LOS ANGELES--(BUSINESS WIRE)--Sept. 27, 2007--KB Home (NYSE:KBH),
one of America's largest homebuilders, today reported financial
results for its third quarter ended August 31, 2007. Highlights
include:
- The Company completed the previously reported sale of its
entire 49% equity interest in its French subsidiary, Kaufman &
Broad SA. The sale generated total gross proceeds of $807.2
million and an after-tax gain of $438.1 million. The French
operations are presented as discontinued operations in the
Company's current financial statements and results from prior
periods have been reclassified to conform to this
presentation.
- Revenues totaled $1.54 billion for the quarter ended August
31, 2007, down 32% from $2.28 billion for the third quarter of
2006 due to lower housing revenues. Third quarter housing
revenues of $1.53 billion were 33% lower than the year-earlier
period, reflecting a 28% decrease in unit deliveries to 5,699
from 7,893 and a 7% decrease in the average selling price to
$267,700 from $288,000.
- For the three months ended August 31, 2007, the Company
reported a loss from continuing operations, net of an income
tax benefit, of $478.6 million or $6.19 per diluted share due
largely to pretax non-cash charges of $690.1 million related
to inventory and joint venture impairments and the abandonment
of land option contracts, and $107.9 million related to
goodwill impairment. In the third quarter of 2006, the
Company's continuing operations generated after-tax income of
$129.3 million or $1.60 per diluted share. The French
discontinued operations contributed third quarter after-tax
income of $443.0 million or $5.73 per diluted share in 2007,
including the gain realized on the sale of the operations,
compared to $23.9 million or $.30 per diluted share in the
third quarter of 2006. Overall, the Company posted a net loss
in the 2007 third quarter (including the French discontinued
operations) of $35.6 million or $.46 per diluted share,
compared to net income of $153.2 million or $1.90 per diluted
share in the year-earlier period.
- As previously announced, the Company redeemed $650 million of
debt during the third quarter, significantly strengthening its
financial position. The redemption consisted of all $250
million of the Company's 9 1/2% Senior Subordinated Notes due
in 2011 and an unsecured $400 million term loan scheduled to
mature on April 11, 2011. The early extinguishment of the
notes and loan resulted in a charge of $13.0 million in the
third quarter. At August 31, 2007, the Company had $646
million in cash and a debt to total capital ratio of 45% (36%
net of cash), a significant improvement from debt to total
capital of 54% (53% net of cash) at August 31, 2006.
- Backlog at August 31, 2007 totaled 11,880 units, representing
potential future housing revenues of $3.07 billion. These
levels were down 31% and 38%, respectively, from the 17,198
backlog units and $4.95 billion backlog value at August 31,
2006. The lower backlog unit and value levels in the current
quarter reflected negative year-over-year net order
comparisons for the past several quarters and lower average
selling prices. Company-wide net orders for the third quarter
of 2007 totaled 3,907, down 6% from 4,167 in the year-earlier
quarter.
"Our third quarter results reflect the seriously challenging
market conditions that prevail for homebuilders across most of the
nation," said Jeffrey Mezger, president and chief executive officer.
"The oversupply of unsold new and resale homes and downward pressure
on new home values has worsened in many of our markets as tighter
lending standards, low affordability and greater buyer caution
suppress demand, while higher foreclosure activity combined with
heightened builder and investor efforts to monetize their real estate
investments boost supply. The negative impact of these conditions on
our selling prices and gross margins prompted us to take substantial
write-downs of inventory and goodwill in the third quarter. At this
time, we see no signs that the housing market is stabilizing and
believe it will be some time before a recovery begins."
Company-wide revenues for the quarter ended August 31, 2007
totaled $1.54 billion, down 32% from $2.28 billion for the
year-earlier quarter due to lower housing revenues in all of the
Company's geographic operating regions. Third quarter 2007 housing
revenues of $1.53 billion were off 33% from $2.27 billion in the prior
year's third quarter, reflecting a 28% year-over-year decrease in unit
deliveries to 5,699 from 7,893 and a 7% year-over-year decrease in the
overall average selling price to $267,700 from $288,000. Land sale
revenues totaled $14.7 million in the third quarter of 2007 compared
to $6.6 million in the third quarter of 2006.
