UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.~~

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended May 31, ~~2020~~.2021.


☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.~~

For the transition period from [ ] to [ ].

Commission File No. 001-09195

KB HOME

(Exact name of registrant as specified in its charter)



Delaware			95-3666267
(State of incorporation)			(IRS employer identification number)

10990 Wilshire Boulevard

Los Angeles,, California90024

(~~310~~) (310) 231-4000

(Address, including zip code, and telephone number of principal executive offices)

Securities registered pursuant to section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock (par value $1.00 per share)

KBH

New York Stock Exchange

Rights to Purchase Series A Participating Cumulative Preferred Stock

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were ~~90,527,074~~92,143,095 shares of the registrant’s common stock, par value $1.00 per share, outstanding on May 31, ~~2020~~.2021. The registrant’s grantor stock ownership trust held an additional ~~7,317,336~~6,705,247 shares of the registrant’s common stock on that date.

KB HOME

FORM 10-Q

INDEX


			Page Number
PART I. FINANCIAL INFORMATION

			~~Page~~ ~~Number~~
~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements

Consolidated Statements of Operations - Three Months and Six Months Ended May 31, ~~2020~~2021 and ~~2019~~2020			3

Consolidated Balance Sheets - May 31, ~~2020~~2021 and November 30, ~~2019~~2020			4

Consolidated Statements of Cash Flows - ~~Three Months and~~ Six Months Ended May 31, ~~2020~~2021 and ~~2019~~2020			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3326

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5347

Item 4. Controls and Procedures			5347

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			5347

Item 1A. Risk Factors			5447

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5547

Item 6. Exhibits			5548

SIGNATURES			5649

PART I. FINANCIAL INFORMATION


~~Item 1.~~	~~Financial Statements~~

Item 1.Financial Statements

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts – Unaudited)


	Three Months Ended May 31,						Six Months Ended May 31,							Three Months Ended May 31,				Six Months Ended May 31,
	2020			2019			2020			2019				2021		2020		2021		2020
Total revenues	$	913,970		$	1,021,803		$	1,989,905		$	1,833,286		Total revenues	$	1,440,892	$	913,970	$	2,582,630	$	1,989,905
Homebuilding:													Homebuilding:
Revenues	$	910,280		$	1,018,671		$	1,982,662		$	1,827,459		Revenues	$	1,436,035	$	910,280	$	2,574,043	$	1,982,662
Construction and land costs	(744,453		)	(843,744		)	(1,630,506		)	(1,514,599		)	Construction and land costs	(1,128,018)		(744,453)		(2,029,927)		(1,630,506)
Selling, general and administrative expenses	(114,238		)	(122,828		)	(240,372		)	(229,422		)	Selling, general and administrative expenses	(145,115)		(114,238)		(267,120)		(240,372)
Operating income	51,589			52,099			111,784			83,438			Operating income	162,902		51,589		276,996		111,784
Interest income	442			439			1,377			1,544			Interest income	241		442		894		1,377

Equity in income (loss) of unconsolidated joint ventures	8,154			(369		)	10,059			(775		)	Equity in income (loss) of unconsolidated joint ventures	(127)		8,154		177		10,059
Homebuilding pretax income	60,185			52,169			123,220			84,207			Homebuilding pretax income	163,016		60,185		278,067		123,220
Financial services:													Financial services:
Revenues	3,690			3,132			7,243			5,827			Revenues	4,857		3,690		8,587		7,243
Expenses	(883		)	(1,040		)	(1,845		)	(2,064		)	Expenses	(1,253)		(883)		(2,453)		(1,845)
Equity in income of unconsolidated joint ventures	4,797			2,500			8,019			3,302			Equity in income of unconsolidated joint ventures	7,044		4,797		13,014		8,019
Financial services pretax income	7,604			4,592			13,417			7,065			Financial services pretax income	10,648		7,604		19,148		13,417
Total pretax income	67,789			56,761			136,637			91,272			Total pretax income	173,664		67,789		297,215		136,637
Income tax expense	(15,800		)	(9,300		)	(24,900		)	(13,800		)	Income tax expense	(30,300)		(15,800)		(56,800)		(24,900)
Net income	$	51,989		$	47,461		$	111,737		$	77,472		Net income	$	143,364	$	51,989	$	240,415	$	111,737
Earnings per share:													Earnings per share:
Basic	$	.57		$	.54		$	1.23		$	.88		Basic	$	1.55	$	.57	$	2.60	$	1.23
Diluted	$	.55		$	.51		$	1.19		$	.82		Diluted	$	1.50	$	.55	$	2.52	$	1.19
Weighted average shares outstanding:													Weighted average shares outstanding:
Basic	90,493			87,641			90,169			87,310			Basic	92,087		90,493		91,904		90,169
Diluted	93,472			92,366			93,628			94,635			Diluted	95,379		93,472		95,143		93,628

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)


	May 31, 2020			November 30, 2019				May 31, 2021		November 30, 2020
Assets							Assets
Homebuilding:							Homebuilding:
Cash and cash equivalents	$	575,006		$	453,814		Cash and cash equivalents	$	608,069	$	681,190

Receivables	312,928			249,055			Receivables	271,080		272,659
Inventories	3,607,465			3,704,602			Inventories	4,272,566		3,897,482
Investments in unconsolidated joint ventures	57,823			57,038			Investments in unconsolidated joint ventures	45,358		46,785
Property and equipment, net	65,764			65,043			Property and equipment, net	69,336		65,547
Deferred tax assets, net	257,571			364,493			Deferred tax assets, net	199,445		231,067
Other assets	126,588			83,041			Other assets	115,233		125,510
	5,003,145			4,977,086				5,581,087		5,320,240
Financial services	38,857			38,396			Financial services	37,846		36,202
Total assets	$	5,042,002		$	5,015,482		Total assets	$	5,618,933	$	5,356,442

Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Homebuilding:							Homebuilding:
Accounts payable	$	180,868		$	262,772		Accounts payable	$	316,989	$	273,368
Accrued expenses and other liabilities	602,393			618,783			Accrued expenses and other liabilities	665,690		667,501
Notes payable	1,766,539			1,748,747			Notes payable	1,747,447		1,747,175
	2,549,800			2,630,302				2,730,126		2,688,044
Financial services	1,848			2,058			Financial services	1,942		2,629
Stockholders’ equity:							Stockholders’ equity:
Common stock	122,370			121,593			Common stock	100,151		99,869
Paid-in capital	806,700			793,954			Paid-in capital	836,353		824,306
Retained earnings	2,255,742			2,157,183			Retained earnings	2,081,288		1,868,896
Accumulated other comprehensive loss	(17,149		)	(15,506		)	Accumulated other comprehensive loss	(22,276)		(22,276)
Grantor stock ownership trust, at cost	(79,359		)	(82,758		)	Grantor stock ownership trust, at cost	(72,718)		(77,265)
Treasury stock, at cost	(597,950		)	(591,344		)	Treasury stock, at cost	(35,933)		(27,761)
Total stockholders’ equity	2,490,354			2,383,122			Total stockholders’ equity	2,886,865		2,665,769
Total liabilities and stockholders’ equity	$	5,042,002		$	5,015,482		Total liabilities and stockholders’ equity	$	5,618,933	$	5,356,442

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)


	Six Months Ended May 31,							Six Months Ended May 31,
	2020			2019				2021		2020
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	111,737		$	77,472		Net income	$	240,415	$	111,737
Adjustments to reconcile net income to net cash provided by (used in) operating activities:							Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of unconsolidated joint ventures	(18,078		)	(2,527		)	Equity in income of unconsolidated joint ventures	(13,191)		(18,078)
Distributions of earnings from unconsolidated joint ventures	15,150			3,550			Distributions of earnings from unconsolidated joint ventures	11,981		15,150
Amortization of discounts, premiums and issuance costs	1,234			2,597			Amortization of discounts, premiums and issuance costs	1,296		1,234
Depreciation and amortization	14,510			12,780			Depreciation and amortization	14,496		14,510

Deferred income taxes	23,800			13,401			Deferred income taxes	31,700		23,800

Stock-based compensation	8,131			9,966			Stock-based compensation	13,654		8,131
Inventory impairments and land option contract abandonments	10,051			7,892			Inventory impairments and land option contract abandonments	4,521		10,051
Changes in assets and liabilities:							Changes in assets and liabilities:
Receivables	19,286			(5,408		)	Receivables	1,682		19,286
Inventories	100,077			(253,473		)	Inventories	(379,923)		100,077
Accounts payable, accrued expenses and other liabilities	(117,274		)	(41,440		)	Accounts payable, accrued expenses and other liabilities	44,847		(117,274)
Other, net	(13,930		)	(5,144		)	Other, net	10,455		(13,930)
Net cash provided by (used in) operating activities	154,694			(180,334		)	Net cash provided by (used in) operating activities	(18,067)		154,694
Cash flows from investing activities:							Cash flows from investing activities:
Contributions to unconsolidated joint ventures	(3,586		)	(4,245		)	Contributions to unconsolidated joint ventures	(6,300)		(3,586)
Return of investments in unconsolidated joint ventures	500			5,001			Return of investments in unconsolidated joint ventures	2,518		500
Proceeds from sale of building	—			5,804

Purchases of property and equipment, net	(15,224		)	(22,264		)	Purchases of property and equipment, net	(18,286)		(15,224)
Net cash used in investing activities	(18,310		)	(15,704		)	Net cash used in investing activities	(22,068)		(18,310)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of debt	—			405,250
Payment of debt issuance costs	—			(5,209		)
Repayment of senior notes	—			(630,000		)
Borrowings under revolving credit facility	—			330,000
Repayments under revolving credit facility	—			(280,000		)

Payments on mortgages and land contracts due to land sellers and other loans	(1,063		)	(28,020		)	Payments on mortgages and land contracts due to land sellers and other loans	(600)		(1,063)

Issuance of common stock under employee stock plans	8,404			16,462			Issuance of common stock under employee stock plans	3,506		8,404
Tax payments associated with stock-based compensation awards	(6,219		)	(3,345		)	Tax payments associated with stock-based compensation awards	(8,456)		(6,219)
Payments of cash dividends	(16,331		)	(4,455		)	Payments of cash dividends	(27,797)		(16,331)
Net cash used in financing activities	(15,209		)	(199,317		)	Net cash used in financing activities	(33,347)		(15,209)
Net increase (decrease) in cash and cash equivalents	121,175			(395,355		)	Net increase (decrease) in cash and cash equivalents	(73,482)		121,175
Cash and cash equivalents at beginning of period	454,858			575,119			Cash and cash equivalents at beginning of period	682,529		454,858
Cash and cash equivalents at end of period	$	576,033		$	179,764		Cash and cash equivalents at end of period	$	609,047	$	576,033

See accompanying notes.

KB HOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.

In ~~our~~the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting ~~only~~ of normal recurring ~~accruals)~~adjustments) necessary to present fairly our consolidated financial position as of May 31, ~~2020,~~2021, the results of our consolidated operations for the three months and six months ended May 31, ~~2020~~2021 and ~~2019,~~2020, and our consolidated cash flows for the six months ended May 31, ~~2020~~2021 and ~~2019.~~2020. The results of our consolidated operations for the three months and six months ended May 31, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors. The consolidated balance sheet at November 30, ~~2019~~2020 has been taken from the audited consolidated financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, ~~2019,~~2020, which are contained in our Annual Report on Form 10-K for that period.

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

~~Impact of COVID-19 Pandemic on Consolidated Financial Statements.~~ The outbreak of the 2019 coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread (“COVID-19 control responses”) severely impacted the global and national economies, the housing market and our business during the 2020 second quarter. With the health and well-being of our employees, customers and business partners, and their families, being a high priority, we temporarily closed our sales centers, model homes and design studios to the public in mid-March and shifted to virtual sales tools and then an appointment-only personalized home sales process in April, where permitted. Our construction operations were also restricted in many jurisdictions, and together with the reduced availability or capacity of some municipal and private services necessary to build and deliver homes, we experienced home delivery delays during most of the quarter. In addition, our order pace moderated significantly and home purchase cancellations increased considerably. In the latter part of May, conditions started to improve in conjunction with state and local governments relaxing their COVID-19 control responses, and we began the process of more broadly opening our communities to the public while also expanding construction and warranty service activities to the extent permitted by local authorities. Following a low point in April 2020, we experienced steady and significant improvements in our order trends and cancellation rate beginning in May, which have extended through the date of this report. Given the prolonged, and ongoing, COVID-19-related impacts, we focused on generating cash inflows from our business and preserving cash and liquidity by proceeding in a carefully targeted manner with land acquisition and land development and curtailing overhead expenditures, partly through workforce realignment and reductions. As a result, we recorded severance charges of $6.7 million within our selling, general and administrative expenses for the 2020 second quarter. Our consolidated financial statements and the notes thereto in this report reflect the foregoing course of unprecedented events and the actions we took during the 2020 second quarter.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing COVID-19 pandemic and the COVID-19 control responses, and such differences may be material.those estimates.

Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled ~~$404.5~~$378.5 million at May 31, ~~2020~~2021 and ~~$302.5~~$508.5 million at November 30, ~~2019~~.2020. At May 31, ~~2020~~2021 and November 30, ~~2019,~~2020, the majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.

Comprehensive Income. Our comprehensive income was $143.4 million for the three months ended May 31, 2021 and $52.0 million for the three months ended May 31, ~~2020 and $47.5 million for the three months ended May 31, 2019.~~2020. For the six months ended May 31, ~~2020~~2021 and ~~2019,~~2020, our comprehensive income was ~~$111.7~~$240.4 million and ~~$77.5~~$111.7 million, respectively. Our comprehensive income for each of the three-month and six-month periods ended May 31, ~~2020~~2021 and ~~2019~~2020 was equal to our net income for the respective periods.

Adoption of New Accounting ~~Pronouncements~~Pronouncement. In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires leases with original lease terms of more than 12 months to be recorded on the balance sheet. On December 1, 2019, we adopted ASU 2016-02 and its related amendments (collectively, “ASC 842”) using the modified retrospective method. Results for reporting periods beginning December 1, 2019 and after are presented under ASC 842, while results for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our original assessment of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We also elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. The adoption of ASC 842 resulted in our recording lease right-of-use assets and lease liabilities of $31.2 million on our consolidated balance sheet as of December 1, 2019. Lease right-of-use assets are classified within other assets on our consolidated balance sheet, and lease liabilities are classified within accrued expenses and other liabilities. At the December 1, 2019 adoption date, we also recorded a cumulative effect adjustment to increase beginning retained earnings by $1.5 million, net of tax, to recognize a previously deferred gain on our sale and leaseback of an office building in 2019. The adoption of ASC 842 did not materially impact our consolidated statements of operations or consolidated cash flows. Further information regarding our leases is provided in Note 13 – Leases.

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (“TCJA”), and requires certain disclosures about stranded tax effects. We adopted ASU 2018-02 effective December 1, 2019 and elected to reclassify the income tax effects of the TCJA from accumulated other comprehensive loss to retained earnings, which resulted in an increase of $1.6 million to both retained earnings and accumulated other comprehensive loss, with no impact on total stockholders’ equity. Amounts for prior reporting periods have not been adjusted and continue to be presented under the accounting guidance in effect for those periods.

~~Recent Accounting Pronouncements Not Yet Adopted. In June 2016, the FASB~~ issued Accounting Standards Update No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an incurred loss approach to a new expected credit loss methodology. ~~ASU 2016-13 is effective for us beginning~~On December 1, 2020, ~~with early adoption permitted. We are currently evaluating~~we adopted ASU 2016-13 using the ~~potential impact~~modified retrospective method and recorded a cumulative effect adjustment to decrease beginning retained earnings by $.2 million, net of ~~adopting this guidance~~tax, to establish an allowance for credit losses for certain receivables on our consolidated ~~financial statements.~~balance sheet. The adoption of ASU 2016-13 did not materially impact our consolidated statements of operations or cash flows.

Recent Accounting Pronouncements Not Yet Adopted. In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for us beginning December 1, 2021, with early adoption permitted. Most amendments within ASU 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

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

2.Segment Information

We have identified 5 operating reporting segments, comprised of 4 homebuilding reporting segments and 1 financial services reporting segment. As of May 31, ~~2020~~,2021, our homebuilding reporting segments conducted ongoing operations in the following states to the extent permitted by applicable public health orders as part of their respective ~~COVID-19~~2019 coronavirus disease (“COVID-19”) control responses:

~~West Coast: California and Washington~~

~~Southwest: Arizona and Nevada~~

~~Central: Colorado and Texas~~

~~Southeast:~~


West Coast:			California and Washington
Southwest:			Arizona and Nevada
Central:			Colorado and Texas
Southeast:			Florida and North Carolina

Our homebuilding reporting segments are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to first-time, first move-up and active adult homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.

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

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), an unconsolidated joint venture we formed with Stearns Ventures, LLC (“Stearns”). We and Stearns each have a 50.0% ownership interest, with Stearns providing management oversight of KBHS’ operations. On March 1, 2021, Guaranteed Rate, Inc. acquired Stearns’ parent company. There have been no significant changes with respect to Stearns or its operations since the transaction was completed. The financial services reporting segment is separately reported in our consolidated financial statements.

Our reporting segments follow the same accounting policies used for our consolidated financial statements. The results of each reporting segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Revenues:
West Coast	$	625,690	$	331,882	$	1,140,206	$	816,379
Southwest	258,061		175,251		445,746		366,569
Central	390,555		284,193		700,263		567,706
Southeast	161,729		118,954		287,828		232,008
Total	$	1,436,035	$	910,280	$	2,574,043	$	1,982,662

Pretax income (loss):
West Coast	$	76,630	$	27,820	$	135,261	$	61,849
Southwest	48,909		24,891		81,964		57,003
Central	56,283		26,896		97,275		49,574
Southeast	18,861		6,629		30,976		9,259
Corporate and other	(37,667)		(26,051)		(67,409)		(54,465)
Total	$	163,016	$	60,185	$	278,067	$	123,220

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Revenues:
West Coast $ 331,882
$ 391,264
$ 816,379
$ 697,074
Southwest 175,251
184,827
366,569
342,483
Central 284,193
307,080
567,706
548,672
Southeast 118,954
135,500
232,008
239,230
Total $ 910,280
$ 1,018,671
$ 1,982,662
$ 1,827,459

Pretax income (loss):
West Coast $ 27,820
$ 24,789
$ 61,849
$ 42,705
Southwest 24,891
27,995
57,003
50,067
Central 26,896
27,199
49,574
45,782
Southeast 6,629
589
9,259
44
Corporate and other (26,051 ) (28,403 ) (54,465 ) (54,391 )
Total $ 60,185
$ 52,169
$ 123,220
$ 84,207


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Inventory impairment and land option contract abandonment charges:
West Coast	$	117	$	672	$	3,918	$	5,064
Southwest	165		0		293		171
Central	70		3,452		70		4,436
Southeast	105		255		240		380
Total	$	457	$	4,379	$	4,521	$	10,051


										May 31, 2021		November 30, 2020
	Three Months Ended May 31,				Six Months Ended May 31,
	2020		2019		2020		2019
Inventory impairment and land option contract abandonment charges:
Assets:									Assets:
West Coast	$	672	$	3,832	$	5,064	$	7,083	West Coast	$	2,265,852	$	2,057,362
Southwest	—		223		171		282		Southwest	854,193		738,765
Central	3,452		121		4,436		366		Central	1,053,215		998,612
Southeast	255		161		380		161		Southeast	555,716		448,388
Corporate and other									Corporate and other	852,111		1,077,113
Total	$	4,379	$	4,337	$	10,051	$	7,892	Total	$	5,581,087	$	5,320,240

3. Financial Services

May 31,
2020 November 30,
2019
Assets:
West Coast $ 1,854,154
$ 1,925,192
Southwest 714,672
674,310
Central 994,038
1,035,563
Southeast 421,385
441,451
Corporate and other 1,018,896
900,570
Total $ 5,003,145
$ 4,977,086

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Revenues
Insurance commissions	$	2,432	$	2,030	$	4,280	$	3,983
Title services	2,425		1,660		4,307		3,260

Total	4,857		3,690		8,587		7,243

Expenses
General and administrative	(1,253)		(883)		(2,453)		(1,845)
Operating income	3,604		2,807		6,134		5,398
Equity in income of unconsolidated joint ventures	7,044		4,797		13,014		8,019
Pretax income	$	10,648	$	7,604	$	19,148	$	13,417

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Revenues
Insurance commissions $ 2,030
$ 1,646
$ 3,983
$ 3,118
Title services 1,660
1,486
3,260
2,703
Interest income —
—
—
6
Total 3,690
3,132
7,243
5,827
Expenses
General and administrative (883 ) (1,040 ) (1,845 ) (2,064 )
Operating income 2,807
2,092
5,398
3,763
Equity in income of unconsolidated joint ventures 4,797
2,500
8,019
3,302
Pretax income $ 7,604
$ 4,592
$ 13,417
$ 7,065


	May 31, 2021		November 30, 2020
Assets
Cash and cash equivalents	$	978	$	1,339
Receivables	1,581		1,988
Investments in unconsolidated joint ventures	12,492		10,978
Other assets (a)	22,795		21,897
Total assets	$	37,846	$	36,202
Liabilities
Accounts payable and accrued expenses	$	1,942	$	2,629
Total liabilities	$	1,942	$	2,629

May 31,
2020 November 30,
2019
Assets
Cash and cash equivalents $ 1,027
$ 1,044
Receivables 1,690
2,232
Investments in unconsolidated joint ventures 14,243
14,374
Other assets (a) 21,897
20,746
Total assets $ 38,857
$ 38,396
Liabilities
Accounts payable and accrued expenses $ 1,848
$ 2,058
Total liabilities $ 1,848
$ 2,058

(a)Other assets at May 31, 2021 and November 30, 2020 included $22.5 million and $21.5 million, respectively, of contract assets for estimated future renewal commissions.

