KB HOME (KBH)

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

Results of Operations

OVERVIEW

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

Market conditions in the 2026 first quarter remained challenging, as persistent affordability pressures, cautious buyer sentiment, heightened macroeconomic uncertainties and geopolitical tensions tempered demand. While these factors softened overall housing market activity in the current period, with the conflict in the Middle East that began on the last day of our fiscal quarter introducing additional uncertainty for already wary consumers, the longer-term outlook continues to be favorable, supported by positive demographic trends and an ongoing undersupply of homes.

Within this operating environment, we experienced healthy traffic at our communities in the quarter, as we continued the simplified sales approach we implemented a year ago. With this strategy, we provide a straightforward, transparent base price with limited, if any, concessions or incentives, designed to offer customers a compelling value competitive with area resale home prices.

We believe our approach has resonated with consumers. In the 2026 first quarter, with a steady conversion of traffic to sales, the lowest cancellation rate we have experienced in the past four years and our higher average community count, we generated 2,846 net orders, a 3% increase year over year, with a monthly net order pace per community of 3.5, nearly even with the year‑earlier quarter. Our average community count rose 7% year over year to 274, and our ending community count increased 8% to 276, reflecting our continued investments in land and land development to support future growth. The value of net orders for the 2026 first quarter was $1.36 billion, about the same as the year-earlier quarter, with the higher net order volume partly offset by a slight decrease in the average selling price of those net orders to $479,400.

During the quarter, while selling through our existing inventory, we emphasized sales of our Built to Order homes, which are a key industry differentiator for us and typically generate higher gross margins than inventory homes. Our goal is to bring the mix of Built to Order homes delivered to within our historical range of 60% to 70%, compared to approximately 55% in 2025. Supported by demand for personalized homes and a 22% year-over-year improvement in our build times, our mix of net orders in the quarter was predominantly Built to Order, which we believe will enable us to achieve 70% Built to Order deliveries in the 2026 second half. Although our overall backlog declined year over year, the number of homes in backlog increased 15% sequentially from November 30, 2025, reflecting the higher net orders in the 2026 first quarter.

Homebuilding revenues for the three months ended February 28, 2026 consisted of housing revenues and nominal land sale revenues. For the corresponding period of 2025, homebuilding revenues were generated solely from housing operations. Housing revenues for the 2026 first quarter decreased 23% year over year to $1.07 billion, due to a 14% decrease in the number of homes delivered to 2,370 and a 10% decline in their average selling price to $452,100. Approximately 50% of our homes delivered in the 2026 first quarter were to first-time homebuyers. Our homes delivered as a percentage of backlog at the

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beginning of the quarter grew to 76% for the 2026 first quarter, from 62% for the year-earlier quarter, mainly due to our improved build times and a greater percentage of homes sold and delivered in the same quarter.

Homebuilding operating income for the three months ended February 28, 2026 was $33.0 million, compared to $127.3 million for the year-earlier period. As a percentage of revenues, homebuilding operating income was 3.1% for the 2026 first quarter, compared to 9.2% for the corresponding 2025 period, reflecting a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of revenues. Inventory-related charges totaled $2.2 million for the current quarter and $1.5 million for the year-earlier quarter. Our housing gross profit margin was 15.3%, compared to 20.2% for the year-earlier quarter, primarily due to price reductions we implemented in conjunction with our simplified sales strategy to stimulate demand, higher relative land costs, product and geographic mix, and reduced operating leverage. Our selling, general and administrative expenses as a percentage of housing revenues increased 120 basis points year over year to 12.2%, mainly due to a decrease in operating leverage from lower housing revenues, partly offset by $8.0 million of insurance recoveries. Net income and diluted earnings per share for the three months ended February 28, 2026 were $33.4 million and $.52, respectively, compared to $109.6 million and $1.49, respectively, for the three months ended February 28, 2025. Our diluted earnings per share for the 2026 first quarter reflected lower net income, partly offset by the favorable impact of our common stock repurchases over the past several quarters.

We continue to take a balanced approach to capital allocation, guided by market conditions and our priorities of investing in land and land development to support future growth and returning capital to our stockholders. Our investments in land and land development for the 2026 first quarter totaled $567.2 million, a 38% decrease compared to the year-earlier quarter; the prior period included the purchase of two sizable land parcels in our Southwest homebuilding reporting segment. During the 2026 first quarter, we repurchased 843,339 shares of our common stock at a total cost of $50.0 million, compared to 753,939 shares at a total cost of $50.0 million in the year-earlier quarter. We ended the 2026 first quarter with total liquidity of approximately $1.20 billion, including cash and cash equivalents and $998.4 million of available capacity under the Credit Facility. We had $200.0 million of cash borrowings outstanding under the Credit Facility at February 28, 2026.

Although our ending backlog value at February 28, 2026 decreased 23% year over year to approximately $1.70 billion, we believe we are well positioned to achieve our projections for the 2026 second quarter and full year, as described below under “Outlook.”

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):

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Revenues. Homebuilding revenues for the three months ended February 28, 2026 consisted of housing revenues and nominal land sale revenues. In the three months ended February 28, 2025, homebuilding revenues were generated solely from housing operations. Housing revenues for the 2026 first quarter declined 23% from the year-earlier quarter, driven by a 14% decrease in the number of homes delivered and a 10% decline in their overall average selling price. Our 2026 first-quarter housing revenues included year-over-year decreases of 25% in our West Coast homebuilding reporting segment, 42% in our Southwest segment and 19% in our Central segment, partially offset by an 11% increase in our Southeast segment. The decline in the number of homes delivered largely resulted from our having 29% fewer homes in backlog at the beginning of the 2026 first quarter, as compared to the year-earlier quarter. The lower average selling price primarily reflected a combination of product and geographic mix factors and the price reductions we implemented in 2025 in conjunction with our simplified sales strategy to stimulate demand.

Land sale revenues for the three months ended February 28, 2026 totaled $.6 million. There were no land sales during the three months ended February 28, 2025. Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market conditions.

Operating Income. Our homebuilding operating income for the three months ended February 28, 2026 decreased 74% from the prior-year period, reflecting lower housing gross profits, partly offset by lower selling, general and administrative expenses. Operating income for the 2026 first quarter included inventory-related charges of $2.2 million, compared to $1.5 million in the year-earlier quarter. As a percentage of revenues, our operating income for the three months ended February 28, 2026 was 3.1%, compared to 9.2% for the corresponding 2025 period, mainly due to a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of housing revenues.

•Housing Gross Profits – Housing gross profits of $164.0 million for the three months ended February 28, 2026 were down 41% year over year, reflecting lower housing revenues and a 490 basis-point decrease in our housing gross profit margin to 15.3%. The decline in the housing gross profit margin primarily reflected the price reductions we implemented a year ago, higher relative land costs, product and geographic mix, and reduced operating leverage. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations, which is included in construction and land costs, was 1.8% and 1.7% for the three months ended February 28, 2026 and 2025, respectively. Excluding the above-mentioned i

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Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Our discussion and analysis below is primarily focused on our 2025 and 2024 financial results, including comparisons of

our year-over-year performance between these years.  Discussion and analysis of our 2023 fiscal year specifically, as well as the

year-over-year comparison of our 2024 financial performance to 2023, are located under Part II, Item 7 – Management’s

Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal

year ended November 30, 2024, filed with the SEC on January 24, 2025, which is available on our investor relations website at

investor.kbhome.com and the SEC website at www.sec.gov.

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):

Housing market conditions in 2025 were challenging despite solid underlying drivers, mainly favorable demographic

trends in population growth and household formation, along with relatively steady employment levels and an ongoing structural

undersupply of new homes.  Compared to 2024, demand was softer as tepid consumer confidence, macroeconomic and

geopolitical uncertainties, affordability challenges and persistently elevated mortgage loan interest rates over the course of the

year limited the pool of actionable buyers and caused many of those buyers to hesitate on making purchase decisions.  At the

same time, during 2025, we believe we executed well operationally, maintaining high customer satisfaction levels, further

improving build times, lowering construction costs and balancing pace and price to optimize each asset.  Additionally, to help

navigate the current environment, we 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.  With this strategy, which we began instituting on a community-by-community

basis in mid-February 2025 to stimulate demand, we both reduced selling prices relative to applicable market conditions and

lowered or eliminated other homebuyer concessions.

With these market dynamics, our net orders in 2025 decreased 11% year over year to 11,596, and the pace of monthly net

orders per community was 3.7 compared to 4.4 in 2024.  Reflecting the price reductions we put in place per our sales strategy,

and expanded on in certain underperforming communities to align with local demand, the value of our net orders for 2025 was

down 17% year over year as a result of the decline in net orders and a 6% decrease in the overall average selling price of net

orders to $463,200.

In the 2025 fourth quarter, our net orders and net order value decreased 10% and 17%, respectively, year over year.  Our

cancellation rate as a percentage of gross orders for the 2025 fourth quarter was 18%, compared to 17% for the 2024 fourth

quarter and, together with our improved build times compared to a year ago, our homes delivered as a percentage of backlog at

the beginning of the quarter increased to 84% for the 2025 fourth quarter from 69% for the year-earlier quarter.

