1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000
-----------------
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 -- 67,947,282 shares as of February 5, 2001
This Report contains 22 pages.
2
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
----
ITEM 1. Financial Statements.
Consolidated Balance Sheets-December 31, 2000 and September 30, 2000. 3
Consolidated Statements of Income--Three Months Ended December 31,
2000 and 1999. 4
Consolidated Statement of Stockholders' Equity-Three Months Ended
December 31, 2000. 5
Consolidated Statements of Cash Flows-Three Months Ended December 31,
2000 and 1999. 6
Notes to Consolidated Financial Statements. 7-14
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15-19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 20
PART II. OTHER INFORMATION.
ITEM 6. Exhibits and Reports on Form 8-K. 21
SIGNATURES. 22
3
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
2000 2000
--------------- ---------------
(IN THOUSANDS)
(UNAUDITED)
ASSETS
HOMEBUILDING:
Cash ............................................................................. $ 62,828 $ 61,798
Inventories:
Finished homes and construction in progress ................................. 1,160,965 1,095,636
Residential lots - developed and under development ......................... 1,227,604 1,092,571
Land held for development ................................................... 2,824 2,824
--------------- ---------------
2,391,393 2,191,031
Property and equipment (net) ..................................................... 38,102 38,960
Earnest money deposits and other assets .......................................... 155,318 148,983
Excess of cost over net assets acquired (net) .................................... 115,311 115,966
--------------- ---------------
2,762,952 2,556,738
--------------- ---------------
FINANCIAL SERVICES:
Cash ............................................................................. 16,300 10,727
Mortgage loans held for sale ..................................................... 96,259 119,581
Other assets ..................................................................... 9,212 7,531
--------------- ---------------
121,771 137,839
--------------- ---------------
$ 2,884,723 $ 2,694,577
=============== ===============
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities ........................................... $ 367,541 $ 370,389
Notes payable:
Unsecured:
Revolving credit facility due 2002 ..................................... 327,000 192,000
8 3/8% senior notes due 2004, net ...................................... 148,646 148,547
10 1/2% senior notes due 2005, net ..................................... 199,365 199,343
10% senior notes due 2006, net ......................................... 147,448 147,398
8% senior notes due 2009, net .......................................... 383,131 383,089
9 3/4% senior subordinated notes due 2010, net ......................... 148,852 148,821
Other secured ............................................................... 52,278 26,388
--------------- ---------------
1,406,720 1,245,586
--------------- ---------------
1,774,261 1,615,975
--------------- ---------------
FINANCIAL SERVICES:
Accounts payable and other liabilities ........................................... 3,833 4,958
Notes payable to financial institutions .......................................... 78,247 98,817
--------------- ---------------
82,080 103,775
--------------- ---------------
1,856,341 1,719,750
--------------- ---------------
Minority interest ................................................................ 8,210 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, 70,320,663 at
December 31, 2000 and 70,074,110 at September 30, 2000,
issued and outstanding ...................................................... 703 701
Additional capital ............................................................... 540,593 537,145
Retained earnings ................................................................ 515,823 468,664
Treasury stock, 2,589,200 shares at December 31, 2000 and September 30,
2000, at cost ............................................................... (36,947) (36,947)
--------------- ---------------
1,020,172 969,563
--------------- ---------------
$ 2,884,723 $ 2,694,577
=============== ===============
See accompanying notes to consolidated financial statements.
-3-
4
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS
ENDED DECEMBER 31,
-------------------------------------
2000 1999
---------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
(UNAUDITED)
HOMEBUILDING:
Revenues
Home sales ................................................................ $ 856,077 $ 782,372
Land/lot sales ............................................................ 17,477 15,192
--------------- ---------------
873,554 797,564
--------------- ---------------
Cost of sales
Home sales ................................................................ 689,899 635,832
Land/lot sales ............................................................ 13,432 10,805
--------------- ---------------
703,331 646,637
--------------- ---------------
Gross profit
Home sales ................................................................ 166,178 146,540
Land/lot sales ............................................................ 4,045 4,387
--------------- ---------------
170,223 150,927
Selling, general and administrative expense .................................. 91,898 82,697
Interest expense ............................................................. 2,906 3,295
Other expense (income) ....................................................... 3,314 (81)
--------------- ---------------
72,105 65,016
--------------- ---------------
FINANCIAL SERVICES:
Revenues ..................................................................... 14,109 11,376
Selling, general and administrative expense .................................. 10,137 7,975
Interest expense ............................................................. 1,132 1,549
Other (income) ............................................................... (1,416) (1,733)
--------------- ---------------
4,256 3,585
--------------- ---------------
INCOME BEFORE INCOME TAXES ................................................ 76,361 68,601
Provision for income taxes ................................................... 28,636 26,069
--------------- ---------------
Income before cumulative effect of change in accounting principle ............ 47,725 42,532
Cumulative effect of change in accounting principle, net of income
taxes ..................................................................... 2,136 --
--------------- ---------------
NET INCOME ................................................................ $ 49,861 $ 42,532
=============== ===============
Basic earnings per common share:
Income before cumulative effect of change in accounting principle ......... $ 0.71 $ 0.62
Cumulative effect of change in accounting principle, net of income
taxes ................................................................. 0.03 --
--------------- ---------------
Net income ................................................................ $ 0.74 $ 0.62
=============== ===============
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle ......... $ 0.70 $ 0.62
Cumulative effect of change in accounting principle, net of income
taxes ................................................................. 0.03 --
--------------- ---------------
Net income ................................................................ $ 0.73 $ 0.62
=============== ===============
Cash dividends per share ..................................................... $ 0.04 $ 0.03
=============== ===============
See accompanying notes to consolidated financial statements.
