1. KB HOME
KB Home
Accounting Project
Group 6 (Gold/Thurs)
Rajeev Kalavar, Delia Chavarria, Prentiss Douglass, Herman Ng, and Ganesh Vasudeva

2. 2
Agenda
The KB Story
• Pre 2005 – The Growth Years
•Macro Economic Conditions
• Post 2005 – The Bubble Bursts
•Macro Economic Conditions
Financial Statements
• B/S, I/S, Cashflow Analysis
• Strategic Analysis - Ratios
The Future
• Observations
• Recommendations
Overview
• History and Background
• Products & Strategy

3. 3
Overview
 History/Background
- Headquartered in Los Angeles, California
- Mission to serve entry-level housing market with affordable homes
- Expanded into international markets, but currently now only serves the US
- Market Capitalization: ~$1.3B; Working Capital: ~($454)M as of Q3’08
- Q2’07 is the beginning of 6 straight quarters of net losses
F/S Analysis Strategic Analysis RecommendationsOverview
1957
KBH Founded
1961
IPO
1989
Phases out of
IL & NJ
2000
Becomes Fortune
500 Company
2005
Partnership with
Martha Stewart Living;
Sells KBHMC to
Countrywide
2008
#1 Admired
homebuilder - Fortune
2007
Sale of French
subsidiary

4. 4
Overview
 Products
- Attached and detached single family homes, townhomes, and condominiums
- Financial services: mortgage banking, title, and insurance services
F/S Analysis Strategic Analysis RecommendationsOverview

5. 5
Pre-2005: Economic Conditions
F/S Analysis Strategic Analysis RecommendationsOverview
• Index measures the residential housing
market.
• It tracks changes in the value of the
residential real estate market
• Since the late 90s, home prices
increase and continue through 2005
• Home price increases In turn drive
home ownership to record levels (and
vice versa)
• Since late 90’s, home ownership
continues to increase through 2005
RECORD HOME PRICES
RECORD HOME OWNERSHIP

6. 6
Pre-2005: Economic Conditions
F/S Analysis Strategic Analysis RecommendationsOverview
• Sub-prime loans dramatically increase
affordability
• Ownership now possible with 0 down
payment, loans available to individuals
with bad credit
• Affordability increases as a result of
taking on more debt
• Avg income remains stagnant, leading
to highly leveraged, but VERY
SATISFIED home owners!
AFFORDABILITY ON THE RISE
HIGHLY LEVERAGED OWNERSHIP

7. 7
KB’s Expansion through 2005
 Flourishing environment for Home builders
 Aggressive growth strategy
F/S Analysis Strategic Analysis RecommendationsOverview
19601963
1965
1973
1992
1998 2001
2003
2004
2005
- Acquisitions to enter new markets
- Partnership with Martha Stewart Living
- Partnership with Disney
- Built to Order Homes

8. 8
Adjustable
Rate
Mortgages
Predatory
lending
Adjustable
Rate
Mortgages
Increasing
Inventory
Supply
Predatory
lending
Adjustable
Rate
Mortgages
Rising
Interest Rate
following
Introductory
Rate
Increasing
Inventory
Supply
Predatory
lending
Adjustable
Rate
Mortgages
Increasing
default
rates
Rising
Interest Rate
following
Introductory
Rate Increasing
Inventory
Supply
Predatory
lending
Adjustable
Rate
Mortgages
Credit and
Banking Meltdown
Increasing
default
rates
Rising
Interest Rate
following
Introductory
Rate Increasing
Inventory
Supply
Predatory
lending
Adjustable
Rate
Mortgages
POP!
Post 2005: Bubble burst

9. 9
0
10
20
30
40
50
60
70
80
90
11/30/20022/28/20035/30/20038/30/2003
11/30/20032/29/20045/30/20048/30/2004
11/30/20042/28/20055/30/20058/30/2005
11/30/20052/28/20065/30/20068/30/2006
11/30/20062/28/20075/30/20078/30/2007
11/30/20072/29/20085/30/20088/30/2008
KB Home Pulte Centex Toll Brothers
StockPrice($)
 Key Competitors
- Pulte Homes, Centex, Toll Brothers, DR Horton, and Richmond American
 Stock Price
The Competitive Landscape
F/S Analysis Strategic Analysis RecommendationsOverview

