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Item 1. Business

2022-01-21 compared with 2021-01-22 · 213 added, 146 removed, 222 unchanged (62% of the section changed)

KB Home is one of the largest and most recognized homebuilding companies in the U.S.

We have been building homes for over 60 years, with nearly 645,000 homes delivered since our founding in 1957.

We have been building homes for 65 years, with over 655,000 homes delivered since our founding in 1957.

We build a variety of new homes designed primarily for first-time and first move-up, as well as second move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums.

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Our financial services operations, which accounted for the remaining .3% of our total revenues in 2021, offer various insurance products to our homebuyers in the markets where we build homes and provide title services in certain of those markets.

Our financial services operations also provide mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), an unconsolidated joint venture we formed with Stearns Ventures, LLC (“Stearns”).

Our financial services operations also provide mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), which is an unconsolidated joint venture between us and a third party.

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

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and “community count” is the number of communities we have open for sales with at least five homes/lots left to sell.

The following charts present homes delivered, homebuilding revenues, net income and diluted earnings per share for the years ended November 30, 2016, 2018 and 2020:

Reflecting the geographic reach of our homebuilding business, we have ongoing operations in the eight states and 45 major markets presented below.

The following charts present homebuilding revenues, homes delivered, net income and diluted earnings per share for the years ended November 30, 2017, 2019 and 2021, and book value per share as of November 30, 2017, 2019 and 2021:

Reflecting the geographic reach of our homebuilding business, we have ongoing operations in the nine states and 47 major markets presented below.

We also operate in various submarkets within these major markets.

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Segment States Major Market(s)

West Coast California Contra Costa County, Elk Grove, Fresno, Los Angeles, Hollister, Madera, Modesto, Oakland, Orange County, Riverside, Sacramento, Salinas, San Bernardino, San Diego, San Francisco, San Jose, Santa Rosa-Petaluma, Stockton, Vallejo, Ventura and Yuba City

West Coast California Contra Costa County, Fresno, Hollister, Los Angeles, Madera, Modesto, Oakland, Orange County, Riverside, Roseville, Sacramento, Salinas, San Bernardino, San Diego, San Francisco, San Jose, Santa Rosa-Petaluma, Stockton, Vallejo, Ventura and Yuba City

Washington Olympia and Seattle

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Southeast Florida Fort Myers, Jacksonville, Lakeland, Melbourne, Orlando, Palm Coast, Sarasota and Tampa

North Carolina Charlotte and Raleigh

Segment Operating Information.

The following table presents certain operating information for our homebuilding reporting segments for the years ended November 30, 2020, 2019 and 2018 (dollars in millions, except average selling price):

Years Ended November 30,

2020 2019 2018

Homes delivered 2,869 3,214 3,152

Percentage of total homes delivered 27 % 27 % 28 %

Average selling price $ 609,400 $ 592,300 $ 661,500

Homebuilding revenues (a) $ 1,748.6 $ 1,912.2 $ 2,085.3

Homes delivered 2,385 2,346 2,301

Percentage of total homes delivered 22 % 20 % 20 %

Average selling price $ 327,300 $ 322,000 $ 307,300

Homebuilding revenues (a) $ 796.8 $ 764.8 $ 707.1

Homes delivered 3,932 4,291 4,113

Percentage of total homes delivered 37 % 36 % 36 %

Average selling price $ 303,400 $ 293,500 $ 297,400

Homebuilding revenues (a) $ 1,192.9 $ 1,267.9 $ 1,239.3

Homes delivered 1,486 2,020 1,751

Percentage of total homes delivered 14 % 17 % 16 %

Average selling price $ 288,600 $ 293,200 $ 286,600

Homebuilding revenues (a) $ 429.4 $ 592.8 $ 502.1

Homes delivered 10,672 11,871 11,317

Average selling price $ 388,900 $ 380,000 $ 399,200

Homebuilding revenues (a) $ 4,167.7 $ 4,537.7 $ 4,533.8

(a) Homebuilding revenues include revenues from housing and, if applicable, land sales.

The above table does not include homes delivered or revenues from unconsolidated joint ventures in which we participate.

These unconsolidated joint ventures acquire and develop land in various markets where our homebuilding operations are located and, in some cases, build and deliver homes on the land developed.

Additional financial and operational information related to our homebuilding reporting segments, including revenues, operating income (loss), pretax income (loss), inventories and assets, is provided below under Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report.

North Carolina Charlotte, Durham-Chapel Hill and Raleigh

Business Strategy

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• Customers .

With our Built-to-Order® homebuying process, we provide each of our homebuyers with a highly personalized experience where they can make a wide range of structural and design choices for their future new home, as discussed further below under “Customer Obsession.” We believe this highly interactive, “customer-first” experience that puts our homebuyers firmly in control of designing the home they want based on how they live and

what they value, at an affordable price, gives us a meaningful and distinct competitive advantage over other homebuilders and resale and rental homes.

We seek to manage our working capital and reduce our operating risks by primarily acquiring entitled land parcels within attractive submarkets identified by our market research activities.

We seek to manage our working capital and reduce our operating risks by primarily acquiring entitled land parcels within attractive submarkets identified by our market research.

We typically focus on metropolitan areas with favorable long-term economic and population growth prospects that we believe have the potential to sustain a minimum of 800 homes delivered per year, and target land parcels that meet our investment return standards.

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We focus on investments that provide a one- to two-year supply of land or lots per product line, per community, and individual assets that are generally between 50 to 200 lots in size.

Our primary focus continues to be our existing geographic footprint, encompassing markets we identified for their long-term economic and demographic growth potential.

Though we evaluate new markets to enter, our primary focus is on our existing geographic footprint.

We leverage the relationships we have with land owners, developers and brokers to find and acquire land parcels, and use our experience in working with municipalities to efficiently obtain development approvals.

We offer our customers a base product with a standardized set of functions and features that is generally priced to be affordable for those with household incomes near the local area’s median level.

With our Built-to-Order approach, our customers have the opportunity to select their lot location within a community, floor plan, elevation and structural options, and to personalize their homes with numerous interior design options and upgrades in our design studios.

