FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
---------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Transition Period From To
------------------- -------------------
Commission file number 1-14122
-----------
D.R. HORTON, INC.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(817)856-8200
-------------------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 76,845,107 shares as of August 7, 2001
--------------
This Report contains 29 pages.
1
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
- ------- ---------------------- ----
ITEM 1. Financial Statements.
Consolidated Balance Sheets --- June 30, 2001 and September 30, 2000. 3
Consolidated Statements of Income-- Three Months and Nine Months Ended
June 30, 2001 and 2000. 4
Consolidated Statement of Stockholders' Equity-- Nine Months Ended
June 30, 2001. 5
Consolidated Statements of Cash Flows-- Nine Months Ended
June 30, 2001 and 2000. 6
Notes to Consolidated Financial Statements. 7-17
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. 18-24
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 25
PART II. OTHER INFORMATION.
- -------- ------------------
ITEM 2. Changes in Securities 26
ITEM 5. Other Information 27
ITEM 6. Exhibits and Reports on Form 8-K 28
SIGNATURES. 29
- ----------
2
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2001 2000
----------- -------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash ....................................................... $ 60,439 $ 61,798
Inventories:
Finished homes and construction in progress ........... 1,472,240 1,095,636
Residential lots - developed and under development ... 1,240,610 1,092,571
Land held for development ............................. 2,824 2,824
---------- ----------
2,715,674 2,191,031
Property and equipment (net) ............................... 49,124 38,960
Earnest money deposits and other assets .................... 184,728 148,983
Excess of cost over net assets acquired (net) .............. 119,851 115,966
---------- ----------
3,129,816 2,556,738
Financial Services:
Cash ....................................................... 20,964 10,727
Mortgage loans held for sale ............................... 170,197 119,581
Other assets ............................................... 13,991 7,531
---------- ----------
205,152 137,839
---------- ----------
$3,334,968 $2,694,577
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities ..................... $ 400,802 $ 370,389
Notes payable:
Unsecured:
Revolving credit facility due 2002 ............... 144,000 192,000
8 3/8% senior notes due 2004, net ................ 148,844 148,547
10 1/2% senior notes due 2005, net ............... 199,412 199,343
10% senior notes due 2006, net ................... 147,550 147,398
8% senior notes due 2009, net .................... 383,214 383,089
9 3/4% senior subordinated notes due 2010, net ... 148,899 148,821
9 3/8% senior subordinated notes due 2011, net ... 199,683 --
Zero coupon convertible senior notes due 2021, net 200,884 --
Other secured ......................................... 53,438 26,388
---------- ----------
1,625,924 1,245,586
---------- ----------
2,026,726 1,615,975
---------- ----------
Financial Services:
Accounts payable and other liabilities ..................... 4,928 4,958
Notes payable to financial institutions .................... 155,237 98,817
---------- ----------
160,165 103,775
---------- ----------
2,186,891 1,719,750
---------- ----------
Minority interests ......................................... 8,356 5,264
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized,
no shares issued ......................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized,
75,689,624 at June 30, 2001 and 70,074,110 at September 30,
2000, issued and outstanding ............................. 757 701
Additional capital ......................................... 677,248 537,145
Retained earnings .......................................... 461,716 468,664
Treasury stock, no shares at June 30, 2001 and 2,589,200
shares at September 30, 2000, at cost. ................... -- (36,947)
---------- ----------
1,139,721 969,563
---------- ----------
$3,334,968 $2,694,577
========== ==========
See accompanying notes to consolidated financial statements.
3
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
----------------------- ----------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
(In thousands, except per share data)
(Unaudited)
Homebuilding:
Revenues
Home sales ............................... $1,090,242 $ 930,786 $2,799,894 $2,493,314
Land/lot sales ........................... 11,724 15,630 68,033 38,780
---------- ---------- ---------- ----------
1,101,966 946,416 2,867,927 2,532,094
---------- ---------- ---------- ----------
Cost of sales
Home sales ............................... 872,095 755,527 2,244,754 2,028,349
Land/lot sales ........................... 10,712 18,387 54,791 36,524
---------- ---------- ---------- ----------
882,807 773,914 2,299,545 2,064,873
---------- ---------- ---------- ----------
Gross profit
Home sales ............................... 218,147 175,259 555,140 464,965
Land/lot sales ........................... 1,012 (2,757) 13,242 2,256
---------- ---------- ---------- ----------
219,159 172,502 568,382 467,221
Selling, general and administrative expense . 109,085 97,243 295,084 262,073
Interest expense ............................ 2,089 2,339 6,618 7,195
Other expense (income) ...................... 5,040 (747) 14,038 (1,472)
---------- ---------- ---------- ----------
102,945 73,667 252,642 199,425
---------- ---------- ---------- ----------
Financial Services:
Revenues .................................... 19,015 12,800 47,553 34,926
Selling, general and administrative expense . 12,540 9,155 32,507 25,152
Interest expense ............................ 1,575 1,485 3,582 4,191
Other (income) .............................. (2,240) (1,700) (4,869) (4,723)
---------- ---------- ---------- ----------
7,140 3,860 16,333 10,306
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............... 110,085 77,527 268,975 209,731
Provision for income taxes .................. 41,282 29,460 100,866 79,698
---------- ---------- ---------- ----------
Income before cumulative effect of change
in accounting principle ................. 68,803 48,067 168,109 130,033
Cumulative effect of change in accounting
principle, net of income taxes .......... -- -- 2,136 --
---------- ---------- ---------- ----------
NET INCOME ............................... $ 68,803 $ 48,067 $ 170,245 $ 130,033
========== ========== ========== ==========
Basic earnings per common share:
Income before cumulative effect of change
in accounting principle ................. $ 0.91 $ 0.64 $ 2.23 $ 1.73
Cumulative effect of change in accounting
principle, net of income taxes .......... -- -- 0.03 --
---------- ---------- ---------- ----------
Net income ............................... $ 0.91 $ 0.64 $ 2.26 $ 1.73
========== ========== ========== ==========
Diluted earnings per common share:
Income before cumulative effect of change
in accounting principle ................. $ 0.89 $ 0.64 $ 2.19 $ 1.72
Cumulative effect of change in accounting
principle, net of income taxes .......... -- -- 0.03 --
---------- ---------- ---------- ----------
Net income ............................... $ 0.89 $ 0.64 $ 2.22 $ 1.72
========== ========== ========== ==========
Cash dividends per share .................... $ 0.05 $ 0.04 $ 0.14 $ 0.11
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Additional Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
---------- ---------- ---------- ---------- ----------
(In thousands, except common stock share data)
(Unaudited)
Balances at September 30, 2000 .............. $ 701 $ 537,145 $ 468,664 $ (36,947) $ 969,563
Net income .................................. -- -- 170,245 -- 170,245
Issuances under D.R. Horton, Inc. ...........
employee benefit plans (6,540 shares) ..... -- 106 -- -- 106
Exercise of stock options (719,046 shares) .. 7 9,685 -- -- 9,692
Cash dividends paid ......................... -- -- (9,885) -- (9,885)
Stock dividend paid (4,889,928 shares) ...... 49 130,312 (167,308) 36,947 --
---------- ---------- ---------- ---------- ----------
Balances at June 30, 2001 ................... $ 757 $ 677,248 $ 461,716 $ -- $1,139,721
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
5
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
----------------------
2001 2000
---------- ----------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income ............................................... $ 170,245 $ 130,033
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................ 18,463 15,899
Amortization of debt premiums and fees ................... 2,645 1,830
Changes in operating assets and liabilities:
Increase in inventories ............................ (416,639) (305,929)
Increase in earnest money deposits and other assets (33,649) (32,477)
(Increase)/decrease in mortgage loans held for sale (50,616) 13,857
Increase/(decrease) in accounts payable and other
liabilities ...................................... 26,608 (2,563)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ...................... (282,943) (179,350)
---------- ----------
INVESTING ACTIVITIES
Net purchase of property and equipment ................... (21,807) (14,674)
Net investment in venture capital entities ............... (1,970) (18,311)
Net cash paid for acquisitions ........................... (49,009) (5,016)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ...................... (72,786) (38,001)
---------- ----------
FINANCING ACTIVITIES
Proceeds from notes payable .............................. 891,420 570,000
Repayment of notes payable ............................... (920,630) (580,213)
Issuance of senior and senior subordinated notes payable . 393,904 197,897
Purchase of treasury stock ............................... -- (14,543)
Proceeds from issuance of common stock associated with
certain employee benefit plans ......................... 9,798 1,599
Payment of cash dividends ................................ (9,885) (6,813)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 364,607 167,927
---------- ----------
INCREASE / (DECREASE) IN CASH .............................. 8,878 (49,424)
Cash at beginning of period ........................ 72,525 128,568
---------- ----------
Cash at end of period .............................. $ 81,403 $ 79,144
========== ==========
See accompanying notes to consolidated financial statements.
