Exhibit 99.1
FOR RELEASE, Wednesday, June 29, 2011
|
For Further Information Contact: | |
5:00 a.m. Pacific Daylight Time
|
Katoiya Marshall, Investor Relations Contact | |
| (310) 893-7446 or kmarshall@kbhome.com | ||
| Craig LeMessurier, Media Contact | ||
| (925) 580-1583 or clemessurier@kbhome.com |
KB HOME REPORTS SECOND QUARTER 2011 FINANCIAL RESULTS
LOS ANGELES (June 29, 2011) — KB Home (NYSE: KBH), one of America’s premier homebuilders,
today reported results for its second quarter ended May 31, 2011. Highlights and developments
include the following:
| • | Revenues totaled $271.7 million in the second quarter of 2011, down 27% from $374.1 million
in the second quarter of 2010. The decrease was mainly due to lower housing revenues,
reflecting a 29% year-over-year decrease in the number of homes delivered to 1,265, partly
offset by a 3% year-over-year increase in the average selling price to $213,400. |
| • | The Company reported a net loss of $68.5 million, or $.89 per diluted share, for the
quarter ended May 31, 2011, compared to a net loss of $30.7 million, or $.40 per diluted
share, for the same period in 2010. The 2011 second quarter net loss included noncash charges
for inventory impairments and land option contract abandonments of $20.6 million, and a loss
on loan guaranty of $14.6 million related to the Company’s South Edge, LLC residential
development joint venture. There were no such items in the second quarter of 2010. |
| • | At the end of the 2011 second quarter, the Company had $735.3 million of cash, cash
equivalents and restricted cash, of which $621.3 million was unrestricted. The Company’s debt
balance at May 31, 2011 was $1.69 billion, down $83.9 million from $1.78 billion at November
30, 2010 due to the repayment of secured debt. |
| • | Company-wide net orders decreased 11% to 1,998 in the second quarter of 2011 from 2,244
in the corresponding period of 2010. Second quarter net orders increased 53% from the first
quarter of 2011. This compared favorably to a 17% sequential increase in net orders from the
first to the second quarter of 2010. At May 31, 2011, the Company had 2,422 homes in backlog,
representing projected
|
future housing revenues of approximately
$501.5 million, compared to a backlog of 3,175 homes,
representing projected future housing revenues of approximately
$648.2 million at May 31, 2010.
|
| • | In June, the U.S. Environmental Protection Agency presented KB Home with a company-record
12 of the agency’s annual ENERGY STAR® Leadership in Housing awards. The awards are given to
homebuilders in recognition of their contributions to energy-efficiency and environmental
protection in the construction of new homes. The Company received awards for the homes it
built last year in Arizona, California, Colorado, Florida, Nevada, North Carolina, South
Carolina and Texas. KB Home currently builds ENERGY STAR qualified homes in all of its
markets. |
| • | The Company entered into a marketing services agreement with MetLife Home Loans, a division
of MetLife Bank, N.A., under which MetLife Home Loans became KB Home’s preferred mortgage
lender effective June 27, 2011. Under the agreement, MetLife Home Loans will offer a wide
array of financing options and mortgage loan products to the Company’s homebuyers at all of
the Company’s communities nationwide. MetLife Home Loans recently ranked #2 in overall
customer satisfaction and #1 in loan officer performance in a J.D. Power and Associates study
of 14 mortgage originators. |
“Although a broad-based housing recovery remains stalled, it appears that the worst of the
crisis is behind the homebuilding industry as select markets for new homes are showing signs of
stability,” said Jeffrey Mezger, president and chief executive officer. “Uncertainty and caution
about the economy are keeping many qualified homebuyers from entering the market, even though
historically high housing affordability makes this a good time to buy. We believe the current
housing market conditions will likely continue until there are meaningful and sustained
improvements in job growth and consumer confidence.”
“Amid the backdrop of a stagnant housing market, we continue to differentiate KB Home from
other homebuilders and resale homes, particularly through our commitment to our energy efficiency
initiatives,” said Mezger. “With these initiatives and other operational actions, and with
indications of improving conditions in a number of our markets, we believe we are well-positioned
to capitalize on attractive opportunities for growth in the years ahead. While our year-over-year
second quarter net orders were significantly affected by the federal homebuyer tax credit that
expired in April 2010, which pulled demand forward to last year’s second quarter, we expect to
generate favorable year-over-year net order comparisons in the second half of 2011. We also expect
the sequential increases in our deliveries and revenues for the remaining quarters of this year to
improve our operating leverage, bring our financial metrics into better balance, and drive stronger
bottom line results compared to the first two quarters of the year.”
