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KB Home Reports 2013 Second Quarter Results

(In Thousands, Except Percentages — Unaudited)

This press release contains, and Company management’s discussion of the results presented in this press release may include, information about the Company’s adjusted housing gross profit margin which is not calculated in accordance with generally accepted accounting principles (“GAAP”). The Company believes this non-GAAP financial measure is relevant and useful to investors in understanding its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. However, because the adjusted housing gross profit margin is not calculated in accordance with GAAP, this measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to the operating and financial performance measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement its respective most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting the Company’s operations.

Adjusted Housing Gross Profit Margin

The following table reconciles the Company’s housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of the Company’s adjusted housing gross profit margin:

               
Six Months Three Months
2013       2012 2013       2012
Housing revenues $ 924,604 $ 552,500 $ 521,788 $ 300,605
Housing construction and land costs (786,263 ) (484,873 ) (442,998 ) (253,041 )
Housing gross profits 138,341 67,627 78,790 47,564
Add: Inventory impairment and land option contract abandonment charges 284 16,509 284 9,937
Water intrusion-related charges 17,547 15,873
Less: Warranty adjustments (11,162 ) (11,162 )
Insurance recoveries   (10,000 )   (10,000 )
Adjusted housing gross profits $ 156,172   $ 62,974   $ 94,947   $ 36,339  
Housing gross profit margin as a percentage of housing revenues 15.0 % 12.2 % 15.1 % 15.8 %
Adjusted housing gross profit margin as a percentage of housing revenues 16.9 % 11.4 % 18.2 % 12.1 %
 

Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs before inventory impairment and land option contract abandonment charges, water intrusion-related charges, warranty adjustments and insurance recoveries (as applicable) associated with housing operations recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. The Company believes adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating the Company’s performance as it measures the gross profits the Company generated specifically on the homes delivered during a given period and enhances the comparability of housing gross profit margin between periods. This financial measure assists management in making strategic decisions regarding product mix, product pricing and construction pace. The Company also believes investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of charges for inventory impairment and land option abandonment charges, water intrusion-related charges, warranty adjustments and insurance recoveries.

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