6
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Certain reclassifications
have been made in prior years' financial statements to conform to
classifications used in the current year. Operating results for the three-month
and nine-month periods ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending September 30, 2001.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing in the United States. The Company
designs, builds and sells single-family houses on lots developed by the Company
and on finished lots which it purchases, ready for home construction.
Periodically, the Company sells land or lots it has developed. The Company also
provides title agency and mortgage brokerage services to its home buyers.
NOTE B - CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998, and was
later amended by SFAS 137 and 138, which were issued in June 1999 and June 2000,
respectively. Pursuant to the implementation requirements of SFAS No. 133, the
Company adopted it on October 1, 2000, the first day of the Company's fiscal
year ending September 30, 2001. The Company's interest rate swaps, the terms of
which are more fully described in Item 3, were not designated as hedges under
the provisions of SFAS No. 133. The Statement requires such swaps to be recorded
in the consolidated balance sheet at fair value. Changes in their fair value
must be recorded in the consolidated statements of income. Accordingly, the
Company recorded a cumulative effect of a change in accounting principle
amounting to $2.1 million, net of income taxes of $1.3 million, as an adjustment
to net income in the nine months ended June 30, 2001. The fair value of the
Company's interest rate swaps at June 30, 2001 is recorded in homebuilding other
assets, and the change in their fair value during the three and nine months
ended June 30, 2001 is recorded in homebuilding other expense.
SFAS No. 133 was also implemented on October 1, 2000 for the hedging activities
of the Company's financial services segment. The effects of doing so were not
significant.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill will no longer be amortized but will be subject to periodic
tests for impairment of recorded values.
In accordance with the terms of SFAS No. 142 that permit its early adoption, the
Company plans to apply the new rules for goodwill and other intangible assets
beginning October 1, 2001. Application of the provision prohibiting the
amortization of goodwill is expected to result in an increase in income before
income taxes of approximately $9.0 million in the fiscal year ended September
30, 2002. During the year, the Company will perform the required tests for
impairment of goodwill. The Company does not believe that such tests will have a
significant, adverse effect on its results of operations or financial position.
7
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE C - SEGMENT INFORMATION
The Company's financial reporting segments consist of homebuilding and financial
services. The Company's homebuilding operations comprise the most substantial
part of its business, with more than 98% of consolidated revenues for the three
months and nine months ended June 30, 2001 and 2000. The homebuilding operations
segment generates the majority of its revenues from the sale of completed homes,
with a lesser amount from the sale of land and lots. The financial services
segment generates its revenues from originating and selling mortgages and
collecting fees for title insurance agency and closing services.
NOTE D - NET INCOME PER SHARE
Basic net income per share for the three and nine months ended June 30, 2001 and
2000 is based on the weighted average number of shares of common stock
outstanding. Diluted net income per share is based on the weighted average
number of shares of common stock and dilutive securities outstanding.
The following table sets forth the weighted average number of shares of common
stock and dilutive securities outstanding used in the computation of basic and
diluted earnings per share (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
Denominator for basic earnings per
share--weighted average shares ............ 75,594 74,799 75,329 75,142
Employee stock options ...................... 1,305 603 1,250 575
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share--adjusted weighted average shares ... 76,899 75,402 76,579 75,717
========== ========== ========== ==========
In February, 2001, the Company's Board of Directors declared an 11% stock
dividend, payable on March 23, 2001 to stockholders of record on March 9, 2001.
All average share amounts presented above for the three and nine month periods
ended June 30, 2000 have been restated to reflect the effects of the 11% stock
dividend.
NOTE E - DEBT
On May 11, 2001 the Company issued, for gross proceeds of approximately $200
million, Zero Coupon Convertible Senior Notes due 2021 ("Notes") with a face
amount at maturity of approximately $381.1 million. The Notes were issued at a
price of $524.78 per $1,000 face amount at maturity, which equates to an annual
yield to maturity over the life of the Notes of 3.25%. Proceeds from the
offering, after underwriting discount, were approximately $195.5 million, and
were used to repay amounts outstanding under the Company's revolving credit
facility. The Notes are convertible into the Company's common stock at any time,
if the sale price of the common stock exceeds specified thresholds or in other
specified instances, at the rate of approximately 17.5 shares per $1,000 face
amount at maturity. The conversion ratio equates to an initial conversion price
of $30.00 per share. Holders have the option to require the Company to
repurchase the Notes on any of the second, seventh or twelfth anniversary dates
from the issue date for the initial issue price plus accrued yield to the
purchase date. The Company must satisfy any Notes submitted for repurchase on
the second anniversary date in cash. Any Notes submitted for repurchase on the
seventh or twelfth anniversary dates may be settled in any combination of cash
and/or the Company's common stock, at the Company's option. The Company will
have the option to redeem the Notes, in cash, at any time after the second
anniversary date of the Notes for the initial issue price plus accrued yield to
redemption. The Company will pay contingent interest on the Notes during
specified six-month periods beginning on May 12, 2003, if the market price of
the Notes exceeds specified levels.
8
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE F - INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to cost of sales as the related inventory is
delivered to the home buyer. Homebuilding interest costs are (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Capitalized interest, beginning of period ... $ 85,579 $ 55,148 $ 66,092 $ 41,525
Interest incurred - homebuilding ............ 34,133 29,310 94,861 76,382
Interest expensed:
Directly - homebuilding ................ (2,089) (2,339) (6,618) (7,195)
Amortized to cost of sales ............. (24,012) (18,631) (60,724) (47,224)
---------- ---------- ---------- ----------
Capitalized interest, end of period ......... $ 93,611 $ 63,488 $ 93,611 $ 63,488
========== ========== ========== ==========
NOTE G - ACQUISITIONS
On May 1, 2001, the Company acquired the assets of Fortress-Florida, Inc.
(Fortress), a wholly owned subsidiary of The Fortress Group, Inc., for $28.7
million. Fortress assets, primarily inventories, amounted to approximately $47.1
million. Total liabilities assumed amounted to approximately $24.3 million,
including notes payable of $17.5 million, which were paid at closing. The
Fortress acquisition was treated as a purchase for accounting purposes. Pro
forma results of operations had the Fortress acquisition occurred on the first
day of our fiscal year are not materially different from historical results and
are not presented.
On July 17, 2001, the Company completed the acquisition of the assets of
Emerald Builders (Emerald), a privately held homebuilder based in Houston,
Texas. In the transaction, the Company issued approximately 1.0 million shares
of common stock, paid $30.7 million in cash and assumed debt of approximately
$115.3 million, including notes payable of $109.6 million, which were paid at
closing. The final number of shares issued is subject to adjustment, based on a
final determination of the book value of the assets acquired. The Emerald
acquisition will be treated as a purchase for accounting purposes.
9
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION
The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes, the 9 3/8% and 9 3/4% Senior
Subordinated Notes, and the Zero Coupon Convertible Senior Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all of the
Company's direct and indirect subsidiaries (Guarantor Subsidiaries), other than
financial services subsidiaries and certain other inconsequential subsidiaries
(collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries
is wholly-owned. In lieu of providing separate audited financial statements for
the Guarantor Subsidiaries, consolidated condensed financial statements are
presented below. Separate financial statements and other disclosures concerning
the Guarantor Subsidiaries are not presented because management has determined
that they are not material to investors.