Total revenues of $271.7 million for the quarter ended May 31, 2011 decreased 27% from the
year-earlier quarter, primarily reflecting a 29% decrease in the number of homes delivered, partly
offset by a 3% increase in the average selling price. The Company delivered 1,265 homes at an
average selling price of $213,400 in the 2011 second quarter, compared to 1,782 homes delivered at
an average selling price of $207,900 in the year-earlier quarter. The Company generated no land
sale revenues in the second quarter of 2011 and $2.1 million of land sale revenues in the second
quarter of 2010.
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The Company’s homebuilding business posted operating losses of $57.5 million for the quarter
ended May 31, 2011 and $17.3 million for the quarter ended May 31, 2010. The loss expanded by $40.2
million year over year, primarily due to noncash inventory impairment and land option contract
abandonment charges of $20.6 million and the loss on loan guaranty of $14.6 million recorded in the
2011 second quarter. There were no such items in the year-earlier quarter. The loss on loan
guaranty reflected the Company’s updated estimate of its probable obligation under a limited
several repayment guaranty it provided to the administrative agent for the lenders to South Edge,
LLC. The revision was based on the terms of a related consensual agreement among the Company, the
administrative agent, several of the lenders, and certain of the other members of South Edge, LLC
and their respective parent companies regarding a consensual plan of reorganization for South Edge,
LLC. The agreement became effective on June 10, 2011.
Excluding the inventory impairment and land option contract abandonment charges and the loss
on loan guaranty, the Company’s 2011 second quarter homebuilding operating loss was $22.3 million.
The current quarter operating loss also reflected reduced gross profits compared to the
year-earlier quarter, partly offset by lower selling, general and administrative expenses. The
reduction in gross profits for the current quarter resulted from fewer homes delivered and a lower
housing gross margin. The Company’s second quarter housing gross margin decreased to 7.3% in 2011
from 17.7% in 2010, partly due to the inventory impairment and land option contract abandonment
charges recorded in the 2011 period. Excluding these charges, the housing gross margin of 14.9% in
the current quarter declined from the year-earlier quarter, driven by reduced leverage from the
lower volume of homes delivered, competitive pricing pressure in certain markets and a shift in
product mix. However, compared to the 2011 first quarter, this quarter’s housing gross margin
improved sequentially by 150 basis points.
Selling, general and administrative expenses decreased by $20.5 million, or 25%, to $62.5
million in the second quarter of 2011 from $83.0 million in the year-earlier period. The decrease
reflected the Company’s continuing actions to streamline its organizational structure and reduce
overhead, a drop in legal expenses, and the lower volume of homes delivered. As a percentage of
housing revenues, the Company’s selling, general and administrative expenses increased slightly to
23.2% in the second quarter of 2011 from 22.4% in the year-earlier quarter as a result of the
substantial year-over-year decrease in housing revenues. On a sequential basis, this ratio
improved by 220 basis points in the second quarter of 2011 from 25.4% in the first quarter of 2011.
Interest expense, net of amounts capitalized, decreased to $13.1 million in the second quarter
of 2011 from $16.5 million in the year-earlier quarter, mainly reflecting an increase in the amount
of interest capitalized due to a higher balance of inventory qualifying for interest
capitalization.
The Company’s financial services operations, which included the Company’s equity interest in an
unconsolidated mortgage banking joint venture, generated pretax income of $1.6 million in the
current quarter and $4.2 million in the year-earlier quarter. The equity in income of the
unconsolidated mortgage banking joint venture declined to $.7 million in the second quarter of 2011
from $3.6 million in the year-earlier quarter, primarily due to decreases in mortgage loan
originations and profits per loan. The Company entered into a marketing services agreement with
MetLife Home Loans, a division of MetLife Bank, N.A., under which MetLife Home Loans became KB
Home’s preferred mortgage lender effective June 27, 2011. Under the agreement, MetLife Home Loans
will offer a wide array of financing options and mortgage loan products to the Company’s homebuyers at
all of the Company’s
3
communities nationwide. Also effective June 27, 2011, the Company’s unconsolidated mortgage
banking joint venture with a subsidiary of Bank of America, N.A. ceased accepting loan
applications. Bank of America, N.A. will continue to process and close residential consumer
mortgage loans that the unconsolidated mortgage banking joint venture originated for the Company’s
homebuyers on or before June 26, 2011.
