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 ~~August 31, 2020~~.February 28, 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 ~~90,544,338~~92,032,443 shares of the registrant’s common stock, par value $1.00 per share, outstanding on ~~August 31, 2020~~.February 28, 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 Ended February 28, 2021 and ~~Nine Months Ended August 31,~~February 29, 2020 ~~and 2019~~			3

Consolidated Balance Sheets - ~~August 31, 2020~~February 28, 2021 and November 30, ~~2019~~2020			4

Consolidated Statements of Cash Flows - ~~Nine~~ Three Months Ended ~~August 31,~~February 28, 2021 and February 29, 2020 ~~and 2019~~			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3324

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5243

Item 4. Controls and Procedures			5243

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			5343

Item 1A. Risk Factors			5343

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5444

Item 6. Exhibits			5544

SIGNATURES			5645

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 August 31,						Nine Months Ended August 31,							Three Months Ended
	2020			2019			2020			2019				February 28, 2021		February 29, 2020
Total revenues	$	999,013		$	1,160,786		$	2,988,918		$	2,994,072		Total revenues	$	1,141,738	$	1,075,935
Homebuilding:													Homebuilding:
Revenues	$	995,148		$	1,156,855		$	2,977,810		$	2,984,314		Revenues	$	1,138,008	$	1,072,382
Construction and land costs	(798,495		)	(943,754		)	(2,429,001		)	(2,458,353		)	Construction and land costs	(901,909)		(886,053)
Selling, general and administrative expenses	(107,710		)	(127,626		)	(348,082		)	(357,048		)	Selling, general and administrative expenses	(122,005)		(126,134)
Operating income	88,943			85,475			200,727			168,913			Operating income	114,094		60,195
Interest income	786			201			2,163			1,745			Interest income	653		935
Equity in income (loss) of unconsolidated joint ventures	1,922			(384		)	11,981			(1,159		)

Equity in income of unconsolidated joint ventures													Equity in income of unconsolidated joint ventures	304		1,905
Homebuilding pretax income	91,651			85,292			214,871			169,499			Homebuilding pretax income	115,051		63,035
Financial services:													Financial services:
Revenues	3,865			3,931			11,108			9,758			Revenues	3,730		3,553
Expenses	(1,056		)	(1,003		)	(2,901		)	(3,067		)	Expenses	(1,200)		(962)
Equity in income of unconsolidated joint ventures	6,855			3,716			14,874			7,018			Equity in income of unconsolidated joint ventures	5,970		3,222
Financial services pretax income	9,664			6,644			23,081			13,709			Financial services pretax income	8,500		5,813
Total pretax income	101,315			91,936			237,952			183,208			Total pretax income	123,551		68,848
Income tax expense	(22,900		)	(23,800		)	(47,800		)	(37,600		)	Income tax expense	(26,500)		(9,100)
Net income	$	78,415		$	68,136		$	190,152		$	145,608		Net income	$	97,051	$	59,748
Earnings per share:													Earnings per share:
Basic	$	.86		$	.77		$	2.09		$	1.65		Basic	$	1.05	$	.66
Diluted	$	.83		$	.73		$	2.02		$	1.55		Diluted	$	1.02	$	.63
Weighted average shares outstanding:													Weighted average shares outstanding:
Basic	90,535			88,262			90,292			87,630			Basic	91,716		89,842
Diluted	94,105			92,842			93,788			94,032			Diluted	94,903		94,205

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)


	August 31, 2020			November 30, 2019				February 28, 2021		November 30, 2020
Assets							Assets
Homebuilding:							Homebuilding:
Cash and cash equivalents	$	722,033		$	453,814		Cash and cash equivalents	$	569,793	$	681,190

Receivables	269,651			249,055			Receivables	249,234		272,659
Inventories	3,671,129			3,704,602			Inventories	4,123,953		3,897,482
Investments in unconsolidated joint ventures	48,821			57,038			Investments in unconsolidated joint ventures	46,453		46,785
Property and equipment, net	64,619			65,043			Property and equipment, net	67,558		65,547
Deferred tax assets, net	241,171			364,493			Deferred tax assets, net	215,145		231,067
Other assets	125,242			83,041			Other assets	118,306		125,510
	5,142,666			4,977,086				5,390,442		5,320,240
Financial services	34,761			38,396			Financial services	36,342		36,202
Total assets	$	5,177,427		$	5,015,482		Total assets	$	5,426,784	$	5,356,442

Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Homebuilding:							Homebuilding:
Accounts payable	$	231,821		$	262,772		Accounts payable	$	280,541	$	273,368
Accrued expenses and other liabilities	630,529			618,783			Accrued expenses and other liabilities	649,110		667,501
Notes payable	1,747,704			1,748,747			Notes payable	1,747,007		1,747,175
	2,610,054			2,630,302				2,676,658		2,688,044
Financial services	2,065			2,058			Financial services	1,942		2,629
Stockholders’ equity:							Stockholders’ equity:
Common stock	122,370			121,593			Common stock	100,042		99,869
Paid-in capital	810,915			793,954			Paid-in capital	827,456		824,306
Retained earnings	2,326,060			2,157,183			Retained earnings	1,951,657		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	(597,529		)	(591,344		)	Treasury stock, at cost	(35,977)		(27,761)
Total stockholders’ equity	2,565,308			2,383,122			Total stockholders’ equity	2,748,184		2,665,769
Total liabilities and stockholders’ equity	$	5,177,427		$	5,015,482		Total liabilities and stockholders’ equity	$	5,426,784	$	5,356,442

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)


	Nine Months Ended August 31,							Three Months Ended
	2020			2019				February 28, 2021		February 29, 2020
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	190,152		$	145,608		Net income	$	97,051	$	59,748
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash used in operating activities:							Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of unconsolidated joint ventures	(26,855		)	(5,859		)	Equity in income of unconsolidated joint ventures	(6,274)		(5,127)
Distributions of earnings from unconsolidated joint ventures	29,384			6,450			Distributions of earnings from unconsolidated joint ventures	5,750		8,150
Amortization of discounts, premiums and issuance costs	1,862			3,500			Amortization of discounts, premiums and issuance costs	644		613
Depreciation and amortization	21,583			19,825			Depreciation and amortization	7,080		7,316

Deferred income taxes	40,200			35,701			Deferred income taxes	16,000		8,500

Stock-based compensation	12,767			14,479			Stock-based compensation	5,572		4,950
Inventory impairments and land option contract abandonments	16,939			13,143			Inventory impairments and land option contract abandonments	4,064		5,672
Changes in assets and liabilities:							Changes in assets and liabilities:
Receivables	62,839			2,788			Receivables	23,332		(4,195)
Inventories	46,567			(389,461		)	Inventories	(229,137)		(17,941)
Accounts payable, accrued expenses and other liabilities	(62,419		)	4,965			Accounts payable, accrued expenses and other liabilities	(10,130)		(60,996)
Other, net	(3,808		)	(3,283		)	Other, net	6,783		(16,556)
Net cash provided by (used in) operating activities	329,211			(152,144		)
Net cash used in operating activities							Net cash used in operating activities	(79,265)		(9,866)
Cash flows from investing activities:							Cash flows from investing activities:
Contributions to unconsolidated joint ventures	(6,048		)	(7,656		)	Contributions to unconsolidated joint ventures	(2,625)		(1,668)
Return of investments in unconsolidated joint ventures	8,816			5,001			Return of investments in unconsolidated joint ventures	0		500
Proceeds from sale of building	0			5,804

Purchases of property and equipment, net	(21,154		)	(32,211		)	Purchases of property and equipment, net	(9,098)		(6,671)
Net cash used in investing activities	(18,386		)	(29,062		)	Net cash used in investing activities	(11,723)		(7,839)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of debt	0			405,250
Payment of debt issuance costs	0			(5,209		)
Repayment of senior notes	0			(630,000		)
Borrowings under revolving credit facility	0			460,000
Repayments under revolving credit facility	0			(410,000		)

Payments on mortgages and land contracts due to land sellers and other loans	(20,314		)	(32,149		)	Payments on mortgages and land contracts due to land sellers and other loans	(600)		0

Issuance of common stock under employee stock plans	8,404			18,729			Issuance of common stock under employee stock plans	2,538		8,226
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	(24,428		)	(12,352		)	Payments of cash dividends	(14,064)		(8,233)
Net cash used in financing activities	(42,557		)	(209,076		)	Net cash used in financing activities	(20,582)		(6,226)
Net increase (decrease) in cash and cash equivalents	268,268			(390,282		)
Net decrease in cash and cash equivalents							Net decrease in cash and cash equivalents	(111,570)		(23,931)
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	$	723,126		$	184,837		Cash and cash equivalents at end of period	$	570,959	$	430,927

See accompanying notes.

KB HOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies


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 the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of ~~August 31, 2020,~~February 28, 2021, the results of our consolidated operations for the three months ended February 28, 2021 and ~~nine months ended August 31,~~February 29, 2020, ~~and 2019,~~ and our consolidated cash flows for the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 and ~~2019.~~February 29, 2020. The results of our consolidated operations for the three months ~~and nine months~~ ended ~~August 31, 2020~~February 28, 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 our second quarter. Operationally, we temporarily closed our sales centers, model homes and design studios to the public in mid-March and shifted to virtual sales tools and appointment-only personalized home sales processes, where permitted. These steps, along with the negative prevailing business conditions due to the pandemic and restrictive COVID-19 control responses, moderated our order pace significantly in the second quarter. In addition, home purchase cancellations increased considerably, largely reflecting our proactive efforts to assure a backlog of qualified homebuyers amid the pandemic-induced economic downturn. These two factors contributed to a sizable reduction in our 2020 second quarter net orders, and we entered the third quarter with the number of homes in backlog at the beginning of the quarter (“beginning backlog”) down 14% year over year. Further, our construction activities were restricted in many jurisdictions, and completely shut down in some of them, 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 second quarter, which tempered our revenues for that period.

Since the easing of public health restrictions in our served markets beginning in May 2020, all of our communities have been open to walk-in traffic, following appropriate safety protocols and applicable public health guidelines, and our net orders started to rebound, improving significantly each month on a year-over-year basis as the third quarter progressed. This positive momentum resulted in our net orders for the 2020 third quarter increasing to their highest level of any quarter since 2007. Although housing market conditions in the 2020 third quarter improved significantly from the prior quarter, our deliveries and revenues for the period were tempered primarily by the negative impact that COVID-19 and the related COVID-19 control responses had on our 2020 second quarter.

While we limited our land investments during the 2020 second quarter and most of the 2020 third quarter to preserve cash and liquidity due to the uncertainty surrounding the COVID-19 pandemic, given the sustained strong housing demand in the third quarter, we have resumed land acquisition and development activities. In the 2020 second quarter, we also curtailed our overhead expenditures, partly through workforce realignment and reductions. As a result, our selling, general and administrative expenses for the nine months ended August 31, 2020 include severance charges of $6.7 million that we recorded in 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 in the early stages of the pandemic.

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 ~~$594.5~~$358.5 million at ~~August 31, 2020~~February 28, 2021 and ~~$302.5~~$508.5 million at November 30, ~~2019~~.2020. At ~~August 31, 2020~~February 28, 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 ~~$78.4~~$97.1 million for the three months ended ~~August 31, 2020~~February 28, 2021 and ~~$68.1~~$59.7 million for the three months ended ~~August 31, 2019. For the nine months ended August 31, 2020 and 2019, our comprehensive income was $190.2 million and $145.6 million, respectively.~~February 29, 2020. Our comprehensive income for each of the three-month ~~and nine-month~~ periods ended ~~August 31,~~February 28, 2021 and February 29, 2020 ~~and 2019~~ 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. On December 1, 2020, we adopted ASU 2016-13 ~~is effective~~using the modified retrospective method and recorded a cumulative effect adjustment to decrease beginning retained earnings by $.2 million, net of tax, to establish an allowance for ~~us beginning December 1, 2020. We are currently evaluating the potential impact of adopting this guidance~~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~~

2.Segment Information

We have identified 5 operating reporting segments, comprised of 4 homebuilding reporting segments and 1 financial services reporting segment. As of ~~August 31, 2020~~,February 28, 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. 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
	February 28, 2021		February 29, 2020
Revenues:
West Coast	$	514,516	$	484,497
Southwest	187,685		191,318
Central	309,708		283,513
Southeast	126,099		113,054
Total	$	1,138,008	$	1,072,382

Pretax income (loss):
West Coast	$	58,631	$	34,029
Southwest	33,055		32,112
Central	40,992		22,678
Southeast	12,115		2,630
Corporate and other	(29,742)		(28,414)
Total	$	115,051	$	63,035

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Revenues:
West Coast $ 379,025
$ 497,654
$ 1,195,404
$ 1,194,728
Southwest 223,096
180,238
589,665
522,721
Central 297,022
326,058
864,728
874,730
Southeast 96,005
152,905
328,013
392,135
Total $ 995,148
$ 1,156,855
$ 2,977,810
$ 2,984,314

Pretax income (loss):
West Coast $ 34,353
$ 43,775
$ 96,202
$ 86,480
Southwest 39,295
26,366
96,298
76,433
Central 35,422
34,417
84,996
80,199
Southeast 5,986
5,272
15,245
5,316
Corporate and other (23,405 ) (24,538 ) (77,870 ) (78,929 )
Total $ 91,651
$ 85,292
$ 214,871
$ 169,499


	Three Months Ended
	February 28, 2021		February 29, 2020
Inventory impairment and land option contract abandonment charges:
West Coast	$	3,801	$	4,392
Southwest	128		171
Central	0		984
Southeast	135		125
Total	$	4,064	$	5,672


										February 28, 2021		November 30, 2020
	Three Months Ended August 31,				Nine Months Ended August 31,
	2020		2019		2020		2019
Inventory impairment and land option contract abandonment charges:
Assets:									Assets:
West Coast	$	5,546	$	5,065	$	10,610	$	12,148	West Coast	$	2,209,383	$	2,057,362
Southwest	0		126		171		408		Southwest	816,001		738,765
Central	1,084		0		5,520		366		Central	1,034,653		998,612
Southeast	258		60		638		221		Southeast	501,371		448,388
Corporate and other									Corporate and other	829,034		1,077,113
Total	$	6,888	$	5,251	$	16,939	$	13,143	Total	$	5,390,442	$	5,320,240

3. Financial Services

August 31,
2020 November 30,
2019
Assets:
West Coast $ 1,916,237
$ 1,925,192
Southwest 699,777
674,310
Central 977,535
1,035,563
Southeast 417,349
441,451
Corporate and other 1,131,768
900,570
Total $ 5,142,666
$ 4,977,086


3.	~~Financial Services~~

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


	Three Months Ended
	February 28, 2021		February 29, 2020
Revenues
Insurance commissions	$	1,848	$	1,953
Title services	1,882		1,600

Total	3,730		3,553

Expenses
General and administrative	(1,200)		(962)
Operating income	2,530		2,591
Equity in income of unconsolidated joint ventures	5,970		3,222
Pretax income	$	8,500	$	5,813

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Revenues
Insurance commissions $ 2,150
$ 2,224
$ 6,133
$ 5,342
Title services 1,715
1,707
4,975
4,410
Interest income 0
0
0
6
Total 3,865
3,931
11,108
9,758
Expenses
General and administrative (1,056 ) (1,003 ) (2,901 ) (3,067 )
Operating income 2,809
2,928
8,207
6,691
Equity in income of unconsolidated joint ventures 6,855
3,716
14,874
7,018
Pretax income $ 9,664
$ 6,644
$ 23,081
$ 13,709


	Three Months Ended
	February 28, 2021		November 30, 2020
Assets
Cash and cash equivalents	$	1,166	$	1,339
Receivables	1,777		1,988
Investments in unconsolidated joint ventures	11,197		10,978
Other assets (a)	22,202		21,897
Total assets	$	36,342	$	36,202
Liabilities
Accounts payable and accrued expenses	$	1,942	$	2,629
Total liabilities	$	1,942	$	2,629

August 31,
2020 November 30,
2019
Assets
Cash and cash equivalents $ 1,093
$ 1,044
Receivables 1,414
2,232
Investments in unconsolidated joint ventures 10,298
14,374
Other assets (a) 21,956
20,746
Total assets $ 34,761
$ 38,396
Liabilities
Accounts payable and accrued expenses $ 2,065
$ 2,058
Total liabilities $ 2,065
$ 2,058

(a)Other assets at February 28, 2021 and November 30, 2020 included $21.9 million and $21.5 million, respectively, of contract assets for estimated future renewal commissions.


~~(a)~~	Other assets at August 31, 2020 and November 30, 2019 included $21.6 million and $20.6 million, respectively, of contract assets for estimated future renewal commissions related to then-existing insurance policies.


4.	~~Earnings Per Share~~

4. Earnings Per Share

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

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Numerator:
Net income $ 78,415
$ 68,136
$ 190,152
$ 145,608
Less: Distributed earnings allocated to nonvested restricted stock (42 ) (48 ) (129 ) (76 )
Less: Undistributed earnings allocated to nonvested restricted stock (360 ) (365 ) (875 ) (825 )
Numerator for basic earnings per share 78,013
67,723
189,148
144,707
Effect of dilutive securities:
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes 0
0
0
541
Add: Undistributed earnings allocated to nonvested restricted stock 360
365
875
825
Less: Undistributed earnings reallocated to nonvested restricted stock (346 ) (354 ) (843 ) (769 )
Numerator for diluted earnings per share $ 78,027
$ 67,734
$ 189,180
$ 145,304

Denominator:
Weighted average shares outstanding — basic 90,535
88,262
90,292
87,630
Effect of dilutive securities:
Share-based payments 3,570
4,580
3,496
4,501
Convertible senior notes 0
0
0
1,901
Weighted average shares outstanding — diluted 94,105
92,842
93,788
94,032
Basic earnings per share $ .86
$ .77
$ 2.09
$ 1.65
Diluted earnings per share $ .83
$ .73
$ 2.02
$ 1.55


	Three Months Ended
	February 28, 2021		February 29, 2020
Numerator:
Net income	$	97,051	$	59,748
Less: Distributed earnings allocated to nonvested restricted stock	(63)		(44)
Less: Undistributed earnings allocated to nonvested restricted stock	(381)		(281)
Numerator for basic earnings per share	96,607		59,423
Effect of dilutive securities:

Add: Undistributed earnings allocated to nonvested restricted stock	381		281
Less: Undistributed earnings reallocated to nonvested restricted stock	(368)		(268)
Numerator for diluted earnings per share	$	96,620	$	59,436



Denominator:
Weighted average shares outstanding — basic	91,716		89,842
Effect of dilutive securities:
Share-based payments	3,187		4,363
Weighted average shares outstanding — diluted	94,903		94,205
Basic earnings per share	$	1.05	$	.66
Diluted earnings per share	$	1.02	$	.63

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 ~~August 31, 2020~~February 28, 2021 or ~~2019.~~February 29, 2020.

For the ~~three-month~~three months ended February 28, 2021 and ~~nine-month periods ended August 31,~~February 29, 2020, 0 outstanding stock options were excluded from the diluted earnings per share calculation. For the three-month and nine-month periods ended August 31, 2019, outstanding stock options to purchase .6 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 nine months ended August 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.


