##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended February 28, 2010.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
 For the transition period from [] to [].
 Commission File No. 001-09195
 KB HOME
  Delaware
    
    95-3666267(State of incorporation)
    
    (IRS employer identification number)
 
  þ o
  o o
 12b-2 of the Exchange Act.
 Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



KB HOME
FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Operations -
Three Months Ended February 28, 2010 and 2009
    
    
    3Consolidated Balance Sheets -
February 28, 2010 and November 30, 2009
    
    
    4Consolidated Statements of Cash Flows -
Three Months Ended February 28, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4. Controls and Procedures
    
    
    50PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    51Item 1A. Risk Factors
    
    
    52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 6. Exhibits
    
    
    52SIGNATURES
    
    
    53INDEX OF EXHIBITS
    
    
    54Exhibit 10.56Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 KB HOME
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended February 28,2010
    
    
    2009Total revenues
    
    $
    263,978
    
    
    $
    307,361Homebuilding:Revenues
    
    $
    262,511
    
    
    $
    305,741Construction and land costs
    
    
    (226,540
    )
    
    
    (290,958
    )Selling, general and administrative expenses
    
    
    (72,203
    )
    
    
    (61,175
    )Operating loss
    
    
    (36,232
    )
    
    
    (46,392
    )Interest income
    
    
    424
    
    
    
    3,513Interest expense, net of amounts capitalized
    
    
    (19,407
    )
    
    
    (8,652
    )Equity in loss of unconsolidated joint ventures
    
    
    (1,184
    )
    
    
    (9,742
    )Homebuilding pretax loss
    
    
    (56,399
    )
    
    
    (61,273
    )Financial services:Revenues
    
    
    1,467
    
    
    
    1,620Expenses
    
    
    (893
    )
    
    
    (860
    )Equity in income of unconsolidated joint venture
    
    
    1,321
    
    
    
    941Financial services pretax income
    
    
    1,895
    
    
    
    1,701Total pretax loss
    
    
    (54,504
    )
    
    
    (59,572
    )Income tax benefit (expense)
    
    
    (200
    )
    
    
    1,500Net loss
    
    $
    (54,704
    )
    
    $
    (58,072
    )Basic and diluted loss per share
    
    $
    (.71
    )
    
    $
    (.75
    )Basic and diluted average shares outstanding
    
    
    76,834
    
    
    
    77,375Cash dividends declared per common share
    
    $
    .0625
    
    
    $
    .0625
   3




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##### Table of Contents



KB HOME
 
 CONSOLIDATED BALANCE SHEETS
  February 28,
    
    
    November 30,2010
    
    
    2009AssetsHomebuilding:Cash and cash equivalents
    
    $
    1,198,635
    
    
    $
    1,174,715Restricted cash
    
    
    90,222
    
    
    
    114,292Receivables
    
    
    126,304
    
    
    
    337,930Inventories
    
    
    1,580,130
    
    
    
    1,501,394Investments in unconsolidated joint ventures
    
    
    105,737
    
    
    
    119,668Other assets
    
    
    155,760
    
    
    
    154,5663,256,788
    
    
    
    3,402,565Financial services
    
    
    28,670
    
    
    
    33,424Total assets
    
    $
    3,285,458
    
    
    $
    3,435,989Liabilities and stockholders equityHomebuilding:Accounts payable
    
    $
    312,672
    
    
    $
    340,977Accrued expenses and other liabilities
    
    
    503,462
    
    
    
    560,368Mortgages and notes payable
    
    
    1,815,261
    
    
    
    1,820,3702,631,395
    
    
    
    2,721,715Financial services
    
    
    6,449
    
    
    
    7,050Common stock
    
    
    115,121
    
    
    
    115,120Paid-in capital
    
    
    861,001
    
    
    
    860,772Retained earnings
    
    
    746,936
    
    
    
    806,443Accumulated other comprehensive loss
    
    
    (22,244
    )
    
    
    (22,244
    )Grantor stock ownership trust, at cost
    
    
    (121,657
    )
    
    
    (122,017
    )Treasury stock, at cost
    
    
    (931,543
    )
    
    
    (930,850
    )Total stockholders equity
    
    
    647,614
    
    
    
    707,224Total liabilities and stockholders equity
    
    $
    3,285,458
    
    
    $
    3,435,989
   4




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##### Table of Contents



KB HOME
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months Ended February 28,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (54,704
    )
    
    $
    (58,072
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Equity in (income) loss of unconsolidated joint ventures
    
    
    (137
    )
    
    
    8,801Distributions of earnings from unconsolidated joint ventures
    
    
    5,000
    
    
    
    662Amortization of discounts and issuance costs
    
    
    530
    
    
    
    340Depreciation and amortization
    
    
    892
    
    
    
    1,486Loss on voluntary reduction of revolving credit facility
    
    
    1,366
    
    
    
    Tax benefits from stock-based compensation
    
    
    2,050
    
    
    
    1,152Stock-based compensation expense
    
    
    2,065
    
    
    
    468Inventory impairments and land option contract abandonments
    
    
    13,362
    
    
    
    24,670Change in assets and liabilities:Receivables
    
    
    194,227
    
    
    
    197,449Inventories
    
    
    (48,487
    )
    
    
    57,448Accounts payable, accrued expenses and other liabilities
    
    
    (92,321
    )
    
    
    (133,016
    )Other, net
    
    
    (5,579
    )
    
    
    2,131Net cash provided by operating activities
    
    
    18,264
    
    
    
    103,519Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    (2,340
    )
    
    
    (7,748
    )Purchases of property and equipment, net
    
    
    (191
    )
    
    
    (821
    )Net cash used by investing activities
    
    
    (2,531
    )
    
    
    (8,569
    )Cash flows from financing activities:Change in restricted cash
    
    
    24,070
    
    
    
    4,196Repayment of senior subordinated notes
    
    
    
    
    
    
    (200,000
    )Payments on mortgages, land contracts and other loans
    
    
    (11,082
    )
    
    
    (8,843
    )Issuance of common stock under employee stock plans
    
    
    232
    
    
    
    795Payments of cash dividends
    
    
    (4,803
    )
    
    
    (4,756
    )Repurchases of common stock
    
    
    (350
    )
    
    
    (616
    )Net cash provided (used) by financing activities
    
    
    8,067
    
    
    
    (209,224
    )Net increase (decrease) in cash and cash equivalents
    
    
    23,800
    
    
    
    (114,274
    )Cash and cash equivalents at beginning of period
    
    
    1,177,961
    
    
    
    1,141,518Cash and cash equivalents at end of period
    
    $
    1,201,761
    
    
    $
    1,027,244
   5




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##### Table of Contents



KB HOME
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    
    Basis of Presentation and Significant Accounting Policies
   Use of Estimates
  Loss per share
  Comprehensive loss
  Reclassifications
  2.
    
