Exhibit 99.1
FOR RELEASE, Wednesday, December 21, 2011
|
For Further Information Contact: | |
5:00 a.m. Pacific Standard Time
|
Katoiya Marshall, Investor Relations Contact | |
| (310) 893-7446 or kmarshall@kbhome.com | ||
| Craig LeMessurier, Media Contact | ||
| (925) 750-6237 or clemessurier@kbhome.com |
KB HOME REPORTS 2011 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS
Year Over Year Net Orders Up 38%; Homes in Backlog Up 61%; Backlog Value Up 74%
Year Over Year Net Orders Up 38%; Homes in Backlog Up 61%; Backlog Value Up 74%
LOS ANGELES (December 21, 2011) — KB Home (NYSE: KBH), one of the nation’s premier
homebuilders, today reported results for its fourth quarter and fiscal year ended November 30,
2011. Highlights and developments include the following:
| • | Company-wide net orders in the 2011 fourth quarter increased 38% to 1,494, compared to
1,085 in the fourth quarter of 2010. At November 30, 2011, the Company had 2,156 homes in
backlog, up from 1,336 homes in backlog at November 30, 2010. The Company’s projected future
housing revenues in backlog increased 74% to approximately $459.0 million at November 30, 2011
from approximately $263.8 million at November 30, 2010. |
||
| • | Revenues in the fourth quarter of 2011 totaled $479.9 million, up 6% from $451.0 million in
the fourth quarter of 2010, reflecting higher housing revenues. The growth in housing
revenues was driven by a 4% year-over-year increase in the number of homes delivered to 1,995
and a 3% year-over-year increase in the average selling price to $238,400. |
||
| • | The Company reported 2011 fourth quarter net income of $13.9 million, or $.18 per diluted
share, compared to $17.4 million, or $.23 per diluted share, in the year-earlier period. The
2011 fourth quarter marked the second consecutive quarter in which the Company generated
operating income. |
||
| • | The Company’s cash, cash equivalents and restricted cash at the end of 2011 totaled
$479.5 million (of which $64.5 million was restricted), down from $1.02 billion at year-end
2010, mainly due to $251.9 million in payments made in the fourth quarter relating to the legal
matters surrounding the South Edge, LLC joint venture, and the repayment of $189.5 million of
maturing senior notes and other debt during |
2011. The Company’s debt balance at November 30, 2011 was $1.58 billion, compared to $1.78
billion at November 30, 2010, reflecting the debt repayments.
| • | In further recognition of its sustainability achievements, KB Home was recently named the
2011 WaterSense® Builder Partner of the Year by the U.S. Environmental Protection
Agency. The EPA’s WaterSense program helps homebuyers identify new homes that can save both
water and energy. In 2009, KB Home was the first homebuilder to partner with the EPA’s
WaterSense program in using WaterSense-labeled fixtures as the standard in all its new homes,
and in 2010 it became the first homebuilder to construct new homes to the EPA’s WaterSense New
Home Specifications. |
“In the fourth quarter, we reported net profits, continued to increase our net orders, and
built our backlog to the highest year-end level since 2008,” said Jeffrey Mezger, president and
chief executive officer. “We believe these results demonstrate our success in adapting to current
market realities and positioning our business for the future. We are pleased that amid weak and
turbulent market conditions throughout 2011, we have posted improvements in our deliveries,
revenues and selling, general and administrative expense ratio for three consecutive quarters, and
generated operating income for two consecutive quarters. With our fourth quarter net orders up 38%
from a year ago, and our year-end homes in backlog up 61%, we believe we are moving into 2012
well-positioned to achieve further improvement in our financial metrics.”
“In 2012, we will continue to leverage our geographically diverse market positions, our
innovative home designs, our market-differentiating Built to Order™ approach, and our leaner, more
efficient organization to advance our main goal—achieving sustained profitability,” continued
Mezger. “Our focus will be on driving growth in our sales and margins to optimize returns on the
investments we have made in strategic land positions and in our new home communities. We
anticipate that our companywide average selling price will continue to grow in 2012 as we heighten
our concentration in our most desirable markets, particularly in our West Coast region which
typically generates higher profits. We will remain attentive to the business environment, which is
likely to be volatile, and we will make appropriate adjustments within our operations as conditions
warrant.”
