September 27, 2007

KB Home Reports Third Quarter 2007 Results

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


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