    Stock-Based Compensation
   6




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KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2.
    
    Stock-Based Compensation (continued)
  Stock Options
  WeightedAverage ExerciseOptions
    
    
    PriceOptions outstanding at beginning of period
    
    
    5,711,701
    
    
    $
    27.39Granted
    
    
    122,956
    
    
    
    14.96Exercised
    
    
    (1,000
    )
    
    
    13.95Cancelled
    
    
    (128,432
    )
    
    
    15.44Options outstanding at end of period
    
    
    5,705,225
    
    
    
    27.39Options exercisable at end of period
    
    
    4,153,377
    
    
    
    31.19
  Other Stock-Based Awards
  3.
    
    Segment Information
   7




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  3.
    
    Segment Information (continued)
  
      Three Months Ended February 28,2010
    
    
    2009Revenues:West Coast
    
    $
    108,434
    
    
    $
    108,520Southwest
    
    
    33,848
    
    
    
    52,273Central
    
    
    82,925
    
    
    
    77,645Southeast
    
    
    37,304
    
    
    
    67,303Total homebuilding revenues
    
    
    262,511
    
    
    
    305,741Financial services
    
    
    1,467
    
    
    
    1,620Total revenues
    
    $
    263,978
    
    
    $
    307,361Pretax income (loss):West Coast
    
    $
    3,357
    
    
    $
    (12,322
    )Southwest
    
    
    (4,463
    )
    
    
    (20,738
    )Central
    
    
    (7,304
    )
    
    
    (6,156
    )Southeast
    
    
    (20,186
    )
    
    
    (13,825
    )Corporate and other (a)
    
    
    (27,803
    )
    
    
    (8,232
    )Total homebuilding pretax loss
    
    
    (56,399
    )
    
    
    (61,273
    )Financial services
    
    
    1,895
    
    
    
    1,701Total pretax loss
    
    $
    (54,504
    )
    
    $
    (59,572
    )
 (a)
    
    Corporate and other includes corporate general and administrative expenses.  8




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  3.
    
    Segment Information (continued)
 Three Months Ended February 28,2010
    
    
    2009Equity in income (loss) of unconsolidated joint ventures:West Coast
    
    $
    100
    
    
    $
    195Southwest
    
    
    (2,175
    )
    
    
    (7,687
    )Central
    
    
    
    
    
    
    21Southeast
    
    
    891
    
    
    
    (2,271
    )Total
    
    $
    (1,184
    )
    
    $
    (9,742
    )Inventory impairments:West Coast
    
    $
    1,196
    
    
    $
    6,991Southwest
    
    
    962
    
    
    
    11,927Central
    
    
    
    
    
    
    Southeast
    
    
    4,677
    
    
    
    5,469Total
    
    $
    6,835
    
    
    $
    24,387Land option contract abandonments:West Coast
    
    $
    
    
    
    $
    283Southwest
    
    
    
    
    
    
    Central
    
    
    6,340
    
    
    
    Southeast
    
    
    187
    
    
    
    Total
    
    $
    6,527
    
    
    $
    283Joint venture impairments:West Coast
    
    $
    
    
    
    $
    Southwest
    
    
    
    
    
    
    5,426Central
    
    
    
    
    
    
    Southeast
    
    
    
    
    
    
    2,186Total
    
    $
    
    
    
    $
    7,612
 February 28,
    
    
    November 30,2010
    
    
    2009Assets:West Coast
    
    $
    844,125
    
    
    $
    838,510Southwest
    
    
    356,319
    
    
    
    346,035Central
    
    
    327,757
    
    
    
    357,688Southeast
    
    
    388,482
    
    
    
    361,551Corporate and other
    
    
    1,340,105
    
    
    
    1,498,781Total homebuilding assets
    
    
    3,256,788
    
    
    
    3,402,565Financial services
    
    
    28,670
    
    
    
    33,424Total assets
    
    $
    3,285,458
    
    
    $
    3,435,989
  9




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  3.
    
    Segment Information (continued)
 February 28,
    
    
    November 30,2010
    
    
    2009Investments in unconsolidated joint ventures:West Coast
    
    $
    42,176
    
    
    $
    54,795Southwest
    
    
    55,394
    
    
    
    56,779Central
    
    
    
    
    
    
    Southeast
    
    
    8,167
    
    
    
    8,094Total
    
    $
    105,737
    
    
    $
    119,668
 4.
    
    Financial Services
  Three Months Ended February 28,2010
    
    
    2009RevenuesInterest income
    
    $
    1
    
    
    $
    17Title services
    
    
    156
    
    
    
    187Insurance commissions
    
    
    1,310
    
    
    
    1,416Total
    
    
    1,467
    
    
    
    1,620ExpensesGeneral and administrative
    
    
    (893
    )
    
    
    (860
    )Operating income
    
    
    574
    
    
    
    760Equity in income of unconsolidated joint venture
    
    
    1,321
    
    
    
    941Pretax income
    
    $
    1,895
    
    
    $
    1,701
 February 28,
    
    
    November 30,2010
    
    
    2009AssetsCash and cash equivalents
    
    $
    3,126
    
    
    $
    3,246Receivables
    
    
    442
    
    
    
    1,395Investment in unconsolidated joint venture
    
    
    25,069
    
    
    
    28,748Other assets
    
    
    33
    
    
    
    35Total assets
    
    $
    28,670
    
    
    $
    33,424LiabilitiesAccounts payable and accrued expenses
    
    $
    6,449
    
    
    $
    7,050Total liabilities
    
    $
    6,449
    
    
    $
    7,050
  10




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  5.
    
    Inventories
  February 28,
    
    
    November 30,2010
    
    
    2009Homes, lots and improvements in production
    
    $
    1,142,113
    
    
    $
    1,091,851Land under development
    
    
    438,017
    
    
    
    409,543Total
    
    $
    1,580,130
    
    
    $
    1,501,394
  Three Months Ended February 28,2010
    
    
    2009Capitalized interest at beginning of period
    
    $
    291,279
    
    
    $
    361,619Capitalized interest related to
consolidation of previously unconsolidated
joint ventures
    
    
    9,914
    
    
    
    Interest incurred (a)
    
    
    32,051
    
    
    
    29,258Interest expensed (a)
    
    
    (19,407
    )
    
    
    (8,652
    )Interest amortized
    
    
    (23,386
    )
    
    
    (16,892
    )Capitalized interest at end of period (b)
    
    $
    290,451
    
    
    $
    365,333
 (a)
    
    Amounts for the three months ended February 28, 2010 include $1.4 million of debt
issuance costs written off in connection with the Companys voluntary reduction of the
aggregate commitment under its unsecured revolving credit facility (the Credit Facility)
from $650.0 million to $200.0 million.(b)
    
    Inventory impairment charges are recognized against all inventory costs of a community,
such as land, land improvements, costs of home construction and capitalized interest.
Capitalized interest amounts presented in the table reflect the gross amount of capitalized
interest as impairment charges recognized are not generally allocated to specific
components of inventory. 6.
    
