Stephen Rosenman's Instablog Stephen Rosenman enjoys analyzing the financial health of companies, pointing out areas the market is either not recognizing or ignoring. Stephen Rosenman http://seekingalpha.com Will Apple Ring In The Old As Well As The New IPhones Next Quarter? http://seekingalpha.com/instablog/48158-stephen-rosenman/39688-will-apple-ring-in-the-old-as-well-as-the-new-iphones-next-quarter?source=feed 39688   
  The FASB has ruled that Apple can begin accounting for iPhone sales as they happen.  The new regs mandate the change to occur at or before Q1 2011. 
    
          The Task Force reached a consensus that this Issue shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor’s fiscal year, the guidance in this Issue must be applied through retrospective application from the beginning of the vendor’s fiscal year and the vendor must disclose the effect of the change to those previously reported periods.

   Since Apple lobbied for the accounting change, I think they move on this.  


  When Apple reports its earnings next month, it will be able to present its iPhone sales in any of three ways (seekingalpha.com/article/177285-apple-to...):


      1.  Apple can continue its old subscription accounting system.
       
      2. It can convert to a retrospective approach in which old iPhone sales are stripped out.  Only IPhones sold in the quarter would be rung in.  (Imagine being able to declare current iPhone sales as they occur.)   Current iPhone sales and earnings dwarf the 24 month subscription amortizations.  Last quarter's earnings were 2.13 x higher than reported EPS when new iPhone sales were included and old sales excluded.  Christmas season iPhone sales likely will be even greater causing an even bigger earning's upside.
  
      3.  Apple can prospectively account  for its iPhone sales.  That way they can both ring in the old and new iPhone sales.  The 24 month subscription sales that are moving along their amortization tables would continue.  Iphones sold in the quarter would be booked as well.   Here Apple reaps an even bigger EPS bonanza than the retrospective approach.

  The upcoming earnings report presents a tremendous opportunity to show the investment world Apple's actual earnings as they are generated.  I think they institute the change sooner than later, most likely this upcoming quarter.


    
   

Disclosure: long AAPL]]> Sun, 13 Dec 2009 18:02:03 -0500   
  The FASB has ruled that Apple can begin accounting for iPhone sales as they happen.  The new regs mandate the change to occur at or before Q1 2011. 
    
          The Task Force reached a consensus that this Issue shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor’s fiscal year, the guidance in this Issue must be applied through retrospective application from the beginning of the vendor’s fiscal year and the vendor must disclose the effect of the change to those previously reported periods.

   Since Apple lobbied for the accounting change, I think they move on this.  


  When Apple reports its earnings next month, it will be able to present its iPhone sales in any of three ways (seekingalpha.com/article/177285-apple-to...):


      1.  Apple can continue its old subscription accounting system.
       
      2. It can convert to a retrospective approach in which old iPhone sales are stripped out.  Only IPhones sold in the quarter would be rung in.  (Imagine being able to declare current iPhone sales as they occur.)   Current iPhone sales and earnings dwarf the 24 month subscription amortizations.  Last quarter's earnings were 2.13 x higher than reported EPS when new iPhone sales were included and old sales excluded.  Christmas season iPhone sales likely will be even greater causing an even bigger earning's upside.
  
      3.  Apple can prospectively account  for its iPhone sales.  That way they can both ring in the old and new iPhone sales.  The 24 month subscription sales that are moving along their amortization tables would continue.  Iphones sold in the quarter would be booked as well.   Here Apple reaps an even bigger EPS bonanza than the retrospective approach.

  The upcoming earnings report presents a tremendous opportunity to show the investment world Apple's actual earnings as they are generated.  I think they institute the change sooner than later, most likely this upcoming quarter.


    
   

