January 7, 2011

KB Home Reports 2010 Fourth Quarter and Full Year Financial Results

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Fourth Quarter Net Income Totals $17.4 Million, or $.23 Per Diluted Share

Higher Margins and Lower S,G & A Expenses Drive Positive Quarterly Earnings

Cash Exceeds $1.0 Billion at Fiscal Year End

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH), one of America's premier homebuilders, today reported results for its fourth quarter and fiscal year ended November 30, 2010. Highlights and developments include the following:

  • Revenues totaled $451.0 million in the fourth quarter of 2010, down from $674.6 million in the fourth quarter of 2009 as a result of lower housing and land sale revenues. Fourth quarter housing revenues totaled $446.0 million in 2010, down 28% from the year-earlier period, reflecting a decline in the number of homes delivered, partly offset by an increase in the average selling price. Land sale revenues totaled $1.9 million in the 2010 fourth quarter, compared to $52.7 million in the corresponding quarter of 2009.
  • The Company's homebuilding business generated operating income of $29.1 million for the quarter ended November 30, 2010, a $110.6 million improvement from an operating loss of $81.5 million for the year-earlier quarter, largely due to a higher housing gross margin and lower selling, general and administrative expenses, asset impairment and land option contract abandonment charges, and losses from land sales.
  • Fourth quarter 2010 net income totaled $17.4 million, or $.23 per diluted share, including an income tax benefit of $2.0 million. In the year-earlier quarter, reflecting an income tax benefit of $191.7 million associated with a change in tax legislation, the Company reported net income of $100.7 million, or $1.31 per diluted share. On a pretax basis, the Company generated income of $15.4 million in the fourth quarter of 2010, compared to a loss of $91.0 million reported in the year-earlier quarter. The current quarter results included $3.2 million of inventory impairment and land option contract abandonment charges, compared to $77.2 million of inventory and joint venture impairment and land option contract abandonment charges recorded in the fourth quarter of 2009.
  • The Company's cash, cash equivalents and restricted cash at November 30, 2010 totaled $1.02 billion. The Company's debt balance at November 30, 2010 was $1.78 billion, down $44.8 million from $1.82 billion at November 30, 2009.
  • The Company was recently named the #1 Green Builder for 2010 by Calvert Investments, a leading asset management firm in the area of sustainable and responsible investing, in an update to its 2008 review of the homebuilding industry. Once again, Calvert recognized KB Home as the leader among public homebuilders in sustainable residential construction policies and practices.

"We are very pleased to have ended the year with a solidly profitable fourth quarter," said Jeffrey Mezger, president and chief executive officer. "This is the eleventh consecutive quarter we have achieved year-over-year improvement in our pretax results and the first time in nearly four years that we have generated pretax earnings. Given the challenging market and economic conditions we have faced, our consistent progress in improving both operational and financial metrics illustrates our success in accomplishing our strategic goals through our focused execution of our KBnxt Built to Order™ business model."

Total revenues of $451.0 million for the quarter ended November 30, 2010 decreased 33% from the year-earlier quarter, due to lower housing and land sale revenues. Housing revenues declined from the year-earlier period as a result of a 37% decrease in the number of homes delivered, partly offset by a 14% increase in the average selling price. The Company delivered 1,918 homes at an average selling price of $232,500 in the 2010 fourth quarter, compared to 3,042 homes delivered at an average selling price of $203,400 in the year-earlier quarter. Fourth quarter land sale revenues totaled $1.9 million in 2010 and $52.7 million in 2009, reflecting a lower volume of activity in the current quarter.

