What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-01-21 compared with 2021-01-22 · 239 added, 305 removed, 1205 unchanged (31% of the section changed)

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Amortization of net actuarial loss

Amortization of prior service cost

1,575 963 218

Amortization of prior service cost

Settlement loss — — 356

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Balance at November 30, 2018 119,196 ( 8,157 ) ( 24,113 ) $ 119,196 $ 753,570 $ 1,897,168 $ ( 9,565 ) $ ( 88,472 ) $ ( 584,397 ) $ 2,087,500

Cumulative effect of adoption of ASC 606 — — — — — 11,610 — — — 11,610

Net income — — — — — 268,775 — — — 268,775

Other comprehensive income, net of tax — — — — — — 7,359 — — 7,359

Other comprehensive loss, net of tax — — — — — — ( 5,941 ) — — ( 5,941 )

Dividends on common stock — — — — — ( 20,370 ) — — — ( 20,370 )

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Stock-based compensation — — — — 18,312 — — — — 18,312

Stock repurchases — — ( 1,806 ) — — — — — ( 35,039 ) ( 35,039 )

Tax payments associated with stock-based compensation awards

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Cumulative effect of adoption of ASC 842 — — — — — 1,510 — — — 1,510

Reclassification of stranded tax effects — — — — — 1,643 ( 1,643 ) — — —

Net income — — — — — 296,243 — — — 296,243

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— — ( 241 ) — — — — — ( 9,503 ) ( 9,503 )

Retirement of treasury stock ( 23,488 ) — 23,488 ( 23,488 ) — ( 549,618 ) — — 573,106 —

Balance at November 30, 2020 99,869 ( 7,124 ) ( 1,107 ) 99,869 824,306 1,868,896 ( 22,276 ) ( 77,265 ) ( 27,761 ) 2,665,769

Cumulative effect of adoption of ASC 842 — — — — — 1,510 — — — 1,510

Reclassification of stranded tax effects — — — — — 1,643 ( 1,643 ) — — —

Cumulative effect of adoption of ASU 2016-13 — — — — — ( 226 ) — — — ( 226 )

Net income — — — — — 564,746 — — — 564,746

Other comprehensive loss, net of tax

— — — — — — ( 5,127 ) — — ( 5,127 )

Other comprehensive income, net of tax — — — — — — 3,157 — — 3,157

Dividends on common stock — — — — — ( 54,052 ) — — — ( 54,052 )

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Stock-based compensation — — — — 28,904 — — — — 28,904

Stock repurchases — — ( 4,669 ) — — — — — ( 188,175 ) ( 188,175 )

Tax payments associated with stock-based compensation awards

— — ( 208 ) — — — — — ( 12,337 ) ( 12,337 )

Retirement of treasury stock ( 23,488 ) — 23,488 ( 23,488 ) — ( 549,618 ) — — 573,106 —

Balance at November 30, 2021 100,711 ( 6,705 ) ( 5,785 ) $ 100,711 $ 848,620 $ 2,379,364 $ ( 19,119 ) $ ( 72,718 ) $ ( 217,383 ) $ 3,019,475

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$ 564,746 $ 296,243 $ 268,775

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Equity in income of unconsolidated joint ventures

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Loss on early extinguishment of debt

5,075 — 6,800

Stock-based compensation

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19,579 901 710

Net cash provided by operating activities 310,678 251,042 221,512

Net cash provided by (used in) operating activities ( 37,296 ) 310,678 251,042

Cash flows from investing activities:

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Proceeds from issuance of debt

390,000 — 705,250

Repayment of senior notes

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KB Home is a builder of attached and detached single-family residential homes, townhomes and condominiums.

As of November 30, 2020, we conducted ongoing operations in Arizona, California, Colorado, Florida, Nevada, North Carolina, Texas and Washington.

We also offer various insurance products to our homebuyers in the same markets where we build homes, and provide title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments.

We provide mortgage banking services, including mortgage loan originations, to our homebuyers indirectly through KBHS, an unconsolidated joint venture we formed with Stearns.

As of November 30, 2021, we conducted ongoing operations in Arizona, California, Colorado, Florida, Idaho, Nevada, North Carolina, Texas and Washington.

We also offer various insurance products to our homebuyers in the same markets as our homebuilding reporting segments, and provide title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments.

We offer mortgage banking services, including mortgage loan originations, to our homebuyers indirectly through KBHS, which is an unconsolidated joint venture between us and a third party.

Basis of Presentation.

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Impact of COVID-19 Pandemic on Consolidated Financial Statements.

The outbreak of COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related COVID-19 control responses severely impacted the global and national economies (with the U.S.

entering a recession), the housing market and our business during our second quarter.

Amid extraordinary economic disruptions;

The COVID-19 pandemic and related governmental control measures considerably disrupted global and national economies, the U.S.

housing market, and our business during the 2020 second quarter.

Amid extraordinary economic impacts;

a sudden rise in unemployment;

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weakened consumer confidence;

and our swift closing of our sales centers, model homes and design studios to the public and shift to virtual sales tools and appointment-only personalized home sales processes, where permitted, we saw a drastic decrease in demand for new homes (including homes ordered in the first quarter) and our order pace slowed significantly.

Along with a considerable increase in home purchase cancellations, largely reflecting our proactive efforts to assure a backlog of qualified homebuyers amid the pandemic-induced economic downturn, we experienced a sizable reduction in our 2020 second quarter net orders.

Due to this reduction in net orders, we entered the third quarter with 14 % fewer homes in backlog as compared to the previous year.

and our swift closing of our sales centers, model homes and design studios to the public, we saw a drastic decrease in demand for new homes (including homes ordered in the 2020 first quarter) and our order pace slowed significantly.

Along with a considerable increase in home purchase cancellations, we experienced a sizable reduction in our 2020 second quarter net orders.

Further, our construction activities were restricted in many jurisdictions, and completely shut down in some of them, and together with the reduced availability or capacity of some municipal and private services necessary to build and deliver homes, and supply chain disruptions, our cycle times became extended.

This caused home delivery delays during most of the 2020 second quarter, which tempered our revenues for the period.

With the easing of public health orders to varying degrees in our served markets beginning in May 2020 and the associated ability to open our communities to walk-in traffic, following appropriate safety protocols and applicable health guidelines, complemented by our enhanced virtual selling capabilities, our net orders began to rebound significantly.

This positive momentum continued through the 2020 second half, largely fueled by the combination of historically low mortgage rates, a limited supply of resale inventory, an underproduction of new homes over the past decade, favorable demographic trends and consumers’ increasing desire to own a home.

Reflecting this strong demand, our 2020 third and fourth quarter net orders rose to their respective highest levels since 2005.

Though this sharp rise in net orders in the second half generated substantial expansion in our backlog, our deliveries and revenues for the third and fourth quarters were moderated primarily by the negative effects of the COVID-19 pandemic in our 2020 second quarter.

During the 2020 second quarter and most of the 2020 third quarter, in prioritizing cash preservation and liquidity in light of lingering uncertainty surrounding the COVID-19 pandemic, we limited our investments in land and land development.

With the sustained strong housing demand over the 2020 second half, we intensified our investments in the fourth quarter to measurably expand our lot pipeline and support community count growth in the future.

In the 2020 second quarter, we also curtailed our overhead expenditures, partly through workforce realignment and reductions.

As a result, our selling, general and administrative expenses for the year ended November 30, 2020 include severance charges of $ 6.7 million that we recorded in the 2020 second quarter.

Our consolidated financial statements and the notes thereto in this report reflect the foregoing course of unprecedented events and the actions we took in 2020 in response to the pandemic.

With the uncertainty surrounding the COVID-19 pandemic, and in prioritizing cash preservation and liquidity, we limited our land investments and curtailed our overhead expenditures, partly through workforce realignment and reductions.

As a result, our selling, general and administrative expenses for the 2020 second quarter included severance charges of $ 6.7 million.

With the easing to varying degrees of restrictive public health orders in our served markets beginning in May 2020, our net orders began to rebound significantly following a low point in April 2020, as steadily increasing demand drove our 2020 third- and fourth-quarter net orders to then-15-year highs.

Though this sharp rise in net orders over these periods substantially expanded the number of homes in our backlog as well as our backlog value, our deliveries and revenues for the 2020 third and fourth quarters were moderated primarily by the negative effects of the COVID-19 pandemic in our 2020 second quarter.

In 2021, while the pandemic persisted, demand for our homes remained strong, and our ending backlog value at November 30, 2021 expanded to its highest fourth-quarter level since 2005.

With the ongoing strong demand, we continued to increase our land acquisition and development investments in 2021, as we did in the latter part of 2020, to measurably expand our lot pipeline and support future community count growth.

While we continue to experience construction services availability constraints, supply chain disruptions and rising and volatile raw material prices and availability, particularly with respect to building materials and appliances, as well as delays related to state and municipal construction permitting, inspections and utilities, that could negatively impact our growth, margins and financial results in future periods, and there remains a risk that significant COVID-19 pandemic-related disruptions could emerge, we believe we are well-positioned to operate effectively through the present environment.

Use of Estimates.

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At November 30, 2021 and 2020, the majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.

Receivables are evaluated for collectibility at least quarterly, and allowances for potential losses are established or maintained on applicable receivables when collection is considered doubtful, taking into account historical experience, prevailing economic conditions and other relevant information.

We record receivables net of an allowance for doubtful accounts.

This allowance for potential losses is established or maintained for expected uncollectible receivables.

The allowance is estimated based on our evaluation of the

receivables, taking into account historical collection experience, general economic conditions, specific credit risk of the counterparties and other relevant information.

