##### 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 May 31, 2009.
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



KB HOME
FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Operations 
Six Months and Three Months Ended May 31, 2009 and 2008
    
    
    3Consolidated Balance Sheets 
May 31, 2009 and November 30, 2008
    
    
    4Consolidated Statements of Cash Flows 
Six Months Ended May 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    55Item 4. Controls and Procedures
    
    
    55PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    56Item 1A. Risk Factors
    
    
    57Item 4. Submission of Matters to a Vote of Security Holders
    
    
    57Item 6. Exhibits
    
    
    57SIGNATURES
    
    
    58INDEX OF EXHIBITS
    
    
    59Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 KB HOME
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Total revenues
    
    $
    691,831
    
    
    $
    1,433,289
    
    
    $
    384,470
    
    
    $
    639,065Homebuilding:Revenues
    
    $
    688,666
    
    
    $
    1,428,402
    
    
    $
    382,925
    
    
    $
    637,094Construction and land costs
    
    
    (667,768
    )
    
    
    (1,668,481
    )
    
    
    (376,810
    )
    
    
    (755,840
    )Selling, general and administrative expenses
    
    
    (133,769
    )
    
    
    (246,703
    )
    
    
    (72,594
    )
    
    
    (119,065
    )Goodwill impairment
    
    
    
    
    
    
    (24,570
    )
    
    
    
    
    
    
    (24,570
    )Operating loss
    
    
    (112,871
    )
    
    
    (511,352
    )
    
    
    (66,479
    )
    
    
    (262,381
    )Interest income
    
    
    5,279
    
    
    
    22,554
    
    
    
    1,766
    
    
    
    9,522Interest expense, net of amounts capitalized
    
    
    (20,123
    )
    
    
    
    
    
    
    (11,471
    )
    
    
    Equity in loss of unconsolidated joint ventures
    
    
    (21,496
    )
    
    
    (45,361
    )
    
    
    (11,754
    )
    
    
    (5,483
    )Homebuilding pretax loss
    
    
    (149,211
    )
    
    
    (534,159
    )
    
    
    (87,938
    )
    
    
    (258,342
    )Financial services:Revenues
    
    
    3,165
    
    
    
    4,887
    
    
    
    1,545
    
    
    
    1,971Expenses
    
    
    (1,654
    )
    
    
    (2,232
    )
    
    
    (794
    )
    
    
    (1,113
    )Equity in income of unconsolidated joint venture
    
    
    4,545
    
    
    
    8,302
    
    
    
    3,604
    
    
    
    2,154Financial services pretax income
    
    
    6,056
    
    
    
    10,957
    
    
    
    4,355
    
    
    
    3,012Total pretax loss
    
    
    (143,155
    )
    
    
    (523,202
    )
    
    
    (83,583
    )
    
    
    (255,330
    )Income tax benefit (expense)
    
    
    6,700
    
    
    
    (900
    )
    
    
    5,200
    
    
    
    (600
    )Net loss
    
    $
    (136,455
    )
    
    $
    (524,102
    )
    
    $
    (78,383
    )
    
    $
    (255,930
    )Basic and diluted loss per share
    
    $
    (1.78
    )
    
    $
    (6.77
    )
    
    $
    (1.03
    )
    
    $
    (3.30
    )Basic and diluted average shares outstanding
    
    
    76,822
    
    
    
    77,413
    
    
    
    76,281
    
    
    
    77,462Cash dividends declared per common share
    
    $
    .1250
    
    
    $
    .75
    
    
    $
    .0625
    
    
    $
    .50
   3




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KB HOME
 
 CONSOLIDATED BALANCE SHEETS
  May 31,
    
    
    November 30,2009
    
    
    2008AssetsHomebuilding:Cash and cash equivalents
    
    $
    997,357
    
    
    $
    1,135,399Restricted cash
    
    
    102,160
    
    
    
    115,404Receivables
    
    
    144,542
    
    
    
    357,719Inventories
    
    
    1,893,963
    
    
    
    2,106,716Investments in unconsolidated joint ventures
    
    
    171,181
    
    
    
    177,649Other assets
    
    
    98,761
    
    
    
    99,2613,407,964
    
    
    
    3,992,148Financial services
    
    
    21,930
    
    
    
    52,152Total assets
    
    $
    3,429,894
    
    
    $
    4,044,300Liabilities and stockholders equityHomebuilding:Accounts payable
    
    $
    454,027
    
    
    $
    541,294Accrued expenses and other liabilities
    
    
    571,015
    
    
    
    721,397Mortgages and notes payable
    
    
    1,711,726
    
    
    
    1,941,5372,736,768
    
    
    
    3,204,228Financial services
    
    
    10,029
    
    
    
    9,467Common stock
    
    
    115,120
    
    
    
    115,120Paid-in capital
    
    
    862,705
    
    
    
    865,123Retained earnings
    
    
    781,345
    
    
    
    927,324Accumulated other comprehensive loss
    
    
    (17,402
    )
    
    
    (17,402
    )Grantor stock ownership trust, at cost
    
    
    (127,821
    )
    
    
    (129,326
    )Treasury stock, at cost
    
    
    (930,850
    )
    
    
    (930,234
    )Total stockholders equity
    
    
    683,097
    
    
    
    830,605Total liabilities and stockholders equity
    
    $
    3,429,894
    
    
    $
    4,044,300
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KB HOME
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months Ended May 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (136,455
    )
    
    $
    (524,102
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Equity in loss of unconsolidated joint ventures
    
    
    16,951
    
    
    
    37,059Distributions of earnings from unconsolidated joint ventures
    
    
    7,662
    
    
    
    8,975Amortization of discounts and issuance costs
    
    
    682
    
    
    
    1,180Depreciation and amortization
    
    
    2,920
    
    
    
    5,161Tax benefits from stock-based compensation
    
    
    4,093
    
    
    
    2,046Stock-based compensation expense
    
    
    1,489
    
    
    
    2,631Inventory impairments and land option contract abandonments
    
    
    66,980
    
    
    
    361,948Goodwill impairment
    
    
    
    
    
    
    24,570Change in assets and liabilities:Receivables
    
    
    213,978
    
    
    
    107,594Inventories
    
    
    120,738
    
    
    
    218,121Accounts payable, accrued expenses and other liabilities
    
    
    (209,651
    )
    
    
    (188,471
    )Other, net
    
    
    (5,865
    )
    
    
    10,008Net cash provided by operating activities
    
    
    83,522
    
    
    
    66,720Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    7,310
    
    
    
    (59,190
    )Sales (purchases) of property and equipment, net
    
    
    (914
    )
    
    
    4,378Net cash provided (used) by investing activities
    
    
    6,396
    
    
    
    (54,812
    )Cash flows from financing activities:Change in restricted cash
    
    
    13,244
    
    
    
    Repayment of senior subordinated notes
    
    
    (200,000
    )
    
    
    Payments on mortgages, land contracts and other loans
    
    
    (36,718
    )
    
    
    (1,335
    )Issuance of common stock under employee stock plans
    
    
    1,691
    
    
    
    3,593Payments of cash dividends
    
    
    (9,524
    )
    
    
    (38,723
    )Repurchases of common stock
    
    
    (616
    )
    
    
    (557
    )Net cash used by financing activities
    
    
    (231,923
    )
    
    
    (37,022
    )Net decrease in cash and cash equivalents
    
    
    (142,005
    )
    
    
    (25,114
    )Cash and cash equivalents at beginning of period
    
    
    1,141,518
    
    
    
    1,343,742Cash and cash equivalents at end of period
    
    $
    999,513
    
    
    $
    1,318,628
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KB HOME
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    
    Basis of Presentation and Significant Accounting PoliciesThe accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission (SEC).
Accordingly, certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting principles have
been condensed or omitted.In the opinion of KB Home (the Company), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Companys consolidated financial position as of May 31, 2009, the results of
its consolidated operations for the six months and three months ended May 31, 2009 and 2008, and
its consolidated cash flows for the six months ended May 31, 2009 and 2008. The results of
operations for the six months and three months ended May 31, 2009 are not necessarily indicative
of the results to be expected for the full year, due to seasonal variations in operating results
and other factors. The consolidated balance sheet at November 30, 2008 has been taken from the
audited consolidated financial statements as of that date. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial statements for
the year ended November 30, 2008, which are contained in the Companys Annual Report on Form 10-K
for that period.Use of EstimatesThe accompanying unaudited consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles and, therefore, include amounts based on
informed estimates and judgments of management. Actual results could differ from these
estimates.Loss per shareBasic loss per share is calculated by dividing the net loss by the average number of common
 shares outstanding for the period. Diluted loss per share is calculated by dividing the net loss
by the average number of common shares outstanding including all potentially dilutive shares
issuable under outstanding stock options. All outstanding stock options were excluded from the
diluted loss per share calculation for the six months and three months ended May 31, 2009 and
2008 because the effect of their inclusion would be antidilutive, or would decrease the reported
loss per share.Comprehensive lossThe Companys comprehensive loss was $78.4 million for the three months ended May 31, 2009 and
$255.9 million for the three months ended May 31, 2008. The Companys comprehensive loss was
$136.5 million for the six months ended May 31, 2009 and $524.1 million for the six months ended
May 31, 2008. The accumulated balances of other comprehensive loss in the consolidated balance
sheets as of May 31, 2009 and November 30, 2008 are comprised solely of adjustments recorded
directly to accumulated other comprehensive loss in accordance with Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R), which requires
an employer to recognize the funded status of a defined postretirement benefit plan as an asset
or liability on the balance sheet and requires any unrecognized prior service costs and actuarial
gains/losses to be recognized in accumulated other comprehensive income (loss).ReclassificationsCertain amounts in the consolidated financial statements of prior periods have been reclassified
to conform to the 2009 presentation.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    Stock-Based CompensationThe Company adopted the fair value recognition provisions of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment (SFAS No. 123(R)), using the modified prospective
transition method effective December 1, 2005. SFAS No. 123(R) requires a public entity to
measure compensation cost associated with awards of equity instruments based on the grant-date
fair value of the awards over the requisite service period. SFAS No. 123(R) requires public
entities to initially measure compensation cost associated with awards of liability instruments
based on their current fair value. The fair value of that award is to be remeasured subsequently
at each reporting date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period.Stock OptionsIn accordance with SFAS No. 123(R), the Company estimates the grant-date fair value of its stock
options using the Black-Scholes option-pricing model, which takes into account assumptions
regarding the dividend yield, the risk-free interest rate, the expected stock-price volatility
and the expected term of the stock options. The following table summarizes the stock options
outstanding and stock options exercisable as of May 31, 2009, as well as stock options activity
during the six months then ended:
 WeightedAverage ExerciseOptions
    
    
    PriceOptions outstanding at beginning of period
    
    
    7,847,402
    
    
    $
    30.11Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (3,533,977
    )
    
    
    28.67Options outstanding at end of period
    
    
    4,313,425
    
    
    $
    31.29Options exercisable at end of period
    
    
    3,896,709
    
    
    $
    30.95
 As of May 31, 2009, the weighted average remaining contractual lives of stock options outstanding
and stock options exercisable were 8.6 years and 8.7 years, respectively. There was $1.2 million
of total unrecognized compensation cost related to unvested stock option awards as of May 31,
2009. For the three months ended May 31, 2009 and 2008, compensation expense associated with
stock options totaled $.4 million and $1.3 million, respectively. For the six months ended May
31, 2009 and 2008, compensation expense associated with stock options totaled $.9 million and
$2.6 million, respectively. The aggregate intrinsic value of stock options outstanding and stock
options exercisable were each $.8 million as of May 31, 2009. (The intrinsic value of a stock
option is the amount by which the market value of a share of the Companys common stock exceeds
the exercise price of the stock option.)On February 9, 2009, in connection with the settlement of certain stockholder derivative
litigation, the Companys former chairman and chief executive officer relinquished 3,011,452
stock options to the Company and those stock options were cancelled.Other Stock-Based AwardsFrom time to time, the Company grants restricted stock, phantom shares and stock appreciation
rights to various employees. The Company recognized total compensation expense of $7.5 million
in the three months ended May 31, 2009 and $3.7 million in the three months ended May 31, 2008
related to these stock-based awards. The Company recognized total compensation expense of $6.9
million in the six months ended May 31, 2009 and $6.6 million in the six months ended May 31,
2008 related to these stock-based awards.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    Segment InformationAs of May 31, 2009, the Company has identified five reporting segments, comprised of four
homebuilding reporting segments and one financial services reporting segment, within its
consolidated operations in accordance with Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. As of May 31, 2009, the
Companys homebuilding reporting segments conducted ongoing operations in the following states:West Coast: California
Southwest: Arizona and Nevada
Central: Colorado and Texas
Southeast: Florida, North Carolina and South CarolinaThe Companys homebuilding reporting segments are engaged in the acquisition and development of
land primarily for residential purposes and offer a wide variety of homes that are designed to
appeal to first-time, first move-up and active adult buyers.The Companys homebuilding reporting segments were identified based primarily on similarities in
economic and geographic characteristics, as well as similar product type, regulatory
environments, methods used to sell and construct homes and land acquisition characteristics. The
Company evaluates segment performance primarily based on pretax income.The Companys financial services reporting segment provides title and insurance services to the
Companys homebuyers. The financial services reporting segment also provides mortgage banking
services to the Companys homebuyers indirectly through KB Home Mortgage, LLC (KB Home
Mortgage), a joint venture between a Company subsidiary and CWB Venture Management Corporation,
a subsidiary of Bank of America N.A. The Companys financial services reporting segment conducts
operations in the same markets as the Companys homebuilding reporting segments.The Companys reporting segments follow the same accounting policies used for its consolidated
financial statements. Operational results of each segment are not necessarily indicative of the
results that would have occurred had the segment been an independent, stand-alone entity during
the periods presented.The following tables present financial information relating to the Companys reporting segments
(in thousands):
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:West Coast
    