For the quarter ended November 30, 2011, revenues totaled $479.9 million, up 6% from the
year-earlier quarter, reflecting increases of 4% in the number of homes delivered and 3% in the
average selling price. The Company delivered 1,995 homes at an average selling price of $238,400
in the fourth quarter of 2011, compared to 1,918 homes delivered at an average selling price of
$232,500 in the year-earlier quarter. Land sale revenues totaled $.1 million in the fourth quarter
of 2011 and $1.9 million in the fourth quarter of 2010.
The Company’s homebuilding business posted operating income of $.8 million for the quarter
ended November 30, 2011, down from $29.1 million for the year-earlier quarter, reflecting lower
gross profits and increased selling, general and administrative expenses, partly offset by a gain
on loan guaranty of $6.6 million.
The year-over-year decrease in fourth quarter gross profits resulted from a lower housing
gross margin, partially offset by an increase in the number of homes delivered. The Company’s
fourth quarter housing gross margin was 14.7% in 2011 and 19.1% in 2010. The current quarter’s
housing gross margin
included $2.3 million of noncash inventory impairment and land option contract abandonment charges,
compared to $2.9 million of such charges in the year-earlier quarter. Excluding these
inventory-related charges, the current quarter’s housing gross
2
margin would have been 15.1%, down from 19.7% in the corresponding quarter of 2010. This
year-over-year decrease reflected fewer homes delivered from higher-margin communities, largely as
a result of higher-margin community close-outs in the year-earlier period, partly offset by
improved operating leverage from an overall increase in the volume of homes delivered. The fourth
quarter 2011 housing gross margin, excluding inventory-related charges, remained essentially flat
with the 15.2% posted in the 2011 third quarter, which also excluded favorable warranty
adjustments, and improved from 14.9% in the second quarter and 13.4% in the first quarter.
Selling, general and administrative expenses increased by $19.9 million, or 36%, to $75.6
million in the fourth quarter of 2011 from $55.7 million in the year-earlier quarter as the impact
of the Company’s ongoing progress in streamlining its organizational structure and reducing
overhead was more than offset by the effect of the higher number of homes delivered, increased
marketing expenses to support new community openings and higher legal expenses. As a percentage of
housing revenues, the Company’s selling, general and administrative expenses were 15.9% in the
fourth quarter of 2011, an improvement from 25.4% in the first quarter, 23.2% in the second quarter
and 16.5% in the third quarter of 2011. This improvement reflected both the Company’s higher
housing revenues and the impact of its cost reduction activities. In the fourth quarter of 2010,
this ratio was 12.5%. The Company expects the favorable effects of its cost-cutting measures to
become more visible in 2012.
During the 2011 fourth quarter, the bankruptcy and lender-related legal matters concerning
South Edge, LLC and the Company’s obligations with respect to those matters were essentially
resolved. South Edge, LLC was a residential development joint venture located near Las Vegas,
Nevada in which a Company subsidiary participated along with other unrelated homebuilders and a
third party property development firm. The gain on loan guaranty during the quarter reflected the
consummation of a consensual plan of reorganization of South Edge, LLC that was confirmed by a
bankruptcy court in November and included, among other things, the satisfaction of a limited
several repayment guaranty the Company provided to the administrative agent for the lenders to
South Edge, LLC. In connection with the reorganization plan and the settlement of other South
Edge-related legal matters, the Company made payments of $251.9 million in the fourth quarter of
2011.
Interest expense, net of amounts capitalized, decreased to $12.3 million in the fourth quarter
of 2011 from $16.2 million in the year-earlier quarter, mainly due to a reduction in the amount of
debt outstanding and an increase in the amount of interest capitalized as a result of a higher
balance of inventory qualifying for interest capitalization.
The Company’s financial services operations generated pretax income of $22.8 million for the
current quarter and $3.6 million for the year-earlier quarter. The results for the 2011 fourth
quarter included a gain of $19.8 million related to the wind down of the Company’s unconsolidated
mortgage banking joint venture, which stopped offering mortgage banking services in late June 2011.
The Company received the cash associated with the gain in early December, and therefore it was not
reflected in the Company’s year-end cash balance. In 2010, the financial services results for the
fourth quarter included the Company’s equity in income of the unconsolidated mortgage banking joint
venture of $1.1 million.
