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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

þ  Annual Report Pursuant to Section 13 or 15(d) of     

For the Fiscal Year Ended November 30, 2004

or

o  Transition Report Pursuant to Section 13 or 15(d) of

For the transition period from __________ to __________.

Commission File No. 001-09195

KB HOME

10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024

Registrant’s telephone number, including area code:  (310) 231-4000

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

None

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.  YES ü    NO   

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT’S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.  o

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER(AS DEFINED IN RULE 12b-2 OF THE ACT).  YES ü  NO   

     THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT ON MAY 31, 2004 WAS $3,050,644,155, INCLUDING 7,408,420 SHARES HELD BY THE REGISTRANT’S GRANTOR STOCK OWNERSHIP TRUST AND EXCLUDING 8,448,100 SHARES HELD IN TREASURY.

     THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK ON JANUARY 31, 2005 WAS AS FOLLOWS:

	Common Stock (par value $1.00 per share) 47,740,795 shares, including 7,362,700 shares held by the Registrant’s Grantor Stock Ownership Trust and excluding 8,500,698 shares held in treasury.

Documents Incorporated by Reference

  Portions of the Registrant’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders (incorporated into Part III).

KB HOME

TABLE OF CONTENTS

PART I

General

      We are one of America’s leading homebuilders with domestic operations in the following regions and states: West Coast — California; Southwest — Arizona, Nevada, New Mexico; Central — Colorado, Illinois, Indiana and Texas; and Southeast — Florida, Georgia, North Carolina and South Carolina. Kaufman & Broad S.A. (“KBSA”), our publicly-traded subsidiary, is one of the largest homebuilders in France based on revenues. In 2004, we delivered 31,646 homes in the U.S. and France. We also provide mortgage banking services to the majority of our domestic homebuyers through our wholly-owned subsidiary, KB Home Mortgage Company (“KBHMC”). Founded in 1957 and winner of the 2004 American Business Award for Best Overall Company, KB Home is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol “KBH.”

      We have two financial reporting segments, construction and mortgage banking. Our construction segment, which generated 99% of our total revenues and pretax income in 2004, consists primarily of domestic and international homebuilding operations. Our construction operations are engaged in the acquisition and development of land primarily for residential purposes and offer a variety of homes that are designed to appeal to a wide range of buyers, including first-time and move-up homebuyers as well as luxury and active adult buyers. Domestically, we operate a geographically diverse homebuilding business which, as of November 30, 2004, was comprised of operating divisions in 12 states serving 36 markets. The following table sets forth the states and markets where we operated as of November 30, 2004:

      Internationally, we operate in France through a subsidiary, which is publicly traded on the Premier Marché of the Paris Bourse under the ticker symbol “KOF.” In addition to constructing homes, our French subsidiary builds commercial projects and high-density residential properties, such as condominium complexes, in France. The website address of our French subsidiary is http://www.ketb.com.

      Our mortgage banking subsidiary, KBHMC, provides mortgage banking services primarily to our domestic homebuyers. KBHMC originates, processes and sells mortgages to third-party investors. KBHMC generally does not retain or service the mortgages that it originates, but rather, sells the mortgages and related servicing rights to investors.

      We are a Delaware corporation with principal executive offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. The telephone number of our corporate headquarters is (310) 231-4000 and our website address is http://www.kbhome.com. In addition, location and community information is available at (888) KB-HOMES.

Markets

      We delivered 31,646 units in 2004 (excluding 931 deliveries from unconsolidated joint ventures). Our unit deliveries for the year ended November 30, 2004 increased 16% from the previous year’s 27,331 units (excluding 231 deliveries from unconsolidated joint ventures). During 2004, we operated an average of 483 communities compared with 392 communities in 2003. The average selling price of our homes in 2004 was $219,900, up 7% from $206,500 in 2003.