    $
    290,178
    
    
    $
    440,939
    
    
    $
    181,658
    
    
    $
    199,863Southwest
    
    
    96,446
    
    
    
    364,201
    
    
    
    44,173
    
    
    
    122,354Central
    
    
    160,755
    
    
    
    300,475
    
    
    
    83,110
    
    
    
    148,586Southeast
    
    
    141,287
    
    
    
    322,787
    
    
    
    73,984
    
    
    
    166,291Total homebuilding revenues
    
    
    688,666
    
    
    
    1,428,402
    
    
    
    382,925
    
    
    
    637,094Financial services
    
    
    3,165
    
    
    
    4,887
    
    
    
    1,545
    
    
    
    1,971Total revenues
    
    $
    691,831
    
    
    $
    1,433,289
    
    
    $
    384,470
    
    
    $
    639,065
 
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    Segment Information (continued)
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Pretax income (loss):West Coast
    
    $
    (52,421
    )
    
    $
    (173,436
    )
    
    $
    (40,100
    )
    
    $
    (101,449
    )Southwest
    
    
    (25,946
    )
    
    
    (118,080
    )
    
    
    (5,208
    )
    
    
    (62,653
    )Central
    
    
    (10,513
    )
    
    
    (41,780
    )
    
    
    (4,356
    )
    
    
    (11,838
    )Southeast
    
    
    (29,641
    )
    
    
    (144,892
    )
    
    
    (15,816
    )
    
    
    (40,780
    )Corporate and other (a)
    
    
    (30,690
    )
    
    
    (55,971
    )
    
    
    (22,458
    )
    
    
    (41,622
    )Total homebuilding pretax loss
    
    
    (149,211
    )
    
    
    (534,159
    )
    
    
    (87,938
    )
    
    
    (258,342
    )Financial services
    
    
    6,056
    
    
    
    10,957
    
    
    
    4,355
    
    
    
    3,012Total pretax loss
    
    $
    (143,155
    )
    
    $
    (523,202
    )
    
    $
    (83,583
    )
    
    $
    (255,330
    )Equity in income (loss)
of unconsolidated
joint ventures:West Coast
    
    $
    (8,040
    )
    
    $
    (10,806
    )
    
    $
    (8,235
    )
    
    $
    (1,432
    )Southwest
    
    
    (9,942
    )
    
    
    (6,016
    )
    
    
    (2,255
    )
    
    
    (841
    )Central
    
    
    506
    
    
    
    (4,594
    )
    
    
    485
    
    
    
    (3,080
    )Southeast
    
    
    (4,020
    )
    
    
    (23,945
    )
    
    
    (1,749
    )
    
    
    (130
    )Total
    
    $
    (21,496
    )
    
    $
    (45,361
    )
    
    $
    (11,754
    )
    
    $
    (5,483
    )Inventory impairments:West Coast
    
    $
    8,403
    
    
    $
    132,969
    
    
    $
    1,412
    
    
    $
    80,855Southwest
    
    
    13,267
    
    
    
    102,863
    
    
    
    1,340
    
    
    
    50,853Central
    
    
    1,617
    
    
    
    20,539
    
    
    
    1,617
    
    
    
    3,254Southeast
    
    
    6,860
    
    
    
    77,900
    
    
    
    1,391
    
    
    
    18,985Total
    
    $
    30,147
    
    
    $
    334,271
    
    
    $
    5,760
    
    
    $
    153,947Inventory abandonments:West Coast
    
    $
    27,679
    
    
    $
    9,186
    
    
    $
    27,396
    
    
    $
    9,186Southwest
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    Central
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Southeast
    
    
    9,154
    
    
    
    18,304
    
    
    
    9,154
    
    
    
    11,240Total
    
    $
    36,833
    
    
    $
    27,677
    
    
    $
    36,550
    
    
    $
    20,426Joint venture impairments:West Coast
    
    $
    7,190
    
    
    $
    8,106
    
    
    $
    7,190
    
    
    $
    Southwest
    
    
    5,426
    
    
    
    4,944
    
    
    
    
    
    
    
    Central
    
    
    
    
    
    
    2,629
    
    
    
    
    
    
    
    2,158Southeast
    
    
    2,186
    
    
    
    22,835
    
    
    
    
    
    
    
    Total
    
    $
    14,802
    
    
    $
    38,514
    
    
    $
    7,190
    
    
    $
    2,158
 (a)
    
    Corporate and other includes corporate general and administrative expenses. 
  9




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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    Segment Information (continued)
 May 31,
    
    
    November 30,2009
    
    
    2008Assets:West Coast
    
    $
    953,016
    
    
    $
    1,086,503Southwest
    
    
    446,605
    
    
    
    497,034Central
    
    
    426,104
    
    
    
    443,168Southeast
    
    
    405,791
    
    
    
    453,771Corporate and other
    
    
    1,176,448
    
    
    
    1,511,672Total homebuilding assets
    
    
    3,407,964
    
    
    
    3,992,148Financial services
    
    
    21,930
    
    
    
    52,152Total assets
    
    $
    3,429,894
    
    
    $
    4,044,300Investments in unconsolidated joint ventures:West Coast
    
    $
    55,745
    
    
    $
    55,856Southwest
    
    
    109,848
    
    
    
    113,564Central
    
    
    
    
    
    
    3,339Southeast
    
    
    5,588
    
    
    
    4,890Total
    
    $
    171,181
    
    
    $
    177,649
 4.
    
    Financial ServicesThe following table presents financial information relating to the Companys financial services
reporting segment (in thousands):
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008RevenuesInterest income
    
    $
    28
    
    
    $
    105
    
    
    $
    11
    
    
    $
    58Title services
    
    
    448
    
    
    
    983
    
    
    
    261
    
    
    
    545Insurance commissions
    
    
    2,689
    
    
    
    3,799
    
    
    
    1,273
    
    
    
    1,368Total
    
    
    3,165
    
    
    
    4,887
    
    
    
    1,545
    
    
    
    1,971ExpensesGeneral and administrative
    
    
    (1,654
    )
    
    
    (2,232
    )
    
    
    (794
    )
    
    
    (1,113
    )Operating income
    
    
    1,511
    
    
    
    2,655
    
    
    
    751
    
    
    
    858Equity in income of unconsolidated joint venture
    
    
    4,545
    
    
    
    8,302
    
    
    
    3,604
    
    
    
    2,154Pretax income
    
    $
    6,056
    
    
    $
    10,957
    
    
    $
    4,355
    
    
    $
    3,012
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    Financial Services (continued)
 May 31,
    
    
    November 30,2009
    
    
    2008AssetsCash and cash equivalents
    
    $
    2,156
    
    
    $
    6,119Receivables
    
    
    439
    
    
    
    1,240Investment in unconsolidated joint venture
    
    
    19,278
    
    
    
    44,733Other assets
    
    
    57
    
    
    
    60Total assets
    
    $
    21,930
    
    
    $
    52,152LiabilitiesAccounts payable and accrued expenses
    
    $
    10,029
    
    
    $
    9,467Total liabilities
    
    $
    10,029
    
    
    $
    9,467
 5.
    
    InventoriesInventories consisted of the following (in thousands):
 May 31,
    
    
    November 30,2009
    
    
    2008Homes, lots and improvements in production
    
    $
    1,443,024
    
    
    $
    1,649,838Land under development
    
    
    450,939
    
    
    
    456,878Total
    
    $
    1,893,963
    
    
    $
    2,106,716
 The Companys interest costs were as follows (in thousands):
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Capitalized interest at beginning of
period
    
    $
    361,619
    
    
    $
    348,084
    
    
    $
    365,333
    
    
    $
    358,010Interest incurred
    
    
    57,277
    
    
    
    76,905
    
    
    
    28,019
    
    
    
    38,403Interest expensed
    
    
    (20,123
    )
    
    
    
    
    
    
    (11,471
    )
    
    
    Interest amortized
    
    
    (43,372
    )
    
    
    (54,898
    )
    
    
    (26,480
    )
    
    
    (26,322
    )Capitalized interest at end of period (a)
    
    $
    355,401
    
    
    $
    370,091
    
    
    $
    355,401
    
    
    $
    370,091
 (a)
    
    Inventory impairment charges are recognized against all inventory costs of a community,
such as land, land improvements, cost 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 generally not allocated to specific components
of inventory. 6.
    
    Inventory Impairments and AbandonmentsEach parcel or community in the Companys owned inventory is assessed to determine if indicators of
potential impairment exist. Impairment indicators are assessed separately for each parcel or
community on a quarterly basis and include, but are not limited to: significant decreases in sales
rates, average selling prices, volume of homes delivered, gross margins on homes delivered or
projected margins on homes in backlog or future housing sales; significant increases in budgeted
land development and construction costs or cancellation rates; or
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    Inventory Impairments and Abandonments (continued)projected losses on expected future land sales. If indicators of potential impairment exist for a
parcel or community, the identified inventory is evaluated for recoverability in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). When an indicator of potential impairment is identified,
the Company tests the asset for recoverability by comparing the carrying amount of the asset to
the undiscounted future net cash flows expected to be generated by the asset. The undiscounted
future net cash flows are impacted by trends and factors known to the Company at the time they
are calculated and the Companys expectations related to: market supply and demand, including
estimates concerning average selling prices; sales and cancellation rates; and anticipated land
development, construction and overhead costs to be incurred. These estimates, trends and
expectations are specific to each community and may vary among communities.A real estate asset is considered impaired when its carrying amount is greater than the
undiscounted future net cash flows the asset is expected to generate. Impaired real estate
assets are written down to fair value, which is primarily based on the estimated future cash
flows discounted for inherent risk associated with each asset. These discounted cash flows are
impacted by: the risk-free rate of return; expected risk premium based on estimated land
development, construction and delivery timelines; market risk from potential future price
erosion; cost uncertainty due to development or construction cost increases; and other risks
specific to the asset or conditions in the market in which the asset is located at the time the
assessment is made. These factors are specific to each community and may vary among communities.Based on the results of its evaluations, the Company recognized pretax, noncash inventory
impairment charges of $5.8 million in the three months ended May 31, 2009 and $154.0 million in
the three months ended May 31, 2008. In the six months ended May 31, 2009 and 2008, the Company
recognized pretax, noncash inventory impairment charges of $30.2 million and $334.3 million,
respectively. As of May 31, 2009, the aggregate carrying value of inventory impacted by pretax,
noncash impairment charges was $888.4 million, representing 148 communities and various other
land parcels. As of November 30, 2008, the aggregate carrying value of inventory impacted by
pretax, noncash impairment charges was $1.01 billion, representing 163 communities and various
other land parcels.The Companys optioned inventory is assessed to determine whether it continues to meet the
Companys internal investment standards. Assessments are made separately for each optioned
parcel on a quarterly basis and are affected by, among other factors: current and/or anticipated
sales rates, average selling prices and home delivery volume; estimated land development and
construction costs; and projected profitability on expected future housing or land sales. When a
decision is made not to exercise certain land option contracts due to market conditions and/or
changes in market strategy, the Company writes off the costs, including non-refundable deposits
and pre-acquisition costs, related to the abandoned projects. Based on the results of its
assessments, the Company recognized land option contract abandonment charges of $36.5 million in
the three months ended May 31, 2009 and $20.4 million in the three months ended May 31, 2008.
In the six months ended May 31, 2009 and 2008, the Company recognized land option contract
abandonment charges of $36.8 million and $27.7 million, respectively.The inventory impairment and land option contract abandonment charges are included in
construction and land costs in the Companys consolidated statements of operations.Due to the judgment and assumptions applied in the estimation process with respect to inventory
impairments and land option contract abandonments, it is possible that actual results could
differ substantially from those estimated.
 7.
    
    Fair Value DisclosuresEffective December 1, 2008, the Company adopted Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS No. 157), for its assets and liabilities measured at fair
value on a nonrecurring
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7.
    
