KB Home Reports Fourth Quarter and Fiscal Year 2006 Results

Business Wire, Feb 13, 2007

LOS ANGELES -- KB Home (NYSE:KBH), one of the largest homebuilders in the United States and France, today reported financial results for its fourth quarter and year ended November 30, 2006. Amounts presented in this release for the fourth quarter and year ended November 30, 2005 have been restated to reflect adjustments made as a result of the Company's recently completed review of its stock option grant practices. Highlights of the Company's 2006 fourth quarter and year-end results include:

* Revenues totaled $3.55 billion in the fourth quarter of 2006, up 13% from $3.15 billion in the year-earlier quarter, reflecting a 9% increase in housing revenues driven by 5% growth in unit delivery volume and a 4% increase in the average selling price. The Company incurred a net loss of $49.6 million, or $.64 per diluted share, in the 2006 fourth quarter, reflecting previously announced pretax non-cash charges of $343.3 million related to inventory and joint venture impairments, and the abandonment of land option contracts. In the fourth quarter of 2005, the Company reported net income of $304.4 million, or $3.44 per diluted share.

* For the Company's year ended November 30, 2006, total revenues increased 17% to $11.00 billion, up from $9.44 billion in 2005. New home deliveries rose 5% to 39,013 units in 2006, up from 37,140 units in 2005. The Company recorded pretax non-cash impairment charges and land option contract write-offs totaling $431.2 million in 2006, which contributed to a 41% decrease in net income to $482.4 million for the year, down from $823.7 million in 2005. Diluted earnings per share decreased 38% to $5.82 in 2006 from $9.32 per diluted share in 2005.

* Deteriorating market conditions during 2006 prompted the Company to reduce its inventory positions, adopt a selective approach to potential new land acquisitions, and preserve resources to position itself strategically for an eventual housing market recovery. As a result of these measures, the Company generated substantial cash flow from operations during the second half of 2006. The Company ended 2006 in sound financial shape, with $639.2 million of cash and no borrowings outstanding on its revolving credit facility.

* Backlog totaled 17,384 units at November 30, 2006, representing potential future housing revenues of $4.43 billion. This was a 34% decrease from $6.76 billion in backlog value at November 30, 2005. Net orders decreased 38% in the fourth quarter of 2006 to 6,059 from 9,747 in the year-earlier quarter, primarily due to higher contract cancellations by buyers. The cancellation rate in the fourth quarter of 2006 was 48%, up from 31% in the fourth quarter of 2005 but down from 53% in the third quarter of 2006.

* On November 12, 2006, the Company reported the preliminary findings of a voluntary independent review of its stock option grant practices. As previously announced, the Company determined that it would restate prior-period financial statements as a result of the stock option review. The Company will file later today with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the quarter ended August 31, 2006 and its Annual Report on Form 10-K for the year ended November 30, 2006. Both reports include restated financial statements for prior periods.

"With this announcement, we resume our regular communication of KB Home's quarterly results to shareholders, investors and analysts," said Jeffrey Mezger, president and chief executive officer. "We appreciate the patience and support you have shown over the last several months, a period during which we were unable to release our financial results while an independent review of our stock option grant practices was conducted. We look forward to once again being able to provide our shareholders and the public with timely financial and operating information on our business."

"Last year was clearly a turning point for the U.S. housing market compared to the record growth of the past several years. Although our Company's revenues increased to record levels in 2006, net income and earnings per share dropped sharply in the face of increasingly difficult market conditions and the actions we took in response," said Mezger. "During the second half of the year, an oversupply of unsold new and resale homes, reduced affordability, and greater caution among potential homebuyers heightened competition among homebuilders and sellers of existing homes, prompting the aggressive use of price concessions and sales incentives. All these factors pressured our operating margins. Our results were further affected by declining land values and the resulting charges we recorded in the fourth quarter to reflect lower land values."

Company-wide revenues totaled $3.55 billion for the quarter ended November 30, 2006, increasing by $395.5 million or 13% from $3.15 billion in the year-earlier quarter, primarily due to growth in revenues from the Company's homebuilding operations. Fourth-quarter housing revenues increased 9% to $3.42 billion, up from $3.14 billion in the year-earlier period, reflecting a 5% increase in unit deliveries to 12,553 from 11,946 and a 4% increase in the overall average selling price to $272,400 from $262,700. Revenues from land sales rose to $101.9 million in the fourth quarter of 2006 from $7.0 million in the year-earlier quarter.