4. Earnings Per Share

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

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Numerator:
Net income $ 51,989
$ 47,461
$ 111,737
$ 77,472
Less: Distributed earnings allocated to nonvested restricted stock (43 ) (14 ) (87 ) (27 )
Less: Undistributed earnings allocated to nonvested restricted stock (231 ) (280 ) (511 ) (456 )
Numerator for basic earnings per share 51,715
47,167
111,139
76,989
Effect of dilutive securities:
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes —
—
—
541
Add: Undistributed earnings allocated to nonvested restricted stock 231
280
511
456
Less: Undistributed earnings reallocated to nonvested restricted stock (223 ) (265 ) (492 ) (421 )
Numerator for diluted earnings per share $ 51,723
$ 47,182
$ 111,158
$ 77,565

Denominator:
Weighted average shares outstanding — basic 90,493
87,641
90,169
87,310
Effect of dilutive securities:
Share-based payments 2,979
4,725
3,459
4,463
Convertible senior notes —
—
—
2,862
Weighted average shares outstanding — diluted 93,472
92,366
93,628
94,635
Basic earnings per share $ .57
$ .54
$ 1.23
$ .88
Diluted earnings per share $ .55
$ .51
$ 1.19
$ .82


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Numerator:
Net income	$	143,364	$	51,989	$	240,415	$	111,737
Less: Distributed earnings allocated to nonvested restricted stock	(63)		(43)		(126)		(87)
Less: Undistributed earnings allocated to nonvested restricted stock	(587)		(231)		(968)		(511)
Numerator for basic earnings per share	142,714		51,715		239,321		111,139
Effect of dilutive securities:

Add: Undistributed earnings allocated to nonvested restricted stock	587		231		968		511
Less: Undistributed earnings reallocated to nonvested restricted stock	(567)		(223)		(935)		(492)
Numerator for diluted earnings per share	$	142,734	$	51,723	$	239,354	$	111,158



Denominator:
Weighted average shares outstanding — basic	92,087		90,493		91,904		90,169
Effect of dilutive securities:
Share-based payments	3,292		2,979		3,239		3,459
Weighted average shares outstanding — diluted	95,379		93,472		95,143		93,628
Basic earnings per share	$	1.55	$	.57	$	2.60	$	1.23
Diluted earnings per share	$	1.50	$	.55	$	2.52	$	1.19

We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at May 31, ~~2020~~2021 or ~~2019.~~2020.

For the three-month and six-month periods ended May 31, 2021 and 2020, 0 outstanding stock options were excluded from the diluted earnings per share calculation. For the three-month and six-month periods ended May 31, 2019, outstanding stock options to purchase .8 million shares of our common stock were excluded from the diluted earnings per share calculation because the effect of their inclusion would be antidilutive. The diluted earnings per share calculation for the six months ended May 31, 2019 included the dilutive effect of the $230.0 million in aggregate principal amount of our 1.375% convertible senior notes due 2019 (“1.375% Convertible Senior Notes due 2019”) based on the number of days they were outstanding during the period. We repaid these notes at their February 1, 2019 maturity.

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

Receivables consisted of the following (in thousands):


	May 31, 2020			November 30, 2019				May 31, 2021		November 30, 2020
Due from utility companies, improvement districts and municipalities	$	122,633		$	128,047		Due from utility companies, improvement districts and municipalities	$	124,002	$	105,700
Income taxes receivable	83,599			—
Recoveries related to self-insurance and other legal claims	67,142			80,729			Recoveries related to self-insurance and other legal claims	80,346		82,018
Refundable deposits and bonds	10,665			10,925			Refundable deposits and bonds	12,477		10,897
Income taxes receivable							Income taxes receivable	2,012		41,323

Other	36,608			37,846			Other	57,511		40,020
Subtotal	320,647			257,547			Subtotal	276,348		279,958
Allowance for doubtful accounts	(7,719		)	(8,492		)	Allowance for doubtful accounts	(5,268)		(7,299)
Total	$	312,928		$	249,055		Total	$	271,080	$	272,659

Inventories consisted of the following (in thousands):

May 31,
2020 November 30,
2019
Homes completed or under construction $ 1,199,381
$ 1,340,412
Land under development 2,255,342
2,213,713
Land held for future development or sale (a) 152,742
150,477
Total $ 3,607,465
$ 3,704,602


	May 31, 2021		November 30, 2020
Homes completed or under construction	$	1,840,982	$	1,437,911
Land under development	2,431,584		2,459,571
Total	$	4,272,566	$	3,897,482

~~(a)~~ Land under development included land held for future development and land held for sale ~~totaled $21.4~~of $46.5 million and $.6 million, respectively, at May 31, ~~2020~~2021 and ~~$19.3~~$74.0 million and $1.3 million, respectively, at November 30, ~~2019.~~2020.

Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale. Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable). ~~For~~In the case of land held for future development orand land held for sale, applicable interest is expensed as incurred.

Our interest costs were as follows (in thousands):


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Capitalized interest at beginning of period	$	188,555	$	192,125	$	190,113	$	195,738
Interest incurred	31,110		31,055		62,202		62,017

Interest amortized to construction and land costs (a)	(39,600)		(28,746)		(72,250)		(63,321)
Capitalized interest at end of period (b)	$	180,065	$	194,434	$	180,065	$	194,434

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Capitalized interest at beginning of period $ 192,125
$ 213,370
$ 195,738
$ 209,129
Interest incurred 31,055
36,544
62,017
71,332
Interest amortized to construction and land costs (a) (28,746 ) (37,754 ) (63,321 ) (68,301 )
Capitalized interest at end of period (b) $ 194,434
$ 212,160
$ 194,434
$ 212,160
(a)Interest amortized to construction and land costs for the six months ended May 31, 2021 included $.2 million related to land sales during the period. There was no such interest amortized for the three months ended May 31, 2021 or the three months and six months ended May 31, 2020.

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


~~(a)~~	Interest amortized to construction and land costs for the three months and six months ended May 31, 2019 included a nominal amount and $.6 million, respectively, related to land sales during the periods. There was no such interest amortized for the three months and six months ended May 31, 2020.


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

7. Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. 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. We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

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. The undiscounted future net cash flows are impacted by then-current conditions and trends in the market in which the asset is located as well as factors known to us at the time the cash flows are calculated. These factors may include recent trends in our orders, backlog, cancellation rates and volume of homes delivered, as well as our expectations related to the following: product offerings; market supply and demand, including estimated average selling prices and related price appreciation; and land development, home construction and overhead costs to be incurred and related cost inflation. With respect to the three months ended May 31, 2020, these expectations considered that beginning in mid-March and throughout the remainder of the 2020 second quarter, the COVID-19 pandemic and related COVID-19 control responses in our served markets caused a significant contraction in economic activity and adversely affected our ability to conduct normal operations, as described in Note 1 – Basis of Presentation and Significant Accounting Policies, as well as reductions in our net orders, backlog levels and homes delivered in the quarter. Our impairment assessments also considered that our average selling price of homes delivered in the 2020 second quarter was nearly even with the year-earlier quarter, and our housing gross profit margin for the period improved significantly, with sales incentives as a percentage of housing revenues remaining flat year over year. Moreover, the average selling price of our net orders generated during the 2020 second quarter increased modestly from the year-earlier period, and in conjunction with our ability to begin to effectively resume nearly all of our operations, our net orders rose steadily in May from the low levels in April, although below year-earlier levels. Taken together, and notwithstanding the significant disruptions associated with the COVID-19 pandemic during the 2020 second quarter, our inventory assessments as of May 31, 2020 determined that market conditions for each of our assets in inventory where impairment indicators were identified were expected to be sufficiently stable, with a tempered overall net order pace and a steady average selling price for the remainder of 2020 and into 2021 relative to the performance in recent quarters, to support such assets’ recoverability. Our inventory is assessed for potential impairment on a quarterly basis, and the assumptions used are reviewed and adjusted, as necessary, to reflect the market conditions and trends and our expectations at the time each assessment is performed.

We evaluated 186 and 2411 communities or land parcels for recoverability ~~during the six months ended~~as of May 31, 2021 and November 30, 2020, ~~and 2019, respectively, including certain communities or land parcels previously held for future development that were reactivated as part of our ongoing efforts to improve asset efficiency.~~respectively. The carrying values of ~~the~~those communities or land parcels evaluated ~~were $148.3 million at~~as of May 31, 2021 and November 30, 2020 were $78.5 million and ~~$164.0~~$123.4 million, atrespectively. In addition, we evaluated land held for future development for recoverability as of May 31, ~~2019. Some of the communities or land parcels evaluated~~

~~during the six months ended May 31, 2020~~2021 and ~~2019 were evaluated in more than one quarterly period. Communities or land parcels evaluated for recoverability in more than one quarterly period were counted only once for each six-month period.~~November 30, 2020.

Based on the results of our evaluations, we recognized 0 inventory impairment charges for the ~~three months~~three-month periods ended May 31, ~~2020~~2021 and ~~$5.1 million of inventory impairment charges for~~2020. For the six months ended May 31, ~~2020. For the three months~~2021 and ~~six months ended May 31, 2019,~~2020, we recognized inventory impairment charges of ~~$3.4~~$3.6 million and ~~$6.6~~$5.1 million, respectively. The inventory impairment charges for ~~the~~each six-month period ~~ended May 31, 2020 and the three-month and six-month periods ended May 31, 2019~~ reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

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


	Three Months Ended May 31,		Six Months Ended May 31,
Unobservable Input (a)	2021	2020	2021	2020
Average selling price	$0	$0	$471,000	$302,700 - $915,500
Deliveries per month	0	0	5	1 - 4
Discount rate	0%	0%	19%	17% - 18%

Three Months Ended May 31, Six Months Ended May 31,
Unobservable Input (a) 2020 2019 2020 2019
Average selling price $- $315,000 - $398,500 $302,700 - $915,500 $315,000 - $1,045,400
Deliveries per month - 4 1 - 4 1 - 4
Discount rate - 17% 17% - 18% 17%

As of May 31, 2021, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $90.2 million, representing 13 communities and various other land parcels. As of November 30, 2020, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was ~~$89.7~~$113.1 million, representing 16 communities and various other land parcels. As of November 30, 2019, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $115.6 million, representing 19 communities and various other land parcels.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of ~~$4.4~~$.5 million for the three months ended May 31, ~~2020~~2021 and ~~$4.9~~$.9 million for the six months ended May 31, ~~2020.~~2021. For the ~~three-month~~three months and ~~six-month periods~~six months ended May 31, ~~2019,~~2020, we recognized land option contract abandonment charges of ~~$.9~~$4.4 million and ~~$1.3~~$4.9 million, respectively.

If conditions in our served markets are or are expected to be adversely affected for a prolonged period due to the COVID-19 control responses or otherwise, we may determine through our community and land parcel evaluations in future quarters that we need to take impairment charges, and such charges could be material. In addition, dueDue 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.

8. Variable Interest Entities

Unconsolidated Joint Ventures. We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the

contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analyses, we determined that 1 of our joint ventures at May 31, ~~2020~~2021 and November 30, ~~2019~~2020 was a VIE, but we were not the primary beneficiary of the VIE. Therefore, all of our joint ventures at May 31, ~~2020~~2021 and November 30, ~~2019~~2020 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. Under these contracts, we typically make a specified option payment or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary

beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of May 31, ~~2020~~2021 and November 30, ~~2019~~,2020, we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts. We perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

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

May 31, 2020 November 30, 2019

Cash
Deposits

Aggregate
Purchase Price

Cash
Deposits

Aggregate
Purchase Price
Unconsolidated VIEs $ 29,467
$ 761,329
$ 34,595
$ 823,427
Other land option contracts and other similar contracts 29,772
503,739
40,591
600,092
Total $ 59,239
$ 1,265,068
$ 75,186
$ 1,423,519


	May 31, 2021				November 30, 2020
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	31,851	$	985,435	$	20,962	$	910,495
Other land option contracts and other similar contracts	36,110		671,708		33,672		507,934
Total	$	67,961	$	1,657,143	$	54,634	$	1,418,429

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of ~~$33.3~~$42.0 million at May 31, ~~2020~~2021 and ~~$32.8~~$31.1 million at November 30, ~~2019~~.2020. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s). As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of ~~$1.8~~$14.2 million at May 31, ~~2020~~2021 and ~~$12.2~~$19.4 million at November 30, ~~2019~~2020.

9. .Investments in Unconsolidated Joint Ventures

We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

As of both May 31, 2021 and November 30, 2020, we had investments in 5 unconsolidated joint ventures. The following table presents combined condensed information from the statements of operations offor our unconsolidated joint ventures (in thousands):

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Revenues $ 66,873
$ 3,786
$ 94,420
$ 15,978
Construction and land costs (46,725 ) (3,798 ) (68,268 ) (16,018 )
Other expense, net (3,742 ) (610 ) (5,849 ) (1,238 )
Income (loss) $ 16,406
$ (622 ) $ 20,303
$ (1,278 )


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Revenues	$	3,148	$	66,873	$	12,839	$	94,420
Construction and land costs	(2,819)		(46,725)		(10,944)		(68,268)
Other expense, net	(530)		(3,742)		(1,409)		(5,849)
Income (loss)	$	(201)	$	16,406	$	486	$	20,303

The ~~higher~~lower combined revenues and ~~income~~construction and land costs for the three months and six months ended May 31, ~~2020,~~2021, as compared to the corresponding year-earlier periods, mainly reflected fewer homes delivered from an unconsolidated joint venture in California. ~~In the three months and six months ended May 31, 2019, our unconsolidated joint ventures did not deliver any homes.~~

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


	May 31, 2021		November 30, 2020
Assets
Cash	$	39,517	$	38,837
Receivables	116		96
Inventories	58,791		65,233
Other assets	466		593
Total assets	$	98,890	$	104,759

Liabilities and equity
Accounts payable and other liabilities	$	12,094	$	14,037


Equity	86,796		90,722
Total liabilities and equity	$	98,890	$	104,759

May 31,
2020 November 30,
2019
Assets
Cash $ 41,932
$ 23,965
Inventories 85,830
139,536
Other assets 658
792
Total assets $ 128,420
$ 164,293

Liabilities and equity
Accounts payable and other liabilities $ 13,817
$ 13,282
Notes payable (a) —
40,672
Equity 114,603
110,339
Total liabilities and equity $ 128,420
$ 164,293

10. Property and Equipment, Net

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


	May 31, 2021		November 30, 2020
Computer software and equipment	$	36,494	$	32,902

Model furnishings and sales office improvements	88,420		83,882
Leasehold improvements, office furniture and equipment	17,218		17,245
Subtotal	142,132		134,029
Less accumulated depreciation	(72,796)		(68,482)
Total	$	69,336	$	65,547

May 31,
2020 November 30,
2019
Computer software and equipment $ 30,137
$ 27,091
Model furnishings and sales office improvements 82,401
82,117
Leasehold improvements, office furniture and equipment 17,366
16,173
Subtotal 129,904
125,381
Less accumulated depreciation (64,140 ) (60,338 )
Total $ 65,764
$ 65,043


~~11.~~	~~Other Assets~~

Other assets consisted of the following (in thousands):

May 31,
2020 November 30,
2019
Cash surrender value and benefit receivable from corporate-owned life insurance contracts $ 73,458
$ 73,849
Lease right-of-use assets 32,087
—
Prepaid expenses 18,219
5,944
Debt issuance costs associated with unsecured revolving credit facility, net 2,824
3,248
Total $ 126,588
$ 83,041


	May 31, 2021		November 30, 2020
Cash surrender value and benefit receivable from corporate-owned life insurance contracts	$	69,292	$	73,227

Lease right-of-use assets	32,322		35,967
Prepaid expenses	11,643		13,916
Debt issuance costs associated with unsecured revolving credit facility, net	1,976		2,400
Total	$	115,233	$	125,510

12. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	May 31, 2021		November 30, 2020
Self-insurance and other legal liabilities	$	230,449	$	232,556
Employee compensation and related benefits	148,564		165,342
Warranty liability	95,853		91,646
Customer deposits	52,878		26,243
Lease liabilities	34,252		37,668
Accrued interest payable	31,805		31,641
Inventory-related obligations (a)	25,647		31,094
Real estate and business taxes	10,087		14,249
Other	36,155		37,062
Total	$	665,690	$	667,501

May 31,
2020 November 30,
2019
Self-insurance and other legal liabilities $ 224,784
$ 229,483
Employee compensation and related benefits 122,426
163,646
Warranty liability 92,844
88,839
Lease liabilities 33,549
—
Accrued interest payable 32,258
32,507
Customer deposits 30,283
22,382
Inventory-related obligations (a) 15,231
26,264
Real estate and business taxes 10,004
14,872
Other 41,014
40,790
Total $ 602,393
$ 618,783

We lease certain property and equipment for use in our operations. We recognize lease expense for these leases generally on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Lease right-of-use assets and lease liabilities are recorded on our consolidated balance sheets for leases with an expected term at the commencement date of more than 12 ~~months.~~months in accordance with Accounting Standards Codification Topic 842, “Leases” (“ASC 842”). Some of our leases include one or more renewal options, the exercise of which is generally at our discretion. Such options are excluded from the expected term of the lease unless we determine it is reasonably certain the option will be exercised. Lease liabilities are equal to the present value of the remaining lease payments while the amount of lease right-of-use assets is based on the lease liabilities, subject to adjustment, such as for lease incentives. Our leases do not provide a readily determinable implicit interest rate; therefore, we estimate our incremental borrowing rate to calculate the present value of remaining lease payments. In determining our incremental borrowing rate, we considered the lease term, market interest rates, current interest rates on our senior notes and the effects of collateralization. Our lease population at May 31, ~~2020~~2021 was comprised of operating leases where we are the lessee, primarily real estate leases for our corporate ~~office,~~offices, division offices and design studios, as well as certain equipment leases. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

Lease expense is included in selling, general and administrative expenses in our consolidated statements of operations and includes costs for leases with terms of more than 12 months as well as short-term leases with terms of 12 months or less. ~~For~~Our total lease expense for the three months ended May 31, 2021 and 2020 ~~our total lease expense~~ was $4.3 million and $4.4 million, ~~which~~respectively, and included short-term lease costs of $1.2 million and $1.4 ~~million.~~million, respectively. For the six months ended May 31, 2021 and 2020, our total lease expense was $8.6 million and $9.4 million, ~~which~~respectively, and included short-term lease costs of $2.5 million and $3.5 ~~million.~~million, respectively. Variable lease costs and external sublease income for the three-month and six-month periods ended May 31, 2021 and 2020 were immaterial.

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


	May 31, 2021			November 30, 2020
Lease right-of-use assets (a)	$	32,567		$	36,270
Lease liabilities (b)	34,524			38,000
Weighted-average remaining lease term	4.1 years			4.5 years
Weighted-average discount rate (incremental borrowing rate)	5.1		%	5.1		%

May 31,
2020
Lease right-of-use assets (a) $ 32,413
Lease liabilities (b) 33,905
(a)Represents lease right-of-use assets within our homebuilding operations and financial services operations of $32.3 million and $.3 million, respectively, at May 31, 2021, and $36.0 million and $.3 million, respectively, at November 30, 2020.

(b)Represents lease liabilities within our homebuilding operations and financial services operations of $34.3 million and $.3 million, respectively, at May 31, 2021, and $37.7 million and $.3 million, respectively, at November 30, 2020.

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

Three Months Ended
May 31, 2020

Six Months Ended
May 31, 2020
Lease right-of-use assets obtained in exchange for new lease liabilities $ 2,428
$ 6,068
Non-cash operating lease expense —
—
Cash payments on lease liabilities 2,894
5,637
Weighted-average remaining lease term 4.8 years
4.8 years
Weighted-average discount rate (incremental borrowing rate) 5.1 % 5.1 %


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020


Lease right-of-use assets obtained in exchange for new lease liabilities	$	1,411	$	2,428	$	1,499	$	6,068

Cash payments on lease liabilities	2,916		2,894		5,669		5,637

As of May 31, ~~2020,~~2021, the future minimum lease payments required under our leases are as follows (in thousands):


Years Ending November 30,
2021	$	5,936
2022	10,538
2023	8,270
2024	6,130
2025	4,500
Thereafter	3,111
Total lease payments	38,485
Less: Interest	(3,961)
Present value of lease liabilities	$	34,524

Years Ending November 30,
2020 $ 5,272
2021 9,070
2022 7,787
2023 5,789
2024 4,502
Thereafter 6,035
Total lease payments 38,455
Less: Interest (4,550 )
Present value of lease liabilities $ 33,905


~~14.~~	~~Income Taxes~~

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

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Income tax expense $ 15,800
$ 9,300
$ 24,900
$ 13,800
Effective tax rate 23.3 % 16.4 % 18.2 % 15.1 %


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Income tax expense	$	30,300		$	15,800		$	56,800		$	24,900
Effective tax rate	17.4		%	23.3		%	19.1		%	18.2		%

Our income tax expense and effective tax rate for the three months ended May 31, 2021 reflected the favorable impacts of $14.8 million of federal energy tax credits we earned from building energy-efficient homes and $.4 million of excess tax benefits related to stock-based compensation, partially offset by $1.9 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and effective tax rate for the three months ended May 31, 2020 included the favorable ~~effect~~impact of $3.0 million of federal energy tax credits ~~that~~ we earned from building energy-efficient homes, ~~partially~~partly offset by $1.0 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). For the three months ended May 31, 2019, our income tax expense and effective tax rate included the favorable effects of $4.3 million of federal energy tax credits and $.9 million of excess tax benefits related to stock-based compensation, partly offset by $.8 million of non-deductible executive compensation expense.

