What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-01-19 compared with 2023-01-20 · 279 added, 267 removed, 631 unchanged (46% of the section changed)

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Information regarding the shares of our common stock that may be issued under our equity compensation plans is provided below under Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in this report.

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 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)

The following table summarizes our purchases of our own equity securities during the three months ended November 30, 2023 (dollars in thousands, except per share amounts):

Period Total Number of Shares Purchased Average Price Paid per Share Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs

September 1-30 — $ — $ — $ 325,412

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Total 3,678,419 $ 45.08 $ 161,850

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.

As of November 30, 2022, we were authorized to repurchase up to $150.0 million of our outstanding common stock under a share repurchase program approved by our board of directors in April 2022.

On March 21, 2023, our board of directors authorized us to repurchase up to $500.0 million of our outstanding common stock, replacing the prior board of directors authorization, which had $75.0 million remaining, as further discussed in Note 19 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.

In the 2023 fourth quarter, we purchased 3,584,795 shares of our common stock pursuant to this authorization at a total cost of $161.8 million, bringing our total repurchases in 2023 to 9,244,437 shares at a total cost of $411.4 million.

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

The IRA imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

All dollar amounts presented in the table above and in this report related to our share repurchases and our share repurchase authorizations exclude such excise taxes, to the extent applicable, unless otherwise indicated.

Stock Performance Graph

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Diluted $ 7.03 $ 9.09 $ 6.01 (23) % 51 %

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 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.

We generated solid financial results in 2023, as we remained focused on balancing pace, price and construction starts at each community to optimize our return on each inventory asset within its market context amid a mixed operating environment over the course of the year.

We began the year navigating challenging housing market conditions, stemming from the combination of rising mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns.

These factors significantly depressed housing demand during the 2022 second half and into the 2023 first quarter.

Demand began to improve in the 2023 second quarter due to, among other things, constrained resale home inventory, favorable demographic trends, buyer interest in homes at our price points and our selective implementation of targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), throughout the year to help drive order activity and minimize cancellations.

As a result, our total net orders for 2023 of 11,084 were up 2% compared to 2022, with year-over-year net order comparisons improving each quarter as the year progressed.

The positive sales trends continued in our 2023 fourth quarter, with net orders and net order value increasing 176% and 157%, respectively, compared to the depressed levels in the year-earlier quarter.

Though they increased on a year-over-year basis, our 2023 fourth quarter net orders were lower than expected, reflecting the significant negative impact on demand from mortgage interest rates rising each week from late September through the end of October.

Our cancellation rate as a percentage of gross orders for the 2023 fourth quarter improved to 28%, from a historically high 68% for the 2022 fourth quarter.

While we believe they were beneficial to our selling efforts, the pricing adjustments and other homebuyer concessions we utilized in 2023 contributed to year-over-year decreases in both the average selling price of homes delivered and our housing gross profit margin.

Homebuilding revenues for 2023 were comprised of housing revenues and $10.7 million of land sale revenues.

In 2022, homebuilding revenues were generated entirely from housing revenues.

Housing revenues of $6.37 billion were down 7% from the previous year, due to a 4% decrease in the number of homes delivered to 13,236 and a 4% decline in the overall average selling price of those homes to $481,300.

Approximately 49% of our homes delivered in 2023 were to first-time homebuyers.

Homebuilding operating income for 2023 was $718.7 million, compared to $1.04 billion for 2022 and, as a percentage of homebuilding revenues was 11.3%, compared to 15.1%.

Our homebuilding operating income margin for 2023 reflected a decrease in our housing gross profit margin to 21.2%, compared to 24.3% for the previous year, and a 70 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 9.9%.

Net income and diluted earnings per share for 2023 were down 28% and 23%, respectively, each as compared to 2022.

Our diluted earnings per share for 2023 reflected the favorable impact of our common stock repurchases over the past several quarters.

Our return on equity (“ROE”) for 2023 was 15.7%, compared to 24.6% for 2022.

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.

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.

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.

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.

We believe our strong balance sheet and liquidity position helped provide us with the flexibility to operate effectively through the evolving market conditions during the year, and expect they will continue to do so in 2024.

In 2023, we generated $1.08 billion of cash from operating activities, reflecting in part our reduced investments in land acquisition and land development in 2023 which decreased 25% year over year to $1.80 billion.

Our investments declined in the 2023 first half as a result of pivoting our land investment strategy beginning in the 2022 third quarter in response to then-softening housing market conditions, to emphasize developing the land positions we already owned or controlled under land option contracts and other similar contracts.

With the improving business environment as described above, we increased our investments in land and land development in the 2023 second half.

Our investments in land and land development for the 2023 second half were up 36% from the 2023 first half and up 4% from the corresponding year-earlier period.

Reflecting our balanced approach to capital allocation, in 2023, we repurchased approximately 9.2 million shares of our common stock at a total cost of $411.4 million.

As of November 30, 2023, we had $163.6 million remaining under our current common stock repurchase authorization.

Additionally, in July 2023, our board of directors increased the quarterly cash dividend on our common stock by approximately 33% to $.20 per share, from $.15 per share.