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Homebuilding revenues for 2025 and 2024 were comprised of housing revenues and nominal land sale revenues.  Our 2025

housing revenues of $6.21 billion declined 10% from the previous year due to a 9% decrease in the number of homes delivered

to 12,902 and a slight decrease in the overall average selling price of those homes to $481,400.  Approximately 50% of our

homes delivered in 2025 were to first-time homebuyers.  Homebuilding operating income for 2025 was $507.1 million,

compared to $763.9 million for 2024 and, as a percentage of homebuilding revenues was 8.2%, compared to 11.1%.  Our

homebuilding operating income margin for 2025 primarily reflected a lower housing gross profit margin and an increase in

selling, general and administrative expenses as a percentage of housing revenues.  Our housing gross profit margin for 2025

was 18.6%, compared to 21.0% for 2024, due to price reductions, higher relative land costs, geographic mix, and an increase in

inventory-related charges, partly offset by lower construction costs.  Our selling, general and administrative expenses as a

percentage of housing revenues of 10.4% for 2025 increased 40 basis points year over year, primarily reflecting higher

marketing expenses associated with our expanded community count, higher relative general and administrative expenses, and

decreased operating leverage from lower housing revenues.  General and administrative expenses for 2025 included

$16.0 million of stock-based compensation expense recognized on an accelerated basis for certain equity awards granted in

October 2025 that included new provisions for accelerated vesting of restricted stock and continued vesting of PSUs for long-

tenured employees upon retirement.  Total pretax income for 2025 decreased to $554.2 million from $850.9 million for 2024,

which included a $12.5 million gain associated with the sale of our ownership interest in a privately held technology company.

Net income and diluted earnings per share for 2025 were $428.8 million and $6.15, respectively, compared to $655.0 million

and $8.45, respectively for 2024.  Our diluted earnings per share for 2025 reflected lower net income, partly offset by the

favorable impact of our common stock repurchases over the past several quarters.

We believe our strong balance sheet and liquidity position helped provide us with flexibility to operate effectively while

navigating the evolving market conditions throughout the year.  We continue to take a disciplined and balanced approach in

allocating capital, guided by market conditions and our priorities of investing in land and land development to support future

growth and returning capital to our stockholders.  Given the prevailing environment and our land pipeline, we began

moderating our investments in land and land development in the 2025 second quarter while increasing our share repurchases.

Even with this shift, we maintained our land investments at a level that we believe will support our current growth projections.

For 2025, our investments in land and land development totaled $2.61 billion, an 8% decrease year over year.  During this same

period, we repurchased approximately 9.4 million shares of our common stock at a total cost of $538.5 million, compared to 4.7

million shares at a total cost of $350.0 million in 2024.

On November 12, 2025, we obtained an upsized $1.20 billion five-year Credit Facility, refinancing and replacing our prior

$1.09 billion unsecured revolving credit facility, which we voluntarily terminated on the same date.  We also extended the

maturity of our $360.0 million Term Loan to 2029.  Our next senior note maturity is on June 15, 2027.  We ended 2025 with

total liquidity of $1.43 billion, comprised of $228.6 million of cash and cash equivalents and nearly $1.20 billion of available

capacity under our Credit Facility.  We had no cash borrowings outstanding under the Credit Facility at November 30, 2025.

Reflecting our investments in land and land development, we ended 2025 with 271 active communities, up 5% year over

year.  The number of homes in our ending backlog at November 30, 2025 was down 29% year over year to 3,128, partly due to

an 18% improvement in our 2025 average build time.  At the same time, with our planned new community openings in 2026,

we believe we are well-positioned to achieve our projections for the 2026 first quarter and full year, as described below under

“Outlook.”

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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):

Revenues.  Homebuilding revenues for 2025 and 2024 were comprised of housing revenues and land sale revenues.  In

2025, homebuilding revenues totaled $6.21 billion, representing a 10% decrease from the prior year mostly due to lower

housing revenues.

In 2025, housing revenues declined 10% from the previous year, reflecting a 9% decrease in the number of homes

delivered and a slight decrease in their overall average selling price.  Our 2025 housing revenues were down year over year in

each of our homebuilding reporting segments, ranging from 5% in our Southwest segment to 19% in our Central segment.  The

slightly lower average selling price primarily reflected a combination of product and geographic mix factors, as well as the

strategic price reductions we implemented in response to softer market conditions in 2025.

We generated $1.3 million of land sale revenues in 2025, compared to $3.6 million of such revenues in 2024.  Generally,

land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based

upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in

particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market

conditions.

Operating Income.  Our homebuilding operating income decreased 34% in 2025, as compared to the previous year,

primarily reflecting lower housing gross profits, partly offset by lower selling, general and administrative expenses.  In 2025

and 2024, homebuilding operating income included total inventory-related charges of $32.1 million and $4.6 million,

respectively, as discussed in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to

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Consolidated Financial Statements in this report.  As a percentage of homebuilding revenues, our homebuilding operating

income for 2025 decreased 290 basis points year over year to 8.2%, mainly due to a lower housing gross profit margin and

higher selling, general and administrative expenses as a percentage of housing revenues.  Excluding inventory-related charges

for both periods, our homebuilding operating income margin declined 240 basis points to 8.7% in 2025 from 11.1% in 2024.

•Housing Gross Profits – In 2025, housing gross profits of $1.15 billion were down 20% from the previous year,

reflecting both lower housing revenues and a decrease in our housing gross profit margin.  Housing gross profits for

2025 and 2024 included inventory-related charges associated with housing operations of $32.1 million and $4.6

million, respectively.

Our housing gross profit margin for 2025 was 18.6%, down 240 basis points from the previous year due to price

reductions, higher relative land costs, geographic mix, and an increase in inventory-related charges, partly offset by

lower construction costs.  As a percentage of housing revenues, the amortization of previously capitalized interest

associated with housing operations, which is included in construction and land costs, was 1.8% for 2025 and 1.7% for

2024.  Excluding the above-mentioned inventory-related charges associated with housing operations, our adjusted

housing gross profit margin decreased 200 basis points year over year to 19.1% in 2025.  The calculation of adjusted

housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is

described below under “Non-GAAP Financial Measures.”

•Land Sale Profits – Land sales generated break-even results in 2025.  Land sale profits for 2024 totaled $1.5 million.

•Selling, General and Administrative Expenses – The following table presents the components of our selling, general

and administrative expenses (dollars in thousands):

(a)Commission expenses include sales commissions on homes delivered paid to internal sales counselors and

external real estate brokers.

Reflecting our continued focus on prudently managing our costs and generally aligning our overhead structure with

our volume of homes delivered, selling, general and administrative expenses for 2025 decreased 6% from the prior

year.  As a percentage of housing revenues, selling, general and administrative expenses for 2025 increased 40 basis

points, compared to 2024, primarily reflecting decreased operating leverage from lower housing revenues.  General

and administrative expenses for 2025 included $16.0 million of stock-based compensation expense recognized on an

accelerated basis for certain equity awards granted in October 2025 that included new provisions for accelerated

vesting of restricted stock and continued vesting of PSUs for long-tenured employees upon retirement.

Interest Income/Expense and Other.  In 2025, interest income and other was comprised solely of interest income.  In 2024,

interest income and other was comprised of interest income and a $12.5 million gain associated with the sale of our ownership

interest in a privately held technology company.  Further information regarding this gain is provided in Note 11 – Other Assets

in the Notes to Consolidated Financial Statements in this report.

Interest income, which is generated from short-term investments, was $7.4 million in 2025, compared to $19.6 million in

2024 due to our lower average balance of cash equivalents and a lower average interest rate in 2025.  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 borrowings used to finance land acquisitions, land development, home construction and

other operating and capital needs.  The amount of interest incurred generally fluctuates based on the average amount of debt

outstanding for the period and the interest rate on that debt.  In 2025, total interest incurred was $113.9 million, compared to

$105.6 million in 2024, primarily due to borrowings during 2025 under the unsecured revolving credit facility we had in place

prior to entering into the Credit Facility in November.  As of November 30, 2025, no cash borrowings were outstanding under

the Credit Facility.  All interest incurred in 2025 and 2024 was capitalized, as the average amount of inventory qualifying for

interest capitalization exceeded the average debt level for each period.  Consequently, we had no interest expense for 2025 or

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2024.  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 $5.7

million for 2025, compared to $6.0 million for 2024.  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.

Loss on Early Extinguishment of Debt.  In 2025, we recognized a $1.0 million loss on the early extinguishment of debt in

connection with our obtaining a $1.20 billion Credit Facility, which refinanced and replaced our prior $1.09 billion unsecured

revolving credit facility that had a February 18, 2027 maturity date, and the amendment of our Term Loan, extending its

maturity to 2029.  Further information regarding these transactions is provided in Note 15 – Notes Payable in the Notes to

Consolidated Financial Statements in this report.