Property and Equipment and Depreciation.

Property and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives as follows:

computer software and equipment – two to five years ;

computer software and equipment – two to 15 years;

model furnishings and sales office improvements – two to three years ;

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Homebuilding Operations.

We recognize homebuilding revenue in accordance with ASC 606 by applying the following steps in determining the timing and amount of revenue to recognize:

We recognize homebuilding revenue by applying the following steps in determining the timing and amount of revenue to recognize:

(1) identify the contract(s) with a customer;

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Under our land sale contracts, we typically receive an initial cash deposit from the buyer at the time the contract is executed and receive the remaining consideration to which we are entitled, through a third-party escrow agent, at closing.

In the limited circumstances where we provide financing to the land buyer, we determine that collectibility of the receivable is reasonably assured before we recognize revenue.

In the limited circumstances where we provide financing to the land buyer, we determine that collectability of the receivable is reasonably assured before we recognize revenue.

In instances where we have a distinct and material performance obligation(s) within the context of a land sale contract to perform land development work after the closing date, a portion of the transaction price under the contract is allocated to such performance obligation(s) and is recognized as revenue over time based upon our estimated progress toward the satisfaction of the performance obligation(s).

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Construction and land costs are comprised of direct and allocated costs, including estimated future costs for the limited warranty we provide on our homes, and certain amenities within a community.

Land acquisition, land development and other

common costs are generally allocated on a relative fair value basis to the homes or lots within the applicable community or land parcel.

Land acquisition, land development and other common costs are generally allocated on a relative fair value basis to the homes or lots within the applicable community or land parcel.

Land acquisition and land development costs include related interest and real estate taxes.

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Financial Services Operations.

Our financial services reporting segment generates revenues primarily from insurance commissions and title services.

Our financial services reporting segment, which includes the operations of KB HOME Mortgage Company, generates revenues primarily from insurance commissions and title services.

Revenues from title services are recognized when policies are issued, which generally occurs at the time each applicable home sale is closed.

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Revenues from insurance commissions are recognized when the insurance carrier issues an initial insurance policy to our homebuyer, which generally occurs at the time each applicable home sale is closed.

As our performance obligations for policy renewal commissions are satisfied upon issuance of the initial insurance policy, insurance commissions for renewals are considered variable consideration under ASC 606.

As our performance obligations for policy renewal commissions are satisfied upon issuance of the initial insurance policy, insurance commissions for renewals are considered variable consideration.

Accordingly, we estimate the probable future renewal commissions when an initial policy is issued and record a corresponding contract asset and insurance commission revenues.

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We record liabilities based on the estimated costs required to cover reported claims, claims incurred but not yet reported, and claim adjustment expenses.

These estimated costs are based on an actuarial analysis of our historical claims and expense data, as well

as industry data.

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.

These estimated costs are based on an actuarial analysis of our historical claims and expense data, as well as industry data.

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.

Estimates of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable.

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For PSUs, we recognize compensation expense ratably over the vesting period when it is probable that stated performance targets will be achieved and record cumulative adjustments in the period in which estimates change.

We account for forfeitures of equity-based awards as they occur.

Income Taxes.

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The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.

The value of our deferred tax assets in our consolidated balance sheets depends on applicable income tax rates.

The value of deferred tax assets in our consolidated balance sheets depends on applicable income tax rates.

Accumulated Other Comprehensive Loss.

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The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

On December 1, 2018, we adopted ASC 606, using the modified retrospective method applied to contracts that were not completed as of the adoption date.

Results for reporting periods beginning December 1, 2018 and after are presented under ASC 606, while results for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods.

Upon the adoption of ASC 606, we recorded a cumulative effect adjustment to increase beginning retained earnings by $ 11.6 million as of December 1, 2018.

On December 1, 2018, we adopted ASC 606, using the modified retrospective method applied to contracts that were

not completed as of the adoption date.

Upon the adoption of ASC 606, we recorded a cumulative effect adjustment to increase beginning retained earnings by $ 11.6 million, net of tax, as of December 1, 2018.

Within our homebuilding operations, ASC 606 impacted the classification and timing of recognition in our consolidated financial statements of certain community sales office and other marketing- and model home-related costs, which we previously capitalized to inventories and amortized through construction and land costs with each home delivered in a community.

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2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the TCJA, and requires certain disclosures about stranded tax effects.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2019 Tax Cuts and Jobs Act (“TCJA”), and requires certain disclosures about stranded tax effects.

We adopted ASU 2018-02 effective December 1, 2019 and elected to reclassify the income tax effects of the TCJA from accumulated other comprehensive loss to retained earnings, which resulted in an increase of $ 1.6 million to both retained earnings and accumulated other comprehensive loss, with no impact on total stockholders’ equity.

Amounts for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods.

In March 2020, the SEC issued Final Rule Release No.

33-10762, “Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities” (“SEC Release No.

33-10762”), which amends Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral.

This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements.

In October 2020, the FASB issued Accounting Standards Update No.

2020-09, “Debt (Topic 470):

Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762,” which amends and updates the FASB Codification to reflect SEC Release No.

The new SEC and FASB guidance is effective January 4, 2021 with earlier adoption permitted.

We adopted this new guidance effective November 30, 2020.

Accordingly, summarized financial

information has been presented for the issuer and guarantors of our registered debt securities, and the required disclosures have been moved from the Notes to Consolidated Financial Statements to Item 7 – Management’s Discussion and Analysis of Results of Operations and Financial Condition in this report.

Recent Accounting Pronouncements Not Yet Adopted.

In June 2016, the FASB issued Accounting Standards Update No.

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Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an incurred loss approach to a new expected credit loss methodology.

ASU 2016-13 is effective for us beginning December 1, 2020.

While we have not completed our evaluation, based on our procedures to date, we do not expect the adoption of ASU 2016-13 to have a material impact on our consolidated financial statements.

On December 1, 2020, we adopted ASU 2016-13 using the modified retrospective method and recorded a cumulative effect adjustment to decrease beginning retained earnings by $.2 million, net of tax, to establish an allowance for credit losses for certain receivables on our consolidated balance sheet.

The adoption of ASU 2016-13 did not materially impact our consolidated statements of operations or cash flows.

Recent Accounting Pronouncements Not Yet Adopted.

In December 2019, the FASB issued Accounting Standards Update No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities.

ASU 2019-12 is effective for us beginning December 1, 2021, with early adoption permitted.

Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities.

ASU 2019-12 is effective for us beginning December 1, 2021.

Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued Accounting Standards Update No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

In January 2021, the FASB issued Accounting Standards Update 2021-01, “Reference Rate Reform (Topic 848):

Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance.

We plan to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is discontinued.

We are currently evaluating the potential impact of adopting this guidance, but do not expect it to have a material impact on our consolidated financial statements.

Reclassifications.

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Management evaluates segment performance primarily based on segment pretax results.

As of November 30, 2020, our homebuilding reporting segments conducted ongoing operations in the following states to the extent permitted by applicable public health orders as part of their respective COVID-19 control responses:

California and Washington

As of November 30, 2021, our homebuilding reporting segments conducted ongoing operations in the following states:

California, Idaho and Washington

Arizona and Nevada

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Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments.

In 2019, we expanded our title services business to include Arizona, Colorado and Nevada.

Our financial services segment earns revenues primarily from insurance commissions and from the provision of title services.

We offer mortgage banking services, including mortgage loan originations, to our homebuyers indirectly through KBHS, an unconsolidated joint venture we formed with Stearns.

We and Stearns each have a 50.0 % ownership interest, with Stearns providing management oversight of KBHS’ operations.

Our homebuyers may select any lender of their choice to obtain mortgage financing for the purchase of their home.

We offer mortgage banking services, including mortgage loan originations, to our homebuyers indirectly through KBHS, an unconsolidated joint venture we initially formed with Stearns, with each party having a 50.0 % ownership interest and Stearns providing management oversight of KBHS’ operations.

On March 1, 2021, Guaranteed Rate acquired the parent company of Stearns.

In October 2021, Stearns was renamed as GR Alliance.

We are not aware of any significant changes with respect to GR Alliance or its operations as a result of the transaction being completed.

The financial services reporting segment is separately reported in our consolidated financial statements.

Corporate and other is a non-operating segment that develops and oversees the implementation of company-wide strategic initiatives and provides support to our reporting segments by centralizing certain administrative functions.

Corporate management is responsible for, among other things, evaluating and selecting the geographic markets in which we operate,

consistent with our overall business strategy;

Corporate management is responsible for, among other things, evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy;

allocating capital resources to markets for land acquisition and development activities;

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and monitoring the financial and operational performance of our divisions.

Corporate and other includes general and administrative expenses related to operating our corporate headquarters.

Corporate and other includes general and administrative expenses related to

operating our corporate headquarters.

A portion of the expenses incurred by Corporate and other is allocated to our homebuilding reporting segments.

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Convertible senior notes

— 1,427 8,402

Weighted average shares outstanding — diluted

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Diluted earnings per share $ 6.01 $ 3.13 $ 2.85

In 2020, no outstanding stock options were excluded from the diluted earnings per share calculation.

In 2019 and 2018, outstanding stock options to purchase a nominal amount and .8 million shares of common stock, respectively, were excluded from the diluted earnings per share calculations because the effect of their inclusion would be antidilutive.

The diluted earnings per share calculations for the years ended November 30, 2019 and 2018 included the dilutive effect of our 1.375 % Convertible Senior Notes due 2019 based on the number of days they were outstanding during each period.

We repaid these notes at their February 1, 2019 maturity.

