KB Home Reports Third Quarter 2006 Results; Revenues Increased 6% to $2.67 Billion; Two Million Shares Repurchased During the Third Quarter

Business Wire, Sept 21, 2006

LOS ANGELES -- KB Home (NYSE:KBH), one of the largest homebuilders in the United States and France, today reported preliminary unaudited financial results for its third quarter ended August 31, 2006. As previously announced, members of the Audit and Compliance Committee of the Company's Board of Directors, in conjunction with outside legal counsel, are conducting an internal review of the Company's stock option grants. Pending the completion of this review, the results the Company is currently in a position to report for the third quarter and first nine months of 2006 are limited to revenues, average sales prices, unit deliveries, net orders, unit backlog and backlog value. Highlights include:

--Total revenues of $2.67 billion for the quarter ended August 31, 2006 were up 6% from $2.53 billion in the year-earlier quarter. The growth in total revenues reflected a 7% increase in housing revenues, driven by a 10% increase in the average selling price, partly offset by a 3% decrease in unit deliveries.

--For the nine months ended August 31, 2006, total revenues increased 19% to $7.46 billion, up from $6.29 billion for the nine months ended August 31, 2005. Unit deliveries in the period rose 5% to 26,460, up from 25,194 units delivered in the first nine months of 2005.

--The Company's backlog at August 31, 2006 totaled 23,878 units, representing potential future housing revenues of $6.53 billion. The decrease from 27,744 units and $7.06 billion in backlog at August 31, 2005 primarily resulted from higher cancellation rates which contributed to a 43% decrease in third quarter 2006 net orders.

--The Company repurchased two million shares of its common stock during the three months ended August 31, 2006 for an aggregate price of $90 million. Over the nine-month period ended August 31, 2006, the Company repurchased six million shares of its common stock for an aggregate price of $377.4 million. The Company currently is authorized by its board of directors to repurchase up to an additional four million shares of its common stock.

"Our third quarter results reported in this release reflect the challenging operating environment for the homebuilding industry," said Bruce Karatz, chairman and chief executive officer. "Greater competition among homebuilders and imbalances in supply, demand and affordability in a number of markets have adversely affected our unit deliveries, revenues, pricing and net orders for the quarter, and we do not expect conditions to improve significantly in the foreseeable future. Until the supply of unsold homes is reduced and affordability improves, there will continue to be pressure on pricing like any other industry. However, we believe our experienced management team and sound operating disciplines will allow us to navigate through this difficult environment and position the Company to take advantage of future opportunities once the homebuilding market stabilizes."

Company-wide revenues reached $2.67 billion for the quarter ended August 31, 2006, increasing 6% from $2.53 billion in the year-earlier quarter, the result of higher revenues from the Company's homebuilding operations. Third-quarter housing revenues increased 7% to $2.66 billion, up from $2.49 billion in the year-earlier period, on a 3% decrease in unit deliveries to 9,523 from 9,812 in the third quarter of 2005 and a 10% increase in the overall average selling price to $279,000 in the third quarter of 2006 from $254,100 in the third quarter of 2005.

"Conditions in formerly strong markets, such as California, Nevada, Arizona and Florida, have weakened considerably in recent months," said Karatz. "These and other markets have experienced a rapid change in investor activity from buying to selling homes as well as decreasing home purchases by non-investors leading to a relative oversupply of new and resale inventory, lack of affordability and high cancellation rates. These market conditions have increased competition among homebuilders, many of which have responded by aggressively using discounts, incentives and price concessions to close sales thereby creating competitive pressures that have required us to do the same in some cases. While it is difficult to predict when markets will normalize, in the long run we believe underlying fundamentals, including favorable demographics and job growth, and our geographic diversity bode well for the long-term growth prospects of our business. However, we expect that market conditions for the remainder of 2006 and into next year will have an unfavorable impact on our year-over-year net income comparisons."

The Company generated 5,989 net orders in the third quarter of 2006, a decrease of 43% from 10,467 net orders in the year-earlier quarter. The decrease in the Company's third quarter net orders reflected a 53% drop off in its U.S. net orders, partially offset by a 9% increase in France. Unit backlog totaled 23,878 units at August 31, 2006 versus 27,744 units at August 31, 2005. The Company's backlog value decreased 8% to approximately $6.53 billion at August 31, 2006 from approximately $7.06 billion at August 31, 2005. The year-over-year decrease in backlog value resulted from decreases in all U.S. regions, partly offset by an increase in France.