    Inventory Impairments and Land Option Contract Abandonments
   11




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KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  6.
    
    Inventory Impairments and Abandonments (continued)
      7.
    
    Fair Value Disclosures
  Level 1
    
    Fair value determined based on quoted prices in active markets for identical assets
or liabilities.Level 2
    
    Fair value determined using significant observable inputs, such as quoted prices for
similar assets or liabilities or quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability, or inputs that are derived principally from or
corroborated by observable market data, by correlation or other means.Level 3
    
    Fair value determined using significant unobservable inputs, such as pricing models,
discounted cash flows, or similar techniques.
  12




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  7.
    
    Fair Value Disclosures (continued)
  Fair Value Measurements UsingQuoted
    
    
    SignificantThree Months
    
    
    Prices in
    
    
    Other
    
    
    SignificantEnded
    
    
    Active
    
    
    Observable
    
    
    UnobservableFebruary 28,
    
    
    Markets
    
    
    Inputs
    
    
    InputsDescription
    
    2010 (a)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total LossesLong-lived assets held and used
    
    $
    3,907
    
    
    $
    
    
    
    $
    
    
    
    $
    3,907
    
    
    $
    (6,835
    )
 (a)
    
    Amount represents the aggregate fair values for communities where the Company recognized noncash
inventory impairment charges during the period, as of the date that the fair value measurements were
made. The carrying value for these communities may have subsequently increased or decreased from the
fair value reflected due to activity that has occurred since the measurement date.    February 28, 2010
    
    
    November 30, 2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueFinancial Liabilities:Senior notes due 2011 at 6 3/8%
    
    $
    99,828
    
    
    $
    102,000
    
    
    $
    99,800
    
    
    $
    100,250Senior notes due 2014 at 5 3/4%
    
    
    249,393
    
    
    
    238,750
    
    
    
    249,358
    
    
    
    234,375Senior notes due 2015 at 5 7/8%
    
    
    298,922
    
    
    
    278,640
    
    
    
    298,875
    
    
    
    276,000Senior notes due 2015 at 6 1/4%
    
    
    449,709
    
    
    
    420,750
    
    
    
    449,698
    
    
    
    419,063Senior notes due 2017 at 9.1%
    
    
    259,997
    
    
    
    276,263
    
    
    
    259,884
    
    
    
    276,263Senior notes due 2018 at 7 1/4%
    
    
    298,813
    
    
    
    282,000
    
    
    
    298,787
    
    
    
    281,250
    13




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KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  8.
    
    Variable Interest Entities
       14




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  8.
    
    Variable Interest Entities (continued)
     9.
    
    Investments in Unconsolidated Joint Ventures
      15




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KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
    
    Investments in Unconsolidated Joint Ventures (continued)
  Three Months Ended February 28,2010
    
    
    2009Revenues
    
    $
    85,802
    
    
    $
    11,476Construction and land costs
    
    
    (88,520
    )
    
    
    (18,501
    )Other expenses, net
    
    
    (322
    )
    
    
    (6,135
    )Loss
    
    $
    (3,040
    )
    
    $
    (13,160
    )
   February 28,
    
    
    November 30,2010
    
    
    2009AssetsCash
    
    $
    16,414
    
    
    $
    12,816Receivables
    
    
    142,418
    
    
    
    142,639Inventories
    
    
    586,069
    
    
    
    709,130Other assets
    
    
    56,746
    
    
    
    56,939Total assets
    
    $
    801,647
    
    
    $
    921,524Liabilities and equityAccounts payable and other liabilities
    
    $
    57,536
    
    
    $
    94,533Mortgages and notes payable
    
    
    384,427
    
    
    
    514,172Equity
    
    
    359,684
    
    
    
    312,819Total liabilities and equity
    
    $
    801,647
    
    
    $
    921,524
  February 28,
    
    
    November 30,2010
    
    
    2009Number of investments in unconsolidated joint ventures:With limited recourse debt (a)
    
    
    2
    
    
    
    2With non-recourse debt (b)
    
    
    
    
    
    
    2Other (c)
    
    
    9
    
    
    
    9Total
    
    
    11
    
    
    
    13
  16




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
    
    Investments in Unconsolidated Joint Ventures (continued)
 February 28,
    
    
    November 30,2010
    
    
    2009Investments in unconsolidated joint ventures:With limited recourse debt
    
    $
    1,386
    
    
    $
    1,277With non-recourse debt
    
    
    
    
    
    
    9,983Other
    
    
    104,351
    
    
    
    108,408Total
    
    $
    105,737
    
    
    $
    119,668Outstanding debt of unconsolidated joint ventures:With limited recourse debt
    
    $
    12,045
    
    
    $
    11,198With non-recourse debt
    
    
    
    
    
    
    130,025Other
    
    
    372,382
    
    
    
    372,949Total (d)
    
    $
    384,427
    
    
    $
    514,172
 (a)
    
    This category consists of unconsolidated joint ventures as to which the Company has
entered into a loan-to-value maintenance guaranty with respect to a portion of each such
unconsolidated joint ventures outstanding secured debt.(b)
    
    This category consists of unconsolidated joint ventures as to which the Company does not
have a guaranty or any other obligation to repay or to support the value of the collateral
(which collateral includes any letters of credit) underlying such unconsolidated joint
ventures respective outstanding secured debt.(c)
    
    This category consists of unconsolidated joint ventures with no outstanding debt and an
unconsolidated joint venture as to which the Company has entered into a several guaranty.
This guaranty, by its terms, purports to require the Company to guarantee the repayment of a
portion of the unconsolidated joint ventures outstanding debt in the event an involuntary
bankruptcy proceeding is filed against the unconsolidated joint venture that is not
dismissed within 60 days or for which an order approving relief under bankruptcy law is
entered, even if the unconsolidated joint venture or its partners do not collude in the
filing and the unconsolidated joint venture contests the filing, as further described below.In most cases, the Company may have also entered into a completion guaranty and/or a
carve-out guaranty with the lenders for the unconsolidated joint ventures identified in
categories (a) through (c) as further described below.(d)
    
    The Total amounts represent the aggregate outstanding debt of the unconsolidated
joint ventures in which the Company participates. The amounts do not represent the Companys
potential responsibility for such debt, if any. In most cases, the Companys maximum
potential responsibility for any portion of such debt, if any, is limited to either a
specified maximum amount or an amount equal to its pro rata interest in the relevant
unconsolidated joint venture, as further described below.   17




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
    
    Investments in Unconsolidated Joint Ventures (continued)
        18




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
    
    Investments in Unconsolidated Joint Ventures (continued)
   10.
    
