What changed in this filing

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Item 1. Financial Statements

2022-04-08 compared with 2021-10-08 · 187 added, 305 removed, 496 unchanged (50% of the section changed)

2 unchanged sentences

(In Thousands, Except Per Share Amounts – Unaudited)

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Total revenues $ 1,398,789 $ 1,141,738

5 unchanged sentences

Interest income 36 653

Equity in income (loss) of unconsolidated joint ventures ( 182 ) 1,922 ( 5 ) 11,981

Loss on early extinguishment of debt ( 5,075 ) — ( 5,075 ) —

Equity in income of unconsolidated joint ventures 23 304

Homebuilding pretax income 169,621 115,051

60 unchanged sentences

(In Thousands – Unaudited)

Nine Months Ended August 31,

Three Months Ended February 28,

Cash flows from operating activities:

$ 134,257 $ 97,051

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

Adjustments to reconcile net income to net cash used in operating activities:

Equity in income of unconsolidated joint ventures

1 unchanged sentence

Distributions of earnings from unconsolidated joint ventures

18,625 29,384

Amortization of discounts, premiums and issuance costs

Amortization of premiums and issuance costs 549 644

Depreciation and amortization

21,296 21,583

Deferred income taxes

36,300 40,200

Loss on early extinguishment of debt

Stock-based compensation

19,768 12,767

Inventory impairments and land option contract abandonments

11,222 16,939

Changes in assets and liabilities:

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2,069 ( 10,130 )

13,912 ( 3,808 )

Net cash provided by (used in) operating activities ( 180,225 ) 329,211

Net cash used in operating activities ( 251,035 ) ( 79,265 )

Cash flows from investing activities:

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Cash flows from financing activities:

Proceeds from issuance of debt

Payment of debt issuance costs

Repayment of senior notes

Borrowings under revolving credit facility

Repayments under revolving credit facility

( 425,000 ) —

Issuance costs for unsecured revolving credit facility

Payments on mortgages and land contracts due to land sellers and other loans

1 unchanged sentence

Issuance of common stock under employee stock plans

Stock repurchases ( 188,175 ) —

Tax payments associated with stock-based compensation awards

2 unchanged sentences

( 14,130 ) ( 14,064 )

Net cash used in financing activities ( 124,407 ) ( 42,557 )

Net increase (decrease) in cash and cash equivalents ( 331,184 ) 268,268

Net cash provided by (used in) financing activities 219,512 ( 20,582 )

Net decrease in cash and cash equivalents ( 49,399 ) ( 111,570 )

Cash and cash equivalents at beginning of period 292,136 682,529

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generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”).

Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of August 31, 2021, the results of our consolidated operations for the three months and nine months ended August 31, 2021 and 2020, and our consolidated cash flows for the nine months ended August 31, 2021 and 2020.

The results of our consolidated operations for the three months and nine months ended August 31, 2021 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

The consolidated balance sheet at November 30, 2020 has been taken from the audited consolidated financial statements as of that date.

Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2021, which are contained in our Annual Report on Form 10-K for that period.

The consolidated balance sheet at November 30, 2021 has been taken from the audited consolidated financial statements as of that date.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of our results for the interim periods presented.

The results of our consolidated operations for the three months ended February 28, 2022 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.

Impact of COVID-19 Pandemic on Consolidated Financial Statements.

The 2019 coronavirus disease (“COVID-19”) pandemic and related responses by public health and governmental authorities to contain and combat the outbreak and spread (“COVID-19 control responses”) have adversely affected many economic sectors, significantly disrupted the global supply chain and fueled producer price and consumer inflation.

Our business was impacted by these issues during the three months ended February 28, 2022.

We experienced, among other things, ongoing construction services availability constraints, supply chain bottlenecks and rising and volatile raw and other building material prices amid uneven availability, particularly for lumber.

In addition, we encountered delays related to state and municipal construction permitting, inspection and utility processes.

All these factors, to varying degrees, extended our construction cycle times, delayed home deliveries and community openings and raised our costs in the 2022 first quarter.

They could also negatively impact our growth, margins and financial results in future periods, as could additional significant COVID-19-related disruptions, if they emerge.

At the same time, we continue to experience strong demand for our products and believe we are well-positioned to operate effectively through the present environment.

Use of Estimates.

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We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents.

Our cash equivalents totaled $ 126.7 million at August 31, 2021 and $ 508.5 million at November 30, 2020.

At August 31, 2021 and November 30, 2020, the majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.

Our cash equivalents totaled $ 15.3 million at February 28, 2022 and $ 15.4 million at November 30, 2021.

At February 28, 2022 and November 30, 2021, the majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.

Comprehensive Income.

Our comprehensive income was $ 150.1 million for the three months ended August 31, 2021 and $ 78.4 million for the three months ended August 31, 2020.

For the nine months ended August 31, 2021 and 2020, our comprehensive income was $ 390.5 million and $ 190.2 million, respectively.

Our comprehensive income for each of the three-month and nine-month periods ended August 31, 2021 and 2020 was equal to our net income for the respective periods.