In 2021 and 2020, no outstanding stock options were excluded from the diluted earnings per share calculation.

In 2019, outstanding stock options to purchase a nominal amount of common stock were excluded from the diluted earnings per share calculation because the effect of their inclusion would be antidilutive.

The diluted earnings per share calculation for the year ended November 30, 2019 included the dilutive effect of our 1.375 % convertible senior notes due 2019 based on the number of days they were outstanding during the period.

We repaid those notes at their February 1, 2019 maturity.

Contingently issuable shares associated with outstanding PSUs were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.

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Recoveries related to self-insurance and other legal claims 95,063 82,018

Income taxes receivable 41,323 —

Refundable deposits and bonds 13,681 10,897

Income taxes receivable — 41,323

Other 49,359 40,020

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Inventories consisted of the following (in thousands):

Homes under construction $ 1,437,911 $ 1,340,412

Homes completed or under construction $ 2,103,038 $ 1,437,911

Land under development 2,699,791 2,459,571

Total $ 4,802,829 $ 3,897,482

Homes under construction is comprised of costs associated with homes completed or in various stages of construction and includes direct construction and related land acquisition and land development costs.

Homes completed or under construction is comprised of costs associated with homes completed or in various stages of construction and includes direct construction and related land acquisition and land development costs.

Land under development primarily consists of land acquisition and land development costs.

Land development costs also include capitalized interest and real estate taxes.

Land development costs include capitalized interest and real estate taxes.

When home construction begins, the associated land acquisition and land development costs are included in homes under construction.

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Land held for future development principally relates to land where development activity has been suspended or has not yet begun but is expected to occur in the future.

These assets are located in various submarkets where conditions do not presently support further investment or development, or are subject to a building permit moratorium or regulatory restrictions, or are portions of larger land parcels that we plan to build out over several years and/or that have not yet been entitled.

We may also suspend development activity if we believe it will result in greater returns and/or maximize the economic performance of a particular community by delaying improvements for a period of time to, for instance, allow earlier phases of a long-term, multi-phase community or a neighboring community to generate or extend sales momentum, or for market conditions to improve.

In some instances, we may activate or resume development activity for such inventory to accelerate sales and/or our return on investment.

During 2020 and 2019, we changed our strategy related to certain land parcels located in improving housing markets where we determined the incremental investment in development to be justified and decided to build and sell homes on these parcels.

As part of this strategy change, we activated assets previously held for future development in certain markets in 2020 and 2019.

Land under development also included land held for sale of $ 1.3 million at November 30, 2020 and $ 19.3 million at November 30, 2019.

Land is generally considered held for sale when management commits to a plan to sell the land;

the land is available for immediate sale in its present condition;

an active program to locate a buyer and other actions required to complete the plan to sell have been initiated;

the sale of the land is expected to be completed within one year ;

the land is being

actively marketed for sale at a price that is reasonable in relation to its current fair value;

and it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

Interest and real estate taxes are not capitalized on land held for future development or land held for sale.

Land held for sale as of November 30, 2020 consisted of land parcels that either have been contracted to sell or that we are continuing to actively market and/or intend to sell within one year .

These assets are generally located in submarkets where conditions do not presently support further investment or development, or are subject to a building permit moratorium or regulatory restrictions, or are portions of larger land parcels that we plan to build out over several years and/or that have not yet been entitled.

At November 30, 2021 and 2020, land under development also included land held for sale of $.6 million and $ 1.3 million, respectively.

Our interest costs were as follows (in thousands):

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Interest amortized to construction and land costs (a) ( 149,508 ) ( 129,772 ) ( 156,803 )

Capitalized interest at end of year (b) $ 190,113 $ 195,738 $ 209,129

Capitalized interest at end of year $ 161,119 $ 190,113 $ 195,738

(a) Interest amortized to construction and land costs for the years ended November 30, 2021, 2020 and 2019 included $.2 million, $.4 million and $.7 million, respectively, related to land sales during the periods.

(b) Capitalized interest amounts reflect the gross amount of capitalized interest, as inventory impairment charges recognized, if any, are not generally allocated to specific components of inventory.

Inventory Impairments and Land Option Contract Abandonments

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If indicators of potential impairment exist for a community or land parcel, the identified asset is evaluated for recoverability.

We evaluated 24 , 40 and 57 communities or land parcels for recoverability during the years ended November 30, 2020, 2019 and 2018, respectively.

The carrying values of those communities or land parcels evaluated during the years ended November 30, 2020, 2019 and 2018 were $ 228.1 million, $ 326.3 million and $ 356.1 million, respectively.

The communities or land parcels evaluated during 2020, 2019 and 2018 included certain communities or land parcels previously held for future development that were reactivated as part of our efforts to improve our asset efficiency.

As impairment indicators are assessed on a quarterly basis, some of the communities or land parcels evaluated during these years were evaluated in more than one quarterly period.

Communities or land parcels evaluated for recoverability in more than one quarterly period are counted only once for each applicable year.

In addition, we evaluated land held for future development for recoverability during 2020, 2019 and 2018.

In some cases, we have recognized inventory impairment charges for particular communities or land parcels in multiple years.

We evaluated one , 11 and 21 communities or land parcels for recoverability as of November 30, 2021, 2020 and 2019, respectively.

The carrying values of those communities or land parcels evaluated as of November 30, 2021, 2020 and 2019 were $ 29.9 million, $ 123.4 million and $ 207.7 million, respectively.

The higher number and corresponding carrying value of communities or land parcels evaluated as of November 30, 2020 and 2019 reflected the then-current conditions and trends in the markets where the communities are located, as well as certain communities or land parcels previously held for future development that were reactivated as part of our efforts to improve our asset efficiency.

In addition, we evaluated land held for future development for recoverability as of November 30, 2021, 2020 and 2019.

Inventory impairment charges are included in construction and land costs in our consolidated statements of operations.

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and land development, home construction and overhead costs to be incurred and related cost inflation.

With respect to the year ended November 30, 2020, these expectations considered that our net orders, ending backlog and cancellation rates for the 2020 third and fourth quarters improved from both the corresponding year-earlier quarters as well as the 2020 second quarter, when the early stages of the COVID-19 pandemic and related COVID-19 control responses in our served markets caused a significant contraction in economic activity and adversely affected our ability to conduct normal operations, as described in Note 1 – Summary of Significant Accounting Policies.

With respect to the year ended November 30, 2021, these expectations considered the year-over-year increases in our overall average net orders per community, backlog levels, homes delivered and housing gross profit margin during the period as well as our experience that conditions in the markets where assessed assets were located were relatively stable or improved, with no significant deterioration identified or projected, as to revenue or cost drivers that would prevent or otherwise impact recoverability.

Our inventory is assessed for potential impairment on a quarterly basis, and the assumptions used are reviewed and adjusted, as necessary, to reflect the market conditions and trends and our expectations at the time each assessment is performed.

With respect to the year ended November 30, 2020, our expectations considered that our net orders, ending backlog and cancellation rates for the 2020 third and fourth quarters improved from both the corresponding year-earlier quarters as well as the 2020 second quarter, when the early stages of the COVID-19 pandemic and related COVID-19 control responses in our served markets caused a significant contraction in economic activity and adversely affected our ability to conduct normal operations, as described in Note 1 – Summary of Significant Accounting Policies.

Our impairment assessments also considered that while the number of homes delivered in the 2020 third and fourth quarters decreased from the corresponding year-earlier quarters, reflecting the negative COVID-19-related impacts earlier in the year, the average selling price of those homes increased and our housing gross profit margins improved significantly over the same periods.

Moreover, the average selling price of our net orders generated during the 2020 third and fourth quarters increased from the corresponding year-earlier periods.

Taken together, and notwithstanding the significant disruptions associated with the COVID-19 pandemic during the 2020 second quarter, our inventory assessments as of November 30, 2020 determined that market conditions for each of our assets in inventory where impairment indicators were identified were expected to be sufficiently stable, with a solid net order pace and a steady average selling price for 2021 and beyond relative to the pace and performance in recent quarters, to support such assets’ recoverability.

With respect to the year ended November 30, 2019, our expectations reflected our experience that, notwithstanding fluctuations in our company-wide net orders, backlog levels, homes delivered and housing gross profit margin during the period, on a year-over-year basis, conditions in the markets where assessed assets were located were generally stable or improved, with no significant deterioration identified or projected, as to revenue and cost drivers that would prevent or otherwise impact recoverability.

Given the inherent challenges and uncertainties in forecasting future results, our inventory assessments at the time they are made take into consideration whether a community or land parcel is active, meaning whether it is open for sales and/or undergoing development, or whether it is being held for future development or held for sale.

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(a) The ranges of inputs used in each period primarily reflect differences between the housing markets where each impacted community is located, rather than fluctuations in prevailing market conditions .

Based on the results of our evaluations, we recognized inventory impairment charges of $ 22.7 million in 2020 related to 10 communities with a post-impairment fair value of $ 46.5 million.

In 2019, we recognized inventory impairment charges of $ 14.0 million related to eight communities with a post-impairment fair value of $ 27.1 million.

Based on the results of our evaluations, we recognized inventory impairment charges of $ 9.9 million in 2021 related to two communities with a post-impairment fair value of $ 18.0 million.

In 2020, we recognized inventory impairment charges of $ 22.7 million related to 10 communities with a post-impairment fair value of $ 46.5 million.

In 2019, we recognized inventory impairment charges of $ 14.0 million related to eight communities with a post-impairment fair value of $ 27.1 million.

The impairment charges in 2021, 2020 and 2019 reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

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We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located.

Our investments in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement.

Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement.

We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary.

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The use of these contracts generally allows us to reduce the market risks associated with direct land ownership and development, and reduce our capital and financial commitments, including interest and other carrying costs.

Under these contracts, we typically make a specified option payment or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price.

Under these contracts, which generally do not contain provisions requiring our specific performance, we typically make a specified option payment or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price.

We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary.

Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary.

In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most

significantly impact the VIE’s economic performance.

In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.

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When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of our share of such unconsolidated joint venture’s earnings (losses) until we recognize revenues on the corresponding home sale, which is generally when title to and possession of the home and the risks and rewards of ownership are transferred to the homebuyer on the closing date.

At that time, we account for the earnings (losses) as a reduction (increase) to the cost of

purchasing the land from the unconsolidated joint venture.

At that time, we account for the earnings (losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture.

We defer recognition of our share of such unconsolidated joint venture losses only to the extent profits are to be generated from the sale of the home to a homebuyer.

We share in the earnings (losses) of these unconsolidated joint ventures generally in accordance with our respective equity interests.

In some instances, we recognize earnings (losses) related to our investment in an unconsolidated joint venture that differ from our equity interest in the unconsolidated joint venture.

In some instances, we recognize earnings (losses) related to our investment in an unconsolidated joint venture that

differ from our equity interest in the unconsolidated joint venture.

This typically arises from our deferral of the unconsolidated joint venture’s earnings (losses) from land sales to us, or other items.

We had investments in six unconsolidated joint ventures as of November 30, 2021 and five unconsolidated joint ventures as of November 30, 2020 and 2019.

The following table presents combined condensed information from the statements of operations of our unconsolidated joint ventures (in thousands):

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Income (loss) $ ( 220 ) $ 25,258 $ ( 2,627 )

For the year ended November 30, 2020, combined revenues and construction and land costs mainly related to homes delivered from an unconsolidated joint venture in California.

For the years ended November 30, 2019 and 2018, combined revenues and construction and land costs were generated primarily from land sales.

The higher combined revenues and income for 2018 as compared to 2019, mainly reflected the sale of land by an unconsolidated joint venture in Arizona, and contingent consideration (profit participation revenues) earned by an unconsolidated joint venture in California.

For the years ended November 30, 2021 and 2020, combined revenues and construction and land costs primarily related to homes delivered from an unconsolidated joint venture in California.

The lower combined revenues and construction and land costs for 2021 as compared to 2020 mainly reflected a decrease in the number of homes delivered from this unconsolidated joint venture to 10 in 2021 from 99 in 2020.

The joint venture delivered its last home in the 2021 second quarter.

For the year ended November 30, 2019, combined revenues and construction and land costs were generated primarily from land sales.

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

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Accounts payable and other liabilities $ 12,285 $ 14,037

Notes payable (a) — 40,672

Equity 68,325 90,722

Total liabilities and equity $ 80,610 $ 104,759

(a) At both November 30, 2020 and 2019, we had investments in five unconsolidated joint ventures.

At November 30, 2019, one of our unconsolidated joint ventures had a construction loan agreement with a third-party lender to finance its land development activities.

The outstanding debt was secured by the underlying property and related project assets and was non-recourse to us.

All of the outstanding secured debt was repaid in April 2020.

None of our unconsolidated joint ventures had outstanding debt at November 30, 2020.

Property and Equipment, Net

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145,562 134,029

Less accumulated depreciation ( 68,482 ) ( 60,338 )

Accumulated depreciation ( 69,249 ) ( 68,482 )

$ 76,313 $ 65,547

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Warranty liability 96,153 91,646

Customer deposits 71,032 26,243

Inventory-related obligations (a) 36,146 31,094

Lease liabilities 29,279 37,668

Accrued interest payable 24,554 31,641

Inventory-related obligations (a) 31,094 26,264

Customer deposits 26,243 22,382

Real estate and business taxes 17,563 14,249

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In determining our incremental borrowing rate, we considered the lease term, market interest rates, current interest rates on our senior notes and the effects of collateralization.

Our lease population at November 30, 2020 was comprised of operating leases where we are the lessee, primarily real estate leases for our corporate office, division offices and design studios, as well as certain equipment leases.

Our lease population at November 30, 2021 was comprised of operating leases where we are the lessee, primarily real estate leases for our corporate offices, division offices and design studios, as well as certain equipment leases.

Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less.

For the year ended November 30, 2020, our total lease expense was $ 17.7 million, which included short-term lease costs of $ 6.0 million.

Variable lease costs and external sublease income for the year ended November 30, 2020 were immaterial.

For the years ended November 30, 2021 and 2020, our total lease expense was $ 17.3 million and $ 17.7 million, respectively, and

included short-term lease costs of $ 4.7 million and $ 6.0 million, respectively.

Variable lease costs and external sublease income for the years ended November 30, 2021 and 2020 were immaterial.

The following table presents our lease right-of-use assets, lease liabilities and the weighted-average remaining lease term and weighted-average discount rate (incremental borrowing rate) used in calculating the lease liabilities (dollars in thousands):

November 30, 2020

Lease right-of-use assets (a) $ 27,693 $ 36,270

Lease liabilities (b) 29,481 38,000

Weighted-average remaining lease term 4.5 years

Weighted-average remaining lease term 3.8 years 4.5 years

Weighted-average discount rate (incremental borrowing rate) 5.1 % 5.1 %

(a) Represents lease right-of-use assets of $ 36.0 million within our homebuilding operations and $.3 million within our financial services operations.

(b) Represents lease liabilities of $ 37.7 million within our homebuilding operations and $.3 million within our financial services operations.

(a) Represents lease right-of-use assets within our homebuilding operations and financial services operations of $ 27.5 million and $.2 million, respectively, at November 30, 2021, and $ 36.0 million and $.3 million, respectively, at November 30, 2020.

(b) Represents lease liabilities within our homebuilding operations and financial services operations of $ 29.3 million and $.2 million, respectively, at November 30, 2021, and $ 37.7 million and $.3 million, respectively, at November 30, 2020 .

The following table presents additional information about our leases (in thousands):

Year Ended November 30, 2020

Years Ended November 30,

Lease right-of-use assets obtained in exchange for new lease liabilities $ 1,526 $ 14,229

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Income tax expense $ ( 91,500 ) $ ( 39,100 ) $ ( 130,600 )

Federal State Total

Current $ ( 12,100 ) $ ( 3,500 ) $ ( 15,600 )

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Our effective tax rates were 18.8 % for 2021, 18.6 % for 2020 and 22.8 % for 2019.

In 2020, our income tax expense and effective tax rate reflected the favorable impacts of $ 18.7 million of federal energy tax credits we earned from building energy-efficient homes, $ 12.0 million of excess tax benefits related to stock-based compensation, partly offset by $ 5.7 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

In 2019, our income tax expense and effective tax rate reflected the favorable impacts of $ 5.3 million of excess tax benefits related to stock-based compensation, a $ 4.4 million deferred tax asset valuation allowance reversal related to refundable alternative minimum tax (“AMT”) and $ 4.3 million of federal energy tax credits we earned from building energy-efficient homes, partly offset by $ 5.3 million of non-deductible executive compensation expense and a $ 1.9 million non-cash charge due to the re-measurement of deferred tax assets based on a reduction in certain state income tax rates.

Our income tax expense and effective tax rate for 2018 included a charge of $ 112.5 million for TCJA-related impacts, as described below;

the favorable effect of the reduction in the federal corporate income tax rate under the TCJA;

the favorable net impact of federal energy tax credits of $ 10.7 million we earned from building energy-efficient homes;

a $ 2.1 million net tax benefit from a reduction in our deferred tax asset valuation allowance;

and excess tax benefits of $ 1.0 million related to stock-based compensation.

The TCJA required us to use a blended federal tax rate for our 2018 fiscal year by applying a prorated percentage of days before and after the January 1, 2018 effective date.

As a result, our 2018 annual federal statutory tax rate was reduced to approximately 22 %.

The federal energy tax credits for the year ended November 30, 2020 resulted from legislation enacted in December 2019 that, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2020.

The federal energy tax credits for the years ended November 30, 2019 and 2018 resulted from legislation enacted on February 9, 2018 that, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2017.

Prior to this legislation, the tax credit expired on December 31, 2016.

On March 27, 2020, the CARES Act was enacted to provide economic and other relief from the COVID-19 pandemic.

Among other things, the CARES Act provides various income and payroll tax provisions that we do not expect to have a material impact on our income tax expense or effective tax rate for 2020.

The CARES Act also accelerated the timetable for AMT credit refunds.

In 2021, our income tax expense and effective tax rate reflected the favorable impacts of $ 49.5 million of federal tax credits we earned primarily from building energy-efficient homes and $ 7.1 million of excess tax benefits related to stock-based compensation, partly offset by $ 11.3 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

In 2020, our income tax expense and effective tax rate reflected the favorable impacts of $ 18.7 million of federal tax credits we earned from building energy-efficient homes and $ 12.0 million of excess tax benefits related to stock-based compensation, partly offset by $ 5.7 million of non-deductible executive compensation expense.

In 2019, our income tax expense and effective tax rate reflected the favorable impacts of $ 5.3 million of excess tax benefits related to stock-based compensation, a $ 4.4 million deferred tax asset valuation allowance reversal related to refundable alternative minimum tax (“AMT”) and $ 4.3 million of federal tax credits we earned from building energy-efficient homes, partly offset by $ 5.3 million of non-deductible executive compensation expense and a $ 1.9 million non-cash charge due to the re-measurement of deferred tax assets based on a reduction in certain state income tax rates.