    Fair Value Disclosures (continued)basis. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities,
defines fair value, establishes a framework for measuring fair value under generally accepted
accounting principles, expands disclosures about fair value measurements, and establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value.The fair value hierarchy can be summarized as follows:
 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.
 The Companys assets measured at fair value on a nonrecurring basis are summarized below (in
thousands):
 Fair Value Measurements UsingQuoted
    
    
    SignificantPrices in
    
    
    Other
    
    
    SignificantSix Months
    
    
    Active
    
    
    Observable
    
    
    UnobservableEnded
    
    
    Markets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    May 31, 2009 (a)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Long-lived assets
held and used
    
    $
    39,159
    
    
    $
    
    
    
    $
    7,707
    
    
    $
    31,452
    
    
    $
    (30,147
    )
 (a)
    
    Amounts represent 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. In accordance with the provisions of SFAS No. 144, long-lived assets held and used with a
carrying amount of $69.3 million were written down to their fair value of $39.2 million during
the six months ended May 31, 2009, resulting in noncash inventory impairment charges of $30.2
million. These inventory impairment charges were included in the Companys construction and land
costs in the consolidated statement of operations.The fair value for long-lived assets held and used, determined using Level 2 inputs, was based on
a bona fide letter of intent from an outside party or an executed contract. Fair values for
long-lived assets held and used, determined using Level 3 inputs, were primarily based on the
estimated future cash flows discounted for inherent risk associated with each asset. These
discounted cash flows are impacted by: the risk-free rate of return; expected risk premium based
on estimated land development; construction and delivery timelines; market risk from potential
future price erosion; cost uncertainty due to development or construction cost increases; and
other risks specific to the asset or conditions in the market in which the asset is located at
the time the assessment is made. These factors are specific to each community and may vary among
communities.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    Consolidation of Variable Interest EntitiesFASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (FASB
Interpretation No. 46(R)) requires a variable interest entity (VIE) to be consolidated in the
financial statements of a company if that company is the primary beneficiary of the VIE. Under
FASB Interpretation No. 46(R), the primary beneficiary of a VIE absorbs a majority of the VIEs
expected losses, receives a majority of the VIEs expected residual returns, or both.The Company participates in joint ventures from time to time for the purpose of conducting land
acquisition, development and/or other homebuilding activities. Its investments in these joint
ventures may create a variable interest in a VIE, depending on the contractual terms of the
arrangement. The Company analyzes its joint ventures in accordance with FASB Interpretation
No. 46(R) when they are entered into or upon a reconsideration event. All of the Companys joint
ventures at May 31, 2009 and November 30, 2008 were determined to be unconsolidated joint
ventures either because they were not VIEs or, if they were VIEs, the Company was not the primary
beneficiary of the VIEs.In the ordinary course of its business, the Company enters into land option contracts (or similar
agreements) in order to procure land for the construction of homes. The use of such option and
other contracts generally allows the Company to reduce the risks associated with direct land
ownership and development, reduces the Companys capital and financial commitments, including
interest and other carrying costs, and minimizes the amount of the Companys land inventories on
its consolidated balance sheet. Under such land option contracts, the Company will pay a
specified option deposit or earnest money deposit in consideration for the right to purchase land
in the future, usually at a predetermined price. Under the requirements of FASB Interpretation
No. 46(R), certain of the Companys land option contracts may create a variable interest for the
Company, with the land seller being identified as a VIE.In compliance with FASB Interpretation No. 46(R), the Company analyzes its land option contracts
and other contractual arrangements when they are entered into or upon a reconsideration event,
and as a result has consolidated the fair value of certain VIEs from which the Company is
purchasing land under option contracts. Although the Company does not have legal title to the
land, FASB Interpretation No. 46(R) requires the Company to consolidate the VIE if the Company is
determined to be the primary beneficiary. In determining whether it is the primary beneficiary,
the Company considers, among other things, the size of its deposit relative to the contract
price, the risk of obtaining land entitlement approval, the risk associated with land development
required under the land option contract, and the risk of changes in the market value of the
optioned land during the contract period. The consolidation of VIEs in which the Company was
determined to be the primary beneficiary increased its inventories, with a corresponding increase
to accrued expenses and other liabilities, on the Companys consolidated balance sheets by $15.5
million at both May 31, 2009 and November 30, 2008. The liabilities related to the Companys
consolidation of VIEs from which it has arranged to purchase land under option and other
contracts represent the difference between the purchase price of land not yet purchased and the
Companys cash deposits. The Companys cash deposits related to these land option and other
contracts totaled $3.4 million at both May 31, 2009 and November 30, 2008. Creditors, if any, of
these VIEs have no recourse against the Company. As of May 31, 2009, excluding consolidated
VIEs, the Company had cash deposits totaling $16.7 million associated with land option and other
contracts having an aggregate purchase price of $433.8 million.The Companys exposure to loss related to its land option and other contracts with third parties
and unconsolidated entities consisted of its non-refundable deposits totaling $20.1 million at
May 31, 2009 and $33.1 million at November 30, 2008. In addition, the Company posted letters of
credit of $12.9 million at May 31, 2009 and $32.5 million at November 30, 2008 in lieu of cash
deposits under certain land option contracts.The Company also evaluates land option and other contracts in accordance with Statement of
Financial Accounting Standards No. 49, Accounting for Product Financing Arrangements (SFAS
No. 49), and, as a result of its evaluations, increased inventories, with a corresponding
increase to accrued expenses and other liabilities, on its consolidated balance sheets by $49.9
million at May 31, 2009 and $81.5 million at November 30, 2008.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    Investments in Unconsolidated Joint VenturesThe Company participates in unconsolidated joint ventures that conduct land acquisition,
development and/or other homebuilding activities in various markets, typically where the
Companys homebuilding operations are located. The Companys partners in these unconsolidated
joint ventures are unrelated homebuilders, land developers and other real estate entities, or
commercial enterprises. Through these unconsolidated joint ventures, the Company seeks to reduce
and share market and development risks and to reduce its investment in land inventory, while
potentially increasing the number of homesites it controls or will own. In some instances,
participating in unconsolidated joint ventures enables the Company to acquire and develop land
that it might not otherwise have access to due to a projects size, financing needs, duration of
development or other circumstances. While the Company views its participation in unconsolidated
joint ventures as beneficial to its homebuilding activities, it does not view such participation
as essential.The Company and/or its unconsolidated joint venture partners typically obtain options or enter
into other arrangements to have the right to purchase portions of the land held by the
unconsolidated joint ventures. The prices for these land options or other arrangements are
generally negotiated prices that approximate fair value. When an unconsolidated joint venture
sells land to the Companys homebuilding operations, the Company defers recognition of its share
of such unconsolidated joint venture earnings until a home sale is closed and title passes to a
homebuyer, at which time the Company accounts for those earnings as a reduction of the cost of
purchasing the land from the unconsolidated joint venture.The Company and its unconsolidated joint venture partners make initial or ongoing capital
contributions to these unconsolidated joint ventures, typically on a pro rata basis. The
obligations to make capital contributions are governed by each unconsolidated joint ventures
respective operating agreement and related documents.Each unconsolidated joint venture is obligated to maintain financial statements in accordance
with U.S. generally accepted accounting principles. The Company shares in profits and losses of
these unconsolidated joint ventures generally in accordance with its respective equity interests.The following table presents combined condensed statement of operations information for the
Companys unconsolidated joint ventures (in thousands):
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    34,207
    
    
    $
    55,285
    
    
    $
    22,731
    
    
    $
    27,902Construction and land costs
    
    
    (50,371
    )
    
    
    (150,458
    )
    
    
    (31,870
    )
    
    
    (111,818
    )Other expenses, net
    
    
    (23,259
    )
    
    
    (22,370
    )
    
    
    (17,124
    )
    
    
    (14,800
    )Loss
    
    $
    (39,423
    )
    
    $
    (117,543
    )
    
    $
    (26,263
    )
    
    $
    (98,716
    )
 With respect to the Companys investment in unconsolidated joint ventures, its equity in loss of
unconsolidated joint ventures included pretax, noncash impairment charges of $7.2 million for the
three months ended May 31, 2009 and $2.1 million for the three months ended May 31, 2008. In the
six months ended May 31, 2009 and 2008, the Companys equity in loss of unconsolidated joint
ventures included pretax, noncash impairment charges of
$14.8 million and $38.5 million, respectively.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    Investments in Unconsolidated Joint Ventures (continued)The following table presents combined condensed balance sheet information for the Companys
unconsolidated joint ventures (in thousands):
 May 31,
    
    
    November 30,2009
    
    
    2008AssetsCash
    
    $
    17,589
    
    
    $
    29,194Receivables
    
    
    143,228
    
    
    
    143,926Inventories
    
    
    966,551
    
    
    
    1,029,306Other assets
    
    
    58,336
    
    
    
    55,289Total assets
    
    $
    1,185,704
    
    
    $
    1,257,715Liabilities and equityAccounts payable and other liabilities
    
    $
    122,025
    
    
    $
    85,064Mortgages and notes payable
    
    
    785,977
    
    
    
    871,279Equity
    
    
    277,702
    
    
    
    301,372Total liabilities and equity
    
    $
    1,185,704
    
    
    $
    1,257,715
 The following table presents information relating to the Companys investments in unconsolidated
joint ventures and the aggregate outstanding debt of its unconsolidated joint ventures as of the
dates specified, categorized by the nature of the Companys potential responsibility under a
guaranty, if any, for such debt (dollars in thousands):
 May 31,
    
    
    November 30,2009
    
    
    2008Number of investments in unconsolidated joint ventures:With recourse debt (a)
    
    
    
    
    
    
    1With limited recourse debt (b)
    
    
    2
    
    
    
    4With non-recourse debt (c)
    
    
    9
    
    
    
    10Other (d)
    
    
    8
    
    
    
    10Total
    
    
    19
    
    
    
    25Investments in unconsolidated joint ventures:With recourse debt
    
    $
    
    
    
    $
    3,339With limited recourse debt
    
    
    
    
    
    
    1,360With non-recourse debt
    
    
    19,317
    
    
    
    24,590Other
    
    
    151,864
    
    
    
    148,360Total
    
    $
    171,181
    
    
    $
    177,649Outstanding debt of unconsolidated joint ventures:With recourse debt
    
    $
    
    
    
    $
    3,249With limited recourse debt
    
    
    32,500
    
    
    
    112,700With non-recourse debt
    
    
    379,979
    
    
    
    381,393Other
    
    
    373,498
    
    
    
    373,937Total (e)
    
    $
    785,977
    
    
    $
    871,279
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    Investments in Unconsolidated Joint Ventures (continued)
 (a)
    
    This category consists of an unconsolidated joint venture as to which the Company has
entered into a several guaranty with respect to the repayment of a portion of the
unconsolidated joint ventures outstanding debt. This unconsolidated joint venture was
dissolved during the quarter ended May 31, 2009.(b)
    
    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.(c)
    
    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.(d)
    
    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
that, 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 (d) as further described below.(e)
    
