LOS ANGELES - KB Home (NYSE: KBH), one of the nation's largest and most recognized homebuilders, today reported results for its third quarter ended August 31, 2012. Highlights and developments include the following:

Three Months Ended August 31, 2012

Revenues increased 16% to $424.5 million, compared to $367.3 million for the third quarter of 2011, reflecting growth in the number of homes delivered and a higher average selling price.

The Company delivered 1,720 homes, up 7% from the year-earlier quarter, with three of the Company's four homebuilding regions posting year-over-year increases.

The overall average selling price of $245,100 rose by $17,700, or 8%, from $227,400 for the year-earlier quarter, marking the ninth consecutive quarter of year-over-year increases, and was up by $12,100, or 5% from $233,000 in the second quarter of 2012.

Compared to the year-earlier quarter, average selling prices increased 14% in the Company's West Coast region, 13% in its Southwest region and 6% in its Southeast region. The average selling price in the Company's Central region was essentially even with the prior year.

The housing gross profit margin improved to 17.5%, up 60 basis points compared to 16.9% in both the third quarter of 2011 and the second quarter of 2012.

The housing gross profit margin for the current quarter reflected an insurance recovery of $16.5 million for previously incurred expenses, including costs associated with drywall material manufactured in China. The Company expects to receive the cash from this insurance recovery in the fourth quarter. In the 2011 third quarter, the housing gross profit margin included $7.4 million of favorable warranty adjustments.

Excluding inventory impairment charges of $6.4 million in the current quarter and inventory impairment and land option contract abandonment charges of $1.2 million in the year-earlier quarter, the third quarter housing gross profit margin improved by 180 basis points to 19.0% in 2012 from 17.2% in 2011.

While the Company delivered more homes, generating higher related revenues and associated selling expenses, its selling, general and administrative expenses of $62.8 million in the current quarter were up only slightly from $60.2 million in the same quarter a year ago. Additionally, the year-earlier quarter included the favorable impact of legal expense recoveries of $8.3 million.

Reflecting the higher revenues, selling, general and administrative expenses as a percentage of housing revenues improved by 160 basis points to 14.9% from 16.5% a year ago, and by 720 basis points from 22.1% in the 2012 second quarter.

The Company's selling, general and administrative expense ratio reached its lowest third-quarter level since 2007.

The Company's homebuilding operating income increased significantly to $10.9 million in the current quarter, up from $1.4 million in the year-earlier quarter.

This marked the Company's first posting of quarterly operating income in 2012.

As a percentage of homebuilding revenues, homebuilding operating income was 2.6%, up 220 basis points from .4% in the third quarter of 2011.

Compared to the second quarter of 2012, the Company's homebuilding operating results as a percentage of homebuilding revenues improved by 780 basis points.

Interest expense totaled $23.1 million, up from $12.3 million in the year-earlier quarter.

Interest expense in the current quarter reflected an $8.3 million loss on the early extinguishment of debt associated with the Company's purchase of certain of its outstanding senior notes pursuant to previously announced cash tender offers.

Net income totaled $3.3 million, up $12.9 million from the net loss of $9.6 million in the year-earlier quarter. The Company's earnings per diluted share of $.04 represented a considerable improvement from the loss per diluted share of $.13 in the year-earlier quarter.

The current quarter results included an income tax benefit of $10.7 million primarily due to the resolution of a federal income tax audit. The Company received the related income tax refund in the fourth quarter.

Nine Months Ended August 31, 2012

Homes delivered increased 9% to 4,160, up from 3,817 in the year-earlier period.

The overall average selling price of $234,100 was up 8% from $217,400 for the corresponding period of 2011.

Revenues totaled $981.9 million, up 17% from $836.0 million for the year-earlier period.

The Company's net loss of $66.7 million, or $.86 per diluted share, improved substantially from the net loss of $192.7 million, or $2.50 per diluted share, for the nine months ended August 31, 2011.

Backlog and Net Orders

Potential future housing revenues in backlog at August 31, 2012 rose substantially to $744.7 million, up 33% from $559.3 million at August 31, 2011, with three of the Company's four homebuilding regions posting year-over-year increases.

The potential future housing revenues in backlog reached the highest third quarter-end level since 2008.

The number of homes in the Company's backlog increased 18% to 3,142 at August 31, 2012 from 2,657 at August 31, 2011.

