10-KPeriod: FY2007

HORTON D R INC /DE/ Annual Report, Year Ended Sep 30, 2007

Filed November 27, 2007For Securities:DHI

Summary

D.R. Horton, Inc. (DHI) reported a challenging fiscal year 2007, marked by a significant downturn in the homebuilding industry. The company experienced a net loss of $712.5 million, a stark contrast to the previous year's profit of $1.23 billion. This decline was primarily driven by a 25% decrease in homebuilding revenues, a 22% drop in homes closed, and substantial inventory and goodwill impairment charges totaling $1.22 billion and $474.1 million, respectively. These impairments reflect the company's response to weakening demand, increased cancellation rates (up to 48% in Q4), and the need to offer significant price concessions and incentives to stimulate sales in a difficult market. While DHI remains the largest homebuilder by homes closed, its operations contracted significantly in response to adverse market conditions and tighter mortgage lending, particularly impacting markets like California, Florida, and Nevada. The company's strategy in response to the downturn shifted to strengthening its financial condition by reducing inventory, controlling costs, and generating positive cash flow to pay down debt. Despite the significant headwinds, DHI generated $1.4 billion in net cash from operations, which was used to reduce its outstanding debt. Looking forward, DHI anticipates continued challenges but aims to leverage its scale and diversified geographic presence to navigate the market, with a focus on further cost management and balance sheet strengthening.

Key Highlights

  • 1D.R. Horton reported a net loss of $712.5 million for fiscal year 2007, a significant turnaround from a net income of $1.23 billion in fiscal 2006.
  • 2Homebuilding revenues decreased by 25% to $11.1 billion in fiscal 2007, reflecting a 22% decline in homes closed to 41,370.
  • 3The company recorded substantial impairment charges, including $1.22 billion for inventory and $474.1 million for goodwill, due to the severe downturn in the housing market.
  • 4Sales order cancellations significantly increased, reaching 38% for the full fiscal year 2007, up from 28% in 2006, with Q4 cancellations hitting 48%.
  • 5Despite the downturn, D.R. Horton generated $1.4 billion in net cash from operations, which was primarily used to reduce outstanding debt.
  • 6The company experienced a decline in its financial services segment, with revenues dropping 29% to $207.7 million, primarily due to lower mortgage origination volumes.
  • 7Leverage remained a significant factor, with total debt at $4.37 billion, though the company emphasized efforts to strengthen its balance sheet and liquidity.

Frequently Asked Questions

The primary driver was the significant downturn in the U.S. homebuilding industry. This resulted in reduced demand, lower sales prices, increased cancellations, and necessitated substantial inventory and goodwill impairment charges, leading to a net loss for the year.

D.R. Horton shifted its focus to strengthening its financial condition. Key initiatives included reducing land and home inventories, controlling construction and overhead costs, generating positive cash flow from operations, and using that cash to pay down debt. The company also continued to offer price reductions and incentives to drive sales.

The company believes that long-term fundamentals supporting housing demand remain solid, but acknowledges that current negative market conditions are more severe and prolonged than previously expected. The timing of a market recovery remains unclear, and the company anticipates continued challenging conditions, including margin pressure and high inventory levels.

D.R. Horton has substantial debt, totaling $4.37 billion at the end of fiscal year 2007. A key strategic priority is to strengthen its balance sheet and liquidity by using cash flows from operations to reduce outstanding debt.