    Mortgages and Notes Payable
  February 28,
    
    
    November 30,2010
    
    
    2009Mortgages and land contracts due to land
sellers and other loans
    
    $
    158,599
    
    
    $
    163,968Senior notes due 2011 at 6 3/8%
    
    
    99,828
    
    
    
    99,800Senior notes due 2014 at 5 3/4%
    
    
    249,393
    
    
    
    249,358Senior notes due 2015 at 5 7/8%
    
    
    298,922
    
    
    
    298,875Senior notes due 2015 at 6 1/4%
    
    
    449,709
    
    
    
    449,698Senior notes due 2017 at 9.1%
    
    
    259,997
    
    
    
    259,884Senior notes due 2018 at 7 1/4%
    
    
    298,813
    
    
    
    298,787Total
    
    $
    1,815,261
    
    
    $
    1,820,370
   19




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  10.
    
    Mortgages and Notes Payable (continued)
   11.
    
    Commitments and Contingencies
   Three Months Ended February 28,2010
    
    
    2009Balance at beginning of period
    
    $
    135,749
    
    
    $
    145,369Warranties issued
    
    
    1,192
    
    
    
    1,993Payments and adjustments
    
    
    (6,392
    )
    
    
    (5,138
    )Balance at end of period
    
    $
    130,549
    
    
    $
    142,224
    20




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  11.
    
    Commitments and Contingencies (continued)
         21




---



##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  12.
    
    Legal Matters
 ERISA Litigation
 Bagley et al., v.
KB Home, et al.
  Other Matters
   13.
    
    Stockholders Equity
    22




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  14.
    
    Recent Accounting Pronouncements
  15.
    
    Income Taxes
     16.
    
    Supplemental Disclosure to Consolidated Statements of Cash Flows
   23




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  16.
    
    Supplemental Disclosure to Consolidated Statements of Cash Flows (continued)
 Three Months Ended February 28,2010
    
    
    2009Summary of cash and cash equivalents at end of period:Homebuilding
    
    $
    1,198,635
    
    
    $
    1,020,911Financial services
    
    
    3,126
    
    
    
    6,333Total
    
    $
    1,201,761
    
    
    $
    1,027,244Supplemental disclosures of cash flow information:Interest paid, net of amounts capitalized
    
    $
    36,841
    
    
    $
    42,263Income taxes paid
    
    
    115
    
    
    
    77Income taxes refunded
    
    
    190,906
    
    
    
    231,227Supplemental disclosures of noncash activities:Increase in inventories in connection with
consolidation of joint ventures
    
    $
    72,300
    
    
    $
    Increase in accounts payable, accrued expenses and
other liabilities in connection with
consolidation of joint ventures
    
    
    38,861
    
    
    
    Cost of inventories acquired through seller financing
    
    
    5,713
    
    
    
    5,069Decrease in consolidated inventories not owned
    
    
    (34,402
    )
    
    
    (7,902
    )
 17.
    
    Supplemental Guarantor Information
   24




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
    
    Supplemental Guarantor Information (continued)
 
 Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    238,791
    
    
    $
    25,187
    
    
    $
    
    
    
    $
    263,978Homebuilding:Revenues
    
    $
    
    
    
    $
    238,791
    
    
    $
    23,720
    
    
    $
    
    
    
    $
    262,511Construction and land costs
    
    
    
    
    
    
    (200,504
    )
    
    
    (26,036
    )
    
    
    
    
    
    
    (226,540
    )Selling, general and administrative expenses
    
    
    (23,138
    )
    
    
    (40,460
    )
    
    
    (8,605
    )
    
    
    
    
    
    
    (72,203
    )Operating loss
    
    
    (23,138
    )
    
    
    (2,173
    )
    
    
    (10,921
    )
    
    
    
    
    
    
    (36,232
    )Interest income
    
    
    359
    
    
    
    31
    
    
    
    34
    
    
    
    
    
    
    
    424Interest expense, net of amounts capitalized
    
    
    (1,839
    )
    
    
    (15,952
    )
    
    
    (1,616
    )
    
    
    
    
    
    
    (19,407
    )Equity in income (loss) of unconsolidated
joint ventures
    
    
    
    
    
    
    (2,075
    )
    
    
    891
    
    
    
    
    
    
    
    (1,184
    )Homebuilding pretax loss
    
    
    (24,618
    )
    
    
    (20,169
    )
    
    
    (11,612
    )
    
    
    
    
    
    
    (56,399
    )Financial services pretax income
    
    
    
    
    
    
    
    
    
    
    1,895
    
    
    
    
    
    
    
    1,895Total pretax loss
    
    
    (24,618
    )
    
    
    (20,169
    )
    
    
    (9,717
    )
    
    
    
    
    
    
    (54,504
    )Income tax expense
    
    
    (100
    )
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (200
    )Equity in net loss of subsidiaries
    
    
    (29,986
    )
    
    
    
    
    
    
    
    
    
    
    29,986
    
    
    
    Net loss
    
    $
    (54,704
    )
    
    $
    (20,269
    )
    
    $
    (9,717
    )
    
    $
    29,986
    
    
    $
    (54,704
    )
 
 Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    253,831
    
    
    $
    53,530
    
    
    $
    
    
    
    $
    307,361Homebuilding:Revenues
    
    $
    
    
    
    $
    253,831
    
    
    $
    51,910
    
    
    $
    
    
    
    $
    305,741Construction and land costs
    
    
    
    
    
    
    (239,783
    )
    
    
    (51,175
    )
    
    
    
    
    
    
    (290,958
    )Selling, general and administrative expenses
    
    
    (9,324
    )
    
    
    (39,400
    )
    
    
    (12,451
    )
    
    
    
    
    
    
    (61,175
    )Operating loss
    
    
    (9,324
    )
    
    
    (25,352
    )
    
    
    (11,716
    )
    
    
    
    
    
    
    (46,392
    )Interest income
    
    
    2,993
    
    
    
    176
    
    
    
    344
    
    
    
    
    
    
    
    3,513Interest expense, net of amounts capitalized
    
    
    9,127
    
    
    
    (17,647
    )
    
    
    (132
    )
    
    
    
    
    
    
    (8,652
    )Equity in loss of unconsolidated joint ventures
    
    
    
    
    
    
    (7,470
    )
    
