KB HOME (KBH) Business

Item 1.BUSINESS

General

KB Home is one of the largest and most trusted homebuilders in the U.S.  We have been building homes for nearly 70

years, with over 700,000 homes built since our founding in 1957.  We build a variety of new homes, including attached and

detached single-family residential homes, townhomes and condominiums, designed primarily for first-time and first move-up,

as well as second move-up and active adult, homebuyers.  We offer homes in development communities, at urban in-fill

locations and as part of mixed-use projects.  Our homebuilding operations represent the majority of our business, accounting for

99.6% of our total revenues in 2025.  Our financial services operations, which accounted for the remaining .4% of our total

revenues in 2025, offer various insurance products to our homebuyers in the markets where we build homes and provide title

services in certain of those markets.  Our financial services operations also provide 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 between us and a third party.

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

corporation, and its predecessors and subsidiaries.  We also use the following terms in our business with the corresponding

meanings: “home” is a single-family residence, whether it is a single-family home or other type of residential property; “homes

delivered” are homes for which the sale has closed and title has passed to a customer; “community” is a single development in

which new homes are constructed as part of an integrated plan; “community count” is the number of communities we have open

for sales with at least five homes/lots left to sell; and “product” encompasses a home’s floor plan design and interior/exterior

style, amenities, functions and features.

The following charts present homebuilding revenues, net income and diluted earnings per share for the years ended

November 30, 2021, 2023 and 2025, and book value per share as of November 30, 2021, 2023 and 2025:

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Markets

Reflecting the geographic scale of our homebuilding business, we have operations in the nine states and 49 major markets

presented below.  We also operate in various submarkets within these major markets.  We may refer to these markets and

submarkets collectively as our “served markets.”  For reporting purposes, we organize our homebuilding operations into four

segments — West Coast, Southwest, Central and Southeast.

In 2025, we announced our reentry into the Atlanta, Georgia market.  However, as of November 30, 2025, we had not

acquired land or commenced selling homes in that market.

Business Strategy

Overview.  Our core business strategy, which we refer to as KB Edge, is to expand our operations primarily within our

current geographic footprint to achieve a top-five position in each of our served markets (based on homes delivered).  KB Edge

is a systematic, fact-based and process-driven approach to homebuilding that is grounded in gaining a detailed understanding of

consumers’ location and product preferences and product price-to-value perceptions.

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KB Edge consists of the following key principles with respect to customers, land, products and production:

•Customers.  With our Built to Order® homebuying process, we provide each of our homebuyers with a highly

personalized experience where they can make a wide range of structural and design choices for their future new home,

as discussed further below under “Customer Obsession.”  We believe this highly interactive, “customer-first”

experience that puts our homebuyers firmly in control of designing the home they want based on what they value and

how they want to live, at a price they can afford, gives us a meaningful and distinct competitive advantage over other

homebuilders and resale and rental homes.  In addition, we find our homebuyers build a strong emotional attachment

to our products when they create a personalized home with the features and finishes they select.

•Land.  We seek to manage our working capital and reduce our operating risks by primarily acquiring entitled land

parcels within attractive submarkets identified by our market research.  We typically focus on metropolitan areas with

favorable long-term economic and population growth prospects, and target land parcels that meet our investment

return standards.  We focus on investments that provide a one- to three-year supply of land or lots per product line, per

community, and individual assets that are generally between 50 to 250 lots in size.  Our land investment is sensitive to

and will shift with local or national housing market environments or broader economic conditions, generally increasing

when we are experiencing or expecting strong growth and decreasing when we are experiencing or expecting slower

growth.  We leverage the relationships we have with landowners, developers and brokers to find and acquire land

parcels, and use our experience in working with municipalities to efficiently obtain development approvals.

•Products.  We offer our customers a variety of homes with a standardized set of functions and features generally priced

to be affordable for those with household incomes within a range of the local area’s median level, with the goal of

being attainable for the largest demand segments. Additionally, since mid-February 2025, we have implemented a

simplified sales strategy focused on providing a straightforward, transparent base price, with limited, if any,

concessions or incentives, that is intended to offer to our customers a compelling value competitive with area resale

home prices. Moreover, unlike the constraints inherent with resale homes, and new homes offered by certain other

builders, our Built to Order approach provides our customers with the opportunity to select their lot location within a

community, floor plan, elevation and structural options, each of which may be at a premium added to a home’s selling

price, and to personalize their homes beyond our base offerings by adding numerous design options available in our

KB Home Design Studios.  Our design studios, generally centrally located within our served markets, are a key

component of our Built to Order process, with the mix of included features and design options we offer at each studio

primarily based on the preferences identified by our market survey and purchase frequency data, as discussed further

below under “Customer Obsession.”

We utilize a centralized internal architectural group that designs homes to meet or exceed customers’ price-to-value

expectations while being as cost-effective as possible to construct.  To enhance the simplicity and efficiency of our

products and processes, our architectural group has developed a core series of high-frequency, flexible floor plans and

elevations that we can offer across many of our served markets, which it periodically updates to incorporate value-

engineering enhancements, regulatory requirements and/or evolving consumer tastes.  Our library of standardized

plans, which we have streamlined to focus on those most frequently selected by our customers, facilitates our ability to

shift with local demand, which may include adding smaller square footage homes at communities to offer more

affordable choices to buyers, and/or project site attributes, such as the size and location of developable lots.  This

library also enables us to better understand in advance the cost to build our products and to compare and implement

best land development and home construction practices across divisions and communities.  We also incorporate

energy-efficient and water-saving features into our product designs to help lower our homebuyers’ total cost of

homeownership and reduce our homes’ impact on the environment.