Consolidating Balance Sheet
June 30, 2001
Non-Guarantor
Subsidiaries
----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- ---------- ------------ ----------
(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents ................. $ -- $ 59,154 $ -- $ 1,285 $ -- $ 60,439
Advances to/investments in subsidiaries ... 2,264,397 92,513 -- 4,673 (2,361,583) --
Inventories ............................... 558,432 2,130,803 -- 26,798 (359) 2,715,674
Property and equipment (net) .............. 8,826 34,992 -- 5,306 -- 49,124
Earnest money deposits and other assets ... 55,283 134,910 -- 25,420 (30,885) 184,728
Excess of cost over net assets acquired (net) -- 119,851 -- -- -- 119,851
---------- ---------- ---------- ---------- ---------- ----------
2,886,938 2,572,223 -- 63,482 (2,392,827) 3,129,816
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Cash and cash equivalents ................. -- -- 20,964 -- -- 20,964
Mortgage loans held for sale .............. -- -- 170,197 -- -- 170,197
Other assets .............................. -- -- 13,991 -- -- 13,991
---------- ---------- ---------- ---------- ---------- ----------
-- -- 205,152 -- -- 205,152
---------- ---------- ---------- ---------- ---------- ----------
Total Assets .............................. $2,886,938 $2,572,223 $ 205,152 $ 63,482 $(2,392,827) $3,334,968
========== ========== ========== ========== =========== ==========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities .... $ 140,313 $ 350,821 $ -- $ 2,457 $ (92,789) $ 400,802
Advances from parent/subsidiaries ......... -- 1,680,710 -- 43,118 (1,723,828) --
Notes payable ............................. 1,606,904 19,020 -- 10,578 (10,578) 1,625,924
---------- ---------- ---------- ---------- ---------- ----------
1,747,217 2,050,551 -- 56,153 (1,827,195) 2,026,726
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Accounts payable and other liabilities .... -- -- 9,956 -- (5,028) 4,928
Advances from parent/subsidiaries ......... -- -- 7,657 -- (7,657) --
Notes payable ............................. -- -- 155,237 -- -- 155,237
---------- ---------- ---------- ---------- ---------- ----------
-- -- 172,850 -- (12,685) 160,165
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities ......................... 1,747,217 2,050,551 172,850 56,153 (1,839,880) 2,186,891
---------- ---------- ---------- ---------- ---------- ----------
Minority interest ......................... -- 3,672 11 4,673 -- 8,356
---------- ---------- ---------- ---------- ---------- ----------
Common stock .............................. 757 1 6 6,155 (6,162) 757
Additional capital ........................ 677,248 84,611 2,299 10,129 (97,039) 677,248
Retained earnings ......................... 461,716 433,388 29,986 (13,628) (449,746) 461,716
---------- ---------- ---------- ---------- ---------- ----------
1,139,721 518,000 32,291 2,656 (552,947) 1,139,721
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities & Equity ................ $2,886,938 $2,572,223 $ 205,152 $ 63,482 $(2,392,827) $ 3,334,968
========== ========== ========== ========== =========== ===========
10
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2000
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton,Inc. Subsidiaries Services Other Eliminations Total
----------- ------------ ----------- --------- -------------- ----------
(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents ................. $ 20,397 $ 40,349 $ -- $ 1,052 $ -- $ 61,798
Advances to/investments in subsidiaries ... 1,862,988 14,653 -- -- (1,877,641) --
Inventories ............................... 395,848 1,774,357 -- 21,115 (289) 2,191,031
Property and equipment (net) .............. 3,031 30,645 -- 5,284 -- 38,960
Earnest money deposits and other assets ... 44,463 86,134 -- 28,773 (10,387) 148,983
Excess of cost over net assets acquired (net) -- 115,966 -- -- -- 115,966
---------- ---------- ---------- ---------- ---------- ----------
2,326,727 2,062,104 -- 56,224 (1,888,317) 2,556,738
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Cash and cash equivalents ................. -- -- 10,727 -- -- 10,727
Mortgage loans held for sale .............. -- -- 119,581 -- -- 119,581
Other assets .............................. -- -- 7,531 -- -- 7,531
---------- ---------- ---------- ---------- ---------- ----------
-- -- 137,839 -- -- 137,839
---------- ---------- ---------- ---------- ---------- ----------
Total Assets .............................. $2,326,727 $2,062,104 $ 137,839 $ 56,224 $(1,888,317) $2,694,577
========== ========== ========== ========== =========== ==========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities .... $ 124,823 $ 359,004 $ -- $ 2,246 $ (115,684) $ 370,389
Advances from parent/subsidiaries ......... 11,617 1,268,266 -- 27,547 (1,307,430) --
Notes payable ............................. 1,220,724 24,861 -- 10,222 (10,221) 1,245,586
---------- ---------- ---------- ---------- ---------- ----------
1,357,164 1,652,131 -- 40,015 (1,433,335) 1,615,975
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Accounts payable and other liabilities .... -- -- 9,388 -- (4,430) 4,958
Advances from parent/subsidiaries ......... -- -- 5,653 -- (5,653) --
Notes payable ............................. -- -- 98,817 -- -- 98,817
---------- ---------- ---------- ---------- ---------- ----------
-- -- 113,858 -- (10,083) 103,775
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities ......................... 1,357,164 1,652,131 113,858 40,015 (1,443,418) 1,719,750
---------- ---------- ---------- ---------- ---------- ----------
Minority interest ......................... -- -- 10 5,254 -- 5,264
---------- ---------- ---------- ---------- ---------- ----------
Common stock .............................. 701 1 6 6,155 (6,162) 701
Additional capital ........................ 537,145 84,795 2,299 10,128 (97,222) 537,145
Retained earnings ......................... 468,664 325,177 21,666 (5,328) (341,515) 468,664
Treasury stock ............................ (36,947) -- -- -- -- (36,947)
---------- ---------- ---------- ---------- ---------- ----------
969,563 409,973 23,971 10,955 (444,899) 969,563
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities & Equity ................ $2,326,727 $2,062,104 $ 137,839 $ 56,224 $(1,888,317) $2,694,577
========== ========== ========== ========== =========== ==========
11
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ----------- --------- --------------- -----------
(In thousands)
Homebuilding:
Revenues:
Home sales .............................. $ 199,313 $ 887,058 $ -- $ 3,871 $ -- $1,090,242
Land/lot sales .......................... 6,267 5,457 -- -- -- 11,724
---------- ---------- ---------- ---------- ---------- ----------
205,580 892,515 -- 3,871 -- 1,101,966
---------- ---------- ---------- ---------- ---------- ----------
Cost of Sales:
Home sales .............................. 154,876 714,376 -- 2,985 (142) 872,095
Land/lot sales .......................... 5,502 5,210 -- -- -- 10,712
---------- ---------- ---------- ---------- ---------- ----------
160,378 719,586 -- 2,985 (142) 882,807
---------- ---------- ---------- ---------- ---------- ----------
Gross profit:
Home sales .............................. 44,437 172,682 -- 886 142 218,147
Land/lot sales .......................... 765 247 -- -- -- 1,012
---------- ---------- ---------- ---------- ---------- ----------
45,202 172,929 -- 886 142 219,159
Selling, general and administrative
expense ................................. 28,294 77,838 -- 1,779 1,174 109,085
Interest expense .......................... 2,043 44 -- 14 (12) 2,089
Other expense (income) .................... (95,220) (305) -- 6,895 93,670 5,040
---------- ---------- ---------- ---------- ---------- ----------
110,085 95,352 -- (7,802) (94,690) 102,945
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Revenues .................................. -- -- 19,015 -- -- 19,015
Selling, general and administrative
expense ................................. -- -- 13,714 -- (1,174) 12,540
Interest expense .......................... -- -- 1,575 -- -- 1,575
Other (income) ............................ -- -- (2,240) -- -- (2,240)
---------- ---------- ---------- ---------- ---------- ----------
-- -- 5,966 -- 1,174 7,140
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ................ 110,085 95,352 5,966 (7,802) (93,516) 110,085
Provision for income taxes ................ 41,282 35,757 2,237 (2,925) (35,069) 41,282
---------- ---------- ---------- ---------- ---------- ----------
Net income ................................ $ 68,803 $ 59,595 $ 3,729 $ (4,877) $ (58,447) $ 68,803
========== ========== ========== ========== ========== ==========
12
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------- ----------- -------- --------------- -----------
(In thousands)
Homebuilding:
Revenues:
Home sales .............................. $ 474,816 $2,309,055 $ -- $ 16,023 $ -- $2,799,894
Land/lot sales .......................... 22,876 45,157 -- -- -- 68,033
---------- ---------- ---------- ---------- ---------- ----------
497,692 2,354,212 -- 16,023 -- 2,867,927
---------- ---------- ---------- ---------- ---------- ----------
Cost of Sales:
Home sales .............................. 377,190 1,856,010 -- 11,953 (399) 2,244,754
Land/lot sales .......................... 17,776 37,015 -- -- -- 54,791
---------- ---------- ---------- ---------- ---------- ----------
394,966 1,893,025 -- 11,953 (399) 2,299,545
---------- ---------- ---------- ---------- ---------- ----------
Gross profit:
Home sales .............................. 97,626 453,045 -- 4,070 399 555,140
Land/lot sales .......................... 5,100 8,142 -- -- -- 13,242
---------- ---------- ---------- ---------- ---------- ----------
102,726 461,187 -- 4,070 399 568,382
Selling, general and administrative
expense ................................. 70,449 215,610 -- 6,100 2,925 295,084
Interest expense .......................... 6,478 134 -- 196 (190) 6,618
Other expense (income) .................... (243,176) (1,517) -- 10,456 248,275 14,038
---------- ---------- ---------- ---------- ---------- ----------
268,975 246,960 -- (12,682) (250,611) 252,642
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Revenues .................................. -- -- 47,553 -- -- 47,553
Selling, general and administrative
expense ................................. -- -- 35,432 -- (2,925) 32,507
Interest expense .......................... -- -- 3,582 -- -- 3,582
Other (income) ............................ -- -- (4,869) -- -- (4,869)
---------- ---------- ---------- ---------- ---------- ----------
-- -- 13,408 -- 2,925 16,333
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ................ 268,975 246,960 13,408 (12,682) (247,686) 268,975
