KB Home Reports 2012 Fourth Quarter and Full Year Results

  KB Home Reports 2012 Fourth Quarter and Full Year Results

       Fourth Quarter Revenues Increase 20%; Earnings Per Share of $.10

Backlog Value Up 35% to $618.6 Million, Reflecting Growth in All Homebuilding
                                   Regions

Business Wire

LOS ANGELES -- December 20, 2012

KB Home (NYSE: KBH), one of the nation’s largest and most recognized
homebuilders, today reported results for its fourth quarter and fiscal year
ended November30, 2012. Highlights and developments include the following:

Three Months Ended November30, 2012

  *Revenues rose 20% to $578.2 million, compared to $479.9 million for the
    fourth quarter of 2011, driven by an increase in the number of homes
    delivered and a higher average selling price.

       *The Company delivered 2,122 homes, up 6% from the year-earlier
         quarter, primarily reflecting growth in the Company’s West Coast and
         Central homebuilding regions.
       *The overall average selling price increased to $270,700, up $32,300
         or 14% from $238,400 in the year-earlier quarter, extending the
         Company’s trend of generating year-over-year improvement to 10
         consecutive quarters. Sequentially, the Company’s overall average
         selling price increased 10% from $245,100 in the third quarter of
         2012, reflecting increases in all of the Company’s homebuilding
         regions.
       *Compared to the year-earlier quarter, average selling prices were
         higher across all of the Company’s homebuilding regions with
         increases of up to 23%.

  *The Company’s homebuilding operating income improved to $15.6 million in
    the current quarter, up significantly from $.8 million posted in the
    year-earlier quarter which included a $6.6 million gain on loan guaranty.
    On a sequential basis, the Company’s homebuilding operating income
    increased by $4.7 million from $10.9 million in the third quarter of 2012.
    Homebuilding operating income for the current quarter increased by $21.2
    million on a sequential basis, excluding a $16.5 million insurance
    recovery that favorably impacted the 2012 third quarter.

       *As a percentage of homebuilding revenues, homebuilding operating
         income was 2.7%, up 250 basis points from .2% in the fourth quarter
         of 2011. The current quarter percentage also improved slightly from
         2.6% in the 2012 third quarter.

            *The housing gross profit margin was 14.2%, compared to 14.7% in
              the year-earlier quarter. Included in the current quarter were
              $5.6 million of inventory impairment and land option contract
              abandonment charges and a $2.6 million charge related to water
              intrusion repairs at certain of the Company’s communities in
              Florida. In 2011, the fourth quarter housing gross profit margin
              included $2.3 million of inventory-related charges.

                 *The fourth quarter housing gross profit margin, excluding
                   inventory impairment and land option contract abandonment
                   charges, improved slightly to 15.2% in 2012 from 15.1% in
                   2011.
                 *The current quarter housing gross profit margin decreased
                   from the third quarter of 2012 largely due to the insurance
                   recovery included in that quarter. Excluding this recovery,
                   the 2012 fourth quarter housing gross profit margin
                   improved from the 2012 third quarter.

            *While delivering more homes and generating higher homebuilding
              revenues, the Company reduced its selling, general and
              administrative expenses by $9.4 million, or 12%, to $66.2
              million in the current quarter from $75.6 million in the same
              quarter a year ago.

                 *Reflecting these results, the Company’s selling, general
                   and administrative expenses as a percentage of housing
                   revenues were 11.5% in the current quarter, improving by
                   440 basis points from a year ago and by 340 basis points
                   from the 2012 third quarter. The current quarter percentage
                   was the lowest it has been since the fourth quarter of
                   2007.

  *Interest expense was $16.0 million, compared to $12.3 million in the
    year-earlier quarter due to the Company’s higher average debt level and
    slightly higher average interest rate, which reflected the issuance of two
    series of senior notes in 2012, the proceeds of which were primarily used
    to repurchase other series of senior notes pursuant to two applicable
    tender offers.
  *The Company’s financial services operations generated pretax income of
    $3.1 million, compared to $22.8 million in the year-earlier quarter. The
    2011 fourth quarter results included a gain of $19.8 million related to
    the wind down of a former unconsolidated mortgage banking joint venture.
  *Net income totaled $7.7 million, or $.10 per diluted share, compared to
    $13.9 million, or $.18 per diluted share, in the year-earlier quarter. The
    year-earlier quarter included the financial services gain and the gain on
    loan guaranty. Excluding the impact of these 2011 fourth quarter gains,
    which totaled $26.4 million, the Company’s 2012 fourth quarter net income
    improved by $20.2 million from the year-earlier quarter.