Disclosure: long AAPL]]> aapl Apple May Embark On A Whole New Method Of Accounting Next Quarter http://seekingalpha.com/instablog/48158-stephen-rosenman/38994-apple-may-embark-on-a-whole-new-method-of-accounting-next-quarter?source=feed 38994      In the past, iPhones were accounted for by a 24 month subscription system whereby revenues and earnings were dribbled out over a 730 day time frame. Sell an iPhone on the last day of the quarter and book only 1/730th of the sale, what a miserable accounting method Apple and investors were forced into.
     Apple and a number of other companies successfully lobbied the FASB to alter this muddled approach.  The new regulations allow the vast portion of the revenue generated by iPhone sales to be logged at the time of sale.  Soon Apple can sell an iPhone at Best Buy and actually declare the income that quarter.  Calculating iPhone deferred revenue will largely be a thing of the past.
     But nothing is ever completely settled and this is no different.
     The FASB mandated the new approach to take place at the start of the fiscal year beginning June 15, 2010.   For Apple, that means by January 2011. At that  time, Apple may prospectively account for its iPhone sales and does not need to recast its old sales.  Thus, all deferred revenue associated with the iPhone on the balance sheet will move over its 24 month amortization.
      Apple has the option of moving sooner in making the change.  However, if it does so, it risks a complicated accounting.  Per the FASB, "If the vendor elects earlier application from the beginning of the vendor's fiscal year and the vendor must disclose the effect of the change to those previously reported periods."  In that setting, Apple goes retrospectively instead of prospectively, a much more complicated approach.  In that setting, according to Apple, they would have to start "recasting historical financials as if we had always used the new accounting" and tear out the 24 month amortizations.
      It seems to me that next quarter presents a rare opportunity for Apple to simplify the regulatory burden.  The upcoming quarter is the start of fiscal 2010.  If Apple starts the new accounting method then, it will avoid having to retrospectively report earlier quarters as it is the start of the fiscal year.  When asked, Apple confirmed this interpretation of the rule.  Here is the rule:  "If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor's fiscal year, the guidance in this issue must be applied through retrospective application from the beginning of the vendor's fiscal year and the vendor must disclose the effect of the change to those previously reported periods."
      Clearly, Apple wants to make the change.  Prospective accounting is far easier. Apple will not say when it will start the new method of reporting but it stands to reason that this quarter would be an easier start.  That leads me to believe that this coming quarter Apple is likely to begin the new rules.  If it does start prospective accounting next quarter, Apple can report its sales and income from both its old iPhone sales that are moving through the 24 month subscription accounting plus most of the iPhone sales that were sold in the quarter.  That would bring a colossal surge in revenue and profits.
      Apple does have the option of going retrospective.  That would mean removing all previous iPhone sales and just presenting iPhone sales made during the current quarter.
      Currently, Apple is not saying when it will begin reporting under the new rules.  It is also not saying whether it will present its earnings prospectively or retrospectively.
       Whichever is the case, this quarter's analyst consensus looks about as relevant as deciding what to wear in March on the basis of Ground Hog Day.
  



 

Disclosure: long AAPL]]> Tue, 08 Dec 2009 12:49:22 -0500      In the past, iPhones were accounted for by a 24 month subscription system whereby revenues and earnings were dribbled out over a 730 day time frame. Sell an iPhone on the last day of the quarter and book only 1/730th of the sale, what a miserable accounting method Apple and investors were forced into.
     Apple and a number of other companies successfully lobbied the FASB to alter this muddled approach.  The new regulations allow the vast portion of the revenue generated by iPhone sales to be logged at the time of sale.  Soon Apple can sell an iPhone at Best Buy and actually declare the income that quarter.  Calculating iPhone deferred revenue will largely be a thing of the past.
     But nothing is ever completely settled and this is no different.
     The FASB mandated the new approach to take place at the start of the fiscal year beginning June 15, 2010.   For Apple, that means by January 2011. At that  time, Apple may prospectively account for its iPhone sales and does not need to recast its old sales.  Thus, all deferred revenue associated with the iPhone on the balance sheet will move over its 24 month amortization.
      Apple has the option of moving sooner in making the change.  However, if it does so, it risks a complicated accounting.  Per the FASB, "If the vendor elects earlier application from the beginning of the vendor's fiscal year and the vendor must disclose the effect of the change to those previously reported periods."  In that setting, Apple goes retrospectively instead of prospectively, a much more complicated approach.  In that setting, according to Apple, they would have to start "recasting historical financials as if we had always used the new accounting" and tear out the 24 month amortizations.
      It seems to me that next quarter presents a rare opportunity for Apple to simplify the regulatory burden.  The upcoming quarter is the start of fiscal 2010.  If Apple starts the new accounting method then, it will avoid having to retrospectively report earlier quarters as it is the start of the fiscal year.  When asked, Apple confirmed this interpretation of the rule.  Here is the rule:  "If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor's fiscal year, the guidance in this issue must be applied through retrospective application from the beginning of the vendor's fiscal year and the vendor must disclose the effect of the change to those previously reported periods."
      Clearly, Apple wants to make the change.  Prospective accounting is far easier. Apple will not say when it will start the new method of reporting but it stands to reason that this quarter would be an easier start.  That leads me to believe that this coming quarter Apple is likely to begin the new rules.  If it does start prospective accounting next quarter, Apple can report its sales and income from both its old iPhone sales that are moving through the 24 month subscription accounting plus most of the iPhone sales that were sold in the quarter.  That would bring a colossal surge in revenue and profits.
      Apple does have the option of going retrospective.  That would mean removing all previous iPhone sales and just presenting iPhone sales made during the current quarter.
      Currently, Apple is not saying when it will begin reporting under the new rules.  It is also not saying whether it will present its earnings prospectively or retrospectively.
       Whichever is the case, this quarter's analyst consensus looks about as relevant as deciding what to wear in March on the basis of Ground Hog Day.
  