    
    (2,272
    )
    
    
    
    
    
    
    (9,742
    )Homebuilding pretax income (loss)
    
    
    2,796
    
    
    
    (50,293
    )
    
    
    (13,776
    )
    
    
    
    
    
    
    (61,273
    )Financial services pretax income
    
    
    
    
    
    
    
    
    
    
    1,701
    
    
    
    
    
    
    
    1,701Total pretax income (loss)
    
    
    2,796
    
    
    
    (50,293
    )
    
    
    (12,075
    )
    
    
    
    
    
    
    (59,572
    )Income tax benefit (expense)
    
    
    (100
    )
    
    
    1,200
    
    
    
    400
    
    
    
    
    
    
    
    1,500Equity in net loss of subsidiaries
    
    
    (60,768
    )
    
    
    
    
    
    
    
    
    
    
    60,768
    
    
    
    Net loss
    
    $
    (58,072
    )
    
    $
    (49,093
    )
    
    $
    (11,675
    )
    
    $
    60,768
    
    
    $
    (58,072
    )
  25




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
    
    Supplemental Guarantor Information (continued)
 
 Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalAssetsHomebuilding:Cash and cash equivalents
    
    $
    1,062,390
    
    
    $
    18,736
    
    
    $
    117,509
    
    
    $
    
    
    
    $
    1,198,635Restricted cash
    
    
    90,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,222Receivables
    
    
    864
    
    
    
    105,557
    
    
    
    19,883
    
    
    
    
    
    
    
    126,304Inventories
    
    
    
    
    
    
    1,432,866
    
    
    
    147,264
    
    
    
    
    
    
    
    1,580,130Investments in unconsolidated joint ventures
    
    
    
    
    
    
    96,184
    
    
    
    9,553
    
    
    
    
    
    
    
    105,737Other assets
    
    
    69,636
    
    
    
    85,880
    
    
    
    244
    
    
    
    
    
    
    
    155,7601,223,112
    
    
    
    1,739,223
    
    
    
    294,453
    
    
    
    
    
    
    
    3,256,788Financial services
    
    
    
    
    
    
    
    
    
    
    28,670
    
    
    
    
    
    
    
    28,670Investments in subsidiaries
    
    
    1,454
    
    
    
    
    
    
    
    
    
    
    
    (1,454
    )
    
    
    Total assets
    
    $
    1,224,566
    
    
    $
    1,739,223
    
    
    $
    323,123
    
    
    $
    (1,454
    )
    
    $
    3,285,458Liabilities and stockholders equityHomebuilding:Accounts payable, accrued expenses and other liabilities
    
    $
    123,160
    
    
    $
    544,188
    
    
    $
    148,786
    
    
    $
    
    
    
    $
    816,134Mortgages and notes payable
    
    
    1,656,662
    
    
    
    158,599
    
    
    
    
    
    
    
    
    
    
    
    1,815,2611,779,822
    
    
    
    702,787
    
    
    
    148,786
    
    
    
    
    
    
    
    2,631,395Financial services
    
    
    
    
    
    
    
    
    
    
    6,449
    
    
    
    
    
    
    
    6,449Intercompany
    
    
    (1,202,870
    )
    
    
    1,057,544
    
    
    
    145,326
    
    
    
    
    
    
    
    Stockholders equity
    
    
    647,614
    
    
    
    (21,108
    )
    
    
    22,562
    
    
    
    (1,454
    )
    
    
    647,614Total liabilities and stockholders equity
    
    $
    1,224,566
    
    
    $
    1,739,223
    
    
    $
    323,123
    
    
    $
    (1,454
    )
    
    $
    3,285,458
  Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalAssetsHomebuilding:Cash and cash equivalents
    
    $
    995,122
    
    
    $
    56,969
    
    
    $
    122,624
    
    
    $
    
    
    
    $
    1,174,715Restricted cash
    
    
    114,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,292Receivables
    
    
    191,747
    
    
    
    109,536
    
    
    
    36,647
    
    
    
    
    
    
    
    337,930Inventories
    
    
    
    
    
    
    1,374,617
    
    
    
    126,777
    
    
    
    
    
    
    
    1,501,394Investments in unconsolidated joint ventures
    
    
    
    
    
    
    115,402
    
    
    
    4,266
    
    
    
    
    
    
    
    119,668Other assets
    
    
    68,895
    
    
    
    85,856
    
    
    
    (185
    )
    
    
    
    
    
    
    154,5661,370,056
    
    
    
    1,742,380
    
    
    
    290,129
    
    
    
    
    
    
    
    3,402,565Financial services
    
    
    
    
    
    
    
    
    
    
    33,424
    
    
    
    
    
    
    
    33,424Investments in subsidiaries
    
    
    35,955
    
    
    
    
    
    
    
    
    
    
    
    (35,955
    )
    
    
    Total assets
    
    $
    1,406,011
    
    
    $
    1,742,380
    
    
    $
    323,553
    
    
    $
    (35,955
    )
    
    $
    3,435,989Liabilities and stockholders equityHomebuilding:Accounts payable, accrued expenses and other liabilities
    
    $
    147,264
    
    
    $
    588,203
    
    
    $
    165,878
    
    
    $
    
    
    
    $
    901,345Mortgages and notes payable
    
    
    1,656,402
    
    
    
    163,967
    
    
    
    1
    
    
    
    
    
    
    
    1,820,3701,803,666
    
    
    
    752,170
    
    
    
    165,879
    
    
    
    
    
    
    
    2,721,715Financial services
    
    
    
    
    
    
    
    
    
    
    7,050
    
    
    
    
    
    
    
    7,050Intercompany
    
    
    (1,104,879
    )
    
    
    990,210
    
    
    
    114,669
    
    
    
    
    
    
    
    Stockholders equity
    
    
    707,224
    
    
    
    
    
    
    
    35,955
    
    
    
    (35,955
    )
    
    
    707,224Total liabilities and stockholders equity
    
    $
    1,406,011
    
    
    $
    1,742,380
    
    
    $
    323,553
    
    
    $
    (35,955
    )
    
    $
    3,435,989
  26




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
    
    Supplemental Guarantor Information (continued)
 
 Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net loss
    
    $
    (54,704
    )
    
    $
    (20,269
    )
    
    $
    (9,717
    )
    
    $
    29,986
    
    
    $
    (54,704
    )Adjustments to reconcile net loss to net cash provided
(used) by operating activities:Inventory impairments and land option contract
abandonments
    
    
    
    
    
    
    8,498
    
    
    
    4,864
    
    
    
    
    
    
    
    13,362Changes in assets and liabilities:Receivables
    
    
    190,883
    
    
    
    (14,373
    )
    
