Human Capital & Careers

KB Home to Restate over Options Reporting

The homebuilder also expects to take an impairment charge related to a buildup of inventory.
Stephen TaubDecember 11, 2006

KB Home said it will restate its financials going back to its 2003 fiscal (November) year after a board subcommittee concluded it used incorrect measurement dates for financial reporting purposes for annual stock option grants for the fiscal years 1999 to 2005. The homebuilder added that it estimates the total non-cash compensation expense will total about $41 million spread over several years.

The company also said the restatement will affect financial statements for other prior fiscal periods. However, it noted that the stock options-related restatement will not affect previously reported revenues.

In November, Bruce Karatz, chairman, chief executive officer and director of KB Home retired following an internal investigation that found that he and Gary A. Ray, the head of human resources, “selected grant dates under the company’s stock option plans,” according to a regulatory filing. Ray was fired, and Richard B. Hirst, KB’s chief legal officer handed in his resignation.

KB Home also announced in a regulatory filing that it expects to take a non-cash impairment charge in the fourth quarter of its 2006 fiscal year ranging from $235 million to $285 million due to inventory impairments. The company explained that the current oversupply in the homebuilding industry and a decline in new home orders and sales prices caused a decline in the fair value of certain inventory positions and changes in the company’s strategy concerning certain projects that no longer meet investment return hurdle rates.

The company expects to take a non-cash charge of about $70 million related to the abandonment of certain land option contracts.