KB Home plans to make $1 billion cash in second half, will repay debt

By Jennifer Lanning Drey

Portland, Ore., June 28 - KB Home expects to generate $1 billion cash in the second half of 2007, which it will use to reduce debt, repurchase shares of its common stock and reinvest in the business, Jeffrey T. Mezger, KB Home's chief executive officer, said Thursday during the company's second-quarter earnings conference call.

The company expects to generate $500 million of cash from operations and $550 million from the sale of its French subsidiary, Kaufman & Broad SA, which is expected to close in the third quarter, he said.

KB Home also announced that it would redeem all of its outstanding 9½% senior subordinated notes due 2011 for 103.167%. The redemption date is July 27.

"We continue to deploy our cash with a priority on controlled growth, debt reduction and share repurchases while maintaining a strong balance sheet," Mezger said in the conference call.

KB Home's debt, net of cash, was $2.5 billion at the end of the second quarter, down from $3.3 billion at the end of the same quarter in 2006.

The company has a zero balance on its $1.5 billion revolving credit facility, he said.

However, with revenue down in the second quarter, due to market conditions remaining difficult in the homebuilding industry, the company must continue to work to reduce its costs until business improves, he said.

"Here in the U.S., the market conditions continue to remain challenging. Affordability remains an issue, and it is too early to determine when the housing market will begin to stabilize," Mezger said.

KB Home's revenue for the six months ended May 31 totaled $2.80 billion, down 31% from $4.08 billion in the first six months of 2006, according to a company news release.

KB Home also reported its existing inventory of unsold homes increased in May to an almost nine months' supply, while new-home inventory went up to a more than seven months' supply.

"These inventory levels must stabilize and clear the markets, and then we will recover," Mezger said.

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

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