    The Total amounts represent the aggregate outstanding debt of the unconsolidated
joint ventures in which the Company participates. These 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.
 The unconsolidated joint ventures finance land and inventory investments through a variety of
arrangements. To finance their respective land acquisition and development activities, many of
the Companys unconsolidated joint ventures have obtained loans from third-party lenders that are
secured by the underlying property and related project assets. The unconsolidated joint ventures
had outstanding debt, substantially all of which was secured, of approximately $786.0 million at
May 31, 2009 and $871.3 million at November 30, 2008. The unconsolidated joint ventures are
subject to various financial and non-financial covenants in conjunction with their debt,
primarily related to fair value of collateral and minimum land purchase or sale requirements
within a specified period. In a few instances, the financial covenants are based on the Companys
financial position. The inability of an unconsolidated joint venture to comply with its debt
covenants could result in a default and cause lenders to seek to enforce guarantees, if
applicable, as described below.
 In certain instances, the Company and/or its partner(s) in an unconsolidated joint venture
provide guarantees and indemnities to the unconsolidated joint ventures lenders that may
include one or more of the following: (a) a completion guaranty; (b) a loan-to-value
maintenance guaranty; and/or (c) a carve-out guaranty. A completion guaranty refers to the
actual physical completion of improvements for a project and/or the obligation to contribute
equity to an unconsolidated joint venture to enable it to fund its completion obligations. A
loan-to-value maintenance guaranty refers to the payment of funds to maintain the applicable
loan balance at or below a specific percentage of the value of an unconsolidated joint
ventures secured collateral (generally land and improvements). A carve-out guaranty refers
to the payment of (i) losses a lender suffers due to certain bad acts or omissions by an
unconsolidated joint venture or its partners, such as fraud or misappropriation, or due to
environmental liabilities arising with respect to the relevant project, or (ii) outstanding
principal and interest and certain other amounts owed to lenders upon the filing by an
unconsolidated joint venture of a voluntary bankruptcy petition or the filing of an
involuntary bankruptcy petition by creditors of the unconsolidated joint
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    Investments in Unconsolidated Joint Ventures (continued)venture in which an unconsolidated joint venture or its partners collude or which the
unconsolidated joint venture fails to contest.In most cases, the Companys maximum potential responsibility under these guarantees and
indemnities is limited to either a specified maximum dollar amount or an amount equal to its pro
rata interest in the relevant unconsolidated joint venture. In a few cases, the Company has
entered into agreements with its unconsolidated joint venture partners to be reimbursed or
indemnified with respect to the guarantees the Company has provided to an unconsolidated joint
ventures lenders for any amounts the Company may pay pursuant to such guarantees above its pro
rata interest in the unconsolidated joint venture. If the Companys unconsolidated joint venture
partners are unable to fulfill their reimbursement or indemnity obligations, or otherwise fail to
do so, the Company could incur more than its allocable share under the relevant guaranty. Should
there be indications that advances (if made) will not be voluntarily repaid by an unconsolidated
joint venture partner under any such reimbursement arrangements, the Company vigorously pursues
all rights and remedies available to it under the applicable agreements, at law or in equity to
enforce its rights.The Companys potential responsibility under its completion guarantees, if triggered, is highly
dependent on the facts of a particular case. In any event, the Company believes its actual
responsibility under these guarantees is limited to the amount, if any, by which an
unconsolidated joint ventures outstanding borrowings exceed the value of its assets, but may be
substantially less than this amount.At May 31, 2009, the Companys potential responsibility under its loan-to-value maintenance
guarantees totaled approximately $16.3 million, if any liability were determined to be due
thereunder. This amount represents the Companys maximum responsibility under such loan-to-value
maintenance guarantees assuming the underlying collateral has no value and without regard to
defenses that could be available to the Company against any attempted enforcement of such
guarantees.Notwithstanding the Companys potential unconsolidated joint venture guaranty and indemnity
responsibilities and resolutions it has reached in certain instances with unconsolidated joint
venture lenders with respect to those potential responsibilities, at this time the Company does
not believe that its existing exposure under its outstanding completion, loan-to-value and
carve-out guarantees and indemnities related to unconsolidated joint venture debt is material to
the Companys consolidated financial position, results of operations or liquidity. As a result
of resolutions reached with their lenders in the 2009 second quarter with respect to potential
guaranty responsibilities, certain unconsolidated joint ventures are now classified as having
non-recourse debt (as described in the table above).The lenders for two of the Companys unconsolidated joint ventures have filed lawsuits against
some of the unconsolidated joint ventures members, and certain of those members parent
companies, seeking to recover damages under completion guarantees, among other claims. The
Company and the other parent companies, together with the members, are defending the lawsuits in
which they have been named and are currently exploring resolutions with the lenders, but there is
no assurance that the parties involved will reach satisfactory resolutions. The Company does not
believe, however, that the outcome of these lawsuits should have a material impact on the
Companys consolidated financial position or results of operations.In addition to the above-described guarantees and indemnities, the Company has also provided a
several guaranty to the lenders of one of the Companys unconsolidated joint ventures. By its
terms, the guaranty purports to guarantee the repayment of principal and interest and certain
other amounts owed to the unconsolidated joint ventures lenders when 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. The Companys potential responsibility under
this several guaranty fluctuates with the unconsolidated joint ventures debt and with the
Companys and its partners respective land purchases from the unconsolidated joint venture.
At May 31, 2009, this unconsolidated joint venture had total outstanding indebtedness of
approximately $373.5 million and, if this guaranty were then enforced, the Companys
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
    
    Investments in Unconsolidated Joint Ventures (continued)maximum potential responsibility under the guaranty would have been approximately $182.7 million,
which amount does not account for any offsets or defenses that could be available to the Company.Certain of the Companys other unconsolidated joint ventures operating in difficult market
conditions are in default of their debt agreements with their lenders or are at risk of
defaulting. In addition, certain of the Companys unconsolidated joint venture partners have
curtailed funding of their allocable joint venture obligations. The Company is carefully managing
its investments in these particular unconsolidated joint ventures and is working with the
relevant lenders and unconsolidated joint venture partners to reach satisfactory resolutions. In
some instances, the Company may decide to purchase its partners interests and consolidate the
joint venture, which could result in an increase in the amount of mortgages and notes payable on
the Companys consolidated balance sheets. However, such purchases may not resolve a claimed
default by the joint venture under its debt agreements. Based on the terms and amounts of the
debt involved for these particular unconsolidated joint ventures and the terms of the applicable
joint venture operating agreements, the Company does not believe that its exposure related to any
defaults by or with respect to these particular unconsolidated joint ventures is material to the
Companys consolidated financial position, results of operations or liquidity.10.
    
    Mortgages and Notes PayableMortgages and notes payable consisted of the following (in thousands):
 May 31,
    
    
    November 30,2009
    
    
    2008Mortgages and land contracts due to land sellers and other loans
    
    $
    66,144
    
    
    $
    96,368Senior subordinated notes due December 15, 2008 at 8 5/8%
    
    
    
    
    
    
    200,000Senior notes due 2011 at 6 3/8%
    
    
    349,096
    
    
    
    348,908Senior notes due 2014 at 5 3/4%
    
    
    249,292
    
    
    
    249,227Senior notes due 2015 at 5 7/8%
    
    
    298,782
    
    
    
    298,692Senior notes due 2015 at 6 1/4%
    
    
    449,675
    
    
    
    449,653Senior notes due 2018 at 7 1/4%
    
    
    298,737
    
    
    
    298,689Total
    
    $
    1,711,726
    
    
    $
    1,941,537
 The Company has an unsecured revolving credit facility (the Credit Facility) with a syndicate
of lenders that matures in November 2010. Interest on the Credit Facility is payable monthly at
the London Interbank Offered Rate plus an applicable spread on amounts borrowed. At May 31, 2009,
the Company had no cash borrowings outstanding and $193.5 million in letters of credit
outstanding under the Credit Facility. The aggregate commitment under the Credit Facility, in
accordance with its terms, was permanently reduced from $800.0 million to $650.0 million in the
second quarter of 2009 because the Companys consolidated tangible net worth was below $800.0
million at February 28, 2009. Under the terms of the Credit Facility, the Company is required,
among other things, to maintain a minimum consolidated tangible net worth and certain financial
statement ratios, and is subject to limitations on acquisitions, inventories and indebtedness.On December 15, 2008, the Company repaid $200.0 million of 8 5/8% senior subordinated notes (the
$200 Million Senior Subordinated Notes), which matured on that date.The indenture governing the Companys senior notes does not contain any financial maintenance
covenants. Subject to specified exceptions, the senior notes indenture contains certain
restrictive covenants that, among other things, limit the Companys ability to incur secured
indebtedness; engage in sale-leaseback transactions
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    Mortgages and Notes Payable (continued)involving property or assets above a certain specified value; or engage in mergers,
consolidations, or sales of assets.As of May 31, 2009, the Company was in compliance with the applicable terms of all of its
covenants under its Credit Facility and senior notes indenture. The Companys ability to
continue to borrow funds depends in part on its ability to remain in such compliance. The
Companys inability to do so could make it more difficult and expensive to maintain its current
level of external debt financing or to obtain additional financing.11.
    
    Commitments and ContingenciesThe Company provides a limited warranty on all of its homes. The specific terms and conditions
of warranties vary depending upon the market in which the Company does business. The Company
generally provides a structural warranty of 10 years, a warranty on electrical, heating, cooling,
plumbing and other building systems each varying from two to five years based on geographic
market and state law, and a warranty of one year for other components of the home. The Company
estimates the costs that may be incurred under each limited warranty and records a liability in
the amount of such costs at the time the revenue associated with the sale of each home is
recognized. Factors that affect the Companys warranty liability include the number of homes
delivered, historical and anticipated rates of warranty claims, and cost per claim. The
Companys primary assumption in estimating the amounts it accrues for warranty costs is that
historical claims experience is a strong indicator of future claims experience. The Company
periodically assesses the adequacy of its recorded warranty liabilities, which are included in
accrued expenses and other liabilities in the consolidated balance sheets, and adjusts the
amounts as necessary based on its assessment.The changes in the Companys warranty liability are as follows (in thousands):
 Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    145,369
    
    
    $
    151,525
    
    
    $
    142,224
    
    
    $
    150,917Warranties issued
    
    
    4,226
    
    
    
    10,769
    
    
    
    2,233
    
    
    
    3,834Payments and adjustments
    
    
    (11,905
    )
    
    
    (16,244
    )
    
    
    (6,767
    )
    
    
    (8,701
    )Balance at end of period
    
    $
    137,690
    
    
    $
    146,050
    
    
    $
    137,690
    
    
    $
    146,050
 In the normal course of its business, the Company issues certain representations, warranties and
guarantees related to its home sales and land sales that may be affected by FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. Based on historical evidence, the Company does not
believe any of these representations, warranties or guarantees would result in a material effect
on its consolidated financial position or results of operations.
 The Company has, and requires the majority of its subcontractors to have, general liability
insurance (including bodily injury and construction defect coverage), auto, and workers
compensation insurance. These insurance policies protect the Company against a portion of its
risk of loss from claims related to its homebuilding activities, subject to certain
self-insured retentions, deductibles and other coverage limits. In Arizona, California,
Colorado and Nevada, the Companys general liability insurance takes the form of a wrap-up
policy, where eligible subcontractors are enrolled as insureds on each project. The Company
self-insures a portion of its overall risk through the use of a captive insurance subsidiary.
The Company records expenses and liabilities based on the costs required to cover its
self-insured retention and deductible amounts under its insurance policies, and on the
estimated costs of potential claims and claim adjustment expenses above its coverage limits or
that are not covered by its policies. These estimated costs are based on an analysis of the
Companys historical claims and include an estimate of construction defect claims incurred but
not yet reported. The
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    Commitments and Contingencies (continued)Companys estimated liabilities for such items were $104.5 million at May 31, 2009 and $101.5
million at November 30, 2008. These amounts are included in accrued expenses and other
liabilities in the consolidated balance sheets.The Company is often required to obtain performance bonds and letters of credit in support of its
obligations to various municipalities and other government agencies in connection with community
improvements, such as roads, sewers and water, and to certain unconsolidated joint ventures. At
May 31, 2009, the Company had $612.8 million of performance bonds and $193.5 million of letters
of credit outstanding. In the event any such performance bonds or letters of credit are called,
the Company would be obligated to reimburse the issuer of the performance bond or letter of
credit. At this time, the Company does not believe that a material amount of any currently
outstanding performance bonds or letters of credit will be called. Performance bonds do not have
stated expiration dates. Rather, the Company is released from the performance bonds as the
underlying performance is completed. The expiration dates of letters of credit issued in
connection with community improvements and certain unconsolidated joint ventures coincide with
the expected completion dates of the related projects or obligations. If the obligations related
to a project are ongoing, the relevant letters of credit are typically extended on a year-to-year
basis.Borrowings outstanding, if any, and letters of credit issued under the Companys Credit Facility
are guaranteed by certain of the Companys subsidiaries (the Guarantor Subsidiaries).In the ordinary course of its business, the Company enters into land option contracts to procure
land for the construction of homes. At May 31, 2009, the Company had total deposits of $33.0
million, comprised of cash deposits of $20.1 million and letters of credit of $12.9 million, to
purchase land with a total remaining purchase price of $452.7 million. The Companys land option
contracts generally do not contain provisions requiring the Companys specific performance.12.
    
    Legal MattersERISA LitigationOn March 16, 2007, plaintiffs Reba Bagley and Scott Silver filed an action brought under Section
502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132, Bagley et al., v.
KB Home, et al., in the United States District Court for the Central District of California. The
action was brought against the Company, its directors, and certain of its current and former
officers. After the court allowed leave to file an amended complaint, plaintiffs filed an amended
complaint adding Tolan Beck and Rod Hughes as additional plaintiffs and dismissing certain
individuals as defendants. All four plaintiffs claim to be former employees of the Company who
participated in the KB Home 401(k) Savings Plan (the Plan). Plaintiffs allege on behalf of
themselves and on behalf of all others similarly situated that all defendants breached fiduciary
duties owed to plaintiffs and purported class members under ERISA by failing to disclose
information to and providing misleading information to participants in the Plan about alleged
prior stock option backdating practices of the Company and by failing to remove the Companys
stock as an investment option under the Plan. Plaintiffs allege that this breach of fiduciary
duties caused plaintiffs to earn less on their Plan accounts than they would have earned but for
defendants alleged breach of duties. Plaintiffs seek unspecified money damages and injunctive
and other equitable relief.The case is now in discovery, and the court has tentatively scheduled the trial to begin on
November 9, 2010. While the Company believes it has strong defenses to the ERISA claims, it has
not concluded whether an unfavorable outcome is likely to be material to its consolidated
financial position or results of operations.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    Legal Matters (continued)Other MattersThe Company is also involved in litigation and governmental proceedings incidental to its
business. These cases are in various procedural stages and, based on reports of counsel, the
Company believes that provisions or reserves made for potential losses are adequate and any
liabilities or costs arising out of currently pending litigation should not have a materially
adverse effect on its consolidated financial position or results of operations.13.
    
