KB Home Reports 2007 Fourth Quarter and Full Year Results

Business Wire, Jan 8, 2008

Total revenues of $2.07 billion for the quarter ended November 30, 2007 decreased 31% from $3.01 billion for the corresponding quarter of 2006, primarily due to lower housing revenues in all of the Company's geographic operating segments. Fourth quarter housing revenues fell 31% to $2.02 billion in 2007 from $2.91 billion in 2006 due to a 22% year-over-year decrease in new home deliveries and a 12% year-over-year decline in the overall average selling price. The Company delivered 8,132 new homes with an average price of $247,800 in the fourth quarter of 2007 compared to 10,386 new homes with an average price of $280,000 in the year-earlier quarter. Land sale revenues totaled $50.3 million in the fourth quarter of 2007 compared to $96.6 million in the fourth quarter of 2006.

The Company's homebuilding business recorded fourth quarter operating losses of $331.6 million in 2007 and $160.5 million in 2006, driven by losses from both housing operations and land sales. Within housing operations, the 2007 fourth quarter loss was primarily due to pretax, non-cash charges of $290.3 million for inventory impairments and land option contract abandonments, $15.2 million for impairments related to future land sales, and compressed operating margins resulting from competitive pressures. Largely as a result of the inventory impairment and abandonment charges, the Company's housing gross margin fell to a negative 4.3% in the 2007 fourth quarter from a positive 9.1% in the year-earlier quarter. Excluding these charges, the Company's fourth quarter housing gross margin would have been 10.1% in 2007 and 17.4% in 2006. The Company recorded losses on land sales of $16.4 million and $94.1 million in the fourth quarters of 2007 and 2006, respectively, including pretax, non-cash impairment charges related to planned future land sales. The Company's equity in pretax loss of unconsolidated joint ventures totaled $89.2 million and $28.7 million in the fourth quarters of 2007 and 2006, respectively, including impairment charges of $97.9 million in 2007 and $39.3 million in 2006. Taken together, these charges and the valuation allowance for deferred tax assets produced a net loss of $772.7 million or $9.99 per diluted share for the 2007 fourth quarter compared to a net loss of $49.6 million or $.64 per diluted share in the fourth quarter of 2006.

"We took several decisive actions during 2007 to generate cash flow, reduce debt levels and strengthen our balance sheet," said Mezger. "These actions included reducing inventory and community count, trimming our workforce, consolidating or exiting underperforming markets, increasing liquidity and opportunistically selling our French operations near the recent market peak in that country. Overall, we reduced debt by $759 million in 2007 and increased our cash balance by $625 million. At November 30, 2007, we had $1.33 billion in cash, surpassing our previous guidance by more than $300 million, with no borrowings outstanding under our $1.5 billion revolving credit facility. Our ratio of net debt to capital stood at 31.1% at November 30, 2007, even after accounting for the deferred tax assets valuation allowance. This represents a significant improvement from our 43.2% ratio at the end of 2006 and is well ahead of our targeted range."