KB Home Reports 2007 Fourth Quarter and Full Year Results

Business Wire, Jan 8, 2008

LOS ANGELES -- KB Home (NYSE: KBH), one of America's largest homebuilders, today reported financial results for its fourth quarter and fiscal year ended November 30, 2007. Results include:

* Revenues totaled $2.07 billion for the quarter ended November 30, 2007, down from $3.01 billion in the corresponding quarter of 2006, primarily reflecting lower housing revenues. Fourth quarter 2007 housing revenues of $2.02 billion were 31% lower than in the year-earlier period. This decline reflected a 22% year-over-year decrease in new home deliveries to 8,132 in the fourth quarter of 2007 from 10,386 in the 2006 fourth quarter, and a 12% year-over-year decrease in the average selling price to $247,800 in 2007 from $280,000 in 2006.

* The Company reported a loss from continuing operations before income taxes of $399.0 million for the quarter ended November 30, 2007 due to pretax, non-cash charges of $403.4 million associated with inventory and joint venture impairments and the abandonment of certain land option contracts. In the year-earlier quarter, the Company posted a loss from continuing operations before income taxes of $171.1 million due to $343.3 million of pretax, non-cash impairment and abandonment charges.

* During the fourth quarter of 2007, the Company recorded an after-tax, non-cash charge of $514.2 million to establish a valuation allowance related to its deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The valuation allowance is reflected as a charge to fourth quarter income tax expense and a reduction of the Company's deferred tax assets as of November 30, 2007. Including the valuation allowance, the Company recorded a net loss of $772.7 million or $9.99 per diluted share in the fourth quarter of 2007. In the fourth quarter of 2006, the Company's net loss totaled $49.6 million or $.64 per diluted share.

* The Company delivered 23,743 new homes in fiscal year 2007, down 26% from the 32,124 new homes it delivered in fiscal year 2006. Revenues totaled $6.42 billion in fiscal year 2007, decreasing 32% from $9.38 billion in fiscal year 2006, reflecting fewer new home deliveries and a 9% year-over-year decline in the average selling price to $261,600 from $287,700. The Company posted a loss from continuing operations of $1.41 billion in fiscal year 2007 due to non-cash charges associated with inventory and joint venture impairments and land option contract abandonments; goodwill impairment; and the deferred tax assets valuation allowance. In fiscal year 2006, the Company generated income from continuing operations of $392.9 million. Including the results of its French discontinued operations, the Company posted a net loss of $929.4 million or $12.04 per diluted share in fiscal year 2007 and net income of $482.4 million or $5.82 per diluted share in fiscal year 2006.

* The Company continued to generate positive cash flows in the 2007 fourth quarter, ending the year with a cash balance of $1.33 billion at November 30, 2007. The Company increased its cash balance by $625.2 million from November 30, 2006 in addition to reducing debt by $758.5 million. Furthermore, the Company had no borrowings outstanding under its $1.5 billion revolving credit facility as of November 30, 2007. The Company's ratio of debt to total capital was 53.9% at November 30, 2007 compared to 50.0% at November 30, 2006. Net of cash, the ratio of debt to total capital improved 12.1 percentage points to 31.1% at November 30, 2007 from 43.2% at November 30, 2006.

"The challenging market conditions we experienced through the first three quarters of 2007 continued during the fourth quarter," said Jeffrey Mezger, president and chief executive officer. "Several factors weighed on the entire housing industry this year, including a persistent oversupply of new and resale homes available for sale, increased foreclosure activity, heightened competition for home sales, reduced home affordability, turmoil in the mortgage and credit markets, and decreased consumer confidence in purchasing homes."

"KB Home's results for the 2007 fourth quarter and full year reflect the impact of these difficult industry conditions as well as our strategic actions to restructure our operations to better align with significantly reduced housing market activity," Mezger noted. "We recorded additional impairment and abandonment charges in the fourth quarter as slowing sales rates and downward pressure on home prices and gross margins reduced the fair value of certain inventory positions and prompted us to reassess our strategy concerning certain projects."

"The inventory impairments we incurred during the housing downturn have produced substantial deferred tax assets," Mezger continued. "As a result of the continued downturn in the housing market and the uncertainty as to its length and magnitude, we recorded a valuation allowance on certain deferred tax assets. This resulted in a substantial non-cash charge in the fourth quarter. To the extent that we generate sufficient taxable income in the future to utilize the tax benefits of the related deferred tax assets, we expect to see a reduction in our effective tax rate as the valuation allowance is reversed."