Net Orders, Backlog and Community Count.  The following table presents information about our net orders, cancellation

rate, ending backlog, and community count for the years ended November 30, 2025 and 2024 (dollars in thousands):

(a)Net order value represents potential future housing revenues associated with net orders generated during the period, as well

as homebuyer selections of lot and product premiums and design choices and options for homes in backlog during the same

period.

(b)Cancellation rate represents 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.  Net orders from our homebuilding operations for the year ended November 30, 2025 decreased 11% from the

previous year, and the pace of monthly net orders per community was 3.7 in 2025, compared to 4.4 in 2024.  The decreases in

our net orders and monthly pace per community reflected softer market conditions in 2025.

In navigating the current environment, we 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.  With this strategy, which we began instituting on a community-by-community

basis in mid-February 2025 to stimulate demand, we both reduced selling prices relative to applicable market conditions and

lowered or eliminated other homebuyer concessions.  Reflecting the price reductions we put in place per our sales strategy, and

expanded on in certain underperforming communities to align with local demand, the value of our net orders for 2025 was

down 17% year over year as a result of the decline in net orders and a 6% decrease in the overall average selling price of net

orders to $463,200.  In 2025, the year-over-year decline in our overall net order value reflected decreases in each of our

homebuilding reporting segments, ranging from 3% in our Southeast segment to 27% in our Central segment.

Our cancellation rate as a percentage of gross orders for the year ended November 30, 2025 was 17% compared to 14% in

the previous year.

Backlog.  The number of homes in our backlog at November 30, 2025 decreased 29% from the previous year mainly due to

an 18% improvement in our 2025 average build time as well as the decrease in our net orders.  The potential future housing

revenues in our backlog at November 30, 2025 were down 37% year over year, reflecting fewer homes in our backlog and an

11% decrease in the average selling price of those homes.  Backlog value decreased in each of our four homebuilding reporting

segments, ranging from 21% in our Southeast segment to 59% in our Southwest segment.  Based on our historical experience, a

portion of the homes in backlog will not result in homes delivered due to cancellations.

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Community Count.  In 2025, our average community count and our ending community count each expanded 5% from the

previous year.  The year-over-year increase in our average and ending community counts primarily reflected our investments in

land and land development in 2024 and 2025 generating new community openings over the past 12 months that exceeded the

number of communities selling out during the same period.  Our investments in land and land development for the year are

discussed below under “Liquidity and Capital Resources.”

HOMEBUILDING REPORTING SEGMENTS

Operational Data.  The following tables present information about our 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):

As discussed above under Item 1 – Business in this report, the composition of our homes delivered, net orders and backlog

shifts with the product and geographic 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, changing as new communities open and existing

communities wind down or sell out in the ordinary course.  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, product

premiums and the design choices and options buyers select.  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 of each of our homebuilding reporting segments.  Further

information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the

Notes to Consolidated Financial Statements in this report.  The difference between each homebuilding reporting segment’s

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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 described in Note 2 – Segment

Information in the Notes to Consolidated Financial Statements in this report.  Corporate and other had operating losses of

$157.8 million in 2025, $149.0 million in 2024 and $142.6 million in 2023.

The financial results of our homebuilding reporting segments for 2025 and 2024 were impacted to varying degrees by price

reductions and homebuyer concessions selectively extended to buyers in conjunction with our sales strategies, as well as

product and geographic mix shifts of homes delivered.

West Coast.  The following table presents financial information related to our West Coast homebuilding reporting segment

for the years indicated (dollars in thousands, except average selling price):

In 2025 and 2024, this segment’s revenues consisted of housing revenues and nominal land sale revenues.  Housing

revenues of $2.69 billion for 2025 declined 8% from $2.93 billion in 2024 due to a decrease in the number of homes delivered,

as the average selling price was about the same as the prior year.  Operating income for 2025 was down year over year,

reflecting lower housing gross profits, partially offset by lower selling, general and administrative expenses.  As a percentage of

revenues, this segment’s 2025 operating income decreased from the previous year, reflecting a 140 basis-point decline in the

housing gross profit margin to 17.9% and a 10 basis-point increase in selling, general and administrative expenses as a

percentage of housing revenues to 6.8%.  The housing gross profit margin decline primarily reflected higher relative land costs,

partly offset by lower construction costs.  Inventory-related charges associated with housing operations were $4.3 million in

2025, compared to $2.9 million in 2024.

Southwest.  The following table presents financial information related to our Southwest homebuilding reporting segment

for the years indicated (dollars in thousands, except average selling price):

This segment’s revenues in 2025 and 2024 were generated solely from housing revenues.  Housing revenues for 2025

declined 5% year over year, reflecting a decrease in the number of homes delivered, partly offset by an increase in their average

selling price.  Operating income was down from the previous year, primarily due to lower housing gross profits, partly offset by

lower selling, general and administrative expenses.  As a percentage of revenues, operating income decreased due to a 50 basis-

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point decline in the housing gross profit margin to 24.3%, partially offset by a 20 basis-point improvement in selling, general

and administrative expenses as a percentage of housing revenues to 7.2%.  The year-over-year decrease in the housing gross

profit margin mainly reflected higher relative land costs, partially offset by lower construction costs.  Inventory-related charges

associated with housing operations were $1.6 million in 2025, compared to $.3 million in 2024.

Central.  The following table presents financial information related to our Central homebuilding reporting segment for the

years indicated (dollars in thousands, except average selling price):

This segment’s revenues in 2025 were generated solely from housing operations.  In 2024, revenues were comprised of

both housing revenues and land sale revenues.  Housing revenues for 2025 declined 19% from $1.45 billion in the prior year,

reflecting decreases in both the number of homes delivered and the average selling price of those homes.  Land sale revenues

were $3.2 million in 2024.  Operating income for 2025 was down year over year mainly due to lower housing gross profits,

partly offset by lower selling, general and administrative expenses.  Land sale profits were $1.1 million in 2024.  As a

percentage of revenues, operating income declined from the previous year, reflecting a 510 basis-point decrease in the housing

gross profit margin to 16.6% and a 40 basis-point increase in selling, general and administrative expenses as a percentage of

housing revenues to 10.4%.  The year-over-year decline in the housing gross profit margin was mainly driven by price

reductions, higher relative land costs, geographic mix, an increase in inventory-related charges, and reduced operating leverage

from lower housing revenues.  The housing gross profit margin for 2025 included inventory-related charges of $20.4 million,

compared to $.8 million in 2024.  The year-over-year increase in selling, general and administrative expenses as a percentage of

housing revenues was primarily due to reduced operating leverage from lower housing revenues.

Southeast.  The following table presents financial information related to our Southeast homebuilding reporting segment for

the years indicated (dollars in thousands, except average selling price):

In 2025, this segment’s revenues were comprised of housing revenues and nominal land sale revenues.  This segment’s

revenues for 2024 were generated solely from housing operations.  In 2025, housing revenues declined 9% year over year to

$1.10 billion, largely due to a decrease in the average selling price of homes delivered, as the number of homes delivered was

nearly even with the prior year.  Operating income was down from 2024, reflecting lower housing gross profits, partially offset

by lower selling, general and administrative expenses.  As a percentage of revenues, operating income decreased from 2024

primarily due to a 430 basis-point decline in the housing gross profit margin to 16.5% and a 50 basis-point increase in selling,

general and administrative expenses as a percentage of housing revenues to 9.4%.  The year-over-year decrease in the housing

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gross profit margin for 2025 mainly reflected price reductions, higher relative land costs, geographic mix, increased inventory-

related charges and decreased operating leverage from lower housing revenues.  In 2025, inventory-related charges associated

with housing operations were $5.7 million, compared to $.5 million in 2024.  The year-over-year increase in selling, general

and administrative expenses as a percentage of housing revenues was primarily due to reduced operating leverage from lower

housing revenues as well as higher marketing and other expenses associated with our expanded community count in this

segment.

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):

(a)Loan originations and sales occurred within KBHS.

Revenues.  Our financial services reporting segment, which includes the operations of KB HOME Mortgage Company,

generates revenues primarily from insurance commissions and title services. In 2025, financial services revenues declined 13%

year over year due to decreases in both insurance commissions and title services revenues.

Pretax income.  Our financial services pretax income for 2025 declined 28% from the previous year due to a decrease in

the equity in income of our unconsolidated joint venture, KBHS, as well as lower operating income from our insurance and title

services businesses.  In 2025, the equity in income of our unconsolidated joint ventures decreased 38% year over year,

reflecting KBHS’ lower income.  The year-over-year decrease in KBHS’ income was primarily due to a loss of $11.4 million in

the fair value of interest rate lock commitments (“IRLCs”) in 2025, compared to a gain of $2.1 million in 2024.  Also

contributing to the year-over-year decrease in KBHS’ income was a lower principal amount of loans originated, which mainly

reflected decreases in both the number of homes we delivered and the percentage of homebuyers using KBHS.  In 2025, 85% of

the buyers financing their home purchases used KBHS, compared to 87% in the prior year.  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.

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INCOME TAXES

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

Our effective tax rate for 2025 was slightly lower than the previous year, mainly due to a decrease in our blended state tax

rate.

