KB Home ends fiscal 2008 with $1.94 billion of debt, $1.80 billion of liquidity

By Jennifer Lanning Drey

Portland, Ore., Jan. 9 - KB Home ended fiscal 2008 with total debt of $1.94 billion and liquidity of more than $1.80 billion, which included $1.25 billion of cash and cash equivalents, the company reported Friday.

The debt balance was down by $220.3 million from the prior year-end debt balance, mainly due to the redemption of the remaining $300 million of the company's 7¾% senior subordinated notes in the third quarter.

"Generating cash from operations and strengthening the balance sheet remains our primary focus, and our enhanced liquidity positions us to navigate this downturn to capitalize on opportunities in 2009 and beyond," Jeffrey Mezger, KB Home's chief executive officer, said during the company's fourth-quarter earnings call held Friday.

Following the close of fiscal 2008, KB Home also repaid the remaining $200 million of its 8 5/8% senior subordinated notes at their scheduled maturity on Dec. 15.

The company generated positive operating cash flow of $311.1 million during the fourth quarter, pushing it past its goal of generating $1.0 billion of operating cash flow in 2008.

KB Home now expects to be operating cash flow positive for full-year 2009, an upgrade from its prior projection that it would be operating cash neutral for the year, Mezger said.

The company ended fiscal 2008 with no cash borrowings outstanding on its revolving credit facility and does not expect to borrow against the revolver in 2009.

KB Home's ratio of debt to total capital was 70% at Nov. 30, compared to 53.9% at fiscal year-end 2007.

Plans for profitability

In addition to focusing on generating and preserving liquidity, KB Home is looking to return to profitability through actions including lowering its cost to build, gaining operational efficiencies and lowering overhead. The company is also developing new home designs aimed at competing with resale and foreclosure homes, Mezger said.

"These actions favorably impacted our results throughout the year, and particularly in the fourth quarter, giving us forward momentum to build on as we enter 2009," he said.

KB Home reported total revenues of $919.0 million for the fourth quarter, down $2.07 billion from the year-earlier quarter. The company reported a net loss of $307.3 million, compared to a net loss of $772.7 million in the 2007 fourth quarter.

Conservative land spending

Looking ahead, the company is also considering how to seize lots without compromising its liquidity, Mezger said.

"While 2009 will likely offer attractive land acquisition opportunities, we intend to reload conservatively in a capital-sensitive manner," he said.

When the company does begin purchasing lots it will look to acquire them on a rolling-option basis. It is also exploring creating alliances with investors for land and lot opportunities where bulk purchases are required.

KB Home is a Los Angeles-based builder of single-family homes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.