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KB Home Earnings Call, Fourth Quarter 2008
Author: Godwin Gwetu
Last Update: 1:27 AM ET January 14 2009


The home builder reported Q4 total revenues of $919.0 million, a decrease from $2.07 billion in the year ago quarter. The decline in revenue was largely a result of lower housing revenues on fewer houses delivered. The management reported a quarterly net loss of $307.3 million or $3.96 per share compared with a net loss of $772.7 million or $9.99 per share in Q4 of 2007. The quarterly company-wide net orders totaled 1,296 homes, a decrease of 50% from 2,574 homes for Q4 of 2007.

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This summary is based on the fourth quarter fiscal 2008 earnings call conducted by KBH Home (KBH) on January 9, 2009.


President and CEO: Jeffrey Mezger
SVP and Treasurer: Kelly Masuda
SVP and CAO: William Hollinger

Key Investor Issues:

- The company delivered 3,912 homes in the quarter versus 8,132 homes in the last year quarter.
- The Q4 of 2008 average selling price for homes fell to $232,000 from $247,800 in Q4 of 2007.
- Full year total revenues were $3.03 billion versus $6.42 billion in 2007.

Fourth Quarter Financial Highlights:

For the first time in five quarters the company achieved positive operating income in the fourth quarter on a pre-impairment basis.

- As the housing market continued to decline throughout 2008, the management constantly adjusted and refined the business with the goal of improving our results for the long-term.
- The impact of these integrated actions includes reduced costs to build from 2006 to 2008.
- The company resultantly recorded gross margin improvement in 2008 despite a drop in the average selling price from $262,000 in 2007 to $236,000 in 2008.

The management plans to drive the percentage of first-time buyers even higher going forward.

- The company is attracting first-time buyers with a product that is price-competitive with resales and foreclosures.
- The management has created a Built to Order experience that enables buyers to truly customize their own home differentiating the company from both resale and other builders.

In the previous year, the management committed to installing only Energy Star appliances in all homes.

- The company is the first national builder to do so.
- Effective January 1, 2009 all KB Homes built in new communities are fully Energy Star qualified.
- The management reported that Energy Star qualified homes save as much as 45% on energy costs when compared with homes built as recently as in the 1990s.

During the fourth quarter of 2008, the company generated a net loss of $307 million or $3.96 per share.

- This compares with a net loss of $773 million or $9.99 per share for the year earlier quarter.
- The Q4 net loss in each year resulted from significant non-cash charges taken for asset impairments and abandonments and valuation allowances on the deferred tax assets.
- The company delivered half as many homes and recorded significantly less revenues in the fourth quarter but the bottom line financial results improved from the year earlier quarter.
- The improvement was the result of a decrease in the asset valuation and abandonment charges and better operating performance as evidenced by the higher housing gross margin.

The fourth quarter results included pre-tax non-cash charges of $309 million for the asset impairments and abandonments.

- This is in comparison with $403 million of similar charges recognized in the year earlier quarter.
- This translated to a year-over-year decrease of $94 million.
- During the quarter, the company recorded an after-tax charge of $99 million to record a valuation allowance against deferred tax assets.
- This was substantially lower than the $514 million charge taken in the 2007 fourth quarter.
- Excluding the asset impairment and abandonment charges and deferred tax asset valuation allowances, reported net income would have been $12 million in the quarter and $3 million in the fiscal 2007 fourth quarter.

The company advised that about $132 million or 50% of inventory, joint venture and impairments and abandonments taken in the quarter were in the South Coast region.

- An approximate $74 million or 28% were in the South East region.
- The two regions also experienced the largest declines in average selling prices in the quarter.
- The charges were $29 million in the South West and $31 million in the Central region with each amount representing 11% of the quarter’s impairments and abandonments.
- The company took a goodwill impairment charge of $43 million in the fourth quarter.
- The impairment charge was associated with the South East region.
- At the end of the fiscal year the company had no remaining goodwill company wide.

The Q4 homebuilding revenues of $916 million decreased from the year earlier quarter primarily due to lower housing revenues.

- Q4 housing revenues were $909 million down 55% year-over-year.
- This reflected a 52% decline in the number of homes delivered and a 6% drop in average selling price.
- The company delivered fewer homes during the quarter.
- This was mainly a result of the reduced community count and lower backlog levels in the wake of the persistent housing market downturn.
- With regard to the quarterly average selling price, Central region posted a year-over-year increase of 10% primarily due to a change in product mix.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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