KB Home Reports Third Quarter 2009 Financial Results
Net Orders Up 62%; Net Loss Reduced 54%
LOS ANGELES, Sep 25, 2009 (BUSINESS WIRE) -- KB Home (NYSE:KBH), one of America's premier homebuilders, today reported financial results for its third quarter ended August 31, 2009. Results for the quarter include:
- Revenues totaled $458.5 million, down 33% from $681.6 million in the third quarter of 2008, due to lower housing revenues. Third quarter housing revenues were $454.2 million, down 32% from $668.3 million in the year-earlier quarter, the result of a 20% year-over-year decrease in homes delivered to 2,240 and a 15% decline in the average selling price over the same period to $202,800.
- The Company generated a net loss of $66.0 million, or $.87 per diluted share, in the third quarter of 2009. These results included pretax, noncash charges of $47.7 million for inventory and joint venture impairments and the abandonment of land option contracts. In the 2008 third quarter, the Company reported a net loss of $144.7 million, or $1.87 per diluted share, which included pretax, noncash charges of $82.2 million for inventory and joint venture impairments.
- Company-wide net orders increased 62% in the third quarter to 2,158, up from 1,329 in the third quarter of 2008 with each of the Company's geographic regions experiencing year-over-year net order growth. The Company's backlog at August 31, 2009 totaled 3,722 homes, representing potential future housing revenues of approximately $734.1 million. A year earlier, the Company's backlog totaled 4,774 homes, representing potential future housing revenues of approximately $1.13 billion.
- On July 30, 2009, the Company issued $265.0 million in aggregate principal amount of 9.1% senior notes due 2017, using the net proceeds to purchase, pursuant to a simultaneous tender offer, $250.0 million in aggregate principal amount of its $350.0 million 6 3/8% senior notes due 2011. The two transactions effectively extended the maturity of $250.0 million of senior debt by six years, enhancing the maturity schedule of the Company's outstanding public debt. Other than the maturity of the remaining $100.0 million of 6 3/8% senior notes in 2011, the Company's next public debt maturity is in 2014 when $250.0 million of 5 3/4% senior notes become due. The Company had no borrowings outstanding under its revolving credit facility as of August 31, 2009.
- The Company recently announced it has resumed homebuilding operations in the Washington, D.C. metro market, bolstering its presence in the southeastern United States and complementing its existing operations across Florida and the Carolinas. The Company believes its value-engineered product line, The Open SeriesTM, combined with its consumer-focused Built-to-OrderTM operating model will compete well in meeting the region's growing demand for affordable, high-quality new homes.
"In this challenging environment, we significantly narrowed our third quarter net loss from a year ago through the disciplined execution of our strategic initiatives," said Mezger. "Restoring the profitability of our homebuilding business remains our highest priority, and we continue to take actions to achieve this objective. These include our ongoing implementation of initiatives to generate cost reductions and operating efficiencies, carefully managing our inventory and developing innovative new products. Our new product line, The Open Series, embodies many of these strategies and was a primary contributor to the year-over-year increase in net orders we achieved in the third quarter. This product meets the preferences and needs of our core customer--the first-time homebuyer--in a cost-effective manner."
"We are encouraged by the positive net order results we achieved in the quarter but remain cautious given the current economic climate," continued Mezger. "While we have more work to do to return to profitability, we believe we are making progress on many fronts toward this goal."
Total revenues were $458.5 million in the quarter ended August 31, 2009, decreasing 33% from $681.6 million in the third quarter of 2008. Third quarter housing revenues totaled $454.2 million, down 32% from $668.3 million in the year-earlier period, a result of decreases in both the number of homes delivered and the average selling price. The Company delivered 2,240 homes in the current quarter, a 20% decline from the 2,788 homes delivered in the year-earlier quarter, while the average selling price fell 15% over the same period to $202,800 from $239,700. Each of the Company's geographic regions experienced year-over-year declines in average selling prices in the third quarter of 2009.
