KB HOMEKBH
KB HOME Commitments Disclosure
Commitments and Contingencies
Commitments and contingencies include typical obligations of homebuilders for the completion of contracts and those
incurred in the ordinary course of business.
Warranty. We provide a limited warranty on all of our homes. The specific terms and conditions of our limited warranty
program vary depending upon the markets in which we do business. We generally provide a structural warranty of 10 years, a
warranty on electrical, heating, cooling, plumbing and certain other building systems each varying from to five years based
on geographic market and state law, and a warranty of one year for other components of the home. Our limited warranty
program is ordinarily how we respond to and account for homeowners’ requests to local division offices seeking repairs of
certain conditions or defects, including claims where we could have liability under applicable state statutes or tort law for a
defective condition in or damages to a home. Our warranty liability covers our costs of repairs associated with homeowner
claims made under our limited warranty program. These claims are generally made directly by a homeowner and involve their
individual home.
We periodically assess the adequacy of our accrued warranty liability, which is included in accrued expenses and other
liabilities in our consolidated balance sheets, and adjust the amount as necessary based on our assessment. Our assessment
includes the review of our actual warranty costs incurred to identify trends and changes in our warranty claims experience, and
considers our home construction quality and customer service initiatives and outside events. While we believe the warranty
liability currently reflected in our consolidated balance sheets to be adequate, unanticipated changes or developments in the
legal environment, local weather, land or environmental conditions, quality of materials or methods used in the construction of
homes or customer service practices and/or our warranty claims experience could have a significant impact on our actual
warranty costs in future periods and such amounts could differ significantly from our current estimates.
The changes in our warranty liability were as follows (in thousands):
Years Ended November 30, | |||||
2025 | 2024 | 2023 | |||
Balance at beginning of year | $96,026 | $98,000 | $101,890 | ||
Warranties issued | 40,963 | 40,630 | 37,424 | ||
Payments | (35,744) | (42,604) | (45,314) | ||
Adjustments | — | — | 4,000 | ||
Balance at end of year | $101,245 | $96,026 | $98,000 | ||
Guarantees. In the normal course of our business, we issue certain representations, warranties and guarantees related to
our home sales and land sales. Based on historical experience, we do not believe any potential liability with respect to these
representations, warranties or guarantees would be material to our consolidated financial statements.
Self-Insurance. We maintain, and require the majority of our independent contractors to maintain, general liability
insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance
policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-
insured retentions, deductibles and other coverage limits. We also maintain certain other insurance policies. Costs associated
with our self-insurance programs are included in selling, general and administrative expenses. In Arizona, California, Colorado
and Nevada, our contractors’ general liability insurance primarily takes the form of a wrap-up policy under a program where
eligible independent contractors are enrolled as insureds on each community. Enrolled contractors generally contribute toward
the cost of the insurance and agree to pay a contractual amount in the future if there is a claim related to their work. To the
extent provided under the wrap-up program, we absorb the enrolled contractors’ general liability associated with the work
performed on our homes within the applicable community as part of our overall general liability insurance and our self-
insurance.
We self-insure a portion of our overall risk through the use of a captive insurance subsidiary, which provides coverage for
our exposure to construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to
certain limits. Our self-insurance liability generally covers the costs of settlements and/or repairs, if any, as well as our costs to
defend and resolve the following types of claims:
•Construction defect: Construction defect claims, which represent the largest component of our self-insurance liability,
typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged
occurrence of a condition affecting two or more homes within the same community, or they involve a common area or
homeowners’ association property within a community. These claims typically involve higher costs to resolve than
individual homeowner warranty claims, and the rate of claims is highly variable.
• Bodily injury: Bodily injury claims typically involve individuals (other than our employees) who claim they were
injured while on our property or as a result of our operations.
• Property damage: Property damage claims generally involve claims by third parties for alleged damage to real or
personal property as a result of our operations. Such claims may occasionally include those made against us by
owners of property located near our communities.
As of November 30, 2025 and 2024, our self-insurance liability was primarily related to construction defect claims. Our
self-insurance liability at each reporting date represents the estimated costs of reported claims, claims incurred but not yet
reported, and claim adjustment expenses. The amount of our self-insurance liability is based on an analysis performed by a
third-party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key
assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur
over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a
home to a homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties
regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or
interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these
underlying assumptions, our actual future costs could differ from those estimated. In addition, changes in the frequency and
severity of reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial
analysis, which could be material to our consolidated financial statements. Though state regulations vary, construction defect
claims are reported and resolved over a long period of time, which can extend for 10 years or more. As a result, the majority of
the estimated self-insurance liability based on the actuarial analysis relates to claims incurred but not yet reported. Therefore,
adjustments related to individual existing claims generally do not significantly impact the overall estimated liability.
Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our
estimate occurs.