•Production.  In addition to differentiating us from other high-production homebuilders, our Built to Order process

helps drive low-cost production.  We generally commence construction of a home only after we have a signed

purchase contract with a homebuyer and have obtained preliminary credit approval or other evidence of the

homebuyer’s financial ability to purchase the home, and seek to build a backlog of sold homes.  To help moderate

construction-related cost inflation, we, to the extent practicable, enter into fixed-price contracts with our larger trade

partners and building material suppliers for specified periods of time.  By maintaining a substantial backlog, along

with centralized scheduling and standardized reporting processes, we have established a disciplined and scalable

operational platform that helps us sustain an even-flow production of pre-sold homes.  This reduces our inventory risk,

promotes construction efficiencies, enhances our relationships with independent contractors and other business

partners, and provides us with greater visibility and predictability on future deliveries.

There have been and may in future periods be circumstances where we deviate from certain of the above principles, such as

starting construction on a certain number of homes in a community before corresponding sales contracts are signed with

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homebuyers to more quickly meet customer delivery expectations and generate revenues.  Historically, 60% to 70% of our

homes delivered are Built to Order, with the remainder consisting of homes started without a corresponding buyer and partially

constructed homes where the initial buyer cancelled their home sales contract with us.  In 2025, around 55% of our homes

delivered were Built to Order, largely reflecting strategies we adopted during the 2020-2024 period to navigate supply chain

disruptions that substantially lengthened our average build time and hindered our even-flow home production process, and

market dynamics in areas with then-low resale home inventory.  In 2026, with a more normalized supply chain and meaningful

improvement in our average build times since the 2023 second quarter, we intend to bring our mix of homes delivered closer to

our historical average.  We may also acquire land parcels in peripheral neighborhoods of a core metropolitan area that otherwise

fit our growth strategy and meet our investment return standards.

Asset Efficiency.  In implementing our KB Edge business strategy, a key focus is on enhancing asset efficiency.  We do this

by calibrating home sales rates and selling prices at each of our communities to improve profitability; focusing on controlling

direct construction costs; increasing inventory turns to the extent practical; balancing pace, price and construction starts at each

community to optimize even-flow production and our return on each inventory asset within its market context; structuring land

acquisitions to minimize upfront costs where possible, as discussed below under “Community Development and Land

Inventory Management”; and deploying excess cash flow from operations to help fuel revenue growth or reduce debt, among

other steps.

Customer Obsession.  We believe the best new homes start with the people who will live in them.  Our customer-centric

approach comes from a deep-rooted operational philosophy and company culture motivated by a paramount objective: to be the

most customer-obsessed homebuilder in the world.  Driven by this ambition, our team seeks to provide a compelling, simple

and personalized homebuying process distinguished by phenomenal customer service.  We want our customers to know they

have a real partner when buying a home with us and feel that once their home is built, they can see themselves in their new

home.  Our team members, supported through our training and development programs, are encouraged to make decisions

intended to produce the best results for our customers and our organization.  Our customer obsession mindset is built around the

following key principles:

•Find out what customers actually want.  We ascertain homebuyer product design and location preferences partly

through surveys we conduct of recent buyers of both new and resale homes across our served markets.  We also obtain

data from our own homebuyers’ selections and post-sale feedback.  We use this information on what matters most to

homebuyers when making purchase and trade-off decisions to develop and refine our product offerings, as well as our

land acquisition targets.

We also cultivate and leverage close supplier and business partner relationships to integrate into, or offer with, our

products architectural elements, building materials, construction techniques, structural and non-structural systems, and

components and devices that are aligned with the preferences identified in our surveys and other data sources.

•Offer customers choice and control.  From our synthesis of the foregoing consumer research and related activities, we

give our homebuyers a wide array of choices to craft the new home that fits their particular lifestyle and priorities,

including their homesite, floor plan, elevation and structural options.  Our homebuyers can visit our KB Home Design

Studios, where they get both advice and the opportunity to select from a broad range of included features and design

options that will help personalize their home.  When customers build a new home with us, they also enjoy choosing

exactly what they want and paying only for what matters most to them.  This helps to meet homebuyers’ priorities at

price points attainable to them.

•Create collaborative customer relationships.  In our view, we are not just selling a house.  We are in the business of

delivering an exceptional, personalized experience that enables our customers to achieve perhaps the most meaningful

purchase they will ever make and an important landmark in their life’s journey — their own home.  From this

perspective, we strive to form close relationships with our homebuyers.  We endeavor to learn key details about what

they want, their top priorities today and where they see themselves in the future, so we can co-create a home for their

day-to-day lives.  We support each person or family, whether it is their first time or they have already been

homeowners, with a dedicated community team of sales counselors, design consultants, construction superintendents,

customer service representatives, KBHS loan officers (for buyers who elect to use KBHS to finance their home

purchase) and other personnel.  This team is available to guide each homebuyer through each major step of the design,

construction and closing of their KB home and aims to make the process as easy and straightforward as possible.

•Continue to listen to customers after the sale is done.  To help learn and improve our customer experience, we

schedule follow-up visits with our customers 10 days and 30 days after they move in, as well as six, 10 and 18 months

later, to hear about their experience in their new home and to address any concerns they may have, including warranty

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claims.  Information about our KB Home 10-year Limited Warranty program is provided in Note 17 – Commitments

and Contingencies in the Notes to Consolidated Financial Statements in this report.

We believe our approach differentiates us in the homebuilding industry and, along with our company culture that sustains

it, enhances customer satisfaction.  We are proud of the high levels of satisfaction our homebuyers have reported to us and

outside survey firms.  In 2025, we continued to be one of the top-ranked national homebuilders for customer satisfaction on a

leading independent homebuilding review site, which we believe reflects the effective dedication we have to our homebuyers.