The Company’s total pretax loss for the second quarter of 2011 was $68.8 million, including
noncash charges of $20.6 million for inventory impairments and land option contract abandonments
and a $14.6 million loss on loan guaranty. There were no such items in the second quarter of 2010.
Excluding the charges and the loss on loan guaranty, the Company’s pretax loss was $33.6 million
for the quarter ended May 31, 2011, compared to a pretax loss of $30.6 million for the year-earlier
quarter.
The Company posted a net loss of $68.5 million, or $.89 per diluted share, in the second
quarter of 2011, including an after-tax charge of $25.7 million to record a valuation allowance
against the net deferred tax assets generated from the quarter’s loss. In the second quarter of
2010, the Company generated a net loss of $30.7 million, or $.40 per diluted share, including a
similar after-tax charge of $12.8 million.
Net orders in the second quarter of 2011 were 1,998, down 11% from 2,244 in the year-earlier
period. This year-over-year comparison was heavily affected by the April 30, 2010 expiration of
the federal tax credit for first-time homebuyers, which significantly elevated the Company’s net
order volume in the second quarter of 2010. Notwithstanding the impact of the tax credit, the
year-over-year second quarter comparison showed substantial improvement from the 32% year-over-year
decrease in net orders reported in the first quarter of 2011. The cancellation rate as a percentage
of gross orders was 25% in the second quarter of 2011 and 24% in the year-earlier quarter. The
Company’s backlog at the end of the 2011 second quarter totaled 2,422 homes, a 24% decrease from
3,175 homes at the end of the second quarter of 2010. At May 31, 2011, projected future housing
revenues from homes in backlog totaled approximately $501.5 million, a 23% decrease from projected
future housing revenues of approximately $648.2 million at May 31, 2010, reflecting the lower
number of homes in backlog.
For the six months ended May 31, 2011, Company-wide revenues totaled $468.7 million, down 27%
from $638.0 million for the year-earlier period. The decrease was mainly due to lower housing
revenues. The number of homes delivered in the first six months of fiscal 2011 decreased 29% year
over year to 2,214, while the average selling price increased 3% year over year to $210,100. The
Company posted a net loss of $183.0 million, or $2.38 per diluted share, for the six months ended
May 31, 2011, including noncash charges of $76.1 million for inventory and joint venture
impairments and land option contract abandonments, a $37.3 million loss on loan guaranty, and an
after-tax charge of $70.8 million to record a valuation allowance against net deferred tax assets.
In the six months ended May 31, 2010, the Company generated a net loss of $85.4 million, or $1.11
per diluted share, including noncash charges of $13.4 million for inventory impairments and land
option contract abandonments, and a $34.0 million after-tax charge to record a valuation allowance
against net deferred tax assets.
The Conference Call on the Second Quarter 2011 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.
KB Home, one of the nation’s premier homebuilders, has delivered over half a million quality homes
for families since its founding in 1957. The Los Angeles-based company is distinguished by its
Built to Order™ homebuilding approach that puts a custom home experience within reach of its
customers at an affordable price. KB Home has been named the #1 Green Homebuilder in a study by
Calvert Investments and the #1 Homebuilder on FORTUNE magazine’s 2011 World’s Most
Admired Companies list. The Company trades under the ticker symbol “KBH” and was the first
homebuilder listed on the
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New York Stock Exchange. For more information about any of KB Home’s new home communities, call
888-KB-HOMES or visit www.kbhome.com.
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; 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;
the availability and cost of land in desirable areas; legal or regulatory proceedings or claims,
including an involuntary bankruptcy and other legal proceedings involving the South Edge, LLC
residential development joint venture located in Las Vegas, Nevada in which we are a participant;
the confirmation by the bankruptcy court of a consensual plan of reorganization for South Edge, LLC
and the implementation of such a plan in accordance with the consensual agreement effective June
10, 2011 among the Company, the administrative agent for the lenders to South Edge, LLC, several of
those lenders, and certain of the other members of South Edge, LLC and their respective parent
companies; the ability and/or willingness of participants in our unconsolidated joint ventures to
fulfill their obligations; our ability to access capital; our ability to use 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 and open new communities), revenue growth and cost reduction strategies;
consumer traffic to our new home communities and consumer interest in our product designs,
including The Open SeriesTM; impact of our unconsolidated mortgage banking joint venture
with a subsidiary of Bank of America, N.A. ceasing to accept loan
applications effective June 27, 2011; the manner in which residential
consumer mortgage loans and mortgage banking services are offered to our homebuyers; 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.
