This summary is based on the fourth quarter fiscal 2007 earnings call conducted by KB Home (KBH: chart) on January 8, 2007.

President, Chief Executive Officer, Director: Jeffrey T. Mezger
Chief Financial Officer, Executive Vice President: Domenico Cecere
Senior Vice President, Chief Accounting Officer: William R. Hollinger
Senior Vice President Investor Relations, Treasurer: Kelly Masuda

Key Investors Issues

- The net loss widened to $9.99 as against 64 cents in the prior year quarter.
- Revenue dropped from $3.01 billion in previous year to $2.07 billion.
- The average sales price of the homes delivered fell 12% to $247,800 from $280,000 in Q4 of 2006.
- At the end of Q4, the firm owned or controlled 66,000 lots, down 65% from the peak of Q1 of 2006.

Fourth Quarter Fiscal 2007 Financial Highlights

The company reported a loss from continuing operations before income taxes of $399 million.

This was 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 quarter, the company recorded an after-tax, non-cash charge of $514.2 million to establish a valuation allowance related to its deferred tax assets.

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 cents per diluted share.

Revenues totaled $2.07 billion for the quarter, down from $3.01 billion in the prior year quarter, 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 net orders of 2,574 new homes in the fourth quarter were down 32% on a year-over-year basis.

On a regional basis, net orders for the West Coast were down 12%; Southwest net orders were down 16%. In Central, net orders fell 43% while in the Southeast, they were down 40%. For both the Central and Southeast, the firm is experiencing a more dramatic drop in community count and sales comps due to exiting the Indianapolis, Gulf Coast, Texas Valley, Fort Myers, and Treasure Coast markets.

Community counts entering 2008 are down over 30% from the prior year. The firm had 380 active selling communities in 2007 and it expects community counts in 2008 will be down 25% to 30% from this level.

The firm entered the fourth quarter with 11,880 sold homes in backlog and converted 8,132, or 68% of its backlog to revenue. That compares to a conversion ratio of 42% in the third quarter and 60% in the fourth quarter of 2006.

Cancellations in the fourth quarter were 30% to beginning backlog and over the last six quarters, this ratio of cancellations to beginning backlog has ranged between 29% and 33%.

The average sales price of the homes delivered in the fourth quarter decreased 12% to $247,800 from $280,000 in the fourth quarter of 2006. That average sales price was slightly below the $256,800 average sales price for a resale home in November. Year over year, sales prices were down 19% on the West Coast, 14% in the Southwest, and 7% in the Southeast. Sales prices were up 4% in the Central region, solely due to mix.

The housing gross margin in the fourth quarter, excluding impairments and abandonments, was 10.1%.

This was down from 13.9% in the third quarter and 14.9% in the second quarter of 2006. The average sales price has dropped 9% in the last two quarters, while resale pricing was down nearly 8%.

SG&A expenses in the fourth quarter decreased 31% from a year ago and at 11.3% of housing revenue was slightly better than 11.4% in the fourth quarter of 2006.