Losses widen at builder KB Home

No. 5 builder by revenue forced to renegotiate agreements with banks after large charges to write down value of its holdings, tax credits.

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By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- In another sign of problems in the battered home building industry, KB Home reported a much deeper loss in the latest quarter and said it doesn't see any sign that the battered housing and home building market has hit bottom.

"As we enter 2008, we see no indication markets are stabilizing," said KB Home CEO Jeff Mezger in a conference call with investors and analysts Tuesday.

The company is expecting another tough year in fiscal 2008, although it said the continued weakness in the market made it impossible to give specific guidance.

KB Home (KBH, Fortune 500) said it lost $772.6 million, or $9.99 a share, in the fourth quarter. Last year, the company posted a loss from continuing operations of $79.9 million, or 64 cents a share.

Analysts surveyed by earnings tracker First Call had been looking for a loss of only $1.08 a share in the most recent period.

It wasn't completely clear how the net loss compared to those estimates because most of it was due to charges to write down the value of its inventory and abandon land option contracts, as well as accounting for income taxes.

While the housing analysts have generally counted the land and option charges when comparing results to forecasts, charges for the reduced value of future tax credits have not been common in the industry yet.

Excluding the tax charges, but including other special items, the company appeared to have lost $258.5 million, or $3.34 a share, in the most recent quarter, although it did not break out results on that basis. The numbers suggested that even if analysts excluded the tax charge when comparing results to estimates, the company did far worse than expected.

Shares of KB Home were down nearly 8 percent to $17.02 in early-afternoon trading Tuesday after the conference call, although they were up from their lows of the day.

Revenue at the company fell 31 percent from the year-earlier period to $2.1 billion, although that was still enough to put the company No. 5 in terms of annual revenue among the nation's home builders.

The average sales price fell 12 percent compared to a year earlier, ranging from a 4 percent gain in the central states to a 19 percent plunge on the West Coast. The company also saw delivery of new homes plunge 22 percent in the quarter from year-earlier levels.

KB Home warned that the impact of the charges required it to obtain a waiver under its revolving credit terms relating to its tangible net worth, and that it expects to enter into an amendment of that lending agreement with its banks by the end of the first quarter.

But its executives said it still has a strong cash position and it will not require it to liquidate its inventory of homes at a steep discount to raise cash.

"We have this war chest of cash," said Mezger. "It's patient money for us. You can always use more cash. We don't need it."

KB Home is not the only builder to be hit by large charges due to the downturn in the housing market. No. 1 builder Lennar (LEN, Fortune 500), as well as No. 2 Centex (CTX, Fortune 500), No. 4 Pulte Homes (PHM, Fortune 500) and No. 6 Hovnanian Enterprises (HOV, Fortune 500), all reported bigger-than-expected losses due to such charges.

While No. 3 builder D.R. Horton (DHI, Fortune 500) reported a smaller-than-expected loss in late November, that followed a quarter with a loss that was much wider than forecast. In December, luxury home builder Toll Brothers (TOL, Fortune 500) posted its first loss in 22 years as a public company.  To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.