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,
                                       2022                  2021          Variance
Revenues:
Homebuilding                 $     1,394,154             $ 1,138,008          23   %
Financial services                     4,635                   3,730          24
Total revenues               $     1,398,789             $ 1,141,738          23   %
Pretax income:
Homebuilding                 $       169,621             $   115,051          47   %
Financial services                     8,436                   8,500          (1)
Total pretax income                  178,057                 123,551          44
Income tax expense                   (43,800)                (26,500)        (65)
Net income                   $       134,257             $    97,051          38   %
Diluted earnings per share   $          1.47             $      1.02          44   %


Housing market conditions were favorable through the three months ended
February 28, 2022, with solid demand driven by healthy demographic trends,
particularly from millennial and Generation Z groups, a limited supply of new
and resale inventory, and steady employment and wage growth. Considerable demand
for our homes enabled us to lift selling prices in the vast majority of our
communities and, in combination with our focus on balancing pace, price and
construction starts at each community, helped us to enhance our inventory
assets' performance and improve returns, despite significant persistent supply
chain challenges and higher construction costs, as described further below. The
value of our net orders for the 2022 first quarter increased 15% from the
year-earlier quarter due to a 17% increase in their overall average selling
price, partly offset by a 2% decline in net orders. The decrease in net orders
was due to our lower average community count in the current period, partly
offset by slightly higher monthly net orders per community. Our lower average
community count reflected the accelerated sell-out of communities as a result of
our strong monthly net order pace over the past few quarters and supply
chain-related delays in new community openings. The strong housing demand in our
served markets lifted our monthly net orders per community slightly to 6.6 from
6.4, even as we raised selling prices and strategically paced lot releases to
enhance margins and help align with current production capacity.

Since the outbreak of COVID-19 in 2020, we have experienced intensifying
building material cost pressures, particularly for lumber, and production
capacity constraints affecting our product suppliers driven by sustained high
levels of homebuilding and renovation activity, combined with supply chain
disruptions stemming largely from international and domestic COVID-19 control
responses and economy-wide labor shortages in the U.S. In the 2022 first
quarter, these continuing supply chain disruptions, as well as ongoing
restricted construction services availability and delays with respect to state
and municipal construction permitting, inspection and utility processes, were
exacerbated by a resurgence of COVID-19 infections with the Omicron variant.
Consequently, our construction cycle times were extended by approximately two
weeks, primarily affecting the finishing stages, as compared to the 2021 fourth
quarter, and many deliveries and new community openings expected for the 2022
first quarter were delayed. We have adapted to the extent possible to these
changing conditions, re-sequencing construction when necessary, and, in some
cases, ordering items in advance of starting homes to mitigate delays. We
believe these challenging circumstances affecting our land development and home
construction activities will generally persist throughout the year. We continue
to be proactive and, as feasible, aim to address issues as they arise to
mitigate the impact on our business going forward. We have incorporated these
trends into our performance expectations, as presented below under "Outlook."
However, it is possible that supply chain disruptions will worsen in the coming
periods due to the military conflict in Ukraine that began in late February 2022
and the wide-ranging sanctions the U.S. and other countries have imposed or may
further impose on Russian business sectors, financial organizations, individuals
and raw materials.

Homebuilding revenues for the 2022 first quarter grew 23% due to an increase in
housing revenues, driven by a 22% increase in the overall average selling price
of homes delivered to $486,100, as the number of homes delivered was essentially
even with
                                       23
--------------------------------------------------------------------------------

the year-earlier quarter. Homebuilding operating income for the three months
ended February 28, 2022 rose 49% year over year to $169.6 million and, as a
percentage of revenues, improved 220 basis points to 12.2%. The increase in our
homebuilding operating income margin reflected improvements in both our housing
gross profit margin and selling, general and administrative expenses as a
percentage of housing revenues. Our pretax income margin improved 190 basis
points to 12.7%, and net income and diluted earnings per share increased 38% and
44%, respectively, each as compared to the corresponding quarter of 2021.

COVID-19 Pandemic Impact. The COVID-19 pandemic and related COVID-19 control
responses have adversely affected many economic sectors, significantly disrupted
the global supply chain and fueled producer price and consumer inflation. Our
business was impacted by these issues during the three months ended February 28,
2022, as we experienced, among other things, supply chain bottlenecks and the
other production-related challenges during the quarter described above that, to
various degrees, extended our construction cycle times, delayed home deliveries
and community openings and raised our costs. They could negatively impact our
growth, margins and financial results in future periods, as could additional
significant COVID-19-related disruptions, if they emerge. At the same time, we
continue to experience strong demand for our products and believe we are
well-positioned to operate effectively through the present environment.

Our ending backlog value at February 28, 2022 grew 55% to approximately $5.71
billion, our highest first-quarter level since 2007. With this robust backlog,
we expect to achieve significant year-over-year growth in our scale,
profitability and returns in the 2022 second quarter and full year, as described
below under "Outlook." In addition, with the ongoing strong housing demand in
the first quarter of 2022, we continued to increase our land acquisition and
development investments, as we did in 2021, to measurably expand our lot
pipeline and support future community count growth.