Promotional Marketing Strategy.  To emphasize the distinct combination of partnership, personalization, innovative

design, sustainability and affordability we offer to our homebuyers, as well as the importance we place on customer

satisfaction, we have centered our external brand identity and messaging around Built on Relationships®.  Built on

Relationships also encapsulates the importance of customer, as discussed above, and other key relationships – with suppliers,

trade contractors, land sellers and municipalities – to the success of our business.  The key components we highlight as part of

our brand identity include:

•Partnership. Our dedicated team of sales counselors, design consultants, construction superintendents and customer

service representatives, as well as KBHS loan officers, work closely with our customers throughout the homebuying

process.

•Personalization. We give our homebuyers the ability to personalize their new home from floor plans to exterior styles,

and from design choices to where they live in the community.  Additionally, at our KB Home Design Studios, our

homebuyers have the opportunity to select from a broad range of included features and design options.

•Innovative Design.  We believe we offer homebuyers product designs that distinctively blend contemporary consumer-

preferred elements, such as open floor plans, flexible living spaces, indoor/outdoor flow and extra storage; quality

construction standards; and advanced technological features and devices, as compared to some other new and resale

homes.

•Sustainability.  Our homes are engineered to be highly energy and water efficient, as discussed further below.

•Affordability. We offer our customers a variety of homes with a standardized set of functions and features generally

priced to be affordable for those with household incomes within a range of the local area’s median level.  In addition,

in many of our communities, we can readily introduce smaller square footage floor plans to enable more customers to

select and design a personalized home within their budget.  Our energy- and water-efficient homes can provide long-

term significant savings on utility bills, compared to typical resale homes and new homes without such features.

We typically sell our homes through salaried and/or commissioned sales associate employees from sales offices located in

or adjacent to furnished model homes in each community, or through outside brokers.  We also use electronic sales capabilities

and technology to give our customers a variety of convenient ways to shop for and purchase a new KB home, including, among

other things:

•Offering virtual 360° home tours and online photo galleries for prospective homebuyers;

•Providing access to interactive floor plans and homesite maps for their desired community, as well as the ability to

reserve a favorite homesite and floorplan;

•Conducting virtual appointments and tours of the model homes and design studios;

•Offering online tools, such as the MyKB digital portal and KB Home app, to guide buyers through the homebuying

journey from shopping to construction and ownership; and

•Presenting homebuyers with the ability to virtually see and walk through their home at various points during its

construction and prior to closing.

We market our homes to prospective homebuyers and real estate brokers through a variety of media, and use data analytics

to target our advertising and measure its effectiveness and efficiency in terms of generating leads and orders.  In recent years

and in response to the large number of millennial and Generation Z homebuyers, we have increased our emphasis on digital

marketing, through search engine marketing, online real estate listing platforms, display ads, email, social media, our website

and other evolving communication technologies.  We also use print media and advertising, and billboards in our served

markets.

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Homebuyer Profile.  Our product portfolio for customers ranges from smaller, higher density homes, with average selling

prices typically suited for first-time homebuyers, to larger homes in premium locations with additional amenities and higher

average selling prices that generally attract a first or second move-up homebuyer.  We also offer a variety of single-story

floorplans that typically appeal to an active adult homebuyer age 55 and over.  For more than a decade, first-time and first

move-up homebuyers have accounted for an average of over 75% of our annual deliveries.  The following charts present our

overall buyer profile and the percentage of homes delivered to first-time homebuyers within each homebuilding reporting

segment for the year ended November 30, 2025:

Operational Structure.  We operate our homebuilding business through divisions with experienced management teams who

have in-depth local knowledge of their particular served markets, which helps us acquire land in preferred locations; develop

communities with products that meet local demand; and understand local regulatory environments.  Our division management

teams exercise considerable autonomy in identifying land acquisition opportunities; developing land and communities;

implementing product, marketing and sales strategies; and controlling costs.  To help maintain consistent execution within the

organization, our division management teams and other employees are continuously trained on KB Edge principles and are

evaluated, in part, based on their achievement of relevant operational objectives.

Our corporate management and support personnel develop and oversee the implementation of company-wide strategic

initiatives, our overall operational policies and internal control standards, and perform various centralized functions, including

architecture; purchasing and national contracts; treasury and cash management; land acquisition approval; risk and litigation

management; accounting and financial reporting; internal audit and compliance activities; information technology (“IT”)

systems; human resources strategy; marketing; and investor and media relations.

Community Development and Land Inventory Management

Developable land for the production of homes is a core resource for our business.  Based on our current strategic plans, we

seek to own or control land sufficient to meet our forecasted production goals for the next three to five years.  In 2026, we

intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control

additional land that meets our investment return standards.  We may periodically sell certain land interests or monetize land

previously held for future development to strategically balance our land portfolio in line with local or national market

environments or for other reasons.  We may also decide not to exercise certain land option contracts and other similar contracts

due to market conditions and/or changes in our marketing strategy.

Our community development process generally consists of four phases: land acquisition, land development into finished

lots for a community (if necessary), home construction, and delivery of completed homes to homebuyers.  Historically, our

community development process has typically ranged from 10 to 24 months in our West Coast homebuilding reporting

segment, with a somewhat shorter duration in our other homebuilding reporting segments.  The development process in our

West Coast homebuilding reporting segment is typically longer than in our other segments due to the municipal and regulatory

requirements that are generally more stringent in California.  Our community development process varies based on, among

other things, the extent and speed of required government approvals and utility service activations, the overall size of a

particular community, the scope of necessary site preparation activities, the type of product(s) that will be offered, weather

conditions, time of year, promotional marketing results, the availability of construction resources, consumer demand, local and

general economic and housing market conditions, and other factors.

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Although they vary significantly in size and complexity, our single-family residential home communities typically consist

of 50 to 125 lots per product line, with lots ranging in size from 1,800 to 10,000 square feet.  In our communities, we typically

offer four to 10 home design choices.  We generally build one to three model homes at each community so that prospective

homebuyers can preview the various products available.  Depending on the community, we may offer premium lots containing

more square footage, better views and/or location benefits.  Some of our communities consist of multiple-story structures that

encompass several attached condominium-style units.