Our comprehensive income was $ 134.3 million for the three months ended February 28, 2022 and $ 97.1 million for the three months ended February 28, 2021.

Our comprehensive income for each of the three-month periods ended February 28, 2022 and 2021 was equal to our net income for the respective periods.

Adoption of New Accounting Pronouncement .

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2016-13, “Financial Instruments — Credit Losses (Topic 326):

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.

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.

In December 2019, the Financial Accounting Standards Board (“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.

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.

Reclassifications .

Certain amounts in our consolidated financial statements of prior years have been reclassified to conform to the current period presentation.

Our adoption of ASU 2019-12, effective December 1, 2021, did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted .

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 No.

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.

Segment Information

We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment.

As of August 31, 2021, our homebuilding reporting segments conducted ongoing operations in the following states:

California and Washington

As of February 28, 2022, 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 earns revenues primarily from insurance commissions and from the provision of title services.

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), an unconsolidated joint venture we formed with Stearns Ventures, LLC (“Stearns”).

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

On March 1, 2021, Guaranteed Rate, Inc.

(“Guaranteed Rate”) acquired Stearns’ parent company.

There have been no significant changes with respect to Stearns or its operations since the transaction was completed.

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

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), our unconsolidated joint venture with GR Alliance Ventures, LLC (“GR Alliance”).

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

Our reporting segments follow the same accounting policies used for our consolidated financial statements.

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The following tables present financial information relating to our homebuilding reporting segments (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

$ 658,874 $ 514,516

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$ 1,394,154 $ 1,138,008

Three Months Ended February 28,

Pretax income (loss):

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Total $ 169,621 $ 115,051

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Inventory impairment and land option contract abandonment charges:

$ 175 $ 4,064

243 — 536 171

— 1,084 70 5,520

— 258 240 638

$ 6,701 $ 6,888 $ 11,222 $ 16,939

2022 November 30,

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The following tables present financial information relating to our financial services reporting segment (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Insurance commissions

1 unchanged sentence

Title services

2,435 1,715 6,742 4,975

5,206 3,865 13,793 11,108

General and administrative

2 unchanged sentences

Equity in income of unconsolidated joint ventures

5,409 6,855 18,423 14,874

Pretax income $ 8,436 $ 8,500

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Total liabilities $ 2,808 $ 2,685

(a) Other assets at August 31, 2021 and November 30, 2020 included $ 23.1 million and $ 21.5 million, respectively, of contract assets for estimated future renewal commissions.

(a) Other assets at February 28, 2022 and November 30, 2021 included $ 24.9 million and $ 24.1 million, respectively, of contract assets for estimated future renewal commissions.

Earnings Per Share

Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Net income $ 134,257 $ 97,051

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Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method.

We had no other participating securities at August 31, 2021 or 2020.

For the three-month and nine-month periods ended August 31, 2021 and 2020, no outstanding stock options were excluded from the diluted earnings per share calculations.

Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented as the applicable vesting conditions had not been satisfied.

We had no other participating securities at February 28, 2022 or 2021.

For the three-month periods ended February 28, 2022 and 2021, no outstanding stock options were excluded from the diluted earnings per share calculations.

Contingently issuable shares associated with outstanding performance-based

restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented as the applicable vesting conditions had not been satisfied.

Receivables consisted of the following (in thousands):

3 unchanged sentences

Refundable deposits and bonds 14,526 13,681

Income taxes receivable — 41,323

Other 58,923 49,359

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Total $ 5,197,833 $ 4,802,829

Land under development included land held for future development and land held for sale of $ 64.5 million and $ 2.6 million, respectively, at August 31, 2021 and $ 74.0 million and $ 1.3 million, respectively, at November 30, 2020 .

Land under development at February 28, 2022 and November 30, 2021 included land held for future development or sale of $ 52.9 million and $ 45.2 million, respectively .

Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale.

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Our interest costs were as follows (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Capitalized interest at beginning of period $ 161,119 $ 190,113

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Capitalized interest at end of period $ 159,649 $ 188,555

(a) There was no interest amortized to construction and land costs related to land sales for the three months ended August 31, 2021.

Interest amortized to construction and land costs for the nine months ended August 31, 2021 included $.2 million related to land sales.

For the three months and nine months ended August 31, 2020, interest amortized to construction and land costs included $.4 million related to land sales.

(a) For the three months ended February 28, 2021, interest amortized to construction and land costs included a nominal amount related to land sales during the period.

Inventory Impairments and Land Option Contract Abandonments

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We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate.

These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques.

These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk

associated with each such asset, or other valuation techniques.

We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value.

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The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

We evaluated four and 11 communities or land parcels for recoverability as of August 31, 2021 and November 30, 2020, respectively.

The carrying values of those communities or land parcels evaluated as of August 31, 2021 and November 30, 2020 were $ 31.4 million and $ 123.4 million, respectively.

In addition, we evaluated land held for future development for recoverability as of August 31, 2021 and November 30, 2020.

Based on the results of our evaluations, we recognized $ 6.3 million and $ 6.5 million of inventory impairment charges for the three months ended August 31, 2021 and 2020, respectively.