We ended 2023 with total liquidity of $1.81 billion, comprised of $727.1 million of cash and cash equivalents and $1.08 billion of available capacity under our Credit Facility.

With net repayments of $150.0 million under the Credit Facility in 2023, we had no cash borrowings outstanding under the Credit Facility at November 30, 2023.

In 2023, with the significant disruptions we had experienced since mid-2020 in our supply chain for certain building materials and construction services shortages largely subsiding and our ongoing initiative to simplify our product offerings, we achieved meaningful sequential improvement in our construction cycle times each quarter beginning with the 2023 second quarter.

We remain committed to further reducing our build times.

Though we are encouraged by these improvements, ongoing supply chain-related challenges for certain items may continue to negatively affect our land development and home construction activities in 2024, and it is possible they may worsen in that and in later periods.

Although the number of homes in our ending backlog at November 30, 2023 was down 28% year over year to 5,510, we believe we are well-positioned for 2024, as described below under “Outlook.”

Financial Results .

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Interest income 13,759 704 1,049

Equity in income (loss) of unconsolidated joint ventures (865) (405) 12,474

Equity in loss of unconsolidated joint ventures

(713) (865) (405)

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

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Adjusted housing gross profit margin as a percentage of housing revenues 21.4 % 24.8 % 21.8 %

Selling, general and administrative expense as a percentage of housing revenues 9.2 % 10.1 % 11.3 %

Selling, general and administrative expenses as a percentage of housing revenues

9.9 % 9.2 % 10.1 %

Operating income as a percentage of homebuilding revenues 11.3 % 15.1 % 11.6 %

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.

Homebuilding revenues of $6.38 billion for 2023 were down 7% from the prior year due to a decrease in housing revenues, partly offset by an increase in land sale revenues.

In 2023, housing revenues were down 7% from the previous year, due to decreases of 4% in both the number of homes delivered and their overall average selling price.

The year-over-year decline in the number of homes delivered reflected a 20% decrease in our West Coast homebuilding reporting segment, partly offset by increases of 4%, 4% and 2% in our Southwest, Central and Southeast segments, respectively.

The decline in our West Coast homebuilding reporting segment mainly resulted from a 47% year-over-year decrease in this segment’s backlog of homes at the beginning of the year.

The lower average selling price primarily reflected product and geographic mix factors, mainly the reduced deliveries from our higher-priced West Coast homebuilding reporting segment, and pricing adjustments and other concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies.

We generated $10.7 million of land sale revenues in 2023, compared to no such revenues in 2022.

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 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.

Our homebuilding operating income was down 31% in 2023, as compared to the previous year, primarily due to lower housing gross profits.

In 2023 and 2022, homebuilding operating income included total inventory-related charges of $11.4 million and $37.3 million, respectively, as discussed in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report.

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.

As a percentage of homebuilding revenues, our homebuilding operating income for 2023 decreased 380 basis points year over year to 11.3%.

Excluding inventory-related charges for both periods, our homebuilding operating income margin declined 420 basis points to 11.4% in 2023 from 15.6% in 2022.

• Housing Gross Profits – In 2023, housing gross profits of $1.35 billion declined 19% from the previous year, reflecting decreases in both our housing revenues and housing gross profit margin.

Housing gross profits for 2023 and 2022 included inventory-related charges associated with housing operations of $11.4 million and $34.8 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).

Our housing gross profit margin for 2023 was 21.2%, down 310 basis points from the previous year, primarily due to pricing adjustments and other homebuyer concessions, higher construction costs, and product and geographic mix shifts, partly offset by a decrease in inventory-related charges.

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 1.9% for 2023 and 2.0% for 2022.

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.

Excluding the inventory-related charges associated with housing operations described above, our adjusted housing gross profit margin was 21.4% in 2023, compared to 24.8% in 2022.

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.

• Land Sale Profits (Losses) – Land sale profits totaled $1.2 million for 2023.

In 2022, land sale losses of $2.6 million were comprised solely of an inventory impairment charge related to a parcel of land held for sale.

• 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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(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.

Selling, general and administrative expenses for 2023 were nearly even with the prior year as higher marketing and commission expenses were largely offset by lower general and administrative expenses.

Marketing expenses in 2023 rose from the prior year primarily due to higher costs to support our higher average community count.

Our selling, general and administrative expenses as a percentage of housing revenues increased 70 basis points in 2023, mainly reflecting reduced operating leverage due to our lower housing revenues as compared to the previous year.

Interest Income/Expense .

Interest income, which is generated from short-term investments, totaled $.7 million in 2022 and $1.0 million in 2021.

Interest income, which is generated from short-term investments, increased to $13.8 million in 2023, compared to $.7 million in 2022 due to our higher average balance of cash equivalents and a higher average interest rate in 2023.

Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates.

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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.

In 2023, total interest incurred of $107.1 million decreased from $120.9 million incurred in 2022 due to our lower average debt level, partly offset by our higher average interest rate.

All interest incurred during 2023 and 2022 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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Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report.

Equity in Income (Loss) of Unconsolidated Joint Ventures .

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

Equity in Loss of Unconsolidated Joint Ventures .