Land Acquisition and Land Development.  We continuously evaluate land acquisition opportunities against our investment

return standards, while balancing competing needs for financial strength, liquidity and land inventory for future growth.  For

example, in 2025, after opportunistically purchasing two sizable land parcels in the first quarter, we scaled back our investments

over the balance of the year in alignment with our growth projections amid softer market conditions.  When we acquire land,

we generally focus on parcels with lots that are entitled for residential construction and are either physically developed to start

home construction (referred to as “finished lots”) or partially finished.  However, depending on market conditions and available

opportunities, we may acquire undeveloped and/or unentitled land.  We may also invest in land that requires us to repurpose

and re-entitle the property for residential use, such as urban in-fill developments.  We expect that the overall balance of

undeveloped, unentitled, entitled, partially finished and finished lots in our inventory will vary over time, and in implementing

our strategic growth initiatives, we may acquire a greater proportion of undeveloped or unentitled land in the future if and as the

availability of reasonably priced land with finished or partially finished lots diminishes.

As part of the decision-making process for approving a land purchase, we review extensive information about a proposed

project, including past use; assessment of environmentally sensitive areas and areas that may be suitable for parks, trails, and

open space preservation; assessment of site development required, including any work needed to comply with storm water

regulations; proximity to major employment and retail centers; and site design and product (home designs and specifications)

plans that are, among other things, consistent with our focus on building highly energy- and water-efficient homes.

We generally seek to structure our land acquisition and land development activities to minimize, or defer the timing of,

expenditures in order to reduce both the market risks associated with holding land and our working capital and financial

commitments, including interest and other carrying costs.  This may entail developing land in smaller phases wherever possible,

and balancing development with our starts pace to manage our inventory of finished lots.  We typically use contracts that, in

exchange for a small initial option payment or earnest money deposit, give us an option or similar right to acquire land at a

future date, usually at a pre-determined price and pending our satisfaction with the feasibility of developing and selling homes

on the land and/or an underlying land seller’s completion of certain obligations, such as securing entitlements, developing

infrastructure or finishing lots.  We refer to land subject to such option or similar contractual rights as being “controlled.”  Our

decision to exercise a particular land option or similar right is based on the results of our due diligence and continued market

viability analysis after entering into such a contract.

The following table presents the number of inventory lots we owned, in various stages of development, or controlled under

land option contracts or other similar contracts by homebuilding reporting segment as of November 30, 2025 and 2024:

(a)Land under option as of November 30, 2025 and 2024 includes 7,715 and 18,923 lots, respectively, under land option

contracts or other similar contracts where the associated deposits were refundable at our discretion.

The number of lots we owned or controlled under land option contracts or other similar contracts as of November 30, 2025

decreased 16% from November 30, 2024, largely reflecting homes delivered and our abandonment of 24,596 previously

controlled lots that no longer met our underwriting criteria, partly offset by newly optioned lots during 2025.

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The following charts present the percentage of inventory lots we owned or controlled under land option contracts or other

similar contracts by homebuilding reporting segment and the percentage of total lots we owned and had under option as of

November 30, 2025:

Home Construction and Deliveries.  Following the acquisition of land and, if necessary, the development of the land into

finished lots, we typically begin constructing model homes and marketing homes for sale.  As discussed above under “Business

Strategy,” we generally commence construction of a home after we have a signed sales contract with a homebuyer and have

obtained preliminary credit approval or other evidence of the homebuyer’s financial ability to purchase the home.  Other than

model homes, our inventories typically do not consist of a significant number of completed unsold homes.  However, at the end

of 2025, we carried a higher number of completed unsold homes largely reflecting strategies we had adopted in 2020-2024 to

navigate supply chain disruptions and market dynamics.  In 2026, with a more normalized supply chain and meaningful

improvement in our average build times, and our emphasis on increasing the proportion of Built to Order sales and homes

delivered, our completed unsold inventory is expected to decrease compared to 2025 levels.  In addition, cancellations of home

sales contracts prior to the delivery of the underlying homes, the construction of attached products with some unsold units, or

specific marketing or other strategic considerations will result in our having some unsold completed or partially completed

homes in our inventory.

Our typical timeframe from home sale to delivery has historically ranged from six to seven months, with an average build

time of four to five months from construction start to home completion.  We may encounter circumstances beyond our control,

such as supply chain disruptions, as further described below under Item 1A – Risk Factors, which could substantially lengthen

our average build time and hinder our even-flow production process.  We made meaningful sequential improvements since the

2023 second quarter, and by the end of the 2025 fourth quarter our build time had returned to our historical average.

We, or outside general contractors we may engage, contract with a variety of independent contractors, who are typically

locally based, to perform all land development and home construction work through these independent contractors’ own

employees or subcontractors.  We do not self-perform any land development or home construction work.  These independent

contractors also supply some of the building materials required for such production activities.  Our contracts with these

independent contractors require that they comply with all laws applicable to their work, including wage and safety laws, meet

performance standards, follow local building codes and permits, and abide by our Ethics Policy referenced under Item 10 –

Directors, Executive Officers and Corporate Governance in this report.

Raw Materials.  Outside of land, the principal raw materials used in our production process are concrete and forest

products.  Other primary materials used in home construction include drywall, and plumbing and electrical items.  We source

our building materials, many of which are domestically produced, from third parties and, to the extent feasible, select products

with sustainability certifications or attributes.  In addition, our lumber suppliers generally certify that their wood was not

sourced from endangered forests or is certified by recognized programs.  We attempt to enhance the efficiency of our operations

by using, where practical, standardized materials that are commercially available on competitive terms from a variety of outside

sources.  In addition, we have national and regional purchasing programs for certain building materials, appliances, fixtures and

other items that allow us to benefit from large-quantity purchase discounts and, where available, participate in outside

manufacturer or supplier rebate programs.  When possible, we arrange for bulk purchases of these products at favorable prices

from such manufacturers and suppliers.