The federal energy tax credits for the year ended November 30, 2021 resulted from legislation enacted in December 2020 and earlier periods.

The legislation enacted in December 2020, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2021.

The federal energy tax credits for the year ended November 30, 2020 resulted from legislation enacted in December 2019 that, among other things, extended the availability of the tax credit through December 31, 2020.

The federal energy tax credits for the year ended November 30, 2019 resulted from legislation enacted on February 9, 2018 that, among other things, extended the availability of the tax credit through December 31, 2017.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to provide economic and other relief as a result of the COVID-19 pandemic.

Among other things, the CARES Act accelerated the timetable for AMT credit refunds.

As a result, in the 2020 second quarter, we filed a superseding 2019 federal income tax return claiming an additional refund of $ 39.3 million of AMT credits and reclassified this amount from deferred tax assets to receivables.

We received this AMT credit refund in the 2021 first quarter.

In the 2020 fourth quarter, an amended 2019 federal income tax return was filed to expedite our additional refund and to recognize federal energy tax credits we earned from building energy-efficient homes in 2019.

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Our accounting policy regarding the balance sheet presentation of AMT credits is to maintain the balance in deferred tax assets until a tax return is filed claiming a refund of a portion of the credit, at which time such amount will be presented in receivables.

The CARES Act also provided an ERC, which is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic.

Eligible employers could qualify for up to $ 5,000 of credit for each employee based on certain wages paid after March 12, 2020 and before January 1, 2021.

Based on our evaluation of this provision and the significant pandemic-related impacts on our operations in 2020, we recognized an ERC of $ 4.3 million as an offset to payroll tax expenses within selling general and administrative expenses in our consolidated statements of operations upon filing for the refund in the 2021 first quarter.

We received the ERC refund in the 2021 fourth quarter.

In June 2020, California enacted tax legislation that approved the suspension of California NOL deductions for tax years 2020, 2021 and 2022.

The suspension of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2020.

The TCJA, enacted in December 2017, among other things:

(a) reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018;

(b) eliminated the federal corporate AMT and changed how existing AMT credits can be realized;

and (c) eliminated several business deductions and credits, including deductions for certain executive compensation in excess of $ 1 million.

In 2018, based on our analysis of the TCJA’s income tax effects, we recorded a total non-cash charge of $ 112.5 million to income tax expense, comprised of a provisional estimate of $ 111.2 million recorded in the 2018 first quarter and an additional $ 1.3 million charge in the 2018 fourth quarter.

The following TCJA-related impacts were reflected in our consolidated financial statements for the year ended November 30, 2018:

• We recorded a non-cash charge of $ 106.7 million in income tax expense due to the accounting re-measurement of our deferred tax assets based on the lower federal corporate income tax rate under the TCJA.

• We established a federal deferred tax valuation allowance of $ 3.3 million for 2018 to reflect a sequestration reduction rate of approximately 6.6 % on our then-estimated refundable AMT credit carryforwards of approximately $ 50.0 million.

• We recorded a non-cash charge of $ 2.5 million in income tax expense for disallowed executive compensation due to the TCJA’s eliminating the deductibility of certain performance-based compensation.

Although the suspension of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2021 or 2020, it contributed to the year-over-year increase in the amount of taxes we paid in 2021.

Deferred Tax Assets, Net.

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Capitalized expenses $ 36,660 $ 43,439

$ 43,439 $ 43,818

22,562 26,290

State taxes 20,558 22,562

Depreciation and amortization 3,926 2,714

Other 1,555 2,884

62,699 71,599

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NOLs from 2006 through 2021 73,662 79,987

75,108 180,737

Employee benefits 56,384 52,713

52,713 53,294

Warranty, legal and other accruals 54,826 41,319

41,319 40,954

Inventory impairment and land option contract abandonment charges 30,767 40,998

40,998 48,862

Capitalized expenses 26,849 19,903

19,903 25,116

Partnerships and joint ventures 8,265 8,733

Depreciation and amortization

Tax credits 4,634 75,108

Other 2,090 1,905

257,477 320,666

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240,077 302,666

302,666 438,733

Deferred tax assets, net $ 177,378 $ 231,067

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NOL reconciliation — — — — 3,111 .9

TCJA adjustment — — — — ( 112,458 ) ( 30.5 )

Other, net 48 — 12 — 915 .2

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In our evaluation, we give more significant weight to evidence that is objective in nature as compared to subjective evidence.

Also, more significant weight is given to evidence that directly relates to our then-current financial performance as compared to indirect or less current evidence.

Also, more significant weight is given to evidence that

directly relates to our then-current financial performance as compared to indirect or less current evidence.

The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible.

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Our deferred tax assets of $ 194.8 million at November 30, 2021 and $ 249.1 million at November 30, 2020 were partially offset in each year by valuation allowances of $ 17.4 million and $ 18.0 million, respectively.

Our deferred tax assets as of November 30, 2020 reflected the above-mentioned AMT credit reclassifications totaling $ 82.6 million from deferred tax assets

to receivables in 2020.

The deferred tax asset valuation allowances at November 30, 2021 and 2020 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates.

As a result of our utilization of certain state NOLs, we reduced the valuation allowance by $.6 million in 2021.

As of November 30, 2021, we would need to generate approximately $ 670 million of pretax income in future periods before 2041 to realize our deferred tax assets.

As a result of an expiration and the remeasurement of certain state NOLs, we decreased both our deferred tax assets and the related deferred tax asset valuation allowance for these NOLs by $ 1.2 million in 2020.

Based on the evaluation of our deferred tax assets as of November 30, 2021, we determined that most of our deferred tax assets would be realized.

The decrease in the valuation allowance during 2019 primarily reflected our reversal of the above-mentioned $ 4.4 million deferred tax asset valuation allowance, partly due to the Internal Revenue Service’s announcement in January 2019 that refundable AMT credits will not be subject to sequestration for taxable years beginning after December 31, 2017.

As noted above, in 2018, we established a federal deferred tax asset valuation allowance of $ 3.3 million due to the sequestration of refundable AMT credits, which was offset by a reduction of $ 3.3 million in our state deferred tax asset valuation allowance primarily to account for state NOLs that met the “more likely than not” standard or had expired.

In 2018, the net tax benefit related to the reduction in the state deferred tax asset valuation allowance was $ 2.1 million.

In 2020, as a result of an expiration and the remeasurement of certain state NOLs, we decreased both our deferred tax assets and the related deferred tax asset valuation allowance for these NOLs by $ 1.2 million.

In 2019, the decrease in the valuation allowance primarily reflected our reversal of a $ 4.4 million deferred tax asset valuation allowance, partly due to the Internal Revenue Service’s announcement in January 2019 that refundable AMT credits will not be subject to sequestration for taxable years beginning after December 31, 2017.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets.

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State NOL carryforwards of $.2 million and $.4 million expired in 2021 and 2020, respectively.

In addition, $ 70.8 million of our tax credits, if not utilized, will begin to expire in 2034 through 2040.

In addition, $ 4.6 million of our tax credits, if not utilized, will expire in 2041.

Unrecognized Tax Benefits.

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Balance at beginning of year $ — $ — $ —

Reductions due to lapse of statute of limitations — — ( 56 )

Increase as a result of tax position taken in prior years 930 — —

Balance at end of year $ 930 $ — $ —

We had unrecognized tax benefits of $.9 million as of November 30, 2021.

Our unrecognized tax benefits are included in accrued expenses and other liabilities in our consolidated financial statements.

We recognize accrued interest and penalties related to unrecognized tax benefits in our consolidated financial statements as a component of the provision for income taxes.

As of November 30, 2020 and 2019, we had no gross unrecognized tax benefits.

If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time.

During the next 12 months, it is possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change.

The potential change will be related to increases due to new tax positions taken and the accrual of interest and penalties.

As of November 30, 2021 and 2020, there were no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain.

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Notes payable consisted of the following (in thousands):

Mortgages and land contracts due to land sellers and other loans (at interest rates of 4.5 % to 6.0 % at November 30, 2020 and 7.0 % at November 30, 2019)

Mortgages and land contracts due to land sellers and other loans (at interest rates of 4.5 % at November 30, 2021 and 4.5 % to 6.0 % at November 30, 2020)

$ 5,327 $ 4,667

7.00 % Senior notes due December 15, 2021

449,029 448,164

7.50 % Senior notes due September 15, 2022

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296,905 296,595

4.00 % Senior notes due June 15, 2031

Total $ 1,685,027 $ 1,747,175

The carrying amounts of our senior notes listed above are net of debt issuance costs, premiums and discounts, which totaled $ 7.5 million at November 30, 2020 and $ 9.1 million at November 30, 2019.

The carrying amounts of our senior notes listed above are net of debt issuance costs and premiums, which totaled $ 10.3 million at November 30, 2021 and $ 7.5 million at November 30, 2020.

Unsecured Revolving Credit Facility.

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LOC Facility.

We maintain an LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business.

Under the LOC Facility, which expires on February 13, 2022, we may issue up to $ 50.0 million of letters of credit.

On August 12, 2021, we entered into an amendment to our LOC Facility that increased the limit of letters of credit we may issue under it from $ 50.0 million to $ 75.0 million, and extended the expiration date from February 13, 2022 to February 13, 2025.

Under the LOC Facility, we obtain letters of credit from time to time in the ordinary course of operating our business.

As of November 30, 2021 and 2020, we had letters of credit outstanding under the LOC Facility of $ 34.6 million and $ 29.7 million, respectively.

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The 2020 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 14, 2017.

We have not made any offerings of securities under the 2020 Shelf Registration.

