KB Home
Sep 21, 2012

KB Home Reports Third Quarter 2012 Results

Revenues Increase 16%; Earnings Per Share of $.04

Net Order Value Increases 16% to $493.3 Million; Backlog Value Up 33% to $744.7 Million

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH), one of the nation's largest and most recognized homebuilders, today reported results for its third quarter ended August 31, 2012. Highlights and developments include the following:

Three Months Ended August 31, 2012

Nine Months Ended August 31, 2012

Backlog and Net Orders

Balance Sheet

Management Comments

"We are pleased to report a profit for the third quarter," said Jeffrey Mezger, president and chief executive officer. "During the quarter, we continued to generate improvement in several key financial and operating metrics. The favorable year-over-year performance in our deliveries; revenues; operating income; net orders; and backlog were particularly encouraging as we operated with fewer communities. These trends illustrate that the strategic repositioning of our operations to restore profitability is starting to yield tangible results, as we also saw significant increases in our overall average selling price and gross profit margin, and substantial improvement in our selling, general and administrative expense ratio. At the same time, it is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise. In particular, we are seeing dramatic improvement in California, where we are the state's largest homebuilder, as the continued strengthening in the coastal markets is now spreading inland to Sacramento, the Central Valley and the Inland Empire."

"One of the impacts of our strategic repositioning has been a declining community count, which has moderated our net order growth," continued Mezger. "Now that we have a clear path to achieve profitability, we are accelerating our investments to expand our business in all four of our operating regions. Although our community count will bottom in the fourth quarter, we expect to reverse this trend in 2013. This improvement, when coupled with one of the highest sales rates per community in the industry, should significantly advance our business. With an improved financial position and enhanced liquidity as a result of the financing transactions completed in the quarter, we believe we are well-positioned to capitalize on opportunities for growth as the housing market recovery progresses."

Earnings Conference Call

The conference call on the third quarter 2012 earnings will be broadcast live TODAY at 8:30 a.m. Pacific Daylight Time, 11:30 a.m. Eastern Daylight Time. To listen, please go to the Investor Relations section of the Company's website at www.kbhome.com.

About KB Home

KB Home is one of the largest and most recognized homebuilding companies in the United States. Since its founding in 1957, the Company has built more than half a million quality homes. KB Home's signature Built to Order™ approach lets each buyer customize their new home from lot location to floor plan and design features. In addition to meeting strict ENERGY STAR® guidelines, all KB homes are highly energy efficient to help lower monthly utility costs for homeowners, which the Company demonstrates with its proprietary KB Home Energy Performance Guide® (EPG®). A leader in utilizing state-of-the-art sustainable building practices, KB Home was named the #1 Green Homebuilder in the most recent study by Calvert Investments and the #1 Homebuilder on FORTUNE magazine's 2011 World's Most Admired Companies list. Los Angeles-based KB Home was the first homebuilder listed on the New York Stock Exchange, and trades under the ticker symbol "KBH." For more information about KB Home's new home communities, call 888-KB-HOMES or visit www.kbhome.com.

Forward-Looking and Cautionary Statements

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 residential consumer mortgage lending standards, the availability of residential consumer mortgage financing and mortgage foreclosure rates); material prices and availability; labor costs and availability; changes in interest rates; inflation; our debt level, including our ratio of debt to total capital, and our ability to adjust our debt level and structure and to access the equity, credit, capital or other financial markets or other external financing sources; 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, the Dodd-Frank Act, tax credits, tax incentives and/or subsidies for home purchases, tax deductions for residential 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; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; legal or regulatory proceedings or claims; our ability to access capital; our ability to use/realize 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 open new communities for sales and sell higher-priced homes, and our operational and investment concentration in markets in California and Texas), revenue growth, asset optimization, and overhead and other cost reduction strategies; consumer traffic to our new home communities and consumer interest in our product designs; home purchase contract cancellations and our ability to realize our backlog; the manner in which our homebuyers are offered and are able to obtain residential consumer mortgage loans and mortgage banking services, including from our preferred mortgage lender, Nationstar Mortgage; the performance of Nationstar Mortgage as our preferred mortgage lender; information technology failures and data security breaches; 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 Nine Months and Three Months Ended August 31, 2012 and 2011
(In Thousands, Except Per Share Amounts - Unaudited)
 
  Nine Months   Three Months
2012   2011 2012   2011
Total revenues $ 981,914   $ 835,994   $ 424,504   $ 367,316  
Homebuilding:
Revenues $ 974,055 $ 829,816 $ 421,555 $ 364,532
Costs and expenses (1,009,873 ) (933,725 ) (410,688 ) (363,093 )
Operating income (loss) (35,818 ) (103,909 ) 10,867 1,439
Interest income 363 776 117 123
Interest expense (53,815 ) (36,902 ) (23,060 ) (12,342 )
Equity in income (loss) of unconsolidated joint ventures (37 ) (55,865 ) 278   64  
Homebuilding pretax loss (89,307 ) (195,900 ) (11,798 ) (10,716 )
Financial services:
Revenues 7,859 6,178 2,949 2,784
Expenses (2,237 ) (2,481 ) (709 ) (829 )
Equity in income (loss) of unconsolidated joint venture 2,208   (376 ) 2,119   (888 )
Financial services pretax income 7,830   3,321   4,359   1,067  
Total pretax loss (81,477 ) (192,579 ) (7,439 ) (9,649 )
Income tax benefit (expense) 14,800   (100 ) 10,700    
Net income (loss) $ (66,677 ) $ (192,679 ) $ 3,261   $ (9,649 )
Basic earnings (loss) per share $ (.86 ) $ (2.50 ) $ .04   $ (.13 )
Diluted earnings (loss) per share $ (.86 ) $ (2.50 ) $ .04   $ (.13 )
Basic average shares outstanding 77,107   77,004   77,127   77,047  
Diluted average shares outstanding 77,107   77,004   77,358   77,047  
 
