.
We offer our customers a variety of homes with a standardized set of base functions and features generally priced to be affordable for those with household incomes within a range of the local area’s median level.
We offer our customers a variety of homes with a standardized set of functions and features generally priced to be affordable for those with household incomes within a range of the local area’s median level.
Our board of directors maintains a robust governance framework and leading practices to oversee the management of our business and, among other things, oversees our sustainability initiatives as part of our overall business strategy.
Our board of directors maintains a robust governance framework and leading practices to oversee the management of our business and, among other things, oversees our sustainability initiatives as part of our overall 14 business strategy.
This also enables us to better understand in advance the cost to build our products and to compare and implement best land development and home construction practices across divisions and communities.
This library also enables us to better understand in advance the cost to build our products and to compare and implement best land development and home construction practices across divisions and communities.
Environmental, Social and Governance (“ESG”) For more than 15 years, we have made a dedicated effort to be an industry leader in sustainability, which encompasses our ESG practices. We believe our initiatives provide tangible benefits for our customers, our operations and the environment, and distinctly differentiate us from other builders of new homes and from resale homes.
Environmental, Social and Governance (“ESG”) For more than 16 years, we have made a dedicated effort to be an industry leader in sustainability, which encompasses our ESG practices. We believe our initiatives provide tangible benefits for our customers, our operations and the environment, and distinctly differentiate us from other builders of new homes and from resale homes.
Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less home purchase contract cancellations) generated during the current period minus the number of homes delivered during the current period. Our backlog at any given time will be affected by cancellations, homes delivered and our community count.
Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less home sales contract cancellations) generated during the current period minus the number of homes delivered during the current period. Our backlog at any given time will be affected by cancellations, homes delivered and our community count.
Our financial services operations also provide mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), which is an unconsolidated joint venture between us and a third party.
Our financial services operations also provide mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), an unconsolidated joint venture between us and a third party.
However, cancellations of home purchase contracts prior to the delivery of the underlying homes, the construction of attached products with some unsold units, or specific marketing or other strategic considerations will result in our having some unsold completed or partially completed homes in our inventory.
However, cancellations of home sales contracts prior to the delivery of the underlying homes, the construction of attached products with some unsold units, or specific marketing or other strategic considerations will result in our having some unsold completed or partially completed homes in our inventory.
Our benchmark for measuring the achievement of this goal is the Home Energy Rating System (HERS®) Index, as each HERS Index score point reduction equates to a 1% improvement in energy efficiency relative to a standard new home and potentially reduces GHG emissions by an average of 0.1 metric tons (as calculated based on the states in which we operate).
Our benchmark for measuring the achievement of this goal is the Home Energy Rating System (HERS®) Index, as each HERS Index score point reduction equates to a 1% improvement in energy efficiency relative to a standard new home and potentially creates less GHG emissions by an average of 0.1 metric tons (as calculated based on the states in which we operate).
Driven by this ambitious guidepost, our team seeks to provide a compelling, simple and personalized homebuying process distinguished by phenomenal customer service. We want our customers to know they have a real partner when buying a home with us, and to feel that once their home is built, they can see themselves in their new home.
Driven by this ambition, our team seeks to provide a compelling, simple and personalized homebuying process distinguished by phenomenal customer service. We want our customers to know they have a real partner when buying a home with us and feel that once their home is built, they can see themselves in their new home.
A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated. Environmental costs and accruals were not material to our operations, cash flows or financial position in 2022, 2021 or 2020.
A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated. However, environmental costs and accruals were not material to our operations, cash flows or financial position in 2023, 2022 or 2021.
More information concerning our corporate governance can be found in our Proxy Statement for the 2023 Annual Meeting of Stockholders (“2023 Proxy Statement”). Government Regulations and Environmental Matters Our operations are subject to myriad legal and regulatory requirements concerning land development (including governmental permits, taxes, assessments and fees), the homebuilding process, employment conditions and worksite health and safety.
More information concerning our corporate governance can be found in our Proxy Statement for the 2024 Annual Meeting of Stockholders (“2024 Proxy Statement”). Government Regulations and Environmental Matters Our operations are subject to myriad legal and regulatory requirements concerning land development (including governmental permits, taxes, assessments and fees), the homebuilding process, employment conditions and worksite health and safety.
We do this by calibrating home sales rates and selling prices at each of our communities to improve profitability; focusing on controlling direct construction costs within our communities; increasing inventory turns to the extent practical; balancing pace, price and construction starts at each community; structuring land acquisitions to minimize upfront costs where possible, as discussed below under “Community Development and Land Inventory Management”; and deploying excess cash flow from operations to help fuel additional revenue growth or reduce debt, among other steps.
We do this by calibrating home sales rates and selling prices at each of our communities to improve profitability; focusing on controlling direct construction costs; increasing inventory turns to the extent practical; balancing pace, price and construction starts at each community to optimize our return on each inventory asset within its market context; structuring land acquisitions to minimize upfront costs where possible, as discussed below under “Community Development and Land Inventory Management”; and deploying excess cash flow from operations to help fuel additional revenue growth or reduce debt, among other steps.
We have a goal to reduce the estimated GHG emissions (metric tons per year) of our average home built in 2025 by 0.5 metric tons per year, or 8%, from the estimated 6 metric tons per year average for a KB home built in 2020.
We have a goal to reduce the estimated GHG emissions (metric tons per year) produced through the use of our average home built in 2025 by 0.5 metric tons per year, or 8%, from the estimated 6 metric tons per year average for a KB home built in 2020.
To get a sense of our independent contractors’ compliance with their safety obligations, we track nearly 50 checkpoints across key aspects of jobsite safety, including safety documentation, personal protective equipment, scaffolding and ladders, fall protection, trenching and excavation, hazard assessment protocol, first aid and emergency plan, electrical safety and material safety.
To monitor our independent contractors’ compliance with their safety obligations, we track nearly 50 checkpoints across key aspects of jobsite safety, including safety documentation, personal protective equipment, scaffolding and ladders, fall protection, trenching and excavation, hazard assessment protocol, first aid and emergency plan, electrical safety and material safety.
To emphasize the distinct combination of innovative designs, personalization, affordability and partnership we offer to our homebuyers and the importance we place on customer satisfaction, we have centered our external brand identity and messaging around Built on Relationships®.
To emphasize the distinct combination of innovative design, sustainability, personalization, affordability and partnership we offer to our homebuyers and the importance we place on customer satisfaction, we have centered our external brand identity and messaging around Built on Relationships®.
Item 1. BUSINESS General KB Home is one of the largest and most recognized homebuilding companies in the U.S. We have been building homes for more than 65 years, with over 670,000 homes delivered since our founding in 1957.
Item 1. BUSINESS General KB Home is one of the largest and most recognized homebuilding companies in the U.S. We have been building homes for more than 65 years, with over 680,000 homes built since our founding in 1957.
Our dedicated team of sales counselors, design consultants, construction superintendents and customer service representatives, as well as KBHS loan officers, work closely with our homebuyers throughout the homebuying process. We typically sell our homes through commissioned sales associate employees from sales offices located in or adjacent to furnished model homes in each community.
Our dedicated team of sales counselors, design consultants, construction superintendents and customer service representatives, as well as KBHS loan officers, work closely with our customers throughout the homebuying process. We typically sell our homes through salaried and/or commissioned sales associate employees from sales offices located in or adjacent to furnished model homes in each community, or through outside brokers.
We are committed to building energy-efficient homes and have progressively expanded our sustainability program and use of technological advancements to make renewable solar energy, water efficiency, waste reduction and indoor environments that support personal wellness available to our buyers.
We are committed to building energy-efficient homes and have progressively expanded our sustainability program and use of technological advancements to make renewable solar energy, water efficiency, waste reduction and indoor environments that support personal wellness available to our buyers. According to the U.S.
We use this information on what matters most to homebuyers when making purchase and trade-off decisions to develop and refine our products, as well as our land acquisition targets.
We use this information on what matters most to homebuyers when making purchase and trade-off decisions to develop and refine our product offerings, as well as our land acquisition targets.
Other circumstances could arise in the future that may lead us to make specific short-term shifts from our KB Edge principles. Asset Efficiency. In implementing our KB Edge business strategy, a key tenet of our approach is to enhance asset efficiency.
Similar and other circumstances could arise that may lead us to make specific short-term shifts from our KB Edge principles. Asset Efficiency. In implementing our KB Edge business strategy, a key tenet of our approach is to enhance asset efficiency.
In recent years and in response to the growing number of millennial and Generation Z homebuyers, we have increased our emphasis on digital marketing, through search engine marketing, interactive Internet-based applications, email, social media, our website and other evolving communication technologies. We also use print media, billboards, radio, magazine and newspaper advertising in our served markets, as necessary.
In recent years and in response to the growing number of millennial and Generation Z homebuyers, we have increased our emphasis on digital marketing, through search engine marketing, interactive internet-based applications, email, social media, our website and other evolving communication technologies. We also use print media and advertising, billboards and radio in our served markets. Homebuyer Profile .
Our library of standardized plans allows us to effectively shift with local demand, which may include adding smaller square footage homes at communities to offer more affordable choices to buyers, and/or project site attributes, such as the size and location of developable lots.
Our library of standardized plans facilitates our ability to shift with local demand, which may include adding smaller square footage homes at communities to offer more affordable choices to buyers, and/or project site attributes, such as the size and location of developable lots.
We are proud of the high levels of satisfaction our homebuyers have reported to us and outside survey firms. In 2022, we continued to be the highest-ranked national homebuilder for customer satisfaction in third-party surveys, which we believe reflects the effective dedication we have to our homebuyers. Promotional Marketing Strategy.
We are proud of the high levels of satisfaction our homebuyers have reported to us and outside survey firms. In 2023, we continued to be one of the highest-ranked national homebuilders for customer satisfaction in third-party surveys, which we believe reflects the effective dedication we have to our homebuyers. Promotional Marketing Strategy.
Our homebuilding operations represent the majority of our business, accounting for 99.7% of our total revenues in 2022. Our financial services operations, which accounted for the remaining .3% of our total revenues in 2022, offer various insurance products to our homebuyers in the markets where we build homes and provide title services in certain of those markets.
Our homebuilding operations represent the majority of our business, accounting for 99.5% of our total revenues in 2023. Our financial services operations, which accounted for the remaining .5% of our total revenues in 2023, offer various insurance products to our homebuyers in the markets where we build homes and provide title services in certain of those markets.
We have published a Human Rights Statement that outlines our commitment to maintaining a work culture that treats all employees fairly and with respect, promotes inclusivity, provides equal opportunities for the professional growth of the diverse individuals who join us, and advancement based on merit.
We have published a Human Rights Statement that outlines our commitment to maintaining a work culture that treats all employees fairly and with respect, promotes inclusivity, provides equal opportunities for the professional growth of the diverse individuals who join us, and advancement based on merit. Safety is a priority for our employees, our homebuyers and our independent contractors.
However, we can provide no assurance whether or to what extent typical seasonal performance trends will occur in 2023, or at all.
We can provide no assurance whether or to what extent typical seasonal performance trends will occur in 2024, or at all.
As part of the decision-making process for approving a land purchase, we review extensive information about a proposed project, including past use; assessment of environmentally sensitive areas and areas that may be suitable for parks, trails, and open space preservation areas; assessment of site development required, including any work needed to comply with storm water regulations; distance to major employment and retail centers; and site design and product (home designs and specifications) plans that are consistent with our commitment to building 100% ENERGY STAR homes using 100% WaterSense® labeled fixtures, as discussed below under “Environmental, Social and Governance.” We generally structure our land acquisition and land development activities to minimize, or defer the timing of, expenditures in order to reduce both the market risks associated with holding land and our working capital and financial commitments, including interest and other carrying costs.
As part of the decision-making process for approving a land purchase, we review extensive information about a proposed project, including past use; assessment of environmentally sensitive areas and areas that may be suitable for parks, trails, and open space preservation areas; assessment of site development required, including any work needed to comply with storm water regulations; proximity to major employment and retail centers; and site design and product (home designs and specifications) plans that are, among other things, consistent with our focus on building highly energy- and water-efficient homes, as discussed below under “Environmental, Social and Governance.” We generally seek to structure our land acquisition and land development activities to minimize, or defer the timing of, expenditures in order to reduce both the market risks associated with holding land and our working capital and financial commitments, including interest and other carrying costs.
We also use the following terms in our business with the corresponding meanings: “home” is a single-family residence, whether it is a single-family home or other type of residential property; “homes delivered” are homes for which the sale has closed and title has passed to a customer; “community” is a single development in which new homes are constructed as part of an integrated plan; and “community count” is the number of communities we have open for sales with at least five homes/lots left to sell.
We also use the following terms in our business with the corresponding meanings: “home” is a single-family residence, whether it is a single-family home or other type of residential property; “homes delivered” are homes for which the sale has closed and title has passed to a customer; “community” is a single development in which new homes are constructed as part of an integrated plan; “community count” is the number of communities we have open for sales with at least five homes/lots left to sell; and “product” encompasses a home’s floor plan design and interior/exterior style, amenities, functions and features.
The following charts present homebuilding revenues, net income and diluted earnings per share for the years ended November 30, 2020, 2021 and 2022, and book value per share as of November 30, 2020, 2021 and 2022: 1 Markets Reflecting the geographic reach of our homebuilding business, we have ongoing operations in the nine states and 47 major markets presented below.
The following charts present homebuilding revenues, net income and diluted earnings per share for the years ended November 30, 2019, 2021 and 2023, and book value per share as of November 30, 2019, 2021 and 2023: 1 Markets Reflecting the geographic span of our homebuilding business, we have operations in the nine states and 47 major markets presented below.
In addition, we maintain an ethics committee that is focused on compliance and ethics matters for our business. We also have an independently operated hotline and reporting website through which our employees and third parties can report ethics-related concerns. Diversity.
In addition, we maintain an ethics committee that is focused on compliance and ethics matters for our business. We also have an independently operated hotline and reporting website through which our employees and third parties can anonymously report ethics-related concerns. Talent Acquisition and Workforce Development.
Elevated construction activity, and reallocations of staff for public safety priorities after natural disasters or otherwise, has also contributed to measurable increases in the amount of time needed to obtain governmental approvals or utility service activations and, combined with tariffs imposed or increased by the U.S. and other governments, the cost of certain raw building materials, such as steel, lumber, drywall and concrete, or finished products.
Elevated construction activity, and reallocations of staff for public safety priorities after natural disasters or otherwise can increase the time needed to obtain governmental approvals or utility service activations and, combined with tariffs imposed or increased by the U.S. and other governments, the cost of certain raw building materials, such as steel, lumber, drywall and concrete, or finished products.
We believe the challenging conditions we experienced in the 2022 second half will generally persist next year, as discussed below under “Outlook.” Although they vary significantly in size and complexity, our single-family residential home communities typically consist of 50 to 200 lots per product line, with lots ranging in size from 1,700 to 11,000 square feet.