For the nine months ended August 31, 2021 and 2020, we recognized inventory impairment charges of $ 9.9 million and $ 11.6 million, respectively.

The inventory impairment charges for the three-month and nine-month periods 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.

The following table summarizes significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value during the periods presented:

Three Months Ended August 31, Nine Months Ended August 31,

Unobservable Input (a) 2021 2020 2021 2020

We evaluated one active community for recoverability as of February 28, 2022 with a carrying value of $ 6.6 million.

As of November 30, 2021, no active communities or land parcels were evaluated for recoverability.

In addition, we evaluated land held for future development for recoverability as of both February 28, 2022 and November 30, 2021.

Based on the results of our evaluations, we recognized no inventory impairment charges for the three months ended February 28, 2022 and $ 3.6 million of such charges for the three months ended February 28, 2021.

The inventory impairment charges for the 2021 first quarter 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.

The following table summarizes significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value:

Three Months Ended

Unobservable Input February 28, 2021

Average selling price $ 471,000

$ 301,600 - $ 1,010,100

$ 471,000 - $ 949,400

$ 301,600 - $ 1,010,100

Deliveries per month 5

Discount rate 19 %

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

As of August 31, 2021, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 98.0 million, representing 12 communities and various other land parcels.

As of February 28, 2022, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 90.6 million, representing seven communities and various other land parcels.

As of November 30, 2021, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 87.7 million, representing 11 communities and various other land parcels.

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When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs.

Based on the results of our assessments, we recognized land option contract abandonment charges of $.4 million for the three months ended August 31, 2021 and $ 1.3 million for the nine months ended August 31, 2021.

For the three months and nine months ended August 31, 2020, we recognized land option contract abandonment charges of $.4 million and $ 5.4 million, respectively.

Based on the results of our assessments, we recognized land option contract abandonment charges of $.2 million for the three months ended February 28, 2022 and $.4 million for the three months ended February 28, 2021.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, and in our estimations of the remaining operating lives of our inventory assets and the realization of our inventory balances, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.

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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.

investments in these joint ventures may create a variable interest in a variable interest entity (“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.

Based on our analyses, we determined that one of our joint ventures at August 31, 2021 and November 30, 2020 was a VIE, but we were not the primary beneficiary of the VIE.

Therefore, all of our joint ventures at August 31, 2021 and November 30, 2020 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Based on our analyses, we determined that one of our joint ventures at February 28, 2022 and November 30, 2021 was a VIE, but we were not the primary beneficiary of the VIE.

Therefore, all of our joint ventures at February 28, 2022 and November 30, 2021 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts.

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

As a result of our analyses, we determined that as of August 31, 2021 and November 30, 2020, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts.

As a result of our analyses, we determined that as of

February 28, 2022 and November 30, 2021, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts.

We perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):

August 31, 2021 November 30, 2020

February 28, 2022 November 30, 2021

Deposits Aggregate

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$ 64,631 $ 1,731,452 $ 74,509 $ 1,859,851

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $ 39.6 million at August 31, 2021 and $ 31.1 million at November 30, 2020.

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $ 37.9 million at February 28, 2022 and $ 38.1 million at November 30, 2021.

These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

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For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s).

As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $ 23.4 million at August 31, 2021 and $ 19.4 million at November 30, 2020.

As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $ 11.9 million at February 28, 2022 and $ 26.5 million at November 30, 2021.

Investments in Unconsolidated Joint Ventures

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The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

As of August 31, 2021 and November 30, 2020, we had investments in six and five unconsolidated joint ventures, respectively.

As of both February 28, 2022 and November 30, 2021, we had investments in six unconsolidated joint ventures.

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

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Revenues $ 2,850 $ 9,691

1 unchanged sentence

Other expense, net ( 430 ) ( 879 )

Income (loss) $ ( 65 ) $ 3,907 $ 421 $ 24,210

The lower combined revenues and construction and land costs for the three months and nine months ended August 31, 2021, as compared to the corresponding year-earlier periods, mainly reflected a decrease in the number of homes delivered from an unconsolidated joint venture in California.

This unconsolidated joint venture, which delivered its last home in the 2021 second quarter, had no deliveries in the three months ended August 31, 2021 and 10 deliveries in the nine months ended August 31, 2021, compared to 17 and 90 homes delivered in the corresponding year-earlier periods, respectively.

Income $ 121 $ 687

The lower combined revenues and construction and land costs for the three months ended February 28, 2022, as compared to the year-earlier period, mainly reflected a decrease in the number of homes delivered from an unconsolidated joint venture in California that delivered its last home in the 2021 second quarter.

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

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Total liabilities and equity $ 89,672 $ 80,610

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

2021 November 30,

Computer software and equipment $ 37,610 $ 32,902

Model furnishings and sales office improvements 86,717 83,882

Leasehold improvements, office furniture and equipment

17,735 17,245

142,062 134,029

Accumulated depreciation ( 69,592 ) ( 68,482 )

$ 72,470 $ 65,547

Other assets consisted of the following (in thousands):

2022 November 30,

Cash surrender value and benefit receivable from corporate-owned life insurance contracts $ 68,776 $ 73,227

Cash surrender value of corporate-owned life insurance contracts $ 66,672 $ 68,748

Lease right-of-use assets 26,314 27,508

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Customer deposits 83,246 71,032

Federal and state taxes payable 47,388 8,290

Accrued interest payable 32,160 24,554

Inventory-related obligations (a) 33,768 31,094

Lease liabilities 28,113 29,279

Inventory-related obligations (a) 20,664 36,146

Real estate and business taxes 15,917 17,563

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(a) Represents liabilities for financing arrangements discussed in Note 8 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments.