Our design studios, generally centrally located within our served markets, are a key component of our Built-to-Order process, and the mix of design options and upgrades they offer are primarily based on the preferences identified by our market survey and purchase frequency data, as discussed further below under “Customer Obsession.” We utilize a centralized internal architectural group that designs homes to meet or exceed customers’ price-to-value expectations while being as efficient as possible to construct.

We offer our customers a variety of homes with a standardized set of base functions and features generally priced to be affordable for those with household incomes within a range of the local area’s median level.

With our Built-to-Order approach, our customers have the opportunity to select their lot location within a community, floor plan, elevation and structural options, and to personalize their homes beyond our base offerings with numerous interior design options and upgrades in our KB Home Design Studios.

Our design studios, generally centrally located within our served markets, are a key component of our Built-to-Order process, with the mix of design options and upgrades we offer at each studio primarily based on the preferences identified by our market survey and purchase frequency data, as discussed further below under “Customer Obsession.” We utilize a centralized internal architectural group that designs homes to meet or exceed customers’ price-to-value expectations while being as efficient as possible to construct.

To enhance the simplicity and efficiency of our products and processes, our architectural group has developed a core series of high-frequency, flexible floor plans and elevations that we can offer across many of our served markets.

Our standardized plans allow us to more effectively shift with local demand and developable land attributes, help us to better understand the cost to build our products and enable us to compare and implement best practices across divisions and communities.

We also incorporate energy-efficient features into our product designs to help lower our homebuyers’ total cost of homeownership and reduce our homes’ impact on the environment, as further discussed below under “Sustainability.”

Our standardized plans allow us to more effectively shift with local demand and particular site attributes, such as the size and location of developable lots, enabling us to better understand in advance the cost to build our products and to compare and implement best land development and home construction practices across divisions and communities.

We also incorporate energy-efficient features into our product designs to help lower our homebuyers’ total cost of homeownership and reduce our homes’ impact on the environment, as discussed below under “Environmental, Social and Governance.”

• Operations .

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We generally commence construction of a home only after we have a signed purchase contract with a homebuyer and have obtained preliminary credit approval or other evidence of the homebuyer’s financial ability to purchase the home, and seek to build a backlog of sold homes.

In order to help moderate construction-related cost inflation, we typically enter into fixed-price contracts with our larger trade partners and building material suppliers for specified periods of time.

By maintaining a substantial backlog, along with centralized scheduling and standardized reporting processes, we have established a disciplined and scalable operational platform that helps us sustain an even-flow production of pre-sold homes.

This reduces our inventory risk, promotes construction efficiencies, enhances our relationships with independent subcontractors and other business partners, and provides us with greater visibility and predictability on future deliveries as we grow.

This reduces our inventory risk, promotes construction efficiencies, enhances our relationships with independent contractors and other business partners, and provides us with greater visibility and predictability on future deliveries as we grow.

There may be market-driven circumstances where we believe it is necessary or appropriate to temporarily deviate from certain of the above principles.

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or acquiring land parcels in peripheral neighborhoods of a core metropolitan area that otherwise fit our growth strategy and meet our investment return standards.

In addition, other circumstances could arise in the future that may lead us to make specific short-term shifts from these principles.

An underlying tenet of our business approach is to continue to improve our asset efficiency by, among other things:

• Calibrating home sales rates and selling prices at each of our communities to enhance profitability;

• Further controlling our direct construction costs within our communities;

• Accelerating inventory turns;

• Structuring land acquisitions to minimize upfront costs where possible, as further discussed below under “Community Development and Land Inventory Management”;

• Reactivating communities that have been held for future development;

• Deploying excess cash flow from operations to help fuel additional revenue growth and/or reduce debt.

The anticipated associated revenue and pretax income growth from this strategic approach should help drive the utilization of our deferred tax assets and allow us to realize substantial tax cash savings that can be productively deployed in our business and/or to enhance our capital structure.

Throughout 2021, we experienced significant supply chain disruptions and construction services shortages that, in conjunction with high customer demand, impacted our operations in many markets by, among other things, impairing our even-flow home production process;

causing appreciable delays in opening new communities and delivering homes;

and prompting us to narrow the design options and upgrades offered in our design studios and provide substitutes for unexpectedly unavailable items, in some cases on an interim basis.

Other circumstances could arise in the future that may lead us to make specific short-term shifts from our KB Edge principles.

Asset Efficiency.

In implementing our KB Edge business strategy, a key tenet of our approach is to enhance asset efficiency.

We do this by calibrating home sales rates and selling prices at each of our communities to improve profitability;

focusing on controlling direct construction costs within our communities;

increasing inventory turns to the extent practical;

balancing pace, price and construction starts at each community;

structuring land acquisitions to minimize upfront costs where possible, as discussed below under “Community Development and Land Inventory Management”;

and deploying excess cash flow from operations to help fuel additional revenue growth or reduce debt, among other steps.

Raising our asset efficiency also supports utilization of our valuable deferred tax assets, allowing us to realize substantial tax cash savings that can be productively deployed in our business or to enhance our capital structure.

Customer Obsession.

Based on more than 60 years of experience, we believe the best homes start with the people who live in them.

Our customer-centric approach comes from a deep-rooted operational philosophy and company culture animated by a paramount objective:

Our customer-centric approach comes from a deep-rooted operational philosophy and company culture motivated by a paramount objective:

to be the most customer-obsessed homebuilder in the world.

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We are proud of the high levels of satisfaction our homebuyers have reported to us and on outside surveys.

In 2020, even with the challenges we faced associated with the outbreak of the 2019 coronavirus disease (“COVID-19”), we achieved the top rank for customer satisfaction among homebuilders in third-party surveys, which we believe reflects the effective dedication we have to our homebuyers.

In 2021, we achieved the top rank for customer satisfaction among homebuilders in third-party surveys, which we believe reflects the effective dedication we have to our homebuyers.

Promotional Marketing Strategy.

To emphasize the distinct combination of innovative designs, personalization, affordability and partnership we offer to our homebuyers and the importance we place on customer satisfaction, we have centered our external brand identity and messaging around Built on Relationships®.

To emphasize the distinct combination of innovative designs, personalization, affordability and partnership we offer to our homebuyers and the importance we place on customer satisfaction, we have

centered our external brand identity and messaging around Built on Relationships®.