 

Disclosure: long AAPL]]> aapl A Tale of Two Cities: Kearney, Nebraska (the Buckle) and New York (J. Crew) http://seekingalpha.com/instablog/48158-stephen-rosenman/38673-a-tale-of-two-cities-kearney-nebraska-the-buckle-and-new-york-j-crew?source=feed 38673      The Street prices JCG at a PE of 40.  The company surprised the market with great earnings, but, come on, a PE of 40.  That leaves very little room for error.  Any wee disappointment clobbers the stock.  Consensus growth is pegged at 15%.  Maybe JCG continues to wow.  But, the point is it's expensive.  The Buckle, in contrast, is selling at a PE of 10. It had been trading higher because of its 2 year run of double digit monthly same store sales increases (probably a world record) until the last few months when those came down to earth.  Never did the Buckle sport an astronomical PE; when it was at its high of $38, the PE was about 14.
     The Buckle has a 3% dividend it easily covers.  In fact, BKE often (and I mean often) pays out a special dividend.  It just paid out $1.80 as a special dividend.  It's been raising its dividend about once every year.  I think they're going to raise it again soon.  JCG pays no dividend.  
     The Buckle has no debt while JCG has $98 million in debt.  They have similar equity.  JCG has 320 stores, the Buckle 404.  
      Investors cheered JCG when it reported an 18.8% operating margin.  The Buckle's was 22.3% and the market yawned.
      By so many metrics, the Buckle appears to be a better buy than JCG.  I can't help but think that geography is playing the critical role here giving JCG more visibility.  This coming year the Buckle plans to open stores in New Jersey and Pennsylvania.  As it moves closer and closer to Wall Street, it should get more fairly valued. 




 

Disclosure: long BKE]]> Sun, 06 Dec 2009 21:11:16 -0500      The Street prices JCG at a PE of 40.  The company surprised the market with great earnings, but, come on, a PE of 40.  That leaves very little room for error.  Any wee disappointment clobbers the stock.  Consensus growth is pegged at 15%.  Maybe JCG continues to wow.  But, the point is it's expensive.  The Buckle, in contrast, is selling at a PE of 10. It had been trading higher because of its 2 year run of double digit monthly same store sales increases (probably a world record) until the last few months when those came down to earth.  Never did the Buckle sport an astronomical PE; when it was at its high of $38, the PE was about 14.
     The Buckle has a 3% dividend it easily covers.  In fact, BKE often (and I mean often) pays out a special dividend.  It just paid out $1.80 as a special dividend.  It's been raising its dividend about once every year.  I think they're going to raise it again soon.  JCG pays no dividend.  
     The Buckle has no debt while JCG has $98 million in debt.  They have similar equity.  JCG has 320 stores, the Buckle 404.  
      Investors cheered JCG when it reported an 18.8% operating margin.  The Buckle's was 22.3% and the market yawned.
      By so many metrics, the Buckle appears to be a better buy than JCG.  I can't help but think that geography is playing the critical role here giving JCG more visibility.  This coming year the Buckle plans to open stores in New Jersey and Pennsylvania.  As it moves closer and closer to Wall Street, it should get more fairly valued. 