Provision for income taxes ................ 100,866 92,610 5,028 (4,755) (92,883) 100,866
---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle .......... 168,109 154,350 8,380 (7,927) (154,803) 168,109
Cumulative effect of change in
accounting principle, net of
income taxes ............................ 2,136 -- -- -- -- 2,136
---------- ---------- ---------- ---------- ---------- ----------
Net income ................................ $ 170,245 $ 154,350 $ 8,380 $ (7,927) $ (154,803) $ 170,245
========== ========== ========== ========== ========== ==========
13
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2000
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------- -----------
(In thousands)
Homebuilding:
Revenues:
Home sales .............................. $ 150,081 $ 771,216 $ -- $ 9,489 $ -- $ 930,786
Land/lot sales .......................... 2,953 12,677 -- -- -- 15,630
---------- ---------- ---------- ---------- ---------- ----------
153,034 783,893 -- 9,489 -- 946,416
---------- ---------- ---------- ---------- ---------- ----------
Cost of Sales:
Home sales .............................. 126,903 621,548 -- 7,238 (162) 755,527
Land/lot sales .......................... 3,396 14,991 -- -- -- 18,387
---------- ---------- ---------- ---------- ---------- ----------
130,299 636,539 -- 7,238 (162) 733,914
---------- ---------- ---------- ---------- ---------- ----------
Gross profit:
Home sales .............................. 23,178 149,668 -- 2,251 162 175,259
Land/lot sales .......................... (443) (2,314) -- -- -- (2,757)
---------- ---------- ---------- ---------- ---------- ----------
22,735 147,354 -- 2,251 162 172,502
Selling, general and administrative
expense ................................. 23,821 69,296 -- 2,192 1,934 97,243
Interest expense .......................... 2,287 52 -- 161 (161) 2,339
Other expense (income) .................... (80,900) 295 -- 178 79,680 (747)
---------- ---------- ---------- ---------- ---------- ----------
77,527 77,711 -- (280) (81,291) 73,667
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Revenues .................................. -- -- 12,800 -- -- 12,800
Selling, general and administrative
expense ................................. -- -- 11,089 -- (1,934) 9,155
Interest expense .......................... -- -- 1,485 -- -- 1,485
Other (income) ............................ -- -- (1,700) -- -- (1,700)
---------- ---------- ---------- ---------- ---------- ----------
-- -- 1,926 -- 1,934 3,860
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ................ 77,527 77,711 1,926 (280) (79,357) 77,527
Provision for income taxes ................ 29,460 29,534 728 (106) (30,156) 29,460
---------- ---------- ---------- ---------- ---------- ----------
Net income ................................ $ 48,067 $ 48,177 $ 1,198 $ (174) $ (49,201) $ 48,067
========== ========== ========== ========== ========== ==========
14
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2000
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------- -----------
(In thousands)
Homebuilding:
Revenues:
Home sales .............................. $ 386,111 $2,083,739 $ -- $ 23,464 $ -- $2,493,314
Land/lot sales .......................... 3,929 34,851 -- -- -- 38,780
---------- ---------- ---------- ---------- ---------- ----------
390,040 2,118,590 -- 23,464 -- 2,532,094
---------- ---------- ---------- ---------- ---------- ----------
Cost of Sales:
Home sales .............................. 324,387 1,686,854 -- 17,617 (509) 2,028,349
Land/lot sales .......................... 4,336 32,188 -- -- -- 36,524
---------- ---------- ---------- ---------- ---------- ----------
328,723 1,719,042 -- 17,617 (509) 2,064,873
---------- ---------- ---------- ---------- ---------- ----------
Gross profit:
Home sales .............................. 61,724 396,885 -- 5,847 509 464,965
Land/lot sales .......................... (407) 2,663 -- -- -- 2,256
---------- ---------- ---------- ---------- ---------- ----------
61,317 399,548 -- 5,847 509 467,221
Selling, general and administrative
expense ................................. 59,332 196,000 -- 4,811 1,930 262,073
Interest expense .......................... 7,078 117 -- 471 (471) 7,195
Other expense (income) .................... (214,824) (1,401) -- 615 214,138 (1,472)
---------- ---------- ---------- ---------- ---------- ----------
209,731 204,832 -- (50) (215,088) 199,425
---------- ---------- ---------- ---------- ---------- ----------
Financial services:
Revenues .................................. -- -- 34,926 -- -- 34,926
Selling, general and administrative
expense ................................. -- -- 27,082 -- (1,930) 25,152
Interest expense .......................... -- -- 4,191 -- -- 4,191
Other (income) ............................ -- -- (4,723) -- -- (4,723)
---------- ---------- ---------- ---------- ---------- ----------
-- -- 8,376 -- 1,930 10,306
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ................ 209,731 204,832 8,376 (50) (213,158) 209,731
Provision for income taxes ................ 79,698 77,840 3,179 (19) (81,000) 79,698
---------- ---------- ---------- ---------- ---------- ----------
Net income ................................ $ 130,033 $ 126,992 $ 5,197 $ (31) $ (132,158) $ 130,033
========== ========== ========== ========== ========== ==========
15
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
-----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ----------- ----------- ------------- -----------
(In thousands)
OPERATING ACTIVITIES
Net income ............................... $ 170,245 $ 154,350 $ 8,380 $ (7,927) $ (154,803) $ 170,245
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization .......... 1,418 15,711 955 379 -- 18,463
Amortization of debt premiums and fees . 2,645 -- -- -- -- 2,645
Changes in operating assets and
liabilities:
(Increase)/decrease in inventories ..... (141,521) (269,505) -- (5,683) 70 (416,639)
(Increase)/decrease in earnest money
deposits and other assets ............ (5,522) (48,394) (5,555) 5,323 20,499 (33,649)
Increase in mortgage loans held for
sale ................................. -- -- (50,616) -- -- (50,616)
Increase/(decrease) in accounts
payable and other liabilities ........ 15,490 (11,378) 569 (369) 22,296 26,608
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ............................... 42,755 (159,216) (46,267) (8,277) (111,938) (282,943)
---------- ---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment .. (7,213) (12,333) (1,860) (401) -- (21,807)
Net investments in venture capital
entities ................................ -- -- -- (1,970) -- (1,970)
Net cash paid for acquisitions ........... -- (49,009) -- -- -- (49,009)
---------- ---------- ---------- ---------- ---------- ----------
Net cash used in investing activities ....... (7,213) (61,342) (1,860) (2,371) -- (72,786)
---------- ---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Net change in notes payable .............. 357,174 (48,899) 56,420 356 (357) 364,694
Increase/(decrease) in intercompany
payables ................................ (413,026) 449,761 6,444 10,526 (53,705) --
Proceeds from stock associated with
certain employee benefit plans .......... 9,798 -- -- -- -- 9,798
Cash dividends/distributions paid ........ (9,885) (161,500) (4,500) -- 166,000 (9,885)
---------- ---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities ............................... (55,939) 239,362 58,364 10,882 111,938 364,607
---------- ---------- ---------- ---------- ---------- ----------
Increase/(decrease) in cash ................. (20,397) 18,804 10,237 234 -- 8,878
Cash at beginning of period ................. 20,397 40,349 10,727 1,052 -- 72,525
---------- ---------- ---------- ---------- ---------- ----------
Cash at end of period ....................... $ -- $ 59,153 $ 20,964 $ 1,286 $ -- $ 81,403
========== ========== ========== ========== ========== ==========
16
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2001
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2000
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ----------- ---------- --------- ------------ ----------
(In thousands)
OPERATING ACTIVITIES
Net income ............................... $ 130,033 $ 126,992 $ 5,197 $ (31) $ (132,158) $ 130,033
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization .......... 1,133 13,404 823 539 -- 15,899
Amortization of debt premiums and fees . 1,830 -- -- -- -- 1,830
Changes in operating assets and
liabilities:
(Increase)/decrease in inventories ... (82,053) (226,795) -- 2,827 92 (305,929)
(Increase)/decrease in earnest
money deposits and other assets ... 1,706 (24,976) (508) (2,541) (6,158) (32,477)
Decrease in mortgage loans held
for sale .......................... -- -- 13,857 -- -- 13,857
Increase/(decrease) in accounts
payable and other liabilities ..... 7,853 (37,536) (1,156) 582 27,694 (2,563)
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ............................... 60,502 (148,911) 18,213 1,376 (110,530) (179,350)
---------- ---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment .. (1,347) (12,394) (744) (189) -- (14,674)
Net investments in venture capital
entities ................................ -- -- -- (18,311) -- (18,311)
Net cash paid for acquisitions ........... -- (5,091) 75 -- -- (5,016)
---------- ---------- ---------- ---------- ---------- ----------
Net cash used in investing activities ....... (1,347) (17,485) (669) (18,500) -- (38,001)
---------- ---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Net change in notes payable .............. 217,497 (7,666) (22,149) (3,949) 3,951 187,684
Increase/(decrease) in intercompany
payables ................................ (254,019) 222,188 7,802 19,744 4,285 --
Repurchase of treasury stock ............. (14,543) -- -- -- -- (14,543)
Proceeds from stock associated with
certain employee benefit plans .......... 1,599 -- -- -- -- 1,599
Cash dividends/distributions paid ........ (6,813) (101,594) (700) -- 102,294 (6,813)
---------- ---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities ............................... (56,279) 112,928 (15,047) 15,795 110,530 167,927
---------- ---------- ---------- ---------- ---------- ----------
Increase/(decrease) in cash ................. 2,876 (53,468) 2,497 (1,329) -- (49,424)
Cash at beginning of period ................. 66,777 53,468 6,360 1,963 -- 128,568
---------- ---------- ---------- ---------- ---------- ----------
Cash at end of period ....................... $ 69,653 $ -- $ 8,857 $ 634 $ -- $ 79,144
========== ========== ========== ========== ========== ==========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONSOLIDATED
D. R. Horton, Inc. and subsidiaries (the "Company") provide homebuilding
activities in 22 states and 38 markets through its 45 homebuilding divisions.
