Company News

KB Home Reports Record First Quarter Earnings; Net Income Advances 65%; EPS Beats Consensus Estimates; Quarter-end Backlog Reaches 12,598 Units, or $2.30 Billion in Value

March 21, 2002 at 12:00 AM EST
KB Home Reports Record First Quarter Earnings; Net Income Advances 65%; EPS Beats Consensus Estimates; Quarter-end Backlog Reaches 12,598 Units, or $2.30 Billion in ValueLOS ANGELES, Mar 21, 2002 (BUSINESS WIRE) -- KB Home (NYSE:KBH), one of the largest homebuilders in the United States and France, today announced record results for its first quarter ended February 28, 2002. Highlights include:

    --  Net income increased 65% to another all-time first quarter
        record of $42.7 million, or $.95 per diluted share, from $25.8
        million, or $.70 per diluted share, in the same quarter of
        2001. Diluted earnings per share for the first quarter beat
        the First Call consensus estimate of $.79 by approximately
        20%.
    --  Record first quarter deliveries of 5,081 units were 10% higher
        than the 4,612 units delivered in the first quarter of 2001
        due to substantial unit volume gains in the Company's Central
        region and in France. Total revenues rose to $915.7 million,
        the highest level for any first quarter in the Company's
        history, up nearly 12% from the $821.1 million posted in first
        quarter of 2001.
    --  The Company's operating income increased sharply to $71.3
        million in the first quarter from $53.5 million in the
        year-earlier quarter while its operating margin climbed 130
        basis points to 7.8% from 6.5%. The Company's pretax margin
        also rose substantially to 7.0% in the first quarter, up 220
        basis points from 4.8% in the first quarter of 2001.
    --  The Company's ratio of debt to total capital improved 6.9
        percentage points to 49.7% at February 28, 2002, down
        significantly from 56.6% at February 28, 2001. The Company
        ended the quarter with substantial liquidity, including nearly
        $600 million of available borrowing capacity under its
        revolving credit facility and $196.2 million in cash.
    --  The Company had a strong backlog of 12,598 units at February
        28, 2002. Revenues in backlog totaled $2.30 billion at the end
        of the first quarter and provided excellent visibility for the
        Company's 2002 year.
"We began fiscal 2002 with an outstanding first quarter, setting the stage for the record performance we expect for the full year," commented Bruce Karatz, Chairman and Chief Executive Officer. "Our first quarter financial results showcase the strength of our core homebuilding business, which has continued to benefit from our customer-focused, process-driven approach and our emphasis on the fastest growing markets. We are optimistic for the remainder of the year as our backlog is healthy, demand for housing continues to outpace supply, and other conditions in the housing industry continue to be favorable."

Net income increased 65.2% to $42.7 million in the first quarter of 2002 from $25.8 million in the first quarter of 2001. The combination of higher unit delivery volume and a higher operating margin drove net income to a new first quarter record. Net income also benefited as pretax income from the Company's mortgage banking operations more than doubled in the first quarter of 2002 to $8.2 million from $4.0 million in 2001, reflecting higher domestic unit delivery volume, increased retention and a favorable interest spread. Earnings per diluted share increased 35.7% to $.95 in the first quarter from $.70 in the year-earlier quarter. The Company's year-over-year diluted earnings per share growth was substantially lower than its net income growth as a result of a 21.8% increase in the average number of diluted shares outstanding in the first quarter of 2002 compared to the year-earlier quarter.

Unit deliveries (including deliveries from joint ventures) rose 10.2% to a record of 5,081 units in the first quarter of 2002 from 4,612 units in the same quarter of 2001. Total construction revenues for the quarter ended February 28, 2002 were $899.2 million, the highest for any first quarter in the Company's history, up 11.3% from $808.2 million for the same quarter a year ago. Housing revenues increased 13.3% to $893.8 million from $789.1 million in the year-earlier quarter reflecting both higher unit volume and a slightly higher average selling price. The Company's average selling price rose 2.1% to $177,900 for the first quarter of 2002 from $174,300 for the same quarter of 2001. Construction revenues for the first quarter of 2002 included French commercial revenues of $3.6 million and land sales of $1.8 million compared with commercial revenues of $9.3 million and land sales of $9.8 million reported in the year-earlier quarter.