Our equity in loss of unconsolidated joint ventures was nominal for both 2023 and 2022.

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 $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.

In 2022, we recognized a $3.6 million loss on the early extinguishment of debt associated with the retirement of $350.0 million in aggregate principal amount of our then-outstanding 7.50% senior notes due September 15, 2022 (“7.50% Senior Notes due 2022”) before their maturity date, pursuant to the optional redemption terms specified for such notes.

Further information regarding this transaction 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.

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.

Net orders from our homebuilding operations rose 2% from 2022, as a 10% increase in our average community count was largely offset by a slower pace of monthly net orders per community of 3.8 in 2023, compared to 4.1 in 2022.

The value of our 2023 net orders was down 5% year over year due to a 7% decline in the overall average selling price of net orders to $482,400, partially offset by the increase in net orders.

In 2023, the year-over-year growth in our overall net orders reflected increases of 19% and 14% in our West Coast and Southwest homebuilding reporting segments, respectively, largely offset by decreases of 19% and 1% in our Central and Southeast segments, respectively.

In the 2022 second half and 2023 first quarter, the combination of relatively high mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns significantly depressed demand.

Although ongoing elevated mortgage interest rates and inflation continued to negatively affect housing affordability and temper demand, our year-over-year net order comparisons improved each quarter of 2023 as the year progressed.

Our 2023 fourth quarter net orders increased 176% from the corresponding period of 2022, reflecting improved demand and a lower cancellation rate as compared to the year-earlier quarter, when the combination of rapidly rising mortgage interest rates, ongoing inflation and other macroeconomic concerns caused many prospective buyers to pause on their homebuying decision.

We believe our performance also reflected the targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly mortgage-related concessions such as interest rate buydown or lock programs), we selectively implemented in 2023.

Despite the uneven market conditions we experienced across 2022 and 2023, our cancellation rate as a percentage of gross orders for the year ended November 30, 2023 was even with the previous year.

The number of homes in our backlog at November 30, 2023 decreased 28% from the previous year.

The potential future housing revenues in our backlog at November 30, 2023 were also down 28% year over year, reflecting fewer homes in our backlog and an average selling price of those homes that was essentially even with the previous year.

The number of homes in backlog and backlog value decreased in three of our four homebuilding reporting segments, with decreases in value ranging from 18% in our Southwest segment to 65% in our Central segment.

Backlog value in our West Coast segment increased 11% year over year due to a 20% increase in the number of homes in backlog, partly offset by a 7% decline in the average selling price of those homes.

Substantially all the homes in our backlog at November 30, 2023 are expected to be delivered during the year ending November 30, 2024.

Community Count .

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.”

Our average community count for 2023 increased 10% from the previous year, and our ending community count decreased 2%.

The slight year-over-year decrease in our ending community count primarily reflected the number of communities selling out over the past 12 months exceeding the number of new community openings.

On a sequential basis, our ending community count increased 5% from the 2023 third quarter as the number of new community openings exceeded the number of communities selling out during the three months ended November 30, 2023.

Our community

count during the year largely reflected our reduced investments in land and land development in the 2023 first half relative to the second half, as discussed below under “Liquidity and Capital Resources.”

HOMEBUILDING REPORTING SEGMENTS

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Total 5,510 7,662 (28) % $ 2,667,679 $ 3,691,559 (28) %

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.

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/or 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.

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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.

Corporate and other had operating losses of $142.6 million in 2023, $145.3 million in 2022 and $148.9 million in 2021.

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 financial results of our homebuilding reporting segments for 2023 were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered.

Segment financial results for 2023 were also affected by construction services availability constraints and building material cost pressures, as well as supply chain disruptions and other production-related challenges, though these impacts lessened in the 2023 second half compared to the 2023 first half and the 2022 second half periods, 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 11.5 % 17.1 % 13.5 % (560) bps 360 bps

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 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.

This segment’s revenues for 2023 declined 24% from 2022 due to decreases in both the number of homes delivered and their average selling price.

Operating income for 2023 was also down year over year, reflecting lower housing gross profits, partially offset by reduced selling, general and administrative expenses and the absence of a $2.6 million land sale loss included in the prior year.

As a percentage of revenues, this segment’s 2023 operating income decreased from the previous year, reflecting a 460 basis-point decline in the housing gross profit margin to 18.6%, and a 100 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.1%.

The housing gross profit margin decline was primarily driven by pricing adjustments and other homebuyer concessions, higher relative construction costs, product and geographic mix shifts of homes delivered and reduced operating leverage from lower housing revenues, partly offset by a decrease in inventory-related charges and lower relative amortization of previously capitalized interest.

In 2023, inventory-related charges associated with housing operations decreased to $4.9 million in 2023, compared to $24.8 million in 2022.

The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues was mainly due to higher costs to support our higher average community count, reduced operating leverage, and higher 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 as a percentage of revenues 16.1 % 21.5 % 19.4 % (540) bps 210 bps

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.

This segment’s revenues in 2023 were comprised of both housing revenues and land sale revenues.

Revenues for 2022 were generated solely from housing operations.