 

Disclosure: long BKE]]> Novartis Could Be The Biggest Loser (ACL, NVS, NSRGY) http://seekingalpha.com/instablog/48158-stephen-rosenman/38568-novartis-could-be-the-biggest-loser-acl-nvs-nsrgy?source=feed 38568        To recoup the story, Novartis bought 74 million shares of Alcon from Nestle's in 2008 at $143.18. However, their contract didn't end there.   Nestle's was given the right, starting January 1, 2010, to sell its remaining 52% stake of Alcon to Novartis at a price 20.5% higher than its trading price to a maximum of $181.  In August 2008, after the deal was announced, Alcon soared to a high of $175.  With the crash, Alcon plummeted to $71.  Investors seemed to forget about the second part of the deal:  the potential $181 target starting in 2010.  They've now awakened to the looming date on the calendar, when Nestle's can reap its $181 reward.  On January 1, 2010, Nestle's can sell its remaining 155 million shares of Alcon for $28 billion.  
         Minority shareholders comprising 23% of Alcon stand to join the ride. Novartis is under no obligation to buy these shares.  However, in January, Novartis will buy Nestle's shares at $181 a share.  It stands to reason that the value of all shares will rise toward this price.
          Let's look at what's happened to the share prices of these two companies:

<a:>
      Let's make some more predictions:
      1).  Normally, we find out about big deals like this as they happen.  There's now a lead time of a month.  So what will this mean for Novartis.  The company needs to come up with $28 billion soon.  Has it prepared itself?  It has $14 billion in cash and cash equivalents, $21 billion in goodwill and intangibles, $24 billion in longer term assets (of which a lion's portion is the Alcon stock already owned).  It is going to need to 1) borrow at least another $14 billion to fulfill its contract with Nestle's, in the end, probably more like $18 billion or 2) do a secondary offering.    Debt now is $14 billion.  Expect $31-32 billion total in debt when the deal closes.
       2).  What does Novartis get?  Lots of Alcon stock.  Ownership of Alcon? No.  For that, Novartis must buy out minority shareholders, something that management has stated it has no interest in doing.  It is very hard for a parent company to get value out of owning a portion of another company.  After all, what do you get?  Share appreciation for your portfolio?  Dividends?  Novartis will be paying 22.3 times the value of EBITDA for its next purchase of Alcon stock.  They'll be forced to "pay up" without consummating anything at all. And, if the Alcon stock goes down after the deal, well, there goes Novartis's balance sheet.  So, next prediction: Novartis ultimately will buy out minority shareholders.
        3). Novartis stock price is way too high.  It has to come up with $28 billion to buy Nestle's out.  In order to achieve its objectives, it must acquire another 68 million shares outstanding.  (Too bad, Novartis didn't make a deal to buy everyone out when Alcon crashed to $71.)  I think that investors are beginning to realize that the deal is coming:  1) witness the extraordinary volume of shares that were traded in Alcon on December 2 -- 4 million shares when normally 600,000 shares trade and 2) huge volumes selling Novartis the same day.   (see chart)

Bottom line:  Novartis is a sell.  Alcon is a buy.

Disclosure: long ALC  no position NVS


For those interested:  below is the Novartis-Nestle's deal


Novartis to Acquire 25 Percent Minority Stake in Alcon from Nestle

HUENENBERG, Switzerland--(BUSINESS WIRE)--April 7, 2008--Nestle S.A. and Novartis AG announced today that they have reached an agreement pursuant to which Nestle will sell 74 million of its shares of Alcon, Inc. (NYSE: ACL) common stock to Novartis in a cash transaction at a price of $143.18 per share. Once consummated, Novartis would own a minority stake in Alcon of approximately 25 percent of Alcon's outstanding shares, while Nestle would remain Alcon's majority shareholder with approximately 52 percent of Alcon's outstanding shares.

Nestle and Novartis also announced that the agreement contains put and call option rights on the remaining Alcon shares owned by Nestle, which commence on January 1, 2010 and expire on July 31, 2011. As outlined by the two parties, these rights grant (i) Novartis a call option to buy Nestle's remaining Alcon shares at a fixed price of $181 per share and (ii) Nestle a put option to sell its remaining Alcon shares to Novartis at the lower of Novartis's call price of $181 per share or at a 20.5 percent premium above the market price of Alcon shares, which will be calculated as the average price of Alcon shares during the week preceding the exercise date of the put option.