HOMEBUILDING

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


                                                                      Three Months Ended February 28,
                                                                         2022                    2021
Revenues:
Housing                                                           $     1,394,154           $ 1,137,353
Land                                                                            -                   655
Total                                                                   1,394,154             1,138,008
Costs and expenses:
Construction and land costs
Housing                                                                (1,082,112)             (901,178)
Land                                                                            -                  (731)
Total                                                                  (1,082,112)             (901,909)
Selling, general and administrative expenses                             (142,480)             (122,005)
Total                                                                  (1,224,592)           (1,023,914)
Operating income                                                          169,562               114,094
Interest income                                                                36                   653
Equity in income of unconsolidated joint ventures                              23                   304

Homebuilding pretax income                                        $       169,621           $   115,051

Homes delivered                                                             2,868                 2,864
Average selling price                                             $       486,100           $   397,100
Housing gross profit margin as a percentage of housing revenues              22.4   %              20.8  %

Adjusted housing gross profit margin as a percentage of housing revenues

                                                                     22.4   %              21.1  %

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

                                                             10.2   %              10.7  %
Operating income as a percentage of revenues                                 12.2   %              10.0  %


                                       24
--------------------------------------------------------------------------------

Revenues. Homebuilding revenues for the 2022 first quarter grew from the
year-earlier quarter mainly due to a 23% increase in housing revenues. The
year-over-year growth in housing revenues was driven by a 22% increase in the
overall average selling price of homes delivered that reflected strong housing
market conditions as well as product and geographic mix shifts of homes
delivered. Although our backlog of homes at the beginning of the quarter
("beginning backlog") increased 35% year over year, the number of homes
delivered in the 2022 first quarter was essentially flat primarily due to the
supply chain disruptions and other production-related issues that intensified
during the quarter, as described above under "Overview." These operational
challenges extended our construction cycle times by two weeks, as compared to
the 2021 fourth quarter, and delayed many expected deliveries. Reflecting these
challenges, the number of homes delivered as a percentage of beginning backlog
decreased to 27% in the 2022 first quarter, compared to 37% in the year-earlier
period.

Operating Income. Our operating income for the three months ended February 28,
2022 grew 49% from the year-earlier period, reflecting higher housing gross
profits, partly offset by an increase in selling, general and administrative
expenses. Operating income for the 2022 first quarter included inventory-related
charges of $.2 million, compared to $4.1 million in the year-earlier quarter. As
a percentage of revenues, our operating income for the three months ended
February 28, 2022 improved 220 basis points to 12.2%, compared to 10.0% for the
corresponding 2021 period. Excluding inventory-related charges, our operating
income as a percentage of revenues increased 180 basis points to 12.2% for the
2022 first quarter from 10.4% for the year-earlier quarter.

•Housing Gross Profits - Housing gross profits of $312.0 million for the three
months ended February 28, 2022 grew 32% from $236.2 million for the year-earlier
period due to increases in both our housing revenues and housing gross profit
margin. Our housing gross profit margin for the 2022 first quarter rose 160
basis points year over year to 22.4%, mainly as a result of a favorable pricing
environment that more than offset higher construction costs (approximately 80
basis points), lower amortization of previously capitalized interest as a
percentage of housing revenues (approximately 80 basis points), a decrease in
inventory-related charges (approximately 30 basis points) and other
miscellaneous factors (approximately 30 basis points). These favorable impacts
were partly offset by increased expenses to support current operations and
expected growth (approximately 60 basis points). As a percentage of housing
revenues, the amortization of previously capitalized interest associated with
housing operations was 2.1% and 2.9% for the three months ended February 28,
2022 and 2021, respectively. Excluding the above-mentioned inventory-related
charges for the applicable periods, our adjusted housing gross profit margin for
the 2022 first quarter increased 130 basis points from the year-earlier period.
The calculation of adjusted housing gross profit margin, which we believe
provides a clearer measure of the performance of our business, is described
below under "Non-GAAP Financial Measures."

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

Three Months Ended February 28,


                                                                       % of Housing                                % of Housing
                                                  2022                   Revenues                2021                Revenues
Marketing expenses                         $        28,848                      2.1  %       $  28,406                      2.5  %
Commission expenses (a)                             48,629                      3.5             44,852                      3.9
General and administrative expenses                 65,003                      4.6             48,747                      4.3
Total                                      $       142,480                     10.2  %       $ 122,005                     10.7  %

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



Selling, general and administrative expenses for the 2022 first quarter rose 17%
from the year-earlier quarter, mainly due to an increase in commission expenses
associated with our higher housing revenues, and an increase in general and
administrative expenses. The year-over-year increase in general and
administrative expenses primarily reflected higher costs associated with
performance-based employee compensation plans, as well as expenses incurred to
support current operations and expected growth. In addition, general and
administrative expenses in the year-earlier quarter benefited from a
$4.3 million ERC, which is described in Note 13 - Income Taxes in the Notes to
Consolidated Financial Statements in this report. As a percentage of housing
revenues, our selling, general and administrative expenses for the 2022 first
quarter improved 50 basis points, largely reflecting increased operating
leverage due to our higher housing revenues as compared to the year-earlier
quarter, partly offset by the above-mentioned higher expenses.
                                       25
--------------------------------------------------------------------------------

Interest Income/Expense. Interest income, which is generated from short-term
investments, was nominal for the three months ended February 28, 2022 and $.7
million for the year-earlier period. Generally, increases and decreases in
interest income are attributable to changes in the interest-bearing average
balances of short-term investments and fluctuations in interest rates.

We incur interest principally from our borrowings to finance land acquisitions,
land development, home construction and other operating and capital needs. All
interest incurred during the three-month periods ended February 28, 2022 and
2021 was capitalized due to the average amount of our inventory qualifying for
interest capitalization exceeding our average debt level for each period. As a
result, we had no interest expense for these periods. Further information
regarding our interest incurred and capitalized is provided in Note 6 -
Inventories in the Notes to Consolidated Financial Statements in this report.

Equity in Income of Unconsolidated Joint Ventures. Our equity in income of
unconsolidated joint ventures was nominal for each of the three-month periods
ended February 28, 2022 and 2021. Further information regarding our investments
in unconsolidated joint ventures is provided in Note 9 - Investments in
Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements
in this report.

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



                                             Three Months Ended February 28,
                                              2022                        2021
          Net orders                             4,210                     4,292
          Net order value (a)          $     2,153,734               $ 1,869,068

          Cancellation rates (b)                    11   %                    10  %
          Ending backlog - homes                11,886                     9,238
          Ending backlog - value       $     5,711,305               $

3,694,118


          Ending community count                   208                       209
          Average community count                  213                       223


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

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

Net Orders. For the three months ended February 28, 2022, net orders from our
homebuilding operations decreased 2% year over year, reflecting our lower
average community count described further below, partly offset by a slight
increase in monthly net orders per community to 6.6 from 6.4 in the year-earlier
period. Along with the healthy housing demand, particularly from millennial and
Generation Z demographic groups, we believe our Built-to-Order® homebuying
process, which provides personalization and choice, continues to be a key
contributor to our strong monthly net order pace.

