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| DHI > SEC Filings for DHI > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-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 Lancaster Waco
Philadelphia
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 Eastern Washington
Seattle/Tacoma
Vancouver
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OVERVIEW
During the third quarter of fiscal 2009, conditions within the homebuilding
industry remained challenging. The decline in demand for new homes continues to
be reflected in the low volume of our net sales orders this quarter. Although
our net sales orders were only 7% lower than in the third quarter of fiscal
2008, they were 41% and 64% lower than in the third quarter of fiscal 2007 and
2006, respectively. These results suggest the severe declines in our net sales
orders experienced in recent years may be moderating. However, we expect overall
demand for new homes to remain at these very low levels for some time, which
will continue to challenge our efforts to improve our net sales order volume.
The value of our sales order backlog at June 30, 2009 was 41% lower than a year
ago.
During the slowdown in the homebuilding industry, the factors hurting demand
for new homes have been pervasive across the United States. High inventory
levels of available homes, elevated cancellation rates, low sales absorption
rates and overall weak consumer confidence have persisted. The effects of these
factors have been magnified by reduced availability of credit in the mortgage
markets, severe shortages of liquidity in the financial markets and high levels
of home foreclosures. High levels of foreclosures not only contribute to
additional available for sale inventory, but also reduce appraisal valuations
for new homes, potentially resulting in lower sales prices. The overall economy
has weakened significantly and is now in a recession marked by high and rising
unemployment levels and substantially reduced consumer spending. The turmoil in
the housing market during the last three years and the recent weakness in the
economy have resulted in drastic price reductions in our homes and continued
compression in our gross margins. However, these price reductions have caused
housing to become more affordable, which may lead to increased demand in the
future when other market conditions improve.
We continue to remain cautious regarding our outlook for the homebuilding
industry. We believe that challenging housing market conditions will persist for
some time 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
homes available for sale; weak demand from new home consumers; the scheduled
expiration of the first-time homebuyer federal tax credit in November 2009;
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. Partially mitigating these negative industry factors are some
favorable aspects of our performance in the quarter ended June 30, 2009, in
which our year over year net sales decline has moderated, our sales order
cancellation rate has declined and we were successful in reducing our inventory
of completed homes.
Due to the challenging market conditions discussed above, we have continued
to evaluate our homebuilding and financial services assets for recoverability.
Our significant assets, excluding cash, and those whose recoverability are most
impacted by market 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 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
$102.9 million, wrote-off earnest money deposits and pre-acquisition costs
related to land and lot option contracts we no longer plan to pursue of
$7.9 million and recorded additional reserves for losses of $4.4 million
associated with limited recourse provisions on previously sold mortgage loans
and $4.8 million related to mortgage reinsurance activities during the three
months ended June 30, 2009. While these impairment charges and write-offs are
generally less than amounts recognized in the prior year periods, they reflect
the continued weakness in market conditions. We will 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. In the near term,
however, it is not possible to predict how long the negative effects of the
current market conditions will persist and if the homebuilding industry will
experience further deterioration from these levels or if conditions will begin
to improve. During the downturn we have aggressively reduced our inventory
levels and increased our cash balances. We have been successful in generating
substantial cash flow from operations primarily through inventory reductions and
from the receipt of a tax refund from a loss carryback. We have also increased
our cash balance by accessing the capital markets. While we will continue to
conservatively manage our business, this increase in our liquidity provides us
with 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
flexibility, we are 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.
• Entering into new finished lot option contracts to purchase finished lots in selected communities in an attempt to increase sales volumes and profitability.
• Renegotiating existing finished lot option contracts to reduce our lot costs and better match the scheduled purchases with new home demand in the community.
• Limiting our land development spending or suspending development in communities that require substantial investments of time or capital resources.
• Managing our inventory of homes under construction by starting construction on unsold homes to take advantage of opportunities in certain markets, while closely monitoring the aging of unsold homes and aggressively marketing our unsold, completed homes in inventory.
• Decreasing our cost of goods purchased from both vendors and subcontractors.
• Modifying our product offerings to provide more affordable homes.
• Decreasing our SG&A infrastructure where necessary to match production levels.
KEY RESULTS
Key financial results as of and for the three months ended June 30, 2009, as
compared to the same period of 2008, were as follows:
Homebuilding Operations:
• Homebuilding revenues decreased 36% to $914.1 million.
• Homes closed decreased 31% to 4,240 homes and the average selling price of those homes decreased 8% to $211,500.
• Net sales orders decreased 7% to 5,089 homes.
• Sales order backlog decreased 41% to $1,125.5 million.
• Home sales gross margins increased 120 basis points to 11.3%.
• Inventory impairments and land option cost write-offs were $110.8 million, compared to $330.4 million.