Despite delivering fewer homes in the fourth quarter of 2010, the Company's homebuilding business generated operating income of $29.1 million in the period, an improvement of $110.6 million from an operating loss of $81.5 million in the corresponding quarter of 2009. The favorable operating results in the current quarter mainly reflected a higher housing gross margin, reduced selling, general and administrative expenses, lower asset impairment and land option contract abandonment charges, and decreased losses from land sales. The Company's fourth quarter housing gross margin rose to 19.1% in 2010, improving 12.3 percentage points from 6.8% in 2009. The housing gross margin included $2.9 million of inventory impairment and land option contract abandonment charges in the 2010 fourth quarter, compared to $76.0 million of such charges in the year-earlier quarter. Excluding these charges, the housing gross margin increased to 19.7% in the current quarter from 19.0% in the year-earlier quarter. Land sale losses totaled $.3 million in the fourth quarter of 2010, including $.3 million of impairment charges related to planned future land sales. This compared to land sale losses of $38.0 million in the fourth quarter of 2009, which included $.7 million of similar impairment charges.

Selling, general and administrative expenses decreased by $29.7 million, or 35%, to $55.7 million in the fourth quarter of 2010, compared to $85.4 million in the year-earlier period. The decrease was largely due to the impact of cost reduction initiatives and, to a lesser extent, the lower number of homes delivered. As a percentage of housing revenues, the Company's selling, general and administrative expenses decreased by 1.3 percentage points to 12.5% in the fourth quarter of 2010, compared to 13.8% in the year-earlier quarter, and improved from the ratios of 27.5%, 22.4% and 15.8%, in the first, second and third quarters of 2010, respectively.

The Company's share of losses from unconsolidated homebuilding joint ventures totaled $1.6 million in the fourth quarter of 2010, compared to $1.8 million in the fourth quarter of 2009, which included $.5 million of impairment charges. There were no such charges in the fourth quarter of 2010.

Financial services operations, which include the Company's equity interest in KBA Mortgage, LLC, an unconsolidated mortgage banking joint venture with a subsidiary of Bank of America, N.A., generated pretax income of $3.6 million in the 2010 fourth quarter and $7.5 million in the year-earlier quarter. The decrease was primarily due to lower income generated from the joint venture as the number of loans it originated declined.

The Company posted net income of $17.4 million, or $.23 per diluted share, in the fourth quarter of 2010, including inventory impairment and land option contract abandonment charges of $3.2 million, and an income tax benefit of $2.0 million. In the fourth quarter of 2009, the Company generated net income of $100.7 million, or $1.31 per diluted share, including charges of $77.2 million for inventory and joint venture impairments and land option contract abandonments, and an income tax benefit of $191.7 million.

"Although our outlook is cautious, we are encouraged by our achievements in 2010, and we intend to build on our operating efficiencies, our planned community growth and our product advantages to further enhance the financial performance of our business," said Mezger. "Entering 2011, housing market conditions remain difficult due to soft demand and a general oversupply of homes available for sale. While there are indications that the overall economy has started to recover, the lack of improvement in employment and consumer confidence is likely to continue to hinder a sustained housing recovery. Nonetheless, we believe that with our demonstrated ability to improve our operational and financial results through the ongoing downturn and a strong balance sheet that enables us to opportunistically grow our community count and potential housing revenues, we are well positioned for the future."

Net orders in the fourth quarter of 2010 were 1,085, down 25% from 1,446 in the year-earlier period. As a percentage of beginning backlog, the Company's cancellation rate was 29% in the current quarter, compared to 17% in the 2009 fourth quarter. As a percentage of gross sales, the Company's fourth quarter cancellation rate was 37% in 2010 and 31% in 2009. The Company's backlog at November 30, 2010 totaled 1,336 homes, a 37% decrease from 2,126 homes in backlog at November 30, 2009. Potential future housing revenues in backlog at November 30, 2010 decreased 38% to $263.8 million from $422.5 million a year ago, primarily due to the lower number of homes in backlog.

The Company delivered 7,346 homes during the year ended November 30, 2010, down 13% from the year-earlier period, while the average selling price increased 4% year over year to $214,500. For fiscal 2010, Company-wide revenues totaled $1.59 billion, compared to $1.82 billion for the year-earlier period. The Company posted a net loss of $69.4 million, or $.90 per diluted share, for the year ended November 30, 2010, including charges of $19.9 million for inventory impairments and land option contract abandonments, and an income tax benefit of $7.0 million. For the year ended November 30, 2009, the Company generated a net loss of $101.8 million, or $1.33 per diluted share, including charges of $206.7 million for inventory and joint venture impairments and land option contract abandonments. The net loss in fiscal 2009 also included an income tax benefit of $209.4 million.

