In ourthe opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals)adjustments) necessary to present fairly our consolidated financial position as of February 29, 2020,28, 2021, the results of our consolidated operations for the three months ended February 29, 202028, 2021 and February 28, 2019,29, 2020, and our consolidated cash flows for the three months ended February 29, 202028, 2021 and February 28, 2019.29, 2020. The results of our consolidated operations for the three months ended February 29, 202028, 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, 20192020 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.

We have identified 5 operating reporting segments, comprised of 4 homebuilding reporting segments and 1 financial services reporting segment. As of February 29, 2020,28, 2021, our homebuilding reporting segments conducted ongoing operations in the following states:states to the extent permitted by applicable public health orders as part of their respective 2019 coronavirus disease (“COVID-19”) control responses:

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.

For the three months ended February 28, 2021 and February 29, 2020, 0 outstanding stock options were excluded from the diluted earnings per share calculation. For the three-month period ended February 28, 2019, outstanding stock options to purchase .8 million shares of our common stock were excluded from the diluted earnings per share calculation because the effect of their inclusion would be antidilutive. The diluted earnings per share calculation for the three months ended February 28, 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.

Receivables consisted of the following (in thousands):

(a)    Land under development included land held for future development and land held for sale totaled $21.3of $51.9 million and $.6 million, respectively, at February 29, 202028, 2021 and $19.3$74.0 million and $1.3 million, respectively, at November 30, 2019.2020.

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

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.

We evaluated 138 and 1811 communities or land parcels for recoverability at February 29, 2020 andas of February 28, 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.2021 and November 30, 2020, respectively. The carrying values of thethose communities or land parcels evaluated were $116.3 million at February 29, 2020 and $96.2 million atas of February 28, 2019.2021 and November 30, 2020 were $96.1 million and $123.4 million, respectively. In addition, we evaluated land held for future development for recoverability as of February 28, 2021 and November 30, 2020.

Based on the results of our evaluations, we recognized inventory impairment charges of $3.6 million for the three months ended February 28, 2021 and $5.1 million for the three months ended February 29, 2020 and $3.2 million for the three months ended February 28, 2019.2020. The impairment charges for the three months ended February 29, 202028, 2021 and February 28, 201929, 2020 reflected our decisions to make changes in our operational

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:

As of February 29,28, 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 $106.5$113.1 million, representing 18 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 1916 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 February 28, 2021 and $.6 million for the three months ended February 29, 2020 and $.4 million for the three months ended February 28, 2019.2020.

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

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):

The higherlower combined revenues and income for the three months ended February 29, 2020,28, 2021, as compared to the year-earlier period, mainly reflected a decrease in the number of homes delivered from an unconsolidated joint venture in California. In the three months ended February 28, 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):

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

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 our calculationsthe expected term of the lease right-of-use assets and lease liabilities untilunless 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 February 29, 202028, 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

For the three months ended February 28, 2021, our total lease expense was $4.3 million, which included short-term lease costs of $1.3 million. For the three months ended February 29, 2020, our total lease expense was $5.0 million, which included short-term lease costs of $2.1 million. Variable lease costs and external sublease income for the three months ended February 28, 2021 and February 29, 2020 were immaterial.

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

The following table presents additional information about our leases for the three months ended February 29, 2020 (dollars in(in thousands):

Our income tax expense and effective tax rate for the three months ended February 28, 2021 reflected the favorable impacts of $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 $1.4 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 February 29, 2020 includedreflected the favorable effectsimpacts of $5.6 million of excess tax benefits related to stock-based compensation and $4.0 million of federal energy tax credits that we earned from building energy-efficient homes. Our income tax expense and effective tax rate for the three months ended February 28, 2019 included the favorable impacts of a $3.3 million reversal of a deferred tax asset valuation allowance related to refundable alternative minimum tax credits and $2.0 million of excess tax benefits related to stock-based compensation, which werehomes, partly offset by $.8$1.0 million of other items.

The federal energy tax credits for the three months ended February 29, 202028, 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.

Our deferred tax assets of $331.4$233.1 million as of February 29, 202028, 2021 and $383.7$249.1 million as of November 30, 20192020 were both partly offset by valuation allowances of $19.2$18.0 million. Our deferred tax assets as of February 29, 2020 reflected the reclassification of $43.3 million of alternative minimum tax credits from deferred tax assets to receivables due to the filing of our 2019 federal income tax return claiming a refund of these credits. The deferred tax asset valuation allowances as of February 29, 202028, 2021 and November 30, 20192020 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of February 29, 2020,28, 2021, we determined that most of our deferred tax assets would be realized. Therefore, 0 adjustments to our deferred tax valuation allowance were needed for the three months ended February 29, 2020.28, 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.

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs premiums and discounts,premiums, which totaled $8.7$7.1 million at February 29, 202028, 2021 and $9.1$7.5 million at November 30, 2019.2020.

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 containsour senior notes contain certain limitations related to mergers, consolidations, and sales of assets.

As of February 29, 2020,28, 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 February 29, 2020,28, 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 – $7.9 million; 2021 – $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.

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