    Stockholders EquityOn January 22, 2009, the Company adopted an amendment to the Rights Agreement between the
Company and ChaseMellon Shareholder Services L.L.C., as rights agent, dated February 4, 1999 (the
1999 Rights Agreement). The amendment to the 1999 Rights Agreement was designed to preserve
the value of certain of the Companys deferred tax assets. Under the 1999 Rights Agreement as
amended, under certain circumstances, each preferred share purchase right that was issued
pursuant to the 1999 Rights Agreement as a dividend on March 5, 1999 entitled the holder to
purchase 1/100th of a share of the Companys Series A Participating Cumulative Preferred Stock at
an exercise price of $85.00, subject to adjustment. The terms relating to the exercise and
redemption of these rights is described in the Companys Annual Report on Form 10-K for the year
ended November 30, 2008. These rights expired on March 5, 2009.On January 22, 2009, the Company also adopted a Rights Agreement between the Company and
Mellon Investor Services LLC, as rights agent, dated as of that date (the 2009 Rights
Agreement), and declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock that was payable to stockholders of record as of the close of
business on March 5, 2009. Subject to the terms, provisions and conditions of the 2009 Rights
Agreement, if these rights become exercisable, each right would initially represent the right to
purchase from the Company 1/100th of a share of its Series A Participating Cumulative Preferred
Stock for a purchase price of $85.00 (the Purchase Price). If issued, each fractional share of
preferred stock would generally give a stockholder approximately the same dividend, voting and
liquidation rights as does one share of the Companys common stock. However, prior to exercise, a
right does not give its holder any rights as a stockholder, including without limitation any
dividend, voting or liquidation rights. The rights will not be exercisable until the earlier of
(i) ten calendar days after a public announcement by the Company that a person or group has
become an Acquiring Person (as defined under the 2009 Rights Agreement) and (ii) ten business
days after the commencement of a tender or exchange offer by a person or group if upon
consummation of the offer the person or group would beneficially own 4.9% or more of the
Companys outstanding common stock.Until these rights become exercisable (the Distribution Date), common stock certificates
will evidence the rights and may contain a notation to that effect. Any transfer of shares of the
Companys common stock prior to the Distribution Date will constitute a transfer of the
associated rights. After the Distribution Date, the rights may be transferred other than in
connection with the transfer of the underlying shares of the Companys common stock. If there is
an Acquiring Person on the Distribution Date or a person or group becomes an Acquiring Person
after the Distribution Date, each holder of a right, other than rights that are or were
beneficially owned by an Acquiring Person, which will be void, will thereafter have the right to
receive upon exercise of a right and payment of the Purchase Price, that number of shares of the
Companys common stock having a market value of two times the Purchase Price. After the later of
the Distribution Date and the time the Company publicly announces that an Acquiring Person has
become such, the Companys board of directors may exchange the rights, other than rights that are
or were beneficially owned by an Acquiring Person, which will be void, in whole or in part, at an
exchange ratio of one share of common stock per right, subject to adjustment.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    Stockholders Equity (continued)At any time prior to the later of the Distribution Date and the time the Company publicly
announces that an Acquiring Person becomes such, the Companys board of directors may redeem all
of the then-outstanding rights in whole, but not in part, at a price of $0.001 per right, subject
to adjustment (the Redemption Price). The redemption will be effective immediately upon the
board of directors action, unless the action provides that such redemption will be effective at
a subsequent time or upon the occurrence or nonoccurrence of one or more specified events, in
which case the redemption will be effective in accordance with the provisions of the action.
Immediately upon the effectiveness of the redemption of the rights, the right to exercise the
rights will terminate and the only right of the holders of rights will be to receive the
Redemption Price, with interest thereon. With the approval of the 2009 Rights Agreement by the
Companys stockholders at the Companys 2009 Annual Meeting of Stockholders on April 2, 2009, the
rights issued pursuant to the 2009 Rights Agreement will expire on the earliest of (a) the close
of business on March 5, 2019, (b) the time at which the rights are redeemed, (c) the time at
which the rights are exchanged, (d) the time at which the Companys board of directors determines
that a related provision in the Companys Restated Certificate of Incorporation is no longer
necessary, and (e) the close of business on the first day of a taxable year of the Company to
which the Companys board of directors determines that no tax benefits may be carried forward.As of May 31, 2009, the Company was authorized to repurchase four million shares under a
board-approved stock repurchase program. The Company did not repurchase any of its common stock
under this program in the six months ended May 31, 2009. The Company acquired $.6 million of
common stock in the six months ended May 31, 2009, which were previously issued shares delivered
to the Company by employees to satisfy withholding taxes on the vesting of restricted stock
awards. These transactions are not considered repurchases under the share repurchase program.On February 9, 2009, in connection with the settlement of certain stockholder derivative
litigation, the Companys former chairman and chief executive officer relinquished 1,379,594
shares of restricted stock to the Company. These shares were transferred to the Company and are
reflected as treasury stock.During the quarter ended February 28, 2009, the Companys board of directors declared a cash
dividend of $.0625 per share of common stock, which was paid on February 19, 2009 to stockholders
of record on February 5, 2009. During the quarter ended May 31, 2009, the Companys board of
directors declared a cash dividend of $.0625 per share of common stock, which was paid on May 21,
2009 to stockholders of record on May 7, 2009.14.
    
    Recent Accounting PronouncementsIn December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)). SFAS
No. 141(R) amends Statement of Financial Accounting Standards No. 141, Business Combinations,
and provides revised guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides
disclosure requirements to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008 and is to be applied prospectively. The Company is currently
evaluating the potential impact of adopting SFAS No. 141(R) on its consolidated financial
position and results of operations.In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards pertaining to
ownership interests in subsidiaries held by parties other than the parent, the amount of net
income attributable to the parent and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of any retained noncontrolling equity investment when a
subsidiary is deconsolidated. SFAS No. 160 also establishes
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14.
    
    Recent Accounting Pronouncements (continued)disclosure requirements that clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is currently evaluating the potential impact
of adopting SFAS No. 160 on its consolidated financial position and results of operations.In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP No.
EITF 03-6-1). Under FSP No. EITF 03-6-1, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant
to the two-class method. FSP No. EITF 03-6-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those years and
requires retrospective application. The Company is currently evaluating the impact of adopting
FSP No. EITF 03-6-1 on its earnings per share.In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP No. FAS 107-1 and APB 28-1). FSP
No. FAS 107-1 and APB 28-1 requires fair value disclosures in both interim as well as annual
financial statements in order to provide more timely information about the effects of current
market conditions on financial instruments. FSP No. FAS 107-1 and APB 28-1 is effective for
interim and annual periods ending after June 15, 2009. FSP No. FAS 107-1 and APB 28-1 concerns
disclosure only and will not have an impact on the Companys consolidated financial position or
results of operations.In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP No. FAS 115-2 and FAS 124-2). FSP No.
FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary
impairment exists for debt securities and the amount of the impairment to be recorded in earnings
as well as expands and increases the frequency of existing disclosures about other-than-temporary
impairments for debt and equity securities. FSP No. FAS 115-2 and FAS 124-2 is effective for
interim and annual periods ending after June 15, 2009. The Company is currently evaluating the
potential impact of adopting FSP No. FAS 115-2 and FAS 124-2 on its consolidated financial
position and results of operations.In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP No. FAS 157-4). FSP No. FAS 157-4 provides
additional guidance on factors to consider in estimating fair value for a financial asset or
liability when there has been a significant decrease in market activity and guidance on
identifying circumstances where a transaction is not orderly. FSP No. FAS 157-4 is effective for
interim and annual periods ending after June 15, 2009. The Company is currently evaluating the
potential impact of FSP No. FAS 157-4 on its consolidated financial position and results of
operations.In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent
Events (SFAS No. 165). SFAS No. 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. SFAS No. 165 requires disclosure of the date through which
subsequent events have been evaluated and whether that date represents the date the financial
statements were issued or were available to be issued. SFAS No. 165 is effective for interim and
annual periods ending after June 15, 2009. The Company is currently evaluating the potential
impact of SFAS No. 165 on its consolidated financial position and results of operations.In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments
to FASB Interpretations No. 46(R) (SFAS No. 167). SFAS No. 167 revises the approach to
determining the primary beneficiary of a VIE to be more qualitative in nature and requires
companies to more frequently reassess whether they must consolidate a VIE. SFAS No. 167 is
effective for fiscal years beginning after
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14.
    
    Recent Accounting Pronouncements (continued)November 15, 2009, for interim periods within that first annual reporting period and for interim
and annual reporting periods thereafter. The Company is currently evaluating the potential
impact of adopting SFAS No. 167 on its consolidated financial position and results of operations.15.
    
    Income TaxesThe Companys income tax benefit totaled $5.2 million for the three months ended May 31, 2009,
compared to income tax expense of $.6 million for the three months ended May 31, 2008. The
Companys effective income tax benefit rate was 6.2% in the second quarter of 2009 compared to an
effective income tax expense rate of .2% for the second quarter of 2008. For the six months
ended May 31, 2009, the Companys income tax benefit totaled $6.7 million compared to income tax
expense of $.9 million for the six months ended May 31, 2008. The Companys effective income tax
benefit rate was 4.7% in the six months ended May 31, 2009 compared to an income tax expense rate
of .2% in the year-earlier period. The difference in the Companys effective tax rate for the
three months ended May 31, 2009 compared to the year-earlier period resulted primarily from the
recognition of a $4.6 million federal and state income tax receivable based on the current status
of federal audits and amended state filings. For the six months ended May 31, 2009, the
difference in the effective tax rate compared to the year-earlier period resulted primarily from
the recognition of the $4.6 million receivable and the reversal of a $1.8 million liability for
unrecognized federal and state tax benefits.In accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109), the Company evaluates its deferred tax assets quarterly to determine if
valuation allowances are required. SFAS No. 109 requires that companies assess whether valuation
allowances should be established based on the consideration of all available evidence using a
more likely than not standard. To the extent the Company generates taxable income in the
future to utilize these tax benefits, the Company would expect to reverse the valuation allowance
and decrease its effective tax rate on future income. However, to the extent the Company
generates future operating losses, it would be required to increase the valuation allowance on
its net deferred tax assets and its income tax provision would be adversely affected. During the
three months ended May 31, 2009, the Company recorded a valuation allowance of $31.7 million
against the net deferred tax assets generated from the net loss for the period. During the three
months ended May 31, 2008, the Company recorded a similar valuation allowance of $98.9 million
against net deferred tax assets. For the six months ended May 31, 2009 and 2008, the Company
recorded valuation allowances of $54.4 million and $198.9 million, respectively, against the net
deferred tax assets generated in those periods. The Companys net deferred tax assets totaled
$1.1 million at both May 31, 2009 and November 30, 2008. The deferred tax asset valuation
allowance increased to $910.8 million at May 31, 2009 from $878.8 million at November 30, 2008.
This increase reflected the net impact of the $54.4 million valuation allowance recorded during
the first six months of 2009, offset by a reduction of deferred tax assets due to the forfeiture
of certain equity-based awards.During the three months ended May 31, 2009, the Company had $6.9 million of additions and $9.3
million of reductions to its total gross unrecognized tax benefits primarily due to the
resolution of a state audit and the status of potential state adjustments. During the six months
ended May 31, 2009, additions and reductions to the Companys total gross unrecognized tax
benefits were $10.2 million and $14.4 million, respectively. The total amount of gross
unrecognized tax benefits, including interest and penalties, was $21.9 million as of May 31,
2009. The Company does not anticipate that total gross unrecognized tax benefits will
significantly increase or decrease during the twelve months from this reporting date.The benefits of the Companys net operating losses, built-in losses and tax credits would be
reduced or potentially eliminated if the Company experienced an ownership change under Internal
Revenue Code Section 382 (Section 382). Based on the Companys analysis performed as of May
31, 2009, the Company does not believe it has experienced a change in ownership as defined by
Section 382, and therefore, the net operating losses, built-in losses and tax credits the Company
has generated should not be subject to a Section 382 limitation at this time.
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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16.
    
    Supplemental Disclosure to Consolidated Statements of Cash FlowsThe following are supplemental disclosures to the consolidated statements of cash flows (in
thousands):
 Six Months Ended May 31,2009
    
    
    2008Summary of cash and cash equivalents:Homebuilding
    
    $
    997,357
    
    
    $
    1,305,077Financial services
    
    
    2,156
    
    
    
    13,551Total
    
    $
    999,513
    
    
    $
    1,318,628Supplemental disclosures of cash flow information:Interest paid, net of amounts capitalized
    
    $
    27,653
    
    
    $
    (263
    )Income taxes refunded
    
    
    (230,449
    )
    
    
    (105,737
    )Supplemental disclosures of noncash activities:Cost of inventories acquired through seller financing
    
    $
    6,494
    
    
    $
    Decrease in consolidated inventories not owned
    
    
    (31,529
    )
    
    
    (123,528
    )
 17.
    