10. 10
KB Homes 2003-2008
 The KB Story
F/S Analysis Strategic Analysis RecommendationsOverview
0
10
20
30
40
50
60
70
80
90
11/30/20022/28/20035/30/20038/30/2003
11/30/20032/29/20045/30/20048/30/2004
11/30/20042/28/20055/30/20058/30/2005
11/30/20052/28/20065/30/20068/30/2006
11/30/20062/28/20075/30/20078/30/2007
11/30/20072/29/20085/30/20088/30/2008
Source: finance.google.com
StockPrice($)
Date
01/16/03-Raises FY 2003
Guidance($8.00)-DJ
06/19/03-Raises FY 2003
Guidance($8.25)-DJ
03/10/03-acquires
Colony Homes
09/05/03-acquires
Zale Homes
01/06/04-acquires
Palmetto Homes
06/08/04-acquires
Dura Builders
12/16/04-Raises FY EPS
Guidance($14.50)
06/30/05-CountryWide to
acquire Mortgage
subsidiary of KB Homes
10/12/05-Announces
collaboration with
Martha Steward Living
12/06/05-Joint
Venture with Shaw
03/22/06-Reiterates FY
2006 outlook ($11.25)
06/15/06-Lowers FY
2006 EPS ($10.25)
08/24/08-SEC inquiry
into stock option grants
11/14/06-CEO
Karatz resigns
03/27/07-Lawsuit,
backdating options
02/07/08-Lawsuit,
appraisals propping value
06/11/08-settles
lawsuit, water polution
07/16/08- Lawsuit, arms-
length conflict of interest
9/15/08-Lehman files for
bankcruptcy, Financial crisis hits
KB Home Acquisitions
Lawsuits and Settlements

11. 11
Key Accounting Standards
 Homebuilding Revenue Recognition: SFAS 66
“Accounting for Sales of Real Estate”
 Inventory and Cost of Sales: SFAS 144
“Accounting for the Impairment or Disposal of Long-Lived Assets”
 Goodwill: SFAS 142
“Accounting for Goodwill and Other Intangible Assets”
 Fair Value: SFAS 157
“Fair Value Measurements”
F/S Analysis Strategic Analysis RecommendationsOverview

12. 12
USD Millions 11/30/03 11/30/04 11/30/05 11/30/06 11/30/07 8/31/08
Assets
Homebuilding
Cash and Short Term Investments 117 191 145 700 1,325 942
Receivables 430 514 581 224 296 188
Inventories 2,883 4,143 6,128 5,752 3,312 2,563
Investments in unconsolidated joint ventures 33 168 275 381 297 250
Deferred income taxes 166 218 223 431 222 222
Goodwill 229 249 235 177 68 43
Other assets 125 142 124 160 141 110
Subtotal: Assets from Homebuilding 3,983 5,625 7,711 7,825 5,662 4,320
Financial Services 253 210 30 44 44 58
Assets of discontinued operations - - - 1,394 - -
Total Assets 4,236 5,835 7,741 9,264 5,706 4,378
Liabilities
Homebuilding
Accounts payable 554 749 893 626 700 646
Accrued expenses and other liabilities 575 811 1,411 1,601 976 706
Mortgages and notes payable 1,254 1,976 2,464 2,920 2,162 1,877
Subtotal 2,383 3,536 4,768 5,147 3,837 3,230
Financial services 171 118 55 26 18 15
Liabilities of discontinued operations - - - 1,168 - -
Minority Interests 89 127 145 - - -
Total Liabilities 2,643 3,781 4,968 6,341 3,855 3,244
Stockholders’ Equity
Preferred stock - - - - - -
Common stock 54 110 114 115 115 115
Paid-in capital 538 596 743 826 852 863
Retained earnings 1,462 1,849 2,571 2,975 1,969 1,239
Accumulated other comprehensive income (loss) 39 60 29 63 (23) (23)
Deferred Compensation (7) (7) (15) - - -
Grantor stock ownership trust (165) (160) (141) (134) (133) (131)
Treasury stock (328) (394) (528) (922) (929) (930)
Total Stockholders’ Equity 1,593 2,054 2,773 2,923 1,851 1,134
Total Liabilities and Stockholders’ Equity 4,236 5,835 7,741 9,264 5,706 4,378
Financial Results
KB HOME - Balance Sheets
Balance Sheet Analysis
F/S Analysis Strategic Analysis RecommendationsOverview

