KB Home
Sep 24, 2013

KB Home Reports 2013 Third Quarter Results

Revenues Grow 29% to $549.0 Million; Net Income Increases to $27.3 Million or $.30 Per Share

Net Order Value Increases to $528.9 Million; Backlog Value Advances to $808.5 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, 2013. Highlights and developments include the following:

Three Months Ended August 31, 2013

Nine Months Ended August 31, 2013

Backlog and Net Orders

Balance Sheet

Management Comments

"The momentum we have built in our business continued to fuel our financial performance in the third quarter as we generated strong revenue, net income and earnings per share results," said Jeffrey Mezger, president and chief executive officer. "We are clearly seeing meaningful top-line and bottom-line benefits from our strategy of investing in attractive land positions across the country, primarily targeting locations with limited housing inventory and higher household incomes. With the goal of increasing our community count, net orders and deliveries, we are aggressively pursuing opportunities to invest in land and land development. In addition, by leveraging the core strengths of our operational business model, including enhancing gross profit margins and managing overhead costs, in combination with maintaining pricing discipline and optimizing the mix of first-time and move-up buyers of our Built to Order homes, we believe we will continue to produce healthy improvements in our financial results."

"The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy and positive demographic trends," said Mezger. "Given these factors, we believe that the recent slower pace of the recovery caused by an uptick in mortgage interest rates is a temporary effect, and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing. In balancing community count, sales pace and margin expansion in this environment, our revenues and net income improved substantially during the third quarter, while our net orders moderated. Nonetheless, we believe there is tremendous potential in our served markets and that we are well-positioned for future growth."

Earnings Conference Call

The conference call on the third quarter 2013 earnings will be broadcast live TODAY at 9:00 a.m. Pacific Daylight Time, noon 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 the following: general economic, employment and business conditions; population growth, household formations and demographic trends; 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 negatively affect our consolidated financial statements, including due to additional impairment or land option contract 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 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 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 strategies and initiatives with respect to product, geographic and market positioning (including 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), revenue growth, asset optimization, asset activation, local field management and talent investment, and overhead reduction and cost management; consumer traffic to our new home communities and consumer interest in our product designs and offerings, particularly from higher-income consumers; cancellations and our ability to realize our backlog by converting net orders to home deliveries; our home sales and delivery performance, particularly in key markets in California; 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; the ability of Home Community Mortgage to become operational in all of our served markets as and by the time currently anticipated; 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, 2013 and 2012

(In Thousands, Except Per Share Amounts — Unaudited)

     
Nine Months Three Months
2013     2012 2013     2012
Total revenues $ 1,478,599   $ 981,914   $ 548,974   $ 424,504  
Homebuilding:
Revenues $ 1,470,404 $ 974,055 $ 545,800 $ 421,555
Costs and expenses (1,425,296 ) (1,009,873 ) (509,837 ) (410,688 )
Operating income (loss) 45,108 (35,818 ) 35,963 10,867
Interest income 629 363 193 117
Interest expense (41,073 ) (53,815 ) (11,326 ) (23,060 )
Equity in income (loss) of unconsolidated joint ventures (1,658 ) (37 ) (656 ) 278  
Homebuilding pretax income (loss) 3,006   (89,307 ) 24,174   (11,798 )
Financial services:
Revenues 8,195 7,859 3,174 2,949
Expenses (2,235 ) (2,237 ) (764 ) (709 )
Equity in income (loss) of unconsolidated joint ventures 1,081   2,208   (6 ) 2,119  
Financial services pretax income 7,041   7,830   2,404   4,359  
Total pretax income (loss) 10,047 (81,477 ) 26,578 (7,439 )
Income tax benefit 1,800   14,800   700   10,700  
Net income (loss) $ 11,847   $ (66,677 ) $ 27,278   $ 3,261  
Basic earnings (loss) per share $ .14   $ (.86 ) $ .32   $ .04  
Diluted earnings (loss) per share $ .14   $ (.86 ) $ .30   $ .04  
Basic average shares outstanding 82,261   77,107   83,714   77,127  
Diluted average shares outstanding 84,289   77,107   94,047   77,358  
 
KB HOME
CONSOLIDATED BALANCE SHEETS

(In Thousands — Unaudited)

     
August 31,
2013
November 30,
2012
Assets
Homebuilding:
Cash and cash equivalents $ 383,314 $ 524,765
Restricted cash 41,631 42,362
Receivables 72,345

64,821

Inventories 2,229,720 1,706,571
Investments in unconsolidated joint ventures 126,549 123,674
Other assets 101,247   95,050
2,954,806 2,557,243
Financial services 10,035   4,455
Total assets $ 2,964,841   $ 2,561,698
 
