OREANDA-NEWS. June 22, 2016. KB Home (NYSE: KBH) today reported results for its second quarter ended May 31, 2016.

"We delivered a strong second quarter performance," said

Jeffrey Mezger, president and chief executive officer. "We generated considerable increases in deliveries and revenues, and posted a substantial improvement in earnings, despite charges related to our strategic decision to transition out of the Metro Washington, D.C. area. Our second quarter results reflect the success of our targeted positioning in attractive growth markets and the distinctive home-buying experience we offer to consumers."

"We are encouraged by the continued improvement in housing market conditions across the country and by the recent increase in participation from first-time homebuyers, historically our primary customer segment," said Mezger. "We believe we are particularly well-positioned to leverage our strength in serving the demand from this demographic with dynamic product offerings. With favorable market trends and our financial and operational progress in the first half of the year, we have positive momentum in our business heading into the remainder of 2016."

Three Months Ended May 31, 2016 (comparisons on a year-over-year basis)

  • Total revenues rose 30% to \\$811.1 million.
  • Housing revenues increased 33% to \\$807.4 million.
  • Deliveries grew 30% to 2,329 homes, reflecting double-digit increases in all four of the Company's regions.
  • Average selling price increased 2% to \\$346,700.
  • Housing gross profit margin decreased 50 basis points to 15.5%, reflecting approximately 80 basis points of inventory-related charges.
    • Adjusted housing gross profit margin, which excludes the amortization of previously capitalized interest and inventory-related charges, improved 40 basis points to 20.7%.
  • Selling, general and administrative expenses improved 140 basis points to 11.6% of housing revenues.
  • Homebuilding operating income increased 45% to \\$25.9 million despite total inventory impairment and land option contract abandonment charges of \\$11.7 million, of which \\$6.8 million related to the Company's wind down of its Metro Washington, D.C. operations. Inventory-related charges in the year-earlier quarter totaled \\$.5 million.
    • Homebuilding operating income margin improved 30 basis points to 3.2%. Excluding inventory-related charges, homebuilding operating income margin rose 170 basis points to 4.7%.
  • Pretax income increased 96% to \\$24.8 million.
  • Income tax expense of \\$9.2 million was favorably impacted by \\$.4 million of federal energy tax credits earned from building energy-efficient homes and represented an effective tax rate of 37.1%.
  • Net income rose 63% to \\$15.6 million and earnings per diluted share increased to \\$.17, with both metrics unfavorably impacted by inventory-related charges.

Six Months Ended May 31, 2016 (comparisons on a year-over-year basis)

  • Total revenues increased 24% to \\$1.49 billion.
  • Deliveries rose 27% to 4,282 homes.
  • Average selling price increased 3% to \\$345,600.
  • Land sale revenues totaled \\$4.2 million, compared to \\$68.9 million.
  • Homebuilding operating income rose 39% to \\$44.9 million.
  • Net income increased 65% to \\$28.7 million and earnings per diluted share advanced to \\$.31 from \\$.18.

Backlog and

Net Orders (comparisons on a year-over-year basis)

  • Ending backlog value grew 14% to \\$1.83 billion, reflecting increases in all regions.
  • Homes in backlog rose 10% to 5,205.
  • Net order value for the quarter grew 14% to \\$1.20 billion.
  • Net orders for the quarter increased 8% to 3,249.
  • The cancellation rate as a percentage of beginning backlog for the quarter improved to 21% from 25%, and as a percentage of gross orders improved to 21% from 22%.
  • Average community count for the quarter decreased 2% to 242.

Balance Sheet (as of May 31, 2016)

  • Cash, cash equivalents and restricted cash totaled \\$278.4 million.
  • Inventories totaled \\$3.53 billion, with investments in land acquisition and development totaling \\$702.6 million for the six months ended May 31, 2016.
  • Lots owned or controlled totaled 47,283, of which 82% were owned.
  • There were no cash borrowings outstanding under the unsecured revolving credit facility.
  • Average diluted shares outstanding for the quarter were reduced 7% from the year-earlier quarter to 94.7 million, reflecting repurchases of nearly 8.4 million shares of common stock during the 2016 first quarter at a total cost of \\$85.9 million. No shares were repurchased in the 2016 second quarter.

Earnings Conference Call

The conference call to discuss the Company's second quarter 2016 earnings will be broadcast live TODAY at 2:00 p.m. Pacific Daylight Time, 5:00 p.m. Eastern Daylight 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 homebuilders in the United States and an industry leader in sustainability, building innovative and highly energy- and water-efficient new homes. Founded in 1957 and the first NYSE-listed homebuilder (ticker symbol: KBH), the company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, d?cor choices, design features and other special touches that matter most to them. To learn more about KB Home, call 888-KB-HOMES, visit www.kbhome.com or connect on Facebook.com/KBHome or Twitter.com/KBHome.