Our income tax expense and effective tax rate for the six months ended May 31, 2021 reflected the favorable impacts of $17.5 million of federal energy tax credits that we earned from building energy-efficient homes and $3.9 million of excess tax benefits related to stock-based compensation, partially offset by $3.3 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). For the six months ended May 31, 2020, our income tax expense and effective tax rate included the favorable ~~effects~~impacts of $7.0 million of federal energy tax credits ~~that~~ we earned from building energy-efficient homes and $5.6 million of excess tax benefits related to stock-based compensation, ~~partially~~partly offset by $2.0 million of non-deductible executive compensation expense. For the six months ended May 31, 2019, our income tax expense and effective tax rate included the favorable effects of $4.3 million of federal energy tax credits, a $3.3 million reversal of a deferred tax asset valuation allowance related to refundable alternative minimum tax (“AMT”) credits and $2.9 million of excess tax benefits related to stock-based compensation, partly offset by $1.2 million of non-deductible executive compensation expense.

The federal energy tax credits for the three months and six months ended May 31, ~~2020~~2021 resulted from legislation enacted in December ~~2019,~~2020, which among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, ~~2020.~~2021. Prior to this legislation, the tax credit expired on December 31, ~~2017.~~2020. This extension is expected to benefit our income tax provision in future periods.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to provide economic and other relief as a result of the COVID-19 pandemic. Among other things, the CARES Act ~~provides various income and payroll tax provisions that we do not expect to have a material impact on our income tax expense or effective tax rate for 2020. The CARES Act also~~ accelerated the timetable for ~~AMT~~alternative minimum tax (“AMT”) credit refunds. As a result, in the 2020 second quarter, we filed a superseding 2019 federal income tax return claiming ~~an additional~~a refund of $39.3 million of AMT credits and reclassified this amount from deferred tax assets to receivables. ~~These credits were in addition to the $43.3 million of~~We received this AMT ~~tax credits we reclassified from deferred tax assets to receivables~~credit refund in the 2021 first quarter.

The CARES Act also provided an Employee Retention Credit (“ERC”), which is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020 and before January 1, 2021. Based on our evaluation of this provision and the significant pandemic-related impacts on our operations in 2020, we recognized an ERC of $4.3 million as an offset to payroll tax expenses within selling general and administrative expenses in our consolidated statements of operations upon filing for the refund in the 2021 first ~~quarter when we filed a preliminary 2019 federal~~quarter.

In June 2020, California enacted tax legislation that approved the suspension of California net operating loss deductions for tax years 2020, 2021 and 2022. The suspension of California net operating loss deductions did not have an impact on our income tax ~~return.~~expense for the three months or six months ended May 31, 2021.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of ~~$276.8~~$217.4 million as of May 31, ~~2020~~2021 and ~~$383.7~~$249.1 million as of November 30, ~~2019~~2020 were both partly offset by valuation allowances of ~~$19.2~~$18.0 million. Our deferred tax assets as of May 31, 2020 reflected the above-mentioned AMT credit reclassifications totaling $82.6 million from deferred tax assets to receivables in the 2020 first and second quarters. The deferred tax asset valuation allowances as of May 31, ~~2020~~2021 and November 30, ~~2019~~2020 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of May 31, ~~2020,~~2021, we determined

that most of our deferred tax assets would be realized. Therefore, 0 adjustments to our deferred tax valuation allowance were needed for the six months ended May 31, ~~2020.~~2021.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized Tax Benefits. As of May 31, ~~2020~~2021 and November 30, ~~2019,~~2020, we had 0 gross unrecognized tax benefits. The fiscal years ending ~~2016~~2017 and later remain open to federal examinations, while ~~2015~~2016 and later remain open to state examinations.

Notes payable consisted of the following (in thousands):

May 31,
2020 November 30,
2019
Mortgages and land contracts due to land sellers and other loans $ 24,871
$ 7,889
7.00% Senior notes due December 15, 2021 448,589
448,164
7.50% Senior notes due September 15, 2022 348,551
348,267
7.625% Senior notes due May 15, 2023 351,517
351,748
6.875% Senior notes due June 15, 2027 296,565
296,379
4.80% Senior notes due November 15, 2029 296,446
296,300
Total $ 1,766,539
$ 1,748,747


	May 31, 2021		November 30, 2020


Mortgages and land contracts due to land sellers and other loans	$	4,067	$	4,667
7.00% Senior notes due December 15, 2021	449,486		449,029
7.50% Senior notes due September 15, 2022	349,153		348,846
7.625% Senior notes due May 15, 2023	351,038		351,281
6.875% Senior notes due June 15, 2027	296,955		296,757
4.80% Senior notes due November 15, 2029	296,748		296,595
Total	$	1,747,447	$	1,747,175

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs ~~premiums~~ and ~~discounts,~~premiums, which totaled ~~$8.3~~$6.6 million at May 31, ~~2020~~2021 and ~~$9.1~~$7.5 million at November 30, ~~2019.~~

Unsecured Revolving Credit Facility. We have an $800.0 million unsecured revolving credit facility with various banks (“Credit Facility”) that will mature on October 7, ~~2023~~.2023. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.00 billion under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $250.0 million for the issuance of letters of credit. Interest on amounts borrowed under the Credit Facility is payable at least quarterly in arrears at a rate based on either a Eurodollar or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. The Credit Facility also requires the payment of a commitment fee at a per annum rate ranging from .20% to .35% of the unused commitment, based on our Leverage Ratio. Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. The amount of the Credit Facility available for cash borrowings orand 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 May 31, ~~2020,~~2021, we had 0 cash borrowings and $12.4 million of letters of credit outstanding under the Credit Facility. Therefore, as of May 31, ~~2020,~~2021, we had $787.6 million available for cash borrowings under the Credit Facility, with up to $237.6 million of that amount available for the issuance of letters of credit.

Letter of Credit Facility. We ~~have~~maintain an unsecured letter of credit agreement with a financial institution (“LOC Facility”). to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, which expires on February 13, 2022, we may issue up to $50.0 million of letters of credit. ~~We maintain the LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business.~~ As of May 31, 2021 and November 30, 2020,, we had ~~$33.5 million of letters of credit outstanding under the LOC Facility. We had $15.8 million~~ letters of credit outstanding under the LOC Facility as of ~~November 30, 2019.~~$42.4 million and $29.7 million, respectively.

Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of May 31, ~~2020~~,2021, inventories having a carrying value of ~~$52.1~~$13.2 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

Shelf Registration Statement. We have an automatically effective universal shelf registration statement that was filed with the SEC on July 9, 2020 (“2020 Shelf Registration”). The 2020 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Our ability to issue securities is subject to market conditions.

Senior Notes. All of the senior notes outstanding at May 31, ~~2020~~2021 and November 30, ~~2019~~2020 represent senior unsecured obligations that are guaranteed by certain of our subsidiaries and rank equally in right of payment with all of our and our guarantor subsidiaries’ existing unsecured and unsubordinated indebtedness. All of our senior notes were issued in underwritten public offerings. Interest on each of these senior notes is payable semi-annually.

The indenture governing our senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale and leaseback transactions involving property above a certain specified value. In addition, ~~the indenture contains~~our senior notes contain certain limitations related to mergers, consolidations, and sales of assets.

As of May 31, ~~2020~~,2021, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

As of May 31, ~~2020,~~2021, principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due during each year ending November 30 as follows: ~~2020 – $6.8 million;~~ 2021 – ~~$18.0~~$1.1 million; 2022 – ~~$800.0~~$801.1 million; 2023 – ~~$350.0~~$351.2 million; 2024 – $.7 million; 2025 – $0; and thereafter – $600.0 million.

On June 9, 2021, we completed the underwritten public offering of $390.0 million in aggregate principal amount of 4.00% senior notes due 2031 (“4.00% Senior Notes due 2031”) at 100% of their aggregate principal amount, and used a portion of the net proceeds to purchase, pursuant to a tender offer that expired the previous day, $269.8 million in aggregate principal amount of our outstanding $450.0 million of 7.00% senior notes due 2021 (“7.00% Senior Notes due 2021”). Further information regarding these transactions is provided in Note 22 – Subsequent Events.

16. Fair Value Disclosures

Fair value measurements of assets and liabilities are categorized based on the following hierarchy:



Level 1						Fair value determined based on quoted prices in active markets for identical assets or liabilities.

Level 2						Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

Level 3						Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the six months ended May 31, ~~2020~~2021 and the year ended November 30, ~~2019~~2020 (in thousands):


		May 31, 2021						November 30, 2020
Description	Fair Value Hierarchy	Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)		Pre-Impairment Value		Inventory Impairment Charges		Fair Value (a)

Inventories	Level 3	$	8,505	$	(3,626)	$	4,879	$	69,211	$	(22,723)	$	46,488

May 31, 2020 November 30, 2019
Description Fair Value Hierarchy Pre-Impairment Value Inventory Impairment Charges Fair Value (a) Pre-Impairment Value Inventory Impairment Charges Fair Value (a)
Inventories Level 3 $ 14,394
$ (5,105 ) $ 9,289
$ 41,160
$ (14,031 ) $ 27,129
(a)Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date that the fair value measurements were made. The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

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

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


		May 31, 2021				November 30, 2020
Description	Fair Value Hierarchy	Carrying Value (a)		Estimated Fair Value		Carrying Value (a)		Estimated Fair Value
Financial Liabilities:
Senior notes	Level 2	$	1,743,380	$	1,883,500	$	1,742,508	$	1,924,250

May 31, 2020 November 30, 2019
Description
Fair Value
Hierarchy

Carrying
Value (a)

Estimated
Fair Value

Carrying
Value (a)

Estimated
Fair Value
Financial Liabilities:
Senior notes Level 2 $ 1,741,668
$ 1,862,750
$ 1,740,858
$ 1,921,563

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

The carrying values reported for cash and cash equivalents, and mortgages and land contracts due to land sellers and other loans approximate fair values. The carrying value of corporate-owned life insurance is based on the cash surrender value of the policies and, accordingly, approximates fair value.

17. Commitments and Contingencies

Commitments and contingencies include typical obligations of homebuilders for the completion of contracts and those incurred in the ordinary course of business.

Warranty. We provide a limited warranty on all of our homes. The specific terms and conditions of our limited warranty program vary depending upon the markets in which we do business. We generally provide a structural warranty of 10 years,, a warranty on electrical, heating, cooling, plumbing and certain other building systems each varying from two ~~years~~ to five years based on geographic market and state law, and a warranty of one year for other components of the home. Our limited warranty program is ordinarily how we respond to and account for homeowners’ requests to local division offices seeking repairs of certain conditions or defects, including claims where we could have liability under applicable state statutes or tort law for a defective condition in or damages to a home. Our warranty liability covers our costs of repairs associated with homeowner claims made under our limited warranty program. These claims are generally made directly by a homeowner and involve their individual home.

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. Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience. Factors that affect our warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our accrued warranty liability, which is included in accrued expenses and other liabilities in our consolidated balance sheets, and adjust the amount as necessary based on our assessment. Our assessment includes the review of our actual warranty costs incurred to identify trends and changes in our warranty claims

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

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

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Balance at beginning of period $ 90,213
$ 84,191
$ 88,839
$ 82,490
Warranties issued 7,271
8,139
15,634
14,433
Payments (4,640 ) (6,500 ) (11,629 ) (11,093 )
Adjustments —
(2,800 ) —
(2,800 )
Balance at end of period $ 92,844
$ 83,030
$ 92,844
$ 83,030


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Balance at beginning of period	$	92,687	$	90,213	$	91,646	$	88,839
Warranties issued	9,378		7,271		16,835		15,634
Payments	(6,212)		(4,640)		(12,628)		(11,629)
Adjustments	0		0		0		0
Balance at end of period	$	95,853	$	92,844	$	95,853	$	92,844

Guarantees. In the normal course of our business, we issue certain representations, warranties and guarantees related to our home sales and land sales. Based on historical experience, we do not believe any potential liability with respect to these representations, warranties or guarantees would be material to our consolidated financial statements.

Self-Insurance. We maintain, and require the majority of our independent subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. We also maintain certain other insurance policies. Costs associated with our self-insurance programs are included in selling, general and administrative expenses. In Arizona, California, Colorado and Nevada, our subcontractors’ general liability insurance primarily takes the form of a wrap-up policy under a program where eligible independent subcontractors are enrolled as insureds on each community. Enrolled subcontractors contribute toward the cost of the insurance and agree to pay a contractual amount in the future if there is a claim related to their work. To the extent provided under the wrap-up program, we absorb the enrolled subcontractors’ general liability associated with the work performed on our homes within the applicable community as part of our overall general liability insurance and our self-insurance.

We self-insure a portion of our overall risk through the use of a captive insurance subsidiary, which provides coverage for our exposure to construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to certain limits. Our self-insurance liability generally covers the costs of settlements and/or repairs, if any, as well as our costs to defend and resolve the following types of claims:

•Construction defect: Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting 2 or more homes within the same community, or they involve a common area or homeowners association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.

•Bodily injury: Bodily injury claims typically involve individuals (other than our employees) who claim they were injured while on our property or as a result of our operations.

•: Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting 2 or more homes within the same community, or they involve a common area or homeowners association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.

~~Bodily injury: Bodily injury claims typically involve individuals (other than our employees) who claim they were injured while on our property or as a result of our operations.~~

Property damage: Property damage claims generally involve claims by third parties for alleged damage to real or personal property as a result of our operations. Such claims may occasionally include those made against us by owners of property located near our communities.

Our self-insurance liability at each reporting date represents the estimated costs of reported claims, claims incurred but not yet reported, and claim adjustment expenses. The amount of our self-insurance liability is based on an analysis performed by a third-party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. In addition, changes in the frequency and severity of

reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Though state regulations vary, construction defect claims are reported and resolved over a long period of time, which can extend for 10 years or more. As a result, the majority of the estimated self-insurance liability based on the actuarial analysis relates to claims incurred but not yet reported. Therefore, adjustments related to individual existing claims generally do not significantly

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

Our self-insurance liability is presented on a gross basis for all periods without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable insurance and other recoveries of ~~$47.9~~$65.1 million and ~~$50.6~~$60.0 million are included in receivables in our consolidated balance sheets at May 31, ~~2020~~2021 and November 30, ~~2019,~~2020, respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment and legal precedent, and are subject to a high degree of variability from period to period. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.

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


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Balance at beginning of period	$	193,445	$	181,481	$	194,180	$	177,765
Self-insurance provided	5,928		1,343		10,511		5,977
Payments	(10,097)		(1,825)		(15,597)		(2,972)
Adjustments (a)	4,993		(2,918)		5,175		(2,689)
Balance at end of period	$	194,269	$	178,081	$	194,269	$	178,081

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Balance at beginning of period $ 181,481
$ 177,862
$ 177,765
$ 176,841
Self-insurance expense (a) 1,343
4,295
5,977
8,042
Payments (b) (4,743 ) (11,179 ) (5,661 ) (13,905 )
Balance at end of period $ 178,081
$ 170,978
$ 178,081
$ 170,978
(a)Represents net changes in estimated probable recoveries related to self-insurance, which are recorded in receivables, to present our self-insurance liability on a gross basis.

For most of our claims, there is no interaction between our warranty liability and self-insurance liability. Typically, if a matter is identified at its outset as either a warranty or self-insurance claim, it remains as such through its resolution. However, there can be instances of interaction between the liabilities, such as where individual homeowners in a community separately request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken. In these instances, the claims and related repair work generally are initially covered by our warranty liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

The payments we make in connection with claims and related repair work, whether covered within our warranty liability and/or our self-insurance liability, may be recovered from our insurers to the extent such payments exceed the self-insured retentions or deductibles under our general liability insurance policies. Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of and/or on behalf of a subcontractor(s) or their insurer(s) and believe we will be reimbursed for such payments. Estimates of all such amounts, if any, are recorded as receivables in our consolidated balance sheets when any such recovery is considered probable.

Florida Chapter 558 Actions ~~(Individual and Homeowner Association Claims)~~. We and certain of our subcontractors have received a growing number of claims from attorneys on behalf of individual owners of our homes and/or homeowners’ associations that allege, pursuant to Chapter 558 of the Florida Statutes, various construction defects, with most relating to stucco and water-intrusion issues. The claims primarily involve homes in our Jacksonville, Orlando, and Tampa operations. Under Chapter 558, homeowners must serve written notice of a construction defect(s) and provide the served construction and/or design contractor(s) with an opportunity to respond to the noticed issue(s) before they can file a lawsuit. Although we have resolved many of these claims without litigation, and a number of others have been resolved with applicable subcontractors or their insurers covering the related costs, as of May 31, ~~2020,~~2021, we had approximately ~~503~~686 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond. In addition, some of our subcontractors’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs. At May 31, ~~2020,~~2021, we had an accrual

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

Townhome Community Construction Defect Claims. In the 2016 fourth quarter, we received claims from a homeowners association alleging there were construction defects, primarily involving roofing and stucco issues, at a completed townhome community in Northern California totaling approximately $25.0 million. We, along with our outside consultants, have continued to investigate these allegations, and ~~we currently expect it may take additional quarters to fully evaluate them. At~~at May 31, ~~2020,~~2021, we had an accrual for our estimated probable loss in this matter and a receivable for estimated probable insurance recoveries that reflected the status of our investigation to such date. At this stage of our investigation into these allegations, it is reasonably possible that our loss could exceed the amount accrued by an estimated range of $0 to ~~$8.0~~$3.0 million. Our investigation ~~will~~has also ~~involve~~involved identifying potentially responsible parties, including insurers, to pay for or perform any necessary repairs. We are in discussions with the homeowners association regarding the claims and their resolution.

Performance Bonds and Letters of Credit. We are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. At May 31, ~~2020~~,2021, we had ~~$789.6~~$960.1 million of performance bonds and ~~$45.9~~$54.8 million of letters of credit outstanding. At November 30, ~~2019,~~2020, we had ~~$793.9~~$897.6 million of performance bonds and ~~$34.7~~$42.1 million of letters of credit outstanding. If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed. The expiration dates of some letters of credit issued in connection with community improvements coincide with the expected completion dates of the related projects or obligations. Most letters of credit, however, are issued with an initial term of one year and are typically extended on a year-to-year basis until the related performance obligations are completed.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes. At May 31, ~~2020~~,2021, we had total cash deposits of ~~$59.2~~$68.0 million to purchase land having an aggregate purchase price of ~~$1.27~~$1.66 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.

We are involved in litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of May 31, ~~2020,~~2021, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized or disclosed in our consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (b) the advice and analyses of counsel; and (c) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. Our accruals for litigation and regulatory proceedings are presented on a gross basis without consideration of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimates of recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable. Based on our experience, we believe that the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if an accrual had not been made, could be material to our consolidated financial statements. Pursuant to SEC rules, we will disclose any proceeding in which a governmental authority is a party and that arises under any federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment only where we believe that such proceeding will result in monetary sanctions on us, exclusive of interest and costs, above $1.0 million or is otherwise material to our consolidated financial statements.


