KB Home saw fourth-quarter losses hit $772.7 million as the company cut prices but sold fewer homes, and recognized $403.4 million in losses on its remaining inventory, joint ventures and abandoned land option contracts.
The Los Angeles-based home builder said fourth-quarter housing revenue fell 31 percent, to $2.02 billion, compared to the same quarter a year ago.
The number of homes sold during the quarter dropped 22 percent compared to a year ago, and the average price of those homes was down 11.5 percent. KB Home delivered 8,132 homes during the fourth quarter, with an average sales price of $247,800, compared with 10,386 homes delivered a year ago at an average price of $280,000.
For fiscal year 2007 — which for KB Home’s accounting purposes ended Nov. 30 — home sales were down 26 percent, to 23,743, and the average home price fell 9 percent to $261,600. As a result, revenue for the year totaled $6.42 billion, down 32 percent from 2006.
Nevertheless, KB Home was able to reduce its debts by $759 million in 2007, and increase cash balance by $625 million, ending the year with $1.33 billion in the bank.
It did so by reducing inventory, laying off workers, consolidating or exiting some markets, and selling French home-building subsidiary Kaufman & Broad SA. The sale of Kaufman & Broad SA generated an after-tax gain of $438.1 million for the third quarter.
The company also recorded a noncash charge of $514.2 million during the fourth quarter to establish a tax valuation allowance that it can use to reduce its taxes on future profits.
All told, KB Home posted a net loss of $929.4 million, or $12.04 per share, for fiscal 2007, compared with net income of $482.4 million, or $5.82 per share, in 2006.
The impact of losses in the value of the company’s remaining inventory and the tax valuation allowance meant that KB Home’s net worth fell below requirements set forth in agreements governing the company’s $1.5 billion revolving credit facility.
The builder has obtained a waiver on that requirement and is working with bank lenders to amend credit facility covenants to address future compliance, said Jeffrey Mezger, KB Home president and chief executive officer, in a statement.
“We have a longstanding and positive working relationship with our bank group and, based on preliminary discussions, we expect to enter into an amendment by the end of the first quarter of 2008,” Mezger said.
KB Home said it had no borrowings outstanding on the credit facility as of Nov. 30. But the company warned investors that if it is unable to amend the credit facility’s governing covenants, lenders could suspend the company’s right to borrow money or demand that KB Home compensate them for not declaring the company to be in default on any debts it’s taken on since.
Factors hampering the home-building industry in 2007 included a persistent oversupply of new and resale homes, increased foreclosure activity, heightened competition, reduced affordability, turmoil in the mortgage and credit markets, and decreased consumer confidence in purchasing homes, Mezger said, warning that 2008 will be “another tough year” for the industry.
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