Through its financial services segment, the Company also provides mortgage
banking and title agency services in many of these same markets.
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Consolidated revenues for the three months ended June 30, 2001, increased 16.9%,
to $1,121.0 million, from $959.2 million for the comparable period of 2000,
primarily due to increases in home sales revenues.
Income before income taxes for the three months ended June 30, 2001, increased
42.0%, to $110.1 million, from $77.5 million for the comparable period of 2000.
As a percentage of revenues, income before income taxes for the three months
ended June 30, 2001, increased 1.7 percentage points, to 9.8%, from 8.1% for the
comparable period of 2000, primarily due to an increase in the gross profit
percentage achieved by the homebuilding segment.
The consolidated provision for income taxes increased 40.1%, to $41.3 million
for the three months ended June 30, 2001, from $29.5 million for the same period
of 2000, due to the corresponding increase in income before income taxes. The
effective income tax rate decreased 0.5 percentage points, to 37.5%, from 38.0%
for the comparable period of 2000, primarily due to changes in the estimated
overall effective state income tax rate.
Nine Months Ended June 30, 2001 Compared to Nine Months Ended June 30, 2000
Consolidated revenues for the nine months ended June 30, 2001, increased 13.6%,
to $2,915.5 million, from $2,567.0 million for the comparable period of 2000,
primarily due to increases in home sales revenues.
Income before income taxes for the nine months ended June 30, 2001, increased
28.2%, to $269.0 million, from $209.7 million for the comparable period of 2000.
As a percentage of revenues, income before income taxes for the nine months
ended June 30, 2001, increased 1.0 percentage points, to 9.2%, from 8.2% for the
comparable period of 2000, primarily due to an increase in the gross profit
percentage achieved by the homebuilding segment.
The consolidated provision for income taxes increased 26.6%, to $100.9 million
for the nine months ended June 30, 2001, from $79.7 million for the same period
of 2000, due to the corresponding increase in income before income taxes. The
effective income tax rate decreased 0.5 percentage points, to 37.5%, from 38.0%
for the comparable period of 2000, primarily due to changes in the estimated
overall effective state income tax rate.
The cumulative effect of a change in accounting principle was an increase in
income of $2.1 million, net of income taxes, for the nine months ended June 30,
2001. This accounting change is the result of the Company's October 1, 2000
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires the Company to recognize its interest rate swap
agreements in the consolidated balance sheet at fair value.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
Percentages of Homebuilding Revenues
------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales ............................. 80.1% 81.8% 80.2% 81.5%
Selling, general and administrative
expense ................................. 9.9 10.3 10.3 10.4
Interest expense .......................... 0.2 0.2 0.2 0.3
---------- ---------- ---------- ----------
Total costs and expenses .................... 90.2 92.3 90.7 92.2
Other expense (income) ...................... 0.5 (0.1) 0.5 (0.1)
---------- ---------- ---------- ----------
Income before income taxes .................. 9.3% 7.8% 8.8% 7.9%
========== ========== ========== ==========
Homes Closed Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------- ------------------------------------
2001 2000 2001 2000
----------------- ----------------- ----------------- ----------------
Homes Homes Homes Homes
Closed Revenues Closed Revenues Closed Revenues Closed Revenues
------ -------- ------ -------- ------ -------- ------ --------
($'s in millions) ($'s in millions)
Mid-Atlantic 725 $ 158.8 860 $178.5 1,950 $ 432.3 2,187 $ 436.1
Midwest 437 105.2 470 108.3 1,311 313.6 1,424 309.2
Southeast 818 143.6 767 129.7 1,976 348.3 2,015 337.1
Southwest 2,277 378.9 1,888 288.0 5,955 981.7 5,603 833.3
West 1,210 303.7 1,025 226.3 2,895 724.0 2,637 577.6
----- -------- ----- ------ ------ -------- ------ --------
5,467 $1,090.2 5,010 $930.8 14,087 $2,799.9 13,866 $2,493.3
===== ======== ===== ====== ====== ======== ====== ========
Net Sales Contracts Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ -----------------------------------
2001 2000 2001 2000
---------------- ---------------- ----------------- ---------------
Homes Homes Homes Homes
Sold $ Sold $ Sold $ Sold $
----- ------- ----- -------- ------ -------- ------ -------
($'s in millions) ($'s in millions)
Mid-Atlantic 674 $ 146.7 754 $ 159.1 2,084 $ 459.4 2,084 $ 434.4
Midwest 520 139.2 476 118.4 1,441 374.8 1,317 326.4
Southeast 868 152.9 718 126.5 2,266 404.8 2,160 369.8
Southwest 2,453 411.0 1,998 321.2 6,927 1,142.2 5,992 937.6
West 1,499 364.7 1,149 276.4 4,237 1,089.4 2,827 650.8
----- -------- ----- -------- ------ -------- ------ --------
6,014 $1,214.5 5,095 $1,001.6 16,955 $3,470.6 14,380 $2,719.0
===== ======== ===== ======== ====== ======== ====== ========
Sales Contract Backlog June 30, 2001 June 30, 2000
----------------- ---------------
Homes $ Homes $
------ ------- ----- --------
($'s in millions)
Mid-Atlantic 957 $ 234.7 988 $ 241.1
Midwest 1,030 286.6 1,027 264.4
Southeast 1,629 288.2 981 173.3
Southwest 4,161 711.9 3,470 577.3
West 2,831 740.0 1,357 326.1
------ -------- ----- --------
10,608 $2,261.4 7,823 $1,582.2
====== ======== ===== ========
The Company's market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Myrtle Beach,
New Jersey, Newport News, Raleigh/Durham, Richmond, Suburban Washington, D.C. and Wilmington
Midwest Chicago, Cincinnati, Louisville, Minneapolis/St. Paul and St. Louis
Southeast Atlanta, Birmingham, Jacksonville, Orlando and South Florida
Southwest Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson
West Denver, Las Vegas, Los Angeles, Portland, Sacramento, Salt Lake City and San Diego
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenues from homebuilding activities increased 16.4%, to $1,102.0 million
(5,467 homes closed) for the three months ended June 30, 2001, from $946.4
million (5,010 homes closed) for the comparable period of 2000. Revenues from
home sales increased in three of the Company's five market regions, with
percentage increases ranging from 10.7% in the Southeast region to 34.2% in the
West region. Home sales revenues declined 2.8% and 11.1% in the Midwest and
Mid-Atlantic regions, respectively. The increases in total homebuilding revenues
and revenues from home sales were due to strong housing demand throughout the
majority of the Company's markets, and an increase in the average selling price
of homes closed.
