KB Home Reports Fourth Quarter, FY06 Results

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:

"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.

Despite higher revenues, the Company's construction business generated an operating loss of $96.4 million in the 2006 fourth quarter, a decrease of $587.9 million from operating income of $491.5 million in the year-earlier quarter. This decrease resulted primarily from lower housing gross profits and losses on land sales. The Company's housing gross margin decreased to 11.7% in the fourth quarter of 2006 from 27.1% in the prior year's quarter, in large part due to pretax non-cash charges of $152.7 million for inventory impairments and $88.3 million for land option contract abandonments, as well as an increased use of price concessions and sales incentives. Excluding the non-cash charges, the Company's fourth quarter 2006 housing gross margin was 18.8%. The loss on land sales of $92.6 million in the fourth quarter of 2006 included $63.1 million of impairment charges that relate to future land sales. In addition, the Company's equity in pretax income (loss) of unconsolidated joint ventures in the fourth quarter reflects impairments of $39.3 million related to unconsolidated joint ventures. These impairments and land option abandonments arose where market conditions became challenging, causing a decline in the value of certain land positions and prompting changes in the Company's strategy concerning projects that no longer meet internal investment standards. The Company posted a net loss of $49.6 million, or $.64 per diluted share, in the fourth quarter of 2006, compared to net income of $304.4 million, or $3.44 per diluted share, in the fourth quarter of 2005.