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; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; material and trade costs and availability; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors, including the severe prolonged drought and related water-constrained conditions in the southwest United States and California; government actions, policies, programs and regulations directed at or affecting the housing market (including the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, 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; the availability and cost of land in desirable areas; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; 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 related to our product, geographic and market positioning (including our transition out of the Metro Washington, D.C. area), gaining share and scale in our served markets, and increasing our housing gross profit margins and profitability; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability to generate cash from our operations, enhance our asset efficiency, increase our operating income margin and improve our return on invested capital; the ability of our homebuyers to obtain residential 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 Six Months and Three Months Ended May 31, 2016 and 2015

(In Thousands, Except Per Share Amounts — Unaudited)

Six Months Ended May 31, Three Months Ended May 31,
2016 2015 2016 2015
Total revenues \\$ 1,489,421 \\$ 1,203,090 \\$ 811,050 \\$ 622,969
Homebuilding:
Revenues \\$ 1,484,204 \\$ 1,198,692 \\$ 808,462 \\$ 620,804
Costs and expenses (1,439,274 ) (1,166,432 ) (782,524 ) (602,942 )
Operating income 44,930 32,260 25,938 17,862
Interest income 286 255 134 152
Interest expense (5,667 ) (13,456 ) (1,970 ) (8,118 )
Equity in loss of unconsolidated joint ventures (1,428 ) (758 ) (825 ) (411 )
Homebuilding pretax income 38,121 18,301 23,277 9,485
Financial services:
Revenues 5,217 4,398 2,588 2,165
Expenses (1,730 ) (1,892 ) (871 ) (928 )
Equity in income (loss) of unconsolidated joint ventures (784 ) 2,365 (197 ) 1,951
Financial services pretax income 2,703 4,871 1,520 3,188
Total pretax income 40,824 23,172 24,797 12,673
Income tax expense (12,100 ) (5,800 ) (9,200 ) (3,100 )
Net income \\$ 28,724 \\$ 17,372 \\$ 15,597 \\$ 9,573
Earnings per share:
Basic \\$ .33 \\$ .19 \\$ .18 \\$ .10
Diluted \\$ .31 \\$ .18 \\$ .17 \\$ .10
Weighted average shares outstanding:
Basic 86,704 91,974 84,196 91,995
Diluted 97,060 101,470 94,720 101,544

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands — Unaudited)

May 31,
2016 		November 30,
2015
Assets
Homebuilding:
Cash and cash equivalents \\$ 274,849 \\$ 559,042
Restricted cash 3,517 9,344
Receivables 151,066 152,682
Inventories 3,525,089 3,313,747
Investments in unconsolidated joint ventures 65,213 71,558
Deferred tax assets, net 770,396 782,196
Other assets 112,790 112,774
4,902,920 5,001,343
Financial services 12,923 14,028
Total assets \\$ 4,915,843 \\$ 5,015,371
Liabilities and stockholders' equity
Homebuilding:
Accounts payable \\$ 190,327 \\$ 183,770
Accrued expenses and other liabilities 456,645 513,414
Notes payable 2,632,127 2,625,536
3,279,099 3,322,720
Financial services 1,575 1,817
Stockholders' equity 1,635,169 1,690,834
Total liabilities and stockholders' equity \\$ 4,915,843 \\$ 5,015,371

KB HOME

SUPPLEMENTAL INFORMATION

For the Six Months and Three Months Ended May 31, 2016 and 2015

(In Thousands, Except Average Selling Price — Unaudited)