Backlog

Our “backlog” consists of homes that are under a sales contract but have not yet been delivered to a homebuyer.  Ending

backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for

homes less home sales contract cancellations) generated during the current period minus the number of homes delivered during

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the current period.  Our backlog at any given time will be affected by cancellations, homes delivered, build times, and our

community count.  Backlog value represents potential future housing revenues from homes in backlog.  Our cancellation rates

and the factors affecting such rates are further discussed below under both Item 1A – Risk Factors and Item 7 – Management’s

Discussion and Analysis of Financial Condition and Results of Operations in this report.

The following charts present our ending backlog (number of homes and value) by homebuilding reporting segment as of

November 30, 2024 and 2025:

Competition, Seasonality, Delivery Mix and Other Factors

Competition.  The homebuilding industry and housing market are highly competitive with respect to selling homes;

contracting for construction services, such as carpentry, roofing, electrical and plumbing; and acquiring attractive developable

land, though the intensity of competition can vary and fluctuate between and within individual markets and submarkets.  We

compete for homebuyers, construction resources and desirable land against numerous homebuilders, ranging from regional and

national firms, some of which are larger and have greater financial resources than us, to small local enterprises.  As to

homebuyers, we primarily compete with other homebuilders on the basis of selling price, community location and amenities,

availability of financing options, home designs, reputation, build time, and the design choices and options that can be included

in a home.  In some cases, this competition occurs within larger residential development projects containing separate sections

other homebuilders design, plan and develop.  We also compete for homebuyers against housing alternatives to new homes,

including resale homes, apartments, single-family rentals and other rental housing.

In markets experiencing extensive construction activity, including areas recovering from earthquakes, wildfires, hurricanes,

flooding or other natural disasters, there can be craft and skilled trade shortages that limit independent contractors’ ability to

supply construction services, which in turn tends to drive up our costs and/or extend our production schedules.  Elevated

construction activity, and reallocations of staff for public safety priorities after natural disasters or otherwise, can increase the

time needed to obtain governmental approvals or utility service activations and, combined with tariffs imposed or increased by

the U.S. and other governments, the cost of certain raw building materials, such as steel, lumber, drywall and concrete, or

finished products.  We expect these upward cost trends may continue in 2026, particularly if and as there is greater competition

for these resources across a disrupted global supply chain.

Seasonality.  Our performance is affected by seasonal demand trends for housing.  Traditionally, there has been more

consumer demand for home purchases and we tend to generate more net orders in the spring and early summer months

(corresponding to most of our second quarter and part of our third quarter) than at other times of the year.  This “selling season”

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demand results in our typically delivering more homes and generating higher revenues from late summer through the fall

months (corresponding to part of our third quarter and all of our fourth quarter).  The seasonal nature of our business may also

cause significant variations in our working capital requirements and liquidity.  Accordingly, our quarterly results of operations

and financial position at the end of any given quarter are not necessarily indicative of results for the corresponding full year.

We can provide no assurance whether or to what extent typical seasonal performance trends will occur in 2026, or at all.

Delivery Mix and Other Factors.  In addition to the overall volume of homes we sell and deliver, our results in a given

period are significantly affected by the geographic mix of markets and submarkets in which we operate; the number and

characteristics of the communities we have open for sales in those markets and submarkets; and the products we sell from those

communities during the period.  While there are some similarities, there are differences within and between our served markets

in terms of the number, size and nature of the communities we operate and the products we offer to consumers.  These

differences reflect, among other things, local homebuyer preferences; household demographics (e.g., large families or working

professionals; income levels); geographic context (e.g., urban or suburban; availability of reasonably priced finished lots;

development constraints; residential density); and the shifts that can occur in these factors over time.  These factors in each of

our served markets will affect the costs we incur and the time it takes to locate, acquire rights to and develop land, open

communities for sales, and market and build homes; the size of our homes; our selling prices (including the contribution from

homebuyers’ purchases of design choices and options); the pace at which we sell and deliver homes; the rate at which

communities are sold out; and our housing gross profits and housing gross profit margins.  Therefore, our results in any given

period will fluctuate compared to other periods based on the proportion of homes delivered from areas with higher or lower

selling prices and on the corresponding land and overhead costs incurred to generate those deliveries, as well as from our

overall community count.

Human Capital

Our Culture.  We focus on attracting, developing, and retaining the highest quality employees, with particular emphasis on

the leaders of our local divisions who oversee operations in various markets and collaborate with a wide array of stakeholders.

We strive to cultivate a workplace that offers fulfilling individual roles and opportunities for career advancement and

professional growth.

At November 30, 2025 and 2024, we had approximately 2,118 and 2,384 full-time employees, respectively.  None of our

employees are represented by a collective bargaining agreement.  At the close of our 2025 fiscal year, our division and regional

presidents had served an average of over 11 years, while local land leaders managing land acquisition, entitlement, and

development had an average tenure of more than eight years.  Our senior corporate executives, responsible for setting company-

wide strategy, maintained an average tenure of approximately 19 years.  Additional information about the tenure of our

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leadership team is provided in the chart below.  The considerable experience within our leadership team has contributed to a

strong organizational culture at all levels.

In 2025, our employee turnover was 18%, comprising 16% voluntary departures and 2% involuntary separations.  For

fiscal year 2024, turnover reached 18%, with 15% attributed to voluntary exits and 3% to involuntary separations.  We consider

these turnover rates, which exclude reductions in force, to be appropriate given prevailing industry standards and market trends.

