What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-01-20 compared with 2022-01-21 · 306 added, 297 removed, 592 unchanged (50% of the section changed)

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The following table summarizes our purchases of our own equity securities during the three months ended November 30, 2022:

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs

Period Total Number of Shares Purchased Average Price Paid per Share Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs ($000’s) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ($000’s)

September 1-30 — — — $ 200,000

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Total 1,897,350 $ 27.44 $ 50,000

As of November 30, 2020, we had 2,193,947 shares authorized for repurchase under a share repurchase program approved by our board of directors in 2018.

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 the prior authorization.

In the 2021 third quarter, we purchased 4,668,600 shares of our common stock pursuant to this authorization at a total cost of $188.2 million.

As of November 30, 2021, we had 331,400 shares authorized for repurchase.

The shares purchased during the three months ended November 30, 2021 were previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards.

As of November 30, 2021, we had 331,400 shares authorized for repurchase under a share repurchase program approved by our board of directors in July 2021.

On April 7, 2022, our board of directors authorized us to repurchase up to $300.0 million of our outstanding common stock, replacing the prior board of directors authorization, as further discussed in Note 19 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.

In the 2022 fourth quarter, we purchased 1,826,349 shares of our common stock pursuant to this authorization at a total cost of $50.0 million, bringing our total repurchases in 2022 to 4,927,499 shares at a total cost of $150.0 million.

As of November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock.

During the three months ended November 30, 2022, we also purchased certain previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards.

These transactions are not considered repurchases under the board of directors authorization.

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Our discussion and analysis below is focused on our 2022 and 2021 financial results, including comparisons of our year-over-year performance between these years.

Discussion and analysis of our 2019 fiscal year specifically, as well as the year-over-year comparison of our 2020 financial performance to 2019, are located under Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020, filed with the SEC on January 22, 2021, which is available on our investor relations website at investor.kbhome.com and the SEC’s website at www.sec.gov.

Discussion and analysis of our 2020 fiscal year specifically, as well as the year-over-year comparison of our 2021 financial performance to 2020, are located under Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021, filed with the SEC on January 21, 2022, which is available on our investor relations website at investor.kbhome.com and the SEC website at www.sec.gov.

RESULTS OF OPERATIONS

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Diluted $ 9.09 $ 6.01 $ 3.13 51 % 92 %

In 2021, housing market conditions were positive, with healthy demand, particularly from millennial and Generation Z demographic groups, a limited supply of new and resale inventory and relatively low mortgage loan interest rates driving strong results for our business.

Considerable demand for our homes enabled us to lift selling prices in the vast majority of our communities and, in combination with our focus on balancing pace, price and construction starts at each community, helped us to enhance the performance of our inventory assets and improve returns, despite supply chain challenges and rising construction services and building materials costs.

Reflecting these actions, the value of our net orders for 2021 grew 45% year over year to $7.68 billion due to a 21% increase in net orders and a 20% rise in their overall average selling price.

The year-over-year increase in our net order volume was due to higher net orders per community, partly offset by a lower average community count for the year.

Our lower average community count reflected the accelerated sell-out of communities that resulted from our exceptionally strong monthly net order pace, which rose 37% to 6.3 in 2021 from 4.6 in 2020, even as we paced lot releases to

align with our production capacity, as well as delays in new community openings during 2021, as further described below.

Compared to 2020, our average community count for 2021 decreased 12%, and our ending community count declined 8%.

Since 2020, we have experienced intensifying building material cost pressures, particularly for lumber, and production capacity issues with some of our main product suppliers, reflecting sustained high levels of homebuilding and renovation activity combined with supply chain disruptions stemming from international and domestic COVID-19 control responses and economy-wide labor shortages in the U.S.

Our housing gross profit margin on homes delivered in the latter part of 2021 were especially impacted by high lumber costs during the period in which these homes were started.

In 2021, the continuing supply chain disruptions, combined with construction services availability constraints and delays with respect to state and municipal construction permitting, inspections and utilities, extended our construction cycle times by several weeks and delayed many expected deliveries and new community openings during our fiscal year.

We believe these challenging conditions will generally persist into 2022 and potentially throughout the year.

We have incorporated these trends into our performance expectations, as presented below under “Outlook.”

Homebuilding revenues for 2021 grew 37% from the previous year due to an increase in housing revenues that reflected 26% growth in the number of homes delivered to 13,472 and a 9% increase in the overall average selling price of those homes to $422,700.

In 2021, homebuilding operating income rose 109% year over year to $661.3 million and, as a percentage of homebuilding revenues, improved 400 basis points to 11.6%.

Our 2022 fiscal year operating environment and, as a result, business performance were exceptionally volatile, with positive housing market conditions continuing from 2021 through most of the 2022 first half, downshifting considerably in the 2022 third quarter and for the remainder of the year.

In the 2022 second half, U.S.

housing demand weakened significantly compared to the year-earlier period, with the combination of sharply higher mortgage interest rates since early 2022, elevated inflation, several years of rising housing prices, financial market turbulence, and various other macroeconomic and geopolitical concerns negatively affecting consumer budgets, including their ability to qualify for mortgage loans, and confidence, both generally and specifically as to purchasing a home.

Despite these substantial headwinds, in 2022, we generated year-over-year improvements in our financial results through our ongoing focus on balancing pace, price and construction starts at each community to enhance our returns and build a substantial backlog, and the favorable pricing and housing supply/demand environment prevailing in the 2022 first half and prior periods, when most buyers contracted to purchase the homes delivered this year.

However, our 2022 performance was offset by the difficult conditions during the 2022 second half, as well as supply chain challenges and higher construction costs, as described below.

Homebuilding revenues for 2022 grew 21% from the previous year due to an increase in housing revenues that reflected a 2% increase in the number of homes delivered to 13,738 and an 18% increase in the overall average selling price of those homes to $500,800.

Approximately 53% of homes delivered in 2022 were to first-time homebuyers.

Homebuilding operating income for 2022 rose 57% year over year to $1.04 billion and, as a percentage of homebuilding revenues, expanded 350 basis points to 15.1%.

The increase in our homebuilding operating income margin was driven by significant improvements in both housing gross profit margin and selling, general and administrative expenses as a percentage of housing revenues.

Our pretax income margin improved 340 basis points to 12.1%, and net income and diluted earnings per share increased 91% and 92%, respectively, each as compared to 2020.

Our 2021 results included a $5.1 million loss on early extinguishment of debt associated with our purchase, pursuant to a tender offer that expired on June 8, 2021, of $269.8 million in aggregate principal amount of our 7.00% senior notes due 2021 (“7.00% Senior Notes due 2021”) prior to their maturity date.

Our 2020 results included severance charges of $6.7 million, as described below under “COVID-19 Pandemic Impact.”

Our pretax income margin improved 340 basis points to 15.5%.

Net income and diluted earnings per share increased 45% and 51%, respectively, each as compared to 2021.

Our return on equity (“ROE”) for 2022 improved 470 basis points to 24.6%, compared to 19.9% for 2021.

ROE is calculated as net income for the year divided by average stockholders’ equity, where average stockholders’ equity is based on the ending stockholders’ equity balances of the trailing five quarters.

COVID-19 Pandemic Impact.

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

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

During that period, we experienced a sizable reduction in net orders and backlog as well as supply chain disruptions and construction cycle time extensions in most of our served markets that resulted in home delivery delays.

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.

Due to these workforce-related actions, 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.

The sharp rise in net orders over these periods substantially expanded the number of homes in our backlog as well as our backlog value.

In 2021, demand for our homes remained strong, with the value of our net orders for the year up 45% year over year to $7.68 billion.

Our ending backlog value at November 30, 2021 increased 67% to approximately $4.95 billion, our highest fourth-quarter level since 2005, supporting our expectation for significant year-over-year growth in our scale, profitability and returns in 2022, as described below under “Outlook.” 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 lumber, other 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 or re-emerge, we believe we are well-positioned to operate effectively through the present environment.

We generated $183.4 million in cash from operating activities in 2022 and ended the year with total liquidity of $1.26 billion, comprised of $328.5 million of cash and cash equivalents and $933.4 million of available capacity under our Credit Facility.

Although we made substantial investments in land acquisition and land development in the 2022 first half, extending our efforts in 2020 and 2021 to expand our scale and support future community count growth, we pivoted in the 2022 third quarter in response to softening housing market conditions to emphasize developing the land positions we already owned or

controlled under land option contracts and other similar contracts.

As the housing market continued to slow in the 2022 fourth quarter, we further reduced our land investment activity, as described below under “Liquidity and Capital Resources.”

The housing affordability and other pressures described above caused many prospective buyers in the 2022 second half to pause their homebuying decisions or cancel their home purchase contracts with us, contributing to substantial year-over-year decreases in our net orders and net order value in third quarter that became more pronounced in the fourth quarter.

In the 2022 fourth quarter, our year-over-year net orders and net order value declined 80% and 79%, respectively, reflecting a significant reduction in our monthly net orders per community, partly offset by an 11% increase in our average community count due to new community openings and fewer communities selling out.

Our cancellation rate as a percentage of gross orders for the 2022 fourth quarter increased to a historically high 68%, from 13% for the corresponding 2021 quarter.

With the substantial decline in net orders in the 2022 second half, our ending backlog value at November 30, 2022 decreased 25% from the previous year to approximately $3.69 billion.

In 2021 and 2022, we, like other homebuilders, continued to experience production challenges due to these supply chain disruptions, as well as ongoing restricted construction services availability and delays with respect to state and municipal construction permitting, inspection and utility processes, which have been disrupted by key equipment shortages.

While we have implemented measures to help mitigate these disruptions, as discussed above under Item 1 – Business in this report, they extended our construction cycle times and delayed deliveries throughout 2021 and 2022.

We believe these challenging circumstances affecting our land development and home construction activities will generally persist and possibly worsen in 2023.

Though we expect affordability pressures and consumer uncertainty to have a significant negative impact on our net orders in 2023 compared to corresponding prior-year periods, we believe the long-term housing market outlook remains positive and we are well positioned to meet current market conditions with our affordable product offerings, lot supply, strong balance sheet and liquidity.

We plan to continue to focus on generating cash flows from our homebuilding operations and managing our product offerings, home pricing, sales pace and inventory levels to optimize our returns, subject to housing market conditions.

Financial Results .

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Homebuilding pretax income $ 1,033,615 $ 656,911 $ 331,500

Years Ended November 30,

2022 2021 2020

Homes delivered 13,738 13,472 10,672

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Housing gross profit margin as a percentage of housing revenues 24.3 % 21.6 % 18.9 %

Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues 21.8 % 19.6 % 18.7 %

Adjusted housing gross profit margin as a percentage of housing revenues 24.8 % 21.8 % 19.6 %

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Operating income as a percentage of homebuilding revenues 15.1 % 11.6 % 7.6 %

Year-over-year growth in homebuilding revenues to $5.71 billion in 2021 reflected an increase in housing revenues, partly offset by a decrease in land sale revenues.

Housing revenues in 2020 were negatively impacted by the COVID-19 pandemic and related COVID-19 control responses.

Housing revenues in 2021 advanced 37% from the previous year, due to a 26% increase in the number of homes delivered and a 9% increase in the overall average selling price of those homes.

The higher volume of homes delivered was largely due to our backlog of homes at the beginning of the year (“beginning backlog”) increasing 54% from 2020, as well as strong net order growth in 2021.

In addition, the number of homes delivered in 2020 was tempered primarily by the negative impact of the COVID-19 pandemic and related COVID-19 control responses.

The year-over-year increase in the overall average selling price of our homes delivered in 2021 reflected strong housing market conditions, which enabled us to raise prices in the vast majority of our communities, as well as product and geographic mix shifts of homes delivered.

Land sale revenues for 2021 decreased 39% from 2020.

Homebuilding revenues of $6.88 billion for 2022 grew 21% from the prior year due to an increase in housing revenues, partly offset by a decrease in land sale revenues.

Housing revenues in 2022 grew 21% from the previous year, due to a 2% increase in the number of homes delivered and an 18% increase in their overall average selling price that primarily reflected the favorable housing market environment in the 2022 first half and earlier periods when most buyers contracted to purchase those homes, as well as product and geographic mix shifts of homes delivered.

Although the homes delivered in 2022 were impacted by the ongoing supply chain disruptions and other production-related issues that extended our cycle times, as described above under “Overview,” housing revenues increased in all four of our homebuilding reporting segments, reflecting double-digit increases in average selling prices in each segment.

We had no land sale revenues in 2022, compared to $10.4 million in 2021.

Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market conditions.

Operating Income .

Our homebuilding operating income grew 109% in 2021, as compared to the previous year, due to an increase in housing gross profits, partly offset by an increase in selling, general and administrative expenses.

Our homebuilding operating income grew 57% in 2022, as compared to the previous year, reflecting higher housing gross profits, partly offset by an increase in selling, general and administrative expenses.

In 2022 and 2021, homebuilding operating income included total inventory-related charges of $37.3 million and $12.0 million, respectively, as discussed in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report.

In 2020, our homebuilding operating income also included severance charges of $6.7 million associated with workforce reductions made during the 2020 second quarter, as discussed above under “COVID-19 Pandemic Impact.” As a percentage of homebuilding revenues, our homebuilding operating income for 2021 improved 400 basis points year over year to 11.6%.

Excluding inventory-related charges for both periods and the above-mentioned severance charges in 2020, our homebuilding operating income margin improved 340 basis points to 11.8% in 2021 from 8.4% in 2020.

• Housing Gross Profits – In 2021, housing gross profits increased by $443.3 million, or 56%, to $1.23 billion from $785.3 million in 2020.

The year-over-year increase in 2021 reflected the higher volume of homes delivered and an increase in the housing gross profit margin.

Housing gross profits for 2021 and 2020 included the respective inventory-related charges described above.

Our housing gross profit margin for 2021 increased 270 basis points from the previous year, mainly as a result of a favorable pricing environment that more than offset higher construction services and building materials costs (approximately 110 basis points);

lower amortization of previously capitalized interest as a percentage of housing revenues (approximately 50 basis points);

a decrease in inventory-related charges (approximately 50 basis points);

an increase in operating leverage due to higher housing revenues (approximately 40 basis points);

As a percentage of homebuilding revenues, our homebuilding operating income for 2022 improved 350 basis points year over year to 15.1%.

Excluding inventory-related charges for both periods, our homebuilding operating income margin improved 380 basis points to 15.6% in 2022 from 11.8% in 2021.

• Housing Gross Profits – In 2022, housing gross profits increased by $440.9 million, or 36%, to $1.67 billion from 2021.

The year-over-year improvement reflected increases in both our housing revenues and housing gross profit margin.

Housing gross profits for 2022 and 2021 included inventory-related charges associated with housing operations of $34.8 million and $12.0 million, respectively.

Housing gross profit margin increased 270 basis points from the previous year, mainly as a result of the favorable housing market environment in the 2022 first half and earlier periods when most buyers purchased the homes delivered, which more than offset higher construction costs (approximately 280 basis points);

and lower amortization of previously capitalized interest as a percentage of housing revenues (approximately 60 basis points).

These favorable impacts were partly offset by increased expenses to support current operations (approximately 30 basis points);

an increase in inventory-related charges (approximately 30 basis points);

and other miscellaneous factors (approximately 10 basis points).

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 2.0% for 2022 and 2.6% for 2021.

Excluding the amortization of previously capitalized interest associated with housing operations and the above-mentioned inventory-related charges for the applicable periods, our adjusted housing gross profit margin increased 170 basis points to 24.4% in 2021 from 22.7% in 2020.

Excluding the inventory-related charges associated with housing operations described above, our adjusted housing gross profit margin increased 300 basis points to 24.8% in 2022 from 21.8% in 2021.

The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”

• Land Sale Profits (Losses) – Land sale losses of $2.6 million for 2022 were comprised solely of an inventory impairment charge related to a parcel of land previously held for future development that we plan to sell.

In 2021, land sales generated profits of $7.1 million.

• Selling, General and Administrative Expenses – The following table presents the components of our selling, general and administrative expenses (dollars in thousands):

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Total $ 629,645 9.2 % $ 574,376 10.1 % $ 470,779 11.3 %

(a) Commission expenses include sales commissions on homes delivered paid to internal sales counselors and/or external real estate brokers.

Selling, general and administrative expenses for 2021 increased 22% from the prior year, mainly due to an increase in commission expenses associated with our higher housing revenues, and an increase in general and administrative expenses.

The year-over-year increase in general and administrative expenses primarily reflected higher costs associated with performance-based employee compensation plans, as well as expenses incurred to support current operations and expected growth, partly offset by a $4.3 million benefit from an Employee Retention Credit (“ERC”), which is discussed in Note 14 – Income Taxes in the Notes to Consolidated Financial Statements in this report, recognized in early 2021 and the severance charges of $6.7 million recorded in 2020.

As a percentage of housing revenues, our selling, general and administrative expenses improved 120 basis points in 2021 as compared to 2020, largely reflecting increased operating leverage due to our higher housing revenues, partly offset by the above-mentioned higher expenses.

(a) Commission expenses include sales commissions on homes delivered paid to internal sales counselors and external real estate brokers.

Selling, general and administrative expenses for 2022 increased 10% from the prior year, primarily due to higher costs associated with performance-based employee compensation plans, as well as expenses incurred to support our higher community count.

In addition, general and administrative expenses in 2021 benefited from a $4.3 million Employee Retention Credit (“ERC”), which is described in Note 14 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

Marketing expenses in 2022 rose from the prior year primarily due to higher advertising and other costs to support our higher average community count.

Our selling, general and administrative expenses as a percentage of housing revenues improved 90 basis points in 2022, largely reflecting lower external sales commissions and increased operating leverage due to our higher housing revenues as compared to the previous year, partly offset by the above-mentioned higher expenses.

Interest Income/Expense .

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We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs.

The amount of interest incurred generally fluctuates based on the average amount of debt outstanding for the period and/or the interest rate on that debt.

In 2021, interest incurred totaled $120.5 million, down 3% from $124.1 million in 2020, mainly due to both our lower average interest rate and lower average debt level.

The amount of interest incurred generally fluctuates based on the average amount of debt outstanding for the period and the interest rate on that debt.

In 2022, total interest incurred of $120.9 million was essentially even with $120.5 million incurred in 2021.

All interest incurred during 2022 and 2021 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period.

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Equity in Income (Loss) of Unconsolidated Joint Ventures .

Our equity in loss of unconsolidated joint ventures totaled $.4 million in 2021, compared to equity in income of unconsolidated joint ventures of $12.5 million in 2020.

This year-over-year change mainly resulted from 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, delivered 10 homes in 2021, compared to 99 homes delivered in 2020.

Our equity in income (loss) of unconsolidated joint ventures was nominal for both 2022 and 2021.

Further information regarding our investments in unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

Loss on Early Extinguishment of Debt .

Our $5.1 million loss on early extinguishment of debt in 2021 was associated with our purchase, pursuant to a tender offer that expired on June 8, 2021, of $269.8 million in aggregate principal amount of our 7.00% Senior Notes due 2021 prior to their maturity date.

Further information regarding this transaction is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Our $3.6 million loss on early extinguishment of debt in 2022 was associated with the retirement of $350.0 million in aggregate principal amount of our 7.50% senior notes due September 15, 2022 (“7.50% Senior Notes due 2022”) before their maturity date.

Our $5.1 million loss on early extinguishment of debt in 2021 was associated with our purchase, pursuant to a tender offer that expired on June 8, 2021, of $269.8 million in aggregate principal amount of our 7.00% senior notes due December 15, 2021 (“7.00% Senior Notes due 2021”) prior to their maturity date.

Further information regarding these transactions is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Net Orders, Backlog and Community Count.

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(b) Cancellation rate represents the total number of contracts for new homes cancelled during a period divided by the total (gross) orders for new homes generated during the same period.

In 2021, net orders from our homebuilding operations grew 21% from 2020, reflecting a 37% increase in monthly net orders per community to 6.3, partly offset by a 12% decrease in our overall average community count, which is discussed below under “Community Count.” This higher monthly net order pace occurred even as we raised our home selling prices and paced lot releases, as described above under “Overview.” We believe our Built-to-Order homebuying process, which, as described above under Item 1 – Business in this report, provides personalization and choice, was a key contributor to our strong 2021 net order pace.

The value of our 2021 net orders rose 45% from 2020 as a result of the growth in net orders and a 20% increase in the overall average selling price of those orders.

These factors drove net order value expansion in all four of our homebuilding reporting segments, ranging from 37% in our West Coast segment to 93% in our Southeast segment.

The higher overall average selling price of net orders in 2021 largely reflected strong demand in most of our served markets as well as product and geographic mix shifts of net orders.

The number of homes in our backlog at November 30, 2021 increased 35% from the previous year, mainly due to our substantially higher backlog at the beginning of the fiscal year as well as year-over-year growth in our 2021 net orders.

The potential future housing revenues in our backlog at November 30, 2021 grew 67% year over year as a result of both the higher number of homes in our backlog and a 24% increase in the average selling price of those homes.

The increases in the number of homes in backlog and backlog value reflected strong growth in each of our four homebuilding reporting segments, with increases in backlog value ranging from 53% in our West Coast segment to 106% in our Southeast segment.

Substantially all of the homes in our backlog at November 30, 2021 are expected to be delivered during the year ending November 30, 2022.

Net orders from our homebuilding operations decreased 33% from 2021 with the pace of monthly net orders per community slowing 35% to 4.1.

The value of our 2022 net orders declined 27% from 2021 as the decrease in net orders was partly offset by a 9% increase in the overall average selling price of those orders.

Both net orders and net order value were down on a year-over-year basis in each of our four homebuilding reporting segments.

Our net order results for 2022 reflect the generally favorable 2022 first half housing market conditions and the significant weakening in the 2022 second half, as described above under “Overview.” Reflecting the considerable second-half housing market slowdown and our prioritizing delivering our backlog and protecting our margins over pursuing incremental gross orders, our net orders and net order value declined significantly on a year-over-year basis in the 2022 third quarter.

The year-over-year decreases became more pronounced in the 2022 fourth quarter, with net orders and net order value down 80% and 79%, respectively, from the year-earlier quarter and decreasing in each of our four homebuilding reporting segments.

In addition, our cancellation rate as a percentage of gross orders rose sharply in the 2022 third quarter and increased further in the fourth quarter to 68%, compared to 13% in the year-earlier quarter.

The number of homes in our backlog at November 30, 2022 decreased 27% from the previous year, mainly due to the year-over-year decline in our 2022 net orders.

The potential future housing revenues in our backlog at November 30, 2022 decreased 25% year over year as a result of fewer homes in our backlog, partly offset by a 3% increase in the average selling price of those homes.

The number of homes in backlog and backlog value decreased in each of our four homebuilding reporting segments, with decreases in value ranging from 48% in our West Coast segment to 4% in our Southeast segment.

Substantially all the homes in our backlog at November 30, 2022 are expected to be delivered during the year ending November 30, 2023.

Community Count .

Our average community count for 2021 decreased 12% from the previous year, and our ending community count declined 8%.

The year-over-year decreases in our average and ending community counts primarily reflected communities that sold out earlier than planned due to an increase in our demand-driven net order pace and delays in new community openings.

We substantially increased our investments in land acquisition and land development in 2021 to support future community count growth.

Our average community count for 2022 increased 4% from the previous year, and our ending community count increased 13%.

The year-over-year increases in our average and ending community counts primarily reflected new community openings and fewer communities selling out.

While we made substantial investments in land acquisition and land development in 2022, as we did in 2021, to support community count growth, we pivoted our land investment strategy beginning in the 2022 third quarter in response to softening housing market demand, as discussed below under “Liquidity and Capital Resources.”

HOMEBUILDING REPORTING SEGMENTS

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Total 7,662 10,544 (27) % $ 3,691,559 $ 4,951,725 (25) %

As discussed above under Item 1 – Business in this report, the composition of our homes delivered, net orders and backlog shifts with the mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, and it changes as new communities open and existing communities wind down or sell out.

In addition, with our Built-to-Order model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, and option and upgrade selections.

These intrinsic

variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.

As discussed above under Item 1 – Business in this report, the composition of our homes delivered, net orders and backlog shifts with the product and geographic mix of our active communities and the corresponding average selling prices of the homes ordered and delivered at these communities in any particular period, changing as new communities open and existing communities wind down or sell out in the ordinary course.

In addition, with our Built to Order model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and the design studio options and upgrades buyers select in the community.

These intrinsic variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.

Financial Results .

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The difference between each homebuilding reporting segment’s operating income (loss) and pretax income (loss) is generally due to the equity in income (loss) of unconsolidated joint ventures, which is also presented in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report, and/or interest income and expense.

In addition to the results of our homebuilding reporting segments presented below, our consolidated homebuilding operating income includes the results of Corporate and other, a non-operating segment described in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report.

Information in the Notes to Consolidated Financial Statements in this report.

Corporate and other had operating losses of $145.3 million in 2022, $148.9 million in 2021 and $107.2 million in 2020.

The increase in 2021 as compared to 2020 reflected higher selling, general and administrative expenses, mainly due to higher costs associated with performance-based employee compensation plans, as well as expenses to support current operations and expected growth.

With strong housing market conditions from the 2020 third quarter through the 2021 fourth quarter in most of our served markets, we delivered more homes at a higher overall average selling price and significantly expanded our homebuilding operating income as a percentage of revenues in each of our homebuilding segments for 2021, as compared to the previous year.

The financial results for each of our homebuilding reporting segments for the year ended November 30, 2020 were negatively affected by the impacts from the onset of the COVID-19 pandemic, as discussed in Note 1 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report

The financial results of our homebuilding reporting segments for 2022 improved largely due to year-over-year increases in the average selling prices of homes delivered that reflected the favorable pricing and supply/demand environment in the 2022 first half and prior periods when most buyers contracted to purchase the homes delivered, as well as the product and geographic mix shifts of homes delivered.

At the same time, results were negatively affected by construction services and building material cost pressures, as well as supply chain disruptions and other production-related challenges, as described above under “Overview.”

The following table presents financial information related to our West Coast homebuilding reporting segment for the years indicated (dollars in thousands, except average selling price):

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Operating income as a percentage of revenues 17.1 % 13.5 % 7.9 % 360 bps 560 bps

This segment’s revenues in 2021 were generated solely from housing operations.

In 2020, revenues for this segment were generated from housing operations and nominal land sales.

Housing revenues for 2021 grew 46% from the previous year due to increases in the number of homes delivered in California and Washington, and the higher average selling price of those homes.

The higher average selling price reflected strong housing market conditions and product and geographic mix shifts of homes delivered.

Operating income grew significantly from 2020, reflecting higher housing gross profits, partially offset by higher selling, general and administrative expenses.

This segment’s revenues, which were generated solely from housing operations in both 2022 and 2021, grew 20% due to an increase in the number of homes delivered and the higher average selling price of those homes.

Operating income improved significantly from 2021, reflecting higher housing gross profits, partially offset by higher selling, general and administrative expenses and a $2.6 million land sale loss, which was comprised solely of an impairment charge related to a parcel of land previously held for future development that we plan to sell.

As a percentage of revenues, this segment’s 2022 operating income increased from the previous year, reflecting a 330 basis-point expansion in the housing gross profit margin to 23.2%, and a 30 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 6.1%.

The housing gross profit margin expansion was primarily driven by a favorable pricing environment that more than offset higher construction services and building materials costs, lower relative amortization of previously capitalized interest, a reduction in inventory-related charges and an increase in operating leverage due to higher housing revenues.

Inventory-related charges impacting the housing gross profit margin totaled $11.0 million in 2021, compared to $21.9 million in 2020.

The improvement in selling, general and administrative expenses as a percentage of housing revenues mainly reflected increased operating leverage from higher housing revenues, partly offset by higher expenses incurred to support current operations and expected growth.

The housing gross profit margin expansion was primarily driven by the favorable housing market environment in the 2022 first half and earlier periods when most buyers contracted to purchase the homes delivered, and lower relative amortization of previously capitalized interest.

These favorable impacts were partly offset by higher construction costs and an increase in inventory-related charges impacting the housing gross profit margin.

Such inventory-related charges rose to $24.8 million in 2022, compared to $11.0 million in 2021.

The improvement in this segment’s selling, general and administrative expenses as a percentage of housing revenues was mainly due to lower external sales commissions.

The following table presents financial information related to our Southwest homebuilding reporting segment for the years indicated (dollars in thousands, except average selling price):

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Operating income $ 238,392 $ 186,817 $ 133,883 28 % 40 %

Years Ended November 30, Variance

2022 2021 2020 2022 vs 2021 2021 vs 2020

Homes delivered 2,592 2,574 2,385 1 % 8 %

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Operating income as a percentage of revenues 21.5 % 19.4 % 16.8 % 210 bps 260 bps

In 2021 and 2020, this segment’s revenues were generated from both housing operations and land sales.

Housing revenues for 2021 grew 22% year over year to $955.7 million, mainly due to an increase in the number of homes delivered from our Nevada operations and a rise in the average selling price of homes delivered in both our Arizona and Nevada operations.

The higher average selling price reflected strong housing market conditions and product and geographic mix shifts of homes delivered.

Land sale revenues totaled $9.4 million in 2021 and $16.1 million in 2020.

This segment’s operating income for 2021 increased from the previous year, mainly due to higher housing gross profits and increased land sale profits, partially offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income improved from 2020 due to a 130 basis-point increase in the housing gross profit margin to 26.7%, a 60 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.9% and higher profits from land sales.

The housing gross profit margin expansion was largely driven by a favorable pricing environment that more than offset higher construction services and building materials costs, and lower relative amortization of previously capitalized interest.

Land sales generated profits of $7.1 million in 2021 and $2.0 million in 2020.

The improvement in selling, general and administrative expenses as a percentage of housing revenues was mainly due to increased operating leverage from higher housing revenues.

This segment’s revenues in 2022 were generated solely from housing operations.

In 2021, revenues were generated from both housing operations and land sales.

Housing revenues for 2022 grew 16% year over year from $955.7 million, mainly due to an increase in the average selling price of homes delivered.

Land sale revenues totaled $9.4 million in 2021.

Operating income increased from the previous year, mainly due to higher housing gross profits, partially offset by higher selling, general and administrative expenses and the absence of land sale profits in the current year.

As a percentage of revenues, operating income improved from 2021, primarily due to a 220 basis-point increase in the housing gross profit margin to 28.9%, and a 50 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.4%.

The housing gross profit margin expansion mainly reflected the favorable housing market environment in the 2022 first half and earlier periods when most buyers contracted to purchase the homes delivered, and lower relative amortization of previously capitalized interest, partly offset by higher construction costs.

Land sales generated profits of $7.1 million in 2021.

The improvement in this segment’s selling, general and administrative expenses as a percentage of housing revenues was mainly due to lower external sales commissions and increased operating leverage from higher housing revenues.

The following table presents financial information related to our Central homebuilding reporting segment for the years indicated (dollars in thousands, except average selling price):

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Operating income as a percentage of revenues 15.6 % 13.3 % 10.8 % 230 bps 250 bps

In 2021 and 2020, revenues for this segment were generated solely from housing operations.

Housing revenues for 2021 grew 26% from the prior year, reflecting increases in the number of homes delivered in both states that comprise this segment, and the higher average selling price of those homes.

The increase in the average selling price reflected strong housing market conditions and product and geographic mix shifts of homes delivered.

Operating income for 2021 increased from 2020, reflecting growth in housing gross profits, partially offset by higher selling, general and administrative expenses.

In 2021, the improvement in operating income as a percentage of revenues

reflected a 90 basis-point expansion in the housing gross profit margin to 22.0% and a 160 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.7%.

The housing gross profit margin rose from the previous year primarily due to lower inventory-related charges, improved operating leverage due to higher housing revenues, and lower relative amortization of previously capitalized interest.

Inventory-related charges for 2021 were nominal, compared to $5.5 million in 2020.

The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues mainly reflected increased operating leverage from higher housing revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic.

This segment’s revenues, which were generated solely from housing operations in 2022 and 2021, improved 16% from the prior year, reflecting an increase in the average selling price of homes delivered, partly offset by a decrease in the number of homes delivered.

Operating income increased from 2021, reflecting growth in housing gross profits, partially offset by higher selling, general and administrative expenses.

In 2022, the improvement in operating income as a percentage of revenues reflected a 160 basis-point expansion in the housing gross profit margin to 23.6% and a 70 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.0%.

The housing gross profit margin expanded from the previous year primarily due to the favorable housing market environment in the 2022 first half and earlier periods when most buyers contracted to purchase the homes delivered, and lower relative amortization of previously capitalized interest, partly offset by higher construction costs and an increase in inventory-related charges.

The housing gross margin for 2022 included inventory-related charges of $3.3 million, compared to nominal charges in 2021.

The year-over-year improvement in this segment’s selling, general and administrative expenses as a percentage of housing revenues mainly reflected lower external sales commissions and increased operating leverage from higher housing revenues.

The following table presents financial information related to our Southeast homebuilding reporting segment for the years indicated (dollars in thousands, except average selling price):

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Operating income as a percentage of revenues 15.7 % 11.4 % 5.3 % 430 bps 610 bps

In 2021 and 2020, this segment’s revenues were generated from both housing operations and nominal land sales.

Housing revenues for 2021 rose 59% year over year to $682.7 million due to increases in both the number of homes delivered and the average selling price of those homes.

The higher average selling price in 2021 as compared to 2020 mainly reflected strong housing market conditions and product and geographic mix shifts of homes delivered.

This segment’s revenues for 2022 were generated solely from housing operations.

In 2021, revenues were generated from both housing operations and nominal land sales.

Housing revenues for 2022 rose 42% year over year from $682.7 million due to increases in both the number of homes delivered and the average selling price of those homes.

Operating income increased from 2021, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income rose from 2020 due to a 350 basis-point increase in the housing gross profit margin to 20.8% that mainly reflected a shift in geographic mix, improved operating leverage due to higher housing revenues, and lower relative amortization of previously capitalized interest.

In addition, selling, general and administrative expenses as a percentage of housing revenues improved 260 basis points from 2020 to 9.4%, primarily due to increased operating leverage as a result of higher housing revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic.

As a percentage of revenues, operating income rose from 2021 due to a 380 basis-point increase in the housing gross profit margin to 24.6% that mainly reflected the favorable pricing environment and housing supply/demand environment in the 2022 first half and earlier periods when most buyers contracted to purchase the homes delivered, a shift in product and geographic mix, and lower relative amortization of previously capitalized interest, partly offset by higher construction costs and an increase in inventory-related charges.

The housing gross margin for 2022 included inventory-related charges of $5.7 million, compared to nominal charges in 2021.

In addition, selling, general and administrative expenses as a percentage of housing revenues improved 50 basis points from 2021 to 8.9%, primarily due to lower internal and external commissions, and increased operating leverage as a result of higher housing revenues.

FINANCIAL SERVICES REPORTING SEGMENT

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Pretax income $ 38,451 $ 38,435 $ 32,543

Years Ended November 30,

2021 2020 2019

Total originations (a):

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Loans sold (a):

Loans sold to Stearns/GR Alliance 7,706 7,900 6,224

Loans sold to GR Alliance 7,563 7,706 7,900

Principal $ 3,026,290 $ 2,744,685 $ 2,536,689

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Principal $ 287,436 $ 420,119 $ 102,363

Years Ended November 30,

2022 2021 2020

Mortgage loan origination mix (a):

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Pretax income.

Our financial services pretax income for 2021 grew 18% from the previous year due to improved results from our insurance and title services businesses, and an increase in the equity in income of unconsolidated joint ventures.

In 2021, our equity in income of our unconsolidated joint venture, KBHS, increased 12% year over year as a result of a substantial increase in the principal amount of loan originations and improved margins.

The higher principal amount of loan originations in 2021 was primarily due to a 26% increase in the number of homes we delivered and a 9% increase in the average selling price of those homes.

On March 1, 2021, Guaranteed Rate acquired the parent company of Stearns, our KBHS partner prior to that date.

In October 2021, Stearns was renamed as GR Alliance.

As of the date of this report, we are not aware of any significant changes with respect to GR Alliance or its operations as a result of the transaction being completed.

Our financial services pretax income for 2022 was essentially even with the previous year as improved results from our insurance and title services businesses were offset by a decrease in the equity in income of unconsolidated joint ventures.

In 2022, the equity in income of our unconsolidated joint venture, KBHS, decreased 12% year over year as a result of a decrease in KBHS’ income.

KBHS’ income decreased from the previous year due to lower margins on loan originations, reflecting increased competition in the primary mortgage market amid rising interest rates, partly offset by a $20.3 million gain resulting from a substantial increase in the fair value of interest rate lock commitments (“IRLCs”) within the joint venture.

This gain reflected a greater number of customers who elected to lock their mortgage interest rates and for relatively extended periods in 2022, aligned with their expected home delivery date, due to the sharp rise in such rates during the year.

The principal amount of loan originations increased 3% in 2022 mainly due to a 2% increase in the number of homes we delivered and an 18% increase in the average selling price of those homes, partly offset by a decrease in the percentage of homebuyers using KBHS.

Income Tax Expense .

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Effective income tax rate 23.8 % 18.8 % 18.6 %

Our effective tax rate for 2021 increased slightly from the previous year, as the impacts of higher taxable income, a $5.6 million increase in non-deductible compensation expense and a $4.9 million decrease in excess tax benefits related to stock-based compensation were mostly offset by the favorable effect of a $30.8 million increase in federal tax credits we earned primarily from building energy-efficient homes.

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.

Prior to this legislation, the tax credit was set to expire on December 31, 2020.

Our effective tax rate for 2022 increased from the previous year, mainly due to a $26.9 million decrease in federal tax credits we recognized and a $5.3 million decrease in excess tax benefits related to stock-based compensation, partly offset by a $1.6 million decrease in non-deductible compensation expense.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law.

The IRA contains significant tax law changes, including a corporate alternative minimum tax (“CAMT”) of 15% on adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases after December 31, 2022.

If applicable, the CAMT will not be effective for us until our fiscal year ending November 30, 2024.

The IRA also extends the federal tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modifies and increases it starting in 2023.

Previously, the federal tax credit expired for homes delivered after December 31, 2021.

The federal tax credits we recognized in 2022 reflected the impact of the extension under the IRA.

We are currently evaluating the other potential effects of the IRA on our consolidated financial statements.

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.

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

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 years ended November 30, 2022, 2021 and 2020, it contributed to the year-over-year increases in the amount of income taxes we paid in 2022 and 2021.

Under current accounting standards, we expect volatility in our income tax expense in future periods, the magnitude of which will depend on, among other factors, the price of our common stock and the timing and volume of stock-based compensation award activity, such as employee exercises of stock options and the vesting of restricted stock awards and performance-based restricted stock units (each, a “PSU”).

For each of the years ended November 30, 2021 and 2020, the amount of income taxes we paid was substantially less than our income tax expense primarily due to the utilization of our deferred tax assets to reduce taxable income.

We anticipate the amount of income taxes we pay will be less than our income tax expense for at least the next year.

Further information regarding our income taxes is provided in Note 14 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

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34,760 11,953 28,669

Housing gross profits excluding inventory-related charges

1,240,568 813,953 844,931

Amortization of previously capitalized interest (b)

149,354 129,330 156,114

Adjusted housing gross profits

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24.3 % 21.6 % 18.9 %

Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues

21.8 % 19.6 % 18.7 %

Adjusted housing gross profit margin as a percentage of housing revenues

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(a) Represents inventory impairment and land option contract abandonment charges associated with housing operations.

(b) Represents the amortization of previously capitalized interest associated with housing operations.

Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding (1) housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period and (2) amortization of previously capitalized interest associated with

housing operations, by housing revenues.

Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period, by housing revenues.

The most directly comparable GAAP financial measure is housing gross profit margin.

We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period.

This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges, and the amortization of previously capitalized interest associated with housing operations, have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner.

We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges, and amortization of previously capitalized interest associated with housing operations.

This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner.

This financial measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of November 30, 2021, we had $1.69 billion in aggregate principal amount of outstanding senior notes and no borrowings outstanding under the Credit Facility.

Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”), which are listed on Exhibit 22.

Our other subsidiaries, including all of our subsidiaries associated with our financial services operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best interest.

See Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes and the Credit Facility.

As of November 30, 2022, we had $1.34 billion in aggregate principal amount of outstanding senior notes, $150.0 million of borrowings outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the Term Loan.

Our obligations to pay principal and interest on the senior notes and borrowings, if any, under the Credit Facility and the Term Loan are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”), which are listed on Exhibit 22.

relevant subsidiary’s best interest.

See Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes and the Credit Facility and the Term Loan.

The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by us.

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The guarantees are effectively subordinated to any secured indebtedness of such Guarantor Subsidiaries to the extent of the value of the assets securing such indebtedness, and structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries.

Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our non-guarantor subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release.

Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility and Term Loan, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our Non-Guarantor Subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes, the Credit Facility and the Term Loan so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release.

The following tables present summarized financial information for KB Home and the Guarantor Subsidiaries on a combined basis, excluding unconsolidated joint ventures and after the elimination of (a) intercompany transactions and balances between KB Home and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries.

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Selling, general and administrative expenses (622,257)

Interest income from non-guarantor subsidiary 20,176

Interest income from Non-Guarantor Subsidiaries 15,337

Pretax income 1,029,836

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• borrowings under the Credit Facility;

• the Term Loan;

• land option contracts and other similar contracts and seller notes;

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• repayments of borrowings under the Credit Facility;

• dividends paid to stockholders;

• repurchases of our common stock.

Cash flows for each of our communities depend on their stage of development and can differ significantly from reported earnings.

Early stages of development or expansion require significant cash outflows for land acquisition, zoning plat and other approvals, land development, and construction of model homes, roads, utilities, landscape and other items.

Because these costs are a component of our inventory and are not recognized in our income statement until a home is delivered, we incur significant cash outflows prior to the recognition of earnings.

Because these costs are capitalized as a component of our inventory and are not recognized in our income statement until a home is delivered, we incur significant cash outflows prior to the recognition of earnings.

In the later stages of a community as homes are delivered, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflows associated with the land and home construction were previously incurred.

We ended 2022 with total liquidity of $1.26 billion, including cash and cash equivalents and $933.4 million of available capacity under the Credit Facility.

Based on our financial position as of November 30, 2021, and our positive business forecast for 2022 as discussed below under “Outlook,” we have no material concerns related to our liquidity.

While the ongoing COVID-19 pandemic creates potential liquidity risks, as discussed further below, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months.

Based on our financial position as of November 30, 2022, and our business forecast for 2023 as discussed below under “Outlook,” we have no material concerns related to our liquidity.

While the softening in homebuyer demand in the 2022 second half indicates potential liquidity risks, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months.

Cash Requirements .

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Notes Payable .

We have outstanding fixed-rate notes payable with varying maturities.

We have outstanding variable-rate borrowings under the Credit Facility and the Term Loan, and outstanding fixed-rate senior notes and mortgages and land contracts due to land sellers and other loans with varying maturities.

As of November 30, 2022, our notes payable had an aggregate principal amount of $1.85 billion, with $3.2 million payable within 12 months.

Future interest payments associated with our notes payable totaled $443.6 million as of November 30, 2021, with $104.1 million payable within 12 months.

Future interest payments associated with the Term Loan and our senior notes totaled $616.0 million as of November 30, 2022, with $100.4 million payable within 12 months.

The Credit Facility and the Term Loan will mature on February 18, 2027 and August 25, 2026, respectively.

Our next senior note maturity is our $300.0 million in aggregate principal amount of 6.875% Senior Notes due 2027.

Further information regarding our notes payable is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

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Investments in Land and Land Development.

Our investments in land and land development increased to $2.53 billion in 2021, compared to $1.69 billion in 2020.

Approximately 50% of our total investments in both 2021 and 2020 related to land acquisitions.

While we made strategic investments in land and land development in each of our homebuilding reporting segments during 2021 and 2020, approximately 53% and 55%, respectively, of these investments for each year were made in our West Coast homebuilding reporting segment.

Our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards to support home delivery and revenue growth in 2022 and beyond.

Our investments in land and land development decreased 5% to $2.40 billion in 2022, compared to $2.53 billion in 2021, reflecting a 24% year-over-year increase for the first half of the year that was more than offset by a 29% year-over-year decrease in the second half of the year.

While we made substantial investments in land acquisition and land development in the 2022 first half, extending our efforts in 2020 and 2021 to expand our scale and support future community count growth, we pivoted in the 2022 third quarter in response to softening housing market conditions to emphasize developing land positions we already own or control under land option contracts and other similar contracts.

We also evaluated our transaction pipeline and moved to renegotiate pricing and terms for many deals while abandoning others that no longer met our investment return standards.

As the housing market continued to slow in the 2022 fourth quarter, we decided to further reduce our land investment activity to align with our growth expectations for that period and 2023.

In addition, we

modified our land development strategy, electing to build in smaller phases, and in some cases, to defer the start of the next phase of lots to align with expected demand in certain local areas.

Reflecting these shifts in our land strategy, our land acquisition investments for the 2022 fourth quarter decreased 74% to $68.0 million, compared to $258.5 million, with our total land and land development expenditures for the quarter decreasing 29% year over year to $442.7 million, compared to $621.7 million.

Approximately 34% of our total investments in land and land development in 2022 were related to land acquisitions, compared to approximately 50% in 2021.

Although we made strategic investments in land and land development in each of our homebuilding reporting segments during 2022 and 2021, approximately 50% and 53%, respectively, of these investments for each year were made in our West Coast homebuilding reporting segment.

In 2023, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment standards, though we anticipate at a lower level than in the past two years.

Our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.

The following table presents the number of lots we owned or controlled under land option contracts and other similar contracts and the carrying value of inventory by homebuilding reporting segment (dollars in thousands):

November 30, 2022 November 30, 2021 Variance

Segment Lots $ Lots $ Lots $

Segment Lots Carrying Value Lots Carrying Value Lots Carrying Value

West Coast 19,302 $ 2,425,141 23,539 $ 2,300,096 (4,237) $ 125,045

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68,795 $ 5,543,176 86,768 $ 4,802,829 (17,973) $ 740,347

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at November 30, 2021 increased from November 30, 2020, primarily due to our investments in land and land development in 2021 and an increase in the number of homes under construction.

The number of lots in inventory as of November 30, 2021 included 12,434 lots under contract where the associated deposits were refundable at our discretion, compared to 10,254 of such lots at November 30, 2020, reflecting ordinary course fluctuations in the number of such contracts.

Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 44% at November 30, 2021 and 40% at November 30, 2020.

The carrying value of lots we owned or controlled under land option contracts and other similar contracts at November 30, 2022 increased 15% year over year, reflecting our investments in land and land development during 2022 and a greater number of homes in the later stages of the construction cycle.

The number of lots we owned or controlled under land option contracts and other similar contracts at November 30, 2022 decreased 21% from November 30, 2021, primarily reflecting the above-mentioned pivot in our land investment strategy, which included our abandoning 15,678 previously controlled lots in the 2022 second half.

Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 30% at November 30, 2022, compared to 44% at November 30, 2021.

Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards.

The number of lots in inventory as of November 30, 2022 included 5,543 lots under contract where the associated deposits were refundable at our discretion, compared to 12,434 of such lots at November 30, 2021.

Land Option Contracts and Other Similar Contracts.

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In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date.

We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the sellers.

If we were to acquire all of the land we had under land option contracts and other similar contracts at November 30, 2021, we estimate the remaining purchase price to be paid would be as follows:

2022 – $1.34 billion;

We typically have the ability not to exercise our rights to the underlying land for any reason and, if applicable, forfeit our deposits without further penalty or obligation to the sellers.

If we were to acquire all the land we had under land option contracts and other similar contracts at November 30, 2022, we estimate the remaining purchase price to be paid would be as follows:

2023 – $655.7 million;

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2026 – $86.7 million;

and thereafter – $0.

2027 – $6.0 million;

and thereafter – $3.3 million.

The table below summarizes our total cash and cash equivalents, and total liquidity (in thousands):

Total cash and cash equivalents $ 290,764 $ 681,190

Cash and cash equivalents $ 328,517 $ 290,764

Credit Facility commitment 1,090,000 800,000

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2022 2021 Variance

Credit Facility $ 150,000 $ — $ 150,000

Term Loan 357,485 — 357,485

Mortgages and land contracts due to land sellers and other loans 4,760 5,327 (567)

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The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus stockholders’ equity).

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 relating to the offering.

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 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 7.00% Senior Notes due 2021 at par value pursuant to the terms of the notes.

Together, these 2021 transactions effectively extended the maturity of our senior notes by more than two years and reduced our weighted average borrowing rate by approximately 70 basis points.

On June 22, 2022, we completed the underwritten public offering of $350.0 million in aggregate principal amount of 7.25% senior notes due July 15, 2030 (“7.25% Senior Notes due 2030”) at 100% of their aggregate principal amount.

On July 7, 2022, we used the net proceeds from the issuance of the 7.25% Senior Notes due 2030, together with cash on hand, to retire our outstanding $350.0 million in aggregate principal amount of 7.50% Senior Notes due 2022 before their September 15, 2022 maturity date, by redemption pursuant to the optional redemption terms specified for such notes.

LOC 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.

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

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, 2025, we may issue up to $75.0 million of letters of credit.

As of November 30, 2022 and 2021, we had letters of credit outstanding under the LOC Facility of $36.4 million and $34.6 million, respectively.

Performance Bonds .

As discussed in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.11 billion and $897.6 million of performance bonds outstanding at November 30, 2021 and 2020, respectively.

As discussed in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.27 billion and $1.11 billion of performance bonds outstanding at November 30, 2022 and 2021, respectively.

Unsecured Revolving Credit Facility .

We have an $800.0 million Credit Facility that will mature on October 7, 2023.

On February 18, 2022, we entered into an amendment to our 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 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 November 30, 2021, we had no cash borrowings and $8.6 million of letters of credit outstanding under the Credit Facility.

As of November 30, 2022, we had $150.0 million cash borrowings and $6.7 million of letters of credit outstanding under the Credit Facility.

The Credit Facility is further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

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

Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and can differ in certain respects from comparable GAAP or other commonly used terms.

The financial covenant requirements under the Credit Facility are set forth below:

• Consolidated Tangible Net Worth – We must maintain a consolidated tangible net worth at the end of any fiscal quarter greater than or equal to the sum of (a) $1.54 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after May 31, 2019 and ending as of the last day of such fiscal quarter (though there is no reduction if there is a consolidated net loss in any fiscal quarter), plus (c) an amount equal to 50% of the cumulative net proceeds we receive from the issuance of our capital stock after May 31, 2019.

Under the terms of the Credit Facility and the Term Loan, as discussed below, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth,

consolidated leverage ratio (“Leverage Ratio”), and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum liquidity level, each as defined therein.

Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from comparable GAAP or other commonly used terms.

The financial covenant requirements under the Credit Facility and the Term Loan are set forth below:

• Consolidated tangible net worth – We must maintain a consolidated tangible net worth at the end of any fiscal quarter greater than or equal to the sum of (a) $2.09 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after November 30, 2021 and ending as of the last day of such fiscal quarter (though there is no reduction if there is a consolidated net loss in any fiscal quarter), plus (c) an amount equal to 50% of the cumulative net proceeds we receive from the issuance of our capital stock after November 30, 2021.

• Leverage Ratio – We must also maintain a Leverage Ratio of less than or equal to .60 at the end of each fiscal quarter.

The Leverage Ratio is calculated as the ratio of our consolidated total indebtedness to the sum of consolidated total indebtedness and consolidated tangible net worth, all as defined under the Credit Facility.

• Interest Coverage Ratio or liquidity – We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of each fiscal quarter;

or (b) a minimum level of liquidity, but not both.

The Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest incurred, each as defined under the Credit Facility, in each case for the previous 12 months.

Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Credit Facility, for the four most recently ended fiscal quarters in the aggregate.

In addition, under the Credit Facility, our investments in joint ventures and non-guarantor subsidiaries (which are shown, respectively, in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report and under “Supplemental Guarantor Financial Information” above) as of the end of each fiscal quarter cannot exceed the sum of (a) $104.8 million and (b) 20% of consolidated tangible net worth.

Further, the Credit Facility does not permit our borrowing base indebtedness, which is the aggregate principal amount of our outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, to be greater than our borrowing base (a measure relating to our inventory and unrestricted cash assets).

The covenants and other requirements under the Credit Facility represent the most restrictive provisions that we are subject to with respect to our notes payable.

The following table summarizes the financial covenants and other requirements under the Credit Facility, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of November 30, 2021:

The Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest incurred, each as defined under the Credit Facility and the Term Loan, in each case for the previous 12 months.

Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Credit Facility and the Term Loan, for the four most recently ended fiscal quarters in the aggregate.

In addition, under the Credit Facility and the Term Loan, our equity investments in joint ventures and Non-Guarantor Subsidiaries and other unconsolidated entities as of the end of each fiscal quarter cannot exceed the sum of (a) $104.8 million and (b) 20% of consolidated tangible net worth.

Further, for so long as we do not hold an investment grade credit rating, as defined under the Credit Facility and the Term Loan, the Credit Facility and the Term Loan do not permit our borrowing base indebtedness, which, subject to certain exceptions, is the aggregate principal amount of our and certain of our subsidiaries’ outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, to be greater than our borrowing base (a measure relating to our inventory and unrestricted cash assets).

The covenants and other requirements under the Credit Facility and the Term Loan represent the most restrictive covenants that we are subject to with respect to our notes payable.

The following table summarizes the financial covenants and other requirements under the Credit Facility and the Term Loan, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of November 30, 2022:

Financial Covenants and Other Requirements Covenant Requirement Actual

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Borrowing base in excess of borrowing base indebtedness (as defined) n/a $ 2.59 billion

(a) Under the terms of the Credit Facility, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity, but not both.

As of November 30, 2021, we met both the Interest Coverage Ratio and the minimum liquidity requirements.

(a) Under the terms of the Credit Facility and the Term Loan, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity.

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

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-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 the date of this report, we were in compliance with the applicable terms of all 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 the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the Term Loan, 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.

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).

There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility or the Term Loan 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).

Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties.

At November 30, 2022, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $4.8 million, secured primarily by the underlying property, which had an aggregate carrying value of $31.3 million.

Senior Unsecured Term Loan.

On August 25, 2022, we entered into the Term Loan with the lenders party thereto, and on October 3, 2022 obtained an additional lender commitment thereunder, pursuant to which the lenders committed up to $360.0 million.

The Term Loan will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions).

The Term Loan is further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

On November 14, 2022, we borrowed $360.0 million in aggregate principal amount under the Term Loan and, on November 15, 2022, we used a portion of the proceeds for the redemption at par of our $350.0 million in aggregate principal amount of 7.625% senior notes due May 15, 2023 (“7.625% Senior Notes due 2023”).

Unconsolidated Joint Ventures.

As discussed in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located.

None of our unconsolidated joint ventures had outstanding debt at November 30, 2021.

As of November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit with a third-party lender and secured by the underlying property and related project assets.

None of our other unconsolidated joint ventures had outstanding debt at November 30, 2022.

Credit Ratings.

Our credit ratings are periodically reviewed by rating agencies.

In February 2021, Moody’s Investors Service affirmed our corporate Ba3 credit rating, and upgraded the rating outlook to positive from stable.

In May 2021, Moody’s Investors Service upgraded our corporate rating to Ba2 from Ba3, and changed the rating outlook to stable from positive.

In January 2022, Standard and Poor’s Financial Services reaffirmed our BB credit rating and changed its rating outlook to positive from stable.

In June 2022, Moody’s Investor Service reaffirmed our Ba2 credit rating and changed its rating outlook to positive from stable.

Consolidated Cash Flows.

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Operating Activities .

Operating activities used net cash of $37.3 million in 2021 and provided net cash of $310.7 million in 2020.

Generally, our net operating cash flows fluctuate primarily based on changes in our inventories and our profitability.

Net cash used in operating activities in 2021 mainly reflected a net increase in inventories of $897.8 million and a net increase in receivables of $32.0 million, partly offset by net income of $564.7 million and a net increase in accounts payable, accrued expenses and other liabilities of $181.6 million.

Net cash provided by operating activities in 2020 primarily reflected net income of $296.2 million, a net decrease in receivables of $59.3 million, largely due to an income tax refund received, and a net increase in accounts payable, accrued expenses and other liabilities of $4.1 million, partly offset by a net increase in inventories of $183.2 million.

Our net cash provided by operating activities in 2022 mainly reflected net income of $816.7 million and a net increase in accounts payable, accrued expenses and other liabilities of $53.1 million, partly offset by a net increase in inventories of $785.6 million and a net increase in receivables of $19.9 million.

Net cash used in operating activities in 2021 primarily reflected a net increase in inventories of $897.8 million and a net increase in receivables of $32.0 million, partly offset by net income of $564.7 million and a net increase in accounts payable, accrued expenses and other liabilities of $181.6 million.

Investing Activities .

Investing activities used net cash of $38.1 million in 2021 and $26.6 million in 2020.

Our uses of cash in 2021 included $39.4 million for net purchases of property and equipment and $11.5 million for contributions to unconsolidated joint ventures.

In 2022, our net cash used in investing activities included $45.2 million for net purchases of property and equipment and $28.4 million for contributions to unconsolidated joint ventures.

These uses of cash were partially offset by a $1.9 million return of investments in unconsolidated joint ventures.

In 2020, the net cash used in investing activities included $28.8 million for net purchases of property and equipment and $10.4 million for contributions to unconsolidated joint ventures.

In 2021, our uses of cash included $39.4 million for net purchases of property and equipment and $11.5 million for contributions to unconsolidated joint ventures.

These uses of cash were partly offset by a $12.8 million return of investments in unconsolidated joint ventures.

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In 2022, the year-over-year change in net cash used in financing activities was mainly due to financing transactions we completed during the year.

In 2021, cash was used for the repayment of $450.0 million in aggregate principal amount of our 7.00% Senior Notes due 2021, stock repurchases totaling $188.2 million, dividend payments on our common stock of $54.1 million, tax payments associated with stock-based compensation awards of $12.3 million, payments of debt issuance costs of $4.8 million and payments on mortgages and land contracts due to land sellers and other loans of $2.3 million.

The cash used was partially offset by cash provided from our public offering of $390.0 million in aggregate principal amount of 4.00% Senior Notes due 2031 and $11.7 million of issuances of common stock under employee stock plans.

In 2020, net cash was used for dividend payments on our common stock of $38.1 million, payments on mortgages and land contracts due to land sellers and other loans of $24.9 million, and tax payments associated with stock-based compensation awards of $9.5 million.

Partially offsetting these uses of cash was $16.1 million of cash provided by issuances of common stock under employee stock plans.

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.

Cash dividends declared and paid during the years ended November 30, 2021 and 2020 totaled $.60 and $.42 per share of common stock, respectively.

In 2022, cash was used for the repayment of $350.0 million in aggregate principal amount of our 7.50% Senior Notes due 2022, $350.0 million in aggregate principal amount of our 7.625% Senior Notes due 2023, stock repurchases totaling $150.0 million, dividend payments on our common stock of $52.5 million, tax payments associated with stock-based compensation awards of $15.9 million, payments of debt issuance costs of $11.1 million and payments on mortgages and land contracts due to land sellers and other loans of $.6 million.

The cash used was partially offset by borrowings under the Term Loan of $360.0 million, cash provided from our public offering of $350.0 million in

aggregate principal amount of 7.25% Senior Notes due 2030, and net borrowings under the Credit Facility of $150.0 million.

In 2021, net cash was used for the repayment of $450.0 million in aggregate principal amount of our 7.00% Senior Notes due 2021, stock repurchases totaling $188.2 million, dividend payments on our common stock of $54.1 million, tax payments associated with stock-based compensation awards of $12.3 million, payments of debt issuance costs of $4.8 million and payments on mortgages and land contracts due to land sellers and other loans of $2.3 million.

The cash used was partially offset by cash provided from our public offering of $390.0 million in aggregate principal amount of 4.00% senior notes due June 15, 2031 (“4.00% Senior Notes due 2031”), and $11.7 million of issuances of common stock under employee stock plans.

Our board of directors declared, and we paid, four quarterly cash dividends of $.15 per share of common stock in 2022 and 2021.

Cash dividends declared and paid during the years ended November 30, 2022 and 2021 totaled $.60 per share of common stock.

The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our board of directors, and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.

Shelf Registration Statement.

On July 9, 2020, we filed an automatically effective universal shelf registration statement (“2020 Shelf Registration”) with the SEC.

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.

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

Share Repurchase Program.

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.

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, which had 331,400 shares remaining for repurchase.

In 2022, we repurchased 4,927,499 shares of our common stock on the open market pursuant to this authorization at a total cost of $150.0 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 common stock repurchase program, our board of directors authorized in 2014 the repurchase of no more than 680,000 shares of our outstanding common stock solely as necessary for director compensation elections with respect to settling outstanding stock appreciation rights awards (“Director Plan SARs”) granted under our Non-Employee Directors Compensation Plan (“Director Plan”).

As of November 30, 2021, we have not repurchased any shares pursuant to the board of directors authorization.

While the ongoing COVID-19 pandemic has created uncertainty as to general economic conditions for 2022 and beyond, as of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.

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 November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock.

On April 7, 2022, our board of directors also terminated a separate stock repurchase authorization it made in 2014 for the repurchase of not more than 680,000 shares of our outstanding common stock, solely as necessary for director elections in respect of outstanding stock appreciation rights awards granted under our Non-Employee Directors Compensation Plan (“Director Plan SARs”).

As the remaining outstanding Director Plan SARs expired in April 2022, this stock repurchase authorization was no longer needed.

As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.

In 2023, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions.

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In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire.

However, with the uncertainty surrounding the COVID-19 pandemic, which could materially and negatively affect our business and the housing market, our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions, as well as moderated investor and/or lender interest or capacity and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

Further discussion of the potential impacts from the COVID-19 pandemic on our capital resources and liquidity is provided above under Item 1A – Risk Factors in this report.

Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or moderated investor and/or lender interest or capacity stemming from unfavorable industry trends described above under “Overview” or other factors and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

We evaluated five, one and 11 communities or land parcels for recoverability as of November 30, 2022, 2021 and 2020, respectively.

The carrying values of those communities or land parcels evaluated as of November 30, 2022, 2021 and 2020 were $118.7 million, $29.9 million and $123.4 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.

The number and corresponding carrying value of communities or land parcels evaluated as of November 30, 2022 reflected the then-current conditions and trends in the markets where the communities are located.

In addition, we evaluated land held for future development for recoverability as of November 30, 2022, 2021 and 2020.

When an indicator of potential impairment is identified for a community or land parcel, we test the asset for recoverability by comparing the carrying value of the asset to the undiscounted future net cash flows expected to be generated by the asset.

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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, 2022, these expectations considered the weakening in U.S.

housing market demand in the year’s second half, elevated inflation levels, and rising interest rates, the significant year-over-year decreases in our net orders per community in the 2022 third and fourth quarters driven in part by a substantial increase in cancellations, our lower year-end backlog, both in number of homes and value, estimated average selling prices and housing gross profit margins based on the current and anticipated conditions in the markets where assessed assets are located, and the impacts of supply-chain disruptions as well as delays with respect to state and municipal permitting, inspection and utility processes on our construction cycle times.

Based on these recoverability considerations, we recognized inventory impairment charges for certain inventory assets in 2022, as described below.

Generally, a community must have a projected gross margin percentage below 5% to potentially not meet the recoverability test and proceed to the fair value evaluation described below.

Our overall gross margin in the 2022 fourth quarter was 22.4%, and as of November 30, 2022, only a few communities had gross margins below 5%.

However, if there is a sustained economic slowdown or other factor(s) that lead to moderate or significant decreases in new home prices in certain submarkets, more communities could begin to approach gross margin levels where we would conduct a fair value analysis.

Any resulting impairment(s) from such an analysis(es) could be material.

Additionally, we have $85.0 million of deposits and pre-acquisition costs at November 30, 2022 related to land option contracts and other similar contracts.

If there are events that lead to moderate or significant decreases in new home prices, we could elect to cancel several such contracts, resulting in the write-off of the related deposits and pre-acquisition costs.

The following table presents information regarding inventory impairment and land option contract abandonment charges included in construction and land costs in our consolidated statements of operations (dollars in thousands):

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Land option contract abandonments charges $ 13,224 $ 2,050 $ 5,946

The inventory 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.

As further described in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report, 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.

The inventory impairment charges in 2022, 2021 and 2020 reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities, mainly by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

meaning whether it is open for sales and/or undergoing development, or whether it is being held for future development or held for sale.

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.

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These real estate assets are written down to fair value, less associated costs to sell.

The fair value of such

real estate assets is generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

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.

The fair value of such real estate assets is generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

As of November 30, 2022, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $102.9 million, representing eight communities and various other land parcels.

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The inventory balances in the 0-2 years and 3-5 years categories were located throughout all of our homebuilding reporting segments, though mostly in our West Coast, Southwest and Central segments.

These categories collectively represented 96% of our total inventories as of November 30, 2021 and November 30, 2020.

These categories collectively represented 93% and 96% of our total inventories as of November 30, 2022 and 2021, respectively.

The inventory balances in the 6-10 years and greater than 10 years categories were primarily located in our Central and Southeast segments, and together totaled $387.2 million at November 30, 2022, compared to $195.2 million at November 30, 2021.

The year-over-year increase mainly reflected larger land positions in the Central and Southeast homebuilding reporting segments acquired during 2021, partly offset by our decisions to accelerate the overall timing for selling, building and delivering homes through community reactivations and generally favorable market conditions.

The inventories in the 6-10 years and greater than 10 years categories as of November 30, 2021 were mostly comprised of active, multi-phase communities with large remaining land positions.

As of November 30, 2020, such inventories also included certain land held for future development.

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.

The inventories in the 6-10 years and greater than 10 years categories as of November 30, 2022 and 2021 were mostly comprised of active, multi-phase communities with large remaining land positions.

Deterioration in the supply and demand factors in the overall housing market or in an individual market or submarket, or changes to our operational or selling strategy at certain communities may lead to additional inventory impairment charges, future charges associated with land sales or the abandonment of land option contracts or other similar contracts related to certain assets.

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Our considerations in making this determination include the factors and trends incorporated into our impairment analyses, and as applicable, the prevailing regulatory environment, competition from other homebuilders, inventory levels and sales activity of resale homes, and the local economic conditions where an asset is located.

In addition, we consider the financial and operational status and

expectations of our inventories as well as unique attributes of each community or land parcel that could be viewed as indicators for potential future impairments.

However, if conditions in the overall housing market or in a specific market or submarket worsen in the future beyond our current expectations, including, among other things, from ongoing negative effects of the COVID-19 pandemic and related COVID-19 control responses, if future changes in our business strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.

In addition, we consider the financial and operational status and expectations of our inventories as well as unique attributes of each community or land parcel that could be viewed as indicators for potential future impairments.

However, if conditions in the overall housing market or in a specific market or submarket worsen in the future beyond our current expectations, including, among other things, from increases in mortgage interest rates, higher inflation, worsening supply chain and/or other production-related challenges, or negative effects from any ongoing or reinstituted COVID-19 control responses, if future changes in our business strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory impairments or land option contract abandonments, or both, related to our current inventory assets.

Any such charges could be material to our consolidated financial statements.

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Such adjustments are recorded in the period in which the change in estimate occurs.

During 2021, 2020 and 2019, we made adjustments to reduce our accrued warranty liability by $4.0 million, $3.6 million and $5.6 million, respectively.

During 2021 and 2020, we made adjustments to reduce our accrued warranty liability by $4.0 million and $3.6 million, respectively.

There were no such adjustments during 2022.

While we believe we may face increased future home warranty and construction defect claims associated with replacing or servicing substitute products or materials used in some instances to address supply shortages in certain served markets or communities, as discussed above under Item 1A - Risk Factors in this report, as of the date of this report, we have not made any adjustments to our accrued liabilities associated with this potential risk.

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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.

Enrolled contractors generally contribute toward the cost of the insurance and agree to pay a contractual amount in the future if there is a claim related to their work.

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

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The amount of our self-insurance liability is based on an analysis performed by a third-party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs.

These estimates are subject to uncertainty due

to a variety of factors, the most significant being the long period of time between the delivery of a home to a homebuyer and when a structural warranty or construction defect claim may be made, and the ultimate resolution of any such construction defect claim.

These estimates are subject to uncertainty due to a variety of factors, the most significant being the long period of time between the delivery of a home to a homebuyer and when a structural warranty or construction defect claim may be made, and the ultimate resolution of any such construction defect claim.

Though state regulations vary, construction defect claims are reported and resolved over a long period of time, which can extend for 10 years or more.

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Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs.

During 2021, we recorded adjustments to increase our previously recorded liabilities by $6.8 million.

In 2020 and 2019, we recorded adjustments to reduce our previously recorded liabilities by $4.0 million and $2.5 million, respectively.

During 2022 and 2021, we recorded adjustments to increase our previously recorded liabilities by $7.0 million and $6.8 million, respectively.

In 2020, we recorded adjustments to reduce our previously recorded liabilities by $4.0 million.

The adjustments in 2022, 2021 and 2020 resulted from changes in estimates due to actual claims experience differing from previous actuarial projections and, in turn, impacting actuarial estimates for existing and potential future claims.

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If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges during the period in which the actual loss or change in estimate occurred.

In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss will materially exceed the recorded liability.

In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss

will materially exceed the recorded liability.

While we cannot predict the outcome of pending legal matters with certainty, we do not believe any currently identified claim or proceeding, either individually or in aggregate, will have a material impact on our results of operations, financial position or cash flows.

Stock-Based Compensation.

We measure and recognize compensation expense associated with our grants of equity-based awards at an amount equal to the fair value of such share-based payments over their applicable vesting period.

We have provided compensation benefits to certain of our employees in the form of stock options, restricted stock and PSUs, and to our non-employee directors in the form of unrestricted shares of common stock, deferred common stock awards and Director Plan SARs.

Determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the assumptions to be used in the calculation, including the expected term of the stock options or Director Plan SARs, expected stock-price volatility and dividend yield.

We estimate the fair value of stock options and Director Plan SARs granted using the Black-Scholes option-pricing model with assumptions based primarily on historical data.

The expected volatility factor is based on a combination of the historical volatility of our common stock and the implied volatility of publicly traded options on our common stock.

We believe this blended approach balances the forward-looking nature of implied volatility with the relative stability over time of historical volatility to arrive at a reasonable estimate of expected volatility.

Additionally, judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of PSUs, the

level of performance that will be achieved and the number of shares that will be earned.

If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on our consolidated financial statements.

Income Taxes.

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Changes in the recognition or measurement of uncertain tax positions could have a material impact on our consolidated financial statements in the period in which we make the change.

The impact of inflation on us is reflected in increased costs for land, land development, construction, and overhead.

Inflation may also raise our financing costs.

We generally enter into contracts to acquire land a significant period of time before development and sales efforts commence.

We, along with the homebuilding industry, have been adversely affected by rising inflation in the U.S.

economy throughout 2022, which, among other things, increased our land and construction costs, particularly the costs of building materials and construction service providers’ rates, warranty repair costs, and compensation and benefit expenses to attract and retain talent, and is expected to continue to do so in 2023.

We generally enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes a significant period of time before development and/or sales efforts commence.

Accordingly, to the extent land acquisition costs are fixed, subsequent increases or decreases in our home selling prices will affect our profits.

As the selling price of each of our homes is fixed at the time a buyer enters into a home purchase contract, and because we generally commence construction of a home only after we have a signed purchase contract with a homebuyer, any construction-related cost inflation can result in lower housing gross profit margins.

In order to help moderate that effect, we typically enter into fixed-price contracts with our larger trade partners and building material suppliers for specified periods of time.

As the selling price of each of our homes is fixed at the time a buyer enters into a home purchase contract, and because we generally commence construction of a home only after we have a signed purchase contract with a homebuyer, any interim construction-related cost inflation can result in lower housing gross profit margins.

In order to help, but not entirely moderate that effect, we typically enter into fixed-price contracts with our larger trade partners and building material suppliers for specified periods of time.

Inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability.

In the 2022 second half, we saw a weakening in housing demand as inflationary pressures and mortgage interest rates increased, which contributed to the significant year-over-year decline in our net orders and ending backlog for the year as described above under “Overview.” Inflation may also increase our financing costs, as borrowings under our Credit Facility and Term Loan typically accrue interest at a variable rate based on SOFR, which can float higher with inflation.

We expect the inflationary pressures on our business to continue in 2023.

While we attempt to pass on increases in our costs through increased home selling prices, market forces, such as the housing market slowdown as we experienced in the 2022 second half, can limit our ability to do so.

If we are unable to raise selling prices enough to compensate for higher costs, or if mortgage loan interest rates continue to increase significantly, our revenues, housing gross profit margin and net income could be adversely affected.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report.

We believe several long-term housing market fundamental factors will remain positive in 2022, including favorable demographics, a housing supply-demand imbalance resulting from a decade-plus underproduction of new homes in relation to population growth, a limited supply of resale homes available for sale and relatively low mortgage loan interest rates.

We believe our highly customer-centric, personalized approach to homebuilding and operational capabilities will enable us to effectively adapt to evolving buyer preferences and needs and, together with an expected year-over-year increase in our community count, drive further growth in our results in 2022, subject to business conditions and other factors described in this report.

Our present 2022 outlook is as follows:

We believe several long-term housing market fundamental factors remain positive, including favorable demographics, a decade-plus underproduction of new homes in relation to population growth and low resale home inventory.

However, the combination of sharply higher mortgage interest rates since early 2022, several years of rising housing prices, elevated inflation and various other macroeconomic and geopolitical concerns, weakened housing demand in the 2022 second half.

We anticipate these affordability pressures and consumer uncertainty will continue to impact housing demand into 2023, with lower net orders and higher cancellation rates anticipated for the first half of the year as compared to the corresponding prior-year period.

Through the first six weeks of our 2023 first quarter, our net orders were down 68% relative to the comparable year-earlier period.

Given current conditions, and depending on the market dynamics and the size and construction stage of the backlog within each community, we are being more aggressive with pricing reductions and other concessions ahead of the Spring selling season to generate new orders.

Based on the actions we are taking and planning to take during the quarter to stimulate gross orders, we anticipate net orders in the 2023 first quarter to be down between 50% and 60% year over year against a strong comparison in the prior-year period.

At the same time, with the deceleration in housing starts compared to a year ago, we are pursuing reductions in our direct construction costs and cycle times to help offset any such pricing adjustments and other concessions we may implement.

We are committed to reducing our cycle times to achieve deliveries within a more traditional timeframe of between six and seven months from home sale to delivery.

We believe we are in a strong position to navigate the current environment, with a solid balance sheet and anticipated healthy cash flow in 2023.

We remain committed to continuing to moderate our land investments until market conditions improve, as well as maintaining a balanced approach to capital allocation to maximize long-term stockholder value.

In addition, we believe our differentiating, highly customer-centric Built to Order business model and operational capabilities will help us to effectively meet evolving consumer preferences and budgets.

With our substantial backlog value of $3.69 billion at November 30, 2022, we believe we can achieve our projected results for 2023, subject to the factors and risks described in this report.

Our present outlook for the 2023 first quarter and full year are as follows:

2023 First Quarter –

• We expect to generate housing revenues in the range of $1.43 billion to $1.53 billion, an increase from $1.14 billion in the corresponding period of 2021, and anticipate our average selling price to be approximately $472,000, compared to $397,100 in the year-earlier period.

• We expect our homebuilding operating income margin will be approximately 12.0%, assuming no inventory-related charges, up from 10.4% for the year-earlier quarter.

• We expect to generate housing revenues in the range of $1.25 billion to $1.40 billion, compared to $1.39 billion for the corresponding 2022 period, and anticipate our average selling price to be in the range of $490,000 to $500,000, compared to $486,100 in the year-earlier period.

• We expect our homebuilding operating income margin as a percentage of revenues to be in the range of 9.5% to 10.5%, assuming no inventory-related charges, compared to 12.2% for the year-earlier quarter.

◦ We expect our housing gross profit margin to be in the range of 20.0% to 21.0%, assuming no inventory-related charges, compared to 22.4% for the corresponding 2022 quarter.

◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be approximately 10.4%, an improvement of 30 basis points from the 2021 first quarter.

• We expect the effective tax rate will be approximately 25%, excluding any favorable impacts from federal tax credits for building energy-efficient homes.

◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.3% to 10.8%, compared to 10.2% for the 2022 first quarter.

• We expect our effective tax rate will be approximately 23%.

The effective tax rate for the year-earlier quarter was approximately 25%.

• We expect our ending community count will be relatively flat sequentially and represent the likely low point for 2022, and expect our average community count to decline by a low single-digit percentage from the 2021 first quarter.

• We expect our average community count to increase in the range of 15% to 20% from the 2022 first quarter.

2023 Full Year –

• We expect our housing revenues to be in the range of $7.20 billion to $7.60 billion, an increase of 30% at the mid-point of the range, from $5.69 billion in 2021, and anticipate our average selling price to be in the range of $480,000 to $490,000, an increase of between 14% and 16% from 2021.

• We expect our homebuilding operating income margin to be in the range of 15.7% to 16.5%, assuming no inventory-related charges, compared to 11.8% for 2021.

◦ We expect our housing gross profit margin to be in the range of 25.4% to 26.2%, assuming no inventory-related charges, compared to 21.8% for 2021, reflecting sequential expansion beginning in the second quarter.

◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 9.4% to 9.9%, compared to 10.1% in the prior year.

• We expect the effective tax rate will be approximately 25%, assuming no federal energy tax credit extension is enacted.

The effective tax rate for 2021 was approximately 19%, which reflected the favorable effect of federal tax credits we earned primarily from building energy-efficient homes.

• We expect our ending community count will increase 20% to 25% from 2021.

• We expect our return on equity to be in excess of 26%, an improvement of more than 600 basis points compared to 19.9% for 2021.

We believe we are well-positioned for 2022 due to, among other things, our strong backlog, planned new community openings, investments in land and land development and current positive economic and demographic trends, to varying degrees, in many of our served markets.

However, our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regards to housing and mortgage loan financing policies).

In particular, we and other residential construction firms continue to experience services and supply constraints and rising and volatile raw material prices, particularly for lumber.

Although we continue to work with our suppliers and trade partners to resolve these issues, we believe they will generally persist into 2022 and potentially throughout the year.

Continued supply chain disruptions, construction services and building material shortages, and delays with respect to state and municipal construction permitting, inspections and utilities could further extend our construction cycle times, delay our new community openings and intensify construction-related cost pressures beyond our experience in 2021.

In addition, consumer demand for our homes and our ability to grow our scale, revenues, net orders, backlog and returns in 2022 could be materially and negatively affected by persistent inflation in the U.S.

economy, the severity of the ongoing COVID-19 pandemic and related COVID-19 control responses (including new or more restrictive “stay-at-home” orders and other new or revised

public health requirements recommended or imposed by federal, state and local authorities), and/or other factors that cause mortgage loan interest rates to increase or that temper mortgage loan availability, employment or income levels or consumer confidence in the U.S.

or in our served markets.

The potential effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance should not be considered indicative of our future results on any metric or set of metrics.

Due to significant uncertainty and limited forward visibility regarding 2023 housing market, macroeconomic and geopolitical conditions, which are anticipated to be challenging compared to prior periods, the Company is providing guidance as to the full fiscal year only for the following:

• We expect our housing revenues to be in the range of $5.00 billion to $6.00 billion, a decrease from $6.88 billion in 2022.

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regard to housing and mortgage loan

financing policies).

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 to moderate persistent U.S.

inflation, and the further actions it may take, are expected to be an ongoing headwind for the housing market in 2023, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and financial market turbulence that, among other things, has tempered consumer demand for homes.

In addition, we believe the supply chain disruptions and construction cost pressures described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations will generally persist in 2023.

The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in 2022, should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net orders, backlog, revenues and returns.

FORWARD-LOOKING STATEMENTS

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Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements.

In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act.

In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act.

Forward-looking statements are based on our current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things.

These statements are not guarantees of future performance, and we have no specific policy or intention to update these statements.

If we update or revise any such statement(s), no assumption should be made that we will further update or review that statement(s) or update or revise any other such statement(s).

In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions;

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• the execution of any securities repurchases pursuant to our board of directors authorization;

• material and trade costs and availability, including building materials and appliances;

• material and trade costs and availability, including building materials and appliances, and delays related to state and municipal construction, permitting, inspection and utility processes, which have been disrupted by key equipment shortages;

• consumer and producer price inflation;

• changes in interest rates;

• changes in interest rates, including those set by the Federal Reserve, which the Federal Reserve has increased sharply in the past few quarters and signaled an intention to aggressively further increase to moderate inflation, available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans;

• our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule;

• our compliance with the terms of the Credit Facility;

• our compliance with the terms of the Credit Facility and the Term Loan;

• volatility in the market price of our common stock;

• home selling prices, including our homes’ selling prices, increasing at a faster rate than consumer incomes;

• home selling prices, including our homes’ selling prices being unaffordable relative to consumer incomes;

• weak or declining consumer confidence, either generally or specifically with respect to purchasing homes;

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trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measures taken by other countries;

• disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S.

and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, exacerbate building materials and appliance shortages and/or reduce our revenues and earnings;

• the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto;

• the availability and cost of land in desirable areas and our ability to timely develop acquired land parcels and open new communities;

• the availability and cost of land in desirable areas and our ability to timely and efficiently develop acquired land parcels and open new communities;

• impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets;

• our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred;

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• our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California;

• our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this report or in other public filings, presentations or disclosures;

• our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this report or in any of our other public filings, presentations or disclosures;

• income tax expense volatility associated with stock-based compensation;

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• information technology failures and data security breaches;

• an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the control response measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;

• widespread protests and civil unrest, whether due to political events, efforts to institute law enforcement and other social and political reforms, and the impacts of implementing or failing to implement any such reforms, or otherwise;

• an epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the control response measures that international (including China), federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;

• other events outside of our control.

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-K

Item 5. Market for Registrant’s Common Equity