# # #
(Tables Follow)
# # #
(Tables Follow)
# # #
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KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months and Three Months Ended May 31, 2011 and 2010
(In Thousands, Except Per Share Amounts — Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months and Three Months Ended May 31, 2011 and 2010
(In Thousands, Except Per Share Amounts — Unaudited)
| Six Months | Three Months | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Total revenues |
$ | 468,678 | $ | 638,030 | $ | 271,738 | $ | 374,052 | ||||||||
Homebuilding: |
||||||||||||||||
Revenues |
$ | 465,284 | $ | 635,025 | $ | 269,983 | $ | 372,514 | ||||||||
Costs and expenses |
(570,632 | ) | (688,576 | ) | (327,473 | ) | (389,833 | ) | ||||||||
Operating loss |
(105,348 | ) | (53,551 | ) | (57,490 | ) | (17,319 | ) | ||||||||
Interest income |
653 | 1,025 | 270 | 601 | ||||||||||||
Interest expense |
(24,560 | ) | (35,925 | ) | (13,121 | ) | (16,518 | ) | ||||||||
Equity in loss of unconsolidated joint ventures |
(55,929 | ) | (2,732 | ) | (92 | ) | (1,548 | ) | ||||||||
Homebuilding pretax loss |
(185,184 | ) | (91,183 | ) | (70,433 | ) | (34,784 | ) | ||||||||
Financial services: |
||||||||||||||||
Revenues |
3,394 | 3,005 | 1,755 | 1,538 | ||||||||||||
Expenses |
(1,652 | ) | (1,885 | ) | (787 | ) | (992 | ) | ||||||||
Equity in income of unconsolidated joint
venture |
512 | 4,950 | 661 | 3,629 | ||||||||||||
Financial services pretax income |
2,254 | 6,070 | 1,629 | 4,175 | ||||||||||||
Total pretax loss |
(182,930 | ) | (85,113 | ) | (68,804 | ) | (30,609 | ) | ||||||||
Income tax benefit (expense) |
(100 | ) | (300 | ) | 300 | (100 | ) | |||||||||
Net loss |
$ | (183,030 | ) | $ | (85,413 | ) | $ | (68,504 | ) | $ | (30,709 | ) | ||||
Basic and diluted loss per share |
$ | (2.38 | ) | $ | (1.11 | ) | $ | (.89 | ) | $ | (.40 | ) | ||||
Basic and diluted average shares outstanding |
76,983 | 76,844 | 76,991 | 76,854 | ||||||||||||
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KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands — Unaudited)
CONSOLIDATED BALANCE SHEETS
(In Thousands — Unaudited)
| May 31, | November 30, | |||||||
| 2011 | 2010 | |||||||
Assets |
||||||||
Homebuilding: |
||||||||
Cash and cash equivalents |
$ | 621,304 | $ | 904,401 | ||||
Restricted cash |
113,963 | 115,477 | ||||||
Receivables |
70,353 | 108,048 | ||||||
Inventories |
1,894,981 | 1,696,721 | ||||||
Investments in unconsolidated joint ventures |
51,136 | 105,583 | ||||||
Other assets |
83,551 | 150,076 | ||||||
| 2,835,288 | 3,080,306 | |||||||
Financial services |
25,060 | 29,443 | ||||||
Total assets |
$ | 2,860,348 | $ | 3,109,749 | ||||
Liabilities and stockholders’ equity |
||||||||
Homebuilding: |
||||||||
Accounts payable |
$ | 127,576 | $ | 233,217 | ||||
Accrued expenses and other liabilities |
594,385 | 466,505 | ||||||
Mortgages and notes payable |
1,691,659 | 1,775,529 | ||||||
| 2,413,620 | 2,475,251 | |||||||
Financial services |
3,276 | 2,620 | ||||||
Stockholders’ equity |
443,452 | 631,878 | ||||||
Total liabilities and stockholders’ equity |
$ | 2,860,348 | $ | 3,109,749 | ||||
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KB HOME
SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended May 31, 2011 and 2010
(In Thousands — Unaudited)
SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended May 31, 2011 and 2010
(In Thousands — Unaudited)
| Six Months | Three Months | |||||||||||||||
| Homebuilding revenues: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Housing |
$ | 465,206 | $ | 632,579 | $ | 269,983 | $ | 370,421 | ||||||||
Land |
78 | 2,446 | — | 2,093 | ||||||||||||
Total |
$ | 465,284 | $ | 635,025 | $ | 269,983 | $ | 372,514 | ||||||||
| Six Months | Three Months | |||||||||||||||
| Costs and expenses: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Construction and land costs |