The Company posted pretax income of $11.4 million in the fourth quarter of 2011, compared to
$15.4 million in the year-earlier quarter. In the fourth quarter, the Company generated a net
profit for the first time
in 2011, reporting net income of $13.9 million, or $.18 per diluted share, including an income
tax benefit of $2.5 million. In the fourth quarter of 2010, the Company generated net income of
$17.4 million, or $.23 per diluted share, including an income tax benefit of $2.0 million.
3
The Company’s net orders in the fourth quarter of 2011 increased 38% on a year-over-year basis
to 1,494 from 1,085 in the year-earlier period. Net orders were higher in each of the Company’s
four geographic regions, with increases ranging from 10% in the Southwest region to 48% in the West
Coast region. These favorable comparisons reflected activity from new home communities opened
during the year, as well as depressed net orders in the year-earlier quarter resulting in part from
reduced demand following the expiration of the federal homebuyer tax credit in April 2010. The
cancellation rate as a percentage of gross orders was 34% in the fourth quarter of 2011 and 37% in
the year-earlier quarter. The Company’s backlog at the end of 2011 totaled 2,156 homes, a 61%
increase from the 1,336 homes in backlog at the end of 2010. Projected future housing revenues
from homes in backlog at November 30, 2011 totaled approximately $459.0 million, representing a 74%
increase from projected future housing revenues of approximately $263.8 million at November 30,
2010, with each of the Company’s geographic regions generating a year-over-year increase in backlog
levels.
For the year ended November 30, 2011, Company-wide revenues totaled $1.32 billion, down 17%
from $1.59 billion for the year-earlier period. The decrease was mainly due to lower housing
revenues. The number of homes delivered in 2011 decreased 21% year over year to 5,812, while the
average selling price increased 5% to $224,600. The Company posted a net loss of $178.8 million,
or $2.32 per diluted share, for the year ended November 30, 2011, including noncash charges of
$79.5 million for inventory and joint venture impairments and land option contract abandonments and
a $30.8 million loss on loan guaranty, partially offset by a $19.8 million gain related to the wind
down of the Company’s unconsolidated mortgage banking joint venture, and an income tax benefit of
$2.4 million. For the year ended November 30, 2010, the Company posted a net loss of $69.4
million, or $.90 per diluted share, including noncash charges of $19.9 million for inventory
impairments and land option contract abandonments, and an income tax benefit of $7.0 million. The
Company’s net orders for the year ended November 30, 2011 increased to 6,632 from 6,556 in the
prior year, representing the first increase in full year net orders in two years.
The Conference Call on the Fourth Quarter 2011 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’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 a 2010 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.
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
4
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; our
warranty claims experience with respect to homes previously delivered and actual warranty costs
incurred; legal or regulatory proceedings or claims; 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, and our increasing
operational and investment concentration in markets in California and Texas), revenue growth, and
overhead and other cost reduction strategies; consumer traffic to our new home communities and
consumer interest in our product designs, including The Open SeriesTM; the impact of our
unconsolidated mortgage banking joint venture ceasing to accept loan applications effective June
27, 2011 and ceasing to offer mortgage banking services to our homebuyers after June 30, 2011; the
manner in which our homebuyers are offered and obtain residential consumer mortgage loans and