Senior Notes.

All of the senior notes outstanding at November 30, 2020 and 2019 represent senior unsecured obligations and rank equally in right of payment with all of our existing and future indebtedness.

All of our outstanding senior notes were issued in underwritten public offerings.

All of the senior notes outstanding at November 30, 2021 and 2020 represent senior unsecured obligations that are guaranteed by certain of our subsidiaries and rank equally in right of payment with all of our existing and future indebtedness.

All of our senior notes were issued in underwritten public offerings.

Interest on each of these senior notes is payable semi-annually.

The key terms of each of our senior notes outstanding as of November 30, 2021 were as follows (dollars in thousands):

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7.50 % Senior notes

$ 450,000 October 29, 2013 December 15, 2021 Yes (a) 7.2 %

$ 350,000 July 31, 2012 September 15, 2022 Yes (a) 7.7 %

7.625 % Senior notes

350,000 July 31, 2012 September 15, 2022 Yes (b) 7.7

350,000 February 17, 2015/February 20, 2019 May 15, 2023 Yes (b) 7.5

6.875 % Senior notes

350,000 February 17, 2015/February 20, 2019 May 15, 2023 Yes (a) 7.5

300,000 February 20, 2019 June 15, 2027 Yes (b) 7.1

4.80 % Senior notes

300,000 February 20, 2019 June 15, 2027 Yes (a) 7.1

300,000 November 4, 2019 November 15, 2029 Yes (b) 5.0

4.00 % Senior notes

300,000 November 4, 2019 November 15, 2029 Yes (a) 5.0

(a) At our option, these notes may be redeemed, in whole at any time or from time to time in part, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed (exclusive of interest accrued to the applicable redemption date), discounted to the redemption date at a defined rate, plus, in each case, accrued and unpaid interest on the notes being redeemed to, but excluding, the applicable redemption date, except that three months prior to the stated maturity dates for the 7.00 % Senior Notes due 2021 and until their respective maturity, and six months prior to the stated maturity date for the 7.625 % Senior Notes due 2023, 6.875 % Senior Notes due 2027 and 4.80 % Senior Notes due 2029 and until their maturity, the redemption price will be equal to 100 % of the principal amount of the notes being redeemed, plus, in each case, accrued and unpaid interest on the notes being redeemed to, but excluding, the applicable redemption date.

390,000 June 9, 2021 June 15, 2031 Yes (b) 4.2

(b) At our option, these notes may be redeemed, in whole at any time or from time to time in part, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed (exclusive of interest accrued to the applicable redemption date), discounted to the redemption date at a defined rate, plus, in each case, accrued and unpaid interest on the notes being redeemed to, but excluding, the applicable redemption date, except that six months prior to the stated maturity date for these notes and until their maturity, the redemption price will be equal to 100 % of the principal amount of the notes being redeemed, plus, in each case, accrued and unpaid interest on the notes being redeemed to, but excluding, the applicable redemption date.

If a change in control occurs as defined in the instruments governing our senior notes, we would be required to offer to purchase all of our outstanding senior notes at 101 % of their principal amount, together with all accrued and unpaid interest, if any.

On February 1, 2019, we repaid the entire $ 230.0 million in aggregate principal amount of our 1.375 % Convertible Senior Notes due 2019 at their maturity.

On February 20, 2019, we completed concurrent public offerings of $ 300.0 million in aggregate principal amount of 6.875 % Senior Notes due 2027 at 100.000 % of their aggregate principal amount, and an additional $ 100.0 million in aggregate principal amount of our existing series of 7.625 % Senior Notes due 2023 at 105.250 % of their aggregate principal amount plus accrued interest from November 15, 2018 (the last date on which interest was paid on the existing 2023 senior notes) to the date of delivery.

Net proceeds from these offerings totaled $ 400.0 million, after deducting the underwriting discount and our expenses relating to the offerings.

On March 8, 2019, we applied the net proceeds from the concurrent public offerings toward the optional redemption of the entire $ 400.0 million in aggregate principal amount of our 4.75 % Senior Notes due 2019 before their May 15, 2019 maturity date.

On November 4, 2019, we completed a public offering of $ 300.0 million in aggregate principal amount of 4.80 % Senior Notes due 2029 at 100.000 % of their aggregate principal amount.

On June 9, 2021, we completed the underwritten public offering of $ 390.0 million in aggregate principal amount of 4.00 % Senior Notes due 2031 at 100 % of their aggregate principal amount.

Net proceeds from this offering totaled $ 385.2 million, after deducting the underwriting discount and our expenses relating to the offering.

On November 22, 2019, at our option, we redeemed the entire $ 350.0 million in aggregate principal amount of our 8.00 % Senior Notes due 2020 before their March 15, 2020 maturity date.

We used the net proceeds from the 4.80 % Senior Notes due 2029 and internally generated cash to fund this redemption.

We paid $ 356.2 million to redeem the notes and recorded a charge of $ 6.8 million for the early extinguishment of debt.

The 4.00 % Senior Notes due 2031 represent senior unsecured obligations of ours and rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.

Interest on the 4.00 % Senior Notes due 2031 is payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2021.

These notes will mature on June 15, 2031.

On June 9, 2021, we used a portion of the net proceeds from the issuance of the 4.00 % Senior Notes due 2031 to purchase, pursuant to a tender offer that expired the previous day, $ 269.8 million in aggregate principal amount of our outstanding $ 450.0 million of 7.00 % Senior Notes due 2021.

We paid $ 274.9 million to purchase the notes and recorded a charge of $ 5.1 million for the early extinguishment of debt in the 2021 third quarter due to a premium paid under the tender offer and the unamortized original issue discount associated with these senior notes.

On September 15, 2021, we redeemed the remaining $ 180.2 million in aggregate principal amount of the 7.00 % Senior Notes due 2021 at par value pursuant to the terms of the notes.

The indenture governing our senior notes does not contain any financial covenants.

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Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

There are no agreements that restrict our payment of dividends other than the Credit Facility, which would restrict our payment of cash and certain other dividends, such as cash dividends on our common stock, if a default under the Credit Facility exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

There are no agreements that restrict our payment of dividends other than the Credit Facility, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

Principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due during each year ending November 30 as follows:

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2024 — $.6 million;

2024 — $.7 million;

and thereafter — $ 990.0 million.

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The fair values of our senior notes are generally estimated based on quoted market prices for these instruments.

The carrying values reported for cash and cash equivalents, and mortgages and land contracts due to land sellers and other loans

approximate fair values.

The carrying values reported for cash and cash equivalents, and mortgages and land contracts due to land sellers and other loans approximate fair values.

The carrying value of corporate-owned life insurance is based on the cash surrender value of the policies and, accordingly, approximates fair value.

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The specific terms and conditions of our limited warranty program vary depending upon the markets in which we do business.

We generally provide a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and certain other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of the home.

We generally provide a structural warranty of 10 years, a

warranty on electrical, heating, cooling, plumbing and certain other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of the home.

Our limited warranty program is ordinarily how we respond to and account for homeowners’ requests to local division offices seeking repairs of certain conditions or defects, including claims where we could have liability under applicable state statutes or tort law for a defective condition in or damages to a home.

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Self-Insurance.

We maintain, and require the majority of our independent subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation 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.

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Costs associated with our self-insurance programs are included in selling, general and administrative expenses.

In Arizona, California, Colorado and Nevada, our subcontractors’ general liability insurance primarily takes the form of a wrap-up policy under a program where eligible independent subcontractors are enrolled as insureds on each community.

Enrolled subcontractors 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 subcontractors’ 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.

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 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 certain construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to certain limits.

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Estimated probable recoveries related to self-insurance of $ 60.0 million and $ 50.6 million are included in receivables in our consolidated balance sheets at November 30, 2020 and 2019, respectively.

Estimated probable insurance and other recoveries of $ 57.8 million and $ 60.0 million are included in receivables in our consolidated balance sheets at November 30, 2021 and 2020, 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.

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Balance at end of year $ 189,131 $ 194,180 $ 177,765

(a) Includes net changes in estimated probable recoveries related to self-insurance, which are recorded in receivables, to present our self-insurance liability on a gross basis, and adjustments to reduce our previously recorded liability by $ 4.0 million in 2020 and $ 2.5 million in 2019.

(a) Includes net changes in estimated probable recoveries related to self-insurance, which are recorded in receivables, to present our self-insurance liability on a gross basis;

an adjustment to increase our previously recorded liability by $ 6.8 million in 2021;

and adjustments to reduce our previously recorded liability by $ 4.0 million in 2020 and $ 2.5 million in 2019.

For most of our claims, there is no interaction between our warranty liability and self-insurance liability.

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In these instances, the claims and related repair work generally are initially covered by our warranty liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

The payments we make in connection with claims and related repair work, whether covered within our warranty liability and/or our self-insurance liability, may be recovered from our insurers to the extent such payments exceed the self-insured retentions or deductibles under our general liability insurance policies.

Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of and/or on behalf of a subcontractor(s) or their insurer(s) and believe we will be reimbursed for such payments.

retentions or deductibles under our general liability insurance policies.

Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of and/or on behalf of an independent contractor(s) or their insurer(s) and believe we will be reimbursed for such payments.

Estimates of all such amounts, if any, are recorded as receivables in our consolidated balance sheets when any such recovery is considered probable.

Florida Chapter 558 Actions .

We and certain of our subcontractors have received a growing number of claims from attorneys on behalf of individual owners of our homes and/or homeowners’ associations that allege, pursuant to Chapter 558 of the Florida Statutes, various construction defects, with most relating to stucco and water-intrusion issues.