    Supplemental Guarantor InformationThe Companys obligation to pay principal, premium, if any, and interest under certain debt
instruments are guaranteed on a joint and several basis by certain of the Guarantor Subsidiaries.
The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by the
Company. The Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental financial
information for the Guarantor Subsidiaries is presented.
  26




---



##### Table of Contents



KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    Supplemental Guarantor Information (continued)Condensed Consolidating Statements of Operations
Six Months Ended May 31, 2009 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    601,682
    
    
    $
    90,149
    
    
    $
    
    
    
    $
    691,831Homebuilding:Revenues
    
    $
    
    
    
    $
    601,682
    
    
    $
    86,984
    
    
    $
    
    
    
    $
    688,666Construction and
land costs
    
    
    
    
    
    
    (583,815
    )
    
    
    (83,953
    )
    
    
    
    
    
    
    (667,768
    )Selling, general
and
administrative
expenses
    
    
    (27,049
    )
    
    
    (84,857
    )
    
    
    (21,863
    )
    
    
    
    
    
    
    (133,769
    )Operating loss
    
    
    (27,049
    )
    
    
    (66,990
    )
    
    
    (18,832
    )
    
    
    
    
    
    
    (112,871
    )Interest income
    
    
    4,346
    
    
    
    417
    
    
    
    516
    
    
    
    
    
    
    
    5,279Interest expense,
net of amounts
capitalized
    
    
    20,699
    
    
    
    (39,195
    )
    
    
    (1,627
    )
    
    
    
    
    
    
    (20,123
    )Equity in loss of
unconsolidated
joint ventures
    
    
    
    
    
    
    (17,481
    )
    
    
    (4,015
    )
    
    
    
    
    
    
    (21,496
    )Homebuilding
pretax loss
    
    
    (2,004
    )
    
    
    (123,249
    )
    
    
    (23,958
    )
    
    
    
    
    
    
    (149,211
    )Financial services
pretax income
    
    
    
    
    
    
    
    
    
    
    6,056
    
    
    
    
    
    
    
    6,056Total pretax loss
    
    
    (2,004
    )
    
    
    (123,249
    )
    
    
    (17,902
    )
    
    
    
    
    
    
    (143,155
    )Income tax benefit
    
    
    100
    
    
    
    5,800
    
    
    
    800
    
    
    
    
    
    
    
    6,700Equity in net loss
of subsidiaries
    
    
    (134,551
    )
    
    
    
    
    
    
    
    
    
    
    134,551
    
    
    
    Net loss
    
    $
    (136,455
    )
    
    $
    (117,449
    )
    
    $
    (17,102
    )
    
    $
    134,551
    
    
    $
    (136,455
    )
 Condensed Consolidating Statements of Operations
Six Months Ended May 31, 2008 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    1,103,933
    
    
    $
    329,356
    
    
    $
    
    
    
    $
    1,433,289Homebuilding:Revenues
    
    $
    
    
    
    $
    1,103,933
    
    
    $
    324,469
    
    
    $
    
    
    
    $
    1,428,402Construction and
land costs
    
    
    
    
    
    
    (1,274,907
    )
    
    
    (393,574
    )
    
    
    
    
    
    
    (1,668,481
    )Selling, general
and administrative
expenses
    
    
    (37,430
    )
    
    
    (141,373
    )
    
    
    (67,900
    )
    
    
    
    
    
    
    (246,703
    )Goodwill impairment
    
    
    (24,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,570
    )Operating loss
    
    
    (62,000
    )
    
    
    (312,347
    )
    
    
    (137,005
    )
    
    
    
    
    
    
    (511,352
    )Interest income
    
    
    20,466
    
    
    
    1,894
    
    
    
    194
    
    
    
    
    
    
    
    22,554Interest expense,
net of amounts
capitalized
    
    
    40,062
    
    
    
    (22,454
    )
    
    
    (17,608
    )
    
    
    
    
    
    
    Equity in loss of
unconsolidated
joint ventures
    
    
    
    
    
    
    (4,115
    )
    
    
    (41,246
    )
    
    
    
    
    
    
    (45,361
    )Homebuilding
pretax loss
    
    
    (1,472
    )
    
    
    (337,022
    )
    
    
    (195,665
    )
    
    
    
    
    
    
    (534,159
    )Financial services
pretax income
    
    
    
    
    
    
    
    
    
    
    10,957
    
    
    
    
    
    
    
    10,957Total pretax loss
    
    
    (1,472
    )
    
    
    (337,022
    )
    
    
    (184,708
    )
    
    
    
    
    
    
    (523,202
    )Income tax expense
    
    
    
    
    
    
    (600
    )
    
    
    (300
    )
    
    
    
    
    
    
    (900
    )Equity in net loss
of subsidiaries
    
    
    (522,630
    )
    
    
    
    
    
    
    
    
    
    
    522,630
    
    
    
    Net loss
    
    $
    (524,102
    )
    
    $
    (337,622
    )
    
    $
    (185,008
    )
    
    $
    522,630
    
    
    $
    (524,102
    )
  27




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##### Table of Contents



KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    Supplemental Guarantor Information (continued)Condensed Consolidating Statements of Operations
Three Months Ended May 31, 2009 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    341,461
    
    
    $
    43,009
    
    
    $
    
    
    
    $
    384,470Homebuilding:Revenues
    
    $
    
    
    
    $
    341,461
    
    
    $
    41,464
    
    
    $
    
    
    
    $
    382,925Construction and
land costs
    
    
    
    
    
    
    (338,102
    )
    
    
    (38,708
    )
    
    
    
    
    
    
    (376,810
    )Selling, general
and
administrative
expenses
    
    
    (17,725
    )
    
    
    (43,746
    )
    
    
    (11,123
    )
    
    
    
    
    
    
    (72,594
    )Operating loss
    
    
    (17,725
    )
    
    
    (40,387
    )
    
    
    (8,367
    )
    
    
    
    
    
    
    (66,479
    )Interest income
    
    
    1,353
    
    
    
    240
    
    
    
    173
    
    
    
    
    
    
    
    1,766Interest expense,
net of amounts
capitalized
    
    
    11,572
    
    
    
    (20,323
    )
    
    
    (2,720
    )
    
    
    
    
    
    
    (11,471
    )Equity in loss of
unconsolidated
joint ventures
    
    
    
    
    
    
    (10,011
    )
    
    
    (1,743
    )
    
    
    
    
    
    
    (11,754
    )Homebuilding
pretax loss
    
    
    (4,800
    )
    
    
    (70,481
    )
    
    
    (12,657
    )
    
    
    
    
    
    
    (87,938
    )Financial services
pretax income
    
    
    
    
    
    
    
    
    
    
    4,355
    
    
    
    
    
    
    
    4,355Total pretax loss
    
    
    (4,800
    )
    
    
    (70,481
    )
    
    
    (8,302
    )
    
    
    
    
    
    
    (83,583
    )Income tax benefit
    
    
    300
    
    
    
    4,400
    
    
    
    500
    
    
    
    
    
    
    
    5,200Equity in net loss
of subsidiaries
    
    
    (73,883
    )
    
    
    
    
    
    
    
    
    
    
    73,883
    
    
    
    Net loss
    
    $
    (78,383
    )
    
    $
    (66,081
    )
    
    $
    (7,802
    )
    
    $
    73,883
    
    
    $
    (78,383
    )
 Condensed Consolidating Statements of Operations
Three Months Ended May 31, 2008 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalRevenues
    
    $
    
    
    
    $
    477,483
    
    
    $
    161,582
    
    
    $
    
    
    
    $
    639,065Homebuilding:Revenues
    
    $
    
    
    
    $
    477,483
    
    
    $
    159,611
    
    
    $
    
    
    
    $
    637,094Construction and
land costs
    
    
    
    
    
    
    (589,025
    )
    
    
    (166,815
    )
    
    
    
    
    
    
    (755,840
    )Selling, general
and administrative
expenses
    
    
    (22,737
    )
    
    
    (67,142
    )
    
    
    (29,186
    )
    
    
    
    
    
    
    (119,065
    )Goodwill impairment
    
    
    (24,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,570
    )Operating loss
    
    
    (47,307
    )
    
    
    (178,684
    )
    
    
    (36,390
    )
    
    
    
    
    
    
    (262,381
    )Interest income
    
    
    8,584
    
    
    
    821
    
    
    
    117
    
    
    
    
    
    
    
    9,522Interest expense,
net of amounts
capitalized
    
    
    21,837
    
    
    
    (13,776
    )
    
    
    (8,061
    )
    
    
    
    
    
    
    Equity in loss of
unconsolidated
joint ventures
    
    
    
    
    
    
    (1,549
    )
    
    
    (3,934
    )
    
    
    
    
    
    
    (5,483
    )Homebuilding
pretax loss
    
    
    (16,886
    )
    
    
    (193,188
    )
    
    
    (48,268
    )
    
    
    
    
    
    
    (258,342
    )Financial services
pretax income
    
    
    
    
    
    
    
    
    
    
    3,012
    
    
    
    
    
    
    
    3,012Total pretax loss
    
    
    (16,886
    )
    
    
    (193,188
    )
    
    
    (45,256
    )
    
    
    
    
    
    
    (255,330
    )Income tax expense
    
    
    
    
    
    
    (500
    )
    
    
    (100
    )
    
    
    
    
    
    
    (600
    )Equity in net loss
of subsidiaries
    
    
    (239,044
    )
    
    
    
    
    
    
    
    
    
    
    239,044
    
    
    
    Net loss
    
    $
    (255,930
    )
    
    $
    (193,688
    )
    
    $
    (45,356
    )
    
    $
    239,044
    
    
    $
    (255,930
    )
  28




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##### Table of Contents



KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    Supplemental Guarantor Information (continued)Condensed Consolidating Balance Sheets
May 31, 2009 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalAssetsHomebuilding:Cash and cash equivalents
    
    $
    864,440
    
    
    $
    17,474
    
    
    $
    115,443
    
    
    $
    
    
    
    $
    997,357Restricted cash
    
    
    102,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,160Receivables
    
    
    11,875
    
    
    
    118,144
    
    
    
    14,523
    
    
    
    
    
    
    
    144,542Inventories
    
    
    
    
    
    
    1,736,954
    
    
    
    157,009
    
    
    
    
    
    
    
    1,893,963Investments in unconsolidated joint ventures
    
    
    
    
    
    
    170,682
    
    
    
    499
    
    
    
    
    
    
    
    171,181Other assets
    
    
    83,322
    
    
    
    13,772
    
    
    
    1,667
    
    
    
    
    
    
    
    98,7611,061,797
    
    
    
    2,057,026
    
    
    
    289,141
    
    
    
    
    
    
    
    3,407,964Financial services
    
    
    
    
    
    
    
    
    
    
    21,930
    
    
    
    
    
    
    
    21,930Investments in subsidiaries
    
    
    21,456
    
    
    
    
    
    
    
    
    
    
    
    (21,456
    )
    
    
    Total assets
    
    $
    1,083,253
    
    
    $
    2,057,026
    
    
    $
    311,071
    
    
    $
    (21,456
    )
    
    $
    3,429,894Liabilities and stockholders equityHomebuilding:Accounts payable, accrued expenses and
other liabilities
    
    $
    136,048
    
    
    $
    714,063
    
    
    $
    174,931
    
    
    $
    
    
    
    $
    1,025,042Mortgages and notes payable
    
    
    1,645,582
    
    
    
    66,144
    
    
    
    
    
    
    
    
    
    
    
    1,711,7261,781,630
    
    
    
    780,207
    
    
    
    174,931
    
    
    
    
    
    
    
    2,736,768Financial services
    
    
    
    
    
    
    
    
    
    
    10,029
    
    
    
    
    
    
    
    10,029Intercompany
    
    
    (1,381,474
    )
    
    
    1,276,819
    
    
    
    104,655
    
    
    
    
    
    
    
    Stockholders equity
    
    
    683,097
    
    
    
    
    
    
    
    21,456
    
    
    
    (21,456
    )
    
    
    683,097Total liabilities and stockholders equity
    
    $
    1,083,253
    
    
    $
    2,057,026
    
    
    $
    311,071
    
    
    $
    (21,456
    )
    
    $
    3,429,894
 
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalAssetsHomebuilding:Cash and cash equivalents
    
    $
    987,057
    
    
    $
    25,067
    
    
    $
    123,275
    
    
    $
    
    
    
    $
    1,135,399Restricted cash
    
    
    115,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,404Receivables
    
    
    218,600
    
    
    
    126,713
    
    
    
    12,406
    
    
    
    
    
    
    
    357,719Inventories
    
    
    