Though we experienced a slight decrease in net orders for the 2022 first
quarter, compared to our strong 2021 first-quarter net orders, which reached a
14-year high, the value of our net orders rose 15% due to a 17% increase in the
overall average selling price of net orders that largely reflected robust
housing demand in most of our served markets as well as a product and geographic
mix shift. The year-over-year growth in overall net order value resulted from
improvements in three of our four homebuilding reporting segments, with net
order value increases ranging from 8% in our West Coast segment to 79% in our
Southeast segment. Net order value from our Southwest homebuilding reporting
segment decreased 2%.

Our cancellation rate as a percentage of gross orders for the three months ended February 28, 2022 was nearly even with the year-earlier period.



Backlog. The number of homes in our backlog at February 28, 2022 increased 29%
from February 28, 2021, reflecting our substantially higher backlog at the
beginning of the quarter, partly offset by a slight year-over-year decrease in
our net orders for the three months ended February 28, 2022. The potential
future housing revenues in our backlog at February 28, 2022 grew 55% from
February 28, 2021 as a result of both the higher number of homes in our backlog
and a 20% increase in the overall average selling price of those homes. Each of
our four homebuilding reporting segments generated year-over-year increases in
backlog value, ranging from 38% in our West Coast segment to 114% in our
Southeast segment.
                                       26
--------------------------------------------------------------------------------

Community Count. We use the term "community count" to refer to the number of
communities open for sale with at least five homes left to sell at the end of a
reporting period. Our average community count for the 2022 first quarter
decreased 4% from the year-earlier period, and our ending community count was
essentially flat at 208. The year-over-year decreases in our overall average and
ending community counts primarily reflected communities selling out earlier than
anticipated due to both an increase in our demand-driven net order pace and
delays in new community openings during the three months ended February 28,
2022, as described above under "Overview." We substantially increased our
investments in land acquisition and land development in the 2022 first quarter,
as we did in 2021, to support future community count growth.

HOMEBUILDING REPORTING SEGMENTS



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

                                                                         

Three Months Ended February 28,


                                    Homes Delivered                               Net Orders                               Cancellation Rates
Segment                        2022                 2021                  2022                   2021                 2022                   2021
West Coast                        914                  884                  1,094                 1,160                   11   %                  9   %
Southwest                         516                  534                    748                   867                    7                      8
Central                           953                1,011                  1,444                 1,598                   14                     12
Southeast                         485                  435                    924                   667                    9                     12
Total                           2,868                2,864                  4,210                 4,292                   11   %                 10   %

                                                Net Order Value                                               Average Community Count
Segment                        2022                 2021                Variance                 2022                 2021                 Variance
West Coast                $   845,517          $   779,551                      8   %                57                       65                (12)  %
Southwest                     327,569              333,919                     (2)                   34                       36                 (6)
Central                       618,009              552,941                     12                    75                       82                 (9)
Southeast                     362,639              202,657                     79                    47                       40                 18
Total                     $ 2,153,734          $ 1,869,068                     15   %               213                      223                 (4)  %

                                                                                  February 28,
                                                Backlog - Homes                                                   Backlog - Value
Segment                        2022                 2021                Variance                 2022                 2021                 Variance
West Coast                      2,621                2,300                     14   %       $ 1,951,554          $     1,417,644                 38   %
Southwest                       2,426                1,854                     31             1,028,385                  669,939                 54
Central                         4,402                3,624                     21             1,811,261                1,176,047                 54
Southeast                       2,437                1,460                     67               920,105                  430,488                114
Total                          11,886                9,238                     29   %       $ 5,711,305          $     3,694,118                 55   %


The composition of our homes delivered, net orders and backlog shifts with the
mix of our active communities and the corresponding average selling prices of
the homes ordered and/or delivered at these communities in any particular
period, and changes as new communities open and existing communities wind down
or sell out. In addition, with our Built-to-Order model, the selling prices of
individual homes within a community may vary due to differing lot sizes and
locations, home square footage, and option and upgrade selections. These
intrinsic variations in our business limit the comparability of our homes
delivered, net orders and backlog, as well as their corresponding values,
between sequential and year-over-year periods, in addition to the effect of
prevailing economic or housing market conditions in or across any particular
periods.

Financial Results. Below is a discussion of the financial results for each of
our homebuilding reporting segments. Further information regarding these
segments, including their pretax income (loss), is included in Note 2 - Segment
Information in the Notes to Consolidated Financial Statements in this report.
The difference between each homebuilding reporting segment's
                                       27
--------------------------------------------------------------------------------

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.

In addition to the results of our homebuilding reporting segments presented
below, our consolidated homebuilding operating income includes the results of
Corporate and other, a non-operating segment. Corporate and other had operating
losses of $34.7 million in the three months ended February 28, 2022 and $30.4
million in the three months ended February 28, 2021. The year over year increase
reflected higher selling, general and administrative expenses, mainly due to
higher costs associated with performance-based employee compensation plans, as
well as expenses to support current operations and expected growth.

The financial results of our homebuilding reporting segments for the three
months ended February 28, 2022 were negatively affected by intensifying building
material cost pressures, as well as the supply chain disruptions and other
production-related challenges during the quarter that are described above under
"Overview."

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

Three Months Ended February 28,


                                                                     2022                  2021               Variance
Revenues                                                       $     658,874           $ 514,516                    28    %
Construction and land costs                                         (507,465)           (421,055)                  (21)
Selling, general and administrative expenses                         (41,508)            (35,258)                  (18)
Operating income                                               $     109,901           $  58,203                    89    %

Homes delivered                                                          914                 884                     3    %
Average selling price                                          $     720,900           $ 582,000                    24    %
Operating income as a percentage of revenues                            16.7   %            11.3  %                540  bps


This segment's revenues grew year over year due to increases in both the number of homes delivered and the average selling price of those homes. The higher average selling price of homes delivered reflected strong housing market conditions and product and geographic mix shifts of homes delivered.