Compensation and Benefits.  We provide competitive compensation and benefits packages that are designed to reward and

retain our team members as well as support our short-term and long-term business goals.  Components of the packages include:

•Medical, dental, vision care, life and disability insurance;

•401(k) Savings Plan with a company match;

•Tuition reimbursement;

•Employee home purchase discounts; and

•A selection of voluntary benefits designed to meet individual preferences and needs.

The benefits packages we offer are shaped by recommendations from nationally recognized compensation and benefits

consultants we retain to provide objective assessments and benchmark our programs against those of peer companies and

organizations of similar scale.

Promoting High Ethical Standards.  We aim to reach our business objectives by operating with integrity and following

high ethical standards.  All employees must complete a training course on our Ethics Policy upon hire and annually thereafter,

and confirm they will adhere to its guidelines.  An internal ethics committee composed of senior corporate and operational

leaders oversees the Ethics Policy and reviews related matters.  We provide an independently managed hotline and reporting

website that allow employees and third parties to anonymously report any ethics-related issues.

Talent Acquisition and Development.  We are committed both to developing the potential of our team members and to

fostering their professional growth.  We support this objective through targeted talent development programs, such as the

training investments described below, that have enabled us to promote from within for a variety of leadership roles across our

organization.  At the same time, our recruitment approach aims to attract exceptional candidates who can contribute to our

business growth.  Beyond seeking experienced individuals from the homebuilding field, we have implemented multiple

initiatives that enhance our talent pipeline.  These include forging partnerships with academic institutions, which assist us in

sourcing and hiring outstanding interns and entry-level professionals.  We have also prioritized recruiting veterans and we are a

founding supporter of the Building Talent Foundation, established by the Leading Builders of America, to help address the

significant and ongoing shortage of skilled workers in the homebuilding sector.

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Training and Career Development.  In order to promote the professional growth of our employees and to help ensure the

consistent execution of our business strategy — particularly our commitment to customer-centricity — we provide training

opportunities specifically tailored to the roles and career stages of our employees.  We maintain KBU, a specialized online

learning platform that delivers a wide array of written, audio-visual, and interactive training resources, covering both company-

wide policies and discipline-specific topics.  This resource offers a collection of around 2,900 self-paced courses and live

virtual sessions led by instructors, catering to employees at every level, and includes coverage of approximately 360 subjects

related to leadership and management.  Throughout 2025, our workforce collectively completed 31,451 courses, averaging

about 11 courses per employee.  Additionally, those in supervisory and managerial roles participate in training designed to help

them support the growth of the individuals on their teams.  To identify and advance top talent, we conduct an annual review of

our workforce and succession plans.  This evaluation focuses on identifying high-achieving and high-potential team members

from a variety of backgrounds and experiences for progression into field and corporate leadership positions.  The management

development and compensation committee, which is part of our board of directors and consists of members with expertise in

human capital management, talent development and executive compensation across different business models, oversees this

process.

Inclusion.  Our employment practices are designed to create a welcoming environment and encourage the advancement of

all individuals who join our team.  We strictly prohibit discrimination on grounds such as race, color, religion, national origin,

ancestry, family status, age, veteran status, physical or mental disabilities, medical conditions, gender, gender identity, sexual

orientation, marital status, or any other status protected by law.  As detailed in our Human Rights Standards, our organization is

dedicated to cultivating a workplace where every employee is treated with dignity and fairness.  We also provide career

development and progression opportunities determined by merit, giving each person the ability to succeed and flourish based on

their unique skills and achievements.  As of November 30, 2025, females accounted for 44% of our workforce and 35% of

managerial employees.  Furthermore, individuals from ethnic or racial minority groups represented 36% of our workforce and

22% of our managerial population.

Employee Safety and Wellness. We strive to foster a secure and encouraging workplace for our employees and trade

partners, as outlined in the “Safety and Community Investment Initiatives” section of this report.  In prioritizing the well-being

of our team, we have implemented a variety of initiatives beyond the benefits packages previously mentioned, including a

comprehensive wellness program focused on promoting the physical and mental health of our workforce, available to all staff

members regardless of their location or working hours.  The program includes monthly interactive webinars that address diverse

topics related to overall health, such as balanced nutrition, mental resilience, fitness, and preventive healthcare.  Through these

offerings, we aim to empower employees to maintain healthier lifestyles, fostering greater job satisfaction and productivity.

Our ongoing efforts to improve and broaden these initiatives are designed to cultivate a positive and supportive workplace for

the benefit of both our people and the organization.

Sustainability Principles and Practices

Since beginning our sustainability focus over two decades ago, we have made a dedicated effort to be an industry leader in

this area.  We seek to integrate sustainable features, products and design elements into our homes in ways that maintain their

affordability to our core customer segments and, as noted above under “Business Strategy,” help to lower long-term

homeownership costs.  We believe our initiatives provide tangible benefits for our customers, our operations and the

environment, and distinctly differentiate us from other builders of new homes and from resale homes.

Sustainability Practices. We have established an Environmental Management System (“EMS”), through which we focus

on continually improving the energy efficiency of our homes so, among other things, there are less greenhouse gas (“GHG”)

emissions associated with their use over their multi-decade life cycle.  Our EMS, and its related manuals and other

documentation, provides a framework for planning, implementing, measuring, evaluating and refining these efforts over time.

In addition to our internal executive team who implements and operates within the EMS, we monitor evolving trends and gather

input and guidance for our initiatives through our National Advisory Board, which is a panel of external advisors we established

in 2009 solely for these purposes.  These advisors, who have a broad and diverse set of personal and professional perspectives,

experiences and expertise, help us shape our sustainability priorities and reporting, as well as our approach to stakeholder

engagement.

Energy Efficiency and Water Conservation Leadership.  Our sustainability program has primarily focused on progressively

enhancing the energy efficiency and water-saving capability of our homes to help minimize their impact on the environment

from day-to-day use.  These priorities reflect that most of the energy consumption during a home’s life occurs after it is

delivered to a customer, and that we operate in some of the most water-challenged regions of the country.