The overall value of net orders generated in the third quarter of 2012 grew to $493.3 million, up 16% from $426.7 million in the year-earlier quarter.

Three of the Company's four homebuilding regions reported sizable year-over-year increases in net order value, with its West Coast region up 25% to $252.6 million, its Central region up 20% to $135.9 million, and its Southeast region up 10% to $70.2 million.

Net orders increased to 1,900 in the third quarter of 2012, up 3% from the strong net orders of 1,838 in the year-earlier quarter, which had increased 40% from the third quarter of 2010. The year-over-year net order comparison was also tempered by the Company's lower community count, which decreased 13% to 203 at the end of the current quarter from 233 at the end of the third quarter of 2011.

The Company's overall net order growth reflected increases of 13% in each of the Company's West Coast and Central regions, and an increase of 1% in its Southeast region. These increases were partly offset by a decrease of 41% in the Company's Southwest region, which was largely due to the Company's ongoing strategic repositioning of its operations in the region.

The cancellation rate as a percentage of gross orders was 29%, unchanged from the year-earlier quarter and slightly higher than the 26% rate in the 2012 second quarter. As a percentage of beginning backlog, the cancellation rate improved to 26% from 32% in both the third quarter of 2011 and the second quarter of 2012.

Balance Sheet

Cash and cash equivalents and restricted cash totaled $466.5 million at August 31, 2012, including unrestricted cash and cash equivalents of $420.4 million. At May 31, 2012, cash and cash equivalents and restricted cash totaled $377.4 million, including unrestricted cash and cash equivalents of $314.3 million.

Even though the Company invested more in land and land development than in the year-earlier quarter, it generated $14.1 million of positive net cash flow from operating activities, compared to $38.6 million of net cash used in operating activities in the third quarter of 2011. The Company also generated approximately $92 million in cash, net of expenses, from the issuance of new senior notes in the 2012 third quarter.

Inventories at August 31, 2012 were $1.77 billion, up from $1.73 billion at November 30, 2011.

Land and land development spending totaled $337.0 million in the first nine months of 2012. While the Company invested in land and land development in each of its homebuilding regions, the majority of its land-related spending during the period was in California and Texas.

The Company owned or controlled 44,582 lots as of August 31, 2012, an increase of 11% from 40,170 lots owned or controlled at November 30, 2011, and an increase of 21% from 36,771 lots owned or controlled at August 31, 2011.

The Company's debt balance of $1.73 billion at August 31, 2012 increased from $1.58 billion at November 30, 2011.

During the current quarter, the Company issued $350.0 million in aggregate principal amount of 7.5% senior notes due 2022. Net proceeds from the issuance were used to purchase an aggregate principal amount of $244.9 million of the Company's 5 3/4% senior notes due 2014 and 5 7/8% and 6 1/4% senior notes due 2015 that were validly tendered and accepted for purchase pursuant to the Company's previously announced cash tender offers for those series, each of which expired on August 7, 2012. The Company plans to use the remaining net proceeds from the issuance for general corporate purposes.

The Company's next scheduled debt maturity is not until 2014, when the remaining $76.0 million of its 5 3/4% senior notes become due.

Management Comments

"We are pleased to report a profit for the third quarter," said Jeffrey Mezger, president and chief executive officer. "During the quarter, we continued to generate improvement in several key financial and operating metrics. The favorable year-over-year performance in our deliveries; revenues; operating income; net orders; and backlog were particularly encouraging as we operated with fewer communities. These trends illustrate that the strategic repositioning of our operations to restore profitability is starting to yield tangible results, as we also saw significant increases in our overall average selling price and gross profit margin, and substantial improvement in our selling, general and administrative expense ratio. At the same time, it is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise. In particular, we are seeing dramatic improvement in California, where we are the state's largest homebuilder, as the continued strengthening in the coastal markets is now spreading inland to Sacramento, the Central Valley and the Inland Empire."

"One of the impacts of our strategic repositioning has been a declining community count, which has moderated our net order growth," continued Mezger. "Now that we have a clear path to achieve profitability, we are accelerating our investments to expand our business in all four of our operating regions. Although our community count will bottom in the fourth quarter, we expect to reverse this trend in 2013. This improvement, when coupled with one of the highest sales rates per community in the industry, should significantly advance our business. With an improved financial position and enhanced liquidity as a result of the financing transactions completed in the quarter, we believe we are well-positioned to capitalize on opportunities for growth as the housing market recovery progresses."

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.