We believe the conditions we experienced in 2023 will generally persist next year, as discussed below under “Outlook.” Although they vary significantly in size and complexity, our single-family residential home communities typically consist of 50 to 150 lots per product line, with lots ranging in size from 1,800 to 11,000 square feet.
W e are also one of the founding partners of the Building Talent Foundation, whose mission is to advance the education, training and career progression of young people and people from underrepresented groups as skilled technical workers and business owners in residential construction.
As noted above under “Human Capital Resources,” w e are also one of the founding partners of the Building Talent Foundation, whose mission is to advance the education, training and career progression of young people and people from underrepresented groups as skilled technical workers and business owners in residential construction.
Each certified home is estimated by the EPA to reduce GHG emissions by approximately 3,287 pounds (1.5 metric tons) per year compared to a typical home. Based on our energy use analysis, our homes currently save our homeowners an estimated average of $1,300 annually on utility bills compared to typical resale homes.
Each certified home is estimated by the EPA to produce approximately 3,287 pounds (1.5 metric tons) per year less GHG emissions than a typical home. Based on our energy use analysis, our homes currently save our homeowners an estimated average of $1,400 annually on utility bills compared to typical resale homes. GHG Emission Goal .
Therefore, we expect to attain our GHG emissions reduction goal if we reduce our national average HERS Index score by five points, from 50 in 2020 to a target of 45 for 2025. For comparison, a typical resale home today has a HERS Index score of 130.
Therefore, we expect to attain our GHG emissions goal if we lower our national average HERS Index score by five points, from 50 in 2020 to a target of 45 for 2025. For comparison, a typical resale home today has a HERS Index score of 130. Solar and Clean Energy .
In 2022, many stockholder dialogues included discussions on our ESG programs.
In 2023, many stockholder dialogues included discussions on our ESG programs.
Seasonality. Our performance is affected by seasonal demand trends for housing. Traditionally, there has been more consumer demand for home purchases and we tend to generate more net orders in the spring and early summer months (corresponding to most of our second quarter and part of our third quarter) than at other times of the year.
Traditionally, there has been more consumer demand for home purchases and we tend to generate more net orders in the spring and early summer months (corresponding to most of our second quarter and part of our third quarter) than at other times of the year.
We offer our customers a variety of homes with a standardized set of base functions and features generally priced to be affordable for those with household incomes within a range of the local area’s median level.
We offer our customers a variety of homes with a standardized set of functions and features generally priced to be affordable for those with household incomes within a range of the local area’s median level, with the goal of being attainable for the largest demand segments.
First Quarter Second Quarter Third Quarter Fourth Quarter Net Orders 2022 39 % 36 % 19 % 6 % 2021 26 % 27 % 25 % 22 % 2020 26 % 13 % 32 % 29 % Homes Delivered 2022 21 % 25 % 26 % 28 % 2021 21 % 26 % 26 % 27 % 2020 26 % 23 % 24 % 27 % Housing Revenues 2022 20 % 25 % 27 % 28 % 2021 20 % 25 % 26 % 29 % 2020 26 % 22 % 23 % 29 % Delivery Mix and Other Factors.
First Quarter Second Quarter Third Quarter Fourth Quarter Net Orders 2023 19 % 36 % 28 % 17 % 2022 39 % 36 % 19 % 6 % 2021 26 % 27 % 25 % 22 % Homes Delivered 2023 21 % 28 % 25 % 26 % 2022 21 % 25 % 26 % 28 % 2021 21 % 26 % 26 % 27 % Housing Revenues 2023 22 % 27 % 25 % 26 % 2022 20 % 25 % 27 % 28 % 2021 20 % 25 % 26 % 29 % Delivery Mix and Other Factors.
Human Capital Resources At November 30, 2022 and 2021, we had approximately 2,366, and 2,244 full-time employees, respectively. None of our employees are represented by a collective bargaining agreement. For fiscal 2022, our turnover rate was 21%, made up of 19% voluntary turnover and 2% involuntary turnover.
Human Capital Resources At November 30, 2023 and 2022, we had approximately 2,205 and 2,366 full-time employees, respectively. None of our employees are represented by a collective bargaining agreement. For fiscal 2023, our turnover rate was 27%, made up of 16% voluntary turnover and 11% involuntary turnover.
Our corporate management and support personnel develop and oversee the implementation of company-wide strategic initiatives, our overall operational policies and internal control standards, and perform various centralized functions, including architecture; purchasing and national contracts; treasury and cash management; land acquisition approval; risk and litigation management; accounting and financial reporting; internal audit and compliance activities; information technology (“IT”) systems; marketing; and investor and media relations. 6 Community Development and Land Inventory Management Developable land for the production of homes is a core resource for our business.
Our corporate management and support personnel develop and oversee the implementation of company-wide strategic initiatives, our overall operational policies and internal control standards, and perform various centralized functions, including architecture; purchasing and national contracts; treasury and cash management; land acquisition approval; risk and litigation management; accounting and financial reporting; internal audit and compliance activities; information technology (“IT”) systems; marketing; and investor and media relations.
Customer Obsession. Based on more than 65 years of experience, we believe the best homes start with the people who live in them. Our customer-centric approach comes from a deep-rooted operational philosophy and company culture motivated by a paramount objective: to be the most customer-obsessed homebuilder in the world.
Customer Obsession. We believe the best new homes start with the people who will live in them. Our customer-centric approach comes from a deep-rooted operational philosophy and company culture motivated by a paramount objective: to be the most customer-obsessed homebuilder in the world.
Although our typical cycle time from home sale to delivery has historically ranged from six to seven months, as described above, supply chain disruptions and other production-related issues extended our build times in 2022 and 2021.
Although our typical cycle time from home sale to delivery has historically ranged from six to seven months, supply chain disruptions and other production-related issues contributed to our build times and overall cycle times remaining extended in 2023 and 2022.
We also cultivate and leverage close supplier and business partner relationships to integrate into or offer with our products architectural elements (such as flex spaces that can serve multiple purposes, quiet zones or home offices), building materials, construction techniques, structural and non-structural systems, and components and devices that are aligned with the preferences identified in our surveys and other data sources. • Offer customers choice and control .
We also cultivate and leverage close supplier and business partner relationships to integrate into or offer with our products architectural elements, building materials, construction techniques, structural and non-structural systems, and components and devices that are aligned with the preferences identified in our surveys and other data sources. • Offer customers choice and control .
In addition, our named executive officers who are responsible for setting our overall strategy average 20 years of tenure with us and more than two decades in the homebuilding industry. Our leadership team’s long service history provides consistency in managing our business and helps reinforce and sustain our company culture through all levels of the organization. Promoting High Ethical Standards.
In addition, our named executive officers who are responsible for setting our overall strategy have an average tenure of 21 years. Our leadership team’s long service history provides consistency in managing our business and helps reinforce and sustain our company culture through all levels of the organization. Promoting High Ethical Standards.
Our KB Cares philanthropic program helps to build strong social ties by, among other things, providing our employees a means of giving back to the areas in which we operate through efforts ranging from assisting people in challenging circumstances to educating the next generation.
Our KB Cares philanthropic program has four key focus areas: shelter, community, sustainability/environment and construction skills/employment. KB Cares helps to build strong social ties by, among other things, providing our employees a means of giving back to the areas in which we operate through efforts ranging from assisting people in challenging circumstances to educating the next generation.
We were the first national homebuilder to make every new home we build ENERGY STAR certified, and have built over 175,000 high-performance ENERGY STAR certified new homes since 2000, more than any other builder in the nation.
We were the first national homebuilder to make a broad commitment to building ENERGY STAR certified homes, and have built over 188,000 high-performance ENERGY STAR certified new homes since 2000, more than any other builder in the nation.
For fiscal 2021, our turnover rate was 16%, made up of 15% voluntary turnover and 1% involuntary turnover. We believe these rates are reasonable for our industry and market conditions at the time. Our Culture.
For fiscal 2022, our turnover rate was 21%, made up of 19% voluntary turnover and 2% involuntary turnover. We believe these rates are reasonable for our industry and market conditions at the time. Our Culture.
We strive to provide a safe working environment for our employees, as well as our trade partners, as discussed below under “Social Practices.” In addition to the benefits programs described above, we offer a wellness program designed to support our team members’ general health.
We strive to provide a safe working environment for our employees, as well as our trade partners, as discussed below under “Social Practices.” In addition to the benefits programs described above, we offer a wellness program designed to support our team members’ general health. Our wellness program offerings are available online 11 so that every employee has access to them.
Two directors are liaisons to management on ESG matters. • Our board monitors cybersecurity risks and related evolving physical, electronic and other protection strategies and initiatives. • Boards should have a strong, independent leadership structure. • Our board has a strong independent lead director with significant responsibilities and authority. • Independent directors lead all board committees. • Boards should adopt structures and practices that enhance their effectiveness. • Directors have extensive and relevant experience and skills. • 91% of directors are independent; 36% are women or racial or ethnic minorities. • Two new directors joined the board in 2021, promoting its refreshment. • Boards should develop management incentive structures that are aligned with the long-term strategy of the company. • In response to stockholder feedback, we have implemented changes in our executive compensation program, as discussed in our 2023 Proxy Statement. • Management compensation is designed to encourage the achievement of our long-term strategic goals.
Two directors are liaisons to management on ESG matters. • Our board monitors cybersecurity risks and related evolving physical, electronic and other protection strategies and initiatives. • Boards should have a strong, independent leadership structure. • Our board has a strong independent lead director with significant responsibilities and authority. • Only independent directors serve on board committees. • Boards should adopt structures and practices that enhance their effectiveness. • Directors have extensive and relevant experience and skills. • 91% of directors are independent; 45% are women or racial or ethnic minorities. • The average tenure of our board members is seven years, with five new directors having joined since 2021, promoting its refreshment. • Boards should develop management incentive structures that are aligned with the long-term strategy of the company. • We take stockholder feedback into account in our executive compensation program, as discussed in our 2024 Proxy Statement. • Management compensation is designed to encourage the achievement of our long-term strategic goals. • All unvested employee equity awards made since 2017 require double-trigger vesting in a change in control.
Managers and supervisors are provided training to help their direct reports progress in their professional development. 11 To recognize and promote outstanding employees, we conduct a comprehensive talent and succession planning review process on an annual basis, focused on identifying top-performing, high-potential, and diverse team members for advancement to key field and corporate leadership roles.
To recognize and promote outstanding employees, we conduct a comprehensive talent and succession planning review process on an annual basis, focused on identifying top-performing, high-potential, and diverse team members for advancement to key field and corporate leadership roles.
We also use electronic sales capabilities and technology to give our customers a variety of convenient ways to shop for and purchase a new KB home, including, among other things: • Offering virtual home tours and online photo galleries for prospective homebuyers; • Providing access to interactive floor plans and homesite maps for their desired community; • Conducting virtual appointments and tours of the model homes and design studios; • Having KBHS pre-qualify our homebuyers for mortgages, and utilizing online tools and/or contactless methods to serve homebuyers where possible; • Organizing virtual events with the broker community to introduce new communities; • Presenting homebuyers with the ability to virtually see and walk through their home at various points during its construction and prior to closing; and • Arranging virtual or drive-through closings, where permitted. 5 In addition, as part of our commitment to sustainability, which is discussed further below under “Environmental, Social and Governance,” and providing our customers a simple path to homeownership, we continue to work towards the goal of paperless homebuying.
We also use electronic sales capabilities and technology to give our customers a variety of convenient ways to shop for and purchase a new KB home, including, among other things: • Offering virtual home tours and online photo galleries for prospective homebuyers; • Providing access to interactive floor plans and homesite maps for their desired community; • Conducting virtual appointments and tours of the model homes and design studios; • Utilizing online tools to serve homebuyers where possible; • Organizing virtual events with the broker community to introduce new communities; • Presenting homebuyers with the ability to virtually see and walk through their home at various points during its construction and prior to closing; and • Arranging virtual or drive-through closings, where permitted.
Outside of land, the principal raw materials used in our production process are concrete and forest products. Other primary materials used in home construction include drywall, and plumbing and electrical items. We source all of our building materials from third parties and seek out products that provide independent sustainability assessments.
Outside of land, the principal raw materials used in our production process are concrete and forest products. Other primary materials used in home construction include drywall, and plumbing and electrical items. We source all of our building materials from third parties and, to the extent feasible, select products with sustainability certifications or attributes.
KB Edge is a systematic, fact-based and process-driven approach to homebuilding that is grounded in gaining a detailed understanding of consumers’ location and product preferences and product price-to-value perceptions.
KB Edge is a systematic, fact-based and process-driven approach to homebuilding that is grounded in gaining a detailed understanding of consumers’ location and product preferences and product price-to-value perceptions. KB Edge consists of the following key principles with respect to customers, land, products and operations: 2 • Customers .
Though we evaluate new markets to enter, our primary focus is on our existing geographic footprint. We leverage the relationships we have with landowners, developers and brokers to find and acquire land parcels, and use our experience in working with municipalities to efficiently obtain development approvals. • Products .
We leverage the relationships we have with landowners, developers and brokers to find and acquire land parcels, and use our experience in working with municipalities to efficiently obtain development approvals. • Products .
We have continued to enhance our wellness program throughout 2022 with wellness challenges and monthly wellness webinars, and see it as a positive way to create and strengthen internal connections with and among our employees.
Monthly interactive webinars address topics such as holistic health, including nutrition, and preventive care. We have continued to enhance our wellness program throughout 2023 with wellness challenges and monthly wellness webinars, and see it as a positive way to create and strengthen internal connections with and among our employees.
We compete for homebuyers, construction resources and desirable land against numerous homebuilders, ranging from regional and national firms to small local enterprises.
We compete for homebuyers, construction resources and desirable land against numerous homebuilders, ranging from regional and national firms, some of which are larger and have greater financial resources than us, to small local enterprises.
To date, we have built over 19,000 WaterSense and Water Smart homes, more than any other homebuilder, and installed over 1.0 million WaterSense labeled fixtures, collectively helping to save an estimated 1.7 billion gallons of water per year.
To date, we have built over 21,800 WaterSense labeled and Water Smart homes, which we believe is more than any other homebuilder, and installed over 1.1 million WaterSense labeled fixtures, collectively helping to save an estimated 1.7 billion gallons of water per year based on calculations derived from WaterSense program and supplier data.
At November 30, 2022, based on information available to us, females made up approximately 41% of our workforce and 33% of our managerial employees, with ethnic and racial minorities making up approximately 38% of our workforce and 22% of our managerial employees. In addition, 36% of our board of directors are women or ethnic minorities.
At November 30, 2023, females made up approximately 42% of our workforce and 33% of our managerial employees, with ethnic and racial minorities making up approximately 37% of our workforce and 22% of our managerial employees. In addition, 45% of our board of directors are women or ethnic minorities.
We were the first national homebuilder to join the EPA’s WaterSense program, which is a voluntary partnership program that is both a label for water-efficient products and a resource for helping conserve water. According to the EPA, WaterSense labeled products use at least 20% percent less water compared to products that are not WaterSense labeled.