       *The Company’s fourth quarter net income included income tax benefits
         of $5.3 million in 2012 and $2.5 million in 2011.

Twelve Months Ended November30, 2012

  *Revenues totaled $1.56 billion, up 19% from $1.32 billion for the prior
    year.
  *Homes delivered increased 8% to 6,282, up from 5,812 homes delivered in
    the previous year.
  *The overall average selling price of $246,500 was up 10% from $224,600 in
    2011.
  *The Company’s operating loss of $20.3 million in 2012 improved
    substantially compared to an operating loss of $103.1 million in 2011.
  *The Company’s net loss of $59.0 million, or $.76 per diluted share,
    narrowed by $119.8 million from the net loss of $178.8 million, or $2.32
    per diluted share, for the year ended November 30, 2011.

Backlog and Net Orders

  *Potential future housing revenues in backlog at November30, 2012 rose to
    $618.6 million, up 35% from $459.0 million at November 30, 2011, with each
    of the Company’s four homebuilding regions posting a year-over-year
    increase.

       *The potential future housing revenues in backlog reached the highest
         fourth quarter-end level since 2007.
       *The number of homes in the Company’s backlog increased 20% to 2,577
         at November30, 2012 from 2,156 at November 30, 2011.

  *The overall value of net orders generated in the fourth quarter of 2012
    grew to $459.3 million, up 25% from $368.6 million in the year-earlier
    quarter, which had experienced a sizable increase of 65% from the previous
    year.

       *Three of the Company’s four homebuilding regions reported
         year-over-year increases in net order value with the West Coast
         region up 38% to $259.2 million, the Central region up 13% to $98.7
         million and the Southeast region up 13% to $70.4 million.

  *Net orders totaled 1,557 in the fourth quarter of 2012, up 4% compared to
    1,494 in the year-earlier quarter which had increased 38% from the fourth
    quarter of 2010. The year-over-year net order comparison for 2012 was
    impacted by the Company’s lower community count. The Company had 191 new
    home communities open for sales at the end of the 2012 fourth quarter,
    down 18% from 234 at the end of the 2011 fourth quarter.

       *The year-over-year increase in the Company’s 2012 fourth quarter net
         orders reflected a 26% increase in the Company’s West Coast
         homebuilding region that was mostly offset by decreases in the
         Company’s other regions.
       *Although the Company posted only a modest improvement in overall net
         orders in the 2012 fourth quarter, its average net orders per
         community, which has generally been one of the highest in the
         industry, was 7.9 in the current quarter, up 23% from 6.4 in the
         year-earlier quarter.
       *The fourth quarter cancellation rate as a percentage of gross orders
         was 35% in 2012 and 34% in 2011. As a percentage of beginning
         backlog, the fourth quarter cancellation rate was 26% in 2012 and 29%
         in 2011.

Balance Sheet

  *Cash, cash equivalents and restricted cash totaled $567.1 million at
    November30, 2012, up $87.6 million from $479.5 million at November 30,
    2011.

       *The Company’s unrestricted cash and cash equivalents increased by
         $109.7 million to $524.8 million from $415.1 million at November 30,
         2011.
       *The Company generated $110.4 million of positive net cash flow from
         operating activities in the fourth quarter of 2012, compared to $37.6
         million of net cash used in operating activities in the fourth
         quarter of 2011.
       *For the full year of 2012, the Company generated positive net cash
         flow from operating activities for the first time since 2009.

  *Inventories totaled $1.71 billion at November30, 2012 and $1.73 billion
    at November 30, 2011.

       *Land and land development investments totaled $564.9 million for the
         year ended November 30, 2012. The Company invested in land and land
         development in each of its homebuilding regions, with the majority
         occurring in California and Texas.
       *The Company owned or controlled 44,752 lots at November30, 2012, an
         increase of 11% from 40,170 lots owned or controlled at November 30,
         2011.

  *The Company’s debt balance of $1.72 billion at November30, 2012 increased
    from $1.58 billion at November 30, 2011, reflecting the capital markets
    transactions completed during the year.

       *The Company’s next scheduled debt maturity is in 2014, when the
         remaining $76.0 million of its 5 3/4% senior notes become due.