Operating income grew from the year-earlier period, reflecting higher housing
gross profits, partly offset by higher selling, general and administrative
expenses. As a percentage of revenues, operating income increased from the
year-earlier quarter, primarily due to a 480 basis-point expansion in the
housing gross profit margin to 23.0% and a 60 basis-point improvement in
selling, general and administrative expenses as a percentage of housing revenues
to 6.3%. The higher housing gross profit margin was largely driven by a
favorable pricing environment and lower relative amortization of previously
capitalized interest. In addition, this segment had no inventory-related charges
in the 2022 first quarter, compared to $3.8 million of such charges in the
year-earlier period. The improvement in selling, general and administrative
expenses as a percentage of housing revenues mainly reflected increased
operating leverage from higher housing revenues, partly offset by higher
expenses incurred to support current operations and expected growth.

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

Three Months Ended February 28,


                                                                     2022                  2021               Variance
Revenues                                                       $     209,767           $ 187,685                    12    %
Construction and land costs                                         (156,428)           (138,681)                  (13)
Selling, general and administrative expenses                         (17,324)            (15,825)                   (9)
Operating income                                               $      36,015           $  33,179                     9    %

Homes delivered                                                          516                 534                    (3)   %
Average selling price                                          $     406,500           $ 351,500                    16    %
Operating income as a percentage of revenues                            17.2   %            17.7  %                (50) bps


                                       28
--------------------------------------------------------------------------------

The year-over-year growth in this segment's revenues reflected an increase in
the average selling price of homes delivered, partly offset by a slight decrease
in the number of homes delivered. The higher average selling price reflected
strong housing market conditions and a shift in product and geographic mix of
homes delivered.

Operating income increased from the corresponding 2021 period, primarily due to
higher housing gross profits, partially offset by higher selling, general and
administrative expenses. As a percentage of revenues, operating income for the
three-month period ended February 28, 2022 decreased from the year-earlier
period largely due to a 70 basis-point decline in the housing gross profit
margin to 25.4%, partly offset by a 20 basis-point improvement in selling,
general and administrative expenses as a percentage of housing revenues to 8.2%.

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

Three Months Ended February 28,


                                                                     2022                  2021               Variance
Revenues                                                       $     355,322           $ 309,708                    15    %
Construction and land costs                                         (284,860)           (238,951)                  (19)
Selling, general and administrative expenses                         (32,346)            (29,765)                   (9)
Operating income                                               $      38,116           $  40,992                    (7)   %

Homes delivered                                                          953               1,011                    (6)   %
Average selling price                                          $     372,800           $ 306,300                    22    %
Operating income margin as a percentage of revenues                     10.7   %            13.2  %               (250) bps


This segment's revenues grew from the corresponding year-earlier period due to
an increase in the average selling price of homes delivered, partly offset by a
decrease in the number of homes delivered. The higher average selling price
reflected strong housing market conditions and shifts in the product and
geographic mix of homes delivered.

Operating income decreased from the corresponding year-earlier period mainly due
to higher selling, general and administrative expenses. For the three months
ended February 28, 2022, the decrease in this segment's operating income as a
percentage of revenues primarily reflected a 300 basis-point decrease in the
housing gross profit margin to 19.8%, partly offset by a 50 basis-point decrease
in selling, general and administrative expenses as a percentage of housing
revenues to 9.1%. The decline in the housing gross profit margin was largely due
to higher construction and land costs and increased expenses to support current
operations and expected growth, partly offset by lower relative amortization of
capitalized interest. The improvement in selling, general and administrative
expenses as a percentage of housing revenues mainly reflected increased
operating leverage from higher housing revenues.

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

Three Months Ended February 28,


                                                                     2022                  2021               Variance
Revenues                                                       $     170,191           $ 126,099                    35    %
Construction and land costs                                         (132,230)           (101,233)                  (31)
Selling, general and administrative expenses                         (17,695)            (12,752)                  (39)
Operating income                                               $      20,266           $  12,114                    67    %

Homes delivered                                                          485                 435                    11    %
Average selling price                                          $     350,900           $ 288,400                    22    %
Operating income as a percentage of revenues                            11.9   %             9.6  %                230  bps


This segment's revenues for the three months ended February 28, 2022 were generated solely from housing operations. For the three months ended February 28, 2021 revenues were generated from both housing operations and nominal land sales. Housing revenues for 2022 first quarter increased 36% year over year from $125.4 million. The housing revenue expansion resulted


                                       29
--------------------------------------------------------------------------------

from growth in the number of homes delivered and an increase in the overall average selling price of those homes, which reflected strong housing market conditions and shifts in the product and geographic mix of homes delivered.



Operating income increased from the corresponding year-earlier period,
reflecting higher housing gross profits, partly offset by higher selling,
general and administrative expenses. As a percentage of revenues, operating
income for the 2022 first quarter rose from the year-earlier period due to a 240
basis-point increase in the housing gross profit margin to 22.3% that mainly
reflected a shift in geographic mix, lower relative amortization of previously
capitalized interest and reduced sales incentives. Selling, general and
administrative expenses as a percentage of housing revenues increased 20 basis
points from the year-earlier period to 10.4%.

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,


                                                                               2022                    2021
Revenues                                                                $        4,635            $    3,730
Expenses                                                                        (1,347)               (1,200)
Equity in income of unconsolidated joint venture                                 5,148                 5,970
Pretax income                                                           $        8,436            $    8,500

Total originations (a):
Loans                                                                            1,783                 2,072
Principal                                                               $      691,933            $  710,924
Percentage of homebuyers using KBHS                                                 71    %               79   %
Average FICO score                                                                 732                   724

Loans sold (a):
Loans sold to Stearns/GR Alliance                                                1,527                 1,554
Principal                                                               $      595,959            $  523,905
Loans sold to third parties                                                        352                   436
Principal                                                               $      112,192            $  144,387

(a)Loan originations and sales occurred within KBHS.