Built on Relationships also encapsulates the importance of customer, as discussed above, and other key relationships – with suppliers, trade contractors, land sellers and municipalities – to the success of our business.

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• Offering Innovative Designs .

We believe we offer our homebuyers product designs that distinctively blend consumer-preferred elements, such as open floor plans, flexible living spaces and extra storage, as discussed above under “Customer Obsession;” quality construction standards;

We believe we offer homebuyers product designs that distinctively blend consumer-preferred elements, such as open floor plans, flexible living spaces and extra storage, as discussed above under “Customer Obsession;” quality construction standards;

and superior energy efficiency, compared to other new homes and resale homes with which we compete.

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We give our homebuyers considerable ability to personalize their new home from floor plans to design features to where they live in the community.

At our KB Home Design Studio, our homebuyers are able to get both advice and the opportunity to select from a broad range of included features, design upgrades and options that will help personalize their home.

At our KB Home Design Studios, our homebuyers are able to get both advice and the opportunity to select from a broad range of included features, design upgrades and options that will help personalize their home.

• Affordable Today and a Lower Cost of Homeownership Tomorrow .

We offer a variety of homes generally priced to be affordable for those with household incomes near the local area’s median level.

Our ENERGY STAR® certified homes can provide long-term significant savings on utility bills compared to typical resale homes and to competitive new homes that are not ENERGY STAR certified.

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Our dedicated team of sales counselors, design studio consultants, construction superintendents and customer service representatives, as well as KBHS loan officers, work closely with our homebuyers throughout the homebuying process.

We typically sell our homes through our commissioned sales associate employees from sales offices located in or adjacent to furnished model homes in each community.

With the outbreak of COVID-19 and the related responses by public health and governmental authorities to contain and combat its outbreak and spread (“COVID-19 control responses”), we adapted and progressively enhanced our electronic sales capabilities during 2020 to give our customers a variety of convenient ways to shop for and purchase a new KB home, including, among other things:

We typically sell our homes through commissioned sales associate employees from sales offices located in or adjacent to furnished model homes in each community.

We also use electronic sales capabilities, which we have progressively enhanced since 2020, as the outbreak of the 2019 coronavirus disease (“COVID-19”) pandemic and the related responses by public health and governmental authorities to contain and combat its outbreak and spread (“COVID-19 control responses”) accelerated our use of technology to give our customers a variety of convenient ways to shop for and purchase a new KB home, including, among other things:

• Offering virtual home tours for prospective homebuyers;

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• Conducting virtual appointments and tours of the design studios with our studio professionals;

• Continuing to have KBHS qualify homebuyers for mortgages who may be or are purchasing a home, and utilizing online tools and/or contactless methods to serve homebuyers where possible;

• Having KBHS pre-qualify our homebuyers for mortgages, and utilizing online tools and/or contactless methods to serve homebuyers where possible;

• Organizing virtual events with the broker community to introduce new communities;

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• Arranging virtual or drive-through closings, where permitted.

In addition, as part of our commitment to sustainability, which is discussed further below, and providing our customers a simple path to homeownership, we continue to work towards the goal of paperless homebuying.

In addition, as part of our commitment to sustainability, which is discussed further below under “Environmental, Social and Governance,” and providing our customers a simple path to homeownership, we continue to work towards the goal of paperless homebuying.

Over the past few years, we have eliminated a significant amount of paper from our home purchase contract by reducing the number of forms required to complete the process and digitizing as many of the remaining forms as possible.

We plan to make additional investments in our digital sales and marketing tools in 2022.

To the extent permitted in 2020, our communities have been open to walk-in traffic, following appropriate safety protocols and applicable public health guidelines.

We market our homes to prospective homebuyers and real estate brokers through a variety of media, and use data analytics to target our advertising and measure its effectiveness and efficiency in terms of generating leads and net orders.

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Homebuyer Profile .

We focus on bracketing within a range around the median household income in a submarket in order to position our product and pricing to be attainable for the largest demand segments of that submarket.

Across our portfolio, we offer an array of products, from smaller, higher density homes, with average selling prices typically suited for first-time homebuyers, to larger homes in premium locations with additional amenities, with higher average selling prices that generally

attract a first or second move-up homebuyer.

We focus on offering a variety of homes with a standardized set of base functions and features that are generally priced to be affordable for those with household incomes within a range of the local area’s median level in order to position our products to be attainable for the largest demand segments of the relevant submarket.

Our product portfolio for customers ranges from smaller, higher density homes, with average selling prices typically suited for first-time homebuyers, to larger homes in premium locations with additional amenities and higher average selling prices that generally attract a first or second move-up homebuyer.

We also offer a variety of single-story floorplans that typically appeal to an active adult homebuyer age 55 and over, as well as multi-story floorplans that attract a wide range of homebuyers.

For more than a decade, approximately 75% of our annual deliveries have been to first-time and first move-up homebuyers;

in 2020, it was 78% of our deliveries, as shown in the following chart:

For more than a decade, first-time and first move-up homebuyers have accounted for an average of over 75% of our annual deliveries ;

in 2021, these homebuyers accounted for 81% of our deliveries, as shown in the following chart:

Operational Structure.

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internal audit and compliance activities;

information technology systems;

information technology (“IT”) systems;

and investor and media relations.

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Developable land for the production of homes is a core resource for our business.

Based on our current strategic plans, we seek to own or control land sufficient to meet our forecasted production goals for the next three to five years.

Based on our current strategic plans, we seek to own or control land sufficient to meet our forecasted production goals for the next four to six years.

In 2022, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment return standards.

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Our community development process varies based on, among other things, the extent and speed of required government approvals and utility service activations, the overall size of a particular community, the scope of necessary site preparation activities, the type of product(s) that will be offered, weather conditions, time of year, promotional marketing results, the availability of construction resources, consumer demand, local and general economic and housing market conditions, and other factors.

In 2021, as noted above under “Business Strategy,” we experienced extended community development timelines due to nationwide supply chain disruptions that created shortages of

certain construction materials and other products;

construction services availability constraints;

and delays with respect to state and municipal construction permitting, inspections and utilities, and we believe these challenging conditions will generally persist into 2022 and potentially throughout the year, as discussed below under “Outlook.”

Although they vary significantly in size and complexity, our single-family residential home communities typically consist of 50 to 200 lots per product line, with lots ranging in size from 1,700 to 11,000 square feet.

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We also generally build one to three model homes at each community so that prospective homebuyers can preview the various products available.

Depending on the community, we may offer premium lots

containing more square footage, better views and/or location benefits.

Depending on the community, we may offer premium lots containing more square footage, better views and/or location benefits.

Some of our communities consist of multiple-story structures that encompass several attached condominium-style units.

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We expect that the overall balance of undeveloped, unentitled, entitled, partially finished and finished lots in our inventory will vary over time, and in implementing our strategic growth initiatives, we may acquire a greater proportion of undeveloped or unentitled land in the future if and as the availability of reasonably priced land with finished or partially finished lots diminishes.

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

assessment of environmentally-sensitive areas and areas that may be suitable for parks, trails, and open space preservation areas;

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

distance to major employment and retail centers;

and site design and product (home designs and specifications) plans that are consistent with our commitment to building 100% ENERGY STAR homes using 100% WaterSense® labeled fixtures, as discussed below under “Environmental, Social and Governance.”

We generally structure our land acquisition and land development activities to minimize, or defer the timing of, expenditures in order to reduce both the market risks associated with holding land and our working capital and financial commitments, including interest and other carrying costs.

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We refer to land subject to such option or similar contractual rights as being “controlled.” Our decision to exercise a particular land option or similar right is based on the results of our due diligence and continued market viability analysis after entering into such a contract.

Information related to our land option contracts and other similar contracts is provided in Note 7 – Inventory Impairments and Land Option Contract Abandonments and Note 8 – Variable Interest Entities (“VIEs”) in the Notes to Consolidated Financial Statements in this report.

The following table presents the number of inventory lots we owned, in various stages of development, or controlled under land option contracts or other similar contracts by homebuilding reporting segment as of November 30, 2021 and 2020:

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(a) Land under option as of November 30, 2021 and 2020 includes 12,434 and 10,254 lots, respectively, under land option contracts or other similar contracts where the associated deposits were refundable at our discretion.

The following charts present the percentage of inventory lots we owned or had under land option contracts or other similar contracts by homebuilding reporting segment and the percentage of total lots we owned and had under option as of November 30, 2020:

The following charts present the percentage of inventory lots we owned or controlled under land option contracts or other similar contracts by homebuilding reporting segment and the percentage of total lots we owned and had under option as of November 30, 2021:

Home Construction and Deliveries.

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Our cycle time from home sale to delivery is typically six to seven months.

We act as the general contractor for the majority of our communities, and engage outside general contractors in all other instances.

We, or the outside general contractors we engage, contract with a variety of independent subcontractors, who are typically locally based, to perform all land development and home construction work through their own employees or subcontractors.

We, or outside general contractors we may engage, contract with a variety of independent contractors, who are typically locally based, to perform all land development and home construction work through these independent contractors’ own employees or subcontractors.

We do not self-perform any land development or home construction work.

These independent subcontractors also supply some of the building materials required for such production activities.

Our contracts with these independent subcontractors require that they comply with all laws applicable to their work, including wage and safety laws, meet performance standards, follow local building codes and permits, and abide by our Ethics Policy referenced under Item 10 – Directors, Executive Officers and Corporate Governance in this report.

These independent contractors also supply some of the building materials required for such production activities.

Our contracts with these independent contractors require that they comply with all laws applicable to their work, including wage and safety laws, meet performance standards, follow local building codes and permits, and abide by our Ethics Policy referenced under Item 10 – Directors, Executive Officers and Corporate Governance in this report.

Raw Materials .

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

We source all of our building materials from third parties.

We source all of our building materials from third parties, and seek out products that provide independent sustainability assessments.

In addition, our lumber suppliers generally certify that their wood was not sourced from endangered forests or is certified by recognized programs.

We attempt to enhance the efficiency of our operations by using, where practical, standardized materials that are commercially available on competitive terms from a variety of outside sources.

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The following charts present our ending backlog (number of homes and value) by homebuilding reporting segment as of November 30, 2020 and 2021:

Human Capital Resources

At December 31, 2020 and 2019, we had approximately 1,776 and 2,140 full-time employees, respectively.

None of our employees are represented by a collective bargaining agreement.

To help drive consistent execution of our business strategy, including our customer obsession philosophy, and support their development, we provide training opportunities to our employees that align with their responsibilities over the arc of their career with us.

We maintain a dedicated Internet-based learning platform with a broad portfolio of written, audio-visual and interactive enterprise-wide and discipline-specific policy and training materials.

This platform includes a library of nearly 300 self-directed courses and virtual, instructor-led programs for employees at all levels of our organization.

New employee orientations, functional role training and ethics training and certification, which is required annually for all employees, take place on this platform.

During 2020, our team members completed more than 17,000 courses in total, an average of more than eight courses per employee.

Included in this total were numerous courses and certifications associated with pandemic-related challenges such as virtual selling processes and protocols for safe business operations.

Managers and supervisors are provided training to help their reports progress in their professional development.

We are committed to maintaining a work culture that treats all employees fairly and with respect, promotes inclusivity, provides equal opportunities for the professional growth of the diverse individuals who join us, and advancement based on merit.

At December 31, 2020, females constituted approximately 42% of our workforce and 33% of our managerial employees.

Also at December 31, 2020, ethnic and racial minorities constituted approximately 33% of our workforce and 21% of our managerial employees.

We intend to continue using a combination of targeted recruiting, talent development and internal promotion strategies to expand the diversity of our employee base across all roles and functions.

In order to achieve our strategic goals, it is essential for us to attract, promote and retain qualified personnel, particularly the leaders who manage our autonomous, local divisions in our served markets and are responsible for partnering with all constituents.

Our top division and regional leaders average nearly 11 years of tenure with us, and the local leaders responsible for land acquisition, entitlement, and development average approximately 10 years with us.

In addition, our named executive officers who are responsible for setting our overall strategy average approximately 16 years with us and average more than two decades in homebuilding.

To attract and retain top talent in our highly competitive industry, we have designed our compensation and benefits programs to provide a balanced and effective reward structure.

Our short- and long-term incentive programs are aligned with key business objectives and are intended to motivate strong performance.

Our employees are eligible for medical, dental and vision insurance, a savings/retirement plan, life and disability insurance, various wellness programs and tuition reimbursement, along with an array of voluntary benefits designed to meet individual needs.

We engage nationally recognized outside compensation and benefits consulting firms to objectively evaluate our programs and benchmark them against peers and other similarly situated organizations.

To recognize and promote outstanding employees, we conduct a comprehensive talent and succession planning review process on an annual basis, focused on identifying top-performing, high-potential, and diverse team members for advancement to key field and corporate leadership roles.

This review process is overseen by the management development and compensation committee of our board of directors, which also guides updates and refinements to our human capital growth strategies.

During 2020, to address the safety and health of our workforce due to the COVID-19 pandemic, we implemented the following, among other steps:

• Temporarily closing our offices and establishing new safety protocols and procedures;

• Maintaining regular communication regarding the impacts of the pandemic on our team members and operations;

• Developing and distributing a playbook to guide the safe return to offices, communities, and work sites;

• Providing paid time-off for those directly impacted by COVID-19, and instructing those who are infected to stay home;

• Increasing cleaning protocols across all locations;

• Establishing physical distancing procedures, modifying workspaces, and providing personal protective equipment and cleaning supplies for employees who need to be onsite;

• Creating and refining protocols to address actual and suspected COVID-19 cases and potential exposure of our team members, customers, and trade partners.

Competition, Seasonality, Delivery Mix and Other Factors

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We also compete for homebuyers against housing alternatives to new homes, including resale homes, apartments, single-family rentals and other rental housing.

In markets experiencing extensive construction activity, including areas recovering from earthquakes, wildfires, hurricanes, flooding or other natural disasters, there can be severe craft and skilled trade shortages that limit independent subcontractors’ ability to supply construction services to us, which in turn tends to drive up our costs and/or extend our production schedules.

In markets experiencing extensive construction activity, including areas recovering from earthquakes, wildfires, hurricanes, flooding or other natural disasters, there can be craft and skilled trade shortages that limit independent contractors’ ability to supply construction services to us, which in turn tends to drive up our costs and/or extend our production schedules.

Elevated construction activity, and reallocations of staff for public safety priorities after natural disasters or otherwise, has also contributed to measurable increases in the amount of time needed to obtain governmental approvals or utility service activations and, combined with tariffs imposed or increased by the U.S.

and other governments, the cost of certain raw building materials, such as steel, Canadian lumber, drywall and concrete, or finished products.

In 2020, we experienced building material cost pressures, particularly for lumber, and production capacity issues with some of our main product suppliers, reflecting increases in homebuilding and renovation activity and supply chain constraints over the course of the year largely associated with COVID-19 control responses.

Since 2013, we also have seen higher prices for desirable land amid heightened competition with homebuilders and other developers and investors (both domestic and international), particularly in the land-constrained areas where we operate.

We expect these upward cost trends to continue in 2021, if and as housing market activity grows and there is greater competition for these resources.

Since 2020, we have experienced intensifying building material cost pressures, particularly for lumber, and production capacity issues with some of our main product suppliers, reflecting sustained high levels of homebuilding and renovation activity combined with supply chain disruptions stemming from international and domestic COVID-19 control responses and economy-wide labor shortages in the U.S.

In addition, since 2013, we have seen higher prices for desirable land amid heightened competition with homebuilders and other developers and investors (both domestic and international), particularly in the land-constrained areas where we operate.

We expect these upward cost trends to continue in 2022, if and as housing market activity grows and there is greater competition for these resources across a disrupted global supply chain.

Our performance is affected by seasonal demand trends for housing.

Traditionally, there has been more consumer demand for home purchases and we tend to generate more net orders in the spring and early summer months (corresponding to most of our second quarter and part of our third quarter) than at other times of the year.

Traditionally, there has been more consumer demand for home purchases and we tend to generate more net orders in the spring and early summer months

(corresponding to most of our second quarter and part of our third quarter) than at other times of the year.

This “selling season” demand results in our typically delivering more homes and generating higher revenues from late summer through the fall months (corresponding to part of our third quarter and all of our fourth quarter).

However, as illustrated in the table below, the outbreak of COVID-19 and the related COVID-19 control responses beginning in mid-March 2020 disrupted our usual seasonal patterns in 2020, with our 2020 second quarter net order activity measurably constrained followed by a significant rebound in our 2020 third and fourth quarters, resulting in a higher percentage of net orders in those quarters, compared to corresponding quarters in previous years.

The pattern of our homes delivered and housing revenues in 2020 was affected by the above-mentioned impact on our net orders in the second quarter as well as a slowdown in our housing starts in that quarter.

The seasonal pattern of our homes delivered and housing revenues in 2021 was slightly more in line with typical historical trends.

However, we can provide no assurance whether or to what extent typical seasonal performance trends will return in 2022, or at all.

First Quarter Second Quarter Third Quarter Fourth Quarter

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our selling prices (including the contribution from homebuyers’ purchases of design options and upgrades);

the pace at which we sell and deliver homes and close out communities;

the pace at which we sell and deliver homes;

the rate at which communities are sold out;

and our housing gross profits and housing gross profit margins.

Therefore, our results in any given period will fluctuate compared to other periods based on the proportion of homes delivered from areas with higher or lower selling prices and on the corresponding land and overhead costs incurred to generate those deliveries, as well as from our overall community count.

Sustainability

We have made a dedicated effort to further differentiate ourselves from other homebuilders and resale homes through our ongoing commitment to become a leading national company in sustainability.

We seek out innovative technologies and systems to further improve the energy and water efficiency of our homes.

Human Capital Resources

At November 30, 2021 and 2020, we had approximately 2,244 and 1,752 full-time employees, respectively.

None of our employees are represented by a collective bargaining agreement.

For fiscal 2021, our turnover rate was 16%, made up of 15% voluntary turnover and 1% involuntary turnover.

In order to achieve our strategic goals, it is essential for us to attract, promote and retain qualified personnel, particularly the local division leaders who manage our businesses in our served markets and partner with all constituents.

Therefore, we strive to create an engaging internal environment that offers our employees satisfying work, with meaningful opportunities for career growth and development, and rewarding short- and long-term compensation programs that are aligned with achieving our business goals.

In addition, we offer our employees benefit programs, which include medical, dental and vision insurance, a savings/retirement plan, life and disability insurance, and tuition reimbursement, along with an array of voluntary benefits designed to meet individual needs.

We engage nationally recognized outside compensation and benefits

consulting firms to objectively evaluate our programs and benchmark them against peers and other similarly sized organizations.

We believe our position as an industry leader in sustainability also supports our ability to both attract and retain high-caliber talent.

Our top division and regional leaders average more than 11 years of tenure with us, and the local leaders responsible for land acquisition, entitlement, and development average over nine years with us.

In addition, our named executive officers who are responsible for setting our overall strategy average 19 years of tenure with us and more than two decades in the homebuilding industry.

Our leadership team’s long service history provides consistency in managing our business and helps reinforce and sustain our company culture through all levels of the organization.

We are committed to supporting a work culture that treats all employees fairly and with respect, promotes inclusivity, provides equal opportunities for the professional growth of the diverse individuals who join us, and advancement based on merit.

At November 30, 2021, based on information available to us, females made up approximately 40% of our workforce and 32% of our managerial employees, with ethnic and racial minorities making up approximately 35% of our workforce and 21% of our managerial employees.

We intend to continue using a combination of targeted recruiting, talent development and internal promotion strategies to expand the diversity of our employee base across all roles and functions.

Learning and Development.

To help advance our employees’ personal growth and drive consistent execution of our business strategy, including our customer obsession philosophy, we provide training opportunities that align with team members’ responsibilities over the arc of their careers with us.

We support a dedicated Internet-based learning platform with a broad portfolio of written, audio-visual and interactive enterprise-wide and discipline-specific policy and training materials.

This platform includes a library of more than 300 self-directed courses and virtual, instructor-led programs for employees at all levels of our organization.

New employee orientations, functional role training, and our required annual ethics training and certification, are provided on this platform.

During 2021, our team members completed more than 26,000 courses in total, an average of approximately 12 courses per employee.

Managers and supervisors are provided training to help their direct reports progress in their professional development.

This review process is overseen by the management development and compensation committee of our board of directors, which also guides updates and refinements to our human capital investment and development strategies.

Employee Safety.

We strive to provide a safe working environment for our employees, as well as our trade partners, as discussed below under “Social Practices.” In addition to the benefits programs described above, we offer a wellness program designed to support our team members’ general health.

To help our team members mitigate stressors arising from the outbreak of the COVID-19 pandemic and the related COVID-19 control responses, we expanded our wellness program offerings and made them available online so that every employee had access to them.

Monthly interactive webinars address topics such as holistic health, including nutrition, and preventive care.

We have continued to enhance our wellness program throughout 2021, and see it as a positive way to create and strengthen internal connections with and among our employees.

During 2020, we implemented various steps to address the safety and health of our workforce due to the COVID-19 pandemic.

Some examples include the following:

temporarily closed our offices and established new safety protocols and procedures;

maintained regular communication regarding the impacts of the pandemic on our team members and operations;

developed and refined a playbook to guide the safe return to offices, communities, and work sites;

provided paid time off for those directly impacted by COVID-19 and instructed those who are infected to stay home;

offered additional paid time off for employees to receive their COVID-19 vaccines and recover from resulting side effects;

increased cleaning protocols across all locations;

established physical distancing procedures, modifying workspaces, and providing personal protective equipment and cleaning supplies for employees who need to be onsite;

and invested in our IT systems to support a working environment that encompasses a mix of remote and in-person arrangements.

We continued, and in some instances, expanded these efforts throughout 2021 to help enhance our employees’ well-being and productivity.

Environmental, Social and Governance (“ESG”)

For nearly 15 years, we have made a dedicated effort to become a leading national company in sustainability, which encompasses our ESG practices.

We believe our longstanding, industry-leading sustainability initiatives provide tangible benefits for our customers, our operations and the environment, and distinctly differentiate us from other builders of new homes and from resale homes.

In addition to our internal executive team, we monitor evolving trends and gather input and guidance for our initiatives through a panel of external advisors that we call our National Advisory Board, which we established in 2009 solely for these purposes.

These advisors, who have a broad and diverse set of personal and professional perspectives,

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

Environmental Practices .

We are committed to building energy-efficient homes and have progressively expanded our sustainability program and use of technological advancements to make renewable solar energy, water efficiency, waste reduction and indoor environments that support personal wellness available to our buyers.

As most of the energy consumed during a home’s multi-decade life occurs after we deliver the home to our customers, we have made energy efficiency central to our efforts to help reduce carbon and other greenhouse gas (“GHG”) emissions, and see enhancing the conservation of natural resources in a home’s day-to-day use as a key part of our business strategy.

ENERGY STAR Commitment .

The cornerstone of our energy-efficiency initiatives is building 100% ENERGY STAR certified new homes, a standard to which we committed in 2008.

ENERGY STAR is a voluntary U.S.

Environmental Protection Agency (“EPA”) and Department of Energy program that seeks to help consumers, businesses and industry save money and protect the environment through the adoption of energy-efficient products and practices.

We were the first national homebuilder to make every new home we build ENERGY STAR certified, and have built over 160,000 high-performance ENERGY STAR certified new homes since 2000, more than any other builder in the nation.

By comparison, the EPA estimates only about 10% of all new homes in the U.S.

were ENERGY STAR certified in the past three years.

According to the EPA, ENERGY STAR certified new homes achieve a 20% energy efficiency improvement on average compared to new homes built to local code, and even more compared to resale homes.

Each certified home is estimated by the EPA to reduce GHG emissions by approximately 3,287 pounds (1.5 metric tons) per year compared to a typical home.

Based on our energy use analysis, our homes currently save our homeowners an estimated average of $1,300 annually on utility bills compared to typical resale homes.

Our commitment to building ENERGY STAR certified homes has also enabled us to earn significant federal energy tax credits.

GHG Emission Reductions .

We have a goal to reduce the estimated GHG emissions (metric tons per year) of our average home built in 2025 by 0.5 metric tons per year, or 8%, from the estimated 6 metric tons per year average for a KB home built in 2020.

Our benchmark for measuring the achievement of this goal is the Home Energy Rating System (HERS®) Index, as each HERS Index score point reduction equates to a 1% improvement in energy efficiency relative to a standard new home and potentially reduces GHG emissions by an average of 0.1 metric tons (as calculated based on the states in which we operate).

Therefore, we expect to attain our GHG emissions reduction goal if we reduce our national average HERS Index score by five points, from 50 in 2020 to a target of 45 for 2025.

For comparison, a typical resale home today has a HERS Index score of 130.

We built our first solar home in 2005 and introduced our first all solar community in 2011.

We have delivered more than 14,000 homes with solar-paneled power systems, producing an estimated total of 557 million kilowatt hours of electrical power.

In recent years, we have added higher efficiency solar panels that generate more power using the same roof space.

In 2020, we were the first national homebuilder to offer a complete roof-integrated solar-paneled system.

In 2021, we built over 3,000 solar homes in California, representing nearly 80% of our homes built in the state that year.

As of November 30, 2021, approximately 72% of our model homes and sales offices in California were powered by solar energy.

Indoor Environments .

In recent years, we have expanded our sustainability portfolio to include enhancing our homes’ indoor environment with high-performance ventilation systems and low- or zero-VOC products.

In 2020, we announced a partnership with Well Living Lab, a collaboration between Delos Living LLC, a wellness real estate and technology company, and the Mayo Clinic, an academic medical center.

The Well Living Lab focuses exclusively on researching how indoor environments can improve human health and well-being.

Under this partnership, in 2021, we built a concept home in Phoenix, Arizona to demonstrate how advancements in design and construction materials as well as wellness intelligence ecosystems and biometric smart devices can make a significant potential contribution to the overall health of the home’s residents.

Separately, beginning in mid-2021, we included MERV-13 rated air filters, one of the highest rated residential air filters on the market, as standard at all of our new communities.

These filters are designed to remove dust, pollen, mold and certain bacteria and viruses for better air quality compared to lower-rated air filters, and exceed current ENERGY STAR requirements.

Consumer Awareness .

To assist customers in understanding the energy-efficiency benefits of our homes, we include a KB Home Energy Savings Comparison™, or ESC, with each home that provides an estimate of its monthly energy costs and monthly savings compared to a typical resale home.

We also engage in campaigns and other educational efforts, sometimes together with other companies, organizations and groups, to increase consumer awareness of the importance and impact of sustainability in selecting a home and the products within a home.

Under our commitment to sustainability, we, among other things:

• Build energy- and water-efficient new homes to achieve a 20% improvement on average compared to homes built to code and even more compared to resale homes.

We also seek to contribute to the reduction of greenhouse gas emissions over the long term.

Overall, we have built nearly 150,000 ENERGY STAR certified new homes since 2000, more than any other homebuilder.

These ENERGY STAR certified homes are estimated to have cumulatively saved our homeowners approximately $780 million in utility bills and reduced carbon emissions by approximately 5 billion pounds;

• Provide a KB Home Energy Savings Comparison™, or ESC, that gives home shoppers an estimate of both monthly energy costs and monthly savings of our homes over a typical resale home;

• Include in our product offerings advanced home automation technologies, components ( e.g.

, smart appliances and smart power lighting) and systems that can increase convenience for our homebuyers;

• Built more than 16,000 WaterSense® labeled and WaterSmart homes;

• Installed 700,000 WaterSense labeled fixtures, saving homeowners roughly 1.5 billion gallons of water each year;

• Delivered more than 11,000 homes with solar-paneled power systems, producing an estimated total of 428 million kilowatt hours of electrical power and reducing carbon dioxide emissions by approximately 668 million pounds.

We have been building homes with solar-paneled power systems for nearly 15 years.

We were one of the first national homebuilders to offer solar to new-home buyers.

In 2011, we introduced our first all-solar community in California.

In June 2020, we were the first national homebuilder to offer a complete roof-integrated solar-paneled system.

Our solar-paneled systems can be financed with the home purchase or leased from a third-party provider.

For several years, we have been recognized by the U.S.

Environmental Protection Agency for our sustainability achievements, and have earned awards under all of the agency’s programs aimed at homebuilders:

ENERGY STAR, which sets energy efficiency standards;

WaterSense, which establishes water efficiency standards;

and Indoor airPLUS®, which focuses on indoor air quality.

In 2020, we received the ENERGY STAR Partner of the Year — Sustained Excellence Award for the 10th consecutive year, and the WaterSense Sustained Excellence Award for water efficiency for the sixth consecutive year.

We strive to utilize the latest building science and upgraded air filtration systems in the homes we deliver, making the impact of indoor environments on one’s health a key area of our sustainable building commitment.

More information about our sustainability commitment can be found in our annual sustainability reports, which we have published on our website since 2008.

We intend to continue to research, evaluate and utilize new or improved products and construction and business practices consistent with our commitment and believe our sustainability initiatives can help put us in a better position, compared to resale homes and homebuilders with less-developed programs, to comply with evolving local, state and federal rules and regulations intended to protect natural resources and to address climate change and similar environmental concerns.

We intend to continue to research, evaluate and utilize new or improved products and construction and business practices consistent with our sustainability commitment, and believe our initiatives in this area can help put us in a better position, compared to resale homes and homebuilders with less-developed programs, to comply with evolving regulations directed at addressing climate change and similar environmental concerns, and to meet growing consumer demand for resource-efficient products, as discussed below under Item 1A – Risk Factors in this report.

Water Conservation .

As a homebuilder operating in some of the most water-challenged regions of the country, we also prioritize water conservation.

We provide water-saving features in our homes that reduce our homeowners’ bills and may help to mitigate strain on local communities’ water resources.

As water availability is an important consideration for local governments in approving new-home developments, we believe our leadership in this area has positioned us to effectively address water-related development concerns and help preserve this critical resource.

We were the first national homebuilder to join the EPA’s WaterSense program, which is a voluntary partnership program that is both a label for water-efficient products and a resource for helping conserve water.

According to the EPA, WaterSense labeled products use at least 20% percent less water compared to products that are not labeled.

To date, we have built over 18,000 WaterSense and Water Smart homes, more than any other homebuilder, and installed over 900,000 WaterSense labeled fixtures, collectively helping to save an estimated 1.6 billion gallons of water per year.

We were the first national homebuilder to implement the new WaterSense Labeled Homes Program, Version 2, which was released in February 2021 and requires homes to be at least 30% more water efficient than a typical new home.

Awards and Recognition .

We have been recognized with major national awards for our leading sustainability practices, including:

• 2021 ENERGY STAR Partner of the Year – Sustained Excellence Award – Our 11th consecutive award for demonstrating leadership in energy-efficient construction;

• 2021 ENERGY STAR Certified Homes Market Leader Awards – A record 25 awards in all, one in each of our primary markets nationwide, recognizing excellence in energy-efficient home building;

• 2021 WaterSense Sustained Excellence Award – The seventh consecutive year we have received this award for our achievements in constructing water-efficient homes;

• Newsweek 2021 and 2022 lists of America’s Most Responsible Companies – We were the only national homebuilder to receive this distinction each year for the past two years for demonstrating leading ESG practices, specifically, our industry-leading environmental initiatives, dedication to social responsibility and strong corporate governance standards.

Our annual sustainability reports, which we have published on our website since 2008, contain more information about our programs, goals, and achievements.

Social Practices .

As discussed above under “Human Capital Resources,” we maintain a human capital strategy that supports a diverse and inclusive workforce with equal opportunity and programs for training and career advancement, strong benefits, incentives, and health, safety and wellness initiatives.

We have published a Human Rights Statement that outlines our commitment to maintaining a work culture that treats all employees fairly and with respect, promotes inclusivity, provides equal opportunities for the professional growth of the diverse individuals who join us, and advancement based on merit.

We earned a place on Forbes’ 2021 list of America’s Best Midsize Employers, the only national homebuilder to receive this distinction.

In 2021, we were also the only national homebuilder named to The Wall Street Journal’s “Management Top 250” list, which identifies the most effectively managed U.S.

companies, as developed by the Drucker Institute.

Management Top 250 measures corporate effectiveness by examining performance in the areas of customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.

Safety is a priority for our employees, our homebuyers and our independent contractors.

To get a sense of our independent contractors’ compliance with their safety obligations, we track nearly 50 checkpoints across key aspects of jobsite safety, including safety documentation, personal protective equipment, scaffolding and ladders, fall protection, trenching and excavation, hazard assessment protocol, first aid and emergency plan, electrical safety and material safety.

Our commitment to our communities is not solely about the homes we build.

Our KB Cares philanthropic program helps to build strong social ties through efforts ranging from assisting people in challenging circumstances to educating the next generation.

We have partnered with local nonprofits and community organizations to contribute to the long-term social fabric of the areas in which we build.

For instance, we are one of the founding partners of the Building Talent Foundation, whose mission is to advance the education, training and career progression of young people and people from underrepresented groups as skilled technical workers and business owners in residential construction.

We have a Supplier Code of Conduct that builds upon the principles, guidelines and standards within our Ethics Policy, including operating in accordance with applicable laws;

treating all workers fairly and with dignity and respect;

and providing a clean, safe and healthy work environment.

Our Supplier Code of Conduct also encourages our suppliers to operate in an

efficient and environmentally responsible manner, conserve natural resources and minimize waste and the use of environmentally harmful materials.

Corporate Governance Practices .

Our board of directors maintains a robust governance framework and leading practices to oversee the management of our business and, among other things, oversees our sustainability initiatives as part of our overall business strategy.

Our approach to corporate governance aligns with the principles of the Investor Stewardship Group, a coalition of some of the world’s largest investors and asset managers, as follows:

Stewardship Principle What We Do

• Boards are accountable to stockholders.

• Our board is unclassified and directors stand for election annually under a majority voting standard in an uncontested election.

• Stockholders approved measures with potential “anti-takeover” effects to protect valuable deferred tax assets.

• Stockholders should be entitled to voting rights in proportion to their economic interest.

• We have one class of outstanding voting securities that allow each holder one vote for each share held.

• Boards should be responsive to stockholders and be proactive in order to understand their perspectives.

• Stockholders may communicate with us and our board.

• We proactively engage with stockholders year-round.

In 2021, many stockholder dialogues included discussions on our ESG programs’ progress.

• Boards should have a strong, independent leadership structure.

• Our board has a strong independent lead director with significant responsibilities and authority.

• Independent directors lead all board committees.

• Boards should adopt structures and practices that enhance their effectiveness.

• Directors have extensive and relevant experience and skills.

• 92% of directors are independent;

42% are women or racial or ethnic minorities.

• Stockholders elected three new candidates at our 2021 Annual Meeting, and a new director joined the board later in 2021, promoting its refreshment.

• Boards should develop management incentive structures that are aligned with the long-term strategy of the company.

• At our 2021 Annual Meeting, our proposal to approve named executive officer compensation received 85% support.

• Management compensation is designed to advance our long-term strategic goals.

More information concerning our corporate governance can be found in our Proxy Statement for the 2022 Annual Meeting of Stockholders (“2022 Proxy Statement”).

Government Regulations and Environmental Matters

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We may from time to time choose to disclose or post important information about our business on or through our investor relations website, and/or through other electronic channels, including social media outlets, such as Facebook® (Facebook.com/KBHome) and Twitter® (Twitter.com/KBHome), and other evolving communication technologies.

The content available on or through our primary website at www.kbhome.com, our investor relations website, including our sustainability reports, or social media outlets and other evolving communication technologies is not incorporated by reference in this report or in any other filing we make with the SEC, and our references to such content are intended to be inactive textual or oral references only.

The content available on or through our primary website at www.kbhome.com, our investor relations website, including our sustainability reports, Human Rights Statement, Supplier Code of Conduct and other ESG-related policies, or social media outlets and other evolving communication technologies is not incorporated by reference in this report or in any other filing we make with the SEC, and our references to such content are intended to be inactive textual or oral references only.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business