KB Home
Annual Report 2005

Plain-text annual report

2004 Annual Report Financial Scorecard In millions, except per share and unit amounts Years ended November 30, 2004 1999 1994 5-YR CAGR 10-YR CAGR Units 31,646 22,422 7,824 Total Revenues $ 7,053 $ 3,836 $ 1,338 Net Income EPS Stock Price $ 481 $ 11.40 $ 88 $ $ $ 147 3.08 22 $ $ $ 47 1.09 13 7% 13% 27% 30% 32% 15% 18% 26% 26% 21% Our story begins where the year ended… with numbers that are extraordinary. How we got here is even more extraordinary! Bruce Karatz Chairman and Chief Executive Officer KB Home Dear Shareholders: As recently as the 1970s, most of us bought All of which is to say, modern consumers have our cars from one of three auto makers, got gotten a taste of real variety, and they like it. our enter tainment from three TV networks, Indeed, they no longer view extensive choice and depended on one lone provider for our as a luxur y—they see it as a bir thright. telephone ser vice. Choices, when we had them at all, were few in number and limited So whenever I’m challenged to succinctly explain in scope. how KB Home has transformed itself from a California builder that rang up $1.34 billion in But today, supermarkets are stacked to the revenues on deliveries of 7,824 homes in rafters with dif ferent varieties of soups, 1994 to a $7.05 billion national powerhouse sodas, snacks and cereals. Drugstores are that delivered 31,646 homes in 36 fast- lined with an overabundance of shampoos growing U.S. markets and France in 2004, and skin-care products. Home PCs are I summarize our success in a word: Choice. gateways to countless online retailers, news sites and weblogs, and cable and satellite KB Home offers buyers more choices in how providers now pipe hundreds of channels into their homes look, feel and function than any our living rooms. other major homebuilder. 5 And that helps explain how our 2004 pretax income soared to $717.7 million — nearly 10 times the $73.9 million total we posted a decade ago. The reason we’re the nation’s homebuilder of choice has ever ything to do with KBnxt, the revolutionar y business model our company adopted in 1996. KBnxt works because it aligns homebuyers’ inherent desire to exercise greater control over how their homes are designed with KB Home’s strategy to offer superior quality, well-priced homes while avoiding the risks associated with speculative building. Options to Buy Because our homes are built to order only after qualified buyers secure their mor tgage financing, those buyers enjoy the freedom to customize: they choose their community, homesite and a unique floor plan, then select from among the 5,000-plus options at our KB Home Studios. Newsweek recently likened the unique KB Home Studio shopping experience to “a child’s trip to Disney World.” In the magazine’s September 20, 2004 edition, Newsweek repor ter Daniel McGinn continued: “The showroom is filled with granite counters, oak cabinetr y, sleek appliances and young couples tricking out their dream home...from superinsulated windows to built-in surround- sound speakers.” This hunger for greater choice is typical among buyers across generations, geographic regions and income levels, which is why ever yone, from first-time and second-move-up buyers to those in the luxur y and active-adult categories, is finding something to get excited about in KB Home’s diverse product mix. Freestanding single-family homes continue to constitute the bulk of our sales, though in recent years, we’ve also developed attached single-family units, as well as high-density urban in-fill products. 6 Tremendous Geographic Expansion Coast-to-Coast Growth from 9 to 36 Major U.S. Markets in Just 10 Years P H O E N I X , A Z T U C S O N , A Z L O S A N G E L E S , C A O A K L A N D , C A O R A N G E C O U N T Y , C A R I V E R S I D E , C A S A C R A M E N T O , C A S A N D I E G O , C A S T O C K T O N , C A D E N V E R , C O G R E E L E Y , C O F O R T M Y E R S , F L J A C K S O N V I L L E , F L L A K E L A N D , F L M E L B O U R N E , F L O R L A N D O , F L P O R T S T . L U C I E , F L S A R A S O T A , F L T A M P A , F L A T L A N T A , G A C H I C A G O , I L A L B U Q U E R Q U E , N M L A S V E G A S , N V C H A R L E S T O N , S C C O L U M B I A , S C G R E E N V I L L E , S C A U S T I N , T X D A L L A S , T X F O R T W O R T H , T X H O U S T O N , T X R I O G R A N D E V A L L E Y , T X I N D I A N A P O L I S , I N S A N A N T O N I O , T X D A Y T O N A B E A C H , F L C H A R L O T T E , N C F R A N C E R A L E I G H - D U R H A M , N C Backlog at All-Time High Value Totals $4.82 Billion, Up 57% from 2003 $5.0 $4.0 $3.0 $2.0 $1.0 ‘04 ($ in Billions) $.2 $.4 $.7 $1.0 $1.4 $1.8 $1.9 $2.3 $3.1 $4.8 ‘03 ‘00 ‘01 ‘98 ‘95 ‘97 ‘96 ‘02 ‘99 Growth on a Grand Scale ✛ Our $7.05 billion in total revenues represented a 21% gain over our 2003 total KB Home has long been the value leader among of $5.85 billion. For the past 10 years, company major builders in the markets where we operate, revenues have risen at a compound annual and that commitment to of fering af fordably growth rate of 18%. priced homes to entr y-level homebuyers remains a cornerstone of our business strategy. But in ✛ Earnings per share for the year rose 30% to a move that exemplifies our growing commitment $11.40, compared with $8.80 one year ago. to ser ve a broader group of buyers, we recently unveiled the brand new KB Home luxur y series. ✛ We closed out the year with an order backlog This diversity of product and pricing, along with the geographic expansion we’ve of 20,280 homes, a 38% gain over our 2003 total. This translates to approximately $4.82 billion in future revenues, a 57% successfully undertaken since the mid-1990s, increase over 2003. In both units and has brought a new level of consistency and dollar value, this was the highest year-end predictability to our financial results, as well backlog in the Company’s histor y. as a great deal of momentum: 8 Given this per formance, it shouldn’t surprise you to learn that KB Home is making quicker- than-expected progress toward the ambitious financial targets we’ve set for 2007, which include 50,000 unit deliveries, $10 billion in revenues, earnings per share of $20, and a 16% return on invested capital. I have ever y confidence that we’re on track to meet or exceed those goals. Satisfaction—by the Numbers That KBnxt has been a boon for buyers is borne out by our bottom line and our balance sheet. But numbers aren’t the only gauge of our success. Perhaps the greatest point of pride for our entire organization this past year was our per formance on vitally impor tant customer satisfaction sur veys, par ticularly those conducted by J.D. Power and Associates, which placed KB Home first among all homebuilders in the Austin market and among the top three builders in Las Vegas, Houston and Raleigh. Overall, the sur vey findings, which were based on responses from more than 64,000 new-home buyers, saw us posting the most improved per formance of any builder in the nation. Indeed, our ranking put us just one point away from second place among all U.S. homebuilders. 