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      Since 1999, our unit deliveries have grown at a compound annual rate of 7% while our revenues and earnings per diluted share have increased at compound annual rates of 13% and 30%, respectively. We believe that our strategy of operating in growth markets according to the principles of our KBnxt operational business model has been a key driver in our expansion. We plan to continue to increase our unit deliveries in future years following our current primary growth strategies, which are to expand existing operations to optimal market volume levels while exploring entry into new markets through acquisitions or de novo entry. Our continued growth could be materially affected, however, by risk factors such as the impact of domestic and international terrorist activities; the U.S. military commitment in the Middle East; adverse changes in general economic conditions either nationally, in the U.S. or France, or in the localized regions in which we operate; employment levels; increases in home mortgage interest rates; decreases in consumer confidence; or a continued downturn in the economy’s pace; among other things. Nevertheless, we expect to grow our business in 2005 and beyond.

      In recent years, in addition to growing our existing businesses, we have been active in both de novo expansion and completing acquisitions of regional builders. During 2004, we expanded into South Carolina through the acquisition of Palmetto Traditional Homes (“Palmetto”), a privately-held builder of single-family homes in Charleston, Columbia and Greenville. We also entered Indiana through the acquisition of Dura Builders Inc. (“Dura”), a privately-held builder of both single-family homes and active adult communities in Indianapolis, Indiana. Our French subsidiary expanded during 2004, acquiring Groupe Avantis, one of the leading property developer-builders in the Midi-Pyrénées region of France and Foncier Investissement (“Foncier”), a builder of apartment units for traditional homebuyers and private and institutional investors, and vacation properties. Foncier builds primarily in Aquitaine, as well as in the Midi-Pyrénées and Languedoc-Roussillon regions of France. During 2003, we acquired Atlanta, Georgia-based Colony Homes (“Colony”), which expanded our operations into Atlanta, Georgia and Charlotte and Raleigh, North Carolina and strengthened our position in our Southeast region. We also acquired substantially all of the homebuilding assets of Chicago, Illinois-based Zale Homes (“Zale”). The Zale acquisition marked our entry into the greater Chicago market.

      Our homebuilding operations have become more geographically diverse in recent years as a result of both organic growth and acquisitions. In the early 1990’s, we built virtually all of our homes in the California and Paris, France markets. Today, our operations in the U.S. span the country from coast to coast. We believe this increased geographic diversity reduces the risk of financial impacts resulting from changes in demand in individual markets. We delivered our first homes in California in 1963, France in 1970, Nevada in 1993, Colorado in 1994, New Mexico in 1995, Texas in 1996, Florida in 2001, Georgia and North Carolina in 2003 and Indiana and South Carolina in 2004. In 1994, we re-entered Arizona, a market in which we had operated more than a decade earlier, and in 2003 we re-entered Illinois.

      To enhance our operating capabilities in regional submarkets, we conducted our domestic homebuilding business in 2004 through seven divisions in California, six divisions in Texas, five divisions in Florida, two divisions in each of Arizona and North Carolina, and one division in each of Colorado, Georgia, Illinois, Indiana, Nevada, New Mexico and South Carolina. In addition, we operated 25 KB Home Studios in 2004, which are large showrooms where our customers may select from thousands of options to conveniently purchase as part of the original construction of their homes. Internationally, KBSA operates our construction business through two residential divisional offices, one commercial property office and three studios in France.

      West Coast. Our West Coast region, comprised of our seven divisions in Northern and Southern California, accounted for 17% of our total unit deliveries in 2004 compared to 20% in 2003 and 21% in 2002. During the first half of the 1990’s, weak conditions for new housing and general recessionary trends in the West Coast region along with our desire for continued growth prompted us to diversify our business through aggressive expansion into other western states. Since 1995, the West Coast region housing market has improved with the number of new housing permits issued in the region having increased each year. We delivered 5,383 homes in our West Coast region in 2004, a slight decrease from the 5,549 units delivered in 2003. During 2004, we operated an average of 60 communities in our West Coast region compared with 64 in 2003.

      In Southern California, we conduct our homebuilding activities in Los Angeles, Orange, Riverside/ San Bernardino and San Diego counties. In Northern California, our homebuilding activities are conducted in Oakland, Sacramento and Stockton.

      The communities we develop in our West Coast region generally consist of single-family homes designed for the entry-level, move-up, luxury and active adult markets. These homes ranged in size from approximately 1,300 to 3,700 square feet in 2004 and sold at an average price of $411,500. Our average selling price in the West Coast region

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      Southwest. In the early 1990’s, greatly improved business conditions in other western states coupled with a prolonged economic downturn in California and France prompted us to expand our domestic operations. Our Southwest region, which includes operations in Arizona, Nevada and New Mexico, accounted for 23% of our unit deliveries in 2004 compared to 25% in 2003 and 24% in 2002. Deliveries from our Southwest region totaled 7,478 units in 2004, up 12% from the prior year. During 2004, we operated an average of 93 communities in the region compared with 79 in 2003.

      We conduct our Southwest region homebuilding activities in Phoenix and Tucson, Arizona; Las Vegas, Nevada; and Albuquerque, New Mexico.

      The communities we develop in our Southwest region consist of single-family homes designed for the entry-level, move-up, luxury and active adult markets. These homes ranged in size from approximately 1,100 to 3,700 square feet in 2004 and sold at an average price of $202,600. The average selling price of our homes in the Southwest region increased 14% in 2004 from $178,100 in 2003 as a result of selected increases in sales prices in certain markets and communities, as well as increases in lot premiums and options sold through our KB Home Studios.

      Central. Our Central region, which includes operations in Colorado, Illinois, Indiana and Texas, accounted for 29% of our unit deliveries in 2004 compared to 28% in 2003 and 37% in 2002. Since delivering our first homes in the Central region in 1994, we have substantially grown these operations, both organically and through acquisitions. Our operations in the Central region delivered 9,101 units in 2004, up 19% from 7,659 units in 2003, partly due to the acquisition of Dura in 2004 and Zale in 2003. In the Central region, we operated an average of 157 communities in 2004 compared with 117 in 2003.

      In 2004, we conducted our Central region homebuilding activities in Denver and Greely, Colorado; Chicago, Illinois; Indianapolis, Indiana; and Austin, Dallas, Fort Worth, Houston, McAllen and San Antonio, Texas.

      The communities we develop in our Central region consist primarily of single-family detached homes for the residential housing market. These homes ranged in size from approximately 1,000 to 4,100 square feet in 2004 and sold at an average price of $151,300, up 1% from $149,400 in 2003.

      Southeast. Our Southeast region, which includes operations in Florida, Georgia, North Carolina and South Carolina, accounted for 16% of our home deliveries in 2004, up from 13% in 2003 and 3% in 2002. Our operations in the Southeast region delivered 4,975 units in 2004, up 42% from 3,504 units in 2003, primarily due to our expansion as a result of acquisitions completed in 2004 and 2003.

      In 2004, we conducted our Southeast region homebuilding activities in Daytona Beach, Fort Myers, Jacksonville, Lakeland, Melbourne, Orlando, Port St. Lucie, Sarasota and Tampa, Florida; Atlanta, Georgia; Charlotte and Raleigh, North Carolina; and Charleston, Columbia and Greenville, South Carolina.

      The communities we develop in our Southeast region consist primarily of single-family detached and low density attached homes targeted at the residential housing market. These homes ranged in size from approximately 1,100 to 3,400 square feet in 2004 and sold at an average price of $171,700, up 10% from $156,200 in 2003, primarily due to a change in product mix. During 2004, we operated an average of 77 communities in the region compared with 53 in 2003.

      France. We conduct our operations in France through our publicly-traded subsidiary KBSA, which is one of the leading builders of homes (single-family homes and condominium units) in France based on revenues. In France, we build homes principally for move-up buyers who already own a home. Our principal market in France is the Ile-de-France region, where we built 59% of our individual homes and 30% of our condominium units in 2004. We also have activities in the regions of Grenoble, Lille, Lyon, Marseille, Rouen, Strasburg and Toulouse as well as the Midi-Pyrénées, Aquitaine and Languedoc-Roussillon regions. In 2004, housing deliveries from our French homebuilding operations increased 20% from the prior year to 4,709 units, partly due to the acquisitions of Groupe Avantis and Foncier. In France, we operated an average of 97 communities in 2004 compared with 80 in 2003. Deliveries from our French operations accounted for 15% of our home deliveries in 2004, essentially flat when compared to 2003 and 2002. The single-family homes built by our French business ranged in size from approximately 650 to 2,500 square feet in 2004. The average selling price of our homes in France increased 4% to $211,500 in 2004 from $202,600 in 2003, mainly due to favorable foreign exchange rates.

      Our French subsidiary also conducts a commercial development business which includes the development of commercial office buildings in Paris for sale to institutional investors. Revenues from the development of commercial

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      Prior to February 7, 2000, our French subsidiary was wholly owned by KB Home. On February 7, 2000, KBSA issued 5,314,327 common shares (including an over-allotment option) in an initial public offering. The offering was made in France and elsewhere in Europe and was priced at 23 euros per share. Since the initial public offering, the French business has been listed on the Premier Marché of the Paris Bourse. On February 7, 2005, we transferred 481,352 shares of KBSA stock, held by us, to KBSA to fulfill certain equity compensation obligations to certain KBSA employees. Following the transfer of shares, as of February 7, 2005, we owned a 49% equity interest in KBSA and 68% of the voting rights associated with KBSA stock. KBSA continues to be consolidated in our financial statements.

      Unconsolidated Joint Ventures. From time to time, we participate in the acquisition, development, construction and sale of residential properties and commercial projects through unconsolidated joint ventures. These included joint ventures in Arizona, California, Florida, Nevada, New Mexico, Texas and France in 2004 and California, Florida, Nevada, New Mexico, Texas and France in 2003 and 2002. Only a relatively small portion of our business is conducted through unconsolidated joint ventures. Unit deliveries from joint ventures comprised less than 3% of our total unit deliveries for 2004.

      Selected Market Data. The following table sets forth unit deliveries, average selling prices and total construction revenues for the years ended November 30, 2004, 2003 and 2002 (excluding the effects of unconsolidated joint ventures) for each of our regions:

(1)	Total construction revenues include revenues from residential development, commercial activities and land sales.
(2)	Average selling prices and total construction revenues for French operations have been translated into U.S. dollars using weighted average exchange rates for each period.

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Strategy

      In 1997, we began operating under the principles of our KBnxt operational business model and have continued to introduce complementary strategies to enhance the benefits of this model over the last 7 years. KBnxt emphasizes efficiencies generated from a more process-driven, systematic approach to homebuilding and also focuses on gaining a deeper understanding of customer interests and needs. Key elements of KBnxt include: gaining a detailed understanding of customer desires and preferences through frequent and localized surveys; emphasizing pre-sales instead of speculative inventory; building backlog; maintaining lower average levels of in-process and standing inventory; establishing even flow production; providing a wide spectrum of choice to customers in terms of location, design and options; offering low base prices; and reducing the use of sales incentives. Since introducing the KBnxt operational business model in 1997, we have made significant progress in implementing it by, among other things, focusing on the pre-sale and backlog building strategies, developing and implementing a rigorous and detailed customer survey program, opening new KBnxt communities and operating KB Home Studios.

      In order to leverage the benefits of our KBnxt operational business model, we have concentrated on a strategy designed to achieve a leading position in our major markets. By operating in attractive housing markets at sufficiently large volume levels, we believe we can better execute our KBnxt operational business model and use economies of scale to increase profits. The general benefits of this strategy include lower land development costs, improved terms with financially stable suppliers and subcontractors, the ability to offer maximum choice in customizing a production home with the best value to our customers, and the recruitment and retention of the best management talent.

      We hope to continue to increase our overall unit deliveries in future years. Our growth strategies include expanding existing operations to optimal market volume levels, as well as exploring entry into new markets at high volume levels through de novo entry and, to a lesser extent, acquisitions. Growth in existing markets will be partly driven by our ability to increase the average number of communities in our major markets through the continued successful implementation of our KBnxt operational business model. We believe these growth strategies can be supplemented by de novo entry into new markets as we did in Phoenix, Arizona; Denver, Colorado; Las Vegas, Nevada; Austin, Houston and McAllen, Texas; and Fort Myers, Melbourne, Port St. Lucie and Tampa, Florida. In 2005, while our primary focus will be on de novo expansion, we will continue to explore appropriate acquisition opportunities. Since 1995, we have used acquisitions to supplement growth in existing markets and facilitate entry into new markets. With established positions in 36 major markets across the U.S., we plan to focus on growth opportunities in existing and adjacent markets in 2005. We believe this strategy will lead to improvement in our capital structure and further strengthen our operations.

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      During the last ten fiscal years, we have made the following acquisitions:

*	In August 1998, we acquired a majority interest in General Homes; we acquired the remaining minority interest in January 1999, bringing our total ownership interest in General Homes to 100% at that time.

      In identifying acquisition targets, we seek homebuilders that possess the following characteristics: a business model similar to or readily convertible to our KBnxt operational business model; access to or control of a significant land position to support growth; a strong management team; and a financial condition positioned to be accretive to earnings in the first full year following acquisition. We believe that the combination of de novo market entries, organic growth in existing markets and continued acquisitions fitting these criteria will enable us to expand our operations in a focused and disciplined manner. However, our ability and/or desire to acquire other homebuilders in the future could be affected by several factors, including, among other things, general conditions in the U.S. securities markets, our stock price, the general availability of appropriate acquisition candidates, pricing for such transactions, competition among other national or regional builders to acquire such target companies, changes in general economic conditions nationally and in target markets, and capital or credit market conditions.

      While we do not speculate with regard to land acquisition, we regularly review our land assets and businesses for the purpose of monetizing non-strategic or marginal positions. We also employ stringent criteria for prospective land acquisitions.

Local Expertise

      We believe that our business requires in-depth knowledge of local markets in order to acquire land in desirable locations and on favorable terms, to engage subcontractors, to plan communities keyed to local demand, to anticipate customer tastes in specific markets and to assess the regulatory environment. Accordingly, our divisional structure is designed to utilize local market expertise. We have experienced management teams in each of our divisions. Although we have centralized certain functions, such as marketing, advertising, legal, materials purchasing, product development,

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Design and Marketing Strategies  

      We believe that we have been and continue to be an innovator in the design of homes for the first-time, move-up, luxury and active adult buyer. Our in-house Builder Services group, whose plans are typically protected by registered copyright, has been successful in creating distinctive design features that meet the demands and needs of our customers. We continue to employ our KBnxt operational business model, seeking to design homes that keep construction costs and base prices as low as possible while achieving high quality levels and promoting customer choice. Our disciplined use of the KBnxt operational business model in all our markets differentiates us from other builders that have grown through non-integrated acquisitions.

      Certain elements of our KBnxt operational business model include achieving an in-depth understanding of customer desires and preferences through detailed market surveys and providing a wide spectrum of choice to customers in terms of location, design and options. Our communities offer homebuyers a number of choices and options which allow them to customize their home. After selecting a floorplan and homesite that meet their needs, our buyers visit the applicable division’s KB Home Studio to select options for the original construction of their home, the incremental cost of which may be rolled into their new home mortgage. Our KB Home Studios, which are typically “retail”-type locations ranging in size from 9,000 to 22,000 square feet, are typically located separately from our divisional business offices. These studios offer our customers more than 5,000 options — from floor plans to fireplaces to garage doors — in a retail environment convenient to multiple communities. Our personnel are available at the studios to assist homebuyers in selecting options and upgrades. We believe that our use of KB Home Studios and surveys in all our markets allows our customers to find their optimum tradeoff between square footage and options.

      In 2004, we continued our national branding strategy, with all of our businesses in 36 markets across the U.S. operating under the KB Home name. We believe this strategy differentiates us from our competitors, who frequently operate under a number of different brands and do not consolidate advertising strategy and production. In expanding into new regional markets, this allows us to enter the market with a nationally known name and reputation. We also continue to see the benefits from the consolidation of all advertising development and production at kb|agency, our in-house advertising group.

      Support for our single-brand strategy continued through non-traditional advertising media in 2004, with promotions, proactive media outreach and the Internet all providing a high level of national exposure for the KB Home brand.

      Following our highly successful partnership in 2003 with Live with Regis and Kelly, and previous partnerships with entertainment brands such as The Simpsons and Clifford the Big Red Dog, in 2004 we partnered with ABC’s Extreme Makeover: Home Edition to build a 3,200 square foot house in Las Vegas for a family in need. This partnership showcased our quality building practices and the appeal of our home designs in front of millions of viewers on primetime television and drove significant traffic to our website.

      We were also featured on the Thanksgiving morning edition of the Today show for a home we built for a young San Antonio man who is in a wheelchair as a result of a high school football game injury. The entertainment show Access Hollywood featured KB Home for both of these outreach efforts. These broadcast opportunities added to our national brand exposure with consumers and the business community, as well as supporting one of our key strategies: maintaining our goodwill and reputation in our local markets through giving to the communities where we build.

      In 2004, we continued to be featured in both national and regional media as a leader in the homebuilding industry, as well as showcasing our innovations in the industry. We were featured in numerous major national consumer and business publications, including People, BusinessWeek, USA Today and Newsweek. We believe these high-profile media stories are effective not only in expanding our reputation among the investment and business community, but also giving

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      The Internet continues to have a profound impact on the way people shop for homes today. In 2004, we rebuilt our consumer website, http://www.kbhome.com, from the ground up. The new website includes substantial new features and tools to benefit our consumers, including a Spanish-language version of the entire site, a video tour of the KB Home Studio to convey all the choices and products available in our retail design environment, a new calculator that demonstrates to first-time buyers the financial impact of owning a home with a savings estimate versus their current rent, streaming video testimonials from actual KB homeowners and an online customer care area to support our homeowners. We continue to expand our online efforts and anticipate adding new features to the website in 2005.

      In 2004, both consumers and the business community recognized us with major awards. In June, we were honored for our marketing innovations with the prestigious American Business Award for Best Overall Company. We also received the gold medal for Best Sales Office from the National Sales and Marketing Awards.

      Our homeowners across the country demonstrated their satisfaction with our homes in the J.D. Power and Associates 2004 New Home Builder Customer Satisfaction Study. For the second consecutive year, we experienced the most dramatic overall customer satisfaction improvement by index score among national builders, moving into the top three among national builders, just a single point from the number two position. Commitment to quality and customer satisfaction continues to be a major priority and marketing message for us.

      In France, we introduced the American concept of a master bedroom suite, as well as walk-in closets, built-in kitchen cabinetry and two-car garages. We believe that in each of our French residential markets, our value engineering enables us to offer appealing and well-designed homes without increasing construction costs. Our French operations offer a broad choice of options to new home and condominium buyers through a 6,500 square foot new home showroom in Paris, and two new home showrooms in Lyon and Marseille.

      In all of our domestic and international residential markets, the sale of homes is carried out by our in-house sales force. We maintain on-site sales offices, which are usually open seven days a week, and market our homes principally through the use of fully furnished and landscaped model homes decorated to emphasize the distinctive design features and the choices available to customers. Sales representatives are available to assist prospective buyers by providing them with floor plans, price information and tours of model homes. These sales representatives are experienced individuals, trained in a national program to provide buyers with specific information regarding our other products in the area, the variety of financing programs available, construction schedules and marketing and advertising plans. Currently, in all of our domestic communities, we encourage participation of outside real estate brokers in bringing prospective buyers to our communities. Also, in many of our domestic markets, our KB Homebuyers Club serves as a resource for prospective homebuyers, providing them with helpful information on the homebuying process and the opportunity to participate in a variety of activities.

Community Development

      The community development process generally consists of three phases: land acquisition; land development; and home construction and sale. The normal development cycle for a community has historically ranged from six to 24 months in the West Coast region and is typically a somewhat shorter duration in our Southwest, Central and Southeast markets. In France, the development cycle has historically ranged from 12 to 30 months. Development cycles vary by jurisdiction depending on the extent of government approvals required, the size of the development, necessary site preparation, weather conditions and marketing results.

      When feasible, we acquire control of lot positions through the use of options. In addition, we frequently acquire lots which are entitled and physically developed (referred to as “finished lots”), enabling us to deliver completed homes shortly after acquisition. The total number of lots in our domestic new home communities vary significantly but typically range from 50 to 250 lots. These domestic developments typically include two to four different model home designs and generally offer lot sizes in detached communities ranging from approximately 2,000 to 20,000 square feet, with premium lots often containing more square footage, views or orientation benefits.

      Through the mid-1990s, we typically acquired undeveloped and/or unentitled properties, often with total lots significantly in excess of 250. With the introduction of the KBnxt operational business model in 1997, we substantially

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      Land Acquisition and Development.  In accordance with our KBnxt operational business model, a deep cross section of homebuyers of both new and resale homes in each market are carefully surveyed. Based upon these surveys, a marketing strategy is developed which targets specific price points and geographic sectors which we will pursue. We utilize an in-house staff of land acquisition specialists at each division who carry out extensive site selection research and analysis in order to identify properties in desirable locations consistent with our market strategy. In acquiring land, we consider such factors as: general economic conditions; specific market conditions, with an emphasis on the prices of comparable new and resale homes in the particular market; expected sales rates; proximity to metropolitan areas; population, industrial and commercial growth patterns; estimated costs of completed lot development; customer preferences; and environmental matters. Several of our highest ranking executives, including the Chief Executive Officer, Chief Operating Officer, Chief Legal Officer, Chief Financial Officer and Senior Vice President of Asset Management, comprise our “Land Committee,” which controls the commitment of our resources for all land acquisitions and utilizes a series of specific financial and budgetary controls in approving acquisition opportunities identified by division land acquisition personnel. The Land Committee employs strict standards for assessing all proposed land purchases based, in part, upon specific discounted after tax cash flow internal rate of return requirements and also evaluates each division’s overall return on investment. Extensive due diligence is also performed for each land acquisition with the results reported as part of the Land Committee presentation prior to acquisition decisions. The stringent criteria guiding our land investment decisions has resulted in geographic expansion to areas which generally offer lower risk for less investment in land. Consistent with our standards, we seek to minimize, or defer the timing of, cash expenditures for new land purchases and development by acquiring lots under option, phasing the land purchase and lot development, relying upon non-recourse seller financing or working with third-party land developers. In addition, we focus on acquiring finished or partially improved lots, which allows us to begin delivery of finished homes within six months of the purchase of such lots and reduces the risks of unforeseen improvement costs and volatile market conditions. These techniques are intended to enhance returns associated with new land investments by minimizing the incremental capital required.

      The following table shows the number of lots we owned in various stages of development and under option contracts in our principal markets as of November 30, 2004 and 2003. The table does not include approximately 1,818 acres and 651 acres optioned in the U.S. in 2004 and 2003, respectively, which have not yet been approved for subdivision into lots.

      When we instituted and developed our KBnxt operational business model, we reduced the proportion of unentitled and unimproved land in our portfolio. However, depending on market conditions we may increase the proportion of unentitled and unimproved land in certain markets from time to