The Conference Call on the Fourth Quarter 2010 earnings will be broadcast live TODAY at 8:30 a.m. Pacific Standard Time, 11:30 a.m. Eastern Standard Time. To listen, please go to the Investor Relations section of the Company's website at www.kbhome.com.

KB Home, one of the nation's premier homebuilders, has delivered over half a million quality homes for families since its founding in 1957. The Los Angeles-based company is distinguished by its Built to Order™ homebuilding approach that puts a custom home experience within reach of its customers at an affordable price. KB Home's award-winning home designs and communities meet the needs of first-time, move-up and active adult homebuyers. KB Home was named to FORTUNE® magazine's 2010 list of the World's Most Admired Companies for the sixth consecutive year, and ranked #1 for "Innovation" among homebuilders. The Company trades under the ticker symbol "KBH" and was the first homebuilder listed on the New York Stock Exchange. For more information about any of KB Home's new home communities, call 888-KB-HOMES or visit www.kbhome.com.

Certain matters discussed in this press release, including any statements that are predictive in nature or concern future market and economic conditions, business and prospects, our future financial and operational performance, or our future actions and their expected results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and projections about future events and are not guarantees of future performance. We do not have a specific policy or intent of updating or revising forward-looking statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to: general economic, employment and business conditions; adverse market conditions that could result in additional impairments or abandonment charges and operating losses, including an oversupply of unsold homes, declining home prices and increased foreclosure and short sale activity, among other things; conditions in the capital and credit markets (including consumer mortgage lending standards, the availability of consumer mortgage financing and mortgage foreclosure rates); material prices and availability; labor costs and availability; changes in interest rates; inflation; our debt level; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition for home sales from other sellers of new and existing homes, including sellers of homes obtained through foreclosures or short sales; weather conditions, significant natural disasters and other environmental factors; government actions, policies, programs and regulations directed at or affecting the housing market (including, but not limited to, tax credits, tax incentives and/or subsidies for home purchases, tax deductions for consumer mortgage interest payments and property taxes, tax exemptions for profits on home sales, and programs intended to modify existing mortgage loans and to prevent mortgage foreclosures), the homebuilding industry, or construction activities; the availability and cost of land in desirable areas; legal or regulatory proceedings or claims, including the claims described in footnote 9 to the consolidated financial statements in our Form 10-Q for the quarter ended August 31, 2010 and an involuntary bankruptcy filing made in December 2010 by certain lenders to the South Edge, LLC residential development joint venture located in Las Vegas and in which we are a participant; the ability and/or willingness of participants in our unconsolidated joint ventures to fulfill their obligations; our ability to access capital; our ability to use the net deferred tax assets we have generated; our ability to successfully implement our current and planned product, geographic and market positioning (including, but not limited to, our efforts to expand our inventory base/pipeline with desirable land positions or interests at reasonable cost and to expand our community count and open new communities), revenue growth and cost reduction strategies; consumer interest in our new product designs, including The Open SeriesTM; and other events outside of our control. Please see our periodic reports and other filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business.

 

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Twelve Months and Three Months Ended November 30, 2010 and 2009

(In Thousands, Except Per Share Amounts)

 
  Twelve Months   Three Months
2010   2009 2010   2009
 
Total revenues $ 1,589,996   $ 1,824,850   $ 450,963   $ 674,568  
 
Homebuilding:
Revenues $ 1,581,763 $ 1,816,415 $ 447,917 $ 671,401
Costs and expenses   (1,597,808 )   (2,052,935 )   (418,817 )   (752,945 )
 
Operating income (loss) (16,045 ) (236,520 ) 29,100 (81,544 )
 
Interest income 2,098 7,515 470 1,105

 

Interest expense, net of amounts capitalized/loss on early redemption

(68,307 ) (51,763 ) (16,199 ) (16,261 )
Equity in loss of unconsolidated joint ventures   (6,257 )   (49,615 )   (1,578 )   (1,804 )
 