5.	~~Receivables~~

5. Receivables

Receivables consisted of the following (in thousands):


	August 31, 2020			November 30, 2019				February 28, 2021		November 30, 2020
Due from utility companies, improvement districts and municipalities	$	122,472		$	128,047		Due from utility companies, improvement districts and municipalities	$	115,019	$	105,700
Recoveries related to self-insurance and other legal claims	69,694			80,729			Recoveries related to self-insurance and other legal claims	79,002		82,018
Refundable deposits and bonds							Refundable deposits and bonds	12,296		10,897
Income taxes receivable	39,311			0			Income taxes receivable	2,012		41,323
Refundable deposits and bonds	9,419			10,925

Other	36,439			37,846			Other	48,109		40,020
Subtotal	277,335			257,547			Subtotal	256,438		279,958
Allowance for doubtful accounts	(7,684		)	(8,492		)	Allowance for doubtful accounts	(7,204)		(7,299)
Total	$	269,651		$	249,055		Total	$	249,234	$	272,659


6.	~~Inventories~~

6. Inventories

Inventories consisted of the following (in thousands):

August 31,
2020 November 30,
2019
Homes completed or under construction $ 1,316,467
$ 1,340,412
Land under development 2,234,992
2,213,713
Land held for future development or sale (a) 119,670
150,477
Total $ 3,671,129
$ 3,704,602


	February 28, 2021		November 30, 2020
Homes completed or under construction	$	1,625,489	$	1,437,911
Land under development	2,498,464		2,459,571
Total	$	4,123,953	$	3,897,482

~~(a)~~ Land under development included land held for future development and land held for sale ~~totaled~~of $51.9 million and $.6 million, respectively, at February 28, 2021 and $74.0 million and $1.3 million, ~~at August 31, 2020 and $19.3 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
	February 28, 2021		February 29, 2020
Capitalized interest at beginning of period	$	190,113	$	195,738
Interest incurred	31,092		30,962

Interest amortized to construction and land costs (a)	(32,650)		(34,575)
Capitalized interest at end of period (b)	$	188,555	$	192,125

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Capitalized interest at beginning of period $ 194,434
$ 212,160
$ 195,738
$ 209,129
Interest incurred 31,054
36,024
93,071
107,356
Interest amortized to construction and land costs (a) (30,628 ) (38,558 ) (93,949 ) (106,859 )
Capitalized interest at end of period (b) $ 194,860
$ 209,626
$ 194,860
$ 209,626
(a)Interest amortized to construction and land costs for the three months ended February 28, 2021 included $.2 million related to land sales during the period. There was no such interest amortized for the three months ended February 29, 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 nine months ended August 31, 2020 included $.4 million related to land sales during the periods. Interest amortized to construction and land costs for the nine months ended August 31, 2019 included $.6 million related to land sales during the period. There was no such interest amortized for the three months ended August 31, 2019.


~~(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


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 August 31, 2020, these expectations considered that our net orders, ending backlog and cancellation rates for the 2020 third quarter improved from both the year-earlier quarter and the 2020 second quarter when the early stages of 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. Our impairment assessments also considered that while the number of homes delivered in the 2020 third quarter decreased from the year-earlier quarter, the average selling price of those homes increased slightly and our housing gross profit margin improved significantly over the same period. Moreover, the average selling price of our net orders generated during the 2020 third quarter increased from the year-earlier period. Taken together, and notwithstanding the significant disruptions associated with the COVID-19 pandemic during the 2020 second quarter, our inventory assessments as of August 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 solid 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 228 and 3111 communities or land parcels for recoverability ~~during the nine months ended August 31,~~as of February 28, 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 as of February 28, 2021 and November 30, 2020 were ~~$191.8~~$96.1 million ~~at August 31, 2020~~ and ~~$219.2~~$123.4 million, at August 31, 2019. Some of the communities or land parcels evaluated during the nine months ended August 31, 2020 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

~~nine-month period.~~respectively. In addition, we evaluated land held for future development for recoverability ~~during the nine months ended August 31, 2020~~as of February 28, 2021 and ~~2019.~~November 30, 2020.

Based on the results of our evaluations, we recognized inventory impairment charges of ~~$6.5~~$3.6 million for the three months ended ~~August 31, 2020~~February 28, 2021 and ~~$11.6~~$5.1 million for the ~~nine~~three months ended ~~August 31,~~February 29, 2020. ~~For the three months and nine months ended August 31, 2019, we recognized inventory impairment charges of $4.8 million and $11.5 million, respectively.~~ The impairment charges for the ~~three-month~~three months ended February 28, 2021 and ~~nine-month periods ended August 31,~~February 29, 2020 ~~and 2019~~ reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

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

Three Months Ended August 31, Nine Months Ended August 31,
Unobservable Input (a) 2020 2019 2020 2019
Average selling price $301,600 - $1,010,100 $325,300 - $957,200 $301,600 - $1,010,100 $315,000 - $1,045,400
Deliveries per month 2 2 - 4 1 - 4 1 - 4
Discount rate 17% - 18% 17% 17% - 18% 17%


~~(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.~~	Three Months Ended
Unobservable Input (a)		February 28, 2021	February 29, 2020
Average selling price		$471,000	$302,700 - $915,500
Deliveries per month		5	1 - 4
Discount rate		19%	17% - 18%

(a)The ranges of inputs used for the three months ended February 29, 2020 primarily reflect differences between the housing markets where each impacted community is located, rather than fluctuations in prevailing market conditions.

As of ~~August 31,~~February 28, 2021, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $100.7 million, representing 14 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 ~~$89.4~~$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 million for the three months ended ~~August 31, 2020~~February 28, 2021 and ~~$5.4~~$.6 million for the ~~nine~~three months ended ~~August 31,~~February 29, 2020. ~~For the three-month and nine-month periods ended August 31, 2019, we recognized land option contract abandonment charges of $.4 million and $1.7 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~~

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 ~~August 31, 2020~~February 28, 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 ~~August 31, 2020~~February 28, 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 ~~August 31, 2020~~February 28, 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):

August 31, 2020 November 30, 2019

Cash
Deposits

Aggregate
Purchase Price

Cash
Deposits

Aggregate
Purchase Price
Unconsolidated VIEs $ 25,856
$ 844,801
$ 34,595
$ 823,427
Other land option contracts and other similar contracts 39,171
511,796
40,591
600,092
Total $ 65,027
$ 1,356,597
$ 75,186
$ 1,423,519


	February 28, 2021				November 30, 2020
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	23,239	$	845,229	$	20,962	$	910,495
Other land option contracts and other similar contracts	42,693		724,214		33,672		507,934
Total	$	65,932	$	1,569,443	$	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 ~~$28.8~~$35.4 million at ~~August 31, 2020~~February 28, 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 ~~$17.2 million~~ at ~~August 31, 2020~~ ~~and $12.2~~$17.6 million at February 28, 2021 and $19.4 million at November 30, ~~2019~~2020.

9. .Investments in Unconsolidated Joint Ventures


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 February 28, 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 of our unconsolidated joint ventures (in thousands):

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Revenues $ 21,473
$ 5,729
$ 115,893
$ 21,707
Construction and land costs (15,960 ) (5,686 ) (84,228 ) (21,704 )
Other expense, net (1,606 ) (708 ) (7,455 ) (1,946 )
Income (loss) $ 3,907
$ (665 ) $ 24,210
$ (1,943 )


	Three Months Ended
	February 28, 2021		February 29, 2020
Revenues	$	9,691	$	27,547
Construction and land costs	(8,125)		(21,543)
Other expense, net	(879)		(2,107)
Income	$	687	$	3,897

The ~~higher~~lower combined revenues and income for the three months ~~and nine months~~ ended ~~August 31, 2020,~~February 28, 2021, as compared to the year-earlier ~~periods,~~period, mainly reflected a decrease in the number of homes delivered from an unconsolidated joint venture in California. ~~In the three months and nine months ended August 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):


	February 28, 2021		November 30, 2020
Assets
Cash	$	42,504	$	38,837
Receivables	32		96
Inventories	60,638		65,233
Other assets	517		593
Total assets	$	103,691	$	104,759

Liabilities and equity
Accounts payable and other liabilities	$	12,977	$	14,037


Equity	90,714		90,722
Total liabilities and equity	$	103,691	$	104,759

August 31,
2020 November 30,
2019
Assets
Cash $ 35,674
$ 23,965
Inventories 71,911
139,536
Other assets 713
792
Total assets $ 108,298
$ 164,293

Liabilities and equity
Accounts payable and other liabilities $ 12,073
$ 13,282
Notes payable (a) 0
40,672
Equity 96,225
110,339
Total liabilities and equity $ 108,298
$ 164,293

10. Property and Equipment, Net

~~(a)~~

As of both August 31, 2020 and November 30, 2019, we had investments in 5 unconsolidated joint ventures. At November 30, 2019, 1 of our unconsolidated joint ventures had a construction loan agreement with a third-party lender to finance its land development activities. The outstanding debt was secured by the underlying property and related project assets and was non-recourse to us. All the outstanding secured debt was repaid in April 2020. None of our unconsolidated joint ventures had outstanding debt at August 31, 2020.


~~10.~~	~~Property and Equipment, Net~~

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


	February 28, 2021		November 30, 2020
Computer software and equipment	$	35,182	$	32,902

Model furnishings and sales office improvements	84,946		83,882
Leasehold improvements, office furniture and equipment	17,310		17,245
Subtotal	137,438		134,029
Less accumulated depreciation	(69,880)		(68,482)
Total	$	67,558	$	65,547

August 31,
2020 November 30,
2019
Computer software and equipment $ 31,901
$ 27,091
Model furnishings and sales office improvements 80,642
82,117
Leasehold improvements, office furniture and equipment 17,167
16,173
Subtotal 129,710
125,381
Less accumulated depreciation (65,091 ) (60,338 )
Total $ 64,619
$ 65,043


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

11. Other Assets

Other assets consisted of the following (in thousands):


	February 28, 2021		November 30, 2020
Cash surrender value and benefit receivable from corporate-owned life insurance contracts	$	71,986	$	73,227

Lease right-of-use assets	33,604		35,967
Prepaid expenses	10,528		13,916
Debt issuance costs associated with unsecured revolving credit facility, net	2,188		2,400
Total	$	118,306	$	125,510

August 31,
2020 November 30,
2019
Cash surrender value and benefit receivable from corporate-owned life insurance contracts $ 73,310
$ 73,849
Lease right-of-use assets 32,992
0
Prepaid expenses 16,328
5,944
Debt issuance costs associated with unsecured revolving credit facility, net 2,612
3,248
Total $ 125,242
$ 83,041

12. Accrued Expenses and Other Liabilities


~~12.~~	~~Accrued Expenses and Other Liabilities~~

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


	February 28, 2021		November 30, 2020
Self-insurance and other legal liabilities	$	234,069	$	232,556
Employee compensation and related benefits	123,687		165,342
Warranty liability	92,687		91,646
Customer deposits	38,210		26,243
Accrued interest payable	35,501		31,641
Lease liabilities	35,500		37,668
Inventory-related obligations (a)	28,538		31,094
Real estate and business taxes	13,813		14,249
Other	47,105		37,062
Total	$	649,110	$	667,501

August 31,
2020 November 30,
2019
Self-insurance and other legal liabilities $ 225,775
$ 229,483
Employee compensation and related benefits 136,003
163,646
Warranty liability 94,347
88,839
Accrued interest payable 36,051
32,507
Lease liabilities 34,525
0
Inventory-related obligations (a) 29,491
26,264
Customer deposits 21,360
22,382
Real estate and business taxes 14,967
14,872
Other 38,010
40,790
Total $ 630,529
$ 618,783

(a)Represents liabilities for financing arrangements discussed in Note 8 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer. As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.

~~(a)~~

Represents liabilities for financing arrangements discussed in Note 8 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer. As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.


~~13.~~	~~Leases~~

13. Leases

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 ~~August 31, 2020~~February 28, 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 the three months ended ~~August 31, 2020,~~February 28, 2021, our total lease expense was ~~$4.2~~$4.3 million, which included short-term lease costs of ~~$1.1~~$1.3 million. For the ~~nine~~three months ended ~~August 31,~~February 29, 2020, our total lease expense was ~~$13.6~~$5.0 million, which included short-term lease costs of ~~$4.8~~$2.1 million. Variable lease costs and external sublease income for the ~~three-month~~three months ended February 28, 2021 and ~~nine-month periods ended August 31,~~February 29, 2020 were immaterial.

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


	February 28, 2021			November 30, 2020
Lease right-of-use assets (a)	$	33,879		$	36,270
Lease liabilities (b)	35,801			38,000
Weighted-average remaining lease term	4.3 years			4.5 years
Weighted-average discount rate (incremental borrowing rate)	5.1		%	5.1		%

August 31,
2020
Lease right-of-use assets (a) $ 33,291
Lease liabilities (b) 34,849
Weighted-average remaining lease term 4.5 years
Weighted-average discount rate (incremental borrowing rate) 5.1 %
(a)Represents lease right-of-use assets within our homebuilding operations and financial services operations of $33.6 million and $.3 million, respectively, at February 28, 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 $35.5 million and $.3 million, respectively, at February 28, 2021, and $37.7 million and $.3 million, respectively, at November 30, 2020.


~~(a)~~	~~Represents lease right-of-use assets of $33.0 million within our homebuilding operations and $.3 million within our financial services operations.~~


~~(b)~~	~~Represents lease liabilities of $34.5 million within our homebuilding operations and $.3 million within our financial services operations.~~

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

Three Months Ended
August 31, 2020

Nine Months Ended
August 31, 2020
Lease right-of-use assets obtained in exchange for new lease liabilities $ 2,977
$ 9,045
Cash payments on lease liabilities 2,831
8,468


	Three Months Ended
	February 28, 2021		February 29, 2020


Lease right-of-use assets obtained in exchange for new lease liabilities	$	88	$	3,640

Cash payments on lease liabilities	2,753		2,743

As of ~~August 31, 2020,~~February 28, 2021, the future minimum lease payments required under our leases are as follows (in thousands):


Years Ending November 30,
2021	$	8,365
2022	10,126
2023	7,946
2024	5,851
2025	4,495
Thereafter	3,111
Total lease payments	39,894
Less: Interest	(4,093)
Present value of lease liabilities	$	35,801

Years Ending November 30,
2020 $ 2,737
2021 10,178
2022 8,921
2023 6,704
2024 4,637
Thereafter 6,099
Total lease payments 39,276
Less: Interest (4,427 )
Present value of lease liabilities $ 34,849


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

14. Income Taxes

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

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Income tax expense $ 22,900
$ 23,800
$ 47,800
$ 37,600
Effective tax rate 22.6 % 25.9 % 20.1 % 20.5 %


	Three Months Ended
	February 28, 2021			February 29, 2020
Income tax expense	$	26,500		$	9,100
Effective tax rate	21.4		%	13.2		%

Our income tax expense and effective tax rate for the three months ended ~~August 31, 2020 included~~February 28, 2021 reflected the favorable ~~effect~~impacts of ~~$3.1~~$3.5 million of excess tax benefits related to stock-based compensation and $2.7 million of federal energy tax credits that we earned from building energy-efficient homes, partially offset by ~~$1.2~~$1.4 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and effective tax rate for the three months ended ~~August 31, 2019~~February 29, 2020 reflected ~~$1.4 million of non-deductible executive compensation expense.~~

~~Our income tax expense and effective tax rate for the nine months ended August 31, 2020 included~~ the favorable ~~effects~~impacts of ~~$10.1 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 offset by $3.2 million of non-deductible executive compensation expense. For the nine months ended August 31, 2019, our income tax expense~~ and ~~effective tax rate included the favorable effects of $4.3~~$4.0 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,we earned from building energy-efficient homes, partly offset by ~~$2.6~~$1.0 million of non-deductible executive compensation expense.

~~efficient~~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 AMT tax credits that we reclassified from deferred tax assets to receivables in the 2020 first quarter when we filed a preliminary 2019 federal income tax return. We received ~~the $43.3 million~~this AMT credit refund in the 2021 first quarter.

The CARES Act also provided an Employee Retention Credit (“ERC”), which is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020 ~~third~~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 in our consolidated statements of operations upon filing for the refund in the 2021 first quarter.

In June 2020, California enacted tax legislation that approved the suspension of California net operating loss deductions for tax years 2020, 2021 and 2022. The suspension of California net operating loss deductions did not have an impact on our income tax expense for the three months ~~or nine months~~ ended ~~August 31, 2020.~~February 28, 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 ~~$260.5~~$233.1 million as of ~~August 31, 2020~~February 28, 2021 and ~~$383.7~~$249.1 million as of November 30, ~~2019~~2020 were both partly offset by valuation allowances of $19.3 million and $19.2 million, respectively. Our deferred tax assets as of August 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.$18.0 million. The deferred tax asset valuation allowances as of ~~August 31, 2020~~February 28, 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. ~~As a result of an adjustment to our state net operating losses, we increased the valuation allowance by $.1 million in the 2020 third quarter.~~ Based on the evaluation of our deferred tax assets as of ~~August 31, 2020,~~February 28, 2021, we determined that most of our deferred tax assets would be realized. Therefore, ~~other than the slight increase mentioned above,~~ 0 adjustments to our deferred tax valuation allowance were needed for the ~~nine~~three months ended ~~August 31, 2020.~~February 28, 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 ~~August 31, 2020~~February 28, 2021 and November 30, ~~2019,~~2020, we had 0 gross unrecognized tax benefits. The fiscal years ending 2017 and later remain open to federal examinations, while ~~2015~~2016 and later remain open to state examinations.


~~15.~~	~~Notes Payable~~

15. Notes Payable

Notes payable consisted of the following (in thousands):

August 31,
2020 November 30,
2019
Mortgages and land contracts due to land sellers and other loans $ 5,620
$ 7,889
7.00% Senior notes due December 15, 2021 448,807
448,164
7.50% Senior notes due September 15, 2022 348,697
348,267
7.625% Senior notes due May 15, 2023 351,400
351,748
6.875% Senior notes due June 15, 2027 296,660
296,379
4.80% Senior notes due November 15, 2029 296,520
296,300
Total $ 1,747,704
$ 1,748,747


	February 28, 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	449,256		449,029
7.50% Senior notes due September 15, 2022	348,998		348,846
7.625% Senior notes due May 15, 2023	351,160		351,281
6.875% Senior notes due June 15, 2027	296,855		296,757
4.80% Senior notes due November 15, 2029	296,671		296,595
Total	$	1,747,007	$	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 ~~$7.9~~$7.1 million at ~~August 31, 2020~~February 28, 2021 and ~~$9.1~~$7.5 million at November 30, ~~2019.~~2020.

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 ~~August 31, 2020,~~February 28, 2021, we had 0 cash borrowings and $12.4 million of letters of credit outstanding under the Credit Facility. Therefore, as of ~~August 31, 2020,~~February 28, 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 ~~August 31,~~February 28, 2021 and November 30, 2020,, we had ~~$29.3 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.~~$41.0 million and $29.7 million, respectively.

Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of ~~August 31, 2020~~,February 28, 2021, inventories having a carrying value of ~~$49.2~~$12.3 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

~~Shelf Registration.~~ On July 9, 2020, we filed an automatically effective universal shelf registration statement (“2020 Shelf Registration”) with the SEC. The 2020 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Issuances of securities under our 2020 Shelf Registration require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity. The 2020 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 14, 2017. We have not made any offerings of securities under the 2020 Shelf Registration.

