KB Home
Jun 27, 2014

KB Home Reports 2014 Second Quarter Results

Revenues Increase 8% to $565.0 Million
Net Income Increases to $26.6 Million or $.27 Per Diluted Share
Net Order Value Up 19% to $763 Million; Backlog Value Up 24% to $1.03 Billion

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH), one of the nation's largest and most recognized homebuilders, today reported results for its second quarter ended May 31, 2014. Highlights and developments include the following:

Three Months Ended May 31, 2014

Six Months Ended May 31, 2014

Backlog and Net Orders

Balance Sheet

Management Comments

"Reflecting the strong operational foundation we have established through the effective execution of our core strategies, we extended our trend of generating solid earnings improvement in the second quarter, and remain focused on accelerating profitable growth," said Jeffrey Mezger, president and chief executive officer. "We have produced year-over-year revenue increases for eleven straight quarters and operating income improvement for ten consecutive quarters. The sustained progress in our results demonstrates the success of our targeted land and land development investments across our operating footprint, the appeal of our product designs and unique home buying experience, as well as our sound growth platform, which enables us to efficiently leverage costs as we expand. With the momentum we have generated through the first half of the year and our robust backlog, we believe we are on track to meet our fiscal 2014 goals."

"Increasing the number of new home communities we have open for sales remains a top priority for us," said Mezger. "We acquired several attractive large land positions and substantially advanced our land development in the second quarter to reinforce the upward trajectory of our business. We expect to measurably expand our community count into 2015 with the significant investments we are making in our land pipeline. We believe that with these and other strategic initiatives we have underway and the performance improvements we have delivered over the past several quarters, we are well positioned for accelerated revenue growth and profitability going forward."

Earnings Conference Call

The conference call on the second quarter 2014 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 is distinguished by its unique homebuilding approach to provide homebuyers optimal value and choice, enabling each buyer to customize their new home from lot location to floor plan and elevation to structural options and design features. KB Home is a leader in utilizing state-of-the-art sustainable building practices. All KB homes are built to be highly energy efficient, helping to lower monthly utility costs, which the company demonstrates with its proprietary KB Home Energy Performance Guide® (EPG®). KB Home has been named an ENERGY STAR® Partner of the Year Sustained Excellence Award winner for four straight years and a WaterSense® Partner of the Year for three consecutive years. 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, programs intended to modify existing mortgage loans and to prevent mortgage foreclosures and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; decisions regarding federal fiscal and monetary policies, including those relating to taxation, government spending, interest rates and economic stimulus measures; 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 (including by effectively balancing home sales prices and sales pace in our new home communities), 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, and its performance upon becoming operational; 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 Six Months and Three Months Ended May 31, 2014 and 2013

(In Thousands, Except Per Share Amounts — Unaudited)

Six Months Three Months
2014       2013   2014       2013  

Total revenues

$ 1,015,694   $ 929,625   $ 565,007   $ 524,406  


Revenues $ 1,010,663 $ 924,604 $ 562,396 $ 521,788
Costs and expenses (958,652 ) (915,459 ) (528,104 ) (513,097 )
Operating income 52,011 9,145 34,292 8,691
Interest income 283 436 115 232
Interest expense (19,834 ) (29,747 ) (8,558 ) (14,507 )
Equity in income (loss) of unconsolidated joint ventures 1,912   (1,002 ) (678 ) (567 )
Homebuilding pretax income (loss) 34,372   (21,168 ) 25,171   (6,151 )
Financial services:
Revenues 5,031 5,021 2,611 2,618
Expenses (1,704 ) (1,471 ) (852 ) (636 )
Equity in income (loss) of unconsolidated joint ventures (12 ) 1,087   (6 ) (4 )
Financial services pretax income 3,315   4,637   1,753   1,978  
Total pretax income (loss) 37,687 (16,531 ) 26,924 (4,173 )
Income tax benefit (expense) (500 ) 1,100   (300 ) 1,200  
Net income (loss) $ 37,187   $ (15,431 ) $ 26,624   $ (2,973 )
Earnings (loss) per share:
Basic $ .43   $ (.19 ) $ .30   $ (.04 )
Diluted $ .40   $ (.19 ) $ .27   $ (.04 )
Weighted average shares outstanding:
Basic 86,668   81,526   89,529   83,605  
Diluted 96,759   81,526   99,508   83,605  



(In Thousands — Unaudited)