We were the first national homebuilder to join the EPA’s WaterSense® program, which is a voluntary partnership program that is both a label for water-efficient products and a resource for helping conserve water, and have made a commitment to using WaterSense labeled products in our homes.
The following table presents the number of inventory lots we owned, in various stages of development, or controlled under land option contracts or other similar contracts by homebuilding reporting segment as of November 30, 2022 and 2021: Homes Under Construction Land Under Development Land Under Option (a) Total Land Owned or Under Option 2022 2021 2022 2021 2022 2021 2022 2021 West Coast 1,882 2,838 11,787 10,617 5,633 10,084 19,302 23,539 Southwest 1,937 1,895 5,975 7,207 929 3,237 8,841 12,339 Central 3,659 3,194 12,256 13,082 8,086 12,685 24,001 28,961 Southeast 1,929 1,718 8,630 7,974 6,092 12,237 16,651 21,929 Total 9,407 9,645 38,648 38,880 20,740 38,243 68,795 86,768 (a) Land under option as of November 30, 2022 and 2021 includes 5,543 and 12,434 lots, respectively, under land option contracts or other similar contracts where the associated deposits were refundable at our discretion.
The following table presents the number of inventory lots we owned, in various stages of development, or controlled under land option contracts or other similar contracts by homebuilding reporting segment as of November 30, 2023 and 2022: Homes Under Construction Land Under Development Land Under Option (a) Total Land Owned or Under Option 2023 2022 2023 2022 2023 2022 2023 2022 West Coast 2,343 1,882 9,784 11,787 6,093 5,633 18,220 19,302 Southwest 1,567 1,937 4,365 5,975 1,085 929 7,017 8,841 Central 2,156 3,659 10,981 12,256 4,191 8,086 17,328 24,001 Southeast 1,569 1,929 8,035 8,630 3,807 6,092 13,411 16,651 Total 7,635 9,407 33,165 38,648 15,176 20,740 55,976 68,795 (a) Land under option as of November 30, 2023 and 2022 includes 6,260 and 5,543 lots, respectively, under land option contracts or other similar contracts where the associated deposits were refundable at our discretion. 7 The following charts present the percentage of inventory lots we owned or controlled under land option contracts or other similar contracts by homebuilding reporting segment and the percentage of total lots we owned and had under option as of November 30, 2023: Home Construction and Deliveries.
For more than a decade, first-time and first move-up homebuyers have accounted for an average of over 75% of our annual deliveries; in 2022, these homebuyers accounted for 76% of our deliveries, as shown in the following chart: Operational Structure.
We also offer a variety of single-story floorplans that typically appeal to an active adult homebuyer age 55 and over. For more than a decade, first-time and first move-up homebuyers have accounted for an average of over 75% of our annual deliveries; in 2023, these homebuyers accounted for 74% of our deliveries, as shown in the following chart: Operational Structure.
This reduces our inventory risk, promotes construction efficiencies, enhances our relationships with independent contractors and other business partners, and provides us with greater visibility and predictability on future deliveries.
This reduces our inventory risk, promotes construction efficiencies, enhances our relationships with independent contractors and other business partners, and provides us with greater visibility and predictability on future deliveries. There have been and may in future periods be circumstances where we deviate from certain of the above principles.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may also incur higher costs, or experience sourcing or supply chain disruptions that result in extended times to build our homes, as compared to other homebuilders due to our commitment to sustainability, as discussed above under “Environmental, Social and Governance.” Among other strategic risks, our business is presently concentrated in California, Florida, Nevada and Texas.
Biggest changeWe may also incur higher costs, or experience sourcing or supply chain disruptions that result in extended times to build our homes, as compared to other homebuilders due to our commitment to sustainability, as discussed above under “Environmental, Social and Governance.” However, we expect there could be an unfavorable reputational impact if we do not maintain our sustainability programs, including if we decide not to construct homes that are designed to be ENERGY STAR certified or are otherwise as energy efficient as those we currently build; fail to achieve ENERGY STAR certification or any other voluntarily elected or mandatory energy-efficiency standard for our homes, which has occurred in a few instances in recent years; or if we fail to meet our sustainability objectives, including our GHG emissions-related goals.
Also, if a rating agency downgrades our credit rating or outlook, external financing may be difficult and costly for us to obtain. ◦ Noncompliance with our Credit Facility, Term Loan and senior notes covenants may restrict our ability to borrow; accelerate repayment of our debt, which may not be feasible for us; or cause our lenders to impose significant fees or cease lending to us. ◦ As described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report, if a change of control or fundamental change occurs before our senior notes mature, we may need to offer to purchase certain of them.
Also, if a rating agency downgrades our credit rating or outlook, external financing may be difficult and costly for us to obtain. 18 ◦ Noncompliance with our Credit Facility, Term Loan and senior notes covenants may restrict our ability to borrow; accelerate repayment of our debt, which may not be feasible for us; or cause our lenders to impose significant fees or cease lending to us. ◦ As described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report, if a change of control or fundamental change occurs before our senior notes mature, we may need to offer to purchase certain of them.
Though practically available technology and resources allow us only to make certain estimates, and not definitive measurements, of the effectiveness and overall impact of our longstanding and broad-based environmental sustainability initiatives described above under “Environmental Practices,” we feel these initiatives and their evolution over time represent how we can best address climate change risks in the context of our business, industry and the wider, and rapidly changing, economic, social and political environment.
Though practically available technology and resources allow us only to make certain estimates, and not definitive measurements, of the effectiveness and overall impact of our longstanding and broad-based environmental sustainability initiatives described above under “Environmental Practices,” we feel these initiatives and their evolution over time represent 21 how we can best address climate change risks in the context of our business, industry and the wider, and rapidly changing, economic, social and political environment.
An extended downturn in the U.S. housing market could result in an oversupply of new home and resale inventory and greater foreclosure activity, which would further impair our ability to sell homes at the same volume, prices and margins as in prior periods. • Reduced employment levels and job and wage growth .
An extended downturn in the U.S. housing market could result in an oversupply of new home and resale inventory and greater foreclosure activity, which would further impair our ability to sell homes at the same volume, prices and margins as in prior periods. 16 • Reduced employment levels and job and wage growth .
If federal or state laws are changed to eliminate or reduce the income tax benefits associated with homeownership, such as personal tax deductions for mortgage loan interest costs and real estate taxes, the after-tax cost of homeownership could measurably increase and diminish consumer interest in buying a home, as could increases in personal income tax rates. • Competition .
If federal or state laws are changed to eliminate or reduce the income tax benefits associated with homeownership, such as personal tax deductions for mortgage loan interest costs and real estate taxes, the after-tax cost of homeownership could measurably increase and diminish consumer interest in buying a home, as could increases in personal income tax rates.
For example, California, our largest market, has historically experienced, and is 20 projected to continue to experience, climate-related events at an increasing frequency including drought, water scarcity, heat waves, wildfires and resultant air quality impacts and power shutoffs associated with wildfire prevention.
For example, California, our largest market, has historically experienced, and is projected to continue to experience, climate-related events at an increasing frequency including drought, water scarcity, heat waves, wildfires and resultant air quality impacts and power shutoffs associated with wildfire prevention.
Due to our dependence on the performance of independent suppliers and contractors to provide products and materials and carry out our homebuilding activities, and the associated risks described above under “Supply chain and construction services shortages” and “Poor contractor availability and performance,” as well as inherent uncertainties, including obtaining recoveries 21 from responsible parties and/or their or our insurers, our recorded warranty and other liabilities may be inadequate to address future claims, which, among other things, could require us to record charges to increase such liabilities.
Due to our dependence on the performance of independent suppliers and contractors to provide products and materials and carry out our homebuilding activities, and the associated risks described above under “Inflation,” “Supply chain and construction services shortages” and “Poor contractor availability and performance,” as well as inherent uncertainties, including obtaining recoveries from responsible parties and/or their or our insurers, our recorded warranty and other liabilities may be inadequate to address future claims, which, among other things, could require us to record charges to increase such liabilities.
In addition, we may experience substantial negative impacts to our business if an unexpectedly severe weather event or natural disaster damages our operations or those of our suppliers or independent contractors in our primary markets, such as in California, Florida, Nevada and Texas, or from the unintended consequences of regulatory changes that directly or indirectly impose substantial restrictions on our activities or adaptation requirements.
We may also experience substantial negative impacts to our business if an unexpectedly severe weather event or natural disaster damages our operations or those of our suppliers or independent contractors in our primary markets, such as in California, Florida, Nevada and Texas, or from the unintended consequences of regulatory changes that directly or indirectly impose substantial restrictions on our activities or adaptation requirements.
Poorly performing lenders can significantly delay home closings, disrupting our production schedules and delivery forecasts, or cause home purchase contract cancellations. If GR Alliance or KBHS perform poorly and our customers use another lender, the income from and value of our KBHS equity interest would decline. • Adverse tax law changes .
Poorly performing lenders can significantly delay home closings, disrupting our production schedules and delivery forecasts, or cause home sales contract cancellations. If GR Alliance or KBHS perform poorly and our customers use another lender, the income from and value of our KBHS equity interest would decline. • Adverse tax law changes .
This may require us to refinance or restructure our debt, which we may be unable to do at all or on favorable terms. 18 ◦ Our debt and debt-to-capital levels could require us to dedicate substantial cash flow to debt service; inhibit our ability to respond to business changes or adjust our debt maturity schedule; curb execution on our current strategies; and/or make us more vulnerable in a downturn than our less-leveraged competitors.
This may require us to refinance or restructure our debt, which we may be unable to do on favorable terms or at all. ◦ Our debt and ratio of debt to capital levels could require us to dedicate substantial cash flow to debt service; inhibit our ability to respond to business changes or adjust our debt maturity schedule; curb execution on our current strategies; and/or make us more vulnerable in a downturn than our less-leveraged competitors.
Compliance with those directed at or otherwise affecting our business or our suppliers’ (or their suppliers’) operations, products or services, could increase our costs, such as with California’s requirement that all new homes have solar power systems and agency plans to require all-electric readiness and potentially eliminate natural gas appliances in new homes built in the state by 2026; delay or complicate home construction, for example, due to a need to reformulate or redesign building materials or components, or source updated or upgraded items or equipment, or specially trained or certified independent contractors, in limited or restricted supply, which has been a challenge for us in certain cases in 2022 and 2021, such as with paint, garage doors, insulation, electrical materials, cabinets, HVAC equipment and water heaters that have been out of stock and delayed home construction or required us to install or use temporary or permanent substitutes due to the supply chain disruptions we have experienced; or diminish consumer interest in homes mandated to include or omit certain features, amenities or appliances, particularly if home prices increase as a result.
Compliance with those directed at or otherwise affecting our business or our suppliers’ (or their suppliers’) operations, products or services, could increase our costs, such as with California’s requirement that all new homes have solar power systems and agency requirements for all-electric readiness and plans to potentially eliminate natural gas appliances in new homes built in the state by 2026; delay or complicate home construction, for example, due to a need to reformulate or redesign building materials or components, or source updated or upgraded items or equipment, or specially trained or certified independent contractors, in limited or restricted supply, which has been a challenge for us in certain cases in the past few years, such as with paint, garage doors, insulation, electrical materials, cabinets, HVAC equipment and water heaters that have been out of stock and delayed home construction or required us to install or use temporary or permanent substitutes due to the supply chain disruptions we have experienced; or diminish consumer interest in homes mandated to include or omit certain features, amenities or appliances, particularly if home prices increase as a result.
In an effort to manage our cycle times and deliver homes to our homebuyers, we, among other things, expanded our supplier base and added new construction service providers; worked with our national suppliers to get products and materials, or available temporary or permanent substitutes, delivered, including communicating in real-time with them; ordered items in advance of starting homes; implemented construction process workarounds; simplified our design option and upgrade SKUs; paced lot releases to align with our production capacity; and balanced pace, price and construction starts to enhance margins.
In an effort to manage our construction cycle times and deliver homes to our homebuyers, we, among other things, expanded our supplier base and added new construction service providers; worked with our national suppliers to get products and materials, or available temporary or permanent substitutes, delivered, including communicating in real-time with them; ordered items in advance of starting homes; implemented construction process workarounds; simplified our design options and upgrades; paced lot releases to align with our production capacity; and balanced pace, price and construction starts to enhance margins.
We rely on artificial intelligence, machine learning computer network monitoring, malware and antivirus resources, firewall and intrusion detection systems, vendor cloud service defenses, Internet address and content filtering monitoring software that secures against known malicious websites and potential data exfiltration, and a variety of cyber intelligence threat monitoring sources that provide ongoing updates, all provided from third parties that we believe are capable of performing the protective service for which we have engaged them.
For these defenses, we rely on a combination of artificial intelligence, machine learning computer network monitoring, malware and antivirus resources, firewall and intrusion detection systems, vendor cloud service defenses, internet address and content filtering monitoring software that secures against known malicious websites and potential data exfiltration, and a variety of cyber intelligence threat monitoring sources that provide ongoing updates, all provided from third parties that we believe, but cannot guarantee, are capable of performing the protective service for which we have engaged them.
Our technical defense layers are designed to provide multiple, redundant measures to protect against exploitation of a vulnerability that may arise or if a security control fails.
Our technical defense layers are designed to provide multiple, overlapping measures to protect against exploitation of a vulnerability that may arise or if a security control fails.
In addition, our business could be negatively affected if our net orders, homes delivered or backlog-to-homes delivered conversion rate fall; if often-volatile building materials prices or construction services costs increase, which has been the trend over the past few years and was particularly the case with lumber in 2022 and 2021; or if our community openings are delayed due to, among other things, prolonged development from supply chain disruptions, construction services shortages or otherwise, our strategic adjustments, or protracted government approvals or utility service activations from staff or resource cuts or reallocations for public safety priorities ( e.g ., earthquakes, wildfires, flooding, hurricanes or other natural disasters). • Trade disputes and defective materials .
In addition, our business could be negatively affected if our net orders, homes delivered or backlog-to-homes delivered conversion rate fall; if often-volatile building materials prices or construction services costs increase, which has been the trend over the past few years; or if our community openings are delayed due to, among other things, prolonged development from supply chain disruptions, construction services shortages or otherwise, our strategic adjustments, or protracted government approvals or utility service activations from staff or resource cuts or reallocations for public safety priorities ( e.g ., earthquakes, wildfires, flooding, hurricanes or other natural disasters). • Trade disputes and defective materials .
Consumers may also decide not to search for a new home, or cancel their home purchase contracts with us, due to economic or personal financial uncertainty.
Consumers may also decide not to search for a new home, or cancel their home sales contracts with us, due to economic or personal financial uncertainty.
If conditions deteriorate during the typically significant amount of time between our acquiring ownership/control of land and delivering homes on that land; if we cannot sell land held for sale at its estimated fair value; or if we make strategic changes, we may need to record inventory-related charges as we did in 2022.