Housing revenues for 2023 rose 5% year over year to $1.16 billion, reflecting increases in both the number of homes delivered and their average selling price.

Land sale revenues totaled $6.0 million in 2023.

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.

Operating income was down from the previous year, primarily due to lower housing gross profits and higher selling, general and administrative expenses, partially offset by a land sale gain of $1.1 million.

As a percentage of revenues, operating income decreased from 2022, primarily due to a 550 basis-point decrease in the housing gross profit margin to 23.4%, partially offset by a 10 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.3%.

The year-over-year decline in the housing gross profit margin mainly reflected pricing adjustments and other homebuyer concessions, and product and geographic mix shifts of homes delivered, partly offset by 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 14.1 % 15.6 % 13.3 % (150) bps 230 bps

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.

In 2023, this segment’s revenues were comprised of housing revenues and $4.7 million of land sale revenues.

In 2022, revenues were generated solely from housing operations.

Housing revenues for 2023 improved 4% from the prior year to $1.83 billion, reflecting increases in both the number of homes delivered and the average selling price of those homes.

Operating income decreased from 2022, mainly due to higher selling, general and administrative expenses.

As a percentage of revenues, operating income declined from the previous year, reflecting a 110 basis-point decrease in the housing gross profit margin to 22.5% and a 40 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 8.4%.

The year-over-year decline in the housing gross profit margin was mainly driven by higher construction costs, product and geographic mix shifts of homes delivered, and increased homebuyer concessions, partly offset by increased operating leverage from higher housing revenues.

The housing gross margin for 2023 included inventory-related charges of $2.5 million, compared to $3.3 million in 2022.

The year-over-year increase in this segment’s selling, general and administrative expenses as a percentage of housing revenues was primarily due to increased sales commissions and higher costs to support our higher average community count, partly offset by 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 13.9 % 15.7 % 11.4 % (180) bps 430 bps

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 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.

This segment’s revenues for 2023 grew from 2022 due to increases in both the number of homes delivered and the average selling price of those homes.

Operating income was down from 2022, reflecting higher selling, general and administrative expenses, partly offset by higher housing gross profits.

As a percentage of revenues, operating income decreased from 2022 primarily due to a 170 basis-point decline in the housing gross profit margin to 22.9% that mainly reflected higher construction costs, product and geographic mix shifts of homes delivered and increased homebuyer concessions, partly offset by decreased inventory-related charges and improved operating leverage from higher housing revenues.

The housing gross margin for 2023 included inventory-related charges of $4.0 million, compared to $5.7 million in 2022.

Selling, general and administrative expenses as a percentage of housing revenues increased 10 basis points year over year to 9.0%.

FINANCIAL SERVICES REPORTING SEGMENT

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Pretax income.

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.

Our financial services pretax income for 2023 increased slightly from the previous year as improved results from our insurance and title services businesses were partly offset by a decrease in the equity in income of unconsolidated joint ventures.

In 2023, the equity in income of our unconsolidated joint ventures declined 25% year over year as a result of a decrease in KBHS’ income.

KBHS’ income declined from the previous year primarily due to losses of $16.0 million in the fair value of interest rate lock commitments (“IRLCs”) in 2023, compared to gains of $20.3 million in 2022.

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

Partly offsetting the negative year-over-year impact from the IRLCs in 2023 was a 9% increase in the principal amount of loan originations, mainly due to an increase in the percentage of homebuyers using KBHS.

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Effective income tax rate 23.5 % 23.8 % 18.8 %

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.

Our effective tax rate for 2023 decreased from the previous year, mainly due to a $3.7 million increase in excess tax benefits related to stock-based compensation and a $2.6 million increase in Section 45L tax credits we recognized from building energy-efficient homes, partly offset by a $2.5 million increase in non-deductible compensation expense.

On August 16, 2022, the 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.

The IRA also extended the Section 45L tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modified and increased it starting in 2023.

Previously, the Section 45L tax credit expired for homes delivered after December 31, 2021.

The Section 45L tax credits we recognized in 2023 and 2022 reflected the impact of the extension and modifications, as applicable, 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.

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.

The IRA tied Section 45L tax credit qualification for energy-efficient homes built on and after January 1, 2023 to new homes achieving ENERGY STAR certification.

In late September 2023, the IRS issued Notice 2023-65, which provided guidance on the Section 45L tax credit qualifications for ENERGY STAR homes built on or after January 1, 2023.

This guidance, retroactively effective for the year, resulted in a reduction in our estimated Section 45L tax credits for 2023, primarily due to fewer of the ENERGY STAR homes we built in California meeting the heightened qualifications the IRS selected for homes built in that state relative to other states.

Our income tax expense for the 2023 fourth quarter reflected the cumulative

impact of the September 2023 guidance.

The September 2023 guidance increased our effective income tax rate by approximately 15 basis points for the year ended November 30, 2023.

On February 9, 2022, California enacted legislation restoring the California net operating loss (“NOL”) deduction for tax years beginning on or after January 1, 2022, which was effective for our 2023 fiscal year.

The California NOL deductions for tax years 2022 and 2021 had been suspended by previous legislation.

