Fourth Quarter Revenues Increase 29% to $796
Million
Net Income of $853 Million, Including
Deferred Tax Asset Valuation Allowance Reversal
Net Order Value Up 22% to $587 Million;
Backlog Value Up 34% to $914 Million
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 November 30, 2014. Highlights
and developments include the following:
Three Months Ended November 30,
2014
- Total revenues of $796.0 million
increased 29% from $618.5 million in the fourth quarter of 2013,
driven by growth in the Company’s housing revenues as a result of a
greater volume of homes delivered and higher average selling
prices. The Company’s revenues have now increased on a
year-over-year basis for 13 consecutive quarters.
- The Company delivered 2,229 homes in
the fourth quarter, an increase of 9% from 2,038 homes delivered in
the year-earlier quarter. More homes were delivered in each of the
Company’s homebuilding regions compared to the fourth quarter of
2013.
- The overall average selling price of
homes delivered rose 17% to $351,500, up from $301,100 for the same
period of 2013, marking the Company’s 18th straight quarter of
year-over-year growth.
- The increase in the average selling
price was largely due to a shift in the regional mix of homes
delivered and higher home selling prices at communities located in
northern California markets within the Company’s West Coast
homebuilding region, as well as generally favorable market
conditions.
- Average selling prices were higher in
all of the Company’s homebuilding regions compared to the same
quarter of 2013, with increases ranging from 1% in the Southwest
region to 17% in the West Coast region.
- Homebuilding operating income totaled
$30.0 million, compared to $47.0 million in the year-earlier
quarter. The current quarter included $34.2 million of inventory
impairment charges, of which $23.2 million related to the planned
future land sale of a non-strategic asset. The 2013 fourth quarter
included $8.5 million of warranty-related charges and $3.3 million
of inventory impairment and land option contract abandonment
charges.
- The housing gross profit margin
declined 60 basis points to 17.3% from 17.9% in the year-earlier
quarter. Excluding the housing inventory- and warranty-related
charges, the Company’s fourth quarter adjusted housing gross profit
margin was 18.7% in 2014 and 19.8% in 2013. The decrease occurred
primarily within inland markets of the Company’s West Coast
homebuilding region.
- Selling, general and administrative
expenses as a percentage of housing revenues increased to 10.5%
from 10.3% in the year-earlier quarter. In the 2013 fourth quarter,
these expenses were partially offset by the reversal of an $8.2
million accrual following a favorable court decision. Excluding the
impact of this reversal, the Company’s selling, general and
administrative expense ratio was 11.6% in the 2013 fourth
quarter.
- Interest expense decreased to $4.5
million from $21.6 million in the year-earlier quarter due to an
increase in the amount of the Company’s inventory qualifying for
interest capitalization in the current quarter and the inclusion of
a $10.4 million loss on the early extinguishment of debt in the
2013 fourth quarter.
- The Company’s financial services
operations generated pretax income of $3.4 million in the current
quarter, up from $3.1 million in the year-earlier quarter. The
current quarter results included $1.0 million of pretax income from
Home Community Mortgage, LLC, the Company’s mortgage banking joint
venture with Nationstar Mortgage LLC that commenced operations in
July 2014.
- Net income for the quarter totaled
$852.8 million, or $8.36 per diluted share, including an income tax
benefit of $824.2 million that reflected the Company’s $825.2
million deferred tax asset valuation allowance reversal.
- This marks the eighth consecutive
quarter that the Company has generated year-over-year bottom-line
improvement.
Twelve Months Ended November 30,
2014
- Revenues of $2.40 billion were up 14%
from $2.10 billion in the year-earlier period.
- The Company delivered 7,215 homes, up
from 7,145 homes delivered in 2013.
- The overall average selling price of
$328,400 increased 13% from $291,700 in the prior year.
- Homebuilding operating income rose to
$116.0 million, up $23.9 million from $92.1 million in 2013.
- The Company’s pretax income increased
to $94.9 million, up $56.5 million from $38.4 million in 2013.
- Net income of $918.3 million, or $9.25
per diluted share, increased significantly from $40.0 million, or
$.46 per diluted share, in 2013 largely due to the current year tax
benefit associated with the Company’s deferred tax asset valuation
allowance reversal.