The Company's construction business generated an operating loss of
$766.9 million in the 2007 third quarter, a decrease of $959.0 million
from operating income of $192.1 million in last year's third quarter
due to losses from both homebuilding operations and land sales. The
operating loss from homebuilding was primarily due to pretax, non-cash
charges of $639.0 million for inventory impairments and land option
contract abandonments, $34.0 million for impairments related to future
land losses, and $107.9 million for goodwill impairment, as well as
the greater use of price concessions and sales incentives to meet
competition. The inventory-related charges resulted in the Company's
housing gross margin falling to a negative 28.0% in the third quarter
of 2007 from 21.1% in the year earlier quarter. Excluding inventory
impairment and abandonment charges ($639.0 million in 2007 and $49.2
million in 2006), the Company's third quarter housing gross margin
would have been 13.9% in 2007 and 23.3% in 2006. The Company recorded
a loss on land sales of $34.9 million in the third quarter of 2007,
including impairment charges related to planned future land sales. The
Company's equity in pretax loss of unconsolidated joint ventures in
the quarter totaled $21.0 million, including an impairment charge of
$17.1 million.
Impairment and abandonment charges in the 2007 third quarter
reflected ongoing deterioration in housing markets across the country.
The attendant negative impact of these conditions on new home prices
and gross margins resulted in a further decline in the fair value of
certain inventory positions relative to prior periods and led the
Company to terminate projects that no longer met its internal
investment standards. In light of the protracted decline in market
conditions, and associated substantial inventory and joint venture
impairments, the Company also performed an evaluation of its goodwill.
Based on this evaluation, the Company recognized a pretax non-cash
goodwill impairment charge of $107.9 million. Declining sales and
selling prices and the non-cash charges related to inventory, joint
venture and goodwill impairments combined to produce a third-quarter
loss from continuing operations, net of an income tax benefit, of
$478.6 million or $6.19 per diluted share, compared to after-tax
income from continuing operations of $129.3 million or $1.60 per
diluted share in the third quarter of 2006.
"Despite the disappointing third-quarter loss, we are making
steady progress on strengthening our balance sheet and aligning our
operations and investment strategy with current market conditions and
our longer-term expectations for the business," said Mezger. "Having
completed the sale of our French operations, we are now exclusively
focused on our core U.S. homebuilding business. Proceeds from the
all-cash sale, combined with substantial ongoing cash flows from our
U.S. operations, enabled us to redeem $650 million in debt during the
quarter. As of August 31, our leverage ratio was the lowest it has
been in several years, while our cash position totaled $646 million
with no borrowings outstanding under our $1.5 billion revolving credit
facility. We believe the approach we have taken in managing our
financial position during these difficult times is yielding tangible
benefits as we have now reduced our debt by approximately $1.4
billion, or nearly 40% from a year ago. We expect to use the
anticipated positive cash flows in the fourth quarter to further
increase our cash position."
The Company's homebuilding operations generated 3,907 net orders
in the third quarter of 2007, down 6% from 4,167 net orders in the
year-earlier quarter. Only the Company's Southeast region generated a
positive year-over-year net order comparison in the quarter. The
Company's 2007 third-quarter cancellation rate of 50% was lower than
the 60% rate in the prior year third quarter but higher than the 34%
rate in the 2007 second quarter, reflecting the challenged housing and
credit environment. Unit backlog totaled 11,880 units at August 31,
2007 compared to 17,198 units at August 31, 2006. The Company's
backlog value at August 31, 2007 decreased 38% to approximately $3.07
billion from approximately $4.95 billion at August 31, 2006, due to
negative year-over-year net order comparisons over the past several
quarters in addition to lower average selling prices.