~~19.~~	~~Stockholders’ Equity~~

19. Stockholders’ Equity

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


	Three Months Ended May 31, 2021 and 2020
	Number of Shares
	Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at February 28, 2021	100,042	(6,705)	(1,305)	$	100,042	$	827,456	$	1,951,657	$	(22,276)	$	(72,718)	$	(35,977)	$	2,748,184


Net income	—	—	—	—		—		143,364		—		—		—		143,364
Dividends on common stock	—	—	—	—		—		(13,733)		—		—		—		(13,733)
Employee stock options/other	65	—	—	65		903		—		—		—		—		968

Stock awards	44	—	2	44		(88)		—		—		—		44		0
Stock-based compensation	—	—	—	—		8,082		—		—		—		—		8,082


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

Balance at February 29, 2020	122,291	(7,317)	(24,526)	$	122,291	$	803,420	$	2,211,851	$	(17,149)	$	(79,359)	$	(597,950)	$	2,443,104


Net income	—	—	—	—		—		51,989		—		—		—		51,989
Dividends on common stock	—	—	—	—		—		(8,098)		—		—		—		(8,098)
Employee stock options/other	11	—	—	11		167		—		—		—		—		178
Stock awards	68	—	—	68		(68)		—		—		—		—		0
Stock-based compensation	—	—	—	—		3,181		—		—		—		—		3,181

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



	Six Months Ended May 31, 2021 and 2020
	Number of Shares
	Common Stock	Grantor Stock Ownership Trust	Treasury Stock	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Grantor Stock Ownership Trust		Treasury Stock		Total Stockholders’ Equity
Balance at November 30, 2020	99,869	(7,124)	(1,107)	$	99,869	$	824,306	$	1,868,896	$	(22,276)	$	(77,265)	$	(27,761)	$	2,665,769
Cumulative effect of adoption of ASU 2016-13	—	—	—	—		—		(226)		—		—		—		(226)
Net income	—	—	—	—		—		240,415		—		—		—		240,415
Dividends on common stock	—	—	—	—		—		(27,797)		—		—		—		(27,797)
Employee stock options/other	238	—	0	238		3,268		—		—		—		0		3,506
Stock awards	44	419	12	44		(4,875)		—		—		4,547		284		0
Stock-based compensation	—	—	—	—		13,654		—		—		—		—		13,654
Tax payments associated with stock-based compensation awards	—	—	(208)	—		—		—		—		—		(8,456)		(8,456)
Balance at May 31, 2021	100,151	(6,705)	(1,303)	$	100,151	$	836,353	$	2,081,288	$	(22,276)	$	(72,718)	$	(35,933)	$	2,886,865

Balance at November 30, 2019	121,593	(7,631)	(24,356)	$	121,593	$	793,954	$	2,157,183	$	(15,506)	$	(82,758)	$	(591,344)	$	2,383,122
Cumulative effect of adoption of ASC 842	—	—	—	—		—		1,510		—		—		—		1,510
Reclassification of stranded tax effects	—	—	—	—		—		1,643		(1,643)		—		—		—
Net income	—	—	—	—		—		111,737		—		—		—		111,737
Dividends on common stock	—	—	—	—		—		(16,331)		—		—		—		(16,331)
Employee stock options/other	709	—	—	709		7,695		—		—		—		—		8,404
Stock awards	68	314	(15)	68		(3,080)		—		—		3,399		(387)		0
Stock-based compensation	—	—	—	—		8,131		—		—		—		—		8,131
Tax payments associated with stock-based compensation awards	—	—	(155)	—		—		—		—		—		(6,219)		(6,219)
Balance at May 31, 2020	122,370	(7,317)	(24,526)	$	122,370	$	806,700	$	2,255,742	$	(17,149)	$	(79,359)	$	(597,950)	$	2,490,354

Three Months Ended May 31, 2020 and 2019
Number of Shares

Common
Stock

Grantor
Stock
Ownership
Trust

Treasury
Stock
Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss
Grantor Stock
Ownership Trust
Treasury Stock Total Stockholders’ Equity
Balance at February 29, 2020 122,291
(7,317 ) (24,526 ) $ 122,291
$ 803,420
$ 2,211,851
$ (17,149 ) $ (79,359 ) $ (597,950 ) $ 2,443,104
Net income —
—
—
—
—
51,989
—
—
—
51,989
Dividends on common stock —
—
—
—
—
(8,098 ) —
—
—
(8,098 )
Employee stock options/other 11
—
—
11
167
—
—
—
—
178
Stock awards 68
—
—
68
(68 ) —
—
—
—
—
Stock-based compensation —
—
—
—
3,181
—
—
—
—
3,181
Balance at May 31, 2020 122,370
(7,317 ) (24,526 ) $ 122,370
$ 806,700
$ 2,255,742
$ (17,149 ) $ (79,359 ) $ (597,950 ) $ 2,490,354

Balance at February 28, 2019 119,258
(7,860 ) (24,264 ) $ 119,258
$ 755,341
$ 1,936,523
$ (9,565 ) $ (85,246 ) $ (587,814 ) $ 2,128,497
Net income —
—
—
—
—
47,461
—
—
—
47,461
Dividends on common stock —
—
—
—
—
(2,189 ) —
—
—
(2,189 )
Employee stock options/other 1,036
—
—
1,036
14,594
—
—
—
—
15,630
Stock awards 56
—
—
56
(56 ) —
—
—
—
—
Stock-based compensation —
—
—
—
5,814
—
—
—
—
5,814
Tax payments associated with stock-based compensation awards —
—
—
—
—
—
—
—
(3 ) (3 )
Balance at May 31, 2019 120,350
(7,860 ) (24,264 ) $ 120,350
$ 775,693
$ 1,981,795
$ (9,565 ) $ (85,246 ) $ (587,817 ) $ 2,195,210

Six Months Ended May 31, 2020 and 2019
Number of Shares

Common
Stock

Grantor
Stock
Ownership
Trust

Treasury
Stock
Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss
Grantor Stock
Ownership Trust
Treasury Stock Total Stockholders’ Equity
Balance at November 30, 2019 121,593
(7,631 ) (24,356 ) $ 121,593
$ 793,954
$ 2,157,183
$ (15,506 ) $ (82,758 ) $ (591,344 ) $ 2,383,122
Cumulative effect of adoption of ASC 842 —
—
—
—
—
1,510
—
—
—
1,510
Reclassification of stranded tax effects (ASU 2018-02) —
—
—
—
—
1,643
(1,643 ) —
—
—
Net income —
—
—
—
—
111,737
—
—
—
111,737
Dividends on common stock —
—
—
—
—
(16,331 ) —
—
—
(16,331 )
Employee stock options/other 709
—
—
709
7,695
—
—
—
—
8,404
Stock awards 68
314
(15 ) 68
(3,080 ) —
—
3,399
(387 ) —
Stock-based compensation —
—
—
—
8,131
—
—
—
—
8,131
Tax payments associated with stock-based compensation awards —
—
(155 ) —
—
—
—
—
(6,219 ) (6,219 )
Balance at May 31, 2020 122,370
(7,317 ) (24,526 ) $ 122,370
$ 806,700
$ 2,255,742
$ (17,149 ) $ (79,359 ) $ (597,950 ) $ 2,490,354

Balance at November 30, 2018 119,196
(8,157 ) (24,113 ) $ 119,196
$ 753,570
$ 1,897,168
$ (9,565 ) $ (88,472 ) $ (584,397 ) $ 2,087,500
Cumulative effect of adoption of ASC 606 —
—
—
—
—
11,610
—
—
—
11,610
Net income —
—
—
—
—
77,472
—
—
—
77,472
Dividends on common stock —
—
—
—
—
(4,455 ) —
—
—
(4,455 )
Employee stock options/other 1,098
—
—
1,098
15,364
—
—
—
—
16,462
Stock awards 56
297
(4 ) 56
(3,207 ) —
—
3,226
(75 ) —
Stock-based compensation —
—
—
—
9,966
—
—
—
—
9,966
Tax payments associated with stock-based compensation awards —
—
(147 ) —
—
—
—
—
(3,345 ) (3,345 )
Balance at May 31, 2019 120,350
(7,860 ) (24,264 ) $ 120,350
$ 775,693
$ 1,981,795
$ (9,565 ) $ (85,246 ) $ (587,817 ) $ 2,195,210

On February ~~20, 2020,~~18, 2021, the management development and compensation committee of our board of directors approved the payout of ~~313,246~~419,070 shares of our common stock in connection with the vesting of PSUs that were granted to certain employees on October ~~6, 2016.~~5, 2017. The shares paid out under the PSUs reflected our achievement of certain performance measures that were based on cumulative earnings per share, average return on invested capital, and revenue growth relative to a peer group of high-production public homebuilding companies over the three-year period from December 1, ~~2016~~2017 through November 30, ~~2019.~~2020. Of the shares of common stock paid out, ~~155,307~~207,775 shares, or ~~$6.2~~$8.5 million, were purchased by us in the ~~2020~~2021 first quarter to satisfy the recipients’ withholding taxes on the vesting of the PSUs. The shares purchased were not considered repurchases under the authorizations described below.

As of May 31, ~~2020,~~2021, we were authorized to repurchase 2,193,947 shares of our common stock under a board of directors approved share repurchase program. We did not repurchase any of our common stock under this program in the six months ended May 31, ~~2020.~~2021.

Unrelated to the share repurchase program, our board of directors authorized in 2014 the repurchase of not more than 680,000 shares of our outstanding common stock, and also authorized potential future grants of up to 680,000 stock payment awards under the KB Home 2014 Equity Incentive Plan (“2014 Plan”), in each case solely as necessary for director elections in respect of outstanding stock appreciation rights awards granted under our Non-Employee Directors Compensation Plan. The 2014 Plan was amended in April 2016. As of May 31, ~~2020,~~2021, we have not repurchased any shares and no stock payment awards have been granted under the 2014 Plan, as amended, pursuant to the respective board of directors’ authorizations.

~~During~~On April 8, 2021, we entered into an Amended Rights Agreement with Computershare Inc., as rights agent, following its approval by our stockholders at our 2021 Annual Meeting held on April 8, 2021. The Amended Rights Agreement amends the Amended and Restated Rights Agreement, dated as of April 12, 2018 (“Prior Rights Agreement”). As with the Prior Rights Agreement, the Amended Rights Agreement is intended to continue to help protect our net operating losses and other deferred tax assets from an ownership change under Section 382 of the Internal Revenue Code. The Amended Rights Agreement extended the latest possible expiration date of the rights issued pursuant to the Prior Rights Agreement to the close of business on April 30, 2024, and made certain other related changes. Otherwise, the Amended Rights Agreement’s terms are substantively the same as those of the Prior Rights Agreement, which were disclosed in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended November 30, 2020.

In the three-month ~~periods~~period ended May 31, ~~2020 and 2019,~~2021, our board of directors declared, and we paid, a quarterly cash ~~dividends~~dividend on our common stock of ~~$.090~~$.15 per ~~share~~share. In the three-month period ended May 31, 2020, our board of directors declared, and ~~$.025~~we paid, a quarterly cash dividend on our common stock of $.09 per ~~share, respectively.~~share. Quarterly cash dividends declared and paid ~~during~~on our common stock in the six-month periods ended May 31, 2021 and 2020 ~~and 2019~~ totaled ~~$.180~~$.30 per share and ~~$.050~~$.18 per share of common stock, respectively.


~~20.~~	~~Stock-Based Compensation~~

20. Stock-Based Compensation

Stock Options. We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model. The following table summarizes stock option transactions for the six months ended May 31, ~~2020:~~2021:

Options
Weighted
Average Exercise
Price
Options outstanding at beginning of period 4,163,481
$ 13.00
Granted —
—
Exercised (708,372 ) 11.77
Cancelled (6,000 ) 45.16
Options outstanding at end of period 3,449,109
$ 13.20
Options exercisable at end of period 3,449,109
$ 13.20


	Options	Weighted Average Exercise Price
Options outstanding at beginning of period	2,462,714	$	15.32
Granted	0	0
Exercised	(228,651)	15.35
Cancelled	0	0
Options outstanding at end of period	2,234,063	$	15.32
Options exercisable at end of period	2,234,063	$	15.32

We have not granted any ~~new~~ stock option awards since 2016. As of May 31, ~~2020~~,2021, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of ~~4.2~~4.1 years. ~~At May 31, 2020,~~As all outstanding stock options have been fully vested since 2019, there was 0 unrecognized compensation expense related to stock option awards ~~as all of these awards were fully vested. For the three-month and six-month periods ended~~ at May 31, ~~2020, there was~~2021 and 0 stock-based compensation expense associated with stock ~~options. For~~options for the three-month and six-month periods ended May 31, ~~2019, stock-based compensation expense associated with stock options was nominal.~~2021 and 2020. Stock options outstanding and stock options exercisable each had an aggregate

intrinsic value of ~~$68.6~~$70.3 million at May 31, ~~2020.~~2021. (The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)

Other Stock-Based Awards. From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit. We recognized total compensation expense of ~~$3.1~~$8.1 million and ~~$5.8~~$3.1 million for the three months ended May 31, ~~2020~~2021 and ~~2019,~~2020, respectively, related to restricted stock and PSUs. For the six months ended May 31, ~~2020~~2021 and ~~2019,~~2020, we recognized total compensation expense of ~~$8.1~~$13.7 million and ~~$9.9~~$8.1 million, respectively, related to restricted stock and PSUs.

21. Supplemental Disclosure to Consolidated Statements of Cash Flows


~~21.~~	~~Supplemental Disclosure to Consolidated Statements of Cash Flows~~

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


	Six Months Ended May 31,
	2021		2020
Summary of cash and cash equivalents at end of period:
Homebuilding	$	608,069	$	575,006
Financial services	978		1,027
Total	$	609,047	$	576,033
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	(164)	$	249
Income taxes paid	26,295		1,078
Supplemental disclosures of non-cash activities:
Reclassification of federal tax refund from deferred tax assets to receivables	0		82,617
Increase in operating lease right-of-use assets and lease liabilities due to adoption of ASC 842	0		31,199
Inventories acquired through seller financing	0		18,045
Decrease in consolidated inventories not owned	(5,223)		(10,414)
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture	4,905		5,360

Six Months Ended May 31,
2020 2019
Summary of cash and cash equivalents at end of period:
Homebuilding $ 575,006
$ 178,876
Financial services 1,027
888
Total $ 576,033
$ 179,764
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized $ 249
$ (2,809 )
Income taxes paid 1,078
3,163
Supplemental disclosures of non-cash activities:
Reclassification of federal tax refund from deferred tax assets to receivables $ 82,617
$ —
Increase in operating lease right-of-use assets and lease liabilities due to adoption of ASC 842 31,199
—
Inventories acquired through seller financing 18,045
—
Decrease in consolidated inventories not owned (10,414 ) (16,262 )
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 5,360
3,983
Decrease in inventories due to adoption of ASC 606 —
(35,288 )
Increase in property and equipment, net due to adoption of ASC 606 —
31,194

22. Subsequent Events


~~22.~~	~~Supplemental Guarantor Information~~

~~Our~~On June 9, 2021, pursuant to the 2020 Shelf Registration, we completed the underwritten public offering of $390.0 million in aggregate principal amount of 4.00% Senior Notes due 2031 at 100% of their aggregate principal amount. The 4.00% Senior Notes due 2031 represent senior unsecured obligations ~~to pay principal, premium, if any,~~of ours and ~~interest~~rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness. Interest on the ~~senior notes~~4.00% Senior Notes due 2031 is payable semi-annually in arrears on June 15 and ~~borrowings, if any, under~~December 15, commencing on December 15, 2021. The 4.00% Senior Notes due 2031 will mature on June 15, 2031.

We used a portion of the ~~Credit Facility are guaranteed~~net proceeds from the issuance of the 4.00% Senior Notes due 2031 to purchase, pursuant to a tender offer that expired on ~~a joint and several basis by certain~~June 8, 2021, $269.8 million in aggregate principal amount of our ~~subsidiaries (“Guarantor Subsidiaries”). The guarantees are full and unconditional and~~outstanding $450.0 million of 7.00% Senior Notes due 2021. We intend to use the ~~Guarantor Subsidiaries are~~ ~~100%~~ ~~owned by us. Pursuant~~remaining net proceeds together with cash on hand to redeem the ~~terms~~remaining $180.2 million of 7.00% Senior Notes due 2021 at par value on September 15, 2021. We expect to recognize a charge of approximately $5.0 million for the ~~indenture governing~~early extinguishment of debt in the ~~senior notes and the terms~~2021 third quarter.

On July 8, 2021, our board of ~~the Credit Facility, if any~~directors authorized us to repurchase a total of ~~the Guarantor Subsidiaries ceases~~up to ~~be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a~~ 5% ~~rather than a 10% threshold (provided that the assets~~5,000,000 shares of our ~~non-guarantor subsidiaries do~~outstanding common stock. This authorization reaffirmed and incorporated the then-current balance of 2,193,947 shares that remained under a prior board-approved share repurchase program. Repurchases under this 5,000,000 share repurchase 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 and business conditions and other factors. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors, and does not ~~in the aggregate exceed~~ ~~10%~~ of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary ofobligate us to purchase any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release. We have determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented.shares.

~~The supplemental financial information for all periods presented below reflects the relevant subsidiaries that were Guarantor Subsidiaries as of~~ ~~May 31, 2020~~.

~~Condensed Consolidating Statements of Operations (in thousands)~~

Three Months Ended May 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ —
$ 834,137
$ 79,833
$ —
$ 913,970
Homebuilding:
Revenues $ —
$ 834,137
$ 76,143
$ —
$ 910,280
Construction and land costs —
(677,910 ) (66,543 ) —
(744,453 )
Selling, general and administrative expenses (24,780 ) (83,470 ) (5,988 ) —
(114,238 )
Operating income (loss) (24,780 ) 72,757
3,612
—
51,589
Interest income 407
13
22
—
442
Interest expense (29,541 ) (58 ) (1,456 ) 31,055
—
Intercompany interest 79,978
(44,689 ) (4,234 ) (31,055 ) —
Equity in income of unconsolidated joint ventures —
8,154
—
—
8,154
Homebuilding pretax income (loss) 26,064
36,177
(2,056 ) —
60,185
Financial services pretax income —
—
7,604
—
7,604
Total pretax income 26,064
36,177
5,548
—
67,789
Income tax expense (6,700 ) (7,800 ) (1,300 ) —
(15,800 )
Equity in net income of subsidiaries 32,625
—
—
(32,625 ) —
Net income $ 51,989
$ 28,377
$ 4,248
$ (32,625 ) $ 51,989

Three Months Ended May 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ —
$ 932,945
$ 88,858
$ —
$ 1,021,803
Homebuilding:
Revenues $ —
$ 932,945
$ 85,726
$ —
$ 1,018,671
Construction and land costs —
(756,055 ) (87,689 ) —
(843,744 )
Selling, general and administrative expenses (27,506 ) (97,590 ) 2,268
—
(122,828 )
Operating income (loss) (27,506 ) 79,300
305
—
52,099
Interest income 395
—
44
—
439
Interest expense (35,080 ) (134 ) (1,330 ) 36,544
—
Intercompany interest 82,238
(42,578 ) (3,116 ) (36,544 ) —
Equity in loss of unconsolidated joint ventures —
(369 ) —
—
(369 )
Homebuilding pretax income (loss) 20,047
36,219
(4,097 ) —
52,169
Financial services pretax income —
—
4,592
—
4,592
Total pretax income 20,047
36,219
495
—
56,761
Income tax expense (2,800 ) (3,000 ) (3,500 ) —
(9,300 )
Equity in net income of subsidiaries 30,214
—
—
(30,214 ) —
Net income (loss) $ 47,461
$ 33,219
$ (3,005 ) $ (30,214 ) $ 47,461

Six Months Ended May 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ —
$ 1,826,682
$ 163,223
$ —
$ 1,989,905
Homebuilding:
Revenues $ —
$ 1,826,682
$ 155,980
$ —
$ 1,982,662
Construction and land costs —
(1,493,468 ) (137,038 ) —
(1,630,506 )
Selling, general and administrative expenses (52,430 ) (176,482 ) (11,460 ) —
(240,372 )
Operating income (loss) (52,430 ) 156,732
7,482
—
111,784
Interest income 1,291
12
74
—
1,377
Interest expense (59,096 ) (58 ) (2,863 ) 62,017
—
Intercompany interest 160,558
(90,525 ) (8,016 ) (62,017 ) —
Equity in income of unconsolidated joint ventures —
10,059
—
—
10,059
Homebuilding pretax income (loss) 50,323
76,220
(3,323 ) —
123,220
Financial services pretax income —
—
13,417
—
13,417
Total pretax income 50,323
76,220
10,094
—
136,637
Income tax expense (9,800 ) (12,900 ) (2,200 ) —
(24,900 )
Equity in net income of subsidiaries 71,214
—
—
(71,214 ) —
Net income $ 111,737
$ 63,320
$ 7,894
$ (71,214 ) $ 111,737

Six Months Ended May 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ —
$ 1,677,398
$ 155,888
$ —
$ 1,833,286
Homebuilding:
Revenues $ —
$ 1,677,398
$ 150,061
$ —
$ 1,827,459
Construction and land costs —
(1,367,096 ) (147,503 ) —
(1,514,599 )
Selling, general and administrative expenses (52,888 ) (173,130 ) (3,404 ) —
(229,422 )
Operating income (loss) (52,888 ) 137,172
(846 ) —
83,438
Interest income 1,409
—
135
—
1,544
Interest expense (68,275 ) (455 ) (2,602 ) 71,332
—
Intercompany interest 160,210
(84,316 ) (4,562 ) (71,332 ) —
Equity in loss of unconsolidated joint ventures —
(775 ) —
—
(775 )
Homebuilding pretax income (loss) 40,456
51,626
(7,875 ) —
84,207
Financial services pretax income —
—
7,065
—
7,065
Total pretax income (loss) 40,456
51,626
(810 ) —
91,272
Income tax expense (3,500 ) (6,400 ) (3,900 ) —
(13,800 )
Equity in net income of subsidiaries 40,516
—
—
(40,516 ) —
Net income (loss) $ 77,472
$ 45,226
$ (4,710 ) $ (40,516 ) $ 77,472

~~Condensed Consolidating Balance Sheets (in thousands)~~

May 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Assets
Homebuilding:
Cash and cash equivalents $ 480,206
$ 65,410
$ 29,390
$ —
$ 575,006
Receivables 83,709
167,965
61,254
—
312,928
Inventories —
3,273,411
334,054
—
3,607,465
Investments in unconsolidated joint ventures —
57,823
—
—
57,823
Property and equipment, net 27,136
35,328
3,300
—
65,764
Deferred tax assets, net 87,382
169,356
833
—
257,571
Other assets 98,866
20,687
7,035
—
126,588
777,299
3,789,980
435,866
—
5,003,145
Financial services —
—
38,857
—
38,857
Intercompany receivables 3,510,856
—
199,368
(3,710,224 ) —
Investments in subsidiaries 129,869
—
—
(129,869 ) —
Total assets $ 4,418,024
$ 3,789,980
$ 674,091
$ (3,840,093 ) $ 5,042,002
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities $ 137,402
$ 343,519
$ 302,340
$ —
$ 783,261
Notes payable 1,716,558
24,871
25,110
—
1,766,539
1,853,960
368,390
327,450
—
2,549,800
Financial services —
—
1,848
—
1,848
Intercompany payables 73,710
3,421,590
214,924
(3,710,224 ) —
Stockholders’ equity 2,490,354
—
129,869
(129,869 ) 2,490,354
Total liabilities and stockholders’ equity $ 4,418,024
$ 3,789,980
$ 674,091
$ (3,840,093 ) $ 5,042,002

