KB Home CEO Retires Following Stock Options Investigation

November 13, 2006 (PLANSPONSOR.com) - KB Home has announced Chairman and CEO Bruce Karatz has retired, effective immediately, following the results of its independent investigation into stock option grants practices.

According to the announcement, the investigation by the Audit and Compliance Committee of the company’s board of directors found incorrect measurement dates were used for financial reporting purposes during the period from 1998 to 2005. Karatz and Gary Ray, KB Home’s head of Human Resources, selected grant dates under the company’s stock option plans, the announcement said. The board terminated Ray’s employment.

In addition, the company announced Executive Vice President and Chief Legal Officer Richard Hirst has resigned, effective immediately.

KB Home said Karatz has voluntarily agreed to pay the company the difference between the initial strike price and the closing price on the new measurement date for options he has exercised that were incorrectly priced. Karatz has agreed that each new strike price on his unexercised options will be the closing price on the new measurement date. The value of the voluntary transfer is expected to be approximately $13 million, the company said.

The company said it expects the incremental non-cash compensation expense arising from options dating errors is not likely to exceed an aggregate of $50 million, spread over the vesting periods of the options, and its independent auditors are evaluating whether financial restatements will be required.

An investment research firm keeping track of developments in the stock option backdating scandal recently reported that at least 153 companies have announced internal reviews or US government investigations of their option granting practices. It said the scandal has so far resulted in the firing or dismissal of at least 45 executives and directors at 25 companies (See Scorecard: 153 Firms Snared in Options Scandal ).

Some executives have been hit with formal charges for their part in the suspicious timing of stock option grants found at their companies, and SEC Chairman Christopher Cox said more charges will come (See SEC: More Charges to Come in Stock Option Probe ).