As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer.

As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to

the homebuyer.

As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.

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We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases.

Lease right-of-use assets and lease liabilities are recorded on our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months in accordance with Accounting Standards Codification Topic 842, “Leases” (“ASC 842”).

Some of our leases include one or more renewal options, the exercise of which is generally at our discretion.

Such options are excluded from the expected term of the lease unless we determine it is reasonably certain the option will be exercised.

Lease liabilities are equal to the present value of the remaining lease payments while the amount of lease right-of-use assets is based on the lease liabilities, subject to adjustment, such as for lease incentives.

Our leases do not provide a readily determinable implicit interest rate;

therefore, we estimate our incremental borrowing rate to calculate the present value of remaining lease payments.

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 August 31, 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 right-of-use assets and lease liabilities are recorded on our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 months.

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.

Our total lease expense for the three months ended August 31, 2021 and 2020 was $ 4.3 million and $ 4.2 million, respectively, and included short-term lease costs of $ 1.2 million and $ 1.1 million, respectively.

For the nine months ended August 31, 2021 and 2020, our total lease expense was $ 12.9 million and $ 13.6 million, respectively, and included short-term lease costs of $ 3.7 million and $ 4.8 million, respectively.

Variable lease costs and external sublease income for the three-month and nine-month periods ended August 31, 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):

Our total lease expense for each of the three-month periods ended February 28, 2022 and 2021 was $ 4.3 million , and included short-term lease costs of $ 1.2 million and $ 1.3 million, respectively.

Variable lease costs and external sublease income for the three-month periods ended February 28, 2022 and 2021 were immaterial.

The following table presents our lease right-of-use assets and lease liabilities (dollars in thousands):

2022 November 30,

1 unchanged sentence

Lease liabilities (b) 28,302 29,481

Weighted average remaining lease term 4.0 years 4.5 years

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

(a) Represents lease right-of-use assets within our homebuilding operations and financial services operations of $ 29.9 million and $.2 million, respectively, at August 31, 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 $ 31.8 million and $.2 million, respectively, at August 31, 2021, and $ 37.7 million and $.3 million, respectively, at November 30, 2020.

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

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Lease right-of-use assets obtained in exchange for new lease liabilities $ 18 $ 2,977 $ 1,517 $ 9,045

Cash payments on lease liabilities 2,979 2,831 8,648 8,468

As of August 31, 2021, the future minimum lease payments required under our leases are as follows (in thousands):

Years Ending November 30,

Thereafter 3,112

Total lease payments 35,545

Interest ( 3,534 )

Present value of lease liabilities $ 32,011

(a) Represents lease right-of-use assets within our homebuilding operations and financial services operations of $ 26.3 million and $.2 million, respectively, at February 28, 2022, and $ 27.5 million and $.2 million, respectively, at November 30, 2021 .

(b) Represents lease liabilities within our homebuilding operations and financial services operations of $ 28.1 million and $.2 million, respectively, at February 28, 2022, and $ 29.3 million and $.2 million, respectively, at November 30, 2021.

Income Tax Expense.

Our income tax expense and effective tax rates were as follows (dollars in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Income tax expense $ 43,800 $ 26,500

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24.6 % 21.4 %

Our income tax expense and effective tax rate for the three months ended August 31, 2021 included the favorable impact of $ 21.5 million of federal energy tax credits we earned from building energy-efficient homes, partially offset by $ 2.5 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

Our income tax expense and effective tax rate for the three months ended August 31, 2020 included the favorable impact of $ 3.1 million of federal energy tax credits we earned from building energy-efficient homes, partly offset by $ 1.2 million of non-deductible executive compensation expense.

Our income tax expense and effective tax rate for the nine months ended August 31, 2021 reflected the favorable impacts of $ 39.0 million of federal energy tax credits we earned from building energy-efficient homes and $ 3.9 million of excess tax benefits related to stock-based compensation, partially offset by $ 5.8 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

For the nine months ended August 31, 2020, our income tax expense and effective tax rate included the favorable impacts of $ 10.1 million of federal energy tax credits we earned from building energy-efficient homes and $ 5.6 million of excess tax benefits related to stock-based compensation, partly offset by $ 3.2 million of non-deductible executive compensation expense.

The federal energy tax credits for the three months and nine months ended August 31, 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.

Prior to this legislation, the tax credit expired on December 31, 2020.

This extension is expected to benefit our income tax provision in future periods.

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 2019 coronavirus disease (“COVID-19”) pandemic.

Among other things, the CARES Act accelerated the timetable for alternative minimum tax (“AMT”) credit refunds.