-4-
5
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 .................................. -- -- 49,861 -- 49,861
Issuances under D.R. Horton, Inc.
employee benefit plans (4,400 shares) ..... -- 66 -- -- 66
Exercise of stock options (242,153 shares) .. 2 3,382 -- -- 3,384
Cash dividends paid ......................... -- -- (2,702) -- (2,702)
-------------- -------------- -------------- -------------- --------------
Balances at December 31, 2000 ............... $ 703 $ 540,593 $ 515,823 $ (36,947) $ 1,020,172
============== ============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
-5-
6
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
ENDED DECEMBER 31,
------------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
(UNAUDITED)
OPERATING ACTIVITIES
Net income ............................................................................. $ 49,861 $ 42,532
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................................................... 5,992 4,945
Amortization of debt premiums and fees ................................................. 598 659
Changes in operating assets and liabilities:
Increase in inventories .......................................................... (154,791) (124,039)
Increase in earnest money deposits and other assets .............................. (6,283) (24,389)
Decrease in mortgage loans held for sale ......................................... 23,322 17,997
Decrease in accounts payable and other liabilities ............................... (1,028) (24,288)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES .................................................... (82,329) (106,583)
------------ ------------
INVESTING ACTIVITIES
Net purchase of property and equipment ................................................. (3,179) (4,374)
Net investment in venture capital entities ............................................. (2,022) (7,500)
Net cash paid for acquisitions ......................................................... (1,364) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .................................................... (6,565) (11,874)
------------ ------------
FINANCING ACTIVITIES
Proceeds from notes payable ............................................................ 200,000 115,000
Repayment of notes payable ............................................................. (105,251) (69,395)
Repurchase of treasury stock ........................................................... -- (5,356)
Proceeds from issuance of common stock associated with
certain employee benefit plans ....................................................... 66 189
Proceeds from exercise of stock options ................................................ 3,384 635
Payment of cash dividends .............................................................. (2,702) (1,870)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................................ 95,497 39,203
------------ ------------
INCREASE (DECREASE) IN CASH ............................................................. 6,603 (79,254)
Cash at beginning of period ...................................................... 72,525 128,568
------------ ------------
Cash at end of period ............................................................ $ 79,128 $ 49,314
============ ============
See accompanying notes to consolidated financial statements.
-6-
7
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2000
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 (consisting
only of normal recurring accruals) 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 period ended December 31, 2000 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 - CHANGE IN ACCOUNTING PRINCIPLE
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, do not qualify 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, as an adjustment to net income in the three
months ended December 31, 2000. The fair value of the Company's interest rate
swaps at December 31, 2000 is recorded in homebuilding other assets, and the
change in their fair value during the three months ended December 31, 2000 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.
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 ended December 31, 2000 and 1999. 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.
-7-
8
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
DECEMBER 31, 2000
NOTE D - NET INCOME PER SHARE
Basic net income per share for the three months ended December 31, 2000 and 1999
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
DECEMBER 31,
-----------------------
2000 1999
--------- ---------
Denominator for basic earnings per share--weighted
average shares .............................................. 67,537 68,288
Employee stock options ........................................... 1,035 547
--------- ---------
Denominator for diluted earnings per share--adjusted
weighted average shares and assumed conversions ............. 68,572 68,835
========= =========
Options to purchase 1,251,000 and 2,365,000 additional shares of common stock at
various prices were outstanding during the three months ended December 31, 2000
and 1999, respectively, but were not included in the computation of diluted
earnings per share because the exercise prices were greater than the average
market price of the common shares and, therefore, their effect would be
antidilutive.
NOTE E - 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
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
Capitalized interest, beginning of period ............. $ 66,092 $ 41,525
Interest incurred - homebuilding ...................... 29,543 22,101
Interest expensed:
Directly - homebuilding .......................... (2,906) (3,295)
Amortized to cost of sales ....................... (18,172) (13,868)
------------ ------------
Capitalized interest, end of period ................... $ 74,557 $ 46,463
============ ============
-8-
9
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
DECEMBER 31, 2000
NOTE F - SUMMARIZED FINANCIAL INFORMATION
The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes and the 9 3/4% Senior Subordinated
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
DECEMBER 31, 2000
NON-GUARANTOR
SUBSIDIARIES
---------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES
--------------- --------------- ---------------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents ................................ $ -- $ 61,804 $ --
Advances to/investments in unconsolidated subsidiaries ... 2,025,217 10,789 --
Inventories .............................................. 475,233 1,886,663 --
Property and equipment (net) ............................. 3,060 29,650 --
Earnest money deposits and other assets .................. 44,619 89,080 --
Excess of cost over net assets acquired (net) ............ -- 115,311 --
--------------- --------------- ---------------
2,548,129 2,193,297 --
--------------- --------------- ---------------
FINANCIAL SERVICES:
Cash and cash equivalents ................................ -- -- 16,300
Mortgage loans held for sale ............................. -- -- 96,259
Other assets ............................................. -- -- 9,212
--------------- --------------- ---------------
-- -- 121,771
--------------- --------------- ---------------
TOTAL ASSETS $ 2,548,129 $ 2,193,297 $ 121,771
=============== =============== ===============
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ................... $ 138,419 $ 255,220 $ --
Advances from parent/unconsolidated subsidiaries ......... -- 1,413,422 --
Notes payable ............................................ 1,389,538 17,182 --
--------------- --------------- ---------------
1,527,957 1,685,824 --
--------------- --------------- ---------------
FINANCIAL SERVICES:
Accounts payable and other liabilities ................... -- -- 5,430
Advances from parent/unconsolidated subsidiaries ......... -- -- 7,015
Notes payable ............................................ -- -- 78,247
--------------- --------------- ---------------
-- -- 90,692
--------------- --------------- ---------------
TOTAL LIABILITIES 1,527,957 1,685,824 90,692
--------------- --------------- ---------------
Minority interest ........................................ -- -- 8
--------------- --------------- ---------------
Common stock ............................................. 703 1 6
Additional capital ....................................... 540,593 84,795 2,299
Retained earnings ........................................ 515,823 422,677 28,766
Treasury stock ........................................... (36,947) -- --
--------------- --------------- ---------------
1,020,172 507,473 31,071
--------------- --------------- ---------------
TOTAL LIABILITIES & EQUITY $ 2,548,129 $ 2,193,297 $ 121,771
=============== =============== ===============
NON-GUARANTOR
SUBSIDIARIES
---------------
INTERCOMPANY
OTHER ELIMINATIONS TOTAL
--------------- --------------- ---------------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents ................................ $ 1,024 $ -- $ 62,828
Advances to/investments in unconsolidated subsidiaries ... (356) (2,035,650) --
Inventories .............................................. 29,776 (279) 2,391,393
Property and equipment (net) ............................. 5,392 -- 38,102
Earnest money deposits and other assets .................. 29,782 (8,163) 155,318
Excess of cost over net assets acquired (net) ............ -- -- 115,311
--------------- --------------- ---------------
65,618 (2,044,092) 2,762,952
--------------- --------------- ---------------
FINANCIAL SERVICES:
Cash and cash equivalents ................................ -- -- 16,300
Mortgage loans held for sale ............................. -- -- 96,259
Other assets ............................................. -- -- 9,212
--------------- --------------- ---------------
-- -- 121,771
--------------- --------------- ---------------
TOTAL ASSETS $ 65,618 $ (2,044,092) $ 2,884,723
=============== =============== ===============
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ................... $ 1,674 $ (27,772) $ 367,541
Advances from parent/unconsolidated subsidiaries ......... 37,616 (1,451,038) --
Notes payable ............................................ 8,016 (8,016) 1,406,720
--------------- --------------- ---------------
47,306 (1,486,826) 1,774,261
--------------- --------------- ---------------
FINANCIAL SERVICES:
Accounts payable and other liabilities ................... -- (1,597) 3,833
Advances from parent/unconsolidated subsidiaries ......... -- (7,015) --
Notes payable ............................................ -- -- 78,247
--------------- --------------- ---------------
-- (8,612) 82,080
--------------- --------------- ---------------
TOTAL LIABILITIES 47,306 (1,495,438) 1,856,341
--------------- --------------- ---------------
Minority interest ........................................ 8,202 -- 8,210
--------------- --------------- ---------------
Common stock ............................................. 6,155 (6,162) 703
Additional capital ....................................... 10,130 (97,224) 540,593
Retained earnings ........................................ (6,175) (445,268) 515,823
Treasury stock ........................................... -- -- (36,947)
--------------- --------------- ---------------
10,110 (548,654) 1,020,172
--------------- --------------- ---------------
TOTAL LIABILITIES & EQUITY $ 65,618 $ (2,044,092) $ 2,884,723
=============== =============== ===============
-9-
10
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
NON-GUARANTOR
SUBSIDIARIES
---------------------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES OTHER
----------- ------------ ----------- -----------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents ................................ $ 20,397 $ 40,349 $ -- $ 1,052
Advances to/investments in unconsolidated subsidiaries ... 1,862,988 14,653 -- --
Inventories .............................................. 395,848 1,768,934 -- 26,538
Property and equipment (net) ............................. 3,031 30,645 -- 5,284
Earnest money deposits and other assets .................. 44,463 86,134 -- 28,773
Excess of cost over net assets acquired (net) ............ -- 115,966 -- --
----------- ----------- ----------- -----------
2,326,727 2,056,681 -- 61,647
----------- ----------- ----------- -----------
FINANCIAL SERVICES:
Cash and cash equivalents ................................ -- -- 10,727 --
Mortgage loans held for sale ............................. -- -- 119,581 --
Other assets ............................................. -- -- 7,531 --
----------- ----------- ----------- -----------
-- -- 137,839 --
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,326,727 $ 2,056,681 $ 137,839 $ 61,647
=========== =========== =========== ===========
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ................... $ 124,823 $ 358,895 $ -- $ 2,355
Advances from parent/unconsolidated subsidiaries ......... 11,617 1,263,038 -- 32,775
Notes payable ............................................ 1,220,724 24,861 -- 10,222
----------- ----------- ----------- -----------
1,357,164 1,646,794 -- 45,352
----------- ----------- ----------- -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities ................... -- -- 9,388 --
Advances from parent/unconsolidated subsidiaries ......... -- -- 5,653 --
Notes payable ............................................ -- -- 98,817 --
----------- ----------- ----------- -----------
-- -- 113,858 --
----------- ----------- ----------- -----------
TOTAL LIABILITIES 1,357,164 1,646,794 113,858 45,352
----------- ----------- ----------- -----------
Minority interest ........................................ -- -- 10 5,254
----------- ----------- ----------- -----------
Common stock ............................................. 701 1 6 6,155
Additional capital ....................................... 537,145 84,794 2,299 10,129