In the third quarter of 2009, the Company reduced its homebuilding operating loss by $65.7 million from the year-earlier quarter. The Company's homebuilding business posted an operating loss of $42.1 million in the third quarter of 2009, including pretax, noncash charges of $24.5 million for inventory impairments and the abandonment of land option contracts that the Company no longer plans to pursue. In the prior year's third quarter, the homebuilding operations recorded an operating loss of $107.8 million, which included similar pretax, noncash charges of $39.1 million. The Company's housing gross margin improved by 7.2 percentage points to 11.1% in the third quarter of 2009 from 3.9% in the third quarter of 2008. Excluding inventory impairment and abandonment charges of $16.0 million in the third quarter of 2009 and $38.5 million in the third quarter of 2008, the housing gross margin in the respective periods would have been 14.6% and 9.6%. Land sales in the current quarter generated a loss of $8.4 million, including $8.5 million of impairment charges related to planned future land sales. This compares to a loss of $.4 million in the third quarter of 2008, which included impairment charges of $.6 million. Selling, general and administrative expenses totaled $83.9 million in the third quarter of 2009, a 37% decrease from $133.2 million in the year-earlier period. As a percentage of housing revenues, selling, general and administrative expenses were 18.5% in the third quarter of 2009, compared to 19.9% in the third quarter of 2008.
The Company's equity in loss of unconsolidated joint ventures was $26.3 million in the third quarter of 2009, including $23.2 million of impairment charges, compared to a loss of $46.2 million in the third quarter of 2008, which included $43.1 million of impairment charges.
Financial services operations, which include the Company's equity interest in an unconsolidated mortgage banking joint venture, reported pretax income of $5.6 million in the current quarter, compared to $6.0 million in the year-earlier quarter. This 6% decrease primarily reflected a decline in the number of loans originated by the joint venture, a result of the reduced number of homes delivered by the Company.
The Company generated a pretax loss of $77.0 million in the third quarter of 2009, reducing its $151.7 million pretax loss for the year-earlier quarter by nearly half. The Company posted a net loss of $66.0 million, or $.87 per diluted share, for the 2009 third quarter, including a $35.5 million charge to record an after-tax valuation allowance against the net deferred tax assets generated during the period. In the third quarter of 2008, the Company reported a net loss of $144.7 million, or $1.87 per diluted share, including an after-tax valuation allowance charge of $58.1 million.
Net orders increased to 2,158 in the third quarter of 2009, up 62% from 1,329 in the year-earlier period, primarily reflecting the Company's well-received new product line, The Open Series, and a lower cancellation rate. The Company's cancellation rate as a percentage of gross orders improved to 27% in the third quarter of 2009, compared to 51% in the third quarter of 2008. As a percentage of beginning backlog, the cancellation rate was 20% in the current quarter, compared to 22% in the year-earlier quarter. The Company's backlog at the end of the 2009 third quarter decreased 22% to 3,722 homes from 4,774 homes at the end of the third quarter of 2008. At August 31, 2009, potential future housing revenues in backlog totaled $734.1 million, a 35% decrease from potential future housing revenues of $1.13 billion at August 31, 2008.
In the nine-month period ended August 31, 2009, Company-wide revenues totaled $1.15 billion, down 46% from $2.11 billion in the year-earlier period. Homes delivered in the first nine months of fiscal 2009 decreased 36% year-over-year to 5,446, and the average selling price decreased 12% year-over-year to $209,200. The Company posted a net loss of $202.5 million, or $2.64 per diluted share, in the first nine months of fiscal 2009, including pretax, noncash charges of $129.5 million for inventory and joint venture impairments and land option contract abandonments. The net loss also reflected an after-tax charge of $89.9 million to record a valuation allowance against the net deferred tax assets generated during the current period. In the nine months ended August 31, 2008, the Company generated a net loss of $668.8 million, or $8.63 per diluted share, including pretax, noncash charges of $482.7 million for inventory and joint venture impairments and land option contract abandonments, and $24.6 million for goodwill impairment. The net loss for the first nine months of fiscal 2008 also included a $257.0 million after-tax valuation charge against the net deferred tax assets generated during the period.
The Conference Call on the Third Quarter 2009 earnings will be broadcast live TODAY at 8:30 a.m. Pacific Daylight Time, 11:30 a.m. Eastern Daylight Time. To listen, please go to the Investor Relations section of the Company's website at kbhome.com.
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