To guide our efforts in these key areas, we have set increasingly higher energy efficiency and water conservation goals

based on the rigorous, well-respected and widely recognized standards established under the U.S. Environmental Protection

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Agency’s (“EPA”) voluntary ENERGY STAR® and WaterSense® programs, which seek to help businesses and consumers

save money and conserve natural resources by using labeled products and certain practices that are energy- or water-efficient,

respectively.  Milestones we have achieved under these programs include the following:

•In 2008, we became the first national homebuilder to make a broad commitment to building ENERGY STAR certified

homes, which, according to the EPA, achieve on average up to a 20% energy-efficiency improvement compared to

new homes built to local code, and even more compared to resale homes without certification.

◦The EPA estimated as of 2024 that each certified home produces approximately 3,287 pounds (1.5 metric tons)

per year less GHG emissions than a typical new home.

◦Based on our energy use analysis, our homes currently save our homeowners an estimated average of over $1,400

annually on utility bills compared to typical resale homes.

•In 2025, the cumulative number of ENERGY STAR certified new homes we have built totaled over 217,000, more

than any other builder in the nation.

◦In 2005, we built our first solar home, and in 2011, we introduced our first all-solar community.

◦In 2025, all our homes built in California were solar homes.  As of November 30, 2025, most of our model homes

and sales offices in California were powered by solar energy.  We are also building all-electric homes in many

areas across the country per local requirements and conditions.

•In 2008, we were the first national homebuilder to join the WaterSense program, and in 2009, we made a commitment

to using WaterSense labeled products in our homes.

•In 2021, we were the first national homebuilder to implement the WaterSense Labeled Homes Program, Version 2,

under which homes are to be at least 30% more water efficient than a typical new home.  In July 2022, we committed

to building WaterSense labeled homes in all our future Arizona, California and Nevada communities.

•To date, we have built approximately 30,000 WaterSense labeled and Southern Nevada Water Authority Water Smart

homes, which we believe is more than any other homebuilder, and installed over 1.3 million WaterSense labeled

fixtures, collectively helping to save an estimated 2.2 billion gallons of water per year based on calculations derived

from WaterSense program and supplier data.

In 2025, the EPA outlined plans to phase out the ENERGY STAR program as a federally supported initiative, with the

fiscal year 2026 federal budget allocating no funding for its continuation, and to revise the WaterSense labeling criteria for

fixtures.  These decisions, along with a broader agency restructuring, have made the long-term future of these programs

uncertain.  While the programs remain operational at this time, we are monitoring developments, including evolving federal,

state and local regulations and consumer expectations, and evaluating alternative energy and water efficiency programs and

standards.  Presently, we have no plans to materially change the high efficiency performance of our new homes built in 2026.

Indoor Environments.  Our sustainability program portfolio includes incorporating features that are aimed at enhancing our

homes’ indoor environment with air-sealing designs and high-performance ventilation systems and low- or zero-VOC products.

Our homes also feature door hardware with antimicrobial protection that helps reduce the spread of bacteria and germs.

Awards and Recognition.  We have been recognized with major national awards for our consistent leadership and

commitment, including:

•Newsweek’s 2026 list of America’s Most Responsible Companies – We were once again named by Newsweek as one

of America’s most responsible companies, the highest-ranked national builder and the only one to make this

distinguished list six years in a row.  This recognition is based on our industry-leading environmental and social

practices;

•Time Magazine’s 2025 list of World’s Best Companies – We were the only national homebuilder to make this list.

The recognition is based on a comprehensive analysis conducted to identify the top-performing companies around the

globe and is based on evaluation criteria of employee satisfaction, revenue growth and sustainability;

•Time Magazine’s 2025 list of America’s Best Midsize Companies – We have been the only national homebuilder to

receive this distinction every year since its inception, which is based on more than 15 different criteria, including

employee satisfaction, revenue growth and sustainability transparency;

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•USA Today’s 2025 list of America’s Climate Leaders – We were the highest-ranked homebuilder in consideration of,

among other things, our annualized reductions in emission intensity and carbon disclosure rating; and

•In 2025, we were recognized by AvidCXTM, a trusted platform of homebuyer experience insights, with an

unprecedented 18 division-level AvidCX awards, including the prestigious 2025 AvidCX Cup, based on customer

surveys taken during the first year of homeownership.  We also received an impressive 108 AvidCX Service awards

honoring our team members in sales, design, construction, mortgage and customer care as being in the top 5%

nationally in customer satisfaction.

Our annual sustainability reports, which we have published on our website since 2008, contain more information about our

programs, goals, and achievements.

Safety and Community Investment Initiatives.  Safety is a priority for our employees, our homebuyers and our independent

contractors.  To monitor our independent contractors’ compliance with their safety obligations, we track nearly 50 checkpoints

across key aspects of jobsite safety, including safety documentation, personal protective equipment, scaffolding and ladders, fall

protection, trenching and excavation, hazard assessment protocol, first aid and emergency plan, electrical safety and material

safety.  In addition to our on-site construction managers conducting safety inspections weekly, each operating division has a

designated representative who has successfully completed the Occupational Safety and Health Administration’s 30-hour

training course which provides supervisors with a greater depth and variety of training on an expanded list of topics associated

with the recognition, avoidance, abatement, and prevention of workplace hazards.  Since 2014, we have partnered with

IBACOS®, a nationally recognized expert in home construction quality and performance, to conduct annual jobsite safety

reviews.

