- The firm had no cash borrowings outstanding on the homebuilding revolver at quarter end.
- During the quarter, through an unsolicited transaction, the firm repurchased $36.5 million of its 9.75% senior subordinated notes due 2010 for a purchase price of $36 million plus accrued interest.
Key questions and answers from the second quarter earnings call conducted by D.R.Horton Inc. (DHI: chart) on May 6, 2008.
Michael Rehaut (J.P. Morgan):
On the gross margins, how much of that might have been impacted by the aggressive spec reduction?
Bill W. Wheat: About 40% of the homes that we closed this quarter were completed, unsold homes at the start of the quarter. A portion of our closings this quarter were homes that we were aggressively looking to move.
Michael Rehaut (J.P. Morgan):
Can you give us a sense for the benefit of homes sold in the quarter that were previously impaired?
Bill W. Wheat: The margin differential between those homes and the other homes that we closed during the quarter was certainly greater than 300 basis points during the quarter.
In terms of the impact of previous impairments during the quarter, about 22% of our closings were in communities that had been previously impaired.
Michael Rehaut (J.P. Morgan):
In terms of the quality of buyers coming in, do you feel that they have a more difficult time getting approved?
Stacey H. Dwyer: The challenges are pretty much the same, mortgage lending has become more restrictive, but with the recent changes in the FHA and the changed limits that we have in different communities across the U.S.
We are actually seeing people able to use FHA financing at even higher price points, and that’s making the process a little bit easier for people in price points that would have previously only qualified for jumbo loans.
Stephen East (Pali Capital):
Looking at your total land supply, are you comfortable with where it is or do you need to do some bulk land sale type situations?
Donald J. Tomnitz: We believe our current land and lot inventory is a little high relative to our trailing 12 months closings, which puts our land and lot supply somewhere right around 5.2 year supply. We would rather see that closer in the 4s and if possibly down even to the 3s.
Carl Reichardt (Wachovia Securities):
Can you give us an update on the geographic markets that you have chosen to exit and your philosophy there?
Donald J. Tomnitz: Currently we are still in 27 states and 82 markets, having decreased by three or four markets, We have consolidated where we had duplicate divisions in the same market like we did in San Francisco where at one point in time in the Bay Area we had three divisions on the San Diego.
What we have actually done is consolidate across the country multiple market divisions into single market divisions, and we believe that we are properly positioned in each one of those markets now such that we can capitalize on the strength in homebuilding industry as it comes back.
James Wilson (JMP Securities):
Can you give us any color on what margins might look like in backlog if the big sale in California had an impact?
Donald J. Tomnitz: As we impair these projects, we are typically somewhere 12% to 15% gross margins on a go-forward basis. To the extent that the market continues to deteriorate, those 12% to 15% gross margins will be impacted.
James Wilson (JMP Securities):
Comment on the pricing in your major markets or markets you would want to talk about?
Donald J. Tomnitz: Our margins across the country were running simply, we have gotten rid of most of our older inventory and we have very few completed specs, that have been completed for a period of greater than a year.
Nishu Sood (Deutsche Bank):
Can you explain the timing of the dividend cut?