Retained earnings ........................................ 468,664 325,092 21,666 (5,243)
Treasury stock ........................................... (36,947) -- -- --
----------- ----------- ----------- -----------
969,563 409,887 23,971 11,041
----------- ----------- ----------- -----------
TOTAL LIABILITIES & EQUITY $ 2,326,727 $ 2,056,681 $ 137,839 $ 61,647
=========== =========== =========== ===========
INTERCOMPANY
ELIMINATIONS TOTAL
------------ -----------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents ................................ $ -- $ 61,798
Advances to/investments in unconsolidated subsidiaries ... (1,877,641) --
Inventories .............................................. (289) 2,191,031
Property and equipment (net) ............................. -- 38,960
Earnest money deposits and other assets .................. (10,387) 148,983
Excess of cost over net assets acquired (net) ............ -- 115,966
----------- -----------
(1,888,317) 2,556,738
----------- -----------
FINANCIAL SERVICES:
Cash and cash equivalents ................................ -- 10,727
Mortgage loans held for sale ............................. -- 119,581
Other assets ............................................. -- 7,531
----------- -----------
-- 137,839
----------- -----------
TOTAL ASSETS $(1,888,317) $ 2,694,577
=========== ===========
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ................... $ (115,684) $ 370,389
Advances from parent/unconsolidated subsidiaries ......... (1,307,430) --
Notes payable ............................................ (10,221) 1,245,586
----------- -----------
(1,433,335) 1,615,975
----------- -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities ................... (4,430) 4,958
Advances from parent/unconsolidated subsidiaries ......... (5,653) --
Notes payable ............................................ -- 98,817
----------- -----------
(10,083) 103,775
----------- -----------
TOTAL LIABILITIES (1,443,418) 1,719,750
----------- -----------
Minority interest ........................................ -- 5,264
----------- -----------
Common stock ............................................. (6,162) 701
Additional capital ....................................... (97,222) 537,145
Retained earnings ........................................ (341,515) 468,664
Treasury stock ........................................... -- (36,947)
----------- -----------
(444,899) 969,563
----------- -----------
TOTAL LIABILITIES & EQUITY $(1,888,317) $ 2,694,577
=========== ===========
-10-
11
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED DECEMBER 31, 2000
NON-GUARANTOR
SUBSIDIARIES
---------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES
--------------- --------------- ---------------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ............................................. $ 119,199 $ 722,139 $ --
Land/lot sales ......................................... 6,238 11,239 --
--------------- --------------- ---------------
125,437 733,378 --
Cost of Sales:
Home sales ............................................. 96,561 581,303 --
Land/lot sales ......................................... 4,788 8,644 --
--------------- --------------- ---------------
101,349 589,947 --
Gross profit:
Home sales ............................................. 22,638 140,836 --
Land/lot sales ......................................... 1,450 2,595 --
--------------- --------------- ---------------
24,088 143,431 --
Selling, general and administrative expense .............. 20,216 69,422 --
Interest expense ......................................... 2,856 48 --
Other expense (income) ................................... (75,345) (799) --
--------------- --------------- ---------------
76,361 74,760 --
--------------- --------------- ---------------
FINANCIAL SERVICES:
Revenues ................................................. -- -- 14,109
Selling, general and administrative expense .............. -- -- 10,137
Interest expense ......................................... -- -- 1,132
Other (income) ........................................... -- -- (1,416)
--------------- --------------- ---------------
-- -- 4,256
--------------- --------------- ---------------
Income before income taxes ............................... 76,361 74,760 4,256
Provision for income taxes ............................... 28,636 28,035 1,596
--------------- --------------- ---------------
Income before cumulative effect of change in
accounting principle ................................. 47,725 46,725 2,660
Cumulative effect of change in accounting principle,
net of income taxes .................................. 2,136 -- --
--------------- --------------- ---------------
Net income ............................................... $ 49,861 $ 46,725 $ 2,660
=============== =============== ===============
NON-GUARANTOR
SUBSIDIARIES
---------------
INTERCOMPANY
OTHER ELIMINATIONS TOTAL
--------------- --------------- ---------------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ............................................. $ 14,739 $ -- $ 856,077
Land/lot sales ......................................... -- -- 17,477
--------------- --------------- ---------------
14,739 -- 873,554
Cost of Sales:
Home sales ............................................. 12,181 (146) 689,899
Land/lot sales ......................................... -- -- 13,432
--------------- --------------- ---------------
12,181 (146) 703,331
Gross profit:
Home sales ............................................. 2,558 146 166,178
Land/lot sales ......................................... -- -- 4,045
--------------- --------------- ---------------
2,558 146 170,223
Selling, general and administrative expense .............. 2,260 -- 91,898
Interest expense ......................................... 108 (106) 2,906
Other expense (income) ................................... 1,082 78,376 3,314
--------------- --------------- ---------------
(892) (78,124) 72,105
--------------- --------------- ---------------
FINANCIAL SERVICES:
Revenues ................................................. -- -- 14,109
Selling, general and administrative expense .............. -- -- 10,137
Interest expense ......................................... -- -- 1,132
Other (income) ........................................... -- -- (1,416)
--------------- --------------- ---------------
-- -- 4,256
--------------- --------------- ---------------
Income before income taxes ............................... (892) (78,124) 76,361
Provision for income taxes ............................... (334) (29,297) 28,636
--------------- --------------- ---------------
Income before cumulative effect of change in
accounting principle ................................. (558) (48,827) 47,725
Cumulative effect of change in accounting principle,
net of income taxes .................................. -- -- 2,136
--------------- --------------- ---------------
Net income ............................................... $ (558) $ (48,827) $ 49,861