Disclosure: long ACL no position NVS]]> Sat, 05 Dec 2009 20:05:34 -0500        To recoup the story, Novartis bought 74 million shares of Alcon from Nestle's in 2008 at $143.18. However, their contract didn't end there.   Nestle's was given the right, starting January 1, 2010, to sell its remaining 52% stake of Alcon to Novartis at a price 20.5% higher than its trading price to a maximum of $181.  In August 2008, after the deal was announced, Alcon soared to a high of $175.  With the crash, Alcon plummeted to $71.  Investors seemed to forget about the second part of the deal:  the potential $181 target starting in 2010.  They've now awakened to the looming date on the calendar, when Nestle's can reap its $181 reward.  On January 1, 2010, Nestle's can sell its remaining 155 million shares of Alcon for $28 billion.  
         Minority shareholders comprising 23% of Alcon stand to join the ride. Novartis is under no obligation to buy these shares.  However, in January, Novartis will buy Nestle's shares at $181 a share.  It stands to reason that the value of all shares will rise toward this price.
          Let's look at what's happened to the share prices of these two companies:

<a:>
      Let's make some more predictions:
      1).  Normally, we find out about big deals like this as they happen.  There's now a lead time of a month.  So what will this mean for Novartis.  The company needs to come up with $28 billion soon.  Has it prepared itself?  It has $14 billion in cash and cash equivalents, $21 billion in goodwill and intangibles, $24 billion in longer term assets (of which a lion's portion is the Alcon stock already owned).  It is going to need to 1) borrow at least another $14 billion to fulfill its contract with Nestle's, in the end, probably more like $18 billion or 2) do a secondary offering.    Debt now is $14 billion.  Expect $31-32 billion total in debt when the deal closes.
       2).  What does Novartis get?  Lots of Alcon stock.  Ownership of Alcon? No.  For that, Novartis must buy out minority shareholders, something that management has stated it has no interest in doing.  It is very hard for a parent company to get value out of owning a portion of another company.  After all, what do you get?  Share appreciation for your portfolio?  Dividends?  Novartis will be paying 22.3 times the value of EBITDA for its next purchase of Alcon stock.  They'll be forced to "pay up" without consummating anything at all. And, if the Alcon stock goes down after the deal, well, there goes Novartis's balance sheet.  So, next prediction: Novartis ultimately will buy out minority shareholders.
        3). Novartis stock price is way too high.  It has to come up with $28 billion to buy Nestle's out.  In order to achieve its objectives, it must acquire another 68 million shares outstanding.  (Too bad, Novartis didn't make a deal to buy everyone out when Alcon crashed to $71.)  I think that investors are beginning to realize that the deal is coming:  1) witness the extraordinary volume of shares that were traded in Alcon on December 2 -- 4 million shares when normally 600,000 shares trade and 2) huge volumes selling Novartis the same day.   (see chart)

Bottom line:  Novartis is a sell.  Alcon is a buy.

Disclosure: long ALC  no position NVS


For those interested:  below is the Novartis-Nestle's deal


Novartis to Acquire 25 Percent Minority Stake in Alcon from Nestle

HUENENBERG, Switzerland--(BUSINESS WIRE)--April 7, 2008--Nestle S.A. and Novartis AG announced today that they have reached an agreement pursuant to which Nestle will sell 74 million of its shares of Alcon, Inc. (NYSE: ACL) common stock to Novartis in a cash transaction at a price of $143.18 per share. Once consummated, Novartis would own a minority stake in Alcon of approximately 25 percent of Alcon's outstanding shares, while Nestle would remain Alcon's majority shareholder with approximately 52 percent of Alcon's outstanding shares.

Nestle and Novartis also announced that the agreement contains put and call option rights on the remaining Alcon shares owned by Nestle, which commence on January 1, 2010 and expire on July 31, 2011. As outlined by the two parties, these rights grant (i) Novartis a call option to buy Nestle's remaining Alcon shares at a fixed price of $181 per share and (ii) Nestle a put option to sell its remaining Alcon shares to Novartis at the lower of Novartis's call price of $181 per share or at a 20.5 percent premium above the market price of Alcon shares, which will be calculated as the average price of Alcon shares during the week preceding the exercise date of the put option.