As a result, in the 2020 second quarter, we filed a superseding 2019 federal income tax return claiming a 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.

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

Our income tax expense and effective tax rate for the three months ended February 28, 2022 reflected the favorable impacts of $ 2.2 million of excess tax benefits related to stock-based compensation and $.2 million of federal tax credits we earned primarily from building energy-efficient homes, partially offset by $ 1.7 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

Our income tax expense and effective tax rate for the three months ended February 28, 2021 reflected the favorable impacts of $ 3.5 million of excess tax benefits related to stock-based compensation and $ 2.7 million of federal tax credits we earned primarily from building energy-efficient homes, partly offset by $ 1.4 million of non-deductible executive compensation expense.

The federal energy tax credits for the three months ended February 28, 2022 and 2021 resulted from legislation enacted in December 2020 and earlier periods.

The federal tax credit for building new energy-efficient homes expired for homes delivered after December 31, 2021.

The Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020, provided an Employee Retention Credit (“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.

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

The suspension of California net operating loss deductions did not have an impact on our income tax expense for the three months or nine months ended August 31, 2021.

We received the refund in the 2021 fourth quarter.

In June 2020, California enacted tax legislation that approved the suspension of California net operating loss (“NOL”) deductions for tax years 2020, 2021 and 2022.

On February 9, 2022, California enacted legislation restoring the NOL deduction for tax years beginning on or after January 1, 2022, which would be effective for our 2023 fiscal year.

Although the suspension of California NOL deductions did not have an impact on our income tax expense for the three months ended February 28, 2022, it contributed to the year-over-year increase in the amount of taxes we paid in this period.

Deferred Tax Asset Valuation Allowance.

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The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $ 213.1 million as of August 31, 2021 and $ 249.1 million as of November 30, 2020 were partly offset by valuation allowances of $ 18.3 million and $ 18.0 million, respectively.

The deferred tax asset valuation allowances as of August 31, 2021 and November 30, 2020 were primarily related to certain state net operating losses that

had not met the “more likely than not” realization standard at those dates.

As a result of an adjustment to our state net operating losses, we increased the valuation allowance by $.3 million in the 2021 third quarter.

Based on the evaluation of our deferred tax assets as of August 31, 2021, we determined that most of our deferred tax assets would be realized.

Therefore, other than the slight increase mentioned above, no adjustments to our deferred tax valuation allowance were needed for the nine months ended August 31, 2021.

Our deferred tax assets of $ 190.4 million as of February 28, 2022 and $ 194.8 million as of November 30, 2021 were each partly offset by a valuation allowance of $ 17.4 million.

The deferred tax asset valuation allowances as of February 28, 2022 and November 30, 2021 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates.

Based on the evaluation of our deferred tax assets as of February 28, 2022, we determined that most of our deferred tax assets would be realized.

Therefore, no adjustments to our deferred tax valuation allowance were needed for the three months ended February 28, 2022.

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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Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized Tax Benefits.

As of August 31, 2021, we had $.9 million of gross unrecognized tax benefits that if recognized would affect our effective tax rate.

We had no such gross unrecognized tax benefits as of November 30, 2020.

We do not anticipate a significant change in the amount of gross unrecognized tax benefits over the next 12 months.

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.

Our liability for unrecognized tax benefits at August 31, 2021 is included in accrued expenses and other liabilities in our consolidated balance sheets.

The fiscal years ending 2017 and later remain open to federal examinations, while 2016 and later remain open to state examinations.

Notes Payable

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2022 November 30,

Unsecured revolving credit facility $ 250,000 $ —

Mortgages and land contracts due to land sellers and other loans 4,927 5,327

7.00 % Senior notes due December 15, 2021

180,051 449,029

7.50 % Senior notes due September 15, 2022

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385,474 385,375

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs and premiums, which totaled $ 10.7 million at August 31, 2021 and $ 7.5 million at November 30, 2020.

$ 1,934,948 $ 1,685,027

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs and premiums, which totaled $ 10.0 million at February 28, 2022 and $ 10.3 million at November 30, 2021.

Unsecured Revolving Credit Facility.

We have an $ 800.0 million unsecured revolving credit facility with various banks (“Credit Facility”) that will mature on October 7, 2023 .

On February 18, 2022, we entered into an amendment to our unsecured revolving credit facility with various banks (“Credit Facility”) that increased its borrowing capacity from $ 800.0 million to $ 1.09 billion and extended its maturity from October 7, 2023 to February 18, 2027 .

The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $ 1.29 billion under certain conditions, including obtaining additional bank commitments.

The Credit Facility also contains a sublimit of $ 250.0 million for the issuance of letters of credit.

Interest on amounts borrowed under the Credit Facility is payable at least quarterly in arrears at a rate based on either a Eurodollar or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility.

Interest on amounts borrowed under the Credit Facility accrues at a rate based on either a Secured Overnight Financing Rate (“SOFR”) or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility.

Interest is payable quarterly (base rate) or each month or three months (adjusted term SOFR).

The Credit Facility also requires the payment of a commitment fee at a per annum rate ranging from .15 % to .35 % of the unused commitment, based on our Leverage Ratio.

Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein.

consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein.

The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility.

As of August 31, 2021, we had no cash borrowings and $ 8.6 million of letters of credit outstanding under the Credit Facility.

Therefore, as of August 31, 2021, we had $ 791.4 million available for cash borrowings under the Credit Facility, with up to $ 241.4 million of that amount available for the issuance of letters of credit.

As of February 28, 2022, we had $ 250.0 million of cash borrowings and $ 8.6 million of letters of credit outstanding under the Credit Facility.

Therefore, as of February 28, 2022, we had $ 831.4 million available for cash borrowings under the Credit Facility, with up to $ 241.4 million of that amount available for the issuance of letters of credit.

Letter of Credit Facility.

On August 12, 2021, we entered into an amendment to our unsecured letter of credit agreement with a financial institution (“LOC Facility”) that increased the limit of letters of credit we may issue 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 August 31, 2021 and November 30, 2020, we had letters of credit outstanding under the LOC Facility of $ 35.0 million and $ 29.7 million, respectively.

We maintain an unsecured letter of credit agreement with a financial institution (“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, 2025 , we may issue up to $ 75.0 million of letters of credit.

As of February 28, 2022 and November 30, 2021, we had letters of credit outstanding under the LOC Facility of $ 36.7 million and $ 34.6 million, respectively.

Mortgages and Land Contracts Due to Land Sellers and Other Loans.

As of August 31, 2021, inventories having a carrying value of $ 16.6 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

Shelf Registration Statement.

We have an automatically effective universal shelf registration statement that was filed with the SEC on July 9, 2020 (“2020 Shelf Registration”).

The 2020 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined.

Our ability to issue securities is subject to market conditions.

As of February 28, 2022, inventories having a carrying value of $ 18.5 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

Senior Notes.

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 (“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 related to the offering.

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.

The 4.00 % Senior Notes due 2031 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 (“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.

All of the senior notes outstanding at August 31, 2021 and November 30, 2020 represent senior unsecured obligations that are guaranteed by certain of our subsidiaries and rank equally in right of payment with all of our and our guarantor subsidiaries’ existing unsecured and unsubordinated indebtedness.

All the senior notes outstanding at February 28, 2022 and November 30, 2021 represent senior unsecured obligations that are guaranteed by certain of our subsidiaries and rank equally in right of payment with all of our and our guarantor subsidiaries’ existing unsecured and unsubordinated indebtedness.

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

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Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale and leaseback transactions involving property above a certain specified value.

In addition, our senior notes contain certain limitations related to mergers, consolidations, and sales of assets.

As of August 31, 2021, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans.

In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets.

As of February 28, 2022, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans.

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.

As of August 31, 2021, 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:

2021 – $ 1.1 million;

2022 – $ 531.3 million;

As of February 28, 2022, 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:

2022 – $ 353.2 million;

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Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable.

The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the nine months ended August 31, 2021 and the year ended November 30, 2020 (in thousands):

August 31, 2021 November 30, 2020

The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the three months ended February 28, 2022 and the year ended November 30, 2021 (in thousands):

February 28, 2022 November 30, 2021

Description Fair Value Hierarchy Pre-Impairment Value Inventory Impairment Charges Fair Value (a) Pre-Impairment Value Inventory Impairment Charges Fair Value (a)

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The following table presents the fair value hierarchy, carrying value and estimated fair value of our financial instruments, except those for which the carrying values approximate fair values (in thousands):

August 31, 2021 November 30, 2020

February 28, 2022 November 30, 2021

Description Fair Value

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Level 2 $ 1,680,021 $ 1,726,050 $ 1,679,700 $ 1,796,500

(a) The carrying values for the senior notes include unamortized debt issuance costs.

(a) The carrying values for the senior notes, as presented, include unamortized debt issuance costs.

Debt issuance costs are not factored into the estimated fair values of these notes.

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We periodically assess the adequacy of our accrued warranty liability, which is included in accrued expenses and other liabilities in our consolidated balance sheets, and adjust the amount as necessary based on our assessment.

Our assessment includes the review of our actual warranty costs incurred to identify trends and changes in our

warranty claims experience, and considers our home construction quality and customer service initiatives and outside events.

Our assessment includes the review of our actual warranty costs incurred to identify trends and changes in our warranty claims experience, and considers our home construction quality and customer service initiatives and outside events.

While we believe the warranty liability currently reflected in our consolidated balance sheets to be adequate, unanticipated changes or developments in the legal environment, local weather, land or environmental conditions, quality of materials or methods used in the construction of homes or customer service practices and/or our warranty claims experience could have a significant impact on our actual warranty costs in future periods and such amounts could differ significantly from our current estimates.

The changes in our warranty liability were as follows (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Balance at beginning of period $ 96,153 $ 91,646

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Payments ( 6,577 ) ( 6,416 )

Adjustments — — — —

Balance at end of period $ 97,466 $ 92,687

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

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and legal or regulatory actions and/or interpretations, among other factors.

Due to the degree of judgment involved and the potential for

variability in these underlying assumptions, our actual future costs could differ from those estimated.

Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated.

In addition, changes in the frequency and severity of reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements.

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Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any.

Estimated probable insurance and other recoveries of $ 57.1 million and $ 60.0 million are included in receivables in our consolidated balance sheets at August 31, 2021 and November 30, 2020, respectively.

Estimated probable insurance and other recoveries of $ 57.0 million and $ 57.8 million are included in receivables in our consolidated balance sheets at February 28, 2022 and November 30, 2021, 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 period to period.

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The changes in our self-insurance liability were as follows (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,

2021 2020 2021 2020

Three Months Ended February 28,

Balance at beginning of period $ 189,131 $ 194,180

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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.

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 continue to receive 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 August 31, 2021, we had approximately 650 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.

At August 31, 2021, we had an

accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries.

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 February 28, 2022, we had approximately 554 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 February 28, 2022, 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 at August 31, 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.

Our investigation has also involved identifying potentially responsible parties, including insurers, to pay for or perform any necessary repairs.

We are in discussions with the homeowners association regarding the claims and their resolution.

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.

In February 2022, we reached a settlement with the homeowners association, agreeing to pay approximately $ 12.0 million, with a portion thereof to be covered by our direct insurer, plus an assignment of claims against a window manufacturer.

The total amount of the settlement was covered within our previously established self-insurance accrual and had no material impact on our consolidated financial statements for the 2022 first quarter.

Performance Bonds and Letters of Credit .

We are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures.

At August 31, 2021, we had $ 1.06 billion of performance bonds and $ 43.6 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.

At February 28, 2022, we had $ 1.15 billion of performance bonds and $ 45.3 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.

If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit.

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In the ordinary course of our business, we enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes.

At August 31, 2021, we had total cash deposits of $ 96.8 million to purchase land having an aggregate purchase price of $ 1.65 billion.

At February 28, 2022, we had total cash deposits of $ 64.6 million to purchase land having an aggregate purchase price of $ 1.73 billion.

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.

In January 2022, this investee company entered into a letter of intent with a prospective buyer and the parties are continuing discussions.

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 August 31, 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 believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of February 28, 2022, 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.

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.

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.

Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if an accrual had not been made, could be material to our consolidated financial statements.

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A summary of changes in stockholders’ equity is presented below (in thousands):

Three Months Ended August 31, 2021 and 2020

Number of Shares

Stock Grantor

Trust Treasury

Stock Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Grantor Stock

Ownership Trust Treasury Stock Total Stockholders’ Equity

Balance at May 31, 2021 100,151 ( 6,705 ) ( 1,303 ) $ 100,151 $ 836,353 $ 2,081,288 $ ( 22,276 ) $ ( 72,718 ) $ ( 35,933 ) $ 2,886,865

Net income — — — — — 150,097 — — — 150,097

Dividends on common stock — — — — — ( 13,168 ) — — — ( 13,168 )

— — 3 — ( 87 ) — — — 87 —

Stock-based compensation — — — — 6,114 — — — — 6,114

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

Balance at August 31, 2021 100,151 ( 6,705 ) ( 5,969 ) $ 100,151 $ 842,380 $ 2,218,217 $ ( 22,276 ) $ ( 72,718 ) $ ( 224,021 ) $ 2,841,733

Balance at May 31, 2020 122,370 ( 7,317 ) ( 24,526 ) $ 122,370 $ 806,700 $ 2,255,742 $ ( 17,149 ) $ ( 79,359 ) $ ( 597,950 ) $ 2,490,354

Net income — — — — — 78,415 — — — 78,415

Dividends on common stock — — — — — ( 8,097 ) — — — ( 8,097 )

Employee stock options/other — — 17 — ( 421 ) — — — 421 —

Stock-based compensation — — — — 4,636 — — — — 4,636

Balance at August 31, 2020 122,370 ( 7,317 ) ( 24,509 ) $ 122,370 $ 810,915 $ 2,326,060 $ ( 17,149 ) $ ( 79,359 ) $ ( 597,529 ) $ 2,565,308

Nine Months Ended August 31, 2021 and 2020

Three Months Ended February 28, 2022 and 2021

Number of Shares

4 unchanged sentences

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

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

Net income — — — — — 134,257 — — — 134,257

Dividends on common stock — — — — — ( 14,130 ) — — — ( 14,130 )

Employee stock options/other 238 — — 238 3,268 — — — — 3,506

Stock awards 44 419 15 44 ( 4,962 ) — — 4,547 371 —

— — 721 — ( 27,249 ) — — — 27,249 —

Stock-based compensation — — — — 6,867 — — — — 6,867

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

Tax payments associated with stock-based compensation awards

Balance at August 31, 2021 100,151 ( 6,705 ) ( 5,969 ) $ 100,151 $ 842,380 $ 2,218,217 $ ( 22,276 ) $ ( 72,718 ) $ ( 224,021 ) $ 2,841,733

— — ( 320 ) — — — — — ( 12,153 ) ( 12,153 )

Balance at February 28, 2022 100,711 ( 6,705 ) ( 5,384 ) $ 100,711 $ 828,238 $ 2,499,491 $ ( 19,119 ) $ ( 72,718 ) $ ( 202,287 ) $ 3,134,316