Senior Notes. All of the senior notes outstanding at ~~August 31, 2020~~February 28, 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 ~~August 31, 2020~~,February 28, 2021, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

As of ~~August 31, 2020,~~February 28, 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 – $4.6 million;~~ 2021 – ~~$1.0~~$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.


~~16.~~	~~Fair Value Disclosures~~

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 ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 and the year ended November 30, ~~2019~~2020 (in thousands):


		February 28, 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

August 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 $ 28,598
$ (11,589 ) $ 17,009
$ 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.


~~(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):


		February 28, 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	$	1,742,940	$	1,897,875	$	1,742,508	$	1,924,250

August 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 $ 1,742,084
$ 1,912,750
$ 1,740,858
$ 1,921,563

(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)~~	~~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.~~

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~~

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 August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Balance at beginning of period $ 92,844
$ 83,030
$ 88,839
$ 82,490
Warranties issued 6,326
9,067
21,960
23,500
Payments (4,823 ) (5,925 ) (16,452 ) (17,018 )
Adjustments 0
0
0
(2,800 )
Balance at end of period $ 94,347
$ 86,172
$ 94,347
$ 86,172


	Three Months Ended
	February 28, 2021		February 29, 2020
Balance at beginning of period	$	91,646	$	88,839
Warranties issued	7,457		8,363
Payments	(6,416)		(6,989)
Adjustments	0		0
Balance at end of period	$	92,687	$	90,213

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 ~~$51.0~~$60.2 million and ~~$50.6~~$60.0 million are included in receivables in our consolidated balance sheets at ~~August 31, 2020~~February 28, 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
	February 28, 2021		February 29, 2020
Balance at beginning of period	$	194,180	$	177,765
Self-insurance provided	4,583		4,634
Payments	(5,500)		(1,147)
Adjustments (a)	182		229
Balance at end of period	$	193,445	$	181,481

(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.

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Balance at beginning of period $ 178,081
$ 170,978
$ 177,765
$ 176,841
Self-insurance expense (a) 3,545
4,802
9,522
12,844
Payments (b) 2,483
(5,162 ) (3,178 ) (19,067 )
Balance at end of period $ 184,109
$ 170,618
$ 184,109
$ 170,618


~~(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. The amount for the three months ended August 31, 2020 reflects an increase in the actuarially estimated probable insurance and other recoveries that exceeded the payments made.

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 ~~August 31, 2020,~~February 28, 2021, we had approximately ~~583~~635 outstanding noticed claims, and some are scheduled for trial over the next few quarters and beyond. In addition, some of our subcontractors’ insurers in some of these cases have informed us of their inability to continue to pay claims-related costs. At ~~August 31, 2020,~~February 28, 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 ~~August 31, 2020,~~February 28, 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 ~~$5.0~~$3.0 million. Our investigation will also involve 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 ~~August 31, 2020~~,February 28, 2021, we had ~~$818.0~~$927.6 million of performance bonds and ~~$41.7~~$53.4 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 ~~August 31, 2020~~,February 28, 2021, we had total cash deposits of ~~$65.0~~$65.9 million to purchase land having an aggregate purchase price of ~~$1.36~~$1.57 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.


~~18.~~	~~Legal Matters~~

18. Legal Matters

We are involved in litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of ~~August 31, 2020,~~February 28, 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 Securities and Exchange Commission (“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 February 28, 2021 and February 29, 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	—	—	—	—		—		97,051		—		—		—		97,051
Dividends on common stock	—	—	—	—		—		(14,064)		—		—		—		(14,064)
Employee stock options/other	173	—	0	173		2,365		—		—		—		0		2,538

Stock awards	—	419	10	—		(4,787)		—		—		4,547		240		0
Stock-based compensation	—	—	—	—		5,572		—		—		—		—		5,572

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

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	—	—	—	—		—		59,748		—		—		—		59,748
Dividends on common stock	—	—	—	—		—		(8,233)		—		—		—		(8,233)
Employee stock options/other	698	—	—	698		7,528		—		—		—		—		8,226
Stock awards	—	314	(15)	—		(3,012)		—		—		3,399		(387)		0
Stock-based compensation	—	—	—	—		4,950		—		—		—		—		4,950
Tax payments associated with stock-based compensation awards	—	—	(155)	—		—		—		—		—		(6,219)		(6,219)
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

Three Months Ended August 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 May 31, 2020 122,370
(7,317 ) (24,526 ) $ 122,370
$ 806,700
$ 2,255,742
$ (17,149 ) $ (79,359 ) $ (597,950 ) $ 2,490,354
Net income —
—
—
—
—
78,415
—
—
—
78,415
Dividends on common stock —
—
—
—
—
(8,097 ) —
—
—
(8,097 )
Employee stock options/other 0
—
17
0
(421 ) —
—
—
421
0
Stock-based compensation —
—
—
—
4,636
—
—
—
—
4,636
Balance at August 31, 2020 122,370
(7,317 ) (24,509 ) $ 122,370
$ 810,915
$ 2,326,060
$ (17,149 ) $ (79,359 ) $ (597,529 ) $ 2,565,308

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
Net income —
—
—
—
—
68,136
—
—
—
68,136
Dividends on common stock —
—
—
—
—
(7,897 ) —
—
—
(7,897 )
Employee stock options/other 173
—
—
173
2,094
—
—
—
—
2,267
Stock-based compensation —
—
—
—
4,513
—
—
—
—
4,513
Balance at August 31, 2019 120,523
(7,860 ) (24,264 ) $ 120,523
$ 782,300
$ 2,042,034
$ (9,565 ) $ (85,246 ) $ (587,817 ) $ 2,262,229

Nine Months Ended August 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 —
—
—
—
—
190,152
—
—
—
190,152
Dividends on common stock —
—
—
—
—
(24,428 ) —
—
—
(24,428 )
Employee stock options/other 709
—
17
709
7,274
—
—
—
421
8,404
Stock awards 68
314
(15 ) 68
(3,080 ) —
—
3,399
(387 ) 0
Stock-based compensation —
—
—
—
12,767
—
—
—
—
12,767
Tax payments associated with stock-based compensation awards —
—
(155 ) —
—
—
—
—
(6,219 ) (6,219 )
Balance at August 31, 2020 122,370
(7,317 ) (24,509 ) $ 122,370
$ 810,915
$ 2,326,060
$ (17,149 ) $ (79,359 ) $ (597,529 ) $ 2,565,308

Balance at 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 —
—
—
—
—
145,608
—
—
—
145,608
Dividends on common stock —
—
—
—
—
(12,352 ) —
—
—
(12,352 )
Employee stock options/other 1,271
—
—
1,271
17,458
—
—
—
—
18,729
Stock awards 56
297
(4 ) 56
(3,207 ) —
—
3,226
(75 ) 0
Stock-based compensation —
—
—
—
14,479
—
—
—
—
14,479
Tax payments associated with stock-based compensation awards —
—
(147 ) —
—
—
—
—
(3,345 ) (3,345 )
Balance at August 31, 2019 120,523
(7,860 ) (24,264 ) $ 120,523
$ 782,300
$ 2,042,034
$ (9,565 ) $ (85,246 ) $ (587,817 ) $ 2,262,229

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 ~~August 31, 2020,~~February 28, 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 ~~nine~~three months ended ~~August 31, 2020.~~February 28, 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 ~~August 31, 2020,~~February 28, 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 each of~~In the three-month ~~periods~~period ended ~~August 31, 2020 and 2019,~~February 28, 2021, our board of directors declared, and we paid, a quarterly cash ~~dividends~~dividend on our common stock of $.15 per share. In the three-month period ended February 29, 2020, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.09 per share. Quarterly cash dividends declared and paid during the nine-month periods ended August 31, 2020 and 2019 totaled $.27 per share and $.14 per share of common stock, respectively. Subsequent to the end of the 2020 third quarter, on October 8, 2020, our board of directors approved an increase in the quarterly cash dividend on our common stock to $.15 per share from $.09 per share, and declared the next quarterly dividend, at the new rate, payable on November 26, 2020 to stockholders of record on November 12, 2020.


~~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 ~~nine~~three months ended ~~August 31, 2020:~~February 28, 2021:

Options
Weighted
Average Exercise
Price
Options outstanding at beginning of period 4,163,481
$ 13.00
Granted 0
0
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	(163,651)	15.52
Cancelled	0	0
Options outstanding at end of period	2,299,063	$	15.31
Options exercisable at end of period	2,299,063	$	15.31

We have not granted any ~~new~~ stock option awards since 2016. As of ~~August 31, 2020~~,February 28, 2021, stock options outstanding and stock options exercisable each had a weighted average remaining contractual life of ~~3.9~~4.3 years. At ~~August 31, 2020,~~February 28, 2021, there was 0 unrecognized compensation expense related to stock option awards as all these awards were fully vested. For the ~~three-month~~three months ended February 28, 2021 and ~~nine-month periods ended~~ ~~August 31,~~February 29, 2020,, there was 0 stock-based compensation expense associated with stock options. ~~For the three-month and nine-month periods ended August 31, 2019, stock-based compensation expense associated with stock options was nominal.~~ Stock options outstanding and stock options exercisable each had an aggregate intrinsic value of ~~$77.8~~$57.6 million at ~~August 31, 2020.~~February 28, 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 ~~$4.6~~$5.6 million and ~~$4.5~~$5.0 million for the three months ended ~~August 31,~~February 28, 2021 and February 29, 2020, ~~and 2019, respectively, related to restricted stock and PSUs. For the nine months ended August 31, 2020 and 2019, we recognized total compensation expense of $12.7 million and $14.4 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):


	Three Months Ended
	February 28, 2021		February 29, 2020
Summary of cash and cash equivalents at end of period:
Homebuilding	$	569,793	$	429,706
Financial services	1,166		1,221
Total	$	570,959	$	430,927
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	(3,860)	$	(3,928)
Income taxes paid	81		139
Supplemental disclosures of non-cash activities:
Reclassification of federal tax refund from deferred tax assets to receivables	0		43,322
Increase in operating lease right-of-use assets and lease liabilities due to adoption of ASC 842	0		31,199

Increase (decrease) in consolidated inventories not owned	(1,863)		8,781
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture	3,261		2,964

Nine Months Ended August 31,
2020 2019
Summary of cash and cash equivalents at end of period:
Homebuilding $ 722,033
$ 183,794
Financial services 1,093
1,043
Total $ 723,126
$ 184,837
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized $ (3,544 ) $ (13,311 )
Income taxes paid 8,436
3,962
Supplemental disclosures of non-cash activities:
Reclassification of federal tax refund from deferred tax assets to receivables $ 82,617
$ 0
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
8,967
Increase (decrease) in consolidated inventories not owned 4,992
(20,048 )
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture 6,996
6,288
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.~~	~~Supplemental Guarantor Information~~

Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”). The guarantees are full and unconditional, and the Guarantor Subsidiaries are ~~100%~~ owned by us. Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% ~~rather than a 10% threshold (provided that the assets of our non-guarantor subsidiaries do not in the aggregate exceed~~ ~~10%~~ of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release. 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.

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

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

Three Months Ended August 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ 0
$ 908,657
$ 90,356
$ 0
$ 999,013
Homebuilding:
Revenues $ 0
$ 908,657
$ 86,491
$ 0
$ 995,148
Construction and land costs 0
(725,215 ) (73,280 ) 0
(798,495 )
Selling, general and administrative expenses (22,699 ) (80,978 ) (4,033 ) 0
(107,710 )
Operating income (loss) (22,699 ) 102,464
9,178
0
88,943
Interest income 784
0
2
0
786
Interest expense (29,552 ) (15 ) (1,487 ) 31,054
0
Intercompany interest 78,222
(43,112 ) (4,056 ) (31,054 ) 0
Equity in income of unconsolidated joint ventures 0
1,922
0
0
1,922
Homebuilding pretax income 26,755
61,259
3,637
0
91,651
Financial services pretax income 0
0
9,664
0
9,664
Total pretax income 26,755
61,259
13,301
0
101,315
Income tax expense (6,700 ) (13,300 ) (2,900 ) 0
(22,900 )
Equity in net income of subsidiaries 58,360
0
0
(58,360 ) 0
Net income $ 78,415
$ 47,959
$ 10,401
$ (58,360 ) $ 78,415

Three Months Ended August 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ 0
$ 1,061,698
$ 99,088
$ 0
$ 1,160,786
Homebuilding:
Revenues $ 0
$ 1,061,698
$ 95,157
$ 0
$ 1,156,855
Construction and land costs 0
(859,733 ) (84,021 ) 0
(943,754 )
Selling, general and administrative expenses (23,619 ) (95,376 ) (8,631 ) 0
(127,626 )
Operating income (loss) (23,619 ) 106,589
2,505
0
85,475
Interest income 140
20
41
0
201
Interest expense (34,488 ) (175 ) (1,361 ) 36,024
0
Intercompany interest 84,880
(45,826 ) (3,030 ) (36,024 ) 0
Equity in loss of unconsolidated joint ventures 0
(384 ) 0
0
(384 )
Homebuilding pretax income (loss) 26,913
60,224
(1,845 ) 0
85,292
Financial services pretax income 0
0
6,644
0
6,644
Total pretax income 26,913
60,224
4,799
0
91,936
Income tax expense (6,900 ) (14,900 ) (2,000 ) 0
(23,800 )
Equity in net income of subsidiaries 48,123
0
0
(48,123 ) 0
Net income $ 68,136
$ 45,324
$ 2,799
$ (48,123 ) $ 68,136

Nine Months Ended August 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ 0
$ 2,735,339
$ 253,579
$ 0
$ 2,988,918
Homebuilding:
Revenues $ 0
$ 2,735,339
$ 242,471
$ 0
$ 2,977,810
Construction and land costs 0
(2,218,683 ) (210,318 ) 0
(2,429,001 )
Selling, general and administrative expenses (75,129 ) (257,460 ) (15,493 ) 0
(348,082 )
Operating income (loss) (75,129 ) 259,196
16,660
0
200,727
Interest income 2,075
12
76
0
2,163
Interest expense (88,648 ) (73 ) (4,350 ) 93,071
0
Intercompany interest 238,780
(133,637 ) (12,072 ) (93,071 ) 0
Equity in income of unconsolidated joint ventures 0
11,981
0
0
11,981
Homebuilding pretax income 77,078
137,479
314
0
214,871
Financial services pretax income 0
0
23,081
0
23,081
Total pretax income 77,078
137,479
23,395
0
237,952
Income tax expense (16,500 ) (26,200 ) (5,100 ) 0
(47,800 )
Equity in net income of subsidiaries 129,574
0
0
(129,574 ) 0
Net income $ 190,152
$ 111,279
$ 18,295
$ (129,574 ) $ 190,152

Nine Months Ended August 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Total revenues $ 0
$ 2,739,096
$ 254,976
$ 0
$ 2,994,072
Homebuilding:
Revenues $ 0
$ 2,739,096
$ 245,218
$ 0
$ 2,984,314
Construction and land costs 0
(2,226,829 ) (231,524 ) 0
(2,458,353 )
Selling, general and administrative expenses (76,507 ) (268,506 ) (12,035 ) 0
(357,048 )
Operating income (loss) (76,507 ) 243,761
1,659
0
168,913
Interest income 1,549
20
176
0
1,745
Interest expense (102,763 ) (630 ) (3,963 ) 107,356
0
Intercompany interest 245,090
(130,142 ) (7,592 ) (107,356 ) 0
Equity in loss of unconsolidated joint ventures 0
(1,159 ) 0
0
(1,159 )
Homebuilding pretax income (loss) 67,369
111,850
(9,720 ) 0
169,499
Financial services pretax income 0
0
13,709
0
13,709
Total pretax income 67,369
111,850
3,989
0
183,208
Income tax expense (10,400 ) (21,300 ) (5,900 ) 0
(37,600 )
Equity in net income of subsidiaries 88,639
0
0
(88,639 ) 0
Net income (loss) $ 145,608
$ 90,550
$ (1,911 ) $ (88,639 ) $ 145,608

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

August 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Assets
Homebuilding:
Cash and cash equivalents $ 649,859
$ 43,395
$ 28,779
$ 0
$ 722,033
Receivables 39,475
166,454
63,722
0
269,651
Inventories 0
3,340,657
330,472
0
3,671,129
Investments in unconsolidated joint ventures 0
48,821
0
0
48,821
Property and equipment, net 29,066
32,337
3,216
0
64,619
Deferred tax assets, net 83,027
159,543
(1,399 ) 0
241,171
Other assets 95,964
22,625
6,653
0
125,242
897,391
3,813,832
431,443
0
5,142,666
Financial services 0
0
34,761
0
34,761
Intercompany receivables 3,486,621
0
213,647
(3,700,268 ) 0
Investments in subsidiaries 129,869
0
0
(129,869 ) 0
Total assets $ 4,513,881
$ 3,813,832
$ 679,851
$ (3,830,137 ) $ 5,177,427
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities $ 143,912
$ 434,064
$ 284,374
$ 0
$ 862,350
Notes payable 1,716,974
5,620
25,110
0
1,747,704
1,860,886
439,684
309,484
0
2,610,054
Financial services 0
0
2,065
0
2,065
Intercompany payables 87,687
3,312,907
299,674
(3,700,268 ) 0
Stockholders’ equity 2,565,308
61,241
68,628
(129,869 ) 2,565,308
Total liabilities and stockholders’ equity $ 4,513,881
$ 3,813,832
$ 679,851
$ (3,830,137 ) $ 5,177,427

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
$ 0
$ 453,814
Receivables 1,934
181,047
66,074
0
249,055
Inventories 0
3,400,307
304,295
0
3,704,602
Investments in unconsolidated joint ventures 0
57,038
0
0
57,038
Property and equipment, net 24,250
37,539
3,254
0
65,043
Deferred tax assets, net 96,301
237,877
30,315
0
364,493
Other assets 78,686
2,666
1,689
0
83,041
559,137
3,981,908
436,041
0
4,977,086
Financial services 0
0
38,396
0
38,396
Intercompany receivables 3,624,081
0
186,022
(3,810,103 ) 0
Investments in subsidiaries 115,753
0
0
(115,753 ) 0
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
$ 0
$ 881,555
Notes payable 1,715,748
7,889
25,110
0
1,748,747
1,854,885
461,818
313,599
0
2,630,302
Financial services 0
0
2,058
0
2,058
Intercompany payables 60,964
3,520,090
229,049
(3,810,103 ) 0
Stockholders’ equity 2,383,122
0
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)~~

Nine Months Ended August 31, 2020

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Net cash provided by operating activities $ 62,684
$ 253,483
$ 13,044
$ 0
$ 329,211
Cash flows from investing activities:
Contributions to unconsolidated joint ventures 0
(6,048 ) 0
0
(6,048 )
Return of investments in unconsolidated joint ventures 0
8,816
0
0
8,816
Purchases of property and equipment, net (5,148 ) (12,344 ) (3,662 ) 0
(21,154 )
Intercompany 256,600
0
0
(256,600 ) 0
Net cash provided by (used in) investing activities 251,452
(9,576 ) (3,662 ) (256,600 ) (18,386 )
Cash flows from financing activities:
Payments on mortgages and land contracts due to land sellers and other loans 0
(20,314 ) 0
0
(20,314 )
Issuance of common stock under employee stock plans 8,404
0
0
0
8,404
Tax payments associated with stock-based compensation awards (6,219 ) 0
0
0
(6,219 )
Payments of cash dividends (24,428 ) 0
0
0
(24,428 )
Intercompany 0
(245,632 ) (10,968 ) 256,600
0
Net cash used in financing activities (22,243 ) (265,946 ) (10,968 ) 256,600
(42,557 )
Net increase (decrease) in cash and cash equivalents 291,893
(22,039 ) (1,586 ) 0
268,268
Cash and cash equivalents at beginning of period 357,966
65,434
31,458
0
454,858
Cash and cash equivalents at end of period $ 649,859
$ 43,395
$ 29,872
$ 0
$ 723,126