Backlog and Net Orders
- The Company’s backlog at
November 30, 2014 was comprised of 2,909 homes, up 14% from
2,557 homes in backlog at November 30, 2013. Potential future
housing revenues in backlog grew 34% to $914.0 million at
November 30, 2014 from $682.5 million at November 30, 2013.
- The number of homes in backlog and
corresponding backlog value at November 30, 2014 reached their
highest year-end levels since 2007.
- Total net order value in the 2014
fourth quarter rose 22% to $587.4 million, up from $481.7 million
in the year-earlier quarter. This marked the 11th straight quarter
of year-over-year increases.
- Three of the Company’s four
homebuilding regions posted year-over-year growth in net order
value, ranging from 9% in the Central region to 41% in the
Southwest region. The Company’s Southeast region was essentially
flat with the same quarter a year ago.
- Fourth quarter net orders increased 10%
to 1,706 from 1,556 for the year-earlier quarter, reflecting the
Company’s higher average community count and its emphasis on
balancing home selling prices and sales pace to optimize the
performance of its new home communities.
- The current quarter cancellation rate
as a percentage of gross orders was roughly flat with 2013 at 37%.
As a percentage of beginning backlog, the fourth quarter
cancellation rate was 29% for both 2014 and 2013.
- The overall average community count for
the fourth quarter increased 13% to 214 from 190 for the
year-earlier quarter.
- The Company ended 2014 with 227
communities open for sales, up 19% from 191 communities a year ago.
The Company’s year-end community count has increased 32% over the
past two years.
Balance Sheet
- Cash, cash equivalents and restricted
cash totaled $383.6 million at November 30, 2014, compared to
$329.5 million at August 31, 2014 and $572.0 million at November
30, 2013.
- The Company had no borrowings
outstanding under its $200 million unsecured revolving credit
facility at November 30, 2014.
- Inventories increased to $3.22 billion
at November 30, 2014, up 40% from $2.30 billion at November
30, 2013, reflecting the Company’s investment strategy to support
future growth, as well as land and land development distributed to
the Company from an unconsolidated joint venture in 2014.
- The Company’s investments in land
acquisition and development totaled $1.47 billion for 2014, up 28%
from $1.14 billion for 2013.
- The Company’s debt balance of $2.58
billion at November 30, 2014 rose from $2.15 billion at November
30, 2013, mainly due to the underwritten public issuance of $400
million of senior notes in the second quarter of 2014.
- The Company’s ratio of debt to capital
improved to 61.8% as of November 30, 2014 from 80.0% as of November
30, 2013.
- The ratio of net debt to capital
improved to 57.9% at November 30, 2014 from 74.6% a year ago.
- Stockholders’ equity increased to $1.60
billion at November 30, 2014 from $536.1 million at November 30,
2013. This marks the Company’s highest year-end stockholders’
equity since 2007.
Management Comments
“The commitment and focus of our team throughout 2014 produced
significant improvements in our financial and operational results,”
said Jeffrey Mezger, president and chief executive officer. “A
particularly notable accomplishment in the fourth quarter was the
reversal of nearly all of our deferred tax asset valuation
allowance. This reversal, grounded in our consistent profitability
in recent quarters, as well as our positive outlook for our
business, the housing market and the broader economy, had a
measurable impact on our financial position. Among other things, it
nearly tripled our stockholders’ equity from a year ago,
significantly reduced our debt leverage ratio, and, going forward,
is expected to shelter, on a cash basis, more than two billion
dollars of future earnings from income taxes. All of this will
meaningfully support our ability to advance our business
goals.”
“Through execution on our core strategic initiatives, we also
achieved our community count growth objective, ending the fourth
quarter with 227 communities, a 19% increase from last year,”
continued Mezger. “Our higher community count helped us generate
double-digit year-over-year growth in net orders, a 22% increase in
net order value, and a 34% rise in our ending backlog value for the
quarter. Looking forward, we believe that our higher backlog and
expanded community footprint have positioned us for further success
in the coming year.”
“We are energized by our achievements in 2014 and the
opportunities ahead,” said Mezger. “To build on our progress, in
2015 we will focus on key initiatives to extend our profitable
growth trajectory and enhance our capital efficiency. These
initiatives will emphasize generating cash from our operations,
expanding our community count, gaining share in our served markets,
increasing our operating income margin and improving our return on
invested capital, with the aim of driving enhanced long-term
performance and value for our stockholders.”