    
    
    
    1,748,526
    
    
    
    358,190
    
    
    
    
    
    
    
    2,106,716Investments in unconsolidated joint ventures
    
    
    
    
    
    
    176,290
    
    
    
    1,359
    
    
    
    
    
    
    
    177,649Other assets
    
    
    83,028
    
    
    
    13,954
    
    
    
    2,279
    
    
    
    
    
    
    
    99,2611,404,089
    
    
    
    2,090,550
    
    
    
    497,509
    
    
    
    
    
    
    
    3,992,148Financial services
    
    
    
    
    
    
    
    
    
    
    52,152
    
    
    
    
    
    
    
    52,152Investments in subsidiaries
    
    
    51,848
    
    
    
    
    
    
    
    
    
    
    
    (51,848
    )
    
    
    Total assets
    
    $
    1,455,937
    
    
    $
    2,090,550
    
    
    $
    549,661
    
    
    $
    (51,848
    )
    
    $
    4,044,300Liabilities and stockholders equityHomebuilding:Accounts payable, accrued expenses and
other liabilities
    
    $
    190,455
    
    
    $
    786,717
    
    
    $
    285,519
    
    
    $
    
    
    
    $
    1,262,691Mortgages and notes payable
    
    
    1,845,169
    
    
    
    96,368
    
    
    
    
    
    
    
    
    
    
    
    1,941,5372,035,624
    
    
    
    883,085
    
    
    
    285,519
    
    
    
    
    
    
    
    3,204,228Financial services
    
    
    
    
    
    
    
    
    
    
    9,467
    
    
    
    
    
    
    
    9,467Intercompany
    
    
    (1,410,292
    )
    
    
    1,207,465
    
    
    
    202,827
    
    
    
    
    
    
    
    Stockholders equity
    
    
    830,605
    
    
    
    
    
    
    
    51,848
    
    
    
    (51,848
    )
    
    
    830,605Total liabilities and stockholders equity
    
    $
    1,455,937
    
    
    $
    2,090,550
    
    
    $
    549,661
    
    
    $
    (51,848
    )
    
    $
    4,044,300
  29




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##### Table of Contents



KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    Supplemental Guarantor Information (continued)Condensed Consolidating Statements of Cash Flows
Six Months Ended May 31, 2009 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net loss
    
    $
    (136,455
    )
    
    $
    (117,449
    )
    
    $
    (17,102
    )
    
    $
    134,551
    
    
    $
    (136,455
    )Adjustments to reconcile net loss to net cash provided
(used) by operating activities:Inventory impairments and land option contract
abandonments
    
    
    
    
    
    
    62,052
    
    
    
    4,928
    
    
    
    
    
    
    
    66,980Changes in assets and liabilities:Receivables
    
    
    206,725
    
    
    
    8,569
    
    
    
    (1,316
    )
    
    
    
    
    
    
    213,978Inventories
    
    
    
    
    
    
    (75,478
    )
    
    
    196,216
    
    
    
    
    
    
    
    120,738Accounts payable, accrued expenses and other liabilities
    
    
    (58,500
    )
    
    
    (41,162
    )
    
    
    (109,989
    )
    
    
    
    
    
    
    (209,651
    )Other, net
    
    
    1,628
    
    
    
    19,510
    
    
    
    6,794
    
    
    
    
    
    
    
    27,932Net cash provided (used) by operating activities
    
    
    13,398
    
    
    
    (143,958
    )
    
    
    79,531
    
    
    
    134,551
    
    
    
    83,522Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    
    
    
    
    (12,535
    )
    
    
    19,845
    
    
    
    
    
    
    
    7,310Sales (purchases) of property and equipment, net
    
    
    (20
    )
    
    
    (1,189
    )
    
    
    295
    
    
    
    
    
    
    
    (914
    )Net cash provided (used) by investing activities
    
    
    (20
    )
    
    
    (13,724
    )
    
    
    20,140
    
    
    
    
    
    
    
    6,396Cash flows from financing activities:Change in restricted cash
    
    
    13,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,244Repayment of senior subordinated notes
    
    
    (200,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Payments on mortgages, land contracts and other loans
    
    
    
    
    
    
    (36,718
    )
    
    
    
    
    
    
    
    
    
    
    (36,718
    )Issuance of common stock under employee stock plans
    
    
    1,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,691Payments of cash dividends
    
    
    (9,524
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,524
    )Repurchases of common stock
    
    
    (616
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (616
    )Intercompany
    
    
    59,210
    
    
    
    186,807
    
    
    
    (111,466
    )
    
    
    (134,551
    )
    
    
    Net cash provided (used) by financing activities
    
    
    (135,995
    )
    
    
    150,089
    
    
    
    (111,466
    )
    
    
    (134,551
    )
    
    
    (231,923
    )Net decrease in cash and cash equivalents
    
    
    (122,617
    )
    
    
    (7,593
    )
    
    
    (11,795
    )
    
    
    
    
    
    
    (142,005
    )Cash and cash equivalents at beginning of period
    
    
    987,057
    
    
    
    25,067
    
    
    
    129,394
    
    
    
    
    
    
    
    1,141,518Cash and cash equivalents at end of period
    
    $
    864,440
    
    
    $
    17,474
    
    
    $
    117,599
    
    
    $
    
    
    
    $
    999,513
  30




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##### Table of Contents



KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    Supplemental Guarantor Information (continued)Condensed Consolidated Statements of Cash Flows
Six Months Ended May 31, 2008 (in thousands)
 KB Home
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    ConsolidatingCorporate
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    TotalCash flows from operating activities:Net loss
    
    $
    (524,102
    )
    
    $
    (337,622
    )
    
    $
    (185,008
    )
    
    $
    522,630
    
    
    $
    (524,102
    )Adjustments to reconcile net loss to net cash provided
(used) by operating activities:Inventory impairments and land option contract
abandonments
    
    
    
    
    
    
    266,856
    
    
    
    95,092
    
    
    
    
    
    
    
    361,948Goodwill impairment
    
    
    24,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,570Changes in assets and liabilities:Receivables
    
    
    104,203
    
    
    
    11,590
    
    
    
    (8,199
    )
    
    
    
    
    
    
    107,594Inventories
    
    
    
    
    
    
    155,070
    
    
    
    63,051
    
    
    
    
    
    
    
    218,121Accounts payable, accrued expenses and other liabilities
    
    
    (18,749
    )
    
    
    (143,588
    )
    
    
    (26,134
    )
    
    
    
    
    
    
    (188,471
    )Other, net
    
    
    19,708
    
    
    
    7,894
    
    
    
    39,458
    
    
    
    
    
    
    
    67,060Net cash provided (used) by operating activities
    
    
    (394,370
    )
    
    
    (39,800
    )
    
    
    (21,740
    )
    
    
    522,630
    
    
    
    66,720Cash flows from investing activities:Investments in unconsolidated joint ventures
    
    
    
    
    
    
    (28,484
    )
    
    
    (30,706
    )
    
    
    
    
    
    
    (59,190
    )Sales (purchases) of property and equipment, net
    
    
    5,933
    
    
    
    (1,645
    )
    
    
    90
    
    
    
    
    
    
    
    4,378Net cash provided (used) by investing activities
    
    
    5,933
    
    
    
    (30,129
    )
    
    
    (30,616
    )
    
    
    
    
    
    
    (54,812
    )Cash flows from financing activities:Payments on mortgages, land contracts and other loans
    
    
    
    
    
    
    (1,335
    )
    
    
    
    
    
    
    
    
    
    
    (1,335
    )Issuance of common stock under employee stock plans
    
    
    3,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,593Payments of cash dividends
    
    
    (38,723
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,723
    )Repurchases of common stock
    
    
    (557
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557
    )Intercompany
    
    
    484,356
    
    
    
    25,273
    
    
    
    13,001
    
    
    
    (522,630
    )
    
    
    Net cash provided (used) by financing activities
    
    
    448,669
    
    
    
    23,938
    
    
    
    13,001
    
    
    
    (522,630
    )
    
    
    (37,022
    )Net increase (decrease) in cash and cash equivalents
    
    
    60,232
    
    
    
    (45,991
    )
    
    
    (39,355
    )
    
    
    
    
    
    
    (25,114
    )Cash and cash equivalents at beginning of period
    
    
    1,104,429
    
    
    
    71,519
    
    
    
    167,794
    
    
    
    
    
    
    
    1,343,742Cash and cash equivalents at end of period
    
    $
    1,164,661
    
    
    $
    25,528
    
    
    $
    128,439
    
    
    $
    
    
    
    $
    1,318,628
  31




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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
  Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Homebuilding
    
    $
    688,666
    
    
    $
    1,428,402
    
    
    $
    382,925
    
    
    $
    637,094Financial services
    
    
    3,165
    
    
    
    4,887
    
    
    
    1,545
    
    
    
    1,971Total
    
    $
    691,831
    
    
    $
    1,433,289
    
    
    $
    384,470
    
    
    $
    639,065Pretax income (loss):Homebuilding
    
    $
    (149,211
    )
    
    $
    (534,159
    )
    
    $
    (87,938
    )
    
    $
    (258,342
    )Financial services
    
    
    6,056
    
    
    
    10,957
    
    
    
    4,355
    
    
    
    3,012Total pretax loss
    
    
    (143,155
    )
    
    
    (523,202
    )
    
    
    (83,583
    )
    
    
    (255,330
    )Income tax benefit (expense)
    
    
    6,700
    
    
    
    (900
    )
    
    
    5,200
    
    
    
    (600
    )Net loss
    
    $
    (136,455
    )
    
    $
    (524,102
    )
    
    $
    (78,383
    )
    
    $
    (255,930
    )Basic and diluted loss per share
    
    $
    (1.78
    )
    
    $
    (6.77
    )
    
    $
    (1.03
    )
    
    $
    (3.30
    )
    32




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##### Table of Contents



The Open Series
        33




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##### Table of Contents



The Open Series The Open Series
 HOMEBUILDING
   Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Housing
    
    $
    685,260
    
    
    $
    1,363,433
    
    
    $
    380,806
    
    
    $
    636,719Land
    
    
    3,406
    
    
    
    64,969
    
    
    
    2,119
    
    
    
    375Total
    
    
    688,666
    
    
    
    1,428,402
    
    
    
    382,925
    
    
    
    637,094Costs and expenses:Construction and land costsHousing
    
    
    662,876
    
    
    
    1,520,091
    
    
    
    373,453
    
    
    
    748,098Land
    
    
    4,892
    
    
    
    148,390
    
    
    
    3,357
    
    
    
    7,742Total
    
    
    667,768
    
    
    
    1,668,481
    
    
    
    376,810
    
    
    
    755,840Selling, general and administrative expenses
    
    
    133,769
    
    
    
    246,703
    
    
    
    72,594
    
    
    
    119,065Goodwill impairment
    
    
    
    
    
    
    24,570
    
    
    
    
    
    
    
    24,570Total
    
    
    801,537
    
    
    
    1,939,754
    
    
    
    449,404
    
    
    
    899,475Operating loss
    
    $
    (112,871
    )
    
    $
    (511,352
    )
    
    $
    (66,479
    )
    
    $
    (262,381
    )Homes delivered
    
    
    3,206
    
    
    
    5,738
    
    
    
    1,761
    
    
    
    2,810Average selling price
    
    $
    213,700
    
    
    $
    237,600
    
    
    $
    216,200
    
    
    $
    226,600Housing gross margin
    
    
    3.3
    %
    
    
    -11.5
    %
    
    
    1.9
    %
    
    
    -17.5
    %Selling, general and administrative
expenses as a percent of housing revenues
    
    
    19.5
    %
    
    
    18.1
    %
    
    
    19.1
    %
    
    
    18.7
    %Operating loss as a percent of
homebuilding revenues
    
    
    -16.4
    %
    
    
    -35.8
    %
    
    
    -17.4
    %
    
    
    -41.2
    %
  34




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##### Table of Contents



Three Months Ended May 31,Homes Delivered
    
    
    Net Orders
    
    
    Cancellation RatesSegment
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008West Coast
    
    
    569
    
    
    
    603
    
    
    
    928
    
    
    
    977
    
    
    
    16
    %
    
    
    29
    %Southwest
    
    
    241
    
    
    
    534
    
    
    
    359
    
    
    
    760
    
    
    
    18
    
    
    
    21Central
    
    
    525
    
    
    
    863
    
    
    
    1,048
    
    
    
    964
    
    
    
    20
    
    
    
    31Southeast
    
    
    426
    
    
    
    810
    
    
    
    575
    
    
    
    1,499
    
    
    
    26
    
    
    
    26Total
    
    
    1,761
    
    
    
    2,810
    
    
    
    2,910
    
    
    
    4,200
    
    
    
    20
    %
    
    
    27
    %Unconsolidated joint ventures
    
    
    55
    
    
    
    74
    
    
    
    45
    
    
    
    131
    
    
    