November 30, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Assets
Homebuilding:
Cash and cash equivalents $ 357,966
$ 65,434
$ 30,414
$ —
$ 453,814
Receivables 1,934
181,047
66,074
—
249,055
Inventories —
3,400,307
304,295
—
3,704,602
Investments in unconsolidated joint ventures —
57,038
—
—
57,038
Property and equipment, net 24,250
37,539
3,254
—
65,043
Deferred tax assets, net 96,301
237,877
30,315
—
364,493
Other assets 78,686
2,666
1,689
—
83,041
559,137
3,981,908
436,041
—
4,977,086
Financial services —
—
38,396
—
38,396
Intercompany receivables 3,624,081
—
186,022
(3,810,103 ) —
Investments in subsidiaries 115,753
—
—
(115,753 ) —
Total assets $ 4,298,971
$ 3,981,908
$ 660,459
$ (3,925,856 ) $ 5,015,482
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities $ 139,137
$ 453,929
$ 288,489
$ —
$ 881,555
Notes payable 1,715,748
7,889
25,110
—
1,748,747
1,854,885
461,818
313,599
—
2,630,302
Financial services —
—
2,058
—
2,058
Intercompany payables 60,964
3,520,090
229,049
(3,810,103 ) —
Stockholders’ equity 2,383,122
—
115,753
(115,753 ) 2,383,122
Total liabilities and stockholders’ equity $ 4,298,971
$ 3,981,908
$ 660,459
$ (3,925,856 ) $ 5,015,482

~~Condensed Consolidating Statements of Cash Flows (in thousands)~~

Six Months Ended May 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Net cash provided by (used in) operating activities $ (14,150 ) $ 166,394
$ 2,450
$ —
$ 154,694
Cash flows from investing activities:
Contributions to unconsolidated joint ventures —
(3,586 ) —
—
(3,586 )
Return of investments in unconsolidated joint ventures —
500
—
—
500
Purchases of property and equipment, net (3,111 ) (9,714 ) (2,399 ) —
(15,224 )
Intercompany 153,647
—
—
(153,647 ) —
Net cash provided by (used in) investing activities 150,536
(12,800 ) (2,399 ) (153,647 ) (18,310 )
Cash flows from financing activities:
Payments on mortgages and land contracts due to land sellers and other loans —
(1,063 ) —
—
(1,063 )
Issuance of common stock under employee stock plans 8,404
—
—
—
8,404
Tax payments associated with stock-based compensation awards (6,219 ) —
—
—
(6,219 )
Payments of cash dividends (16,331 ) —
—
—
(16,331 )
Intercompany —
(152,555 ) (1,092 ) 153,647
—
Net cash used in financing activities (14,146 ) (153,618 ) (1,092 ) 153,647
(15,209 )
Net increase (decrease) in cash and cash equivalents 122,240
(24 ) (1,041 ) —
121,175
Cash and cash equivalents at beginning of period 357,966
65,434
31,458
—
454,858
Cash and cash equivalents at end of period $ 480,206
$ 65,410
$ 30,417
$ —
$ 576,033

Six Months Ended May 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Net cash provided by (used in) operating activities $ 35,547
$ (308,291 ) $ 92,410
$ —
$ (180,334 )
Cash flows from investing activities:
Contributions to unconsolidated joint ventures —
(4,245 ) —
—
(4,245 )
Return of investments in unconsolidated joint ventures —
5,001
—
—
5,001
Proceeds from sale of building —
5,804
—
—
5,804
Purchases of property and equipment, net (3,241 ) (11,360 ) (7,663 ) —
(22,264 )
Intercompany (196,595 ) —
—
196,595
—
Net cash used in investing activities (199,836 ) (4,800 ) (7,663 ) 196,595
(15,704 )
Cash flows from financing activities:
Proceeds from issuance of debt 405,250
—
—
—
405,250
Payment of debt issuance costs (5,209 ) —
—
—
(5,209 )
Repayment of senior notes (630,000 ) —
—
—
(630,000 )
Borrowings under revolving credit facility 330,000
—
—
—
330,000
Repayments under revolving credit facility (280,000 ) —
—
—
(280,000 )
Payments on mortgages and land contracts due to land sellers and other loans —
(28,020 ) —
—
(28,020 )
Issuance of common stock under employee stock plans 16,462
—
—
—
16,462
Tax payments associated with stock-based compensation awards (3,345 ) —
—
—
(3,345 )
Payments of cash dividends (4,455 ) —
—
—
(4,455 )
Intercompany —
298,278
(101,683 ) (196,595 ) —
Net cash provided by (used in) financing activities (171,297 ) 270,258
(101,683 ) (196,595 ) (199,317 )
Net decrease in cash and cash equivalents (335,586 ) (42,833 ) (16,936 ) —
(395,355 )
Cash and cash equivalents at beginning of period 429,977
114,269
30,873
—
575,119
Cash and cash equivalents at end of period $ 94,391
$ 71,436
$ 13,937
$ —
$ 179,764


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

OVERVIEW

Revenues are generated from our homebuilding and financial services operations. The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):


	Three Months Ended May 31,						Six Months Ended May 31,
	2021		2020		Variance		2021		2020		Variance
Revenues:
Homebuilding	$	1,436,035	$	910,280	58	%	$	2,574,043	$	1,982,662	30	%
Financial services	4,857		3,690		32		8,587		7,243		19
Total revenues	$	1,440,892	$	913,970	58	%	$	2,582,630	$	1,989,905	30	%
Pretax income:
Homebuilding	$	163,016	$	60,185	171	%	$	278,067	$	123,220	126	%
Financial services	10,648		7,604		40		19,148		13,417		43
Total pretax income	173,664		67,789		156		297,215		136,637		118
Income tax expense	(30,300)		(15,800)		(92)		(56,800)		(24,900)		(128)
Net income	$	143,364	$	51,989	176	%	$	240,415	$	111,737	115	%
Diluted earnings per share	$	1.50	$	.55	173	%	$	2.52	$	1.19	112	%

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 Variance 2020 2019 Variance
Revenues:
Homebuilding $ 910,280
$ 1,018,671
(11) % $ 1,982,662
$ 1,827,459
8 %
Financial services 3,690
3,132
18
7,243
5,827
24
Total revenues $ 913,970
$ 1,021,803
(11) % $ 1,989,905
$ 1,833,286
9 %
Pretax income:
Homebuilding $ 60,185
$ 52,169
15 % $ 123,220
$ 84,207
46 %
Financial services 7,604
4,592
66
13,417
7,065
90
Total pretax income 67,789
56,761
19
136,637
91,272
50
Income tax expense (15,800 ) (9,300 ) (70 ) (24,900 ) (13,800 ) (80 )
Net income $ 51,989
$ 47,461
10 % $ 111,737
$ 77,472
44 %
Basic earnings per share $ .57
$ .54
6 % $ 1.23
$ .88
40 %
Diluted earnings per share $ .55
$ .51
8 % $ 1.19
$ .82
45 %

~~During~~As the ~~2020 first half, we, like many companies worldwide, experienced an extraordinary change~~U.S. economy began to recover from the severe impacts of the COVID-19 pandemic that started in business conditions in mid-March that created a sharp difference in our results between the first and second quarters. Our 2020 first quarter was particularly strong, as we generated the highest revenues, net orders, ending backlog and ending backlog value for any first quarter since 2007 and increased our net income 99% year over year. We had positive momentum entering the 2020 second quarter, ~~with the number of homes in backlog at the beginning of the quarter (“beginning backlog”) up 26% year over year.~~

In mid-March 2020, however, the COVID-19 pandemic and related COVID-19 control responses in our served markets, including quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations, severely impacted housing market conditions during our second quarter and beyond. The unprecedented steep drop in employment and economic activity in March led the National Bureau of Economic Research to determine that the United States entered into, and continues to be in, a recession. In April, the national unemployment rate reached its highest level since the Great Depression, and the unemployment rates in the states where we operate surged. The extreme economic contractionremained generally healthy from mid-March through May together with ongoing uncertainty about the virulence of COVID-19 and the availability of generally effective therapeutics or a vaccine, as well as the duration and parameters of COVID-19 control responses, created significant volatility in capital markets; disrupted secondary mortgage markets, in part due to CARES Act relief provisions for outstanding mortgage loans; weakened consumer confidence and decreased demand for new homes (including homes ordered in the first quarter) for most of our 2020 second quarter.

~~Beyond the significant negative economic impact, the COVID-19 control responses in our served markets substantially impacted our operations during~~ the 2020 second ~~quarter. With~~half through the ~~health~~six months ended May 31, 2021. Continued solid first-time buyer interest in homeownership, underscoring the large millennial and ~~well-being~~Generation Z demographic groups that are in or entering their prime homebuying years, along with a limited supply of new and resale inventory and low mortgage interest rates, created a favorable environment for our business throughout the period. First-time buyers accounted for 64% of our ~~employees, customers and business partners, and their families, being a high priority, we took decisive actions~~homes delivered in mid-March, temporarily closing our sales centers, model homes and design studios to the public and shifting to virtual sales tools and then an appointment-only personalized home sales process in April, where permitted. We also shifted our corporate and division office functions to work remotely. With our construction operations being restricted in many jurisdictions, and completely shut down in some of them, together with the reduced availability or capacity of some municipal and private services necessary to build and deliver homes, we experienced home delivery delays during most of the quarter. In addition, our order pace moderated significantly, and home purchase cancellations increased considerably, largely reflecting our proactive efforts to assure a backlog of qualified homebuyers amid the pandemic-induced economic downturn that affected homebuyers’ employment status or created uncertainty for them about that status and their ability to purchase their home, as well as disruptions in the availability of mortgage loans or in the performance of lenders, among other

factors. Many of the home purchase cancellations were on homes that had not yet been started, though about 20% were scheduled for delivery during the quarter. Among the markets with the largest impact to our second quarter net orders were the Inland Empire and Bay Area in California; Las Vegas, Nevada; Houston, Texas; and Orlando, Florida.

Very late in the second quarter, conditions started to improve in conjunction with state and local governments relaxing their COVID-19 control responses, including slightly better employment and consumer confidence levels. In the latter part of May, with restrictions easing in many of our served markets, we began to take steps to effectively resume nearly all of our operations, including more broadly opening our sales centers, model homes and design studios to the public, while also expanding construction and warranty service activities to the extent permitted by local authorities. We also launched significant enhancements to our website, including upgraded home search tools. Our reopening process is further described below under “Outlook.”

Given the tremendous challenges we faced, and continue to face, with the COVID-19 outbreak, including adapting to the various COVID-19 control responses and rapid economic downturn and related ongoing uncertainty about the near- and medium-term business environments, during the 2020 second quarter, we proceeded in a carefully targeted manner with land acquisition and land development, and focused on generating cash inflows from our business and preserving cash and liquidity by curtailing overhead expenditures, partly through workforce realignment and reductions that we expect will yield annualized savings of approximately $40 million allocated between construction and land costs and selling, general and administrative expenses. As a result, we recorded severance charges of $6.7 million within our selling, general and administrative expenses for the three months ended May 31, ~~2020.~~

~~The above-described impacts from~~2021. Reflecting the ~~COVID-19 pandemic~~robust demand in our served markets, the number and the volatile economic, business and financial market conditions resulting therefrom, are expected to continue to negatively affect the housing market and our consolidated financial statements in the 2020 third and fourth quarters. Although we are uncertainvalue of ~~the potential full magnitude or duration of the business and economic impacts, we could experience material declines in~~ our net orders ~~homes delivered, average selling prices, revenues, cash flow and/or profitability in~~for the ~~remainder of 2020 compared to the corresponding prior-year periods. Further discussion of the potential impacts on our business~~2021 second quarter rose 145% and 196%, respectively, from the COVID-19 pandemic is provided below under Part II, Item 1A – Risk Factors. Though our operations have not been directly affected as of the date of this report, we are also monitoring potential impacts from weeks of widespread protests and civil unrest that started at the end of May related to efforts to institute law enforcement and other social and political reforms.

~~Financial and Operational Highlights.~~ ~~Reflecting the extremely difficult business environment described above, housing revenues for~~ the 2020 second quarter, ~~decreased 11%~~when our net orders were adversely affected by the outbreak of the COVID-19 pandemic as described below under “COVID-19 Pandemic Impact.”

In order to balance pace, price and construction starts to optimize the performance of our inventory assets and improve returns amid the considerable demand for our homes and steadily increasing construction labor and building materials costs, particularly for lumber, we raised selling prices in the vast majority of our communities and, in some instances, managed the pace of lot releases during the 2021 second quarter. However, with the strong housing demand and improving general economy, we experienced supply-chain disruptions that created intermittent shortages of certain construction materials and other products, as well as trade labor availability constraints and municipality delays, with respect to permitting, inspections and utilities. These factors extended our construction cycle times in the 2021 second quarter, and pushed some expected deliveries and new community openings into the third quarter. Along with the accelerated close-out of communities due to our exceptionally strong monthly net order pace, we had year-over-year and sequential decreases in our average and ending community counts for the quarter. We are closely monitoring the risks to our construction cycle times and new community openings, and believe the above-described unfavorable trends will generally persist for the remainder of the year. Therefore, we have incorporated them into our 2021 third quarter and full-year performance expectations as presented below under “Outlook.”

Homebuilding revenues for the 2021 second quarter grew 58% from the year-earlier quarter due to ~~a 10% decline~~an increase in housing revenues that reflected 40% growth in the number of homes delivered to ~~2,499~~ 3,504, our highest second-quarter level since 2007,and a ~~slight decrease~~13% increase in the overall average selling price of those homes to ~~$364,100.~~$409,800. Homebuilding operating income for the three months ended May 31, ~~2020 was down slightly~~2021 rose 216% year over year to ~~$51.6 million. At the same time, homebuilding operating income~~$162.9 million and, as a percentage of ~~related~~ revenues, improved 60560 basis points to ~~5.7%~~11.3%. ~~Excluding inventory-related charges of $4.4 million and the above-mentioned severance charges of $6.7 million~~The increase in ~~the current quarter and $4.3 million of inventory-related charges~~our homebuilding operating income margin was driven by meaningful improvements in the year-earlier quarter, this metric improved 140 basis points to 6.9%. Our housing gross profits for the quarter decreased compared to the year-earlier period, mainly due to lower housing revenues, partly offset by a 100-basis point improvement inboth our housing gross profit margin ~~to 18.2%.~~

~~The year-over-year increase in our housing gross profit margin primarily reflected a shift in the mix of homes delivered~~ and lower relative amortization of previously capitalized interest, partly offset by reduced operating leverage due to lower housing revenues. Our selling, general and administrative expense ratio increased 50 basis points to 12.6% of housing revenues, primarily due to the above-mentioned severance charges and decreased operating leverage from lower housing revenues, partly offset by reduced expenses for certain employee compensation plans. Excluding the current quarter severance charges, selling, general and administrative expenses as a percentage of housing ~~revenues were 11.8%.~~

~~The following table presents information concerning our net orders, cancellation rates, ending backlog and community count for~~revenues. Reflecting the ~~three-month and six-month periods ended May 31, 2020 and 2019 (dollars in thousands):~~

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Net orders 1,758
4,064
5,253
6,739
Net order value (a) $ 688,444
$ 1,532,688
$ 2,071,098
$ 2,554,775
Cancellation rates (b) 43 % 15 % 27 % 17 %
Ending backlog — homes 5,080
5,927
5,080
5,927
Ending backlog — value $ 1,903,017
$ 2,173,173
$ 1,903,017
$ 2,173,173
Ending community count 244
255
244
255
Average community count 247
252
248
248


~~(a)~~	Net order value represents the potential future housing revenues associated with net orders generated during the period, as well as homebuyer selections of lot and product premiums and design studio options and upgrades for homes in backlog during the same period.


~~(b)~~	~~Cancellation rates represent 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.~~ Our second quarter has typically been our strongest quarter for net orders. However, the COVID-19 pandemic and associated COVID-19 control responses in our served markets negatively affected our gross orders, which decreased 36% year over year, and elevated our cancellation rate. As a result, for the three months ended May 31, 2020, net orders fromstrong performance of both our homebuilding ~~operations fell 57% from the year-earlier period. Reflecting the progression of COVID-19 pandemic-related impacts, our gross orders for March~~ and April 2020 decreased 4% and 59%, respectively, as compared to the corresponding months of 2019. We experienced steady improvement in our order trends beginning in May, which was further fueled by welcoming walk-in traffic to our communities. For May 2020, the year-over-year decrease in gross orders moderated to 42%, reflecting the easing of the COVID-19 control responses in our served markets and our gradual resumption of more normalizedfinancial services operations in the ~~latter part of the month. Our 2020~~2021 second quarter, our pretax income margin improved 470 basis points to 12.1%, and net ~~orders were down 10% in March, 107% in April~~income and ~~55% in May,~~diluted earnings per share increased 176% and

173%, respectively, each as compared to the corresponding ~~year-earlier period.~~quarter of 2020.

COVID-19 Pandemic Impact. The ~~year-over-year increase in~~COVID-19 pandemic and related governmental control measures considerably disrupted global and national economies, the U.S. housing market and our ~~cancellation rate as~~business during our 2020 second quarter. During that period, we experienced a ~~percentage of gross orders for the three months ended May 31, 2020 reflected monthly cancellation rates for March, April and May of 20%, 114% and 34%, respectively.~~

~~The value of our net orders for the three months ended May 31, 2020 was down 55% from the year-earlier period as a result of the decrease~~sizable reduction in net orders and backlog, as discussed below under “Net Orders,” as well as protracted supply chain delays and construction cycle time extensions in most of our served markets that resulted in home delivery delays. With the uncertainty surrounding the COVID-19 pandemic, and in prioritizing cash preservation and liquidity, we limited our land investments and curtailed our overhead expenditures, partly ~~offset by an increase in the overall average~~through workforce realignment and reductions. As a result, our selling, ~~price of those orders. For~~general and administrative expenses for the 2020 second quarter included severance charges of $6.7 million.

With the easing to varying degrees of restrictive public health orders in our ~~monthly~~served markets beginning in May 2020, our net orders ~~per community decreased~~began to ~~2.4 from 5.4~~rebound significantly following a low point in ~~the 2019 second quarter.~~

~~While our year-over-year net order comparison continued to improve subsequent to the end of the quarter,~~April 2020, as ~~noted below under “Outlook,” the year-over-year decrease in~~steadily increasing housing demand drove our 2020 ~~second quarter~~third- and fourth-quarter net orders ~~is expected~~ to ~~reduce~~15-year highs and our ~~year-over-year deliveries~~2021 first- and ~~revenues for~~second-quarter net orders to 14-year highs. This sharp rise in net orders over the ~~2020 third and fourth~~past several quarters ~~and full year.~~

~~Backlog. The~~substantially expanded the number of homes in our backlog as well as our backlog value. With our ending backlog value at May 31, ~~2020 decreased 14% from May 31, 2019, mainly due to lower gross order levels and elevated cancellation rates during the 2020 second quarter as our beginning backlog was~~2021 up ~~26%~~a robust 126% year over ~~year. The~~year, representing potential future ~~housing~~ revenues of approximately $4.29 billion, our highest second-quarter level in 14 years, we expect to achieve significant year-over-year growth in our scale, profitability and returns during 2021, as described below under “Outlook.” In addition, with the ongoing strong housing demand in the 2021 first half, we continued to increase our land acquisition and development investments, as we did in the latter part of 2020, to measurably expand our lot pipeline and support future community count growth. Based on our investments over the past several quarters, we expect double-digit year-over-year community count growth for our 2022 full year.

Our favorable outlook could be materially affected by adverse developments, if any, related to the COVID-19 pandemic, including new or more restrictive “stay-at-home” orders and other new or revised public health requirements recommended or imposed by federal, state and local authorities. Until the COVID-19 pandemic has been resolved as a public health crisis, it retains the potential to cause further and more severe disruption of global and national economies, the U.S. housing market and our business, including our net orders, backlog ~~at May 31, 2020 declined 12%~~and revenues. In addition, as mentioned above, we are continuing to experience trade labor and building materials cost pressures, particularly with respect to lumber, as well as supply-chain issues and delays in state and municipal construction permitting and approvals, that could negatively impact our growth, margins and financial results in future periods. Despite these challenges, and other factors, which may individually or in combination slow or reverse the current housing recovery from the ~~prior-year period, reflecting the lower number of homes in our backlog, partly offset by a 2% increase in the overall average selling price of those homes.~~

~~Community Count.~~ We use the term “community count” to refer to the number of communities with at least five homes/lots left to sell at the end of a reporting period. Our average community count for the 2020 second quarter declined 2% from the year-earlier period, reflecting decreases of 12% in our Southwest homebuilding reporting segment, 4% in our Central segment and 8% in our Southeast segment, partly offset by an increase of 12% in our West Coast segment. Our ending community count was down 4% from the prior-year quarter. The year-over-year decreases in our overall average and ending community counts primarily reflected a decline in the number of active communities that were previously classified as land held for future development, our moderated investments in land developmentCOVID-19 pandemic-induced disruptions in the 2020 second quarter, ~~and delays in community openings due~~we believe we are well-positioned to operate effectively through the ~~COVID-19 pandemic.~~present environment.