    
    17,717
    
    
    
    
    
    
    
    194,227Inventories
    
    
    
    
    
    
    (23,136
    )
    
    
    (25,351
    )
    
    
    
    
    
    
    (48,487
    )Accounts payable, accrued expenses and other liabilities
    
    
    (24,098
    )
    
    
    (48,474
    )
    
    
    (19,749
    )
    
    
    
    
    
    
    (92,321
    )Other, net
    
    
    (5,408
    )
    
    
    2,313
    
    
    
    9,282
    
    
    
    
    
    
    
    6,187Net cash provided (used) by operating activities
    
    
    106,673
    
    
    
    (95,441
    )
    
    
    (22,954
    )
    
    
    29,986
    
    
    
    18,264Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    
    
    
    
    1,950
    
    
    
    (4,290
    )
    
    
    
    
    
    
    (2,340
    )Purchases of property and equipment, net
    
    
    
    
    
    
    (171
    )
    
    
    (20
    )
    
    
    
    
    
    
    (191
    )Net cash provided (used) by investing activities
    
    
    
    
    
    
    1,779
    
    
    
    (4,310
    )
    
    
    
    
    
    
    (2,531
    )Cash flows from financing activities:Change in restricted cash
    
    
    24,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,070Payments on mortgages, land contracts and other loans
    
    
    
    
    
    
    3,452
    
    
    
    (14,534
    )
    
    
    
    
    
    
    (11,082
    )Issuance of common stock under employee stock plans
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232Payments of cash dividends
    
    
    (4,803
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,803
    )Repurchases of common stock
    
    
    (350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350
    )Intercompany
    
    
    (58,554
    )
    
    
    51,977
    
    
    
    36,563
    
    
    
    (29,986
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (39,405
    )
    
    
    55,429
    
    
    
    22,029
    
    
    
    (29,986
    )
    
    
    8,067Net increase (decrease) in cash and cash equivalents
    
    
    67,268
    
    
    
    (38,233
    )
    
    
    (5,235
    )
    
    
    
    
    
    
    23,800Cash and cash equivalents at beginning of period
    
    
    995,122
    
    
    
    56,969
    
    
    
    125,870
    
    
    
    
    
    
    
    1,177,961Cash and cash equivalents at end of period
    
    $
    1,062,390
    
    
    $
    18,736
    
    
    $
    120,635
    
    
    $
    
    
    
    $
    1,201,761
  27




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##### Table of Contents



KB HOME
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
    
    Supplemental Guarantor Information (continued)
 
 Non-KB Home
    
    
    Guarantor
    
    
    Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net loss
    
    $
    (58,072
    )
    
    $
    (49,093
    )
    
    $
    (11,675
    )
    
    $
    60,768
    
    
    $
    (58,072
    )Adjustments to reconcile net loss to net cash provided
(used) by operating activities:Inventory impairments and land option contract
abandonments
    
    
    
    
    
    
    20,885
    
    
    
    3,785
    
    
    
    
    
    
    
    24,670Changes in assets and liabilities:Receivables
    
    
    202,449
    
    
    
    (405
    )
    
    
    (4,595
    )
    
    
    
    
    
    
    197,449Inventories
    
    
    
    
    
    
    (36,367
    )
    
    
    93,815
    
    
    
    
    
    
    
    57,448Accounts payable, accrued expenses and other liabilities
    
    
    (42,783
    )
    
    
    515
    
    
    
    (90,748
    )
    
    
    
    
    
    
    (133,016
    )Other, net
    
    
    4,619
    
    
    
    8,913
    
    
    
    1,508
    
    
    
    
    
    
    
    15,040Net cash provided (used) by operating activities
    
    
    106,213
    
    
    
    (55,552
    )
    
    
    (7,910
    )
    
    
    60,768
    
    
    
    103,519Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    
    
    
    
    (6,838
    )
    
    
    (910
    )
    
    
    
    
    
    
    (7,748
    )Sales (purchases) of property and equipment, net
    
    
    
    
    
    
    (885
    )
    
    
    64
    
    
    
    
    
    
    
    (821
    )Net cash used by investing activities
    
    
    
    
    
    
    (7,723
    )
    
    
    (846
    )
    
    
    
    
    
    
    (8,569
    )Cash flows from financing activities:Change in restricted cash
    
    
    4,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,196Repayment of senior subordinated notes
    
    
    (200,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Payments on mortgages, land contracts and other loans
    
    
    
    
    
    
    (8,843
    )
    
    
    
    
    
    
    
    
    
    
    (8,843
    )Issuance of common stock under employee stock plans
    
    
    795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    795Payments of cash dividends
    
    
    (4,756
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,756
    )Repurchases of common stock
    
    
    (616
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (616
    )Intercompany
    
    
    18,777
    
    
    
    66,431
    
    
    
    (24,440
    )
    
    
    (60,768
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (181,604
    )
    
    
    57,588
    
    
    
    (24,440
    )
    
    
    (60,768
    )
    
    
    (209,224
    )Net decrease in cash and cash equivalents
    
    
    (75,391
    )
    
    
    (5,687
    )
    
    
    (33,196
    )
    
    
    
    
    
    
    (114,274
    )Cash and cash equivalents at beginning of period
    
    
    987,057
    
    
    
    25,067
    
    
    
    129,394
    
    
    
    
    
    
    
    1,141,518Cash and cash equivalents at end of period
    
    $
    911,666
    
    
    $
    19,380
    
    
    $
    96,198
    
    
    $
    
    
    
    $
    1,027,244
 18.
    
    Subsequent Event
    28




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29




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
 OVERVIEW
  Three Months Ended February 28,2010
    
    
    2009Revenues:Homebuilding
    
    $
    262,511
    
    
    $
    305,741Financial services
    
    
    1,467
    
    
    
    1,620Total
    
    $
    263,978
    
    
    $
    307,361Pretax income (loss):Homebuilding
    
    $
    (56,399
    )
    
    $
    (61,273
    )Financial services
    
    
    1,895
    
    
    
    1,701Total pretax loss
    
    
    (54,504
    )
    
    
    (59,572
    )Income tax benefit (expense)
    
    
    (200
    )
    
    
    1,500Net loss
    
    $
    (54,704
    )
    
    $
    (58,072
    )Basic and diluted loss per share
    
    $
    (.71
    )
    
    $
    (.75
    )
  The Open Series The Open Series
   30




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The Open Series
     31




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##### Table of Contents



HOMEBUILDING
   Three Months Ended February 28,2010
    
    
    2009Revenues:Housing
    
    $
    262,158
    
    
    $
    304,454Land
    
    
    353
    
    
    
    1,287Total
    
    
    262,511
    
    
    
