KB Home
Mar 21, 2013

KB Home Reports 2013 First Quarter Results

Revenues Up 59% as Deliveries Grow 29% and Average Selling Price Increases 24%
Net Order Value Up 83%; Net Orders Increase 40%
Backlog Value Up 53% to $703.9 Million

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH), one of the nation's largest and most recognized homebuilders, today reported results for its first quarter ended February 28, 2013. Highlights and developments include the following:

Three Months Ended February 28, 2013

Homebuyer Closing Cost Allowances Reclassification

Backlog and Net Orders

Balance Sheet

Management Comments

"Our strategies targeting growth and profitability are working as evidenced by our significantly improved financial and operational results in the first quarter," said Jeffrey Mezger, president and chief executive officer. "Our revenues grew by 59% from a year ago, driven by both higher deliveries and increased pricing power in our served markets, reflecting the success of our land repositioning initiatives and a shift in consumer demand to larger homes. Our revenue growth, combined with our actions to generate greater operating efficiencies and reduce sales incentives, increased our operating margin significantly and produced substantially better bottom line results. We also experienced robust net order growth and ended the quarter with our backlog value up 53% from a year ago. These results, in combination with our current strategic growth plans, the strengthening recovery of housing markets, low mortgage interest rates and firming consumer confidence, reinforce our optimism for the remainder of the year."

"We also made major strides during the quarter to support accelerating our future growth," continued Mezger. "We raised more than $330 million from the successful sale of convertible senior notes and common stock, maintained our aggressive pursuit of available opportunities by investing nearly $350 million in land and land development — more than triple the amount we invested in the year-earlier quarter — in desirable locations within strong growth markets. In March, we further bolstered our available financial resources by entering into a $200 million revolving credit facility. With an operational footprint that can be leveraged for substantial expansion, land positions in attractive markets across the country, and significant financial flexibility to amplify our investments in land and land development, we remain confident that we have a solid growth platform to expand our community count, deliveries and revenues as 2013 unfolds. Based on the strategic steps we have taken, our improved performance over the past year and the accelerating momentum we are seeing in our business, we are confident that we will achieve our profitability goal for 2013."

Earnings Conference Call

The conference call on the first quarter 2013 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, including an increased supply of unsold homes, declining home prices and greater foreclosure and short sale activity, among other things, that could result in, among other negative impacts on our consolidated financial statements, additional impairment or land option abandonment charges, lower revenues and operating and other losses; conditions in the capital, credit and financial 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, maturity schedule and structure and to access the equity, credit, capital or other financial markets or other external financing sources, including raising capital through the public or private issuance of common stock, debt or other securities, and/or project financing, on favorable terms; our compliance with the terms and covenants of our revolving credit facility; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition for home sales from other sellers of new and resale homes, including lenders and other 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; decisions by lawmakers on federal fiscal policies, including those relating to taxation and government spending; the availability and cost of land in desirable areas; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred, including our warranty claims and costs experience related to water intrusion issues at certain of our communities in Florida; legal or regulatory proceedings or claims; 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 expand our community count, open additional new home communities for sales and sell higher-priced homes and more design options, and our operational and investment concentration in markets in California and Texas), revenue growth, asset optimization, asset activation, local field management and talent investment, and overhead and other cost management strategies and initiatives; consumer traffic to our new home communities and consumer interest in our product designs and offerings, particularly higher-income consumers; cancellations and our ability to realize our backlog by converting net orders to home deliveries; our home sales and delivery performance in key markets in California and Texas; the manner in which our homebuyers are offered and whether they 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.