Nine Months Ended August 31, 2019

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Net cash provided by (used in) operating activities $ 92,935
$ (335,428 ) $ 90,349
$ 0
$ (152,144 )
Cash flows from investing activities:
Contributions to unconsolidated joint ventures 0
(7,656 ) 0
0
(7,656 )
Return of investments in unconsolidated joint ventures 0
5,001
0
0
5,001
Proceeds from sale of building 0
5,804
0
0
5,804
Purchases of property and equipment, net (4,728 ) (18,252 ) (9,231 ) 0
(32,211 )
Intercompany (274,010 ) 0
0
274,010
0
Net cash used in investing activities (278,738 ) (15,103 ) (9,231 ) 274,010
(29,062 )
Cash flows from financing activities:
Proceeds from issuance of debt 405,250
0
0
0
405,250
Payment of debt issuance costs (5,209 ) 0
0
0
(5,209 )
Repayment of senior notes (630,000 ) 0
0
0
(630,000 )
Borrowings under revolving credit facility 460,000
0
0
0
460,000
Repayments under revolving credit facility (410,000 ) 0
0
0
(410,000 )
Payments on mortgages and land contracts due to land sellers and other loans 0
(32,149 ) 0
0
(32,149 )
Issuance of common stock under employee stock plans 18,729
0
0
0
18,729
Tax payments associated with stock-based compensation awards (3,345 ) 0
0
0
(3,345 )
Payments of cash dividends (12,352 ) 0
0
0
(12,352 )
Intercompany 0
372,454
(98,444 ) (274,010 ) 0
Net cash provided by (used in) financing activities (176,927 ) 340,305
(98,444 ) (274,010 ) (209,076 )
Net decrease in cash and cash equivalents (362,730 ) (10,226 ) (17,326 ) 0
(390,282 )
Cash and cash equivalents at beginning of period 429,977
114,269
30,873
0
575,119
Cash and cash equivalents at end of period $ 67,247
$ 104,043
$ 13,547
$ 0
$ 184,837


~~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
	February 28, 2021		February 29, 2020		Variance
Revenues:
Homebuilding	$	1,138,008	$	1,072,382	6	%
Financial services	3,730		3,553		5
Total revenues	$	1,141,738	$	1,075,935	6	%
Pretax income:
Homebuilding	$	115,051	$	63,035	83	%
Financial services	8,500		5,813		46
Total pretax income	123,551		68,848		79
Income tax expense	(26,500)		(9,100)		(191)
Net income	$	97,051	$	59,748	62	%
Basic earnings per share	$	1.05	$	.66	59	%
Diluted earnings per share	$	1.02	$	.63	62	%

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 Variance 2020 2019 Variance
Revenues:
Homebuilding $ 995,148
$ 1,156,855
(14) % $ 2,977,810
$ 2,984,314
— %
Financial services 3,865
3,931
(2 ) 11,108
9,758
14
Total revenues $ 999,013
$ 1,160,786
(14) % $ 2,988,918
$ 2,994,072
— %
Pretax income:
Homebuilding $ 91,651
$ 85,292
7 % $ 214,871
$ 169,499
27 %
Financial services 9,664
6,644
45
23,081
13,709
68
Total pretax income 101,315
91,936
10
237,952
183,208
30
Income tax expense (22,900 ) (23,800 ) 4
(47,800 ) (37,600 ) (27 )
Net income $ 78,415
$ 68,136
15 % $ 190,152
$ 145,608
31 %
Basic earnings per share $ .86
$ .77
12 % $ 2.09
$ 1.65
27 %
Diluted earnings per share $ .83
$ .73
14 % $ 2.02
$ 1.55
30 %

During the first nine months of 2020, we, like many companies worldwide, experienced significant variability in market conditions starting in mid-March that produced stark differences in our results between the first, second and third 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.

In mid-March 2020, the outbreak of COVID-19 was declared a 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 the global and national economies, the housing market and our business during our second quarter. The combination of an unprecedented steep drop in employment and economic activity in March that caused the United States to enter into a recession, which continues up to the date of this report; significant stock market and secondary mortgage market volatility; ongoing uncertainty about the virulence of COVID-19 and the availability of generally effective therapeutics or a vaccine; and weakened consumer confidence drastically decreased demand for new homes (including homes ordered in the first quarter) for most of our 2020 second quarter. Operationally, we temporarily closed our sales centers, model homes and design studios to the public and shifted to virtual sales tools and appointment-only personalized home sales processes, where permitted. These steps along with the negative prevailing business conditions due to the pandemic and restrictive COVID-19 control responses moderated our order pace significantly. In addition, home purchase cancellations increased considerably, largely reflecting our proactive efforts to assure a backlog of qualified homebuyers amid the pandemic-induced economic downturn. These two factors contributed to a sizable reduction in our 2020 second quarter net orders, and we entered the third quarter with the number of homes in beginning backlog down 14% year over year. Further, our construction activities were restricted in many jurisdictions, and completely shut down in some of them, 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 second quarter, which tempered our revenues for the period.

Since the easing of public health restrictions in our served markets beginning in May 2020, all of our communities have been open to walk-in traffic, following appropriate safety protocols and applicable public health guidelines. We have also continued to engage with customers using our robust virtual selling capability, including enhanced online tools such as virtual home tours, interactive floor plans, live chats with sales counselors and online consultations with our design studios. Reflecting the shift in operating conditions, our net orders began to rebound significantly in May 2020 following a low point in April 2020, and the upward trajectory continued into the 2020 third quarter and accelerated as the quarter progressed. This positive momentum resulted in our net orders

for the 2020 third quarter increasing to their highest level of any quarter since 2007. Although housing market conditions in the 2020 third quarter improved significantly from the prior quarter, our deliveries and revenues for the period were tempered primarily by the negative impact that COVID-19 and the related COVID-19 control responses had on our 2020 second quarter.

While we limited our land investments during the second quarter and most of the third quarter to preserve cash and liquidity due to the uncertainty surrounding the COVID-19 pandemic, given the sustained strong housing demand in the 2020 third quarter, we have resumed land acquisition and development activities to bolster our lot pipeline and support community growth in the future.

Although the trajectory and strength of the current recovery remains uncertain, and we are seeing some building material cost pressures, particularly with respect to lumber, that could negatively impact our margins in the 2020 fourth quarter and future periods, and the recovery could be slowed or reversed by a number of factors, including a possible widespread resurgence in COVID-19 infections combined with the seasonal flu and others discussed below under Part II, Item 1A – Risk Factors, we believe we are well-positioned to operate effectively through the present environment.

Financial and Operational Highlights. ~~Reflecting~~While the ~~above-described impact~~U.S. economy continued to navigate challenges from the COVID-19 pandemic ~~and related COVID-19 control responses during our~~that began in the 2020 second quarter, housing market conditions were generally healthy during the three months ended February 28, 2021. The main drivers of the strong housing demand in the quarter included favorable demographic trends, low mortgage interest rates and a limited supply of new and resale inventory. In this environment, and building on our strong backlog of homes at the beginning of the quarter (“beginning backlog”) that was 54% higher year over year, we continued to see robust demand in our served markets, which contributed to the number and value of our net orders for the period rising 23% and 35%, respectively, from the year-earlier quarter.

Housing revenues for the ~~2020 third~~2021 first quarter ~~decreased 15%~~grew 6% from the year-earlier quarter due to a ~~16% decline~~4% increase in the number of homes delivered to ~~2,545, partly offset by~~2,864 and a ~~slight~~2% increase in the overall average selling price of those homes to ~~$384,700.~~$397,100. Our deliveries for the quarter were impacted by disruptive weather in Texas that delayed approximately 100 deliveries into our second quarter. Homebuilding operating income for the three months ended ~~August 31, 2020 increased 4%~~February 28, 2021 rose 90% year over year to ~~$88.9 million. At the same time, homebuilding operating income~~$114.1 million and, as a percentage of ~~related~~ revenues, improved ~~150~~440 basis points to ~~8.9%~~10.0%. Excluding inventory-related charges of ~~$6.9~~$4.1 million in the current quarter and ~~$5.3~~$5.7 million in the year-earlier quarter, this metric improved ~~180 basis points~~ to ~~9.6%~~10.4% from 6.1%. Our housing gross profits for the quarter ~~decreased~~increased compared to the year-earlier period, ~~mainly due to lower~~reflecting higher housing revenues ~~partly offset by~~and a ~~140-basis point~~340 basis-point improvement in our housing gross profit margin to ~~19.9%~~20.8%.

The year-over-year increase in our housing gross profit margin in the ~~2020 third~~2021 first quarter primarily reflected a mix shift of homes delivered, lower relative amortization of previously capitalized interest, workforce realignment and reductions in the 2020 second quarter in response to the significant negative impact from the pandemic on our business, and a favorable pricing environment that ~~enabled us to increase selling prices~~more than offset higher construction costs in ~~many~~each of our ~~communities during the period.~~homebuilding reporting segments, increased operating leverage due to higher revenues, and lower amortization of previously capitalized interest. Our selling, general and administrative ~~expense ratio~~expenses as a percentage of housing revenues improved 10110 basis points to ~~11.0% of housing revenues,~~10.7%, primarily due to ~~our~~ targeted actions ~~including workforce reductions~~we took in ~~the~~ 2020 ~~second quarter,~~ to reduce overhead costs in the early stages of the COVID-19 pandemic; lower advertising costs, partly ~~offset by reduced~~reflecting strong housing demand; and increased operating leverage from ~~lower~~higher housing revenues. In addition, the 2021 first quarter metric benefited from a $4.3 million ERC recognized during the 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 in the current period.

Net income of $97.1 million and diluted earnings per share of $1.02 for the 2021 first quarter each increased 62%, compared to the corresponding quarter of 2020.

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


	Three Months Ended
	February 28, 2021			February 29, 2020
Net orders	4,292			3,495
Net order value (a)	$	1,869,068		$	1,382,654
Cancellation rates (b)	10		%	14		%
Ending backlog — homes	9,238			5,821
Ending backlog — value	$	3,694,118		$	2,124,551
Ending community count	209			250
Average community count	223			251

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Net orders 4,214
3,325
9,467
10,064
Net order value (a) $ 1,643,760
$ 1,276,242
$ 3,714,858
$ 3,831,017
Cancellation rates (b) 17 % 20 % 23 % 18 %
Ending backlog — homes 6,749
6,230
6,749
6,230
Ending backlog — value $ 2,567,664
$ 2,296,797
$ 2,567,664
$ 2,296,797
Ending community count 232
254
232
254
Average community count 238
255
244
249
(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.


~~(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.~~

(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. ~~With housing market conditions strengthening in~~For the ~~2020 third quarter as discussed above,~~three months ended February 28, 2021, net orders from our homebuilding operations increased ~~27%~~23% from the year-earlier period to their highest ~~third-quarter~~first-quarter level since ~~2005,~~2007, reflecting an increase in monthly net orders per community to ~~5.9~~6.4 from ~~4.3~~4.6 in the year-earlier period, partly offset by a decrease in our average community count. ~~Our~~We generated this higher net order ~~comparisons improved significantly~~rate even as we raised prices in the ~~quarter progressed, with monthly~~vast majority of our communities and managed lot releases in order to balance pace, price and construction starts to optimize each asset and drive higher returns. Monthly net orders ~~up 11%~~per community rose in ~~June,~~

each of our four homebuilding reporting segments, with increases ranging from 23% in ~~July and 50%~~our Southwest segment to 51% in ~~August, each on a year-over-year basis.~~our Southeast segment. This higher net order pace was largely fueled by the ~~combination~~

~~of historically low mortgage interest rates, a limited supply of resale inventory, an underproduction of new homes over the past decade, favorable demographic trends,~~factors described above under “Financial and ~~consumers’ desire to own a single-family home.~~Operational Highlights.” We believe our ~~Built-to-Order Model,~~Built-to-Order® homebuying process, which provides personalization and choice, also was a key factor that contributed to our strong ~~2020 third~~2021 first quarter net orders.

The value of our net orders for the three months ended ~~August 31, 2020~~February 28, 2021 rose ~~29%~~35% from the year-earlier period as a result of the growth in net orders and a 2%10% increase in the overall average selling price of those ~~orders.~~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 ~~2% in our Southeast segment to 34%~~30% in our West Coast ~~segment. In~~and Southwest segments to 48% in our West Coast segment, net order value rose due to a 39% increase in net orders, reflecting the segment’s higher monthly net orders per community, partly offset by a 4% decrease in the average selling price of those orders. In our Southeast segment, the year-over-year improvement in net order value reflected 5% growth in net orders as a result of the segment’s higher monthly net orders per community, partly offset by a 3% decrease in the average selling price of those orders.Central segment. Our cancellation rate as a percentage of gross orders for the three months ended ~~August 31, 2020~~February 28, 2021 improved from the year-earlier quarter.

While our year-over-year net order comparison improved in the 2020 third quarter, the year-over-year decrease in our 2020 second quarter net orders is expected to reduce our deliveries and revenues for the 2020 fourth quarter and full year compared to the corresponding year-earlier periods.

Backlog. The number of homes in our backlog at ~~August 31,~~February 28, 2021 increased 59% from February 29, 2020, ~~increased 8% from August 31, 2019, mainly due to~~reflecting the ~~substantial~~year-over-year increase in our net orders ~~during~~in the ~~2020 third~~2021 first quarter asand our substantially higher beginning ~~backlog was down 14% year over year.~~backlog. The potential future housing revenues in our backlog at ~~August 31, 2020~~February 28, 2021 rose ~~12%~~74% from the ~~prior-year period, reflecting~~prior year as a result of both the higher number of homes in our backlog and a 3%10% 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 third~~2021 first quarter declined 7%11% from the year-earlier period, reflecting decreases in each of ~~19% in~~ our ~~Southwest~~ homebuilding reporting ~~segment, 4% in our Central segment and 16% in our Southeast segment, partly offset by an increase of 4% in our West Coast segment.~~segments. Our ending community count was down 9%16% from the prior-year quarter. The year-over-year decreases in our overall average and ending community counts primarily reflected the close-out of communities earlier than planned due to our accelerated, demand-driven net order ~~pace, a decline~~pace; our reduced investments in ~~the number of active communities that were previously classified as~~ land ~~held for future development, our moderated investments in~~and land development in the 2020 second and third ~~quarters,~~quarters; and, to a lesser extent, delays in new community openings due in part to the COVID-19 pandemic.

COVID-19 Pandemic Impact. The COVID-19 pandemic and related governmental control measures severely disrupted global and national economies, the U.S. housing market and our business during our 2020 second quarter. During this period, we experienced a sizable reduction in net orders and backlog, protracted supply chain delays and construction cycle time extensions in most of our served markets. With the easing to varying degrees of restrictive public health orders in our served markets beginning in May 2020, our net orders began to rebound significantly following a low point in April 2020, as steadily increasing housing demand drove our 2020 third- and fourth-quarter net orders to 15-year highs and our 2021 first quarter net orders to a 14-year high. This sharp rise in net orders over the past three quarters has substantially expanded the number of homes in our backlog, which we believe positions us for considerable top-line and bottom-line growth over the remainder of 2021.

The U.S. economy continued on a path to recovery in the 2021 first quarter with millions of Americans receiving the COVID-19 vaccine and states and municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities. As mentioned above, the housing market was generally healthy in the quarter with supply-demand dynamics remaining favorable for the homebuilding industry.

With the ongoing strong housing demand in the 2021 first quarter, we continued to accelerate 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. In the 2021 first quarter, we increased our investments by 37% from the year-earlier quarter. We anticipate a sequential increase in our ending community count in each remaining quarter of 2021, with year-over-year community count growth expected in the fourth quarter. In addition, with our ending backlog value at February 28, 2021 up a robust 74% year over year, representing potential future revenues of approximately $3.69 billion, our highest first-quarter level in 14 years, we expect to achieve significant growth in our scale and profits during the remainder of 2021, as described below under “Outlook.”

However, this favorable outlook could be affected materially 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 and revenues. In addition, we are continuing to see building material cost pressures, particularly with respect to lumber, that could negatively impact our margins in future periods. Despite these challenges, and other factors, which may individually or in combination slow or reverse the current housing recovery from the COVID-19 pandemic-induced disruptions in the 2020 second quarter, we believe we are well-positioned to operate effectively through the present environment.