Although the restoration of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2023, it contributed to the year-over-year decrease in the amount of taxes we paid in 2023.

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”).

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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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.

As of November 30, 2023, we had $1.34 billion in aggregate principal amount of outstanding senior notes, no 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.

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 and the Term Loan.

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, 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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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 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.

Early stages of development or expansion can require significant cash outflows for land acquisition, entitlements, land development, and construction of roads, utilities, landscaping, model homes and other items.

Because these costs are capitalized as a component of our inventories and are not recognized in our statement of operations until a home is delivered, we incur significant cash outflows prior to recognizing earnings from a delivered home.

As homes are delivered, which in some cases may be a year or more after the related land development or entitlement work commences, 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 2023 with total liquidity of $1.81 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

Cash and cash equivalents grew to $727.1 million at November 30, 2023, compared to $328.5 million at November 30, 2022, primarily reflecting an increase in net cash provided by operating activities, partly offset by an increase in net cash used in financing activities, as described below.

Cash equivalents included in the total increased to $508.2 million at November 30, 2023 from $15.8 million at November 30, 2022, and were mainly invested in interest-bearing bank deposit accounts and money market funds.

We had no cash borrowings outstanding under the Credit Facility as of November 30, 2023.

Based on our financial position as of November 30, 2023, and our business forecast for 2024 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.

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 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.

We have outstanding variable-rate borrowings under 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, 2023, our notes payable had an aggregate principal amount of $1.70 billion, with $3.4 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.

Future interest payments associated with the Term Loan and our senior notes, together with the unused commitment fee associated with our Credit Facility, totaled $522.2 million as of November 30, 2023, with $102.1 million payable within 12 months.

The Term Loan will mature on August 25, 2026.

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

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Inventory-Related Obligations .

As of November 30, 2022, we had inventory-related obligations totaling $19.1 million, comprised of liabilities for inventory not owned associated with financing arrangements as discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments.

As of November 30, 2023, we had inventory-related obligations totaling $41.5 million, comprised of liabilities for inventory not owned associated with financing arrangements as discussed in Note 8 – Variable

Interest Entities in the Notes to Consolidated Financial Statements in this report, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments.

Approximately $9.0 million of these inventory-related obligations are payable within 12 months.

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Investments in Land and Land Development.

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.

Our investments in land and land development decreased 25% to $1.80 billion in 2023, compared to $2.40 billion in 2022, reflecting a 46% year-over-year decrease in the first half of the year that was partly offset by a 4% year-over-year increase in the second half of the year.

In 2023, land acquisition expenditures, which are included in our investments in land and land development, decreased 44% to $465.8 million from $827.2 million in the year-earlier period.

Our reduced investments in land and land development in the 2023 first half reflected a pivot in our land investment strategy beginning in the 2022 third quarter in response to then-softening housing market conditions, to emphasize developing land positions we already own or control under land option contracts and other similar contracts.

As part of this pivot, we also evaluated our transaction pipeline and renegotiated pricing and terms for many deals while abandoning others that no longer met our investment return standards.

As we calibrated our investments to evolving market conditions and our outlook, we increased our investments in land and land development by 36% in the 2023 second half as compared to the 2023 first half.

In the 2023 fourth quarter, our investments in land and land development were up 9% year over year to $483.3 million, compared to $442.7 million as land acquisition expenditures increased 100%.

In addition, we modified our land development strategy, electing where appropriate to build in smaller phases, and in some cases, defer the start of the next phase of lots in a community to align with expected demand.

Approximately 26% of our total investments in land and land development in 2023 were related to land acquisitions, compared to approximately 34% in 2022.

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.

While we made strategic investments in land and land development in each of our homebuilding reporting segments during 2023 and 2022, approximately 56% and 50%, respectively, of these investments for each year were made in our West Coast homebuilding reporting segment.

In 2024, 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.

While we expect our land acquisition activity to increase in 2024 as compared to 2023, 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):

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55,976 $ 5,133,646 68,795 $ 5,543,176 (12,819) $ (409,530)

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.

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at November 30, 2023 decreased year over year, reflecting homes delivered in 2023 as well as the above-mentioned pivot in our land investment strategy, which included our abandonment of 9,650 previously controlled lots in 2023.

Our lower inventory level at November 30, 2023 also reflected fewer homes under construction due to improved build times.

The number of lots in inventory as of November 30, 2023 included 6,260 lots under contract where the associated deposits were refundable at our discretion, compared to 5,543 of such lots at November 30, 2022.

Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 27% at November 30, 2023, compared to 30% at November 30, 2022.

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, if applicable, forfeit our deposits without further penalty or obligation to the sellers.

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, 2023, we estimate the remaining purchase price to be paid would be as follows:

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2028 – $59.1 million;

and thereafter – $3.3 million.

and thereafter – $0.

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

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Total liquidity $ 1,810,426 $ 1,261,867

The majority of our cash equivalents at November 30, 2022 and 2021 were invested in interest-bearing bank deposit accounts.

Capital Resources.