"We expect housing industry conditions to continue to worsen
through the end of the year and into 2008," said Mezger. "Rising
foreclosure rates are intensifying the problem of surplus inventory
and will likely drive further home price reductions. As the housing
markets struggle to regain equilibrium, we are concentrating our
efforts on providing the best value and choice to first-time, first
move-up and active adult homebuyers and retooling product offerings
where necessary to address affordability issues. Operationally, we
continue to adhere to the disciplines of our business model. From a
balance sheet perspective, having made significant strides in the
third quarter, we expect to maintain our sound financial position by
continuing to generate positive cash flows, remaining selective in our
land investments and pursuing greater efficiencies to streamline costs
in our business. Overall, we believe KB Home is well-positioned to
navigate the current environment and to capitalize on strategic
investment opportunities when the nation's housing markets improve."
During the nine months ended August 31, 2007, the Company's
homebuilding operations delivered 15,611 new homes, down 28% from
21,738 homes delivered in the corresponding period of 2006.
Company-wide revenues for the nine months ended August 31, 2007
totaled $4.35 billion, a decrease of 32% from $6.37 billion in the
first nine months of 2006. The Company generated a loss from
continuing operations of $642.1 million or $8.32 per diluted share in
the first nine months of 2007, compared to income from continuing
operations of $472.9 million or $5.65 per diluted share in the
year-earlier nine-month period. The loss in the first nine months of
2007 included pretax non-cash charges of $1.0 billion for inventory
and joint venture impairments and the abandonment of land option
contracts, and $107.9 million for goodwill impairment. The Company
generated a net loss of $156.8 million or $2.03 per diluted share for
the nine months ended August 31, 2007 (including the French
discontinued operations), compared to net income of $532.0 million or
$6.36 per diluted share for the nine months ended August 31, 2006.
The Conference Call on the Third Quarter 2007 earnings will be
broadcast live TODAY at 9:00 a.m. Pacific Daylight Time, 12:00 p.m.
Eastern Daylight Time. To listen, please go to the Investor Relations
section of the Company's Web site at http://www.kbhome.com.
Celebrating its 50th anniversary in the homebuilding industry, KB
Home is one of America's largest homebuilders. Headquartered in Los
Angeles, the company has operating divisions in 15 states, building
communities from coast to coast. KB Home is a Fortune 500 company
listed on the New York Stock Exchange under the ticker symbol "KBH."
For more information about any of KB Home's new home communities or
complete mortgage services through Countrywide KB Home Loans, call
888-KB-HOMES or visit http://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 and business conditions; material
prices and availability; labor costs and availability; changes in
interest rates; our debt level; declines in consumer confidence;
increases in competition; weather conditions, significant natural
disasters and other environmental factors; government regulations; the
availability and cost of land in desirable areas; violations of our
policies; the consequences of our past stock option grant practices
and the restatement of certain of our financial statements; government
investigations and shareholder lawsuits regarding our past stock
option grant practices; other legal or regulatory proceedings or
claims; conditions in the capital, credit and homebuilding markets;
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 Nine Months and Three Months Ended August 31, 2007 and 2006
(In Thousands, Except Per Share Amounts - Unaudited)
Nine Months Three Months
------------------------- -------------------------