If conditions deteriorate during the typically significant amount of time between our acquiring ownership/control of land and delivering homes on that land; if we cannot sell land held for sale at its estimated fair value; or if we make strategic changes, we may need to record inventory-related charges.
We may also record charges to reflect our then-current claims experience, including the actual costs incurred. Home warranty and other construction defect issues may also generate negative publicity, including on social media and the Internet, that detracts from our reputation and efforts to sell homes. Deferred Tax Asset Recovery and Tax Position Risks .
We may also record charges to reflect our then-current claims experience, including the actual costs incurred. Home warranty and other construction defect issues may also generate negative publicity, including on social media and the internet, that detracts from our reputation and efforts to sell homes. Tax-Related Risks .
If potential homebuyers are unable to obtain affordable homeowner insurance coverage, they may decide not to pursue purchasing a home or may cancel a home purchase contract with us. • Poor lender performance .
If potential homebuyers are unable to obtain affordable homeowner insurance coverage, they may not be able to or decide not to pursue purchasing a home or may cancel a home sales contract with us. • Poor lender performance .
For instance, we have and will continue to incur higher construction costs because of a state law requirement that effectively requires that all new homes permitted to build in 2020 and beyond have solar power systems, and we may be unable to offset (through customer leases) or cover such costs through selling price increases due to competition and consumer affordability concerns.
For instance, we have and will continue to incur higher construction costs because of a state law requirement that effectively requires that all newly-built homes have solar power systems, and we may be unable to offset (through customer leases) or cover such costs through selling price increases due to competition and consumer affordability concerns.
We conduct periodic incident response tabletop exercises, with third-party support and reviews, and have established communication channels with KBHS security personnel and key partners regarding their breach and incident response processes. In addition, we perform an annual cybersecurity risk assessment based on the National Institute of Standards and Technology framework to identify potential areas of focus.
We conduct periodic incident response tabletop exercises, with third-party support and reviews, and have established communication channels with KBHS security personnel and key partners regarding their breach and incident response processes. In addition, we perform an annual cybersecurity risk assessment to identify potential areas of focus.
Warranty Risks . Our homebuilding business is subject to warranty and construction defect claims. Though we have insurance coverage to partially reduce our exposure, it is limited and costly, in part due to a shrinking provider market, and we have high self-insured retentions that are expected to increase. We self-insure some of our risk through a wholly-owned insurance subsidiary.
Though we have insurance coverage to partially reduce our exposure, it is limited and costly, in part due to a shrinking provider market, and we have high self-insured retentions that are expected to increase. We self-insure some of our risk through a wholly-owned insurance subsidiary.
Federal Reserve’s focus on moderating inflation, credit standards are tightened, appraisals for our homes are lowered or mortgage loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing to be able to purchase a home from us.
Federal Reserve’s focus on moderating inflation and investors’ concerns about the federal government’s debt level, credit standards are tightened, appraisals for our homes are lowered or mortgage loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing to be able to purchase a home from us.
Such constraints, cost pressures and delays have increased our costs, reduced our revenues in particular reporting periods, and in some instances, led to home purchase contract cancellations or lower customer satisfaction, and we expect these trends to continue into 2023.
Such constraints, cost pressures and delays have increased our costs, reduced our revenues in particular reporting periods, and in some instances, led to home sales contract cancellations or lower customer satisfaction, and these trends could continue into 2024.
Depending on their scope, these efforts have and could further significantly increase our land acquisition and development costs and, along with competition from other homebuilders and investors for available developable land, limit our California operations’ growth, while making new homes less affordable to potential buyers in the state, including as a result of its public utilities commission’s December 2022 decision to significantly reduce net metering payments to homeowners for the rooftop solar power they export to the grid from systems installed on or after April 14, 2023.
These efforts have and could further significantly increase our land acquisition and development costs and, along with competition from other homebuilders and investors for available developable land, limit our California operations’ growth, while making new homes less affordable to potential buyers in the state, including as a result of its public utilities commission’s decision to significantly reduce net metering payments to homeowners for the rooftop solar power they export to the grid from systems installed. 20 Climate Risk .
We depend on third-party lenders, including GR Alliance Ventures, LLC (“GR Alliance,” f/k/a Stearns Ventures, LLC), our third-party partner in KBHS, to provide mortgage loans to our homebuyers, unlike homebuilders with a wholly-owned mortgage lender. These lenders may be unable or unwilling to complete, timely or at all, the loan originations they start for our homebuyers.
We depend on third-party lenders, including GR Alliance Ventures, LLC (“GR Alliance”), a subsidiary of Guaranteed Rate, Inc. and our third-party partner in KBHS, to provide mortgage loans to our homebuyers, unlike homebuilders with a wholly-owned mortgage lender. These lenders may be unable or unwilling to complete, timely or at all, the loan originations they start for our homebuyers.
We expect to meet our needs with existing cash, future operational cash flow, our Credit Facility and unsecured letter of credit facility with certain financial institutions (“LOC Facility”), or outside sources, including loans that are specifically obtained for, or secured by, particular communities or other inventory assets, which we refer to as project financing.
We expect to meet our needs with existing cash, future operational cash flow, our Credit Facility and unsecured letter of credit facility with certain financial institutions (“LOC Facility”), or outside sources, including loans that are specifically obtained for, or secured by, particular communities or other inventory assets, which we refer to as “project financing.” However, outside financing may be unavailable, costly and/or considerably dilute stockholders.
To reduce the risks and expected significant costs of defending intra-corporate proceedings in multiple venues and to help ensure that such matters are considered within a well-established body of law, our By-Laws provide that, subject to certain exceptions, Delaware state courts are the exclusive forum for specified internal corporate affairs actions.
To reduce the risks and expected significant costs of defending intra-corporate proceedings in multiple venues and to help ensure that such matters are considered within a well-established body of law, our By-Laws provide that, subject to certain exceptions, Delaware state courts are the exclusive forum for specified internal corporate affairs actions and federal courts are the exclusive forum for any action asserting a claim arising under the Securities Act of 1933, as amended.
If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage loan interest rates continue to increase significantly, our revenues, housing gross profit margin and net income could be adversely affected. Supply Risks .
If we are unable to raise selling prices enough to compensate for higher costs, or our borrowing costs increase significantly, our revenues, housing gross profit margin and net income could be adversely affected. Supply Risks .
In addition, California and certain of its local governments are considering or have implemented restrictions on or disincentives with respect to the creation or size of new suburban and exurban residential communities, in part due to regulatory assessments of the vehicle miles traveled to reach them, generally in favor of higher-density, urban developments that can be attractive to some buyers, but in many cases are on smaller parcels with higher building costs and more complicated entitlement requirements and may be subject to affordable housing mandates, prevailing wage requirements, greater local opposition and/or additional site remediation work.
California and certain of its local governments have implemented restrictions on or disincentives for new suburban and exurban residential communities, generally in favor of higher-density, urban developments that can be attractive to some buyers, but in many cases are on smaller parcels with higher building costs and more complicated entitlement requirements and may be subject to affordable housing mandates, prevailing wage requirements, greater local opposition and/or additional site remediation work.
If qualified contractors are not available (due to general shortages in a tight labor market, as was the case throughout 2022 and is anticipated into 2023, competition from other builders or otherwise), or do not timely perform, we may incur production delays and other inefficiencies, or higher costs for substitute services.
If qualified contractors are not available (due to general shortages in a tight labor market, competition from other builders or otherwise), or do not timely perform, we may incur production delays and other inefficiencies, or higher costs for substitute services.
In addition, hurricanes in Florida and conditions negatively impacting the U.S. shipping and railway transportation corridors contributed to the supply chain disruptions that have significantly affected our business, as discussed above under “Strategy Risks.” While we have health and safety protocols in place for our construction sites and take steps to safeguard our administrative functions, including our IT resources, as described below under “Information Technology and Information Security Risks,” we can provide no assurance that we or our suppliers or trade partners can successfully operate in areas experiencing a significant weather event or natural disaster, and we or they may be more impacted and take longer, and with higher costs, to resume operations in an affected location than other homebuilders or businesses, depending on the nature of the event or other circumstances.
While we have health and safety protocols in place for our construction sites and take steps to safeguard our administrative functions, including our IT resources, as described below under “Information Technology and Information Security Risks,” we can provide no assurance that we or our suppliers or trade partners can successfully operate in areas experiencing a significant weather event or natural disaster, and we or they may be more impacted and take longer, and with higher costs, to resume operations in an affected location than other homebuilders or businesses, depending on the nature of the event or other circumstances.
We have incurred costs in an effort to address these data privacy risks and requirements, and our costs may increase significantly as risks become increasingly complex or if new or changing requirements are enacted, and based on how individuals exercise their rights.
We have incurred costs in an effort to address these data privacy risks and requirements, and our costs may increase significantly as risks become increasingly complex or if new or changing requirements are enacted, and based on how individuals exercise their rights. Despite our efforts, any noncompliance could result in our incurring substantial penalties and reputational damage.
However, outside financing may be unavailable, costly and/or considerably dilute stockholders. For instance: ◦ Tight capital or financial market conditions may hinder our ability to obtain external financing or performance bonds, or use or expand our Credit Facility and LOC Facility, on favorable terms or at all.
For instance: ◦ Tight or volatile capital or financial market conditions may hinder our ability to obtain external financing or performance bonds, or use or expand our Credit Facility and LOC Facility, on favorable terms or at all.
Among other impacts, a severe or sustained economic contraction may trigger a rise in home purchase contract cancellations, which we and the homebuilding industry experienced in our 2022 third and fourth quarters and which we anticipate will continue into 2023, resulting in significantly lower net orders as compared to corresponding year-earlier periods.
Among other impacts, a severe or sustained economic contraction may trigger a rise in home sales contract cancellations, which we and the homebuilding industry experienced in our 2022 second half and 2023 first quarter, resulting in significantly lower net orders as compared to corresponding year-earlier periods.
In addition, these conditions, along with heightened competition from other homebuilders and sellers of resale homes, as discussed below, may lead us to reduce our home selling prices or offer other concessions to attract or retain buyers, which we did in our 2022 second half and expect to continue doing in 2023 to varying degrees, negatively affecting our revenues and margins.
In addition, these conditions, along with heightened competition from other homebuilders and sellers and landlords of existing homes, as discussed below, may lead us to reduce our home selling prices or offer other concessions to attract or retain buyers, which we did selectively in 2023 (particularly, mortgage-related concessions such as interest rate buydown or lock programs), and expect to continue doing in 2024 to varying degrees, negatively affecting our revenues and margins.
Inflation may also increase our 17 financing costs, as borrowings under our unsecured revolving credit facility with various banks (“Credit Facility”) and our senior unsecured term loan with the lenders party thereto (“Term Loan”) typically accrue interest at a variable rate based on short-term Secured Overnight Financing Rate (“SOFR”), which can float higher with inflation.
Inflation has also tempered consumer demand for homes, disrupted credit and lending markets and may increase our financing costs, as borrowings, if any, under our unsecured revolving credit facility with various banks (“Credit Facility”) and our senior unsecured term loan with the lenders party thereto (“Term Loan”) typically accrue interest at a variable rate based on short-term Secured Overnight Financing Rate (“SOFR”).
If we cannot attract, retain and develop talent at reasonable pay and benefits levels, which has become more challenging with the persistent elevated inflation experienced in 2022, or, alternatively, if we need to implement personnel or compensation reductions, our performance, profitability and ability to achieve our strategic goals could be significantly impaired.
If we cannot attract, retain and develop talent at reasonable pay and benefits levels, or, alternatively, if we need to implement personnel or compensation reductions, our performance, profitability and ability to achieve our strategic goals could be significantly impaired.
In addition, shortages or rising prices of building materials may ensue from manufacturing defects, resulting in recalls of materials. If such disputes continue or recalls occur, our costs and supply chain disruptions, as described above, could increase further. • Poor contractor availability and performance . Independent contractors perform essentially all of our land development and home construction work.
If such disputes continue or recalls occur, our costs and supply chain disruptions, as described above, could increase further. 19 • Poor contractor availability and performance . Independent contractors perform essentially all of our land development and home construction work.
If it does, our core first-time and first move-up homebuyer segments could be particularly affected, impacting us more severely than homebuilders targeting a different buyer demographic. 16 • Lower population growth, household formations or other unfavorable demographic changes .
While employment has mostly grown since mid-2020, it may rise more slowly or decline in 2024. If it does, our core first-time and first move-up homebuyer segments could be particularly affected, impacting us more severely than homebuilders targeting a different buyer demographic. • Lower population growth, household formations or other unfavorable demographic changes .
However, we had measurable delays in delivering homes in 2022 because of the above-described issues, and believe these challenging conditions will generally persist into 2023 and potentially throughout the year, as discussed below under “Outlook.” We may also face increased future home warranty and construction defect claims associated with replacing or servicing substitute products or materials used in some instances to address supply shortages in certain served markets or communities. • Insufficient financial resources .
We believe these challenging conditions may persist to a certain degree into and potentially throughout 2024, as discussed below under “Outlook.” We may also face increased home warranty and construction defect claims associated with replacing or servicing substitute products or materials used in some instances to address supply shortages in certain served markets or communities. • Insufficient financial resources .
A substantial disruption, or security breach suffered by GR Alliance/KBHS or a service provider, could damage our reputation and result in the loss of customers or revenues, in sensitive personal information being publicly disclosed or misused and/or legal proceedings against us. We may incur significant expenses to resolve such issues.
A substantial disruption, or security breach suffered by GR Alliance/KBHS or a service provider, particularly our cloud service provider which hosts many of our IT resources, could damage our reputation and result in the loss of customers or revenues, in sensitive personal information being publicly disclosed or misused and/or legal proceedings against us.
As discussed above under Item 1 – Business in this report, our operations are subject to myriad legal and regulatory requirements, which can delay our operational activities, raise our costs and/or prohibit or restrict homebuilding in some areas.
As discussed above under Item 1 – Business in this report, our operations are subject to myriad legal and regulatory requirements, which can delay our operational activities, raise our costs and/or prohibit or restrict homebuilding in some areas. These requirements often provide broad discretion to government authorities, and they could be interpreted or revised in ways unfavorable to us.
If GR Alliance, which oversees KBHS’ operations, or KBHS is found to have violated regulations, or mortgage investors demand KBHS repurchase mortgage loans it has sold to them, or cover their losses, for claimed contract breaches, KBHS could face significant liabilities, which, if they exceed its reserves, could result in our recognizing losses on our KBHS equity interest.
If GR Alliance, which oversees KBHS’ operations, or KBHS is found to have violated regulations, or mortgage investors demand KBHS repurchase mortgage loans it has sold to them, or cover their losses, for claimed contract breaches, KBHS could face significant liabilities, which, if they exceed its reserves, could result in our recognizing losses on our KBHS equity interest. 24 Our financial results may be materially affected by the adoption of new or amended financial accounting standards, and regulatory or outside auditor guidance or interpretations.
