KB Home expecting to generate positive cash flows from operations despite using cash mid-year

By Jennifer Lanning Drey

Portland, Ore., March 27 - KB Home expects to use cash flow from operations in the next two quarters but generate overall positive cash flows from operations for full-year 2009 to end the year with at least $1.1 billion of cash and cash equivalents, William R. Hollinger, chief accounting officer of KB Home, said Friday during the company's earnings call for the first quarter of fiscal 2009.

KB Home ended the first quarter on Feb. 28 with total liquidity of $1.6 billion, down from liquidity of $1.8 billion at the end of fiscal 2008. The lower amount reflected reduced borrowing capacity available under the company's revolving credit facility due to its tangible net worth falling below $800 million during the quarter, Hollinger said.

"Nonetheless, we believe we have sufficient liquidity and financial flexibility to navigate the current environment," he said.

KB Home had cash and cash equivalents of $1.1 billion at the end of the first quarter and does not expect to draw on the revolving credit facility during the year, he said.

The company was in compliance with all of its financial covenants at year-end.

"Our focus on strengthening and enhancing our financial position as we navigate the current downturn has provided stability to our company," Hollinger said.

KB Home will continue to limit land acquisition spending in 2009 as it waits for the right opportunities, he said. The company expects to spend less than $400 million on land purchases and development in 2009, which is about $150 million less than what was spent in 2008.

Restoring profitability

KB Home also continues to work toward its overriding objective of restoring profitability, Jeffrey Mezger, chief executive officer of KB Home, said during the call.

Although not there yet, the company is approaching break even, he said.

"Once we achieve break even, we can advance toward our goal of turning sustainable net profits," Mezger said.

During the first quarter, KB Home reduced its net loss despite delivering fewer homes.

The company reported a first-quarter net loss of $58.1 million, compared to a net loss of $268.2 million for the year-earlier quarter. Revenues were $307.4 million in the first quarter, down 61% from revenues of $794.2 million in the 2008 period.

"There's much work to do, but I believe we have energy and momentum. We are well-positioned to make the most of today's housing market and seize new opportunities as they arise, Mezger said.

The CEO also said the company has the framework in place to deliver additional cost reductions in 2009. In 2008, selling, general and administrative expenses were down more than 50% as compared to the prior year.

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

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