Earnings Conference Call
The conference call on the fourth quarter 2014 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
is distinguished by its unique homebuilding approach to provide
homebuyers optimal value and choice, enabling each buyer to
customize their new home from lot location to floor plan and
elevation to structural options and design features. KB Home is a
leader in utilizing state-of-the-art sustainable building
practices. All KB homes are built to be highly energy efficient,
helping to lower monthly utility costs, which the company
demonstrates with its proprietary KB Home Energy Performance Guide®
(EPG®). KB Home has been named an ENERGY STAR® Partner of the Year
Sustained Excellence Award winner for four straight years and a
WaterSense® Partner of the Year for four consecutive years. A
FORTUNE 1,000 company, 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 the
following: general economic, employment and business conditions;
population growth, household formations and demographic trends;
adverse market conditions, including an increased supply of unsold
homes, declining home prices and greater foreclosure and short sale
activity, among other things, that could negatively affect our
consolidated financial statements, including due to additional
impairment or land option contract abandonment charges, lower
revenues and operating and other losses; conditions in the capital,
credit and financial 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, maturity schedule 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
project financing, on favorable terms; our compliance with the
terms and covenants of our revolving credit facility; weak or
declining consumer confidence, either generally or specifically
with respect to purchasing homes; competition for home sales from
other sellers of new and resale homes, including lenders and other
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
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, programs intended to modify existing
mortgage loans and to prevent mortgage foreclosures and the
standards, fees and size limits applicable to the purchase or
insuring of mortgage loans by government-sponsored enterprises and
government agencies), the homebuilding industry, or construction
activities; decisions regarding federal fiscal and monetary
policies, including those relating to taxation, government
spending, interest rates and economic stimulus measures; the
availability and cost of land in desirable areas; our warranty
claims experience with respect to homes previously delivered and
actual warranty costs incurred, including our warranty claims and
costs experience at certain of our communities in Florida; 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 strategies and
initiatives with respect to product, geographic and market
positioning (including our efforts to expand our inventory
base/pipeline with desirable land positions or interests at
reasonable cost and to expand our community count, open additional
new home communities for sales, sell higher-priced homes and more
design options, increase the size and value of our backlog, and our
operational and investment concentration in markets in California),
revenue growth, asset optimization (including by effectively
balancing home sales prices and sales pace in our new home
communities), asset activation and/or monetization, local field
management and talent investment, containing and leveraging
overhead costs, gaining share in our served markets and increasing
our housing gross profit margins; consumer traffic to our new home
communities and consumer interest in our product designs and
offerings, particularly from higher-income consumers; cancellations
and our ability to realize our backlog by converting net orders to
home deliveries; our home sales and delivery performance,
particularly in key markets in California; our ability to generate
cash from our operations, enhance our capital efficiency, increase
our operating income margin and/or improve our return on invested
capital; the manner in which our homebuyers are offered and whether
they are able to obtain residential consumer mortgage loans and
mortgage banking services, including from Home Community Mortgage;
the performance of Home Community Mortgage; 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 November 30, 2014 and 2013
(In Thousands, Except Per Share
Amounts)
Twelve Months
Three Months 2014 2013
2014 2013
Total
revenues $ 2,400,949 $ 2,097,130 $ 796,041
$ 618,531
Homebuilding: Revenues $ 2,389,643 $
2,084,978 $ 792,749 $ 614,574 Costs and expenses (2,273,674
) (1,992,894 ) (762,701 ) (567,598 ) Operating
income 115,969 92,084 30,048 46,976 Interest income 443 792 50 163
Interest expense (30,750 ) (62,690 ) (4,461 ) (21,617 ) Equity in
income (loss) of unconsolidated joint ventures 741
(2,007 ) (420 ) (349 ) Homebuilding pretax
income 86,403 28,179 25,217
25,173
Financial services: Revenues
