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. <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION. Page ---- <S> <C> 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 </TABLE>
3 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> DECEMBER 31, SEPTEMBER 30, 2000 2000 --------------- --------------- (IN THOUSANDS) (UNAUDITED) <S> <C> <C> 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 =============== =============== </TABLE> See accompanying notes to consolidated financial statements. -3-
4 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------------- 2000 1999 ---------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------- (UNAUDITED) <S> <C> <C> 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 =============== =============== </TABLE> See accompanying notes to consolidated financial statements. -4-
5 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> TOTAL COMMON ADDITIONAL RETAINED TREASURY STOCKHOLDERS' STOCK CAPITAL EARNINGS STOCK EQUITY -------------- -------------- -------------- -------------- -------------- (IN THOUSANDS, EXCEPT COMMON STOCK SHARE DATA) (UNAUDITED) <S> <C> <C> <C> <C> <C> 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 ============== ============== ============== ============== ============== </TABLE> See accompanying notes to consolidated financial statements. -5-
6 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------ 2000 1999 ------------ ------------ (IN THOUSANDS) (UNAUDITED) <S> <C> <C> 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 ============ ============ </TABLE> 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): <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ----------------------- 2000 1999 --------- --------- <S> <C> <C> 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 ========= ========= </TABLE> 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): <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------ 2000 1999 ------------ ------------ <S> <C> <C> 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 ============ ============ </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES --------------- D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES --------------- --------------- --------------- (IN THOUSANDS) <S> <C> <C> <C> 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 =============== =============== =============== <CAPTION> NON-GUARANTOR SUBSIDIARIES --------------- INTERCOMPANY OTHER ELIMINATIONS TOTAL --------------- --------------- --------------- (IN THOUSANDS) <S> <C> <C> <C> 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 =============== =============== =============== </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES --------------------------- D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES OTHER ----------- ------------ ----------- ----------- (IN THOUSANDS) <S> <C> <C> <C> <C> 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 =========== =========== =========== =========== <CAPTION> INTERCOMPANY ELIMINATIONS TOTAL ------------ ----------- (IN THOUSANDS) <S> <C> <C> 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 =========== =========== </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES --------------- D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES --------------- --------------- --------------- (IN THOUSANDS) <S> <C> <C> <C> 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 =============== =============== =============== <CAPTION> NON-GUARANTOR SUBSIDIARIES --------------- INTERCOMPANY OTHER ELIMINATIONS TOTAL --------------- --------------- --------------- (IN THOUSANDS) <S> <C> <C> <C> 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 =============== =============== =============== </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES -------------------------------- D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES OTHER ------------- ------------- ------------- ------------- (IN THOUSANDS) <S> <C> <C> <C> <C> 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 ============= ============= ============= ============= <CAPTION> INTERCOMPANY ELIMINATIONS TOTAL ------------- ------------- (IN THOUSANDS) <S> <C> <C> 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 ============= ============= </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------------------ D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES OTHER ------------- ------------- ------------- ------------- (IN THOUSANDS) <S> <C> <C> <C> <C> 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 ============= ============= ============= ============= <CAPTION> INTERCOMPANY ELIMINATIONS TOTAL ------------- ------------- (IN THOUSANDS) <S> <C> <C> 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 ============= ============= </TABLE> -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 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------------------ D.R. GUARANTOR FINANCIAL HORTON, INC. SUBSIDIARIES SERVICES OTHER ------------- ------------- ------------- ------------- (IN THOUSANDS) <S> <C> <C> <C> <C> 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 ============= ============= ============= ============= <CAPTION> INTERCOMPANY ELIMINATIONS TOTAL ------------- ------------- (IN THOUSANDS) <S> <C> <C> 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 ============= ============= </TABLE> -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 $2.1 million, net of income taxes, for the three months ended December 31, 2000. This accounting change is the result of the Company's October 1, 2000 adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires the Company to recognize its interest rate swap agreements in the consolidated balance sheet at fair value. RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for the Company's homebuilding activities: <TABLE> <CAPTION> PERCENTAGES OF HOMEBUILDING REVENUES ------------------------ THREE MONTHS ENDED DECEMBER 31, ------------------------ 2000 1999 --------- --------- <S> <C> <C> Cost and expenses: Cost of sales ....................................... 80.5% 81.1% Selling, general and administrative expense ......... 10.5 10.4 Interest expense .................................... 0.3 0.4 --------- --------- Total costs and expenses .............................. 91.3 91.9 Other expense (income) ................................ 0.4 (0.1) --------- --------- Income before income taxes ............................ 8.3% 8.2% ========= ========= </TABLE> HOMES CLOSED <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 ----------------------- ----------------------- HOMES HOMES CLOSED REVENUES CLOSED REVENUES --------- --------- --------- --------- ($'S IN MILLIONS) <S> <C> <C> <C> <C> 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 ========= ========= ========= ========= </TABLE> -15-
16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW NET SALES CONTRACTS <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 ----------------------- ----------------------- HOMES HOMES SOLD $ SOLD $ --------- --------- --------- --------- ($'S IN MILLIONS) <S> <C> <C> <C> <C> 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 ========= ========= ========= ========= </TABLE> SALES CONTRACT BACKLOG <TABLE> <CAPTION> DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------------- ----------------------- HOMES $ HOMES $ --------- --------- --------- --------- ($'S IN MILLIONS) <S> <C> <C> <C> <C> 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 ========= ========= ========= ========= </TABLE> 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 $0.1 million of other income in the comparable period of 1999. The expense in 2000 is primarily due to the change in fair value of the Company's interest rate swap agreements during the quarter, resulting from the Company's adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities ," on October 1, 2000. -17-
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FINANCIAL SERVICES The following table summarizes financial and other information for the Company's financial services operations: <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------ 2000 1999 ------------ ------------ ($ IN THOUSANDS) <S> <C> <C> 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 ============ ============ </TABLE> 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 $2.3 million as of that date. Thereafter, the variable payment will be made through the 10% Senior Notes' maturity, April 15, 2006, and will be based upon the 90-day LIBOR rate, plus 2.745%. The following table shows, as of December 31, 2000, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts and weighted average interest rates of the Company's interest rate swaps. <TABLE> <CAPTION> Nine Months Ended Sept. 30, Year ended September 30, --------- -------------------------------------------------------------------------------------- ($ in millions) FMV @ 2001 2002 2003 2004 2005 Thereafter Total 12/31/00 --------- --------- --------- --------- -------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 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% -- -- </TABLE> * - 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-