mortgage banking services; 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)
# # #
5
KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
(In Thousands, Except Per Share Amounts)
| Twelve Months | Three Months | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Total revenues |
$ | 1,315,866 | $ | 1,589,996 | $ | 479,872 | $ | 450,963 | ||||||||
Homebuilding: |
||||||||||||||||
Revenues |
$ | 1,305,562 | $ | 1,581,763 | $ | 475,746 | $ | 447,917 | ||||||||
Costs and expenses |
(1,408,636 | ) | (1,597,808 | ) | (474,911 | ) | (418,817 | ) | ||||||||
Operating income (loss) |
(103,074 | ) | (16,045 | ) | 835 | 29,100 | ||||||||||
Interest income |
871 | 2,098 | 95 | 470 | ||||||||||||
Interest expense |
(49,204 | ) | (68,307 | ) | (12,302 | ) | (16,199 | ) | ||||||||
Equity in income (loss) of
unconsolidated joint ventures |
(55,839 | ) | (6,257 | ) | 26 | (1,578 | ) | |||||||||
Homebuilding pretax income (loss) |
(207,246 | ) | (88,511 | ) | (11,346 | ) | 11,793 | |||||||||
Financial services: |
||||||||||||||||
Revenues |
10,304 | 8,233 | 4,126 | 3,046 | ||||||||||||
Expenses |
(3,512 | ) | (3,119 | ) | (1,031 | ) | (480 | ) | ||||||||
Equity in income/gain on wind down of
unconsolidated
joint venture |
19,286 | 7,029 | 19,662 | 1,083 | ||||||||||||
Financial services pretax income |
26,078 | 12,143 | 22,757 | 3,649 | ||||||||||||
Total pretax income (loss) |
(181,168 | ) | (76,368 | ) | 11,411 | 15,442 | ||||||||||
Income tax benefit |
2,400 | 7,000 | 2,500 | 2,000 | ||||||||||||
Net income (loss) |
$ | (178,768 | ) | $ | (69,368 | ) | $ | 13,911 | $ | 17,442 | ||||||
Basic earnings (loss) per share |
$ | (2.32 | ) | $ | (.90 | ) | $ | .18 | $ | .23 | ||||||
Diluted earnings (loss) per share |
$ | (2.32 | ) | $ | (.90 | ) | $ | .18 | $ | .23 | ||||||
Basic average shares outstanding |
77,043 | 76,889 | 77,159 | 76,957 | ||||||||||||
Diluted average shares outstanding |
77,043 | 76,889 | 77,197 | 76,983 | ||||||||||||
6
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands)
| November 30, | November 30, | |||||||
| 2011 | 2010 | |||||||
Assets |
||||||||
Homebuilding: |
||||||||
Cash and cash equivalents |
$ | 415,050 | $ | 904,401 | ||||
Restricted cash |
64,481 | 115,477 | ||||||
Receivables |
66,179 | 108,048 | ||||||
Inventories |
1,731,629 | 1,696,721 | ||||||
Investments in unconsolidated joint ventures |
127,926 | 105,583 | ||||||
Other assets |
75,104 | 150,076 | ||||||
| 2,480,369 | 3,080,306 | |||||||
Financial services |
32,173 | 29,443 | ||||||
Total assets |
$ | 2,512,542 | $ | 3,109,749 | ||||
Liabilities and stockholders’ equity |
||||||||
Homebuilding: |
||||||||
Accounts payable |
$ | 104,414 | $ | 233,217 | ||||
Accrued expenses and other liabilities |
374,406 | 466,505 | ||||||
Mortgages and notes payable |
1,583,571 | 1,775,529 | ||||||
| 2,062,391 | 2,475,251 | |||||||
Financial services |
7,494 | 2,620 | ||||||
Stockholders’ equity |
442,657 | 631,878 | ||||||
Total liabilities and stockholders’ equity |
$ | 2,512,542 | $ | 3,109,749 | ||||
7
KB HOME
SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
(In Thousands)
SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
(In Thousands)
| Twelve Months | Three Months | |||||||||||||||
| Homebuilding revenues: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Housing |
$ | 1,305,299 | $ | 1,575,487 | $ | 475,636 | $ | 446,010 | ||||||||
Land |
263 | 6,276 | 110 | 1,907 | ||||||||||||
Total |
$ | 1,305,562 | $ | 1,581,763 | $ | 475,746 | $ | 447,917 | ||||||||
| Twelve Months | Three Months | |||||||||||||||
| Costs and expenses: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Construction and land costs |
||||||||||||||||
Housing |
$ | 1,129,785 | $ | 1,301,677 | $ | 405,899 | $ | 360,837 | ||||||||
Land |
200 | 6,611 | 1 | 2,255 | ||||||||||||
Subtotal |
1,129,985 | 1,308,288 | 405,900 | 363,092 | ||||||||||||
Selling, general and
administrative expenses |
247,886 | 289,520 | 75,576 | 55,725 | ||||||||||||
Loss (gain) on loan guaranty |
30,765 | — | (6,565 | ) | — | |||||||||||
Total |
$ | 1,408,636 | $ | 1,597,808 | $ | 474,911 | $ | 418,817 | ||||||||