13. 13
(2,000)
(1,750)
(1,500)
(1,250)
(1,000)
(750)
(500)
(250)
-
250
500
750
1,000
1,250
1,500
11/30/03 11/30/04 11/30/05 11/30/06 11/30/07 8/31/08
$Millions
Cash and Short Term Investments Receivables
Accounts payable Accrued expenses and other liabilities
Current Portion of mortgages and notes payable Working Capital
Balance Sheet Analysis
 Working Capital Trend
Note: Inventory is excluded from Working Capital as it primarily consists of land
F/S Analysis Strategic Analysis RecommendationsOverview

14. 14
2003 2004 2005 2006 2007 2008
USD Millions FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 YTD Q3'08
Total Revenues 5,851 7,053 8,155 9,380 6,417 2,115
Homebuilding
Revenues 5,775 7,008 8,123 9,360 6,401 2,108
Construction and land costs (4,479) (5,326) (5,955) (7,666) (6,826) (2,322)
Selling, general and administrative expenses (734) (910) (980) (1,124) (825) (380)
Goodwill impairment - - - - (108) (25)
Operating income (loss) 563 772 1,189 570 (1,358) (619)
Interest income 3 4 4 6 29 29
Loss on early redemption/interest expense (24) (18) (16) (17) (13) -
Minority Interests (27) (69) - - - (10)
Equity income (loss) of unconsolidated joint ventures 3 18 14 (21) (152) (92)
Homebuilding pretax income (loss) 518 707 1,190 538 (1,495) (692)
Financial Services
Revenues 75 44 31 20 16 7
Expenses (39) (36) (20) (6) (5) (3)
Equity in income of unconsolidated joint venture - - 0 19 23 13
Financial services pretax income 36 9 11 34 34 17
Income (loss) from continuing operations 554 715 1,202 572 (1,461) (675)
Income tax benefit (expense) (183) (241) (447) (179) 46 6
Income (loss) from continuing operations 371 474 755 393 (1,415) (669)
Income from discontinued operations, net of tax - - 69 89 47 -
Gain on sale of discontinued operations net of tax - - - - 438 -
Net income (loss) 371 474 824 482 (929) (669)
KB HOME - Income Statements
Financial Results
Income Statement Analysis
F/S Analysis Strategic Analysis RecommendationsOverview

15. 15
Percent Change in Homes Delivered by Market Segment
9%
4%
-31% -31%
-8%
-5% -3%
16%
-35%-34%
-40%
-30%
-20%
-10%
0%
10%
20%
W
est
Southw
est
C
entral
Southeast
Total
Market Segment
PercentChange
% change 05-06
% change 06-07
Percent Change in Revenues by Market Segment
15%
-39%
-31%
10%
16%
31%
0%
-42%
-32%
-14%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
W
est
Southw
est
Central
Southeast
Total
Market Segment
PercentChange
% change 05-06
% change 06-07
 Revenue by Segment
Income Statement Analysis
F/S Analysis Strategic Analysis RecommendationsOverview
West Coast
Southwest
Central
Southeast
Revenue Breakdown by
Segment - 2007