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Term Loan 358,156 357,485 671

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

Senior notes 1,327,934 1,326,266 1,668

Mortgages and land contracts due to land sellers and other loans 3,808 4,760 (952)

Total $ 1,689,898 $ 1,838,511 $ (148,613)

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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 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 .

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.

Under the LOC Facility, we may issue up to $75.0 million of letters of credit.

On August 10, 2023, we entered into an amendment to the LOC Facility that extended the expiration date from February 13, 2025 to February 18, 2027.

As of November 30, 2023 and 2022, we had letters of credit outstanding under the LOC Facility of $12.5 million and $36.4 million, respectively.

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Unsecured Revolving Credit Facility .

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.

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

As of November 30, 2023, we had no 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 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.

Under the terms of the Credit Facility and the Term Loan, 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.

comparable GAAP or other commonly used terms.

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

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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.

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, the LOC Facility, 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.

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).

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.

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.

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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).

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

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Our credit ratings are periodically reviewed by rating agencies.

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.

In April 2023, Standard and Poor’s Financial Services reaffirmed our BB credit rating and changed its rating outlook to stable from positive.

Consolidated Cash Flows.

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

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.

Our net cash provided by operating activities in 2023 mainly reflected net income of $590.2 million and a net decrease in inventories of $426.8 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $62.2 million and a net increase in receivables of $12.9 million.

Net cash provided by operating activities in 2022 primarily 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.

Investing Activities .

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Financing Activities .

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 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.

In 2023, our uses of cash included stock repurchases totaling $411.4 million, net repayments under the Credit Facility of $150.0 million, dividend payments on our common stock of $56.8 million, tax payments associated with stock-based compensation awards of $14.2 million and payments on mortgages and land contracts due to land sellers and other loans of $3.8 million.

The cash used was partially offset by $8.9 million of issuances of common stock under employee stock plans.

In 2022, net cash was used for the repayment of $700.0 million in aggregate principal amount of our senior notes, 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 (“7.25% Senior Notes due 2030”), and net borrowings under the Credit Facility of $150.0 million.

In the 2023 first and second quarters, our board of directors declared quarterly cash dividends of $.15 per share of common stock.

Our board of directors approved an increase in the quarterly cash dividend on our common stock to $.20 per share in the 2023 third quarter, and declared quarterly dividends at the new higher rate for the third and fourth quarters of 2023.

In 2022, our board of directors declared four quarterly cash dividends of $.15 per share.

Quarterly cash dividends declared during the years ended November 30, 2023 and 2022 totaled $.70 and $.60 per share of common stock, respectively.

All dividends declared during 2023 and 2022 were also paid during those years.

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.

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.

On July 10, 2023, we filed an automatically effective universal shelf registration statement (“2023 Shelf Registration”) with the SEC.

As with our prior shelf registration statements, the 2023 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 and, with respect to debt securities, other factors impacting our borrowing capacity.

We have not made any offerings of securities under the 2023 Shelf Registration.

Share Repurchase Program.

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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 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.

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

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.

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

This authorization replaced the prior board of directors authorization, which had $75.0 million remaining.

In the 2023 second, third and fourth quarters, we repurchased 7,278,995 shares of our common stock on the open market pursuant to this authorization at a total cost of $336.4 million, bringing our total repurchases for the year ended November 30, 2023 to 9,244,437 shares of common stock at a total cost of approximately $411.4 million.

Repurchases under the current 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 November 30, 2023, we were authorized to repurchase up to $163.6 million of our outstanding common stock in additional transactions.

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.

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The amounts involved in these transactions, if any, may be material.

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.

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.

Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or other factors, including those described below under “Outlook” 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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See Note 1 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report for a discussion of our significant accounting policies.

The following are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require the use of significant estimates, judgments and/or other assumptions in their application.

following are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require the use of significant estimates, judgments and/or other assumptions in their application.

Homebuilding Revenue Recognition.

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

(2) identify the performance

obligations in the contract;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

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Little to no estimation is involved in recognizing such revenues.

Land sale transactions are made pursuant to contracts under which we typically have a performance obligation(s) to deliver specified land parcels to the buyer when closing conditions are met.

We evaluate each land sale contract to determine our performance obligation(s) under the contract, including whether we have a distinct promise to perform post-closing land development work that is material within the context of the contract, and use objective criteria to determine our completion of the applicable performance obligation(s), whether at a point in time or over time.

We may periodically elect to sell parcels of land to third parties if such assets no longer fit into our strategic operating plans or are zoned for non-residential development.

Revenues from land sales are recognized when we have satisfied the performance obligation(s) within the sales contract, which is generally when title to and possession of the land and the risks and rewards of ownership are transferred to the land buyer on the closing date.

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

We generally measure our progress based on our costs incurred relative to the total costs expected to satisfy the performance obligation(s).

Certain land sale contracts may require management judgment in determining the appropriate revenue recognition, but the impact of such transactions is generally immaterial.

Certain land sales contracts may require management judgment in determining the appropriate revenue recognition, but the impact of such transactions is generally immaterial.

Inventories and Cost of Sales.