Adverse conditions in California would have particular significance to our business. We generate the highest proportion of our revenues from and make significant inventory investments in our California operations.
We generate the highest proportion of our revenues from and make significant inventory investments in our California operations.
Political events, war, terrorism, weather or other natural/environmental disasters, and other risks that are currently unknown or seen as immaterial, could also have a material adverse impact on our business, consolidated financial statements and/or common stock’s market price. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES None. Item 3.
Other Risks . The risk factors described above are not our only salient risks. Political events, war, terrorism, weather or other natural/environmental disasters, and other risks that are currently unknown or are currently or may initially be seen as immaterial, could also have a material adverse impact on our business, consolidated financial statements and/or common stock’s market price. Item 1B.
These risks, and other factors outside of our control, could also create or increase volatility in our common stock’s market price. Consumer Demand Risks. The following could negatively affect consumer demand for our products, thereby unfavorably impacting our net orders, homes delivered, average selling prices, revenues and/or profitability: • Soft or negative economic or housing market conditions .
The following could negatively affect consumer demand for our products, thereby unfavorably impacting our net orders, homes delivered, average selling prices, revenues and/or profitability: • Soft or negative economic or housing market conditions .
If mortgage loan interest rates further increase, which they did to a significant degree in 2022 with the U.S.
If mortgage loan interest rates further increase, which they did in 2022 and 2023, reflecting the U.S.
Poor conditions in any of those markets could have a measurable negative impact on our results, and the impact could be larger for us than for other less-concentrated homebuilders.
Among other strategic risks, our business is presently concentrated in California, Florida, Nevada and Texas. Poor conditions in any of those markets could have a measurable negative impact on our results, and the impact could be larger for us than for other less-concentrated homebuilders. Adverse conditions in California would have particular significance to our business.
Insurance companies are increasingly drawing back from issuing, or are measurably raising premiums for, homeowner insurance policies in areas that have experienced, or are thought to be at risk of experiencing, significant wildfires, hurricanes, flooding or other natural disasters, such as in the states of California and Florida.
During 2022 and 2023, insurance companies exited, or significantly reduced homeowner insurance policies, in areas that have experienced, or are thought to be at risk of experiencing, significant wildfires, hurricanes, flooding or other natural disasters, such as in California and Florida.
While, to date, we have not had a significant cybersecurity breach or attack that had a material impact on our business or results of operations, there can be no assurance our efforts to maintain the security and integrity of these systems will be effective or that attempted security breaches, cyber-attack, data theft or disruptions would not occur in the future, be successful or damaging. 22 We have invested significant resources over the past few years to develop and implement a new enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal operational and administrative activities.
While, to date, we have not had a significant cybersecurity breach or attack 23 that had a material impact on our business or consolidated financial statements, there can be no assurance our efforts to maintain the security and integrity of these systems will be effective or that attempted security breaches, cyber-attack, data theft or disruptions would not occur in the future, be successful or damaging.
A reporting process has been established, and periodically tested and refined with the assistance of outside experts, to escalate notice within our organization of and coordinate and deploy our response to IT security events.
Our senior IT executives also periodically update the audit and compliance committee of our board of directors on our cybersecurity practices and risks, most recently in January 2024. A reporting process has been established, and periodically tested and refined with the assistance of outside experts, to escalate notice within our organization of and coordinate our response to IT security events.
LEGAL PROCEEDINGS Our legal proceedings are discussed in Note 18 – Legal Matters in the Notes to Consolidated Financial Statements in this report.
UNRESOLVED STAFF COMMENTS None. Item 1C. CYBERSECURITY Not applicable. Item 2. PROPERTIES None. Item 3. LEGAL PROCEEDINGS Our legal proceedings are discussed in Note 18 – Legal Matters in the Notes to Consolidated Financial Statements in this report.
Our strategies, and any related initiatives or actions, and any changes thereto, may not be successful in achieving our goals or generate any growth, earnings or returns, particularly in the highly volatile business environment of the past few years and as expected in 2023, due to the extended supply chain disruptions, building materials and construction services shortages and delays in municipal construction permitting, inspection and utility processes that marked 2022 and 2021; significant inflation, interest rate and financial market volatility or social distress; or the meaningful slowdown in housing market activity during the 2022 second half.
Our strategies, and any related initiatives or actions, and any changes thereto, may not be successful in achieving our goals or generate any growth, earnings or returns, particularly in the highly volatile business environment of the past few years and as may occur in 2024, due to significant inflation, interest rate and financial market volatility, or political or social distress.
However, as was the case in 2021 and 2020, this pattern may not continue in the future at all or to the same degree as in the past. • Inflation .
However, as was the case in recent years, this pattern may not continue in the future at all or to the same degree as in the past. 17 • Inflation . Since 2021, product and labor costs and general inflation in the economy have increased and remained elevated compared to the prior decade.
We saw this during the 2022 second half, as U.S. housing demand weakened significantly compared to the year-ago period and much of the 2022 first half due primarily to a combination of sharply higher mortgage interest rates since early 2022, several years of rising housing prices, volatility across financial markets, elevated inflation and various other macroeconomic and geopolitical concerns weighing on consumer budgets and confidence.
The combination of sharply higher mortgage interest rates since early 2022, several years of rising housing prices, volatility across financial markets, elevated inflation and various other macroeconomic and geopolitical concerns have weighed on consumer budgets and confidence.
In addition, higher mortgage loan interest rates can affect the affordability of mortgage financing to prospective homebuyers. While we attempt to pass on increases in our costs through increased selling prices, including for design options and upgrades, market forces, such as the housing market slowdown as we experienced in the 2022 second half, can limit our ability to do so.
While we attempt to pass on increases in our costs through increased selling prices, including for design options and upgrades, market forces and buyer affordability constraints can limit our ability to do so.
It might also be alleged that California law and regulations impose other liabilities upon us with respect to the employees of our trade partners. Further efforts in California or elsewhere to impose such external labor-related obligations on us could create substantial exposure for us in situations beyond our control. Strategy Risks .
It might also be alleged that California law and regulations impose other liabilities upon us with respect to the employees of our trade partners.
We face significant competition for customers from other homebuilders, sellers of resale homes and other housing industry participants, including rental-housing operators. This competitive environment may, among other things, cause us to reduce our home selling prices or offer other concessions to attract or retain buyers.
This competitive environment may, among other things, cause us to reduce our home selling prices or offer other concessions to attract or retain buyers.
Also, in 2022, the California Air Resources Board adopted a plan to eliminate installing natural gas appliances in new homes built in 2026 and beyond.
In 2022, the California Air Resources Board adopted a plan to eliminate installing natural gas appliances in new homes built in 2026 and beyond. In addition, the state’s energy commission issued new energy efficiency standards requiring all new residences to be electric-ready for heating, cooling, cooking, clothes drying and water heating systems.
We have administrative, physical and multi-layered technical controls and processes in place to address and mitigate cybersecurity risks and help protect our IT resources, including employee education and awareness training, as well as third-party assessments.
To help counter the growing volume and sophistication of cyberattacks, including the potential of fraudulently inducing our employees, customers, trade partners and other third parties to disclose information or unknowingly provide access to systems or data, as well as state and other actors using artificial intelligence technology, we have implemented administrative, physical and multi-layered technical controls and processes to help address and mitigate cybersecurity risks and protect our IT resources, including employee education and awareness training, as well as third-party assessments.
Though we and other homebuilders have pivoted since the 2022 third quarter to reduce land acquisition spending, as discussed above, we expect to continue to face competition for desirable land in our served markets in 2023 and beyond, pressuring its availability and our ability to profitably develop communities and sell homes on such land. • Supply chain and construction services shortages .
Whether we increase, decrease or maintain our current pace of land spend, we expect to continue to face competition for desirable land in our served markets in 2024 and beyond, limiting our ability to profitably develop communities and sell homes on such land. • Supply chain and construction services shortages .
The Term Loan will mature on August 25, 2026, or earlier under certain circumstances. The Credit Facility will mature on February 18, 2027. Our next senior note maturity is our $300.0 million in aggregate principal amount of 6.875% senior notes due June 15, 2027 (“6.875% Senior Notes due 2027”). • Decreased land inventory value .
The Term Loan will mature on August 25, 2026 or earlier under certain circumstances. The Credit Facility will mature on February 18, 2027.
These housing affordability and other pressures negatively impacted homebuyer sentiment, resulting in many prospective buyers pausing their homebuying decisions, including deciding not to complete home purchase contracts, and are expected to continue, and possibly worsen, in 2023. • Tightened availability or affordability of mortgage loans and homeowner insurance coverage .
With housing affordability at an all-time low in July 2023, these conditions are expected to remain, and possibly worsen, in 2024. • Tightened availability or affordability of mortgage loans and homeowner insurance coverage . Most of our buyers need a mortgage loan to purchase their home.
Adverse conditions in our served markets or nationally could be caused or worsened by factors outside of our control, including slow or negative economic growth, and sustained elevated mortgage loan interest rates, which predominated during much of 2022 and substantially tempered demand as discussed below under Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Adverse conditions in our served markets or nationally could be caused or worsened by factors outside of our control, including slow or negative economic growth, sustained elevated mortgage loan interest rates and inflation, and various other macroeconomic as well as geopolitical concerns, such as military conflicts in Ukraine and the Middle East, the 2024 U.S. presidential and other elections and the federal government’s functional stability.
The weakening in buyer demand we experienced in the 2022 second half, as discussed below under Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report, significantly increased competitive pressures for our business during the period and is expected to continue into 2023. • Seasonality .
In addition, volatility in buyer demand in 2022 and 2023 increased competitive pressures for our business and is expected to continue into the next fiscal year. • Seasonality .
There are inherent risks in undertaking this type of broad-based IT project and we have experienced complications and delays during the implementation process. We expect these will continue as we progress and expand the scope of the system in 2023 and that we will incur appreciable additional costs in doing so.
While all of our operations have transitioned to the new ERP system as of November 30, 2023, we expect to continue to enhance and expand the scope of the system and may incur appreciable additional costs in doing so. Legal and Compliance Risks .
We, along with the homebuilding industry, have been adversely affected by the rising inflation in the U.S. economy throughout 2022, which, among other things, increased our land and construction costs, particularly the costs of building materials and construction service providers’ rates, warranty repair costs, and compensation and benefit expenses to attract and retain talent, and is expected to continue to do so in 2023.
In turn, we experienced rising land and construction costs, particularly for building materials and construction service providers’ rates, warranty repair costs, and compensation and benefit expenses to attract and retain talent. These trends are expected to continue to an extent in 2024, though they may worsen compared to prior years.
Removed
While employment has mostly grown since mid-2020, it may rise more slowly or decline in 2023, especially if inflation and interest rates remain elevated and other national and global macroeconomic conditions, including fallout from the ongoing military conflict in Ukraine that began in February 2022, continue to stress the U.S. economy.
Added
These risks, and other factors outside of our control, could also create or increase volatility in our common stock’s market price. The order in which we discuss the risks below should not be taken as any indication of their relative importance, likelihood or impact. Consumer Demand Risks.
Removed
Most of our buyers need a mortgage loan to purchase their home.
Added
In addition, homeowners who purchased their home with a relatively low mortgage interest rate, as was generally the case from mid-2020 to mid-2022, may be reluctant to move given the sharp rate increases in 2022 and 2023.
Removed
In addition, we may not be successful in generating positive results from our 2021 expansion into the Boise, Idaho market and re-entry into the Charlotte, North Carolina market, or if we choose to enter into any other new markets, based 19 on our relative inexperience with the local homebuilding and economic environment and the need to make a significant investment to achieve effective scale and profitable returns, which we may not be able to accomplish.
Added
At the same time, favorable tax law changes will not necessarily increase demand or allow for higher selling prices for homes generally or for the homes we sell. • Competition . We face significant competition for customers from other homebuilders, sellers of resale homes and other housing industry participants, including single-family and other rental-housing operators.
Removed
While this plan has not been formalized into law or state building codes, the state’s energy commission issued new energy efficiency standards effective January 1, 2023 requiring all new residences to be electric-ready for heating, cooling, cooking, clothes drying and water heating systems, and certain local jurisdictions have passed ordinances effectively mandating electrification in new homes by as early as 2023.
Added
While the historically low level of resale home inventory reduced the competition from sellers of resale homes in 2023, we can provide no assurance that this favorable factor will continue to the same degree, or at all, in 2024.
Removed
Partially offsetting these trends, California’s governor and certain legislators have taken positions to promote new housing construction, including the adoption of SB 8, which extends into 2030 the provisions of the Housing Crisis Act of 2019 (SB 330) intended to expedite the approval process for housing development in order to address the housing shortage in California. Climate Risk .
Added
Reflecting the housing market slowdown in the 2022 second half and 2023 first quarter, we and other homebuilders reduced land acquisition spending during the period. With market conditions having improved since the 2023 first quarter, we and other homebuilders have increased land investments, pressuring availability and pricing.
Removed
For instance, the SEC has proposed extensive climate-related disclosure rules, which, if adopted, would likely impose significant compliance costs on us.
Added
Although we achieved a meaningful sequential improvement in our construction cycle times in 2023, they remain extended relative to our historical average, and we continue to experience delays in opening communities and delivering homes.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

3 edited+0 added−0 removed0 unchanged
Biggest changeMezger 67 Chairman, President and Chief Executive Officer (a) 2016 29 Jeff J. Kaminski 61 Executive Vice President and Chief Financial Officer 2010 12 Robert V. McGibney 48 Executive Vice President and Chief Operating Officer 2022 22 Executive Vice President and Co-Chief Operating Officer 2021-2022 Regional President 2018-2021 Division President and Regional General Manager 2016-2018 Albert Z.
Biggest changeMezger 68 Chairman, President and Chief Executive Officer (a) 2016 30 Jeff J. Kaminski 62 Executive Vice President and Chief Financial Officer 2010 13 Robert V. McGibney 49 Executive Vice President and Chief Operating Officer 2022 23 Executive Vice President and Co-Chief Operating Officer 2021-2022 Regional President 2018-2021 Albert Z.
Item 4. MINE SAFETY DISCLOSURES Not applicable. 24 Information about our Executive Officers The following table presents certain information regarding our executive officers as of December 31, 2022: Name Age Present Position Year Assumed Present Position Years at KB Home Other Positions and Other Business Experience within the Last Five Years From – To Jeffrey T.
Item 4. MINE SAFETY DISCLOSURES Not applicable. Information about our Executive Officers The following table presents certain information regarding our executive officers as of December 31, 2023: Name Age Present Position Year Assumed Present Position Years at KB Home Other Positions and Other Business Experience within the Last Five Years From – To Jeffrey T.