For the Three Months Ended February 28, 2013 and February 29, 2012

(In Thousands, Except Per Share Amounts — Unaudited)

Three Months
2013   2012
Total revenues $ 405,219   $ 254,558  
Revenues $ 402,816 $ 251,895
Costs and expenses (402,362 ) (283,044 )
Operating income (loss) 454 (31,149 )
Interest income 204 135
Interest expense (15,240 ) (16,286 )
Equity in loss of unconsolidated joint ventures (435 ) (72 )
Homebuilding pretax loss (15,017 ) (47,372 )
Financial services:
Revenues 2,403 2,663
Expenses (835 ) (835 )
Equity in income of unconsolidated joint venture 1,091   142  
Financial services pretax income 2,659   1,970  
Total pretax loss (12,358 ) (45,402 )
Income tax expense (100 ) (400 )
Net loss $ (12,458 ) $ (45,802 )
Basic and diluted loss per share $ (.16 ) $ (.59 )
Basic and diluted average shares outstanding 79,401   77,090  

(In Thousands — Unaudited)

February 28,
November 30,
Cash and cash equivalents $ 624,044 $ 524,765
Restricted cash 44,619 42,362
Receivables 65,630 64,821
Inventories 1,937,774 1,706,571
Investments in unconsolidated joint ventures 123,210 123,674
Other assets 102,578   95,050
2,897,855 2,557,243
Financial services 2,782   4,455
Total assets $ 2,900,637   $ 2,561,698
Liabilities and stockholders' equity
Accounts payable $ 108,325 $ 118,544
Accrued expenses and other liabilities 353,130 340,345
Mortgages and notes payable 1,963,753   1,722,815
2,425,208 2,181,704
Financial services 2,294 3,188
Stockholders' equity 473,135   376,806
Total liabilities and stockholders' equity $ 2,900,637   $ 2,561,698

For the Three Months Ended February 28, 2013 and February 29, 2012

(In Thousands — Unaudited)

Three Months
2013   2012
Homebuilding revenues:
Housing $ 402,816 $ 251,895
Total $ 402,816   $ 251,895  
Three Months
2013 2012
Costs and expenses:
Construction and land costs
Housing $ 343,265 $ 231,832
Subtotal 343,265 231,832
Selling, general and administrative expenses 59,097   51,212  
Total $ 402,362   $ 283,044  
Three Months
2013 2012
Interest expense:
Interest incurred $ 33,422 $ 28,408
Loss on early extinguishment of debt 2,003
Interest capitalized (18,182 ) (14,125 )
Total $ 15,240   $ 16,286  
Three Months
2013 2012
Other information:
Depreciation and amortization $ 1,436 $ 971
Amortization of previously capitalized interest 18,705   12,669  

For the Three Months Ended February 28, 2013 and February 29, 2012


Three Months
2013   2012
Average sales price:
West Coast $ 404,900 $ 340,600
Southwest 227,400 185,800
Central 186,500 164,800
Southeast 220,300   189,200
Total $ 271,300   $ 219,000
Three Months
2013 2012
Homes delivered:
West Coast 509 309
Southwest 140 170
Central 571 487
Southeast 265   184
Total 1,485   1,150
Three Months
2013 2012
Net orders:
West Coast 530 289
Southwest 199 140
Central 653 547
Southeast 289   221
Total 1,671   1,197
February 28, 2013 February 29, 2012
Backlog Homes   Backlog Value Backlog Homes Backlog Value
Backlog data (dollars in thousands):
West Coast 705 $ 287,970 443 $ 150,638
Southwest 242 54,604 173 32,139
Central 1,231 235,759 1,078 177,998
Southeast 585   125,560   509   99,176
Total 2,763   $ 703,893   2,203   $ 459,951

For the Three Months Ended February 28, 2013 and February 29, 2012
(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 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 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 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 charges:

  Three Months
2013   2012
Housing revenues $ 402,816 $ 251,895
Housing construction and land costs (343,265 ) (231,832 )
Housing gross profits 59,551 20,063
Add: Inventory impairment charges   6,572  
Housing gross profits, excluding inventory impairment charges $ 59,551   $ 26,635  
Housing gross profit margin as a percentage of housing revenues 14.8 % 8.0 %
Housing gross profit margin, excluding inventory impairment charges, as a percentage of housing revenues 14.8 % 10.6 %

Housing gross profit margin, excluding inventory impairment charges, is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs before inventory impairment 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 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 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.

KB Home
Katoiya Marshall, Investor Relations Contact
(310) 893-7446
Susan Martin, Media Contact
(310) 231-4142

Source: KB Home

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