Management Comments

“Our results for the fourth quarter reflect year-over-year and sequential
improvement in most of our key operational and financial metrics,” said
Jeffrey Mezger, president and chief executive officer. “We increased our
deliveries and generated solid top-line growth, a higher housing gross profit
margin and continued improvement in our selling, general and administrative
expense ratio, all of which translated to higher homebuilding operating
income. In addition to improved execution on our business strategies, we
benefited from better housing market conditions and increased demand for
larger homes with more design options, which drove our average selling prices
higher in all of our regions. Although our fourth quarter community count
decreased from the prior year and impacted our overall net order growth, our
net orders on a per-community basis strengthened. By leveraging the
investments in land and land development we have made and plan to make next
year, we expect to significantly increase the number of new home communities
we have open for sales in 2013.

“Furthermore, we are encouraged by the success of our ‘going on offense’
initiatives and the improvements we are seeing in housing markets across the
country, most notably in California,” continued Mezger. “The tightening supply
of homes available for sale, high housing affordability and favorable mortgage
interest rate environment are driving increased demand and providing us with
more opportunities to generate greater revenues. We anticipate housing demand
will continue to strengthen, particularly as more households facing rising
rental costs consider the benefits of homeownership and emerge from the
sidelines. Although the strength of the economy and pending federal budget
decisions are important considerations that could potentially disrupt the
housing recovery and cause us to shift our current plans, we believe that,
with our higher backlog, more community openings on the horizon, and the
continued improvement we are expecting in our performance as we move ahead, we
are well positioned to be profitable for 2013.”

Earnings Conference Call

The conference call on the fourth quarter 2012 earnings will be broadcast live
TODAY at 8:30 a.m. Pacific Standard Time, 11:30 a.m. Eastern Standard 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, including raising capital through
the public or private issuance of common stock, debt or other securities,
and/or obtaining a credit facility or project financing, on favorable terms;
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;
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; 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 open new communities for
sales and sell higher-priced homes and design options, 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; our home sales and delivery performance in key markets in California
and Texas; 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 Twelve Months and Three Months Ended November30, 2012 and 2011

(In Thousands, Except Per Share Amounts)
                                                  
                   Twelve Months                       Three Months
                   2012            2011              2012          2011
Total revenues     $ 1,560,115      $ 1,315,866      $ 578,201      $ 479,872 
Homebuilding:
Revenues           $ 1,548,432       $ 1,305,562       $ 574,377       $ 475,746
Costs and          (1,568,688  )     (1,408,636  )     (558,815  )     (474,911  )
expenses
Operating          (20,256     )     (103,074    )     15,562          835
income (loss)
Interest           518               871               155             95
income
Interest           (69,804     )     (49,204     )     (15,989   )     (12,302   )
expense
Equity in
income (loss)
of                 (394        )     (55,839     )     (357      )     26        
unconsolidated
joint ventures
Homebuilding       (89,936     )     (207,246    )     (629      )     (11,346   )
pretax loss
Financial
services:
Revenues           11,683            10,304            3,824           4,126
Expenses           (2,991      )     (3,512      )     (754      )     (1,031    )
Equity in
income (loss)
of                 2,191            19,286           (17       )     19,662    
unconsolidated
joint venture
Financial
services           10,883           26,078           3,053          22,757    
pretax income
Total pretax       (79,053     )     (181,168    )     2,424           11,411
income (loss)
Income tax         20,100           2,400            5,300          2,500     
benefit
Net income         $ (58,953   )     $ (178,768  )     $ 7,724        $ 13,911  
(loss)
Basic earnings
(loss) per         $ (.76      )     $ (2.32     )     $ .10          $ .18     
share
Diluted
earnings           $ (.76      )     $ (2.32     )     $ .10          $ .18     
(loss) per
share
Basic average
shares             77,106           77,043           77,103         77,159    
outstanding
Diluted
average shares     77,106           77,043           78,282         77,197    
outstanding
                                                                                 

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands)
                                                             
                                                November 30,      November 30,
                                                2012              2011
Assets
Homebuilding:
Cash and cash equivalents                       $ 524,765         $  415,050
Restricted cash                                 42,362            64,481
Receivables                                     64,821            66,179
Inventories                                     1,706,571         1,731,629
Investments in unconsolidated joint             123,674           127,926
ventures
Other assets                                    95,050           75,104
                                                2,557,243         2,480,369
Financial services                              4,455            32,173
Total assets                                    $ 2,561,698      $  2,512,542
                                                                  
Liabilities and stockholders' equity
Homebuilding:
Accounts payable                                $ 118,544         $  104,414
Accrued expenses and other liabilities          340,345           374,406
Mortgages and notes payable                     1,722,815        1,583,571
                                                2,181,704         2,062,391
Financial services                              3,188             7,494
Stockholders' equity                            376,806          442,657
Total liabilities and stockholders' equity      $ 2,561,698      $  2,512,542
                                                                     