HOMEBUILDING

Financial Results. The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):


	Three Months Ended May 31,				Six Months Ended May 31,
	2021		2020		2021		2020
Revenues:
Housing	$	1,436,032	$	909,978	$	2,573,385	$	1,981,788
Land	3		302		658		874
Total	1,436,035		910,280		2,574,043		1,982,662
Costs and expenses:
Construction and land costs
Housing	(1,128,017)		(744,151)		(2,029,195)		(1,629,632)
Land	(1)		(302)		(732)		(874)
Total	(1,128,018)		(744,453)		(2,029,927)		(1,630,506)
Selling, general and administrative expenses	(145,115)		(114,238)		(267,120)		(240,372)
Total	(1,273,133)		(858,691)		(2,297,047)		(1,870,878)
Operating income	162,902		51,589		276,996		111,784
Interest income	241		442		894		1,377
Equity in income (loss) of unconsolidated joint ventures	(127)		8,154		177		10,059
Homebuilding pretax income	$	163,016	$	60,185	$	278,067	$	123,220

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Revenues:
Housing $ 909,978
$ 1,017,799
$ 1,981,788
$ 1,815,970
Land 302
872
874
11,489
Total 910,280
1,018,671
1,982,662
1,827,459
Costs and expenses:
Construction and land costs
Housing (744,151 ) (843,071 ) (1,629,632 ) (1,504,399 )
Land (302 ) (673 ) (874 ) (10,200 )
Total (744,453 ) (843,744 ) (1,630,506 ) (1,514,599 )
Selling, general and administrative expenses (114,238 ) (122,828 ) (240,372 ) (229,422 )
Total (858,691 ) (966,572 ) (1,870,878 ) (1,744,021 )
Operating income $ 51,589
$ 52,099
$ 111,784
$ 83,438
Homes delivered 2,499
2,768
5,251
4,920
Average selling price $ 364,100
$ 367,700
$ 377,400
$ 369,100
Housing gross profit margin as a percentage of housing revenues 18.2 % 17.2 % 17.8 % 17.2 %
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues 18.7 % 17.6 % 18.3 % 17.6 %
Adjusted housing gross profit margin as a percentage of housing revenues 21.9 % 21.3 % 21.5 % 21.3 %
Selling, general and administrative expenses as a percentage of housing revenues 12.6 % 12.1 % 12.1 % 12.6 %
Operating income as a percentage of homebuilding revenues 5.7 % 5.1 % 5.6 % 4.6 %


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Homes delivered	3,504			2,499			6,368			5,251
Average selling price	$	409,800		$	364,100		$	404,100		$	377,400
Housing gross profit margin as a percentage of housing revenues	21.4		%	18.2		%	21.1		%	17.8		%
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues	21.5		%	18.7		%	21.3		%	18.3		%
Adjusted housing gross profit margin as a percentage of housing revenues	24.2		%	21.9		%	24.1		%	21.5		%
Selling, general and administrative expenses as a percentage of housing revenues	10.1		%	12.6		%	10.4		%	12.1		%
Operating income as a percentage of revenues	11.3		%	5.7		%	10.8		%	5.6		%

Revenues. Homebuilding revenues of $1.44 billion for the three months ended May 31, 2021 rose from the corresponding year-earlier period due to a 58% increase in housing revenues. The year-over-year growth in housing revenues reflected a 40% increase in the number of homes delivered and a 13% increase in the overall average selling price of those homes. The higher volume of homes delivered was largely due to our backlog of homes at the beginning of the quarter (“beginning backlog”) increasing 59% year over year as a result of our strong net order growth over the past several quarters. In addition, homes delivered in the 2020 second quarter were negatively impacted by the economic disruptions during the early stages of the COVID-19 pandemic, as described above under “COVID-19 Pandemic Impact.” The overall average selling price of homes delivered reflected the strong housing market conditions, which enabled us to raise prices in the vast majority of our communities, as well as product and geographic mix shifts of homes delivered.

For the six months ended May 31, 2021, homebuilding revenues grew 30% year over year to $2.57 billion, reflecting growth in housing revenues. Housing revenues for the six months ended May 31, 2021 increased from the corresponding 2020 period as a result of a 21% increase in the number of homes delivered and a 7% rise in the overall average selling price of those homes.

Operating Income. The year-over-year growth in our operating income for the three-month and six-month periods ended May 31, 2021 primarily reflected increases in housing gross profits, partly offset by increases in selling, general and administrative expenses.

Our operating income for the three months ended May 31, 2021 increased 216% from the year-earlier period. Operating income for the 2021 second quarter included $.5 million of inventory-related charges. For the 2020 second quarter, operating income included inventory-related charges of $4.4 million and severance charges of $6.7 million associated with workforce reductions made during that period. As a percentage of revenues, our operating income for the three months ended May 31, 2021 improved 560 basis points to 11.3%, compared to 5.7% for the year-earlier quarter. Excluding inventory-related charges in both periods and severance charges in the year-earlier period, our operating income as a percentage of revenues increased 450 basis points to 11.4% for the 2021 second quarter from 6.9% for the year-earlier quarter.

For the six months ended May 31, 2021, our operating income grew 148% from the prior-year period. Operating income for the 2021 first half included inventory-related charges of $4.5 million, compared to $10.1 million of such charges in the corresponding 2020 period. As a percentage of revenues, our operating income for the six months ended May 31, 2021 increased 520 basis points year over year to 10.8%. Excluding inventory-related charges for both periods and the above-mentioned severance charges in the 2020 period, our operating income margin improved to 10.9% for the six months ended May 31, 2021, compared to 6.5% for the six months ended May 31, 2020.

Housing Gross Profits. Housing gross profits of $308.0 million for the three months ended May 31, 2021 grew 86% from $165.8 million for the year-earlier period, reflecting increases in both our housing revenues and housing gross profit margin. Our housing gross profit margin for the 2021 second quarter rose 320 basis points year over year to 21.4%, mainly as a result of an increase in operating leverage due to higher housing revenues (approximately 130 basis points); a favorable pricing environment that more than offset higher construction costs (approximately 90 basis points); lower amortization of previously capitalized interest as a percentage of housing revenues (approximately 50 basis points); a decrease in inventory-related charges (approximately 40 basis points); and other miscellaneous factors (approximately 10 basis points). As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 2.7% and 3.2% for the three months ended May 31, 2021 and 2020, respectively. Excluding the amortization of previously capitalized interest

associated with housing operations and the above-mentioned inventory-related charges for the applicable periods, our adjusted housing gross profit margin for the 2021 second quarter increased 230 basis points from the year-earlier quarter to 24.2%.

For the six months ended May 31, 2021, our housing gross profits of $544.2 million increased 55% from $352.2 million for the year-earlier period. Housing gross profits for the 2021 first half included $4.5 million of inventory-related charges, compared to $10.1 million of such charges in the corresponding 2020 period. Our housing gross profit margin of 21.1% for the six months ended May 31, 2021 increased 330 basis points year over year, primarily due to the reasons described above with respect to the three months ended May 31, 2021. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 2.8% for the six months ended May 31, 2021, compared to 3.2% for the corresponding 2020 period. Our adjusted housing gross profit margin for the six months ended May 31, 2021 increased 260 basis points from the year-earlier period to 24.1%. 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.”

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


	Three Months Ended May 31,								Six Months Ended May 31,
	2021		% of Housing Revenues		2020		% of Housing Revenues		2021		% of Housing Revenues		2020		% of Housing Revenues
Marketing expenses	$	29,498	2.1	%	$	28,917	3.2	%	$	57,904	2.3	%	$	61,977	3.1	%
Commission expenses (a)	56,623		3.9		38,830		4.3		101,475		3.9		80,277		4.1
General and administrative expenses	58,994		4.1		46,491		5.1		107,741		4.2		98,118		4.9
Total	$	145,115	10.1	%	$	114,238	12.6	%	$	267,120	10.4	%	$	240,372	12.1	%

(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 the 2021 second quarter rose 27% from the year-earlier quarter, mainly due to an increase in commission expenses associated with our higher housing revenues, and an increase in general and administrative expenses. The year-over-year increase in general and administrative expenses primarily reflected reduced expenses associated with certain employee compensation plans in the 2020 second quarter, and higher expenses in the 2021 second quarter to support current and expected growth, partly offset by the above-mentioned severance charges in the year-earlier period. As a percentage of housing revenues, our selling, general and administrative expenses improved to 10.1% from 12.6%, primarily reflecting the continued benefit of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic; increased operating leverage due to our higher housing revenues as compared to the year-earlier quarter; and the above-noted severance charges in the year-earlier quarter. Excluding these severance charges, the 2020 second quarter ratio was 11.8%.

For the 2021 first half, selling, general and administrative expenses increased 11% year over year, mainly due to the reasons described above with respect to the three months ended May 31, 2021, partly offset by a decrease in marketing expenses and a $4.3 million benefit from the ERC recognized during the current period as discussed in Note 14 – Income Taxes in the Notes to Consolidated Financial Statements in this report. The ERC favorably impacted each of our homebuilding reporting segments for the six months ended May 31, 2021. As a percentage of housing revenues, selling, general and administrative expenses for the six months improved 170 basis points to 10.4%, largely due to the reasons described above with respect to the three months ended May 31, 2021.

Interest Income/Expense. Interest income, which is generated from short-term investments, totaled $.2 million for the three months ended May 31, 2021 and $.4 million for the three months ended May 31, 2020. For the six-month periods ended May 31, 2021 and 2020, our interest income totaled $.9 million and $1.4 million, respectively. 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.

We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs. All interest incurred during the three-month and six-month periods ended May 31, 2021 and 2020

was capitalized due to the average amount of our inventory qualifying for interest capitalization exceeding our average debt level for each period. As a result, we had no interest expense for these periods. 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 loss of unconsolidated joint ventures was $.1 million for the three months ended May 31, 2021, compared to equity in income of unconsolidated joint ventures of $8.2 million for the year-earlier period. For the six months ended May 31, 2021, our equity in income of unconsolidated joint ventures decreased to $.2 million, compared to $10.1 million for the corresponding 2020 period. The year-over-year changes for both periods mainly resulted from a reduction in the number of homes delivered from an unconsolidated joint venture in California to two and 10 homes for the three months and six months ended May 31, 2021, respectively, compared to 53 and 73 homes, respectively, for the corresponding year-earlier periods. This unconsolidated joint venture delivered its last home in the 2021 second quarter.

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.

Net Orders, Cancellation Rates, Backlog and Community Count. The following table presents information concerning our net orders, cancellation rates, ending backlog and community count (dollars in thousands):


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Net orders	4,300			1,758			8,592			5,253
Net order value (a)	$	2,036,837		$	688,444		$	3,905,905		$	2,071,098
Cancellation rates (b)	9		%	43		%	10		%	27		%
Ending backlog — homes	10,034			5,080			10,034			5,080
Ending backlog — value	$	4,294,923		$	1,903,017		$	4,294,923		$	1,903,017
Ending community count	200			244			200			244
Average community count	205			247			215			248

(a) Net order value represents the potential future housing revenues associated with net orders generated during the period, as well as homebuyer selections of lot and product premiums and design studio options and upgrades for homes in backlog during the same period.

(b) Cancellation rates represent 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.

Our net orders, net order value, cancellation rate, ending backlog and ending backlog value for the three months and six months ended May 31, 2020 were adversely impacted by the COVID-19 pandemic, as described above under “COVID-19 Pandemic Impact.”

Net Orders. For the three months ended May 31, 2021, net orders from our homebuilding operations increased 145% from the year-earlier period to their highest second-quarter level since 2007, reflecting an increase in monthly net orders per community to 7.0 from 2.4 in the year-earlier period, partly offset by a decrease in our average community count. Monthly net orders per community rose in each of our four homebuilding reporting segments, with increases ranging from 119% in our Central segment to 431% in our Southeast segment. This higher net order pace occurred even as we raised our home selling prices and paced lot releases, and was largely fueled by factors described above under “Overview.” In addition, our low net order pace for the year-earlier period reflected the significant moderation in activity and high cancellation rate we experienced at the onset of the COVID-19 pandemic. We believe our Built-to-Order® homebuying process, which provides personalization and choice, also was a key contributor to our strong 2021 second quarter net orders.

The value of our net orders for the three months ended May 31, 2021 rose 196% from the year-earlier period as a result of the growth in net orders and a 21% increase in the overall average selling price of those orders that largely reflected strong housing demand in most of our served markets. The year-over-year increase in net orders and overall net order value reflected improvements in all four of our homebuilding reporting segments, with net order value increases ranging from 118% in our Central segment to 406% in our Southeast segment.

Our cancellation rate as a percentage of gross orders for the three months ended May 31, 2021 improved significantly from the year-earlier period. The high cancellation rate in the year-earlier period largely reflected our proactive efforts to assure a backlog of qualified homebuyers amid the unprecedented nationwide economic and employment disruptions resulting from the outbreak of the COVID-19 pandemic.

Backlog. The number of homes in our backlog at May 31, 2021 increased 98% from May 31, 2020, reflecting the year-over-year increase in our net orders in the 2021 second quarter and our substantially higher beginning backlog. The potential future housing revenues in our backlog at May 31, 2021 rose 126% from the prior year as a result of both the higher number of homes in our backlog and a 14% increase in the overall average selling price of those homes. Each of our four homebuilding reporting segments generated triple-digit increases in backlog value, ranging from 105% in our Central segment to 155% in our Southeast segment.

Community Count. We use the term “community count” to refer to the number of communities open for sale with at least five homes left to sell at the end of a reporting period. Our average community count for the 2021 second quarter declined 17% from the year-earlier period, reflecting decreases in each of our homebuilding reporting segments. Our ending community count was 200, compared to 244 in the year-earlier quarter. The year-over-year decreases in our overall average and ending community counts primarily reflected the close-out of communities earlier than anticipated due to our demand-driven net order pace increasing 192% from the year-earlier quarter to 7.0 monthly net orders per community; and delays in new community openings as described above under “Overview.” These factors also contributed to the current quarter ending community count declining from 209 communities at the end of the 2021 first quarter. As described above under “COVID-19 Pandemic Impact,” we have substantially increased our investments in land acquisition and land development in 2021 to support future community count growth.

HOMEBUILDING REPORTING SEGMENTS

For reporting purposes, we organize our homebuilding operations into four segments — West Coast, Southwest, Central and Southeast. As of May 31, ~~2020~~,2021, our homebuilding reporting segments ~~consisted of~~conducted ongoing operations ~~located~~ in the following states to the extent permitted by applicable public health orders as part of their respective COVID-19 control responses: West Coast — California and Washington; Southwest — Arizona and Nevada; Central — Colorado and Texas; and Southeast — Florida and North Carolina.

Operational Data. The following tables present homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands):


	Three Months Ended May 31,
	Homes Delivered				Net Orders			Cancellation Rates
Segment	2021		2020		2021		2020	2021		2020
West Coast	1,006		585		1,300		555	9	%	37	%
Southwest	715		552		924		305	5		50
Central	1,232		955		1,292		719	12		36
Southeast	551		407		784		179	10		61
Total	3,504		2,499		4,300		1,758	9	%	43	%






	Net Order Value						Average Community Count
Segment	2021		2020		Variance		2021	2020		Variance
West Coast	$	937,416	$	324,936	188	%	58	75		(23)	%
Southwest	374,700		99,464		277		36	37		(3)
Central	463,746		212,445		118		73	90		(19)
Southeast	260,975		51,599		406		38	45		(16)
Total	$	2,036,837	$	688,444	196	%	205	247		(17)	%


	Three Months Ended May 31,									Six Months Ended May 31,
	Homes Delivered		Net Orders		Cancellation Rates					Homes Delivered				Net Orders				Cancellation Rates
Segment	2020	2019	2020	2019	2020		2019		Segment	2021		2020		2021		2020		2021			2020
West Coast	585	680	555	1,141	37	%	14	%	West Coast	1,890		1,379		2,460		1,534		9		%	23	%
Southwest	552	566	305	768	50		10		Southwest	1,249		1,155		1,791		1,070		7			27
Central	955	1,067	719	1,498	36		17		Central	2,243		1,923		2,890		1,936		12			25
Southeast	407	455	179	657	61		19		Southeast	986		794		1,451		713		11			36
Total	2,499	2,768	1,758	4,064	43	%	15	%	Total	6,368		5,251		8,592		5,253		10		%	27	%


										Net Order Value						Average Community Count
Segment									Segment	2021		2020		Variance		2021		2020			Variance
West Coast									West Coast	$	1,716,967	$	923,352	86	%	62		75			(17)	%
Southwest									Southwest	708,619		356,684		99		36		38			(5)
Central									Central	1,016,687		585,926		74		78		89			(12)
Southeast									Southeast	463,632		205,136		126		39		46			(15)
Total									Total	$	3,905,905	$	2,071,098	89	%	215		248			(13)	%

										May 31,
										Backlog – Homes						Backlog – Value
Segment									Segment	2021		2020		Variance		2021		2020			Variance
West Coast									West Coast	2,594		1,198		117	%	$	1,729,370	$	705,357		145	%
Southwest									Southwest	2,063		1,153		79		786,578		380,454			107
Central									Central	3,684		2,001		84		1,249,238		609,156			105
Southeast									Southeast	1,693		728		133		529,737		208,050			155
Total									Total	10,034		5,080		98	%	$	4,294,923	$	1,903,017		126	%

Three Months Ended May 31,
Net Order Value Average Community Count
Segment 2020 2019 Variance 2020 2019 Variance
West Coast $ 324,936
$ 664,431
(51) % 75
67
12 %
Southwest 99,464
241,729
(59 ) 37
42
(12 )
Central 212,445
438,302
(52 ) 90
94
(4 )
Southeast 51,599
188,226
(73 ) 45
49
(8 )
Total $ 688,444
$ 1,532,688
(55) % 247
252
(2) %

Six Months Ended May 31,
Homes Delivered Net Orders Cancellation Rates
Segment 2020 2019 2020 2019 2020 2019
West Coast 1,379
1,177
1,534
1,840
23 % 17 %
Southwest 1,155
1,049
1,070
1,301
27
12
Central 1,923
1,891
1,936
2,424
25
20
Southeast 794
803
713
1,174
36
19
Total 5,251
4,920
5,253
6,739
27 % 17 %

Net Order Value Average Community Count
Segment 2020 2019 Variance 2020 2019 Variance
West Coast $ 923,352
$ 1,084,892
(15) % 75
64
17 %
Southwest 356,684
412,568
(14 ) 38
40
(5 )
Central 585,926
722,568
(19 ) 89
94
(5 )
Southeast 205,136
334,747
(39 ) 46
50
(8 )
Total $ 2,071,098
$ 2,554,775
(19) % 248
248
— %

May 31,
Backlog – Homes Backlog – Value
Segment 2020 2019 Variance 2020 2019 Variance
West Coast 1,198
1,378
(13) % $ 705,357
$ 806,651
(13) %
Southwest 1,153
1,178
(2 ) 380,454
372,699
2
Central 2,001
2,247
(11 ) 609,156
669,037
(9 )
Southeast 728
1,124
(35 ) 208,050
324,786
(36 )
Total 5,080
5,927
(14) % $ 1,903,017
$ 2,173,173
(12) %
The composition of our homes delivered, net orders and backlog shifts with the mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, and changes as new communities open and existing communities wind down or close out. In addition, with our Built-to-Order model, the selling prices of homes within a community may vary due to differing lot sizes and locations, home square footage, and option and upgrade selections. These intrinsic variations in our business limit the effective comparability of our homes delivered, net orders and backlog as well as their corresponding values between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.

~~Revenues~~Financial Results. ~~Homebuilding~~Below is a discussion of the financial results for each of our homebuilding reporting segments. Further information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report. 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 and/or interest income and expense.

The financial results for each of our homebuilding reporting segments for the three months and six months ended May 31, 2020 were negatively affected by the impacts from the onset of the COVID-19 pandemic, as discussed above under “COVID-19 Pandemic Impact.” In each of our homebuilding reporting segments, we had lower net orders and delivered fewer homes in the 2020 second quarter compared to the 2021 second quarter. With housing market conditions remaining strong from the 2020 third quarter through the 2021 second quarter, we delivered more homes at a higher overall average selling price and significantly expanded our operating income as a percentage of revenues for the three months and six months ended May 31, 2021, as compared to the corresponding year-earlier periods.

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


	Three Months Ended May 31,								Six Months Ended May 31,
	2021			2020			Variance		2021			2020			Variance
Revenues	$	625,690		$	331,882		89	%	$	1,140,206		$	816,379		40	%
Construction and land costs	(507,276)			(282,454)			(80)		(928,331)			(699,111)			(33)
Selling, general and administrative expenses	(41,748)			(29,919)			(40)		(77,006)			(65,773)			(17)
Operating income	$	76,666		$	19,509		293	%	$	134,869		$	51,495		162	%

Homes delivered	1,006			585			72	%	1,890			1,379			37	%
Average selling price	$	622,000		$	567,200		10	%	$	603,300		$	591,900		2	%
Operating income as a percentage of revenues	12.3		%	5.9		%	640	bps	11.8		%	6.3		%	550	bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2021 were generated solely from housing operations. For the three months and six months ended May 31, 2020, this segment generated revenues from housing operations and nominal land sales. Housing revenues for the 2021 second quarter and first half grew 89% and 40%, respectively, from the corresponding year-earlier periods due to increases in both the number of homes delivered and the average selling price of those homes. The year-over-year growth in the number of homes delivered for the three-month and six-month periods ended May 31, 2021 was attributable to our California and Washington operations. The year-over-year increase in the average selling price of homes delivered for these same periods reflected strong housing market conditions and a geographic mix shift of homes delivered.

