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KB Home May Restate Earnings

The builder says it improperly accounted for stock option grants in previous years.

October 11, 2006|Annette Haddad | Times Staff Writer

KB Home said Tuesday that it improperly accounted for executive stock option grants and might need to restate previous earnings as a result.

The nation's fifth-biggest home builder also said it expected third-quarter profit to fall 32% to $155 million, or $1.93 a share, which would beat analysts' estimates. The result was helped by KB's $27.6-million sale in August of its stake in a 2,000-acre housing development in Palmdale.

Its shares rose 96 cents, or 2.14%, to $45.75, part of a rally among home builder stocks.

In a Securities and Exchange Commission filing, the Westwood-based builder said it needed to delay its fiscal third-quarter results to give it more time to complete an internal review, disclosed Aug. 23, of stock option grants awarded to Chief Executive Bruce Karatz and other corporate officers.

More than 100 U.S. companies are under investigation over alleged efforts to inflate the value of stock options by timing their grants with low points in the companies' share prices.

Karatz, the highest-paid executive in the home-building industry, received annual bonus and stock option packages tied to KB's stellar performance during the recent housing boom. In 2005, he earned $156 million, with more than 75% coming from the exercising of options.

In its filing, KB said it "reached a preliminary conclusion that the actual measurement dates for financial accounting purposes of certain stock option grants likely differ from the recorded grant dates."

KB also forecast "significant changes" in results for the three- and nine-month periods ended Aug. 31 because of expected charges related to the options.

Home builder shares rallied Tuesday after investment bank J.P. Morgan upgraded its opinion of three companies, including No. 1 builder D.R. Horton Inc. of Fort Worth, which reported a 25% drop in new-home orders.

J.P. Morgan analyst Michael Rehaut said he saw signs of a stabilizing housing market, which could set the stage for future growth among builders' stocks.

"We believe key leading fundamentals are either beginning to stabilize or are on the cusp of recovering over the next few quarters, and historical performance trends point to a long-term positive move," Rehaut said.


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