=============== =============== ===============
-11-
12
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED DECEMBER 31, 1999
NON-GUARANTOR
SUBSIDIARIES
--------------------------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES OTHER
------------- ------------- ------------- -------------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ................................... $ 113,089 $ 661,582 $ -- $ 7,701
Land/lot sales ............................... 950 14,242 -- --
------------- ------------- ------------- -------------
114,039 675,824 -- 7,701
Cost of Sales:
Home sales ................................... 93,732 536,538 -- 5,653
Land/lot sales ............................... 989 9,816 -- --
------------- ------------- ------------- -------------
94,721 546,354 -- 5,653
Gross profit:
Home sales ................................... 19,357 125,044 -- 2,048
Land/lot sales ............................... (39) 4,426 -- --
------------- ------------- ------------- -------------
19,318 129,470 -- 2,048
Selling, general and administrative expense .... 16,552 64,818 -- 1,327
Interest expense ............................... 3,257 40 -- 172
Other expense (income) ......................... (69,092) (526) -- 167
------------- ------------- ------------- -------------
68,601 65,138 -- 382
------------- ------------- ------------- -------------
FINANCIAL SERVICES:
Revenues ....................................... -- -- 11,376 --
Selling, general and administrative expense .... -- -- 7,975 --
Interest expense ............................... -- -- 1,549 --
Other (income) ................................. -- -- (1,733) --
------------- ------------- ------------- -------------
-- -- 3,585 --
------------- ------------- ------------- -------------
Income before income taxes ..................... 68,601 65,138 3,585 382
Provision for income taxes ..................... 26,069 24,753 1,362 145
------------- ------------- ------------- -------------
Net income ..................................... $ 42,532 $ 40,385 $ 2,223 $ 237
============= ============= ============= =============
INTERCOMPANY
ELIMINATIONS TOTAL
------------- -------------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ................................... $ -- $ 782,372
Land/lot sales ............................... -- 15,192
------------- -------------
-- 797,564
Cost of Sales:
Home sales ................................... (91) 635,832
Land/lot sales ............................... -- 10,805
------------- -------------
(91) 646,637
Gross profit:
Home sales ................................... 91 146,540
Land/lot sales ............................... -- 4,387
------------- -------------
91 150,927
Selling, general and administrative expense .... -- 82,697
Interest expense ............................... (174) 3,295
Other expense (income) ......................... 69,370 (81)
------------- -------------
(69,105) 65,016
------------- -------------
FINANCIAL SERVICES:
Revenues ....................................... -- 11,376
Selling, general and administrative expense .... -- 7,975
Interest expense ............................... -- 1,549
Other (income) ................................. -- (1,733)
------------- -------------
-- 3,585
------------- -------------
Income before income taxes ..................... (69,105) 68,601
Provision for income taxes ..................... (26,260) 26,069
------------- -------------
Net income ..................................... $ (42,845) $ 42,532
============= =============
-12-
13
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2000
NON-GUARANTOR
SUBSIDIARIES
------------------------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES OTHER
------------- ------------- ------------- -------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ........................................... $ 49,861 $ 47,265 $ 2,120 $ (558)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 416 5,185 283 108
Amortization of debt premiums and fees ............. 598 -- -- --
Changes in operating assets and liabilities:
Increase in inventories ........................... (45,217) (106,323) -- (3,238)
(Increase) decrease in earnest money
deposits and other assets ....................... (510) (2,946) (1,616) 1,013
Decrease in mortgage loans held for sale .......... -- -- 23,322 --
Increase (decrease) in accounts payable and
other liabilities ............................... 13,596 (103,351) (4,284) 2,267
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities ..... 18,744 (160,170) 19,825 (408)
------------- ------------- ------------- -------------
INVESTING ACTIVITIES
Net purchases of property and equipment .............. (444) (2,171) (348) (216)
Net investments in venture capital entities .......... -- -- -- (2,022)
Net cash paid for acquisitions ....................... -- (1,364) -- --
------------- ------------- ------------- -------------
Net cash used in investing activities ................... (444) (3,535) (348) (2,238)
------------- ------------- ------------- -------------
FINANCING ACTIVITIES
Net change in notes payable .......................... 134,402 (19,083) (20,570) (2,206)
Increase (decrease) in intercompany payables ......... (173,847) 268,743 6,666 4,824
Proceeds from stock associated with certain
employee benefit plans .............................. 66 -- -- --
Proceeds from exercise of stock options .............. 3,384 -- -- --
Cash dividends/distributions paid .................... (2,702) (64,500) -- --
------------- ------------- ------------- -------------
Net cash (used in) provided by financing activities ..... (38,697) 185,160 (13,904) 2,618
------------- ------------- ------------- -------------
Increase (decrease) in cash ............................. (20,397) 21,455 5,573 (28)
Cash at beginning of year ............................... 20,397 40,349 10,727 1,052
------------- ------------- ------------- -------------
Cash at end of year ..................................... $ -- $ 61,804 $ 16,300 $ 1,024
============= ============= ============= =============
INTERCOMPANY
ELIMINATIONS TOTAL
------------- -------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ........................................... $ (48,827) $ 49,861
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... -- 5,992
Amortization of debt premiums and fees ............. -- 598
Changes in operating assets and liabilities:
Increase in inventories ........................... (13) (154,791)
(Increase) decrease in earnest money
deposits and other assets ....................... (2,224) (6,283)
Decrease in mortgage loans held for sale .......... -- 23,322
Increase (decrease) in accounts payable and
other liabilities ............................... 90,744 (1,028)
------------- -------------
Net cash provided by (used in) operating activities ..... 39,680 (82,329)
------------- -------------
INVESTING ACTIVITIES
Net purchases of property and equipment .............. -- (3,179)