9 ✛ Unit deliveries for 2004 climbed to 31,646, a 16% increase over 2003’s 27,331 total. ✛ At year end, KB Home boasted 483 active selling communities in the U.S. and France, compared with 392 in 2003. Community count, incidentally, has far more bearing on order growth than any other single factor, including interest rates. A statistical review of our order growth since 1990 revealed that the correlation between order growth and community count was 1.0, while the correlation between order growth and changes in interest rates was just 0.76. We attribute these gains in par t to some of our newer initiatives, such as our contractor cer tification program, our exacting “Power of 10” quality-assurance audits, and our “Say Yes!” program, which aims to quickly and thoroughly resolve any outstanding issues buyers may have with their homes. But a fair amount of credit also goes to deeply entrenched systems and structures that have defined the way we do business. High Standards Set and Met Unlike many of our major competitors, KB Home operates as a single national brand in ever y one of our U.S. markets. So while we naturally tailor our product to suit local preferences, and while we respect civic, geographic and cultural differences wherever we build, our essential systems and procedures remain the same from coast to coast, and from division to division. We go to great lengths to perpetuate that consistency through ongoing sharing of best practices and by investing significant resources each year in training and development companywide. Our online KB University (KBU), for example, boasts sophisticated web-based interactive learning modules that help make ever y employee a repositor y of institutional knowledge and know-how. In 2004, KB Home employees earned more than 93,000 KBU cer tifications that testify to their skill at delivering products and ser vice second to none in our industr y. We subscribe to the maxim that, “When less is left to learn, little is left to chance.” Facts First For KB Home, basing critical decisions on extensive proprietar y research is the first step toward creating legions of satisfied homebuyers. When I came to the homebuilding business more than 30 years ago, the industr y was dominated by a breed 10 Building Around the Clock A company that’s in constant forward motion doesn’t spend much time or energy looking over its shoulder or poring through the archives. KB Home is a homebuilder intent on making history, not reading about it. Still, every so often, we stumble upon a reminder of our formative years in this business, and it only serves to remind us of just how far we’ve come as an organization. In November, a colleague who was cleaning out a file drawer happened upon a document he had saved for posterity when he joined our company years before. It was a typewritten backgrounder on KB Home (then Kaufman and Broad, Inc.), drafted by the Company’s former director of corporate communications and dated February 25, 1970. It apparently had been designed as an orientation piece for new employees. And it provides some fairly striking contrasts with the KB Home of today. “Kaufman and Broad was founded in 1957 with invested capital of approximately $25,000. Without additional capital investment, the company increased its net worth to approximately $1.7 million at the time of its initial public offering in 1961,” the document boasts. “Currently, the company has 42 major housing developments underway…” Clearly, at the time, these were impressive figures, but by our standards today, they don’t just pale—they blanch. Delivering 31,646 homes in 483 communities in 2004 meant that KB Home built a new home every 16 minutes of every day, 24 hours a day, 365 days a year. Next year, we’ll build a home every 14 minutes. — B.K. of businessperson often described as We ask them about pricing, about financing “instinct-driven.” Builders in those days relied and about the drivers that influence their primarily on their hunches when it came to purchase decisions. In the process, we learn deciding what, where and when to build, and ever ything we need to know to make ourselves this finger-in-the-wind approach proved to be the builder of choice in their community. the undoing of many builders when their local economies took a turn for the worse. When coupled with detailed background about an area’s demographics, traf fic flow, But under KBnxt, facts come first. Our employment base and other variables, this encyclopedic, market-by-market homebuyer sur vey data can be used by our in-house sur veys ensure we collect solid, bankable land acquisition, land development and data on ever ything that matters to the total architecture groups to make shrewd population of buyers in any given region, from judgments about where to locate new-home the features they consider most essential in communities and which types of products their residences and communities to their and options to of fer once we’re there. attitudes toward par ticular local neighborhoods. 11 The tenure of our Regional General Managers and Chief Operating Officer averages 14 years, providing skilled leadership and tremendous expertise. Regional General Managers, left to right: Glen Barnard: Central, Steven M. Davis: Southeast, John “Buddy” E. Goodwin: Florida, Leah S. W. Bryant: Southwest, Robert Freed: Northern California, Jay L. Moss: Southern California, Larry E. Oglesby: Texas. Inset photo: Jeffrey T. Mezger, Executive Vice President and Chief Operating Officer. In other words, research helps guarantee that keeping fixed costs low, KB Home exercises we’re where people want to be, with homes the option to rev up or scale back its ef for ts they want to buy, at prices they want to pay. as market conditions dictate. That remarkable Over the course of the past several years, this flexibility is why we remain, as our 2007 process has smoothed the way for KB Home’s projections indicate, decidedly optimistic entr y into, and expansion within, new markets about KB Home’s ability to thrive even if from coast to coast. homebuilders were eventually to find themselves in a less favorable interest rate environment. The reason is no more Big Picture Considerations complicated than the law of supply and demand. Today, there are 100 million The beauty of KBnxt is that it allows our Americans aged 25 or younger, and as the company to of fer buyers more choice while Har vard Center for Joint Housing Studies simultaneously reducing the financial risk pointed out in its annual repor t on the state associated with building communities of of the nation’s housing this past year: homes on spec. By building to order and 14 “Immigration has been, and will continue to be, an impor tant driver,” the Har vard repor t continued, noting that minorities’ share of