Revenues. Financial services revenues for the three months ended February 28,
2022 grew from the corresponding period of 2021 due to increases in both title
services revenues and insurance commissions.

Pretax income. Financial services pretax income for the three months ended
February 28, 2022 was essentially even with the year-earlier period, as a
decrease in our equity in income of unconsolidated joint ventures was offset by
an increase in income from title services and insurance commissions. In the 2022
first quarter, the equity in income of our unconsolidated joint venture, KBHS,
decreased 14% year over year due to a lower principal amount of loan
originations combined with lower margins, reflecting increased competition in
the primary mortgage market, partly offset by an increase in the fair value of
interest rate lock commitments. The lower principal amount of loan originations
was mainly due to a decrease in the percentage of homebuyers using KBHS, partly
offset by a 22% increase in the average selling price of homes delivered.

INCOME TAXES

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



                                        Three Months Ended February 28,
                                       2022                            2021
           Income tax expense   $        43,800                     $ 26,500
           Effective tax rate              24.6   %                     21.4  %


                                       30

--------------------------------------------------------------------------------

Our effective tax rate for the three months ended February 28, 2022 increased
from the year-earlier period, mainly due to a $2.5 million decrease in the
federal tax credits we earned primarily from building energy-efficient homes,
reflecting the expiration of these credits for homes delivered after December
31, 2021. Also contributing to the higher effective tax rate were a $1.3 million
decrease in excess tax benefits related to stock-based compensation, and an
increase of $.3 million in non-deductible executive compensation expense.

In June 2020, California enacted tax legislation that approved the suspension of
California NOL deductions for tax years 2020, 2021 and 2022. On February 9,
2022, California enacted legislation restoring the NOL deduction for tax years
beginning on or after January 1, 2022, which would be effective for our 2023
fiscal year. Although the suspension of California NOL deductions did not have
an impact on our income tax expense for the three months ended February 28,
2022, it contributed to the year-over-year increase in the amount of taxes we
paid in the period.

Further information regarding our income taxes is provided in Note 13 - Income Taxes in the Notes to Consolidated Financial Statements in this report.

NON-GAAP FINANCIAL MEASURES



This report contains information about our adjusted housing gross profit margin,
which is not calculated in accordance with GAAP. We believe this non-GAAP
financial measure is 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 it is not calculated in
accordance with GAAP, this non-GAAP financial measure 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, this non-GAAP financial measure
should be used to supplement the most directly comparable GAAP financial measure
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,


                                                                                  2022                    2021
Housing revenues                                                           $     1,394,154           $ 1,137,353
Housing construction and land costs                                             (1,082,112)             (901,178)
Housing gross profits                                                              312,042               236,175
Add: Inventory-related charges (a)                                                     175                 4,064
Adjusted housing gross profits                                             $       312,217           $   240,239

Housing gross profit margin as a percentage of housing revenues                       22.4   %              20.8  %

Adjusted housing gross profit margin as a percentage of housing revenues

           22.4   %              21.1  %


(a) Represents inventory impairment and land option contract abandonment charges 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 housing inventory impairment and land option contract abandonment
charges (as applicable) recorded during a given period, by housing revenues. The
most directly comparable GAAP financial measure is housing gross profit margin.
We believe adjusted housing gross profit margin is a relevant and useful
financial measure to investors in evaluating our performance as it measures the
gross profits we generated specifically on the homes delivered during a given
period. This non-GAAP financial measure isolates the impact that the housing
inventory impairment and land option contract abandonment charges 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. This financial measure assists us in
making strategic decisions regarding community location and product mix, product
pricing and construction pace.
                                       31
--------------------------------------------------------------------------------

                        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.

We ended the 2022 first quarter with total liquidity of $1.07 billion, including
cash and cash equivalents and $831.4 million of available capacity under the
Credit Facility. Based on our financial position as of February 28, 2022, and
our generally positive business forecast for the remainder of 2022 as discussed
below under "Outlook," we have no material concerns related to our liquidity.
While the ongoing COVID-19 pandemic creates potential liquidity risks, as
discussed further below, we believe that our existing cash and cash equivalents,
our anticipated cash flows from operations and amounts available under our
Credit Facility will be sufficient to fund our anticipated operating and
land-related investment needs for at least the next 12 months.

Cash Requirements. There have been no significant changes in our cash
requirements from those reported in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our Annual Report on
Form 10-K for the year ended November 30, 2021.

Investments in Land and Land Development. Our investments in land and land
development increased 27% to $704.7 million for the three months ended
February 28, 2022, compared to $556.0 million for the year-earlier period.
Approximately 52% of our total investments for the three months ended
February 28, 2022 related to land acquisition, compared to approximately 49% in
the prior-year period. While we made strategic investments in land and land
development in each of our homebuilding reporting segments during the three
months ended February 28, 2022 and 2021, approximately 57% and 53%,
respectively, of these investments for each period were made in our West Coast
homebuilding reporting segment. Our investments in land and land development in
the future will depend significantly on market conditions and available
opportunities that meet our investment return standards to support home delivery
and revenue growth in the remainder of 2022 and beyond.