Net investments in venture capital entities .......... -- (2,022)
Net cash paid for acquisitions ....................... -- (1,364)
------------- -------------
Net cash used in investing activities ................... -- (6,565)
------------- -------------
FINANCING ACTIVITIES
Net change in notes payable .......................... 2,206 94,749
Increase (decrease) in intercompany payables ......... (106,386) --
Proceeds from stock associated with certain
employee benefit plans .............................. -- 66
Proceeds from exercise of stock options .............. -- 3,384
Cash dividends/distributions paid .................... 64,500 (2,702)
------------- -------------
Net cash (used in) provided by financing activities ..... (39,680) 95,497
------------- -------------
Increase (decrease) in cash ............................. -- 6,603
Cash at beginning of year ............................... -- 72,525
------------- -------------
Cash at end of year ..................................... $ -- $ 79,128
============= =============
-13-
14
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999
NON-GUARANTOR
SUBSIDIARIES
------------------------------
D.R. GUARANTOR FINANCIAL
HORTON, INC. SUBSIDIARIES SERVICES OTHER
------------- ------------- ------------- -------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ........................................... $ 42,532 $ 40,385 $ 2,223 $ 237
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 370 4,118 276 181
Amortization of debt premiums and fees ............. 659 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in inventories ............... (45,651) (81,191) -- 886
(Increase) decrease in earnest money
deposits and other assets ..................... (169) (20,440) (445) (2,172)
Decrease in mortgage loans held for sale ......... -- -- 17,997 --
Increase (decrease) in accounts payable and
other liabilities .............................. 3,938 (96,674) (4,709) 949
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities ..... 1,679 (153,802) 15,342 81
------------- ------------- ------------- -------------
INVESTING ACTIVITIES
Net purchases of property and equipment .............. (391) (3,801) (371) 189
Net investments in venture capital entities .......... -- -- -- (7,500)
------------- ------------- ------------- -------------
Net cash used in investing activities ................... (391) (3,801) (371) (7,311)
------------- ------------- ------------- -------------
FINANCING ACTIVITIES
Net change in notes payable .......................... 69,999 (6,649) (17,746) (1,183)
Increase (decrease) in intercompany payables ......... (95,642) 167,128 9,405 6,754
Repurchase of treasury stock ......................... (5,356) -- -- --
Proceeds from stock associated with certain
employee benefit plans .............................. 189 -- -- --
Proceeds from exercise of stock options .............. 635 -- -- --
Cash dividends/distributions paid .................... (1,870) (56,344) -- --
------------- ------------- ------------- -------------
Net cash (used in) provided by financing activities ..... (32,045) 104,135 (8,341) 5,571
------------- ------------- ------------- -------------
Increase (decrease) in cash ............................. (30,757) (53,468) 6,630 (1,659)
Cash at beginning of year ............................... 66,777 53,468 6,360 1,963
------------- ------------- ------------- -------------
Cash at end of year ..................................... $ 36,020 $ -- $ 12,990 $ 304
============= ============= ============= =============
INTERCOMPANY
ELIMINATIONS TOTAL
------------- -------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ........................................... $ (42,845) $ 42,532
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... -- 4,945
Amortization of debt premiums and fees ............. -- 659
Changes in operating assets and liabilities:
(Increase) decrease in inventories ............... 1,917 (124,039)
(Increase) decrease in earnest money
deposits and other assets ..................... (1,163) (24,389)
Decrease in mortgage loans held for sale ......... -- 17,997
Increase (decrease) in accounts payable and
other liabilities .............................. 72,208 (24,288)
------------- -------------
Net cash provided by (used in) operating activities ..... 30,117 (106,583)
------------- -------------
INVESTING ACTIVITIES
Net purchases of property and equipment .............. -- (4,374)
Net investments in venture capital entities .......... -- (7,500)
------------- -------------
Net cash used in investing activities ................... -- (11,874)
------------- -------------
FINANCING ACTIVITIES
Net change in notes payable .......................... 1,184 45,605
Increase (decrease) in intercompany payables ......... (87,645) --
Repurchase of treasury stock ......................... -- (5,356)
Proceeds from stock associated with certain
employee benefit plans .............................. -- 189
Proceeds from exercise of stock options .............. -- 635
Cash dividends/distributions paid .................... 56,344 (1,870)
------------- -------------
Net cash (used in) provided by financing activities ..... (30,117) 39,203
------------- -------------
Increase (decrease) in cash ............................. -- (79,254)
Cash at beginning of year ............................... -- 128,568
------------- -------------
Cash at end of year ..................................... $ -- $ 49,314
============= =============
-14-
15
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 23 states and 39 markets through its 46 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 DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
Consolidated revenues for the three months ended December 31, 2000, increased
9.7%, to $887.7 million, from $808.9 million for the comparable period of 1999,
primarily due to increases in home sales revenues.
Income before income taxes for the three months ended December 31, 2000,
increased 11.3%, to $76.4 million, from $68.6 million for the comparable period
of 1999. As a percentage of revenues, income before income taxes for the three
months ended December 31, 2000, increased 0.1%, to 8.6%, from 8.5% for the
comparable period of 1999, primarily due to an increase in the gross profit
percentage achieved by the homebuilding segment.
The consolidated provision for income taxes increased 9.8%, to $28.6 million for
the three months ended December 31, 2000, from $26.1 million for the same period
of 1999, due to the corresponding increase in income before income taxes. The
effective income tax rate decreased 0.5%, to 37.5%, from 38.0% for the
comparable period of 1999, 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 $2.1 million, net of income taxes, for the three months ended December
31, 2000. This accounting change is the result of the Company's October 1, 2000
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires the Company to recognize its interest rate swap
agreements in the consolidated balance sheet at fair value.
