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| DHI > SEC Filings for DHI > Form 10-Q on 6-Feb-2009 | All Recent SEC Filings |
6-Feb-2009
Quarterly Report
We conduct our homebuilding operations in all of the geographic regions, states and markets listed below, and we conduct our mortgage and title operations in many of these markets. Our homebuilding operating divisions are aggregated into six reporting segments, which are comprised of the markets below. Our financial statements contain additional information regarding segment performance.
State Reporting Region/Market State Reporting Region/Market
East Region South Central Region
Delaware Central Delaware Louisiana Baton Rouge
Delaware Shore Mississippi Mississippi Gulf Coast
Georgia Savannah Oklahoma Oklahoma City
Maryland Baltimore Texas Austin
Suburban Washington, D.C. Dallas
New Jersey North New Jersey Fort Worth
South New Jersey Houston
North Carolina Brunswick County Killeen/Temple
Charlotte Laredo
Greensboro/Winston-Salem Rio Grande Valley
Raleigh/Durham San Antonio
Pennsylvania Philadelphia Waco
Lancaster
South Carolina Charleston Southwest Region
Columbia Arizona Phoenix
Hilton Head Tucson
Myrtle Beach New Mexico Albuquerque
Virginia Northern Virginia Las Cruces
Midwest Region West Region
Colorado Colorado Springs California Bay Area
Denver Central Valley
Fort Collins Imperial Valley
Illinois Chicago Los Angeles County
Minnesota Minneapolis/St. Paul Riverside/San Bernardino
Wisconsin Kenosha Sacramento
San Diego County
Southeast Region Ventura County
Alabama Birmingham Hawaii Hawaii
Mobile Kauai
Florida Daytona Beach Maui
Fort Myers/Naples Oahu
Jacksonville Idaho Boise
Melbourne Nevada Las Vegas
Miami/West Palm Beach Laughlin
Ocala Reno
Orlando Oregon Albany
Pensacola Central Oregon
Tampa Portland
Georgia Atlanta Utah Salt Lake City
Macon Washington Bellingham
Eastern Washington
Seattle/Tacoma
Vancouver
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OVERVIEW
During the first quarter of fiscal 2009, conditions within the homebuilding
industry remained very challenging. The decline in demand for new homes
continues to be reflected in the volume of our net sales orders, which was 35%
lower than in the first quarter of fiscal 2008, and the average selling price of
those orders was down 6%. Consequently, the value of our sales order backlog at
December 31, 2008 was 56% lower than a year ago.
The factors hurting demand for new homes continue to intensify and have been
pervasive across the United States. High inventory levels of both new and
existing homes, elevated cancellation rates, low sales absorption rates and
overall weak consumer confidence have persisted. The effects of these factors
have been further magnified by credit tightening in the mortgage markets,
increasing home foreclosures and severe shortages of liquidity in the financial
markets. In recent months, the overall economy has weakened significantly and
fears of a prolonged recession are now pronounced due to rising unemployment
levels, further deterioration in consumer confidence and reduced consumer
spending. These factors have caused our sales volume to be significantly
reduced.
We continue to remain cautious regarding our outlook for the homebuilding
industry. We believe that housing market conditions may continue to deteriorate,
and that the timing of a recovery in the housing market remains unclear. Our
outlook incorporates several factors, including continued margin pressure from
sales price reductions and incentives; continued high levels of new and existing
homes available for sale; weak demand from new home consumers; continued high
sales cancellations; significant restrictions on the availability of certain
mortgage products and an overall increase in the underwriting requirements for
home financing as a result of the credit tightening in the mortgage markets.
Due to the challenging market conditions discussed above, we have continued
to evaluate our homebuilding and financial services assets for recoverability in
accordance with the appropriate accounting standards. Our most significant
assets, excluding cash, and those whose recoverability are most impacted by
industry conditions include inventory, earnest money deposits and
pre-acquisition costs related to land and lot option contracts, tax assets, both
on amounts reflected as deferred and as a receivable, and owned mortgage loans,
which collectively comprise 95% of our total non-cash assets. Our evaluations
reflected our expectation of continued and increasing challenges in the
homebuilding industry, and our belief that these challenging conditions will
persist for some time. Based on our evaluations, we recorded inventory
impairment charges of $55.1 million, wrote-off earnest money deposits and
pre-acquisition costs related to land and lot option contracts we no longer plan
to pursue of $1.1 million, and recorded expense of $3.5 million associated with
limited recourse provisions on previously sold mortgage loans during the three
months ended December 31, 2008. While these impairment charges and write-offs
were less than the amounts recorded during fiscal 2008, continued weakness in
market conditions will require us to continually evaluate whether further
impairment charges, valuation adjustments or write-offs are necessary on these
assets in the coming quarters. Additional discussion of these evaluations and
charges is presented below.
STRATEGY
We believe the long-term fundamentals which support housing demand, namely
population growth and household formation, remain solid. However, it is not
possible to predict how long the negative effects of the current market
conditions will persist or to what extent they will continue to deteriorate.