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):



                    February 28, 2022             November 30, 2021                Variance
Segment           Lots             $            Lots             $            Lots           $
West Coast       24,142      $ 2,473,942       23,539      $ 2,300,096         603      $ 173,846
Southwest        12,279          925,913       12,339          875,438         (60)        50,475
Central          29,439        1,102,216       28,961          995,811         478        106,405
Southeast        22,352          695,762       21,929          631,484         423         64,278
Total            88,212      $ 5,197,833       86,768      $ 4,802,829       1,444      $ 395,004


The number and carrying value of lots we owned or controlled under land option
contracts and other similar contracts at February 28, 2022 increased from
November 30, 2021, primarily due to our investments in land and land development
in the three months ended February 28, 2022 and an increase in the number of
homes under construction. The number of lots in inventory as of February 28,
2022 included 11,365 lots under contract where the associated deposits were
refundable at our discretion, compared to 10,254 of such lots at November 30,
2021. Our lots controlled under land option contracts and other similar
contracts as a percentage of total lots was 42% at February 28, 2022, compared
to 44% at November 30, 2021. Generally, this percentage fluctuates with our
decisions to control (or abandon) lots under land option contracts and other
similar contracts or to purchase (or sell owned) lots based on available
opportunities and our investment return standards.
                                       32
--------------------------------------------------------------------------------

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, 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 the land we had under land option contracts
and other similar contracts at February 28, 2022, we estimate the remaining
purchase price to be paid would be as follows: 2022 - $1.06 billion; 2023 -
$449.9 million; 2024 - $66.2 million; 2025 - $79.7 million; 2026 - $15.0
million; and thereafter - $0.

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

February 28, November 30,


                                                                          2022                  2021
Total cash and cash equivalents                                      $    240,688          $    290,764
Credit Facility commitment                                              1,090,000               800,000
Borrowings outstanding under the Credit Facility                         (250,000)                    -
Letters of credit outstanding under the Credit Facility                    (8,618)               (8,618)
Credit Facility availability                                              831,382               791,382
Total liquidity                                                      $  1,072,070          $  1,082,146

The majority of our cash equivalents at February 28, 2022 and November 30, 2021 were invested in interest-bearing bank deposit accounts.



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

                                                  February 28,          November 30,
                                                      2022                  2021               Variance
Credit Facility                                  $    250,000          $          -          $  250,000
Mortgages and land contracts due to land sellers
and other loans                                         4,927                 5,327                (400)
Senior notes                                        1,680,021             1,679,700                 321
Total                                            $  1,934,948          $  1,685,027          $  249,921


Our financial leverage, as measured by the ratio of debt to capital, was 38.2%
at February 28, 2022, compared to 35.8% at November 30, 2021. The ratio of debt
to capital is calculated by dividing notes payable by capital (notes payable
plus stockholders' equity).

LOC Facility. We maintain an LOC Facility to obtain letters of credit from time
to time in the ordinary course of operating our business. Under the LOC
Facility, which expires on February 13, 2025, we may issue up to $75.0 million
of letters of credit. As of February 28, 2022 and November 30, 2021, we had
letters of credit outstanding under the LOC Facility of $36.7 million and $34.6
million, respectively.

Performance Bonds. As discussed in Note 16 - Commitments and Contingencies in
the Notes to Consolidated Financial Statements in this report, we had $1.15
billion and $1.11 billion of performance bonds outstanding at February 28, 2022
and November 30, 2021, respectively.

Unsecured Revolving Credit Facility. On February 18, 2022, we entered into an
amendment to our Credit Facility that increased its borrowing capacity from
$800.0 million to $1.09 billion and extended its maturity from October 7, 2023
to February 18, 2027. The Credit Facility contains an uncommitted accordion
feature under which its aggregate principal amount of available loans can be
increased to a maximum of $1.29 billion under certain conditions, including
obtaining additional bank commitments. The amount of the Credit Facility
available for cash borrowings and the issuance of letters of credit depends on
the total cash borrowings and letters of credit outstanding under the Credit
Facility and the maximum available amount under the terms of the Credit
Facility. As of February 28, 2022, we had $250.0 million of cash borrowings and
$8.6 million of letters
                                       33
--------------------------------------------------------------------------------

of credit outstanding under the Credit Facility, with the outstanding borrowings
reflecting a focus to operate with a more efficient cash balance as we continue
to drive returns-focused growth. The Credit Facility is further described in
Note 14 - Notes Payable in the Notes to Consolidated Financial Statements in
this report.

Under the terms of the Credit Facility, we are required, among other things, to
maintain compliance with various covenants, including financial covenants
regarding our consolidated tangible net worth, Leverage Ratio, and either an
Interest Coverage Ratio or minimum liquidity level, each as defined therein. Our
compliance with these financial covenants is measured by calculations and
metrics that are specifically defined or described by the terms of the Credit
Facility and can differ in certain respects from comparable GAAP or other
commonly used terms. The financial covenant requirements under the Credit
Facility, as amended, are set forth below:

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

•Leverage Ratio - We must also maintain a Leverage Ratio of less than or equal
to .60 at the end of each fiscal quarter. The Leverage Ratio is calculated as
the ratio of our consolidated total indebtedness to the sum of consolidated
total indebtedness and consolidated tangible net worth, all as defined under the
Credit Facility.

•Interest Coverage Ratio or Liquidity - We are also required to maintain either
(a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of
each fiscal quarter; or (b) a minimum level of liquidity, but not both. The
Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to
consolidated interest incurred, each as defined under the Credit Facility, in
each case for the previous 12 months. Our minimum liquidity is required to be
greater than or equal to consolidated interest incurred, as defined under the
Credit Facility, for the four most recently ended fiscal quarters in the
aggregate.

In addition, under the Credit Facility, our investments in joint ventures and
non-guarantor subsidiaries (which are shown, respectively, in Note 9 -
Investments in Unconsolidated Joint Ventures in the Notes to Consolidated
Financial Statements in this report and under "Supplemental Guarantor Financial
Information" below) as of the end of each fiscal quarter cannot exceed the sum
of (a) $104.8 million and (b) 20% of consolidated tangible net worth. Further,
for so long as we do not hold an investment grade rating, as defined under the
Credit Facility, the Credit Facility does not permit our borrowing base
indebtedness, which generally is the aggregate principal amount of our and
certain of our subsidiaries' outstanding indebtedness for borrowed money and
non-collateralized financial letters of credit, to be greater than our borrowing
base (a measure relating to our inventory and unrestricted cash assets).