    305,741Costs and expenses:Construction and land costsHousing
    
    
    226,194
    
    
    
    289,423Land
    
    
    346
    
    
    
    1,535Total
    
    
    226,540
    
    
    
    290,958Selling, general and administrative expenses
    
    
    72,203
    
    
    
    61,175Total
    
    
    298,743
    
    
    
    352,133Operating loss
    
    $
    (36,232
    )
    
    $
    (46,392
    )Homes delivered
    
    
    1,326
    
    
    
    1,445Average selling price
    
    $
    197,700
    
    
    $
    210,700Housing gross margin
    
    
    13.7
    %
    
    
    4.9
    %Selling, general and administrative expenses as a
percentage of housing revenues
    
    
    27.5
    %
    
    
    20.1
    %Operating loss as a percentage of homebuilding revenues
    
    
    -13.8
    %
    
    
    -15.2
    %
   32




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##### Table of Contents



Three Months Ended February 28,Homes Delivered
    
    
    Net Orders
    
    
    Cancellation RatesSegment
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009West Coast
    
    
    340
    
    
    
    351
    
    
    
    429
    
    
    
    459
    
    
    
    17
    %
    
    
    26
    %Southwest
    
    
    216
    
    
    
    267
    
    
    
    313
    
    
    
    222
    
    
    
    14
    
    
    
    27Central
    
    
    529
    
    
    
    447
    
    
    
    715
    
    
    
    622
    
    
    
    29
    
    
    
    29Southeast
    
    
    241
    
    
    
    380
    
    
    
    456
    
    
    
    524
    
    
    
    21
    
    
    
    28Total
    
    
    1,326
    
    
    
    1,445
    
    
    
    1,913
    
    
    
    1,827
    
    
    
    22
    %
    
    
    28
    %Unconsolidated
joint ventures
    
    
    21
    
    
    
    23
    
    
    
    19
    
    
    
    28
    
    
    
    21
    %
    
    
    48
    %
 February 28,Backlog - ValueBacklog - Homes
    
    
    (In Thousands)Segment
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009West Coast
    
    
    612
    
    
    
    689
    
    
    $
    193,938
    
    
    $
    214,997Southwest
    
    
    379
    
    
    
    303
    
    
    
    59,439
    
    
    
    57,169Central
    
    
    1,105
    
    
    
    892
    
    
    
    172,068
    
    
    
    153,538Southeast
    
    
    617
    
    
    
    767
    
    
    
    98,305
    
    
    
    134,135Total
    
    
    2,713
    
    
    
    2,651
    
    
    $
    523,750
    
    
    $
    559,839Unconsolidated joint ventures
    
    
    35
    
    
    
    76
    
    
    $
    13,825
    
    
    $
    30,180
 Revenues
   Operating Loss.
  33




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The Open Series
    Interest Income
  34




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##### Table of Contents



Interest Expense, Net of Amounts Capitalized
 Equity in Loss of Unconsolidated Joint Ventures
 NON-GAAP FINANCIAL MEASURES
  Housing Gross Margin, Excluding Inventory Impairment and Land Option Contract Abandonment
Charges.
 Three Months Ended February 28,2010
    
    
    2009Housing revenues
    
    $
    262,158
    
    
    $
    304,454Housing construction and land costs
    
    
    (226,194
    )
    
    
    (289,423
    )Housing gross margin
    
    
    35,964
    
    
    
    15,031Add: Inventory impairment and land
option contract abandonment
charges
    
    
    13,362
    
    
    
    24,670Housing gross margin, excluding
inventory impairment
and land option contract
abandonment charges
    
    $
    49,326
    
    
    $
    39,701
  35




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##### Table of Contents



Housing gross margin as a percentage of housing revenues
    
    
    13.7
    %
    
    
    4.9
    %Housing gross margin, excluding inventory impairment
and land option contract abandonment charges, as a
percentage of housing revenues
    
    
    18.8
    %
    
    
    13.0
    %
  Ratio of Net Debt to Total Capital.
 February 28,
    
    
    November 30,2010
    
    
    2009Mortgages and notes payable
    
    $
    1,815,261
    
    
    $
    1,820,370Stockholders equity
    
    
    647,614
    
    
    
    707,224Total capital
    
    $
    2,462,875
    
    
    $
    2,527,594Ratio of debt to total capital
    
    
    73.7
    %
    
    
    72.0
    %Mortgages and notes payable
    
    $
    1,815,261
    
    
    $
    1,820,370Less: Cash and cash equivalents and restricted cash
    
    
    (1,288,857
    )
    
    
    (1,289,007
    )Net debt
    
    
    526,404
    
    
    
    531,363Stockholders equity
    
    
    647,614
    
    
    
    707,224Total capital
    
    $
    1,174,018
    
    
    $
    1,238,587Ratio of net debt to total capital
    
    
    44.8
    %
    
    
    42.9
    %
   36




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HOMEBUILDING SEGMENTS
  Three Months Ended February 28,2010
    
    
    2009West Coast:Revenues
    
    $
    108,434
    
    
    $
    108,520Construction and land costs
    
    
    (80,029
    )
    
    
    (99,625
    )Selling, general and administrative expenses
    
    
    (16,338
    )
    
    
    (16,162
    )Operating income (loss)
    
    
    12,067
    
    
    
    (7,267
    )Other, net
    
    
    (8,710
    )
    
    
    (5,055
    )Pretax income (loss)
    
    $
    3,357
    
    
    $
    (12,322
    )Southwest:Revenues
    
    $
    33,848
    
    
    $
    52,273Construction and land costs
    
    
    (27,023
    )
    
    
    (57,026
    )Selling, general and administrative expenses
    
    
    (6,589
    )
    
    
    (7,146
    )Operating income (loss)
    
    
    236
    
    
    
    (11,899
    )Other, net
    
    
    (4,699
    )
    
    
    (8,839
    )Pretax loss
    
    $
    (4,463
    )
    
    $
    (20,738
    )Central:Revenues
    
    $
    82,925
    
    
    $
    77,645Construction and land costs
    
    
    (73,668
    )
    
    
    (67,672
    )Selling, general and administrative expenses
    
    
    (13,180
    )
    
    
    (12,855
    )Operating loss
    
    
    (3,923
    )
    
    
    (2,882
    )Other, net
    
    
    (3,381
    )
    
    
    (3,274
    )Pretax loss
    
    $
    (7,304
    )
    
    $
    (6,156
    )Southeast:Revenues
    
    $
    37,304
    
    
    $
    67,303Construction and land costs
    
    
    (43,612
    )
    
    
    (64,368
    )Selling, general and administrative expenses
    
    
    (9,454
    )
    
    
    (11,949
    )Operating loss
    
    
    (15,762
    )
    