The average selling price of homes closed during the three months ended June 30,
2001 was $199,400, up 7.3% from $185,800 for the same period in 2000. The
increase in average selling price was due to changes in the mix of homes closed
and, with the strong housing demand, the Company's ability to sell more custom
features with its homes and to raise prices in some of its markets.
The value of net sales contracts increased 21.3%, to $1,214.5 million (6,014
homes) for the three months ended June 30, 2001, from $1,001.6 million (5,095
homes) for the same period of 2000. The value of net sales contracts increased
in four of the Company's five market regions, with percentage increases ranging
from 17.6% in the Midwest region to 32.0% in the West region. The value of net
sales contracts declined 7.8% in the Mid-Atlantic region. The average price of a
net sales contract in the three months ended June 30, 2001 was $201,900, up 2.7%
over the $196,600 average in the three months ended June 30, 2000. The increase
in average selling price was due to changes in the mix of homes sold and, with
the strong housing demand, the Company's ability to sell more custom features
with its homes and to raise prices in some of its markets.
At June 30, 2001, the Company's backlog of sales contracts was $2,261.4 million
(10,608 homes), up 42.9% from $1,582.2 million (7,823 homes) at June 30, 2000.
The average sales price of homes in sales backlog was $213,200 at June 30, 2001,
up 5.4% from the $202,300 average at June 30, 2000. The average sales price of
homes in backlog typically is higher than the average sales price of closed
homes because it takes longer to construct more expensive homes.
Cost of sales increased by 14.1%, to $882.8 million for the three months ended
June 30, 2001, from $773.9 million for the comparable quarter of 2000. The
increase in cost of sales was primarily attributable to the increase in
revenues. Cost of home sales as a percentage of home sales revenues declined 1.2
percentage points, to 80.0% for the three months ended June 30, 2001, from 81.2%
for the comparable period of 2000, due to the increase in average selling price
of homes closed, higher margins obtained from selling more custom features, and
reduced material costs. Total homebuilding cost of sales was 80.1% of total
homebuilding revenues, down 1.7 percentage points from 81.8% for the comparable
period of 2000, primarily due to the decline in cost of home sales as a
percentage of revenues.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 12.2%, to $109.1 million in the three months ended June 30, 2001,
from $97.2 million in the comparable period of 2000. As a percentage of
homebuilding revenues, SG&A expenses decreased to 9.9% for the three months
ended June 30, 2001, from 10.3% for the comparable period of 2000, due primarily
to the large increase in revenues absorbing fixed costs.
Interest expense associated with homebuilding activities decreased to $2.1
million in the three months ended June 30, 2001, from $2.3 million in the
comparable period of 2000. As a percentage of homebuilding revenues,
homebuilding interest expense was 0.2% for both three month periods. During both
periods, the Company expensed the portion of incurred interest and other
financing costs which could not be charged to inventory. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. Capitalized interest and other financing costs are included in cost
of sales at the time of home closings.
Other expense associated with homebuilding activities was $5.0 million in the
three months ended June 30, 2001, compared to $0.1 million of other income in
the comparable period of 2000. The expense in 2001 is primarily due to
write-downs to estimated fair value of the carrying amounts of the Company's
investments in start-up and emerging growth companies, offset in part by an
increase in the fair value of the Company's interest rate swap agreements during
the quarter.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended June 30, 2001 Compared to Nine Months Ended June 30, 2000
Revenues from homebuilding activities increased 13.3%, to $2,867.9 million
(14,087 homes closed) for the nine months ended June 30, 2001, from $2,532.1
million (13,866 homes closed) for the comparable period of 2000. Revenues from
home sales increased in four of the Company's five market regions, with
percentage increases ranging from 1.4% in the Midwest region to 25.4% in the
West region. Revenues from homebuilding activities declined 0.9% in the
Southeast region. The increases in total homebuilding revenues and revenues from
home sales were due to strong housing demand throughout the majority of the
Company's markets, and an increase in the average selling price of homes closed.
The average selling price of homes closed during the nine months ended June 30,
2001 was $198,800, up 10.6% from $179,800 for the same period in 2000. The
increase in average selling price was due to changes in the mix of homes closed
and, with the strong housing demand, the Company's ability to sell more custom
features with its homes and to raise prices in some of its markets.
The value of net sales contracts increased 27.6%, to $3,470.6 million (16,955
homes) for the nine months ended June 30, 2001, from $2,719.0 million (14,380
homes) for the same period of 2000. The value of net sales contracts increased
in all of the Company's five market regions, with percentage increases ranging
from 5.8% in the Mid-Atlantic region to 67.4% in the West region. The average
price of a net sales contract in the nine months ended June 30, 2001 was
$204,700, up 8.2% over the $189,100 average in the nine months ended June 30,
2000. The increase in average selling price was due to changes in the mix of
homes sold and, with the strong housing demand, the Company's ability to sell
more custom features with its homes and to raise prices in some of its markets.
Cost of sales increased by 11.4%, to $2,299.5 million for the nine months ended
June 30, 2001, from $2,064.9 million for the comparable period of 2000. The
increase in cost of sales was primarily attributable to the increase in
revenues. Cost of home sales as a percentage of home sales revenues declined 1.2
percentage points, to 80.2% for the nine months ended June 30, 2001, from 81.4%
for the comparable period of 2000, due to the increase in average selling price
of homes closed, higher margins obtained from selling more custom features, and
reduced material costs. Total homebuilding cost of sales was 80.2% of total
homebuilding revenues, down 1.3 percentage points from 81.5% for the comparable
period of 2000, due primarily to the decline in cost of home sales as a
percentage of revenues.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 12.6%, to $295.1 million in the nine months ended June 30, 2001,
from $262.1 million in the comparable period of 2000. As a percentage of
homebuilding revenues, SG&A expenses decreased to 10.3% for the nine months
ended June 30, 2001, from 10.4% for the comparable period of 2000, due primarily
to the large increase in revenues absorbing fixed costs.
Interest expense associated with homebuilding activities was $6.6 million in the
nine months ended June 30, 2001, compared to $7.2 million in the comparable
period of 2000. As a percentage of homebuilding revenues, homebuilding interest
expense decreased to 0.2% for the nine months ended June 30, 2001, from 0.3% in
the comparable period of 2000. During both periods, the Company expensed the
portion of incurred interest and other financing costs which could not be
charged to inventory. The Company follows a policy of capitalizing interest only
on inventory under construction or development. Capitalized interest and other
financing costs are included in cost of sales at the time of home closings.
Other expense associated with homebuilding activities was $14.0 million in the
nine months ended June 30, 2001, as compared to $1.5 million of other income in
the comparable period of 2000. The expense in 2001 is primarily due to
write-downs to estimated fair value of the carrying amounts of the Company's
investments in start-up and emerging growth companies and the decline in the
fair value of the Company's interest rate swap agreements during the period.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial and other information for the Company's
financial services operations:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- --------- ----------
($ in Thousands)
Number of loans originated .................. 3,658 2,384 8,733 6,470
---------- ---------- ---------- ----------
Loan origination fees ....................... $ 3,969 $ 2,650 $ 9,695 $ 6,995
Sale of servicing rights and gains from
sale of mortgages ........................... 8,326 5,428 21,512 14,695
Other revenues .............................. 2,130 1,142 4,952 3,344
---------- ---------- ---------- ----------
Total mortgage banking revenues ............. 14,425 9,220 36,159 25,034
Title policy premiums, net .................. 4,590 3,580 11,394 9,892
---------- ---------- ---------- ----------
Total revenues .............................. 19,015 12,800 47,553 34,926
General and administrative expense .......... 12,540 9,155 32,507 25,152
Interest expense ............................ 1,575 1,485 3,582 4,191
Interest/other (income) ..................... (2,240) (1,700) (4,869) (4,723)
---------- ---------- ---------- ----------
Income before income taxes .................. $ 7,140 $ 3,860 $ 16,333 $ 10,306
========== ========== ========== ==========
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenues from the financial services segment increased 48.6%, to $19.0 million
in the three months ended June 30, 2001, from $12.8 million in the comparable
period of 2000. The increase in financial services revenues was due to the rapid
expansion of the Company's mortgage loan and title services provided to
customers of the Company's homebuilding segment. General and administrative
expenses associated with financial services increased 37.0%, to $12.5 million in
the three months ended June 30, 2001, from $9.2 million in the comparable period
of 2000. As a percentage of financial services revenues, general and
administrative expenses decreased by 5.6 percentage points, to 65.9% in the
three months ended June 30, 2001, from 71.5% in the comparable period in 2000,
due primarily to fiscal year 2000 startup expenses in new markets with limited
revenues.