"Our Company-wide focus on improving performance was clearly evident in our first quarter results," stated Karatz. "In addition to achieving solid top line growth, we continued to gain momentum through increased operating efficiencies that translated into accelerated earnings growth. In the first quarter of 2002, our construction operating income margin jumped to 7.0%, up 90 basis points from 6.1% in the same quarter of 2001, proving that the disciplined approach of our business operating model continues to work. We anticipate our operating margin to continue to expand in the remaining quarters of 2002 assuming no significant change in market conditions."

Construction operating income for the first quarter totaled $63.1 million compared with $49.5 million in the year-earlier quarter, an increase of 27.5%, generated mainly from the combined effects of higher unit volume and improved operating margin. The Company's housing gross margin rose 50 basis points to 20.0% in the three months ended February 28, 2002 from 19.5% in the same period of 2001 while selling, general and administrative expenses as a percentage of housing revenues improved 40 basis points to 13.0% from 13.4% in 2001. Commercial activities and land sales produced nominal profits of $.9 million in the first quarter of 2002 compared to $1.8 million generated in the first quarter of 2001.

The Company's financial structure at February 28, 2002 compared favorably to the year-earlier period as the Company continued to effectively manage its financial leverage while promoting the growth of its business. The Company's ratio of debt to total capital at the end of the first quarter improved 6.9 percentage points to 49.7% in 2002 from 56.6% in 2001. Net of the construction cash balance at February 28, 2002, the ratio of net debt to total capital was 45.0%. At the end of the first quarter of 2002, the Company had nearly $600 million of available borrowing capacity as no amounts were outstanding under its revolving credit facility.

"Our financial position is strong and getting stronger," commented Karatz. "We ended the quarter with nearly $200 million in cash and our leverage ratio remained below 50% while we continued to invest in our business to support future growth. The Company enhanced its financial structure during the quarter as the cost of funds was reduced and the debt maturity was extended by refinancing existing debt with the issuance of $200 million of senior subordinated notes. We also increased our total issuance capacity with our new $750 million shelf registration which was declared effective during the quarter."

The Company's backlog value reached $2.30 billion on 12,598 units at February 28, 2002, compared to a backlog value of $2.22 billion on 12,564 units at February 28, 2001. The Company had approximately two quarters of deliveries in backlog at February 28, 2002, providing excellent visibility for 2002 earnings. During the first quarter, customer traffic to the Company's sales offices increased 7.4% from the same quarter of 2001 while the Company's sales conversion also improved. The Company's overall cancellation rate remained above year-earlier levels in the first quarter, but showed sequential improvement during each month of the quarter. Company-wide net orders of 6,454 for the first quarter were up slightly from 6,409 net orders in the year-earlier quarter on mixed results in the Company's four regions. Year-over-year monthly net order comparisons remained volatile during the quarter, as they had been throughout 2001, with net orders for the month of February 2002 ending on a positive note, up 7.5% from the same month of 2001.

The Conference Call on First Quarter 2002 Earnings will be broadcast live TODAY at 8:00 AM Pacific Standard Time, 11:00 AM Eastern Standard Time. To listen, please go to the Investor Relations section of the Company's Web site at www.kbhome.com.

KB Home is one of America's premier homebuilders with domestic operating divisions in the following regions and states: West Coast -- California; Southwest -- Arizona, Nevada and New Mexico; and Central -- Colorado, Texas and Florida. Kaufman & Broad S.A., the Company's majority-owned subsidiary, is one of the largest homebuilders in France. In fiscal 2001, the Company delivered homes to 24,868 families in the United States and France. It also operates a full-service mortgage company for the convenience of its buyers. Founded in 1957, KB Home is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol "KBH." For more information about any of KB Home's new home communities, call 1-888-KB-HOMES or visit the Company's Web site at www.kbhome.com.