We and certain of our trade partners have received a growing number of claims from attorneys on behalf of individual owners of our homes and/or homeowners’ associations that allege, pursuant to Chapter 558 of the Florida Statutes, various construction defects, with most relating to stucco and water-intrusion issues.

The claims primarily involve homes in our Jacksonville, Orlando, and Tampa operations.

Under Chapter 558, homeowners must serve written notice of a construction defect(s) and provide the served construction and/or design contractor(s) with an opportunity to respond to the noticed issue(s) before they can file a lawsuit.

Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable subcontractors or their insurers covering the related costs, as of November 30, 2020, we had approximately 600 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond.

In addition, some of our subcontractors’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs.

Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable trade partners or their insurers covering the related costs, as of November 30, 2021, we had approximately 543 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond.

In addition, some of our trade partners’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs.

At November 30, 2021, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries.

While it is reasonably possible that our loss could exceed the amount accrued and our recoveries could be less than the amount recorded, at this time, we are unable to estimate the total amount of the loss in excess of the accrued amount and/or associated with a shortfall in the recoveries that is reasonably possible.

In addition, although we believe it is probable we will receive additional claims in future periods, we are unable to reasonably estimate the number of such claims or the amount or range of any potential losses associated with such claims as each of these is dependent on several factors, including the actions of third parties over which we have no control;

the nature of any specific claims;

and our evaluation of the particular facts surrounding each such claim.

Townhome Community Construction Defect Claims .

In the 2016 fourth quarter, we received claims from a homeowners association alleging there were construction defects, primarily involving roofing and stucco issues, at a completed townhome community in Northern California totaling approximately $ 25.0 million.

We, along with our outside consultants, have continued to investigate these allegations and we currently expect it may take additional quarters to fully evaluate them.

At November 30, 2020, we had an accrual for our estimated probable loss in this matter and a receivable for estimated probable insurance recoveries that reflected the status of our investigation to such date.

We, along with our outside consultants, have continued to investigate these allegations, and at November 30, 2021, we had an accrual for our estimated probable loss in this matter and a receivable for estimated probable insurance recoveries that reflected the status of our investigation to such date.

At this stage of our investigation into these allegations, it is reasonably possible that our loss could exceed the amount accrued by an estimated range of $ 0 to $ 3.0 million.

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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, 2020, we had $ 897.6 million of performance bonds and $ 42.1 million of letters of credit outstanding.

At November 30, 2021, we had $ 1.11 billion of performance bonds and $ 43.2 million of letters of credit outstanding.

At November 30, 2020, we had $ 897.6 million of performance bonds and $ 42.1 million of letters of credit outstanding.

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Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

Potential Contingent Gain.

In pursuing e-commerce opportunities in the late-1990s, we sought strategic alliances to provide new products and services to our homebuyers and invested in certain technology businesses aimed at enhancing the homebuying experience.

We accounted for these investments under the cost method.

We wrote these investments off in 2001-2002, when we believed they were not recoverable based on the extended technology industry downturn and related severe stock market correction.

One of these companies, in which we had invested approximately $ 1.8 million, has since developed a viable business and experienced significant revenue growth.

We have a minority ownership interest in this investee company.

In addition, in 2000 we granted nominal ownership interests in this and other investee companies to 16 then-current executives under an incentive compensation program.

Prior to his appointment, our chairman, president and chief executive officer, who presently serves on this investee company’s board of directors, received such grants, including for this

investee company, as a participant in the program.

Subsequent to the end of our 2021 fiscal year, this investee company entered into a letter of intent with a prospective buyer and, if a sales transaction is completed, we expect we could realize a gain that would be recognized in a future period when the sale closes.

Legal Matters

We are involved in litigation and regulatory proceedings incidental to our business that are in various procedural stages.

We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of November 30, 2020, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements.

We believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of November 30, 2021, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements.

We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments;

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Estimates of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable.

Based on our experience, we believe that the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability.

Based on our experience, we believe the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability.

The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made.

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To help protect the benefits of our NOLs and other deferred tax assets from an ownership change under Section 382, on January 22, 2009, we adopted a Rights Agreement (“Prior Rights Agreement”), and we 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.

On April 12, 2018, we entered into an Amended and Restated Rights Agreement with Computershare Inc., as rights agent, (“2018 Rights Agreement”) following its approval by our stockholders at our 2018 Annual Meeting held on April 12, 2018.

The 2018 Rights Agreement amended and restated the Prior Rights Agreement and extended the latest possible expiration date of the rights issued pursuant to the Prior Rights Agreement to the close of business on April 30, 2021, and made certain other related changes.

Otherwise, the 2018 Rights Agreement’s terms are substantively the same as those of the Prior Rights Agreement.

On April 12, 2018, we entered into an Amended and Restated Rights Agreement with Computershare Inc., as rights agent (“2018 Rights Agreement”), which amended and restated the Prior Rights Agreement.

The 2018 Rights Agreement extended the latest possible expiration date of the rights issued pursuant to the 2018 Rights Agreement to the close of business on April 30, 2021 and made certain other related changes.

On April 8, 2021, we entered into an Amended Rights Agreement with Computershare Inc., as rights agent, (“2021 Rights Agreement”) following its approval by our stockholders at our 2021 Annual Meeting held on April 8, 2021.

The 2021 Rights Agreement amends the 2018 Rights Agreement.

As with the 2018 Rights Agreement, the 2021 Rights Agreement is intended to continue to help protect our NOLs and other deferred tax assets from an ownership change under Internal Revenue Code Section 382.

The 2021 Rights Agreement extended the latest possible expiration date of the rights issued pursuant to the 2018 Rights Agreement to the close of business on April 30, 2024 and made certain other related changes.

Otherwise, the 2021 Rights Agreement’s terms are substantively the same as those of the 2018 Rights Agreement.

Subject to the terms, provisions and conditions of the 2021 Rights Agreement, if these rights become exercisable, each right would initially represent the right to purchase from us 1/100th of a share of our Series A Participating Cumulative Preferred Stock for a purchase price of $ 85.00 (“Purchase Price”).

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After the Distribution Date, the rights may be transferred other than in connection with the transfer of the underlying shares of our 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 our common stock having a market value of two times the Purchase Price.

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 our common stock having a market value of two times the Purchase Price.

After the later of the Distribution Date and the time we publicly announce that an Acquiring Person has become such, our 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.

At any time prior to the later of the Distribution Date and the time we publicly announce that an Acquiring Person becomes such, our board of directors may redeem all of the then-outstanding rights in whole, but not in part, at a price of $ .001 per right,

subject to adjustment (“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.

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Common Stock.

On May 14, 2018, our board of directors authorized us to repurchase a total of up to 4,000,000 shares of our outstanding common stock.

On July 8, 2021, our board of directors authorized us to repurchase up to 5,000,000 shares of our outstanding common stock.

This authorization reaffirmed and incorporated the then-current balance of 2,193,947 shares that remained under a prior board-approved share repurchase program.

In 2018, we repurchased 1,806,053 shares of our common stock pursuant to this authorization, at a total cost of $ 35.0 million.

The amount and timing of shares remaining to be purchased under this share repurchase authorization are subject to market and business conditions and other factors, and purchases may be made from time to time and at any time through open market or privately negotiated transactions.

This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by the board of directors.

Unrelated to the share repurchase program, our board of directors authorized the repurchase of not more than 680,000 shares of our outstanding common stock, and also authorized potential future grants of up to 680,000 stock payment awards under the KB Home 2014 Equity Incentive Plan (“2014 Plan”), in each case solely as necessary for director elections in respect of outstanding Director Plan SARs.

In 2021, we repurchased 4,668,600 shares of our common stock on the open market pursuant to this authorization at a total cost of $ 188.2 million.

Repurchases under the remaining authorization of 331,400 shares may occur periodically through open market purchases, privately negotiated transactions or otherwise, with the timing and amount at management’s discretion and dependent on market and business conditions and other factors.

This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors and does not obligate us to purchase any additional shares.

Unrelated to the share repurchase program, our board of directors authorized in 2014 the repurchase of not more than 680,000 shares of our outstanding common stock, and also authorized potential future grants of up to 680,000 stock payment awards under the KB Home 2014 Equity Incentive Plan (“2014 Plan”), in each case solely as necessary for director elections in respect of outstanding Director Plan SARs.

The 2014 Plan, which was amended in April 2016, is discussed in Note 21 – Employee Benefit and Stock Plans.

As of November 30, 2021, we have not repurchased any shares and no stock payment awards have been granted under the 2014 Plan, as amended, pursuant to the respective board of directors’ authorizations.

Our board of directors declared quarterly cash dividends of $ .09 per share of common stock in the 2020 first, second and third quarters.

Our board of directors declared four quarterly cash dividends of $ .15 per share of common stock in 2021.

In 2020, our board of directors declared quarterly cash dividends of $ .09 per share of common stock in the first, second and third quarters.

In the 2020 fourth quarter, our board of directors approved an increase in the quarterly cash dividend on our common stock to $ .15 per share and declared a quarterly cash dividend at the new higher rate.

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In the 2019 third quarter, our board of directors approved an increase in the quarterly cash dividend on our common stock to $ .09 per share, and declared quarterly cash dividends at the new higher rate in the 2019 third and fourth quarters.

Our board of directors declared four quarterly cash dividends of $ .025 per share of common stock in 2018.

All dividends declared during 2021, 2020 and 2019 were also paid during those years.