HOMEBUILDING

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
	February 28, 2021			February 29, 2020
Revenues:
Housing	$	1,137,353		$	1,071,810
Land	655			572
Total	1,138,008			1,072,382
Costs and expenses:
Construction and land costs
Housing	(901,178)			(885,481)
Land	(731)			(572)
Total	(901,909)			(886,053)
Selling, general and administrative expenses	(122,005)			(126,134)
Total	(1,023,914)			(1,012,187)
Operating income	$	114,094		$	60,195

Homes delivered	2,864			2,752
Average selling price	$	397,100		$	389,500
Housing gross profit margin as a percentage of housing revenues	20.8		%	17.4		%
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues	21.1		%	17.9		%
Adjusted housing gross profit margin as a percentage of housing revenues	24.0		%	21.1		%
Selling, general and administrative expenses as a percentage of housing revenues	10.7		%	11.8		%
Operating income as a percentage of revenues	10.0		%	5.6		%

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Revenues:
Housing $ 979,113
$ 1,152,618
$ 2,960,901
$ 2,968,588
Land 16,035
4,237
16,909
15,726
Total 995,148
1,156,855
2,977,810
2,984,314
Costs and expenses:
Construction and land costs
Housing (784,427 ) (939,538 ) (2,414,059 ) (2,443,937 )
Land (14,068 ) (4,216 ) (14,942 ) (14,416 )
Total (798,495 ) (943,754 ) (2,429,001 ) (2,458,353 )
Selling, general and administrative expenses (107,710 ) (127,626 ) (348,082 ) (357,048 )
Total (906,205 ) (1,071,380 ) (2,777,083 ) (2,815,401 )
Operating income $ 88,943
$ 85,475
$ 200,727
$ 168,913

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Homes delivered 2,545
3,022
7,796
7,942
Average selling price $ 384,700
$ 381,400
$ 379,800
$ 373,800
Housing gross profit margin as a percentage of housing revenues 19.9 % 18.5 % 18.5 % 17.7 %
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues 20.6 % 18.9 % 19.0 % 18.1 %
Adjusted housing gross profit margin as a percentage of housing revenues 23.7 % 22.3 % 22.2 % 21.7 %
Selling, general and administrative expenses as a percentage of housing revenues 11.0 % 11.1 % 11.8 % 12.0 %
Operating income as a percentage of homebuilding revenues 8.9 % 7.4 % 6.7 % 5.7 %

For reporting purposes, we organize our homebuilding operations into four segments — West Coast, Southwest, Central and Southeast. As of ~~August 31, 2020~~,February 28, 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. 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
	Homes Delivered		Net Orders		Cancellation Rates
Segment	February 28, 2021	February 29, 2020	February 28, 2021	February 29, 2020	February 28, 2021		February 29, 2020
West Coast	884	794	1,160	979	9	%	11	%
Southwest	534	603	867	765	8		11
Central	1,011	968	1,598	1,217	12		16
Southeast	435	387	667	534	12		18
Total	2,864	2,752	4,292	3,495	10	%	14	%


													Three Months Ended
	Three Months Ended August 31,
	Homes Delivered				Net Orders			Cancellation Rates					Net Order Value						Average Community Count
Segment	2020		2019		2020		2019	2020		2019		Segment	February 28, 2021		February 29, 2020		Variance		February 28, 2021		February 29, 2020		Variance
West Coast	626		838		1,329		957	12	%	20	%	West Coast	$	779,551	$	598,416	30	%	65		74		(12)	%
Southwest	628		566		857		706	13		14		Southwest	333,919		257,220		30		36		39		(8)
Central	958		1,098		1,469		1,132	22		22		Central	552,941		373,481		48		82		90		(9)
Southeast	333		520		559		530	19		22		Southeast	202,657		153,537		32		40		48		(17)
Total	2,545		3,022		4,214		3,325	17	%	20	%	Total	$	1,869,068	$	1,382,654	35	%	223		251		(11)	%


	Net Order Value						Average Community Count

													February 28, 2021 and February 29, 2020
													Backlog – Homes						Backlog – Value
Segment	2020		2019		Variance		2020	2019		Variance		Segment	February 28, 2021		February 29, 2020		Variance		February 28, 2021		February 29, 2020		Variance
West Coast	$	761,742	$	570,531	34	%	74	71		4	%	West Coast	2,300		1,228		87	%	$	1,417,644	$	712,218	99	%
Southwest	285,917		219,930		30		35	43		(19	)	Southwest	1,854		1,400		32		669,939		456,024		47
Central	438,697		331,635		32		88	92		(4	)	Central	3,624		2,237		62		1,176,047		680,904		73
Southeast	157,404		154,146		2		41	49		(16	)	Southeast	1,460		956		53		430,488		275,405		56
Total	$	1,643,760	$	1,276,242	29	%	238	255		(7)	%	Total	9,238		5,821		59	%	$	3,694,118	$	2,124,551	74	%

Nine Months Ended August 31,
Homes Delivered Net Orders Cancellation Rates
Segment 2020 2019 2020 2019 2020 2019
West Coast 2,005
2,015
2,863
2,797
18 % 18 %
Southwest 1,783
1,615
1,927
2,007
21
13
Central 2,881
2,989
3,405
3,556
24
20
Southeast 1,127
1,323
1,272
1,704
29
20
Total 7,796
7,942
9,467
10,064
23 % 18 %

Net Order Value Average Community Count
Segment 2020 2019 Variance 2020 2019 Variance
West Coast $ 1,685,094
$ 1,655,423
2 % 74
66
12 %
Southwest 642,601
632,498
2
37
41
(10 )
Central 1,024,623
1,054,203
(3 ) 89
93
(4 )
Southeast 362,540
488,893
(26 ) 44
49
(10 )
Total $ 3,714,858
$ 3,831,017
(3) % 244
249
(2) %

August 31,
Backlog – Homes Backlog – Value
Segment 2020 2019 Variance 2020 2019 Variance
West Coast 1,901
1,497
27 % $ 1,088,096
$ 883,765
23 %
Southwest 1,382
1,318
5
458,681
412,391
11
Central 2,512
2,281
10
750,831
674,614
11
Southeast 954
1,134
(16 ) 270,056
326,027
(17 )
Total 6,749
6,230
8 % $ 2,567,664
$ 2,296,797
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 it 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 individual homes within a community may vary due to differing lot sizes and locations, home square footage, and option and upgrade selections. These intrinsic variations in our business limit the 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. Homebuilding revenues for the three months ended ~~August 31, 2020 decreased 14%~~February 28, 2021 rose 6% from the corresponding year-earlier period due to ~~a decline in housing revenues, partly offset by~~ an increase in ~~land sale~~housing revenues.

Housing revenues for the three months ended ~~August 31, 2020 declined 15%~~February 28, 2021 grew 6% year over year, reflecting a ~~16% decrease~~4% increase in the number of homes delivered ~~partly offset by~~and a ~~slight~~2% increase in the overall average selling price of those homes. ~~Deliveries for~~The number of homes delivered in the current quarter ~~were~~was tempered primarily by two construction-related factors. Compared to the ~~negative impacts associated~~prior-year quarter, our 2021 beginning backlog was more heavily weighted to early building stages with approximately 55% of the ~~COVID-19 pandemic and related COVID-19 control responses, including a 14% year-over-year decrease~~homes in backlog, versus approximately 44% in the ~~number of homes~~year-earlier period, either not started or at the foundation stage. Additionally, our 2021 first quarter deliveries were impacted by disruptive weather in Texas that delayed approximately 100 deliveries in our ~~beginning~~Central homebuilding reporting segment into the second quarter. These dynamics lowered our year-over-year first-quarter backlog ~~for the 2020 third quarter, as discussed above under “Overview.”~~conversion rate.

Land sale revenues for the ~~quarter~~three months ended ~~August 31, 2020~~February 28, 2021 totaled ~~$16.0~~$.7 million, compared to ~~$4.2~~$.6 million in the year-earlier ~~quarter.~~period. Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market conditions.

Homebuilding revenues for the nine months ended August 31, 2020 were relatively even with the corresponding period of 2019, primarily due to housing revenues remaining essentially flat, as a 2% decrease in the number of homes delivered was mostly offset by a 2% rise in the overall average selling price to $379,800.

Land sale revenues totaled $16.9 million for the nine months ended August 31, 2020 and $15.7 million for the nine months ended August 31, 2019, reflecting the factors discussed above with respect to our 2020 third quarter land sale revenues.

Operating Income. Our ~~homebuilding~~ operating income for the three months ended ~~August 31, 2020~~February 28, 2021 increased 4%90% from the year-earlier period. ~~Homebuilding operating~~Operating income for the ~~2020 third~~2021 first quarter included total inventory-related charges of ~~$6.9~~$4.1 million, compared to ~~$5.3~~$5.7 million infor the ~~2019 third~~2020 first quarter. As a percentage of ~~homebuilding~~ revenues, our ~~homebuilding operating income~~

for the three months ended August 31, 2020 increased 150 basis points year over year to 8.9%. Excluding inventory-related charges, our homebuilding operating income margin improved 180 basis points to 9.6% for the 2020 third quarter compared to 7.8% for the year-earlier quarter.

For the nine months ended August 31, 2020, our homebuilding operating income increased 19% from the corresponding 2019 period. Homebuilding operating income for the first nine months of 2020 included total inventory-related charges of $16.9 million and severance charges of $6.7 million. The severance charges were associated with workforce reductions made during the 2020 second quarter, as discussed above under “Overview,” and were estimated at implementation to yield annualized savings of approximately $40 million allocated between construction and land costs and selling, general and administrative expenses. In the nine months ended August 31, 2019, homebuilding operating income included $13.1 million of inventory-related charges. As a percentage of homebuilding revenues, our homebuilding operating income for the nine months ended August 31, 2020 improved 100 basis points year over year to 6.7%. Excluding inventory-related charges for both periods and the above-mentioned severance charges in the 2020 period, our homebuilding operating income margin improved 140 basis points to 7.5% for the nine months ended August 31, 2020 from 6.1% for the nine months ended August 31, 2019.

~~The year-over-year change in our homebuilding~~ operating income for the three months ended ~~August 31, 2020 largely reflected lower selling, general and administrative expenses and higher land sale profits, partly offset by lower housing gross profits. For~~February 28, 2021 improved 440 basis points to 10.0%, compared to 5.6% for the ~~nine months ended August 31, 2020, the~~year-earlier quarter.

The year-over-year growth in our ~~homebuilding~~ operating income ~~was~~for the three months ended February 28, 2021 primarily ~~due to~~reflected an increase in housing gross profits and a decrease in selling, general and administrative expenses.

Housing gross profits of ~~$194.7~~$236.2 million for the three months ended ~~August 31, 2020 declined 9%~~February 28, 2021 grew 27% from ~~$213.1~~$186.3 million for the year-earlier period, reflecting ~~a decrease~~increases in both our housing revenues ~~partly offset by an increase in our~~and housing gross profit margin. Our housing gross profit margin for the ~~2020 third~~2021 first quarter rose ~~140~~340 basis points year over year to ~~19.9%~~20.8%, mainly as a result of a ~~shift in the mix of homes delivered and a~~ favorable pricing environment that more than offset higher construction costs (approximately ~~110~~220 basis points); an increase in operating leverage due to higher housing revenues (approximately 70 basis points); lower amortization of previously capitalized interest as a percentage of housing revenues (approximately 30 basis points); and ~~workforce realignment and reductions (approximately 30 basis points). These items were partly offset by an increase~~a decrease in inventory-related charges (approximately 3020 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 ~~August 31, 2020, decreasing from $36.0~~February 28, 2021, compared to $31.0 million for the year-earlier period, ~~mainly due to~~as our ~~lower~~ average debt ~~level.~~level remained essentially the same in each period. All interest incurred during the three-month periods ended ~~August 31,~~February 28, 2021 and February 29, 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 ~~$30.2 million and $38.6~~$32.5 million for the ~~three-month periods~~three months ended ~~August 31, 2020~~February 28, 2021 and ~~2019, respectively.~~$34.6 million for the three months ended February 29, 2020. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was ~~3.1%~~2.9% and ~~3.4%~~3.2% for the three months ended ~~August 31,~~February 28, 2021 and February 29, 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 August 31, 2020 and 2019,~~applicable periods, our adjusted housing gross profit margin for the 2021 first quarter increased ~~140~~290 basis points from the year-earlier quarter to ~~23.7%~~24.0%. The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”

Land sales generated a nominal loss for the three months ended February 28, 2021, compared to break-even results for the year-earlier period.

Selling, general and administrative expenses for the ~~2020 third~~2021 first quarter decreased ~~16%~~3% from the year-earlier quarter, ~~mainly due to the lower volume of homes delivered and our~~reflecting targeted actions ~~including the above-mentioned workforce reductions,~~we took in 2020 to reduce overhead ~~costs.~~costs in the early stages of the COVID-19 pandemic and lower advertising expenses in light of strong housing demand, partly offset by an increase in commission expenses associated with our higher housing revenues. In addition, selling, general and administrative expenses for the 2021 first quarter benefited from the above-mentioned $4.3 million ERC recognized during the period. As a percentage of housing revenues, our selling, general and administrative expenses improved 10110 basis points, primarily reflecting ~~the lower expenses, partly offset by decreased~~increased operating leverage due to ~~lower~~our higher housing revenues as compared to the year-earlier ~~quarter.~~

~~Land sales generated profits of $2.0 million for the three months ended August 31, 2020, compared to a nominal amount for the year-earlier period.~~

Our housing gross profits of $546.8 million for the nine months ended August 31, 2020 increased from $524.7 million for the year-earlier period. Housing gross profits for the first nine months of 2020 included $16.9 million of inventory-related charges, compared to $13.1 million of such charges in the year-earlier period. Our housing gross profit margin of 18.5% for the nine months ended August 31, 2020 increased 80 basis points year over year, primarily due to a decrease in construction and land costs,quarter and lower ~~amortization~~expenses.

The following table presents the components of ~~previously capitalized interest as a percentage of housing revenues.~~

~~For the nine months ended August 31, 2020, interest incurred decreased to $93.1 million from $107.4 million for the year-earlier period, primarily due to~~ our ~~lower average debt level. All interest incurred during the nine-month periods ended August 31, 2020~~

~~and 2019 was capitalized 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 $93.5 million for the nine months ended August 31, 2020, compared to $106.3 million for the nine months ended August 31, 2019. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 3.2% and 3.6% for the nine months ended August 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 nine months ended August 31, 2020 and 2019, our adjusted housing gross profit margin increased 50 basis points from the year-earlier period to 22.2%.

Selling, general and administrative expenses for the nine months ended August 31, 2020 decreased to $348.1 million from $357.0 million for the year-earlier period, primarily reflecting the lower number of homes delivered and our targeted actions to reduce overhead costs, partly offset by the above-mentioned severance charges of $6.7 million we recorded in the 2020 second quarter. As a percentage of housing revenues, selling, general and administrative expenses ~~improved 20 basis points from the prior-year period~~(dollars in thousands):


	Three Months Ended
	February 28, 2021		% of Housing Revenues		February 29, 2020		% of Housing Revenues
Marketing expenses	$	28,406	2.5	%	$	33,060	3.1	%
Commission expenses (a)	44,852		3.9		41,447		3.9
General and administrative expenses	48,747		4.3		51,627		4.8
Total	$	122,005	10.7	%	$	126,134	11.8	%

(a)Commission expenses include sales commissions on homes delivered paid to ~~11.8%.~~

~~Land~~internal sales ~~generated profits of $2.0 million for the nine months ended August 31, 2020, compared to $5.5 million for the year-earlier period.~~counselors and external real estate brokers.

Interest Income. Interest income, which is generated from short-term investments, totaled ~~$.8~~$.7 million for the three months ended ~~August 31, 2020~~February 28, 2021 and ~~$.2~~$.9 million for the three months ended ~~August 31, 2019. For the nine-month periods ended August 31, 2020 and 2019, our interest income totaled $2.2 million and $1.7 million, respectively.~~February 29, 2020. 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~~decreased to $.3 million for the three months ended February 28, 2021, compared to $1.9 million for the three months ended August 31, 2020, compared to equity in loss of unconsolidated joint ventures of $.4 million for the three months ended August 31, 2019. For the nine months ended August 31, 2020, our equity in income of unconsolidated joint ventures was $12.0 million, compared to equity in loss of unconsolidated joint ventures of $1.2 million for the corresponding 2019 period. The improvedFebruary 29, 2020.

These results ~~in both periods of 2020~~ primarily reflected ~~17 homes and 90~~a decrease in the number of homes delivered from an unconsolidated joint venture in California ~~during~~to eight for the three months ~~and nine months~~ ended ~~August 31, 2020, respectively, compared to no~~February 28, 2021 from 20 homes ~~delivered from unconsolidated joint ventures in~~for the corresponding ~~2019 periods.~~year-earlier period.

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.

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
	February 28, 2021			February 29, 2020
Housing revenues	$	1,137,353		$	1,071,810
Housing construction and land costs	(901,178)			(885,481)
Housing gross profits	236,175			186,329
Add: Inventory-related charges (a)	4,064			5,672
Housing gross profits excluding inventory-related charges	240,239			192,001
Add: Amortization of previously capitalized interest (b)	32,496			34,575


Adjusted housing gross profits	$	272,735		$	226,576

Housing gross profit margin as a percentage of housing revenues	20.8		%	17.4		%
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues	21.1		%	17.9		%
Adjusted housing gross profit margin as a percentage of housing revenues	24.0		%	21.1		%

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

Three Months Ended August 31, Nine Months Ended August 31,
2020 2019 2020 2019
Housing revenues $ 979,113
$ 1,152,618
$ 2,960,901
$ 2,968,588
Housing construction and land costs (784,427 ) (939,538 ) (2,414,059 ) (2,443,937 )
Housing gross profits 194,686
213,080
546,842
524,651
Add:    Inventory-related charges (a) 6,888
5,251
16,939
13,143
Housing gross profits excluding inventory-related charges 201,574
218,331
563,781
537,794
Add:    Amortization of previously capitalized interest (b) 30,186
38,558
93,507
106,260
Adjusted housing gross profits $ 231,760
$ 256,889
$ 657,288
$ 644,054
Housing gross profit margin as a percentage of housing revenues 19.9 % 18.5 % 18.5 % 17.7 %
Housing gross profit margin excluding inventory-related charges as a percentage of housing revenues 20.6 % 18.9 % 19.0 % 18.1 %
Adjusted housing gross profit margin as a percentage of housing revenues 23.7 % 22.3 % 22.2 % 21.7 %
(b)    Represents the amortization of previously capitalized interest 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.~~

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):


	August 31, 2020			November 30, 2019				February 28, 2021			November 30, 2020
Notes payable	$	1,747,704		$	1,748,747		Notes payable	$	1,747,007		$	1,747,175
Stockholders’ equity	2,565,308			2,383,122			Stockholders’ equity	2,748,184			2,665,769
Total capital	$	4,313,012		$	4,131,869		Total capital	$	4,495,191		$	4,412,944
Ratio of debt to capital	40.5		%	42.3		%	Ratio of debt to capital	38.9		%	39.6		%

Notes payable	$	1,747,704		$	1,748,747		Notes payable	$	1,747,007		$	1,747,175
Less: Cash and cash equivalents	(722,033		)	(453,814		)	Less: Cash and cash equivalents	(569,793)			(681,190)
Net debt	1,025,671			1,294,933			Net debt	1,177,214			1,065,985
Stockholders’ equity	2,565,308			2,383,122			Stockholders’ equity	2,748,184			2,665,769
Total capital	$	3,590,979		$	3,678,055		Total capital	$	3,925,398		$	3,731,754
Ratio of net debt to capital	28.6		%	35.2		%	Ratio of net debt to capital	30.0		%	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 offor 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 nine months ended August 31, 2020 were negatively affected by the impacts from the COVID-19 pandemic, as discussed above under “Overview.” In three of our four homebuilding reporting segments, we delivered fewer homes in the 2020 third quarter compared to the corresponding year-earlier quarter largely as a result of our lower beginning backlog, as discussed above under “Homebuilding – Revenues.”

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 August 31,								Nine Months Ended August 31,									Three Months Ended
	2020			2019			Variance		2020			2019			Variance			February 28, 2021			February 29, 2020			Variance
Revenues	$	379,025		$	497,654		(24	) %	$	1,195,404		$	1,194,728		—		Revenues	$	514,516		$	484,497		6	%
Construction and land costs	(318,272		)	(414,914		)	23		(1,017,383		)	(1,009,032		)	(1	)	Construction and land costs	(421,055)			(416,657)			(1)
Selling, general and administrative expenses	(28,424		)	(38,744		)	27		(94,197		)	(98,647		)	5		Selling, general and administrative expenses	(35,258)			(35,854)			2
Operating income	$	32,329		$	43,996		(27	) %	$	83,824		$	87,049		(4	) %	Operating income	$	58,203		$	31,986		82	%

Homes delivered	626			838			(25	) %	2,005			2,015			—		Homes delivered	884			794			11	%
Average selling price	$	605,400		$	588,800		3	%	$	596,200		$	588,700		1	%	Average selling price	$	582,000		$	610,200		(5)	%
Housing gross profit margin	16.0		%	16.8		%	(80	)bps	14.9		%	15.7		%	(80	)bps
Operating income as a percentage of revenues																	Operating income as a percentage of revenues	11.3		%	6.6		%	470	bps

This segment’s revenues for the three months ended February 28, 2021 and ~~nine months ended August 31,~~February 29, 2020 ~~and 2019~~ were generated solely from ~~both~~ housing ~~operations and land sales.~~operations. Housing revenues ~~for the 2020 third quarter declined 23%~~grew 6% year over year, ~~to $379.0 million from $493.4 million,~~ reflecting a ~~lower~~higher number of homes delivered, partly offset by ~~an increase~~a decrease in the average selling price of those homes. ~~For the nine months ended August 31, 2020, housing revenues rose~~The increase in homes delivered was attributable to ~~$1.20 billion from $1.19 billion due to a slight increase~~our California and Washington operations. The year-over-year decrease in the average selling price of homes delivered as the number of homes delivered was essentially even with the year-earlier period. The year-over-year increase in the average selling price of homes delivered for the three months and nine months ended August 31, 2020 was primarily due to ~~product and~~a geographic mix ~~shifts of homes delivered.~~shift.