The covenants and other requirements under the Credit Facility 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 February 28, 2022:
Financial Covenants and Other Requirements                               Covenant Requirement                      Actual
Consolidated tangible net worth                                         >$2.16 billion               $3.10 billion
Leverage Ratio                                                          <                .600                       .386
Interest Coverage Ratio (a)                                             >               1.500                       8.009
Minimum liquidity (a)                                                   >$117.3 million             $(9.3) million
Investments in joint ventures and non-guarantor
subsidiaries                                                            <           $724.4 million             $237.4 million
Borrowing base in excess of borrowing base indebtedness
(as defined)                                                                             n/a                    $2.16 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.



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.
                                       34
--------------------------------------------------------------------------------

As of February 28, 2022, we were in compliance with the applicable terms of all
of our covenants and other requirements under the Credit Facility, the senior
notes, the indenture, and the mortgages and land contracts due to land sellers
and other loans. Our ability to access the Credit Facility for cash borrowings
and letters of credit and our ability to secure future debt financing depend, in
part, on our ability to remain in such compliance. There are no agreements that
restrict our payment of dividends other than the Credit Facility, which would
restrict our payment of certain dividends, such as cash dividends on our common
stock, if a default under the Credit Facility exists at the time of any such
payment, or if any such payment would result in such a default (other than
dividends paid within 60 days after declaration, if there was no default at the
time of declaration).

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 February 28, 2022, we had outstanding mortgages and land
contracts due to land sellers and other loans payable in connection with such
financing of $4.9 million, secured primarily by the underlying property, which
had an aggregate carrying value of $18.5 million.

Credit Ratings. Our credit ratings are periodically reviewed by rating agencies.
In January 2022, Standard and Poor's Financial Services reaffirmed our BB credit
rating and changed its rating outlook to positive from stable.

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

                                                   Three Months Ended February 28,
                                                        2022                     2021
Net cash provided by (used in):
Operating activities                        $       (251,035)                $  (79,265)
Investing activities                                 (17,876)                   (11,723)
Financing activities                                 219,512                    (20,582)
Net decrease in cash and cash equivalents   $        (49,399)

$ (111,570)




Operating Activities. Generally, our net operating cash flows fluctuate
primarily based on changes in our inventories and our profitability. Our net
cash used in operating activities for the three months ended February 28, 2022
mainly reflected a net increase in inventories of $405.9 million and a net
increase in receivables of $8.6 million, partly offset by net income of $134.3
million and a net increase in accounts payable, accrued expenses and other
liabilities of $2.1 million. In the three months ended February 28, 2021, our
net cash used in operating activities mainly reflected a net increase in
inventories of $229.1 million and a net decrease in accounts payable, accrued
expenses and other liabilities of $10.1 million, partially offset by net income
of $97.1 million and a net decrease in receivables of $23.3 million.

Investing Activities. In the three months ended February 28, 2022, our uses of
cash included $10.6 million for net purchases of property and equipment and $8.6
million for contributions to unconsolidated joint ventures. These uses of cash
were partially offset by a $1.3 million return of investments in unconsolidated
joint ventures. In the three months ended February 28, 2021, the net cash used
for investing activities reflected $9.1 million for net purchases of property
and equipment and $2.6 million for contributions to unconsolidated joint
ventures.

Financing Activities. In the three months ended February 28, 2022, cash was
provided by net borrowings under the Credit Facility of $250.0 million.
Partially offsetting the cash provided were $14.1 million of dividend payments
on our common stock, $12.2 million of tax payments associated with stock-based
compensation awards, $3.8 million of costs incurred for the Credit Facility
amendment and $.4 million of payments on mortgages and land contracts due to
land sellers and other loans. In the three months ended February 28, 2021, net
cash was used for dividend payments on our common stock of $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
$.6 million. The cash used was partially offset by $2.5 million of issuances of
common stock under employee stock plans.

Dividends. In the three-month periods ended February 28, 2022 and 2021, our
board of directors declared, and we paid, a quarterly cash dividend on our
common stock of $.15 per share. 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.
                                       35
--------------------------------------------------------------------------------

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. For the remainder of 2022,
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. 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 and international and domestic
COVID-19 control responses, including in China, as well as the ongoing global
supply chain disruptions, which may be exacerbated by the military conflict in
Ukraine and the associated wide-ranging sanctions imposed on Russian business
sectors, financial organizations, individuals and raw materials, each of 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 in the
"Risk Factors" section of our Annual Report on Form 10-K for the year ended
November 30, 2021.

                  Supplemental Guarantor Financial Information

As of February 28, 2022, we had $1.69 billion in aggregate principal amount of
outstanding senior notes and $250.0 million of borrowings outstanding under the
Credit Facility. Our obligations to pay principal, premium, if any, and interest
on the senior notes and borrowings, if any, under the Credit Facility are
guaranteed on a joint and several basis by certain of our subsidiaries
("Guarantor Subsidiaries"). 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 14
- 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,       November 30,
Summarized Balance Sheet Data (in thousands)            2022               2021
Assets
Cash                                               $     209,674      $     250,118
Inventories                                            4,774,770          4,425,531
Amounts due from Non-Guarantor Subsidiaries              372,975            323,549
Total assets                                           5,948,818          5,581,883


                                       36

--------------------------------------------------------------------------------

                                                    February 28,      November 30,
Summarized Balance Sheet Data (in thousands)            2022              

2021


Liabilities and Stockholders' Equity
Notes payable                                      $  1,932,438      $  

1,682,517


Amounts due to Non-Guarantor Subsidiaries               266,401           254,717
Total liabilities                                     3,013,568         2,755,817
Stockholders' equity                                  2,935,250         2,826,066


                                                             Three Months Ended
Summarized Statement of Operations Data (in thousands)        February 28, 2022
Revenues                                                    $         1,316,340
Construction and land costs                                          (1,015,252)
Selling, general and administrative expenses                           

(137,085)


Interest income from non-guarantor subsidiary                             5,881
Pretax income                                                           169,920
Net income                                                              127,820


                          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 three months ended February 28, 2022 from
those disclosed in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of our Annual Report on Form 10-K
for the year ended November 30, 2021.