May 31, November 30,
2014 2013
Cash and cash equivalents $ 484,472 $ 530,095
Restricted cash 44,237 41,906
Receivables 99,779 75,749
Inventories 3,006,118 2,298,577
Investments in unconsolidated joint ventures 67,594 130,192
Other assets 116,558   107,076
3,818,758 3,183,595
Financial services 9,268   10,040
Total assets $ 3,828,026   $ 3,193,635
Liabilities and stockholders' equity
Accounts payable $ 154,170 $ 148,282
Accrued expenses and other liabilities 388,349 356,176
Mortgages and notes payable 2,573,980   2,150,498
3,116,499 2,654,956
Financial services 1,854 2,593
Stockholders' equity 709,673   536,086
Total liabilities and stockholders' equity $ 3,828,026   $ 3,193,635



For the Six Months and Three Months Ended May 31, 2014 and 2013

(In Thousands, Except Average Selling Price — Unaudited)

Six Months Three Months
2014       2013   2014       2013  
Homebuilding revenues:
Housing $ 999,942 $ 924,604 $ 559,815 $ 521,788
Land 10,721     2,581    
Total $ 1,010,663   $ 924,604   $ 562,396   $ 521,788  
Six Months Three Months
2014   2013   2014   2013  
Costs and expenses:
Construction and land costs
Housing $ 816,208 $ 786,263 $ 454,102 $ 442,998
Land 9,626     2,458    
Subtotal 825,834 786,263 456,560 442,998
Selling, general and administrative expenses 132,818   129,196   71,544   70,099  
Total $ 958,652   $ 915,459   $ 528,104   $ 513,097  
Six Months Three Months
2014   2013   2014   2013  
Interest expense:
Interest incurred $ 82,438 $ 67,911 $ 43,158 $ 34,489
Interest capitalized (62,604 ) (38,164 ) (34,600 ) (19,982 )
Total $ 19,834   $ 29,747   $ 8,558   $ 14,507  
Six Months Three Months
2014   2013   2014   2013  
Other information:
Depreciation and amortization $ 4,386 $ 3,327 $ 2,319 $ 1,891
Amortization of previously capitalized interest 37,702   40,271   20,217   21,566  
Six Months Three Months
2014   2013   2014   2013  
Average selling price:
West Coast $ 532,600 $ 434,800 $ 537,900 $ 460,400
Southwest 281,200 225,300 276,500 223,900
Central 216,900 187,700 222,000 188,900
Southeast 252,500   224,400   248,700   227,500  
Total $ 313,200   $ 281,700   $ 319,700   $ 290,400  



For the Six Months and Three Months Ended May 31, 2014 and 2013


Six Months Three Months
2014       2013   2014       2013
Homes delivered:
West Coast 830 1,103 484 594
Southwest 336 351 175 211
Central 1,360 1,208 765 637
Southeast 667   620   327   355
Total 3,193   3,282   1,751   1,797
Three Months Three Months - Value
2014   2013   2014   2013
Net orders (dollars in thousands):
West Coast 583 587 $ 344,671 $ 292,769
Southwest 211 189 56,512 49,246
Central 1,085 968 250,381 198,621
Southeast 390   418   111,592   99,002
Total 2,269   2,162   $ 763,156   $ 639,638
Six Months Six Months - Value
2014   2013   2014   2013
Net orders (dollars in thousands):
West Coast 1,089 1,117 $ 643,954 $ 554,111
Southwest 392 388 104,900 92,952
Central 1,842 1,621 419,354 332,113
Southeast 711   707   195,120   167,265
Total 4,034   3,833   $ 1,363,328   $ 1,146,441
May 31, 2014 May 31, 2013
Backlog Homes Backlog Value Backlog Homes Backlog Value
Backlog data (dollars in thousands):
West Coast 679 $ 389,402 698 $ 337,878
Southwest 244 67,060 220 48,524
Central 1,830 405,850 1,562 296,949
Southeast 645   163,565   648   143,262
Total 3,398   $ 1,025,877   3,128   $ 826,613

For the Six Months and Three Months Ended May 31, 2014 and 2013
(In Thousands, Except Percentages — Unaudited)

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:

Six Months Three Months
2014     2013   2014     2013  
Housing revenues $ 999,942 $ 924,604 $ 559,815 $ 521,788
Housing construction and land costs (816,208 ) (786,263 ) (454,102 ) (442,998 )
Housing gross profits 183,734 138,341 105,713 78,790
Add: Land option contract abandonment charges 790 284 357 284
Warranty-related charges   17,547     15,873  
Adjusted housing gross profits $ 184,524   $ 156,172   $ 106,070   $ 94,947  
Housing gross profit margin as a percentage of housing revenues 18.4 % 15.0 % 18.9 % 15.1 %
Adjusted housing gross profit margin as a percentage of housing revenues 18.5 % 16.9 % 18.9 % 18.2 %

Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less land option contract abandonment charges and warranty-related charges (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 land option contract abandonment charges and warranty-related charges.

KB Home
Katoiya Marshall, Investor Relations Contact
Susan Martin, Media Contact

Source: KB Home

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