Operating income for the three months ended ~~August 31, 2020 declined~~February 28, 2021 increased from the year-earlier period, mainly reflecting ~~a decrease in~~higher housing gross ~~profits, partly offset by lower selling, general and administrative expenses. The year-over-year decrease in housing gross profits reflected lower housing~~profits. As a percentage of revenues, ~~and~~this segment’s operating income rose from the year-earlier quarter, primarily due to a ~~lower housing gross profit margin. The decline~~420 basis-point increase in the housing gross profit margin ~~was primarily driven by an increase in inventory-related charges~~to 18.2% and a ~~mix shift of homes delivered. Inventory-related charges totaled $5.5 million~~slight improvement in ~~the 2020 third quarter, compared to $5.1 million in the year-earlier quarter. Selling,~~selling, general and administrative expenses as a percentage of housing revenues for the 2020 third quarter improved from the year-earlier quarter largely due to our targeted actions to reduce overhead costs and lower legal fees in the current period, partly offset by reduced operating leverage as a result of lower housing revenues.

For the nine months ended August 31, 2020, operating income decreased 4% from the year-earlier period reflecting lower housing gross profits, partly offset by lower selling, general and administrative expenses. The ~~year-over-year decline in housing gross profits was primarily due to a decrease in the~~ housing gross profit margin asexpansion was largely driven by a ~~result~~favorable pricing environment, an increase in operating leverage due to higher housing revenues, lower amortization of ~~a mix shift of homes delivered, partly offset by~~previously capitalized interest and a decrease in inventory-related ~~charges and lower relative amortization of previously capitalized interest.~~charges. Inventory-related charges ~~impacting the housing gross profit margin~~ totaled ~~$10.6~~$3.8 million and $12.1 million for the nine-month periods ended August 31, 2020 and 2019, respectively. Selling, general and administrative expenses as a percentage of housing revenues for the nine months ended August 31, 2020 improved from the corresponding 2019 period primarily due to overhead cost reductions and lower legal fees in the ~~current period.~~

2021 first quarter, compared to $4.4 million in the year-earlier quarter.

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


	Three Months Ended August 31,								Nine Months Ended August 31,									Three Months Ended
	2020			2019			Variance		2020			2019			Variance			February 28, 2021			February 29, 2020			Variance
Revenues	$	223,096		$	180,238		24	%	$	589,665		$	522,721		13	%	Revenues	$	187,685		$	191,318		(2)	%
Construction and land costs	(167,572		)	(137,635		)	(22	)	(444,213		)	(399,445		)	(11	)	Construction and land costs	(138,681)			(142,899)			3
Selling, general and administrative expenses	(16,128		)	(16,078		)	—		(48,760		)	(46,257		)	(5	)	Selling, general and administrative expenses	(15,825)			(16,169)			2
Operating income	$	39,396		$	26,525		49	%	$	96,692		$	77,019		26	%	Operating income	$	33,179		$	32,250		3	%

Homes delivered	628			566			11	%	1,783			1,615			10	%	Homes delivered	534			603			(11)	%
Average selling price	$	330,700		$	318,400		4	%	$	321,700		$	323,700		(1	) %	Average selling price	$	351,500		$	316,400		11	%
Housing gross profit margin	25.8		%	23.6		%	220	bps	25.0		%	23.6		%	140	bps
Operating income as a percentage of revenues																	Operating income as a percentage of revenues	17.7		%	16.9		%	80	bps

This segment’s revenues for the three-month ~~and nine-month periods~~period ended ~~August 31, 2020 were from both housing operations and land sales. For the three months and nine months ended August 31, 2019, revenues~~February 28, 2021 were generated solely from housing ~~operations.~~revenues. For the three months ended February 29, 2020, revenues were generated from housing operations as well as nominal land sales. Housing revenues for the three months ended ~~August 31, 2020 increased 15%~~February 28, 2021 decreased 2% year over year to ~~$207.7~~$187.7 million from $190.8 million due to ~~increases~~a decline in ~~both~~ the number of homes delivered, ~~and~~partly offset by an increase in the average selling price of those homes. The ~~increase in the~~lower number of homes delivered ~~was mainly due to higher net orders~~ in the ~~2020 third~~current quarter ~~as the beginning backlog~~reflected decreases in ~~this segment was down 2%~~deliveries from ~~the year-earlier quarter.~~both our Arizona and Nevada operations. The ~~year-over-year~~ rise in the average selling price ~~for the three months ended August 31, 2020 primarily reflected~~was mainly due to a shift in product and geographic mix as well as a favorable pricing environment in this segment. For the nine months ended August 31, 2020, housing revenues rose 10% year over year to $573.5 million, reflecting an increase in the number of homes delivered, partially offset by a slight decrease in the average selling price of those homes.mix.

Operating income for the three months ended ~~August 31, 2020 increased~~February 28, 2021 rose from the corresponding ~~2019~~2020 period, ~~due to higher housing gross profits as selling, general and administrative expenses remained flat. The year-over-year~~primarily reflecting a slight increase in housing gross ~~profits primarily reflected higher housing~~profits. As a percentage of revenues, ~~and~~operating income grew from the year-earlier quarter largely due to a higher housing gross profit margin compared with the year-earlier period. The housing gross profit margin for the three months ended August 31, 2020 reflected increased operating leverage due to higher housing revenues, a shift in the mix of homes delivered, a favorable pricing environment, and lower relative amortization of previously capitalized interest. Land sales generated profits of $2.0 million for the three months ended August 31, 2020.margin. Selling, general and administrative expenses as a percentage of housing revenues ~~for the 2020 third quarter improved from~~were essentially even with the corresponding 2019 quarter mainly as a result of increased operating leverage due to higher housing revenues, overhead cost reductions, legal recoveries in the current quarter, and higher marketing expenses in the year-earlier quarter to support new community openings.

~~For the nine months ended August 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 first nine months of 2020 increased from the year-earlier period mainly due to higher housing revenues 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 favorable warranty adjustments in the first nine months of 2019. Land sales generated profits of $2.0 million for the nine months ended August 31, 2020. Selling, general and administrative expenses as a percentage of housing revenues for the first nine months of 2020 improved from the corresponding 2019 period primarily for the reasons described above with respect to the three months ended August 31, 2020.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 August 31, Nine Months Ended August 31,
2020 2019 Variance 2020 2019 Variance
Revenues $ 297,022
$ 326,058
(9 ) % $ 864,728
$ 874,730
(1 ) %
Construction and land costs (232,269 ) (259,195 ) 10
(688,683 ) (705,641 ) 2
Selling, general and administrative expenses (29,331 ) (32,446 ) 10
(91,061 ) (88,890 ) (2 )
Operating income $ 35,422
$ 34,417
3 % $ 84,984
$ 80,199
6 %


																		Three Months Ended
	Three Months Ended August 31,								Nine Months Ended August 31,									February 28, 2021			February 29, 2020			Variance
Revenues																	Revenues	$	309,708		$	283,513		9	%
Construction and land costs																	Construction and land costs	(238,951)			(229,123)			(4)
Selling, general and administrative expenses																	Selling, general and administrative expenses	(29,765)			(31,712)			6
Operating income																	Operating income	$	40,992		$	22,678		81	%
	2020			2019			Variance		2020			2019			Variance
Homes delivered	958			1,098			(13	) %	2,881			2,989			(4	) %	Homes delivered	1,011			968			4	%
Average selling price	$	310,000		$	297,000		4	%	$	300,100		$	290,200		3	%	Average selling price	$	306,300		$	292,900		5	%
Housing gross profit margin	21.8		%	20.5		%	130	bps	20.4		%	19.3		%	110	bps
Operating income margin as a percentage of revenues																	Operating income margin as a percentage of revenues	13.2		%	8.0		%	520	bps

This segment’s revenues for the ~~three months~~three-month periods ended February 28, 2021 and ~~nine months ended August 31,~~February 29, 2020 ~~and the three months ended August 31, 2019~~ were generated solely from housing operations. ~~Revenues for the nine months ended August 31, 2019 were generated from both housing operations and land sales.~~ Housing revenues for the ~~2020 third~~2021 first quarter ~~declined~~grew 9% from the year-earlier quarter, reflecting ~~a decrease~~increases in both the number of homes delivered partly offset by an increase the average selling price of those homes. For the nine months ended August 31, 2020, housing revenues decreased slightly from $867.5 million in the year-earlier period, reflecting a decline in the number of homes delivered, largely offset by an increase inand the average selling price of those homes. The ~~year-over-year increases~~growth in the number of homes delivered was attributable to our Colorado operations. Our 2021 first quarter deliveries from this segment were

impacted by disruptive weather in Texas that delayed approximately 100 deliveries into the second quarter. The increase in the average selling ~~prices for three-month and nine-month periods ended August 31, 2020 were~~price was due to shifts in the product and geographic mix of homes delivered.

Operating income for the three months ended ~~August 31, 2020 increased slightly~~February 28, 2021 rose from the year-earlier period ~~mainly~~ due to higher housing gross profits and lower selling, general and administrative ~~expenses, partly offset by~~expenses. The increase in this segment’s operating income as a ~~decrease in housing gross profits. The year-over-year decrease in housing gross profits~~percentage of revenues reflected a ~~decline in housing revenues, partially offset by an~~360 basis-point increase in the housing gross profit ~~margin. The housing gross profit~~ margin ~~increased mainly as a result of a shift in the mix of homes delivered,~~to 22.8%, primarily driven by a favorable pricing environment, ~~and workforce reductions, partially offset by higher inventory-related charges and reduced~~improved operating leverage due to higher housing revenues and lower housing revenues. Inventory-related charges impacting the housing gross profit margin for the three months ended August 31, 2020 were $1.1 million. There were no inventory-related charges in the prior-year quarter. Selling,amortization of previously capitalized interest. In addition, selling, general and administrative expenses as a percentage of housing revenues ~~for the 2020 third quarter~~ improved to 9.6% from 11.2% in the year-earlier quarter mainly as a result of ~~overhead cost reductions, partly offset by reduced~~increased operating leverage from ~~lower~~higher housing ~~revenues.~~

~~For the nine months ended August 31,~~revenues, and targeted actions we took in 2020 ~~operating income increased 6% from the year-earlier period mainly due~~ to ~~an increase in housing gross profits, partly offset by higher selling, general and administrative expenses and the absence of land sale profits~~reduce overhead costs in the current period. The increase in housing gross profits was mainly due to a higher gross profit margin, partly offset by a slight decrease in housing revenues. The housing gross profit margin increased primarily due to a shift inearly stages of the mix of homes delivered and a favorable pricing environment, partly offset by an increase in inventory-related charges. Inventory-related charges impacting the housing gross profit margin for the nine months ended August 31, 2020 and 2019 were $5.5 million and $.4 million, respectively. Land sales generated profits of $1.8 million for the nine months ended August 31, 2019. Selling, general and administrative expenses as a percentage of housing revenues for the first nine months of 2020 increased from the corresponding 2019 period, reflecting decreased operating leverage due to lower housing revenues.COVID-19 pandemic.

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 August 31,								Nine Months Ended August 31,									Three Months Ended
	2020			2019			Variance		2020			2019			Variance			February 28, 2021			February 29, 2020			Variance
Revenues	$	96,005		$	152,905		(37	) %	$	328,013		$	392,135		(16	) %	Revenues	$	126,099		$	113,054		12	%
Construction and land costs	(78,851		)	(129,998		)	39		(273,772		)	(338,636		)	19		Construction and land costs	(101,233)			(95,610)			(6)
Selling, general and administrative expenses	(11,168		)	(17,634		)	37		(38,995		)	(48,182		)	19		Selling, general and administrative expenses	(12,752)			(14,814)			14
Operating income	$	5,986		$	5,273		14	%	$	15,246		$	5,317		187	%	Operating income	$	12,114		$	2,630		361	%

Homes delivered	333			520			(36	) %	1,127			1,323			(15	) %	Homes delivered	435			387			12	%
Average selling price	$	286,500		$	294,000		(3	) %	$	290,500		$	296,400		(2	) %	Average selling price	$	288,400		$	292,000		(1)	%
Housing gross profit margin	18.0		%	15.0		%	300	bps	16.6		%	13.6		%	300	bps
Operating income as a percentage of revenues																	Operating income as a percentage of revenues	9.6		%	2.3		%	730	bps

This segment’s revenues for the three-month ~~and nine-month~~ periods ended ~~August 31,~~February 28, 2021 and February 29, 2020 were generated from both housing operations and nominal land sales. ~~Revenues for the three months and nine months ended August 31, 2019 were generated solely from housing operations. The year-over-year decline in housing~~Housing revenues for the three months ~~and nine months~~ ended ~~August 31, 2020 reflected decreases~~February 28, 2021 grew 11% year over year to $125.4 million from $113.0 million due to an increase in ~~both~~ the number of homes delivered, ~~and~~partly offset by a decrease in the average selling price of those homes. The ~~year-over-year~~

~~decrease~~increase in homes delivered reflected growth in deliveries from our Florida operations. The decline in the average selling price ~~for the three months and nine months ended August 31, 2020~~ was mainly due to shifts in the product and geographic mix of homes delivered, with a lower proportion ~~of homes~~ delivered from higher-priced communities.

Operating income for the three months ended ~~August 31, 2020 increased~~February 28, 2021 grew from the year-earlier period, reflecting higher housing gross profits and lower selling, general and administrative expenses. As a percentage of revenues, operating income rose from the year-earlier period due to a decrease in selling, general and administrative expenses, partly offset by lower housing gross profits. The year-over-year decrease in housing gross profits reflected a decline in housing revenues, partly offset by an increase in the housing gross profit margin. The housing gross profit margin increased primarily due to 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. Selling, general and administrative expenses as a percentage of housing revenues for the 2020 third quarter increased from the year-earlier period, primarily due to decreased operating leverage as a result of lower housing revenues, partly offset by our overhead reduction efforts and favorable legal settlements.

For the nine months ended August 31, 2020, operating income grew from the prior-year period due to a decrease in selling, general and administrative expenses and slightly higher housing gross profits. Housing gross profits increased due to an450 basis-point increase in the housing gross profit margin to 19.9% that was ~~mostly offset~~mainly driven by a ~~decline in~~favorable pricing environment, increased operating leverage due to higher housing ~~revenues. The housing gross profit margin increased for the reasons described above for the three months ended August 31, 2020. Selling,~~revenues, and lower amortization of previously capitalized interest. In addition, selling, general and administrative expenses as a percentage of housing revenues improved ~~in the first nine months of 2020~~290 basis points from the year-earlier period to 10.2%, primarily ~~for~~due to increased operating leverage as a result of higher housing revenues, and targeted actions we took in 2020 to reduce overhead costs in the ~~reasons described above with respect to~~early stages of the ~~three months ended August 31, 2020.~~COVID-19 pandemic.

FINANCIAL SERVICES REPORTING SEGMENT

The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in thousands):


	Three Months Ended
	February 28, 2021		February 29, 2020
Revenues	$	3,730	$	3,553
Expenses	(1,200)		(962)
Equity in income of unconsolidated joint venture	5,970		3,222
Pretax income	$	8,500	$	5,813


														Three Months Ended
	Three Months Ended August 31,						Nine Months Ended August 31,							February 28, 2021			February 29, 2020
	2020			2019			2020			2019
Revenues	$	3,865		$	3,931		$	11,108		$	9,758
Expenses	(1,056		)	(1,003		)	(2,901		)	(3,067		)
Equity in income of unconsolidated joint ventures	6,855			3,716			14,874			7,018
Pretax income	$	9,664		$	6,644		$	23,081		$	13,709

Total originations:
Total originations (a):													Total originations (a):
Loans	1,808			1,938			5,287			4,826			Loans	2,072			1,764
Principal	$	621,674		$	573,017		$	1,723,216		$	1,393,088		Principal	$	710,924		$	558,537
Percentage of homebuyers using KBHS	79		%	72		%	75		%	69		%	Percentage of homebuyers using KBHS	79		%	71		%
Average FICO score	725			721			722			719			Average FICO score	724			722

Loans sold:
Loans sold (a):													Loans sold (a):
Loans sold to Stearns	1,936			1,590			5,985			4,147			Loans sold to Stearns	1,554			2,289
Principal	$	618,770		$	467,700		$	1,877,463		$	1,198,346		Principal	$	523,905		$	700,037
Loans sold to third parties	26			258			219			732			Loans sold to third parties	436			72
Principal	$	9,157		$	65,892		$	71,160		$	189,432		Principal	$	144,387		$	23,299

(a)Loan originations and sales occurred within KBHS.

Revenues. Financial services revenues for the three months ended ~~August 31, 2020 were essentially even with the year-earlier period. For the nine months ended August 31, 2020, financial services revenues~~February 28, 2021 rose from the corresponding period of ~~2019~~2020 due to ~~increases~~an increase in ~~both~~ title services revenues, ~~and~~partly offset by a decrease in insurance commissions.

~~Expenses~~Pretax income.~~. General and administrative expenses~~ Our financial services pretax income for the three months ended ~~August 31, 2020 increased slightly~~February 28, 2021 grew 46% from the year-earlier ~~period. For~~period due to an increase in the ~~nine months ended August 31, 2020, general and administrative expenses decreased slightly from corresponding period of 2019.~~

~~Equity in Income of Unconsolidated Joint Ventures. The~~ equity in income of unconsolidated joint ~~ventures~~ventures. In the 2021 first quarter, our equity in income of our unconsolidated joint venture, KBHS, increased on85% year over year as a ~~year-over-year basis in the three-month period ended August 31, 2020 due to an~~result of a substantial increase in the principal amount of loan originations and improved ~~margins, partly offset by a 16% decline~~margins. The higher principal amount of loan originations in ~~the number of homes we delivered. For the nine-month period ended August 31, 2020, the year-over-year increase~~2021 primarily reflected ~~a substantial~~an increase in the percentage of homebuyers using KBHS, ~~partly offset by~~ a ~~2% decrease~~4% rise in the number of homes we ~~delivered.~~delivered and a 2% increase 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 our partner in KBHS as a result of the transaction.

INCOME TAXES

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


	Three Months Ended August 31,						Nine Months Ended August 31,							Three Months Ended
	2020			2019			2020			2019				February 28, 2021			February 29, 2020
Income tax expense	$	22,900		$	23,800		$	47,800		$	37,600		Income tax expense	$	26,500		$	9,100
Effective tax rate	22.6		%	25.9		%	20.1		%	20.5		%	Effective tax rate	21.4		%	13.2		%

Our ~~income tax expense and~~ effective tax rate for the three months ended ~~August 31, 2020 included~~February 28, 2021 rose from the year-earlier period, mainly due to the substantial increase in our pretax income, which reduced the proportionate favorable effect of $3.1 million of federal energy tax credits that we earned from building energy-efficient homes, partially offset by $1.2 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and effective tax rate for the three months ended August 31, 2019 reflected $1.4 million of non-deductible executive compensation expense.