Nine Months Ended June 30, 2001 Compared to Nine Months Ended June 30, 2000
Revenues from the financial services segment increased 36.2%, to $47.6 million
in the nine months ended June 30, 2001, from $34.9 million in the comparable
period of 2000. The increase in financial services revenues was due to the rapid
expansion of the Company's mortgage loan and title services provided to
customers of the Company's homebuilding segment. General and administrative
expenses associated with financial services increased 29.2%, to $32.5 million in
the nine months ended June 30, 2001, from $25.2 million in the comparable period
of 2000. As a percentage of financial services revenues, general and
administrative expenses decreased by 3.6 percentage points, to 68.4% in the nine
months ended June 30, 2001, from 72.0% in the comparable period in 2000, due
primarily to fiscal year 2000 startup expenses in new markets with limited
revenues.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had available cash and cash equivalents of $81.4
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land) at June 30, 2001, had increased by
$524.6 million since September 30, 2000, due to a general increase in business
activity and the expansion of operations in the Company's market areas. The
inventory increase was financed largely by issuing $200 million of senior
subordinated notes, issuing for $200 million of zero coupon convertible senior
notes and by retaining earnings. As a result, the Company's ratio of
homebuilding notes payable to total capital at June 30, 2001, increased 2.6
percentage points to 58.8%, from 56.2% at September 30, 2000. The stockholders'
equity to total assets ratio decreased 1.8 percentage points, to 34.2% at June
30, 2001, from 36.0% at September 30, 2000.
The Company has an $825 million, unsecured revolving credit facility, consisting
of a $775 million four-year revolving loan and a $50 million four-year letter of
credit facility, that matures in 2002. Additionally, the Company has another $45
million standby letter of credit agreement maturing in 2003. The Company is
currently in negotiations to refinance the four year revolving loan and letter
of credit facilities. At June 30, 2001, the Company had outstanding homebuilding
debt of $1,625.9 million, of which $144.0 million represented advances under the
revolving credit facility. Under the debt covenants associated with the
revolving credit facility, at June 30, 2001, the Company had additional
homebuilding borrowing capacity of $631.0 million. The Company has entered into
multi-year interest rate swap agreements with notional amounts aggregating $200
million that serve to fix the interest rate on a portion of the variable rate
revolving credit facility. An additional interest rate swap agreement, with a
notional amount of $148.5 million, was entered into in December 1999. It
exchanged one of the Company's fixed rate obligations for a variable rate one.
In accordance with its terms, it was canceled by the counterparty in April 2001.
In April 2001, a universal shelf registration statement for an aggregate amount
of $750 million was filed. It was declared effective by the Securities and
Exchange Commission on April 20, 2001. Under the new shelf registration
statement, on May 11, 2001, the Company issued $381.1 million (at maturity) in
zero coupon convertible senior notes due May 11, 2021. Each $1,000 note was sold
for $524.78, providing a yield-to-maturity of 3.25% per year. The notes are
convertible into the Company's common stock at any time, if the sale price of
the common stock exceeds specified thresholds or in other specified instances,
at the rate of approximately 17.5 shares per $1,000 face amount at maturity. The
conversion ratio equates to an initial conversion price of $30.00 per share.
Holders have the option to require the Company to repurchase the notes on any of
the second, seventh or twelfth anniversary dates from the issue date for the
initial issue price plus accrued yield to the purchase date. The Company must
satisfy any notes submitted for repurchase on the second anniversary date in
cash. Any notes submitted for repurchase on the seventh or twelfth anniversary
dates may be settled in any combination of cash and/or the Company's common
stock, at the Company's option. The Company will have the option to redeem the
notes, in cash, at any time after the second anniversary date of the notes for
the initial issue price plus accrued yield to redemption. The Company will pay
contingent interest on the notes during specified six-month periods beginning on
May 12, 2003, if the market price of the notes exceeds specified levels.
The Company expects to issue $200 million 7.875% Senior Notes due August 15,
2011 on or about August 15, 2001. The Company intends to use the proceeds from
the offering of these notes to repay outstanding debt under our revolving credit
facility and for general corporate purposes.
In June 2001, the Company issued a post-effective amendment to an existing
registration statement, which increased to 9.0 million the number of shares of
the Company's common stock available for issuance as consideration for
acquisitions. The amendment was declared effective by the Securities and
Exchange Commission on June 18, 2001.
At June 30, 2001, the financial services segment had mortgage loans held for
sale of $170.2 million and loan commitments for $113.3 million at fixed rates.
The Company hedges the interest rate market risk on these mortgage loans held
for sale and loan commitments through the use of best-efforts whole loan
delivery commitments, mandatory forward commitments to sell mortgage-backed
securities and the purchase of options on financial instruments.
The financial services segment has a $175 million, one-year bank warehouse
facility that matures on August 13, 2001, and is secured by mortgage loans held
for sale. The warehouse facility is not guaranteed by the parent company. As of
June 30, 2001, $155.2 million had been drawn under this facility. All mortgage
company activities are financed under the warehouse facility.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On May 1, 2001, the Company acquired the assets of Fortress-Florida, Inc.
(Fortress), a wholly owned subsidiary of The Fortress Group, Inc., for $28.7
million. Fortress assets, primarily inventories, amounted to approximately $47.1
million. Total liabilities assumed amounted to approximately $24.3 million,
including notes payable of $17.5 million, which were paid at closing. On July
17, 2001, the Company completed the acquisition of the assets of Emerald
Builders (Emerald), a privately held homebuilder based in Houston, Texas. In the
transaction, the Company issued approximately 1.0 million shares of common
stock, paid $30.7 million in cash and assumed debt of approximately $115.3
million, including notes payable of $109.6 million, which were paid at closing.
The final number of shares issued is subject to adjustment, based on a final
determination of the book value of the assets acquired.
The Company's rapid growth and acquisition strategy require significant amounts
of cash. It is anticipated that future home construction, lot and land purchases
and acquisitions will be funded through internally generated funds and existing
and future credit facilities. After giving effect to the Emerald acquisition,
under the currently effective shelf registration statement, the Company has
approximately 8.0 million shares issuable to effect, in whole or in part,
possible future acquisitions. In the future, the Company intends to continue to
maintain effective shelf registration statements that will facilitate access to
the capital markets.
During the three months ended June 30, 2001, the Company's Board of Directors
declared a quarterly cash dividend of $0.05 per common share, which was paid on
May 15, 2001 to stockholders of record on May 8, 2001.
In 1999 and 2000, the Company entered into three separate limited partnership
agreements with the purpose of investing in start-up and emerging growth
companies whose technology and business plans have the potential of permitting
the Company to leverage its size, expertise and customer base in the
homebuilding industry. The Company originally authorized investment of up to
$125 million in such companies over a four-year period. Since January, 2001, the
original $125 million authorization was reduced to the $31.3 million that had
been invested in such companies as of that date. The investments are
concentrated in e-commerce businesses that serve the homebuilding, real estate
and financial service industries, as well as in businesses whose strategic focus
allows for the diversification of the Company's operations. As of June 30, 2001,
the carrying value of the Company's investments in such companies, reported in
homebuilding other assets, amounted to $22.0 million.
Except for ordinary expenditures for the construction of homes, the acquisition
of land and lots for development and sale of homes, at June 30, 2001, the
Company had no material commitments for capital expenditures.
SAFE HARBOR STATEMENT
Certain statements contained herein, as well as statements made by the Company
in periodic press releases and oral statements made by the Company's officials
to analysts and stockholders in the course of presentations about the Company
may be construed as "Forward-Looking Statements" as defined in the Private
Securities Litigation Reform Act of 1995. Such statements may involve unstated
risks, uncertainties and other factors that may cause actual results to differ
materially from those initially anticipated. Such risks, uncertainties and other
factors include, but are not limited to:
- Changes in general economic, real estate and business conditions
- Changes in interest rates and the availability of mortgage financing
- Governmental regulations and environmental matters
- The Company's substantial leverage
- Competitive conditions within the homebuilding industry
- The availability of capital
- The Company's ability to effect its growth strategies successfully
Additional information about issues that could lead to material changes in
performance is contained in the Company's annual report on Form 10-K, which is
filed with the Securities and Exchange Commission.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company
monitors its exposure to changes in interest rates and utilizes both fixed and
variable rate debt. For fixed rate debt, changes in interest rates generally
affect the value of the debt instrument, but not the Company's earnings or cash
flows. Conversely, for variable rate debt, changes in interest rates generally
do not impact the fair value of the debt instrument, but may affect the
Company's future earnings and cash flows. The Company has mitigated its exposure
to changes in interest rates on its variable rate bank debt by entering into
interest rate swap agreements to obtain a fixed interest rate for a portion of
the variable rate borrowings. The Company generally does not have an obligation
to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk
and changes in fair value would not have a significant impact on the Company's
fixed-rate debt until such time as the Company is required to refinance,
repurchase or repay such debt.