 
KB HOME
CONSOLIDATED BALANCE SHEETS

(In Thousands - Unaudited)

 
  August 31,   November 30,
2012 2011
Assets
Homebuilding:
Cash and cash equivalents $ 420,392 $ 415,050
Restricted cash 46,113 64,481
Receivables 94,832 66,179
Inventories 1,769,043 1,731,629
Investments in unconsolidated joint ventures 122,155 127,926
Other assets 91,149   75,104
2,543,684 2,480,369
Financial services 5,780   32,173
Total assets $ 2,549,464  

 

$ 2,512,542
 
Liabilities and stockholders' equity
Homebuilding:
Accounts payable $ 103,933 $ 104,414
Accrued expenses and other liabilities 342,142 374,406
Mortgages and notes payable 1,727,679   1,583,571
2,173,754 2,062,391
Financial services 3,269 7,494
Stockholders' equity 372,441   442,657
Total liabilities and stockholders' equity $ 2,549,464   $ 2,512,542
 
 
KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2012 and 2011
(In Thousands - Unaudited)
 
  Nine Months   Three Months
2012   2011 2012   2011
Homebuilding revenues:
Housing $ 974,055 $ 829,663 $ 421,555 $ 364,457
Land   153     75  
Total $ 974,055   $ 829,816   $ 421,555   $ 364,532  
 
Nine Months Three Months
2012 2011 2012 2011
Costs and expenses:
Construction and land costs
Housing $ 824,935 $ 723,886 $ 347,908 $ 302,834
Land   199     74  
Subtotal 824,935 724,085 347,908 302,908
Selling, general and administrative expenses 184,938 172,310 62,780 60,185
Loss on loan guaranty   37,330      
Total $ 1,009,873   $ 933,725   $ 410,688   $ 363,093  
 
Nine Months Three Months
2012 2011 2012 2011
Interest expense:
Interest incurred $ 89,274 $ 88,101 $ 31,257 $ 29,090
Loss (gain) on early extinguishment of debt 10,278 (3,612 ) 8,275
Interest capitalized (45,737 ) (47,587 ) (16,472 ) (16,748 )
Total $ 53,815   $ 36,902   $ 23,060   $ 12,342  
 
Nine Months Three Months
2012 2011 2012 2011
Other information:
Depreciation and amortization $ 3,297 $ 3,296 $ 1,169 $ 1,028
Amortization of previously capitalized interest 48,909   52,746   21,215   21,733  
 
 
KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2012 and 2011
(Unaudited)
 
  Nine Months   Three Months
2012   2011 2012   2011
Average sales price:
West Coast $ 377,200 $ 321,800 $ 383,100 $ 334,800
Southwest 185,400 159,500 191,600 170,200
Central 165,500 170,700 167,300 168,000
Southeast 199,800 196,800 210,200 198,800
Total $ 234,100 $ 217,400 $ 245,100 $ 227,400
 
Nine Months Three Months
2012 2011 2012 2011
Homes delivered:
West Coast 1,180 1,101 541 524
Southwest 513 573 186 232
Central 1,723 1,449 700 611
Southeast 744 694 293 236
Total 4,160 3,817 1,720 1,603
 
Nine Months Three Months
2012 2011 2012 2011
Net orders:
West Coast 1,547 1,527 658 581
Southwest 523 735 154 259
Central 2,212 1,963 765 677
Southeast 864 913 323 321
Total 5,146 5,138 1,900 1,838
 
August 31, 2012 August 31, 2011
Backlog Homes Backlog Value Backlog Homes Backlog Value
Backlog data (dollars in thousands):
West Coast 830 $ 327,528 629 $ 211,360
Southwest 213 40,727 301 51,262
Central 1,507 251,900 1,207 199,503
Southeast 592 124,589 520 97,205
Total 3,142 $ 744,744 2,657 $ 559,330
 

KB HOME

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Nine Months and Three Months Ended August 31, 2012 and 2011

(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 housing gross profit margin, excluding inventory impairment and land option contract abandonment charges, 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 housing gross profit margin, excluding inventory impairment and land option contract abandonment charges 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.

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

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 housing gross profit margin, excluding inventory impairment and land option contract abandonment charges:

 
  Nine Months   Three Months
2012   2011 2012   2011
 
Housing revenues $ 974,055 $ 829,663 $ 421,555 $ 364,457
Housing construction and land costs (824,935 ) (723,886 ) (347,908 ) (302,834 )
Housing gross profits 149,120 105,777 73,647 61,623
Add: Inventory impairment and land option contract abandonment charges 22,912   23,456   6,403   1,162  
Housing gross profits, excluding inventory impairment and land option contract abandonment charges $ 172,032   $ 129,233   $ 80,050   $ 62,785  
Housing gross profit margin as a percentage of housing revenues 15.3 % 12.7 % 17.5 % 16.9 %
Housing gross profit margin, excluding inventory impairment and land option contract abandonment charges, as a percentage of housing revenues 17.7 % 15.6 % 19.0 % 17.2 %
 

Housing gross profit 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 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 profit margin. The Company believes housing gross profit 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 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 housing gross profit 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
Susan Martin, Media Contact
310-231-4142
smartin@kbhome.com

Source: KB Home

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