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Other comprehensive loss, net of tax ( 5,127 )

Postretirement Benefit Plan Adjustments

Total Accumulated Other Comprehensive Loss

Reclassification of stranded tax effects to retained earnings ( 1,643 )

Balance at November 30, 2020 ( 22,276 )

Other comprehensive loss before reclassifications ( 8,412 )

Other comprehensive income before reclassifications 2,664

Amounts reclassified from accumulated other comprehensive loss 1,661

Income tax benefit related to items of other comprehensive loss 1,897

Other comprehensive loss, net of tax ( 5,127 )

Reclassification of stranded tax effects to retained earnings ( 1,643 )

Income tax expense related to items of other comprehensive income ( 1,168 )

Other comprehensive income, net of tax 3,157

Balance at November 30, 2021 $ ( 19,119 )

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(a) The accumulated other comprehensive loss components are included in the computation of net periodic benefit costs as further discussed in Note 22 – Postretirement Benefits.

The estimated prior service cost expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2021 is $.1 million.

There is no estimated prior service cost expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2022.

Employee Benefit and Stock Plans

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Amended KB Home 2014 Plan.

At our Annual Meeting of Stockholders held on April 7, 2016, our stockholders approved the Amended KB Home 2014 Equity Incentive Plan (“Amended 2014 Plan”), authorizing, among other things, the issuance for grants of stock-based awards to our employees, non-employee directors and consultants of up to 7,500,000 additional shares above the original 4,800,000 shares our stockholders approved under the plan (or an aggregate issuance of 12,300,000 shares), plus any shares that were available for grant as of April 7, 2014 under our 2010 Equity Incentive Plan (“2010 Plan”), and any shares subject to then-outstanding awards under the 2010 Plan that subsequently expire or are cancelled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash.

shares subject to then-outstanding awards under the 2010 Plan that subsequently expire or are cancelled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash.

No new awards may be made under the 2010 Plan.

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The number of shares of our common stock actually granted to a recipient, if any, when a PSU vests will depend on the degree of achievement of the applicable performance measures during the applicable three-year period.

The shares of our common stock that were granted under the terms of PSUs that vested in 2020 included an aggregate of 108,511 additional shares above the target amount awarded to the eligible recipients based on our achieving certain levels of the three above-described metrics over the three-year period from December 1, 2016 through November 30, 2019.

The shares of our common stock that were granted under the terms of PSUs that vested in 2019 included an aggregate of 119,260 additional shares above the target amount awarded to the eligible recipients based on our achieving certain levels of the three above-described metrics over the three-year period from December 1, 2015 through November 30, 2018.

The shares of our common stock that were granted under the terms of PSUs that vested in 2018 included an aggregate of 194,529 additional shares above the target amount awarded to the eligible recipients based on our achieving certain levels of average return on equity performance and revenue growth performance relative to a peer group of high-production homebuilding companies over the three-year period from December 1, 2014 through November 30, 2017.

The shares of our common stock that were granted under the terms of PSUs that vested in 2021 included an aggregate of 119,733 additional shares above the target amount awarded to the eligible recipients based on our achievement of certain levels of the three above-described metrics over the three-year period from December 1, 2017 through November 30, 2020.

The shares of our common stock that were granted under the terms of PSUs that vested in 2020 included an aggregate of 108,511 additional shares above the target amount awarded to the eligible recipients based on our achievement of certain levels of the three above-described metrics over the three-year period from December 1, 2016 through November 30, 2019.

The shares of our common stock that were granted under the terms of PSUs that vested in 2019 included an aggregate of 119,260 additional shares above the target amount awarded to the eligible recipients based on our achievement of certain levels of the three above-described metrics over the three-year period from December 1, 2015 through November 30, 2018.

The PSUs do not have dividend or voting rights during the performance period.

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The cash surrender value of the Retirement Plan life insurance contracts was $ 40.5 million at November 30, 2021 and $ 43.5 million at November 30, 2020.

We recognized investment gains on the cash surrender value of the Retirement Plan life insurance contracts of $.7 million in 2020 and $ 2.1 million in 2019, and an investment loss of $.9 million in 2018.

We recognized an investment loss on the cash surrender value of the Retirement Plan life insurance contracts of $ 1.1 million in 2021, and investment gains of $.7 million in 2020 and $ 2.1 million in 2019.

In 2021, 2020 and 2019, we paid $ 1.9 million, $ 1.9 million and $ 1.8 million, respectively, in benefits under the Retirement Plan to eligible former employees.

The cash surrender value of the DBO Plan life insurance contracts was $ 18.5 million at November 30, 2021 and $ 18.8 million at November 30, 2020.

We recognized investment gains on the cash surrender value of the DBO Plan life insurance contracts of $.3 million in 2020 and $.9 million in 2019, and an investment loss of $.3 million in 2018.

We recognized an investment loss on the cash surrender value of the DBO Plan life insurance contracts of $.3 million in 2021, and investment gains of $.3 million in 2020 and $.9 million in 2019.

In 2019, we paid $ 1.7 million in benefits under the DBO Plan.

We did not pay out any benefits under the DBO Plan in 2021 or 2020.

The net periodic benefit cost of our Retirement Plan and DBO Plan consisted of the following (in thousands):

The net periodic benefit cost of our Retirement Plan and DBO Plan is included in selling, general and administrative expenses in our consolidated statements of operations and consisted of the following (in thousands):

Years Ended November 30,

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Supplemental disclosure of non-cash activities:

Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 9,766 9,350 9,662

Increase (decrease) in consolidated inventories not owned 7,071 7,254 ( 9,634 )

Inventories acquired through seller financing 2,910 21,712 8,967

Reclassification of federal tax refund from deferred tax assets to receivables — 82,617 —

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Increase in property and equipment, net due to adoption of ASC 606 — — 31,194

Increase (decrease) in consolidated inventories not owned 7,254 ( 9,634 ) 16,098

Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 9,350 9,662 17,637

Inventories acquired through seller financing 21,712 8,967 44,586

Quarterly Results (unaudited)

The following tables present our consolidated quarterly results for the years ended November 30, 2020 and 2019 (in thousands, except per share amounts):

First Quarter Second Quarter Third Quarter Fourth Quarter

Revenues $ 1,075,935 $ 913,970 $ 999,013 $ 1,194,256

Gross profits 188,920 168,634 199,462 241,624

Inventory impairment and land option contract abandonment charges 5,672 4,379 6,888 11,730

Pretax income (a) 68,848 67,789 101,315 126,091

Net income 59,748 51,989 78,415 106,091

Earnings per share:

Basic .66 .57 .86 1.16

Diluted .63 .55 .83 1.12

Revenues $ 811,483 $ 1,021,803 $ 1,160,786 $ 1,558,675

Gross profits 139,604 177,019 216,029 306,834

Inventory impairment and land option contract abandonment charges 3,555 4,337 5,251 4,148

Pretax income (b) 34,511 56,761 91,936 164,967

Net income 30,011 47,461 68,136 123,167

Earnings per share:

Basic .34 .54 .77 1.37

Diluted .31 .51 .73 1.31

(a) Pretax income for the second quarter included $ 6.7 million of severance charges.

(b) Pretax income for the fourth quarter included a $ 6.8 million loss on the early extinguishment of debt.

Quarterly and year-to-date computations of per share amounts are made independently.

Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of November 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 21, 2022 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition, and real estate inventories and cost of sales effective December 1, 2018 due to the adoption of ASU No.

2014-09, “Revenue from Contracts with Customers (Topic 606)” and its related amendments.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of Inventories for Impairment

Description of the Matter

As of November 30, 2020, the Company’s real estate inventories were $3.90 billion.

As more fully described in Note 7 to the consolidated financial statements, the Company assesses each community or land parcel to identify indicators of potential impairment.

When an indicator of potential impairment is identified, the Company evaluates the recoverability of the asset based on its projected undiscounted future cash flows.

When the carrying value of the asset is greater than its projected undiscounted future cash flows, the Company estimates the fair value of the asset based on its projected discounted cash flows and records an impairment charge.

Inputs used in the Company’s impairment assessments consider then-current market conditions and trends in the market in which the asset is located as well as factors known at the time the cash flows are calculated.

These factors may include recent trends in orders, backlog, cancellation rates and volume of homes delivered, as well as expectations related to:

future product offerings;

market supply and demand, including estimated average selling prices and related price appreciation;

land development and home construction costs to be incurred;

and discount rates reflecting the inherent risk associated with the asset.

Auditing the Company’s impairment assessment for real estate inventories involves a high degree of auditor judgment in evaluating management’s estimates of future cash flows and fair values used to evaluate recoverability or measure impairment for projects with identified impairment indicators.

Management’s estimates that support the projected future cash flows and fair values are based on subjective assumptions about expected future sales activity, risk specific to the asset and conditions in the market in which the asset is located.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s real estate inventory impairment assessment process.

For example, we tested controls over the Company’s review of significant data and assumptions used in the Company’s estimation of cash flows and fair value analysis for projects with identified impairment indicators.

To test the Company’s real estate inventory impairment assessment, our audit procedures included, among others, evaluating the significant judgments, data and assumptions used to estimate future cash flows and fair values for assets with identified indicators of impairment.

These procedures included comparison of such data and assumptions to the Company’s accounting records and market data, recalculation of the Company’s estimates and searching for evidence contrary to such judgments and assumptions.

We also involved our real estate valuation specialists to assist in evaluating the key assumptions and methodologies used in the impairment assessments for certain projects, including assumptions related to average selling prices, expected home construction costs, and discount rate assumptions used to estimate fair values.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Self-insurance Liabilities and Recoveries

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What changed 10-K

Item 8. Financial Statements and Supplementary Data