11,306 12,152 3,292 3,957 Expenses (3,446 ) (3,042 ) (883 ) (807 )
Equity in income (loss) of unconsolidated joint ventures 686
1,074 975 (7 ) Financial
services pretax income 8,546 10,184
3,384 3,143
Total pretax income
94,949 38,363 28,601 28,316 Income tax benefit (expense)
823,400 1,600 824,200
(200 )
Net income $ 918,349 $ 39,963 $ 852,801
$ 28,116
Earnings per share: Basic $
10.26 $ .48 $ 9.25 $ .33
Diluted
$ 9.25 $ .46 $ 8.36 $ .31
Weighted
average shares outstanding: Basic 89,265
82,630 91,902 83,742
Diluted 99,314 91,559
101,831 93,784
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands)
November 30, November 30, 2014 2013
Assets Homebuilding: Cash and cash equivalents $
356,366 $ 530,095 Restricted cash 27,235 41,906 Receivables 125,488
75,749 Inventories 3,218,387 2,298,577 Investments in
unconsolidated joint ventures 79,441 130,192 Deferred tax assets,
net 825,232 — Other assets 114,915 107,076 4,747,064
3,183,595
Financial services 10,486 10,040
Total assets $ 4,757,550 $ 3,193,635
Liabilities
and stockholders’ equity Homebuilding: Accounts payable
$ 172,716 $ 148,282 Accrued expenses and other liabilities 409,882
356,176 Notes payable 2,576,525 2,150,498 3,159,123
2,654,956
Financial services 2,517 2,593
Stockholders’
equity 1,595,910 536,086
Total liabilities and
stockholders’ equity $ 4,757,550 $ 3,193,635
KB
HOME SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months
Ended November 30, 2014 and 2013
(In Thousands, Except Average Selling
Price)
Twelve Months Three Months 2014
2013 2014 2013
Homebuilding revenues: Housing $ 2,369,633 $ 2,084,103 $
783,460 $ 613,699 Land 20,010 875 9,289
875 Total $ 2,389,643 $ 2,084,978 $
792,749 $ 614,574 Twelve Months Three Months
2014 2013 2014 2013
Homebuilding costs and expenses: Construction and land costs
Housing $ 1,940,100 $ 1,736,320 $ 647,876 $ 503,676 Land
45,551 766 32,517 766
Subtotal 1,985,651 1,737,086 680,393 504,442 Selling, general and
administrative expenses 288,023 255,808
82,308 63,156 Total $ 2,273,674 $ 1,992,894
$ 762,701 $ 567,598 Twelve Months Three
Months 2014 2013 2014 2013
Interest expense: Interest incurred $ 171,541 $
138,653 $ 44,500 $ 36,397 Loss on early extinguishment of debt —
10,448 — 10,448 Interest capitalized (140,791 )
(86,411 ) (40,039 ) (25,228 ) Total $ 30,750 $ 62,690
$ 4,461 $ 21,617 Twelve Months Three
Months 2014 2013 2014 2013
Other information: Depreciation and amortization $
9,544 $ 7,204 $ 2,621 $ 1,988 Amortization of previously
capitalized interest 90,804 87,414
31,333 24,471 Twelve Months Three
Months 2014 2013 2014 2013
Average selling price: West Coast $ 569,700 $ 467,800
$ 611,700 $ 524,200 Southwest 271,100 237,500 255,400 252,500
Central 223,800 198,900 234,500 209,800 Southeast 263,600
233,900 279,300 241,200
Total $ 328,400 $ 291,700 $ 351,500 $ 301,100
KB HOME SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months
Ended November 30, 2014 and 2013
(Dollars in Thousands)
Twelve Months Three Months 2014 2013
2014 2013
Homes delivered: West Coast 1,913 2,179 625
521 Southwest 736 738 215 193 Central 3,098 2,841 931 876 Southeast
1,468 1,387 458 448 Total 7,215
7,145 2,229 2,038 Twelve Months Three
Months 2014 2013 2014 2013
Net orders: West Coast 2,086
1,915 468 371 Southwest 872 756 282 188 Central 3,239 3,027 652 663
Southeast 1,370 1,427 304 334 Total
7,567 7,125 1,706 1,556 Twelve
Months Three Months 2014 2013 2014 2013
Net order value:
West Coast $ 1,217,590 $ 976,118 $ 267,796 $ 194,888 Southwest
230,632 191,085 75,040 53,248 Central 755,684 636,934 157,673
144,255 Southeast 376,045 352,928 86,866
89,311 Total $ 2,579,951 $ 2,157,065 $ 587,375 $ 481,702
November 30, 2014 November 30, 2013 Backlog Homes Backlog
Value Backlog Homes Backlog Value
Backlog data: West Coast
593 $ 355,651 420 $ 206,308 Southwest 324 82,140 201 50,858 Central
1,489 334,007 1,335 279,424 Southeast 503 142,227
601 145,899 Total 2,909 $ 914,025 2,557
$ 682,489
KB HOME RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES
For the Twelve Months and Three Months
Ended November 30, 2014 and 2013
(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 adjusted
housing gross profit margin and ratio of net debt to capital, both
of which are not calculated in accordance with generally accepted
accounting principles (“GAAP”). The Company believes these non-GAAP
financial measures are relevant and useful to investors in
understanding its operations and 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 adjusted housing gross
profit margin and the ratio of net debt to capital are not
calculated in accordance with GAAP, these financial measures 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 performance and/or financial measures
prescribed by GAAP. Rather, these non-GAAP financial measures
should be used to supplement their respective most directly
comparable GAAP financial measures in order to provide a greater
understanding of the factors and trends affecting the Company’s
operations.