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Impairment indicators are assessed separately for each community or land parcel on a quarterly basis and include, but are not limited to, the following:

significant decreases in net orders, average selling prices, volume of homes delivered, gross profit margins on homes delivered or projected gross profit

margins on homes in backlog or future deliveries;

significant increases in budgeted land development and home construction costs or cancellation rates;

significant decreases in net orders, average selling prices, volume of homes delivered, gross profit margins on homes delivered or projected gross profit margins on homes in backlog or future deliveries;

significant increases in budgeted land development and home construction

costs or cancellation rates;

or projected losses on expected future land sales.

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

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 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%.

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

Our overall housing gross profit margin in the 2023 fourth quarter was 20.7%, and as of November 30, 2023, 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.

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Land option contract abandonments charges $ 11,424 $ 13,224 $ 2,050

There were no inventory impairment charges in 2023.

The inventory impairment charges in 2022 and 2021 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.

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.

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

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

Inputs used in our calculation of estimated discounted future net cash flows are specific to each affected real estate asset and are based on our expectations for each such asset as of the applicable measurement date, including, among others, expectations related to average selling prices and volume of homes delivered.

The discount rates used in our estimated discounted cash flows ranged from 17% - 21% in 2022, 18% - 19% in 2021, and 17% - 18% during 2020.

The discount rates we used were impacted by one or more of the following at the time the calculation was made:

the risk-free rate of return;

expected risk premium based on estimated land development, home construction and delivery timelines;

market risk from potential future price erosion;

cost uncertainty due to land development or home construction cost increases;

and other risks specific to the asset or conditions in the market in which the asset is located.

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

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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.

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.

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

Assessments are made separately for each optioned land parcel on a quarterly basis and are affected by the following factors relative to the market in which the asset is located, among others:

Assessments are made separately for each optioned land parcel on a

quarterly basis and are affected by the following factors relative to the market in which the asset is located, among others:

current and/or anticipated net orders, average selling prices and volume of homes delivered;

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The inventories in the 6-10 years and greater than 10 years categories as of November 30, 2023 and 2022 were mostly comprised of active, multi-phase communities with large remaining land positions.

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, especially in periods of volatile housing market or economic conditions, such as occurred during the 2022 second half.

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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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.

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

We estimate the costs that may be incurred under each limited warranty and record a liability in the amount of such costs at the time the revenue associated with the sale of each home is recognized.

We estimate the costs that may be incurred under each limited warranty and record a liability in the amount of such costs at the time the revenue associated with the sale of each

home is recognized.

In assessing our overall warranty liability at a reporting date, we evaluate the costs for warranty-related items on a combined basis for all of our previously delivered homes that are under our limited warranty program.

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

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

In 2023, we made adjustments to increase our accrued warranty liability by $4.0 million.

In 2021, we made adjustments to reduce our accrued warranty liability by $4.0 million.

There were no such adjustments during 2022.

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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 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.

During 2023, 2022 and 2021, we recorded adjustments to increase our previously recorded liabilities by $6.5 million, $7.0 million and $6.8 million, respectively.

The adjustments in 2023, 2022 and 2021 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.

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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.

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.

Since 2021, product and labor costs and general inflation in the economy have increased and remained elevated compared to the prior decade.

In turn, we experienced rising land and construction costs, particularly for building materials and construction service providers’ rates, warranty repair costs, and compensation and benefit expenses to attract and retain talent.

These trends are expected to continue to an extent in 2024, though they may worsen compared to prior years.

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 interim construction-related cost inflation can result in lower housing gross profit margins.

As the selling price of each of our homes is fixed at the time a buyer enters into a home sales contract, and because we generally commence construction of a home only after we have a signed sales 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.

Inflation is often accompanied by higher and more volatile interest rates, which may negatively impact housing affordability and the confidence of potential homebuyers, and adversely impact demand for our homes.

Inflation may also increase our financing costs, as borrowings under our Credit Facility, if any, and Term Loan typically accrue interest at a variable rate based on SOFR.

We expect the inflationary pressures on our business to continue in 2024.

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.

While we attempt to pass on increases in our costs through increased home selling prices, including for design options and upgrades, market forces and buyer affordability constraints can limit our ability to do so.

If we are unable to raise selling prices enough to compensate for higher costs, or our borrowing costs 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 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:

Beginning with the 2023 second quarter, supported by these positive factors and even with elevated mortgage interest rates, demand was relatively steady for new homes and for homes at our price points.

There is considerable uncertainty regarding the near-term direction of mortgage interest rates, inflation, consumer confidence and the general economy, and the degree to which these factors, individually or collectively, may impact demand for our homes in 2024.

However, we believe we are well-positioned to meet changing market conditions with our differentiated, highly customer-centric Built to Order business model and operational capabilities, affordable product offerings, lot supply, strong balance sheet and liquidity.

We also believe with our substantial backlog value of $2.67 billion at November 30, 2023, improved construction cycle times, normalizing cancellation rates and planned community count growth, we can achieve our projected results for 2024, subject to the factors and risks described in this report.

We plan to continue to focus on generating cash flows from our homebuilding operations and on balancing pace, price and construction starts at each community to optimize our return on each inventory asset within its market context.