2007 2006 (a) 2007 2006 (a)
------------ ------------ ------------ ------------
Total revenues $ 4,345,946 $ 6,368,411 $ 1,543,900 $ 2,283,865
============ ============ ============ ============
Construction:
Revenues $ 4,335,242 $ 6,354,799 $ 1,540,607 $ 2,279,437
Costs and
expenses (5,361,962) (5,624,032) (2,307,471) (2,087,323)
------------ ------------ ------------ ------------
Operating income
(loss) (1,026,720) 730,767 (766,864) 192,114
Interest income 18,882 3,147 8,614 1,132
Loss on early
redemption/
interest
expense, net of
amounts
capitalized (12,990) (16,678) (12,990) (3,341)
Equity in pretax
income (loss) of
unconsolidated
joint ventures (62,727) 7,845 (21,027) 9,043
------------ ------------ ------------ ------------
Construction
pretax income
(loss) (1,083,555) 725,081 (792,267) 198,948
------------ ------------ ------------ ------------
Financial services:
Revenues 10,704 13,612 3,293 4,428
Expenses (3,524) (4,629) (1,113) (1,392)
Equity in pretax
income of
unconsolidated
joint venture 14,558 8,925 4,367 5,058
------------ ------------ ------------ ------------
Financial
services pretax
income 21,738 17,908 6,547 8,094
------------ ------------ ------------ ------------
Income (loss) from
continuing
operations before
income taxes (1,061,817) 742,989 (785,720) 207,042
Income tax benefit
(expense) 419,700 (270,100) 307,100 (77,700)
------------ ------------ ------------ ------------
Income (loss) from
continuing
operations (642,117) 472,889 (478,620) 129,342
Income from
discontinued
operations, net of
income taxes 47,252 59,104 4,904 23,872
Gain on sale of
discontinued
operations, net of
income taxes 438,104 - 438,104 -
------------ ------------ ------------ ------------
Net income (loss) $ (156,761) $ 531,993 $ (35,612) $ 153,214
============ ============ ============ ============
Basic earnings
(loss) per share
Continuing
operations $ (8.32) $ 5.96 $ (6.19) $ 1.66
Discontinued
operations 6.29 0.74 5.73 0.31
------------ ------------ ------------ ------------
Basic earnings
(loss) per share$ (2.03) $ 6.70 $ (0.46) $ 1.97
============ ============ ============ ============
Diluted earnings
(loss) per share
Continuing
operations $ (8.32) $ 5.65 $ (6.19) $ 1.60
Discontinued
operations 6.29 0.71 5.73 0.30
------------ ------------ ------------ ------------
Diluted earnings
(loss) per share$ (2.03) $ 6.36 $ (0.46) $ 1.90
============ ============ ============ ============
Basic average
shares outstanding 77,120 79,414 77,265 77,724
============ ============ ============ ============
Diluted average
shares outstanding 77,120 83,705 77,265 80,618
============ ============ ============ ============
(a) Certain prior year amounts have been reclassified to conform to
current year classifications.
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
August 31, November 30,
2007 2006 (a)
---------- ------------
Assets
Construction:
Cash and cash equivalents $ 645,933 $ 700,041
Receivables 229,138 224,077
Inventories 4,422,198 5,751,643
Investments in unconsolidated joint ventures 368,756 381,242
Deferred income taxes 668,676 430,806
Goodwill 69,407 177,333
Other assets 148,179 160,197
---------- ------------
6,552,287 7,825,339
Financial services 35,392 44,024
Assets of discontinued operations - 1,394,375
---------- ------------
Total assets $6,587,679 $9,263,738
========== ============
Liabilities and Stockholders' Equity
Construction:
Accounts payable $ 597,744 $ 626,243
Accrued expenses and other liabilities 1,138,769 1,600,617
Mortgages and notes payable 2,161,423 2,920,334
---------- ------------
3,897,936 5,147,194
Financial services 28,467 26,276
Liabilities of discontinued operations - 1,167,520
Stockholders' equity 2,661,276 2,922,748
---------- ------------
Total liabilities and stockholders' equity $6,587,679 $9,263,738
========== ============
(a) Certain prior year amounts have been reclassified to conform to
current year classifications.
KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2007 and 2006
(Unaudited)
Nine Months Three Months
----------------------- -----------------------
Construction revenues: 2007 2006 2007 2006
----------- ----------- ----------- -----------
Housing $4,196,487 $6,334,782 $1,525,863 $2,272,810
Land 138,755 20,017 14,744 6,627
----------- ----------- ----------- -----------
Total $4,335,242 $6,354,799 $1,540,607 $2,279,437
=========== =========== =========== ===========
Nine Months Three Months
----------------------- -----------------------
Costs and expenses: 2007 2006 2007 2006
----------- ----------- ----------- -----------
Construction and land
costs
Housing $4,461,484 $4,812,645 $1,952,718 $1,793,451
Land 196,581 19,373 49,663 6,857
----------- ----------- ----------- -----------
Subtotal 4,658,065 4,832,018 2,002,381 1,800,308
Selling, general and
administrative
expenses 595,971 792,014 197,164 287,015
Goodwill impairments 107,926 - 107,926 -
----------- ----------- ----------- -----------
Total $5,361,962 $5,624,032 $2,307,471 $2,087,323
=========== =========== =========== ===========
Nine Months Three Months
----------------------- -----------------------
Loss on early
redemption/interest
expense: 2007 2006 2007 2006
----------- ----------- ----------- -----------
Interest incurred $ 148,420 $ 163,196 $ 45,531 $ 62,291
Loss on early
redemption 12,990 - 12,990 -
Interest capitalized (148,420) (146,518) (45,531) (58,950)
----------- ----------- ----------- -----------
Loss on early
redemption/
interest expense $ 12,990 $ 16,678 $ 12,990 $ 3,341
=========== =========== =========== ===========
Nine Months Three Months
----------------------- -----------------------
Other information: 2007 2006 2007 2006
----------- ----------- ----------- -----------
Depreciation and
amortization $ 16,309 $ 15,191 $ 5,975 $ 4,773
Amortization of
previously
capitalized interest 99,958 81,642 46,360 29,910
=========== =========== =========== ===========
KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended August 31, 2007 and 2006
(In Thousands - Unaudited)
Nine Months Three Months
------------------- -------------------
Average sales price: 2007 2006 2007 2006
-------- ---------- -------- ----------
West Coast $459,100 $ 493,400 $442,000 $ 492,300
Southwest 267,900 317,800 256,900 310,800
Central 169,700 160,300 176,000 160,900
Southeast 233,000 247,800 228,200 252,300
-------- ---------- -------- ----------
Total $268,800 $ 291,400 $267,700 $ 288,000
======== ========== ======== ==========
Nine Months Three Months
------------------- -------------------
Unit deliveries: 2007 2006 2007 2006
-------- ---------- -------- ----------
West Coast 3,097 4,708 1,252 1,683
Southwest 3,379 5,163 1,133 1,798
Central 4,096 6,507 1,433 2,489
Southeast 5,039 5,360 1,881 1,923
-------- ---------- -------- ----------
Total 15,611 21,738 5,699 7,893
======== ========== ======== ==========
Unconsolidated joint
ventures: 32 4 13 4
======== ========== ======== ==========
Nine Months Three Months
------------------- -------------------
Net orders: 2007 2006 2007 2006
-------- ---------- -------- ----------
West Coast 3,853 3,802 713 775
Southwest 3,149 3,537 604 806
Central 4,606 6,567 1,370 1,549
Southeast 5,308 4,790 1,220 1,037
-------- ---------- -------- ----------
Total 16,916 18,696 3,907 4,167
======== ========== ======== ==========
Unconsolidated joint
ventures: 273 24 79 24
======== ========== ======== ==========
August 31, 2007 August 31, 2006
------------------- -------------------
Backlog data: Backlog Backlog Backlog Backlog
Units Value Units Value
-------- ---------- -------- ----------
(Dollars in thousands)
West Coast 2,371 $1,042,194 3,348 $1,726,232
Southwest 2,300 590,711 3,802 1,129,899
Central 3,565 599,400 5,005 802,950
Southeast 3,644 834,588 5,043 1,295,886
-------- ---------- -------- ----------
Total 11,880 $3,066,893 17,198 $4,954,967
======== ========== ======== ==========
Unconsolidated joint
ventures: 295 $ 108,821 20 $ 7,748
======== ========== ======== ==========
CONTACT: KB Home
Kelly Masuda, Investor Contact
(310) 893-7434 or kmasuda@kbhome.com
or
Lindsay Stephenson, Media Contact
(310) 231-4142 or lstephenson@kbhome.com
SOURCE: KB Home