On June 27, 2024, California enacted Senate Bill 167 (“SB-167”), which, among other things, suspended California net

operating loss (“NOL”) utilization and imposed a cap of $5.0 million on the amount of California business incentive tax credits

companies can utilize, effective for tax years beginning on or after January 1, 2024 and before January 1, 2027.  This act

suspends our ability to use our California NOLs for the years ended November 30, 2025 through 2027.  SB-167 includes an

extended carryover period for the suspended California NOLs with an additional year carryforward for each year of suspension.

This act had no impact on our income tax expense for the year ended November 30, 2025 and will have no impact on our

income tax expense in future periods.  However, it is expected to impact the timing of tax payments, resulting in a higher

amount of taxes paid for the years ended November 30, 2025 through 2027 and a lower amount of taxes paid when the

California NOLs can be utilized.

Internal Revenue Service (“IRS”) guidance issued in 2023 heightened the Section 45L energy-efficiency qualification

standard for homes built in California relative to other states.  This guidance, along with our decision to build homes in many of

our markets beginning in 2025 that are highly energy efficient and qualify for ENERGY STAR certification but do not qualify

for Section 45L tax credits, impacted the tax credits we recognized for 2025 relative to 2024.  We believe the additional costs

necessary to satisfy the higher standards for some of our homes outweigh the possible benefits of meeting those standards for

both our business and our buyers.

On July 4, 2025, the OBBBA was signed into law.  Among its provisions is the repeal of Section 45L tax credits for new

energy-efficient homes delivered after June 30, 2026.  As a result, beginning in our 2026 third quarter, our income tax expense

and effective tax rate will no longer reflect a benefit from such tax credits as to homes delivered after the effective date.  We do

not expect the other tax-related provisions of the OBBBA to have a material effect on our effective tax rate for the year ending

November 30, 2026.

Under current accounting standards, we expect volatility in our income tax expense in future periods, the magnitude of

which will depend on, among other factors, the price of our common stock and the timing and volume of stock-based

compensation award activity, such as employee exercises of stock options and the vesting of restricted stock awards and

performance-based restricted stock units (each, a “PSU”).

Further information regarding our income taxes is provided in Note 14 – 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

generally accepted accounting principles (“GAAP”).  We believe this non-GAAP financial measure is relevant and useful to

investors in understanding 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.

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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):

(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.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of November 30, 2025, we had $1.34 billion in aggregate principal amount of outstanding senior notes, no borrowings

outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the

Term Loan.  Our obligations to pay principal and interest on the senior notes and borrowings, if any, under the Credit Facility

and the Term Loan are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”), which

are listed on Exhibit 22.  Our other subsidiaries, including all of our subsidiaries associated with our financial services

operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a

Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best

interest.  See Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional

information regarding the terms of our senior notes, the Credit Facility and the Term Loan.

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 and Term Loan, 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, the Credit Facility and the Term Loan 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.

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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.

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;

• the Term Loan;

• 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 acquisitions and land development;

•home construction;

•operating expenses;

•principal and interest payments on notes payable;

•repayments of borrowings under the Credit Facility;

•dividends paid to stockholders; and

•repurchases of our common stock.

Cash flows for each of our communities depend on their stage of development and can differ significantly from reported

earnings.  Early stages of development or expansion can require significant cash outflows for land acquisition, entitlements,

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land development, and construction of roads, utilities, landscaping, model homes and other items.  Because these costs are

capitalized as a component of our inventories and are not recognized in our statement of operations until a home is delivered,

we incur significant cash outflows prior to recognizing earnings from a delivered home.  As homes are delivered, which in

some cases may be a year or more after the related land development or entitlement work commences, cash inflows may

significantly exceed earnings reported for financial statement purposes, as the cash outflows associated with the land and home

construction were previously incurred.

We ended 2025 with total liquidity of $1.43 billion, including cash and cash equivalents and nearly $1.20 billion of

available capacity under the Credit Facility.  Cash and cash equivalents totaled $228.6 million at November 30, 2025, compared

to $598.0 million at November 30, 2024.  Cash equivalents included in the total were $152.6 million at November 30, 2025 and

$385.1 million at November 30, 2024, and were mainly invested in interest-bearing bank deposit accounts and money market

funds.  We had no cash borrowings outstanding under the Credit Facility as of November 30, 2025.  Based on our financial

position as of November 30, 2025, and our business forecast for 2026 as discussed below under “Outlook,” we have no material

concerns related to our liquidity.  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.  Our material cash requirements include the following contractual and other obligations:

Notes Payable.  We have outstanding variable-rate borrowings under the Term Loan, and outstanding fixed-rate senior

notes and mortgages and land contracts due to land sellers and other loans with varying maturities.  As of November 30, 2025,

our notes payable had an aggregate principal amount of $1.70 billion, with $.8 million payable within 12 months.  Future

interest payments associated with the Term Loan and our senior notes, together with the unused commitment fee associated

with our Credit Facility, totaled $379.5 million as of November 30, 2025, with $97.2 million payable within 12 months.  The

Term Loan will mature on November 12, 2029.  Our next senior note maturity is our $300.0 million in aggregate principal

amount of 6.875% Senior Notes due 2027.  Further information regarding our notes payable is provided in Note 15 – Notes

Payable in the Notes to Consolidated Financial Statements in this report.

Leases.  We have operating leases for certain property and equipment with an expected term at the commencement date of

more than 12 months.  As of November 30, 2025, the future minimum payments required under these leases totaled $21.2

million, with $7.9 million payable within 12 months.  Further information regarding our leases is provided in Note 13 – Leases

in the Notes to Consolidated Financial Statements in this report.

Inventory-Related Obligations.  As of November 30, 2025, we had inventory-related obligations totaling $48.2 million,

comprised of liabilities for inventory not owned associated with financing arrangements as discussed in Note 8 – Variable

Interest Entities in the Notes to Consolidated Financial Statements in this report, as well as liabilities for fixed or determinable

amounts associated with tax increment financing entity (“TIFE”) assessments.  Approximately $9.7 million of these inventory-

related obligations are payable within 12 months.  However, TIFE assessment obligations are paid by us only to the extent we

do not deliver homes on applicable lots before the related TIFE obligations mature.

Investments in Land and Land Development.  Our investments in land and land development decreased 8% to $2.61 billion

in 2025, compared to $2.84 billion in 2024.  Land acquisition expenditures, which are included in our investments in land and

land development, decreased 20% to $992.1 million from $1.24 billion in the year-earlier period.  Approximately 38% of our

total investments in land and land development in 2025 were related to land acquisitions, compared to approximately 44% in

2024.  While we made strategic investments in land and land development in each of our homebuilding reporting segments

during 2025 and 2024, approximately 51% and 58%, respectively, of these investments for each year were made in our West

Coast homebuilding reporting segment.

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 standards.  Our investments in land and land development in the future will

depend significantly on market conditions, our expectations for future growth and available opportunities that meet our

investment return standards.

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):

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The carrying value of lots we owned or controlled under land option contracts and other similar contracts at November 30,

2025 increased 3% year over year, mainly due to investments in land and land development in 2025.  The number of lots we

owned and controlled as of November 30, 2025 decreased 16% from November 30, 2024, largely reflecting homes delivered

and our decision to abandon 24,596 previously controlled lots, partly offset by newly optioned lots in 2025.  The number of lots

in inventory as of November 30, 2025 included 7,715 lots under contract where the associated deposits were refundable at our

discretion, compared to 18,923 of such lots at November 30, 2024.  Our lots controlled under land option contracts and other

similar contracts as a percentage of total lots was 43% at November 30, 2025, compared to 49% at November 30, 2024.

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.

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, if applicable, 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

November 30, 2025, we estimate the remaining purchase price to be paid would be as follows: 2026 – $1.16 billion; 2027 –

$524.8 million; 2028 – $194.1 million; 2029 – $100.5 million; and 2030 and thereafter – $0.

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

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

Our financial leverage, as measured by the ratio of debt to capital, was 30.3% at November 30, 2025, compared to 29.4% at

November 30, 2024.  The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus

stockholders’ equity).

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LOC Facility.  We maintain a 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, 2028, we may issue up to $100.0 million of letters of

credit.  As of November 30, 2025 and 2024, we had letters of credit outstanding under the LOC Facility of $68.2 million and

$73.3 million, respectively.

Performance Bonds.  As discussed in Note 17 – Commitments and Contingencies in the Notes to Consolidated Financial

Statements in this report, we had $1.37 billion and $1.33 billion of performance bonds outstanding at November 30, 2025 and

2024, respectively.

Unsecured Revolving Credit Facility.  On November 12, 2025, we obtained a $1.20 billion Credit Facility, which

refinanced and replaced our prior $1.09 billion unsecured revolving credit facility that was due to mature on February 18, 2027.

The Credit Facility will mature on November 12, 2030 and contains an uncommitted accordion feature under which its

aggregate principal amount of available loans can be increased to a maximum of $1.70 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 November 30, 2025, we had no cash borrowings

and $1.6 million of letters of credit outstanding under the Credit Facility.  The Credit Facility is further described in Note 15 –

Notes Payable in the Notes to Consolidated Financial Statements in this report.

Under the terms of the Credit Facility and the Term Loan, we are required, among other things, to maintain compliance

with various covenants, including financial covenants regarding our consolidated tangible net worth, consolidated leverage ratio

(“Leverage Ratio”), and either a consolidated interest coverage ratio (“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 the Term Loan and can differ in certain respects from

comparable GAAP or other commonly used terms.  The financial covenant requirements under the Credit Facility and the Term

Loan 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) $2.70 billion, plus (b) an amount equal to 50% of the aggregate of the

cumulative consolidated net income for each fiscal quarter commencing after August 31, 2025 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 August

31, 2025.

•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 and the Term Loan.

•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 and the Term Loan, 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 and the Term

Loan, for the four most recently ended fiscal quarters in the aggregate.

In addition, under the Credit Facility and the Term Loan, our equity investments in joint ventures and Non-Guarantor

Subsidiaries and other unconsolidated entities 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 credit rating, as

defined under the Credit Facility and the Term Loan, the Credit Facility and the Term Loan do not permit our borrowing base

indebtedness, which, subject to certain exceptions, 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 in certain cases unrestricted cash assets).

The covenants and other requirements under the Credit Facility and the Term Loan 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 the Term Loan, and our actual levels or ratios (as applicable) with respect to those

covenants and other requirements, in each case as of November 30, 2025:

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(a)Under the terms of the Credit Facility and the Term Loan, 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-leaseback transactions involving property above a certain specified value.  In addition, the indenture contains

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

As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements

under the Credit Facility, the Term Loan, the senior notes, the indenture, the LOC Facility, 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.  Our ability to

access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the

ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and

financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under

those instruments.

There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which

would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit

Facility or the Term Loan 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 November 30, 2025, we had outstanding mortgages and land contracts due

to land sellers and other loans payable in connection with such financing of $3.1 million, secured primarily by the underlying

property, which had an aggregate carrying value of $16.8 million.

Senior Unsecured Term Loan.  On November 12, 2025, we entered into an amendment to our $360.0 million Term Loan

with the lenders party thereto that extended its maturity from August 25, 2026 to November 12, 2029.  The Term Loan is

further described in Note 15 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Unconsolidated Joint Ventures.  As discussed in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to

Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets

where our homebuilding operations are located.  As of November 30, 2025, one of our unconsolidated joint ventures had

borrowings outstanding under a term loan with a third-party lender, secured by the underlying property and related project

assets.  None of our other unconsolidated joint ventures had outstanding debt at November 30, 2025.

Consolidated Cash Flows.  The following table presents a summary of net cash provided by (used in) our operating,

investing and financing activities (in thousands):

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Operating Activities.  Generally, our net operating cash flows fluctuate primarily based on changes in our inventories and

our profitability.  Our net cash provided by operating activities in 2025 mainly reflected net income of $428.8 million and a net

decrease in receivables of $5.0 million, partly offset by a net increase in inventories of $179.5 million and a net decrease in

accounts payable, accrued expenses and other liabilities of $75.2 million.  Net cash provided by operating activities in 2024

primarily reflected net income of $655.0 million and a net decrease in receivables of $16.6 million, partly offset by a net

increase in inventories of $385.8 million and a net decrease in accounts payable, accrued expenses and other liabilities of $7.2

million.

Investing Activities.  In 2025, our net cash used in investing activities included $48.4 million for net purchases of property

and equipment and $16.4 million for contributions to unconsolidated joint ventures.  These uses of cash were partially offset by

a $3.0 million return of investments in unconsolidated joint ventures.  In 2024, our uses of cash included $39.3 million for net

purchases of property and equipment and $14.5 million for contributions to unconsolidated joint ventures.  These uses of cash

were partly offset by a $2.0 million return of investments in unconsolidated joint ventures and $1.7 million of proceeds from the

sale of an investment.

Financing Activities.  In 2025, our uses of cash included stock repurchases and excise tax payments totaling $541.3

million, dividend payments on our common stock of $68.6 million, tax payments associated with stock-based compensation

awards of $23.9 million and payments on mortgages and land contracts due to land sellers and other loans of $.1 million.  The

cash used was partially offset by $1.1 million of issuances of common stock under employee stock plans.  In 2024, net cash was

used for stock repurchases totaling $353.7 million, dividend payments on our common stock of $71.6 million, tax payments

associated with stock-based compensation awards of $25.0 million, and payments on mortgages and land contracts due to land

sellers and other loans of $.9 million.  The cash used was partially offset by $10.4 million of issuances of common stock under

employee stock plans.

Dividends.  In 2025, our board of directors declared four quarterly cash dividends of $.25 per share of common stock.  In

the 2024 first quarter, our board of directors declared a quarterly cash dividend of $.20 per share of common stock.  Our board

of directors approved a $.05 per share increase in the quarterly cash dividend on our common stock to $.25 per share in the

2024 second quarter, and declared quarterly dividends at the new higher rate for the 2024 second, third and fourth quarters.  All

dividends declared during 2025 and 2024 were also paid during those years.  Quarterly cash dividends declared and paid during

the years ended November 30, 2025 and 2024 totaled $1.00 per share and $.95 per share of common stock, respectively.  The

declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion

of our board of directors, and depend upon, among other things, our expected future earnings, cash flows, capital requirements,

access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and

general financial condition, as well as general business conditions.

Shelf Registration Statement.  We have an automatically effective universal shelf registration statement that was filed with

the SEC on July 10, 2023 (“2023 Shelf Registration”).  The 2023 Shelf Registration registers the offering of securities that we

may issue from time to time in amounts to be determined.  Our ability to issue securities is subject to market conditions and,

with respect to debt securities, other factors impacting our borrowing capacity.  We have not made any offerings of securities

under the 2023 Shelf Registration.

Share Repurchase Program.  As of November 30, 2023, there was $163.6 million of remaining availability under a share

repurchase authorization that our board of directors approved on March 21, 2023.  In the 2024 first quarter, we repurchased

826,663 shares of our common stock in the open market pursuant to the 2023 board of directors authorization at a total cost of

$50.0 million.  On April 18, 2024, our board of directors authorized us to repurchase up to $1.00 billion of our outstanding

common stock.  This authorization replaced the 2023 board of directors authorization, which had $113.6 million remaining.  In

the 2024 second, third and fourth quarters, we repurchased 3,898,518 shares of our common stock at a total cost of $300.0

million, bringing our total repurchases for the year ended November 30, 2024 to 4,725,181 shares of common stock at a total

cost of $350.0 million.  In the 2025 first, second and third quarters, we repurchased 7,788,113 shares of our common stock at a

total cost of $438.5 million.  On October 9, 2025, our board of directors authorized us to repurchase up to $1.00 billion of our

outstanding common stock.  This authorization replaced the 2024 board of directors authorization, which had $261.5 million

remaining.  In the 2025 fourth quarter, we repurchased 1,597,196 shares of our common stock on the open market pursuant to

the 2025 authorization at a total cost of $100.0 million, bringing our total repurchases for the year ended November 30, 2025 to

9,385,309 shares of common stock at a total cost of $538.5 million.

Repurchases under the current authorization may occur periodically through open market purchases, privately negotiated

transactions or otherwise, with the timing and amount at management’s discretion and dependent on market, business and other

conditions.  This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our

board of directors, and does not obligate us to purchase any shares.  As of November 30, 2025, there was $900.0 million of

remaining availability under this share repurchase authorization.

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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.  In 2026, 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 or loans to mature or expire.

Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial

market conditions or other factors, including those described below under “Outlook” 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying consolidated financial statements were prepared in conformity with GAAP.  The preparation of these

financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and

liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented,

and could affect the comparability of such information over different reporting periods.  Actual results could differ from those

estimates and assumptions, and the difference may have a material impact on our consolidated financial statements.  See Note 1

– Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report for a discussion

of our significant accounting policies.  The following are accounting policies that we believe are critical because of the

significance of the activity to which they relate or because they require the use of significant estimates, judgments and/or other

assumptions in their application.

Homebuilding Revenue Recognition.  We recognize homebuilding revenue by applying the following steps in determining

the timing and amount of revenue to recognize: (1) identify the contract(s) with a customer; (2) identify the performance

obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations

in the contract, if applicable; and (5) recognize revenue when (or as) we satisfy a performance obligation.

Our home sale transactions are made pursuant to contracts under which we typically have a single performance obligation

to deliver a completed home to the homebuyer when closing conditions are met.  Revenues from home sales are recognized

when we have satisfied the performance obligation within the sales contract, which is generally when title to and possession of

the home and the risks and rewards of ownership are transferred to the homebuyer on the closing date.  Little to no estimation is

involved in recognizing such revenues.

We may periodically elect to sell parcels of land to third parties if such assets no longer fit into our strategic operating plans

or are zoned for non-residential development.  Revenues from land sales are recognized when we have satisfied the

performance obligation(s) within the sales contract, which is generally when title to and possession of the land and the risks and

rewards of ownership are transferred to the land buyer on the closing date.  Certain land sales contracts may require

management judgment in determining the appropriate revenue recognition, but the impact of such transactions is generally

immaterial.

Inventories and Cost of Sales.  Housing and land inventories are stated at cost, unless the carrying value is determined not

to be recoverable, in which case the affected inventories are written down to fair value or fair value less associated costs to sell.

Fair value is determined based on estimated future net cash flows discounted for inherent risks associated with the real estate

assets, or other valuation techniques.  Due to uncertainties in the estimation process and other factors beyond our control, it is

possible that actual results could differ from those estimated.  Other than model homes, our inventories typically do not consist

of completed unsold homes.  However, as discussed above under Item 1 – Business in this report, we may have unsold

completed or partially completed homes in our inventory.

We rely on certain estimates to determine our construction and land costs and resulting housing gross profit margins

associated with revenues recognized.  Construction and land costs are comprised of direct and allocated costs, including

estimated future costs for the limited warranty we provide on our homes, and certain amenities within a community.  Land

acquisition, land development and other common costs are generally allocated on a relative fair value basis to the homes or lots

within the applicable community or land parcel.  Land acquisition and land development costs include related interest and real

estate taxes.

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In determining a portion of the construction and land costs recognized for each period, we rely on project budgets that are

based on a variety of assumptions, including future construction schedules and costs to be incurred.  It is possible that actual

results could differ from budgeted amounts for various reasons, including construction delays, construction resource shortages,

increases in costs that have not yet been committed, changes in governmental requirements, unforeseen environmental hazards

or other unanticipated issues encountered during construction and other factors beyond our control.  While the actual results for

a particular construction project are accurately reported over time, variances between the budgeted and actual costs of a project

could result in the understatement or overstatement of construction and land costs and homebuilding gross profits in a particular

reporting period.  To reduce the potential for such distortion, we have set forth procedures that collectively comprise a critical

accounting policy.  These procedures, which we have applied on a consistent basis, include assessing, updating and revising

project budgets on a monthly basis, obtaining commitments to the extent possible from independent contractors and vendors for

future costs to be incurred, reviewing the adequacy of warranty accruals and historical warranty claims experience, and utilizing

the most current information available to estimate construction and land costs to be charged to expense.  Variances to the

budgeted costs after an estimate has been charged to expense that are related to project costs are generally allocated on a

relative fair value basis to the remaining homes to be delivered within the community or land parcel, while such variances

related to direct construction costs are generally expensed as incurred.  The variances between budgeted and actual costs have

historically not been material to our consolidated financial statements.  We believe that our policies provide for reasonably

dependable estimates to be used in the calculation and reporting of construction and land costs.

Inventory Impairments and Land Option Contract Abandonments.  Each community or land parcel in our owned inventory

is assessed to determine if indicators of potential impairment exist.  Impairment indicators are assessed separately for each

community or land parcel on a quarterly basis and include, but are not limited to, the following: significant decreases in net

orders, average selling prices, volume of homes delivered, gross profit margins on homes delivered or projected gross profit

margins on homes in backlog or future deliveries; significant increases in budgeted land development and home construction

costs or cancellation rates; or projected losses on expected future land sales.  If indicators of potential impairment exist for a

community or land parcel, the identified asset is evaluated for recoverability.

When an indicator of potential impairment is identified for a community or land parcel, we test the asset for recoverability

by comparing the carrying value of the asset to the undiscounted future net cash flows expected to be generated by the asset.

The undiscounted future net cash flows are impacted by then-current conditions and trends in the market in which the asset is

located as well as factors known to us at the time the cash flows are calculated.  These factors may include recent trends in our

orders, backlog, cancellation rates and volume of homes delivered, as well as our expectations related to the following: product

offerings; market supply and demand, including estimated average selling prices and related price appreciation; and land

development, home construction and overhead costs to be incurred and related cost inflation.

Generally, a community must have a projected gross profit margin percentage below approximately 5% to proceed to a

recoverability test and a potential fair value evaluation.  Our overall housing gross profit margin in the 2025 fourth quarter was

17.0%, and as of November 30, 2025, 11 communities were evaluated for recoverability based on their gross profit margins.

However, if there is a sustained economic slowdown or other factor(s) that lead to moderate or significant decreases in new

home prices in certain submarkets, more communities could begin to approach gross profit margin levels where we would

conduct a fair value analysis.  Any resulting impairment(s) from such an analysis(es) could be material.  Additionally, we have

$143.7 million of deposits and pre-acquisition costs at November 30, 2025 related to land option contracts and other similar

contracts.  If there are events that lead to moderate or significant decreases in new home prices, we could elect to cancel several

such contracts, resulting in the write-off of the related deposits and pre-acquisition costs.

The following table presents information regarding inventory impairment and land option contract abandonment charges

included in construction and land costs in our consolidated statements of operations (dollars in thousands):

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The inventory impairment charges in 2025 were principally driven by increased land development costs imposed by a

municipality affecting certain communities, and our decisions to make changes in our operational strategies aimed at more

quickly monetizing our investment in certain communities, mainly by accelerating the overall pace for selling, building and

delivering homes therein.  There were no inventory impairment charges in 2024 or 2023.

As further described in Note 7 – Inventory Impairments and Land Option Contract Abandonments in the Notes to

Consolidated Financial Statements in this report, given the inherent challenges and uncertainties in forecasting future results,

our inventory assessments at the time they are made take into consideration whether a community or land parcel is active,

meaning whether it is open for sales and/or undergoing development, or whether it is being held for future development or held

for sale.

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 the real estate asset is greater

than its fair value.  These real estate assets are written down to fair value, less associated costs to sell.  The fair value of such

real estate assets is generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or

similar information.

Our inventory controlled under land option contracts and other similar contracts is assessed to determine whether it

continues to meet our investment return standards.  Assessments are made separately for each optioned land parcel on a

quarterly basis and are affected by the following factors relative to the market in which the asset is located, among others:

current and/or anticipated net orders, average selling prices and volume of homes delivered; estimated land development and

home construction costs; and projected profitability on expected future housing or land sales.  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.

The estimated remaining life of each community or land parcel in our inventory depends on various factors, such as the

total number of lots remaining; the expected timeline to acquire and entitle land and develop lots to build homes; the anticipated

future net order and cancellation rates; and the expected timeline to build and deliver homes sold.  While it is difficult to

determine a precise timeframe for any particular inventory asset, based on current market conditions and expected delivery

timelines, we estimate our inventory assets’ remaining operating lives to range generally from one year to 10 years and expect

to realize, on an overall basis, the majority of our inventory balance as of November 30, 2025 within five years.  The following

table presents as of November 30, 2025 and 2024, respectively, the estimated timeframe of delivery for the last home in an

applicable community or land parcel and the corresponding percentage of total inventories such categories represent within our

inventory balance (dollars in millions):

The inventory balances in the 0-2 years and 3-5 years categories were located throughout all of our homebuilding reporting

segments and collectively represented 94% and 98% of our total inventories as of November 30, 2025 and 2024, respectively.

As of November 30, 2025, the inventory balance in the 6-10 years category was primarily located in our Southwest and Central

segments and mostly comprised of active, multi-phase communities with large remaining land positions.

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, especially in periods of volatile housing market or economic conditions.

Deterioration in the supply and demand factors in the overall housing market or in an individual market or submarket, or

changes to our operational or selling strategy at certain communities may lead to additional inventory impairment charges,

future charges associated with land sales or the abandonment of land option contracts or other similar contracts related to

certain assets.  Due to the nature or location of the projects, land held for future development that we activate as part of our

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strategic growth initiatives or to accelerate sales and/or our return on investment, or that we otherwise monetize to help improve

our asset efficiency, may have a somewhat greater likelihood of being impaired than other of our active inventory.

We believe the carrying value of our inventory balance as of November 30, 2025 is recoverable.  Our considerations in

making this determination include the factors and trends incorporated into our impairment analyses, and as applicable, the

prevailing regulatory environment, competition from other homebuilders, inventory levels and sales activity of resale homes,

and the local economic conditions where an asset is located.  In addition, we consider the financial and operational status and

expectations of our inventories as well as unique attributes of each community or land parcel that could be viewed as indicators

for potential future impairments.  However, if conditions in the overall housing market or in a specific market or submarket

worsen in the future beyond our current expectations, including, among other things, from increases in mortgage interest rates,

higher inflation, worsening supply chain and/or other production-related challenges, or if future changes in our business

strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in

any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory

impairments or land option contract abandonments, or both, related to our current inventory assets.  Any such charges could be

material to our consolidated financial statements.

Warranty Costs.  We provide a limited warranty on all of our homes.  The specific terms and conditions of our limited

warranty program vary depending upon the markets in which we do business.  We estimate the costs that may be incurred under

each limited warranty and record a liability in the amount of such costs at the time the revenue associated with the sale of each

home is recognized.  In assessing our overall warranty liability at a reporting date, we evaluate the costs for warranty-related

items on a combined basis for all of our previously delivered homes that are under our limited warranty program.

Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a

strong indicator of future claims experience.  Factors that affect our warranty liability include the number of homes delivered,

historical and anticipated rates of warranty claims, and cost per claim.  We periodically assess the adequacy of our accrued

warranty liability, which is included in accrued expenses and other liabilities in our consolidated balance sheets, and adjust the

amount as necessary based on our assessment.  Our assessment includes the review of our actual warranty costs incurred to

identify trends and changes in our warranty claims experience, and considers our home construction quality and customer

service initiatives and outside events.  Based on this assessment, we may from time to time adjust our warranty accrual rates,

which would be applied on a prospective basis to homes delivered.  Although adjustments to the accrual rates are generally

infrequent, they may be necessary when actual warranty expenditures have increased or decreased on a sustained basis, as was

the case in recent years when we revised our warranty accrual rates to reflect trends in our warranty expenditures.  Based on our

assessment, we may also make adjustments to our previously recorded accrued warranty liability.  Such adjustments are

recorded in the period in which the change in estimate occurs.  In 2023, we made an adjustment to increase our accrued

warranty liability by $4.0 million.  There were no such adjustments during 2025 and 2024.  We have not made any material

changes in the methodology used to establish our accrued warranty liability during 2025, 2024 and 2023.  Our accrued warranty

liability is presented on a gross basis for all years without consideration of recoveries and amounts we have paid on behalf of

and expect to recover from other parties, if any.  Estimates of recoveries and amounts we have paid on behalf of and expect to

recover from other parties, if any, are recorded as receivables when such recoveries are considered probable.

While we believe the warranty liability currently reflected in our consolidated balance sheets to be adequate, unanticipated

changes or developments in the legal environment, local weather, land or environmental conditions, quality of materials or

methods used in the construction of homes or customer service practices and/or our warranty claims experience could have a

significant impact on our actual warranty costs in future periods and such amounts could differ significantly from our current

estimates.  A 10% change in the historical warranty rates used to estimate our accrued warranty liability would not result in a

material change in our accrual.

Self-Insurance.  We maintain, and require the majority of our independent contractors to maintain, general liability

insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance.  These insurance

policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-

insured retentions, deductibles and other coverage limits.  We self-insure a portion of our overall risk through the use of a

captive insurance subsidiary.  In Arizona, California, Colorado and Nevada, our contractors’ general liability insurance

primarily takes the form of a wrap-up policy under a program where eligible independent contractors are enrolled as insureds

on each community.  Enrolled contractors generally contribute toward the cost of the insurance and agree to pay a contractual

amount in the future if there is a claim related to their work.

We record liabilities based on the estimated costs required to cover reported claims, claims incurred but not yet reported,

and claim adjustment expenses.  These estimated costs are based on an actuarial analysis of our historical claims and expense

data, as well as industry data.  Our self-insurance liabilities are presented on a gross basis without consideration of

insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any.

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The amount of our self-insurance liability is based on an analysis performed by a third-party actuary that uses our historical

claim and expense data, as well as industry data to estimate these overall costs.  These estimates are subject to uncertainty due

to a variety of factors, the most significant being the long period of time between the delivery of a home to a homebuyer and

when a structural warranty or construction defect claim may be made, and the ultimate resolution of any such construction

defect claim.  Though state regulations vary, construction defect claims are reported and resolved over a long period of time,

which can extend for 10 years or more.  As a result, the majority of the estimated self-insurance liability based on the actuarial

analysis relates to claims incurred but not yet reported.  Therefore, adjustments related to individual existing claims generally

do not significantly impact the overall estimated liability.  Adjustments to our liabilities related to homes delivered in prior

years are recorded in the period in which a change in our estimate occurs.  During 2024 and 2023, we recorded adjustments to

increase our previously recorded liabilities by $5.5 million and $6.5 million, respectively.  There were no such adjustments

during 2025.  The adjustments in 2024 and 2023 resulted from changes in estimates due to actual claims experience differing

from previous actuarial projections and, in turn, impacting actuarial estimates for existing and potential future claims.  We have

not made any material changes in our methodology used to establish our self-insurance liabilities during 2025, 2024 or 2023.

The projection of losses related to these liabilities requires the use of actuarial assumptions.  Key assumptions used in

developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended

period of time.  These estimates are subject to variability due to the length of time between the delivery of a home to a

homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding

such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations,

among other factors.  Due to the degree of judgment involved and the potential for variability in these underlying assumptions,

our actual future costs could differ from those estimated.  In addition, changes in the frequency and severity of reported claims

and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be

material to our consolidated financial statements.  A 10% increase in the claim frequency and the average cost per claim used to

estimate the self-insurance liability would result in increases of approximately $27.9 million in our liability and approximately

$6.8 million in our receivable as of November 30, 2025, and additional expense of approximately $21.1 million for 2025.  A

10% decrease in the claim frequency and the average cost per claim used to estimate the self-insurance liability would result in

decreases of approximately $25.7 million in our liability and approximately $6.3 million in our receivable as of November 30,

2025, and a reduction to expense of approximately $19.4 million for 2025.

Estimates of insurance recoveries and amounts we have paid on behalf of other parties, if any, are recorded as receivables

when such recoveries are considered probable.  These estimated recoveries are principally based on actuarially determined

amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance

policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the

regulatory environment, and legal precedent, and are subject to a high degree of variability from year to year.  Because of the

inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from

amounts currently estimated.

Legal Matters Accruals.  We record contingent liabilities resulting from claims against us when a loss is assessed to be

probable and the amount of the loss is reasonably estimable.  Assessing the probability of losses and estimating probable losses

requires analysis of multiple factors, including in some cases judgments about the potential actions of third-party claimants,

regulatory agencies, mediators, arbitrators, responsible third parties and/or courts, as the case may be.  Recorded contingent

liabilities are based on the most recent information available and actual losses in any future period are inherently uncertain.  If

future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would

record additional charges during the period in which the actual loss or change in estimate occurred.  In addition to contingent

liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility the ultimate loss

will materially exceed the recorded liability.  While we cannot predict the outcome of pending legal matters with certainty, we

do not believe any currently identified claim or proceeding, either individually or in aggregate, will have a material impact on

our results of operations, financial position or cash flows.

Income Taxes.  As discussed in Note 14 – Income Taxes in the Notes to the Consolidated Financial Statements in this

report, we evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based

on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to

whether deferred tax assets will be realized.  This evaluation considers, among other factors, our historical operating results, our

expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing

market and the broader economy.  The ultimate realization of our deferred tax assets depends primarily on our ability to

generate future taxable income during the periods in which the related deferred tax assets become deductible.  The value of our

deferred tax assets in our consolidated balance sheets depends on applicable income tax rates.  We base our estimate of deferred

tax assets and liabilities on current tax laws and rates.  In certain cases, we also base this estimate on business plan forecasts and

other expectations about future outcomes.  Changes in positive and negative evidence, including differences between our future

operating results and estimates, could result in the establishment of an additional valuation allowance against our deferred tax

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assets.  Accounting for deferred taxes is based upon estimates of future results.  Judgment is required in determining the future

tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns.  Differences

between the anticipated and actual outcomes of these future results could have a material impact on our consolidated financial

statements.  Also, changes in existing federal and state tax laws and corporate income tax rates could affect future tax results

and the realization of deferred tax assets over time.

We recognize accrued interest and penalties related to unrecognized tax benefits in our consolidated financial statements as

a component of the provision for income taxes.  Our liability for unrecognized tax benefits, combined with accrued interest and

penalties, is reflected as a component of accrued expenses and other liabilities in our consolidated balance sheets.  Judgment is

required in evaluating uncertain tax positions.  We evaluate our uncertain tax positions quarterly based on various factors,

including changes in facts or circumstances, tax laws or the status of audits by tax authorities.  Changes in the recognition or

measurement of uncertain tax positions could have a material impact on our consolidated financial statements in the period in

which we make the change.

INFLATION

Since 2021, product and labor costs and general inflation in the economy have increased and remained elevated compared

to the prior decade.  In turn, we experienced rising land and construction costs, particularly for building materials and

construction service providers’ rates, warranty repair costs, and compensation and benefit expenses to attract and retain talent.

These trends are expected to continue to an extent in 2026, though they may worsen compared to prior years. We generally

enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes a significant

period of time before development and/or sales efforts commence.  Accordingly, to the extent land acquisition costs are fixed,

subsequent increases or decreases in our home selling prices will affect our profits.  As the selling price of each of our homes is

fixed at the time a buyer enters into a home sales contract, and because we generally commence construction of a home only

after we have a signed sales contract with a homebuyer, any interim construction-related cost inflation can result in lower

housing gross profit margins.  In order to help, but not entirely moderate that effect, we typically enter into fixed-price contracts

with our larger trade partners and building material suppliers for specified periods of time.

Inflation is often accompanied by higher and more volatile interest rates, which may negatively impact housing

affordability and the confidence of potential homebuyers, and adversely impact demand for our homes.  Inflation may also

increase our financing costs, as borrowings under our Credit Facility, if any, and Term Loan typically accrue interest at a

variable rate based on SOFR.

We expect the inflationary pressures on our business to continue in 2026.  While we attempt to pass on increases in our

costs through increased home selling prices, including for design choices and options, market forces and buyer affordability

constraints can limit our ability to do so.  If we are unable to raise selling prices enough to compensate for higher costs, or our

borrowing costs increase significantly, our revenues, housing gross profit margin and net income could be adversely affected.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the Notes to

Consolidated Financial Statements in this report.

OUTLOOK

We remain optimistic about the long-term prospects for the housing market, given solid underlying drivers, mainly

favorable demographic trends in population growth and household formation, supporting higher demand over time, together

with the ongoing structural undersupply of new homes.  While 2025 presented challenging market conditions and our results

declined year over year, we believe we executed well operationally, maintaining high customer satisfaction levels, further

improving build times, lowering construction costs and balancing pace and price to optimize each asset, and delivered solid

operational and financial results.  We expect challenging conditions to persist in 2026, as tepid consumer confidence,

macroeconomic and geopolitical uncertainties, affordability challenges and persistently elevated mortgage interest rates

continue to constrain the pool of actionable buyers and cause buyers to hesitate on making purchasing decisions.  At the same

time, we believe we are well-positioned to achieve our projections for the first quarter and full year based on our operational

capabilities, affordable product offerings, improved build times, planned community openings, lot supply, strong balance sheet

and liquidity, and substantial backlog value of $1.40 billion at November 30, 2025, subject to the factors and risks described in

this report.

Reflecting the prevailing environment, and despite a steady level of traffic in our communities, we experienced year-over-

year decreases in our 2025 fourth quarter net orders of 10%, ending backlog of 29% and ending backlog value of 37%.  The

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value of our net orders for the 2025 fourth quarter was down 17% year over year driven by the decline in net orders and a 7%

decrease in their average selling price to $455,400, largely due to price reductions we implemented beginning in mid-February

2025 as part of 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.  We expect these price reductions to moderate our overall average selling price and housing gross profit margin on

homes delivered for the 2026 first quarter.

Looking ahead, we intend to continue to balance pace and price at the community level to optimize our assets for the

highest possible returns.  While selling through our current inventory, we intend to emphasize sales of our Built to Order homes

with the goal of bringing their proportion in our mix of homes delivered closer to our historical average of 60% to 70%, up

from around 55% in 2025.  The 2025 Built to Order mix largely reflects 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.  Our Built to Order homes are our core

competency, a key competitive differentiator that typically generate higher gross profit margins than inventory homes started

without a corresponding buyer, and an appealing proposition to prospective customers, particularly with the meaningful

reduction in our build times we have achieved since the 2023 second quarter, the highly customer-centric personalized

homebuilding process we offer, and the simplified sales approach we implemented in 2025.  We were encouraged to see a shift

toward more Built to Order sales during November and December 2025.

We are entering 2026 with a strong financial position and enhanced financial flexibility, supported by our new expanded

Credit Facility and the recent extension of our Term Loan maturity to 2029.  In 2026, in order to maintain our long-term growth

platform, we intend, subject to the operating environment and available opportunities, to acquire and control additional land

positions within attractive submarkets in our served markets that meet our investment standards and develop land we own in a

manner that prioritizes capital efficiency, including developing lots where possible in smaller phases and aligning development

with our starts pace to optimally manage our inventory of finished lots.

Consistent with our balanced approach to capital allocation, we also plan to continue returning capital to our stockholders,

primarily through additional share repurchases.  As of November 30, 2025, we had $900.0 million remaining under our current

board of directors share repurchase authorization.  This provides us the opportunity to continue to repurchase our common

stock in 2026, with the pace, volume and timing based on considerations of our operating cash flow, liquidity outlook, land

investment opportunities and needs, the market price of our common stock, and the housing market and general economic

conditions.  Subject to these factors, we expect to repurchase between $50.0 million and $100.0 million of our common stock in

our 2026 first quarter.

In considering the foregoing, our present outlook for the 2026 first quarter and the 2026 full year as to certain metrics is as

follows:

2026 First Quarter –

•We expect deliveries to be in the range of 2,300 to 2,500 homes, compared to 2,770 in the year-earlier period.

•We expect to generate housing revenues in the range of $1.05 billion to $1.15 billion, compared to $1.39 billion for the

corresponding 2025 period.

•We expect our housing gross profit margin to be in the range of 15.4% to 16.0%, assuming no inventory-related

charges, compared to 20.3% for the corresponding 2025 quarter.

•We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of

12.2% to 12.8%, compared to 11.0% for the 2025 first quarter.

•We expect our effective tax rate will be approximately 19.0%.  The effective tax rate for the year-earlier quarter was

21.4%.

2026 Full Year –

•We expect deliveries to be in the range of 11,000 to 12,500, compared to 12,902 for 2025.

•We expect our housing revenues to be in the range of $5.10 billion to $6.10 billion, compared to $6.21 billion for

2025.

•We expect our effective tax rate will be in the range of 24% to 26%, compared to 22.6% for 2025.

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In addition to factors discussed elsewhere in this report, our future performance and the strategies we implement (and

adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding

industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory

environment (particularly in regard to housing and mortgage loan financing policies).  This includes U.S. trade policy and

recently implemented and proposed tariffs, and other countries’ countervailing measures, on raw building materials, such as

steel, lumber, drywall and concrete, and/or finished products.  Though certain tariffs and countervailing measures instituted in

2025 have influenced pricing in adjacent sectors, we have not experienced significant cost increases or raw material/finished

product availability constraints as of the date of this filing.  However, if the U.S. or foreign governments take actions that cause

tariff-related cost or availability pressures to escalate or expand, we could experience significant construction cost increases

and/or supply chain disruptions that, in turn, would impact our business and our consolidated financial statements in future

reporting periods.  Additionally, while the Federal Reserve reduced interest rates in September, October and December 2025,

and may lower rates further in 2026 or later periods, we cannot provide any assurance it will or that any interest rate

reduction(s), or other monetary policy changes, will meaningfully lower mortgage interest rates or positively affect demand or

our business, results of operations or consolidated financial statements.  The potential extent and effect of these and other

factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in 2025,

should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net

orders, backlog, revenues, margins and returns.

FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press

releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during

presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the

“Act”).  Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words

such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-

looking statements.  In addition, any statements that we may make or provide concerning future financial or operating

performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales

pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings

per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing

business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts

that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our

net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases,

future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as

defined by the Act.  Forward-looking statements are based on our current expectations and projections about future events and

are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding

industry, among other things.  These statements are not guarantees of future performance, and we have no specific policy or

intention to update these statements.  If we update or revise any such statement(s), no assumption should be made that we will

further update or review that statement(s) or update or revise any other such statement(s).  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;

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•material and trade costs and availability, including the greater costs associated with achieving current and expected

higher standards for ENERGY STAR certified homes, and delays related to state and municipal construction,

permitting, inspection and utility processes, which have been disrupted by key equipment shortages;

•consumer and producer price inflation;

•changes in interest rates, including those set by the Federal Reserve and those available in the capital markets or from

financial institutions and other lenders, and applicable to mortgage loans;

•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 and the Term Loan;

•the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders

and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees

to or for us under the Credit Facility or LOC Facility;

•volatility in the market price of our common stock;

•home selling prices, including our homes’ selling prices, being unaffordable relative to 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, particularly homebuilders with significant unsold inventory;

•weather events, significant natural disasters and other climate and environmental factors, such as a lack of adequate

water supply to permit new home communities in certain areas, and the unprecedented wildfires in the Los Angeles

County area in January 2025;

•lingering economic and financial market impacts from the prolonged shutdown of the federal government’s operations

in October and November 2025, and any failure of lawmakers to agree on a budget or appropriation legislation to fund

the federal government’s operations (also known as a government shutdown), and financial markets’ and businesses’

reactions to any such failure;

•potential instability associated with the regulatory and executive policies, proposals and orders of the U.S. presidential

administration, including any directed at our operations, business practices or capital allocation strategies;

•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 thereto, such as IRS guidance regarding heightened qualification requirements

for federal tax credits for building energy-efficient homes and the pending expiration of such tax credits in 2026;

•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;

•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 and efficiently develop acquired land

parcels and open new home communities;

•impairment, land option contract abandonment or other inventory-related charges, including any stemming from

decreases in the value of our land assets;

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•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, through, among other things, our

making substantial investments in land and land development, which, in some cases, involves putting significant

capital over several years into large projects in one location, and in entering into new markets;

•our operational and investment concentration in markets in California;

•consumer interest in and responsiveness to our new home communities, products and simplified selling process and

transparent pricing initiatives, 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 homeowners and flood insurance policies, and/or typical or lender-required

policies for other hazards or events, for their homes, which may depend on the ability and willingness of insurers or

government-funded or -sponsored programs to offer coverage at an affordable price or at all;

•the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend

on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers;

•the performance of mortgage lenders to our homebuyers;

•the performance of KBHS;

•the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated

mortgage loans;

•information technology failures and data security breaches;

•an epidemic, pandemic or significant seasonal or other disease outbreak, and the control response measures that

international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to

address it, which may 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;

•widespread protests and/or civil unrest, whether due to political events, social movements or other reasons; and

•other events outside of our control.