KB HOME

SUPPLEMENTAL INFORMATION

For the Twelve Months and Three Months Ended November30, 2012 and 2011

(In Thousands)
                                                  
                   Twelve Months                       Three Months
                   2012            2011              2012          2011
Homebuilding
revenues:
Housing            $ 1,548,432       $ 1,305,299       $ 574,377       $ 475,636
Land               —                263              —              110       
Total              $ 1,548,432      $ 1,305,562      $ 574,377      $ 475,746 
                                                                       
                   Twelve Months                       Three Months
                   2012              2011              2012            2011
Costs and
expenses:
Construction
and land costs
Housing            $ 1,317,529       $ 1,129,785       $ 492,594       $ 405,899
Land               —                200              —              1         
Subtotal           1,317,529         1,129,985         492,594         405,900
Selling,
general and        251,159           247,886           66,221          75,576
administrative
expenses
Loss (gain) on     —                30,765           —              (6,565    )
loan guaranty
Total              $ 1,568,688      $ 1,408,636      $ 558,815      $ 474,911 
                                                                       
                   Twelve Months                       Three Months
                   2012              2011              2012            2011
Interest
expense:
Interest           $ 122,379         $ 115,649         $ 33,105        $ 27,548
incurred
Loss (gain) on
early              10,278            (3,612      )     —               —
extinguishment
of debt
Interest           (62,853     )     (62,833     )     (17,116   )     (15,246   )
capitalized
Total              $ 69,804         $ 49,204         $ 15,989       $ 12,302  
                                                                       
                   Twelve Months                       Three Months
                   2012              2011              2012            2011
Other
information:
Depreciation
and                $ 4,638           $ 4,181           $ 1,341         $ 885
amortization
Amortization
of previously      78,630           79,338           29,721         26,592    
capitalized
interest
                                                                                 

KB HOME

SUPPLEMENTAL INFORMATION

For the Twelve Months and Three Months Ended November30, 2012 and 2011
                                                
                 Twelve Months                       Three Months
                 2012            2011              2012          2011
Average
sales price:
West Coast       $  388,300        $  335,500        $ 405,400       $ 358,300
Southwest        193,900           165,800           219,500         179,100
Central          170,100           171,500           179,500         173,100
Southeast        206,200          195,500          219,900        192,900
Total            $  246,500       $  224,600       $ 270,700      $ 238,400
                                                                     
                 Twelve Months                       Three Months
                 2012              2011              2012            2011
Homes
delivered:
West Coast       1,945             1,757             765             656
Southwest        683               843               170             270
Central          2,566             2,155             843             706
Southeast        1,088            1,057            344            363
Total            6,282            5,812            2,122          1,995
                                                                     
                 Twelve Months                       Three Months
                 2012              2011              2012            2011
Net orders:
West Coast       2,166             2,017             619             490
Southwest        663               907               140             172
Central          2,697             2,480             485             517
Southeast        1,177            1,228            313            315
Total            6,703            6,632            1,557          1,494
                                                                     
                 November 30, 2012                   November 30, 2011
                 Backlog Homes     Backlog Value     Backlog         Backlog
                                                     Homes           Value
Backlog data
(dollars in
thousands):
West Coast       684               $  248,790        463             $ 161,987
Southwest        183               40,206            203             37,071
Central          1,149             204,473           1,018           168,512
Southeast        561              125,157          472            91,380
Total            2,577            $  618,626       2,156          $ 458,950
                                                                       

                                   KB HOME
                RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
   For the Twelve Months and Three Months Ended November30, 2012 and 2011
                      (In Thousands, Except Percentages)

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:

               Twelve Months                     Three Months
                 2012            2011              2012          2011
Housing          $ 1,548,432       $ 1,305,299       $ 574,377       $ 475,636
revenues
Housing
construction     (1,317,529  )     (1,129,785  )     (492,594  )     (405,899  )
and land
costs
Housing
gross            230,903           175,514           81,783          69,737
profits
Add:
Inventory
impairment
and land         28,533           25,740           5,621          2,284     
option
contract
abandonment
charges
Housing
gross
profits,
excluding
inventory
impairment       $ 259,436        $ 201,254        $ 87,404       $ 72,021  
and land
option
contract
abandonment
charges
Housing
gross profit
margin as a      14.9        %     13.4        %     14.2      %     14.7      %
percentage
of housing
revenues
Housing
gross profit
margin,
excluding
inventory
impairment
and land         16.8        %     15.4        %     15.2      %     15.1      %
option
contract
abandonment
charges, as
a percentage
of housing
revenues
                                                                               

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.

Contact:

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