16. 16
USD Millions 11/30/03 11/30/04 11/30/05 11/30/06 11/30/07
Cash flows from operating activities
Net income (loss) 371 474 824 482 (929)
Income from discontinued operations, net of income taxes - - (69) (89) (47)
Gain on sale of discontinued operations, net of income taxes - - - - (438)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Equity in (income) loss of unconsolidated joint ventures (3) (18) (14) 2 129
Distributions of earnings from unconsolidated joint ventures 0 11 12 14 42
Gain on sale of investment in unconsolidated joint venture - - - (28) -
Gain on sale of mortgage banking assets - - (27) - -
Amortization of discounts and issuance costs 2 2 2 2 2
Depreciation and amortization 22 22 18 18 17
Provision for deferred income taxes 12 (51) 3 (189) 208
Excess tax benefit associated with exercise of stock options 7 - - (15) (1)
Stock option income tax benefits - 11 37 - -
Stock-based compensation expense - 2 6 19 9
Inventory and joint venture impairments and land option contract abandonments - 37 43 431 1,410
Goodwill impairment - - - - 108
Changes in assets and liabilities:
Receivables 340 (1) 50 (24) (71)
Inventories (465) (989) (1,808) (356) 780
Accounts payable, accrued expenses and other liabilities 122 328 697 206 (341)
Minority Interest 27 69 - - -
Other, net 34 24 56 7 17
Net cash provided (used) by operating activities — continuing operations 470 (79) (171) 480 897
Net cash provided by operating activities — discontinued operations - - 87 230 297
Net cash provided (used) by operating activities 470 (79) (84) 710 1,194
KB HOME - Cash Flow Statements
Cash Flow Statement Analysis
 Cash Flow from Operating Activities
F/S Analysis Strategic Analysis RecommendationsOverview

17. 17
Cash Flow Statement Analysis
 Cash Flow from Investing and Financing Activities
F/S Analysis Strategic Analysis RecommendationsOverview
USD Millions 11/30/03 11/30/04 11/30/05 11/30/06 11/30/07
Cash flows from investing activities
Sale of discontinued operations, net of cash divested - - - - 740
Acqusitions of companies (106) (122) - - -
Sale of investment in unconsolidated joint venture - - - 58 -
Purchase of mortgage banking assets 6 (0) - - -
Sale of mortgage banking assets 8 6 42 - -
Investments in unconsolidated joint ventures (10) (129) (118) (238) (242)
Purchases of property and equipment, net (13) (23) (22) (18) 1
Other, net - - 1 1 -
Net cash provided (used) by investing activities — continuing operations (115) (268) (96) (197) 499
Net cash used by investing activities — discontinued operations - - (2) (4) (12)
Net cash provided (used) by investing activities (115) (268) (98) (201) 487
Cash flows from financing activities
Net payments on credit agreements and other short-term borrowings (516) 179 (379) (84) -
Proceeds from (redemption of) term loan 166 - - 400 (400)
Redemption of senior subordinated notes - (175) - - (250)
Proceeds from issuance of senior notes - 596 748 298 -
Payment of collateral mortgage (7) (6) - - -
Payments on mortgages, land contracts and other loans (87) (56) (39) (37) (114)
Issuance of common stock under employee stock plans 30 42 102 65 12
Excess tax benefit associated with exercise of stock options - - - 15 1
Payments of cash dividends (12) (39) (62) (78) (77)
Repurchases of common stock (108) (66) (135) (394) (7)
Minority Interest (12) (32) - - -
Net cash provided (used) by financing activities — continuing operations (546) 443 235 186 (835)
Net cash used by financing activities — discontinued operations - - (119) (215) (307)
Net cash provided (used) by financing activities (546) 443 116 (29) (1,142)
Net increase (decrease) in cash and cash equivalents (661) 175 18 (231) (655)
KB HOME - Cash Flow Statements

18. 18
2003 2004 2005 2006 2007
KB Home 2.73 2.51 2.07 2.08 1.66
Pulte 5.10 2.88 2.78 2.21 1.48
Centex 1.51 0.95 1.43 1.23 1.13
Toll Brothers 2.49 1.27 1.56 1.30 0.89
Comparative NOAT (Net Operating Asset Turnover)
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
KB Home 36% 36% 42% 17% -37% 26% 26% 34% 17% -39%
Pulte 86% 58% 61% 25% -39% 18% 25% 28% 11% -48%
Centex 21% 18% 28% 3% -40% 27% 24% 26% 5% -116%
Toll Brothers 49% 28% 49% 33% 2% 18% 21% 29% 20% 1%
Comparative ROE (Return on Equity)Comparative RNOA (Return on Net Operating Assets)
2003 2004 2005 2006 2007
KB Home 13% 15% 20% 8% -22%
Pulte 17% 20% 22% 11% -27%
Centex 14% 19% 20% 2% -36%
Toll Brothers 20% 22% 31% 25% 2%
Comparative NOPM (Net Operating Profit Margin)
 RNOA & ROE
 NOPM
 NOAT
Ratio Analysis - Profitability
F/S Analysis Strategic Analysis RecommendationsOverview