Six Months Ended May 31, Three Months Ended May 31,
2016 2015 2016 2015
Homebuilding revenues:
Housing \\$ 1,480,054 \\$ 1,129,762 \\$ 807,408 \\$ 604,921
Land 4,150 68,930 1,054 15,883
Total \\$ 1,484,204 \\$ 1,198,692 \\$ 808,462 \\$ 620,804
Homebuilding costs and expenses:
Construction and land costs
Housing \\$ 1,247,131 \\$ 953,659 \\$ 682,303 \\$ 508,276
Land 10,401 63,169 6,411 16,134
Subtotal 1,257,532 1,016,828 688,714 524,410
Selling, general and administrative expenses 181,742 149,604 93,810 78,532
Total \\$ 1,439,274 \\$ 1,166,432 \\$ 782,524 \\$ 602,942
Interest expense:
Interest incurred \\$ 92,509 \\$ 94,202 \\$ 46,258 \\$ 49,199
Interest capitalized (86,842 ) (80,746 ) (44,288 ) (41,081 )
Total \\$ 5,667 \\$ 13,456 \\$ 1,970 \\$ 8,118
Other information:
Depreciation and amortization \\$ 5,602 \\$ 5,560 \\$ 2,821 \\$ 2,835
Amortization of previously capitalized interest 66,239 47,736 35,557 25,443
Average selling price:
West Coast \\$ 564,800 \\$ 565,500 \\$ 570,200 \\$ 579,000
Southwest 285,700 275,400 284,900 275,800
Central 262,300 237,900 264,000 237,800
Southeast 275,200 271,800 278,400 278,800
Total \\$ 345,600 \\$ 334,200 \\$ 346,700 \\$ 338,500
KB HOME

SUPPLEMENTAL INFORMATION

For the Six Months and Three Months Ended May 31, 2016 and 2015

(Dollars in Thousands — Unaudited)

Six Months Ended May 31, Three Months Ended May 31,
2016 2015 2016 2015
Homes delivered:
West Coast 1,089 873 581 459
Southwest 742 516 392 279
Central 1,671 1,390 906 737
Southeast 780 601 450 312
Total 4,282 3,380 2,329 1,787
Net orders:
West Coast 1,550 1,322 995 770
Southwest 900 921 541 532
Central 2,111 2,046 1,210 1,176
Southeast 960 915 503 537
Total 5,521 5,204 3,249 3,015
Net order value:
West Coast \\$ 910,493 \\$ 756,311 \\$ 572,882 \\$ 438,754
Southwest 262,625 258,213 155,337 149,555
Central 581,457 535,424 328,242 308,381
Southeast 273,101 256,094 146,541 156,176
Total \\$ 2,027,676 \\$ 1,806,042 \\$ 1,203,002 \\$ 1,052,866
May 31, 2016 May 31, 2015
Backlog Homes Backlog Value Backlog Homes Backlog Value
Backlog data:
West Coast 1,199 \\$ 703,346 1,042 \\$ 617,354
Southwest 763 218,047 729 200,697
Central 2,282 638,052 2,145 558,681
Southeast 961 269,657 817 234,091
Total 5,205 \\$ 1,829,102 4,733 \\$ 1,610,823

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Six Months and Three Months Ended May 31, 2016 and 2015
(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 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, therefore, should not be considered in isolation or as an alternative to 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:

Six Months Ended May 31, Three Months Ended May 31,
2016 2015 2016 2015
Housing revenues \\$ 1,480,054 \\$ 1,129,762 \\$ 807,408 \\$ 604,921
Housing construction and land costs (1,247,131 ) (953,659 ) (682,303 ) (508,276 )
Housing gross profits 232,923 176,103 125,105 96,645
Add: Amortization of previously capitalized interest (a) 65,757 47,736 35,551 25,443
Inventory-related charges (b) 7,563 984 6,384 536
Adjusted housing gross profits \\$ 306,243 \\$ 224,823 \\$ 167,040 \\$ 122,624
Housing gross profit margin as a percentage of housing revenues 15.7 % 15.6 % 15.5 % 16.0 %
Adjusted housing gross profit margin as a percentage of housing revenues 20.7 % 19.9 % 20.7 % 20.3 %

(a) Represents the amortization of previously capitalized interest associated with housing operations.
(b) Represents inventory impairment and land option contract abandonment charges associated with housing operations.

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 (1) amortization of previously capitalized interest associated with housing operations and (2) housing inventory impairment and land option contract abandonment charges 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. This non-GAAP financial measure isolates the impact that the amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with the Company's competitors that adjust housing gross profit margins in a similar manner. 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 amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges. This financial measure assists management in making strategic decisions regarding community location and product mix, product pricing and construction pace.

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages — Unaudited)

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:

May 31,
2016 		November 30,
2015
Notes payable \\$ 2,632,127 \\$ 2,625,536
Stockholders' equity 1,635,169 1,690,834
Total capital \\$ 4,267,296 \\$ 4,316,370
Ratio of debt to capital 61.7 % 60.8 %
Notes payable \\$ 2,632,127 \\$ 2,625,536
Less: Cash and cash equivalents and restricted cash (278,366 ) (568,386 )
Net debt 2,353,761 2,057,150
Stockholders' equity 1,635,169 1,690,834
Total capital \\$ 3,988,930 \\$ 3,747,984
Ratio of net debt to capital 59.0 % 54.9 %

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.