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KB Home Reports First Quarter 2006 Results

Revenues Increase 34% to $2.19 Billion; Earnings Per Share Up 43% to $2.02 Backlog Value Increases 25% to $7.24 Billion; Company Repurchases Two Million Shares

LOS ANGELES, March 22 /PRNewswire-FirstCall/ -- KB Home (NYSE: KBH), one of the largest homebuilders in the United States and France, today announced its financial results for the first quarter of 2006. Highlights include:

* Total revenues rose 34% to $2.19 billion for the quarter ended February 28, 2006 from $1.64 billion in the year-earlier quarter. A larger volume of unit deliveries and a higher average selling price contributed to the increase. Unit deliveries rose to 7,905 in the quarter, up 15% from the first quarter of 2005. The average selling price of the Company's homes increased 17% to $276,200 in the first quarter of 2006, up from $236,300 in the year-earlier quarter.
* Net income increased 42% to $174.5 million in the first quarter of 2006, up from $122.7 million for the same period of 2005. Strong earnings growth was fueled by higher revenues and an improved operating margin in the Company's homebuilding operations. The Company's diluted earnings per share rose 43% to $2.02 in the first quarter of 2006, up from $1.41 in the first quarter of 2005.

* The dollar value of the Company's backlog increased 25% to $7.24 billion on 26,536 units at February 28, 2006, up from $5.80 billion on 23,334 units at February 28, 2005, with each of the Company's geographic regions generating a year-over-year increase in backlog value.

* The Company repurchased two million shares of its common stock during the first quarter of 2006 at an aggregate price of $154.4 million. As of February 28, 2006, the Company had authorization to repurchase an additional eight million shares under its current board-approved repurchase program.

* Based on the results of the first quarter and current forecast for the remainder of its 2006 fiscal year, the Company maintained its earnings guidance of $11.25 per diluted share for the year, which represents an increase of 18% over its 2005 diluted earnings per share.

"Our record first quarter deliveries, revenues and earnings represent a great start for our 2006 fiscal year," said Bruce Karatz, chairman and chief executive officer. "Our homebuilding operations continue to benefit from geographic and product diversity, attractive interest rates, and healthy economic conditions and employment levels in our most important markets. And our organization continues to set the industry pace for exceptional service to both homebuyers and shareholders. During the quarter, we were honored to be ranked the #1 homebuilder in Fortune magazine's 2006 list of America's Most Admired Companies."

Company-wide revenues increased 34% to $2.19 billion for the quarter ended February 28, 2006, up from $1.64 billion for the year-earlier quarter due to growth within the Company's homebuilding operations. Housing revenues rose 35% in the first quarter of 2006 to $2.18 billion, up from $1.62 billion in the year-earlier quarter, reflecting increased unit deliveries and a higher average selling price. Unit deliveries grew 15% to 7,905 in the first quarter of 2006 from 6,847 in the corresponding quarter of 2005, while the Company's first quarter average selling price increased 17% to $276,200 in 2006 from $236,300 in 2005, with all domestic regions posting year-over-year increases.

Construction operating income rose 40% to $274.2 million in the first quarter of 2006 from $195.6 million in the year-earlier quarter, reflecting both increased revenues and an improved operating margin. The Company's construction operating margin expanded .5 percentage points to 12.5%, up from 12.0% in the first quarter of 2005, as the housing gross margin also grew .5 percentage points to 26.0% from 25.5%. Higher revenues and an improved operating margin boosted pretax income by 44% in the first quarter of 2006 to $268.4 million, up from $186.0 million in same quarter of 2005. Earnings per diluted share rose 43% to $2.02 in the current quarter, up from $1.41 in the year-earlier quarter, driven by the higher pretax earnings.

"We endeavor to create value for our shareholders in a number of ways across a number of operating environments: strong, sustained financial performance, an industry-leading dividend payment, and an aggressive share repurchase program," said Karatz. "Over the past two quarters, we have opportunistically repurchased four million shares of common stock, and we retain the authority, under our current share repurchase program, to repurchase an additional eight million shares. We expect to use our strong cash-generating abilities in the future to make growth-oriented business investments and to repurchase additional company common stock if market conditions and buying opportunities warrant it. We also intend to maintain our solid financial position while making these investments and repurchases."

The Company generated 8,719 net orders during the quarter ended February 28, 2006, a decrease of 12% from the 9,901 net orders posted in the first quarter of 2005. Backlog units increased 14% on a year-over-year basis to 26,536 units at February 28, 2006. Backlog value rose to approximately $7.24 billion, up 25% from $5.80 billion a year ago with all regions generating year-over-year growth.

"After several years of exceptional growth and rapid price escalation in many housing markets, it is likely that we will see some markets pull back this year from their recent pace," said Karatz. "Our gross orders, which were only slightly below the year-earlier quarter, reflected steady demand. However, higher cancellation rates, which rose to more normalized levels, adversely impacted our net order comparison in the first quarter. Since we are just entering our prime selling season, it is still too early in the year to forecast the longer-term sales trend. Nevertheless, we remain cautiously optimistic due to the strength of the economies in our major markets, where historically healthy demand is expected to continue. As always, we remain focused on generating net orders to sustain our backlog and support future earnings growth."

"Nationally, it is clear that some housing markets have moderated from the over-heated and, in some cases, speculative pace of growth of the past few years," said Karatz. "In our view, this tempering of demand to more sustainable long-term levels is a healthy trend for our company and the industry. There are signs of cooling in the hottest markets on both coasts and a shift in investor activity from buying to selling, resulting in less demand and increased supply in certain markets. Once these factors work their way through current housing supplies, however, we expect the market to move to a new equilibrium which will provide a platform for continuing and sustainable growth by KB Home. With this outlook and our healthy first-quarter performance, we feel confident in maintaining our earnings estimate of $11.25 per diluted share for 2006."

The Conference Call on the First Quarter 2006 Earnings will be broadcast live tomorrow at 8:00 a.m. Pacific Standard Time, 11:00 a.m. Eastern Standard Time. To listen, please go to the Investor Relations section of the Company's Web site at http://www.kbhome.com.

Building homes for nearly half a century, KB Home is one of America's premier homebuilders with domestic operating divisions in some of the fastest-growing regions and states: West Coast -- California; Southwest -- Arizona, Nevada and New Mexico; Central -- Colorado, Illinois, Indiana, Louisiana and Texas; and Southeast -- Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia. Kaufman & Broad S.A., the Company's publicly-traded French subsidiary, is one of the leading homebuilders in France. In fiscal 2005, the Company delivered homes to 37,140 families in the United States and France. KB Home also offers complete mortgage services through Countrywide KB Home Loans, a joint venture with Countrywide Financial Corporation. Founded in 1957, and ranked the #1 homebuilder in Fortune Magazine's 2006 list of America's Most Admired Companies, KB Home is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol "KBH." For more information about any of KB Home's new home communities, call 888-KB-HOMES (888-KB-CASAS) or visit http://www.kbhome.com (http://www.kbcasa.com).

Certain matters discussed in this press release, including any statements concerning our future financial performance, business and prospects, and our future actions and their expected results, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors that could cause actual results to be materially different, including, but not limited to, changes in general economic conditions, material prices and availability, labor costs and availability, interest rates and our debt levels, the secondary market for loans, consumer confidence, competition, currency exchange rates (insofar as they affect our operations in France), environmental factors (including weather) and significant natural disasters (including the effect of recent hurricanes on the U.S. housing market and U.S. economy in general), government regulations affecting our operations, the availability and cost of land in desirable areas, violations of our policies, legal or regulatory proceedings or claims, conditions in the capital, credit and homebuilding markets and other events outside of our control. See our Annual Report on Form 10-K and Annual Report to Shareholders for the year ended November 30, 2005 and our other public filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business. We do not have a specific policy or intent of updating or revising forward-looking statements.

For Further Information Contact:
Kelly Masuda, Investor Relations
(310) 893-7434 or kmasuda@kbhome.com
Caroline Shaw, Media Contact
(310) 231-4165 or cshaw@kbhome.com

                                   KB HOME
            For the Three Months Ended February 28, 2006 and 2005
             (In Thousands, Except Per Share Amounts - Unaudited)

                                                        Three Months
                                                   2006              2005

    Total revenues                              $2,191,650        $1,636,120

      Revenues                                  $2,187,324        $1,628,493
      Costs and expenses                        (1,913,157)       (1,432,873)

      Operating income                             274,167           195,620

      Interest income                                1,180               980
      Interest expense, net of amounts
       capitalized                                  (4,753)           (2,416)
      Minority interests                           (11,717)          (14,360)
      Equity in pretax income of
       unconsolidated joint ventures                 5,755             5,617

      Construction pretax income                   264,632           185,441

    Financial services:
        Revenues                                     4,326             7,627
        Expenses                                    (1,747)           (7,024)
        Equity in pretax income of
         unconsolidated joint venture                1,150                --

      Financial services pretax income               3,729               603

    Total pretax income                            268,361           186,044

    Income taxes                                   (93,900)          (63,300)

    Net income                                    $174,461          $122,744

    Basic earnings per share                         $2.15             $1.53

    Diluted earnings per share                       $2.02             $1.41

    Basic average shares outstanding                81,031            80,194

    Diluted average shares outstanding              86,248            87,096

                                   KB HOME
                         CONSOLIDATED BALANCE SHEETS
                          (In Thousands - Unaudited)

                                      February 28,  November 30,  February 28,
                                          2006          2005          2005


      Cash and cash equivalents          $71,224      $144,783      $112,989
      Receivables                        568,663       580,931       457,159
      Inventories                      6,953,844     6,128,342     4,678,998
      Investments in
       unconsolidated joint
       ventures                          348,350       275,378       188,874
      Deferred income taxes              211,940       220,814       213,015
      Goodwill                           243,175       242,589       249,080
      Other assets                       139,153       124,150       162,201
                                       8,536,349     7,716,987     6,062,316

    Financial services                    37,699        29,933       197,251

    Total assets                      $8,574,048    $7,746,920    $6,259,567

    Liabilities and Stockholders'

      Accounts payable                  $945,232      $892,727      $722,768
      Accrued expenses and other
       liabilities                     1,406,379     1,338,626       703,491
      Mortgages and notes payable      3,116,618     2,463,814     2,389,073
                                       5,468,229     4,695,167     3,815,332

    Financial services                    51,905        55,131       122,745
    Minority interests                   150,955       144,951       133,207
    Stockholders' equity               2,902,959     2,851,671     2,188,283

    Total liabilities and
     stockholders' equity             $8,574,048    $7,746,920    $6,259,567

                                   KB HOME
                           SUPPLEMENTAL INFORMATION
            For the Three Months Ended February 28, 2006 and 2005
                          (In Thousands - Unaudited)

                                                         Three Months
    Construction revenues:                         2006               2005

      Housing                                   $2,183,144         $1,618,099
      Commercial                                        --              2,184
      Land                                           4,180              8,210

         Total                                  $2,187,324         $1,628,493

                                                         Three Months
    Costs and expenses:                            2006               2005

      Construction and land costs
         Housing                                $1,615,061         $1,206,200
         Commercial                                     --              1,832
         Land                                        3,254              4,343
           Subtotal                              1,618,315          1,212,375
      Selling, general and administrative
       expenses                                    294,842            220,498

           Total                                $1,913,157         $1,432,873

                                                         Three Months
    Interest expense:                              2006               2005

      Interest incurred                            $51,566           $41,196
      Interest capitalized                         (46,813)          (38,780)

         Interest expense                           $4,753            $2,416

                                                         Three Months
    Other information:                             2006               2005

      Depreciation and amortization                 $4,676             $5,003
      Amortization of previously capitalized
       interest                                     23,413             16,063

                                   KB HOME
                           SUPPLEMENTAL INFORMATION
            For the Three Months Ended February 28, 2006 and 2005

                                                          Three Months
    Average sales price:                             2006              2005

      West Coast                                  $486,500          $449,200
      Southwest                                    321,500           233,400
      Central                                      157,400           151,500
      Southeast                                    239,000           191,400
      France                                       210,000           225,700
         Total                                    $276,200          $236,300

                                                          Three Months
    Unit deliveries:                                 2006              2005

      West Coast                                     1,446             1,095
      Southwest                                      1,552             1,572
      Central                                        1,835             1,873
      Southeast                                      1,610             1,314
      France                                         1,462               993
         Total                                       7,905             6,847

      Unconsolidated Joint Ventures:                    76               210

                                                          Three Months
    Net orders:                                      2006              2005

      West Coast                                     1,399             1,857
      Southwest                                      1,492             2,140
      Central                                        2,295             2,541
      Southeast                                      1,854             1,841
      France                                         1,679             1,522
         Total                                       8,719             9,901

      Unconsolidated Joint Ventures:                   209                55

                                 February 28, 2006       February 28, 2005
                                Backlog     Backlog     Backlog     Backlog
    Backlog data:                Units       Value       Units       Value
     (Dollars in thousands)
      West Coast                 4,207    $2,059,191     4,229    $1,878,556
      Southwest                  5,368     1,690,266     5,120     1,200,915
      Central                    5,405       841,504     4,726       719,885
      Southeast                  5,857     1,455,301     4,807       997,926
      France                     5,699     1,196,790     4,452     1,006,152
         Total                  26,536    $7,243,052    23,334    $5,803,434

      Unconsolidated Joint
       Ventures:                   520      $119,600       340       $60,370

KB Home
Investor Relations, Kelly Masuda, +1-310-893-7434, kmasuda@kbhome.com, or Media, Caroline Shaw, +1-310-231-4165, cshaw@kbhome.com, both of KB Home
Web site: http://www.kbhome.com

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