Our self-insurance liability is presented on a gross basis for all years without consideration of insurance recoveries and
amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other
recoveries of $22.3 million and $22.6 million are included in receivables in our consolidated balance sheets at November 30,
2025 and 2024, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and
depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy
coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the
regulatory environment and legal precedent, and are subject to a high degree of variability from year to year. Because of the
inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from
amounts currently estimated.
The changes in our self-insurance liability were as follows (in thousands):
Years Ended November 30, | |||||
2025 | 2024 | 2023 | |||
Balance at beginning of year | $185,428 | $179,832 | $175,977 | ||
Self-insurance provided | 20,379 | 21,663 | 18,351 | ||
Payments | (28,766) | (16,008) | (20,896) | ||
Adjustments (a) | 2,206 | (59) | 6,400 | ||
Balance at end of year | $179,247 | $185,428 | $179,832 | ||
(a)Represents net changes in the portion of our self-insurance liability estimated to be recoverable from our insurers or other
parties, and/or actual recoveries funded directly by our insurers or other parties, if any, and an adjustment to increase our
previously recorded liability by $5.5 million in 2024 and $6.5 million in 2023.
For most of our claims, there is no interaction between our warranty liability and self-insurance liability. Typically, if a
matter is identified at its outset as either a warranty or self-insurance claim, it remains as such through its resolution. However,
there can be instances of interaction between the liabilities, such as where individual homeowners in a community separately
request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or
potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken. In these
instances, the claims and related repair work generally are initially covered by our warranty liability, and the costs associated
with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.
The payments we make in connection with claims and related repair work may be recovered from our insurers to the extent
such payments exceed the self-insured retentions or deductibles under, and are within the scope of coverage provided by, our
general liability insurance policies. Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of
and/or on behalf of an independent contractor(s) or their insurer(s) and believe we will be reimbursed for such payments.
Estimates of all such amounts, if any, are recorded as receivables in our consolidated balance sheets when any such recovery is
considered probable.
In addition to the risk that is effectively self-insured through our captive insurance subsidiary, we often obtain project-
specific insurance coverage for construction defect risk on attached projects (e.g., condominiums or townhomes) with self-
insured retentions generally ranging from $50,000 to $250,000. We record estimated liabilities and recoveries for projected
losses related to these projects on a gross basis, including for known claims as well as estimates for claims incurred but not yet
reported, to the extent such amounts are considered probable and estimable.
Performance Bonds and Letters of Credit. We are often required to provide to various municipalities and other
government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of
obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar
development activities by certain of our unconsolidated joint ventures. At November 30, 2025, we had $1.37 billion of
performance bonds and $69.8 million of letters of credit outstanding. At November 30, 2024, we had $1.33 billion of
performance bonds and $81.6 million of letters of credit outstanding. If any such performance bonds or letters of credit are
called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a
material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not
have stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed.
The expiration dates of some letters of credit issued in connection with community improvements coincide with the expected
completion dates of the related projects or obligations. Most letters of credit, however, are issued with an initial term of one
year and are typically extended on a year-to-year basis until the related performance obligations are completed.
Land Option Contracts and Other Similar Contracts. In the ordinary course of business, we enter into land option
contracts and other similar contracts to acquire rights to land for the construction of homes. At November 30, 2025, we had
total cash deposits of $80.9 million to purchase land having an aggregate purchase price of $2.06 billion. Our land option
contracts and other similar contracts generally do not contain provisions requiring our specific performance.
Civil Subpoena. On October 2, 2023, we received a subpoena from the U.S. Department of Justice Civil Division, dated
September 27, 2023, to produce certain documents and testimony with respect to the inspection, rating, marketing and
advertising of our ENERGY STAR homes, including our contracts and/or communications with U.S. EPA and third-party
ENERGY STAR rating companies, real estate brokers, real estate appraisers, financial institutions and other parties, as well as
inspection-related guidelines, instructions, methods, policies, processes and procedures. We are cooperating with the
government, producing documents and information. As of the date of this report, we are unable to predict what actions the
government will take, if any; the timing or nature of the ultimate outcome in this matter; or the impact, if any, such outcome
may have on our business or consolidated financial statements. As a result, while a loss or penalty, if any, is reasonably
possible in this matter, it is not considered to be probable or estimable.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jan 23, 2026 | Showing above |
| 2024 | Jan 24, 2025 | |
| 2023 | Jan 19, 2024 | |
| 2022 | Jan 20, 2023 | |
| 2021 | Jan 21, 2022 | |
| 2020 | Jan 22, 2021 | |
| 2019 | Jan 24, 2020 | |
| 2018 | Jan 24, 2019 | |
| 2017 | Jan 26, 2018 | |
| 2016 | Jan 27, 2017 | |
| 2015 | Jan 25, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.