KB Home reported partial results for the third quarter this week, though the company is not reporting some earnings information based on an investigation of stock-option-grant activities.

Total revenues for the third-quarter ended Aug. 31 reached $2.67 billion, up 6 percent from the $2.53 billion reported for third-quarter 2005. The company also reported a 10 percent increase in the average selling price of its homes, which drove a 7 percent increase in housing revenues compared to the prior year’s third quarter. The average selling price in the third quarter was $279,000. Unit deliveries were down 3 percent.

The company’s West Coast prices reached $492,300 in third-quarter 2006, up 7.3 percent from third-quarter 2005. Southwest region prices rose 12 percent to $310,800, Central region prices increased 4 percent to $160,900, and Southeast region prices rose 16.4 percent to $252,300.

The company announced last month that the U.S. Securities and Exchange Commission has launched an inquiry related to its stock-option grants, and the company’s Audit and Compliance Committee of its board of directors, along with a lawyer, has launched an internal review.

Three shareholder lawsuits have been filed against the company and certain directors and officers over the past several months that allege breach of fiduciary duty in connection with the company’s stock-option grants.

The internal review is ongoing and “the company cannot predict the impact, if any, on its financial results,” according to the earnings announcement. When the review concludes, the company plans to disclose the results of its review and finalize its earnings for the third quarter and for the first nine months of the year.

KB Home did not hold a third-quarter earnings conference call.

For the first three quarters of the year total revenues increased 19 percent to $7.46 billion, up from $6.29 billion for the first three quarters in 2005, KB Home reported. Unit deliveries in the period rose 5 percent to 26,460, up from 25,194 units delivered in the first nine months of 2005.

The company’s backlog at Aug. 31 totaled 23,878 units, representing potential future housing revenues of $6.53 billion. That represents a 7.5 percent decline from the $7.06 billion backlog at Aug. 31, 2005. Higher cancellation rates contributed to a 43 percent decrease in third-quarter-2006 net orders.

The company repurchased 2 million shares of its common stock during the third quarter for an aggregate price of $90 million. During the first three quarters, the company repurchased 6 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 4 million shares of its common stock.

“Our third quarter results reported in this release reflect the challenging operating environment for the home-building industry,” said Bruce Karatz, KB Home chairman and CEO, in a statement.

“Greater competition among home builders 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 home-building market stabilizes,” he stated.

Karatz also reported that formerly strong real estate markets like California, Nevada, Arizona and Florida “have weakened considerably in recent months. 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 home builders, 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,” Karatz said.

The company is adjusting its land portfolio and in certain instances canceling land purchase-option contracts, shrinking the size of development phases, selling some land and reducing land purchases, he also said.

For the nine months ended Aug. 31, 2006, the company delivered 26,460 new homes, a 5 percent increase from 25,194 homes delivered in the first nine months of 2005.

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