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 new accounting standard for credit losses — — — — — ( 226 ) — — — ( 226 )

Net income — — — — — 97,051 — — — 97,051

4 unchanged sentences

Tax payments associated with stock-based compensation awards — — ( 208 ) — — — — — ( 8,456 ) ( 8,456 )

Balance at August 31, 2020 122,370 ( 7,317 ) ( 24,509 ) $ 122,370 $ 810,915 $ 2,326,060 $ ( 17,149 ) $ ( 79,359 ) $ ( 597,529 ) $ 2,565,308

Balance at February 28, 2021 100,042 ( 6,705 ) ( 1,305 ) $ 100,042 $ 827,456 $ 1,951,657 $ ( 22,276 ) $ ( 72,718 ) $ ( 35,977 ) $ 2,748,184

On February 17, 2022, the management development and compensation committee of our board of directors approved the payout of 674,677 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October 4, 2018.

2 unchanged sentences

The shares purchased were not considered repurchases under the authorizations described below.

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 the 2021 third quarter, 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.

As of February 28, 2022, we were authorized to repurchase 331,400 shares of our common stock under a board of directors approved share repurchase program.

We did not repurchase any of our common stock under this program in the three months ended February 28, 2022.

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 stock appreciation rights awards granted under our Non-Employee Directors Compensation Plan.

The 2014 Plan was amended in April 2016.

As of August 31, 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.

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

The Amended Rights Agreement amends the Amended and Restated Rights Agreement, dated as of April 12, 2018 (“Prior Rights Agreement”).

As with the Prior Rights Agreement, the Amended Rights Agreement is intended to continue to help protect our net operating losses and other deferred tax assets from an ownership change under Internal Revenue Code Section 382.

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

Otherwise, the Amended Rights Agreement’s terms are substantively the same as those of the Prior Rights Agreement, which were disclosed in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended November 30, 2020.

In the three-month period ended August 31, 2021, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

In the three-month period ended August 31, 2020, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .09 per share.

Quarterly cash dividends declared and paid on our common stock in the nine-month periods ended August 31, 2021 and 2020 totaled $ .45 per share and $ .27 per share of common stock, respectively.

As of February 28, 2022, 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.

In the three-month periods ended February 28, 2022 and 2021, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

Stock-Based Compensation

Stock Options.

We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model.

The following table summarizes stock option transactions for the nine months ended August 31, 2021:

Options Weighted

Average Exercise

Options outstanding at beginning of period 2,462,714 $ 15.32

Exercised ( 228,651 ) 15.35

Cancelled — —

Options outstanding at end of period 2,234,063 $ 15.32

Options exercisable at end of period 2,234,063 $ 15.32

At both February 28, 2022 and November 30, 2021, we had 1,674,393 stock options outstanding and exercisable with a weighted average exercise price of $ 15.56 .

We have not granted any stock option awards since 2016.

As of August 31, 2021, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 3.9 years.

As all outstanding stock options have been fully vested since 2019, there was no unrecognized compensation expense related to stock option awards at August 31, 2021 and no stock-based compensation expense associated with stock options for the three-month and nine-month periods ended August 31, 2021 and 2020.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 61.9 million at August 31, 2021.

As of February 28, 2022, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 3.6 years.

As all outstanding stock options have been fully vested since 2019, there was no unrecognized compensation expense related to stock option awards at February 28, 2022 and no stock-based compensation expense associated with stock options for the three-month periods ended February 28, 2022 and 2021.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 38.6 million at February 28, 2022.

(The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)

1 unchanged sentence

From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit.

We recognized total compensation expense of $ 6.1 million and $ 4.6 million for the three months ended August 31, 2021 and 2020, respectively, related to restricted stock and PSUs.

For the nine months ended August 31, 2021 and 2020, we recognized total compensation expense of $ 19.8 million and $ 12.7 million, respectively, related to restricted stock and PSUs.

We recognized total compensation expense of $ 6.9 million and $ 5.6 million for the three months ended February 28, 2022 and 2021, respectively, related to restricted stock and PSUs.

Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):

Nine Months Ended August 31,

Three Months Ended February 28,

Summary of cash and cash equivalents at end of period:

7 unchanged sentences

Supplemental disclosures of non-cash activities:

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

Increase in operating lease right-of-use assets and lease liabilities due to adoption of ASC 842 — 31,199

Inventories acquired through seller financing — 18,045

Increase in consolidated inventories not owned 4,011 4,992

Decrease in consolidated inventories not owned ( 14,623 ) ( 1,863 )

Increase in inventories due to distributions of land and land development from an unconsolidated joint venture

Subsequent Events

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.

Subsequent Event

On April 7, 2022, our board of directors authorized us to repurchase up to $ 300.0 million of our outstanding common stock.

This authorization replaced a prior board of directors authorization, as discussed in Note 18 – Stockholders’ Equity, which had 331,400 shares remaining for repurchase.

Repurchases under the new authorization 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, business and other conditions.

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

As of the date of this report, we have not repurchased any shares under this authorization.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements