What changed in this filing

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Item 1. Financial Statements

2023-04-07 compared with 2022-10-07 · 145 added, 245 removed, 551 unchanged (41% of the section changed)

2 unchanged sentences

(In Thousands, Except Per Share Amounts – Unaudited)

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

2022 2021 2022 2021

Three Months Ended February 28,

Total revenues $ 1,384,314 $ 1,398,789

5 unchanged sentences

Interest income 467 36

Equity in loss of unconsolidated joint ventures ( 100 ) ( 182 ) ( 387 ) ( 5 )

Loss on early extinguishment of debt ( 3,598 ) ( 5,075 ) ( 3,598 ) ( 5,075 )

Equity in income (loss) of unconsolidated joint ventures ( 757 ) 23

Homebuilding pretax income 156,199 169,621

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Expenses ( 1,358 ) ( 1,347 )

Equity in income of unconsolidated joint ventures 128 5,409 20,083 18,423

Equity in income of unconsolidated joint venture 1,582 5,148

Financial services pretax income 6,001 8,436

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Stockholders’ equity:

Common stock — 100,783,133 and 100,711,153 shares issued at February 28, 2023 and November 30, 2022, respectively

100,783 100,711

Paid-in capital 819,904 836,260

841,939 848,620

Retained earnings

3 unchanged sentences

Grantor stock ownership trust, at cost:

6,705,247 shares at February 28, 2023 and November 30, 2022

( 72,718 ) ( 72,718 )

Treasury stock, at cost:

11,586,694 and 10,015,507 at February 28, 2023 and November 30, 2022, respectively

( 403,533 ) ( 341,461 )

5 unchanged sentences

(In Thousands – Unaudited)

Nine Months Ended August 31,

Three Months Ended February 28,

Cash flows from operating activities:

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Equity in income of unconsolidated joint ventures ( 825 ) ( 5,171 )

( 19,696 ) ( 18,418 )

Distributions of earnings from unconsolidated joint ventures

10,679 18,625

Amortization of debt issuance costs and premiums 835 549

Depreciation and amortization

23,861 21,296

Deferred income taxes

21,100 36,300

Loss on early extinguishment of debt

Stock-based compensation

22,944 19,768

Inventory impairments and land option contract abandonments

4 unchanged sentences

( 131,671 ) 2,069

Net cash used in operating activities ( 223,999 ) ( 180,225 )

( 791 ) 3,317

Net cash provided by (used in) operating activities 93,917 ( 251,035 )

Cash flows from investing activities:

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Cash flows from financing activities:

Proceeds from issuance of debt

350,000 390,000

Repayment of senior notes

( 353,598 ) ( 274,904 )

Payment of issuance costs ( 10,695 ) ( 4,813 )

Borrowings under revolving credit facility

170,000 675,000

Repayments under revolving credit facility

( 220,000 ) ( 425,000 )

Issuance costs for unsecured revolving credit facility

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

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

The results of our consolidated operations for the three months and nine months ended August 31, 2022 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

The results of our consolidated operations for the three months ended February 28, 2023 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors.

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

Impact of COVID-19 Pandemic on Consolidated Financial Statements.

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

Our business continued to be impacted by these issues during the three months and nine months ended August 31, 2022.

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

In addition, we encountered delays related to state and municipal construction permitting, inspection and utility processes, which have been disrupted by key equipment shortages.

All these factors, to varying degrees, extended our construction cycle times, delayed home deliveries and community openings and raised our costs in the three months and nine months ended August 31, 2022.

These factors could also negatively impact our growth, margins and financial results in future periods.

Use of Estimates.

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

Our cash equivalents totaled $ 23.5 million at August 31, 2022 and $ 15.4 million at November 30, 2021.

At August 31, 2022 and November 30, 2021, the majority of our cash equivalents was invested in interest-bearing bank deposit accounts.

Our cash equivalents totaled $ 51.3 million at February 28, 2023 and $ 15.8 million at November 30, 2022.

At February 28, 2023 and November 30, 2022, the majority of our cash equivalents was invested in interest-bearing bank deposit accounts.

Comprehensive Income.

Our comprehensive income was $ 255.3 million for the three months ended August 31, 2022 and $ 150.1 million for the three months ended August 31, 2021.

For the nine months ended August 31, 2022 and 2021, our comprehensive income was $ 600.3 million and $ 390.5 million, respectively.

Our comprehensive income for each of the three-month and nine-month periods ended August 31, 2022 and 2021 was equal to our net income for the respective periods.

Adoption of New Accounting Pronouncement .

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2019-12, “Income Taxes (Topic 740):

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

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

Recent Accounting Pronouncements Not Yet Adopted .

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

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

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

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

In January 2021, the FASB issued

Accounting Standards Update No.

2021-01, “Reference Rate Reform (Topic 848):

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

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

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

Our comprehensive income was $ 125.5 million for the three months ended February 28, 2023 and $ 134.3 million for the three months ended February 28, 2022.

Our comprehensive income for each of the three-month periods ended February 28, 2023 and 2022 was equal to our net income for the respective periods.

Segment Information

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

As of August 31, 2022, our homebuilding reporting segments conducted ongoing operations in the following states:

As of February 28, 2023, our homebuilding reporting segments conducted ongoing operations in the following states:

California, Idaho and Washington

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

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

Ventures, LLC (“GR Alliance”).

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

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

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

2022 2021 2022 2021

Three Months Ended February 28,

West Coast $ 540,019 $ 658,874

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Total $ 156,199 $ 169,621

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

2022 2021 2022 2021

Inventory impairment and land option contract abandonment charges:

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Insurance commissions $ 3,374 $ 2,518

Title services 2,403 2,101

Other — — 19 —

Total 5,777 4,635

1 unchanged sentence

Operating income 4,419 3,288

Equity in income of unconsolidated joint ventures

128 5,409 20,083 18,423

Equity in income of unconsolidated joint venture 1,582 5,148

Pretax income $ 6,001 $ 8,436

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Receivables 2,978 3,475

Investments in unconsolidated joint ventures 25,966 16,317

Investments in unconsolidated joint venture 28,249 26,678

Other assets (a) 29,010 27,698

Total assets $ 60,937 $ 59,532

2022 November 30,

Accounts payable and accrued expenses $ 1,377 $ 3,128

Total liabilities $ 1,377 $ 3,128

(a) Other assets at August 31, 2022 and November 30, 2021 included $ 26.3 million and $ 24.1 million, respectively, of contract assets for estimated future renewal commissions.

(a) Other assets at February 28, 2023 and November 30, 2022 included $ 28.9 million and $ 27.6 million, respectively, of contract assets for estimated future renewal commissions.

Earnings Per Share

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Net income $ 125,500 $ 134,257

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Numerator for diluted earnings per share $ 124,659 $ 133,626

Three Months Ended February 28,

Weighted average shares outstanding — basic 83,468 88,285

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

We had no other participating securities at August 31, 2022 or 2021.

For the three-month and nine-month periods ended August 31, 2022 and 2021, no outstanding stock options were excluded from the diluted earnings per share calculations.

We had no other participating securities at February 28, 2023 or 2022.

For the three-month periods ended February 28, 2023 and 2022, no outstanding stock options were excluded from the diluted earnings per share calculations.

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

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Total $ 5,445,153 $ 5,543,176

Land under development at August 31, 2022 and November 30, 2021 included land held for future development or sale of $ 53.3 million and $ 45.2 million, respectively .

Land under development at February 28, 2023 and November 30, 2022 included land held for future development or sale of $ 25.3 million and $ 21.6 million, respectively.

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

Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable).

Capitalized interest is amortized to construction and land

costs as the related inventories are delivered to homebuyers or land buyers (as applicable).

In the case of land held for future development and land held for sale, applicable interest is expensed as incurred.

Our interest costs were as follows (in thousands):

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

2022 2021 2022 2021

Three Months Ended February 28,

Capitalized interest at beginning of period $ 145,494 $ 161,119

Interest incurred 27,804 28,303

Interest amortized to construction and land costs (a)

( 35,979 ) ( 37,544 ) ( 99,757 ) ( 109,794 )

Interest amortized to construction and land costs ( 26,136 ) ( 29,773 )

Capitalized interest at end of period $ 147,162 $ 159,649

(a) For the nine months ended August 31, 2021, interest amortized to construction and land costs included a nominal amount related to land sales during the period.

Inventory Impairments and Land Option Contract Abandonments

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

The estimated fair values of such assets are generally based on bona fide letters of intent

from outside parties, executed sales contracts, broker quotes or similar information.

As of August 31, 2022 and November 30, 2021, no active communities or land parcels with indicators of potential impairment were identified.

As a result, no active communities or land parcels were evaluated for recoverability as of these dates.

We evaluated land held for future development for recoverability as of both August 31, 2022 and November 30, 2021.

Based on the results of our evaluations, we recognized inventory impairment charges of $ 2.6 million for both the three months and nine months ended August 31, 2022 related to a parcel of land previously held for future development that we plan to sell.

For the three months and nine months ended August 31, 2021, we recognized inventory impairment charges of $ 6.3 million and $ 9.9 million, respectively, that reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

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

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

Unobservable Input (a) 2022 2021 2022 2021

Average selling price $ —

$ 471,000 - $ 949,400

Deliveries per month —

Discount rate — %

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

As of August 31, 2022, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 76.7 million, representing seven communities and various other land parcels.

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

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

We evaluated four active communities or land parcels for recoverability as of February 28, 2023 with a carrying value of $ 72.0 million.

As of November 30, 2022, we evaluated five active communities or land parcels for recoverability with a carrying value of $ 118.7 million.

In addition, we evaluated land held for future development for recoverability as of both February 28, 2023 and November 30, 2022.

Based on the results of our evaluations, we recognized no inventory impairment charges for the three months ended February 28, 2023 and 2022.

As of February 28, 2023, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $ 91.9 million, representing seven communities and various other land parcels.

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.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards.

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

Based on the results of our assessments, we recognized land option contract abandonment charges of $ 5.9 million for the three months ended August 31, 2022 and $ 6.8 million for the nine months ended August 31, 2022.

For the three months and nine months ended August 31, 2021, we recognized land option contract abandonment charges of $.4 million and $ 1.3 million, respectively.

Based on the results of our assessments, we recognized land option contract abandonment charges of $ 5.3 million for the three months ended February 28, 2023 and $.2 million for the three months ended February 28, 2022.

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

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

Based on our analyses, we determined that one of our joint ventures at August 31, 2022 and November 30, 2021 was a VIE, but we were not the primary beneficiary of the VIE.

Therefore, all of our joint ventures at August 31, 2022 and November 30, 2021 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Based on our analyses, we determined that one of our joint ventures at February 28, 2023 and November 30, 2022 was a VIE, but we were not the primary beneficiary of the VIE.

Therefore, all of our joint ventures at February 28, 2023 and November 30, 2022 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts.

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

Under these contracts, we typically make a specified option payment or earnest money deposit in

consideration for the right to purchase land in the future, usually at a predetermined price.

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

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

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

As a result of our analyses, we determined that as of August 31, 2022 and November 30, 2021, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts.

As a result of our analyses, we determined that as of February 28, 2023 and November 30, 2022, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts.

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

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

August 31, 2022 November 30, 2021

February 28, 2023 November 30, 2022

Deposits Aggregate

6 unchanged sentences

$ 41,465 $ 1,045,435 $ 51,850 $ 1,164,932

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $ 36.6 million at August 31, 2022 and $ 38.1 million at November 30, 2021.

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $ 30.4 million at February 28, 2023 and $ 33.1 million at November 30, 2022.

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

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

As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $ 7.1 million at August 31, 2022 and $ 26.5 million at November 30, 2021.

As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $ 10.7 million at February 28, 2023 and $ 5.1 million at November 30, 2022.

Investments in Unconsolidated Joint Ventures

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

As of both August 31, 2022 and November 30, 2021, we had investments in six homebuilding unconsolidated joint ventures.

As of both February 28, 2023 and November 30, 2022, we had investments in six homebuilding unconsolidated joint ventures.

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Revenues $ — $ 2,850

4 unchanged sentences

2023 November 30,

Cash and cash equivalents $ 17,594 $ 15,731

Cash $ 13,206 $ 14,066

134,204 114,465

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Total liabilities and equity $ 151,386 $ 132,558

(a) As of August 31, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities.

(a) As of both February 28, 2023 and November 30, 2022, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit it entered into with a third-party lender in April 2022 to finance its land acquisition, development and construction activities.

Borrowings under this line of credit, which has a maximum commitment of $ 62.0 million, are secured by the underlying property and related project assets.

The line of credit is scheduled to mature on April 19, 2026 , unless extended or terminated pursuant to its applicable terms.

None of our other unconsolidated joint ventures had outstanding debt at August 31, 2022 or November 30, 2021 .

None of our other unconsolidated joint ventures had outstanding debt at February 28, 2023 or November 30, 2022.

We provide certain guarantees and indemnities to the lender in connection with the above-described revolving line of credit, including a guaranty of interest and carry costs;

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Financial Services.

The following table presents combined condensed information from the statements of operations for our financial services unconsolidated joint ventures, primarily comprised of KBHS (in thousands):

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

2022 2021 2022 2021

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

Three Months Ended February 28,

Revenues $ 20,190 $ 28,401

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Gains on the sales of mortgage loans held for sale include the realized and unrealized gains and losses associated with changes in the fair value of such loans and any related derivative financial instruments.

The following table presents combined condensed balance sheet information for our financial services unconsolidated joint ventures, primarily comprised of KBHS (in thousands):

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

2023 November 30,

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The fair value of IRLCs is based on market prices, which includes an estimate of the fair value of the associated mortgage servicing rights, adjusted for estimated costs to originate the underlying mortgage loans as well as the probability that the mortgage loans will fund within the terms of the IRLCs.

The fair value of IRLCs included in other assets in KBHS’ balance sheets was $ 36.6 million at August 31, 2022 and $ 9.5 million at November 30, 2021.

The change in fair value of IRLCs, which was reported in revenues, was a loss of $ 6.3 million for the three months ended August 31, 2022 and a gain of $ 27.1 million for the nine months ended August 31, 2022.

For the three months and nine months ended August 31, 2021, these changes in fair value were a loss of $.5 million and a gain of $ 2.1 million, respectively.

The fair value of IRLCs included in other assets in KBHS’ balance sheets was $ 28.3 million at February 28, 2023 and $ 29.8 million at November 30, 2022.

The changes in the fair value of IRLCs, which were reported in revenues for the applicable periods, were losses of $ 1.5 million for the three months ended February 28, 2023 and gains of $ 7.6 million for the three months ended February 28, 2022.

KBHS manages the interest rate and price risk associated with its outstanding IRLCs by entering into best efforts forward sale commitments under which mortgage loans locked with a borrower are simultaneously committed to a secondary market investor at a fixed price, subject to the underlying mortgage loans being funded.

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The agreements contain covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, maximum debt to net worth ratio and positive net income, as defined in the agreements.

KBHS was in compliance with these covenants as of August 31, 2022.

KBHS intends to renew these agreements when they expire at various dates in 2022 and 2023.

The warehouse line of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our homebuilding notes payable (“Guarantor Subsidiaries”) .

KBHS was in compliance with these covenants as of February 28, 2023.

In addition to its compliance with these covenants, KBHS also depends on the ability and willingness of the applicable lenders and financial institutions to extend such credit facilities to KBHS to fund its originated mortgage loans.

KBHS intends to renew these facilities when they expire at various dates in 2023.

The warehouse line of credit and master repurchase agreements are not guaranteed by us or any of the subsidiaries that guarantee our senior notes, unsecured revolving credit facility with various banks (“Credit Facility”) and senior unsecured term loan agreement (“Term Loan”), (collectively, “Guarantor Subsidiaries”).

Other assets consisted of the following (in thousands):

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Customer deposits 69,235 76,738

Federal and state taxes payable 34,963 3,671

Lease liabilities 28,444 27,494

Inventory-related obligations (a) 24,502 19,136

Accrued interest payable 17,391 29,989

Real estate and business taxes 13,754 17,557

Inventory-related obligations (a) 16,098 36,146

Federal and state taxes payable 5,470 8,290

Other 40,243 43,925

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

Our total lease expense for the three-month periods ended August 31, 2022 and 2021 was $ 5.4 million and $ 4.3 million, respectively , and included short-term lease costs of $ 2.2 million and $ 1.2 million, respectively.

For the nine-month periods ended August 31, 2022 and 2021, our total lease expense was $ 14.6 million and $ 12.9 million, respectively, and included short-term lease costs of $ 5.2 million and $ 3.7 million, respectively.

Variable lease costs and external sublease income for the three-month and nine-month periods ended August 31, 2022 and 2021 were immaterial.

Our total lease expense for the three months ended February 28, 2023 and 2022 was $ 5.2 million and $ 4.3 million, respectively , and included short-term lease costs of $ 1.7 million and $ 1.2 million, respectively.

Variable lease costs and external sublease income for the three-month periods ended February 28, 2023 and 2022 were immaterial.

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

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Lease right-of-use assets (a) $ 26,299 $ 25,545

Lease liabilities (b) 26,390 29,481

(a) Represents lease right-of-use assets within our homebuilding operations and financial services operations of $ 24.4 million and $.1 million, respectively, at August 31, 2022, and $ 27.5 million and $.2 million, respectively, at November 30, 2021 .

(b) Represents lease liabilities within our homebuilding operations and financial services operations of $ 26.3 million and $.1 million, respectively, at August 31, 2022, and $ 29.3 million and $.2 million, respectively, at November 30, 2021.

Lease liabilities (a) 28,490 27,580

(a) Consists of amounts within both our homebuilding and financial services operations.

The financial services amounts were nominal as of each date.

Income Tax Expense.

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Income tax expense $ 36,700 $ 43,800

1 unchanged sentence

22.6 % 24.6 %

Our income tax expense and effective tax rate for the three months ended August 31, 2022 included the favorable impact of $ 15.3 million of federal tax credits we recognized primarily from building energy-efficient homes, partly offset by $ 2.9 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

Our income tax expense and effective tax rate for the three months ended August 31, 2021 reflected the favorable impacts of $ 21.5 million of federal tax credits we recognized from building energy-efficient homes, partly offset by $ 2.5 million of non-deductible executive compensation expense.

For the nine months ended August 31, 2022, our income tax expense and effective tax rate included the favorable impacts of $ 16.1 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 2.2 million of excess tax benefits related to stock-based compensation, partly offset by $ 6.8 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m).

Our income tax expense and effective tax rate for the nine months ended August 31, 2021 reflected the favorable impacts of $ 39.0 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 3.9 million of excess tax benefits related to stock-based compensation, partly offset by $ 5.8 million of non-deductible executive 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 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 corporate alternative minimum tax 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 energy tax credits we recognized in the three-month and nine-month periods ended August 31, 2022 reflected the impact of the recent extension under the IRA.

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

The Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020, provided an Employee Retention Credit (“ERC”), which was a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic.

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

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

We received the refund in the 2021 fourth quarter.

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

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

the suspension of California NOL deductions did not have an impact on our income tax expense for the three months or nine months ended August 31, 2022, it contributed to the year-over-year increase in the amount of taxes we paid in these periods.

Our income tax expense and effective tax rate for the three months ended February 28, 2023 included the favorable impact of $ 5.7 million of federal tax credits we recognized primarily from building energy-efficient homes and $ 2.7 million of excess tax benefits related to stock-based compensation, partly offset by $ 3.1 million of nondeductible executive compensation expense.

Our income tax expense and effective tax rate for the three months ended February 28, 2022 reflected the favorable impacts of $ 2.2 million of excess tax benefits related to stock-based compensation and $.2 million of federal tax credits we recognized primarily from building energy-efficient homes, partly offset by $ 1.7 million of nondeductible executive compensation expense.

Deferred Tax Asset Valuation Allowance.

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

Our deferred tax assets of $ 173.7 million as of August 31, 2022 and $ 194.8 million as of November 30, 2021 were each partly offset by a valuation allowance of $ 17.4 million.

The deferred tax asset valuation allowances as of August 31, 2022 and November 30, 2021 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates.

Based on the evaluation of our deferred tax assets as of August 31, 2022, we determined that most of our deferred tax assets would be realized.

Therefore, no adjustments to our deferred tax valuation allowance were needed for the nine months ended August 31, 2022.

Our deferred tax assets of $ 173.0 million as of February 28, 2023 and $ 178.0 million as of November 30, 2022 were each partly offset by a valuation allowance of $ 17.1 million.

The deferred tax asset valuation allowances as of February 28, 2023 and November 30, 2022 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates.

Based on the evaluation of our deferred tax assets as of February 28, 2023, we determined that most of our deferred tax assets would be realized.

Therefore, no adjustments to our deferred tax valuation allowance were needed for the three months ended February 28, 2023.

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

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Unsecured revolving credit facility $ 100,000 $ 150,000

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

7.50 % Senior notes due September 15, 2022

7.625 % Senior notes due May 15, 2023

350,401 350,788

Senior unsecured term loan due August 25, 2026 357,653 357,485

6.875 % Senior notes due June 15, 2027

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7.25 % Senior notes due July 15, 2030

345,769 345,663

4.00 % Senior notes due June 15, 2031

385,882 385,778

Mortgages and land contracts due to land sellers and other loans 4,523 4,760

$ 1,788,850 $ 1,838,511

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs and premiums, which totaled $ 13.7 million at August 31, 2022 and $ 10.3 million at November 30, 2021.

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs, which totaled $ 15.7 million at February 28, 2023 and $ 16.2 million at November 30, 2022.

Unsecured Revolving Credit Facility.

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

We have a $ 1.09 billion Credit Facility that will mature on February 18, 2027 .

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

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

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

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

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

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

As of August 31, 2022, we had $ 350.0 million of cash borrowings and $ 6.7 million of letters of credit outstanding under the Credit Facility.

Therefore, as of August 31, 2022, we had $ 733.4 million available for cash borrowings under the Credit Facility, with up to $ 243.4 million of that amount available for the issuance of letters of credit.

As of February 28, 2023, we had $ 100.0 million of cash borrowings and $ 6.6 million of letters of credit outstanding under the Credit Facility.

Therefore, as of February 28, 2023, we had $ 983.4 million available for cash borrowings under the Credit Facility, with up to $ 243.4 million of that amount available for the issuance of letters of credit.

As of February 28, 2023, the weighted average annual interest rate on our outstanding borrowings under the Credit Facility was 5.9 %.

Senior Unsecured Term Loan.

On August 25, 2022, we entered into a senior unsecured term loan agreement (“Term Loan”) with the lenders party thereto, pursuant to which the lenders have committed to lend us up to $ 310.0 million.

Under certain circumstances, the aggregate commitment under the Term Loan may be increased to up to $ 400.0 million, provided additional lender commitments we are pursuing are obtained.

We may draw up to the committed amount at any time through November 23, 2022, subject to certain conditions.

We have a $ 360.0 million Term Loan with the lenders party thereto.

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).

As of August 31, 2022, we had not drawn under the Term Loan.

Interest rates under the Term Loan generally will be based on either an adjusted term SOFR or a base rate, plus a spread that depends on our Leverage Ratio.

Interest under the Term Loan accrues at an adjusted term SOFR or a base rate, plus a spread that depends on our Leverage Ratio.

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

The Term Loan contains various covenants that are substantially the same as those under the Credit Facility.

Proceeds drawn under the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries.

We intend to use the proceeds from the Term Loan toward the redemption of our outstanding $ 350.0 million in aggregate principal amount of 7.625 % senior notes due May 15, 2023, which may be called at par, plus accrued and unpaid interest thereon, six months prior to that date.

As of February 28, 2023, the weighted average annual interest rate on our outstanding borrowings under the Term Loan was 6.1 %.

Letter of Credit Facility.

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Under the LOC Facility, which expires on February 13, 2025 , we may issue up to $ 75.0 million of letters of credit.

As of August 31, 2022 and November 30, 2021, we had letters of credit outstanding under the LOC Facility of $ 36.4 million and $ 34.6 million, respectively.

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

As of August 31, 2022, inventories having a carrying value of $ 33.7 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

As of February 28, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $ 23.1 million and $ 36.4 million, respectively.

Senior Notes.

All the senior notes outstanding at August 31, 2022 and November 30, 2021 represent senior unsecured obligations that are guaranteed by our Guarantor Subsidiaries and rank equally in right of payment with all of our and our Guarantor Subsidiaries’ existing unsecured and unsubordinated indebtedness.

All the senior notes outstanding at February 28, 2023 and November 30, 2022 represent senior unsecured obligations that are guaranteed by our Guarantor Subsidiaries and rank equally in right of payment with all of our and our Guarantor Subsidiaries’ existing unsecured and unsubordinated indebtedness.

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

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

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

Net proceeds from this offering totaled $ 345.5 million, after deducting the underwriting discount and our expenses relating to the offering.

Interest on the 7.25 % Senior Notes due 2030 is payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2023.

These notes will mature on July 15, 2030.

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 then-outstanding $ 350.0 million in aggregate principal amount of 7.50 % senior notes due 2022 (“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.

We paid $ 353.6 million to redeem the notes and recorded a charge of $ 3.6 million for the early extinguishment of debt in the 2022 third quarter.

In the three months ended August 31, 2021, we issued $ 390.0 million in aggregate principal amount of 4.00 % senior notes due 2031 (“4.00% Senior Notes due 2031”) and used a portion of the net proceeds to purchase, pursuant to a tender offer, $ 269.8 million in aggregate principal amount of certain outstanding senior notes before their maturity date.

We paid $ 274.9 million to purchase these notes and recorded a charge of $ 5.1 million for the early extinguishment of debt in the 2021 third quarter.

On September 15, 2021, we redeemed the remaining $ 180.2 million in aggregate principal amount of those then-outstanding notes at par value pursuant to their terms.

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

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

As of August 31, 2022, we were in compliance with 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.

As of February 28, 2023, we were in compliance with 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.

As of August 31, 2022, principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due during each year ending November 30 as follows:

Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

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

As of February 28, 2023, inventories having a carrying value of $ 28.4 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

As of February 28, 2023, principal payments on our notes payable are due during each year ending November 30 as follows:

2023 – $ 3.1 million;

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2026 – $ 360.0 million;

and thereafter – $ 1.34 billion.

2027 – $ 400.0 million and thereafter – $ 1.04 billion.

Borrowings under the Credit Facility are reflected as principal payments due in 2027, corresponding to the Credit Facility’s maturity date.

Fair Value Disclosures

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

The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the nine months ended August 31, 2022 and the year ended November 30, 2021 (in thousands):

August 31, 2022 November 30, 2021

The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis (in thousands):

February 28, 2023 November 30, 2022

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

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The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

The fair values for inventories that were determined using Level 3 inputs were based on the estimated future net cash flows discounted for inherent risk associated with each underlying asset.

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

August 31, 2022 November 30, 2021

The fair values for inventories that were determined using Level 3 inputs were primarily based on the estimated future net cash flows discounted for inherent risk associated with each underlying asset.

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

February 28, 2023 November 30, 2022

Description Fair Value

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

The carrying values reported for cash and cash equivalents, mortgages and land contracts due to land sellers and other loans, and outstanding borrowings under the Credit Facility approximate fair values.

The carrying values reported for cash and cash equivalents, outstanding borrowings under the Credit Facility and the Term Loan, and mortgages and land contracts due to land sellers and other loans approximate fair values.

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

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Balance at beginning of period $ 101,890 $ 96,153

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

Estimated probable insurance and other recoveries of $ 38.7 million and $ 57.8 million are included in receivables in our consolidated balance sheets at August 31, 2022 and November 30, 2021, respectively.

Estimated probable insurance and other recoveries of $ 31.5 million and $ 32.7 million are included in receivables in our consolidated balance sheets at February 28, 2023 and November 30, 2022, respectively.

These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period.

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

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

2022 2021 2022 2021

Three Months Ended February 28,

Balance at beginning of period $ 175,977 $ 189,131

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

The amount for the nine months ended August 31, 2022 primarily reflected a change in the actuarially determined estimate of probable recoveries largely associated with higher self-insured retention levels in our more recent coverage years, and an insurance carrier’s payment of a portion of a townhome claim settlement reached in the 2022 first quarter.

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

Typically, if a matter is identified at its outset as either a warranty or self-insurance claim, it remains as such through its resolution.

However, there can be instances of interaction between the liabilities, such as where individual homeowners in a

community separately request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken.

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

However, there can be instances of interaction between the liabilities, such as where individual homeowners in a community separately request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken.

In these instances, the claims and related repair work generally are initially covered by our warranty

liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

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

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

Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable trade partners or their insurers covering the related costs, as of August 31, 2022, we had approximately 512 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond.

Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable trade partners or their insurers covering the related costs, as of February 28, 2023, we had approximately 480 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond.

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

At August 31, 2022, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries.

At February 28, 2023, we had an accrual for our estimated probable loss for these matters and a receivable for estimated probable insurance recoveries.

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

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

At August 31, 2022, we had $ 1.26 billion of performance bonds and $ 43.1 million of letters of credit outstanding.

At February 28, 2023, we had $ 1.30 billion of performance bonds and $ 29.8 million of letters of credit outstanding.

At November 30, 2022, we had $ 1.27 billion of performance bonds and $ 43.0 million of letters of credit outstanding.

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

At August 31, 2022, we had total cash deposits of $ 59.3 million to purchase land having an aggregate purchase price of $ 1.53 billion.

At February 28, 2023, we had total cash deposits of $ 41.5 million to purchase land having an aggregate purchase price of $ 1.05 billion.

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

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

We believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of August 31, 2022, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements.

We believe the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of February 28, 2023, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements.

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

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Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made.

Our accruals for litigation and regulatory proceedings are presented on a gross basis without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any.

Our accruals for litigation and regulatory proceedings are presented on a gross basis without consideration of recoveries and

amounts we have paid on behalf of and expect to recover from other parties, if any.

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

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

Three Months Ended August 31, 2022 and 2021

Number of Shares

Stock Grantor

Trust Treasury

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

Ownership Trust Treasury Stock Total Stockholders’ Equity

Balance at May 31, 2022 100,711 ( 6,705 ) ( 6,840 ) $ 100,711 $ 834,883 $ 2,697,149 $ ( 19,119 ) $ ( 72,718 ) $ ( 249,911 ) $ 3,290,995

Net income — — — — — 255,329 — — — 255,329

Dividends on common stock — — — — — ( 12,772 ) — — — ( 12,772 )

Stock-based compensation — — — — 7,056 — — — — 7,056

Stock repurchases — — ( 1,582 ) — — — — — ( 50,000 ) ( 50,000 )

Balance at August 31, 2022 100,711 ( 6,705 ) ( 8,422 ) $ 100,711 $ 841,939 $ 2,939,706 $ ( 19,119 ) $ ( 72,718 ) $ ( 299,911 ) $ 3,490,608

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

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

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

Stock awards — — 3 — ( 87 ) — — — 87 —

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

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

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

Nine Months Ended August 31, 2022 and 2021

Three Months Ended February 28, 2023 and 2022

Number of Shares

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Dividends on common stock — — — — — ( 12,476 ) — — — ( 12,476 )

Stock awards — — 785 — ( 29,625 ) — — — 29,625 —

Employee stock options/other 72 — — 72 1,062 — — — — 1,134

— — 671 — ( 23,285 ) — — — 23,285 —

Stock-based compensation — — — — 5,867 — — — — 5,867

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Tax payments associated with stock-based compensation awards

Balance at August 31, 2022 100,711 ( 6,705 ) ( 8,422 ) $ 100,711 $ 841,939 $ 2,939,706 $ ( 19,119 ) $ ( 72,718 ) $ ( 299,911 ) $ 3,490,608

— — ( 277 ) — — — — — ( 9,748 ) ( 9,748 )

Balance at February 28, 2023 100,783 ( 6,705 ) ( 11,587 ) $ 100,783 $ 819,904 $ 3,256,602 $ ( 5,575 ) $ ( 72,718 ) $ ( 403,533 ) $ 3,695,463

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

Cumulative effect of adoption of new accounting standard for credit losses — — — — — ( 226 ) — — — ( 226 )

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

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

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

Stock awards — — 721 — ( 27,249 ) — — — 27,249 —

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

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

Tax payments associated with stock-based compensation awards — — ( 320 ) — — — — — ( 12,153 ) ( 12,153 )

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

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

On February 24, 2023, the management development and compensation committee of our board of directors approved the payout of 602,265 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October 3, 2019.

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

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 the 2022 third quarter, we repurchased 1,581,504 shares of our common stock on the open market pursuant to this authorization at a total cost of $ 50.0 million, bringing our total repurchases for the nine months ended August 31, 2022 to 3,101,150 shares of common stock at a total cost of $ 100.0 million.

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 August 31, 2022, we were authorized to repurchase up to $ 200.0 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.

As the remaining outstanding stock appreciation rights awards expired in April 2022, this stock repurchase authorization was no longer needed.

In the three-month periods ended August 31, 2022 and 2021, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

Quarterly dividends declared and paid during the nine-month periods ended August 31, 2022 and 2021 totaled $ .45 per share.

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

As of November 30, 2022, there was $ 150.0 million of remaining availability under this share repurchase authorization, excluding excise tax.

In the 2023 first quarter, we repurchased 1,965,442 shares of our common stock on the open market pursuant to this authorization at a total cost of approximately $ 75.0 million, excluding excise tax.

Repurchases under the 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 February 28, 2023, we were authorized to repurchase up to $ 75.0 million of our outstanding common stock in additional transactions, excluding excise tax.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

In the 2023 first quarter, we reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in accrued expenses and other liabilities on our consolidated balance sheet.

In the three-month periods ended February 28, 2023 and 2022, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $ .15 per share.

Stock-Based Compensation

Stock Options.

At both August 31, 2022 and November 30, 2021, we had 1,674,393 stock options outstanding and exercisable with a weighted average exercise price of $ 15.56 .

At February 28, 2023 and November 30, 2022, we had 1,602,413 and 1,674,393 stock options outstanding with a weighted average exercise price of $ 15.55 and $ 15.56 , respectively.

We have not granted any stock option awards since 2016.

As of August 31, 2022, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 3.1 years.

As all outstanding stock options have been fully vested since 2019, there was no unrecognized compensation expense related to stock option awards at August 31, 2022 and no stock-based compensation expense associated with stock options for the three-month and nine-month periods ended August 31, 2022 and 2021.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 21.9 million at August 31, 2022.

In the 2023 first quarter, 71,980 stock options with a weighted average exercise price of $ 15.75 were exercised.

As of February 28, 2023, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of 2.6 years.

As all outstanding stock options have been fully vested since 2019, there was no stock-based compensation expense associated with stock options for the three-month periods ended February 28, 2023 and 2022.

Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of $ 31.6 million at February 28, 2023.

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

1 unchanged sentence

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

We recognized total compensation expense of $ 7.0 million and $ 6.1 million for the three months ended August 31, 2022 and 2021, respectively, related to restricted stock and PSUs.

For the nine months ended August 31, 2022 and 2021, we recognized total compensation expense of $ 22.9 million and $ 19.8 million, respectively.

We recognized total compensation expense of $ 5.9 million and $ 6.9 million for the three months ended February 28, 2023 and 2022, respectively, related to restricted stock and PSUs.

Supplemental Disclosure to Consolidated Statements of Cash Flows

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

Nine Months Ended August 31,

Three Months Ended February 28,

Summary of cash and cash equivalents at end of period:

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Subsequent Event

On October 3, 2022, we obtained an additional lender commitment of $ 50.0 million to the Term Loan in accordance with its terms, which are further described in Note 14 – Notes Payable, increasing the aggregate commitment under the Term Loan to $ 360.0 million.

As of the date of this report, we had not drawn under the Term Loan.

On March 21, 2023, our board of directors authorized us to repurchase up to $ 500.0 million of our outstanding common stock, excluding excise tax.

This authorization replaced a prior board of directors authorization, as discussed in Note 18 – Stockholders’ Equity, which had $ 75.0 million remaining, excluding excise tax.

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

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

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

What changed 10-Q

Item 1. Financial Statements