Praw 74 Executive Vice President, Real Estate and Business Development 2011 26 Brian J. Woram 62 Executive Vice President and General Counsel 2010 12 (a) Mr. Mezger has served as a director since 2006. There is no family relationship between any of our executive officers or between any of our executive officers and any of our directors. PART II
Praw 75 Executive Vice President, Real Estate and Business Development 2011 27 Brian J. Woram 63 Executive Vice President and General Counsel 2010 13 (a) Mr. Mezger has served as a director since 2006. There is no family relationship between any of our executive officers or between any of our executive officers and any of our directors. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−1 removed0 unchanged
Biggest changeThese transactions are not considered repurchases under the board of directors authorization. 25 Stock Performance Graph The following graph compares the five-year cumulative total return of KB Home common stock, the S&P 500 Index and the Dow Jones US Home Construction Index for the periods ended November 30: Comparison of Five-Year Cumulative Total Return Among KB Home, S&P 500 Index and Dow Jones US Home Construction Index 2017 2018 2019 2020 2021 2022 KB Home $ 100 $ 68 $ 113 $ 116 $ 134 $ 107 S&P 500 Index 100 106 123 145 185 168 Dow Jones US Home Construction Index 100 71 104 127 170 144 The above graph is based on the KB Home common stock and index prices calculated as of the last trading day before December 1 of the year-end periods presented.
Biggest changeAll dollar amounts presented in the table above and in this report related to our share repurchases and our share repurchase authorizations exclude such excise taxes, to the extent applicable, unless otherwise indicated. 26 Stock Performance Graph The following graph compares the five-year cumulative total return of KB Home common stock, the S&P 500 Index and the Dow Jones US Home Construction Index for the periods ended November 30: Comparison of Five-Year Cumulative Total Return Among KB Home, S&P 500 Index and Dow Jones US Home Construction Index 2018 2019 2020 2021 2022 2023 KB Home $ 100 $ 167 $ 172 $ 198 $ 158 $ 267 S&P 500 Index 100 116 136 174 158 180 Dow Jones US Home Construction Index 100 146 179 238 202 316 The above graph is based on the KB Home common stock and index prices calculated as of the last trading day before December 1 of the year-end periods presented.
Total return assumes $100 invested at market close on November 30, 2017 in KB Home common stock, the S&P 500 Index and the Dow Jones US Home Construction Index, including reinvestment of dividends. Item 6. [RESERVED]
Total return assumes $100 invested at market close on November 30, 2018 in KB Home common stock, the S&P 500 Index and the Dow Jones US Home Construction Index, including reinvestment of dividends. Item 6. [RESERVED]
The closing price of KB Home common stock on the New York Stock Exchange was $31.39 per share on November 30, 2022 and $39.99 per share on November 30, 2021. The performance of our common stock as presented above reflects past performance only and is not indicative of future performance.
The closing price of KB Home common stock on the New York Stock Exchange was $52.10 per share on November 30, 2023 and $31.39 per share on November 30, 2022. The performance of our common stock as presented above reflects past performance only and is not indicative of future performance.
On April 7, 2022, our board of directors authorized us to repurchase up to $300.0 million of our outstanding common stock, replacing the prior board of directors authorization, as further discussed in Note 19 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.
On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, replacing the prior board of directors authorization, which had $75.0 million remaining, as further discussed in Note 19 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.
During the three months ended November 30, 2022, we also purchased certain previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards.
During the three months ended November 30, 2023, we also purchased certain previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards. These transactions are not considered repurchases under the board of directors authorization.
In the 2022 fourth quarter, we purchased 1,826,349 shares of our common stock pursuant to this authorization at a total cost of $50.0 million, bringing our total repurchases in 2022 to 4,927,499 shares at a total cost of $150.0 million. As of November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock.
In the 2023 fourth quarter, we purchased 3,584,795 shares of our common stock pursuant to this authorization at a total cost of $161.8 million, bringing our total repurchases in 2023 to 9,244,437 shares at a total cost of $411.4 million. As of November 30, 2023, we were authorized to repurchase up to $163.6 million of our outstanding common stock.
Item 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the ticker symbol “KBH.” As of December 31, 2022, there were 567 holders of record of our common stock.
MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the ticker symbol “KBH.” As of December 31, 2023, there were 542 holders of record of our common stock. 25 Information regarding the shares of our common stock that may be issued under our equity compensation plans is provided below under Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in this report.
The following table summarizes our purchases of our own equity securities during the three months ended November 30, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs ($000’s) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ($000’s) September 1-30 — — — $ 200,000 October 1-31 1,826,349 $ 27.38 $ 50,000 150,000 November 1-30 71,001 29.14 — 150,000 Total 1,897,350 $ 27.44 $ 50,000 As of November 30, 2021, we had 331,400 shares authorized for repurchase under a share repurchase program approved by our board of directors in July 2021.
The following table summarizes our purchases of our own equity securities during the three months ended November 30, 2023 (dollars in thousands, except per share amounts): Period Total Number of Shares Purchased Average Price Paid per Share Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs September 1-30 — $ — $ — $ 325,412 October 1-31 2,761,544 42.00 115,989 209,423 November 1-30 916,875 50.02 45,861 163,562 Total 3,678,419 $ 45.08 $ 161,850 As of November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock under a share repurchase program approved by our board of directors in April 2022.
Removed
Information regarding the shares of our common stock that may be issued under our equity compensation plans is provided below under Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in this report.
Added
The IRA imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

180 edited+61 added−55 removed112 unchanged
Biggest changeThe most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the following: • general economic, employment and business conditions; • population growth, household formations and demographic trends; • conditions in the capital, credit and financial markets; • our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; • the execution of any securities repurchases pursuant to our board of directors authorization; • material and trade costs and availability, including building materials 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 in the past few quarters and signaled an intention to aggressively further increase to moderate inflation, available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans; 52 • 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; • 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; • any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to any such failure; • 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, 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 communities; • impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets; • our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; • costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; • our ability to use/realize the net deferred tax assets we have generated; • our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into new markets; • our operational and investment concentration in markets in California; • consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; • our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; 53 • 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 residential mortgage loans and mortgage banking services; • the performance of mortgage lenders to our homebuyers; • the performance of KBHS; • information technology failures and data security breaches; • an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the control response measures that international (including China), federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period; and • other events outside of our control.
Biggest changeThe most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the following: • general economic, employment and business conditions; • population growth, household formations and demographic trends; • conditions in the capital, credit and financial markets; • our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; • the execution of any securities repurchases pursuant to our board of directors’ authorization; • material and trade costs and availability, including building materials 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; 53 • 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, such as the IRS’ recent guidance regarding heightened qualification requirements for federal tax credits for building energy-efficient homes; • 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 conflicts and other attacks in the Middle East region and 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; • 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; 54 • 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; • widespread protests and/or civil unrest, whether due to political events, social movements or other reasons; and • other events outside of our control.
See Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes and the Credit Facility and the Term Loan. The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by us.
See Note 15 – 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.
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.
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.
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 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.
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.
As further described in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report, given the inherent challenges and uncertainties in forecasting future results, our inventory assessments at the time they are made take into consideration whether a community or land parcel is active, 46 meaning whether it is open for sales and/or undergoing development, or whether it is being held for future development or held for sale.
As further described in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report, given the inherent challenges and uncertainties in forecasting future results, our inventory assessments at the time they are made take into consideration whether a community or land parcel is active, meaning whether it is open for sales and/or undergoing development, or whether it is being held for future development or held for sale.
Assessments are made separately for each optioned land parcel on a quarterly basis and are affected by the following factors relative to the market in which the asset is located, among others: current and/or anticipated net orders, average selling prices and volume of homes delivered; estimated land development and home construction costs; and projected profitability on expected future housing or land sales.
Assessments are made separately for each optioned land parcel on a 47 quarterly basis and are affected by the following factors relative to the market in which the asset is located, among others: current and/or anticipated net orders, average selling prices and volume of homes delivered; estimated land development and home construction costs; and projected profitability on expected future housing or land sales.
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; 38 • public issuances of our common stock; and • letters of credit and performance bonds.
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.
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 37 relevant subsidiary’s best interest.
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.
We recognize homebuilding revenue by applying the following steps in determining the timing and amount of revenue to recognize: (1) identify the contract(s) with a customer; (2) identify the performance 44 obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, if applicable; and (5) recognize revenue when (or as) we satisfy a performance obligation.
We recognize homebuilding revenue by applying the following steps in determining the timing and amount of revenue to recognize: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, if applicable; and (5) recognize revenue when (or as) we satisfy a performance obligation.
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 to mature or expire.
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.
A 10% change in the historical warranty rates used to estimate our accrued warranty liability would not result in a material change in our accrual. 48 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.
A 10% change in the historical warranty rates used to estimate our accrued warranty liability would not result in a material change in our accrual. 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.
Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from comparable GAAP or other commonly used terms.
Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from 42 comparable GAAP or other commonly used terms.
As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans.
As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, the LOC Facility, and the mortgages and land contracts due to land sellers and other loans.
The following are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require the use of significant estimates, judgments and/or other assumptions in their application. Homebuilding Revenue Recognition.
The 45 following are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require the use of significant estimates, judgments and/or other assumptions in their application. Homebuilding Revenue Recognition.
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.
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 48 home is recognized.
Impairment indicators are assessed separately for each community or land parcel on a quarterly basis and include, but are not limited to, the following: significant decreases in net orders, average selling prices, volume of homes delivered, gross profit margins on homes delivered or projected gross profit 45 margins on homes in backlog or future deliveries; significant increases in budgeted land development and home construction costs or cancellation rates; or projected losses on expected future land sales.
Impairment indicators are assessed separately for each community or land parcel on a quarterly basis and include, but are not limited to, the following: significant decreases in net orders, average selling prices, volume of homes delivered, gross profit margins on homes delivered or projected gross profit margins on homes in backlog or future deliveries; significant increases in budgeted land development and home construction 46 costs or cancellation rates; or projected losses on expected future land sales.
While it is difficult to determine a precise timeframe for any particular inventory asset, based on current market conditions and expected delivery timelines, we estimate our inventory assets’ remaining operating lives to range generally from one year to in excess of 10 years and expect to realize, on an overall basis, the majority of our inventory balance as of November 30, 2022 within five years.
While it is difficult to determine a precise timeframe for any particular inventory asset, based on current market conditions and expected delivery timelines, we estimate our inventory assets’ remaining operating lives to range generally from one year to in excess of 10 years and expect to realize, on an overall basis, the majority of our inventory balance as of November 30, 2023 within five years.
We typically have the ability not to exercise our rights to the underlying land for any reason and, if applicable, forfeit our deposits without further penalty or obligation to the sellers.
We typically have the ability not to 41 exercise our rights to the underlying land for any reason and, if applicable, forfeit our deposits without further penalty or obligation to the sellers.
In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss 49 will materially exceed the recorded liability.
In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss will materially exceed the recorded liability.
We have not made any material changes in the methodology used to establish our accrued warranty liability during 2022, 2021 and 2020. Our accrued warranty liability is presented on a gross basis for all years without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any.
We have not made any material changes in the methodology used to establish our accrued warranty liability during 2023, 2022 and 2021. Our accrued warranty liability is presented on a gross basis for all years without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any.
As the selling price of each of our homes is fixed at the time a buyer enters into a home purchase contract, and because we generally commence construction of a home only after we have a signed purchase contract with a homebuyer, any interim construction-related cost inflation can result in lower housing gross profit margins.
As the selling price of each of our homes is fixed at the time a buyer enters into a home sales contract, and because we generally commence construction of a home only after we have a signed sales contract with a homebuyer, any interim construction-related cost inflation can result in lower housing gross profit margins.
As of November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit with a third-party lender and secured by the underlying property and related project assets. None of our other unconsolidated joint ventures had outstanding debt at November 30, 2022. Credit Ratings. Our credit ratings are periodically reviewed by rating agencies.
As of November 30, 2023, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit with a third-party lender and secured by the underlying property and related project assets. None of our other unconsolidated joint ventures had outstanding debt at November 30, 2023. Credit Ratings. Our credit ratings are periodically reviewed by rating agencies.
Revenues. Our financial services reporting segment, which includes the operations of KB HOME Mortgage Company, generates revenues primarily from insurance commissions and title services. The year-over-year growth in our financial services revenues for 2022 reflected increases in both title services revenues and insurance commissions. Pretax income.
Revenues. Our financial services reporting segment, which includes the operations of KB HOME Mortgage Company, generates revenues primarily from insurance commissions and title services. The year-over-year growth in our financial services revenues for 2023 reflected increases in both title services revenues and insurance commissions. Pretax income.
We have not made any material changes in our methodology used to establish our self-insurance liabilities during 2022, 2021 or 2020. The projection of losses related to these liabilities requires the use of actuarial assumptions. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time.
We have not made any material changes in our methodology used to establish our self-insurance liabilities during 2023, 2022 or 2021. 49 The projection of losses related to these liabilities requires the use of actuarial assumptions. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time.
Under the terms of the Credit Facility and the Term Loan, as discussed below, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth, 41 consolidated leverage ratio (“Leverage Ratio”), and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum liquidity level, each as defined therein.
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, consolidated leverage ratio (“Leverage Ratio”), and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum liquidity level, each as defined therein.
Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our discussion and analysis below is focused on our 2022 and 2021 financial results, including comparisons of our year-over-year performance between these years.
Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our discussion and analysis below is focused on our 2023 and 2022 financial results, including comparisons of our year-over-year performance between these years.
Based on our financial position as of November 30, 2022, and our business forecast for 2023 as discussed below under “Outlook,” we have no material concerns related to our liquidity.
Based on our financial position as of November 30, 2023, and our business forecast for 2024 as discussed below under “Outlook,” we have no material concerns related to our liquidity.
In 2023, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions.
In 2024, 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.
Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report. Equity in Income (Loss) of Unconsolidated Joint Ventures . Our equity in income (loss) of unconsolidated joint ventures was nominal for both 2022 and 2021.
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 both 2023 and 2022.
Discussion and analysis of our 2020 fiscal year specifically, as well as the year-over-year comparison of our 2021 financial performance to 2020, are located under Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021, filed with the SEC on January 21, 2022, which is available on our investor relations website at investor.kbhome.com and the SEC website at www.sec.gov. 26 RESULTS OF OPERATIONS Overview.
Discussion and analysis of our 2021 fiscal year specifically, as well as the year-over-year comparison of our 2022 financial performance to 2021, are located under Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022, filed with the SEC on January 20, 2023, which is available on our investor relations website at investor.kbhome.com and the SEC website at www.sec.gov. 27 RESULTS OF OPERATIONS Overview.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The IRA contains significant tax law changes, including a corporate alternative minimum tax (“CAMT”) of 15% on adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases after December 31, 2022.
On August 16, 2022, the IRA was enacted into law. The IRA contains significant tax law changes, including a corporate alternative minimum tax (“CAMT”) of 15% on adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases after December 31, 2022.
Approximately $5.6 million of these inventory-related obligations are payable within 12 months. However, TIFE assessment obligations are paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature. Investments in Land and Land Development.
Approximately $9.0 million of these inventory-related obligations are payable within 12 months. However, TIFE assessment obligations are paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature. Investments in Land and Land Development.
However, if conditions in the overall housing market or in a specific market or submarket worsen in the future beyond our current expectations, including, among other things, from increases in mortgage interest rates, higher inflation, worsening supply chain and/or other production-related challenges, or negative effects from any ongoing or reinstituted COVID-19 control responses, if future changes in our business strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.
However, if conditions in the overall housing market or in a specific market or submarket worsen in the future beyond our current expectations, including, among other things, from increases in mortgage interest rates, higher inflation, worsening supply chain and/or other production-related challenges, or if future changes in our business strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.
Our net cash provided by operating activities in 2022 mainly reflected net income of $816.7 million and a net increase in accounts payable, accrued expenses and other liabilities of $53.1 million, partly offset by a net increase in inventories of $785.6 million and a net increase in receivables of $19.9 million.
Net cash provided by operating activities in 2022 primarily reflected net income of $816.7 million and a net increase in accounts payable, accrued expenses and other liabilities of $53.1 million, partly offset by a net increase in inventories of $785.6 million and a net increase in receivables of $19.9 million. Investing Activities .
At November 30, 2022, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $4.8 million, secured primarily by the underlying property, which had an aggregate carrying value of $31.3 million. Senior Unsecured Term Loan.
At November 30, 2023, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $3.8 million, secured primarily by the underlying property, which had an aggregate carrying value of $30.5 million. Senior Unsecured Term Loan.
These categories collectively represented 93% and 96% of our total inventories as of November 30, 2022 and 2021, respectively. The inventory balances in the 6-10 years and greater than 10 years categories were primarily located in our Central and Southeast segments, and together totaled $387.2 million at November 30, 2022, compared to $195.2 million at November 30, 2021.
These categories collectively represented 96% and 93% of our total inventories as of November 30, 2023 and 2022, respectively. The inventory balances in the 6-10 years and greater than 10 years categories were primarily located in our Central and Southeast segments, and together totaled $201.0 million at November 30, 2023, compared to $387.2 million at November 30, 2022.
The cash used was partially offset by borrowings under the Term Loan of $360.0 million, cash provided from our public offering of $350.0 million in 43 aggregate principal amount of 7.25% Senior Notes due 2030, and net borrowings under the Credit Facility of $150.0 million.
The cash used was partially offset by borrowings under the Term Loan of $360.0 million, cash provided from our public offering of $350.0 million in aggregate 44 principal amount of 7.25% Senior Notes due 2030 (“7.25% Senior Notes due 2030”), and net borrowings under the Credit Facility of $150.0 million. Dividends .
Additionally, we have $85.0 million of deposits and pre-acquisition costs at November 30, 2022 related to land option contracts and other similar contracts. If there are events that lead to moderate or significant decreases in new home prices, we could elect to cancel several such contracts, resulting in the write-off of the related deposits and pre-acquisition costs.
Additionally, we have $63.5 million of deposits and pre-acquisition costs at November 30, 2023 related to land option contracts and other similar contracts. If there are events that lead to moderate or significant decreases in new home prices, we could elect to cancel several such contracts, resulting in the write-off of the related deposits and pre-acquisition costs.
In 2022, cash was used for the repayment of $350.0 million in aggregate principal amount of our 7.50% Senior Notes due 2022, $350.0 million in aggregate principal amount of our 7.625% Senior Notes due 2023, stock repurchases totaling $150.0 million, dividend payments on our common stock of $52.5 million, tax payments associated with stock-based compensation awards of $15.9 million, payments of debt issuance costs of $11.1 million and payments on mortgages and land contracts due to land sellers and other loans of $.6 million.
In 2022, net cash was used for the repayment of $700.0 million in aggregate principal amount of our senior notes, stock repurchases totaling $150.0 million, dividend payments on our common stock of $52.5 million, tax payments associated with stock-based compensation awards of $15.9 million, payments of debt issuance costs of $11.1 million and payments on mortgages and land contracts due to land sellers and other loans of $.6 million.
We believe the carrying value of our inventory balance as of November 30, 2022 is recoverable.
We believe the carrying value of our inventory balance as of November 30, 2023 is recoverable.
A 10% decrease in the claim frequency and the average cost per claim used to estimate the self-insurance liability would result in decreases of approximately $25.7 million in our liability and approximately $7.8 million in our receivable as of November 30, 2022, and a reduction to expense of approximately $18.0 million for 2022.
A 10% decrease in the claim frequency and the average cost per claim used to estimate the self-insurance liability would result in decreases of approximately $25.8 million in our liability and approximately $7.6 million in our receivable as of November 30, 2023, and a reduction to expense of approximately $18.2 million for 2023.
This gain reflected a greater number of customers who elected to lock their mortgage interest rates and for relatively extended periods in 2022, aligned with their expected home delivery date, due to the sharp rise in such rates during the year.
The gains in the previous year reflected a greater number of customers who elected to lock their mortgage interest rates for relatively extended periods, aligned with their expected home delivery date, due to the sharp rise in such rates during 2022.
In 2022, our net cash used in investing activities included $45.2 million for net purchases of property and equipment and $28.4 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by a $1.9 million return of investments in unconsolidated joint ventures.
In 2022, our uses of cash included $45.2 million for net purchases of property and equipment and $28.4 million for contributions to unconsolidated joint ventures. These uses of cash were partly offset by a $1.9 million return of investments in unconsolidated joint ventures. Financing Activities .
As of November 30, 2022, we had inventory-related obligations totaling $19.1 million, comprised of liabilities for inventory not owned associated with financing arrangements as discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments.
As of November 30, 2023, we had inventory-related obligations totaling $41.5 million, comprised of liabilities for inventory not owned associated with financing arrangements as discussed in Note 8 – Variable 40 Interest Entities in the Notes to Consolidated Financial Statements in this report, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments.
As of November 30, 2022, we had $150.0 million cash borrowings and $6.7 million of letters of credit outstanding under the Credit Facility. The Credit Facility is further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.
As of November 30, 2023, we had no cash borrowings and $6.7 million of letters of credit outstanding under the Credit Facility. The Credit Facility is further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements 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 51 financing policies).
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).
Cash flows for each of our communities depend on their stage of development and can differ significantly from reported earnings. Early stages of development or expansion require significant cash outflows for land acquisition, zoning plat and other approvals, land development, and construction of model homes, roads, utilities, landscape and other items.
Cash flows for each of our communities depend on their stage of development and can differ significantly from reported earnings. Early stages of development or expansion can require significant cash outflows for land acquisition, entitlements, land development, and construction of roads, utilities, landscaping, model homes and other items.
In 2022 and 2021, homebuilding operating income included total inventory-related charges of $37.3 million and $12.0 million, respectively, as discussed in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report.
In 2023 and 2022, homebuilding operating income included total inventory-related charges of $11.4 million and $37.3 million, respectively, as discussed in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report.
Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 30% at November 30, 2022, compared to 44% at November 30, 2021.
Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 27% at November 30, 2023, compared to 30% at November 30, 2022.
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 November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock.
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 November 30, 2023, we were authorized to repurchase up to $163.6 million of our outstanding common stock in additional transactions.
If applicable, the CAMT will not be effective for us until our fiscal year ending November 30, 2024. The IRA also extends the federal tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modifies and increases it starting in 2023.
If applicable, the CAMT will not be effective for us until our fiscal year ending November 30, 2024. The IRA also extended the Section 45L tax credit for building new 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.
The following table presents as of November 30, 2022 and 2021, respectively, the estimated timeframe of delivery for the last home in an applicable community or land parcel and the corresponding percentage of total inventories such categories represent within our inventory balance (dollars in millions): 0-2 years 3-5 years 6-10 years Greater than 10 years $ % $ % $ % $ % Total 2022 $ 2,173.8 39 % $ 2,982.2 54 % $ 367.4 7 % $ 19.8 — % $ 5,543.2 2021 2,646.3 55 1,961.3 41 176.5 4 18.7 — 4,802.8 The inventory balances in the 0-2 years and 3-5 years categories were located throughout all of our homebuilding reporting segments, though mostly in our West Coast, Southwest and Central segments.
The following table presents as of November 30, 2023 and 2022, respectively, the estimated timeframe of delivery for the last home in an applicable community or land parcel and the corresponding percentage of total inventories such categories represent within our inventory balance (dollars in millions): 0-2 years 3-5 years 6-10 years Greater than 10 years $ % $ % $ % $ % Total 2023 $ 2,367.2 46 % $ 2,565.4 50 % $ 201.0 4 % $ — — % $ 5,133.6 2022 2,173.8 39 2,982.2 54 367.4 7 19.8 — 5,543.2 The inventory balances in the 0-2 years and 3-5 years categories were located throughout all of our homebuilding reporting segments, though mostly in our West Coast, Southwest and Central segments.
Further information regarding these transactions is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report. 30 Net Orders, Backlog and Community Count.
Further information regarding this transaction is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report. 31 Net Orders, Backlog and Community Count.
Although we made strategic investments in land and land development in each of our homebuilding reporting segments during 2022 and 2021, approximately 50% and 53%, respectively, of these investments for each year were made in our West Coast homebuilding reporting segment.
While we made strategic investments in land and land development in each of our homebuilding reporting segments during 2023 and 2022, approximately 56% and 50%, respectively, of these investments for each year were made in our West Coast homebuilding reporting segment.
Previously, the federal tax credit expired for homes delivered after December 31, 2021. The federal tax credits we recognized in 2022 reflected the impact of the extension under the IRA. We are currently evaluating the other potential effects of the IRA on our consolidated financial statements.
Previously, the Section 45L tax credit expired for homes delivered after December 31, 2021. The Section 45L tax credits we recognized in 2023 and 2022 reflected the impact of the extension and modifications, as applicable, under the IRA. We are currently evaluating the other potential effects of the IRA on our consolidated financial statements.
Approximately 34% of our total investments in land and land development in 2022 were related to land acquisitions, compared to approximately 50% in 2021.
Approximately 26% of our total investments in land and land development in 2023 were related to land acquisitions, compared to approximately 34% in 2022.
A 10% increase in the claim frequency and the average cost per claim used to estimate the self-insurance liability would result in increases of approximately $28.3 million in our liability and approximately $11.5 million in our receivable as of November 30, 2022, and additional expense of approximately $16.9 million for 2022.
A 10% increase in the claim frequency and the average cost per claim used to estimate the self-insurance liability would result in increases of approximately $28.6 million in our liability and approximately $9.9 million in our receivable as of November 30, 2023, and additional expense of approximately $18.7 million for 2023.
Because these costs are capitalized as a component of our inventory and are not recognized in our income statement until a home is delivered, we incur significant cash outflows prior to the recognition of earnings.
Because these costs are capitalized as a component of our inventories and are not recognized in our statement of operations until a home is delivered, we incur significant cash outflows prior to recognizing earnings from a delivered home.
In addition, we 39 modified our land development strategy, electing to build in smaller phases, and in some cases, to defer the start of the next phase of lots to align with expected demand in certain local areas.
In addition, we 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.
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): Years Ended November 30, 2022 2021 2020 Housing revenues $ 6,880,362 $ 5,694,668 $ 4,150,793 Housing construction and land costs (5,210,802) (4,466,053) (3,365,509) Housing gross profits 1,669,560 1,228,615 785,284 Add: Inventory-related charges (a) 34,760 11,953 28,669 Adjusted housing gross profits $ 1,704,320 $ 1,240,568 $ 813,953 Housing gross profit margin as a percentage of housing revenues 24.3 % 21.6 % 18.9 % Adjusted housing gross profit margin as a percentage of housing revenues 24.8 % 21.8 % 19.6 % (a) Represents inventory impairment and land option contract abandonment charges associated with housing operations.
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): Years Ended November 30, 2023 2022 2021 Housing revenues $ 6,370,421 $ 6,880,362 $ 5,694,668 Housing construction and land costs (5,020,783) (5,210,802) (4,466,053) Housing gross profits 1,349,638 1,669,560 1,228,615 Add: Inventory-related charges (a) 11,424 34,760 11,953 Adjusted housing gross profits $ 1,361,062 $ 1,704,320 $ 1,240,568 Housing gross profit margin as a percentage of housing revenues 21.2 % 24.3 % 21.6 % Adjusted housing gross profit margin as a percentage of housing revenues 21.4 % 24.8 % 21.8 % (a) Represents inventory impairment and land option contract abandonment charges associated with housing operations.
Operating income increased from 2021, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.
Operating income was down from 2022, reflecting higher selling, general and administrative expenses, partly offset by higher housing gross profits.
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, which is also presented in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report, and/or interest income and expense.
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, which is also presented in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report, and/or interest income and expense. 33 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 described in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report.
Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or moderated investor and/or lender interest or capacity stemming from unfavorable industry trends described above under “Overview” or other factors and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
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.
Our financial services pretax income for 2022 was essentially even with the previous year as improved results from our insurance and title services businesses were offset by a decrease in the equity in income of unconsolidated joint ventures.
Our financial services pretax income for 2023 increased slightly from the previous year as improved results from our insurance and title services businesses were partly offset by a decrease in the equity in income of unconsolidated joint ventures.
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 November 30, 2022: Financial Covenants and Other Requirements Covenant Requirement Actual Consolidated tangible net worth > $ 2.50 billion $ 3.62 billion Leverage Ratio .600 .339 Interest Coverage Ratio (a) > 1.500 10.571 Minimum liquidity (a) > $ 120.2 million $ 178.5 million Investments in joint ventures and Non-Guarantor Subsidiaries $ 828.9 million $ 280.2 million Borrowing base in excess of borrowing base indebtedness (as defined) n/a $ 2.59 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 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 November 30, 2023: Financial Covenants and Other Requirements Covenant Requirement Actual Consolidated tangible net worth > $ 2.80 billion $ 3.77 billion Leverage Ratio .600 .312 Interest Coverage Ratio (a) > 1.500 9.810 Minimum liquidity (a) > $ 93.3 million $ 727.1 million Investments in joint ventures and Non-Guarantor Subsidiaries $ 858.4 million $ 336.4 million Borrowing base in excess of borrowing base indebtedness (as defined) n/a $ 2.79 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 following table presents information about our net orders, cancellation rate, ending backlog, and community count for the years ended November 30, 2022 and 2021 (dollars in thousands): Years Ended November 30, 2022 2021 Net orders 10,856 16,206 Net order value (a) $ 5,620,196 $ 7,683,990 Cancellation rate (b) 26 % 10 % Ending backlog — homes 7,662 10,544 Ending backlog — value $ 3,691,559 $ 4,951,725 Ending community count 246 217 Average community count 222 214 (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.
The following table presents information about our net orders, cancellation rate, ending backlog, and community count for the years ended November 30, 2023 and 2022 (dollars in thousands): Years Ended November 30, 2023 2022 Net orders 11,084 10,856 Net order value (a) $ 5,346,541 $ 5,620,196 Cancellation rate (b) 26 % 26 % Ending backlog — homes 5,510 7,662 Ending backlog — value $ 2,667,679 $ 3,691,559 Ending community count 242 246 Average community count 245 222 (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.