Homebuilding pretax income (loss)   (88,511 )   (330,383 )   11,793     (98,504 )
 
Financial services:
Revenues 8,233 8,435 3,046 3,167
Expenses (3,119 ) (3,251 ) (480 ) (682 )
Equity in income of unconsolidated joint venture   7,029     14,015     1,083     5,038  
 
Financial services pretax income   12,143     19,199     3,649     7,523  
 
Total pretax income (loss) (76,368 ) (311,184 ) 15,442 (90,981 )
Income tax benefit   7,000     209,400     2,000     191,700  
 
Net income (loss) $ (69,368 ) $ (101,784 ) $ 17,442   $ 100,719  
 
Basic earnings (loss) per share $ (.90 ) $ (1.33 ) $ .23   $ 1.31  
 
Diluted earnings (loss) per share $ (.90 ) $ (1.33 ) $ .23   $ 1.31  
 
Basic average shares outstanding   76,889     76,660     76,957     76,670  
 
Diluted average shares outstanding   76,889     76,660     76,983     76,876  
 
 

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands)

 
  November 30,   November 30,
2010 2009
 
Assets
 
Homebuilding:
Cash and cash equivalents $ 904,401 $ 1,174,715
Restricted cash 115,477 114,292
Receivables 108,048 337,930
Inventories 1,696,721 1,501,394
Investments in unconsolidated joint ventures 105,583 119,668
Other assets   150,076   154,566
3,080,306 3,402,565
 
Financial services   29,443   33,424
 
Total assets $ 3,109,749 $ 3,435,989
 
 
Liabilities and stockholders' equity
 
Homebuilding:
Accounts payable $ 233,217 $ 340,977
Accrued expenses and other liabilities 466,505 560,368
Mortgages and notes payable   1,775,529   1,820,370
2,475,251 2,721,715
 
Financial services 2,620 7,050
 
Stockholders' equity   631,878   707,224
 
 
Total liabilities and stockholders' equity $ 3,109,749 $ 3,435,989
 
 

KB HOME

SUPPLEMENTAL INFORMATION

For the Twelve Months and Three Months Ended November 30, 2010 and 2009

(In Thousands)

 
  Twelve Months   Three Months
Homebuilding revenues: 2010   2009 2010   2009
 
Housing $ 1,575,487 $ 1,758,157 $ 446,010 $ 618,685
Land   6,276     58,258     1,907     52,716  
 
Total $ 1,581,763   $ 1,816,415   $ 447,917   $ 671,401  
 
 
Twelve Months Three Months
Costs and expenses: 2010 2009 2010 2009
 
Construction and land costs
Housing $ 1,301,677 $ 1,643,757 $ 360,837 $ 576,875
Land   6,611     106,154     2,255     90,693  
Subtotal 1,308,288 1,749,911 363,092 667,568
Selling, general and administrative expenses   289,520     303,024     55,725     85,377  
 
Total $ 1,597,808   $ 2,052,935   $ 418,817   $ 752,945  
 
 
Twelve Months Three Months
Interest expense/loss on early redemption: 2010 2009 2010 2009
 
Interest incurred $ 120,428 $ 118,626 $ 30,323 $ 31,434
Loss on early redemption of debt - 976 - -

Loss on voluntary termination of revolving credit facility

1,802 - - -
Interest capitalized   (53,923 )   (67,839 )   (14,124 )   (15,173 )
 
Total $ 68,307   $ 51,763   $ 16,199   $ 16,261  
 
 
Twelve Months Three Months
Other information: 2010 2009 2010 2009
 
Depreciation and amortization $ 5,438 $ 6,821 $ 1,205 $ 1,467
Amortization of previously capitalized interest   105,150     138,179     25,696     59,347  
 
 