The Company's interest rate swaps were not designated as hedges under Statement
of Financial Accounting Standards No. 133 when it was adopted on October 1,
2000. Since their maturities and other terms did not match the related debt,
they were determined to be ineffective hedges (as defined by the Statement).
Therefore, the Company is exposed to market risk associated with changes in the
fair values of the swaps, since any such changes must be reflected in the
Company's income statements.
The following table shows, as of June 30, 2001, the Company's long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts, weighted average interest rates and estimated fair market
value of the Company's interest rate swaps.
Three Months
Ended
Sept. 30, Year ended September 30,
------------ ----------------------------------------------- Fair
($ in millions) market
value at
2001 2002 2003 2004 2005 Thereafter Total 06/30/01
------ ------ ------ ------ ------ ----------- ------ --------
Debt:
Fixed rate $6.5 $24.4 $14.0 $157.4 $201.2 $1,264.6 $1,668.1 $1,486.9
Average interest rate 8.50% 6.98% 6.58% 8.71% 10.83% 8.10% 8.50% --
Variable rate $155.2 $144.0 -- -- -- -- $299.2 $299.2
Average interest rate 4.75% 5.65% -- -- -- -- 5.19% --
Interest Rate Swaps:
Variable to fixed $200.0 $200.0 $200.0 $200.0 $200.0 $200.0 -- ($2.2)
Average pay rate 5.10% 5.10% 5.10% 5.10% 5.10% 5.08% -- --
Average receive rate 90-day LIBOR
25
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On May 11, 2001, the Company issued $381,113,000 principal amount at maturity of
its Zero Coupon Convertible Senior Notes due 2021 (the "Notes"). As part of that
issuance, the Company executed an Eleventh Supplemental Indenture, dated as of
May 11, 2001, among the Company, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee, authorizing the Notes. The Supplemental
Indenture, and the Indenture to which it relates (dated June 9, 1997, as
supplemented), impose limitations on the ability of the Company and its
subsidiaries guaranteeing the Notes to, among other things, incur indebtedness,
make "Restricted Payments" (as defined, which includes payments of dividends or
other distributions on the Common Stock of the Company), effect certain "Asset
Dispositions" (as defined), enter into certain transactions with affiliates,
merge or consolidate with any person, or transfer all or substantially all of
their properties and assets. These limitations are substantially similar to the
limitations already existing with respect to the Company's other senior notes,
and related indentures and supplemental indentures.
Holders of the Notes may convert their Notes at any time on or before the
maturity date, unless the Notes have been redeemed or purchased previously, into
17.4927 shares of the Company's common stock per $1,000 principal amount at
maturity, if (1) the sale price of the common stock issuable upon conversion of
a Note reaches a specified threshold, (2) the credit rating of the Notes is
reduced to or below a specified level by the rating agencies, (3) the Notes are
called for redemption or (4) specified corporate transactions have occurred. The
conversion rate will be subject to adjustment in some events.
Other information concerning the offering and issuance of the Notes has
previously been reported in, and is described in, Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Registration Number 333-57388)
dated April 18, 2001, the Company's Prospectus Supplement, dated May 4, 2001 and
filed with the Securities and Exchange Commission (the "Commission") on May 9,
2001 pursuant to Rule 424(b), and the Company's current reports on Form 8-K,
dated May 4, 2001 and filed with the Commission on May 10, 2001, and dated May
11, 2001 and filed with the Commission on May 14, 2001.
26
ITEM 5. OTHER INFORMATION
The Company has executed the Third Supplemental Indenture, dated as of May 21,
2001, to the Indenture dated as of September 11, 2000, among the Company, the
guarantors named therein and American Stock Transfer and Trust Company, as
Trustee, relating to the Senior Subordinated Debt Securities of the Company; the
Twelfth Supplemental Indenture, dated as of May 21, 2001, to the Indenture dated
as of June 9, 1997, among the Company, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to Senior Debt Securities
of the Company; and the Fourth Supplemental Indenture, dated as of May 21, 2001,
to the Indenture dated as of April 15, 1996, between Continental Homes Holding
Corp. ("Continental") and First Union National Bank, as Trustee, relating to the
10% Senior Notes due 2006, of Continental, which have been assumed by the
Company. The effect of these three supplemental indentures, dated as of May 21,
2001, is to include additional subsidiaries of the Company as "Restricted
Subsidiaries" and " Guarantors" of the debt to which the related Indentures
apply. The new Restricted Subsidiaries are as follows:
Jurisdiction
Name of Organization
---- ---------------
DRH Cambridge Homes, LLC Delaware
DRH Southwest Construction, Inc. California
DRH Title Company of Colorado, Inc. Colorado
Meadows VIII, Ltd. Delaware
D.R. Horton, Inc. - Dietz-Crane,
(formerly DRH Regrem I, Inc.) Delaware
DRH Regrem II, Inc. Delaware
DRH Regrem III, Inc. Delaware
DRH Regrem IV, Inc. Delaware
DRH Regrem V, Inc. Delaware
DRH Regrem VII, LP Texas
D.R. Horton - Emerald, Ltd., (formerly
DRH Regrem VI, LP) Texas
DRH Regrem VIII, LLC Delaware
The three supplemental indentures, dated as of May 21, 2001, are each attached
hereto as exhibits.
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)Exhibits.
Exhibit No. Description
4.1 Indenture, dated as of September 11, 2000, among the Company,
the guarantors named therein and American Stock Transfer and
Trust Company, as Trustee, relating to the Senior Subordinated
Debt Securities of the Company, is incorporated herein by
reference from Exhibit 4.1(a) to the Company's Current Report
on Form 8-K filed with the Commission on September 7, 2000.
4.2* Third Supplemental Indenture, dated as of May 21, 2001, among
the Company, the guarantors named therein and American Stock
Transfer and Trust Company, as Trustee.
4.3 Indenture, dated as of June 9, 1997, among the Company, the
guarantors named therein and American Stock Transfer & Trust
Company, as Trustee, relating to Senior Debt Securities, is
incorporated herein by reference from Exhibit 4.1(a) to the
Company's Registration Statement on Form S-3 (Registration No.
333-27521) filed with the Commission on May 21, 1997.
4.4 Eleventh Supplemental Indenture, dated as of May 11, 2001,
among the Company, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to the
Zero Coupon Convertible Senior Notes due 2021, incorporated
herein by reference from Exhibit 4.1(a) to the Company's
Form 8-K filed with the Commission on May 14, 2001.
4.5* Twelfth Supplemental Indenture, dated as of May 21, 2001,
among the Company, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee.
4.6 Indenture dated as of April 15, 1996 between Continental Homes
Holding Corp. ("Continental") and First Union National Bank,
as Trustee, relating to the 10% Senior Notes due 2006, is
incorporated herein by reference from Exhibit 4.1 to
Continental's Annual Report on Form 10-K for the year ended
May 31, 1996. The Commission file number for Continental is
1-10700.
4.7* Fourth Supplemental Indenture, dated as of May 21, 2001, among
the Company, the guarantors named herein and First Union
National Bank, as Trustee.
- -------------------
* filed herewith
(b) Reports on Form 8-K.
On April 18, 2001, the Company filed a Current Report on Form 8-K
(Item 5) announcing its financial results for its second quarter
ended March 31, 2001.
On May 10, 2001, the Company filed a Current Report on Form 8-K
(Items 5 and 7), which filed an underwriting agreement and a form of
supplemental indenture, both relating to the offering and issuance of
$381,113,000 million principal amount at maturity of the Company's
Zero Coupon Convertible Senior Notes due 2021.
On May 14, 2001, the Company filed a Current Report on Form 8-K
(Items 5 and 7), which filed a supplemental indenture and tax
opinion, both relating to the offering and issuance of $381,113,000
million principal amount at maturity of the Company's Zero Coupon
Convertible Senior Notes due 2021.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: August 14, 2001 By: /s/ Samuel R. Fuller
---------------------------------------
Samuel R. Fuller, on behalf of
D.R. Horton, Inc. and as Executive
Vice President, Treasurer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
29
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
4.2* Third Supplemental Indenture, dated as of May 21, 2001, among
the Company, the guarantors named therein and American Stock
Transfer and Trust Company, as Trustee.
4.5* Twelfth Supplemental Indenture, dated as of May 21, 2001, among
the Company, the guarantors named therein and American Stock
Transfer & Trust Company, as Trustee.
4.7* Fourth Supplemental Indenture, dated as of May 21, 2001, among
the Company, the guarantors named herein and First
Union National Bank, as Trustee.
30