19. 19
2003 2004 2005 2006 2007
KB Home 45 51 55 30 37
Pulte 11 11 11 8 7
Centex 29 26 21 16 9
Toll Brothers 28 24 24 24 21
Comparative Days Payable Outstanding
2003 2004 2005 2006 2007
KB Home 27 27 26 9 17
Pulte N/A N/A N/A N/A N/A
Centex 340 90 70 59 59
Toll Brothers 23 14 12 20 14
Comparative Days Receivable Outstanding
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
KB Home 3.04 3.11 2.97 3.00 2.94 0.51 0.56 0.43 0.59 1.14
Pulte 2.41 2.50 2.63 3.24 3.33 0.16 0.10 0.27 0.18 0.44
Centex 7.44 4.79 5.57 5.06 3.53 4.63 1.42 1.15 1.20 0.93
Toll Brothers 4.53 3.57 3.40 3.90 4.69 0.85 0.73 0.65 0.74 0.96
Comparative Liquidity Ratios
Current Ratio Quick Ratio
 Liquidity
 DSO
 DPO
Ratio Analysis – Working Capital
F/S Analysis Strategic Analysis RecommendationsOverview

20. 20
 Liabilities to Equity Ratio
Ratio Analysis
F/S Analysis Strategic Analysis RecommendationsOverview
2003 2004 2005 2006 2007
KB Home 1.66 1.84 1.79 2.17 2.08
Pulte 1.34 1.30 1.19 1.00 1.37
Centex 4.27 3.67 3.26 1.58 2.54
Toll Brothers 1.56 1.56 1.30 1.22 1.05
Liabilities to Equity Ratio
Comparative Debt Ratios

21. 21
Strategic Analysis
F/S Analysis Strategic Analysis RecommendationsOverview
Strengths Weaknesses
 Well-positioned in areas expected to
experience the strongest long-term population
and job growth.
 Huge growth potential in the industry (top 10
publicly owned homebuilders only have 24%
market share).
 Very familiar with the process to acquire other
companies to expand into other markets if
needed.
 Distressed housing market due to tighter
lending standards, oversupply of homes,
increased foreclosure activities, poor economic
conditions.
 Purchases land before plans are approved
leads to impairment charges.
Moody's Bond rating 11/26/08 (recent
downgrade from Ba3 to Ba2 → speculative
grade)
Opportunities Threats
 Diversification in attractive markets that exhibit
growth potential through the acquisition of
companies or land at distressed prices.
 Exit from markets that no longer have growth
potential.
 Potential for bankruptcy if KBH becomes too
highly leveraged.
 Outflow of cash if KBH does not modify the
payment schedule for many of the loans that are
due to be repaid within the next 5 years.
 Outflow of cash due to expenses associated
with government investigations and other
litigation.

22. 22
 Management of Working Capital
Accounts Payable
- Action Item: Decrease spending and seek favorable payment terms
- Example: Taking 5 additional days to pay Accounts Payable would equate to
$100M in cash
Shift to Debt to Long-Term
- Action Item: Shift short-term notes payable to long-term notes payable.
Issuance of Equity
- If additional financing is needed, issue equity rather than debt.
“Last Resort” for cash
- Liquidate land
Recommendation 1
F/S Analysis Strategic Analysis RecommendationsOverview

23. 23
 Expand in Other High Potential Markets
- A perfect time to acquire small struggling public homebuilders
- Purchase high potential land cheaply
Recommendation 2
F/S Analysis Strategic Analysis RecommendationsOverview

24. 24
 Develop partnerships with rental/timeshare companies
- Generate a positive revenue stream by renting out homes until the company can
start building again.
- For example: Turn Condominium Complexes  Apartments
Recommendation 3
F/S Analysis Strategic Analysis RecommendationsOverview