Our income tax expense and effective tax rate for the nine months ended August 31, 2020 included the favorable effects of $10.1 million of federal energy tax credits that we earned from building energy-efficient homes and $5.6 millionimpact of excess tax benefits related to stock-based compensation ~~partially offset by $3.2 million of non-deductible executive compensation expense. For the nine months ended August 31, 2019, our income tax expense~~ and ~~effective tax rate included the favorable effects of $4.3 million of~~ federal energy tax credits on the overall rate. In addition, on a ~~$3.3 million reversal of a deferred tax asset valuation allowance related to refundable AMT credits and $2.9 million of~~year-over-year basis, our excess tax benefits related to stock-based compensation ~~partly offset~~decreased by ~~$2.6~~$2.1 million ~~of non-deductible executive compensation expense.~~in the 2021 first quarter and the federal energy tax credits we earned from building energy efficient homes decreased by $1.3 million.

The federal energy tax credits for the three months ~~and nine months~~ ended ~~August 31, 2020~~February 28, 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.

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

Liquidity and Capital Resources

Overview. We have funded our homebuilding and financial services activities over the last several years with:

•internally generated cash flows;

•public issuances of debt securities;

•borrowings under the Credit Facility;

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

•public issuances of our common stock; and

•letters of credit and performance bonds.

We manage our use of cash in the operation of our business to support the execution of our primary strategic goals. Over the past several years, we have primarily used cash for:

•land acquisition and land development;

•home construction;

•operating expenses;

•principal and interest payments on notes payable; and

•repayments of borrowings under the Credit Facility.

~~In response~~We ended the 2021 first quarter with total liquidity of $1.36 billion, including cash and cash equivalents and $787.6 million of available capacity under the Credit Facility. Based on our financial position as of February 28, 2021, and our positive business forecast for the remainder of 2021 as discussed below under “Outlook,” we have no material concerns related to our liquidity. While the ~~economic disruption and uncertainty resulting from the~~ongoing COVID-19 pandemic creates potential liquidity risks, as ~~described above~~discussed further below, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under ~~“Overview,” in~~our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the 2020 second quarter and most of the 2020 third quarter, we proceeded in a carefully targeted manner with investments in land and land development. This is expected to reduce the growth or, as in the 2020 second and third quarters, cause a decline in our lot count and the volume of homes delivered in the 2020 fourth quarter.next twelve months. We have no significant notes payable maturities until December 2021.

Our investments in land and land development ~~decreased 15%~~increased 37% to ~~$1.04 billion~~$556.0 million for the ~~nine~~three months ended ~~August 31, 2020,~~February 28, 2021, compared to ~~$1.22 billion~~$405.0 million for the prior-year period. Approximately ~~46%~~49% of our total investments in the ~~nine~~three months ended ~~August 31, 2020~~

February 28, 2021 related to land acquisition, compared to approximately ~~40%~~48% in the year-earlier period. While we made strategic investments in land and land development in each of our homebuilding reporting segments during the first ~~nine~~three months of 2021 and 2020, approximately 53% and ~~2019, approximately 51% and 54%~~49%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.

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


	August 31, 2020			November 30, 2019			Variance						February 28, 2021			November 30, 2020			Variance
Segment	Lots	$		Lots	$		Lots		$			Segment	Lots	$		Lots	$		Lots	$
West Coast	15,352	$	1,795,106	15,186	$	1,795,088	166		$	18		West Coast	17,706	$	2,015,824	16,990	$	1,928,500	716	$	87,324
Southwest	10,450	646,929		11,191	629,811		(741	)	17,118			Southwest	12,553	757,775		12,290	688,807		263	68,968
Central	22,527	843,490		25,871	889,179		(3,344	)	(45,689		)	Central	25,301	888,161		23,699	867,170		1,602	20,991
Southeast	11,949	385,604		12,662	390,524		(713	)	(4,920		)	Southeast	14,134	462,193		14,059	413,005		75	49,188
Total	60,278	$	3,671,129	64,910	$	3,704,602	(4,632	)	$	(33,473	)	Total	69,694	$	4,123,953	67,038	$	3,897,482	2,656	$	226,471

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at ~~August 31, 2020 decreased slightly~~February 28, 2021 increased from November 30, ~~2019. Over the same period, the number of lots decreased 7% mainly~~2020, primarily due to ~~a lower number of lots under~~our investments in land ~~option contracts~~ and ~~other similar contracts with refundable deposits, reflecting ordinary course fluctuations~~land development in the 2021 first quarter and an increase in the number of ~~such contracts.~~homes under construction. The number of lots in inventory as of ~~August 31, 2020~~February 28, 2021 included ~~7,802~~8,444 lots under contract where the associated deposits were refundable at our discretion, compared to ~~9,212~~10,254 of such lots at November 30, ~~2019.~~2020. Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was ~~37%~~40% at ~~August 31, 2020~~both February 28, 2021 and ~~41% at~~ November 30, ~~2019.~~2020. Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards.

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


	February 28, 2021		November 30, 2020
Total cash and cash equivalents	$	569,793	$	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	$	1,357,364	$	1,468,761

August 31,
2020 November 30,
2019
Total cash and cash equivalents $ 722,033
$ 453,814
Credit Facility commitment 800,000
800,000
Borrowings outstanding under the Credit Facility —
—
Letters of credit outstanding under the Credit Facility (12,429 ) (18,884 )
Credit Facility availability 787,571
781,116
Total liquidity $ 1,509,604
$ 1,234,930

The majority of our cash equivalents at ~~August 31, 2020~~February 28, 2021 and November 30, ~~2019~~2020 were invested in interest-bearing bank deposit accounts.

Capital Resources. Our notes payable consisted of the following (in thousands):


									February 28, 2021		November 30, 2020		Variance
	August 31, 2020		November 30, 2019		Variance
Mortgages and land contracts due to land sellers and other loans	$	5,620	$	7,889	$	(2,269	)	Mortgages and land contracts due to land sellers and other loans	$	4,067	$	4,667	$	(600)
Senior notes	1,742,084		1,740,858		1,226			Senior notes	1,742,940		1,742,508		432
Total	$	1,747,704	$	1,748,747	$	(1,043	)	Total	$	1,747,007	$	1,747,175	$	(168)

Our financial leverage, as measured by the ratio of debt to capital ~~was 40.5%~~improved 70 basis points to 38.9% at ~~August 31, 2020,~~February 28, 2021, compared to ~~42.3%~~39.6% at November 30, ~~2019.~~2020. Our ratio of net debt to capital (a calculation that is described above under “Non-GAAP Financial Measures”) at ~~August 31, 2020~~February 28, 2021 was ~~28.6%~~30.0%, compared to ~~35.2%~~28.6% at November 30, ~~2019.~~2020. Our next scheduled debt maturity is on December 15, 2021, when $450.0 million in aggregate principal amount of our 7.00% senior notes become due.

LOC Facility. We had ~~$29.3~~$41.0 million and ~~$15.8~~$29.7 million of letters of credit outstanding under the LOC Facility at ~~August 31, 2020~~February 28, 2021 and November 30, ~~2019,~~2020, respectively. Further information regarding our LOC Facility is provided in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Unsecured Revolving Credit Facility. We have an $800.0 million Credit Facility that will mature on October 7, 2023. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of ~~August 31, 2020,~~February 28, 2021, we had no cash borrowings and $12.4 million of letters of credit outstanding under the Credit Facility. ~~Therefore, as of August 31, 2020, we had $787.6 million available for cash borrowings~~We did not borrow under the Credit Facility ~~with up to $237.6 million of that amount available for~~during the ~~issuance of additional letters of credit.~~2021 first quarter. The Credit Facility is further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

There have been no changes to the terms of the Credit Facility during the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section inof our Annual Report on Form 10-K for the year ended November 30, ~~2019.~~2020.

The covenants and other requirements under the Credit Facility represent the most restrictive covenants that we are subject to with respect to our notes payable. The following table summarizes the financial covenants and other requirements under the Credit Facility, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of ~~August 31, 2020~~:February 28, 2021:

Financial Covenants and Other Requirements

Covenant Requirement

Actual

Financial Covenants and Other Requirements

Covenant Requirement

Actual

Consolidated tangible net worth

$1.74 billion

$2.57 billion

Consolidated tangible net worth

$1.85 billion

$2.72 billion

Leverage Ratio

.650

.406

Leverage Ratio

.650

.393

Interest Coverage Ratio (a)

1.500

4.717

Interest Coverage Ratio (a)

1.500

4.887

Minimum liquidity (a)

$126.6 million

$722.0 million

Minimum liquidity (a)

$122.0 million

$569.8 million

Investments in joint ventures and non-guarantor subsidiaries

$617.9 million

$117.4 million

Investments in joint ventures and non-guarantor subsidiaries

$648.1 million

$211.1 million

Borrowing base in excess of borrowing base indebtedness (as defined)

n/a

$1.55 billion

Borrowing base in excess of borrowing base indebtedness (as defined)

n/a

$1.79 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 August 31, 2020, we met both the Interest Coverage Ratio and the minimum liquidity requirements.

(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 February 28, 2021, we met both the Interest Coverage Ratio and the minimum liquidity requirements.

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 certain limitations related to mergers, consolidations, and sales of assets.

Our obligations to pay principal, premium, if any, and interest under our senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by the Guarantor Subsidiaries. The guarantees are full and unconditional, and the Guarantor Subsidiaries are 100% owned by us. We may also cause other subsidiaries of ours to become Guarantor Subsidiaries if we believe it to be in our or the relevant subsidiary’s best interests. Condensed consolidating financial information for our subsidiaries considered to be Guarantor Subsidiaries is provided in Note 22 – Supplemental Guarantor Information in the Notes to Consolidated Financial Statements in this report.

As of ~~August 31, 2020,~~February 28, 2021, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. There are no agreements that restrict our payment of dividends other than the Credit Facility, which would restrict our payment of certain dividends, ~~(other than~~such as cash dividends on our common stock, ~~dividends)~~ if a default under the Credit Facility exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At ~~August 31, 2020,~~February 28, 2021, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of ~~$5.6~~$4.1 million, secured primarily by the underlying property, which had an aggregate carrying value of ~~$49.2~~$12.3 million.

Credit Ratings. Our credit ratings are periodically reviewed by rating agencies. In ~~January 2020, Standard and Poor’s Financial Services upgraded~~February 2021, Moody’s Investors Service affirmed our corporate Ba3 credit rating, ~~to BB from BB-~~ and ~~changed~~upgraded the rating outlook to ~~stable~~positive from ~~positive.~~stable.

Consolidated Cash Flows. The following table presents a summary of net cash ~~provided by (used in)~~used in our operating, investing and financing activities (in thousands):


								Three Months Ended
	Nine Months Ended August 31,							February 28, 2021		February 29, 2020
	2020			2019
Net cash provided by (used in):
Net cash used in:							Net cash used in:
Operating activities	$	329,211		$	(152,144	)	Operating activities	$	(79,265)	$	(9,866)
Investing activities	(18,386		)	(29,062		)	Investing activities	(11,723)		(7,839)
Financing activities	(42,557		)	(209,076		)	Financing activities	(20,582)		(6,226)
Net increase (decrease) in cash and cash equivalents	$	268,268		$	(390,282	)
Net decrease in cash and cash equivalents							Net decrease in cash and cash equivalents	$	(111,570)	$	(23,931)

Operating Activities. Generally, our net operating cash flows fluctuate primarily based on changes in our inventories and our profitability. Our net cash ~~provided by~~used in operating activities for the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 primarily reflected a net ~~income of $190.2 million, a $62.8 million decrease in receivables and a $46.6 million decrease~~increase in inventories ~~partly offset by~~of $229.1 million and a net decrease in accounts payable, accrued expenses and other liabilities of ~~$62.4 million. In the nine months ended August 31, 2019, our net cash used by operating activities mainly reflected net cash of $389.5~~$10.1 million, ~~used for investments in inventories,~~ partly offset by net income of ~~$145.6~~$97.1 million and a net ~~increase~~decrease in receivables of $23.3 million. In the three months ended February 29, 2020, our net cash used in operating activities mainly reflected a net decrease in accounts payable, accrued expenses and other liabilities of ~~$5.0~~$61.0 million, net cash of $17.9 million used for investments in inventories and a net ~~decrease~~increase in receivables of ~~$2.8~~$4.2 million, partly offset by net income of $59.7 million.

Investing Activities. In the ~~nine~~three months ended ~~August 31, 2020,~~February 28, 2021, our uses of cash included ~~$21.2~~$9.1 million for net purchases of property and equipment and ~~$6.0~~$2.6 million for contributions to unconsolidated joint ventures. In the three months ended

February 29, 2020, the net cash used for investing activities reflected $6.7 million for net purchases of property and equipment and $1.7 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by a ~~$8.8~~$.5 million return of investments in unconsolidated joint ventures. In the nine months ended August 31, 2019, the net cash used for investing activities reflected $32.2 million for net purchases of property and equipment and $7.7 million for contributions to unconsolidated joint ventures. These uses of cash were partially offset by $5.8 million of proceeds from the sale of a building and a $5.0 million return of investments in unconsolidated joint ventures.

Financing Activities. The year-over-year change in net cash used in financing activities was mainly due to the financing transactions we completed in the first nine months of 2019, including our concurrent public offerings of senior notes and our repayment of certain senior notes. In the ~~nine~~three months ended ~~August 31, 2020,~~February 28, 2021, net cash was used for dividend payments on our common stock of ~~$24.4~~$14.1 million, tax payments associated with stock-based compensation awards of $8.5 million and payments on mortgages and land contracts due to land sellers and other loans of ~~$20.3~~$.6 million. The cash used was partially offset by $2.5 million of issuances of common stock under employee stock plans. In the three months ended February 29, 2020, net cash was used for dividend payments on our common stock of $8.2 million and tax payments associated with stock-based compensation awards of $6.2 million. The cash used was partially offset by $8.4 million of issuances of common stock under employee stock plans. In the nine months ended August 31, 2019, net cash was used for the repayment of $630.0 million in aggregate principal amount of 1.375% Convertible Senior Notes due 2019 and 4.75% senior notes due 2019, payments on mortgages and land contracts due to land sellers and other loans of $32.1 million, dividend payments on our common stock of $12.4 million, and tax payments associated with stock-based compensation awards of $3.3 million. The cash used was partially offset by cash provided by our concurrent public offerings of $300.0 million in aggregate principal amount of 6.875% senior notes due 2027 and an additional $100.0 million in aggregate principal amount of our existing series of 7.625% senior notes due 2023, $50.0 million of net borrowings under the Credit Facility, and $18.7$8.2 million of issuances of common stock under employee stock plans.

Dividends. During ~~each of~~ the three-month ~~periods~~period ended ~~August 31, 2020 and 2019,~~February 28, 2021, our board of directors declared, and we paid, a quarterly cash ~~dividends~~dividend on our common stock of $.15 per share. During the three-month period ended February 29, 2020, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.09 per share. ~~Quarterly cash dividends declared and paid on our common stock during the nine-month periods ended August 31, 2020 and 2019 totaled $.27 per share and $.14 per share, respectively.~~ The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our board of directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions. Subsequent to the end of the 2020 third quarter, on October 8, 2020, our board of directors approved an increase in the quarterly cash dividend on our common stock to $.15 per share from $.09 per share, and declared the next quarterly dividend, at the new rate, payable on November 26, 2020 to stockholders of record on November 12, 2020.

~~Shelf Registration.~~ On July 9, 2020, we filed the 2020 Shelf Registration with the SEC. The 2020 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined. Issuances of securities under our 2020 Shelf Registration require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity. The 2020 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 14, 2017. We have not made any offerings of securities under the 2020 Shelf Registration.

While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created uncertainty as to general economic conditions for the remainder of ~~2020~~2021 and beyond, as of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business. ~~We have had no cash borrowings under the Credit Facility in our 2020 fiscal year through the date of this report.~~ For the remainder of ~~2020,~~2021, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions, which, given the ongoing uncertainty surrounding the COVID-19 pandemic, could rapidly and materially deteriorate or otherwise change. During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire. However, with the uncertainty surrounding the COVID-19 pandemic, which could materially and negatively affect our business and the housing market, our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions, as well as moderated investor and/or lender interest or capacity and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions. Further discussion of the potential impacts from the COVID-19 pandemic on our capital resources and liquidity is provided ~~below~~in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended November 30, 2020.

Supplemental Guarantor Financial Information

As of February 28, 2021, we had $1.75 billion in aggregate principal amount of outstanding senior notes and no borrowings outstanding under ~~Part II, Item 1A~~the Credit Facility. Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”). Our other subsidiaries, including all of our subsidiaries associated with our financial services operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best interest. See Note 15 – ~~Risk Factors.~~Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes and the Credit Facility.

The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by us. The guarantees are senior unsecured obligations of each of the Guarantor Subsidiaries and rank equally in right of payment with all unsecured and unsubordinated indebtedness and guarantees of such Guarantor Subsidiaries. The guarantees are effectively subordinated to any secured indebtedness of such Guarantor Subsidiaries to the extent of the value of the assets securing such indebtedness, and structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries.

Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our non-guarantor subsidiaries do not in the aggregate exceed 10% of an adjusted measure

of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release.

The following tables present summarized financial information for KB Home and the Guarantor Subsidiaries on a combined basis, excluding unconsolidated joint ventures and after the elimination of (a) intercompany transactions and balances between KB Home and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries. See Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report for additional information regarding our unconsolidated joint ventures.


	February 28, 2021		November 30, 2020
Summarized Balance Sheet Data (in thousands)
Assets
Cash	$	524,150	$	644,157
Inventories	3,651,185		3,464,674
Amounts due from Non-Guarantor Subsidiaries	443,905		394,226
Total assets	5,183,317		5,102,197

Liabilities and Stockholders’ Equity
Notes payable	1,743,340		1,743,508
Amounts due to Non-Guarantor Subsidiaries	229,299		221,330
Total liabilities	2,599,732		2,589,971
Stockholders’ equity	2,583,585		2,512,226


	Three Months Ended February 28, 2021
Summarized Statement of Operations Data (in thousands)
Revenues	$	1,029,190
Construction and land costs	(810,126)
Selling, general and administrative expenses	(113,061)
Interest income from non-guarantor subsidiary	7,556
Pretax income	114,212
Net income	91,712

Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments

Unconsolidated Joint Ventures. As discussed in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. At November 30, 2019, one of our unconsolidated joint ventures had outstanding secured debt totaling $40.7 million under a construction loan agreement with a third-party lender to finance its land development activities. The outstanding debt was secured by the underlying property and related project assets and was non-recourse to us. All the outstanding secured debt was repaid in 2020. None of our unconsolidated joint ventures had outstanding debt at ~~August 31,~~February 28, 2021 or November 30, 2020.

Land Option Contracts and Other Similar Contracts. As discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, 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. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance. Our decision to exercise a particular land option contract or other similar contract depends on the results of our due diligence reviews and ongoing market and project feasibility analysis that we conduct after entering into such a contract. In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date. We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the sellers. If we were to acquire all of the land we had under land option contracts and other similar contracts at ~~August 31, 2020~~,February 28, 2021, we estimate the remaining purchase price to be

paid during each year ending November 30 would be as follows: ~~2020 – $393.8 million;~~ 2021 – ~~$473.2~~$900.8 million; 2022 – ~~$207.2~~$401.2 million; 2023 – ~~$99.1~~$82.9 million; 2024 – ~~$42.6~~$62.8 million; 2025 – $53.5 million; and thereafter – ~~$75.7~~$2.3 million.