||||||||||||||||
Housing |
$ | 421,052 | $ | 530,950 | $ | 250,381 | $ | 304,756 | ||||||||
Land |
125 | 2,433 | — | 2,087 | ||||||||||||
Subtotal |
421,177 | 533,383 | 250,381 | 306,843 | ||||||||||||
Selling, general and
administrative expenses |
112,125 | 155,193 | 62,520 | 82,990 | ||||||||||||
Loss on loan guaranty |
37,330 | — | 14,572 | — | ||||||||||||
Total |
$ | 570,632 | $ | 688,576 | $ | 327,473 | $ | 389,833 | ||||||||
| Six Months | Three Months | |||||||||||||||
| Interest expense: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Interest incurred |
$ | 59,011 | $ | 60,104 | $ | 29,462 | $ | 29,419 | ||||||||
(Gain) on early extinguishment of
debt/loss on
voluntary termination of credit facility |
(3,612 | ) | 1,802 | — | 436 | |||||||||||
Interest capitalized |
(30,839 | ) | (25,981 | ) | (16,341 | ) | (13,337 | ) | ||||||||
Total |
$ | 24,560 | $ | 35,925 | $ | 13,121 | $ | 16,518 | ||||||||
| Six Months | Three Months | |||||||||||||||
| Other information: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Depreciation and amortization |
$ | 2,268 | $ | 2,845 | $ | 1,120 | $ | 1,423 | ||||||||
Amortization of previously
capitalized interest |
31,013 | 51,769 | 19,589 | 28,383 | ||||||||||||
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KB HOME
SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended May 31, 2011 and 2010
(Unaudited)
SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended May 31, 2011 and 2010
(Unaudited)
| Six Months | Three Months | |||||||||||||||
| Average sales price: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
$ | 310,100 | $ | 323,900 | $ | 303,500 | $ | 327,300 | ||||||||
Southwest |
152,300 | 159,100 | 156,500 | 160,600 | ||||||||||||
Central |
172,700 | 161,500 | 177,300 | 166,700 | ||||||||||||
Southeast |
195,700 | 154,300 | 196,900 | 154,000 | ||||||||||||
Total |
$ | 210,100 | $ | 203,500 | $ | 213,400 | $ | 207,900 | ||||||||
| Six Months | Three Months | |||||||||||||||
| Homes delivered: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
577 | 840 | 353 | 500 | ||||||||||||
Southwest |
341 | 575 | 183 | 359 | ||||||||||||
Central |
838 | 1,079 | 475 | 550 | ||||||||||||
Southeast |
458 | 614 | 254 | 373 | ||||||||||||
Total |
2,214 | 3,108 | 1,265 | 1,782 | ||||||||||||
Unconsolidated joint ventures |
1 | 55 | — | 34 | ||||||||||||
| Six Months | Three Months | |||||||||||||||
| Net orders: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
946 | 1,037 | 542 | 608 | ||||||||||||
Southwest |
476 | 664 | 270 | 351 | ||||||||||||
Central |
1,286 | 1,511 | 838 | 796 | ||||||||||||
Southeast |
592 | 945 | 348 | 489 | ||||||||||||
Total |
3,300 | 4,157 | 1,998 | 2,244 | ||||||||||||
Unconsolidated joint ventures |
— | 46 | — | 27 | ||||||||||||
| Backlog data: | May 31, 2011 | May 31, 2010 | ||||||||||||||
| (Dollars in thousands) | Backlog Homes | Backlog Value | Backlog Homes | Backlog Value | ||||||||||||
West Coast |
572 | $ | 172,147 | 720 | $ | 241,383 | ||||||||||
Southwest |
274 | 43,572 | 371 | 60,278 | ||||||||||||
Central |
1,141 | 199,350 | 1,351 | 224,212 | ||||||||||||
Southeast |
435 | 86,475 | 733 | 122,365 | ||||||||||||
Total |
2,422 | $ | 501,544 | 3,175 | $ | 648,238 | ||||||||||
Unconsolidated joint
ventures |
— | $ | — | 28 | $ | 11,760 | ||||||||||
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KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Six Months and Three Months Ended May 31, 2011 and 2010
(In Thousands, Except Percentages — Unaudited)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Six Months and Three Months Ended May 31, 2011 and 2010
(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 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 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 Margin, Excluding Inventory Impairment and Land Option Contract Abandonment