25. 25
Question?
F/S Analysis Strategic Analysis RecommendationsOverview
Q&A

26. 26
Appendix
F/S Analysis Strategic Analysis RecommendationsOverview
APPENDIX

27. 27
USD Millions 11/30/03 11/30/04 11/30/05 11/30/06 11/30/07 8/31/08 % 11/30/03 11/30/04 11/30/05 11/30/06 11/30/07 8/31/08
Assets
Homebuilding
Cash and Short Term Investments 117 191 145 700 1,325 942 3 3 2 8 23 22
Receivables 430 514 581 224 296 188 10 9 8 2 5 4
Inventories 2,883 4,143 6,128 5,752 3,312 2,563 68 71 79 62 58 59
Investments in unconsolidated joint ventures 33 168 275 381 297 250 1 3 4 4 5 6
Deferred income taxes 166 218 223 431 222 222 4 4 3 5 4 5
Goodwill 229 249 235 177 68 43 5 4 3 2 1 1
Other assets 125 142 124 160 141 110 3 2 2 2 2 3
Subtotal: Assets from Homebuilding 3,983 5,625 7,711 7,825 5,662 4,320 94 96 100 84 99 99
Financial Services 253 210 30 44 44 58 6 4 0 0 1 1
Assets of discontinued operations - - - 1,394 - - - - - 15 - -
Total Assets 4,236 5,835 7,741 9,264 5,706 4,378 100 100 100 100 100 100
Liabilities
Homebuilding
Accounts payable 554 749 893 626 700 646 13 13 12 7 12 15
Accrued expenses and other liabilities 575 811 1,411 1,601 976 706 14 14 18 17 17 16
Mortgages and notes payable 1,254 1,976 2,464 2,920 2,162 1,877 30 34 32 32 38 43
Subtotal 2,383 3,536 4,768 5,147 3,837 3,230 56 61 62 56 67 74
-
Financial services 171 118 55 26 18 15 4 2 1 0 0 0
Liabilities of discontinued operations - - - 1,168 - - - - - 13 - -
Minority Interests 89 127 145 - - - 2 2 2 - - -
Total Liabilities 2,643 3,781 4,968 6,341 3,855 3,244 62 65 64 68 68 74
Stockholders’ Equity
Preferred stock - - - - - - - - - - - -
Common stock 54 110 114 115 115 115 1 2 1 1 2 3
Paid-in capital 538 596 743 826 852 863 13 10 10 9 15 20
Retained earnings 1,462 1,849 2,571 2,975 1,969 1,239 35 32 33 32 35 28
Accumulated other comprehensive income (loss) 39 60 29 63 (23) (23) 1 1 0 1 (0) (1)
Deferred Compensation (7) (7) (15) - - - (0) (0) (0) - - -
Grantor stock ownership trust (165) (160) (141) (134) (133) (131) (4) (3) (2) (1) (2) (3)
Treasury stock (328) (394) (528) (922) (929) (930) (8) (7) (7) (10) (16) (21)
Total Stockholders’ Equity 1,593 2,054 2,773 2,923 1,851 1,134 38 35 36 32 32 26
Total Liabilities and Stockholders’ Equity 4,236 5,835 7,741 9,264 5,706 4,378 100 100 100 100 100 100
Financial Results % Analysis
KB HOME - Balance Sheets
Balance Sheet Analysis
F/S Analysis Strategic Analysis RecommendationsOverview

28. 28
Balance Sheet Details
Inventory
Goodwill
Assets and liabilities from discontinued ops

29. 29
Balance Sheet Details (cont’d)
Mortgages and notes payable
Retained Earnings
Net income 11/30/2007
Dividends 11/30/2007
Retained Earnings