    31
    %
    
    
    24
    %
 Six Months Ended May 31,Homes Delivered
    
    
    Net Orders
    
    
    Cancellation RatesSegment
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008West Coast
    
    
    920
    
    
    
    1,217
    
    
    
    1,387
    
    
    
    1,516
    
    
    
    20
    %
    
    
    34
    %Southwest
    
    
    508
    
    
    
    1,274
    
    
    
    581
    
    
    
    946
    
    
    
    22
    
    
    
    32Central
    
    
    972
    
    
    
    1,762
    
    
    
    1,670
    
    
    
    1,195
    
    
    
    23
    
    
    
    45Southeast
    
    
    806
    
    
    
    1,485
    
    
    
    1,099
    
    
    
    1,992
    
    
    
    27
    
    
    
    34Total
    
    
    3,206
    
    
    
    5,738
    
    
    
    4,737
    
    
    
    5,649
    
    
    
    23
    %
    
    
    36
    %Unconsolidated joint ventures
    
    
    78
    
    
    
    149
    
    
    
    73
    
    
    
    179
    
    
    
    39
    %
    
    
    31
    %
 May 31,Backlog - ValueBacklog - Homes
    
    
    (In Thousands)Segment
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008West Coast
    
    
    1,048
    
    
    
    1,489
    
    
    $
    334,600
    
    
    $
    516,073Southwest
    
    
    421
    
    
    
    978
    
    
    
    72,429
    
    
    
    222,279Central (a)
    
    
    1,419
    
    
    
    1,444
    
    
    
    228,723
    
    
    
    260,404Southeast
    
    
    916
    
    
    
    2,322
    
    
    
    161,104
    
    
    
    467,141Total
    
    
    3,804
    
    
    
    6,233
    
    
    $
    796,856
    
    
    $
    1,465,897Unconsolidated joint ventures
    
    
    62
    
    
    
    239
    
    
    $
    24,118
    
    
    $
    101,748
 (a)
    
    The ending backlog amounts at May 31, 2009 have been adjusted to reflect the
consolidation of a previously unconsolidated joint venture in the second quarter of 2009. Revenues.
  35




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Operating Loss.
  The Open Series
  36




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##### Table of Contents



Interest Income.
  37




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##### Table of Contents



Interest Expense, Net of Amounts Capitalized.
 Equity in Loss of Unconsolidated Joint Ventures.
 HOMEBUILDING SEGMENTS
  Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008West Coast:Revenues
    
    $
    290,178
    
    
    $
    440,939
    
    
    $
    181,658
    
    
    $
    199,863Construction and land costs
    
    
    (289,710
    )
    
    
    (555,605
    )
    
    
    (190,085
    )
    
    
    (275,990
    )Selling, general and
administrative
expenses
    
    
    (34,929
    )
    
    
    (56,141
    )
    
    
    (18,767
    )
    
    
    (27,361
    )Operating loss
    
    
    (34,461
    )
    
    
    (170,807
    )
    
    
    (27,194
    )
    
    
    (103,488
    )Other, net
    
    
    (17,960
    )
    
    
    (2,629
    )
    
    
    (12,906
    )
    
    
    2,039Pretax loss
    
    $
    (52,421
    )
    
    $
    (173,436
    )
    
    $
    (40,100
    )
    
    $
    (101,449
    )
  38




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##### Table of Contents



Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Southwest:Revenues
    
    $
    96,446
    
    
    $
    364,201
    
    
    $
    44,173
    
    
    $
    122,354Construction and land costs
    
    
    (95,373
    )
    
    
    (439,692
    )
    
    
    (38,347
    )
    
    
    (167,401
    )Selling, general and
administrative
expenses
    
    
    (15,255
    )
    
    
    (37,416
    )
    
    
    (8,109
    )
    
    
    (15,763
    )Operating loss
    
    
    (14,182
    )
    
    
    (112,907
    )
    
    
    (2,283
    )
    
    
    (60,810
    )Other, net
    
    
    (11,764
    )
    
    
    (5,173
    )
    
    
    (2,925
    )
    
    
    (1,843
    )Pretax loss
    
    $
    (25,946
    )
    
    $
    (118,080
    )
    
    $
    (5,208
    )
    
    $
    (62,653
    )Central:Revenues
    
    $
    160,755
    
    
    $
    300,475
    
    
    $
    83,110
    
    
    $
    148,586Construction and land costs
    
    
    (140,028
    )
    
    
    (286,161
    )
    
    
    (72,356
    )
    
    
    (133,398
    )Selling, general and
administrative
expenses
    
    
    (26,704
    )
    
    
    (49,325
    )
    
    
    (13,849
    )
    
    
    (22,951
    )Operating loss
    
    
    (5,977
    )
    
    
    (35,011
    )
    
    
    (3,095
    )
    
    
    (7,763
    )Other, net
    
    
    (4,536
    )
    
    
    (6,769
    )
    
    
    (1,261
    )
    
    
    (4,075
    )Pretax loss
    
    $
    (10,513
    )
    
    $
    (41,780
    )
    
    $
    (4,356
    )
    
    $
    (11,838
    )Southeast:Revenues
    
    $
    141,287
    
    
    $
    322,787
    
    
    $
    73,984
    
    
    $
    166,291Construction and land costs
    
    
    (138,314
    )
    
    
    (381,933
    )
    
    
    (73,946
    )
    
    
    (176,849
    )Selling, general and administrative expenses
    
    
    (22,329
    )
    
    
    (57,667
    )
    
    
    (10,380
    )
    
    
    (26,754
    )Operating loss
    
    
    (19,356
    )
    
    
    (116,813
    )
    
    
    (10,342
    )
    
    
    (37,312
    )Other, net
    
    
    (10,285
    )
    
    
    (28,079
    )
    
    
    (5,474
    )
    
    
    (3,468
    )Pretax loss
    
    $
    (29,641
    )
    
    $
    (144,892
    )
    
    $
    (15,816
    )
    
    $
    (40,780
    )
 West Coast
    39




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##### Table of Contents



Southwest
     40




---



##### Table of Contents



Central
    Southeast
   41




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##### Table of Contents



FINANCIAL SERVICES
   Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    3,165
    
    
    $
    4,887
    
    
    $
    1,545
    
    
    $
    1,971Expenses
    
    
    (1,654
    )
    
    
    (2,232
    )
    
    
    (794
    )
    
    
    (1,113
    )Equity in income of unconsolidated
joint venture
    
    
    4,545
    
    
    
    8,302
    
    
    
    3,604
    
    
    
    2,154Pretax income
    
    $
    6,056
    
    
    $
    10,957
    
    
    $
    4,355
    
    
    $
    3,012Total originations (a):Loans
    
    
    2,620
    
    
    
    4,795
    
    
    
    1,521
    
    
    
    2,284Principal
    
    $
    498,449
    
    
    $
    989,741
    
    
    $
    293,438
    
    
    $
    456,165% of homebuyers using KB Home Mortgage
    
    
    81
    %
    
    
    79
    %
    
    
    83
    %
    
    
    80
    %
  42




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##### Table of Contents



Six Months Ended May 31,
    
    
    Three Months Ended May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Loans sold to third parties (a):Loans
    
    
    2,404
    
    
    
    5,768
    
    
    
    1,292
    
    
    
    2,204Principal
    
    $
    457,045
    
    
    $
    1,208,028
    
    
    $
    263,394
    
    
    $
    441,854
 (a)
    
    Loan originations and sales occur within KB Home Mortgage. Revenues
 Expenses
 Equity in Income of Unconsolidated Joint Venture
  INCOME TAXES
    43




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##### Table of Contents



Liquidity and Capital Resources
 Overview.
  Capital Resources.
      44




---



##### Table of Contents



May 31, 2009CovenantFinancial Covenant
    
    Requirement
    
    
    ActualMinimum consolidated tangible net worth
    
    $278.2 million
    
    $680.7 millionCoverage Ratio
    
    (a)
    
    (a)Leverage Ratio (b)
    
    <1.00
    
    .45Investment in subsidiaries and joint ventures
as a percent of Adjusted Consolidated
Tangible Net Worth
    
    <35%
    
    14%Borrowing base in excess of senior indebtedness
(as defined)
    
    Greater than zero
    
    $632.0 million
 (a)
    
    Our Coverage Ratio of .27 was less than 1.00 to 1.00 as of May 31, 2009. With our
Leverage Ratio as of November 30, 2008 below 1.00 to 1.00, we maintained an Interest Reserve
Account through the 2009 second quarter to remain in compliance with the terms of the Credit
Facility. The Interest Reserve Account had a balance of $102.2 million at May 31, 2009.
With our Leverage Ratio as of May 31, 2009 below 1.00 to 1.00, we will continue to maintain
the Interest Reserve Account in the third quarter of 2009, but the balance is expected to
increase to $104.2 million by the end of that period.(b)
    
    The Leverage Ratio requirement varies based on our Coverage Ratio. If our Coverage Ratio is
greater than or equal to 1.50 to 1.00, the Leverage Ratio requirement is less than 2.00 to 1.00. If
our Coverage Ratio is between 1.00 and 1.50 to 1.00, the Leverage Ratio requirement is less than
1.25 to 1.00. If our Coverage Ratio is less than 1.00 to 1.00, the Leverage Ratio requirement is
less than or equal to 1.00 to 1.00.  45




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November 30, 2008CovenantFinancial Covenant
    
    Requirement
    
    
    ActualMinimum consolidated tangible net worth
    
    $278.2 million
    
    $827.9 millionCoverage Ratio
    

    (a)

    

    (a)Leverage Ratio
    

    <1.00

    
    .47Investment in subsidiaries and joint ventures
as a percent of Adjusted Consolidated
Tangible Net Worth
    
    <35%
    
    15%Borrowing base in excess of senior indebtedness
(as defined)
    
    Greater than zero
    
    $825.0 million
 (a)
    
    Our Coverage Ratio of negative .27 was less than 1.00 to 1.00 as of November 30, 2008.
With our Leverage Ratio as of August 31, 2008 below 1.00 to 1.00, we established an Interest
Reserve Account of $115.4 million in the fourth quarter of 2008 to remain in compliance with
the terms of the Credit Facility. The Interest Reserve Account had a balance of $115.4
million at November 30, 2008.        46




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Consolidated Cash Flows.
 Operating Activities
  Investing Activities
 Financing Activities
  Shelf Registration Statement.
 Share Repurchase Program.
   47




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Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments
        48




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49




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Critical Accounting Policies
  Inventory Impairments and Abandonments
  50




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Warranty Costs
  51




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Insurance
  Outlook
 The Open
Series
  52




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The Open Series
 The Open Series The
Open Series
 The Open Series
   53




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Forward-Looking Statements
    54




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Weighted AverageFiscal Year of Expected Maturity
    
    Fixed Rate Debt
    
    
    Interest Rate2009
    
    $
    
    
    
    
    
    %2010
    
    
    
    
    
    
    2011
    
    
    349,096
    
    
    
    6.42012
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    Thereafter
    
    
    1,296,486
    
    
    
    6.3Total
    
    $
    1,645,582
    
    
    
    6.3
    %Fair value at May 31, 2009
    
    $
    1,460,333
  
 Item 4. Controls and Procedures
   55




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 ERISA Litigation
 Bagley et al., v. KB Home, et al.
 Other Matters
   56




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Item 1A. Risk Factors
  Our ability to obtain external financing could be adversely affected by a negative change in our
credit rating by a third party rating agency.
  Our results of operations could be adversely affected if we are unable to obtain performance
bonds.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
 Exhibits3.4
    
    
    Restated Certificate of Incorporation, as amended, filed as an exhibit to the Companys
Current Report on Form 8-K dated April 7, 2009, is incorporated by reference herein.10.51
    
    
    KB Home Annual Incentive Plan for Executive Officers, filed as Attachment C to the
Companys Proxy Statement on Schedule 14A for the 2009 Annual Meeting of Stockholders, 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.
  57




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SIGNATURES
  KB HOMERegistrantDated July 10, 2009
    /s/ JEFFREY T. MEZGERJeffrey T. MezgerPresident and Chief Executive Officer
(Principal Executive Officer)Dated July 10, 2009
    /s/ WILLIAM R. HOLLINGERWilliam R. HollingerSenior Vice President and Chief Accounting Officer
(Principal Financial Officer)  58




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##### Table of Contents



INDEX OF EXHIBITS
 Page of SequentiallyNumbered Pages3.4
    
    
    Restated Certificate of Incorporation, as amended, filed as an exhibit to the Companys
Current Report on Form 8-K dated April 7, 2009, is incorporated by reference herein.10.51
    
    
    KB Home Annual Incentive Plan for Executive Officers, filed as Attachment C to
the Companys Proxy Statement on Schedule 14A for the 2009 Annual Meeting
of Stockholders, 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.
    
    
    6031.2
    
    
    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.
    
    
    6132.1
    
    
    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.
    
    
    6232.2
    
    
    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.
    
    
    63
  59