| Twelve Months | Three Months | |||||||||||||||
| Interest expense: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Interest incurred |
$ | 115,649 | $ | 120,428 | $ | 27,548 | $ | 30,323 | ||||||||
(Gain) on early extinguishment of
debt/loss on
voluntary termination of credit facility |
(3,612 | ) | 1,802 | — | — | |||||||||||
Interest capitalized |
(62,833 | ) | (53,923 | ) | (15,246 | ) | (14,124 | ) | ||||||||
Total |
$ | 49,204 | $ | 68,307 | $ | 12,302 | $ | 16,199 | ||||||||
| Twelve Months | Three Months | |||||||||||||||
| Other information: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Depreciation and amortization |
$ | 4,181 | $ | 5,438 | $ | 885 | $ | 1,205 | ||||||||
Amortization of previously
capitalized interest |
79,338 | 105,150 | 26,592 | 25,696 | ||||||||||||
8
KB HOME
SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
SUPPLEMENTAL INFORMATION
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
| Twelve Months | Three Months | |||||||||||||||
| Average sales price: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
$ | 335,500 | $ | 346,300 | $ | 358,300 | $ | 372,700 | ||||||||
Southwest |
165,800 | 158,200 | 179,100 | 153,200 | ||||||||||||
Central |
171,500 | 163,700 | 173,100 | 166,800 | ||||||||||||
Southeast |
195,500 | 170,200 | 192,900 | 192,000 | ||||||||||||
Total |
$ | 224,600 | $ | 214,500 | $ | 238,400 | $ | 232,500 | ||||||||
| Twelve Months | Three Months | |||||||||||||||
| Homes delivered: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
1,757 | 2,023 | 656 | 583 | ||||||||||||
Southwest |
843 | 1,150 | 270 | 238 | ||||||||||||
Central |
2,155 | 2,663 | 706 | 729 | ||||||||||||
Southeast |
1,057 | 1,510 | 363 | 368 | ||||||||||||
Total |
5,812 | 7,346 | 1,995 | 1,918 | ||||||||||||
Unconsolidated joint ventures |
1 | 102 | — | 23 | ||||||||||||
| Twelve Months | Three Months | |||||||||||||||
| Net orders: | 2011 | 2010 | 2011 | 2010 | ||||||||||||
West Coast |
2,017 | 1,703 | 490 | 331 | ||||||||||||
Southwest |
907 | 1,007 | 172 | 157 | ||||||||||||
Central |
2,480 | 2,437 | 517 | 370 | ||||||||||||
Southeast |
1,228 | 1,409 | 315 | 227 | ||||||||||||
Total |
6,632 | 6,556 | 1,494 | 1,085 | ||||||||||||
Unconsolidated joint ventures |
— | 66 | — | 4 | ||||||||||||
| November 30, 2011 | November 30, 2010 | |||||||||||||||
| Backlog data: | Backlog Homes | Backlog Value | Backlog Homes | Backlog Value | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
West Coast |
463 | $ | 161,987 | 203 | $ | 74,816 | ||||||||||
Southwest |
203 | 37,071 | 139 | 21,306 | ||||||||||||
Central |
1,018 | 168,512 | 693 | 113,155 | ||||||||||||
Southeast |
472 | 91,380 | 301 | 54,517 | ||||||||||||
Total |
2,156 | $ | 458,950 | 1,336 | $ | 263,794 | ||||||||||
Unconsolidated joint ventures |
— | $ | — | 1 | $ | 511 | ||||||||||
9
KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Twelve Months and Three Months Ended November 30, 2011 and 2010
(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 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:
| Twelve Months | Three Months | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Housing revenues |
$ | 1,305,299 | $ | 1,575,487 | $ | 475,636 | $ | 446,010 | ||||||||
Housing construction and land costs |
(1,129,785 | ) | (1,301,677 | ) | (405,899 | ) | (360,837 | ) | ||||||||
Housing gross margin |
175,514 | 273,810 | 69,737 | 85,173 | ||||||||||||
Add: Inventory impairment and land option contract abandonment
charges |
25,740 | 19,577 | 2,284 | 2,838 | ||||||||||||
Housing gross margin, excluding inventory impairment
and land option contract abandonment charges |
$ | 201,254 | $ | 293,387 | $ | 72,021 | $ | 88,011 | ||||||||
Housing gross margin as a percentage of housing revenues |
13.4 | % | 17.4 | % | 14.7 | % | 19.1 | % | ||||||||
Housing gross margin, excluding inventory impairment and land option
contract abandonment charges, as a percentage of housing revenues |
15.4 | % | 18.6 | % | 15.1 | % | 19.7 | % | ||||||||
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