Contractual Obligations. There have been no significant changes in our contractual obligations from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section inof our Annual Report on Form 10-K for the year ended November 30, ~~2019.~~2020.

Critical Accounting Policies

The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section inof our Annual Report on Form 10-K for the year ended November 30, ~~2019.~~2020.

Recent Accounting Pronouncements

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

Outlook

We ~~are encouraged by the resilience of the~~believe long-term housing market fundamentals supporting demand remain positive. Most notably, demographic trends are favorable especially with respect to first-time homebuyers, with over 70 million millennials in their prime homebuying years, followed by a large Generation Z segment now entering their homebuying age. We believe our Built-to-Order model, which provides our buyers a significant degree of personalization and choice, as well as our industry leading commitment to building ENERGY STAR® certified homes and solar homes that help lower the ~~significant increase~~total cost of homeownership, gives us a meaningful and distinct competitive advantage over other homebuilders and resale and rental homes, particularly in ~~demand over~~serving first-time homebuyers. Although mortgage interest rates have recently increased, they are still at relatively low levels and housing affordability remains generally favorable.

For the ~~past several months. Subsequent~~remainder of 2021, we plan to continue to execute on our customer-centric, personalized approach to homebuilding, which we believe contributed to our robust year-over-year net orders in the ~~end of the third~~2021 first quarter, ~~demand remained strong,~~and rebuild our community count to support future growth. In addition, we expect to continue to focus on aligning our housing starts with our net ~~orders~~order absorption rate, and manage our construction cycle times, in order to deliver our homes in backlog and meet our expected delivery volumes for the ~~first five weeks of the 2020 fourth quarter up 39% from the corresponding period of 2019,~~year. We expect our increased investments in land and ~~the cancellation rate for the period improving~~land development in recent quarters and planned new community openings will lead to ~~12% from 19%. While we limited~~a sequential increase in our land investments during the second quarter and most of the third quarter to preserve cash and liquidity due to the uncertainty surrounding the COVID-19 pandemic, given the sustained strong housing demand, we have resumed land acquisition and development activities to bolster our lot pipeline and supportending community growth in 2021 and beyond. Although the trajectory and strength of the current recovery remains uncertain, and we are seeing some building material cost pressures, particularly with respect to lumber, that could negatively impact our marginscount in the ~~2020~~remaining quarters of 2021, with year-over-year community count growth expected in the fourth quarter and future periods, and the recovery could be slowed or reversed by a number of factors, including a possible widespread resurgence in COVID-19 infections combined with the seasonal flu and others discussed below under Part II, Item 1A – Risk Factors, wequarter. We believe we are ~~well-positioned~~well positioned to ~~operate effectively through the present operating environment.~~extend our community count growth into next year and expect year-over-year community count expansion of at least 10% in 2022. Our present outlook for the ~~fourth~~2021 second quarter and ~~full-year 2020 and full-year 2021~~full year is as follows:

~~2020 Fourth~~2021 Second Quarter

•We expect to generate housing revenues in the range of ~~$1.05~~$1.42 billion to ~~$1.15~~$1.50 billion, compared to ~~$1.54 billion~~$910.0 million in the year-earlier quarter, and anticipate our average selling price to be approximately ~~$415,000~~$405,000, representing ana year-over-year increase of 6%11%.

•We expect our homebuilding operating income as a percentage of revenues, assuming no inventory-related charges, to range from 10.0% to 10.5%, compared to 6.9%, excluding severance charges of $6.7 million associated with COVID-19 pandemic-related workforce reductions, for the ~~year-earlier period.~~prior-year quarter.

◦We expect our housing gross profit margin to be in the range of ~~20.0%~~20.5% to ~~20.4%~~21.1%, assuming no inventory-related charges, compared to ~~19.9%~~18.7% for the corresponding ~~2019~~2020 quarter.

◦We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of ~~10.8%~~10.4% to ~~11.2%~~10.8%. The ~~2019 fourth~~2020 second quarter ratio was ~~9.1%.~~11.8%, excluding severance charges.

~~We expect our homebuilding operating income margin, excluding inventory-related charges, to range from 9.0% to 9.4%, compared to 10.7% for the prior year quarter.~~

•We expect an effective tax rate of approximately 24%.

•We expect our average community count to ~~decline in the mid- to high single-digit~~be down by a low-to-mid double-digit percentage ~~range from the 2019 fourth quarter.~~on a year-over-year basis.

~~2020~~

2021 Full Year

~~The following 2020 full year outlook is based on the mid-point of our outlook for the 2020 fourth quarter:~~

•We expect our housing revenues to be ~~approximately $4.06~~in the range of $5.70 billion to $6.10 billion, compared to ~~$4.51~~$4.15 billion in ~~2019,~~2020, and anticipate our average selling price will be in the range of $405,000 to $415,000, compared to $388,900 in 2020.

•We expect our homebuilding operating income as a percentage of revenues, assuming no inventory-related charges, will be ~~approximately $389,000, representing~~in the range of 11.0% to 11.8%, an increase of ~~approximately 2%~~310 basis points at the mid-point, compared to ~~2019.~~8.4%, excluding severance charges, for 2020.

◦We expect our housing gross profit margin to be ~~approximately 19.4%~~in the range of 21.0% to 22.0%, assuming no inventory-related charges, versus ~~18.7%~~19.6% for ~~2019.~~2020.

◦We expect our selling, general and administrative expenses as a percentage of housing revenues to be ~~approximately 11.4%~~in the range of 9.9% to 10.3%, compared to 11.2%, excluding ~~the~~ severance charges, ~~recorded in the second quarter, compared to 11.0%~~ in the prior year.

~~We expect our homebuilding operating income margin, assuming no inventory-related charges and excluding the above-mentioned severance charges, to be approximately 8.0%, compared to 7.7% for 2019.~~

•We expect an effective tax rate of roughly ~~21%~~24%.

•We expect a single-digit percentage increase in our ending community count compared to 2020.

•We expect our ~~average community count to~~return on equity will be ~~down by a low single-digit percentage~~above 18%, an improvement of more than 600 basis points compared to ~~2019.~~

~~2021 Full Year~~11.8% for 2020.

We ~~expect our housing revenues~~continue to ~~be in the range of $5.1 billion to $5.5 billion.~~

~~We expect our average community count to be flat compared to 2020.~~

~~We have had no cash borrowings under the Credit Facility in our 2020 fiscal year through the date of this report. For~~believe we are well positioned for the remainder of ~~2020, we expect~~2021 due to, ~~use or redeploy~~among other things, our ~~cash resources~~strong backlog, planned new community openings, investments in land and any cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions, which could rapidly change. During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may

~~be material. In addition, our future performance~~land development and ~~the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing~~current positive economic and ~~capital, credit~~demographic trends, to varying degrees in many of our served markets. However, our industry continues to experience labor and ~~financial market conditions~~supply constraints and onrising and volatile raw material prices, particularly for lumber. Demand for our products could also be substantially diminished if the public health ~~political~~effort to contain the virulence and ~~regulatory environment (including~~spread of COVID-19 continues for a prolonged period during the rest of the year or if there is a material rise in ~~regards~~inflation. If these issues worsen in the remainder of 2021, our business and our ability to ~~housing and mortgage loan financing policies), among other factors.~~generate positive growth could be negatively impacted.

Forward-Looking Statements

Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements. In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act. Forward-looking statements are based on our current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of future performance, and we have no specific policy or intention to update these statements. In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions; the success, performance, effectiveness and/or relative positioning of our strategies, initiatives or operational activities; and other matters, may be based in whole or in part on general observations of our management, limited or anecdotal evidence and/or business or industry experience without in-depth or any particular empirical investigation, inquiry or analysis.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, the following:

•general economic, employment and business ~~conditions, generally and during the current recession;~~conditions;

•population growth, household formations and demographic trends;

•conditions in the capital, credit and financial markets;

•our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms;

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

•material and trade costs and availability, particularly lumber;

•changes in interest rates;

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

•our compliance with the terms of the Credit Facility;


•	•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; •

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

•competition from other sellers of new and resale homes;

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

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

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

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

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

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

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

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

•costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;

•our ability to use/realize the net deferred tax assets we have generated;

•our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into new markets;

•our operational and investment concentration in markets in California;


•	•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;~~

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

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

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

•the performance of mortgage lenders to our homebuyers;

•the performance of KBHS;

•information technology failures and data security breaches;

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

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

•other events outside of our control.

Please see our Annual Report on Form 10-K for the year ended November 30, ~~2019~~2020 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.


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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since November 30, ~~2019.~~2020. For additional information regarding our market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the year ended November 30, ~~2019.~~

2020.


~~Item 4.~~	~~Controls and Procedures~~

Item 4.Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and

reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including our Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and our Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of ~~August 31, 2020~~.February 28, 2021.

There were no changes in our internal control over financial reporting during the quarter ended ~~August 31, 2020~~February 28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1.Legal Proceedings

For a discussion of our legal proceedings, see Note 18 – Legal Matters in the Notes to Consolidated Financial Statements in this report.


~~Item 1A.~~	~~Risk Factors~~

~~Except as set forth below, as of the date of this report, there~~Item 1A.Risk Factors

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended November 30, ~~2019.~~2020.

Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the present outbreak and worldwide spread of COVID-19), or similar public threat, or fear of such an event, and the control response measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.

An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our consolidated financial statements.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, 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.

In response to these steps, in mid-March, we temporarily closed our sales centers, model homes and design studios to the general public, shifted to an appointment-only personalized home sales process and prioritized our warranty service activities to respond to emergency repair requests, and otherwise on a by-exception basis, in each case as and where permitted and following recommended distancing and other health and safety protocols when meeting in person with a customer. We also leveraged our virtual sales tools to give customers the ability to shop for a new KB home from their mobile device or personal computer. In addition, we shifted our corporate and division office functions to work remotely. We limited our construction operations largely to authorized activities with increased safety measures and experienced a reduction in the availability, capacity and efficiency of municipal and private services necessary to the progress of developing land, building homes, completing mortgage loans and delivering homes, which in each case has varied by market depending on the scope of the restrictions local authorities have established. These appropriate measures have tempered our sales pace and delayed home deliveries in the latter part of March and through the date of this report.

Conditions started to improve in late May as state and local governments in our served markets began relaxing the public health restrictions described above and we began to gradually take steps to effectively resume nearly all of our operations. We have reopened our sales centers, model homes and design studios to the general public, continued to engage with customers using our robust virtual selling capability, including enhanced online tools such as virtual home tours, interactive floor plans, live chats with sales counselors and online consultations with our design studios, and largely resumed providing construction and warranty services. However, the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, a recession, high unemployment levels, and significant volatility in financial markets and in the value of equity securities, including our common stock, have

produced ongoing uncertainty about the overall operating environment going forward. In addition, we can provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent, particularly in response to any resurgence in infections combined with the seasonal flu, that we will not be able to conduct any business operations in certain of our served markets or at all for an indefinite period. Certain of our served markets have recently seen an increase in COVID-19 cases, and some of the relaxed COVID-19 control responses have been re-instituted.

Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to purchasing a home; cause civil unrest, similar to what arose at the end of May related to efforts to institute law enforcement and other social and political reforms and which may also affect our business in the short and/or medium-to-longer term; precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which would lower demand for our products as occurred in our 2020 second quarter; impair our ability to sell and build homes in a typical manner, as occurred in our 2020 second quarter, or at all; generate revenues and cash flows, and/or access the Credit Facility or the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials, and we are seeing some cost pressures, particularly with respect to lumber, that could negatively impact our margins in the 2020 fourth quarter and future periods, or the availability of subcontractors, employees and other talent, including as a result of infections or medically necessary or recommended self-quarantining, which we have experienced to a limited extent in a few locations, or governmental mandates to direct production activities to support public health efforts; and/or result in our recognizing charges in future periods, which may be material, for inventory impairments or land option contract abandonments, or both, related to our inventory assets. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, also makes it more challenging for our management to estimate the future performance of our business and develop or adjust strategies to generate growth.

Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in our net orders, homes delivered, average selling prices, revenues and profitability, as we did during our 2020 second quarter, and such impacts could be material to our consolidated financial statements in the fourth quarter and beyond. In addition, should the COVID-19 public health effort intensify to such an extent that we cannot operate in most or all of our served markets, we could generate few or no orders and deliver few, if any homes during the applicable period, which could be prolonged. Along with an increase in cancellations of home purchase contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to conduct our business; meet the terms of our covenants and other requirements under the Credit Facility, our senior notes and the related indenture, and/or mortgages and land contracts due to land sellers and other loans; service our outstanding debt; or pay any dividends to our stockholders. Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources) and/or trigger an acceleration to pay a significant portion or all of our then-outstanding debt obligations, which we may be unable to do.

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


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
December 1-31	—	$	—	—	2,193,947
January 1-31	—	—		—	2,193,947
February 1-28	207,775	40.70		—	2,193,947
Total	207,775	$	40.70	—

In May 2018, our board of directors authorized us to repurchase a total of up to 4,000,000 shares of our outstanding common stock. As of November 30, ~~2019,~~2020, we had 2,193,947 shares authorized for repurchase. During the three months ended ~~August 31, 2020,~~February 28, 2021, no shares were repurchased pursuant to this authorization.

The shares purchased during the three months ended February 28, 2021 were previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards. These transactions are not considered repurchases under the board of directors’ authorization.

Item 6. Exhibits


Exhibits

~~Exhibits~~
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.

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.

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.

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.

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).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	~~KB HOME~~ ~~Registrant~~



~~Dated~~			~~October 8, 2020~~KB HOME Registrant

~~By:~~

Dated

April 9, 2021

By:

/s/ JEFF J. KAMINSKI

Jeff J. Kaminski

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Dated

~~October 8, 2020~~April 9, 2021

By:

/s/ WILLIAM R. HOLLINGER

William R. Hollinger

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)



	August 31, 2020
Lease right-of-use assets (a)	$	33,291
Lease liabilities (b)	34,849
Weighted-average remaining lease term	4.5 years
Weighted-average discount rate (incremental borrowing rate)	5.1		%



	Three Months Ended August 31, 2020		Nine Months Ended August 31, 2020
Lease right-of-use assets obtained in exchange for new lease liabilities	$	2,977	$	9,045
Cash payments on lease liabilities	2,831		8,468



Years Ending November 30,
2020	$	2,737
2021	10,178
2022	8,921
2023	6,704
2024	4,637
Thereafter	6,099
Total lease payments	39,276
Less: Interest	(4,427		)
Present value of lease liabilities	$	34,849



	Three Months Ended August 31, 2020
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	0		$	908,657		$	90,356		$	0		$	999,013
Homebuilding:
Revenues	$	0		$	908,657		$	86,491		$	0		$	995,148
Construction and land costs	0			(725,215		)	(73,280		)	0			(798,495		)
Selling, general and administrative expenses	(22,699		)	(80,978		)	(4,033		)	0			(107,710		)
Operating income (loss)	(22,699		)	102,464			9,178			0			88,943
Interest income	784			0			2			0			786
Interest expense	(29,552		)	(15		)	(1,487		)	31,054			0
Intercompany interest	78,222			(43,112		)	(4,056		)	(31,054		)	0
Equity in income of unconsolidated joint ventures	0			1,922			0			0			1,922
Homebuilding pretax income	26,755			61,259			3,637			0			91,651
Financial services pretax income	0			0			9,664			0			9,664
Total pretax income	26,755			61,259			13,301			0			101,315
Income tax expense	(6,700		)	(13,300		)	(2,900		)	0			(22,900		)
Equity in net income of subsidiaries	58,360			0			0			(58,360		)	0
Net income	$	78,415		$	47,959		$	10,401		$	(58,360	)	$	78,415



	Three Months Ended August 31, 2019
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	0		$	1,061,698		$	99,088		$	0		$	1,160,786
Homebuilding:
Revenues	$	0		$	1,061,698		$	95,157		$	0		$	1,156,855
Construction and land costs	0			(859,733		)	(84,021		)	0			(943,754		)
Selling, general and administrative expenses	(23,619		)	(95,376		)	(8,631		)	0			(127,626		)
Operating income (loss)	(23,619		)	106,589			2,505			0			85,475
Interest income	140			20			41			0			201
Interest expense	(34,488		)	(175		)	(1,361		)	36,024			0
Intercompany interest	84,880			(45,826		)	(3,030		)	(36,024		)	0
Equity in loss of unconsolidated joint ventures	0			(384		)	0			0			(384		)
Homebuilding pretax income (loss)	26,913			60,224			(1,845		)	0			85,292
Financial services pretax income	0			0			6,644			0			6,644
Total pretax income	26,913			60,224			4,799			0			91,936
Income tax expense	(6,900		)	(14,900		)	(2,000		)	0			(23,800		)
Equity in net income of subsidiaries	48,123			0			0			(48,123		)	0
Net income	$	68,136		$	45,324		$	2,799		$	(48,123	)	$	68,136



	Nine Months Ended August 31, 2020
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	0		$	2,735,339		$	253,579		$	0		$	2,988,918
Homebuilding:
Revenues	$	0		$	2,735,339		$	242,471		$	0		$	2,977,810
Construction and land costs	0			(2,218,683		)	(210,318		)	0			(2,429,001		)
Selling, general and administrative expenses	(75,129		)	(257,460		)	(15,493		)	0			(348,082		)
Operating income (loss)	(75,129		)	259,196			16,660			0			200,727
Interest income	2,075			12			76			0			2,163
Interest expense	(88,648		)	(73		)	(4,350		)	93,071			0
Intercompany interest	238,780			(133,637		)	(12,072		)	(93,071		)	0
Equity in income of unconsolidated joint ventures	0			11,981			0			0			11,981
Homebuilding pretax income	77,078			137,479			314			0			214,871
Financial services pretax income	0			0			23,081			0			23,081
Total pretax income	77,078			137,479			23,395			0			237,952
Income tax expense	(16,500		)	(26,200		)	(5,100		)	0			(47,800		)
Equity in net income of subsidiaries	129,574			0			0			(129,574		)	0
Net income	$	190,152		$	111,279		$	18,295		$	(129,574	)	$	190,152



	Nine Months Ended August 31, 2019
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Total revenues	$	0		$	2,739,096		$	254,976		$	0		$	2,994,072
Homebuilding:
Revenues	$	0		$	2,739,096		$	245,218		$	0		$	2,984,314
Construction and land costs	0			(2,226,829		)	(231,524		)	0			(2,458,353		)
Selling, general and administrative expenses	(76,507		)	(268,506		)	(12,035		)	0			(357,048		)
Operating income (loss)	(76,507		)	243,761			1,659			0			168,913
Interest income	1,549			20			176			0			1,745
Interest expense	(102,763		)	(630		)	(3,963		)	107,356			0
Intercompany interest	245,090			(130,142		)	(7,592		)	(107,356		)	0
Equity in loss of unconsolidated joint ventures	0			(1,159		)	0			0			(1,159		)
Homebuilding pretax income (loss)	67,369			111,850			(9,720		)	0			169,499
Financial services pretax income	0			0			13,709			0			13,709
Total pretax income	67,369			111,850			3,989			0			183,208
Income tax expense	(10,400		)	(21,300		)	(5,900		)	0			(37,600		)
Equity in net income of subsidiaries	88,639			0			0			(88,639		)	0
Net income (loss)	$	145,608		$	90,550		$	(1,911	)	$	(88,639	)	$	145,608