households jumped from 17% in 1980 to 26% in 2000, and that the figure will likely reach about 34% by 2020. Another group expected to continue making a significant impact on the housing marketplace are single-women heads of households, whose numbers increased by 10 million between 1980 and 2000, according to the Har vard repor t. Healthy demand cer tainly speaks to the long- term oppor tunities ahead for homebuilders. What’s more, it’s impor tant to remember that interest rates aren’t typically the ultimate determinant of whether or when people decide to buy a home. Life circumstances—a new job, the arrival of a new child, the desire to relocate once children are grown—often handily trump interest rates. And while the Federal Reser ve is a power ful machine, it hasn’t yet demonstrated an ability to exer t influence over couples’ child-rearing plans or individual employers’ hiring decisions. Also, the Harvard study notes that if long- term interest rates rise “many homebuyers would choose a hybrid adjustable rate mortgage with a 5- or 7-year fixed term instead of a 30-year fixed rate mortgage. This could blunt some of the impact of higher rates and keep buyers in the market.” “The Census Bureau’s newly revised population estimates imply that household growth from 2005–15 will be as much as 1.1–2.0 million more than the Joint Center for Housing Studies previously projected. Add to that the growing demand for second homes and replacements of units lost from the stock, and the total number of homes built in 2005–15 could reach 18.5–19.5 million units. This compares with 16.4 million homes added in the 1990s.” As it happens, our price leadership and extensive multilingual marketing make KB Home par ticularly well positioned to ser ve the groups that are fueling this ongoing demand. 15 Growing Wiser All the Time Favorable population dynamics being what they are, KB Home is taking smar t steps to ser ve more buyers by continuing to increase its presence in fast-growing markets. As we did in 2004 with the purchase of South Carolina’s Palmetto Traditional Homes and Indiana’s Dura Builders, Inc., KB Home will continue to carefully assess acquisition oppor tunities. At the same time, de novo and organic growth ef for ts have become the focus of our expansion ef for ts moving for ward. For a homebuilder, having operations that span a wide swath of buyer segments in multiple high-growth regions—and, in our case, in France as well—mitigates the risks associated with having too much riding on any one region’s In our view, it’s the only way to run a homebuilding business. And our results attest economic for tunes. In 2004, 17% of KB Home’s unit deliveries were in our West Coast region, to this. compared with 80% in 1994. The Southwest, Central and Southeast regions made up 23, 29 and 16%, respectively, this past year. France provided the balance, at 15%. But even as we’ve fanned out across the countr y, we’ve remained highly selective in our choice of markets. We believe investors appreciate that our growth criteria are as rigorous and disciplined as ever y other aspect of our operations. KB Home’s Board of Directors and executive team take great pride in the exceptional value we’ve been able to return to shareholders over the course of the past decade, and in the fact that our debt-to- total-capitalization ratio now makes us consistent with an investment grade rating. 16 and Co-Chief Operating Of ficer of Viacom, Inc. and Melissa Lora, Chief Financial Of ficer of Taco Bell Corp. The breadth and depth of their extraordinar y backgrounds, combined with those of our eight other non-employee, independent directors, provide me with a level of sage, experienced counsel that ver y few CEOs are ever for tunate enough to benefit from. With their input, I truly believe that KB Home has the ability to eclipse even the most substantial of our past achievements in the ver y near future. A Final Word… I’m often asked what it is that keeps me excited about our company and the homebuilding industr y as a whole after more than three decades on the job. It’s a fair question, but it’s almost always posed by people outside of our organization. Because anyone working at KB Home, or closely enough with us to get a sense of who we are, understands exactly why there’s never been a better time to be here. The fact is, ver y few people are ever for tunate enough to work at a truly great company, one that can reinvent itself to respond to new realities while remaining true to its roots, one that never stagnates, self-congratulates or rests on its laurels, one that’s roundly recognized as a leader and an innovator. In December, KB Home announced a 50% increase, from $1.00 to $1.50 per share, in the annual cash dividend on our common stock. We also announced our Board of Directors’ intent to declare a 2-for-1 common stock split in spring 2005, subject to shareholder approval. The nature of my position means that I wind up getting much of the credit for these results, but that credit frankly belongs to all of our employees and to a Board that comprises some of the most distinguished entrepreneurs, leaders and thinkers anywhere in the world. This past year, two new directors joined our Board: Leslie Moonves, Co-President 17 And fewer still ever have the privilege of working In coming years, as in years past, we will arm-in-arm with some of the most talented once again do all we can to help ensure professionals in the nation to produce a product KB Home is one of the best choices you'll that matters as much to people, to communities ever make. and to our society as a whole as a family home does. I’m for tunate to do both. And it never grows old for me. I still thrive on the creativity and the commitment of our people. I still find myself energized by coming to the office and teaming with great minds to determine how we can do what we already do well, better. All of which is to say that signing on with the homebuilder that’s now synonymous with choice was, without a doubt, the best choice I’ve ever made. Bruce Karatz Chairman and Chief Executive Officer February 2005 18 The pages that follow outline the hallmarks and qualities of our business. We invite you to take a closer look and learn exactly why we’ve been America’s builder of choice since 1957. M O N E Y , O C T O B E R 2 0 0 4 “Back in 1990, for example, 65% of home builder KB Home’s inventory was unsold; today KB Home...has virtually no unsold inventory.” KBnxt Business Model for Success Strategy ✛ The KBnxt model maximizes KB Home’s opportunity to acquire, entitle and develop land at price points that will support entry level, first-time move-up, second-time move- up, luxury and active adult homebuyers ✛ KBnxt established fact-based, survey-driven, market and land acquisition strategies ✛ The strategies are specific by submarket, product and price point ✛ Aggressive growth and land acquisition strategies are expected to result in a 15% – 20% increase in the number of communities between 2004–2005 ✛ The Company continues to expand organi- cally and strategically into robust markets ✛ In order to accomplish these strategies, KB Home recruits and retains the most talented employees possible in every field ✛ The focus is buying the best properties at ✛ KB Home takes pride in its “Say Yes” market prices commitment to customers KBnxt Business Model Provides Key Benefits to Buyers Through Choice and Value ✛ Variety of beautiful neighborhood locations ✛ Large selection of floor plans and structural options to create a home built to order ✛ KB Home Studio design options that provide a truly custom experience ✛ A commitment to quality and customer service that is second to none 21 ✛ One-stop shopping with numerous financing programs through the KB Home Mortgage Company Leaders in Strategic Land Acquisition Experience ✛ Decisions on land acquisitions are made at ✛ From entitlements to finished lots, and the division level and then ratified by KB Home’s Land Committee ✛ The Land Committee is comprised of the senior-most executives within KB Home ✛ The Land Committee consists of true land experts, all of whom have extensive experience in successful land transactions and who appreciate the importance of speed in the decision-making process ✛ Meetings of the Land Committee take place no less frequently than on a weekly basis and decisions are made immediately ✛ The speed and commitment displayed by the Land Committee, in regard to transactions and acquisitions, distinguish KB Home from the rest of the industry in-fill to master-plan communities, KB Home analyzes each opportunity individually to ensure that it is consistent with the acquisition strategy ✛ KB Home has the ability and experience in acquiring large land holdings to offer multiple products within the same community or throughout its markets, enhancing the land acquisition strategy ✛ The Land Committee commits to land that may be used for master-plan communities, single-family dwellings, townhomes and condominiums, and mixed-use, high-density, in-fill developments 22 T H E N E W Y O R K T I M E S , J U L Y 1 8 , 2 0 0 4 “KB Home of Los Angeles...recently introduced four-stall garages in Southern California, something the company has never done before, according to Jeffrey Mezger, the chief operating officer. ‘The garage is now part of the lifestyle of the home people live in... It’s a flex space that they now incorporate into the way they live.’” Architecture, Land Planning and Design Expertise ✛ Unique to the industry, KB Home has its own in-house architecture design teams ✛ Architecture centers are located in Costa Mesa, California and Atlanta, Georgia ✛ KB Home design experts create home designs, elevations, neighborhoods, infrastructure and amenities based on feedback from homeowners’ preferences ✛ KB Home professionals also have expertise in land planning, landscape architecture, monumentation design and other community features ✛ KB Home architecture utilizes theme elements throughout a community that involve landscaping, monumentation, club- houses, outdoor lighting, street designs and walking paths ✛ Sophisticated homebuyer surveys are ✛ The goal is to create a sense of conducted by KB Home and drive design and development through in-house architecture and land planning community and belonging in every beautiful new neighborhood 25 Homes for All Lifestyles Choice ✛ With an amazing array of home designs, KB Home delivered 31,646 new homes in 2004 ✛ KB Home offers prices ranging from $80,000 to over $1 million ✛ The architecture and design of all KB homes is determined by preferences drawn from homebuyer surveys and is complimentary to the particular styles of the geographic locations ✛ KB Home builds master-plan communities, single-family dwellings, townhomes and condominiums, luxury homes and mixed- use, in-fill developments ✛ KB Home builds suburban communities, as well as high-density, urban communities for those who prefer living closer to the city 26 Entry Level < 1,500 sq. ft. 16% Entry Level / First Move-Up 1,500 – 2,000 sq. ft. 31% 26% Second Move-Up and Luxury > 2,500 sq. ft. 27% First Move-Up 2,000 – 2,500 sq. ft. Coast to ✛ West : CA ✛ Desert : AZ NM NV o Coast! ✛ Central : CO IL IN TX WI ✛ Southeast : FL GA NC SC B U S I N E S S W E E K , S E P T E M B E R 2 0 , 2 0 0 4 “And KB’s Karatz says that urban housing will constitute 6% of the 32,000 homes his company builds this year, up from virtually nothing years ago.” In the City and in the Suburbs Neighborhoods ✛ KB Home provides urban, high-density homes for city dwellers who value the advantages of living close to employment centers, retail and transportation hubs ✛ KB Home provides suburban neighborhoods offering large floor plans, big yards and community amenities Active Communities Community Count Up 23% in 2004 97 80 57 52 67 78 263 264 262 252 312 386 From in-fill to single-family homes, the number of active communities continues to grow as KB Home product choices increase. 500 450 400 350 300 250 200 France United States ‘99 ‘99 315 315 ‘00 ‘00 321 321 ‘01 ‘01 329 329 ‘02 ‘02 330 330 ‘03 ‘03 392 392 ‘04 ‘04 483 483 42 U S A T O D A Y , A U G U S T 5 , 2 0 0 4 “I wanted it as an investment, to belong to a “I wanted it as an investment, to belong to a community with established roots. All those community with established roots. All those things were really important...” things were really important...” Homes to Fit All Buyers Appeal KB Home appeals to all homebuyers, including: KB Home appeals to all homebuyers, including: ✛ Active adults seeking a low maintenance ✛ Active adults seeking a low maintenance ✛ Singles graduating from the life of a renter ✛ Singles graduating from the life of a renter lifestyle lifestyle ✛ Newlyweds dreaming of a new home ✛ Newlyweds dreaming of a new home ✛ Growing families needing more space ✛ Growing families needing more space ✛ Homeowners looking to move-up with their ✛ Homeowners looking to move-up with their second home purchase second home purchase ✛ Luxury shoppers wanting upscale home ✛ Luxury shoppers wanting upscale home designs and amenities that fit their lifestyle designs and amenities that fit their lifestyle ✛ Record number of referral and repeat buyers ✛ Record number of referral and repeat buyers driven by KB Home’s universal appeal and driven by KB Home’s universal appeal and customer satisfaction customer satisfaction 45 N E W S W E E K , S E P T E M B E R 2 0 , 2 0 0 4 “For anyone who drools over home makeover shows, visiting the KB Home Studio...is like a child’s trip to Disney World.” Dream it. Design it. Personalization ✛ KB Home Studio is what makes buying a KB home a truly personal experience ✛ Expansive showrooms offer thousands of design options from appliances to counter- tops, cabinets to flooring, lighting to fixtures and more ✛ Kitchen, living room and bathroom vignettes are built into KB Home Studios to provide design ideas and examples ✛ Experienced design consultants assist homeowners in making the right decisions for their budgets and lifestyles ✛ KB Home Studio features top name brands ✛ Cost of design options may be that buyers know and trust including Whirlpool, Kitchen-Aid, Delta Faucets, Sherwin-Williams, Carrier, Shaw Floors and others conveniently rolled into mortgage for greater buying power 46 B U S I N E S S W E E K , S E P T E M B E R 2 7 , 2 0 0 4 “KB is among the most improved in terms of “KB is among the most improved in terms of customer satisfaction.” customer satisfaction.” “Say Yes” to Customer Satisfaction Commitment ✛ KB Home is committed to customer service with a business model that focuses on the homebuyer ✛ During construction, KB Home uses dependable materials and implements a building process that features a number of checkpoints and inspections to achieve high construction standards ✛ KB Home provides a 10-Year Limited Warranty which gives homeowners peace of mind ✛ KB Home’s “Say Yes” approach to customer service ensures that all homeowner needs are attended to before and long after the home purchase ✛ J.D. Power and Associates ranked KB Home in the top three nationally for “Customer Satisfaction with New Home Builders in 2004” and awarded a top three ranking in four local markets, including a number one position in Austin, Texas ✛ Homeowners are able to submit a service request online by visiting kbhome.com 51 B I G B U I L D E R , J U N E 2 0 0 4 “...KB Home is implementing a first of its kind “...KB Home is implementing a first of its kind quality assurance initiative with the NAHB quality assurance initiative with the NAHB Research Center. The National Housing Quality Research Center. The National Housing Quality (NHQ) certified trade contractor program is a (NHQ) certified trade contractor program is a powerful tool in assuring and documenting powerful tool in assuring and documenting best construction practices.” best construction practices.” Delivering Quality Craftsmanship Quality ✛ KB Home is an industry leader in ✛ Third-party inspectors provide independent quality construction ✛ KB Home assigns a Community Team to each home under construction with Sales, Construction and Customer Service representatives working together to provide pertinent information to homeowners on a weekly basis, including home walk- throughs during each construction phase ✛ A 10-point quality checklist is adhered to during every build and signed off on by key members of the Community Team review and approval throughout the construction process ✛ KB Home has achieved recognition as the first large builder to nationally implement the first of its kind National Housing Quality (NHQ) certified trade contractor program, in which ultimately every trade working on our homes will first go through rigorous training and education 52 Leading Builder in France Global ✛ Kaufman & Broad S.A. introduced the American model of single-family communities, as well as the concepts of a master bedroom suite, walk-in closet, built-in kitchen cabinetry and two-car garage ✛ The KB Home Studio choice offerings are mirrored in France with showrooms in Paris, Lyon and Marseille ✛ Homebuyers can begin their shopping experience at ketb.com, a dedicated French website ✛ For more than 35 years, KB Home’s publicly traded French subsidiary, Kaufman & Broad S.A., has been designing, building and selling single-family homes, apartments and commercial real estate throughout France ✛ Kaufman & Broad S.A. is a leading homebuilder stock on the Paris Bourse with the ticker symbol KOF ✛ From stunning high-rises to beautifully appointed homes, Kaufman & Broad S.A. is recognized for its innovative architecture and attention to detail ✛ The Company builds quality homes in numerous locations throughout the regions of Paris, Lyon, Marseille, Bordeaux, Grenoble, Lille, Montpellier, Nantes, Nice, Rouen, Strasbourg and Toulouse 55 A Leader on the New York Stock Exchange 35 Years ✛ KB Home is a Fortune 500 company listed on the New York Stock Exchange (NYSE: KBH) ✛ KB Home is widely recognized as one of the leading publicly traded homebuilders ✛ KB Home recently celebrated 35 years of being listed by ringing The Closing BellSM on Election Day, November 2, 2004, also symbolic of the Company’s voter registration initiatives and leadership throughout the campaign season ✛ In 1969, the Company became the first homebuilder to trade on the New York Stock Exchange 56 Marketing: One Company, One Brand Success ✛ KB Home has the highest level of total brand awareness of any homebuilder in its markets ✛ KB Home’s brand identity stands for superior quality and maximum choice ✛ KB Home’s marketing expertise begins at the land planning stage with the design and theming of appealing neighborhoods where people want to live ✛ The brand is supported through efficient advertising, impactful signage, sales collateral and high-profile national marketing and promotional partnerships that drive strong traffic to communities nationwide ✛ kbhome.com and kbcasa.com are fully interactive, consumer-friendly websites that provide detailed product information, streaming video, interactive floor plans, online customer care services and more ✛ By partnering with highly recognized consumer brands, KB Home created “out of the box” national promotions that generate a huge buzz and bring people to its front door, including: – Building a brand new home for a deserving family in front of 20 million viewers on ABC’s hit show “Extreme Makeover: Home Edition” – Doing the impossible by constructing a single- family home in the heart of New York City for the “Live with Regis and Kelly/ KB Home Giveaway” – Creating a life-size replica of “The Simpsons” cartoon house in Las Vegas with FOX and Pepsi – Partnering with Krispy Kreme, Clifford the Big Red Dog, In-N-Out Burger, Pokémon and others for cross promotional marketing ✛ Customers are provided with 888-KB-HOMES and 888-KB-CASAS, an industry-leading, toll-free customer information center, staffed with licensed real estate professionals 59 P E O P L E , D E C E M B E R 2 0 , 2 0 0 4 “For the Broadbents, KB Home CEO Bruce Karatz “For the Broadbents, KB Home CEO Bruce Karatz picked up construction and labor costs as a picked up construction and labor costs as a genuine gesture of altruism.” genuine gesture of altruism.” Extreme Makeover: Home Edition Partnership ✛ In keeping with the KB Home tradition of building not just homes but neighborhoods, the Company also provided new landscaping for the entire street ✛ Music superstar and activist Elton John made a special guest appearance to donate an autographed baby grand piano from his personal collection and congratulate the family on promoting AIDS awareness ✛ KB Home Chairman and CEO Bruce Karatz surprised the family by tearing up their mortgage and covering a number of maintenance costs to make sure they would live worry-free ✛ KB Home partnered with “Extreme Makeover: Home Edition” to become the largest builder to date to participate in the show ✛ While KB Home enjoyed tremendous national exposure, the goodwill and team-building that was generated by this unique project was far more rewarding and is indicative of why KB Home takes part in such initiatives ✛ The show aired on December 12, 2004, on ABC and was seen by over 20 million viewers ✛ A new KB home was built for a single mother, Pat Broadbent, who is battling cancer and has three adopted daughters at home all living with AIDS ✛ KB Home replaced a 40-year old, 1,300- square-foot cinder block house with a beautiful 3,200-square-foot, two-story home that features hand-laid stone accents, a swimming pool and sparkling waterfall 60 T H E N E W Y O R K T I M E S , S E P T E M B E R 7 , 2 0 0 4 “The Natural Resources Defense Council “The Natural Resources Defense Council recognizes KB Home for its leadership in recognizes KB Home for its leadership in protecting America’s roadless national forests.” protecting America’s roadless national forests.” Environmentally Sound Preservation ✛ The Company leads the homebuilding industry in innovative approaches to materials, conservation, reuse and energy efficiency ✛ KB Home was the first major builder to construct an entire community exclusively using certified wood from forests following strict environmental practices ✛ KB Home communities are planned ✛ KB Home was recognized by leading environmental group the Natural Resources Defense Council (NRDC) for environmental leadership in forest preservation with a full- page advertisement in The New York Times carefully to preserve existing vegetation and trees wherever possible, including consulting with local arborists ✛ In-fill communities are planned to preserve the character of the existing neighborhood, while revitalizing older urban areas ✛ KB Home works closely with environmental and community groups on local projects to improve the community, including tree planting events 63 U . S . N E W S & W O R L D R E P O R T , S E P T E M B E R 2 7 , 2 0 0 4 “KB Home...one of the nation’s largest builders, offers voter registration forms in model homes and offices.” Active Members of the Community Involvement ✛ KB Home is committed to responsible corporate citizenship and helping to improve the quality of life in communities where we build and work ✛ Throughout the year, KB Home provides physical and financial resources to help build better communities across the country ✛ As a builder, KB Home assists many local charities by donating time, resources and money to rebuild, renovate and revitalize area homes and community buildings ✛ KB Home places great importance and respect on its relationships with government officials, local and national organizations, and business partners to make a true and lasting impact on communities ✛ Just this year alone, KB Home and its employees participated in over 100 local outreach programs from food and clothing drives to pet adoption days, to community repair days and more ✛ A few examples of KB Home’s many outreach initiatives include: – Non-partisan effort to register voters at every KB Home community during national elections – City-wide efforts to wipe out graffiti – Renovation of school playgrounds – Donation of thousands of sandbags to protect communities during Southern California brushfires and mudslides – Construction of clubhouses at non-profit shelters for abused women and children – Worked with trade partners to build “David’s Home,” a customized home donated to a quadriplegic teenager who suffered a spinal cord injury during a high school football game 64 The Training & Development of the Workforce ✛ KB University, commonly referred to as KBU, is a tool for all employees to become familiar with key aspects of the Company’s business—construction, land development, customer service, marketing, and the Company’s ethics policies, among others ✛ KBU is closely aligned with every aspect of the Company: its vision, its values, its identity, and its ultimate success ✛ The KBU roadmap has become part of the day-to-day experience for KB Home employees ✛ This year, 6,000 KB Home employees earned more than 93,000 certifications. Each certification represents more than three hours of training, which translates to over 50 hours of education per year—more than many multinational corporations ✛ KBU is more than a portal intranet site. It is the embodiment of a continuously evolving and learning organization B I G B U I L D E R , O C T O B E R 2 0 0 4 “The KBU roadmap has become part of the company's day-to-day experience...For KB Home, continuous education fuels deeper strategy.” KB Home’s Greatest Asset: Its Talented Workforce Leadership ✛ The average tenure of KB Home’s senior corporate officers is more than 14 years ✛ At the division management level, KB Home boasts a powerful group of experienced KB Home veterans ✛ Solid leadership has resulted in more than 1,200 promotions or transfers from within its ranks over the last year ✛ At any given time, KB Home has at least 15 percent of its talent in line for a promotion, which strengthens and prepares the Company for continued growth ✛ All 6,000 KB Home employees consistently push the Company and the industry forward with fresh thinking, innovative business solutions, award-winning designs, and a passion for customer service that has been widely recognized by industry observers ✛ KB Home looks for unique ways to constantly involve and embrace its extended family, from business and trade partners to real estate professionals who partner with the KB Home sales staff, as well as elected officials representing local communities in which the Company builds 67 T H E C H A R L O T T E O B S E R V E R , J U N E 2 0 0 4 “KB Home, one of the nation’s premier homebuilders, added another honor to its trophy case Monday night, winning the American Business Award for Best Overall Company at a ceremony held in New York City.” 2004 Awards Consistency KB Home has received a number of highly coveted business awards and important corporate rankings from America’s premier business publications and organizations. The Company is consistently recognized for its management excellence, marketing impact, architectural innovation, consistent shareholder returns and more. American Business Awards – Best Overall Company Fortune – 500 Largest American Companies Fortune – America’s Most Admired Companies Forbes – America’s Best Big Companies Forbes – Global 2000 Barron’s – 500 Best Performing Companies Builder Magazine – Top 100 Builders BusinessWeek – S&P 500: The 50 Best Performers Professional Builder – Giant 400 Builders Forbes – America’s Most Supercharged Companies National Sales and Marketing Awards – Best Sales Office J.D. Power and Associates – Highest ranking in overall customer satisfaction in Austin and top three ranking in Raleigh/Durham, Houston and Las Vegas 68 B O A R D O F D I R E C T O R S Ron Burkle 1, 4 Managing Par tner, The Yucaipa Companies Los Angeles Dr. Ray R. Irani 2+, 3+ Chairman and Chief Executive Of ficer, Occidental Petroleum Corporation Los Angeles Michael G. McCaffery 1, 4 President and Chief Executive Of ficer, Stanford Management Company Menlo Park Leslie Moonves 3 Co-President and Co-Chief Operating Of ficer, Viacom, Inc. Los Angeles Kenneth M. Jastrow, II 4 Chairman and Chief Executive Of ficer, Dr. Barry Munitz 1+, 3 President and Chief Executive Of ficer, Temple-Inland, Inc. Austin James A. Johnson 3, 4+, 5 Vice Chairman Perseus, LLC The J. Paul Getty Trust Los Angeles Luis G. Nogales 1, 2, 3 Managing Par tner, Nogales Investors, LLC Former Chairman and Chief Executive Of ficer, Los Angeles Fannie Mae Washington, D.C. Bruce Karatz 2 Chairman and Chief Executive Of ficer, KB Home Los Angeles J. Terrence Lanni 3, 4 Chairman and Chief Executive Of ficer, MGM MIRAGE Las Vegas Melissa Lora 1 Chief Financial Of ficer, Taco Bell Corp. Ir vine C O M M I T T E E S O F T H E B O A R D O F D I R E C T O R S 1 Audit and Compliance Committee 2 Executive Committee 3 Management Development and Compensation Committee 4 Nominating and Corporate Governance Committee 5 Presiding Director +Committee Chair All directors, except Mr. Karatz, are independent as defined under listing standards of the New York Stock Exchange and KB Home’s Corporate Governance Principles, which are available at kbhome.com. 70 Corporate Officers Operations Management T E X A S M A N A G E M E N T Domenico Cecere Senior Vice President and Chief Financial Of ficer Cory F. Cohen Senior Vice President, Tax Ken Gancarczyk Senior Vice President, Builder Ser vices Richard B. Hirst Executive Vice President and Chief Legal Counsel William R. Hollinger Senior Vice President and Controller Lisa G. Kalmbach Senior Vice President, Studios Glen Barnard Regional General Manager, Central Leah S. W. Bryant Regional General Manager, Southwest Steven M. Davis Regional General Manager, Southeast Robert Freed Regional General Manager, Nor thern California John “Buddy” E. Goodwin Regional General Manager, Florida Jay L. Moss Regional General Manager, Southern California Bruce Karatz Chairman and Chief Executive Of ficer Larry E. Oglesby Regional General Manager, Texas Kimberly N. King Vice President, Associate General Counsel and Corporate Secretar y Wendy L. Marlett Senior Vice President, Marketing and Communications Kelly Masuda Senior Vice President, Capital Markets and Treasurer Jeffrey T. Mezger Executive Vice President and Chief Operating Of ficer Division Management N O R T H E R N C A L I F O R N I A Jefferey Fautt President, Nor th Bay Division Drew Kusnick President, South Bay Division S O U T H E R N C A L I F O R N I A Thomas C. DiPrima President, Los Angeles-Ventura Division Albert Z. Praw Senior Vice President, Asset Management Gary A. Ray Senior Vice President, Human Resources V I C E P R E S I D E N T S Kelly M. Allred Julia Ambrose Daniel Bridleman Brian Bruce Lawrence B. Gotlieb Derrick M. Hall John A. Hughes Ross A. Kay Kathleen L. Knoblauch Stan Koyanagi Catherine Lee Joseph M. Manisco Barton P. Pachino Jeanne Parker Christopher Reid Joseph C. Santoro Nancy S. Schwappach David B. Simons Scott B. Laurie President, Inland Valley Division Martin Lighterink President, San Diego Division Stephen Ruffner President, Riverside Division S O U T H W E S T John H. Bremond President, Tucson Division James Widner President, Las Vegas Division Greg Williams President, Phoenix Division C E N T R A L Russell W. Crandall President, Indiana Division Barry Grant President, Colorado Division Mark Kinsley President, New Mexico Division Gary M. White President, Illinois Division 71 David Christian President, For t Wor th Division Kyle Davison President, Houston Division Jeffrey L. Dworkin President, Dallas Division Joseph D. Reese President, Austin Division Craig Westmoreland President, San Antonio Division S O U T H E A S T Patricia Hanchette President, Raleigh Division Lawrence E. Lippincott President, Atlanta Division Jerry Perillo President, Charlotte Division Andy White President, South Carolina Division F L O R I D A Rick Carruthers President, Orlando Division Charles Cook President, For t Myers Division Vincent P. DePorre President, Jacksonville Division Marshall Gray President, Tampa Division William “Brad” Jones President, Treasure Coast Division F R A N C E Joel Monribot President, Kaufman & Broad S.A., France Guy Nafilyan Chairman and Chief Executive Of ficer, Kaufman & Broad S.A., France K B H O M E M O R T G A G E C O M P A N Y Leah S. W. Bryant Chief Executive Of ficer, KB Home Mor tgage Company Corporate Headquarters 10990 Wilshire Boulevard Los Angeles, California 90024 (310) 231-4000 (310) 231-4222 fax Builder Services 3330 Harbor Boulevard, Suite 300 Costa Mesa, California 92626 (714) 689-4502 (714) 556-3753 fax houseCALL Center 3037 Independence Drive, Suite I Livermore, California 94551 (888) KB-HOMES (925) 245-6506 fax KB Home Mortgage Company 10990 Wilshire Boulevard, Ninth Floor Los Angeles, California 90024 (310) 893-7300 (310) 444-9022 fax Domestic Divisions Arizona Phoenix Division Two Gateway 432 Nor th 44th Street, Suite 400 Phoenix, Arizona 85008 (602) 567-4800 (602) 306-1010 fax Tucson Division 250 South Craycroft Road, Suite 300 Tucson, Arizona 85711 (520) 918-6400 (520) 299-2725 fax California Los Angeles –Ventura Divison 27240 Turnberr y Lane, Suite 100 Valencia, California 91355 (661) 219-6901 (661) 219-6954 fax Inland Valley Division 801 Corporate Center Drive, Suite 201 Pomona, California 91768 (909) 802-1100 (909) 802-1111 fax Nor th Bay Division 2420 Del Paso Road, Suite 200 Sacramento, California 95834 (916) 576-5800 (916) 576-3750 fax Orange County Division 3 Jenner, Suite 100 Ir vine, California 92618 (949) 790-9100 (949) 790-9119 fax Riverside Division 26201 Ynez Road, Suite 104 Temecula, California 92591 (951) 587-3300 (951) 587-0522 fax San Diego Division 12235 El Camino Real, Suite 100 San Diego, California 92130 (858) 259-6000 (858) 259-5108 fax O F F I C E L O C A T I O N S South Bay Division 6700 Koll Center Parkway, Suite 200 Pleasanton, California 94566 (925) 750-1700 (925) 750-1800 fax Colorado Colorado Division 5975 South Quebec Street, Suite 300 Centennial, Colorado 80111 (303) 323-1100 (720) 488-3860 fax Florida For t Myers Division 4470 Fowler Street For t Myers, Florida 33901 (239) 274-5675 (239) 931-3525 fax Gold Coast Division 735 Fentress Boulevard Daytona, Florida 32114 (386) 274-7190 (386) 274-1781 fax Jacksonville Division 10475 For tune Parkway, Suite 100 Jacksonville, Florida 32256 (904) 596-6626 (904) 519-5012 fax Orlando Division 8403 South Park Circle, Suite 670 Orlando, Florida 32819 (321) 354-2500 (407) 351-1082 fax Tampa Division 3450 Buschwood Park Drive, Suite 250 Tampa, Florida 33618 (813) 775-7800 (813) 932-6470 fax Treasure Coast Division 8075 20th Street Vero Beach, Florida 32966 (772) 226-2200 (772) 299-0244 fax Georgia Atlanta Division 110 Londonderr y Cour t, Suite 136 Woodstock, Georgia 30188 (770) 928-0092 (678) 486-4584 fax Illinois Chicago Division 100 Lexington Drive, Suite 100 Buf falo Grove, Illinois 60089 (847) 537-9191 (847) 537-8514 fax Indiana Indiana Division 5740 Decatur Boulevard Indianapolis, Indiana 46241 (317) 821-8100 (317) 821-1870 fax Nevada Las Vegas Division 750 Pilot Road, Suite F Las Vegas, Nevada 89119 (702) 614-2500 (702) 614-2614 fax 72 New Mexico 6330 Riverside Plaza Lane NW, Suite 200 Albuquerque, New Mexico 87120 (505) 353-5300 (505) 897-4479 fax North Carolina Charlotte Division 6135 Lakeview Road, Suite 250 Charlotte, Nor th Carolina 28269 (704) 969-5700 (704) 596-2309 fax Raleigh Division 1100 Navaho Drive, Suite GL-3 Raleigh, Nor th Carolina 27609 (919) 871-0092 (919) 871-0442 fax South Carolina South Carolina Division 101 Executive Center Drive Saluda Building, Suite 200 Columbia, South Carolina 29210 (803) 256-1667 (803) 256-1784 fax Texas Austin Division 11911 Burnet Road Austin, Texas 78758 (512) 833-8880 (512) 795-6286 fax Dallas Division 2711 LBJ Freeway, Suite 600 Dallas, Texas 75234 (972) 232-6020 (972) 232-6161 fax For t Wor th Division 2711 LBJ Freeway, Suite 600 Dallas, Texas 75234 (972) 232-6020 (972) 232-6161 fax Houston Division 11320 Richmond Avenue Houston, Texas 77082 (281) 668-3800 (281) 493-4174 fax Rio Grande Valley Division 1800 S. Main Street, Suite 850 McAllen, Texas 78503 (956) 661-6500 (956) 664-9348 fax San Antonio Division 4800 Fredericksburg Road San Antonio, Texas 78229 (210) 349-1111 (210) 375-1018 fax International Division Kaufman & Broad S.A. 127 avenue Charles de Gaulle 92207 Neuilly sur Seine Cedex France 011-331-4-143-4343 Common Stock Prices Common Stock Prices Stockholder Information Stockholder Information S T O C K H O L D E R I N F O R M A T I O N 2004 2004 2003 2003 HIGH HIGH LOW LOW HIGH HIGH LOW LOW The Company’s common stock is traded on the New York Stock Exchange The Company’s common stock is traded on the New York Stock Exchange under the symbol KBH. There were XX,XXX,XXX shares of common stock under the symbol KBH. There were XX,XXX,XXX shares of common stock outstanding as of Januar y 31, 2005. outstanding as of Januar y 31, 2005. First Quarter First Quarter Second Quarter Second Quarter Third Quarter Third Quarter Fourth Quarter Fourth Quarter $ 74.96 $ 74.96 81.89 81.89 72.05 72.05 92.99 92.99 $ 64.10 $ 64.10 60.27 60.27 61.26 61.26 68.61 68.61 $ 49.00 $ 49.00 62.70 62.70 71.55 71.55 71.85 71.85 $ 39.64 $ 39.64 42.41 42.41 54.82 54.82 53.87 53.87 Form 10-K Form 10-K Dividend Data Dividend Data KB Home paid a quar terly cash dividend of $0.25 per common share in KB Home paid a quar terly cash dividend of $0.25 per common share in 2004. In December 2004, the Company increased its quar terly cash 2004. In December 2004, the Company increased its quar terly cash dividend to $.375 per common share. dividend to $.375 per common share. Annual Stockholders’ Meeting Annual Stockholders’ Meeting The 2005 Annual Stockholders’ meeting will be held at the Hotel Bel-Air, The 2005 Annual Stockholders’ meeting will be held at the Hotel Bel-Air, 701 Shore Canyon Road, in Los Angeles, California, at 9:00am on 701 Shore Canyon Road, in Los Angeles, California, at 9:00am on Thursday, April 7, 2005. Thursday, April 7, 2005. Stock Exchange Listings Stock Exchange Listings KB Home’s common stock is listed on the New York Stock Exchange and is KB Home’s common stock is listed on the New York Stock Exchange and is also traded on the Boston, Chicago, National , Pacific and Philadelphia also traded on the Boston, Chicago, National , Pacific and Philadelphia Exchanges. The ticker symbol is KBH. Exchanges. The ticker symbol is KBH. Kaufman & Broad S.A., the Company’s French subsidiar y, is listed on the Kaufman & Broad S.A., the Company’s French subsidiar y, is listed on the Paris Bourse. The ticker symbol is KOF. Kaufman & Broad S.A.’s website Paris Bourse. The ticker symbol is KOF. Kaufman & Broad S.A.’s website address is ketb.com. address is ketb.com. Transfer Agent Transfer Agent Mellon Investor Ser vices, LLC Mellon Investor Ser vices, LLC P.O. Box 3315 P.O. Box 3315 South Hackensack, New Jersey 07606 South Hackensack, New Jersey 07606 (888) 667-7640 (888) 667-7640 www.melloninvestor.com www.melloninvestor.com Independent Auditors Independent Auditors Ernst & Young LLP Ernst & Young LLP Los Angeles, California Los Angeles, California The Company’s 2005 Repor t on Form 10-K filed with the Securities and The Company’s 2005 Repor t on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge by writing to the Exchange Commission may be obtained without charge by writing to the Company’s investor relations depar tment at investorrelations@kbhome.com Company’s investor relations depar tment at investorrelations@kbhome.com or by visiting the Company’s website at kbhome.com. or by visiting the Company’s website at kbhome.com. Headquarters Headquarters KB Home KB Home 10990 Wilshire Boulevard 10990 Wilshire Boulevard Los Angeles, California 90024 Los Angeles, California 90024 (310) 231-4000 (310) 231-4000 (310) 231-4222 Fax (310) 231-4222 Fax Location and community information: Location and community information: kbhome.com kbhome.com (888) KB-HOMES (888) KB-HOMES Investor Contact Investor Contact Kelly Masuda Kelly Masuda Vice President, Capital Markets and Treasurer Vice President, Capital Markets and Treasurer KB Home KB Home 10990 Wilshire Boulevard 10990 Wilshire Boulevard Los Angeles, California 90024 Los Angeles, California 90024 (310) 231-4000 (310) 231-4000 kmasuda@kbhome.com kmasuda@kbhome.com Bondholder Services Address & Phone Number Bondholder Services Address & Phone Number 8 5⁄8% $200.0 million Senior Subordinated Notes — Due 12/15/08 8 5⁄8% $200.0 million Senior Subordinated Notes — Due 12/15/08 7 3⁄4% $300.0 million Senior Subordinated Notes — Due 2/1/10 7 3⁄4% $300.0 million Senior Subordinated Notes — Due 2/1/10 9 1⁄2% $250.0 million Senior Subordinated Notes — Due 2/15/11 9 1⁄2% $250.0 million Senior Subordinated Notes — Due 2/15/11 6 3⁄8% $350.0 million Senior Notes — Due 8/15/11 6 3⁄8% $350.0 million Senior Notes — Due 8/15/11 5 3⁄4% $250.0 million Senior Notes — Due 2/1/14 5 3⁄4% $250.0 million Senior Notes — Due 2/1/14 5 7⁄8% $300.0 million Senior Notes — Due 1/15/15 5 7⁄8% $300.0 million Senior Notes — Due 1/15/15 Trustee: Trustee: Sun Trust Bank Sun Trust Bank Corporate Trust Division Corporate Trust Division Mail Code 008 Mail Code 008 25 Park Place, 24th Floor 25 Park Place, 24th Floor Atlanta, Georgia 30303-2900 Atlanta, Georgia 30303-2900 muriel.shaw@suntrust.com muriel.shaw@suntrust.com (404) 588-7067 (404) 588-7067 Design: Weymouth Design, Boston / San Francisco Design: Weymouth Design, Boston / San Francisco Printing: Lithographix, Inc. Printing: Lithographix, Inc. 10990 Wilshire Boulevard, Los Angeles, CA 90024 kbhome.com 

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