Charges
The following table reconciles the Company’s housing gross margin calculated in accordance with
GAAP to the non-GAAP financial measure of the Company’s housing gross margin, excluding inventory
impairment and land option contract abandonment charges:
| Six Months | Three Months | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Housing revenues |
$ | 465,206 | $ | 632,579 | $ | 269,983 | $ | 370,421 | ||||||||
Housing construction and land costs |
(421,052 | ) | (530,950 | ) | (250,381 | ) | (304,756 | ) | ||||||||
Housing gross margin |
44,154 | 101,629 | 19,602 | 65,665 | ||||||||||||
Add: Inventory impairment and land option contract abandonment
charges |
22,294 | 13,362 | 20,591 | — | ||||||||||||
Housing gross margin, excluding inventory impairment
and land option contract abandonment charges |
$ | 66,448 | $ | 114,991 | $ | 40,193 | $ | 65,665 | ||||||||
Housing gross margin as a percentage of housing revenues |
9.5 | % | 16.1 | % | 7.3 | % | 17.7 | % | ||||||||
Housing gross margin, excluding inventory impairment and land option
contract abandonment charges, as a percentage of housing revenues |
14.3 | % | 18.2 | % | 14.9 | % | 17.7 | % | ||||||||
Housing gross 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 pretax, noncash 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 margin.
The Company believes housing gross 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 profit the Company generated specifically on the
homes delivered during a given period and enhances the comparability of housing gross margins
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 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.
10
KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages — Unaudited)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages — Unaudited)
Ratio of Net Debt to Total Capital
Company management’s discussion of the results presented in this press release may include the
Company’s ratio of net debt to total capital, which is not calculated in accordance with GAAP. The
Company believes this non-GAAP financial measure can be relevant and useful to investors in
understanding the leverage employed in 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 Company’s ratio of net debt to total capital 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. The
following table reconciles the Company’s ratio of debt to total capital calculated in accordance
with GAAP to the non-GAAP financial measure of the ratio of net debt to total capital:
| May 31, | November 30, | |||||||
| 2011 | 2010 | |||||||
Mortgages and notes payable |
$ | 1,691,659 | $ | 1,775,529 | ||||
Stockholders’ equity |
443,452 | 631,878 | ||||||
Total capital |
$ | 2,135,111 | $ | 2,407,407 | ||||
Ratio of debt to total capital |
79.2 | % | 73.8 | % | ||||
Mortgages and notes payable |
$ | 1,691,659 | $ | 1,775,529 | ||||
Less: Cash and cash equivalents and
restricted cash |
(735,267 | ) | (1,019,878 | ) | ||||
Net debt |
956,392 | 755,651 | ||||||
Stockholders’ equity |
443,452 | 631,878 | ||||||
Total capital |
$ | 1,399,844 | $ | 1,387,529 | ||||
Ratio of net debt to total capital |
68.3 | % | 54.5 | % | ||||
The ratio of net debt to total capital is a non-GAAP financial measure, which the Company
calculates by dividing mortgages and notes payable, net of homebuilding cash and cash equivalents
and restricted cash, by total capital (mortgages and notes payable, net of homebuilding cash and
cash equivalents and restricted cash, plus stockholders’ equity). The most directly comparable GAAP
measure is the ratio of debt to total capital. The Company believes the ratio of net debt to total
capital is a relevant and useful financial measure to investors in understanding the leverage
employed in its operations and as an indicator of the Company’s ability to obtain external
financing.
11