Liabilities and stockholders' equity
Homebuilding:
Accounts payable $ 146,147 $ 118,544
Accrued expenses and other liabilities 380,766 340,345
Mortgages and notes payable 1,937,057   1,722,815
2,463,970 2,181,704
Financial services 2,865 3,188
Stockholders' equity 498,006   376,806
Total liabilities and stockholders' equity $ 2,964,841   $ 2,561,698
 
KB HOME
SUPPLEMENTAL INFORMATION

For the Nine Months and Three Months Ended August 31, 2013 and 2012

(In Thousands — Unaudited)

     
Nine Months Three Months
2013     2012 2013     2012
Homebuilding revenues:
Housing $ 1,470,404 $ 974,055 $ 545,800 $ 421,555
Land        
Total $ 1,470,404   $ 974,055   $ 545,800   $ 421,555  
 
Nine Months Three Months
2013 2012 2013 2012
Costs and expenses:
Construction and land costs
Housing $ 1,232,644 $ 836,229 $ 446,381 $ 351,356
Land        
Subtotal 1,232,644 836,229 446,381 351,356
Selling, general and administrative expenses 192,652   173,644   63,456   59,332  
Total $ 1,425,296   $ 1,009,873   $ 509,837   $ 410,688  
 
Nine Months Three Months
2013 2012 2013 2012
Interest expense:
Interest incurred $ 102,256 $ 89,274 $ 34,345 $ 31,257
Loss on early extinguishment of debt 10,278 8,275
Interest capitalized (61,183 ) (45,737 ) (23,019 ) (16,472 )
Total $ 41,073   $ 53,815   $ 11,326   $ 23,060  
 
Nine Months Three Months
2013 2012 2013 2012
Other information:
Depreciation and amortization $ 5,216 $ 3,297 $ 1,889 $ 1,169
Amortization of previously capitalized interest 62,943   48,909   22,672   21,215  
 
KB HOME
SUPPLEMENTAL INFORMATION

For the Nine Months and Three Months Ended August 31, 2013 and 2012

(Unaudited)

     
Nine Months Three Months
2013     2012 2013     2012
Average sales price:
West Coast $ 450,100 $ 377,200 $ 480,400 $ 383,100
Southwest 232,100 185,400 244,500 191,600
Central 194,100 165,500 204,200 167,300
Southeast 230,400   199,800   241,900   210,200
Total $ 287,900   $ 234,100   $ 299,100   $ 245,100
 
Nine Months Three Months
2013 2012 2013 2012
Homes delivered:
West Coast 1,658 1,180 555 541
Southwest 545 513 194 186
Central 1,965 1,723 757 700
Southeast 939   744   319   293
Total 5,107   4,160   1,825   1,720
 
Nine Months Three Months
2013 2012 2013 2012
Net orders:
West Coast 1,544 1,547 427 658
Southwest 568 523 180 154
Central 2,364 2,212 743 765
Southeast 1,093   864   386   323
Total 5,569   5,146   1,736   1,900
 
August 31, 2013 August 31, 2012
Backlog Homes Backlog Value Backlog Homes Backlog Value
Backlog data (dollars in thousands):
West Coast 570 $ 276,031 830 $ 327,528
Southwest 206 48,646 213 40,727
Central 1,548 315,900 1,507 251,900
Southeast 715   167,906   592   124,589
Total 3,039   $ 808,483   3,142   $ 744,744
 

KB HOME

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Nine Months and Three Months Ended August 31, 2013 and 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 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:

  Nine Months     Three Months
2013     2012 2013     2012
Housing revenues $ 1,470,404 $ 974,055 $ 545,800 $ 421,555
Housing construction and land costs (1,232,644 ) (836,229 ) (446,381 ) (351,356 )
Housing gross profits 237,760 137,826 99,419 70,199
Add: Inventory impairment and land option contract abandonment charges 284 22,912 6,403
Water intrusion-related charges 23,478 5,931
Less: Warranty adjustments (11,162 )
Insurance recoveries   (26,534 )   (16,534 )
Adjusted housing gross profits $ 261,522   $ 123,042   $ 105,350   $ 60,068  
Housing gross profit margin as a percentage of housing revenues 16.2 % 14.1 % 18.2 % 16.7 %
Adjusted housing gross profit margin as a percentage of housing revenues 17.8 % 12.6 % 19.3 % 14.3 %

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.

KB Home
Investor Relations Contact
Katoiya Marshall, 310-893-7446
kmarshall@kbhome.com
or
Media Contact
Susan Martin, 310-231-4142
smartin@kbhome.com

Source: KB Home

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