We anticipate the pricing adjustments and other homebuyer concessions we have selectively employed since the 2022 second half will contribute to a year-over-year decrease in the average selling price of homes delivered in 2024.

Our use of such concessions in 2024 will depend on, among other things, market dynamics, including mortgage interest rates and overall housing affordability, as well as community-specific considerations, including the size and construction stage of the backlog, net order pace and lots remaining available for sale.

We are committed to further reducing our build times in 2024 and moving closer to our historical levels of between four and five months.

While we expect our land acquisition activity to increase during 2024 as compared to 2023, our investments in land and land development will depend significantly on market conditions and available opportunities that meet our investment return standards.

We intend to maintain a balanced approach to capital allocation designed to maximize long-term stockholder value.

In this regard, we ended 2023 with approximately $163.6 million remaining under our current board of directors share repurchase authorization.

This provides us flexibility to continue to repurchase our common stock in 2024, with the volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our common stock, and the housing market and general economic environments.

Since our 2023 fiscal year ended, housing demand has improved significantly in conjunction with a steady decline in mortgage interest rates.

Through the first six weeks of our 2024 first quarter, we generated 1,170 net orders, compared to 568 in the year-earlier period.

From this trend, we anticipate our full 2024 first quarter year-over-year net order comparison will be favorable, though at a more moderate level than we have generated in our first six weeks, due to the depressed net order activity we experienced in the same prior-year period.

Our present outlook for the 2024 first quarter and full year as to certain metrics are as follows:

2024 First 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 in the range of 10.3% to 10.8%, compared to 10.2% for the 2022 first quarter.

• We expect to generate housing revenues in the range of $1.40 billion to $1.50 billion, compared to $1.38 billion for the corresponding 2023 period, and anticipate our average selling price to be approximately $477,000, compared to $494,500 in the year-earlier period.

• We expect our homebuilding operating income margin as a percentage of revenues to be approximately 10.5%, assuming no inventory-related charges, compared to 11.7% for the year-earlier quarter.

◦ We expect our housing gross profit margin to be about 21.0%, assuming no inventory-related charges, compared to 21.8% for the corresponding 2023 quarter.

◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.5%, compared to 10.1% for the 2023 first quarter.

• We expect our effective tax rate will be approximately 24.0%.

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

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

The effective tax rate for the year-earlier quarter was 22.6%.

• We expect our ending community count to be approximately 240, which would result in a year-over-year decrease in our average community count in the low single-digit range.

2024 Full Year –

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.

• We expect our housing revenues to be in the range of $6.40 billion to $6.80 billion, an increase from $6.37 billion for 2023.

• We expect our average selling price to be in the range of $480,000 to $490,000, compared to $481,300 for 2023.

• We expect our homebuilding operating income margin as a percentage of revenues to be approximately 11.0%, assuming no inventory-related charges, compared to 11.4% for 2023.

◦ We expect our housing gross profit margin to be approximately 21.0%, assuming no inventory-related charges, compared to 21.4% for 2023.

◦ We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.0%, compared to 9.9% for 2023.

• We expect our effective tax rate to be approximately 24.0%, compared to 23.5% for 2023.

• We expect our ending community count to be approximately 270, up 12%, compared to 242 for 2023, and our average community count to be up about 5%.

In addition to factors discussed elsewhere in this report, 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).

For instance, the Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S.

inflation created significant and ongoing headwinds for the housing market, tempering consumer demand for homes and disrupting credit and lending markets.

In addition, while we experienced improvement with respect to supply chain-related disruptions as described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe they will persist to a certain degree in 2024.

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 2023, 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.

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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 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 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.

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.

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• consumer and producer price inflation;

• 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;

• changes in interest rates, including those set by the Federal Reserve, which the Federal Reserve has increased sharply over the past year and may further increase to moderate inflation, and those 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 and the Term Loan;

• the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility;

• volatility in the market price of our common stock;

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• competition from other sellers of new and resale homes;

• weather events, significant natural disasters and other climate and environmental factors;

• any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to any such failure;

• weather events, significant natural disasters and other climate and environmental factors, such as a lack of adequate water supply to permit new home communities in certain areas;

• any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations (also known as a government shutdown), and financial markets’ and businesses’ reactions to any such failure;

• government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities;

• changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto;

• changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto, such as the IRS’ recent guidance regarding heightened qualification requirements for federal tax credits for building energy-efficient homes;

• changes in U.S.

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;

• disruptions in world and regional trade flows, economic activity and supply chains due to the military conflicts and other attacks in the Middle East region and 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, create and/or 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 and efficiently 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 home communities;

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

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

• the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services;

• the ability of our homebuyers to obtain homeowners and flood insurance policies, and/or typical or lender-required policies for other hazards or events, for their homes, which may depend on the ability and willingness of insurers or government-funded or -sponsored programs to offer coverage at an affordable price or at all;

• the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers;

• the performance of mortgage lenders to our homebuyers;

• the performance of KBHS;

• the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans;

• 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 (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;

• an epidemic, pandemic or significant seasonal or other disease outbreak, 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 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/or civil unrest, whether due to political events, social movements or other reasons;

• 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