Housing gross profits for 2022 and 2021 included inventory-related charges associated with housing operations of $34.8 million and $12.0 million, respectively.
Housing gross profits for 2023 and 2022 included inventory-related charges associated with housing operations of $11.4 million and $34.8 million, respectively.
In 2020, we recorded adjustments to reduce our previously recorded liabilities by $4.0 million. The adjustments in 2022, 2021 and 2020 resulted from changes in estimates due to actual claims experience differing from previous actuarial projections and, in turn, impacting actuarial estimates for existing and potential future claims.
During 2023, 2022 and 2021, we recorded adjustments to increase our previously recorded liabilities by $6.5 million, $7.0 million and $6.8 million, respectively. The adjustments in 2023, 2022 and 2021 resulted from changes in estimates due to actual claims experience differing from previous actuarial projections and, in turn, impacting actuarial estimates for existing and potential future claims.
In order to help, but not entirely moderate that effect, we typically enter into fixed-price contracts with our larger trade partners and building material suppliers for specified periods of time. Inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability.
In order to help, but not entirely moderate that effect, we typically enter into fixed-price contracts with our larger trade partners and building material suppliers for specified periods of time. Inflation is often accompanied by higher and more volatile interest rates, which may negatively impact housing affordability and the confidence of potential homebuyers, and adversely impact demand for our homes.
In 2022, total interest incurred of $120.9 million was essentially even with $120.5 million incurred in 2021. All interest incurred during 2022 and 2021 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period. As a result, we had no interest expense for 2022 or 2021.
All interest incurred during 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. As a result, we had no interest expense for 2023 or 2022.
Based on our assessment, we may also make adjustments to our previously recorded accrued warranty liability. Such adjustments are recorded in the period in which the change in estimate occurs. During 2021 and 2020, we made adjustments to reduce our accrued warranty liability by $4.0 million and $3.6 million, respectively. There were no such adjustments during 2022.
Based on our assessment, we may also make adjustments to our previously recorded accrued warranty liability. Such adjustments are recorded in the period in which the change in estimate occurs. In 2023, we made adjustments to increase our accrued warranty liability by $4.0 million. In 2021, we made adjustments to reduce our accrued warranty liability by $4.0 million.
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): Years Ended November 30, 2022 2021 2020 Revenues $ 23,414 $ 19,901 $ 15,472 Expenses (5,762) (5,055) (4,083) Equity in income of unconsolidated joint ventures 20,799 23,589 21,154 Pretax income $ 38,451 $ 38,435 $ 32,543 Total originations (a): Loans 8,402 9,225 7,580 Principal $ 3,335,837 $ 3,252,054 $ 2,457,522 Percentage of homebuyers using KBHS 71 % 76 % 77 % Average FICO score 734 729 723 Loans sold (a): Loans sold to GR Alliance 7,563 7,706 7,900 Principal $ 3,026,290 $ 2,744,685 $ 2,536,689 Loans sold to other third parties 861 1,293 310 Principal $ 287,436 $ 420,119 $ 102,363 35 Years Ended November 30, 2022 2021 2020 Mortgage loan origination mix (a): Conventional/non-conventional loans 67 % 61 % 56 % FHA loans 20 % 26 % 28 % Other government loans 13 % 13 % 16 % Loan type (a): Fixed 98 % 99 % 99 % ARM 2 % 1 % 1 % (a) Loan originations and sales occurred within KBHS.
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): Years Ended November 30, 2023 2022 2021 Revenues $ 29,523 $ 23,414 $ 19,901 Expenses (5,726) (5,762) (5,055) Equity in income of unconsolidated joint ventures 15,697 20,799 23,589 Pretax income $ 39,494 $ 38,451 $ 38,435 Total originations (a): Loans 9,167 8,402 9,225 Principal $ 3,630,734 $ 3,335,837 $ 3,252,054 Percentage of homebuyers using KBHS 83 % 71 % 76 % Average FICO score 736 734 729 Loans sold (a): Loans sold to GR Alliance 9,017 7,563 7,706 Principal $ 3,588,618 $ 3,026,290 $ 2,744,685 Loans sold to other third parties 347 861 1,293 Principal $ 123,258 $ 287,436 $ 420,119 36 Years Ended November 30, 2023 2022 2021 Mortgage loan origination mix (a): Conventional/non-conventional loans 59 % 67 % 61 % FHA loans 27 % 20 % 26 % Other government loans 14 % 13 % 13 % Loan type (a): Fixed 92 % 98 % 99 % ARM 8 % 2 % 1 % (a) Loan originations and sales occurred within KBHS.
Our present outlook for the 2023 first quarter and full year are as follows: 2023 First Quarter – • We expect to generate housing revenues in the range of $1.25 billion to $1.40 billion, compared to $1.39 billion for the corresponding 2022 period, and anticipate our average selling price to be in the range of $490,000 to $500,000, compared to $486,100 in the year-earlier period. • We expect our homebuilding operating income margin as a percentage of revenues to be in the range of 9.5% to 10.5%, assuming no inventory-related charges, compared to 12.2% for the year-earlier quarter. ◦ We expect our housing gross profit margin to be in the range of 20.0% to 21.0%, assuming no inventory-related charges, compared to 22.4% for the corresponding 2022 quarter. ◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.3% to 10.8%, compared to 10.2% for the 2022 first quarter. • We expect our effective tax rate will be approximately 23%.
Our present outlook for the 2024 first quarter and full year as to certain metrics are as follows: 2024 First Quarter – • We expect to generate housing revenues in the range of $1.40 billion to $1.50 billion, compared to $1.38 billion for the corresponding 2023 period, and anticipate our average selling price to be approximately $477,000, compared to $494,500 in the year-earlier period. • We expect our homebuilding operating income margin as a percentage of revenues to be approximately 10.5%, assuming no inventory-related charges, compared to 11.7% for the year-earlier quarter. ◦ We expect our housing gross profit margin to be about 21.0%, assuming no inventory-related charges, compared to 21.8% for the corresponding 2023 quarter. ◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.5%, compared to 10.1% for the 2023 first quarter. • We expect our effective tax rate will be approximately 24.0%.
Corporate and other had operating losses of $145.3 million in 2022, $148.9 million in 2021 and $107.2 million in 2020.
Corporate and other had operating losses of $142.6 million in 2023, $145.3 million in 2022 and $148.9 million in 2021.
The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands): Years Ended November 30, 2022 2021 2020 Net cash provided by (used in): Operating activities $ 183,418 $ (37,296) $ 310,678 Investing activities (71,773) (38,084) (26,563) Financing activities (73,583) (315,013) (56,444) Net increase (decrease) in cash and cash equivalents $ 38,062 $ (390,393) $ 227,671 Operating Activities .
The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands): Years Ended November 30, 2023 2022 2021 Net cash provided by (used in): Operating activities $ 1,082,699 $ 183,418 $ (37,296) Investing activities (58,062) (71,773) (38,084) Financing activities (627,493) (73,583) (315,013) Net increase (decrease) in cash and cash equivalents $ 397,144 $ 38,062 $ (390,393) Operating Activities .
Our $3.6 million loss on early extinguishment of debt in 2022 was associated with the retirement of $350.0 million in aggregate principal amount of our 7.50% senior notes due September 15, 2022 (“7.50% Senior Notes due 2022”) before their maturity date.
In 2022, we recognized a $3.6 million loss on the early extinguishment of debt associated with the retirement of $350.0 million in aggregate principal amount of our then-outstanding 7.50% senior notes due September 15, 2022 (“7.50% Senior Notes due 2022”) before their maturity date, pursuant to the optional redemption terms specified for such notes.
As discussed in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.27 billion and $1.11 billion of performance bonds outstanding at November 30, 2022 and 2021, respectively. Unsecured Revolving Credit Facility .
As discussed in Note 17 – 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 November 30, 2023 and 2022, respectively. Unsecured Revolving Credit Facility . We have a $1.09 billion Credit Facility that will mature on February 18, 2027.
Our income tax expense and effective income tax rate were as follows (dollars in thousands): Years Ended November 30, 2022 2021 2020 Income tax expense $ 255,400 $ 130,600 $ 67,800 Effective income tax rate 23.8 % 18.8 % 18.6 % Our effective tax rate for 2022 increased from the previous year, mainly due to a $26.9 million decrease in federal tax credits we recognized and a $5.3 million decrease in excess tax benefits related to stock-based compensation, partly offset by a $1.6 million decrease in non-deductible compensation expense.
Our income tax expense and effective income tax rate were as follows (dollars in thousands): Years Ended November 30, 2023 2022 2021 Income tax expense $ 181,100 $ 255,400 $ 130,600 Effective income tax rate 23.5 % 23.8 % 18.8 % Our effective tax rate for 2023 decreased from the previous year, mainly due to a $3.7 million increase in excess tax benefits related to stock-based compensation and a $2.6 million increase in Section 45L tax credits we recognized from building energy-efficient homes, partly offset by a $2.5 million increase in non-deductible compensation expense.
If we were to acquire all the land we had under land option contracts and other similar contracts at November 30, 2022, we estimate the remaining purchase price to be paid would be as follows: 2023 – $655.7 million; 2024 – $304.2 million; 2025 – $57.2 million; 2026 – $86.7 million; 2027 – $6.0 million; and thereafter – $3.3 million. 40 Liquidity.
If we were to acquire all the land we had under land option contracts and other similar contracts at November 30, 2023, we estimate the remaining purchase price to be paid would be as follows: 2024 – $740.8 million; 2025 – $213.3 million; 2026 – $158.2 million; 2027 – $52.1 million; 2028 – $59.1 million; and thereafter – $0. Liquidity.
In January 2022, Standard and Poor’s Financial Services reaffirmed our BB credit rating and changed its rating outlook to positive from stable. In June 2022, Moody’s Investor Service reaffirmed our Ba2 credit rating and changed its rating outlook to positive from stable. Consolidated Cash Flows.
In April 2023, Standard and Poor’s Financial Services reaffirmed our BB credit rating and changed its rating outlook to stable from positive. Consolidated Cash Flows.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−2 removed4 unchanged
Biggest changeBased upon the amount of variable rate debt outstanding at November 30, 2022, and holding the variable rate debt balance constant, each 100 basis-point increase in interest rates would increase the interest we incur by approximately $5.1 million per year.
Biggest changeBased upon the amount of variable rate debt outstanding at November 30, 2023, and holding the variable rate debt balance constant, each 100 basis-point increase in the interest rate would increase the interest we incur by approximately $3.6 million per year. 55 As of November 30, 2022 and for the Years Ending November 30, Fair Value at November 30, 2022 2023 2024 2025 2026 2027 Thereafter Total Fixed Rate $ — $ — $ — $ — $ 300,000 $ 1,040,000 $ 1,340,000 $ 1,205,875 Weighted Average Effective Interest Rate — % — % — % — % 7.1 % 5.5 % 5.9 % Variable Rate (b) $ — $ — $ — $ 360,000 $ 150,000 $ — $ 510,000 $ 510,000 Weighted Average Effective Interest Rate — % — % — % 5.6 % 5.1 % — % 5.4 % (b) The interest rates for our variable rate debt, which was comprised of borrowings outstanding under the Credit Facility and the Term Loan, represents the weighted average interest rates in effect at November 30, 2022.
The following tables present principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of our debt obligations as of November 30, 2022 and 2021 (dollars in thousands): As of November 30, 2022 and for the Years Ending November 30, Fair Value at November 30, 2022 2023 2024 2025 2026 2027 Thereafter Total Fixed Rate $ — $ — $ — $ — $ 300,000 $ 1,040,000 $ 1,340,000 $ 1,205,875 Weighted Average Effective Interest Rate — % — % — % — % 7.1 % 5.5 % 5.9 % Variable Rate (a) $ — $ — $ — $ 360,000 $ 150,000 $ — $ — $ 510,000 Weighted Average Effective Interest Rate — % — % — % 5.6 % 5.1 % — % 5.4 % (a) The interest rates for our variable rate debt, which is comprised of borrowings outstanding under the Credit Facility and the Term Loan, represents the weighted average interest rates in effect at November 30, 2022.
The following tables present principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of our debt obligations as of November 30, 2023 and 2022 (dollars in thousands): As of November 30, 2023 and for the Years Ending November 30, Fair Value at November 30, 2023 2024 2025 2026 2027 2028 Thereafter Total Fixed Rate $ — $ — $ — $ 300,000 $ — $ 1,040,000 $ 1,340,000 $ 1,260,725 Weighted Average Effective Interest Rate — % — % — % 7.1 % — % 5.5 % 5.9 % Variable Rate (a) $ — $ — $ 360,000 $ — $ — $ — $ 360,000 $ 360,000 Weighted Average Effective Interest Rate — % — % 6.8 % — % — % — % 6.8 % (a) The interest rate for our variable rate debt, which is solely comprised of the Term Loan, represents the weighted average interest rate in effect at November 30, 2023.
For a discussion pertaining to the debt of our homebuilding and financial services unconsolidated joint ventures, see Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report. 54 Our financial services unconsolidated joint venture, KBHS, is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing IRLCs to customers.
Unconsolidated Joint Ventures. The tables above do not include debt of our unconsolidated joint ventures. For a discussion pertaining to the debt of our homebuilding and financial services unconsolidated joint ventures, see Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
KBHS enters into best efforts forward sale commitments with secondary market investors to manage the risk of adverse interest rate movements that could impact the fair value of IRLCs. Best efforts forward sale commitments allow KBHS to agree on the sales price of the underlying loans that will be realized upon their sale into the secondary market.
Our financial services unconsolidated joint venture, KBHS, is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing IRLCs to customers. KBHS enters into best efforts forward sale commitments with secondary market investors to manage the risk of adverse interest rate movements that could impact the fair value of IRLCs.
KBHS does not engage in speculative or trading derivative activities. KBHS’ entire loan portfolio is held for sale and subject to best efforts forward sale commitments. Further information is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report. 55
Further information is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report. 56
Removed
As of November 30, 2021 and for the Years Ending November 30, Fair Value at November 30, 2021 2022 2023 2024 2025 2026 Thereafter Total Fixed Rate $ 350,000 $ 350,000 $ — $ — $ — $ 990,000 $ 1,690,000 $ 1,796,500 Weighted Average Effective Interest Rate 7.7 % 7.5 % — % — % — % 5.3 % 6.2 % Unconsolidated Joint Ventures.
Added
Best efforts forward sale commitments allow KBHS to agree on the sales price of the underlying loans that will be realized upon their sale into the secondary market. KBHS does not engage in speculative or trading derivative activities. KBHS’ entire loan portfolio is held for sale and subject to best efforts forward sale commitments.
Removed
The tables above do not include debt of our unconsolidated joint ventures.

Other KBH 10-K year-over-year comparisons