Consequently, we have aggressively sought to reduce our inventory levels and
increase our cash balances. We have been successful in generating substantial
cash flow from operations primarily through inventory reductions, as well the
receipt of a tax refund from a loss carryback, allowing us to increase our cash
balances and decrease debt levels. At December 31, 2008, we had accumulated a
cash balance sufficient to pay off our scheduled public debt maturities in the
near term. This increase in our liquidity will provide us with additional
flexibility in determining the appropriate operating strategy for each of our
communities and markets to strike the best balance between cash flow generation
and potential profit. With this enhanced flexibility, we remain committed to the
following initiatives related to our operating strategy in the current
homebuilding business environment:
• Maintaining a strong cash balance and overall liquidity position.
• Managing the sales prices and level of sales incentives on our homes as necessary to optimize the balance of sales volumes, returns and cash flows.
• Reducing our land and lot inventory from current levels by:
- selling and constructing homes;
- opportunistically selling excess land and lots;
- significantly restricting our spending for land and lot purchases;
- decreasing our land development spending or suspending development in many communities until market conditions improve;
- renegotiating or canceling land option purchase contracts; and
- limiting purchases of finished lots to those needed to meet immediate demand for homes in selected markets and submarkets.
• Controlling our inventory of homes under construction by limiting the construction of unsold homes and aggressively marketing our unsold, completed homes in inventory.
• Decreasing our cost of goods purchased from both vendors and subcontractors.
• Continuing to modify our product offerings to provide more affordable homes.
• Decreasing our SG&A infrastructure to be in line with our reduced expectations of production levels.
• Reducing our level of debt by utilizing cash balances and cash flows from operations.
These initiatives allowed us to generate cash flows from operations during
the current quarter, which we utilized to increase our liquidity and reduce our
outstanding debt. Although we cannot provide any assurances that these
initiatives will be successful, we expect that our operating strategy will allow
us to continue to maintain a strong balance sheet and liquidity position.
KEY RESULTS
Key financial results as of and for the three months ended December 31, 2008,
as compared to the same period of 2007, were as follows:
Homebuilding Operations:
• Homebuilding revenues decreased 47% to $900.3 million.
• Homes closed decreased 38% to 4,068 homes and the average selling price of those homes decreased 11% to $217,700.
• Net sales orders decreased 35% to 2,777 homes.
• Sales order backlog decreased 56% to $889.1 million.
• Home sales gross margins increased 120 basis points to 15.5%.
• Inventory impairments and land option cost write-offs were $56.2 million, compared to $245.5 million.
• Homebuilding SG&A expenses decreased 40% to $127.0 million, but increased as a percentage of homebuilding revenues by 160 basis points to 14.1%.
• Homebuilding pre-tax loss was $58.4 million, compared to a pre-tax loss of $209.8 million.
• Homes in inventory declined by 6,600 to 10,700.
• Owned lots declined by 46,000 to 97,000.
• Homebuilding debt decreased by $0.2 billion to $3.4 billion.
• Net homebuilding debt to total capital decreased 400 basis points to 35.5%, and gross homebuilding debt to total capital increased 1,510 basis points to 55.2%.
• Homebuilding cash was $1.9 billion, compared to $90.4 million at December 31, 2007.
Financial Services Operations:
• Total financial services revenues decreased 49% to $17.7 million.
• Financial services pre-tax loss was $2.9 million, compared to pre-tax income of $6.9 million.
• Financial services debt decreased by $50.0 million to $55.9 million.
Consolidated Results:
• Net loss per share was $0.20, compared to net loss per share of $0.41.
• Net loss was $62.6 million, compared to net loss of $128.8 million.
• Stockholders' equity decreased 49% to $2.8 billion.
• Net cash provided by operations was $817.6 million, compared to $557.7 million.
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth key operating and financial data for our
homebuilding operations by reporting segment as of and for the three months
ended December 31, 2008 and 2007. We have restated the 2007 amounts between
reporting segments to conform to the 2008 presentation.
Net Sales Orders (1)
Three Months Ended December 31,
Net Homes Sold Value (In millions) Average Selling Price
% % %
2008 2007 Change 2008 2007 Change 2008 2007 Change
East 253 344 (26 )% $ 56.3 $ 88.9 (37 )% $ 222,500 $ 258,400 (14 )%
Midwest 165 297 (44 )% 44.8 80.7 (44 )% 271,500 271,700 - %
Southeast 585 581 1 % 103.1 107.7 (4 )% 176,200 185,400 (5 )%
South Central 986 1,585 (38 )% 173.2 277.3 (38 )% 175,700 175,000 - %
Southwest 352 729 (52 )% 59.1 136.5 (57 )% 167,900 187,200 (10 )%
West 436 709 (39 )% 131.0 235.0 (44 )% 300,500 331,500 (9 )%
2,777 4,245 (35 )% $ 567.5 $ 926.1 (39 )% $ 204,400 $ 218,200 (6 )%
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(1) Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations which are presented below.
