UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended February 28, 2005.

or

For the transition period from [ ] to [ ].

Commission File No. 001-09195

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10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000

(Address and telephone number of principal executive offices)

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 þ No o

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT).

Yes þ No o

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF FEBRUARY 28, 2005.

Common stock, par value $1.00 per share, 95,755,280 shares outstanding, including 14,716,400 shares held by the Registrant’s Grantor Stock Ownership Trust and excluding 17,001,396 shares held in treasury.

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FORM 10-Q
INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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See accompanying notes.

3

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See accompanying notes.

4

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See accompanying notes.

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1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of February 28, 2005, the results of its consolidated operations for the three months ended February 28, 2005 and February 29, 2004, and its consolidated cash flows for the three months ended February 28, 2005 and February 29, 2004. The results of operations for the three months ended February 28, 2005 are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet at November 30, 2004 has been taken from the audited financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended November 30, 2004 contained in the Company’s 2004 Annual Report to Stockholders.

On April 7, 2005, the Company’s board of directors declared a two-for-one split of the Company’s common stock to be effected in the form of a 100% stock dividend payable on or about April 28, 2005. Accordingly, all share and per share amounts have been restated to reflect the impact of the two-for-one stock split.

Segment information

The Company has identified two reportable segments: construction and mortgage banking. Information for the Company’s reportable segments is presented in its consolidated statements of income and consolidated balance sheets included herein. The Company’s reporting segments follow the same accounting policies used for the Company’s consolidated financial statements. Management evaluates a segment’s performance based upon a number of factors including pretax results.

Stock based compensation

The Company has elected to account for stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”) and related interpretations and, therefore, recorded no compensation expense in the determination of net income during the three-month periods ended February 28, 2005 and February 29, 2004. The following table illustrates the effect on net income and earnings per share if the fair value method had been applied to all outstanding and unvested awards in the three-month periods ended February 28, 2005 and February 29, 2004 (in thousands, except per share amounts):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Significant Accounting Policies (continued)

Earnings per share

Basic earnings per share is calculated by dividing net income by the average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income by the average number of common shares outstanding including all dilutive potentially issuable shares under various stock option plans and stock purchase contracts.

The following table presents a reconciliation of average shares outstanding (in thousands):

Comprehensive income

The following table presents the components of comprehensive income (in thousands):

The accumulated balances of other comprehensive income in the balance sheets as of February 28, 2005 and November 30, 2004 are comprised solely of cumulative foreign currency translation adjustments of $60.8 million and $60.0 million, respectively.

Reclassifications

Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to the 2005 presentation.

2. Inventories

Inventories consist of the following (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. Inventories (continued)

The Company’s interest costs are as follows (in thousands):

3. Consolidation of Variable Interest Entities

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (as amended, “FASB Interpretation No. 46”) to clarify the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities (referred to as “variable interest entities” or “VIEs”) in which equity investors do not have the characteristics of a controlling interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Pursuant to FASB Interpretation No. 46, an enterprise that absorbs a majority of the VIEs expected losses, receives a majority of the VIEs expected residual returns, or both, is determined to be the primary beneficiary of the VIE and must consolidate the entity.

In the ordinary course of its business, the Company enters into land option contracts in order to procure land for the construction of homes. Under such land option contracts, the Company will fund a specified option deposit or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. Under the requirements of FASB Interpretation No. 46, certain of the Company’s land option contracts may create a variable interest for the Company, with the land seller being identified as a VIE.

In compliance with FASB Interpretation No. 46, the Company analyzed its land option contracts and other contractual arrangements and has consolidated the fair value of certain VIEs from which the Company is purchasing land under option contracts. The consolidation of these VIEs, where the Company was determined to be the primary beneficiary, added $113.8 million to inventory and other liabilities in the Company’s consolidated balance sheet at February 28, 2005. The Company’s cash deposits related to these land option contracts totaled $15.7 million at February 28, 2005. Creditors, if any, of these VIEs have no recourse against the Company. As of February 28, 2005, excluding consolidated VIEs, the Company had cash deposits and/or letters of credit totaling $187.6 million which were associated with land option contracts having an aggregate purchase price of $2.82 billion.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Goodwill

The changes in the carrying amount of goodwill for the three months ended February 28, 2005, are as follows (in thousands):

5. Accounting for Derivative Instruments and Hedging Activities

To meet the financing needs of its customers, the Company’s mortgage banking subsidiary is party to interest rate lock commitments (“IRLCs”), which are extended to borrowers who have applied for funding and meet certain defined credit and underwriting criteria. In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), the Company’s mortgage banking subsidiary classifies and accounts for IRLCs as non-designated derivative instruments at fair value with gains and losses recorded to earnings.

In the normal course of business and pursuant to its risk management policy, the Company’s mortgage banking subsidiary uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. When interest rates rise, IRLCs and mortgage loans held for sale decline in value. To preserve the value of its mortgage inventory and minimize the impact of movements in market interest rates on the IRLCs and mortgage loans held for sale, the mortgage banking subsidiary enters into mandatory and non-mandatory forward contracts to sell loans.

The following table summarizes the interest rate sensitive instruments of the mortgage banking operations (in thousands):