30. 30
Stockholder’s Equity

31. 31
2003 2004 2005 2006 2007 2008 % 2003 2004 2005 2006 2007 2008
USD Millions FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 YTD Q3'08 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 YTD Q3'08
Total Revenues 5,851 7,053 8,155 9,380 6,417 2,115 100 100 100 100 100 100
Homebuilding
Revenues 5,775 7,008 8,123 9,360 6,401 2,108 100 100 100 100 100 100
Construction and land costs (4,479) (5,326) (5,955) (7,666) (6,826) (2,322) (77) (76) (73) (82) (106) (110)
Selling, general and administrative expenses (734) (910) (980) (1,124) (825) (380) (13) (13) (12) (12) (13) (18)
Goodwill impairment - - - - (108) (25) - - - - (2) (1)
Operating income (loss) 563 772 1,189 570 (1,358) (619) 10 11 15 6 (21) (29)
Interest income 3 4 4 6 29 29 0 0 0 0 0 1
Loss on early redemption/interest expense (24) (18) (16) (17) (13) - (0) (0) (0) (0) (0) -
Minority Interests (27) (69) - - - (10) (0) (1) - - - (0)
Equity income (loss) of unconsolidated joint ventures 3 18 14 (21) (152) (92) 0 0 0 (0) (2) (4)
Homebuilding pretax income (loss) 518 707 1,190 538 (1,495) (692) 9 10 15 6 (23) (33)
Financial Services
Revenues 75 44 31 20 16 7 1 1 0 0 0 0
Expenses (39) (36) (20) (6) (5) (3) (1) (1) (0) (0) (0) (0)
Equity in income of unconsolidated joint venture - - 0 19 23 13 - - 0 0 0 1
Financial services pretax income 36 9 11 34 34 17 1 0 0 0 1 1
Income (loss) from continuing operations 554 715 1,202 572 (1,461) (675) 9 10 15 6 (23) (32)
Income tax benefit (expense) (183) (241) (447) (179) 46 6 (3) (3) (5) (2) 1 0
Income (loss) from continuing operations 371 474 755 393 (1,415) (669) 6 7 9 4 (22) (32)
Income from discontinued operations, net of tax - - 69 89 47 - - - 1 1 1 -
Gain on sale of discontinued operations net of tax - - - - 438 - - - - - 7 -
Net income (loss) 371 474 824 482 (929) (669) 6 7 10 5 (14) (32)
KB HOME - Income Statements
Financial Results % Analysis
Income Statement Analysis
F/S Analysis Strategic Analysis RecommendationsOverview

32. 32
Income Statement Details
Revenues
Construction costs

33. 33
Post-2005: Economic Conditions
F/S Analysis Strategic Analysis RecommendationsOverview
• Foreclosures rise across the US, many
in regions KB has expanded in.
• Inventories rise, severe downward
pressure on price of new homes
• Recessionary market, falling home
prices – a perfect storm on the horizon for
Home Builders
• 1,3 ARMs start resetting; highly leveraged
owners cannot afford new payments
• Some paying more than house is worth
• The housing bust has started snowballing
HOME PRICES CRASH
RECORD FORECLOSURES

34. 34
Balance Sheet Analysis
F/S Analysis Strategic Analysis RecommendationsOverview
4% 1%
12%7%
23%
19%
44% 16% 0%
60%
69%
44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
November 2006 November 2007 August 2008
Greater than Five Years
Three to Five Years
One to Three Years
Less than One Year
Mortgages and Notes Payable – Maturity Schedule
$1,296M
$232M
$349M
$348M
$498M
$19M
$1,296M
$129M
$200M
$1,296M
$1,295M

35. 35
 Operating Activities
- Net decrease in inventories due to curtailment of inventory investments in light of
challenging housing market conditions and our diminished future sales expectations.
-Discontinued Operations are results from the French subsidiary that was sold in 2007.
- Inventory and joint venture impairments and land option contract abandonments are
related to West Coast and Southwest reporting segments.
 Investing Activities
- Sale of Discontinued Operations see above.
- Investments in Unconsolidated Joint Ventures refer to balance sheet notes.
 Financing Activities
- Primary activity relates to redemption and proceeds from notes to operate the company.
In light of the deteriorating market conditions in 2007, KBH took several decisive actions
during the year to generate cash flow, reduce debt levels and strengthen its balance
sheet.
Cash Flow Statement Analysis
F/S Analysis Strategic Analysis RecommendationsOverview