    
    (9,014
    )Other, net
    
    
    (4,424
    )
    
    
    (4,811
    )Pretax loss
    
    $
    (20,186
    )
    
    $
    (13,825
    )
 West Coast
   37




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Southwest
  Central
  Southeast
  38




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FINANCIAL SERVICES
   Three Months Ended February 28,2010
    
    
    2009Revenues
    
    $
    1,467
    
    
    $
    1,620Expenses
    
    
    (893
    )
    
    
    (860
    )Equity in income of unconsolidated joint venture
    
    
    1,321
    
    
    
    941Pretax income
    
    $
    1,895
    
    
    $
    1,701Total originations (a):Loans
    
    
    1,042
    
    
    
    1,099Principal
    
    $
    186,318
    
    
    $
    205,011Percentage of homebuyers using KBA Mortgage
    
    
    81
    %
    
    
    78
    %Loans sold to third parties (a):Loans
    
    
    1,108
    
    
    
    1,112Principal
    
    $
    198,760
    
    
    $
    210,267
 (a)
    
    Loan originations and sales occur within KBA Mortgage. Revenues
 Expenses
 Equity in Income of Unconsolidated Joint Venture
  39




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INCOME TAXES
    Liquidity and Capital Resources
 Overview.
  Capital Resources.
      40




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February 28, 2010CovenantFinancial Covenant
    
    Requirement
    
    ActualMinimum consolidated tangible net worth
    
    $278.2 million
    
    $641.6 millionCoverage Ratio
    
    (a)
    
    (a)Leverage Ratio (b)
    
    <1.00
    
    .40Investment in subsidiaries and joint ventures
as a percentage of Adjusted Consolidated
Tangible Net Worth
    
    <35%
    
    10%Borrowing base in excess of senior indebtedness
(as defined)
    
    Greater than zero
    
    $598.9 million
 (a)
    
    Our Coverage Ratio of .79 was less than 1.00 to 1.00 as of February 28, 2010. With our
Leverage Ratio as of November 30, 2009 below 1.00 to 1.00, we maintained an Interest Reserve
Account to remain in compliance with the terms of the Credit Facility. The Interest Reserve
Account had a balance of $90.2 million at February 28, 2010. As discussed above, we
voluntarily terminated the Credit Facility effective March 31, 2010.(b)
    
    The Leverage Ratio requirement varied based on our Coverage Ratio. If our Coverage Ratio
was greater than or equal to 1.50 to 1.00, the Leverage Ratio requirement was less than 2.00
to 1.00. If our Coverage Ratio was between 1.00 and 1.50 to 1.00, the Leverage Ratio
requirement was less than 1.25 to 1.00. If our Coverage Ratio was less than 1.00 to 1.00,
the Leverage Ratio requirement was less than or equal to 1.00 to 1.00.  41




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##### Table of Contents



November 30, 2009CovenantFinancial Covenant
    
    Requirement
    
    ActualMinimum consolidated tangible net worth
    
    $278.2 million
    
    $700.9 millionCoverage Ratio
    
    (a)
    
    (a)Leverage Ratio
    
    <1.00
    
    .39Investment in subsidiaries and joint ventures
as a percentage of Adjusted Consolidated
Tangible Net Worth
    
    <35%
    
    11%Borrowing base in excess of senior indebtedness
(as defined)
    
    Greater than zero
    
    $474.7 million
 (a)
    
    Our Coverage Ratio of .77 was less than 1.00 to 1.00 as of November 30, 2009. With our
Leverage Ratio as of August 31, 2009 below 1.00 to 1.00, we maintained an Interest Reserve
Account of $114.3 million in the fourth quarter of 2009 to remain in compliance with the
terms of the Credit Facility. The Interest Reserve Account had a balance of $114.3 million
at November 30, 2009.         42




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##### Table of Contents



Consolidated Cash Flows.
 Operating Activities.
   Investing Activities
 Financing Activities
  Shelf Registration Statement.
 Share Repurchase Program.
   43




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Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments
       44




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45




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46




---



##### Table of Contents



Critical Accounting Policies
  Recent Accounting Pronouncements
  Outlook
      47




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48




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Forward-Looking Statements
  The Open Series
  49




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Weighted AverageFiscal Year of Expected Maturity
    
    Fixed Rate Debt
    
    
    Interest Rate2010
    
    $
    
    
    
    
    
    %2011
    
    
    99,828
    
    
    
    6.42012
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    2014
    
    
    249,393
    
    
    
    5.8Thereafter
    
    
    1,307,441
    
    
    
    7.0Total
    
    $
    1,656,662
    
    
    
    6.7Fair value at February 28, 2010
    
    $
    1,598,403
  
 Item 4. Controls and Procedures
   50




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 ERISA Litigation
 Bagley et al., v. KB Home, et al.
  Other Matters
    51




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  MaximumTotal Number of
    
    
    Number of SharesShares Purchased
    
    
    That May Yet beTotal Number
    
    
    
    
    
    
    as Part of Publicly
    
    
    Purchased Underof Shares
    
    
    Average Price
    
    
    Announced Plans
    
    
    the PlansPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    or Programs
    
    
    or ProgramsDecember 1  31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    4,000,000January 1  31
    
    
    23,393
    
    
    
    14.96
    
    
    
    
    
    
    
    4,000,000February 1  28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000,000Total
    
    
    23,393
    
    
    $
    14.96
    
    
    
    
  
 Item 6. Exhibits
 Exhibits
 10.56
    *
    
    KB Home 2010 Equity Incentive Plan.10.57
    *
    
    Form of Indemnification Agreement, filed as an exhibit to the Companys Current Report on
Form 8-K dated April 2, 2010, is incorporated by reference herein.31.1
    
    
    Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer
of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    
    Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer
of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Management contract or compensatory plan or arrangement in which executive officers are
eligible to participate.  52




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SIGNATURES
  KB HOMERegistrantDated      April 8, 2010
    /s/ JEFFREY T. MEZGERJeffrey T. MezgerPresident and Chief Executive Officer
(Principal Executive Officer)Dated      April 8, 2010
    /s/ WILLIAM R. HOLLINGERWilliam R. HollingerSenior Vice President and Chief Accounting Officer
(Principal Financial Officer)  53




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##### Table of Contents



INDEX OF EXHIBITS
 10.56
    *
    
    KB Home 2010 Equity Incentive Plan.10.57
    *
    
    Form of Indemnification Agreement, filed as an exhibit to the Companys Current Report on
Form 8-K dated April 2, 2010, is incorporated by reference herein.31.1
    
    
    Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer of
KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    
    Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer of
KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Management contract or compensatory plan or arrangement in which executive officers are
eligible to participate.  54