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
PERCENTAGES OF
HOMEBUILDING REVENUES
------------------------
THREE MONTHS ENDED
DECEMBER 31,
------------------------
2000 1999
--------- ---------
Cost and expenses:
Cost of sales ....................................... 80.5% 81.1%
Selling, general and administrative expense ......... 10.5 10.4
Interest expense .................................... 0.3 0.4
--------- ---------
Total costs and expenses .............................. 91.3 91.9
Other expense (income) ................................ 0.4 (0.1)
--------- ---------
Income before income taxes ............................ 8.3% 8.2%
========= =========
HOMES CLOSED
THREE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999
----------------------- -----------------------
HOMES HOMES
CLOSED REVENUES CLOSED REVENUES
--------- --------- --------- ---------
($'S IN MILLIONS)
Mid-Atlantic ............ 595 $ 133.9 647 $ 124.0
Midwest ................. 488 118.7 511 105.1
Southeast ............... 565 100.2 592 98.0
Southwest ............... 1,792 288.5 1,890 275.1
West .................... 850 214.8 852 180.2
--------- --------- --------- ---------
4,290 $ 856.1 4,492 $ 782.4
========= ========= ========= =========
-15-
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NEW NET SALES CONTRACTS
THREE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999
----------------------- -----------------------
HOMES HOMES
SOLD $ SOLD $
--------- --------- --------- ---------
($'S IN MILLIONS)
Mid-Atlantic ............ 550 $ 128.4 569 $ 122.0
Midwest ................. 326 80.1 365 98.0
Southeast ............... 548 98.0 618 100.8
Southwest ............... 1,679 277.8 1,634 253.2
West .................... 1,126 316.0 665 148.3
--------- --------- --------- ---------
4,229 $ 900.3 3,851 $ 722.3
========= ========= ========= =========
SALES CONTRACT BACKLOG
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------- -----------------------
HOMES $ HOMES $
--------- --------- --------- ---------
($'S IN MILLIONS)
Mid-Atlantic ............ 778 $ 202.0 1,013 $ 240.9
Midwest ................. 738 186.8 988 240.1
Southeast ............... 970 175.6 862 143.4
Southwest ............... 3,076 540.8 2,825 451.0
West .................... 1,765 475.9 980 221.1
--------- --------- --------- ---------
7,327 $ 1,581.1 6,668 $ 1,296.5
========= ========= ========= =========
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, Nashville, 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
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
Revenues from homebuilding activities increased 9.5%, to $873.6 million (4,290
homes closed) for the three months ended December 31, 2000, from $797.6 million
(4,492 homes closed) for the comparable period of 1999. Revenues from home sales
increased in all of the Company's five market regions, with percentage increases
ranging from 2.2% in the Southeast region to 19.2% in the West 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 three months ended December
31, 2000 was $199,600, up 14.6% from $174,200 for the same period in 1999. 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 new net sales contracts increased 24.6%, to $900.3 million (4,229
homes) for the three months ended December 31, 2000, from $722.3 million (3,851
homes) for the same period of 1999. The value of new net sales contracts
increased in three of the Company's five market regions, with percentage
increases ranging from 5.2% in the Mid-Atlantic region to 113.1% in the West
Region. The value of new net sales contracts declined 2.8% and 18.3% in the
Southeast and Midwest regions, respectively. The average price of a new net
sales contract in the three months ended December 31, 2000 was $212,900, up
13.5% over the $187,600 average in the three months ended December 31, 1999. 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
-16-
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
sell more custom features with its homes and to raise prices in some of its
markets.
At December 31, 2000, the Company's backlog of sales contracts was $1,581.1
million (7,327 homes), up 22.0% from $1,296.5 million (6,668 homes) at December
31, 1999. The average sales price of homes in sales backlog was $215,800 at
December 31, 2000, up 11.0% from the $194,400 average at December 31, 1999. 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 8.8%, to $703.3 million for the three months ended
December 31, 2000, from $646.6 million for the comparable quarter of 1999. 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
0.7%, to 80.6% for the three months ended December 31, 2000, from 81.3% for the
comparable period of 1999, due to the increase in average selling price of homes
closed, higher margins obtained from selling more custom features, and reduced
material costs. Cost of land/lot sales increased to 76.9% of land/lot sales
revenues for the three months ended December 31, 2000, from 71.1% for the
comparable period of 1999. Total homebuilding cost of sales was 80.5% of total
homebuilding revenues, down 0.6% from 81.1% for the comparable period of 1999,
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 11.1%, to $91.9 million in the three months ended December 31,
2000, from $82.7 million in the comparable period of 1999. As a percentage of
homebuilding revenues, SG&A expenses increased to 10.5% for the three months
ended December 31, 2000, from 10.4% for the comparable period of 1999.
Interest expense associated with homebuilding activities decreased to $2.9
million in the three months ended December 31, 2000, from $3.3 million in the
comparable period of 1999. As a percentage of homebuilding revenues,
homebuilding interest expense decreased to 0.3% for the three months ended
December 31, 2000, from 0.4% in the comparable period of 1999. 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 $3.3 million in the
three months ended December 31, 2000, as compared to $0.1 million of other
income in the comparable period of 1999. The expense in 2000 is primarily due to
the change in fair value of the Company's interest rate swap agreements during
the quarter, resulting from the Company's adoption of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities ," on October 1, 2000.
-17-
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial and other information for the Company's
financial services operations:
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
($ IN THOUSANDS)
Number of loans originated ............................ 2,337 2,098
------------ ------------
Loan origination fees ................................. $ 2,646 $ 2,199
Sale of servicing rights and gains from sale of
mortgages ............................................. 6,826 4,753
Other revenues ........................................ 1,272 1,208
------------ ------------
Total mortgage banking revenues ....................... 10,744 8,160
Title policy premiums, net ............................ 3,365 3,216
------------ ------------
Total revenues ........................................ 14,109 11,376
General and administrative expense .................... 10,137 7,975
Interest expense ...................................... 1,132 1,549
Interest/other (income) ............................... (1,416) (1,733)
------------ ------------
Income before income taxes ............................ $ 4,256 $ 3,585
============ ============
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
Revenues from the financial services segment increased 24.0%, to $14.1 million
in the three months ended December 31, 2000, from $11.4 million in the
comparable period of 1999. 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. SG&A expenses
associated with financial services increased 27.1%, to $10.1 million in the
three months ended December 31, 2000, from $8.0 million in the comparable period
of 1999. As a percentage of financial services revenues, SG&A expenses increased
by 1.7%, to 71.8% in the three months ended December 31, 2000, from 70.1% in the
comparable period in 1999, due primarily to 2000 startup expenses in new markets
with limited revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had available cash and cash equivalents of
$79.1 million. Inventories (including finished homes, construction in progress,
and developed residential lots and other land) at December 31, 2000, had
increased by $200.4 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 borrowing an additional
$135 million under the revolving credit facility and by retaining earnings. As a
result, the Company's ratio of homebuilding notes payable to total capital at
December 31, 2000, increased 1.8% to 58.0%, from 56.2% at September 30, 2000.