• Homebuilding SG&A expenses decreased 31% to $134.3 million, but increased as a percentage of homebuilding revenues by 110 basis points to 14.7%.
• Homebuilding pre-tax loss was $164.7 million, compared to a pre-tax loss of $388.5 million.
• Homes in inventory declined by 4,500 to 10,900.
• Owned lots declined by 43,500 to 90,500.
• Homebuilding debt decreased by $301.4 million to $3.28 billion.
• Net homebuilding debt to total capital decreased 850 basis points to 34.5%, and gross homebuilding debt to total capital increased 730 basis points to 56.8%.
• Homebuilding cash was $1.97 billion, compared to $819.4 million at June 30, 2008.
Financial Services Operations:
• Total financial services revenues, net of recourse expense and reinsurance
reserves, decreased 39% to $18.8 million.
• Financial services pre-tax income was $2.8 million, compared to pre-tax income of $9.4 million.
• Financial services debt decreased by $9.1 million to $77.4 million.
Consolidated Results:
• Net loss per share was $0.45, compared to net loss per share of $1.26.
• Net loss was $142.3 million, compared to net loss of $399.3 million.
• Stockholders' equity decreased 32% to $2.5 billion.
• Net cash provided by operations was $124.1 million, compared to $388.9 million.
Key financial results for the nine months ended June 30, 2009, as compared to
the same period of 2008, were as follows:
Homebuilding Operations:
• Homebuilding revenues decreased 46% to $2,589.7 million.
• Homes closed decreased 39% to 11,893 homes and the average selling price of those homes decreased 10% to $214,700.
• Net sales orders decreased 30% to 12,026 homes.
• Home sales gross margins increased 210 basis points to 13.4%.
• Inventory impairments and land option cost write-offs were $215.2 million, compared to $1,410.0 million.
• Homebuilding SG&A expenses decreased 37% to $388.2 million, but increased as a percentage of homebuilding revenues by 210 basis points to 15.0%.
• Homebuilding pre-tax loss was $313.6 million, compared to pre-tax loss of $1,494.8 million.
Financial Services Operations:
• Total financial services revenues, net of recourse expense and reinsurance
reserves, decreased 60% to $39.1 million.
• Financial services pre-tax loss was $12.6 million, compared to pre-tax income of $28.2 million.
Consolidated Results:
• Net loss per share was $0.99, compared to net loss per share of $5.81.
• Net loss was $313.4 million, compared to net loss of $1,833.8 million.
• Net cash provided by operations was $1.1 billion, compared to $1.4 billion.
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables and related discussion set forth key operating and
financial data for our homebuilding operations by reporting segment as of and
for the three and nine months ended June 30, 2009 and 2008. We have restated the
2008 amounts between reporting segments to conform to the 2009 presentation.
Net Sales Orders (1)
Three Months Ended June 30,
Net Homes Sold Value (In millions) Average Selling Price
2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
East 482 372 30 % $ 115.8 $ 95.4 21 % $ 240,200 $ 256,500 (6 )%
Midwest 377 406 (7 )% 102.5 121.1 (15 )% 271,900 298,300 (9 )%
Southeast 786 841 (7 )% 145.4 172.3 (16 )% 185,000 204,900 (10 )%
South Central 1,845 1,904 (3 )% 317.6 344.5 (8 )% 172,100 180,900 (5 )%
Southwest 583 836 (30 )% 102.6 155.5 (34 )% 176,000 186,000 (5 )%
West 1,016 1,142 (11 )% 275.2 348.0 (21 )% 270,900 304,700 (11 )%
5,089 5,501 (7 )% $ 1,059.1 $ 1,236.8 (14 )% $ 208,100 $ 224,800 (7 )%
Nine Months Ended June 30,
Net Homes Sold Value (In millions) Average Selling Price
2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
East 1,024 1,225 (16 )% $ 239.4 $ 315.8 (24 )% $ 233,800 $ 257,800 (9 )%
Midwest 842 1,145 (26 )% 227.0 331.5 (32 )% 269,600 289,500 (7 )%
Southeast 2,087 2,586 (19 )% 379.0 508.4 (25 )% 181,600 196,600 (8 )%
South Central 4,319 5,896 (27 )% 747.6 1,048.2 (29 )% 173,100 177,800 (3 )%
Southwest 1,455 2,853 (49 )% 249.0 525.7 (53 )% 171,100 184,300 (7 )%
West 2,299 3,569 (36 )% 629.1 1,095.4 (43 )% 273,600 306,900 (11 )%
12,026 17,274 (30 )% $ 2,471.1 $ 3,825.0 (35 )% $ 205,500 $ 221,400 (7 )%
Sales Order Cancellations
Three Months Ended June 30,
Cancelled Sales Orders Value (In millions) Cancellation Rate (2)
2009 2008 2009 2008 2009 2008
East 103 222 $ 23.5 $ 52.3 18 % 37 %
Midwest 50 118 13.4 33.9 12 % 23 %
Southeast 347 518 61.4 108.1 31 % 39 %
South Central 731 1,141 123.0 193.5 28 % 37 %
Southwest 236 878 40.4 172.7 29 % 51 %
West 343 596 99.2 208.3 25 % 34 %
1,810 3,473 $ 360.9 $ 768.8 26 % 39 %
Nine Months Ended June 30,
Cancelled Sales Orders Value (In millions) Cancellation Rate (2)
2009 2008 2009 2008 2009 2008
East 350 866 $ 84.6 $ 204.9 25 % 41 %
Midwest 186 348 50.9 107.2 18 % 23 %
Southeast 953 1,569 180.3 363.3 31 % 38 %
South Central 2,215 3,184 372.1 546.0 34 % 35 %
Southwest 675 2,822 125.5 590.3 32 % 50 %
West 915 1,803 275.9 661.7 28 % 34 %
5,294 10,592 $ 1,089.3 $ 2,473.4 31 % 38 %
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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.