Except for the historical information contained herein, certain matters discussed in this press release are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including any statements concerning future financial performance, business and prospects, and future Company actions and their expected results. These forward-looking statements are subject to risks, uncertainties and assumptions including, but not limited to, the continued impact of terrorist activities and U.S. response, accelerating recessionary trends and other adverse changes in general economic conditions, material prices, labor costs, interest rates, the secondary market for loans, consumer confidence, competition, currency exchange rates (insofar as they affect the Company's operations in France), environmental factors, government regulations affecting the Company's operations, the availability and cost of land in desirable areas, unanticipated violations of Company policy, unanticipated legal proceedings, and conditions in the capital, credit and homebuilding markets. See the Company's Annual Report on Form 10-K and its Annual Report to Shareholders for the year ended November 30, 2001 and its other filings for a further discussion of these and other risks and uncertainties applicable to the Company's business.

                                KB HOME
                   CONSOLIDATED STATEMENTS OF INCOME
         For the Three Months Ended February 28, 2002 and 2001
         (In Thousands, Except Per Share Amounts - Unaudited)
                                             Three Months
                                    --------------------------------
                                          2002              2001
                                    --------------    --------------
Total revenues                      $     915,665     $     821,065
                                    ==============    ==============
Construction:
    Revenues                        $     899,211     $     808,195
    Costs and expenses                   (836,161)         (758,742)
                                    --------------    --------------
    Operating income                       63,050            49,453
    Interest income                         1,699               904
    Interest expense, net of
     amounts capitalized                   (8,599)           (9,835)
    Minority interests                     (1,859)           (5,922)
    Equity in pretax income of
     unconsolidated joint ventures          1,158               470
                                    --------------    --------------
    Construction pretax income             55,449            35,070
                                    --------------    --------------
Mortgage banking:
    Revenues:
       Interest income                      5,478             4,574
       Other                               10,976             8,296
                                    --------------    --------------
                                           16,454            12,870
     Expenses:
       Interest                            (2,992)           (4,296)
       General and administrative          (5,247)           (4,526)
                                    --------------    --------------
     Mortgage banking pretax income         8,215             4,048
                                    --------------    --------------
Total pretax income                        63,664            39,118
Income taxes                              (21,000)          (13,300)
                                    --------------    --------------
Net income                          $      42,664     $      25,818
                                    ==============    ==============
Basic earnings per share            $        1.00     $         .74
                                    ==============    ==============
Diluted earnings per share          $         .95     $         .70
                                    ==============    ==============
Basic average shares outstanding           42,650            34,964
                                    ==============    ==============
Diluted average shares outstanding         44,943            36,892
                                    ==============    ==============
                                KB HOME
                      CONSOLIDATED BALANCE SHEETS
                      (In Thousands - Unaudited)
                                 Feb. 28,      Nov. 30,     Feb. 28,
                                   2002          2001         2001
                              ------------  ------------  ------------
ASSETS
Construction:
  Cash and cash equivalents   $   177,749   $   266,195   $    11,922
  Receivables                     401,190       437,043       338,933
  Inventories                   1,986,669     1,884,761     1,852,879
  Investments in unconsolidated
   joint ventures                   9,392         8,844         9,048
  Deferred income taxes           117,694       118,584        72,224
  Goodwill                        189,700       190,785       197,043
  Other assets                     79,538        77,310        98,847
                              ------------  ------------  ------------
                              $ 2,961,932   $ 2,983,522   $ 2,580,896
                              ------------  ------------  ------------
Mortgage banking:
  Cash and cash equivalents        18,401        15,138        21,156
  Receivables                     444,154       686,403       350,614
  Other assets                      8,762         7,803         8,554
                              ------------  ------------  ------------
                                  471,317       709,344       380,324
                              ------------  ------------  ------------
Total assets                  $ 3,433,249   $ 3,692,866   $ 2,961,220
                              ============  ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction:
  Accounts payable            $   395,503   $   446,279   $   313,210
  Accrued expenses and other
   liabilities                    260,593       351,144       203,598
  Mortgages and notes payable   1,136,975     1,088,615     1,155,117
                              ------------  ------------  ------------