In March 2025, we introduced the nation’s first new-home community that meets the home- and neighborhood-level

wildfire resilience standards developed by the Insurance Institute for Business and Home Safety (“IBHS”), an independent

nonprofit research organization.  Utilizing fire-resistant building materials, methods and features based on IBHS research, this

community is designed to IBHS’ highest level of protection against direct flame contact, radiant heat and embers, which helps

to meaningfully reduce the likelihood of wildfire spread.  Each home in the community is built to the Wildfire Prepared Home

Plus standard and receives a designation certifying that it has met IBHS’ most stringent requirements for homesite-level fire

mitigation.  We intend to selectively expand our application of IBHS’ standards to other new-home communities in 2026 and

beyond.

Our commitment to the communities we serve is not solely about the homes we build, as we strive to also make wider

community contributions that intersect with the nature of our business.  Our KB Cares philanthropic program helps to build

strong social ties by, among other things, providing our employees with an opportunity to give back to the areas in which we

operate through efforts ranging from assisting people in challenging circumstances to educating the next generation.  KB Cares

has four key focus areas: shelter, community, sustainability/environment and construction skills/employment.  We have

partnered with local nonprofits and community organizations to contribute to the long-term social fabric of the areas in which

we build, including Jared Allen’s Homes for Wounded Warriors, which raises money to build or modify homes for injured

military veterans; Sackcloth & Ashes, which donates a blanket to a local homeless shelter for every blanket we purchase as a

housewarming gift for our new homeowners; and Sleep in Heavenly Peace, for which our employees and various trade partners

help build and deliver handmade, fully furnished beds to children in need.  Since 2023, we have partnered with the National

Forest Foundation to support its mission to replenish and preserve national forests by replanting thousands of acres of habitat

nationwide and protect the future of national forests.  In addition, as noted above under “Human Capital,” we are also one of the

founding partners of the Building Talent Foundation, whose mission is to advance the education, training and career

progression of young people and people from underrepresented groups as skilled technical workers and business owners in

residential construction.

We have a Supplier Code of Conduct that builds upon the principles, guidelines and standards within our Ethics Policy,

including operating in accordance with applicable laws; treating all workers fairly and with dignity and respect; and providing a

clean, safe and healthy work environment without the use of any involuntary or forced labor.  Our Supplier Code of Conduct

also encourages our suppliers to operate in an efficient and environmentally responsible manner, conserve natural resources and

minimize waste and the use of environmentally harmful materials.

Corporate Governance.  Our board of directors maintains a robust governance framework and leading practices to oversee

the management of our business and, among other things, oversees our sustainability initiatives as part of our overall business

strategy.  Our approach to corporate governance aligns with the principles of the Investor Stewardship Group, a coalition of

some of the world’s largest investors and asset managers, as follows:

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More information concerning our corporate governance can be found in our Proxy Statement for the 2026 Annual Meeting

of Stockholders (“2026 Proxy Statement”).

Government Regulations and Environmental Matters

Our operations are subject to myriad legal and regulatory requirements concerning land development (including

governmental permits, taxes, assessments and fees), the homebuilding process, employment conditions and worksite health and

safety.  These requirements often provide broad discretion to government authorities, and they could be interpreted or revised in

ways that delay or prohibit project development or home sales, and/or make these activities more costly.  The costs to comply,

or associated with any noncompliance, are, or can be, significant and variable from period to period.  A liability for

environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been

incurred and the amount of loss can be reasonably estimated.  However, environmental costs and accruals were not material to

our operations, cash flows or financial position in 2025, 2024 or 2023.

Under applicable environmental laws (including those aimed at protecting against climate change impacts), we may be

responsible for, among other things, removing or remediating hazardous or toxic substances even where we were not aware of

their presence or on land we previously owned.  In addition to incurring clean-up costs, the presence of harmful substances on

or near our properties may prevent us from performing land development or selling homes.  Also, we are subject to federal,

state and local rules that can require us to undertake extensive measures to prevent or minimize discharges of stormwater and

other materials from our communities, and to protect wetlands and other designated areas.

As part of our due diligence process for land acquisitions, we often use third-party environmental consultants to investigate

potential environmental risks, and we require disclosures, representations and warranties from land sellers regarding

environmental risks.  We also take steps prior to our acquisition of the land to gain reasonable assurance as to the precise scope

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of any remediation work required and the costs associated with removal, site restoration and/or monitoring.  To the extent

contamination or other environmental issues have occurred in the past, we will attempt to recover restoration costs from third

parties, such as the generators of hazardous waste, land sellers or others in the prior chain of title and/or their insurers.

However, despite these efforts, there can be no assurance that we will avoid material liabilities relating to the existence or

removal of toxic wastes, site restoration, monitoring or other environmental matters affecting properties currently or previously

owned or controlled by us, and no estimate of any potential liabilities can be made.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, beneficial ownership

reports on Forms 3, 4 and 5 and proxy statements, as well as all amendments to those reports are available free of charge

through our investor relations website at investor.kbhome.com, as soon as reasonably practicable after such reports are

electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).  They can also be found at the SEC

website at www.sec.gov.  We will also provide these reports in electronic or paper format free of charge upon request made to

our investor relations department at investorrelations@kbhome.com or at our principal executive offices.  We intend for our

investor relations website to be the primary location where investors and the general public can obtain announcements

regarding, and can learn more about, our financial and operational performance, business plans and prospects, our board of

directors, our senior executive management team, and our corporate governance policies, including our articles of

incorporation, By-Laws, corporate governance principles, board committee charters, and ethics policy.  We may from time to

time choose to disclose or post important information about our business on or through our investor relations website, and/or

through other electronic channels, including social media outlets, such as Facebook® (Facebook.com/KBHome) and X®

(Twitter.com/KBHome), and other evolving communication technologies.  The content available on or through our primary

website at www.kbhome.com, our investor relations website, including our sustainability reports, Human Rights Statement,

Supplier Code of Conduct and other governance policies, or social media outlets and other evolving communication

technologies is not incorporated by reference in this report or in any other filing we make with the SEC, and our references to

such content are intended to be inactive textual or oral references only.