LOS ANGELES- KB Home (NYSE: KBH), one of America's premier homebuilders, today reported results for its first quarter ended February 29, 2012. Highlights and developments include the following:

Three Months Ended February 29, 2012

• Revenues for the quarter totaled $254.6 million, up 29% from $196.9 million for the first quarter of 2011, reflecting higher deliveries and an increase in the average selling price.

◦ Homes delivered increased 21% to 1,150, up from 949 homes delivered in the year-earlier quarter. Three of the Company's four regions produced higher deliveries.

◦ The average selling price rose 6% to $219,000 from $205,700 for the year-earlier quarter, reflecting increases in the Company's West Coast and Southwest regions that were partly offset by decreases in its Central and Southeast regions.

• Housing gross margin was 9.7% for the first quarter of 2012, compared to 12.6% for the first quarter of 2011.

◦ Excluding noncash inventory impairment charges of $6.6 million in the current quarter and inventory impairment and land option contract abandonment charges of $1.7 million in the year-earlier quarter, the first quarter housing gross margin was 12.3% in 2012 and 13.4% in 2011.

• Selling, general and administrative expenses totaled $55.7 million for the current quarter, compared to $49.6 million for the first quarter of 2011.

◦ Selling, general and administrative expenses as a percentage of housing revenues improved to 22.1% from 25.4% in the year-earlier quarter.

• The homebuilding operating loss totaled $31.1 million in the first quarter and $47.9 million in the year-earlier quarter.

◦ The homebuilding operating loss as a percentage of homebuilding revenues was 12.4%, compared to 24.5% in the first quarter of 2011.

• Interest expense of $16.3 million for the quarter included a $2.0 million loss on the early extinguishment of debt. In the year-earlier quarter, interest expense of $11.4 million included a $3.6 million gain on the early extinguishment of debt.

• The Company's pretax loss of $45.4 million for the quarter included noncash inventory impairment charges of $6.6 million. For the 2011 first quarter, the Company's pretax loss of $114.1 million included noncash inventory-related charges of $1.8 million, and a joint venture impairment charge of $53.7 million and a loss on loan guaranty of $22.8 million, both related to the Company's former investment in the South Edge, LLC joint venture.

◦ Excluding these charges and the losses/gains associated with the early extinguishment of debt, the Company's pretax loss was $36.8 million, compared to $39.4 million in the 2011 first quarter.

• The current quarter net loss of $45.8 million, or $.59 per diluted share, narrowed significantly from the net loss of $114.5 million, or $1.49 per diluted share, in the year-earlier quarter.

Net Orders and Backlog

• Net orders totaled 1,197 in the first quarter of 2012, down 8% from 1,302 net orders in the year-earlier quarter, as a 22% increase in the Company's Central region was more than offset by decreases in each of the Company's three other regions.

◦ Though gross orders were up 3%, an increase in the cancellation rate to 36% from 29% in the year-earlier quarter led to the year-over-year decrease in net orders.

• The Company had a backlog of 2,203 homes, representing potential future housing revenues of $460.0 million, as of February 29, 2012, compared to a backlog of 1,689 homes, representing potential future housing revenues of $353.6 million, as of February 28, 2011.

◦ Backlog homes and value at February 29, 2012 each increased 30% year over year.

◦ Each of the Company's four regions posted year-over-year increases in backlog value at the end of the 2012 first quarter.

Balance Sheet

• Total cash and cash equivalents of $368.1 million at February 29, 2012 included unrestricted cash of $304.2 million.

◦ Cash used by operating activities improved by $55.3 million to $109.6 million in the 2012 first quarter from $164.9 million in the year-earlier quarter.

• Inventories of $1.75 billion at February 29, 2012 were roughly flat with $1.73 billion at November 30, 2011.

◦ Land and land development spending totaled $112.6 million in the 2012 first quarter, compared to $139.9 million in the year-earlier quarter. The majority of the Company's investments in land and land development for both periods were made in its West Coast region.

◦ The Company owned and controlled 43,135 lots as of February 29, 2012, an increase of 7% from 40,170 lots owned and controlled at November 30, 2011. Of the Company's total lots owned and controlled, 76% were owned as of February 29, 2012 and 82% were owned as of November 30, 2011.

• The Company's debt balance of $1.59 billion at February 29, 2012 was nearly unchanged from $1.58 billion at November 30, 2011.

◦ During the quarter, the Company issued $350.0 million in aggregate principal amount of 8.00% senior notes due 2020. Net proceeds from the issuance were used to purchase an aggregate principal amount of $340.0 million of the Company's 5¾% Senior Notes due 2014, and its 5⅞% and 6¼% 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 February 15, 2012.

Financial Services

• The Company recently announced that it has entered into an agreement with Nationstar Mortgage under which Nationstar Mortgage will become the Company's preferred mortgage lender. Nationstar Mortgage, headquartered in Lewisville, Texas, is one of the nation's leading mortgage services providers, and a lender offering FHA, VA, USDA, conventional conforming and nonconforming products directly to customers. It is currently one of the largest non-bank mortgage servicers in the country, with a portfolio of approximately $107 billion representing 645,000 customers.

Management Comments

"Reflecting the improving trends in the economy, including recent job growth and higher consumer confidence, we are seeing signs that the overall housing market is stabilizing and beginning to recover," said Jeffrey Mezger, president and chief executive officer. "The pace of the recovery is uneven, however, with certain local markets showing greater strength and more normalized activity than other areas where a rebound will take longer to manifest. We expect that the housing market in general will gradually strengthen as the economy continues to advance."

"While we are encouraged by the recent positive economic and housing market trends, our operational and financial results for the first quarter were mixed," continued Mezger. "We ended the quarter with a higher backlog compared to a year ago, although our orders moderated. At the same time, we posted growth in our deliveries and revenues and reduced our net loss significantly from the prior year. The strategic actions we implemented toward the end of last year, and plan to continue to emphasize this year, should have a more pronounced impact as the year unfolds. We believe these steps, along with the benefits of working with our new preferred mortgage lender, Nationstar Mortgage, in the coming quarters will generate further momentum in our business and, when combined with a stronger housing environment, should enable us to achieve profitability later this year."

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Three Months Ended February 29, 2012 and February 28, 2011
(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:

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.

Source: KB Home