                                1,793,071     1,886,038     1,671,925
                              ------------  ------------  ------------
Mortgage banking:
  Accounts payable and accrued
   expenses                        27,764        33,289        10,640
  Notes payable                   377,184       595,035       303,952
  Collateralized mortgage
   obligations secured by
   mortgage-backed securities      20,329        22,359        28,529
                              ------------  ------------  ------------
                                  425,277       650,683       343,121
                              ------------  ------------  ------------
Minority interests                 64,435        63,664       248,829
Stockholders' equity            1,150,466     1,092,481       697,345
                              ------------  ------------  ------------
Total liabilities and
 stockholders' equity         $ 3,433,249   $ 3,692,866   $ 2,961,220
                              ============  ============  ============
                                KB HOME
                       SUPPLEMENTAL INFORMATION
         For the Three Months Ended February 28, 2002 and 2001
                              (Unaudited)
                                                  Three Months
                                          ---------------------------
Construction Revenues:                         2002           2001
                                          ------------   ------------
    Housing                               $   893,825    $   789,096
    Commercial                                  3,584          9,346
    Land                                        1,802          9,753
                                          ------------   ------------
         Total                            $   899,211    $   808,195
                                          ============   ============
                                                  Three Months
                                          ---------------------------
Costs and Expenses:                            2002           2001
                                          ------------   ------------
    Construction and land costs           $   719,801    $   652,852
    Selling, general and administrative
     expenses                                 116,360        105,890
                                          ------------   ------------
         Total                            $   836,161    $   758,742
                                          ============   ============
                                                  Three Months
                                          ---------------------------
Average Sales Prices:                          2002           2001
                                          ------------   ------------
     West Coast                           $   301,000    $   278,100
     Southwest                                171,500        155,900
     Central                                  145,300        135,500
     France                                   140,800        154,100
                                          ------------   ------------
         Total                            $   177,900    $   174,300
                                          ============   ============
                                                  Three Months
                                          ---------------------------
Net Orders:                                    2002           2001
                                          ------------   ------------
     West Coast                                 1,697          1,176
     Southwest                                  1,512          1,973
     Central                                    2,418          2,531
     France                                       814            664
                                          ------------   ------------
         Total                                  6,441          6,344
                                          ============   ============
      Unconsolidated Joint Ventures:               13             65
                                          ============   ============
                                                   Three Months
                                          ---------------------------
Unit Deliveries:                               2002           2001
                                          ------------   ------------
     West Coast                                   863            981
     Southwest                                  1,246          1,248
     Central                                    2,182          1,746
     France                                       734            553
                                          ------------   ------------
         Total                                  5,025          4,528
                                          ============   ============
      Unconsolidated Joint Ventures:               56             84
                                          ============   ============
                           Feb. 28, 2002            Feb. 28, 2001
                      ------------------------  ---------------------
Backlog Data:           Backlog      Backlog     Backlog    Backlog
                         Units        Value       Units      Value
                      ---------- -------------  --------- -----------
     West Coast          2,477   $    767,836     2,616    $  754,618
     Southwest           2,817        479,822     3,036       460,411
     Central             5,157        746,481     4,795       667,155
     France              2,092        293,776     1,928       297,706
                      ---------- -------------  --------- -----------
         Total          12,543   $  2,287,915    12,375   $ 2,179,890
                      ========== =============  ========= ===========
     Unconsolidated Joint
      Ventures:             55   $     10,780       189   $    37,611
                      ========== =============  ========= ===========


CONTACT: KB Home Clem Teng, Investor Relations, 310/231-4033 cteng@kbhome.com Kate Mulhearn, Media Contact, 310/231-4147 kmulhearn@kbhome.com