KB HOME

SUPPLEMENTAL INFORMATION

For the Twelve Months and Three Months Ended November 30, 2010 and 2009

 
  Twelve Months   Three Months
Average sales price: 2010   2009 2010   2009
 
West Coast $ 346,300 $ 315,100 $ 372,700 $ 321,400
Southwest 158,200 172,000 153,200 161,100
Central 163,700 155,500 166,800 151,600
Southeast   170,200   168,600   192,000   160,900
 
Total $ 214,500 $ 207,100 $ 232,500 $ 203,400

 

 
Twelve Months Three Months
Homes delivered: 2010 2009 2010 2009
 
West Coast 2,023 2,453 583 864
Southwest 1,150 1,202 238 380
Central 2,663 2,771 729 1,016
Southeast   1,510   2,062   368   782
 
Total   7,346   8,488   1,918   3,042
 
 
Unconsolidated joint ventures   102   141   23   26
 
 
Twelve Months Three Months
Net orders: 2010 2009 2010 2009
 
West Coast 1,703 2,395 331 417
Southwest 1,007 1,136 157 200
Central 2,437 2,969 370 491
Southeast   1,409   1,841   227   338
 
Total   6,556   8,341   1,085   1,446
 
Unconsolidated joint ventures   66   111   4   21
 
 
November 30, 2010 November 30, 2009
Backlog data: Backlog Homes Backlog Value Backlog Homes Backlog Value
(Dollars in thousands)
West Coast 203 $ 74,816 523 $ 174,445
Southwest 139 21,306 282 46,135
Central 693 113,155 919 137,271
Southeast   301   54,517   402   64,645
 
Total   1,336 $ 263,794   2,126 $ 422,496
 
Unconsolidated joint ventures   1 $ 511   37 $ 15,577
 

KB HOME

RECONCILIATION OF NON-GAAP FINANCIAL MEASURE

For the Twelve Months and Three Months Ended November 30, 2010 and 2009

(In Thousands, Except Percentages)

This press release contains information about the Company's housing gross margin, excluding inventory impairment and land option contract abandonment charges. This financial measure 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 housing gross margin, excluding inventory impairment and land option contract abandonment charges, is not calculated in accordance with GAAP, this financial 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 operating performance measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement its most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting the Company's operations.

Housing Gross Margin, Excluding Inventory Impairment and Land Option Contract Abandonment Charges

The following table reconciles the Company's housing gross margin calculated in accordance with GAAP to the non-GAAP financial measure of the Company's housing gross margin, excluding inventory impairment and land option contract abandonment charges:

 
  Twelve Months   Three Months
2010   2009 2010   2009
 
Housing revenues $ 1,575,487 $ 1,758,157 $ 446,010 $ 618,685
Housing construction and land costs   (1,301,677 )

 

  (1,643,757 )   (360,837 )   (576,875 )
 
Housing gross margin 273,810

 

114,400 85,173 41,810
Add: Inventory impairment and land option contract abandonment charges   19,577     157,641     2,838     75,967  
 

Housing gross margin, excluding inventory impairment and land option contract abandonment charges

$ 293,387   $ 272,041   $ 88,011   $ 117,777  
 
Housing gross margin as a percentage of housing revenues   17.4 %   6.5 %   19.1 %   6.8 %
 

Housing gross margin, excluding inventory impairment and land option contract abandonment charges, as a percentage of housing revenues

  18.6 %   15.5 %   19.7 %   19.0 %
 

Housing gross margin, excluding inventory impairment and land option contract abandonment charges, is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs before pretax, noncash inventory impairment and land option contract abandonment charges associated with housing operations recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross margin. The Company believes housing gross margin, excluding inventory impairment and land option contract abandonment charges, is a relevant and useful financial measure to investors in evaluating the Company's performance as it measures the gross profit the Company generated specifically on the homes delivered during a given period and enhances the comparability of housing gross margins 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 housing gross margin, excluding inventory impairment and land option contract abandonment charges, 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 impairments or land option contract abandonments.

KB Home
Katoiya Marshall, Investor Relations Contact
310-893-7446
kmarshall@kbhome.com
or
Heather Reeves, Media Contact
310-231-4142
hreeves-x@kbhome.com

Source: KB Home

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