                        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 believe several long-term housing market fundamental factors will remain
positive in 2022, including favorable demographics, a housing supply-demand
imbalance resulting from a decade-plus underproduction of new homes in relation
to population growth, a limited supply of resale homes available for sale, and
steady employment and job growth. We believe our highly customer-centric,
personalized approach to homebuilding and operational capabilities will enable
us to address evolving buyer preferences and needs and, together with an
expected year-over-year increase in our community count, drive further growth in
our results in 2022, subject to business conditions and other factors described
in this report, including the risks described below. Our present outlook for the
2022 second quarter and full year is as follows:

2022 Second Quarter



•We expect to generate housing revenues in the range of $1.55 billion to $1.65
billion, an increase from $1.44 billion in the corresponding 2021 period, and
anticipate our average selling price to be approximately $490,000, compared to
$409,800 in the year-earlier period.

•We expect our homebuilding operating income margin will be in the range of
14.3% to 14.7%, assuming no inventory-related charges, up from 11.4% for the
year-earlier quarter.

•We expect our housing gross profit margin to be in the range of 24.4% to 25.0%,
assuming no inventory-related charges, compared to 21.5% for the corresponding
2021 quarter.

•We expect our selling, general and administrative expenses as a percentage of
housing revenues to be in the range of 10.0% to 10.5%, compared to 10.1% in the
2021 second quarter.
                                       37
--------------------------------------------------------------------------------

•We expect our effective tax rate will be approximately 25%. The effective tax
rate for the year-earlier quarter was approximately 17%, reflecting the
favorable effect of then-available federal tax credits we earned primarily from
building energy-efficient homes.

•We expect a small sequential increase in our ending community count, and a low-to-mid single-digit percentage increase year over year in our average community count.

2022 Full Year



•We expect our housing revenues to be in the range of $7.20 billion to $7.60
billion, an increase of 30% at the mid-point of the range, from $5.69 billion in
2021, and anticipate our average selling price to be in the range of $490,000 to
$500,000, an increase of between 16% and 18% from 2021.

•We expect our homebuilding operating income margin to be in the range of 16.0% to 16.6%, assuming no inventory-related charges, compared to 11.8% for 2021.



•We expect our housing gross profit margin to be in the range of 25.5% to 26.3%,
assuming no inventory-related charges, compared to 21.8% for 2021, reflecting
sequential expansion beginning in the second quarter.

•We expect our selling, general and administrative expenses as a percentage of
housing revenues to be in the range of 9.2% to 9.8%, compared to 10.1% in the
prior year.

•We expect the effective tax rate will be approximately 25%. The effective tax
rate for 2021 was approximately 19%, which reflected the favorable effect of
then-available federal tax credits we earned primarily from building
energy-efficient homes.

•We expect our ending community count to be approximately 255.

•We expect our return on equity to be in excess of 27%, an improvement of more than 700 basis points compared to 19.9% for 2021.



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

However, our future performance and the strategies we implement (and adjust or
refine as necessary or appropriate) will depend significantly on prevailing
economic, homebuilding industry and capital, credit and financial market
conditions and on a fairly stable and constructive political and regulatory
environment (particularly regarding housing and mortgage loan financing
policies). In particular, we and other residential construction firms continue
to experience services and supply constraints and rising and volatile raw
material prices, particularly for lumber, that were exacerbated in the 2022
first quarter by a resurgence of COVID-19 infections with the Omicron variant.
Although we continue to work with our suppliers and trade partners to resolve
these land development and home construction issues, we believe they will
generally persist throughout the year. Ongoing supply chain disruptions and
other production-related challenges described above under "Overview," which may
worsen in the coming periods due to the military conflict in Ukraine and the
associated wide-ranging sanctions imposed on Russian business sectors, financial
organizations, individuals and raw materials, could further extend our
construction cycle times, delay our new community openings and intensify
construction-related cost pressures beyond our experience in the 2022 first
quarter or in 2021. In addition, consumer demand for our homes and our ability
to grow our scale, revenues, net orders, backlog and returns in 2022 could be
materially and negatively affected by persistent inflation in the U.S. economy
and the Federal Reserve's raising of the federal funds interest rate and other
actions to moderate inflation, the severity of the ongoing COVID-19 pandemic and
related international and domestic COVID-19 control responses, including in
China, and/or other factors that cause mortgage loan interest rates to increase
or that temper mortgage loan availability, employment or income levels or
consumer confidence in the U.S. or in our served markets. The potential effect
of these factors on our business is highly uncertain, unpredictable and outside
our control, and our past performance should not be considered indicative of our
future results on any metric or set of metrics.

                           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-
                                       38
--------------------------------------------------------------------------------

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;

•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 securities repurchases pursuant to our board of directors' authorization;

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

•consumer and producer price inflation;

•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 any such failure;

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

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


                                       39
--------------------------------------------------------------------------------

•disruptions in world and regional trade flows, economic activity and supply
chains due to the military conflict in Ukraine, including those stemming from
wide-ranging sanctions the U.S. and other countries have imposed or may further
impose on Russian business sectors, financial organizations, individuals and raw
materials, the impact of which may, among other things, increase our operational
costs, exacerbate building materials and appliance shortages and/or reduce our
revenues and earnings;

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

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

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



•our ability to successfully implement our business strategies and achieve any
associated financial and operational targets and objectives, including those
discussed in this report or in any of our 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 (including
China), federal, state and local governments, agencies, law enforcement and/or
health authorities implement to address it, which may (as with COVID-19)
precipitate or exacerbate one or more of the above-mentioned and/or other risks,
and significantly disrupt or prevent us from operating our business in the
ordinary course for an extended period; and

•other events outside of our control.



Please see our Annual Report on Form 10-K for the year ended November 30, 2021
and other filings with the SEC for a further discussion of these and other risks
and uncertainties applicable to our business.

© Edgar Online, source Glimpses