Sales Order Cancellations
Three Months Ended December 31,
Sales Order
Cancelled Sales Orders Value (In millions) Cancellation Rate
2008 2007 2008 2007 2008 2007
East 109 271 $ 28.7 $ 67.6 30 % 44 %
Midwest 83 128 23.2 41.5 33 % 30 %
Southeast 299 515 59.5 133.2 34 % 47 %
South Central 672 935 112.6 161.5 41 % 37 %
Southwest 227 999 45.9 222.1 39 % 58 %
West 293 550 94.4 210.8 40 % 44 %
1,683 3,398 $ 364.3 $ 836.7 38 % 44 %
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Sales Order Backlog
December 31,
Homes in Backlog Value (In millions) Average Selling Price
% % %
2008 2007 Change 2008 2007 Change 2008 2007 Change
East 421 938 (55 )% $ 98.7 $ 237.6 (58 )% $ 234,400 $ 253,300 (7 )%
Midwest 234 374 (37 )% 64.7 116.2 (44 )% 276,500 310,700 (11 )%
Southeast 652 849 (23 )% 132.3 205.5 (36 )% 202,900 242,000 (16 )%
South Central 1,561 2,374 (34 )% 278.8 428.8 (35 )% 178,600 180,600 (1 )%
Southwest 472 2,393 (80 )% 94.3 500.8 (81 )% 199,800 209,300 (5 )%
West 666 1,210 (45 )% 220.3 524.6 (58 )% 330,800 433,600 (24 )%
4,006 8,138 (51 )% $ 889.1 $ 2,013.5 (56 )% $ 221,900 $ 247,400 (10 )%
Homes Closed
Three Months Ended December 31,
Homes Closed Value (In millions) Average Selling Price
% % %
2008 2007 Change 2008 2007 Change 2008 2007 Change
East 319 600 (47 )% $ 75.8 $ 157.9 (52 )% $ 237,600 $ 263,200 (10 )%
Midwest 259 523 (50 )% 71.7 156.6 (54 )% 276,800 299,400 (8 )%
Southeast 716 930 (23 )% 136.5 211.9 (36 )% 190,600 227,800 (16 )%
South Central 1,424 1,904 (25 )% 253.7 344.6 (26 )% 178,200 181,000 (2 )%
Southwest 692 1,475 (53 )% 135.5 321.2 (58 )% 195,800 217,800 (10 )%
West 658 1,117 (41 )% 212.6 414.8 (49 )% 323,100 371,400 (13 )%
4,068 6,549 (38 )% $ 885.8 $ 1,607.0 (45 )% $ 217,700 $ 245,400 (11 )%
Total Homebuilding Revenues
Three Months Ended December 31,
2008 2007 % Change
(In millions)
East $ 75.9 $ 158.7 (52 )%
Midwest 71.7 158.9 (55 )%
Southeast 147.1 234.4 (37 )%
South Central 255.0 348.8 (27 )%
Southwest 137.5 391.4 (65 )%
West 213.1 415.4 (49 )%
$ 900.3 $ 1,707.6 (47 )%
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Inventory Impairments and Land Option Cost Write-offs
Three Months Ended December 31,
2008 2007
Land Option Land Option
Inventory Cost Write-offs Inventory Cost Write-offs
Impairments (Recoveries) Total Impairments (Recoveries) Total
(In millions)
East $ 4.1 $ (0.1 ) $ 4.0 $ 19.1 $ 1.2 $ 20.3
Midwest 3.8 - 3.8 4.2 - 4.2
Southeast 3.8 (0.1 ) 3.7 21.8 0.3 22.1
South Central - 1.7 1.7 10.1 0.2 10.3
Southwest 1.9 0.1 2.0 - (0.3 ) (0.3 )
West 41.5 (0.5 ) 41.0 188.3 0.6 188.9
$ 55.1 $ 1.1 $ 56.2 $ 243.5 $ 2.0 $ 245.5
Carrying Values of Potentially Impaired and Impaired Communities
December 31, 2008
Inventory with
Impairment Indicators Impaired Communities
Inventory
Total Carrying Value
Number of Number of Carrying Number of Prior to
Communities (1) Communities (1) Value Communities (1) Impairment Fair Value
(Values in millions)
East 100 25 $ 211.9 4 $ 19.4 $ 15.3
Midwest 58 16 184.8 7 25.8 22.0
Southeast 171 41 237.8 7 24.3 20.5
South Central 234 41 173.4 - - -
Southwest 78 9 65.2 1 8.8 6.9
West 171 64 499.9 21 133.6 92.1
812 196 $ 1,373.0 40 $ 211.9 $ 156.8
September 30, 2008
Inventory with
Impairment Indicators Impaired Communities
Inventory
Total Carrying Value
. . .
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