Operating income for the three months and six months ended May 31, 2021 grew from the corresponding year-earlier periods, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses. For the 2021 second quarter, this segment’s operating income as a percentage of revenues rose from the year-earlier quarter, primarily due to a 400 basis-point increase in the housing gross profit margin to 18.9% and a 230 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 6.7%. The housing gross profit margin expansion was largely driven by a favorable pricing environment, an increase in operating leverage due to higher housing revenues, and lower amortization of previously capitalized interest. The improvement in selling, general and administrative expenses as a percentage of housing revenues mainly reflected increased operating leverage from higher housing revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic.

For the six months ended May 31, 2021, the year-over-year growth in this segment’s operating income as a percentage of revenues mainly reflected a 420 basis-point rise in the housing gross profit margin to 18.6% and an improvement in selling, general and administrative expenses as a percentage of housing revenues to 6.8% from 8.1%. These metrics improved from the year-earlier period primarily for the reasons described above with respect to the three months ended May 31, ~~2020~~2021. In addition, inventory-related charges decreased ~~11% from~~to $3.9 million in the 2021 first half, compared to $5.1 million in the year-earlier ~~period primarily due~~period.

Southwest. The following table presents financial information related to ~~a decline~~our Southwest segment for the periods indicated (dollars in thousands, except average selling price):


	Three Months Ended May 31,						Six Months Ended May 31,
	2021		2020		Variance		2021		2020		Variance
Revenues	$	258,061	$	175,251	47	%	$	445,746	$	366,569	22	%
Construction and land costs	(189,921)		(133,742)		(42)		(328,602)		(276,641)		(19)
Selling, general and administrative expenses	(19,144)		(16,463)		(16)		(34,969)		(32,632)		(7)
Operating income	$	48,996	$	25,046	96	%	$	82,175	$	57,296	43	%


	Three Months Ended May 31,								Six Months Ended May 31,
	2021			2020			Variance		2021			2020			Variance
Homes delivered	715			552			30	%	1,249			1,155			8	%
Average selling price	$	360,900		$	317,100		14	%	$	356,900		$	316,700		13	%
Operating income as a percentage of revenues	19.0		%	14.3		%	470	bps	18.4		%	15.6		%	280	bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2021 were generated solely from housing revenues.

For the three months and six months ended May 31, 2020, revenues were generated from housing operations as well as land sales. Housing revenues for the three months ended May 31, ~~2020 declined 11%~~2021 rose 47% year over year ~~reflecting a 10% decrease~~to $258.1 million from $175.0 million. For the six months ended May 31, 2021, housing revenues increased 22% to $445.7 million. The year-over- year growth in housing revenues for the 2021 second quarter and first half reflected increases in both the number of homes delivered and ~~a slight decrease in~~ the ~~overall~~ average selling price of those homes. ~~While the~~The higher number of homes delivered in the current quarter reflected increases in deliveries from both our ~~beginning backlog was up 26% compared~~Arizona and Nevada operations. The rise in the average selling price reflected strong housing market conditions and a shift in product and geographic mix of homes delivered.

Operating income for the three months and six months ended May 31, 2021 rose from the corresponding 2020 period, primarily due to higher housing gross profits, partially offset by higher selling, general and administrative expenses. As a percentage of revenues, operating income for the three-month period ended May 31, 2021 grew from the year-earlier period ~~we delivered fewer homes~~largely due to a 270 basis-point increase in the ~~quarter~~housing gross profit margin to 26.4% and a 200 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues. The housing gross margin expansion was largely driven by a favorable pricing environment, an increase in operating leverage due to higher housing revenues, and lower amortization of previously capitalized interest. The improvement in selling, general and administrative expenses as a percentage of revenues was mainly due to increased operating leverage from higher housing revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 ~~pandemic and associated COVID-19 control responses, which resulted~~pandemic.

The year-over-year growth in ~~increased home purchase cancellations and delayed deliveries,~~this segment’s operating income as ~~discussed above under “Overview.”~~

Land sale revenues for the quarter ended May 31, 2020 totaled $.3 million, compared to $.9 million in the year-earlier quarter. Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volumea percentage 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.~~

~~Homebuilding~~ revenues for the six months ended May 31, ~~2020, which included our strong 2020 first quarter performance, grew 9% year over year to $1.98 billion, reflecting an~~2021 mainly reflected a 170 basis-point increase in the housing gross profit margin to 26.3% and an improvement in selling, general and administrative expenses as a percentage of housing revenues ~~partly~~to 7.8% from 8.9%. The housing gross profit margin increased and selling, general and administrative expenses as a percentage of revenues improved in the 2021 first half primarily for the reasons described above with respect to the 2021 second quarter.

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


	Three Months Ended May 31,								Six Months Ended May 31,
	2021			2020			Variance		2021			2020			Variance
Revenues	$	390,555		$	284,193		37	%	$	700,263		$	567,706		23	%
Construction and land costs	(300,914)			(227,291)			(32)		(539,865)			(456,414)			(18)
Selling, general and administrative expenses	(33,359)			(30,018)			(11)		(63,124)			(61,730)			(2)
Operating income	$	56,282		$	26,884		109	%	$	97,274		$	49,562		96	%

Homes delivered	1,232			955			29	%	2,243			1,923			17	%
Average selling price	$	317,000		$	297,600		7	%	$	312,200		$	295,200		6	%
Operating income margin as a percentage of revenues	14.4		%	9.5		%	490	bps	13.9		%	8.7		%	520	bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2021 and 2020 were generated solely from housing operations. Housing revenues for the three months and six months ended May 31, 2021 grew 37% and 23%, respectively, from the corresponding year-earlier periods, reflecting increases in both the number of homes delivered and the average selling price of those homes. The year-over-year growth in the number of homes delivered in each period was attributable to our Colorado and Texas operations. The increases in the average selling price for each period reflected the strong housing market conditions and shifts in the product and geographic mix of homes delivered.

Operating income for the three months and six months ended May 31, 2021 rose from the corresponding year-earlier periods due to growth in housing gross profits, partially offset by higher selling, general and administrative expenses. For the three months ended May 31, 2021, the increase in this segment’s operating income as a ~~decrease~~percentage of revenues reflected a 300 basis-point increase in ~~land sale revenues. Housing~~the housing gross profit margin to 23.0%, and a 210 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.5%. The expansion in the housing gross profit margin was primarily driven by a favorable pricing environment, lower inventory-related charges, improved operating leverage due to higher housing revenues and lower amortization of previously capitalized interest. Inventory-related charges for the three months ended May 31, 2021 were nominal, compared to $3.5 million for the year-earlier period. The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues mainly reflected increased operating leverage from higher housing revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic.

For the six months ended May 31, 2021, the year-over-year expansion in this segment’s operating income as a percentage of revenues reflected a 330 basis-point increase in the housing gross profit margin to 22.9% and a 190 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 9.0%. These year-over-year changes were primarily due to the reasons described above with respect to the three months ended May 31, 2021. Inventory-related charges for the six months ended May 31, 2021 were nominal, compared to $4.4 million in the year-earlier period.

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


	Three Months Ended May 31,								Six Months Ended May 31,
	2021			2020			Variance		2021			2020			Variance
Revenues	$	161,729		$	118,954		36	%	$	287,828		$	232,008		24	%
Construction and land costs	(128,307)			(99,311)			(29)		(229,540)			(194,921)			(18)
Selling, general and administrative expenses	(14,559)			(13,013)			(12)		(27,311)			(27,827)			2
Operating income	$	18,863		$	6,630		185	%	$	30,977		$	9,260		235	%

Homes delivered	551			407			35	%	986			794			24	%
Average selling price	$	293,500		$	292,300		—	%	$	291,200		$	292,100		—	%
Operating income as a percentage of revenues	11.7		%	5.6		%	610	bps	10.8		%	4.0		%	680	bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2021 and the six-month period ended May 31, 2020 were generated from both housing operations and nominal land sales. For the three-month period ended May 31, 2020, revenues were generated solely from housing operations. Housing revenues for the three months ended May 31, 2021 increased 36% year over year to $161.7 million from $119.0 million. For the six months ended May 31, 2021, housing revenues grew ~~as a result of a 7% increase~~24% year over year to $287.2 million from $232.0 million. The housing revenue growth in both periods primarily reflected increases in the number of homes delivered ~~and a 2% rise in the overall average selling price to $377,400.~~from our Florida operations.

Land sale revenues totaled $.9 million for the six months ended May 31, 2020 and $11.5 million for the six months ended May 31, 2019, reflecting the factors discussed above with respect to our 2020 second quarter land sale revenues.

Operating ~~Income. Our homebuilding operating~~ income for the three months ended May 31, 2020 was essentially flat compared to the year-earlier period. Homebuilding operating income for the 2020 second quarter included total inventory-related charges of $4.4 million, which were comprised of land option contract abandonment charges primarily related to one land option contract in Texas, and severance charges of $6.7 million. The severance charges were associated with workforce reductions made during the quarter that we expect will yield annualized savings of approximately $40 million allocated between construction and land costs and selling, general and administrative expenses. In the 2019 second quarter, homebuilding operating income included total inventory-related charges of $4.3 million. As a percentage of homebuilding revenues, our homebuilding operating income for the three months ended May 31, 20202021 increased 60 basis points year over year to 5.7%. Excluding inventory-related charges in both periods and severance charges in the current period, our homebuilding operating income margin improved 140 basis points to 6.9% for the 2020 second quarter compared to 5.5% for the year-earlier quarter.

~~For the six months ended May 31, 2020, our homebuilding operating income increased 34%~~ from the ~~prior-year~~corresponding year-earlier period, ~~largely~~ reflecting the operating income we generated in the 2020 first quarter. Homebuilding operating income for the 2020 first half included total inventory-related charges of $10.1 million, compared to $7.9 million of such charges in the corresponding 2019 period. As a percentage of homebuilding revenues, our homebuilding operating income for the six months ended May 31, 2020 improved 100 basis points year over year to 5.6%. Excluding inventory-related charges for both periods and the above-mentioned severance charges in the 2020 period, our homebuilding operating income margin was 6.5% for the six months ended May 31, 2020 and 5.0% for the six months ended May 31, 2019.

~~The year-over-year change in our homebuilding operating income for the three months ended May 31, 2020 largely reflected lower~~higher housing gross profits, partly offset by ~~lower~~higher selling, general and administrative expenses. For the six months ended May 31, ~~2020, the year-over-year growth in our homebuilding~~2021, operating income ~~was primarily~~rose from corresponding 2020 period due to ~~an increase in~~higher housing gross ~~profits, partly offset by higher selling, general and administrative expenses.~~

~~Housing gross profits~~profits. As a percentage of ~~$165.8 million~~revenues, operating income for the ~~three months ended May 31, 2020 declined 5%~~2021 second quarter rose from ~~$174.7 million for~~ the year-earlier period ~~reflecting~~due to a ~~decrease in housing revenues, partly offset by an~~420 basis-point increase in ~~our housing gross profit margin. Our~~the housing gross profit margin ~~for the 2020 second quarter rose 100 basis points year over year~~ to ~~18.2%,~~20.7% that mainly ~~due to the favorable impacts of lower construction and land costs (approximately 100 basis points) primarily reflecting~~reflected a shift in ~~the~~geographic mix, ~~of homes delivered,~~increased operating leverage due to higher housing revenues, and lower amortization of previously capitalized interest as a percentage of housing revenues (approximately 50 basis points). These items were partly offset by reduced operating leverage due to lower housing revenues (approximately 50 basis points).

We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs. Interest incurred totaled $31.1 million for the three months ended May 31, 2020, decreasing from $36.5 million for the year-earlier period, mainly due to our lower average debt level. All interest incurred during the three-month periods ended May 31, 2020 and 2019 was capitalized, due to the average amount of our inventory qualifying for interest capitalization exceeding our average debt level for each period. As a result, we had no interest expense for these periods.

Interest amortized to construction and land costs associated with housing operations was $28.7 million and $37.7 million for the three-month periods ended May 31, 2020 and 2019, respectively. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 3.2% and 3.7% for the three months ended May 31, 2020 and 2019, respectively.

Excluding the amortization of previously capitalized interest associated with housing operations and the above-mentioned inventory-related charges for the three months ended May 31, 2020 and 2019, our adjusted housing gross profit margin increased 60 basis points from the year-earlier quarter to 21.9%. 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.”

Selling, general and administrative expenses for the 2020 second quarter decreased 7% from the year-earlier quarter, mainly due to the lower volume of homes delivered and reduced expenses associated with certain employee compensation plans, partly offset

by severance charges of $6.7 million. As a percentage of housing revenues, our selling, general and administrative expenses increased 50 basis points, largely as a result of decreased operating leverage due to lower housing revenues as compared to the year-earlier quarter. Excluding the current period severance charges,interest. In addition, selling, general and administrative expenses as a percentage of housing revenues ~~for the 2020 second quarter~~ improved ~~by 30~~190 basis points from the year-earlier ~~quarter~~period to ~~11.8%.~~

Our housing gross profits of $352.2 million for the six months ended May 31, 2020 increased from $311.6 million for the year-earlier period. Housing gross profits for the 2020 first half included $10.1 million of inventory-related charges, compared to $7.9 million of such charges in the year-earlier period. Our housing gross profit margin of 17.8% for the six months ended May 31, 2020 increased 60 basis points year over year,9.0%, primarily due to ~~lower amortization of previously capitalized interest~~increased operating leverage as a ~~percentage~~result of higher housing ~~revenues.~~revenues, and the continued impact of targeted actions we took in 2020 to reduce overhead costs in the early stages of the COVID-19 pandemic.

For the six months ended May 31, ~~2020, interest incurred decreased~~2021, the year-over-year increase in this segment’s operating income as a percentage of revenues reflected a 430 basis-point increase in the housing gross profit margin to ~~$62.0 million from $71.3 million for the year-earlier period, primarily due to our lower average debt level. All interest incurred during the six-month periods ended May 31, 2020~~20.3% and ~~2019 was capitalized~~a 250 basis-point improvement in selling, general and administrative expenses as ~~the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for the period.~~

Interest amortized to construction and land costs associated with housing operations was $63.3 million for the six months ended May 31, 2020 and $67.7 million for the six months ended May 31, 2019. As a percentage of housing revenues ~~the amortization of previously capitalized interest associated with housing operations was 3.2% and 3.7% for the six months ended May 31, 2020 and 2019, respectively.~~

Excluding the amortization of previously capitalized interest associated with housing operations and the above-mentioned inventory-related charges in the six months ended May 31, 2020 and 2019, our adjusted housing gross profit margin increased 20 basis points from the year-earlier period to ~~21.5%~~9.5%.

~~Selling, general and administrative expenses for the 2020 first half increased to $240.4 million from $229.4 million for the year-earlier period,~~ These year-over-year changes were mainly due to the above-mentioned severance charges recorded in the 2020 second quarter and the higher volume of homes delivered in the first half of the year. As a percentage of housing revenues, selling, general and administrative expenses improved 50 basis points from the prior-year periodreasons described above with respect to ~~12.1%, largely as a result of increased operating leverage due to higher housing revenues as compared to the year-earlier period.~~

~~Land sales generated break-even results for the six months ended May 31, 2020, compared to profits of $1.3 million for the year-earlier period.~~

~~Interest Income~~. Interest income, which is generated from short-term investments, was $.4 million for each of the three-month periods ended May 31, 2020 and 2019. For the six-month periods ended May 31, 2020 and 2019, our interest income totaled $1.4 million and $1.5 million, respectively. 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.

~~Equity in Income (Loss) of Unconsolidated Joint Ventures. Our equity in income of unconsolidated joint ventures was $8.2 million for~~ the three months ended May 31, ~~2020, compared to equity~~2021.

FINANCIAL SERVICES REPORTING SEGMENT

The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in ~~loss of unconsolidated joint ventures of $.4 million~~thousands):


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Revenues	$	4,857		$	3,690		$	8,587		$	7,243
Expenses	(1,253)			(883)			(2,453)			(1,845)
Equity in income of unconsolidated joint venture	7,044			4,797			13,014			8,019
Pretax income	$	10,648		$	7,604		$	19,148		$	13,417

Total originations (a):
Loans	2,357			1,715			4,429			3,479
Principal	$	810,515		$	543,005		$	1,521,439		$	1,101,542
Percentage of homebuyers using KBHS	75		%	76		%	77		%	74		%
Average FICO score	727			720			726			721

Loans sold (a):
Loans sold to Stearns	2,131			1,760			3,685			4,049
Principal	$	741,776		$	558,656		$	1,265,681		$	1,258,693
Loans sold to third parties	200			121			636			193
Principal	$	64,838		$	38,704		$	209,224		$	62,003

(a)Loan originations and sales occurred within KBHS.

Revenues. Financial services revenues for the three months ended May 31, 2019. For the six months ended May 31, 2020, our equity in income of unconsolidated joint ventures was $10.1 million, compared to equity in loss unconsolidated joint ventures of $.8 million for the corresponding 2019 period. The improved results in both periods of 2020 primarily reflected 53 homes and 73 homes delivered from an unconsolidated joint venture in California during the three months and six months ended May 31, 2021 rose from the corresponding periods of 2020 ~~respectively, compared~~due to ~~no homes delivered~~increases in title services revenues and insurance commissions.

Pretax income. Our financial services pretax income for the three months ended May 31, 2021 grew 40% from the year-earlier period largely due to an increase in the equity in income of unconsolidated joint ~~ventures~~ventures. In the 2021 second quarter, our equity in income of our unconsolidated joint venture, KBHS, increased 47% year over year as a result of a substantial increase in the principal amount of loan originations and improved margins. The higher principal amount of loan originations primarily reflected a 40% rise in the number of homes we delivered and a 13% increase in the average selling price of those homes.

For the six months ended May 31, 2021, our financial services pretax income rose 43% from the corresponding ~~2019~~2020 period primarily due to a 62% increase in our equity in income of KBHS that reflected a substantial increase in the principal amount of loan originations and improved margins. The year-over-year increase in the principal amount of loan originations was largely due to an increase in the percentage of homebuyers using KBHS, a 21% increase in the number of homes we delivered and a 7% rise in the average selling price of those homes.

On January 5, 2021, Guaranteed Rate, Inc. announced that it had reached an agreement to acquire Stearns’ parent company. This transaction closed on March 1, 2021. As of the date of this report, we are not aware of any significant changes with respect to Stearns or its operations as a result of the transaction being completed.

INCOME TAXES

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


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Income tax expense	$	30,300		$	15,800		$	56,800		$	24,900
Effective tax rate	17.4		%	23.3		%	19.1		%	18.2		%

Our effective tax rate for the three months ended May 31, 2021 decreased from the year-earlier period, mainly due to an $11.8 million increase in the federal energy tax credits we earned from building energy-efficient homes.

For the six months ended May 31, 2021, our effective tax rate increased slightly from the corresponding 2020 period, primarily reflecting the increase in our pretax income, which reduced the proportionate favorable impact of excess tax benefits related to stock-based compensation and federal energy tax credits on the overall rate, and a $1.7 million decrease in our excess tax benefits related to stock-based compensation. These impacts were partly offset by a $10.5 million increase in the federal energy tax credits we earned from building energy-efficient homes.

The federal energy tax credits for the three months and six months ended May 31, 2021 resulted from legislation enacted in December 2020, which among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2021. Prior to this legislation, the tax credit expired on December 31, 2020. This extension is expected to benefit our income tax provision in future periods.

In June 2020, California enacted tax legislation that approved the suspension of California net operating loss deductions for tax years 2020, 2021 and 2022. The suspension of California net operating loss deductions did not have an impact on our income tax expense for the three months or six months ended May 31, 2021.

Further information regarding our ~~investments in unconsolidated joint ventures~~income taxes is provided in Note 914 – ~~Investments in Unconsolidated Joint Ventures~~Income Taxes in the Notes to Consolidated Financial Statements in this report.

NON-GAAP FINANCIAL MEASURES

This report contains information about our adjusted housing gross profit margin and ratio of net debt to capital, neither of which is calculated in accordance with GAAP. We believe these non-GAAP financial measures are relevant and useful to investors in understanding our operations and the leverage employed in our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. However, because they are not calculated in accordance with GAAP, these non-GAAP financial measures may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, these non-GAAP financial measures should be used to supplement their respective most directly comparable GAAP financial measures in order to provide a greater understanding of the factors and trends affecting our operations.

