D.R. Horton, Inc. (DHI)
Q4 2008 Earnings Call Transcript
November 25, 2008, 10:00 a.m. ET

Executives

Donald J. Tomnitz - Vice-Chairman, President and Chief Executive Officer
Stacey H. Dwyer - EVP and Treasurer
Bill W. Wheat - EVP and Chief Financial Officer

Analysts

Megan McGrath – Barclays Capital
Michael Rehaut – JP Morgan
Daniel Oppenheim – Credit Suisse
Rob Hansen for Nishu Sood – Deutsche Bank
Kenneth Zener – Macquarie Research
Timothy Jones – Wasserman & Associates
Alex Barron – Agency Trading Group
Jay McCanless – FTN Midwest
Carl Reichardt – Wachovia Capital Markets
James Wilson – JMP Securities
Stephen East – Pali Capital
Randy Raisman – Durham Asset Management
Larry Taylor – Credit Suisse
Susan for David Goldberg – UBS
Rob Stevenson – Fox-Pitt Kelton

Presentation

Operator

Good morning. My name is Leslie and I will be your conference operator today. At this time, I would like to welcome everyone to the D.R. Horton, America''s Builder 2008 fiscal year end conference call. All lines have been placed on mute to prevent any background noise. After the speakers'' remarks, there will be a question-and-answer session. (Operator Instructions) If you’d like to ask a question during this time simply press * then the number 1 on your telephone keypad. If you’d like to withdraw your question press the pound key.

Thank you Mr. Tomnitz, you may begin your conference.

Donald J. Tomnitz - Vice-Chairman, President and Chief Executive Officer

Thank you and morning. Joining me this morning are Bill Wheat, Executive Vice President and CFO and Stacey Dwyer, Executive Vice President and Treasurer.

Before we get started, Stacey?

Stacey H. Dwyer - Executive Vice President and Treasurer

Some comments made on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statement. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton''s annual report on Form 10-K and the most recent Form 10-Q, both of which were filed with the Securities and Exchange Commission. Don?

Donald J. Tomnitz

Net sales orders for the fourth quarter were 3977 homes, $852 million compared to 6374 homes, $1.3 billion in the year ago quarter. Our average sales price on net sales orders in the quarter was $214,300 and our cancellation rate remained elevated at 47%. Our fourth quarter home sales revenues were $1.5 billion, 6961 homes compared to $3.0 billion or 11,733 homes in the year ago quarter. Our average closing price for the quarter was down 12.0% to $221,900 compared to $253,000 in the year ago quarter, reflecting a dismal pricing environment compared to the prior year. Stacey?

Stacey H. Dwyer

Our gross profit margins, on home sales revenue in the fourth quarter before inventory impairment and land option write off, was 10.9%. This was a 510 basis points decline from our home sales margin of 16% in a year ago period. The majority of the margin decline was due to core margin deterioration resulting from an increased use of sales incentives relative to last year’s impractical and as reported in our 12% decrease in average closing price. Also the amortization of capitalized interest as a percentage of home sales revenue increased from the prior year quarter. Don?

Donald J. Tomnitz

During the quarter we consummated multiple land and lot sales transactions with various buyers. These land and lot sales generated revenue of $209 million. In addition to reducing our future carrying cost and land development obligations and lowering our inventory of land and lots in certain markets, they closely match our expectations of future demand. Approximately 32000 lots were sold during the quarter of which 55% were undeveloped, 20% were partially developed and 25% were fully developed. The largest concentration of sales, were in California, Nevada, Arizona and Florida. Total cash expected from these sales including their contribution to our income tax refund is $795 million. Bill?