Adjusted Housing
Gross Profit Margin
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 adjusted
housing gross profit margin:
Twelve Months Three Months 2014
2013 2014
2013 Housing revenues $ 2,369,633 $ 2,084,103 $ 783,460 $
613,699 Housing construction and land costs (1,940,100 )
(1,736,320 ) (647,876 ) (503,676 ) Housing
gross profits 429,533 347,783 135,584 110,023 Add: Housing
inventory impairment and land option contract abandonment charges
12,788 3,581 10,985 3,297 Warranty-related charges —
31,959 — 8,481 Adjusted
housing gross profits $ 442,321 $ 383,323 $ 146,569
$ 121,801 Housing gross profit margin as a percentage
of housing revenues 18.1 % 16.7 % 17.3 %
17.9 % Adjusted housing gross profit margin as a percentage
of housing revenues 18.7 % 18.4 % 18.7 %
19.8 %
Adjusted housing gross profit margin is a
non-GAAP financial measure, which the Company calculates by
dividing housing revenues less housing construction and land costs
excluding housing inventory impairment and land option contract
abandonment charges and warranty-related charges (as applicable)
recorded during a given period, by housing revenues. The most
directly comparable GAAP financial measure is housing gross profit
margin. The Company believes adjusted housing gross profit margin
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 between
periods. The Company also believes investors will find adjusted
housing gross profit margin relevant and useful because it
represents a profitability measure that may be compared to a prior
period without regard to variability of the housing inventory
impairment and land option contract abandonment charges and
warranty-related charges (as applicable). This financial measure
assists management in making strategic decisions regarding product
mix, product pricing and construction pace.
KB HOME RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(In Thousands, Except Percentages)
Ratio of Net Debt to
Capital
The following table reconciles the
Company’s ratio of debt to capital calculated in accordance with
GAAP to the non-GAAP financial measure of the Company’s ratio of
net debt to capital:
November 30,
2014
2013
Notes payable $ 2,576,525 $ 2,150,498 Stockholders’ equity
1,595,910 536,086 Total capital $
4,172,435 $ 2,686,584 Ratio of debt to capital
61.8 % 80.0 % Notes payable $ 2,576,525 $ 2,150,498
Less: Cash and cash equivalents and restricted cash (383,601
) (572,001 ) Net debt 2,192,924 1,578,497 Stockholders’
equity 1,595,910 536,086 Total capital
$ 3,788,834 $ 2,114,583 Ratio of net debt to capital
57.9 % 74.6 %
The ratio of net debt to capital is a
non-GAAP financial measure, which the Company calculates by
dividing notes payable, net of homebuilding cash and cash
equivalents and restricted cash, by capital (notes payable, net of
homebuilding cash and cash equivalents and restricted cash, plus
stockholders’ equity). The most directly comparable GAAP financial
measure is the ratio of debt to capital. The Company believes the
ratio of net debt to capital is a relevant and useful financial
measure to investors in understanding the leverage employed in the
Company’s operations.
KB HomeInvestor Relations ContactKatoiya Marshall, (310)
893-7446kmarshall@kbhome.comorMedia ContactSusan Martin, (310)
231-4142smartin@kbhome.com
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