Adjusted Housing Gross Profit Margin. The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands):


	Three Months Ended May 31,						Six Months Ended May 31,
	2021			2020			2021			2020
Housing revenues	$	1,436,032		$	909,978		$	2,573,385		$	1,981,788
Housing construction and land costs	(1,128,017)			(744,151)			(2,029,195)			(1,629,632)
Housing gross profits	308,015			165,827			544,190			352,156
Add: Inventory-related charges (a)	457			4,379			4,521			10,051
Housing gross profits excluding inventory-related charges	308,472			170,206			548,711			362,207
Add: Amortization of previously capitalized interest (b)	39,600			28,746			72,096			63,321


Adjusted housing gross profits	$	348,072		$	198,952		$	620,807		$	425,528

Housing gross profit margin as a percentage of housing revenues	21.4		%	18.2		%	21.1		%	17.8		%
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues	21.5		%	18.7		%	21.3		%	18.3		%
Adjusted housing gross profit margin as a percentage of housing revenues	24.2		%	21.9		%	24.1		%	21.5		%

Three Months Ended May 31, Six Months Ended May 31,
2020 2019 2020 2019
Housing revenues $ 909,978
$ 1,017,799
$ 1,981,788
$ 1,815,970
Housing construction and land costs (744,151 ) (843,071 ) (1,629,632 ) (1,504,399 )
Housing gross profits 165,827
174,728
352,156
311,571
Add:    Inventory-related charges (a) 4,379
4,337
10,051
7,892
Housing gross profits excluding inventory-related charges 170,206
179,065
362,207
319,463
Add:    Amortization of previously capitalized interest (b) 28,746
37,716
63,321
67,702
Adjusted housing gross profits $ 198,952
$ 216,781
$ 425,528
$ 387,165
Housing gross profit margin as a percentage of housing revenues 18.2 % 17.2 % 17.8 % 17.2 %
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues 18.7 % 17.6 % 18.3 % 17.6 %
Adjusted housing gross profit margin as a percentage of housing revenues 21.9 % 21.3 % 21.5 % 21.3 %
(a)    Represents inventory impairment and land option contract abandonment charges associated with housing operations.


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


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

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

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

operations, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges, and the amortization of previously capitalized interest associated with housing operations, have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner. We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges, and amortization of previously capitalized interest associated with housing operations. This financial measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace.

Ratio of Net Debt to Capital. The following table reconciles our ratio of debt to capital calculated in accordance with GAAP to the non-GAAP financial measure of our ratio of net debt to capital (dollars in thousands):


	May 31, 2020			November 30, 2019				May 31, 2021			November 30, 2020
Notes payable	$	1,766,539		$	1,748,747		Notes payable	$	1,747,447		$	1,747,175
Stockholders’ equity	2,490,354			2,383,122			Stockholders’ equity	2,886,865			2,665,769
Total capital	$	4,256,893		$	4,131,869		Total capital	$	4,634,312		$	4,412,944
Ratio of debt to capital	41.5		%	42.3		%	Ratio of debt to capital	37.7		%	39.6		%

Notes payable	$	1,766,539		$	1,748,747		Notes payable	$	1,747,447		$	1,747,175
Less: Cash and cash equivalents	(575,006		)	(453,814		)	Less: Cash and cash equivalents	(608,069)			(681,190)
Net debt	1,191,533			1,294,933			Net debt	1,139,378			1,065,985
Stockholders’ equity	2,490,354			2,383,122			Stockholders’ equity	2,886,865			2,665,769
Total capital	$	3,681,887		$	3,678,055		Total capital	$	4,026,243		$	3,731,754
Ratio of net debt to capital	32.4		%	35.2		%	Ratio of net debt to capital	28.3		%	28.6		%

The ratio of net debt to capital is a non-GAAP financial measure, which we calculate by dividing notes payable, net of homebuilding cash and cash equivalents, by capital (notes payable, net of homebuilding cash and cash equivalents, plus stockholders’ equity). The most directly comparable GAAP financial measure is the ratio of debt to capital. We believe the ratio of net debt to capital is a relevant and useful financial measure to investors in understanding the degree of leverage employed in our operations.

~~HOMEBUILDING REPORTING SEGMENTS~~

Below is a discussion of the financial results of each of our homebuilding reporting segments. Further information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report. 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 and/or interest income and expense.

The financial results for each of our homebuilding reporting segments for the three months and six months ended May 31, 2020 were negatively affected by the impacts from the COVID-19 pandemic, as discussed above under “Overview.” In each of our homebuilding reporting segments, we had lower net orders and delivered fewer homes in the 2020 second quarter compared to the year-earlier quarter. In addition, compared to the 2020 first quarter, net orders decreased in each of our homebuilding reporting segments and we delivered a reduced volume of homes in three of our four segments.

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

This segment’s revenues for the three months and six months ended May 31, 2020 and 2019 were generated from both housing operations and land sales. Housing revenues for the 2020 second quarter declined 15% year over year to $331.8 million from $390.9 million, reflecting a lower number of homes delivered and a slight decrease in the average selling price of those homes.

For the six months ended May 31, 2020, housing revenues increased 18% to $816.3 million from $692.8 million for the year-earlier period due to a higher number of homes delivered and a slight increase in the average selling price of those homes.

Operating income for the three months ended May 31, 2020 declined from the year-earlier period, reflecting a decrease in housing gross profits, partly offset by lower selling, general and administrative expenses. The year-over-year decrease in housing gross profits reflected lower housing revenues, partially offset by an increase in the housing gross profit margin. The improvement in the housing gross profit margin was primarily driven by decreases in both inventory-related charges and amortization of previously capitalized interest as a percentage of housing revenues, partly offset by reduced operating leverage due to lower housing revenues. Inventory-related charges totaled $.7 million in the 2020 second quarter, compared to $3.8 million in the year-earlier quarter. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 second quarter increased from the year-earlier quarter largely due to reduced operating leverage as a result of lower housing revenues.

For the six months ended May 31, 2020, operating income grew 20% from the year-earlier period reflecting an increase in housing gross profits, partly offset by an increase in selling, general and administrative expenses. The year-over-year growth in housing gross profits reflected an increase in housing revenues that was partially offset by a decrease in the housing gross profit margin. The decline in the housing gross profit margin was primarily due to an increase in construction and land costs as a percentage of housing revenues mainly as a result of a mix shift of homes delivered, partly offset by lower inventory-related charges and amortization of previously capitalized interest as a percentage of housing revenues, and improved operating leverage due to higher housing revenues. Inventory-related charges impacting the housing gross profit margin totaled $5.1 million and $7.1 million for the six-month periods ended May 31, 2020 and 2019, respectively. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 first half improved from the corresponding 2019 period, primarily due to increased operating leverage as a result of higher housing revenues.

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

This segment’s revenues for the three-month and six-month periods ended May 31, 2020 were from both housing operations and land sales. For the three months and six months ended May 31, 2019, revenues were generated solely from housing operations. Housing revenues for the three months ended May 31, 2020 decreased 5% year over year to $175.0 million due to decreases in both the number of homes delivered and the average selling price of those homes. For the six months ended May 31, 2020, housing revenues increased 7% year over year to $365.8 million, reflecting an increase in the number of homes delivered, partially offset by a decrease in the average selling price of those homes. The year-over-year decrease in the average selling price for the three months and six months ended May 31, 2020 was primarily due to product and geographic mix shifts of homes delivered.

Operating income for the three months ended May 31, 2020 decreased from the corresponding 2019 period due to lower housing gross profits and higher selling, general and administrative expenses. The year-over-year decrease in housing gross profits primarily reflected lower housing revenues as this segment’s housing gross profit margin was nearly even with the year-earlier period. The housing gross profit margin for the three months ended May 31, 2020 reflected an increase in construction and land costs as a percentage of housing revenues, reduced operating leverage due to lower housing revenues, and warranty adjustments that favorably impacted the 2019 second quarter, mostly offset by the lower relative amortization of previously capitalized interest. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 second quarter increased from the corresponding 2019 quarter, mainly as a result of reduced operating leverage due to lower housing revenues.

For the six months ended May 31, 2020, operating income increased from the corresponding 2019 period due to higher housing gross profits, partly offset by higher selling, general and administrative expenses. Housing gross profits for the 2020 first half increased from the year-earlier period mainly due to higher housing revenues and and a higher housing gross profit margin. The

improvement in the housing gross profit margin was primarily due to lower relative amortization of previously capitalized interest, partly offset by warranty adjustments that favorably impacted the 2019 first half. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 first half were essentially even with the corresponding 2019 period as increased marketing costs were largely offset by increased operating leverage as a result of higher housing revenues.

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

This segment’s revenues for the three months and six months ended May 31, 2020 were generated solely from housing operations. Revenues for the three-month and six-month periods ended May 31, 2019 were generated from both housing operations and land sales. Housing revenues for the 2020 second quarter declined 7% from $306.6 million for the year-earlier quarter, reflecting a decrease in the number of homes delivered, partly offset by an increase the average selling price of those homes. For the six months ended May 31, 2020, housing revenues increased 5% year over year from $541.5 million, reflecting increases in both the number of homes delivered and the average selling price of those homes. The year-over-year increases in the average selling prices for three-month and six-month periods ended May 31, 2020 were due to shifts in the product and geographic mix of homes delivered.

Operating income for the three months ended May 31, 2020 decreased slightly from the year-earlier period, mainly due to a decline in housing gross profits, partly offset by lower selling, general and administrative expenses. The year-over-year decrease in housing gross profits reflected a decline in housing revenues, partially offset by an increase in the housing gross profit margin. The housing gross profit margin increase mainly resulted from decreases in both construction and land costs and amortization of previously capitalized interest as a percentage of housing revenues, partly offset by an increase in inventory-related charges and reduced operating leverage due to lower housing revenues. Inventory-related charges impacting the housing gross profit margin for the three months ended May 31, 2020 and 2019 were $3.5 million and $.1 million, respectively. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 second quarter increased from the year-earlier quarter, primarily as a result of decreased operating leverage due to lower housing revenues.

For the six months ended May 31, 2020, operating income increased 8% from the year-earlier period mainly due to an increase in housing gross profits, partly offset by higher selling, general and administrative expenses. The housing gross profit margin increased primarily due to decreases in both construction and land costs and amortization of previously capitalized interest as a percentage of housing revenues, partly offset by an increase in inventory-related charges. Inventory-related charges impacting the housing gross profit margin for the six months ended May 31, 2020 and 2019 were $4.4 million and $.4 million, respectively. Land sales generated profits of $1.3 million for the six months ended May 31, 2019. Selling, general and administrative expenses as a percentage of revenues for the 2020 first half increased from the corresponding 2019 period, reflecting higher overhead costs, partly offset by increased operating leverage due to higher housing revenues.

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

This segment’s revenues for the three-month period ended May 31, 2020 and the three months and six months ended May 31, 2019 were generated solely from housing operations. Revenues for the six months ended May 31, 2020 were generated from housing operations and nominal land sales. The year-over-year decline in housing revenues for the three months and six months ended May 31, 2020 reflected decreases in both the number of homes delivered and the average selling price of those homes. The year-over-year decrease in the average selling price for the three months and six months ended May 31, 2020 was mainly due to a lower proportion of homes delivered from higher-priced communities.

Operating income for the three months ended May 31, 2020 increased from the year-earlier period due to higher housing gross profits and lower selling, general and administrative expenses. The year-over-year increase in housing gross profits reflected an increase in the housing gross profit margin, partly offset by a decline in housing revenues. The housing gross profit margin increased primarily due to lower construction and land costs as a percentage of housing revenues and lower relative amortization of previously capitalized interest, partly offset by reduced operating leverage due to lower housing revenues. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 second quarter improved from the year-earlier period, primarily reflecting legal recoveries, partly offset by decreased operating leverage as a result of lower housing revenues.

For the six months ended May 31, 2020, operating income grew from the prior-year period, reflecting higher housing gross profits and lower selling, general and administrative expenses. Housing gross profits and the housing gross profit margin increased for the respective reasons described above for the three months ended May 31, 2020. Selling, general and administrative expenses as a percentage of housing revenues improved in the 2020 first half from the year-earlier period primarily for the reasons described above with respect to the three months ended May 31, 2020.


1.	~~Basis of Presentation and Significant Accounting Policies~~


~~(a)~~	Other assets at May 31, 2020 and November 30, 2019 included $21.5 million and $20.6 million, respectively, of contract assets for estimated future renewal commissions related to then-existing insurance policies.


7.	~~Inventory Impairments and Land Option Contract Abandonments~~


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



	May 31, 2020				November 30, 2019
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	29,467	$	761,329	$	34,595	$	823,427
Other land option contracts and other similar contracts	29,772		503,739		40,591		600,092
Total	$	59,239	$	1,265,068	$	75,186	$	1,423,519



	May 31, 2020
Lease right-of-use assets (a)	$	32,413
Lease liabilities (b)	33,905


~~(a)~~	~~Represents lease right-of-use assets of $32.1 million within our homebuilding operations and $.3 million within our financial services operations.~~


~~(b)~~	~~Represents lease liabilities of $33.5 million within our homebuilding operations and $.4 million within our financial services operations.~~



	Three Months Ended May 31, 2020			Six Months Ended May 31, 2020
Lease right-of-use assets obtained in exchange for new lease liabilities	$	2,428		$	6,068
Non-cash operating lease expense	—			—
Cash payments on lease liabilities	2,894			5,637
Weighted-average remaining lease term	4.8 years			4.8 years
Weighted-average discount rate (incremental borrowing rate)	5.1		%	5.1		%



Years Ending November 30,
2020	$	5,272
2021	9,070
2022	7,787
2023	5,789
2024	4,502
Thereafter	6,035
Total lease payments	38,455
Less: Interest	(4,550		)
Present value of lease liabilities	$	33,905


2.	~~Segment Information~~


3.	~~Financial Services~~


4.	~~Earnings Per Share~~


5.	~~Receivables~~


~~(a)~~	Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period as of the date that the fair value measurements were made. The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.


~~(a)~~	~~The carrying values for the senior notes include unamortized debt issuance costs. Debt issuance costs are not factored into the estimated fair values of these notes.~~


~~(a)~~	~~These expenses are included in selling, general and administrative expenses and are largely offset by contributions from subcontractors participating in the wrap-up policy.~~


~~(b)~~	~~Includes net changes in estimated probable insurance and other recoveries, which are recorded in receivables, to present our self-insurance liability on a gross basis.~~



	Three Months Ended May 31, 2020
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	—		$	834,137		$	79,833		$	—		$	913,970
Homebuilding:
Revenues	$	—		$	834,137		$	76,143		$	—		$	910,280
Construction and land costs	—			(677,910		)	(66,543		)	—			(744,453		)
Selling, general and administrative expenses	(24,780		)	(83,470		)	(5,988		)	—			(114,238		)
Operating income (loss)	(24,780		)	72,757			3,612			—			51,589
Interest income	407			13			22			—			442
Interest expense	(29,541		)	(58		)	(1,456		)	31,055			—
Intercompany interest	79,978			(44,689		)	(4,234		)	(31,055		)	—
Equity in income of unconsolidated joint ventures	—			8,154			—			—			8,154
Homebuilding pretax income (loss)	26,064			36,177			(2,056		)	—			60,185
Financial services pretax income	—			—			7,604			—			7,604
Total pretax income	26,064			36,177			5,548			—			67,789
Income tax expense	(6,700		)	(7,800		)	(1,300		)	—			(15,800		)
Equity in net income of subsidiaries	32,625			—			—			(32,625		)	—
Net income	$	51,989		$	28,377		$	4,248		$	(32,625	)	$	51,989



	Three Months Ended May 31, 2019
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	—		$	932,945		$	88,858		$	—		$	1,021,803
Homebuilding:
Revenues	$	—		$	932,945		$	85,726		$	—		$	1,018,671
Construction and land costs	—			(756,055		)	(87,689		)	—			(843,744		)
Selling, general and administrative expenses	(27,506		)	(97,590		)	2,268			—			(122,828		)
Operating income (loss)	(27,506		)	79,300			305			—			52,099
Interest income	395			—			44			—			439
Interest expense	(35,080		)	(134		)	(1,330		)	36,544			—
Intercompany interest	82,238			(42,578		)	(3,116		)	(36,544		)	—
Equity in loss of unconsolidated joint ventures	—			(369		)	—			—			(369		)
Homebuilding pretax income (loss)	20,047			36,219			(4,097		)	—			52,169
Financial services pretax income	—			—			4,592			—			4,592
Total pretax income	20,047			36,219			495			—			56,761
Income tax expense	(2,800		)	(3,000		)	(3,500		)	—			(9,300		)
Equity in net income of subsidiaries	30,214			—			—			(30,214		)	—
Net income (loss)	$	47,461		$	33,219		$	(3,005	)	$	(30,214	)	$	47,461



	Six Months Ended May 31, 2020
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	—		$	1,826,682		$	163,223		$	—		$	1,989,905
Homebuilding:
Revenues	$	—		$	1,826,682		$	155,980		$	—		$	1,982,662
Construction and land costs	—			(1,493,468		)	(137,038		)	—			(1,630,506		)
Selling, general and administrative expenses	(52,430		)	(176,482		)	(11,460		)	—			(240,372		)
Operating income (loss)	(52,430		)	156,732			7,482			—			111,784
Interest income	1,291			12			74			—			1,377
Interest expense	(59,096		)	(58		)	(2,863		)	62,017			—
Intercompany interest	160,558			(90,525		)	(8,016		)	(62,017		)	—
Equity in income of unconsolidated joint ventures	—			10,059			—			—			10,059
Homebuilding pretax income (loss)	50,323			76,220			(3,323		)	—			123,220
Financial services pretax income	—			—			13,417			—			13,417
Total pretax income	50,323			76,220			10,094			—			136,637
Income tax expense	(9,800		)	(12,900		)	(2,200		)	—			(24,900		)
Equity in net income of subsidiaries	71,214			—			—			(71,214		)	—
Net income	$	111,737		$	63,320		$	7,894		$	(71,214	)	$	111,737



	Six Months Ended May 31, 2019
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	—		$	1,677,398		$	155,888		$	—		$	1,833,286
Homebuilding:
Revenues	$	—		$	1,677,398		$	150,061		$	—		$	1,827,459
Construction and land costs	—			(1,367,096		)	(147,503		)	—			(1,514,599		)
Selling, general and administrative expenses	(52,888		)	(173,130		)	(3,404		)	—			(229,422		)
Operating income (loss)	(52,888		)	137,172			(846		)	—			83,438
Interest income	1,409			—			135			—			1,544
Interest expense	(68,275		)	(455		)	(2,602		)	71,332			—
Intercompany interest	160,210			(84,316		)	(4,562		)	(71,332		)	—
Equity in loss of unconsolidated joint ventures	—			(775		)	—			—			(775		)
Homebuilding pretax income (loss)	40,456			51,626			(7,875		)	—			84,207
Financial services pretax income	—			—			7,065			—			7,065
Total pretax income (loss)	40,456			51,626			(810		)	—			91,272
Income tax expense	(3,500		)	(6,400		)	(3,900		)	—			(13,800		)
Equity in net income of subsidiaries	40,516			—			—			(40,516		)	—
Net income (loss)	$	77,472		$	45,226		$	(4,710	)	$	(40,516	)	$	77,472


	May 31, 2021		November 30, 2020
Total cash and cash equivalents	$	608,069	$	681,190
Credit Facility commitment	800,000		800,000
Borrowings outstanding under the Credit Facility	—		—
Letters of credit outstanding under the Credit Facility	(12,429)		(12,429)
Credit Facility availability	787,571		787,571
Total liquidity	$	1,395,640	$	1,468,761



Financial Covenants and Other Requirements	Covenant Requirement		Actual
Consolidated tangible net worth	>	$1.70 billion	$2.49 billion
Leverage Ratio	<	.650	.416
Interest Coverage Ratio (a)	>	1.500	4.506
Minimum liquidity (a)	>	$132.0 million	$575.0 million
Investments in joint ventures and non-guarantor subsidiaries	<	$602.9 million	$187.7 million
Borrowing base in excess of borrowing base indebtedness (as defined)		n/a	$1.34 billion


~~(a)~~	Under the terms of the Credit Facility, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity, but not both. As of May 31, 2020, we met both the Interest Coverage Ratio and the minimum liquidity requirements.


	May 31, 2021		November 30, 2020
Summarized Balance Sheet Data (in thousands)
Assets
Cash	$	562,737	$	644,157
Inventories	3,737,116		3,464,674
Amounts due from Non-Guarantor Subsidiaries	491,551		394,226
Total assets	5,353,202		5,102,197

Liabilities and Stockholders’ Equity
Notes payable	1,743,780		1,743,508
Amounts due to Non-Guarantor Subsidiaries	241,642		221,330
Total liabilities	2,639,670		2,589,971
Stockholders’ equity	2,713,532		2,512,226


	Six Months Ended May 31, 2021
Summarized Statement of Operations Data (in thousands)
Revenues	$	2,319,864
Construction and land costs	(1,817,515)
Selling, general and administrative expenses	(247,412)
Interest income from non-guarantor subsidiary	16,188
Pretax income	272,018
Net income	221,018


•	•volatility in the market price of our common stock; •home selling prices, including our homes’ selling prices, increasing at a faster rate than consumer incomes; •


•	•consumer interest in our new home communities and products, particularly from first-time homebuyers andhigher-income consumers; •our ability to generate orders andconvert our backlog of orders to home deliveries and revenues, particularly in key markets in California; •~~higher-income consumers;~~


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


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~


Exhibits

~~Exhibits~~
4.22						Amended Rights Agreement, effective as of April 8, 2021, made by and between KB Home and Computershare Inc., as Rights Agent, filed as Exhibit 4.1 to our Amended Registration Statement on Form 8-A/A dated April 13, 2021 (File No. 01-9195), is incorporated by reference herein.

~~31.1~~22						List of Guarantor Subsidiaries, filed as an exhibit to our Annual Report on Form 10-K (File No. 001-09195), is incorporated by reference herein.

31.1						Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

31.2						Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.1						Certification of Jeffrey T. Mezger, Chairman, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

32.2						Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).