(2) Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.
Net Sales Orders
Net sales orders represent the number and dollar value of new sales contracts
executed with customers, net of sales contract cancellations. The value of net
sales orders decreased 14%, to $1,059.1 million (5,089 homes) for the three
months ended June 30, 2009, from $1,236.8 million (5,501 homes) for the same
period of 2008. The value of net sales orders decreased 35%, to $2,471.1 million
(12,026 homes) for the nine months ended June 30, 2009, from $3,825.0 million
(17,274 homes) for the same period of 2008. The number of net sales orders
decreased 7% and 30% for the three and nine-month periods ended June 30, 2009,
respectively. We believe the most significant factors contributing to the
slowing of demand for new homes in most of our markets include a continued high
level of homes for sale, which includes foreclosed homes for sale; a decrease in
the availability of mortgage financing for many potential homebuyers; the
continued uncertainty in the financial markets and a decline in homebuyer
consumer confidence. Many prospective homebuyers continue to approach the
purchase decision tentatively due to concern over their ability to sell an
existing home or obtain mortgage financing, the general uncertainty surrounding
the housing market, increasing unemployment and weakness in the overall economy.
However, these factors have led to lower home prices and improved affordability,
which combined with various homebuyer tax incentives, has served to partially
offset some of the market softness. We continue to manage our sales incentives
and pricing on a community by community basis in an attempt to optimize the
balance of sales volumes, profits, returns and cash flows. However, the factors
above, combined with the continued pricing responses of our competitors, have
limited the impact of our pricing efforts on sales. Further contributing to the
decline in sales has been the elimination of seller funded down payment
assistance programs for FHA insured loans, as discussed below.
In comparing the three and nine-month periods ended June 30, 2009 to the same
periods of 2008, the value of net sales orders decreased in all of our market
regions, with the exception of the East region where the value of net sales
orders increased 21% during the three-month period. These decreases were
primarily due to similar decreases in the number of homes sold in the respective
regions, as well as a decline in average selling price of those homes. The
increase in the value of net sales orders in the East region was primarily
attributable to increased sales in our Maryland and Virginia markets where
improved affordability from reduced sales prices and relatively stronger
employment in these markets have increased demand for our homes.
The average price of our net sales orders in the three months ended June 30,
2009 was $208,100, a decrease of 7% from the $224,800 average in the comparable
period of 2008. The average price of our net sales orders in the nine months
ended June 30, 2009 was $205,500, a decrease of 7% from the $221,400 average in
the comparable period of 2008. The average price of our net sales orders
decreased in all of our market regions, due primarily to price reductions and
increased incentives implemented to attempt to achieve an appropriate sales
absorption pace. As the inventory of existing homes for sale, which includes a
substantial number of foreclosed homes, has continued to be high, we have
adjusted our pricing to remain competitive with comparable existing home sales
prices. We monitor and may adjust our product mix, geographic mix and pricing
within our homebuilding markets in an effort to keep our core product offerings
affordable for our target customer base, typically first-time and move-up
homebuyers, which has also contributed to the decrease in average selling price.
Our sales order cancellation rates (cancelled sales orders divided by gross
sales orders for the period) during the three and nine months ended June 30,
2009 were 26% and 31%, respectively, compared to 39% and 38% during the same
periods of fiscal 2008. While an improvement from prior year periods, these
elevated cancellation rates reflect the ongoing challenges in most of our
homebuilding markets, including the inability of many prospective homebuyers to
sell their existing homes, the erosion of buyer confidence and the tight credit
conditions in the mortgage markets. We anticipate that cancellation rates will
remain elevated and may continue to fluctuate substantially until market
conditions improve.
In July 2008, Congress passed and the President signed into law H.R. 3221,
. . .
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