The stockholders' equity to total assets ratio decreased 0.6%, to 35.4% at
December 31, 2000, 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 $25
million standby letter of credit agreement and a $5.7 million non-renewable
letter of credit facility. At December 31, 2000, the Company had outstanding
homebuilding debt of $1,406.7 million, of which $327.0 million represented
advances under the revolving credit facility. Under the debt covenants
associated with the revolving credit facility, at December 31, 2000, the Company
had additional homebuilding borrowing capacity of $448.0 million. The Company
has entered into multi-year interest rate swap agreements, aggregating $200
million, that 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. This agreement has
the effect of converting part of the Company's fixed rate debt to a variable
rate, which is currently less than the related fixed rate, and helps
re-establish the Company's balance of fixed and variable rate debt at historical
levels.
-18-
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has $250 million remaining on a currently effective universal shelf
registration statement, which facilitates access to the capital markets.
At December 31, 2000, the financial services segment has mortgage loans held for
sale of $96.3 million and loan commitments for $61.3 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 is secured by mortgage loans held for sale. The warehouse facility
is not guaranteed by the parent company. As of December 31, 2000, $78.2 million
had been drawn under this facility. All mortgage company activities are financed
under the warehouse facility.
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
credit facilities. Additionally, an effective shelf registration contains about
7.4 million shares of common stock issuable to effect, in whole or in part,
possible future acquisitions. In the future, the Company intends to maintain
effective shelf registration statements that would facilitate access to the
capital markets.
During the three months ended December 31, 2000, the Company's Board of
Directors declared a quarterly cash dividend of $0.04 per common share, which
was paid on October 30, 2000 to stockholders of record on October 20, 2000.
In November 1998, the Company's Board of Directors approved stock and debt
repurchase programs for up to $100 million each. These programs are intended to
allow the Company to repurchase securities at attractive prices should favorable
market conditions occur. At December 31, 2000, the Company had repurchased $36.9
million of its common stock, or 2,589,200 shares. No shares were repurchased
during the three months ended December 31, 2000.
In July 1999, the Company formed GP-Encore, Inc. and Encore II, Inc., which have
since entered into three separate limited partnership agreements with the
purpose of investing in start-up and emerging growth companies whose technology
and business plans will permit the Company to leverage its size, expertise and
customer base in the homebuilding industry. The Company is authorized to invest
up to $125 million through these limited partnerships over the next three years.
These investments will be concentrated primarily in e-commerce businesses that
serve the homebuilding, real estate and financial services industries, as well
as in strategic opportunities that allow for diversification of the Company's
operations. As of December 31, 2000, the Company had made such investments
totaling $31.3 million, which are reported in homebuilding other assets.
Except for ordinary expenditures for the construction of homes, the acquisition
of land and lots for development and sale of homes, at December 31, 2000, 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 and business conditions
- Changes in interest rates and the availability of mortgage financing
- Governmental regulations and environmental matters
- The Company's substantial leverage
- Changes in costs and availability of material, supplies and labor
- Competitive conditions within the homebuilding industry
- The availability of capital
- The Company's ability to effect its growth strategies successfully
- The success of the Company's diversification efforts
Additional information about issues that could lead to material changes in
performance is contained in the Company's
-19-
20
annual report on Form 10-K, which is filed with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company
manages its exposure to changes in interest rates by optimizing the use of
variable and fixed rate debt. In addition, the Company has hedged 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
those borrowings. Finally, in order to maintain a more appropriate balance of
variable and fixed rate debt, the Company entered into an interest rate swap
agreement exchanging a variable rate interest payment for a fixed rate payment
on a notional amount equal to the $148.5 million principal amount of the 10%
Senior Notes due 2006. The variable payment for which the Company is obligated
is fixed through the 10% Senior Notes' first call date, April 15, 2001, and will
ensure that the Company will have received a net amount of $2.3 million as of
that date. Thereafter, the variable payment will be made through the 10% Senior
Notes' maturity, April 15, 2006, and will be based upon the 90-day LIBOR rate,
plus 2.745%.
The following table shows, as of December 31, 2000, the Company's long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts and weighted average interest rates of the Company's interest
rate swaps.
Nine Months
Ended
Sept. 30, Year ended September 30,
--------- --------------------------------------------------------------------------------------
($ in millions)
FMV @
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
--------- --------- --------- --------- -------- ---------- --------- ---------
DEBT:
Fixed rate ............... $ 19.5 $ 18.8 $ 11.7 $ 150.0 $ 200.2 $ 679.5 $ 1,079.7 $ 1,038.8
Average interest rate .... 8.50% 6.64% 6.25% 8.72% 10.84% 9.08% 9.27% --
Variable rate ............ $ 78.3 $ 327.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 405.3 $ 405.3
Average interest rate .... 7.56% 6.31% -- -- -- -- 6.55% --
INTEREST RATE SWAPS:
Variable to fixed ........ $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- $ 0.3
Average pay rate ......... 5.10% 5.10% 5.10% 5.10% 5.10% 5.08% -- --
Average receive rate ..... 90-day LIBOR
Fixed to variable ........ $ 148.5 $ 148.5 $ 148.5 $ 148.5 $ 148.5 $ 148.5 -- $ 0.3
Average pay rate ......... * * * * * * -- --
Average receive rate ..... 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% -- --
* - 8.745% until April 15, 2001; 90-day LIBOR + 2.745% thereafter.
-20-
21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) The following reports were filed on Form 8-K by
the Company during the quarter ended December
31, 2000.
None.
-21-
22
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: February 13, 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)
-22-