KB Home extends $245 million of debt maturities, is 'turning the corner in 2012,' says CEO

By Lisa Kerner

Charlotte, N.C., Sept. 21 - KB Home is making "real and substantial progress" toward its objective of profitable growth, Jeffery Mezger, president and chief executive officer, said during the company's fiscal third-quarter conference call on Friday.

Mezger is pleased with the company's results for the period, citing a 16% growth in revenue, $467 million of cash at quarter's end and the generation of positive operating income.

KB Home stuck to its strategy of concentrating on fewer markets with larger businesses in key submarkets with the right product, while maintaining a "spring coil for growth," Mezger said.

While he admits there is work to be done, Mezger said KB Home's "path to profitability is clear."

"Clearly, we are turning the corner in 2012."

Improved debt profile

Jeff Kaminski, chief financial officer, said he was pleased with the execution of the new debt and tender offers completed during the fiscal third quarter.

The company extended the debt maturities of about $245 million of its debt and increased its cash position by $92 million, net of expenses, in the quarter, according to Kaminski.

Kaminski said the next debt maturity in 2014 is "an easily manageable $76 million" of its 5¾% senior notes.

KB Home's debt profile has been "significantly improved" by the financing activities completed this fiscal year.

At Aug. 31, KB Home's debt balance was $1.73 billion, up from $1.58 billion at Nov. 30, 2011.

During the fiscal third quarter, KB Home issued $350 million of 7½% senior notes due 2022. Proceeds were used to purchase $244.9 million of the company's 5¾% senior notes due 2014 and 5 7/8% and 6¼% senior notes due 2015.

The remaining proceeds will be used for general corporate purposes, the company said.

Cash and cash equivalents and restricted cash totaled $466.5 million at quarter's end, compared with $377.4 million at May 31.

Financial highlights

KB Home revenues for the quarter were $424.5 million, compared with $367.3 million for the third quarter of fiscal 2011, reflecting growth in the number of homes delivered and a higher average selling price.

The company generated $14.1 million of positive net cash flow from operating activities, compared with $38.6 million of net cash used in operating activities in the third quarter of fiscal 2011.

Inventories at Aug. 31 were $1.77 billion, up from $1.73 billion at Nov. 30, 2011.

Net income for the quarter was $3.3 million, up $12.9 million from the net loss of $9.6 million in the same quarter last year.

KB Home reported a net loss of $66.7 million, or $0.86 per diluted share, compared with the net loss of $192.7 million, or $2.50 per diluted share, for the nine months ended Aug. 31.

The company spent $337 million on land and land development, primarily in California and Texas, in the first nine months of 2012.

Interest expense was up at $23.1 million, compared to $12.3 million in the year-earlier quarter, due to an $8.3 million loss on the early extinguishment of debt.

KB Home is a Los Angeles-based homebuilding and financial services company.

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