Disclosure: long ACL no position NVS]]> acl nvs nsrgy.pk A Happy New Year Awaits Alcon's Shareholders (ACL NSRGY NVS) http://seekingalpha.com/instablog/48158-stephen-rosenman/38133-a-happy-new-year-awaits-alcon-s-shareholders-acl-nsrgy-nvs?source=feed 38133 seekingalpha.com/article/157961-three-wa...), starting on January 1, 2010, Nestle's has the right to sell its 52% share of Alcon to Novartis for 20.5% above the price that ACL has been trading to a maximum of $181.  ACL has been steadily climbing toward the magic number of $150, the price at which the $181 can execute.  Today, ACL blew past that price of $150 on extremely strong volume.  Normally, 603,000 shares of ACL trade.  Today 4.09 million shares changed hands propelling the stock up to $158.10, a 5.57% gain. The company has a 68 million share float.  It would seem that investors are looking at the calendar and realizing that New Year's is fast approaching.

Disclosure: long ACL]]> Wed, 02 Dec 2009 17:29:35 -0500 seekingalpha.com/article/157961-three-wa...), starting on January 1, 2010, Nestle's has the right to sell its 52% share of Alcon to Novartis for 20.5% above the price that ACL has been trading to a maximum of $181.  ACL has been steadily climbing toward the magic number of $150, the price at which the $181 can execute.  Today, ACL blew past that price of $150 on extremely strong volume.  Normally, 603,000 shares of ACL trade.  Today 4.09 million shares changed hands propelling the stock up to $158.10, a 5.57% gain. The company has a 68 million share float.  It would seem that investors are looking at the calendar and realizing that New Year's is fast approaching.

Disclosure: long ACL]]> Did Anyone Listen To DHI's Conference Call? http://seekingalpha.com/instablog/48158-stephen-rosenman/38105-did-anyone-listen-to-dhi-s-conference-call?source=feed 38105 The market dumped DHI after it reported last quarter losing $0.73 a share rather than the market consensus loss of $0.30.   DHI has been beaten down from $12.20 to a low of $9.82 since it reported.  It's been an awful loser and that's saying a lot when one looks at the other companies in the sector: HOV, KBH, PHM, TOL.
 
      I have a simple question:  did anybody listen to the conference call?  
 
      Management brought up three key points not addressed in their earnings report:
          1.  They took in $113 million in November in tax refunds after the quarter ended.
          2.  They expect another $150 million coming later in 2010.
          3.   As a result of the tax law changes in carry back for NOL to 5 years, they expect another $200 million or more coming to them in 2010.
 
     All in all, tax refunds to DHI come to at least $463 million.  That's on top of their almost $2 billion cash on their balance sheet.  $2.5 billion in cash goes a long way for a $3.15 billion market cap company.  Total debt has been brought down from $6.1 to $3.3  billion over the last 3 years.  Impairments for the quarter were $192 million; the previous year's quarter were $1.1 billion. Still a big number but eighty per cent less than last year's quarter.  Management indicated in the conference call that impairments for future quarters should continue to wind down.
     I took a position today at $9.84.  My prediction:  DHI more than weathers the storm, coming out strong in 2010 with a pile of tax refunds, cash, and declining write-downs.  

Long DHI

 


Disclosure: long dhi]]> Wed, 02 Dec 2009 13:58:02 -0500 The market dumped DHI after it reported last quarter losing $0.73 a share rather than the market consensus loss of $0.30.   DHI has been beaten down from $12.20 to a low of $9.82 since it reported.  It's been an awful loser and that's saying a lot when one looks at the other companies in the sector: HOV, KBH, PHM, TOL.
 
      I have a simple question:  did anybody listen to the conference call?  
 
      Management brought up three key points not addressed in their earnings report:
          1.  They took in $113 million in November in tax refunds after the quarter ended.
          2.  They expect another $150 million coming later in 2010.
          3.   As a result of the tax law changes in carry back for NOL to 5 years, they expect another $200 million or more coming to them in 2010.
 
     All in all, tax refunds to DHI come to at least $463 million.  That's on top of their almost $2 billion cash on their balance sheet.  $2.5 billion in cash goes a long way for a $3.15 billion market cap company.  Total debt has been brought down from $6.1 to $3.3  billion over the last 3 years.  Impairments for the quarter were $192 million; the previous year's quarter were $1.1 billion. Still a big number but eighty per cent less than last year's quarter.  Management indicated in the conference call that impairments for future quarters should continue to wind down.
     I took a position today at $9.84.  My prediction:  DHI more than weathers the storm, coming out strong in 2010 with a pile of tax refunds, cash, and declining write-downs.  

Long DHI

 


Disclosure: long dhi]]>